European Communities (Budget)

Supplementary Estimates, 1986–87 – in the House of Commons at 4:11 pm on 10th July 1986.

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[Relevant documents: Fifth report of the Treasury and Civil Service Select Committee on Budgetary Discipline in the European Community, HC 203 (1985–86); the Government's response to the fifth report in their second special report, HC 508 ( 1985–86).]

Photo of Mr Peter Shore Mr Peter Shore , Bethnal Green and Stepney 4:13 pm, 10th July 1986

On a point of order, Mr. Speaker. I would like to raise a point of order which relates to the business about to be called in relation to the Supplementary Estimate in connection with the European Community budget.

The House is placed in an appalling difficulty. Our proceedings are a mixture of farce and scandal. We are being asked to approve an Estimate of no less than £930 million in relation to a budget that has not yet been formally agreed. We all recall that the last European budget of this year was declared to be unlawful and was struck out by the European Court. The present budget has not yet completed its final stages, although I understand that the budget committee of the Council of Ministers agreed it this morning.

The second element of scandal is that no information is available to the House about the composition of the budget or the categories of expenditure which have been approved. I can think of no occasion when the House has been asked to approve the payment of sums of this magnitude in relation to objectives about which the House has no information.

I suggest through you, Mr. Speaker, to the business managers that the debate which is to follow should properly be postponed and that no proceedings should be concluded tonight in advance of full information. Also, the Ministers concerned should come to the House tomorrow morning and make an oral statement at the first opportunity.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

Further to that point of order, Mr. Speaker. You will recall that there was an application under Standing Order No. 10 earlier this week from the hon. Member for Southend, East (Mr. Taylor) which related to a matter on today's Order Paper. As I understand it, the position is even more serious than my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) has stressed. This afternoon the Assembly Parliament in Strasbourg is being invited to pass a budget which, if agreed, will increase taxation transfer in this country from British taxpayers to the European Economic Community by amounts which at present are unknown, because the Government have not made a statement on that point.

I submit that the amount of taxation should be known before we debate the business before us, and should certainly be known before we debate the business that is due to start at 7 pm. As the Government have not yet made a statement, they should make a statement now, otherwise the business that we are involved in cannot he properly entered into and the powers of this House will be removed without our knowledge.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

None of these matters concerns me, as I am not responsible — as the right hon. Member for Bethnal Green and Stepney (Mr. Shore) said— for the business brought before the House. However, I can announce to the House that I have selected the amendment in the debate that follows in the name of the right hon. Member for Worthing (Mr. Higgins) which would, if passed, reduce the vote by £667 million.

Photo of Mr Neil Kinnock Mr Neil Kinnock Leader of Her Majesty's Official Opposition, Leader of the Labour Party, Member, Labour Party National Executive Committee

Further to that point of order, Mr. Speaker. I am ready to acknowledge, as every hon. Member should, that you, Mr. Speaker, do not have charge of the business brought before the House. Equally, I am sure that you would be the first to acknowledge that you have primary responsibility for the good order of this House and for assisting in ensuring — although this cannot be your responsibility alone — that the Government do not become irresponsible in their relations with the legislature.

Today we have a conjunction of circumstances in which the body that will, in great part, determine the budget has not made its decision, and which, in its preceding discussions, has given every impression that it is unlikely to make a firm decision. However, we are required today to debate a motion and an amendment to a motion that anticipates the outcome of the budget decisions. We are discussing something that does not exist —[Interruption.] It is all very well for the Economic Secretary to the Treasury to make comments from a sedentary position. I would have thought that any responsible Government Minister would have done his best to ensure that the timing of the debate was such as to make it a debate of substance instead of a debate of speculation.

I appeal to you, Mr. Speaker, to use your good offices to make the Government business managers consider whether it is appropriate in terms of the orders of this House for us to debate the matter this afternoon.

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

Further to that point of order, Mr. Speaker. I should make it clear that neither the Estimate nor the debate is designed to approve or disapprove of the 1986 European budget. The motion represents a proposal to validate transfers between the Consolidated Fund and the contingencies fund via a method that has long been recognised as satisfactory by the Treasury and Civil Service Committee. The Committee put forward the matter for debate. It does not depend on the size of the European budget because it relates to the collection of levies and duties.

This debate happens to coincide with the day on which budgetary procedures are taking place in Europe. No doubt my hon. Friend the Minister of State, who is taking part in them, will report to the House after the completion of that process—[Interruption.] But that does not affect the proposals on the Order Paper, which do not involve any increase in public expenditure or in payments from this country to the EC.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

Further to that point of order, Mr. Speaker. In the Supplementary Estimates, it says that the provision of £930 million is sought to pay agricultural levies and customs duties which will have been collected under the common customs tariff to the European Community, approximately one month earlier than the dates on which they would normally be paid at the request of the Commission.

We are talking about amounts that are being paid in as our contribution to the Community budget. The point is that we do not know how much the budget is, or what its constituent parts are. We do not even know whether it has been decided upon by the European Parliament. That is to be decided later this afternoon. We have no details before us, and rumour has it that we shall only be told them in a written answer tomorrow.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

Further to that point of order, Mr. Speaker. I wonder whether my hon. Friend the Economic Secretary was absolutely accurate in what he said to the House a moment ago. We are being asked to approve an enormous sum of money. The motion standing in the name of my right hon. Friend the Financial Secretary refers to payments to the budget of the European Communities for the year ending 31 March 1987.

In my respectful submission, there is at present no such thing as a budget of the European Communities for the year ending 31 March 1987. We have been told that the European Assembly is today debating the budget for the year ending 31 March 1987, and will be able at least in part to decide upon it—

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

That is true. It is possible that the Assembly could debate the matter all night. It is wrong that the House should be asked to approve a payment of £930 million to a budget that does not exist, and which is wrongly described in the motion as being a budget that does exist. In those circumstances, would it not be better if the debate, including the most excellent amendment standing in the name of my right hon. Friend the Member for Worthing (Mr. Higgins), was held after the conclusion of the European Assembly's deliberations?

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

Further to that point of order, Mr. Speaker. I have two points to make, Mr. Speaker. First, my hon. Friend the Economic Secretary said that the Treasury and Civil Service Committee approved of this procedure. But the procedures of the House are not decided by the Treasury and Civil Service Committee. We may have a view about the matter, but it would be plainly wrong for my hon. Friend to suggest that the Select Committee is some alternative to your authority, Mr. Speaker.

Secondly, when my hon. Friend the Member for Eastbourne (Mr. Gow) was on the Front Bench, he gave a binding undertaking on behalf of the Government that there would be no further recourse to the House for extra funds. He gave that undertaking on behalf of the Government. There is plainly a grave imbalance, if not a constitutional crisis, which the Government must face. It is wrong that they should come before the House with this proposition when they do not know the extent of the change in position, and when the House does not know the extent to which they have gone back on the solemn undertaking given by my hon. Friend the Member for Eastbourne.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Further to that point of order, Mr. Speaker. The House is being asked to agree to either the motion or the amendment. It is being asked to give the European Communities either a lot of money in advance, or very little. The motion is based on the premise that there is a cash flow shortage. But at the moment we do not know whether there will be a cash flow shortage after the European Assembly has made its decision. We understand that the budget has left the Common Market without enough money to pay its hills. But it will be impossible for any hon. Member to make a reasonable decision about the motion if he does not know whether that cash flow crisis still exists.

We read in the newspapers that the Common Market budget will give authority for up to 1·4 per cent. to be raised from VAT, which will involve a huge additional sum. But we do not have the slightest idea whether that is the real figure. Hon. Members will find it impossible to decide whether to vote for the motion or the amendment. We know that there was a cash flow crisis last week, but we do not know whether there is a crisis now. We just do not know how much extra money the European Assembly and the Council of Ministers have agreed to take.

Is there any way in which hon. Members can postpone the debate? No hon. Member can know whether there is still a cash flow crisis in the Common Market, although it appears that the Council of Ministers may have solved it by agreeing to an extra £2 billion.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

Do you agree, Mr. Speaker, that during the past few years, and particularly since the Common Market went bankrupt, this constitutional difficulty has raised its ugly head in the Chamber quite a few times? Points of order are being raised because hon. Members feel that they are being placed in great difficulty because the Common Market wants the power when it has not got the money. Hon. Members are always being urged to believe that there should be no taxation without representation, but the Common Market and the Government are cutting across that principle.

There is another problem, in that perhaps the debate is being held today because the Treasury and Civil Service Committee is going on a fact-finding tour next week. I have received assurances that if the debate is postponed, not until next week, when it would be inconvenient for the Committee's members to attend, but until the following week or even later, no inconvenience would be caused to those travelling to all the corners of the world in search of those very important facts. So if there is any question of postponing the debate, I can say that there is no problem, providing that it is held within the 10 days following Sunday.

Photo of Eric Forth Eric Forth , Mid Worcestershire

If anything, the position is even more complicated than my hon. Friends the Members for Eastbourne (Mr. Gow) and for Wolverhampton South-West (Mr. Budgen) have pointed out. The date mentioned in the motion is 31 March 1987, and the amount being asked for is supposed to take us up to that period. But the EEC budget runs for a calendar year, from January to December. We are therefore being asked to debate the amount of money before us today, which would take us through until March 1987, when we do not know precisely what the EEC budget for 1986 is, or what it will be for 1987.

Thus I suggest that the position is even more difficult than has been suggested so far. I hope that the House will he given time to consider these issues before being rushed into voting this huge amount of money.

Photo of Mr Ron Leighton Mr Ron Leighton , Newham North East

Further to the point of order, Mr. Speaker. We are faced with a difficult problem. The House is accustomed to being continually asked to rubber stamp increasingly large sums of money to the Common Market. We are presently in a state of flux because we are being asked to vote money to a budget which, as the hon. Member for Eastbourne (Mr Gow) has said, does not exist. Would it not be better to postpone this debate until we know what the budget is? Then we would know what we were voting money to.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I do not think it will help. The hon. Gentleman has had his say and I now want to have mine.

I appreciate that the House is in difficulty but I think we should proceed by stages. The vote is for a supplementary sum not exceeding £930 million. I have already announced to the House that I have selected the amendment in the name of the right hon. Member for Worthing (Mr. Higgins) who is the Chairman of the Treasury and Civil Service Select Committee. If the House feels as strongly about this as it evidently does, it has a remedy of voting for that amendment.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

It is no good hon. Gentlemen bobbing up and down. I have no power to postpone this debate. The hon. Member for Wolverhampton, South-West (Mr. Budgen) may make his point.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

On a point of order, Mr. Speaker. I attacked my hon. Friend the Member for Eastbourne (Mr. Gow) and he is hoping to catch your eye on a point of order to explain that what I said was, perhaps, wrong. I hope that you will be able to see him more clearly in a moment or two.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I am amazed that the hon. Gentleman believes that he may have been wrong, but if the hon. Member for Eastbourne (Mr. Gow) thinks he was, perhaps he will tell us.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

Further to that point of order, Mr. Speaker. I have no wish to criticise the former Minister of State, Treasury who spoke in last year's debate on 22 October. However, on a point of order, my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made some observations about what the former Minister said. It may be convenient for the House, and certainly for my hon. Friend the Economic Secretary to the Treasury, if I remind you, Mr. Speaker, of what was said on that occasion by my right hon. Friend the Member for Worthing (Mr. Higgins), whose amendment you have selected for debate this afternoon.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

I am coming to that. I wish to remind you, Mr. Speaker, of the pertinent question which was put on 22 October by my right hon. Friend the Member for Worthing: can he"— that was the then Minister of State— give us a categorical assurance that the Government will not in any way increase the sums available to the Common Market before those negotiations take place? The Minister replied: I repeat"—[Interruption.] That is what he said— that I find it impossible to envisage circumstances"— —

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

I am quoting from the Official Report and my hon. Friend should not rebuke me for doing so. The Minister said—

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

What happened to him?

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

My hon. Friend must not lead me astray. The Minister said I find it impossible to envisage circumstances in which the Government will come back to the House in the way that my right hon. Friend describes"—[Official Report, 22 October 1985; Vol. 84, c. 186.] My hon. Friend the Member for Wolverhampton, South-West described those words as a categorical assurance given on behalf of the Government. I submit that they did not amount to a categorical assurance but amounted to a certain incredulity expressed by the then Minister of State as to what would happen.

If I have the good fortune to catch your eye, Mr. Speaker, I shall explain why I shall be voting in the Lobby for the amendment standing in the name of my right hon. Friend the Member for Worthing.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I think the wisest thing would be to see how the Minister gets out of that.

Motion made, and Question proposed,That a supplementary sum, not exceeding £930,000,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges which will come in course of payment during the year ending on 31s1 March 1987 for expenditure by the Treasury in connection with payments to the Budget of the European Communities not covered by direct charges on the Consolidated Fund under section 2(3) of the European Communities Act 1972, as set out in House of Commons Paper No. 439.—[Mr. Ian Stewart.]

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I have selected the amendment in the name of the right hon. Member for Worthing (Mr. Higgins).

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I will take it, but very briefly.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

I am much obliged, Mr. Speaker. A moment ago, Mr. Speaker, you said that there was no way in which you could adjourn the debate. May I put it to you that, in the Standing Orders of the House, there is a mechanism which has been inserted over the years when the House meets a difficulty and which could be mailable at this moment. If a Member rises on a point of order arid wishes to adjourn the House on a particular matter, it is within the discretion of the Chair to accept the motion.

As I understand it, if the motion is accepted there is a debate—it may be short or long—on whether the House should proceed to the Question. Bearing in mind what you have heard, Mr. Speaker— that there is a non-existent budget to which the House is now being invited to vote money, the basis of our power — and the fact that we have heard nothing from the Treasury Bench on these points of order—that is unusual and should be marked —I therefore, beg to move, That the debate he now adjourned.

A motion having been moved, That this House do now adjourn, MR. SPEAKER, pursuant to Standing Order No. 28 (Dilatory motions in abuse of rules of the House), declined to propose the Question thereon to the House.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

The Question is the motion on the Order Paper. For the third time, I announce that I have selected the amendment in the name of the right hon. Member for Worthing (Mr. Higgins).

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 4:36 pm, 10th July 1986

I beg to move, That Class III, Vote 1, be reduced by £667,000,000. The House is not in bad humour this afternoon, but I do not think that this should in any way diminish the profound importance of the points of order which have been raised. This is a matter of great moment. It provides a clear argument, which I had not anticipated making, in favour of the amendment which I propose.

Clearly if there is no budget at this moment — we have had no sign from the Economic Secretary that such a thing exists—there must be an overwhelming case for supporting this amendment to a motion which would seek to finance something which does not exist. It is sad that the House is not more crowded. If hon. Members had heard what has just gone on, many would have felt grave disquiet at the situation in which we find ourselves and would in due course have been prepared to support the amendment. I certainly hope that they will, assuming of course that the Government do not feel it right—I think they should — to accept the amendment that I have proposed.

If one studies the Order Paper, a slightly strange situation emerges because the amendment in the name of the Opposition is for a reduction of £10,000 whereas mine is for a reduction of £667 million — a slight disparity. None-the-less, I hope that that in no way—not least for the reasons which have just been adduced—deters the Opposition from supporting my amendment in the Lobby this evening. I am heartened by the fact that my amendment has received support from those with views as normally disparate as my right hon. Friend the Member for Taunton (Sir E. du Cann) and the hon. Member for Bow and Poplar (Mr. Mikardo). It commands wide support, and that should encourage hon. Members to vote in its favour this evening.

Before I deal with the substance of the amendment I wish to comment on the procedure under which we are having the debate. The substitution of Opposition days and Estimates days for the old Supply days is, on the whole, working satisfactorily. I am glad the Government have seen fit, on various occasions, to divide those days in half so that we may debate a variety of subjects. I also welcome the fact that the Government have put a motion on the Order Paper that we should have a vote at 7 o'clock. A situation wherein we had a debate ending at 7 o'clock and the vote at 10 o'clock would be reminiscent of the system introduced by the late Richard Crossman wherein we had debates in the morning and the vote at 10 o'clock. I think his memoirs have been of more lasting interest than his procedural reform. The motion that the Government have put down is a convenient one.

I think it is important that members of Select Committees which have an Estimates day should be given more notice than they are at present. Today, it is a wide-ranging debate in which many hon. Members are interested but, generally speaking, Estimates days are on a subject in which the specific Select Committee has the greatest interest and it may be very difficult for Members to attend at short notice. I hope that my right hon. Friend the Leader of the House will make a note of that point.

Having said that, let me spell out the purpose of the amendment. I do so from the position of one who believes that we are right to be members of the EEC, but, nonetheless, who on this occasion, particularly in the light of the earlier points of order, feels grave disquiet at the way in which it is going, particularly in its financial affairs.

The purpose of the amendment is not to prevent—unless we find that there is not a budget at any stage—the eventual payment of the sums involved. The House will have noticed that my amendment does not cover the full amount of the estimate. The reason for that is that the difference between the two sums has already been paid to the EC regardless of the fact that it does not have a budget.

My amendment seeks to stop the procedure, which would not be repeated, whereby the House is asked to pay to the Community amounts which would normally be paid under the own resources procedure in advance of the due date, but paid not only in advance of the due date, but in advance of the due date without payment of interest, even though, if the situation were reversed and money was owed in the other direction, we would have to pay interest, at a penal rate. So the purpose of the amendment is simply to prevent the payment being made in advance—not the eventual payment of the sum involved. That is something that the House should support.

The main reason, apart from those that I have already mentioned, why the House should support the amendment is that the whole basis on which we have been increasing resources to the Community has been that there will be effective budgetary discipline. But, as the report of the Treasury and Civil Service Select Committee on budgetary discipline in the EC makes clear, the reality is that that has not been effective. If it were effective it would not be necessary to pay the sums in advance. Therefore, the amendment seeks to bring out the fact that the discipline is not working effectively and that we should not make such payments which, as I understand it, we have no legal obligation to make.

We were told last year when the own resources—the VAT payments—were increased from 1 to 1·4 per cent. that there would be no need for such temporary expedients. My hon. Friend the Member for Eastbourne (Mr. Gow), who was at that time in the position of my hon. Friend the Economic Secretary this afternoon replying to the debate, made it clear that once we had increased the own resources there would be no need to have the rather sordid transactions of this kind; that the temporary expedients would no longer be necessary.

The report to which I have just referred makes it clear that budgetary discipline has not been enforced. The Treasury and Civil Service Select Committee has always expressed doubts about that and there is a long history of the matter. Our earlier report on budgetary discipline and the Fontainebleau agreement points to the argument put forward by the Prime Minister that more EC members are becoming net contributors and that that is the best discipline that we could possibly have.

The reality is that that has proved completely untrue. Indeed, the way in which, for example, the German Government have been operating makes it clear that the fact that people are net contributors has not imposed the kind of discipline that should be imposed. I regret to say that it has not been reflected in the attitude of Her Majesty's Government towards budgetary discipline, even though we have certainly been better than some others, not least in the matter of the illegal budget, and so on, with which I shall deal in a moment.

None the less, I hope that in the light of the earlier points of order the Government will come to the House at the earliest moment when any hard information is available to tell us what is happening in Europe with our taxpayers' money. I hope that if that information is available by 7 o'clock the Government will come to the House—they have an obligation to do so—and tell us the up-to-date position. Be that as it may, it is still right to vote for the amendment. However, at the moment we are relying on press reports on what is happening there. If one then tries to ascertain the position from the Treasury, we are told that no information is available. We do not know where the press reports are coming from, but there are strong signs that we are now very close to the 1·4 per cent. ceiling which was agreed only a short time ago.

That being so, we should raise the question of the communiqué of the then presidency of the European Council following the Fontainebleau agreement. That said: One year before the new ceiling is reached, the Commission will present a report setting out the state of play on:

  • —the result of the budgetary discipline
  • —the Community's financial needs
  • —the breakdown of the budgetary costs among Member States".
If indeed we are approaching that 1·4 per cent. figure, we should ask whether the Commission is proposing to make such a statement. I hope that my hon. Friend the Economic Secretary will be able to tell us about that.

But the fact is that the Estimate we have before us this afternoon is much larger than any of the previous such Estimates. It goes on for a much longer period and is based on various criteria of acceptability which the Government have in no way stated, and that is clearly unsatisfactory.

In particular, the report on budgetary discipline to which I referred points out that that discipline is simply not working. I refer in particular to paragraphs 6 and 7 of our report. That brings out clearly the way in which the Council of Ministers has not been prepared to stick to the guidelines to which it agreed. Indeed, paragraphs 6, 7 and 8 of the report spell out in detail the way in which it has constantly increased the resources against the view that budgetary discipline should be imposed. On top of that we have had the clear conflict between the Council of Ministers on the one hand and the Parliament or the European Assembly on the other.

We had the case of the budget being taken to the European Court which, as the House will know, has now held that it is illegal. Therefore, at this moment, we have no legal budget for the Community. There are many worrying aspects of that. To start with, the court's judgment effectively said that nothing could he done about the money that had already been paid out. It is not the least bit clear why there cannot be a corresponding reduction in the future. However, as far as I know, no such recommendation is being put forward by the Government, still less by other members of the Community. The court effectively says that payments that have already been made under the illegal budget none the less remain valid.

Let me ask my hon. Friend the Economic Secretary a specific question. Does that mean that the funds that have been affected by the interim result which we got in the court will now go back to the EEC? If so, it would he the height of absurdity. The whole area is deeply and profoundly disturbing. The tendency on these occasions is almost to laugh because otherwise one would virtually burst into tears about the affair. It is getting more and more worrying. I am bound to say that it is unfortunate that the Government, and in particular the Prime Minister, who takes such a clear and forthright attitude on other issues, which I shall not enumerate, are failing to do so with regard to control of public expenditure in relation to the EEC. There is effective control in many other areas, not least health and social services, and so on, but not so with regard to Europe.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

There may be some slight misunderstanding in my right hon. Friend's mind. It is not that my hon. Friend the Economic Secretary when he had responsibility for these matters, or my hon. Friend the Minister of State, Treasury, or my right hon. Friend the Chancellor, let alone my right hon. Friend the Prime Minister, have been anything other than resolute at every meeting of the European Council, of ECOFIN and of Ministers. The problem is that Her Majesty's Government are always in an actual minority.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

However resolute my right hon. Friends are — and they have been totally resolute in championing our interests— they cannot bring about that discipline that my right hon. Friend and I want to see.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I note what my hon. Friend says. I want to make two points about that. I hope that the Economic Secretary will tell us how close we are to the 1·4 per cent. limit. We were told previously in the communiqué following Fontainebleau that the maximum take may be increased to 1·6 per cent. on 1 January 1988 by unanimous decision of the Council and after agreement with national procedures and so on.

The clear import is that we have a right of veto. I hope that my hon. Friend will confirm what is implicit in the reply that the Treasury and Civil Service Committee has already had from the Government, that we shall use our veto to prevent any increase above the 1·4 per cent. limit.

The Treasury and Civil Service Committee, an all-party committee, has clearly said: We therefore recommend that the government should make clear its intention of using its veto against any proposal to raise the VAT ceiling, and of declining to support any further substitutes in the form of Inter Governmental Agreements. I very much hope that the Government will give a clear undertaking on that because I think that it would meet the point that my hon. Friend the Member for Eastbourne made in his intervention.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

Does the right hon. Gentleman agree with my recollection that the veto has never yet been used in the Council of Finance Ministers and that, if we did use it, we would set a new precedent? Does he not further agree that, if that is the approach to majority decision making with which we start off, there is little hope of the internal market being achieved?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Majority decision making is a matter that no doubt the House may well have occasion to debate later, as it has on occasions recently.

In all events, with regard to financial matters and increasing the 1·4 per cent., it seems clear to me that we should have the right of veto, otherwise the power of taxation is taken from the House, and I do not think that that is something to which hon. Members ought to agree.

None the less—and I stress the point — there is a fundamental problem in regard to the treaty on expenditure, on revenue and on borrowing. The Chancellor of the Exchequer is fond of saying—I might almost say ad nauseam—that revenue must determine expenditure, not the other way about. The problem that arises in the EEC at present is that the spending goes on and on because the budgetary discipline is not effective and one comes up against restraint on revenue only when one hits the VAT ceiling. There is clearly a conflict there, not least because, as my right hon. Friend the Prime Minister has pointed out from time to time, it is contrary to the treaty for there to be borrowing by the Community to cover the difference between revenue and expenditure. We know that devices have been used to get round that —something that I believe is deplorable.

There is a fundamental problem here, and we have to get the matter under control. I believe that that control ought to be exercised on the expenditure side, but particularly in regard to giving cash to the Community. We must consider whether some amendment of the treaty is needed to bring that about. Failing that, whenever we hit the VAT ceiling, I believe that we are in a position to exercise authority, and that is very important. If it runs the Community into a problem, no doubt we will have an opportunity to reappraise the situation. The situation tonight is one in which, because the budget has been declared illegal, we ought to have a real opportunity to get a grip on the matter. There will be bitter disappointment and resentment if the Government miss that opportunity when they come to the House to give a statement on what has been going on in Europe this week and in the course of the conclusions of the budget.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

Can the right hon. Gentleman confirm the position as I understand it? He said that, if and when it is desired to raise the VAT ceiling, the House and the Government have to agree because it requires a unanimous decision of the EEC. Am I not right in thinking that if expenditure within or up to that limit is to be raised —and we understand informally that this has been done — it requires not unanimity but a majority, maybe against United Kingdom Ministers, in the Council of Ministers and in the Assembly, and it need not even be debated in this House or intimated to this House? If that is so, has not this House therefore already lost control of taxation up to those limits?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

No doubt my hon. Friend the Economic Secretary will clarify the point that the hon. Gentleman has raised, which I believe is right, but of course we run into the situation in which, when we hit the limit, we can effectively exercise a veto. We were told anyway that there was no question of this until 1988, yet here we are in the middle of 1986 where, in respect of budgetary discipline and the recent increase to 1·4 per cent., the ink is scarcely dry on the agreement—that is, if it was indeed signed, and it is difficult with some of these documents to know whether that is so.

This is a profoundly important amendment. Given the uncertainties about the budget, I think that the case for supporting the amendment is even greater. As I have said, it is unfortunate that the House is not more crowded so that other hon. Members might appreciate the grave situation that is developing. Given the uncertainties of the situation, I hope that the Economic Secretary either will not wish to proceed with the motion or will accept the amendment. We must consider this against the background of public expenditure priorities generally. At a time when many of our constituents are being asked to suffer severely as a result of restraint on public expenditure, of which I approve, it is proposed that money should go off in this way and the Government make an interest-free loan of £667 million, but I can think of a great many other people who might better benefit and who better deserve an interest-free loan of £667 million than those to whom the money will go if the motion is approved.

Photo of Mr George Robertson Mr George Robertson , Hamilton 4:57 pm, 10th July 1986

We have had an incredible start to the debate. The Minister may have thought that it would be an uncontroversial, technical debate on what are fairly fundamental recommendations by the Select Committee, but it has turned out to be something very different. These incredible exchanges reflect the fact that, by coincidence, there is today the meeting of the European Parliament that will endorse or otherwise the decisions of Finance Ministers. As hon. Members on both sides of the House have said, the Government have an obligation to inform the House, and they should be doing so now, not waiting until later to tell us precisely what is going on in Europe.

The reply by the Government to the Select Committee report makes it clear that the court action that has just been concluded in the matter of the European Parliament was designed precisely to make sure that the European Council of Ministers was the arena in which decisions about the budget were to be made. The Treasury memorandum in reply to the observations of the Select Committee makes it clear that the Government would certainly think it necessary for the Council to examine the relevant treaty articles with a view to reinstating an acceptable balance of budgetary powers between the Council and the Parliament.

The European Parliament will today be in possession of the information about the new 1986 budget, and will have all the details about the excesses over and above the budget discipline levels. It will make a decision before the House of Commons knows what is the outline agreement decided upon by British Ministers and other Ministers. That is outrageous and unacceptable to the House.

The Economic Secretary no doubt hoped that he was well away from these debates. European budget debates must be one of those things that one hopes one is promoted out of, can resign out of or, if necessary and one can get away with it, can be sacked out of it. Unfortunately, the Economic Secretary is here having to defend a deplorable state of affairs.

This Estimate is nothing new. We have been here before. One has almost a sense of deja vu and loses track of which debate we are in because they are all so similar. We have the same speeches made by the same hon. Members on the same subjects, but nothing is done. We are told that things will improve and will be fundamentally changed. The Economic Secretary wrote an article last December for The Times, which appeared on the leader page, and for which no doubt he got a fee. In it, he said that everything would change permanently and things would never be the same again. We have budget discipline, and the Fontainebleau agreement will last until the end of time. That was it. Everything had been done and it was all due to the Prime Minister and the Economic Secretary. They took the credit for it. However, the debates continue, the same issues come up and the same sad commentary is made.

Supplementary budgets, intergovernmental agreements, non-reimbursable payments, reimbursable payments, reimbursable payments that are never repaid — they all happen, but this debate takes place in the context of an even more spectacular shot in the foot. Not only are we being asked to vote vast sums of money to the EEC in advance of the time of the due payment, but we are being asked to do so in the wake of the incredible judgment by the European Court of Justice.

The other part of the Treasury double act came to the House of Commons recently to tell us that we had to make extra supplementary payments to the European Community because of an illegal budget declared by the European Parliament. Although it was illegal and the Government would take the European Parliament to court, we were asked, and the huge 140 majority of the Government got it through, to authorise supplementary payments in lieu of the illegal amounts of money that the Government said that they would bring back to the country.

The final judgment was delivered a week ago, and the Government had won their case, but the result has been not to bring more money back but to pay more to the European Community, because that is what the Financial Secretary is busily engaged on today. He is not saving money for the country or getting a better deal for the taxpayer, or telling the European Parliament that it must hand all that money back so that the British taxpayer will be better off. Instead, he will tell the Parliament that he agrees with the illegal budget, but that he thinks that it is too modest. What was wrong with the illegal budget was that it did not ask for enough. We shall now give more for the 1986 budget, and goodness knows what we shall give for the 1987 budget.

In our last debate on this subject, we were told of the illegality of the European Parliament's action. We were told that it was iniquitous and impertinent of it to overrule the Council of Ministers and that it had no right to levy this outrageous amount on the British taxpayer. Like Liverpool and Lambeth councillors, European Members of Parliament would be pursued until they coughed up all the cash of which they were robbing us.

We were told that an illegal bill of 160 million ecu was being foisted on the British taxpayer. The lawyer for the British Government in the European Court of Justice said that that was the equivalent to the cost of four large hospitals and 150 new primary schools. That is not Opposition qualification, but a Government description of the amount of money of which the country had been robbed by the illegal, outrageous action of the European Parliament.

The hapless Minister was torn apart after he had told us that, but now we know that it was all sanctimonious humbug. The Government have won the court action that we are told is a great triumph. Some triumph. First, the judgment did not devastate the European Parliament. The Financial Times said: The judgment amounted lo an implicit reprimand for both institutions. The Advocate-General of the European Court of Justice, Mr. Frederico Mancini, said that the budget Ministers of the member states were also guilty of "unlawful conduct" when they failed to provide enough money in the budget for all the commitments.

Now, we have a lasting triumph before us, or we would do if the Government had the decency to tell us what figure was agreed in Brussels yesterday and was being put forward in Strasbourg today. The House of Commons Library — I do not know whether its sources are any better than those for the information given to hon. Members—says that the total size of the new budget is about 2 billion ecu more than the Council's second reading, with agriculture accounting for 1,100 million ecu and the increased structural funds for 750 million ecu. We are told that, because of technical reasons, the structural increase will be more than that.

This is the great triumph of the British Government over the impertinent European parliamentarians who dared to declare an illegal budget. More money will be paid than was challenged in the court action. The new budget is bigger than the first European budget, against which the British Government voted. The difference will be a donation from the Government and the House of Commons in place of four new hospitals and 150 primary schools. Not only is the new budget figure larger, rounder and more open-ended than the one that so outraged the Minister on the last occasion, but it blows a giant hole through the much-vaunted budget discipline which supposedly was the great achievement of the Fontainebleau summit.

The report of the Select Committee on the Treasury and Civil Service mentioned in the speech of the right hon. Member for Worthing (Mr. Higgins) amply illustrates the way in which the budget discipline about which we heard so much is virtually worthless. In the first year of its operation, the budget is well over the top, and the first draft supplementary figures suggest that the budget discipline minutes will be exceeded by at least 740 million ecu. Once we hear the details of the deal done yesterday in Brussels, that will pale into insignificance.

Although the Treasury apparently does not have any details to give the House of Commons, on the 8 o'clock BBC radio news this morning, the Financial Secretary to the Treasury described the new budget as a "victory of common sense". It will be well worth putting those resounding words to the House to see whether Members of Parliament agree with that verdict.

The budget will provide yet more funds, but even they might not be sufficient for the social and regional funds that the European Parliament so outrageously added, which the court overruled, and which the Government tried to veto when the first budget was decided.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

I am surprised that, in referring to the increase in agricultural spending, the hon. Gentleman has made no reference — nor did the right hon. Member for Worthing (Mr. Higgins) — to the change in the relationship between the dollar and the ecu, which it has been calculated has added 1·2 million ecu to the size of the budget. That is one of the central reasons why budget discipline has to be breached.

Photo of Mr George Robertson Mr George Robertson , Hamilton

Of course it is. That was always the way in which it was going to be breached and that was always the way in which we said that it would be breached. The trend that has broken budgetary discipline in the way described by the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) is precisely this gigantic bill for agriculture, which will increase yet further as inflation continues to go down in the European Community and as the dollar continues to weaken against the ecu. The bill will inexorably be increased. It will squeeze the very funds which I am sure the hon. Gentleman regards as being infinitely more valuable in the context of the European Community than the piling up of yet more and more food mountains in EEC countries.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

The hon. Gentleman will recognise that the Liberal party adopts a very progressive attitude towards this question. It says that the take from VAT ought to be increased to 2 per cent. as quickly as possible. I should have thought that the hon. Member for Inverness, Nairn and Lochaber would be delighted at the prospect of our climbing quickly towards 2 per cent. by these various methods of agricultural support, which he thinks is such a good way of spending money. But what does the Social Democratic party say?

Photo of Mr George Robertson Mr George Robertson , Hamilton

I am sure that the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) will be taking back all these commitments to those vast numbers of his colleagues who never attend these debates and who leave him here as their sole spokesman. No Social Democratic party Member has so far attended this debate. We shall look with eager interest to see whether any of them turn up for the vote at the end of it, or for the guillotined debate that is to take place after it. The Social Democratic party professes undying support for the European Community and a commitment to its objectives, but that does not run to turning up at debates when a matter of crucial importance — the future of the Community and the way in which it is organised—is being debated.

The new budget would be even worse were it not for the fact that we know, because we have already seen the preliminary draft budgets, that it involves an element of creative accounting, which will postpone spending from this year; it will be counted instead in next year's, budget. As the hon. Member for Inverness, Nairn and Lochaber told us, there will be much more bad news. As inflation goes down in the European Community, as the VAT take therefore decreases and as the dollar continues to weaken, the cost of the ruinous farm policy will explode upwards and upwards.

In the context of European budgets, I was intrigued to read recently what was said by the president of the European Court of Auditors, Mr. Marcel Mart, when he appeared before the Council of Finance Ministers. The court audits the accounts at least two years after these outrages. Of the 1984 EEC accounts he said that, were these the accounts of a private company, he would be unable to approve them. Even within the context of this great business-managing Government, the accounts do not square up.

We can see precisely in front of us today what the Court of Auditors really meant. We know now what the court action in Luxembourg meant. It was a time-wasting, hypocritical smokescreen that postponed and disguised the incompetence and even the deceit of the Finance Ministers, who deliberately left out of the 1986 budget items which they knew were necessary and which had been committed in advance. It is small wonder that the Advocate-General accused the Council of Ministers of a "violation of the rules" in placing the European Parliament in that position.

I underlined in our last debate—when the Economic Secretary's colleague came here with his begging bowl and bullet-proof string vest — that he was engaged in a confidence trick. He knew that the Ministers, not the European Parliament, had created the crisis. He knew that they had clipped the budget too tight for the accession of Spain and Portugal, for the burden of the past and for the inevitable, inexorable, inexcusable and insatiable demands of the common agricultural policy. He simply deflected the malicious incompetence of the Ministers on to the heads of the European parliamentarians. However, he is exposed now in the light of the judgment of the European Court, not just by the Advocate-General but also by this truly remarkable and bizarrely inflated budget, which was agreed last night by the Finance Ministers.

Photo of Mr George Robertson Mr George Robertson , Hamilton

No. I am already exceeding my time limit. It is a very brief debate and it would be unfair to other hon. Members if I gave way, however appreciative I might be of the point that the hon. Gentleman would make.

It was almost three years ago, in December 1984, that this House endorsed the Fontainebleau agreement. It did so because it was told by the right hon. and learned Member for Edinburgh, Pentlands (Mr. Rifkind), who is now a member of the Cabinet, and by the Financial Secretary to the Treasury, who thought that he had escaped from all this, that we had a guarantee of budget discipline, especially on farm spending. We remember how the Economic Secretary argued so valiantly with his right hon. Friend the Member for Worthing (Mr. Higgins) about the vagueness of the assurances that had been given. He pointed out how sensible and straightforward they all were and said that there was no escape from them. We were told that the increase to a 1·4 per cent. VAT limit and that the 40 per cent. increase in European Community spending would be more than sufficient for at least two years, until 1988. And of course we were told by the Economic Secretary as well as by the hon. Member for Eastbourne (Mr. Gow) that we need not expect any other supplementary budgets. However, each of these undertakings has been broken. Even the luckless, hapless Financial Secretary, who was not even around when these fine promises were made and who has had to carry the can for the Prime Minister, knows that each of these promises has been punctured.

Budget discipline is worthless. Six months into the first year of its operation it is at least 740 million ecu over the top; and it is only that because the figures have been fiddled and because the damage has merely been postponed. Effectively we are within a whisker of, and probably in real terms we are over, the 1·4 per cent. VAT ceiling. The President of the Commission, Jacques Delors, said in February of this year: I would be failing in my duty if I did not point out to Parliament"— that is, the European Parliament— and our 12 governments that VAT own resources must break through the 1–4 per cent. barrier if the Community is to achieve the objectives solemnly adopted in Luxembourg last December. That is what will face us in the future.

The assurances on the intergovernmental agreements and supplementary budgets were no more than, to quote the Paymaster-General, "piffle." The assurances that the hon. Member for Eastbourne gave us in the debate last October have been adequately dealt with by him. No doubt, if he catches your eye, Mr. Deputy Speaker, there will be even more disclosures.

This budget, if we are allowed to know about it, will be like so many of the old ones. There will be more spending on agriculture. It will automatically eat up more and more money in order to produce less and less food for eating and more and more food for storing and destroying. The Foreign Secretary had the cheek to go to the European Parliament this week and tell it: We cannot expect our citizens to see the Community as a force for good in their own lives when they see and hear regular reports of thousands of tonnes of butter ageing in the stores or being disposed of at a fraction of its earlier value. Sanctimonious criticism is there by the bucketful, but action is pitifully absent.

Whenever it may be that we find out about it, the budget will show yet again that even more is to be spent on agriculture and that the cash mountain is to become even larger. The amounts that will be spent by this job-starved European Community on the social fund and the regional fund will go up by tiny amounts, but by less than the rate of inflation, and down will go spending on research and on energy, and down also will go the trivial amounts that we spend on overseas aid — presumably only on the principle that we should leave all that to Bob Geldof.

Tonight — and it is only one of far too many occasions—is a humiliation for this Government and a punishment for this country. The Government see that their priorities have been devastated. They see their court action exposed as a charade and as a contrived pantomime for which the taxpayer has to pick up a substantial tab. Instead of the four new hospitals and 150 new primary schools which were tantalisingly offered to us as the price of this great legal victory, there are bigger butter mountains and more grain stores. The debates are becoming simply an exercise in futility, with Ministers of the Crown queuing up to unload their prepared scripts of excuses and then relying on a 140-strong majority to get the supplementary budgets through.

This debate is a vivid proof of those words. Fontainebleau, budget discipline, controlled agricultural budgets, sensible spending plans, a long-term financial future for the Community are all dead—as dead as the Minister's explanations and as dead as the Government's reputation. I hope that the entire House will vote for the amendment.

Photo of Mr Edward Du Cann Mr Edward Du Cann , Taunton 5:20 pm, 10th July 1986

As the hon. Member for Hamilton (Mr. Robertson) said, there were some remarkable exchanges at the outset of the debate. That puts the point most mildly. To anyone who loves our Parliament, and believes that a proper surveillance of the expenditure of taxpayers' funds is a primary duty of hon. Members, the people's representatives — to whom else can the people look? — to those of us who regard ourselves as trustees for the public good, and believe that we abdicate responsibility if we arc careless in those respects, the arrangement of the debate, whereby we are invited to vote on expenditure before we know the shape and total of the budget of which it will be part, is not merely profoundly disturbing, it is a scandal. I want none of it. My hon. Friend the Member for Eastbourne (Mr. Gow) was entirely right to say how robust our Ministers are when their duties take them to Brussels and to the European Community. But it is high time for them to say to their colleagues there that we can no longer proceed in this careless way. It is time for us to back them and to refuse to put up with the procedures any longer.

I endorse most warmly the views of the Treasury and Civil Service Select Committee which were expressed so well by its Chairman, my right hon. Friend the Member for Worthing (Mr. Higgins). In a wholly admirable speech, he quoted a little from the Committee's fifth report. It should be compulsory reading in the House, if not outside it. I wish to underline some of the report's statements. The first paragraph makes it clear that the report is the third of its kind that the Committee has recently made available to the House. Paragraph 1 states: One underlying theme connects all these exchanges: the need for effective Budgetary Discipline in the EC. Paragraph 2 mentions the seriousness of the threats under which Budgetary Discipline now lies. Paragraph 5 mentions the lack of authority behind the Budgetary Discipline Agreement. Paragraph 8 states: The Budgetary Discipline Agreement has not worked as intended. The report makes the further suggestion that it will he for the UK as president in office of the Council to put together a viable political initiative to see that matters improve and do not deteriorate further. Paragraph 10 implies that budget discipline is very much at risk.

Paragraph 14 states: We cannot avoid the conclusion that the Community will be fortunate to avoid a very serious crisis. In paragraph 18, the report mentions the "upward drift in expenditure".

Paragraph 20 mentions, 'a well-known fact' that certain states arc in favour of larger budgets. Paragraph 19 states: It is only prudent to recall how strongly the tide of events has begun to run in the direction of a 1·6 per cent. ceiling. Paragraph 21 mentions pressure of expenditure.… arid the expansionist view of a significant portion of the Council. The report then mentions the need to exercise the veto.

I endorse all those conclusions. The report is a most serious and important document. I repeat that it is not the first time that my right hon. Friend the Member for Worthing and his colleagues, on behalf of the House, have told us and told the Government plainly what the position is.

It is a devastating report. What sort of response did it elicit from the Government? I have the Government's response in my hand. It is a mere couple of pages of cyclostyled material. I regard the Government's response to that significant report as profoundly disappointing for two main reasons. With the exception of the use of the phrase "budgetary discipline" in its headline, it is silent about the matter. Right hon. and hon. Members may think it incomprehensible that a senior Select Committee of the House makes important observations and recommendations about budgetary discipline and that the considered response of the Government does not contain a word about budgetary discipline.

Photo of Mr Nigel Spearing Mr Nigel Spearing , Newham South

I hesitate to make the position worse, but does the right hon. Gentleman recall that the Select Committee on European Legislation, which considered the proposals made after Stuttgart for alleged budgetary discipline, made it amply clear in its reports to the House that the budgetary discipline procedure had no treaty force whatsoever? Nevertheless, the House accepted the upward breaking of the 1 per cent. limit despite the fact that that Committee made it amply clear that budgetary discipline was not enforceable by treaty commitment.

Photo of Mr Edward Du Cann Mr Edward Du Cann , Taunton

The hon. Gentleman does the House a service in reminding it of that point. His intention was, no doubt, to emphasise my point that it is astounding that the Government are silent on the subject.

The other reason why I believe the Government's response to my right hon. Friend the Member for Worthing and his colleagues to be so disappointing can best be put by quoting from the third paragraph of the three Government observations. It states: The Government has stated that it sees no case for increasing the resources available to the Community. That is what is said, but that is precisely what the House is now invited to do through the mechanism of payment in advance. I do not understand how on earth that squares with those observations. If the payment were conditional on better discipline, effective supervision and a tighter control of Community expenditure, one might acquiesce. As it is not, it is impossible to do so. Frankly, it is an insult to the House to be invited to do so.

I go further by saying that the entire matter is, in effect, an insult to every hon. Member who has tried to play a part in bringing about a better and more effective supervision of domestic expenditure by the Government, whether we speak of the work done by the Public Accounts Committee, the departmental Select Committees or other hon. Members who attend to these matters in what they believe to be the proper public interest.

As the hon. Member for Hamilton and my right hon. Friend the Member for Worthing said, when the increase in own resources was agreed it was done on specific and clear conditions. The first was that there would be strict budgetary controls. The second was that the rate of increase in farm spending would be curbed. I would-have thought that a reasonable proposition. The third was that the additional cash from increasing the VAT provision from the lower level to 1·;4 per cent. would last for several years.

As my hon. Friend the Member for Eastbourne (Mr. Gow) so modestly reminded us, at the time Ministers were entirely clear on that point. It was honourable of him to make those points. He quoted the Minister who said that it was unthinkable that the Government would come back to the House for more cash. As my right hon. Friend the Member for Worthing said, the unthinkable has become fact in less than a year. We are only six months into the first year of the strict budgetary control regime that we were promised. It is almost unbelievable that we have received no account whatsoever from the Government as to the reasons for the extra expenditure. Funds are already exhausted and various countries and, as we have noticed, the European Assembly clamour for further expenditure.

There is little effective scrutiny over expenditure. As the hon. Member for Hamilton said, agriculture is the most obvious example of that. Despite the public interest aroused in the matter, there is even a proposal to cut overseas aid to give the farmers on the continent more money. That is an incomprehensible proposal. The European Community is, in effect, in a crisis which is the equivalent in private industry of continuing to trade while insolvent.

Many hon. Members like myself were sceptical of the wisdom of Britain signing the treaty of Rome, but we have nevertheless worked and argued since then in an attempt to turn the European Community into a practical reality of the dreams of its founders. However, it is now time to voice a solemn warning. Those who connive at the present state of affairs risk massive public disenchantment with Britain's membership of the European Community. Our people will not tolerate higher taxes or, for example, the imposition of VAT on food, books and newsprint, as would come about with the ending of the zero rate, which is being challenged in the courts, to finance wasteful policies. Parliament should not tolerate such a state of affairs and the Government should not invite it to do so.

As my right hon. Friend the Member for Worthing said, it is essential that we retain the power of veto over taxation. I hope that my hon. Friend the Economic Secretary to the Treasury, in whom many of us have great faith and whom we admire, can give the House a clear assurance on that issue this evening.

To be perfectly plain, there is a major risk that the European Community will not survive a worsening or even the continuance of the present careless financial situation. The most constructive action that the United Kingdom could take to support the European Community would be to demonstrate that we will no longer tolerate mismanagement on this grand scale. Sometimes one must be a little cruel in the short term to be kind in the long run. Sometimes it is right to protest. Action now could possibly prevent disaster later. The House should make no mistake about it. Disaster is inevitable if things continue as they are. It is for that reason that I shall vote for the amendments, and in particular that standing in the name of my right hon. Friend the Member for Worthing and other members of the Treasury Select Committee. I hope that a majority of hon. Members on both sides of the House will do the same.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber 5:34 pm, 10th July 1986

Before I comment on the amendment tabled by the right hon. Member for Worthing (Mr. Higgins) and before I consider the report of the Treasury and Civil Service Select Committee, which he chairs, I should like to make three preliminary points.

First, the hon. Member for Hamilton (Mr. Robertson) was correct to say that alliance Members have long argued in favour of a larger budget for the European Community. In 1978, the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), then President of the European Commission, argued for a 2·5 per cent. ceiling on VAT. I remind the hon. Member for Wolverhampton, South-West (Mr. Budgen), who has temporarily left the Chamber, that when his political colleague, Mr. Tugendhat, succeeded to the Commission early in this decade, he argued for a 2 per cent. ceiling.

The ceiling is now 1·4 per cent., although until now no country has paid more than 1·25 per cent. The United Kingdom pays 0·72 per cent. because of the budgetary agreement achieved by the Government. Although it is true that the budget will reach the 1·4 per cent. ceiling, the United Kingdom will not pay that. Even if the ceiling rises to 1·6 per cent., as forecast by the right hon. Member for Worthing, it is doubtful whether the United Kingdom will pay more than 0·82 per cent.

The hon. Member for Hamilton was correct to say that we have argued in this way as we wish to see an expansion in the structural funds—for example, the regional fund and the social fund. Without effective contributions to the regional fund, I do not see how economic development can be achieved in the poorer parts of the Community. I refer especially to Portugal. Hon. Members applauded loudly when the dictatorships of Salazar and Caetano ended, and Portugal joined the European Community. It is all very well to give political applause, but if economic encouragement cannot also be offered to them as a consequence of their joining the Community, similar political dangers might recur.

There is no doubt that the capacity of the social fund to assist the older industries in the north is important, as is research and development. Hon. Members have often commented that the European Community can, but does not, compete effectively with the United States and Japan. We shall be unable to do so unless we get our act together, and we cannot do that on the projected expenditure on research and development within the Community which I have seen, as I am sure has the Minister, in the forward projection of the budget to 1990.

Secondly, alliance Members have pressed strongly for the containment of the common agricultural policy. The failure to achieve this is as much due to our Government, although they have recently improved in this respect, as to the Governments of other member states.

My hon. Friend the Member for Truro (Mr. Penhaligon) never tires of reminding the House that when the Secretary of State for Energy was Minister of Agriculture, Fisheries and Food, he told dairy farmers that they could improve their income by expanding. That was just three months before the introduction of milk quotas. Responsibility can always be shared, but we now have the introduction of milk quotas, and of the co-responsibility levy for wheat, although admittedly at a low level. A clear, if slow, beginning has been made, but anyone who thinks it is possible to change the CAP overnight is a fool, because it cannot be done.

Incidentally, I understand that the Commission is coming to the United Kingdom en bloc next week, mainly to attend one of Her Majesty's garden parties. However, I understand that the Commission's President, Jacques Delors, who is a workaholic, has decreed that the Commission will spend a whole day at Lancaster house contemplating the CAP. I hope that that will produce some action, because there is no doubt about the urgency of the problem. However, at the end of the day the decision will rest with the Council of Ministers. The Council of Agriculture Ministers is in many respects more important than that of the Finance Ministers.

Thirdly, the right hon. Member for Worthing defined what has happened or what is in the process of happening to the budgetary discipline agreement of Fontainebleau. He said this was not worth the paper that it was written on and his report also says that. He might also argue, and I would not be prepared to disagree with him, that the Fontainebleau agreement on budgetary discipline was very moderate. It was not what one might call draconian, but simply said that farm spending increases should not exceed growth in new resources.

I still hold to what I said when I intervened during the speech by the hon. Member for Hamilton, that it would have been proper for the right hon. Member for Worthing to speak about the change in the rate between the ecu and the dollar. When one considers that that change has cost 1·2 million ecus, which is equivalent to 3 per cent. of the total Community budget, one can see that it certainly falls under the definition of aberrant circumstances, to use the clumsy phrase that has been criticised before, and justifies some special action.

I shall now turn to the amendment and the report. Towards the end of his speech the right hon. Member for Worthing spoke about "reality," and about getting a grip on the whole matter. Reality necessitates embarking on a settled programme of adjustment of the CAP to reduce surpluses and cut expenditure. That is the reality. One of the things that I find unacceptable in the report is contained in paragraph 11. It is printed in black type in case we might skim over it, because sometimes hon. Members skim over reports. The paragraph says that the Government should come to the House at the earliest possible opportunity for support in a proposal to amend the Treaty or take any other necessary steps to vest budgetary control securely and finally"— I should like to repeat that— and finally in the Council. That is an unreality because when the treaty of Rome was established in 1957 it gave the European Parliament a built-in part of the budgetary decision. It is not a very large part because it is equivalent to only about 12 per cent. of the budget and the budget itself—let us get this in proportion — is only 1 per cent. of the European Community's gross national product, or approximately 2 per cent. of the total public expenditure that goes on in the European Community. That is the budget that we are talking about in such apocalyptic terms. It is not possible to contemplate doing what paragraph 11 suggests.

If the right hon. Member for Worthing is interested in reality and in achieving a constructive approach to a difficult and serious problem—and I think the Minister would agree—he should not be involved in making the sort of statements that are contained in paragraph 15 of the report which says: These escape clauses, —presumably those are the aberrant circumstances that I mentioned earlier: together with the fact that Budgetary Discipline is subject to political and not judical interpretation, render the Agreement vulnerable to the vagaries of the qualified-majority procedure. After 7 o'clock we will debate the Single European Act, which is about improving and extending the qualified majority procedure. If we want out of the European Community, we must cut out the whole thing, but if we wish to continue as members of the EEC we must face the reality, which is that all the other members of the EEC are agreed that there should be a slow build-up of qualified majority voting in the Council of Ministers. Paragraph 18 says: Should an unacceptable proposal be made in the Council, one contrary vote would be enough to stop it in mid-career. A further weapon will be available to help defend the embattled veto. If the business is to defend the embattled veto, and if that is the concept of the right hon. Member for Worthing of the way in which decision-making in the Community in future is to proceed, I have to say to him that it is not my concept.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

It would be helpful to the House and to people outside to be clear about the position of the Liberal party on majority voting on the provision of financial resources. Quite clearly, if we do not have a continuing right of veto in that area, then by a majority vote the other members of the Community could impose taxation on our constituents whether this Parliament wanted it or not. If that is the position of the Liberal party on financial issues, leaving on one side majority voting on other issues, the House and the electorate at the next general election will be interested to hear about it.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

With great respect, I say again to the right hon. Member for Worthing that he must distinguish between theory and reality. So far in the Council of Financial Ministers we have not seen the exercise of a veto. I think that is right and I said that in an intervention, but perhaps the Minister would confirm it. Throughout, decisions agreeable to everybody were reached through compromise. No veto has formally been cast. The right hon. Member for Worthing may say that there was a possibility that the veto could be cast, and that that was an influence on the subsequent debate or discussion. That may be so, but my next point is also a matter of reality. In the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), the former Prime Minister, or, as somebody said the other night, Old Bexley and Old Sidcup, if any member state of the European Community finds itself in an impossible situation, some solution will have to be found. That is reality, that is politics. The right hon. Gentleman seems to be asking me to make some sort of formalised statement, but things do not work that way. They work in a political fashion through negotiation, compromise, bargaining and by what unkind people would describe as haggling.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I am interested in the hon. Member's response to my intervention. Does he think that the House should have a veto about the financial allocation of resources to the Community?

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

The financial allocation of resources within the Community?

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

We do have that veto. We have already agreed to the 1·4 per cent. ceiling which cannot be increased unless the Government bring forward a request to the House and that request is passed. I accept that fact. We are the suppliers of the money, but that is not what we are talking about in this case.

I should like to say why I shall not recommend to my hon. Friends that we support the amendment. Instead, I shall recommend that we support the Government motion. In any event, there is an existing agreement under which it is possible for the Commission to ask for these payments a month in advance. I am subject to correction on that, but the right hon. Member for Worthing is in a corrective frame of mind and no doubt he will correct me if I am wrong. That existing agreement was part of the package settlement that included the British rebate. That is how I understand the position. As far as I know — and the Minister will correct me if I am wrong—we are already committed to doing it. The money is there already and it is not a matter of getting new money.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

It has nothing to do with 1·6 per cent. The hon. Member for Wolverhampton, South-West is sitting like a pixie muttering 1·6 per cent. We are not discussing 1·6 per cent., nor are we discussing 1·4 per cent. We are discussing the fact that the Government have brought forward a request to fulfil an agreement they have already made with the European Community during the negotiations which produced the British rebate.

Secondly, the money is already available. We collect own resources — the agricultural levy and Customs duties—two months before we hand them over. It is a matter of handing over existing money that is lying in the vaults and not of finding new money.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Does the hon. Gentleman accept that article 10(2) of the treaty of Rome is precise when it states that the Commission has the right to ask for additional payments in advance and that Governments can say no? Surely he will accept that that basic point is set out and cast clear in the treaty.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

Governments, like ladies, can always say no. I do not deny that. I am saying that this Government, and this lady, have already given a forward sign that they would say yes, and they cannot really change their minds in mid-course.

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

I intended to contain myself and to reply to all the issues raised at the end of the debate. As a factual dispute appears to be developing, perhaps I should explain that article 10(2), to which my hon. Friend the Member for Southend, East (Mr. Taylor) has referred, is in the 1977 regulations. It empowers the Commission to invite member states to make contributions a few weeks earlier than they would otherwise do, but it does not oblige them to do so. Nothing in the Fontainebleau agreement referred to that power or changed it.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

I stand corrected. I apologise for not being entirely accurate. That, however, does not deflect me from my view of what we should do.

Those who have contributed to the debate — for example, the right hon. Members for Worthing and for Taunton (Sir E. du Cann) and the hon. Member for Hamilton — have tended to use rather apocalyptic language. They have spoken of deep concern and have said that we are discussing a matter of profound importance. They have used words such as "astounding", "incredible", "unbelievable" and "insulting". One of the realities is that the green Benches in the Chamber are fairly empty. If the issue before us were really appalling, astounding and dreadful—

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

The hon. Gentleman should speak for himself. No SDP Members are present.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

I am not excluding SDP Members. It is evident that there are bare green Benches on both sides of the House. If the matter were of such apocalyptic importance as has been described, the House would be black with bustle.

Photo of Mr John Townend Mr John Townend , Bridlington 5:53 pm, 10th July 1986

I rise as a member of the Select Committee on the Treasury and Civil Service to support the amendment of my right hon. Friend the Member for Worthing (Mr. Higgins). He made an outstanding speech and his arguments were unanswerable.

I found the speech of the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) most illuminating. Perhaps the absence of his colleagues is due to the fact that they do not agree with the views that he has advanced. The hon. Gentleman has criticised a number of paragraphs of the Select Committee's report, and the press and the public might be interested to know that it was a unanimous report which was supported by the hon. Member for Colne Valley (Mr. Wainwright), who is a Liberal Member. What is even more interesting is that the hon. Member for Colne Valley has signed the amendment of my right hon. Friend the Member for Worthing. It is clear that even on this rather technical issue there is disagreement not only between the Liberal party and the SDP but also between Liberal Members.

Despite the fact that the hon. Member for Inverness, Nairn and Lochaber was pressed by my right hon. Friend the Member for Worthing, the hon. Gentleman implied that an alliance Government would not be prepared to use the veto to prevent an increase in VAT own resources. Indeed, the hon. Gentleman said that he supported increasing the own resources of the Community. The alliance should make it clear to the British people that it feels that the Community can spend their money rather better than the Government, which is controlled by the House. I find that unacceptable, and I am sure that the British people do. If we are to help the depressed areas, it is far better to do so under the control of the Government than by increasing finance to the EEC social fund.

To bring these proposals before the House must make this a sad day for the Government. The bringing forward of payments by one month does not seem a matter of great importance on the face of it, but I suggest that we are being presented with the tip of the iceberg. Indeed, the Supplementary Estimates warn that other requests for advance payments are expected to be made. This is not merely a cash flow problem; we are faced with a major financial problem. Despite repeated promises that there would be adequate budgetary discipline and control, the Community's finances are in a state of chaos and the Community faces a major financial crisis. The discipline agreement that was negotiated at Fontainebleau has turned out to be worthless. Many of us who voted against increasing own resources to 1·4 per cent. thought that this would be the result, and it gives me no pleasure to say that tonight.

The current financial crisis must be set against the background of an enormous increase in the resources of the Community, which was provided by a 40 per cent. increase in VAT contributions. My right hon. Friend the Member for Taunton (Sir E. du Cann) has said that the agreement was reached subject to three assurances, which were that the cash would last for at least several years, that strict budgetary control would operate and that the rate of increase in farm spending would be curbed. We are only six months through the first year and we are running out of money already. Farm spending is clearly out of control and there has been no budgetary discipline. This must come as a great shock and disappointment to the Government.

It is clear from Hansard quotations made earlier in the debate that at the time when my hon. Friend the Member for Eastbourne (Mr. Gow) was at the Treasury the Government expected that they would not have to return to the House in this way. Many of my right hon. and hon. Friends feel—I am sure that the Government do as well — that the EEC should follow a policy of resources determining expenditure rather than expenditure determining income. It must adopt that policy because there is a ceiling on VAT contributions. This has not happened despite all the negotiations and understanding on budgetary control which were explicit in the Fontainebleau agreement.

It is clear that time and time again the Community undertakes commitments for future years which it must appreciate it will not be able to meet because of lack of resources. It then resorts to financial manipulation, intergovernmental agreements and delays in payments, and now the bringing forward of contributions. If public companies ran their finances like the EEC has run its, they would be brought before the courts and the directors would end up in gaol. Even at this moment negotiations are taking place between the European Parliament, which wants to increase expenditure to the very limit of the 1·4 per cent. ceiling, and the Council of Ministers. I understand that the Council has already compromised and is suggesting that the budget could be increased. As spending on agriculture is open-ended, it is clear that the 1·4 per cent. threshold will be reached quickly.

There are good grounds for thinking that this is part of a sustained policy. It could be described as a plot by the bureaucrats and Euro-fanatics to put pressure on member Governments, especially the Government of the United Kingdom, to agree to a further increase in the VAT ceiling. That is unacceptable to many Conservative Members. We do not want to see European expenditure rising inexorably year after year when it is part of our policy to gain greater control of public spending, so that we can fulfil our commitment to reduce taxation, especially on the low paid.

The EEC now needs to cut its coat according to its cloth. The hon. Member for Inverness, Nairn and Lochaber talked about the change in the value of the dollar and the ecu, which is exactly the case where it should take effect. The United Kingdom has had to face an enormous fall in oil revenues, but, because of the ability and financial rectitude of my right hon. Friend the Chancellor of the Exchequer, we have absorbed it. The EEC should have the same financial rectitude. I suggest that the Government accept the final paragraph of the Select Committee report, which states: We therefore recommend that the Government should make clear its intention of using its veto against any proposal to raise VAT ceiling, of declining to support any further substitutes in the form of Inter Governmental Agreements. As a shot across the bows of the EEC, the Government should accept the amendment tabled by my right hon. Friend the Member for Worthing.

Photo of Mr Eric Deakins Mr Eric Deakins , Walthamstow 6:01 pm, 10th July 1986

I apologise to the right hon. Member for Worthing (Mr. Higgins) and to my Front Bench for not having been present for the opening speeches. As I am an ardent advocate of certain views on the Common Market, the House will take it from me that I would have been present if it had been humanly possible. I shall be present for the rest of the evening and possibly until the small hours of the morning.

I agree with my hon. Friend the Member for Hamilton (Mr. Robertson) and the hon. Member for Bridlington (Mr. Townend) that the Government's response to the Select Committee's report was unworthy of them. I echo the words of the right hon. Member for Taunton (Sir E. du Cann) that it is an insult to the House to give such a pathetic answer to a well worked out report on matters which affect the House and the country. It is not a party political matter and it would be wrong for us to treat it in that way. That is why I have found some of the comments in the debate a little disappointing.

We are the guardians of the public purse, regardless of what our views are about particular items of expenditure or about the policies behind that expenditure. When, some considerable time ago, we debated the agreement I thought that it was bad, although I did not say so in the House. I said, "Let us give events, member states and the Commission a chance to show those of us who are sceptical, if not cynical, about the procedure that we are wrong." My attitude could be summarised as, "Give them enough rope and they will hang themselves."

During the past year the EEC has had enough rope on the operation of the budgetary discipline procedure for all of us, other than the most dedicated, fanatical supporters of what the Common Market does, whether right or wrong —there are a few of them in the House—to realise that the budgetary discipline procedure has not worked and will not work. There is no conceivable way in which it could work. We made that point at the time of the budgetary discipline agreement.

It is not a legal agreement and, when challenged at the time, the Prime Minister said that she might well have liked to make it a legal agreement but that other member states did not want that. One can well understand that because member states were going through a charade to obtain, as part of a bargaining package, our agreement to the increase to the 1·4 per cent. VAT ceiling, which the British Government would not have accepted had they not been able to assure the House that they had a workable agreement on budget discipline.

Photo of Mr Russell Johnston Mr Russell Johnston , Inverness, Nairn and Lochaber

The same theme is coming into the hon. Gentleman's speech as came into the speech of the hon. Member for Bridlington (Mr. Townend), which is that somehow only the British are capable of financial rectitude, and that the Germans and Dutch are wholly incapable of any such thing. That is nonsense.

Photo of Mr Eric Deakins Mr Eric Deakins , Walthamstow

I am not denying that some other member states are capable of financial rectitude. My point is that the majority of member states, although capable of it, have no intention of achieving the degree of financial rectitude on which our history and Parliament have been based.

Mr. John Townen:

Is it not the case that, although member states may have the ability or the desire for financial rectitude, in most cases financial rectitude is not in their interests because the major contributors are still the British and German Governments? Although the French Government are becoming a contributor, they are a relatively small one. The vast majority of member states have a vested interest in increasing the size of the budget because they will receive a larger amount.

Photo of Mr Eric Deakins Mr Eric Deakins , Walthamstow

I am not sure that I would go along with all that the hon. Gentleman said, but I shall develop the point later.

One of the troubles with the guidelines on the budgetary discipline agreement is that they have set a rate of increase for agricultural expenditure. In a written answer the Economic Secretary said: The guideline for agricultural expenditure states that its rate of increase must be less than the rate of growth of the own resources base."—[Official Report, 20 December 1984; Vol. 70, c. 327.] That presupposes that there will always be an increase. Nothing was said about a decrease, and I invite the Minister to comment on that. Indeed, the whole trend in Community expenditure, especially on the common agricultural policy, has been upwards. We cannot rely on the guidelines, budgetary discipline and the financial reference framework to set an arrangement in which in any one year expenditure is reduced below the outturn or below that budgeted in the previous year. I challenge the Minister to tell me that I am wrong.

When I asked about the financial guidelines for agricultural expenditure and about how overspending in one year may somehow be got back the following year, the Minister said: Article 5 of the budgetary discipline agreement states that in clawing back additional agricultural expenditure the Council shall concentrate its activity primarily on the production sectors responsible for the failure to adhere to the guideline. Price reductions would be one means of securing the necessary savings."—[Official Report, 30 January 1985; Vol. 72, c. 219.] Is it conceivable that in any one year Agriculture and Finance Ministers, meeting either separately or, finally, jointly, would agree to reduce agriculture prices below what would otherwise have been agreed simply to cut the overspending in the previous year? One can conceive of that in our financial terms and we have done that in previous years, but one cannot conceive of it in European Community terms. Therefore, that answer does not provide a safeguard.

Hon. Members have pointed out that the VAT ceiling of 1·4 per cent. will be reached soon. That is because CAP costs are continuing to rise. Hon. Members on all sides of the House must accept—one day I hope to persuade my Front Bench of this—that no fundamental reform of the CAP is possible. There is no point in my right hon. and hon. Friends or right hon. and hon. Gentlemen either now or in future saying, "We shall reform radically the CAP to reduce the amount of expenditure." That has been tried by Governments of all parties in the past decade and without exception they have all signally failed.

CAP expenditure—I challenge the Minister to prove me wrong—has increased every year since Britain joined the EEC. It has increased and decreased as a percentage of the total budget, but expenditure has increased inexorably. It is partly because of the vested interests in it — the member Governments and the farming vote, which tends to get more powerful as its size is reduced. We have seen that in the United Kingdom, but I do not understand why it is. It is also getting more powerful with the increasing Mediterranean influence in the Community with more and more southern European states coming in who will depend much more on the guidance and guarantee fund for changes in agricultural structures. I am not objecting to them wanting those things but they all involve more expenditure than is the case at the present.

There is a certain amount of false optimism around. There is a feeling that if we could only get the common agricultural policy under control we would then have resolved, or at least gone a long way to resolving, the problem of total EEC spending. I hate to disagree with many right hon. and hon. Gentlemen from both sides of the House, but I must point out that they are making an assumption which is unwarranted. The assumption is that if we can reduce CAP expenditure we shall, since it is about three quarters of the Community budget, reduce total EEC expenditure. If ever we succeed in reducing CAP expenditure, the pressures to spend on the social fund and the regional fund the money that is saved will increase proportionately and total expenditure will go on rising even though the balance between the CAP and the other structural funds will be rather different from in the past.

There is also the constant pressure from the Assembly to increase spending. If anybody doubts my word let him read the debate, which I have available, of Assembly proceedings on 10 December 1985 when it was querying the Budget approved by the Council. The Assembly rejected that budget and passed its own illegal budget. Every speech made by Assembly Members from all over Europe of all different political parties, from extreme Left to extreme Right, was on the same theme. They said that the Community needed to spend more money than the Council was willing to allow in its own budget—which is why the budget was rejected—partly because of the increasing costs of the common agricultural policy and partly because of the wonderful phrase "the cost of the past". That phrase is simply a euphemism for the fact that up to now there has been no mechanism in the Community for bringing expenditure commitments into balance with anticipated income resources, such as we have in this country.

As we all know, the Community has to have a balanced budget each year. It cannot borrow money but in the past it has entered into more and more commitments, which have been agreed by national Governments as well as by members of the European Assembly. Those commitments have increased over the years and have had to be taken into account increasingly in the following year's budgets and there has not been the income to meet those commitments.

We are now being told by the Assembly that if we give a big slice of money in one year to the Community to resolve all the costs of the past we could get back on an even keel. I beg to differ. We shall not get back on to an even keel until we have in the EEC budgetary discipline and proper financial procedures such as we have in the House of Commons. I believe that as long as there is the device of intergovernmental agreements to let the Community off the hook when it spends more money than is available, and the device of raising the VAT ceiling every two or three years, we shall never get Community spending under control.

The Government and some civil servants believe that this is the sort of debate that can be ignored and swept to one side. They believe it involves just a few rebellious Conservative Members, a few people on the Labour Benches and the alliance backing the Government. I believe that this is the sort of debate and vote that we will increasingly have in the House, under any conceivable Government. Those who believe that the Community can get whatever it asks for from this country without proper financial procedures and discipline will be making a very big mistake. Eventually, when the British people wake up to what is not being done in their name—the House is not exercising proper financial control over what goes on in the EEC as regards Britain's contribution—they will turn to their politicians and say, "Enough is enough".

I believe that the House ought to give a message to the British people, even if we lose the vote tonight, to say that we are not prepared to go on being treated, basically as the Treasury and Civil Service Select Committee has keen by the Government, as children who do not really know what we are talking about. The Government feel that, in any case, it is not really important and that there are wider political implications. There are no wider political implications than financial considerations. The House was built up over the centuries on the basis of financial control. If we lose financial control, I believe that we are well on the way to losing democratic control as well.

Photo of Mr Eric Cockeram Mr Eric Cockeram , Ludlow 6:15 pm, 10th July 1986

All those who have taken part in this debate, from whatever side of the House, fall into one of two groups. One group, for shorthand terms, is sometimes referred to as the anti-EEC brigade and the other group is in favour of the Common Market. It is interesting that there has been virtual unanimity from speakers on both sides of the House, to whichever of the groups they belong, that the EEC is failing to control its expenditure. That is the subject of this debate. It is not about whether we are for or against the Common Market but about whether we are for or against financial control.

When the House voted to join the Common Market in 1972, I was one of those who enthusiastically voted to join. I thought that I was voting in favour of European cooperation on defence, research and development — the European airbus is an obvious example—harmonisation of customs duties, increased Community trade and a sensible co-ordinated agricultural policy. I stand by all those things. However, I did not vote, have never voted and will never vote for the lack of financial control which is being shown by those in control of our taxpayers' money in Brussels and Strasbourg.

Nine hundred and thirty million pounds is one heck of a sum of money. It is only some 18 months since the House agreed a 40 per cent. increase in own resources for the Common Market when the VAT duties payable to the Common Market went up from 1 per cent. to 1·4 per cent. We were promised at that time that a new system of strict budgetary control would be instituted. That was to start in the current calendar year, six months ago. Here we are, six months into the new regime of strict budgetary control, and the House, despite assurances from the Treasury Bench in earlier times, is now faced wih a further demand for an extra £930 million. Commissioner Christophersen, Vice-President of the Commission, admitted in a recent article that the 1·4 per cent. of own resources is already inadequate.

About 70 per cent. of EEC expenditure is spent on the common agricultural policy and over half of that is spent on the storage and disposal of surplus food. In the grain sector, much of that is unfit for human consumption. However, we are being asked to pay for the storage and disposal of it. It would be cheaper to burn it in the fields, since some of it is not fit for human consumption, than store it and then sell it at knockdown prices—beef at 15p a pound and butter at 10p a pound—to people such as the Russians and the Libyans, which is what has been happening. We are spending £150 million a week on storage and disposal of the surpluses. That is the kind of sum that the House is being asked to approve. I cannot approve of that expenditure, nor can my constituents, when at the same time we have very strict cash controls of important expenditure in this country, such as in the National Health Service. Even my local authority is not being permitted to spend its own capital receipts, yet we are being asked to pass this sum for the EEC when, manifestly, there is a lack of financial control.

Anyone who wants the facts can refer to a recent Public Accounts Committee report. The hon. Member for Walthamstow (Mr. Deakins) and I are both members of that Committee. The Committee examined the cost of storing and disposing of the surplus. It is a revealing report. I do not intend to go through it. But no one could approve of that form of expenditure. No one could come to the House, representing his constituents and taxpayers generally, and approve of the continuous and increasing financing of such expenditure. It is one of the fundamental principles of this ancient House that Back Benchers come to represent not merely their own constituents but constituents at large, to exercise control over supply—that is, the expenditure of money by the Executive. I suggest to the House that we are not fulfilling that function if we pass this expenditure. I, for one, cannot do so.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East 6:21 pm, 10th July 1986

Most of the points that I should like to make have been made in the superb speeches from Conservative Benches, particularly by my hon. Friend the Member for Bridlington (Mr. Townend) and my right hon. Friend the Member for Taunton (Sir E. du Cann). Therefore, I should like to make just two basic points.

I hope that in his reply the Economic Secretary will give us some explanation of why he and the other Ministers, in view of all the assurances that were given to the House and all the pledges, agreed to such massive extra expenditure at the meeting of the Council of Finance Ministers on Monday. I can recall hearing cheers on 11 March this year when, at Question Time, our Prime Minister said that she was going to fight very hard against the supplementary estimate put forward by the Commission of £1 billion, but, as we know, on Monday the Minister and his colleagues agreed within a few hours to a revised supplementary budget that was much more than that figure. We also received the assurance that agricultural spending would be contained, but we know from all the reports that most of the extra cash will be spent simply on dumping surplus agricultural produce on the world markets.

The Minister also gave the clearest of assurances that, if there were overspending, it would be clawed back. In fact, the present Secretary of State for Scotland said on 11 December 1984: Within the conclusions that have been adopted, although exceptional circumstances may result in increased expenditure, the provisions also require that that additional expenditure should be clawed back in the following years. Therefore, the overall requirement to control expenditure is safeguarded. The Minister must tell us why the strict budgetary controls have been abandoned and have broken down. Why is agricultural spending totally out of control? Is it still the case, as said by Ministers in December last year, that the extra spending will be clawed back? I am sure that it will not. I am sure that it cannot be. I believe that either Britain was wholly misled in the meetings of the EEC, or else the House was wholly misled.

I hope that the Economic Secretary in particular will look back on the debate of 11 December 1984, when he responded angrily, which was out of character, when I suggested that the strict budgetary controls might be a worthless piece of paper. He said: I take the strongest possible issue with my hon. Friend over that view. We undertook to arrange that measures necessary to guarantee the effective application of budgetary discipline would be put in place. The component parts of those measures are an overall reference framework covering all expenditure, separate provisions for an agricultural guideline and a maximum rate of expenditure covering non-obligatory expenditure." — [Official Report, 11 December 1984; Vol. 69, c. 951–999.] We were told that that would be not just a recommendation, but binding on the Council. Of course, Ministers say things from time to time. Sometimes they can laugh them off and say that things have changed. But the Minister must remember that, if the House has any influence on controlling spending, that assurance was given to persuade all of us to give 40 per cent. more on VAT, which is the equivalent of a 25 per cent. rise in real terms in the total spending of the Common Market. Conservative Members, and I am sure Liberal and Social Democratic party Members, went round the country saying, "We know that we shall give a lot more money to the Common Market, but don't worry because it is under control. We have budgetary controls that are legally binding." Therefore, we must have an explanation from the Minister not only of what went wrong but of why on Monday he agreed to the huge additional sum, taking us right up to the control that we were told would last for several years, without the fight that the Prime Minister promised us.

Secondly, we know the excuses that will be trotted out. We always hear them in advance from the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston). Then we usually hear them about a month later from members of the Government. First, we are told that the reason is that the dollar has been falling, and if the dollar falls food prices are bound to go down, too. What absolute reckless economic nonsense. For example, if sterling goes down in value, we are told that it costs us more to buy things from abroad because they cost more. It is normal, natural economics. Somehow the Common Market is trying to get across a crazy economic fallacy that the only thing to which normal disciplines do not apply is agriculture: if the dollar goes down in value, the price of all foodstuffs will adjust themselves automatically and go down. If the Minister tries to trot out that excuse— I hope that he will not—and if the hon. Member for Inverness, Nairn and Lochaber thinks of doing so again, let them look at what has been happening to other food prices that are not covered by the Common Market. Have they been going down with the dollar?

Let us look at the figures in the monthly commodity price bulletin issued by the United Nations Organisation. For example, when the dollar has been plunging in the past 12 months, the price of coffee has gone up from 1·44 cents to 2·44 cents a pound. Why has the price gone up? Simply because there is a shortage of coffee. The price of tea has gone down from 1·76p to 1·34p because, whereas there was a shortage last year, there is now a glut of tea. What has happened to bananas? We are going fast towards creating a banana republic in the Common Market. The price of bananas has gone up from 21p to 29p over the past year. What about our old friend pepper? The price has gone up from 846 cents to 1,203 cents per kilo.

I am only trying to show the Minister—I hope that he will accept it—that prices of food do not go up or down depending on the rate of the dollar. They go up or down depending on whether there is an excess of supply or demand. We all know why Common Market food prices have been going down. It is because there is a horrendous glut, which we are making worse. What is so criminal about it, and what no one seems to care about, apart from those who attend these debates, is what it is doing to the Third world. Misery, starvation and deprivation are being created through the dumping of all that food on the world markets, which are being depressed. That is causing devastation to the Third world and real poverty.

Is the currency level the reason? No, it is not. My hon. Friend the Minister knows that it is not. Everyone in the House, including, I am sure, the hon. Member for Inverness, Nairn and Lochaber, knows that it is a bogus piece of nonsense to say that if currency goes down, food prices go down by the same or a similar amount. The reason why they go down is that there is a surplus of supply.

The second excuse that is trotted out is that we did not make provision for Spain and Portugal joining the Common Market. The Minister must know that that is not so. On 14 November 1985 the then Minister of State, Treasury made it abundantly clear that full provision had been made not only for the admission of Spain and Portugal but for refunds of own resources under the transitional arrangements. That had been fully covered, according to the Government. We can assume only that the Government were telling us the truth.

We must pay the money because of the budget rebate. Britain will not get its money unless we pay the extra cash. The Government must answer why the present Minister of State, in answer to a parliamentary question on 3 July 1986, said that there was full provision and that the EEC was obliged to allow us to deduct the money. As has been said by many Conservative Members, sadly and tragically Common Market spending is wholly out of control. There is no justification for the interest-free loan of £900 million.

We heard today that two wards in a hospital in Southend will continue to be closed for a further six months. We need £800,000 to keep those wards open. This morning, I received a telephone call that the Sacred Heart primary school's heating is not working. It will cost a lot of money to repair it, and the money is not available. All hon. Members could tell similar stories and could draw attention to local problems. Ministers must ask themselves how they can go back to their constituencies and say that we cannot afford to spend modest sums of money when the Common Market spends £150 million every week on dumping, destroying and storing food. The Common Market is asking for an extra interest-free loan of £900 million from the Government without any pledge that things will get better.

Photo of Mr John Watts Mr John Watts , Slough 6:31 pm, 10th July 1986

I joined the Treasury and Civil Service Select Committee halfway through the inquiry. I approached the question with a mind unclouded by any excessive knowledge of the subject. I listened to the evidence presented to us with growing incredulity. Despite the honeyed words of the Treasury officials and the persuasive tones of my hon. Friend the Minister of State, Treasury, I formed a clear impression that the emperor had no clothes. When I asked, in my perhaps naive way: on the basis of the evidence of actions, which Member States and which parties to these financial arrangements now appear to have commitment to budget discipline at all?", I was told: the point to have in mind is that no Member State has repudiated the Budget Discipline conclusions. They all stand. They have not been superseded by anything else". That was the strongest answer that could be given to me. I have no doubt about the commitment of my right hon. Friend the Prime Minister or the Government to achieving effective budgetary discipline. However, as our report shows, the stark fact is that no other member state shares that commitment. For example, only five of the 12 member states would join us in taking action in the European Court of Justice against what has been shown to be an illegal budget. The verdict in that case was a great victory. Although the establishment of the principle is of intrinsic value and importance, the benefit will be dissipated if the House approves the motion.

I am no anti-Marketeer or Europhobe. It is precisely because I wish to see the European Community succeed, and because the health of the Community requires that budgetary discipline should be imposed, that I believe it is necessary for the House to signal that there is at least one sovereign Parliament among the member states that will not continue to supply limitless funds to an organization suffering from financial incontinence. We should not be seduced by the argument that no more than advance payment is at stake.

If I found it difficult to manage my own financial affairs, would it be any solution for me to try to persuade the Fees Office that it should pay me my August salary on 31 July, my September salary on 5 August, and continue to advance the payments of salary to me to fund my cash deficiency? Where would it end? It would not be long before it would be necessary for our total contribution for the financial year to be paid to the Commission by the end of June, and for advance payments on account of the contributions for the following year to be paid from July onwards. So it continues.

As the insatiable appetite for money grows, as more and more is provided in a never-ending attempt to satisfy that appetite, so the European Community's financial obesity will grow, until it collapses under the burden of its own weight.

Successive expedients to bail out the Community from the consequences of its lack of budgetary discipline provide no solution to the problems of a spendaholic. The time will come—I echo the words of the hon. Member for Walthamstow (Mr. Deakins)—when we must say, loudly and clearly, "Enough is enough." In my view, that time has come. That is why I shall support the amendment tabled by my right hon. Friend the Member for Worthing (Mr. Higgins).

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock 6:35 pm, 10th July 1986

Hon. Members on both sides of the House have, quite rightly, condemned the lack of budgetary discipline exercised by the European Community. They have referred to the wasteful spending on agriculture, and especially intervention stocks. Hon. Members have referred to the Public Accounts Committee's report. I recommend the report fo the House. It spells out what we have all long suspected and described as the case, that far too much is wasted and that food is kept in stores for too long. It is an utter disgrace, in a time of world food shortages, for that to happen.

I do not intend to detain the House for long, because it is vitally important that the Economic Secretary to the Treasury answers the debate. It seemed to me that he did not understand and appreciate the points of order that were made at the beginning of the debate—that advance payments to the European Commission were absurd when we have no notion of how much the budget will be, what its component elements are, and whether or not the 1·4 per cent. ceiling will be over-run this year, never mind in the next financial year.

It is quite wrong that such a debate should take place today before the European Parliament votes on the budget. That was true at the beginning of the debate. However, during the debate, at 5 o'clock, I looked at the Press Association tapes to see what had happened. I discovered that the European Parliament had voted for a budget which I presume is the same budget as was agreed by the Council of Ministers. The fact that the Minister did not interrupt the proceedings, and the fact that no statement was made—it appears that no statement will be made, certainly not today — about what is in the budget show an utter contempt for the House on the part of the Government.

According to the Press Association tapes, agricultural spending has been increased by a further £700 million. It still represents at least two thirds of the total budget. After all that has been said about efforts to control farm spending, we find that this year farm spending has been increased. The Minister should have ensured that we were told that before the debate took place. That such a debate takes place without anything being said formally by the Government about the contents of this year's European budget shows arrogance and a contempt for the proceedings of the House.

It appears that the amount spent on the regional and social funds has been increased by 6 per cent. and 7 per cent. respectively. We do not know what such an increase means. My hon. Friend the Member for Walthamstow (Mr. Deakins) referred to the euphemism of past commitments. That is, quite simply, unpaid bills—bills that have been incurred by national Governments and are to be reimbursed by the European Community for regional and social spending, the kind of spending of which Labour Members entirely approve. Although it appears from the tapes that there is an increase in this spending, we do not know what it is for. Is it intended to fund new projects, designed to reduce the horrendous unemployment levels, or is it just intended to pay off debts incurred in the past years? The president of the Court of Auditors tells us that, at the end of 1984, more than £9 billion of such debts were outstanding, covering, to a large extent, past payments for the regional and social funds.

We do not know whether this year's European budget allows an increase in the regional and social funds merely to settle some of the unpaid bills. We have no idea, because the Government have not seen fit to tell us what they must have known before the debate. After all, telephone and other communications with Brussels exist and a Finance Minister was there during the night coming to an agreement on the budget's contents. Why was no statement made?

It appears that the Minister of State is proud of the settlement. According to the tapes, he says that "chaos" in the Community has been "averted" and that Britain is getting the credit. I am sure that the Minister of State will be eating those words in a few months' time. Of course chaos in Community spending will not have been averted. Apparently, the budget is right up at the 1·4 per cent. limit.

We do not know what this year's cereal crop will be. There may be estimates but the harvest has not yet been gathered in. We do not know what the intervention prices will be, how much cereal will have to be stored and how expensive that will be. Fluctuations in the dollar have already been well described by the hon. Member for Southend, East (Mr. Taylor). This is one of the gaping holes in the so-called "budgetary discipline". Fluctuations in the dollar are used as excuses for increasing spending through the budget. Such fluctuations may well occur during the rest of this year.

Photo of Mr Eric Deakins Mr Eric Deakins , Walthamstow

I thank my hon. Friend for giving way. I know that she is pressed for time and that the Economic Secretary wishes to reply. Were the increases of 6 per cent. and 7 per cent., which were mentioned on the tapes, increases over the 1986 budget approved by the Council in December 1985 or increases over the 1985 budget as approved last year by the Council and the Assembly?

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

My hon. Friend was right to make that point. As he well knows, that detail is not spelt out in the account we have been given. We have to rely on a statement from the Government for that, and it appears that no such statement is forthcoming. We believe, from rumour, that the Government would much prefer to hide behind a written statement made late on Friday afternoon and to hope that everyone has forgotten the whole thing by Monday morning. That will not happen. We shall press for a proper statement to be made tomorrow and we expect to hear tonight from the Economic Secretary more details of the budget.

I want the Economic Secretary to reply extensively to the debate, so I shall make only one more point. A further press report suggested that overseas aid had been cut by £40 million. In an effort to spend more on expensively produced and often wasted food in this Community, we are prepared to cut aid to the Third world. A British Minister was in Brussels engaged on that matter on the very day The Guardian reported that the Prime Minister opposed sanctions against South Africa. It reported the right hon. Lady as saying: I find nothing moral about them, sitting in comfortable circumstances, with good salaries, inflation-proof pensions, good jobs, saying that we … will put x hundred thousand black people out of work, knowing that this could lead to starvation". Frankly, such a description could well apply to those who decided on that very day to cut the overseas aid budget by another £40 million. That action showed the charade of the Prime Minister's words.

We want the Economic Secretary to tell us the truth about the budget, which has apparently been agreed. We should like a firm assurance that the 1·4 per cent. ceiling will not be exceeded this year and that neither he nor his right hon. and hon. Friends on the Treasury Bench will have the cheek to ask us for more money to be squandered this year in Europe.

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury 6:45 pm, 10th July 1986

I must confess that it would have been convenient for me, as well as for other hon. Members, if my hon. Friend the Minister of State, who has been attending these meetings, had been able to get back sooner. I might then not have had to deal with this debate.

I did not speak at the beginning of the debate because I felt that it was right that it should be introduced by my right hon. Friend the Member for Worthing (Mr. Higgins) as Chairman of the Select Commit tee on Treasury and Civil Service. I pay tribute to him and the members of his Committee and to my hon. Friend the Member for Ludlow (Mr. Cockeram) and the other members of the Select Committee on Public Accounts for their vigilance and for the way in which they express, through their reports and debates on statements of this kind, their concerns about the financial matters for which Ministers are responsible, especially the European Community. The Community's financial affairs are always of keen interest to the House.

It is a year since I was responsible for these matters but I note without surprise that the concern has not diminished in any way. I should like to respond to the points made by the hon. Member for Thurrock (Dr. McDonald) and made in points of order before the debate about the relationship of the 1986 budget to the Estimates.

It would be impossible and impractical for me to respond to hon. Members on the details of a budget whose process is due to be completed today at a meeting at which my hon. Friend the Minister of State represents the United Kingdom. I shall certainly convey to him the wishes of right hon. and hon. Members to hear about these measures, especially their details. So far as I know, my hon. Friend has not yet returned to the United Kingdom.

The debate is about the earlier payment, not of VAT own resources, but of levies and duties which are collected by all member states each month and which are normally payable to the Commission after about seven weeks—on the 20th clay of the second month following the month to which they relate. The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) referred to a procedure which, as I pointed out in an intervention, is based on article 10(2) of the 1977 regulations—my hon. Friend the Member for Southend, East (Mr. Taylor) correctly made that point — which imposes no obligation on member states to meet those requests for early payment. These early payments therefore cannot be paid—and it would not be proper for them to be paid․directly out of the Consolidated Fund. That is why today's procedure is adopted.

The Consolidated Fund is required to defray charges which may be made in the interim out of the contingencies fund. The sum of £930 million on the Order Paper and contained in the Estimates is not an aggregate sum. It is simply the amount of £130 million a month multiplied by the number of months for which it is brought forward. It is not, therefore, a loan. Several of my hon. Friends refer to this sum as a loan for the period. It is not; it is the equivalent of bringing forward the normal monthly figure of some £130 million of levies and duties for several months. That is why provision is taken to reimburse the contingencies fund for the payments already made and to enable provision to be made in the coming months if it is necessary to make payments out of the Consolidated Fund under the authority of the Estimates. If we did not have that, it would not be possible to do that when Parliament is not sitting.

There is no certainty that these sums will be required or that they will even be invited. I have been asked to comment on this point. When the Government receive a request for such funds they consider the request carefully. Such a request was received in March this year and after careful consideration we were not satisfied that the Community needed the funds. We reported that hack to the Commission and as a result the request was withdrawn.

This is not an automatic procedure. In recent years this procedure has been followed frequently because of the cash flow problems of the Community. I do not wish to disguise that fact in any way. There have been 21 occasions in the past three years when that has happened.

I would like to repeat the point that I made before this debate began.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

Will my hon. Friend explain these cash flow problems?

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

Before the debate began, I said, within the context of the points of order about whether it was proper to debate this matter today, that the use of this procedure of earlier payment of own resources after three weeks instead of seven weeks does not involve any increase in public expenditure. Nor does it involve any extra payment to the European Community because every time the procedure is used or a payment is made, there is automatically a compensating reduction in the liability of the member state to the Community on what otherwise would have been the due date. There is no accumulation and no absolute increase in the amounts of public expenditure.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

My hon. Friend is simply explaining the mechanisms. We want to know why this cash flow shortage occurred. What is being done to put it right for the future?

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) is never too patient in debates on this subject. If I am given the chance to do so, I will cover the other matters as quickly as possible, including that raised by my hon. Friend.

The cash flow during the current year has been affected by the exchange market. My hon. Friend the Member for Southend, East claimed that the decline of the dollar does not increase the cost of the CAP. It certainly does not increase the cost of the CAP on a one-for-one basis, but a change in the major trading currency of the world does have an effect on food prices and therefore creates a difference between world food prices and the intervention prices of the EEC.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

How does it have an effect?

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

It has an effect because food prices do not adjust immediately to reflect the change in any one currency. It takes time for the change to work through.

The original budget for this year was constructed on the basis of $1·2 to the ecu. That represented a considerable expected decline in the dollar exchange rate on the rate of $1·35 to the ecu which applied when the budget was first fixed. The dollar has now moved substantially lower and that has meant that there has been a need for further payments under the FEOGA guarantee scheme. That has been incorporated into the budget.

Several hon. Members asked me about budget discipline. Budget discipline is an important reinforcement to the restraints on Community expenditure. The increase due to the dollar change had to be agreed by all Finance Ministers as a special circumstance in this year's ECOFIN. No one has ever made a secret of the fact that such exceptional circumstances could arise. However, the fact that such exceptional circumstances may arise does not invalidate the agricultural guideline. The preliminary draft budget for 1987 has now been drawn up within the financial guideline. That undoubtedly has an effect on price fixing.

I do not claim that price fixing is sufficient to deal with all the problems of the CAP, which have been described so eloquently this evening. I believe, like my hon. Friends,that the CAP is in need of serious measures in terms of future price fixing and the structural arrangements for quotas and levies. Neither of these factors alone would be sufficient to deal with the seriousness of the problem of potential overspending in the CAP.

I was also asked about the implications of the budget for the United Kingdom. I remember occasions a year or so ago when I and some of my hon. Friends who are present today debated whether it would be right to agree to the Fontainebleau agreement. At that time some of my hon. Friends and others were sceptical when I assured them that, even if the 1 per cent. rate ceiling was raised to 1·4 per cent., the United Kingdom figure would still remain well below 1 per cent.—in fact, around 0·7 per cent. The 1986 budget—if it is concluded, as I imagine it will be, at or close to the 1·4 per cent. limit—would result in our contribution for this year being at a VAT rate of 0·68 per cent. That is lower than the figure that I quoted a year or so ago.

In answer to those who asked why my hon. Friend the Minister of State and I were prepared to contemplate a budget of this kind on Monday, I must stress that the illegal budget which the European Parliament passed last December would have involved this country in a VAT rate of 0·73 per cent. — substantially higher than the consequence of the budget before the Council this week. That justifies the Government's approach to the budgetary problems of 1986 and it bears out what we said to the House a year ago when we dealt with the Fontainebleau arrangements.

I believe that the 1·4 per cent. ceiling exerts an important control and restraint over Community expenditure.

Photo of Mr Eric Deakins Mr Eric Deakins , Walthamstow

How does it do that?

Photo of Mr Ian Stewart Mr Ian Stewart The Economic Secretary to the Treasury

That has been the case this year. Even before I went to the Budget Council meeting this week, I saw no case for an increase in the 1·4 per cent. ceiling. Having attended the Council meeting, I am fortified in the belief that this represents a very important restraint on the Community's finances. We have no commitment to increase it, and there is no presumption that we would do so. My view, which is shared by many hon. Members, is that the CAP still poses a threat to the finances of the Community and needs to be controlled with all the measures available for that purpose.

I have been asked about the Community's budget for 1986. I have no doubt that my hon. Friend the Minister of State will feel it right to convey to the House—

It being Seven o'clock, MR. SPEAKER, put the Questions necessary to dispose of proceedings on the Estimate, pursuant to the Order [4 July].

Question put, That the amendment be made:—

The House divided: Ayes 175, Noes 253.

Division No. 249][7 pm
AYES
Abse, LeoCrowther, Stan
Adams, Allen (Paisley N)Davies, Rt Hon Denzil (L'lli)
Aitken, JonathanDavies, Ronald (Caerphilly)
Anderson, DonaldDavis, Terry (B'ham, H'ge H'l)
Ashley, Rt Hon JackDeakins, Eric
Ashton, JoeDewar, Donald
Atkinson, N. (Tottenham)Dixon, Donald
Banks, Tony (Newham NW)Dormand, Jack
Barnett, GuyDouglas, Dick
Barron, KevinDover, Den
Beckett, Mrs MargaretDubs, Alfred
Bell, Stuartdu Cann, Rt Hon Sir Edward
Bennett, A. (Dent'n & Red'sh)Duffy, A. E. P.
Bermingham, GeraldDunwoody, Hon Mrs G.
Bidwell, SydneyEadie, Alex
Boothroyd, Miss BettyEastham, Ken
Boyes, RolandEdwards, Bob (W'h'mpt'n SE)
Bray, Dr JeremyEwing, Harry
Brown, N. (N'c'tle-u-Tyne E)Fatchett, Derek
Brown, R. (N'c'tle-u-Tyne N)Faulds, Andrew
Brown, Ron (E'burgh, Leith)Field, Frank (Birkenhead)
Budgen, NickFields, T. (L'pool Broad Gn)
Caborn, RichardFisher, Mark
Callaghan, Jim (Heyw'd & M)Flannery, Martin
Campbell, IanFoot, Rt Hon Michael
Campbell-Savours, DaleForrester, John
Canavan, DennisFoster, Derek
Clark, Dr David (S Shields)Foulkes, George
Clay, RobertFraser, J. (Norwood)
Clelland, David GordonGarrett, W. E.
Clwyd, Mrs AnnGeorge, Bruce
Cockeram, EricGilbert, Rt Hon Dr John
Cocks, Rt Hon M. (Bristol S)Godman, Dr Norman
Cohen, HarryGould, Bryan
Coleman, DonaldGow, Ian
Conlan, BernardHamilton, James (M'well N)
Cook, Frank (Stockton North)Hamilton, Neil (Tatton)
Cook, Robin F. (Livingston)Hamilton, W. W. (Fife Central)
Corbyn, JeremyHardy, Peter
Cox, Thomas (Tooting)Harman, Ms Harriet
Harrison, Rt Hon WalterPark, George
Hart, Rt Hon Dame JudithParry, Robert
Haynes, FrankPatched, Terry
Healey, Rt Hon DenisPavitt, Laurie
Heffer, Eric S.Ptmdry, Tom
Higgins, Rt Hon Terence L.Pike, Peter
Hogg, N. (C'nauld & Kilsyth)Powell, Rt Hon J. E.
Home Robertson, JohnPowell, Raymond (Ogmore)
Howarth, Gerald (Cannock)Randall, Stuart
Hughes, Dr Mark (Durham)Redmond, Martin
Hughes, Robert (Aberdeen N)Rees, Rt Hon M. (Leeds S)
Hughes, Roy (Newport East)Richardson, Ms Jo
Janner, Hon GrevilleRoberts, Allan (Bootle)
John, BrynmorRoberts, Ernest (Hackney N)
Jones, Barry (Alyn & Deeside)Robertson, George
Kaufman, Rt Hon GeraldRogers, Allan
Kilroy-Silk, RobertRooker, J. W.
Kinnock, Rt Hon NeilRoss, Ernest (Dundee W)
Lamond, JamesRost, Peter
Leadbitter, TedRowlands, Ted
Leighton, RonaldRyman, John
Lewis, Ron (Carlisle)Sedgemore, Brian
Lewis, Terence (Worsley)Sheldon, Rt Hon R.
Litherland, RobertShepherd, Richard (Aldridge)
Lofthouse, GeoffreyShore, Rt Hon Peter
Loyden, EdwardShort, Ms Clare (Ladywood)
McCartney, HughSilkin, Rt Hon J.
McDonald. Dr OonaghSkinner, Dennis
McKay, Allen (Penistone)Smith, Rt Hon J. (M'ds E)
McKelvey, WilliamSnape, Peter
MacKenzie, Rt Hon GregorSpearing, Nigel
McTaggart, RobertStewart, Rt Hon D. (W Isles)
McWilliam, JohnStrang, Gavin
Madden, MaxStraw, Jack
Marek, Dr JohnTaylor, Teddy (S'end E)
Marlow, AntonyThompson, J. (Wansbeck)
Martin, MichaelTorney, Tom
Mason, Rt Hon RoyTownend, John (Bridlington)
Maxton, JohnWareing, Robert
Maynard, Miss JoanWeetch, Ken
Meacher, MichaelWelsh, Michael
Michie, WilliamWhite, James
Mikardo, IanWilliams, Rt Hon A.
Millan, Rt Hon BruceWinnick, David
Miller, Dr M. S. (E Kilbride)Young, David (Bolton SE)
Moate, Roger
Morris, Rt Hon A. (W'shawe)Tellers for the Ayes:
Morris, Rt Hon J. (Aberavon)Mr. Eric Forth and
Nellist, DavidMr. John Watts.
O'Brien, William
NOES
Adley, RobertBrandon-Bravo, Martin
Alton, DavidBright, Graham
Amess, DavidBrinton, Tim
Ancram, MichaelBrowne. John
Arnold, TomBruinvels, Peter
Ashby, DavidBryan, Sir Paul
Ashdown, PaddyBuck, Sir Antony
Atkinson, David (B'm'th E)Burt, Alistair
Baker, Rt Hon K. (Mole Vall'y)Butler, Rt Hon Sir Adam
Baker, Nicholas (Dorset N)Butterfill, John
Baldry, TonyCarlile, Alexander (Montg'y)
Banks, Rooert (Harrogate)Carttiss, Michael
Batiste, SpencerCash, William
Bellingham, HenryChalker, Mrs Lynda
Bendall, VivianChope, Christopher
Benyon, WilliamChurchill, W. S.
Best, KeithClark, Dr Michael (Rochford)
Biggs-Davison, Sir JohnClark, Sir W. (Croydon S)
Blackburn, JohnClarke, Rt Hon K. (Rushcliffe)
Blaker, Rt Hon Sir PeterClegg, Sir Walter
Bonsor, Sir NicholasColvin, Michael
Boscawen. Hon RobertCoombs, Simon
Bottomley, PeterCope, John
Bottomley, Mrs VirginiaCorrie, John
Bowden, A. (Brighton K'to'n)Couchman, James
Bowden, Gerald (Dulwich)Cranborne, Viscount
Boyson, Dr RhodesCritchley, Julian
Braine, Rt Hon Sir BernardCrouch, David
Currie, Mrs EdwinaLamont, Rt Hon Norman
Dickens, GeoffreyLatham, Michael
Dorrell, StephenLawler, Geoffrey
Douglas-Hamilton, Lord J.Lawrence, Ivan
Dunn, RobertLeigh, Edward (Gainsbor'gh)
Durant, TonyLennox-Boyd, Hon Mark
Dykes, HughLester, Jim
Eggar, TimLilley, Peter
Emery, Sir PeterLivsey, Richard
Eyre, Sir ReginaldLloyd, Sir Ian (Havant)
Fallon, MichaelLloyd, Peter (Fareham)
Favell, AnthonyLord, Michael
Fenner, Mrs PeggyLyell, Nicholas
Fookes, Miss JanetMcCrindle, Robert
Forman, NigelMcCurley, Mrs Anna
Forsyth, Michael (Stirling)Macfarlane, Neil
Fox, Sir MarcusMacGregor, Rt Hon John
Fraser, Peter (Angus East)MacKay, Andrew (Berkshire)
Freeman, RogerMacKay, John (Argyll & Bute)
Freud, ClementMcNair-Wilson, P. (New F'st)
Gale, RogerMajor, John
Galley, RoyMalins, Humfrey
Gardiner, George (Reigate)Maples, John
Garel-Jones, TristanMarland, Paul
Gilmour, Rt Hon Sir IanMarshall, Michael (Arundel)
Glyn, Dr AlanMates, Michael
Goodhart, Sir PhilipMather, Carol
Goodlad, AlastairMawhinney, Dr Brian
Gorst, JohnMellor, David
Grant, Sir AnthonyMeyer, Sir Anthony
Greenway, HarryMills, Sir Peter (West Devon)
Gregory, ConalMorris, M. (N'hampton S)
Grist, IanMorrison, Hon C. (Devizes)
Grylls, MichaelMoynihan, Hon C.
Gummer, Rt Hon John SNeale, Gerrard
Hamilton, Hon A. (Epsom)Needham, Richard
Hampson, Dr KeithNelson, Anthony
Hancock, MichaelNeubert, Michael
Hanley, JeremyNicholls, Patrick
Hannam, JohnNorris, Steven
Hargreaves, KennethOnslow, Cranley
Harris, DavidOppenheim, Phillip
Harvey, RobertOttaway, Richard
Havers, Rt Hon Sir MichaelPage, Sir John (Harrow W)
Hawkins, Sir Paul (N'folk SW)Page, Richard (Herts SW)
Hayes, J.Patten, Christopher (Bath)
Hayhoe, Rt Hon BarneyPawsey, James
Hayward, RobertPortillo, Michael
Heathcoat-Amory, DavidPowell, William (Corby)
Henderson, BarryPowley, John
Hickmet, RichardPrice, Sir David
Hicks, RobertRaison, Rt Hon Timothy
Hind, KennethRathbone, Tim
Hogg, Hon Douglas (Gr'th'm)Renton, Tim
Holland, Sir Philip (Gedling)Rhodes James, Robert
Holt, RichardRhys Williams, Sir Brandon
Howard, MichaelRidsdale, Sir Julian
Howarth, Alan (Stratf'd-on-A)Robinson, P. (Belfast E)
Howell, Rt Hon D. (G'ldford)Roe, Mrs Marion
Howell, Ralph (Norfolk, N)Rowe, Andrew
Howells, GeraintRumbold, Mrs Angela
Hunt, David (Wirral W)Ryder, Richard
Hunt, John (Ravensbourne)Sackville, Hon Thomas
Hunter, AndrewSainsbury, Hon Timothy
Irving, CharlesSt. John-Stevas, Rt Hon N.
Jackson, RobertSayeed, Jonathan
Johnson Smith, Sir GeoffreyShaw, Giles (Pudsey)
Johnston, Sir RussellShaw, Sir Michael (Scarb')
Jones, Gwilym (Cardiff N)Shelton, William (Streatham)
Jones, Robert (Herts W)Shepherd, Colin (Hereford)
Jopling, Rt Hon MichaelShersby, Michael
Kennedy, CharlesSilvester, Fred
Kershaw, Sir AnthonySims, Roger
Key, RobertSkeet, Sir Trevor
King, Rt Hon TomSmith, Sir Dudley (Warwick)
Kirkwood, ArchySmith, Tim (Beaconsfield)
Knight, Greg (Derby N)Soames, Hon Nicholas
Knight, Dame Jill (Edgbaston)Speed, Keith
Knowles, MichaelSpencer, Derek
Knox, DavidSpicer, Jim (Dorset W)
Spicer, Michael (S Worcs)Vaughan, Sir Gerard
Stanbrook, IvorViggers, Peter
Steel, Rt Hon DavidWaddington, David
Steen, AnthonyWakeham, Rt Hon John
Stern, MichaelWallace, James
Stevens, Lewis (Nuneaton)Waller, Gary
Stewart, Allan (Eastwood)Walters, Dennis
Stewart, Andrew (Sherwood)Ward, John
Stewart, Ian (Hertf'dshire N)Wardle, C. (Bexhill)
Sumberg, DavidWarren, Kenneth
Temple-Morris, PeterWatson, John
Terlezki, StefanWells, Bowen (Hertford)
Thatcher, Rt Hon Mrs M.Wheeler, John
Thomas, Rt Hon PeterWhitfield, John
Thompson, Donald (Calder V)Wolfson, Mark
Thompson, Patrick (N'ich N)Wood, Timothy
Thurnham, PeterYeo, Tim
Tracey, Richard
Trippier, DavidTellers for the Noes:
Twinn, Dr IanMr. Gerald Malone and
van Straubenzee, Sir W.Mr. Francis Maude.

Question accordingly negatived.

Main Question put and agreed to.

Resolved.That a supplementary sum, not exceeding £930,000,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges which will come in course of payment during the year ending on 31st March 1987 for expenditure by the Treasury in connection with payments to the Budget of the European Communities not covered by direct charges on the Consolidated Fund under section 2(3) of the European Communities Act 1972, as set out in House of Commons Paper No. 439.