[Relevant documents: European Community documents Nos. 9392/87 on the fight against fraud affecting the Community budget, 9130/87, Court of Auditors' special report No. 2/87 on the quota/additional levy system in the milk sector and the unnumbered explanatory memorandum submitted by the Ministry of Agriculture, Fisheries and Food on 4 December 1987 concerning Court of Auditors' special report No. 4/87 on Community wine distillation schemes.]
I beg to move,
That this House takes note of the Annual Report of the European Court of Auditors on the financial year 1986, together with the replies of the Institutions; and approves the Government's continued efforts to press for effective Budget discipline and proper financial control of Community expenditure.
The annual report of the Court of Auditors provides an invaluable opportunity for the House, and the Community more generally, to consider the effectiveness with which the Community manages and controls the very substantial resources at its disposal.
Our debate this year takes place in the light of the wide-ranging agreement on the future financing of the Community that was reached at the Brussels European Council. I am sure that the House will bear that in mind in its scrutiny of the report, which concerns the implementation of the budget in 1986.
A great deal has changed since 1986. What has not changed, however, is the important contribution to our deliberations on all Community matters that is made by the Select Committee on European Legislation. I pay tribute to its work, which is exemplified by its lucid and helpful report on the Court of Auditors' report.
The court's role is to examine the legality and regularity of Community receipts and expenditure, and to assess the management and effectiveness of the Community budget. The annual report is the basis on which the European Parliament decides whether to grant a discharge to the commission for its implementation of the Community budget, as described in the explanatory memorandum that I submitted to the House on 25 January.
The European Parliament takes account of, but is not bound by, the discharge recommendation of the Council of Ministers. The Council, in turn, bases its recommendation on the report of its budget committee, which is prepared after thorough discussions throughout January and February each year. The Economic and Finance Council will be discussing the court's report next Monday, 7 March. Tonight's debate will help to determine the Government's position for that Council, where I shall represent the United Kingdom.
I will have the benefit at the Council of the insights gained from an instructive and valuable visit that I paid to the European Court of Auditors a month ago. In the course of that visit, I expressed my strong support for the court's increasing efforts to tackle fraud. I emphasised the contribution that the court can make on the subject of value for money in the Community budget. I was struck by the range and complexity of the court's task, but I came away with a clear impression of the court's strong sense of independence and determination to execute its role.
As to the contents of the 1986 report, I propose to concentrate on a number of the most important issues identified by the court. They are the imbalance between expenditure and revenue, the excessive growth of agricultural expenditure, the burden of the past, budget management, and fraud. I shall also touch on spending on aid from the European development fund and the Community's food aid programme.
First, the court says that in 1986, for the third year running, there was an imbalance between expenditure and revenue. On the court's analysis, that imbalance, which it believes lies at the heart of the Community's financial difficulties, had two causes: first, the failure of the 1984 budget discipline conclusions to controlexpenditure—above all, agricultural expenditure — and, secondly, a revenue ceiling which, the court believes, was artificial and which took insufficient account of the Community's financing needs.
The Government fully share the court's concern about the control of expenditure, but we believe there may be an inconsistency in its attitude to the ceiling on resources. It would not have solved the Community's problems to have simply increased the own resources ceiling to accommodate accelerating expenditure. That would have led to the Community's finances running completely out of control. It is why, in the recent negotiations on future financing, the Government insisted that, before there could be any agreement to increase Community resources, there had to be a new, binding system of budget discipline combined with effective policy instruments. It was only because we are able to secure the necessary reforms that we felt it right to agree to an increase in the Community's resources.
The court says that, because of almost unlimited and automatic support for prices, the growth of agricultural spending outstripped Community resources. The court fears that this will continue to be the case, particularly in view of the mountains of surplus produce waiting to be depreciated or disposed of. The court appeals to the budgetary authority to start providing for depreciation in the 1988 budget.
Those strictures about agricultural expenditure were, of course, absolutely appropriate in the context of the 1986 budget, and the same criticisms could be made about the situation in 1987. But we now have the machinery to ensure that, from this year onward, things will begin to change. That machinery has four main components: first, a legally binding guideline on agricultural guarantee expenditure, which will henceforth grow more slowly than Community GNP; secondly, automatic stabilisers in all the main product regimes, under which cuts in support prices for the main commodities will be automatically imposed if production exceeds predetermined levels; thirdly, specific budgetary provision — outside the guideline—to finance the disposal of outstanding stocks; and fourthly, agreement that new stocks will be systematically depreciated when they are established.
The main message from all this, in terms of the Court of Auditors' specific concerns, are that the days of automatic and unlimited price support are over, and that the Community is prepared at long last to adopt a coherent accountancy system for stock depreciation.
Next, there is the question of the Community's outstanding liabilities. Following criticisms made in the court's 1985 report, the Commission adopted an improved presentation of the position in 1986, which showed that outstanding liabilities and potential expenditure had grown from 20 billion ecu in 1985 to 34 billion ecu in 1986 — on the Commission's reckoning. That is indeed a worrying statistic, but it requires closer analysis.
Only 40 per cent. of that total reflects outstanding legal commitments. Around 20 per cent. represents the costs associated with agricultural stocks, which I have already discussed. The remainder is potential expenditure on programmes such as R and D and the structural funds, for which commitments are inevitably entered into some time before the associated payments fall due. It is not therefore very meaningful to aggregate the various liabilities into a single figure. Some may never come to fruition; others are a natural result of multi-annual programme planning; others again are simply the result of ensuring that money is not spent earlier than necessary.
It is none the less vital to avoid any recurrence of the major imbalance between commitments and payments that was allowed to build up in the early 1980s, and whose correction contributed to the big rise in non-compulsory expenditure in the 1986 budget, Here, too, the European Council agreed important reforms for which the Government had been pressing. First, a ceiling has been placed on the overall level of commitment appropriations. Secondly, unused appropriations will no longer be automatically carried over from one year to the next. Thirdly, moribund commitments will be cancelled, other than in tightly defined circumstances.
The reforms will also help to improve the transparency of the Community budget, by bringing about a closer identification between what is actually spent in any given year and the level of budgetary provision for that year. The need for transparency and annuality has rightly been emphasised by the court over the years. The report before us draws particular attention to the so-called "negative reserve". This expedient, first introduced in 1986, is a device which, in the last couple of years, threatened to get out of hand. It is especially gratifying that, at the United Kingdom's instigation, the European Council has now agreed to impose a limit of 200 mecu on the level of any such reserve.
Turning to the important issue of fraud, the Government welcome the initiative shown by the court in devoting a whole chapter of its annual report to this question. The chapter looks at the two main areas of fraud and irregularity — the collection of traditional own resources and agricultural guarantee payments. The court is concerned at the low level of reporting of irregularities by member states. On traditional own resources, reporting is scanty, unsystematic and irregular. The pattern of reporting on agricultural fraud is better but still variable. The court says that only 311 cases, involving about £20 million, were reported in 1986. It observes that the Commission was unable to ensure that all member states had reliable systems for notifying fraud and irregularities. The court proposes a number of reforms, including the setting up of a co-ordinating unit in the Commission and more systematic monitoring of member states' performance in the fight against fraud.
The Goverment fully share the court's concern, the timeliness of which was recently underlined by, among other things, the "Panorama" programme's vivid report on CAP fraud. The United Kingdom is committed to the fight against fraud, whether in this country or in other member states. My right hon. Friend the Minister of Agriculture, Fisheries and Food stressed that point at the Agriculture Council last month. It should be noted that the court does not challenge the fundamental principle that member states are, and must remain, the first line of defence against fraud. Only they have the necessary powers and resources. The Commission is responsible for checking that member states have adequate arrangements.
It is important that the Commission should make maximum use of the powers at its disposal, and the Government are ready to consider sympathetically any cost-effective proposals which the Commission may make for new or enhanced powers to improve co-operation, monitoring, reporting or compliance. We welcome the fact that, as recommended by the Court of Auditors and described in the explanatory memorandum which I submitted to the House on 29 January, the Commission has decided to set up a new unit to co-ordinate anti-fraud activities. We shall take a particularly close interest in the unit's role and performance.
Hon. Members will be aware that other, more radical proposals for combating fraud have been made. For example, the court suggests that the Commission should be allowed to intervene as plaintiff in national cases, and the European Parliament's budgetary control committee, which has contributed a great deal to our understanding of the problem of fraud, has proposed so-called flying squads of Commission inspectors, with powers of entry and search in member states. Such proposals pose important questions about the point at which to draw the boundary between Community competence and national independence. Our debate will no doubt be enlivened by comments on that issue from all parts of the House.
The court also looks at the European development fund. No evidence of widespread or serious mismanagement is uncovered, but there are a number of recommendations for improvements. In many cases, however, the Commission has replied that reforms have already been, or are about to be, introduced. I believe that the court could play a more valuable role if it were able to identify areas, particularly in the Commission's aid management systems, in which reforms might lead to improvements in the effectiveness of the aid being provided.
On food aid, the annual report brings out the need for improved co-ordination between donors and better assessments of food aid requirements. The court also dealt with food aid in some detail in a special report issued in August 1987, which severely criticised the performance in 1981–85. Most of the shortcomings indentified were corrected in the 1986 policy regulation agreed under the United Kingdom Presidency, or the subsequent Commission regulation on purchase and shipment. These new regulations have led to substantial improvements.
In conclusion, the Government share much of the Court of Auditors' concern about the management of the Community budget in 1986. We shall continue to press for the application to the Community's finances of the same discipline and standards as we apply to national public expenditure. The reforms agreed at the Brussels European Council represent an important. step in this direction. The court can feel justifiably proud that those reforms directly address so many of its recent preoccupations. I therefore commend the report to the House and look forward to hearing the views of hon. Members.
While wishing to give credence to the seriousness with which the Government treat these issues of accountability in the use of public funds in the private sector in the Community, I must say that we are struck by the timing of the debate. At 1.15 am, after two orders, it is hardly likely or feasible for hon. Members to be present for the debate, because many of them must be in Committee or have other commitments in the House tomorrow. This debate should take place in prime time rather than in the early morning.
The Paymaster General referred to the Government's commitment to gaining reductions in agricultural spending, and to the failure of the system set up at Fontainebleau. It is worth drawing to the attention of the House just what a failure that was. Agricultural spending has increased by two and a half times since Fontainebleau, despite the fact that we were assured that over-spending would be controlled.
We support the case for stabilisers, and we are aware of the way in which they should work, but we do that very much in the way that Mr. Giscard d'Estaing once supported General de Gaulle by saying: "Yes, but." The "but" is that there is a strong case for production limits. There is now a strong case in the Community for applying the kind of deficiency payment system that obtained in this country before we joined the European Community.
At the time of the signing of the Rome treaty in 1957, one in four of the working population of the Community were employed in agriculture. The argument then was that there were so many farms and small units in agriculture that the application of a production limits system on the deficiency payments basis simply would not be administratively feasible and the costs would exceed the benefits. However, that is no longer the case. The total working population in agriculture in the original six members of the Community is now down to about 5 per cent. For the Community of 10, before the accession of the Mediterranean countries, the figure is about 7 or 7.5 per cent. It is now entirely feasible to apply a deficiency payments system in the Community. We believe that that relates to the kind of analysis that the Court of Auditors has made of the social and regional funds.
Without elaborating on the point in great detail, the agricultural budget for 1986 amounted to precisely two thirds of Community spending, while the regional fund accounted for only 7.6 per cent. of total spending. If we are to get the kind of reform that will allow us to tackle over-spend properly, and if besides we can get a benefit for the consumer through lower prices — and overwhelmingly more than nine tenths of the population in the Community are now urban consumers — we should recommend that the Government urge in the Community that prices be lowered and that the level of production grants be related to the size of fund.
Many people on a five to 20 hectare farm in a family self-employed operation enjoy a decent standard of living, and many enjoy a standard of living equivalent to that of workers in industry. But others do not enjoy such a standard of living. The average age of the farming community has risen and in many cases is between 55 and 60—close to retirement age.
There is a case for shifting resources from the agricultural fund to the social and regional funds, as that would allow us to avoid causing such a report from the auditors, which has stressed the overrun of farm spending. The excellent Select Committee on European legislation report also stated that the continued accumulated surplus stocks over the years is high and stays high. If the overrun is to be reduced by the stabilisers, it still will not tackle the fundamental problems of excessive expenditure.
I tabled an amendment concerning fraud. We think that that is appropriate and important, inasmuch as it is crucial to stress to the Commission the importance of developing appropriate action to deal with fraud and to emphasise that in the debate. I hope that the Minister will be able to accept the substance of that amendment. I accept that the measures concerned would be within the present Community framework rather than the extended Community framework. We share the view that it is appropriate for the Community to do best what it can best do. However, that does not mean that it should infringe the autonomy of member states in their pursuit of policies to combat fraud.
However, we should distinguish, in the case of agricultural support, between big and small farms. There is a difference between the smallholder, where it is most appropriate for the Community as a whole if the Governments monitor the process of fraud, and multinational agri-business. I stress that. Multinational agri-business is integrated from production through processing, transport, distribution and retailing, and it is easier in such firms for frauds to be perpetuated. That does not apply to the cruder frauds, such as importing meat from Argentina and recycling it as allegedly Community produce, but it does apply to techniques such as transfer pricing. Under-invoicing and over-invoicing are much harder to detect in multinational companies. In that context, the Community should be playing a role by supervising the transactions. It should be gaining transparency. That is considered extremely important in general in terms of articles 85 and 86 of the Rome treaty. The Community should be gaining transparency on such transactions, many of which at present remain opaque.
On the matter of the European regional development fund, it is notable that the report from the Court of Auditors states:
The financing of small projects by the ERDF where necessary could take place within the context of national programmes of Community interest since the procedure used for the approval and administration of these programmes should give access to more appropriate information.
We agree, again, that it is appropriate for the monitoring to be done nationally rather than by the Community. However, the process should be extended.
That refers also to the spending by the European Investment Bank, which should be considering joint ventures between regional enterprise boards in the Community. Regional enterprise boards exist in, for example, Catalonia in Spain, Emilia Romagna the German Laender and the west midlands and Lancashire in the United Kingdom. If there is an area where expenditure would be merited, it would be the funding of research projects, such as that which the Court of Auditors analyses, into that sort of linking joint venture approach of regional enterprise boards, which have shown such success in the effective use of public money in regional development in several countries of the Community.
It is time for a major review of the European development fund and the Community aid programmes for developing countries. The report of the Court of Auditors is not adequate. The slowest institution to evaluate, approve and monitor projects of virtually any of the international multilateral aid agencies is the European Commission. Delays of weeks or months occur. For example, tragically, for months there were delays during the last famine in 1984–85 in the horn of Africa whereas a national Ministry of Overseas Development could take a decision within days or hours.
That is the description of the kinds of delay that occur even for emergency relief programmes. If the Community's concept of emergency runs from weeks to months, it is not surprising that other programmes underspend year after year. The implication is that there should be a major review of the development spending by the Community. If there is a subject that merits a specific research programme—perhaps on an international basis between established overseas development institutes in different countries—it is the EDF programme.
The Court of Auditor's report alone can hardly cover the full implications of research and development, but it is clear that a transmission mechanism is missing for translating research and development into innovation in new investment projects which thereby serve on a coherent and major basis the objective of a European industrial strategy. Again I stress that we share the Government's attitude that such projects should be international rather than supranational. But the transmission belt between R and D and effective innovation too often is missing.
I have referred to the case for distinguishing between expenditure by larger and smaller enterprises—multinational major firms on the one hand and regional or local minor firms on the other. The Commission should attend to this matter, because there are different problems of gaining transparency on the use of public funds for different kinds of enterprise which themselves have qualitatively different roles. That goes, of course, not just for agri-business, but for other multinational enterprises in the Community as a whole.
At the moment there is not even an accounting by the Commission for the role of a single multinational enterprise in the Community as a whole. It is ridiculous that, after so long, and after the Community has published competition studies, which would not just cover the floor of the Chamber but would be piled several feet high, competition is analysed in the Community purely on a national basis. Instead of it being possible to gain transparency for the Community as a whole in the operations of a company such as IBM or any other major multinational, we are given the divided parts of IBM for a dozen individual countries. This is another area in which the Community should be taking more action. It would be of merit to put resources into research and methodology projects which make possible more transparency of the activities of such firms in the Community.
At this time of night, looking across at several Conservative Members, I am reminded of a member of the other place who dreamt one night that he was speaking there and woke to find that he was. I wish those Conservative Members well in their contributions and I hope that the Minister will accept the spirit of our amendment.
Hon. Members' attention can be drawn to documents in strange ways. The special report of the Court of Auditors was drawn to my attention in a strange way by a farmer whom I met in Ashbourne at a meeting of the National Farmers Union. British farmers say that they understand the problem of trying to balance production with consumption, but they want to be treated like other Community members. They have long argued that they are not treated as fairly as other members of the Community. That would appear to be the case, from studying paragraph 5.47 on page 57 of the Official Journal of the Communities which states:
The overall objective of the quota/additional levy system is to re-establish a balance between production and consumption of milk and milk products. The estimated budgetary cost of disposing of the surplus production of milk, which in 1986 was evaluated at 9.6 Mio tonnes, is at least 2688 Mio ECU.
The journal goes on:
At the end of 1986 the situation was so serious that the Council had to adopt a comprehensive package of measures tightening up the quota/levy system, restricting the scope of intervention for butter and skimmed milk powder, and providing for a special disposal programme to sell 1 Mio tonnes of butter at very low prices. In its opinion No. 1/87 (23) the Court has expressed disagreement with the financing, arrangements.
5.49. While in general Member States adopted arrangements to implement the system which were in accordance with the regulations as they existed, there were a number of exceptions which directly affected the achievement of the system's objectives:
The journal refers to five countries, so it is no wonder that British farmers occasionally think that they do not get a fair deal.
I am grateful for the way in which my right hon. Friend the Paymaster General responded to the report by saying that it was important that the recommendations of the Court of Auditors should be put into operation. The court shows those areas in which Community legislation is not being applied. We can use that as ammunition to press the Government, the Commission and the Community to take positive action to ensure that British farmers get a fair deal. I hope that my right hon. Friend will pursue that matter in the negotiations on which he is about to embark.
May I first put on record my continuing view that we make poor provision for discussion of Community affairs in the House. I entirely agree with the hon. Member for Vauxhall (Mr. Holland) that it is plumb crazy to begin a debate on anything at all at this time of night. I observe that members of the Press Gallery have sensibly gone to bed, so there will be zilch coverage in any of the media, and there will be no way in which what we say here will be forwarded on for any discussion. Putting these important matters on so late is a sign of the unwillingness of the Government to discuss them fully and sensibly, something about which hon. Members on both sides of the House and of the argument could make common cause. We are talking about a document of 261 pages. It has to be discussed in one and a half hours, and it is now 1.35 am. That is not a sensible way to run a country. Today there were questions to the Foreign and Commonwealth Office. No longer do we have any reserved segment of those questions for European Community affairs. We had one question today, and last month we had none because of the vagaries and caprices of the ballot system That should be changed, and the Minister should convey that view to the Leader of the House and the Government managers.
I am glad that the hon. Gentleman has raised this matter. Can we take it that that is not only his view but that of all his hon. Friends, because it is not only a party matter but one which concerns many people? A regular 20 minutes used to be set aside for EEC questions, but that time has gone.
The hon. Gentleman does hard work on the Scrutiny Committee. It is the view of the Liberal party. We formally objected to the change when it took place.
The hon. Gentleman may fear that, because he is a Whip, he cannot properly intervene, although I know that he would love to. I can assure him that it is also the view of those who will remain in the Liberal party, continuing in the arms of others.
The Brussels agreement came after the end of the period to which the report refers, and it is relevant as it deals with all the fundamental problems raised in the report. I know that the Prime Minister was criticised, but the Government's conduct at the Brussels summit was good. The Liberals have always said that if Britain were prepared to give a little on some points, it could reasonably expect other European countries to do the same. That is what happened at Brussels. If the Prime Minister is now under criticism from her Back Benchers—although I note that some of her more notable critics are not here — the blame for this must lie squarely at her own door because of the public saber-rattling in which she indulged before the summit, and her fondness for confrontation.
As for the Labour party, the change in its approach, which has been signalled in various well-publicised so-called secret guideline documents emanating from the office of the Leader of the Opposition, did not seem to have reached the attention of the Labour spokesmen on European affairs. Their response to Brussels—I exclude from this criticism the hon. Member for Vauxhall—was to try to be more nationalist than the Prime Minister, which is a pretty formidable task, rather than to address themselves to the need for accommodation and balanced negotiation, without which the Leader of the Opposition's goal of a Socialist Europe does not have any chance of even getting on the agenda.
The agreement is to be welcomed, in that it introduces a number of crucial changes which have long been advocated, not least by the Commission, but on which the Governments of the Community have never before agreed. The first is the limitation of the common agricultural policy expenditure to a progressively smaller share of the budget—reaching, it is hoped, 50 per cent. by 1992 as opposed to 70 per cent. now.
The second is the provision of increased resources which are politically and socially essential for the success of the common internal market, particularly to the structural funds—although I think it is worth noting that the increase in the social fund could be of great benefit in rejuvenating the inner cities of the United Kingdom. The help to Portugal and Greece is also politically and socially vital to the cohesion of the Community.
The third is the Community's own resources: the automatic payments to member states will in future specify a percentage of the country's gross national product as opposed to value added tax. This is a change to a much simpler and more equitable system, about which I have spoken over many years in these debates.
The auditors are critical of the fact that the Community has, in reality, run a budget deficit, and thus broken its own rules. It is very important, in the general debate about these things—because the Commission is always blamed—to emphasise that the Commission is not the culprit. The culprit is the Council of Ministers, which has been responsible for agreeing to these things. That includes our own Government.
I remember very well the late David Penhaligon reminding us, immediately after the introduction of milk quotas, that about six months earlier the then Minister of Agriculture had gone to his constituency to speak to a National Farmers Union meeting, and had said that dairy producers must be encouraged to expand. Six months later we had milk quotas.
So it is really not good enough for the Government to condemn the Commission, or for critics of the European Community on the Government Benches to condemn the Community as a whole, for profligacy, when they themselves contributed to that very profligacy.
I understand the hon. Gentleman's point about the Council of Ministers, but is it the policy of whatever the new party is to be called to continue the Liberal party's previous policy of a firm commitment never to use the national veto? If that is still the policy of his party, what price membership of the Council of Ministers?
This is something of a diversion, Mr. Deputy Speaker, but I will respond briefly. The policy of the new party will, in the first instance, be based on the manifesto on which we jointly fought the last election nine months ago. There was nothing in that manifesto which said that we would never use the veto; there was quite a bit of the manifesto which said that concentration on the idea of the veto was not the right way to look at the European Community and that one should contemplate its use only in very extreme circumstances. There was nothing in our manifesto along the lines that have just been suggested.
The recent agreement nevertheless goes quite a long way to dealing with these problems of resources, and will free the Commission from having to take the desperate measures that it has often been forced to take.
In his introductory remarks, the Minister rightly expressed his approval of the strong sense of independence which the Court of Auditors has demonstrated. During the exchange at Question Time today, an hon. Member from the Labour Front Bench suggested that the Government ought to sack Lord Cockfield as fast as possible because he was not following Government policy. That appeared to receive some approbation from the Government Back Benches. One should perhaps also emphasise in this debate that the Commission, like the Court of Auditors, is a collegiate body which is not there to advance national interests but to try to work out a common, coherent European attitude which will in the end, one hopes, be to the benefit of all member countries.
The European Parliament, in which I feel honoured to have served for six years is often the butt of abuse from Community critics, so it is worth underlining the Minister's remark that it has played a positive role in ensuring that the Community's finances are properly accounted for, and has been very critical of the Commission's unofficial deficit financing, for example in its administration of butter stocks. It refused to discharge the Community's 1985 accounts until this January for that very reason and it was eventually given assurances that that practice would be changed in future.
The Community's budgeting shows how much better the Community would function if the European Parliament were given a more direct responsibility to do what parliaments are supposed to do—which we find difficult even in the House—and act as a check on the activities of the Executive. I am not terribly impressed with checking the activities of the Executive at 1.45 am.
Later in the debate, hon. Members opposed to the Community may raise the cost of the CAP which is far too much, but even if it were dramatically reduced, the idea that agricultural expense can somehow be avoided completely is nonsense. After all, before we entered the Community, we paid deficiency payments. The massive fall in the value of the pound since then would have made those payments much larger if huge price cuts to farmers had to be avoided.
The myth persists that the British taxpayer is supporting the entire European bureaucracy. The report shows that that assertion is false. It is worth noting that the entire Commission staff is less than the staff of the London borough of Brent. I do not think that the Commission is looking for any support from the Japanese.
The table on page 163 of the report shows the own resources contributed by member states. It shows that Britain's contribution of 4·8 billion ecu is 45 per cent. less than that of Germany and 30 per cent. less than that of France. The move towards defining own resources as a percentage of GNP is likely to increase Italy's contribution relative to our own.
The same picture emerges when payments for the Community are taken into account. Germany's net contribution is more than two and a half times greater than the United Kingdom's contribution.
Therefore, it is important to stress to the public, not that I am arguing that we are not paying a considerable amount of money, but that the picture is put that we are paying much more than others, which is not the case. Also, if one takes into account the calculations that have been made about how much it costs not to have the internal market—I admit that that is a rather difficult, negative calculation—the sum is certainly very much larger.
I conclude by making two more points. First, I hope that we can find more time to debate Community affairs on the Floor of the House at a sensible time of the day. After all, Community affairs are important now, and will become increasingly important in future. Secondly, I hope—so far in this debate it has happened, but it is most unusual—that we can get away from the dreary, dog-eared, endless rehearsed pro and anti debate and get down to the real business of achieving a multinational Community which will and is evolving into a supranational Community, and make it work in a fair and efficient way. To that end, the Court of Auditors works hard and well and ought to be complimented.
One of the advantages of having a debate at this time of night is that it appears that one can agree with Opposition Members. I find myself in considerable agreement with the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston).
The Select Committee on European Legislation has drawn attention to the importance of the Court of Auditors' report. The work of the Select Committee is also to be commended. I drew attention in the House last November to some of the strange practices—strange to any accountant, that is—that have been employed by the European Community: the budgetisation of agricultural stocks, the changing of timing within the same 12-month period, changing the assumptions upon which the budget had been calculated between years. They were designed to make good the political pretence that the Community was keeping within the pre-set budget. Yet, as the Select Committee's report says':
The Court comments critically on the failure of the Budgetary Authority for the third year running to meet the Treaty obligation to balance the Budget.
The difficulty that the European Community faces is that, whereas the Commission is the practitioner, it is the Council of Ministers that is responsible for this strange set of circumstances. Too often, the political reasons for wishing to obscure reality have overridden the need to look properly at what the budget should be and to anticipate the problems of such budgetary requirements. Rather, it has been pretended after the event that excess expenditure has not happened.
For political reasons, there has also been a delay in introducing measures to check overspending. Britain was successful at the recent Brussels summit, and my right hon. Friend the Prime Minister is heartily to be congratulated on achieving, as she said, 95 per cent. of her objectives. The agreement was acceptably in line with our overall objectives for strengthening the Community. We have secured effective and legally binding controls on expenditure, embodied in legally binding regulations.
The Court of Auditors draws particular attention to the common agricultural policy. We now appear to be setting a guideline expenditure base of £19 billion for 1988. There are four safeguards to reinforce that guideline. The Commission's price proposals will have to be consistent with it. There will also be deletion of exceptional circumstances provisions—one of the worst of all ways of getting out of difficulties by claiming that there were overwhelming circumstances for overspending money. There is now to be a sensible reserve for exchange rate fluctuations between the dollar and the ecu, but that is limited to a budget effect of 400 million ecu, above which it has to come out of the rest of the agricultural budget.
The cost of depreciating and disposing of existing surplus stock will have to be financed outside the guidelines but within the budget. Again, that seems to me to be a sensible way to proceed. New stocks will be depreciated when they are established. Furthermore, the guideline will rise at a rate that is significantly lower than the total Community resources. That is what many hon. Members have been urging for some time—a decline in the overall relative position of agriculture within the total Community budget.
It was agreed in Brussels that there would be tighter budgetary management. In her statement to the House on 15 February, the Prime Minister said:
This will limit the use of carry-over provisions and creative accounting devices, such as what are euphemestically called negative reserves, to which there has in the past been excessive recourse, and which have been particularly unwelcome to us." — [Official Report, 15 February 1988; Vol. 127, c. 706–70.]
I entirely endorse that statement and look forward to more flesh being put on those provisions. If flesh were to be put on them, the Court of Auditors would have a much easier time when it reviews 1988.
Next, at the Brussels summit we increased the own resources of the Community in effect by about 25 per cent., to 1·2 per cent. of GNP for member states. With the advantage of our abatement, the British contribution is marginally below 1 per cent. Overall, I agree entirely with the remarks which have already been made, that we want to see a stronger budget for the Community, bearing in mind that at the moment it is £27 billion for a community of 321 million people. The relationship with a national budget has to be stressed constantly. The total of £27 billion is about 15 per cent. of the British Government's budget The relative importance of the Community and the strength it will get from having a more enlightened view on how to control its budgetary affairs will lead to increased strength as we move towards 1992. The questions with which the House should concern itself, and which it is strange to be considering at 1.55 in the morning are, where will the power lie within the Community; who will control the increasing budget; and how will Parliament be able to monitor the decisions which will be made by the Council of Ministers, many on a majority vote?
We should grasp the nettle and realise that it would be helpful to the House to work much more closely with the European Parliament. It has always seemed to me to be nonsense that British Members of the European Parliament are not allowed free access to the House of Commons. When a constituency problem emerges or when there is a matter of considerable national or Community importance to be discussed, the lack of easy access to Members of the European Parliament is not only a nonsense but embarrassing.
The House has so far taken the unenlightened view that it might threaten the independence of its facilities, whereas I think that it would go a long way to helping significantly our ability to control legislation, which is, of course, our parliamentary right. Lack of access to Members of the European Parliament and the knowledge which they have will increasingly be seen to be dangerous as we move towards the internal market and increased powers for the Commission and the Council of Ministers.
I welcome the report of the Court of Auditors, but I draw attention to the fact that, if the Brussels summit leads to tighter budgetary control for 1988, many of its strictures will no longer be necessary in future and we will find that the European Community will go from strength to strength, subject, we hope, to the parliamentary control which is so necessary.
I am glad to follow almost immediately some of the comments of the hon. Member for Esher (Mr. Taylor). Before doing so, may I thank the hon. Gentlemen who have referred to the work of the Select Committee on European Legislation? There are two reports before us which are relevant, one relating to the budget itself and one relating to a document about the prevention of fraud. The reports and summaries are found in House of Commons document 43, xiv and xv respectively.
I think, too, that the Select Committee would have a view on the time of the debate. I am glad that the Patronage Secretary is in the Chamber to hear this. I understand that the lateness of the hour is partly the result of a knock-on effect from the timetable of last week, which became congested because of a controversial and major statement that the Government made, as they have every right to do. But if the Government press large quantities of legislation through the House and uproot some of the conventions that have been accepted by all parties for the last 30 years, they must accept the consequences.
I do not think that it is good enough that we are considering these important matters at this hour because of the particularly controversial legislative statement that the Government made last week. They have every right to do that, but they have no right to impinge upon the ability of the House properly to scrutinise such important matters. The hon. Members for Inverness, Nairn and Lochaber (Sir Russell Johnston) and for Esher with whom I might not agree in other respects, have emphasised that point.
I made those preliminary comments in my role as Chairman of the Select Committee. What I now have to say I say as an hon. Member, but it could be said by anyone who took a view on the major question of our relationship with the EEC. First, I emphasise again the lateness of the hour. Last week I was involved in a popular talk-in radio programme. The interviewer asked, "Weren't we told about all this before, Mr. Spearing?" I said, "Yes, we were. It was all in the small print. It was debated late at night 10 years ago." "Oh," he said, "if that's the case, what's going to happen 10 years from now?" I said, "It will be less than that. Unfortunately these things are in small print. They are not easily understood. The journalists have gone home, the broadcasters do not tape it and therefore people don't understand what is happening." I fear that that may be true of this debate, although it is retrospective, whereas some of the debates that we shall have in the near future about EEC monetary matters will be prospective. The House should take these matters seriously and its ability to do so is blunted by the lateness of the hour. If a local authority dared to make qualifications to the accounts that it had presented of anything like the magnitude revealed in this fat, 200-page volume, the Government would rightly be at its throat.
I thought that the Paymaster General was a little less than his robust self in presenting the documents. Perhaps it was the lateness of the hour that prevented him from exercising his usually perspicacious eye to the full on these matters. I should like to comment on hon. Members' optimism about the effectiveness of the new Copenhagen-Delors mechanism; I had better not refer to Brussels, because it has so many connotations. The mathematical formula that has been agreed seems to me to be in the nature of a dodgy brake on a motor car that is accelerating fast. It is not something that we can call discipline. That brake is not only of untried design; it has not been tried out in prototype. We shall have to see what effects it has, but I am much less sanguine about its results than the hon. Members who have so far spoken.
I remind the hon. Member for Esher that since the Single European Act has been passed the European Parliament in Strasbourg has a direct input into some European Community legislation—that concerning the harmonisation of legislation particularly under article 100A. This House has never had that power. It was voted away in 1972, and co-legislation, at which the hon. Gentleman hinted, simply does not exist as a consitutional fact.
Those powers are with the Strasbourg Parliament. They have left this House. All that we can do is attempt to influence Ministers in what they do and say in the Council of Ministers. We have no direct control over the raw legislation — except in one matter, which is the authorisation through Act of Parliament, statutory instrument or resolution, of the voting of additional moneys or additional monetary mechanisms. We shall have a series of debates about those in future.
That brings me to the procedure and activity of our Ministers in the Council of Ministers, to which this debate relates; as the Paymaster General has said, he will be debating this very matter next Monday, 7 March, in the Council of Ministers. He has described the discharge procedure in his useful memorandum to us. It is up to the Council of Ministers by a qualified majority to discharge this budget, which is then passed to the European Parliament with a recommendation for discharge or not. Perhaps the Minister replying to the debate will tell us whether the Government are minded to vote for discharge of the budget.
In view of the qualified nature of the report, to put it mildly, I should have thought that the Government should not vote in favour of discharge because it would not be appropriate to do so. If one paragraph of the report emphasises that, it is paragraph 1.5, to which the Paymaster General uncharacteristically did not give full weight in his comments. I shall therefore quote it in full. It reads:
For the third year running, the Communities have not observed the fundamental principles of their financial organization, including, first and foremost, the principle laid down in Article 199 of the EEC Treaty, namely that the expenditure of each financial year must be covered by equivalent annual revenue. In addition, the Court would point out that, by not taking account of the expenditure actually incurred in respect of the financial year 1986, the budgetary authority created the illusion of apparent compliance with the maximum limit laid down for the Communities' own resources, and in particular the rate of 1·4 per cent. set for own resources from value-added tax (VAT).
I stress the words:
created the illusion of apparent compliance".
Any firm in the City doing that would scarcely be acting in the full, frank and fair mariner to which auditors usually refer.
That is a very strong qualification already, but the paragraph continues by pointing out that, rather than the 1.39996 per cent. shown in the budget accounts, the court thought that the real expenditure of resources would be equal to 1·5 per cent. A company director acting in that way could find himself in court for fraud and the Government would be prosecuting him for false accounting. That point alone justifies querying whether the Government intend to vote for the recommendation to discharge the budget or whether they will diplomatically abstain, as I assume is their right.
The Paymaster General also referred to outstanding liabilities. I agree with him that totting up the total potential liabilities will not necessarily equal the liabilities that will in fact have to be met, but those liabilities are pretty massive. Paragraphs 1.13 and 1.14 and the accompanying tables set them out. Although certain matters have been covered, all that has really been done is the arithmetic to show how big the liabilities are.
Paragraph 1.13 reads:
In its annual report on the financial year 1985, the Court laid particular emphasis on the increasing amount of commitments still outstanding, the inevitable consequences for subsequent Community budgets that would result from the build-up of deficits carried forward from one financial year to the next and on the presentation of the accounts, which only gave a partial and heterogeneous picture of the true situation.
There is another qualification. The paragraph continues:
The Court then drew up a list of the Community's financial liabilities according to the certain or potential nature of the expenditure involved and invited the Commission to make 'a list of all the financial liabilities accumulated by the Communities in the past and to try to draw up a timetable to show when they are payable'.
Paragraph 1:14 says:
This table shows that the liabilities existing at the end of 1986 which will have to be honoured over the next few years and which may be described as legally binding amount to 14053,4 Mio ECU, 11 681,7 Mio ECU of which are accounted for by commitments outstanding from previous financial years. To this must be added other equally unavoidable expenditure connected with the existence and disposal of agricultural surpluses and estimated by the Commission at 6810,2 Mio ECU, making a total of 20863,6 Mio ECU of unavoidable expenditure.
I emphasise the words, "unavoidable expenditure." The Paymaster General said that further amounts may have to be added to that, but it is still a pretty massive sum. I agree with the right hon. Gentleman that the new Delors-Brussels arrangement, of which we have not yet had a Full account, puts those further amounts outside the agricultural guidelines, which means that they must not be accounted for in the annual increase of expenditure. That may be, although that itself is a questionable procedure. However, the money must be found.
I am glad to see that the Paymaster General—who is appropriately named on this occasion—is nodding. The right hon. Gentleman must pay the money, even if it does not come within the formula to limit agricultural expenditure. At least the right hon. Gentleman must pay some of that amount over the next accumulating years.
Here we have an example of accumulated liabilities, which the court's report of 1985 said were not in the balance sheet — the court forced the Commission into doing something about it — yet accumulated liabilities have reappeared, and they are very substantial indeed.
In ordinary British language, the report discloses a pretty big fraud. The Paymaster General referred to chapter 6 of the report, which deals with fraud. It is welcome that there is a special chapter in the report on fraud. Paragraph 6.6 says:
Between 1979 and 1985, the Commission made six proposals to the Council with a view to amending the basic Regulation, No. 2891/77, in order to strengthen its powers of control. None of these proposals has yet been adopted. The six proposals made to the Council in 1979"—
reflect the degree of interest shown by the Commission in the necessary strengthening of its ability to guarantee the collection of the Communities' own resources and to fight fraud and irregularities in that sector.
That paragraph clearly refers to the Council of Ministers. The hon. Member for Inverness, Nairn and Lochaber and for Esher emphasised that point. I should like to ask the Minister whether document Com. (87)572, on the fight against fraud, and his memorandum take up and give those proposals to the Council? I have read Com. (87(572, and in the language of some of my colleagues, it is the usual high-minded sort of guff. I understand that the Council is setting up units—I think they are called cells—that will report direct to the President on how fraud can be dealt with.
Will the Paymaster General say whether that document contains the proposals that were made to the Council by the Commission in 1979, which appear to be the effective controls that are required, but which are not in the document? The powers that were requested may have been more connected with the collection of money from member states. Nevertheless, the collection of money, certainly from the Treasury point of view, is surely just as important as detecting fraud.
Would it not be interesting to know Her Majesty's Government's attitude within the Council of Ministers when the proposals were put by the Commission, and also whether any member countries blocked them?
Indeed. I am grateful to the hon. Gentleman for raising that point. I would be equally interested regardless of what Government were in power at the time.
Although I have stressed that these are my personal comments, I hope that hon. Members will agree that they could equally well have come from anyone who is in favour of the smooth running and expansion of powers in the Community, and everything else about it. The subject relates to the smooth working of public institutions, irrespective of what our views of those institutions may be.
I hope that the Paymaster General will be able to satisfy us on these matters. It appears that the Court of Auditors points them up year after year. The auditors gear them up a little better, but, despite their outspokenness — of which we have shown some appreciation tonight—they are paid in the end, not directly by the taxpayer, but by the national Governments who are ultimately responsible for such matters. The control exercised by the Comptroller and Auditor-General on the House — not on the Government — is not at present mirrored in the Community.
I hope that in his deliberations next Monday the Paymaster General will bear in mind some of what has been said. I hope that the points that I have raised are common among all Members of Parliament in their role inside this country — big or small — or in the wider context of control of the Executive by the legislature, by means of control of finance.
Inevitably, much of the report—and, indeed, much of the debate—relates to the common agricultural policy and to the farming interests therein. Although, understandably, many hon. Members may complain about the lateness of the hour, I suppose—representing, as I do, a fairly large rural constituency with many farmers — that the advantage of sitting so late is that milk consumption in the canteen will be increased. That may do its bit to help British farmers.
The hon. Member for Newham, South (Mr. Spearing) does a particularly good job with his EEC Legislation Scrutiny Committee. I hope that "EEC" is still used, rather than "EC", when the Official Report quotes my remarks. I have a particular view about the Community as an economic bloc, although I am afraid that I am not one of those hon. Members on both sides of the House who see a greater Europe as the future for our country.
Page 57, paragraph 5.48 of the report relates to decisions made by the House on 3 July 1984, when we debated EEC document 6059, which dealt with milk quotas, and again when we voted on 18 July 1984 on the Dairy Produce Quotas (Amdt) Regulations 1984. At the time I was rather in the bad books of my hon. Friend the Parliamentary Under-Secretary for the Home Department, whom I am now supporting on the Firearms Bill. I incurred his wrath when he was an assistant to the then Patronage Secretary, because I felt unable to support either piece of legislation. I felt strongly that the British dairy producer was doing a first rate job in producing a product for a market which, in this country, was self-sufficient. We were not overproducing, and I felt that many British farmers were being hard done by. I was therefore unable to support my party on that occasion.
During the many discussions that took place in the House, however—not only in that debate, but during Question Time — the then Minister of Agriculture, Fisheries and Food was pressed for an assurance, by me on one occasion, that the application of the quotas would be EEC-wide. Yet paragraphs 5.48 and 5.49 of the report show two objections from the Court of Auditors. The first is:
Although the quota additional levy system had an initial effect in braking the rise in production, there were flaws in its initial conception and it was progressively weakened by amendments adopted by the Council during the first two years of its operation. As a result, the system had no significant impact on the problem of milk surpluses.
I am encouraged by the fact that the report has endorsed my lack of support for dairy quotas in the first place.
I turn now to the issue whether the British national interest is being safeguarded as fairly as that of the Community. Paragraph 5.49 briefly states:
While in general Member States adopted arrangements to implement the system which were in accordance with the
regulations as they existed, there were a number of exceptions which directly affected the achievement of the system's objectives".
The Auditors go on to state that Italy, Germany, the Netherlands, Belgium, France and Denmark did not really play by the rules. The United Kingdom is not mentioned, yet we are often castigated as being the awkward squad of Europe. According to the Court of Auditors, Britain has stood by its commitment—it was wrong to give it—and that should be recognised by those who often complain in the House that Britain has a negative attitude to the EEC.
The table in the review of agriculture in the United Kingdom for 1988 presented by my right hon. Friend the Minister for Agriculture, Fisheries and Food shows that milk production in 1983 was 9,450 million litres. By 1987 that was down to 7,750. Undoubtedly the British farmer has played a part in that, as has the taxpayer—as the report shows. The transition period has been a hard time for most dairy farmers, despite the easy words of politicians, Eurocrats or whatever we choose to call each other. For farmers earning a living this has been a difficult time. Their one consolation was the knowledge that dairy quotas were being applied equitably, so they will take no comfort from the fact that six nations have been castigated for not following the rules. I sometimes wonder whether our Civil Service is not being too efficient in this area. I should not be sad if more slackness, of the type used by the Italians, were applied.
I find it a consolation that as long as my right hon. Friend the Prime Minister defends our national interests—despite often being criticised by Opposition Members and by some of my hon. Friends for having a robust attitude to the Common Market—we can rest assured that we will not be taken for too much of a ride in the EEC. I am sure that the House will endorse the report. It shows that Britain is not the awkward squad in Europe. Six nations are not applying the dairy quota in the way that they agreed, whereas British farmers are. I hope that my right hon. Friend will draw that point to the attention of my right hon. Friend the Minister of Agriculture, Fisheries and Food, and ensure that our farmers get a fair deal.
By leave of the House, I shall reply to the debate.
I have greatly enjoyed this the third annual debate to which I have had the pleasure of replying. As I told the House, the Economic and Finance Council will be discussing the report on 7 March.
I have heard the remarks from several hon. Members about the hour at which the debate is being held. The hon. Member for Newham, South (Mr. Spearing) explained the circumstances that dictated the change in our arrangements. If I may interpolate a personal note, my birthday started about two and a half hours ago; I have never before started my birthday in this mode.
I enjoyed the thoughtful contributions of the hon. Members for Vauxhall (Mr. Holland) and for Inverness, Nairn and Lochaber (Sir R. Johnston) and look forward to reading them again at a more civilised hour. I cannot pretend that I would necessarily agree with everything that they said, but I hope that they will pay me the compliment of re-reading what I said at the beginning of the debate, as some of the points that arose later were answered at that stage.
The Government are ready to consider sympathetically any cost-effective proposals that the Commission may make for new or enhanced powers to improve cooperation, monitoring reporting or compliance. Although the Government cannot accept the Opposition amendment, as it was not selected, we accept the spirit of that amendment.
I was grateful to the hon. Member for Inverness, Nairn and Lochaber for congratulating the Government. I noted his remarks about the European Parliament being allowed to exercise a check on the Executive. I will remark on the irony of that particular observation in the context of the report. The Council was obliged to take the European Parliament to the Court of Justice over the 1986 budget, which we are discussing because the European Parliament unilaterally tried to adopt a budget outside the treaty limits. The Court of Justice found that the European Parliament had exceeded its legal powers.
My hon. Friend the Member for Esher (Mr. Taylor) represented a welcome new voice in these debates. Of course I found more to agree with in my hon. Friend's comments that I did in some of the comments made by other hon. Members. I want to respond to the speeches of my hon. Friends the Members for Derbyshire, West (Mr. McLoughlin) and for Shrewsbury and Atcham (Mr. Conway) as they both made the same point.
The United Kingdom has always considered it important that milk quotas should be applied properly throughout the Community. The prime responsibility for ensuring that rests with the Commission. It takes action. The Commission recently won a European Court case against Italy for the non-implementation of quotas. Member states which have overallocated quotas have been required to cut back. The Commission is pursuing action against France for the one-day reduction, and the French have been required to change their procedure. The Commission opened European Court proceedings against Denmark over its single purchaser although they have been suspended following amendments to the regulations that give the required effect for levy purposes.
I assure my hon. Friend the Member for Shrewsbury and Atcham that I will draw this debate to the attention of my right hon. Friend the Minister of Agriculture, Fisheries and Food. I will also send a copy of the debate in the Official Report to the Budget Commissioner, Mr. Christophersen, to the chairman of the European Parliament's Budgetary Control Committee, Mr. Aigner, and to the president of the European Court of Auditors, Mr. Mart, who will be presenting his report to Ecofin next week.
I thank the hon. Member for Newham, South (Mr. Spearing) who is the Chairman of the Scrutiny Committee, and agree with his desire to see these matters more widely comprehended in the country. I am sorry that he believed that I was less perspicacious than he feels that I usually am. On this occasion I share his basic intent.
The hon. Member for Newham, South asked about the Government's vote for the discharge in terms of the Ecofin meeting on 7 March. It would not be appropriate to vote against the discharge of a budget in which spending was confined within the legal limits on revenue. It may be that some expenditure was pushed from 1986 into 1987, but actual spending in 1986 was within the own-resources ceiling.
The hon. Member for Newham, South also asked me about the 1979 proposed amendments and related matters.
The United Kingdom welcomes the Commission's proposals to improve its internal organisation and, in particular, the new anti-fraud unit. With regard to the Commission's appeal to the Council to take action over its earlier proposals for tightening up own resources, the Council is actively considering the suggested amendments to regulation 2891/77 in relation to the establishment of own-resources and will report back to the Commission as soon as possible. However, the Council has had difficulties in agreeing precisely at what point traditional own resources become "established" and therefore payable to the Commission. The question turns on whether a member state should have to pay over money which it has not been able to collect because, for instance, of fraud or insolvency.
On the proposed regulation on reporting, of irregularities, some member states have questioned the need to increase the Commission's powers to collect information. However, I emphasise that the United Kingdom already follows the good practice outlined in the Commission's model reporting form and supports the view that reporting along those lines should be made compulsory. I hope that that reassures the hon. Gentleman.
It has been a delight to respond to the debate.
That this House takes note of the Annual Report of the European Court of Auditors on the financial year 1986, together with the replies of the Institutions; and approves the Government's continued efforts to press for effective Budget discipline and proper financial control of Community expenditure.