European Communities (Budget)

Part of the debate – in the House of Commons at 5:01 pm on 4th December 1990.

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Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury 5:01 pm, 4th December 1990

I beg to move, That this House takes note of European Community Documents Nos. COM(90) 121, relating to the Preliminary Draft Budget of the European Communities for 1991, 8182/90, relating to the Draft Budget of the European Communities for 1991, and 9865/90 and the supplementary explanatory memorandum submitted by Her Majesty's Treasury on 30th November 1990, relating to the European Parliament's proposed amendments and modifications to the draft Budget. I know that the House has been waiting with bated breath for the debate to begin. This is my first opportunity to address the House on this important issue. It is an annual event that is of considerable importance for the House.

This year's budget procedure has been preceded and accompanied by developments of great moment in the world. We have seen historic change in eastern Europe, with political and economic reforms that the Community has rightly been quick to support. Germany has united—a welcome development that enlarges our Community. The United Nations sanctions against Iraq have had a disproportionate effect on three countries in particular—Turkey, Jordan and Egypt. The European Community has, properly, decided to provide special assistance to them. All those developments require changes to the Community's financial perspective.

In the past two years, European Community spending has generally been well contained. The figures for commitments in both the 1989 and 1990 budgets have been consistently below the ceilings in the financial perspective, at 2 becu and 4·5 becu respectively. The United Kingdom's net contribution was more than £2 billion in both those years. It would have been substantially higher but for the abatement provided by the Fontainebleau agreement.

The general level of spending under the European Community budget is likely to rise quite strongly in 1991, partly because of the exceptional factors to which I referred at the outset. There is, in addition, pressure on the agriculture budget, reflecting falling world prices—especially for grain—depressed market conditions for livestock and a range of other factors, including the loss of export markets because of the Gulf crisis.

The financial guideline for agriculture was largely a product of Britain's determination to prevent a recurrence of the runaway growth in spending that brought the Community to the edge of bankruptcy in 1987. The guideline sets a legally binding limit on agriculture support spending. The annual growth of the limit is confined to 74 per cent. of the rate of growth of Community gross national product taken from the 1988 base. That guideline is buttressed by automatic stabilisers for most commodities, which trigger price cuts when production exceeds maximum quantitites set by the Council.

Until this year, the system seemed to be achieving its objective of restraining expenditure. Cumulative expenditure in 1988, 1989 and 1990 was 11 becu below the guideline, but recent developments in the trend of agricultural spending suggest that next year the guideline may be under greater pressure. I fully understand the z concerns of my hon. Friend the Member for Thanet, South (Mr. Aitken), as expressed in the amendment that he has tabled, about that upward pressure. It will remain essential to resist it.

The House will recall that the inter-institutional agreement is a political agreement under which the Council, the European Parliament and the Commission have bound themselves to respect ceilings for each of the six main categories of Community spending for the five years between 1988 and 1992. Those ceilings are set out in the financial perspective. They need to be revised to accommodate expenditure which could not reasonably have been foreseen when the financial perspective was agreed.

The agreement distinguishes, within non-compulsory expenditure, between privileged and non-privileged spending. Privileged spending includes the structural funds, the research and development framework programme and the integrated Mediterranean programmes. This category will double in real terms in that five-year period, but for the non-privileged element, the Council has agreed to respect the maximum rate of increase calculated by the Commission within the framework of article 203 of the treaty. The calculated maximum rate for the 1991 budget is 7·2 per cent.

In June 1984, the European Council in Fontainebleau agreed a permanent mechanism to abate the United Kingdom's grossly disproportionate net contribution to the budget. By the end of next year, cumulative abatement under the mechanism will have totalled almost £10 billion, in addition to the £3·2 billion-worth of refunds extracted by my right hon. Friend the Member for Finchley (Mrs. Thatcher) before the Fontainebleau mechanism took effect. On that score alone, Britain is £13 billion better off today than it would have been under the sloppy arrangements that were so skilfully negotiated by the last Labour Government. Those arrangements amounted to a scandalous betrayal of British interests.

In June, the financial perspective was revised to provide for assistance to eastern Europe and to Mediterranean, Asian and latin American countries. A small amount for structural funds and administration was also included. The effect was an increase in the financial perspective by 200 mecu for 1990, 1·2 mecu for 1991 and nearly 1·5 mecu for 1992.