Federalists will say good, but this conflict has to be resolved. I hope that when we are in Government after the next election we will be determined not to kowtow to EEC rules and regulations. We shall ensure that the Labour Government will be able to carry out the policy on which they will be elected, without regard to Common Market rules and regulations.
There are two major issues in this debate. With respect to the Minister—I am sorry she has left the Chamber and that she will be replying to the debate — in this debate we are commenting on budget procedures and financial control measures. It would have been helpful if the Minister of State had replied, because he does know his subject. He has made a couple of interventions, but he is rather restricted. This report says that the 1986 budget was disputed. The 1987 budget is also disputed. There is increasing — I hesitate to use the word "chaos" —financial uncertainty about the future economic and financial development of the Community. My hon. Friend the Member for Dunfermline, East (Mr. Brown) made the very good point that no one knows what will happen next year on the budget and on financing of Community expenditure.
One of the problems in the disputed budget last year and this year is the attitude taken by the European Assembly. The Assembly is spendthrift because Members of the Assembly, no matter how distinguished they may be, like the new President, have no responsibility for raising money. In my opinion—I hope it will eventually become the opinion of my party—they should have no responsibility for spending money. They have power at the moment to influence expenditure, without any responsibility whatsoever to answer to taxpayers in individual countries for the raising of that money. It is for national Parliaments to control EEC expenditure. It is representative Members of national Parliaments who are responsible for the raising of the money and answerable to the electorate, not members of the European Assembly.
In paragraph 2·15 we are told that in future the budget is to take account of the cost of the past. Is that not a defeat for a point of view that used to be put forward by Her Majesty's Government—that they did not recognise that the cost of the past ought to be a factor in budget considerations from year to year, and that there ought to be some other way of dealing with it?
Even worse, we are entering a period of deficit financing for the EEC, although that is illegal under the treaty of Rome. On 24 November the Minister of State said:
There is no question of expenditure in the draft 1987 budget exceeding that allowed under the 1·4 per cent. VAT ceiling. If the funds are not available, they cannot be spent and expenditure over the VAT ceiling would have to be cancelled or deferred." — [Official Report, 24 November 1986; Vol. 106, c. 107.]
Can anyone in their right mind believe that spending towards the end of next year will be cancelled, and how can spending on the common agricultural policy possibly be deferred? There must be some other solutions.
Her Majesty's Government, before Christmas, were casting around for expedients, as the hon. Member for Southend, East said in his excellent speech, to try to square the circle, to prove that with less income than budgeted expenditure one can overcome that deficiency. The same problem faces a number of Labour councils, especially in London. It is surprising that the Government should be lambasting those Labour councils for doing something that they are encouraging the European Community to do, of which they are a principal member. There is a great deal of optimism on the Government Benches about the 1·4 per cent. VAT limit. That paragraph, and it is rather mealymouthed, says:
it was generally recognised that these, and other, pressures would have to be contained within the 1·4 per cent. VAT ceiling.
Why are those words "generally recognised" used? Are they not a euphemism for the fact that it is not generally agreed? If it was generally agreed, the Government would surely have use the word "agreed" in that sentence in that paragraph. The Government's attitude towards the budget next year and the programmes it will bring with it represent once more, as in 1986, a triumph of hope over experience.
In 1987 will we have a supplementary budget or an intergovernmental agreement? The Minister of State, Foreign and Commonwealth Office suggested that the financial crisis might be resolved in one of these two ways. I remind the Foreign and Commonwealth Office and the Minister and the Government that the Prime Minister has set her foot firmly against the idea of intergovernmental agreements. The Prime Minister, in the statement on the European Council in London, said:
If one goes in for more intergovernmental arrangements, one fundamentally undermines the discipline." — [Official Report, 8 December 1986; Vol. 107, c. 27.]
I hope that those responsible in Britain for tackling these budgetary crises will bear in mind the very wise words of the Prime Minister on that occasion. Unquestionably intergovernmental agreements have undermined budgetary discipline and led to the postponement of the real issues of the future financing of the Community.
That is not all. In the debate on 24 November, which was a rather more technical debate—I have no intention of going over the points I made then, to which the Minister of State, Treasury was kind enough to try to reply—I said that there are a lot of things wrong with the budgetary and financial procedures in the EEC.
I want to draw attention to one aspect which bridges the gap between what happens on the budget and what happens on the common agricultural policy. In paragraph 3·15 of this report there is reference to the representative rates under the common agricultural policy. These have been devalued by most member states of the Community. In that paragraph there is no estimate whatsoever of the cost of devaluing the representative rates, yet there is unquestionably a cost to the Community which could have been estimated and was not. Our Government should have insisted that cost estimates were presented to the Council by the Commission before a decision was made by the Agriculture Ministers, no doubt subsequently approved by Finance Ministers, to approve the devaluation of representative rates. This is another means whereby the impact of the CAP is partly disguised. There is a hidden cost there and we do not yet know what it will be.
Finally, I turn to paragraph 2·19, where there is a reference to changes in the relationships of currencies to each other in the existing exchange system of the European monetary system. The hon. Member for Berwick-upon-Tweed (Mr. Beith), who spoke on behalf of the Liberal party and possibly the alliance, did not understand the system because he talked about Britain not being a member of the European monetary system. He should know by this time that Britain is a member of the European monetary system, but not of the exchange rate mechanism of that system.
The European monetary system is in chaos because the system cannot cope without constant realignments, having set rates of relationships between different currencies. There is some flexibility, but every year or every two years it will be necessary to change the balance completely. My objection is not to that—that might be inevitable under any system— but changing alignments of rates distorts the whole financial control over what goes on in the EEC. Every time the rates are changed, as they were last autumn between France and Germany, and also between the states in West Germany, with a devaluation of one currency and a revaluation of another, that increases the cost of operating the Common Market by raising the costs of the common agricultural policy. I shall come back to that in a moment.