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European Communities (Finance) Bill

Volume 82: debated on Monday 1 July 1985

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Again considered in Committee.

Question again proposed, That the amendment be made.

Not only have our future refunds from the Community been presented in a misleading fashion so that it looks as though we have obtained a much better deal than we really have, but it now seems that the abatement mechanism itself is far more insecure and subject to change than we at first thought and certainly cannot be described, as the Economic Secretary would have us believe, as being entrenched in Community legislation.

I beg the House to support the amendment because only in this way can we have any certainty about the abatement mechanism in the future. I suspect that it will soon come under pressure as Community spending continues to rise and that the 1·4 per cent. ceiling will be raised to 1·6 per cent. before January 1988. We want the document referred to in the amendment to be part of the Bill so that it will be legally binding. We must also insist that the Economic Secretary clarify the issue of who can change the abatement mechanism and whose agreement must be sought.

It may be for the convenience of the Committee if I concentrate on those parts of the debate relating to the abatement mechanism and the method of calculation rather than on the wider questions that have been raised.

The own resources decision, which is the first limb of clause 1, provides for an automatic abatement system which builds the reduction of the United Kingdom contribution to the European Community budget into a lasting and automatic system. As I have said on a number of occasions, it will be entrenched in the laws of the Community. I shall explain in a moment how that comes about.

This is a very important change, because in the past we have had to negotiate with great difficulty, year after year, to obtain refunds on the expenditure side of the budget. This often involved long and difficult negotiations with other Ministers in the Council, as well as causing difficulties with the European Parliament, and on a number of occasions we have had great difficulty achieving repayment.

I shall give way in a moment. Despite the difficulties, however, we have achieved refunds of £2,500 million since 1980–81. I was about to say that that is more than the Labour Government achieved, but there is no need for me to say that, because the Labour Government achieved nothing at all. For the first few years of our membership of the Community we were protected by the transitional arrangements negotiated by the Labour Government.

I shall give way in a moment. In 1975, the then Labour Government said that they had invented and agreed with the Community a wonderful financial mechanism to protect our budget position.

On a point of order, Sir Michael. Will you give my hon. Friend some guidance about referring to the whole series of negotiations?

I am not here to give guidance to the Minister.

I am sorry, Sir Michael, but I may have used the wrong word. Will you kindly rule on whether my hon. Friend's submissions about the bad deals done by the Labour Government are in any way relevant to the consideration of the deal done by the present Government?

I am sorry that my hon. Friend should be so anxious to prevent me from pointing out the gross failure of the Labour party in dealing with European Community business.

Ten years ago the then Prime Minister, now Lord Wilson of Rievaulx, came to this House after agreeing the financial mechanism and said:
"The arrangements which the Community has now agreed would, if Britain remains a member of the EEC, give us an assurance of a repayment of hard cash if we found ourselves in the future paying an unfair share of the Community budget."—[Official Report, 12 March 1975; Vol. 888, c. 511.]
That agreement produced absolutely nothing for the United Kingdom. I contrast that with the achievement of this Government, who by agreement with other member states have introduced the abatement system which is being proposed and ratified by the Bill.

In his opening remarks my hon. Friend referred to the relationship between the increase in VAT to 1·4 per cent. and the abatement mechanism. May I refer him—I understand that it is based on the Fontainebleau agreement—to paragraph 4 of the conclusions of the presidency, which states:

"The correction formula … will be part of the decision to increase the VAT ceiling to 1·4 per cent., their durations being linked".
From that it would seem to follow that if the ceiling went up to 1·6 per cent. the abatement would no longer remain, as that duration is linked only to the increase to 1·4 per cent. Will my hon. Friend elucidate that point?

Indeed, I can. My right hon. Friend is right to draw attention to the fact that the duration of the abatement and the duration of the 1·4 per cent. ceiling are linked. The 1·4 per cent. ceiling remains in force until such time as it is changed by the unanimous agreement of all member states, including the United Kingdom, and until it is ratified by the national procedures of the Parliaments of all the member states, including the House of Commons. For the purposes of our abatement, that will continue until the House of Commons decides that it wishes to change it.

My hon. Friend will be aware of the heavy news coverage since the weekend of the goings on at Milan, particularly over the possibility of majority voting. Is he saying categorically that whatever happens subsequent to Milan and to this conference, and whatever happens with regard to majority voting, we will not go beyond 1·4 per cent. without the consent of the House of Commons?

I am saying categorically to my hon. Friend and the Committee that the own resources decision and the intergovernmental agreement were not on the agenda for Milan. They are free-standing in their present form, and under the Bill they will be established into the law of the Community. It would take a decision of the House of Commons, in conjunction with decisions of all other member states, to change those arrangements.

A number of these questions are more relevant to the next group of amendments, and it would therefore be better if I concentrated on those parts of the debate which touched on matters relating to the abatement and the document mentioned in the amendment.

Has my hon. Friend had the opportunity since we discussed this matter last week further to consider whether the Government are prepared to give the Committee an undertaking that the Government will not request, or indeed allow, any increase beyond the 1·4 per cent. VAT ceiling? Is he prepared to give us a simple reassurance, which would give many of us further thought about the matter? I ask for it in the context of his assurances, which we shall debate later, on budget discipline.

I am sorry that my hon. Friend did not listen to the response that I made to my right hon. Friend the Member for Worthing (Mr. Higgins), which was that these are much more properly matters for the next group of amendments. If the Committee, as I hope, would like me to deal with the point raised on the abatement mechanism, I shall do so.

I can assure the hon. Member for Newham, South (Mr. Spearing) that although the VAT rate formula is expressed in terms of the VAT percentage, it covers the whole of the budget. Let us say that 21 per cent. of the budget is represented by the United Kingdom's VAT contribution and, for the sake of argument, that approximately 14 per cent. of the budget is represented by payments to the United Kingdom. That is a difference of 7 per cent. It is that figure of our contribution that is subject to the abatement, and it includes the revenue levies and duties. The only difference is that the levies and duties may be greater than the 20 to 21 per cent. which is known as the excess levies and duties.

The hon. Member for Newham, South also mentioned the rate of VAT. The 1 per cent. ceiling which currently applies is calculated on a notional base which is not related to the actual take of VAT in individual member states. It is on the harrnonised base and leaves out of account whether a particular country has a zero rate, as we do with a number of our expenditures.

The hon. Gentleman asked me about the percentage and the 1·35 per cent. ceiling mentioned in the preliminary comments about next year's budget. The answer to that is that the average rate, if it were all paid at a uniform basis by all member states, is about 1·24 or 1·25 per cent. For the United Kingdom's rate to be below 1 per cent., at about 0·8 per cent., there has to be an increase in the amount paid by other member states, which would be about 1·35 per cent. That is the mathematical position on abatement in the coming year.

I am grateful that the hon. Gentleman has confirmed, more or less, the figure that I have of 1·25 per cent., according to Agence Europe. Does he agree that his article in The Times was misleading, because the proper comparison would have been 1·24 with 0·8 per cent? We would not have to pay the 1·35 per cent., because that is the enhanced VAT rate arising out of the rebate. Therefore, the hon. Gentleman should have quoted 1·24 and not 1·35 per cent. in his article.

It would have been misleading if, in the article, I had suggested that other member states were paying 1·24 or 1·25 per cent., when they were paying 1·35 per cent., which is the figure that I mentioned. As all other member states, with the exception of Germany, would be paying at that rate, it is proper to quote that figure as the financial effect.

I am surprised to find my hon. Friend referring yet again to this proposed budget, because, I remind him, when I asked him about this last week in the money resolution debate and on Second Reading he said that he was not able to answer the question about the 1986 budget because

"it has not yet been published".—[Official Report, 25 June 1985; Vol. 81, c. 878.]
My hon. Friend said that he could not respond to my question. It was as though it were improper to refer to the draft 1986 budget. Can my hon. Friend help the House about this? Is he behaving like a latter-day European Dalton, or are we allowed to discuss the budget?

10.15 pm

What we are allowed to discuss, Mr. Walker, is in your hands. What I was saying was in response to the questions put to me by the hon. Member for Newham, South about the comments which had been made by the Commission about its forthcoming preliminary draft budget for 1986. If my hon. Friend asks me questions about the preliminary draft budget, I am not yet able to answer them because the preliminary draft budget has not been published and is not available to the Government. What is available to the hon. Member for Newham, South, and what he has asked me about, are some figures put out by the Commission indicating what would be in the budget so far as it affected the contributions of different member states. I hope that what I have said helps elucidate the questions that the hen. Gentleman raised about that.

As for the general question of the allocated budget and the Commission document, perhaps I may be allowed to answer a number of questions asked by hon. Members, including Opposition Front Bench Members, about the nature of this document COM 85/36. It derives from article 3 of the own resources decision. In its first part it defines the gap and the abatement for the mechanism. In the second part it deals with the correction.

This is a Commission working document, which was approved by the Council. It is not a Council agreement. It is not an agreement between the member states of the Community, and as such it would be quite inappropriate to treat it as a treaty or as such an agreement of a kind which it is not.

The legal instrument involved is the own resources decision itself, and that requires national procedures for ratification. It also requires consultation with the European Parliament before it is put to member states. But under the ORD it is stated that the Commission is responsible for making the calculations in paragraph 3(5). The Commission then sets out in this document COM 85/36 the way in which it proposes to deal with the figures.

Those terms are entirely acceptable to the United Kingdom. As the document explains, the allocated budget should be as much as possible of the expenditure of the Community as can be allocated between member states, and that basically excludes payments to third countries, of which the main element is foreign aid. My hon. Friend the Member for Holland with Boston (Mr. Body) raised this question. That is not changed under the proposals.

I was also asked what would be the position if the Commission wished to change these proposals. The Commission is charged under the own resources decision to implement the terms of that decision. If the Council, or if any member state, felt that the Commission was not implementing those terms, it would be open to it to take the Commission to court and to test before the court whether the Commission was properly carrying out the decision in the ORD which it was charged to do. That is the basis of the legal arrangement.

This is the whole point of the debate. Where is there any reference in the own resources decision which would make it unlawful for the Commission or the Council of Ministers to change the definition of allocated expenditure and thereby to produce an even worse financial position for the United Kingdom? The basic point of the debate is whether there is anything in the own resources decision which would prevent the Commission from changing the basis of allocated expenditure.

The Commission has undertaken to follow the Fontainebleau agreement in allocating as much as possible of the budget. That happens to be in the interests of the United Kingdom and not against them, as some of my hon. Friends seem to imagine.

I draw the Committee's attention to a part of the report of the Select Committee which the hon. Member for Newham, South did not quote. His Committee said:
"The Committee are also advised that the content of the Communication as presented is not such that it would be appropriate for inclusion in the Own Resources Decision itself since it is both discursive (in explaining the reasons for applying certain criteria in the form agreed) and illustrative (by way of theoretical examples of the calculations needed). The Committee also note that the Own Resources Decision is such that no supplementary instrument, of the type provided here, was in fact necessary. To that extent, this Communication may be seen as additional help to Member States in understanding the Decision rather than a matter of formal necessity."
I agree with the Select Committee.

The Minister seems to have glided over a point made repeatedly by hon. Members. His explanatory memorandum to this discursive document which he is now putting to one side is absolutely clear. It says that the paper is an internal Community document which sets out a line of procedure which the Commission intends to follow in a process which is its sole responsibility. The Minister has indicated that the hon. Member for Southend, East (Mr. Taylor) is suggesting a course which would be beneficial to the United Kingdom. What if the Commission made a decision which was detrimental to the United Kingdom? Does it have the power to do so?

If the hon. Gentleman had been listening, he would have heard me explain that if the Council or any member state had reason to think that the Commission was not carrying out what it was charged to do under the own resources decision, that could be challenged in the courts.

The point about the document is that it is not an agreement between member states, nor an agreement of the Council. Therefore, it is not appropriate to include it as a treaty. It would be legally meaningless for us to include it in the Bill as a Community treaty. It would bind no one. It would not bind us, other member states or the Commission. Therefore, I call upon the Committee to reject the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 75, Noes 267.

Division No. 253]

[10.21 pm

AYES

Aitken, JonathanLeighton, Ronald
Archer, Rt Hon PeterMcDonald, Dr Oonagh
Atkinson, N. (Tottenham)McKelvey, William
Barnett, GuyMcNamara, Kevin
Beckett, Mrs MargaretMcTaggart, Robert
Bennett, A. (Dent'n & Red'sh)Madden, Max
Blair, AnthonyMarek, Dr John
Body, RichardMarshall. David (Shettleston)
Boothroyd, Miss BettyMaynard, Miss Joan
Brown, Gordon (D'f'mline E)Michie, William
Brown, Hugh D. (Provan)Mitchell, Austin (G't Grimsby)
Buchan, NormanMoate, Roger
Budgen, NickO'Neill, Martin
Caborn, RichardPatchett, Terry
Campbell, IanPavitt, Laurie
Clark, Dr David (S Shields)Powell, Rt Hon J. E. (S Down)
Clarke, ThomasProctor, K. Harvey
Cocks, Rt Hon M. (Bristol S.)Randall, Stuart
Cohen, HarryRees, Rt Hon M. (Leeds S)
Conlan, BernardRoberts, Allan (Bootle)
Craigen, J. M.Robertson, George
Deakins, EricShepherd, Richard (Aldridge)
Dobson, FrankSilkin, Rt Hon J.
Douglas, DickSkinner, Dennis
Dover, DenSmith, C.(Isl'ton S & F'bury)
Duffy, A. E. P.Snape, Peter
Dunwoody, Hon Mrs G.Spearing, Nigel
Evans, John (St. Helens N)Stott, Roger
Fields, T. (L'pool Broad Gn)Taylor, Rt Hon John David
Fisher, MarkTaylor, Teddy (S'end E)
Foster, DerekThompson, J. (Wansbeck)
Gilbert, Rt Hon Dr JohnTinn, James
Golding, JohnWeetch, Ken
Gourlay, HarryWhite, James
Hamilton, James (M'well N)Winnick, David
Hogg, N. (C'nauld & Kilsyth)
Hughes, Robert (Aberdeen N)Tellers for the Ayes:
Janner, Hon GrevilleMr. John Maxton and
Kaufman, Rt Hon GeraldMr. Frank Haynes.
Lambie, David

NOES

Alexander, RichardBest, Keith
Alison, Rt Hon MichaelBiffen, Rt Hon John
Alton, DavidBlackburn, John
Amery, Rt Hon JulianBlaker, Rt Hon Sir Peter
Amess, DavidBonsor, Sir Nicholas
Ancram, MichaelBottomley, Mrs Virginia
Arnold, TomBowden, A. (Brighton K'to'n)
Ashby, DavidBowden, Gerald (Dulwich)
Aspinwall, JackBoyson, Dr Rhodes
Atkins, Rt Hon Sir H.Brandon-Bravo, Martin
Atkins, Robert (South Ribble)Bright, Graham
Baker, Rt Hon K. (Mole Vall'y)Brooke, Hon Peter
Baker, Nicholas (N Dorset)Browne, John
Baldry, TonyBruce, Malcolm
Banks, Robert (Harrogate)Bruinvels, Peter
Beaumont-Dark, AnthonyBryan, Sir Paul
Bellingham, HenryBuchanan-Smith, Rt Hon A.
BendaII, VivianBuck, Sir Antony
Benyon, WilliamBurt, Alistair

Butcher, JohnHayhoe, Rt Hon Barney
Butler, Hon AdamHayward, Robert
Butterfill, JohnHeathcoat-Amory, David
Carlisle, Kenneth (Lincoln)Heddle, John
Carlisle, Rt Hon M. (Wton S)Henderson, Barry
Carttiss, MichaelHickmet, Richard
Cash, WilliamHind, Kenneth
Chalker, Mrs LyndaHirst, Michael
Chapman, SydneyHogg, Hon Douglas (Gr'th'm)
Chope, ChristopherHolland, Sir Philip (Gedling)
Churchill, W. S.Hordern, Sir Peter
Clark, Hon A. (Plym'th S'n)Howard, Michael
Clark, Dr Michael (Rochford)Howell, Rt Hon D. (G'ldford)
Clark, Sir W. (Croydon S)Howell, Ralph (N Norfolk)
Clarke, Rt Hon K. (Rushcliffe)Hubbard-Miles, Peter
Clegg, Sir WalterHunt, David (Wirral)
Colvin, MichaelHunt, John (Ravensbourne)
Coombs, SimonHunter, Andrew
Cope, JohnHurd, Rt Hon Douglas
Couchman, JamesIrving, Charles
Cranborne, ViscountJenkin, Rt Hon Patrick
Critchley, JulianJones, Robert (W Herts)
Crouch, DavidJoseph, Rt Hon Sir Keith
Currie, Mrs EdwinaKellett-Bowman, Mrs Elaine
Dickens, GeoffreyKershaw, Sir Anthony
Douglas-Hamilton, Lord J.Key, Robert
Dunn, RobertKing, Roger (B'ham N'field)
Durant, TonyKing, Rt Hon Tom
Evennett, DavidKnight, Greg (Derby N)
Eyre, Sir ReginaldKnight, Dame Jill (Edgbaston)
Fallon, MichaelKnowles, Michael
Forman, NigelKnox, David
Forsyth, Michael (Stirling)Lamont, Norman
Fowler, Rt Hon NormanLang, Ian
Franks, CecilLawrence, Ivan
Fraser, Peter (Angus East)Lawson, Rt Hon Nigel
Freeman, RogerLee, John (Pendle)
Gale, RogerLeigh, Edward (Gainsbor'gh)
Galley, RoyLennox-Boyd, Hon Mark
Gardiner, George (Reigate)Lewis, Sir Kenneth (Stamf'd)
Garel-Jones, TristanLightbown, David
Gilmour, Rt Hon Sir IanLilley, Peter
Glyn, Dr AlanLloyd, Ian (Havant)
Goodlad, AlastairLloyd, Peter, (Fareham)
Gow, IanLord, Michael
Gower, Sir RaymondLyell, Nicholas
Grant, Sir AnthonyMcCurley, Mrs Anna
Greenway, HarryMacfarlane, Neil
Gregory, ConalMacKay, Andrew (Berkshire)
Griffiths, Sir EldonMacKay, John (Argyll & Bute)
Ground, PatrickMcNair-Wilson, P. (New F'st)
Grylls, MichaelMcQuarrie, Albert
Gummer, John SelwynMadel, David
Hamilton, Hon A. (Epsom)Major, John
Hannam, JohnMalins, Humfrey
Harris, DavidMalone, Gerald
Harvey, RobertMates, Michael
Haselhurst, AlanMaude, Hon Francis
Havers, Rt Hon Sir MichaelMawhinney, Dr Brian
Hayes, J.Mayhew, Sir Patrick

Mellor, DavidShepherd, Colin (Hereford)
Merchant, PiersShersby, Michael
Meyer, Sir AnthonySilvester, Fred
Mills, Iain (Meriden)Sims, Roger
Miscampbell, NormanSkeet, T. H. H.
Mitchell, David (NW Hants)Soames, Hon Nicholas
Monro, Sir HectorSpeed, Keith
Montgomery, Sir FergusSpencer, Derek
Morris, M. (N'hampton, S)Spicer, Jim (W Dorset)
Morrison, Hon C. (Devizes)Spicer, Michael (S Worcs)
Moynihan, Hon C.Stanbrook, Ivor
Mudd, DavidSteel, Rt Hon David
Neale, GerrardSteen, Anthony
Needham, RichardStern, Michael
Nelson, AnthonyStevens, Lewis (Nuneaton)
Neubert, MichaelStewart, Allan (Eastwood)
Newton, TonyStewart, Ian (N Hertf'dshire)
Nicholls, PatrickStradling Thomas, J.
Normanton, TomSumberg, David
Norris, StevenTapsell, Sir Peter
Onslow, CranleyTaylor, John (Solihull)
Oppenheim, PhillipTebbit, Rt Hon Norman
Oppenheim, Rt Hon Mrs S.Temple-Morris, Peter
Ottaway, RichardThomas, Rt Hon Peter
Page, Richard (Herts SW)Thompson, Donald (Calder V)
Parris, MatthewThompson, Patrick (N'ich N)
Patten, Christopher (Bath)Townend, John (Bridlington)
Patten, J. (Oxf W & Abdgn)Townsend, Cyril D. (B'heath)
Pawsey, JamesTrippier, David
Peacock, Mrs ElizabethTrotter, Neville
Percival, Rt Hon Sir IanTwinn, Dr Ian
Pollock, Alexandervan Straubenzee, Sir W.
Portillo, MichaelVaughan, Sir Gerard
Powell, William (Corby)Viggers, Peter
Powley, JohnWaddington, David
Price, Sir DavidWainwright, R.
Raison, Rt Hon TimothyWakeham, Rt Hon John
Rathbone, TimWaldegrave, Hon William
Rees, Rt Hon Peter (Dover)Walden, George
Renton, TimWalker, Rt Hon P. (W'cester)
Rhodes James, RobertWallace, James
Rhys Williams, Sir BrandonWaller, Gary
Ridley, Rt Hon NicholasWalters, Dennis
Ridsdale, Sir JulianWardle, C. (Bexhill)
Rifkind, MalcolmWatson, John
Roe, Mrs MarionWatts, John
Rossi, Sir HughWells, Bowen (Hertford)
Rost, PeterWells, Sir John (Maidstone)
Rowe, AndrewWhitney, Raymond
Rumbold, Mrs AngelaWolfson, Mark
Ryder, RichardWood, Timothy
Sackville, Hon ThomasYeo, Tim
Sainsbury, Hon Timothy
St. John-Stevas, Rt Hon N.Tellers for the Noes:
Sayeed, JonathanMr. Robert Boscawen and
Shaw, Giles (Pudsey)Mr. Carol Mather.
Shelton, William (Streatham)

Question accordingly negatived.

I beg to move amendment No. 6, in page 1, line 9, after 'resources', insert

'so however that the maximum VAT rate paid by the United Kingdom shall not exceed 1 per cent. so long as the 1·4 per cent. maximum rate fixed by the decision remains in force'.

With this it will be convenient to take the following amendments: No. 7, in line 9, after 'resources', insert

'only until such time, after 31st December 1985, as the United Kingdom net budgeted contributions shall exceed £500 million for the subsequent year.'
No. 8, in line 9, after 'resources', insert
'and increasing the maximum rate of mobilisation of value-added tax own resources to 1· per cent. on the clear understanding that this maximum rate will not be increased to 1·6 per cent. for the next 10 years'.
New clause 12 — Parliamentary control of further increases in value-added tax mobilisation
'For the avoidance of doubt, it is hereby declared that any further increase in the maximum rate of mobilisation of value-added tax own resources shall be subject to the consent of Parliament.'.
New clause 16 — Further increases in maximum value-added tax rate
'This Act does not provide authority for Her Majesty's Government to make any binding commitment on a further increase of the value-added tax maximum rate to 1·6 per cent. until the national procedures referred to in the preamble to the Decision have been completed by Parliament.'.

The Committee will appreciate that the amendment stems from the statement made in the explanatory memorandum that the maximum United Kingdom VAT rate is expected to remain 1 per cent. throughout the life of the 1·4 per cent. ceiling.

The crucial point is that the Explanatory and Financial Memorandum refers only to the fact that our contribution is expected to remain below 1 per cent. Moreover, the Explanatory and Financial Memorandum does not form part of the Bill. There may be an argument, therefore, for making the position clear in the measure.

A feature of the negotiations in the EEC — and, indeed, of the various documents that have been presented to the House—has been the unsatisfactory nature of the documentation. That seems even to have penetrated the printing of Bills here, for several copies that I have secured either have the Explanatory and Financial Memorandum but not the Bill or the Bill and not the Explanatory and Financial Memorandum. Instead of it being a two-page Bill, some versions of it run to four pages.

The unsatisfactory nature of the documentation was raised by the Select Committee on the Treasury and Civil Service. In particular, we drew attention to that in relation to the report on the Fontainebleau agreement. Many of the issues which we have discussed on Second Reading and in Committee stem from that agreement.

The Select Committee discovered the extraordinary fact that there appeared to be no definitive text of the Fontainebleau agreement. Indeed, we drew attention to the fact that the communiqué so-called apparently had been issued simply on the authority of the presidency, and it transpired from the evidence we took that some of the matters to which the presidency said the United Kingdom had agreed had not, in fact, been agreed to by the United Kingdom. We said that such conclusions represented a dubious and even dangerous practice.

I think I am right in saying that a definitive text of the Fontainebleau agreement has still not been issued to this House in the form of a White Paper, though the Select Committee recommended that it should be. May we be told whether such a text has or has not been so presented? In any event, we recommended that at future economic summits a text authorised by all the parties should be published. It will be interesting to see whether such a communiqué is published following the events which took place at Milan at the end of last week. The House is entitled to know in clear terms, published as a White Paper, what has or has not been agreed in any given context. The only printed text which exists of the Fontainebleau agreement is that which was appended to the evidence of the Select Committee.

The Government have repeated the point, a crucial one, time and again, on Second Reading and tonight, that the abatement arrangements have been entrenched in the Fontainebleau agreement, and the fact that we have agreed to the limit going up to 1·4 per cent. for the Community as a whole also embodies the abatement mechanism, which, we are told, is permanent.

Surprisingly, when I reminded myself of the contents of the Fontainebleau agreement, I found in paragraph 4 of the conclusions of the presidency the words:
"The correction formula foreseen in paragraph 2 (2nd indent) will be part of the decision to increase the VAT ceiling to 1·4 per cent., their durations being linked."
In other words, the abatement mechanism exists only so long as the 1·4 per cent. ceiling exists. Presumably, therefore, if it is subsequently raised to 1·6 per cent., the abatement mechanism will also be up for renegotiation. For confirmation of that one need only read the sentence in the Fontainebleau agreement—page 27 in the Select Committee's report—which says in the final two lines:
"The Council will re-examine the question as a whole and will take the appropriate decisions ex novo."
I am not sure what "ex novo" means. Perhaps it should have been de novo. That is typical of the bad print that we were given. It seems clear—I would like a categorical assurance from the Minister of State on this—that the abatement mechanism is nor a permanent arrangement. Its duration depends upon the 1·4 per cent. ceiling continuing, and not being increased to 1·6 per cent. It is all very well for Ministers to say that such a change requires the consent of all member states and that the veto can be used. That is not the same as saying clearly that the abatement mechanism is permanent regardless of subsequent decisions on the percentage of VAT that is charged. We must be very clear about what will happen before we go along the route which the Government are outlining to us.

I should mention the 1·4 per cent. limit and the question of whether our contribution will be less than 1 per cent. It is worth reminding ourselves of the point of the 1 per cent. limit. When we joined the Community, it was clearly intended to be a limit. Indeed, it was clearly intended as a limit by those who drafted the original treaty. The limit was imposed on the amount of resources which it was thought the Community might reasonably have. We should note that it is effectively indexed, because the value of the VAT contribution and of customs and excise duties increases with changes in prices. Therefore, it was indexed, but it was regarded as a limit. The question to be asked about this Bill is whether there was a case for increasing the total own resources of the Community. In that, we must have regard to the position of the United Kingdom and to the welfare of the entire Community. That will effectively mean a substantial increase in agricultural expenditure.

The so-called budgetary discipline guidelines say that the increase in agricultural expenditure will be less than the increase in the own resources base, but in absolute terms much more will be spent on agriculture. I have yet to hear a Minister explain why we should increase in absolute terms the amount of agricultural protection and subsidy in the Common Market when we have such vast surpluses in many items of agricultural production.

I think my right hon. Friend said that the commitment is that the agriculture budget will not increase more quickly in percentage terms than Community own resources, not agricultural expenditure. It is important to differentiate between those two, because the budget may be decided upon, but expenditure can be a completely different thing.

My hon. Friend is right to say that, and I shall mention that point in a moment. We all know that agricultural expenditure is not a pre-determined amount. That is one of the penalties that we incur for not having reformed the system of agricultural support in the Community. As was made clear the other night, it depends to some extent on the weather. The idea that this is a fixed amount, and that we know what our commitments will be, is not valid. Therefore, we are right to be concerned about the fact that the United Kingdom's contribution is only expected to be below the 1 per cent. ceiling. We cannot say, "It must not go beyond the 1 per cent. ceiling." I hope that we can clarify some of those points. I wish to ask my hon. Friend the Minister of State about the explanatory memorandum to the Bill. The explanatory memorandum says:

"Meanwhile,"
—that is, until the whole procedure goes into operation on increasing the own resources limit—
"the United Kingdom's VAT contribution will be abated by 1,000 million European currency units in respect of our excess contributions in 1984. By the time this provision comes into force, the United Kingdom is likely to have paid more VAT in 1985 than, under the new decision, it is liable for. On this occasion, therefore, a cash transfer of the amount of the excess will he made to the United Kingdom."
I have two simple questions for the Minister. First, what guarantee have we that the cash refund will be made? We know that some of the previous promises of refunds have not been fulfilled. Secondly, since we are paying money that we should not be paying, shall we be paid interest on the money that we are paying?

10.45 pm

With regard to the actual increase in agricultural expenditure, I am puzzled by the comments made by the Economic Secretary in winding up the debate on Second Reading. He said:
"Three years ago, the increase in agricultural expenditure was 27 per cent., two years ago it was 16 per cent., last year it was 9 per cent. and next year it will be less than 3 per cent"— [Official Report, 25 June 1985; Vol. 81, c. 865.]
First, how does the Minister know, since it depends on the weather? Secondly, I have some difficulty with the arithmetic. We are being asked to raise the VAT ceiling for the Community as a whole by 1·4 per cent. We are told that our contribution goes up by a maximum of only 1 per cent. That is a substantial increase. Even though we are told that agricultural spending is going up by less than that increase, it will be a substantial extra expenditure on agriculture. We are told that the total agricultural expenditure will go down from just over two-thirds to just under two-thirds of the total Community budget. I do not understand how that figure, the increase in own resources, of which near enough two-thirds will be on agricultural expenditure, is to be reconciled with the comparatively modest but totally unjustified increase of 9 per cent. last year and 3 per cent. next year. I hope that the Minister will be able to reconcile those two sets of figures.

We seem to have a real problem with the relationship between the figures. Maybe the answer is that we are already this year and the year before last spending more than the 1 per cent. ceiling, because we well know that under the other devices which have been used to bail out the Community we have been spending over the 1 per cent. If that is so, the increases in agricultural spending are being calculated on a base which is far too high, because they are already in excess of the 1 per cent. limit.

We have real reason to worry about the percentage that we are contributing, and also about the amount that the Community as a whole is contributing, because it is a misallocation of resources. They and we would be much better spending the money on something other than agriculture.

Much play was made on Second Reading about the fact that we make a contribution of, say, £252 million under the extra topping up arrangement, but we get much of it back. That may be so, but in terms of public expenditure it is the gross—not the net—figure which is relevant in that context. All those matters give us considerable cause for concern, and I hope that the Minister will be able to satisfy us on them, so that we shall be able to decide how to proceed.

The right hon. Member for Worthing (Mr. Higgins) was right, as he almost always is, to stress the imperfections of the budgetary discipline arrangements and the appalling waste, which I am afraid will for a time continue, although to a reduced degree, of Community resources devoted to agriculture. He did not succeed in making me understand how the amendment would deal with those two serious flaws.

I find that, uncharacteristically, the right hon. Gentleman seems to be obsessed with the 1 per cent. and also with the possibility of genuine and complete permanence. The 1 per cent. is merely the most likely maximum that British contributions could reach under these arrangements and is likely to be exceeded only if, by some miracle, this country suddenly received almost double its present share of the social and regional fund allocations, and surely that would be welcome. We should pay more than 1 per cent. only if the major part of the present reason for giving us the abatement miraculously and splendidly disappeared. I do not understand what form of leverage on the Community the proponents of the amendment believe will be exerted' if it were accepted.

The hon. Gentleman will be aware that we are debating more than one amendment. As we discovered earlier, it is not clear whether the abatement arrangements can be changed without our going along with them.

That is as may be. I shall listen carefully to those hon. Members who advance arguments on the other amendments. On the point of permanence, I cannot believe that the right hon. Gentleman, who is the soul of rationality in public affairs, believes that anything can be set in permanent concrete for decades to come. As he is well aware, that is not the nature of the world.

We talk about people being permanent secretaries. We do not suppose that they are immortal. We talk about permanent building societies. They disappear like leaves in autumn. They are only permanent in contrast to terminating building societies or to secretaries who might be deposed by losing an election or something like that. Permanence is a relative term. The use of the word "permanent" is justified in this context.

I fail to see the relevance, as I am afraid I often do, of the hon. Gentleman's intervention. Wolverhamptonspeak is so completely different from Yorkshirespeak that we find it difficult to communicate.

I cannot recommend that my right hon. and hon. Friends support—

Not immediately. I have just been asked a question and although it came from a sedentary position I try to answer all questions addressed to me as far as the Chair will allow.

Of course, my right hon. and hon. Friends, like members of the larger parties in the House, will appear when they are summoned. There is no doubt about that.

I feared that the hon. Gentleman was going to sit down without justifying some of his earlier remarks. I do not want to misquote him, but I think he said that the common agricultural policy was wasteful and grossly inefficient. How does his party hope to cure that gross inefficiency and waste if all the leverage is removed and every time a proposal such as this comes along his party supports the putting of more money into the Community? How will he ever reform it?

Were it not for the proper strictness of the Chair, I should have to start my speech all over again. The amendment does not provide any additional leverage. The CAP is in desperate need of reform, it is extremely wasteful, but nothing in the speech of the right hon. Member for Worthing suggested that amendment No. 6 will provide the leverage that we all want. As I said on Second Reading, there is an urgent need for tighter budgetary discipline, but we on these Benches cannot see how the proposals from what have been described as "the old lags" by one from their ranks will alter things.

I challenge Conservative Members to persuade us that their proposals will increase the leverage. We are, as always, open to persuasion. We do not enter the Chamber with our minds already made up.

11 pm

We have all scoured the Order Paper to see what the Liberals propose to achieve budgetary discipline, and how they would reduce the burden on British consumers in the form of food prices. The tone and substance of the speech of the hon. Member for Colne Valley (Mr. Wainwright) was that he does not care very much for the increase borne by his constituents.

Some hon. Members are trying to find out how to curb an extraordinary excess which gives rise to the greatest tax borne by the least advantaged. With the exception of the hon. Member for Colne Valley, the alliance has deserted the Chamber, although it might be summoned from the deep, as was Hotspur's spirit, to rush in to vote. In what way will the alliance restrict this extraordinary expenditure by way of food taxes? The hon. Gentleman is a member of the Treasury and Civil Service Select Committee and knows that his constituents pay more tax in food tax than in any other.

The Liberal party recommends greater expenditure. Many of us have suffered the generosity of the hon. Member for Inverness, Nairn and Lochaber (Sir. R.Johnston), who advocates yet more expenditure. We are trying to find a mechanism by which to control Community expenditure, and to divert it from this all-consuming elephant, the CAP. The Liberal party has suggested nothing. Indeed, it found a defect in amendment No. 6. Moreover, the criticism was not constructive. We expect the hon. Member for Colne Valley to identify means of constraining the burden on the least advantaged. He knows that the central issue of public debate at the moment is how to release to people their hard-earned money so that they can pursue their own interests. Some of us have identified that that can be done by cutting the cost of food.

We know that food taxes are the most regressive form in which to grind down people and that the way in which we can immediately lift up their living standard, and give them the things that the Conservative party has struggled to identify for the past six years, is to reduce that burden of taxation. What deeply disappoints some of us is that we have seen the taxes imposed upon the working people driven forward by the monstrous, covert hidden food tax. We suffered for four years a Minister of Agriculture, Fisheries and Food who drove on that engine of expenditure, reducing and grinding year after year the living standard of our people. That is what has been done. It has been covert and secret. To this day we cannot identify from the Treasury, the Ministry of Agriculture, Fisheries and Food or the Government what is the tax bill borne by ordinary families, in paying their food bills every year.

Consumption of standard commodities has reduced. People say that it is a change of taste, and that the diet that they have suffered for 50 or 60 years is no longer suitable. People do not eat butter so much. It is not possible or sanely economical to buy it. The tax on frozen beef from Australia is about £2 or £3 a pound. That is cut out. People say that our demand for frozen beef from the Commonwealth has diminished, but adduce that as if it were a remarkable contention that the provision of foods from other countries is not viable any more. Of course, it is viable.

What remedy do the Opposition, the Liberal and Social Democratic parties propose to restrain that great grinding down of the standard of living? We want to know for when those great issues are debated across the country in clue course. The misdirection of our scarce economic resources from the productive enterprises that made us a rich, prosperous country, able to sustain the social welfare and benefits that we believe in, to a common agricultural policy in a covert and secretive way, produces the greatest tax bill that is borne by the average member of our society.

It may not matter for many hon. Members who are on high incomes if their bill is £5 or £6 a week more for their family than it might be otherwise. But it is no surprise to many of us in the Conservative party that that has a debilitating and destroying effect on many of the Government's objectives. We can achieve an economic regeneration if we can direct resources away from that wasteful abuse into those areas that most require them.

The Liberal party had no response to the contention of my right hon. Friend the Member for Worthing (Mr. Higgins) on this group of amendments, when he sought what was only a mechanism for trying to rein back the way in which money is expended. We are deeply concerned that the formula that we have arrived at says that resources directed towards agriculture should not grow any faster than the resources available to the Community. That is a monstrous proposition, which has horrified many people. What it actually says is, "We shall consume yet more on agriculture and in so doing we shall tax people yet more to achieve that objective." All of us will end up consuming one carrot a day, and still pay thousands of millions of pounds to achieve that objective. That is against the interests of this country.

Each one of the parties of the House, year by year, has called out—I know it from my hon. Friends, whether in Centre Forward or any other grouping, and Opposition Members — saying, "Only £1 billion there or half a billion there." We are looking at the misdirection of the economic resources available to the Community, of sums much in excess of those, yet there is no coherent sustained attack on a position adopted by a few in Government, that all that is an acceptable price to pay for appearing to be good Europeans. Having paid the price, sometimes one may make reasonable assessments that it is worth making a payment here or a payment there because the quid pro quo is worth it. Having launched in the House last week the Bill that we are now discussing, the Prime Minister has had the most serious rebuffal on her misunderstanding and that of the Foreign Office of what is the nature of the Community. My hon. Friend the Member for Banbury (Mr. Baldry) has eloquently said that the House and the Government misunderstand the intent of the one coherent policy of the Community, which is on food prices. That goes against the historic continuity that we have sought across parties, and our ability to generate resources for our industries. By European standards we were a low wage economy, but the quid pro quo within our economy was that we were a cheap food economy. Our influence in the world was in part dependent on that, as the hon. Member for Colne Valley well knows.

We were the largest consumer of Commonwealth agricultural produce in the world. That gave us influence, which reached out from this little city of London to the corners of the world. We were the major purchaser of Commonwealth commodities from the Caribbean and the less advantaged areas, such as Pakistan. We also supported our friendships and policies in Australia, New Zealand, Canada and the United States by being the most substantial importer of food in the world. It was in our interests to be such. We bought commodities in which those countries had a natural advantage because they could produce them cheaper than we could. It was self evident to most of our citizens that from the abolition of the Corn Laws onwards we were to have cheap food. The price and benefits that arose from them far outweighed the disadvantage of not supporting or over-supporting an agricultural interest.

During the post war years it was recognised that there had to be balance because we were all too aware of the effects of war. We had—

Order. I am beginning to find difficulty in relating the hon. Gentleman's remarks to the amendment.

I am sorry if I did not carry you with me on my exposition, Sir Paul. I was seeking to restrain the agricultural element in the Community's budget. I thought that my right hon. Friend the Member for Worthing was proposing to do that in his amendment. I was supporting that aim by giving both the reasons why and ways in which we came to that conclusion, and by pointing out the commonwealth of interest across the House in doing that. I was highlighting that aim by placing the matter in a historical context. I hope that that was a reasonable way to approach the debate, but if it was not, I defer to your judgment.

In the post-war period we came to realise through war why it was necessary to give an advance to agriculture. We are prepared to do that. No party has been or is more committed to the agricultural interest than the Conservative party. There is no question about that. We are saying that it is no longer in the interest of British farmers or of British consumers to continue to direct vast resources to the CAP. The hon. Member for Colne Valley had no mechanism to control the extraordinary expenditure on agriculture. He did not even refer to the taxes borne by his constituents. It was as if that were no longer a consequence or consideration, and the Liberal party no longer cared about the level of taxes borne by its constituents. The hon. Gentleman said nothing about the level of taxation borne by his poorest constituents through the food mechanism.

Whatever the intent behind the speech of my right hon. Friend the Member for Worthing, I understood from it that he shared my concern about the burden borne by the poorest. He recognised that we could generate resources for the regeneration of Britain and the investments that we seek to the advantage of the average man in the street. We look, therefore, to the sole representative of the Liberal party, although we know that they can all be summoned up like Hotspur's dragons from the deep, for a mechanism to ensure that that expenditure does not go out of bounds. That was not forthcoming.

I urge the House to give careful consideration to the detailed points that have been raised and to the skilful way in which my right hon. Friend the Member for Worthing adduced the arguments. Most important of all, those arguments bear consideration by the Government because they will be making the decision. They were worthy points, but they have not so far been answered in any of our discussions on the European Community over many years. I urge the Government to take them on board.

My amendment No. 9 would prevent the 1·4 per cent. own resources ceiling from being increased to 1·6 per cent. for the next 10 years and would thus achieve the objective that the hon. Member for Aldridge-Brownhills (Mr. Shepherd) set out in an intervention which grew into a brilliant speech with which I thoroughly agreed.

My amendment seeks to prevent the constant escalation of expenditure on the common agricultural policy to which the hon. Gentleman referred. As the hon. Gentleman pointed out, it is extraordinary that the Liberal party—the party of Cobden, Bright, the cheap loaf and Lloyd George's campaign against Chamberlain's tariff reforms before the first world war—is now the biggest defender of the agricultural protection society, the CAP. The Liberal party, which is enthusiastically pro-European from a naively idealistic point of view seems as determined to ignore the warts of Europe as it is to ignore those of the SDP with which it is in alliance. In the case of Europe, that blind eye is a major fault because Europe is 75 per cent. warts in that 75 per cent. of its expenditure goes on the CAP. That is a crippling burden on every family in this country and it is extraordinary that the party of the cheap loaf and free trade should in its naive idealism be the chief defender of such a burden.

My amendment seeks to limit that crippling burden. The Government should never have agreed to the increase in the VAT ceiling from 1 per cent. to 1·4 per cent. The right to veto that increase was the one weapon that we could use to prevent the endless escalation of expenditure and to force reform of the common agricultural policy. Reform is drastically needed because paying high prices to farmers so that they produce more while the consumer buys less and the resulting food mountains have to be financed by the taxpayer is not just inefficient and economic folly. It is an obscenity in a world in which 30 people die of hunger every minute of every day. It is obscene, too, that an organisation dedicated to the improvement of Europe spends three quarters of its budget on supporting not farmers but agri-business while it spends practically nothing on Europe's main problem, unemployment. The Liberals' devoted support of such a policy casts doubt not just on their economic credibility but on their political principles. It is more important, however, to limit this expenditure than to castigate the Liberal party.

Our opportunity to force economic stringency on Europe and thus reform of the common agricultural policy lay in our right to veto any increase. That was our one strength. If we are not prepared to use that veto there is no chance of limiting expenditure on the CAP because agriculture is politically in a far stronger position on the Continent, as the German veto on grain prices has shown. Even if agricultural expenditure increases with production no faster than the Community's own resources, it will still be growing when it is already far too large. In any case, the limits that are imposed cannot be exceeded in any year by any amount if the majority feels—as it will—that exceptional circumstances apply.

We have given up a very real sanction in return for mention of promises that predictably will be worthless. We should have used that sanction and refused to increase. If in this legislation we accept the increase to 1·4 per cent., we must now use the next resting place—a refusal to agree to a further increase to 1·6 per cent.—unless the reforms that should have accompanied the first increase are forthcoming.

11.15 pm

The Prime Minister promised that there would be no increase in the own resources ceiling without binding guarantees of effective budgetary discipline. We are still to get those. Therefore, the fight must now continue to get them on the 1·6 per cent. ceiling, the Prime Minister and the Government having been conned by the lure of cash rebates that we should have received anyway. It was the duty of the EEC countries to give us that cash, and it would have been ruinous for the United Kingdom had we not got it. The Community now expects us to gibber in gratitude and to say that we accept this increase in the ceiling because of rebates that we should have got as of right. That is an inadequate justification for the increase.

The argument for my amendment is quite simple. It prevents us throwing good money after bad. It prevents us moving on to the situation described by the right hon. Member for Worthing (Mr. Higgins). Although the Government have not admitted it, the increase to 1·6 per cent. is closely linked with the permanency of our own rebate because the durations are linked by the agreement. That rebate goes on as long as the 1·4 per cent. ceiling lasts. As soon as there is an increase to 1·6 per cent., our rebate is up for grabs and will have to be renegotiated from scratch.

The 1·6 per cent. ceiling is very much in the offing, because the decision in the White Paper specifies that
"the maximum rate may be increased to 1·6 per cent. on 1 January 1988 by unanimous decision of the Council and after agreement has been given in accordance with national procedures".
The Government do not have to agree with that, but why is it written in that precise form unless there is an understanding that "may be" means "will be"? We shall then be in exactly the same negotiating position as we were when there was an increase from 1 per cent. to 1·4 per cent. We shall be conned in the same way by the promise of making our rebate "permanent" if we agree to the 1·6 per cent. ceiling. We shall be lured by the same tactics. In an attempt to avoid that, my amendment requires the 1·4 per cent. ceiling to be maintained for 10 years.

The Vice-President of the Commission, Mr. Christophersen, has already pointed out that the Commission considers that the new own-resources ceiling of 1·4 per cent. will suffice for 1986 and 1987, but the question of increasing it should start to be considered now. The procedures are already under way to increase it. The United Kingdom should oppose that increase, and my amendment would prohibit it for 10 years otherwise the 1·4 per cent. increase would be invalid.

For the same reasons as the Government should have opposed the increase from 1 per cent., we must oppose the increase from l·4 per cent., and this amendment requires us to do that.

I have tabled new clause 12 for several reasons. The first is that I want to concentrate the mind of the Committee on the next increase, which is in mobilisation. Secondly, I want to explore the nature of the Government's position on the next increase. Thirdly, I want to clarify the procedure by which such an increase is likely to be considered and submitted for approval by the House.

The next increase is relevant to our debate, because it is contained in the decision of 7 May to which the Bill give effect. There is a real danger that by endorsing the statement to that effect in the preamble, the Committee may be committing the House to the tacit endorsement of a second increase. Therefore, we need to be absolutely clear as to the nature of that second increase, and the pressure that will inevitably cause it.

It is also important to emphasise, particularly having listened to my right hon. Friend the Member for Worthing (Mr. Higgins), that the pressure to raise the second, heightened ceiling arises not only from agricultural spending, and not only in the context of enlargement. It is true that the figure of the additional 0·2 per cent. appears first in the Commission's Green Paper on financing the Community as a cost of enlargement, but quite important trends need to be considered.

As the resources are calculated in the medium to long term, it seems that the increase being posited in the budget is not entirely the same as the increase in VAT resources required to finance that budget. We already know of a diminution in the other sources of revenue—the customs duties that are being liberalised gradually under the existing GATT round, and are due to be further liberalised under the forthcoming GATT round, and the real possibility that agricultural levies will diminish over future years. As those sources diminish, and the demands of the budget increase, there will be a faster increase in the VAT revenue call up and the actual increase in the budget itself.

The Commission predicts in paragraph 3 of its Green Paper that the tariff dismantling and the fall in levies consequent on CAP reform could mean, at a timescale of 10 to 15 years, a 0· per cent. increase in the VAT call-up rate merely to maintain the real value of available own resources. That was drafted before enlargement and any further pressure on agricultural spending. The document proposed a radical leap in resources, not simply from 1·4 to 1·6 per cent., but to 2 per cent. This would:
"give the Community secure financing for long enough to cover the whole transitional period of enlargement to include Spain and Portugal:'
From that, I deduce two things. First, if it is 2 per cent. rather than 1·6 per cent. that the Commission suggests would be adequate to cover the transitional period of enlargement, then the Commission will soon be back to up the ceiling from 1·6 to 2 per cent. Secondly, I deduce that that 2 per cent., framed as it is in the Green Paper, is only to finance the transitional period of enlargement. Therefore, it is not likely to be adequate to finance the other future developments that are being considered and the policies that are being proposed, let alone the ever expanding budget, increasing in the period 1978–83 by some 5 to 6 per cent. in real terms every year.

Those further pressures on spending — the second reason why the VAT ceiling will inexorably rise — are set out in the Green Paper on future financing, and have been alluded to by my right hon. Friend the Member for Worthing, although I think that he understates the case. The intensification of the Community's energy and industrial strategy, the expansion of Community expenditure on research and development and innovation projects, more systematic and extensive use of Community finance structural expenditure on the regional and social funds, the development of other structural expenditure, such as FEOGA guidance for fisheries in the Mediterranean programmes, the development of substantial Community-financed transport infrastructure programme, and the achievement in 10 years of the Community development aid programme that equals one thousandth of the Community's GDP are all projects requiring money.

I make no comment on the merits or otherwise of any of those proposed developments of Community activity, but I stress that there are serious upward pressures on the expenditure side of the budget quite outside the costs of enlargement and quite outside the seemingly uncheckable rise in agricultural spending.

It is also important to emphasise how this first hike in the VAT ceiling and the second hike in the VAT ceiling is not likely to be the final stage in this operation but will clearly be one of a series of increases.

Unless my hon. Friend votes against it. I do not know why he did not vote against the Bill on Second Reading.

If the Committee does not accept that latter point, hon. Members have only to refer to the covering letter to the second Commission Green Paper on future financing in which President Thorn of the Commission informs Mr. Cheysson, President of the Council:

"I would again point out that the Commission has never proposed increaing the own resources ceiling to 1·4 per cent of the VAT basis of assessment. In the proposal made by the Commission in May 1983, this rate of 1·4 per cent. represented only the end of a first stage of operation of a new system of own resources with no ceiling."
The second reason why I tabled the new clause is that I think that it is important to clarify a little further the Government's position on a second increase in the ceiling. That position might at first sight appear obvious and clear cut. I believe that my hon. Friend will emphasise again that the Government are not committed to any increase and are not party to any such decision. We have been told that not only are the Government not committed to any increase but that there has not even been a statement of intent for which the Government have indicated their support. But the Government have signed a document containing that statement — the decision which the Bill implements — and the Committee must ask itself, if that statement is not part of the decision, why was it included in the preamble to the decision.

It seems to me that it was included because, although it was not technically part of the decision, it was at least part of the deal struck with our Community partners. Therefore, the Committee is entitled to draw out my hon. Friend a little further on the nature of that understanding and of that commitment.

My third and final reason for tabling the new clause is the need to clarify the procedure by which a second increase in the ceiling may take place. We have already been assured that such an increase will need to be approved by Parliament. On Second Reading, my right hon. and learned Friend the Foreign Secretary said that the existing arrangements
"can be changed only by a unanimous decision of the member states and with agreement of all their parliaments."—[Official Report, 25 June 1985, Vol. 81, c. 800.]
That is not what the preamble says, and I do not believe that it is the constitutional position. The preamble says
"after agreement has been given in accordance with national procedures."
It is my understanding that legally the House is not necessarily required to give its consent in this form to such an increase.

Whatever the constitutional position, it is wholly appropriate that the House should at least make it explicit that its own consent will be required for a second increase, and the sort of explicit understanding that I have in mind occurred during the passage of the European Assembly Elections Act 1978. Although it might have been constitutionally implicit that any further increase of the powers of the European Parliament would require approval from both Houses of Parliament, this House felt the need to state yet again in the Act itself that its own consent was required for such a change. It would be right for the House to make such an understanding explicit now because, as the hon. Member for Great Grimsby (Mr. Mitchell) has indicated, we will be dealing with these matters very soon. If ratification of a formal decision can take up to two years, and we are now dealing with a demand for an increase in mobilisation that will take effect from 1 January 1988, I expect the House to be considering a further increase in the rate of mobilisation either in the latter part of next year or in the early part of 1987.

11.30 pm

We are all indebted to my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd) for his convincing and compelling speech. It was an important speech. We all realise that what we are talking about today in terms of expenditure — the VAT limit — is really a small part of the cost that the country has to bear as a result of the common agricultural policy. In drawing the attention of the Committee to the real food tax which is borne by the poorest members of our society, my hon. Friend did a signal service which we should remember for a long time.

I have in my name amendment No. 7; I sort of have that amendment in my name because my intention when I put it down was to include the word "not", which is not there. I shall speak to it as though the word "not" was included. The intention of the amendment is to limit the amount of our net contribution, even within the new VAT formula. Briefly, there are four reasons why I want to control the level of our net contribution.

First, and very really, I want to support the Prime Minister. At the weekend in Milan she had an unpleasant and unfortunate experience. She was confronted for the first time by full frontal federalism. My right hon. Friend the Prime Minister said that there are changes and reforms which she wants to see achieved and that there is no need for a conference to achieve them. That is right. We all want reforms such as freeing the internal market so that we have one large market without non-tariff barriers. Sadly, the reforms which we are now being offered are more of a federalist nature.

The intention of the conference, and of those who want the conference, is to bring forward more federalist policies and in this way to lure Europe, including the United Kingdom, into a more federal united states of Europe. If the message from the Committee is loud and clear that it is concerned about the level of resources that we are spending on the Community at the moment and that it will not contemplate an increase in the already over-bloated amount that we have agreed to, there will be a realisation by the federalists of Europe that their objective is less likely to be achieved.

Secondly, we are all in this country desperately concerned about the ballooning, mushrooming and ever-increasing levels of public expenditure. I see my right hon. Friend the Secretary of State for Defence climbing the steps at the back of the Chamber. He will know that in his area of activity each year the real levels of expenditure increase, even to buy the same amount of equipment and manpower. The same is true of the Health Service and of social security. Yet the fastest growing expenditure that the country is faced with is our gross contribution to the European Community. Some hon. Members have said that they do not care about the gross contribution and that what they care about is the net contribution. If we do a calculation, gross contribution less net contribution is the cost of Community policy within the United Kingdom. Over the last three years the cost of those policies has increased by 50 per cent. That is much greater than the cost of any other policy. If all our other budgets and policies had increased at that rate, this country would be severely bankrupt. It is important to control gross Community expenditure.

Thirdly, we are told the cost to Britain of the latest intergovernmental agreement is £240 million, but that it does not really matter because we shall get back £120 million in policies in the United Kingdom. All that really means is that we are getting the same policies but that they will cost us £120 million more. That is public money that is being spent. There is no benefit in that. It is just increased extravagance and increased costs.

We shall get back two thirds of the other £120 million through the rebate mechanism. We are grateful for that, but it still means that we have a net contribution of £40 million. My colleagues have said, "Only £40 million." Only £40 million for what? It is our net contribution. In the Community as a whole, that is a zero sum. We are paying in £40 million; some one else is taking it out. All these "£40 millions" add up. That £40 million means 75p per head of population. To a certain extent, money is like matter—it cannot be created or destroyed.

My 14-year-old daughter, Alice, gets 75p a week pocket money. The other day, I said, "Alice, dear, the Government have negotiated an intergovernmental agreement. It will cost you 75p and you will get nothing for it. I am awfully sorry, but this week you will have to do without your pocket money." I tried, but it did not work. That is, however, a good point.

There is a fourth reason why we should keep this level of expenditure under control — to demonstrate that we are good Europeans. The common agricultural policy does no one any good. It does the consumers and the farmers no good. It does Europe a great deal of harm. It creates conflict between ourselves and the United States. The only way in which we shall overcome the problems of expenditure on CAP is by imposing a ceiling on its expenditure. We have heard about the likely effects of the weather on the financial mechanism. We realise that this mechanism is not watertight and that it will not work. The only way in which we can overcome the problems of gross extravagance in CAP — given the continuing growth in European surpluses, and the likelihood of even greater surpluses in future years — is by imposing a ceiling on that expenditure to force Europe to redevise its agricultural policy in a way that will suit Europe, the world, our farmers and our consumers.

I think that we all know the arguments on these important new clauses and amendments. Therefore, to avoid wasting time, I shall ask two questions. In trying to get something positive out of this matter, which concerns us all, would the Government at least be willing to say that they willnot welcome any proposal to increase further the 1· per cent. VAT limit? Will they give an assurance that they will not initiate such a proposal? If the Government answered "Yes", we would feel that this long debate had been, to some extent, worth while.

I join my hon. Friend the Member for Southend, East (Mr. Taylor) in his practical suggestion. I should like to add another practical suggestion. The Commission says that the proposed budget will cause member states to apply a rate of 1–35 per cent. in 1986. During the Second Reading debate, the right hon. Member for Strangford (Mr. Taylor) pointed out that the proposal for 1986 was, first, subject to the uncertain demands that this demand-led expenditure was likely to make — with the usual arguments about the uncertainties of the weather, world prices, and so on — and, more importantly, based on an assumption about the value of the dollar which was highly speculative and probably extremely optimistic.

If the Commission is already proposing expenditure that demands a take-off from VAT of 1·35 per cent., I hope that my hon. Friend agrees that that does not leave a sufficient margin for error in 1986. No doubt the Treasury Bench genuinely thinks that it has done jolly well because once again it has squashed a small, unrepresentative group of troublemakers. The Government are very pleased that the Labour party is no longer in business as an Opposition and that they have demonstrated how very useful it is to have a majority of more than 140 so that they can walk all over the House of Commons. That may be so, and very useful it must be to the Government and their Whips. But, my goodness, if they come back to the House in 1986 and say, "Very sorry, we made a bit of a mistake — we rather underestimated the demands that the CAP would make on the EC budget, so do you think you could agree to a third IGA?", I think that even this House, dominated so usefully by a vast Tory majority, may feel it necessary to complain a little.

Wearing my Whip's tie, I wish to congratulate my hon. Friends on the highly effective way in which they have brought to bear the greatest voting machine that modern politics has ever seen. But even that voting machine might find it a little difficult to swallow a third IGA in 1986. Even my hon. Friend the Member for Darlington (Mr. Fallon) might vote against that. I hope that a friendly warning is given to the Commission to the effect that, if it is contemplating a budget based on 1·35 per cent., it is not leaving itself a sufficient margin of error.

I wish to bring the Committee back to a matter of detail which was glossed over during the Second Reading debate, and on which I have not yet had an answer from any Minister. It concerns something that is crucial to the entire operation that we are discussing — the budgetary discipline mechanism.

We are being offered a mechanism which is specified in a document which purports to give us a facility to control Community expenditure in a way in which it has not been controlled previously. That mechanism relies on a fairly simple looking procedure which, on the face of it, one might expect to show results which have not prevailed in the past.

The very simple operation is that at the beginning of each year, within the budgetary procedures, a reference framework should be fixed which involves the maximum level of expenditure for the Community. Hon. Members will be reassured by the fact that a reference framework will be fixed at the beginning of each year and that the budget will be related to it. That provision is contained in article 1 of the budgetary discipline mechanism.

However, I suspect that hon. Members will be slightly less reassured by the fact that article 2 states:
"Account shall be taken of exceptional circumstances, in particular in connection with enlargement."
This is neither the time nor the place to go into detail about the possible additional expenditure that enlargement will cost the community, but it must give some of my colleagues slight cause for reservation when they see mention of exceptional circumstances. Having had the encouraging sign of setting a reference framework, the mere mention of exceptional circumstances must give pause for thought.

Matters become a great deal worse when reading article 5, which contains the now notorious phrase that over the following two financial years
"barring aberrant developments agricultural expenditure is brought back within the limits imposed by this guideline."
11.45 pm

For the benefit of the Committee I shall repeat a question which I have asked Ministers on several occasions and which has never been answered satisfactorily, although the Economic Secretary took it up in part on Second Reading when he generously conceded that we could not expect agricultural expenditure to be controlled when we cannot predict the weather. That may be a statement of truth, but, in the context of a so-called budgetary discipline mechanism, in which we solemnly set out at the beginning of the year a framework for expenditure, it causes me concern when my hon. Friend says, "We do not know what the weather will be like." lie has touched on a real and fundamental truth. The harvest that is forthcoming each year is the main determinate of the level of Community expenditure. Reference frameworks have no relevance or power in setting budgetary discipline. On the admission of my hon. Friend, any such mechanism is subject entirely to the vagaries of the weather and the harvest.

That would all be bad enough, but in article 6 the game is given away entirely. The great budget discipline mechanism, which is based on a reference framework arrived at at the beginning of the financial year, is subject to the following provision in article 6:
"At the request of a member of the Council or the Commission, the Council acting by the majority referred to in article 1(2), may amend the reference framework."
Having started the year with a reference framework which is supposed to give us budgetary discipline, we have the facility that at any time, by a majority, we can change the reference framework and thereby blow the entire budgetary mechanism out of the water.

The Committee will be well served if during his responses my right hon. Friend answer my questions, which will reassure us, I hope, that the budgetary mechanism, on which so much rests and on which the Government have rested their entire case for giving greater resources to the Community, is one in which we can have confidence. Given the loopholes and flaws to which I have referred, we must have answers before we can be so satisfied and give our support to any increase in the VAT ceiling.

This has been a brief, interesting and concentrated debate in which the Minister has been asked some embarrassing questions. I know that the Committee will be grateful that the Government appear to have lost some of the wild enthusiasm which they showed for the Bill last week and that the House of Commons may have some more time carefully to think about the issues.

The right hon. Member for Worthing (Mr. Higgins), who initiated the debate, did the Committee a considerable service by setting a sober and sensible framework for the debate. He did so by reminding us of the terms of the Fontainebleau agreement. If the Select Committee on the Treasury and Civil Service did nothing else—in fact, it has done an enormous service to the House of Commons — it provided us with our only text of the agreement. As the right hon. Gentleman has said, the agreement ties the much vaunted and much triumphed abatement to the ceiling of 1·4. Committee has properly Concentrated its attention on the speed with which the Community will reach the ceiling of 1· 4 per cent., on which are based all the promises that the Economic Secretary to the Treasury made in The Times last week on the permanence of the arrangement and the claim that the Fontainebleau agreement has changed the rules for good.

In reality, the Fontainebleau agreement has changed the rules until the 1·4 per cent. ceiling is reached, and "for good", in the language of the archaeologist who is the Economic Secretary, will not be very long at all.

I found, in my researching, an interview that the Foreign Secretary had with the head of European television services in Bonn in the Federal Republic of Germany on 18 January. The right hon. and learned Gentleman said:
"I found it one of the most encouraging things in the last few months that sitting round the Community table, it is more like sitting round a cabinet table in a single national government with people genuinely searching for a common answer to difficult questions."
In the weekend that has just passed it is conceivable that the right hon. and learned Gentleman is telling us more there about the British Cabinet than he is about the Community cabinet table.

How permanent is permanent and how for good is for good? Those crucial questions must concentrate the mind of the Committee tonight and until the Bill becomes law. It all boils down to budget discipline. Are the promises that were given at Fontainebleau on budget discipline, or the promises that the Government believe were given to them, watertight, and are such promises as are built into the legislation worth anything more than the paper on which the Bill is printed?

On Second Reading I quoted Mr. Unwin, the Treasury official who made it clear in his evidence to the Treasury and Civil Service Select Committee that the budget discipline agreement was not absolutely watertight. Hon. Members know that to be the case, and, as they have said, the document on the 1986 draft budget has blown the gaff on what is happening in the Community. That document says:
"The VAT call-up rate will be 1·35 per cent. even under the strict assumptions on which the draft budget is based. This leaves only a slight margin of about 900 million ecu up to the new ceiling of 1·4 per cent."
The Economic Secretary, when replying to the debate on the previous amendment, chose to slide over that figure. But that document makes the position even clearer when it says:
"Calculated on the same basis, the VAT rate was 1·06 per cent. in 1984 and 1·22 per cent. in 1985 (the difference between that and the 1 per cent. ceiling was made up by advances from Member States)."
Thus, in 1984 and 1985, the Community was considerably in excess of the ceilings that were laid down under the Treaty of Rome, and we can expect little or nothing different with the present ceiling.

We are talking about the CAP, as hon. Members have pointed out, and the whole question of budget discipline boils down to whether the CAP constraints can be made to stick. The publication Agra Europe for November of last year said:
"Last week's agreement by the EEC's finance and foreign ministers on controls on agricultural support spending … was described this week by a senior EEC Commission official as 'not worth the paper it is written on.";
The hon. Member for Mid-Worcestershire (Mr. Forth) pointed out, as he has repeatedly, that the growth of Community agricultural expenditure and the loopholes inherent in the budget discipline document mean that we can have little or no faith in the ability of the Community to remain within the present constraints.

A paper produced for the journal European Trends by Mr. Edmund Neville-Rolfe, director of the Bureau Europeen de Recherches in Brussels, says:
"Even if … the proposal for a freeze on average prices … is accepted by the Council, some increase is likely to have to be conceded for 1986–87. To accommodate this, as well as the cost of disposing of the carry over of stocks within the 1986 budget of 17·2 million ecu, could be a tight squeeze."
Mr. Neville-Rolfe goes on to underline the point that hon. Members have made in this debate, namely, that the loopholes that have been left under the vague phrase "exceptional circumstances" gives no confidence that the budget discipline will be adhered to. Only last weekend, the country that chose to deploy the veto on a 1·8 per cent. cut in cereal prices is now in the vanguard of a movement which wants to eliminate the veto for ever from the European Community.

The 1·4 per cent. VAT ceiling about which we are talking is already almost completely committed. It is only a matter of time, and a short time at that, before we shall be back here discussing intergovernmental agreements or the submission of a 1·6 per cent. limit. There will be more fractious negotiations over the increase to 1·6 per cent. Spending is not under control, and Ministers' assurances are as worthless now as they have been. It is right and proper for the House of Commons to set its own ceilings. If it does not, we have the prospect of returning to debate this matter again and again.

I congratulate hon. Members on their short, but forceful, contributions to the debate, which has concentrated on two matters that arise from the amendments. The first is the effect on the British contribution of the increase in own resources to 1·4 per cent. The second is the procedure which might be applied if, at some future hypothetical date, a further increase in own resources was contemplated.

Perhaps I should begin by responding to some of the other matters raised by my right hon. Friend the Member for Worthing (Mr. Higgins) when he moved his amendment. He asked whether we could be certain that the abatement for 1985 would be paid if the Committee approved the Bill. We can be certain for two reasons: first, the sum appears in the budget which has been adopted by the EC and has gone through all its procedures; and, secondly, it is referred to in article 3(4) and on the final page of the own resources decision. The payment of the abatement flows directly from that.

My right hon. Friend asked when a definitive text of the Fontainebleau agreement would be available. A copy has been deposited in the Library, and the Treasury and Civil Service Select Committee produced an accurate copy of the agreement in its report.

Amendment No. 6 seeks to insert in the legislation the requirement that the British contribution, if the own resources element is increased to 1·4 per cent., should be kept at a maximum of 1 per cent. and should not be allowed to go above that. The Government believe that what my right hon. Friend seeks will happen. The present United Kingdom contribution is 0·82 per cent., and we believe firmly that, if and when the Community reaches the new ceiling of 1·4 per cent., the British contribution is almost certain to be no more than 0·87 per cent. That is a remarkable demonstration of what an excellent settlement the Fontainebleau agreement was for the British taxpayer. Even when the 1·4 per cent. ceiling is reached by other member states, the United Kingdom alone will not only not have to pay that much, but will still be under the present ceiling. It is churlish for any hon. Member not to recognise what an excellent deal the Prime Minister negotiated at Fontainebleau and how substantially it protects British interests.

The only way in which the British contribution could go above 1 per cent. would be if our receipts from the regional and social funds increased by more than half, from the present level of 25 per cent. to about 45 per cent., which is almost inconceivable, or that our agricultural receipts would increase by one quarter compared with our traditional share. That is also inconceivable, and no one would seriously advance the likelihood of that happening.

My right hon. Friend may ask, "Why can you not accept my amendment and put this in the legislation?" There are two reasons. First, to put a formal statutory prohibition on any British contribution above 1 per cent. would contravene the own resources decision and prevent us from ratifying the agreement. Therefore, the entire agreement would fall by the wayside. Secondly, it would reopen the Fontainebleau agreement, and one can be sure that if the United Kingdom sought to introduce new formal conditions or requirements, other member states would be similarly tempted. Therefore, while in practice the objective which my right hon. Friend seeks will, I believe, be satisfied, the proper way forward is not by legislative means.

12 midnight

My right hon. Friend also asked about the extent to which the agreement guaranteeing a two-thirds rebate of our VAT expenditure gap can be said to be a permanent agreement or a long-lasting one. If the House accepts, as I am sure it does, that the Fontainebleau agreement states specifically that the two thirds rebate procedure for the United Kingdom will last as long as the 1·4 per cent. ceiling, and if that 1·4 per cent. ceiling can be changed only by the unanimous agreement of all the member Governments and of their national Parliaments, anyone who is concerned about the long-lasting nature of the agreement has to believe, not only that a British Government would allow the safeguard to be dropped but that the House of Commons would endorse such a decision by the British Government. I believe that either of those possibilities is literally inconceivable.

In that case, as it is so vital to Britain that the 1·4 per cent. level is not breached, my hon. Friend would help many of us who are having some difficulty in supporting the Government tonight if he would' give an undertaking that the Government will not come back to this House, at least during the lifetime of this Parliament. to ask for an increase to 1·6 per cent.

I shall deal with that specific point, which was raised by my hon. Friend the Member for Southend, East (Mr. Taylor). The basic point is that even if at some hypothetical stage in the future the Government — or a future Government — wanted to consider an increase in own resources from the present level of 1·4 per cent., it is inconceivable that they would be prepared to contemplate that if at least the present level of protection negotiated at Fontainebleau, or something better, was not to be available. Clearly, that would be an absolute control which any Government would have in a matter of this kind.

Before the intervention my hon. Friend used words to the effect, "If it were necessary for all Governments to agree" and "If it were necessary for all Parliaments to agree". Can he tell the House that it is necessary for all Governments and all Parliaments to agree?

I shall be dealing with that point. but I will deal first with the point raised by my hon. Friend the Member for Darlington (Mr. Fallon), who wanted reassurance as to the certainty of Parliament having the opportunity to take a decision on any question of the level of own resources. One can give that guarantee without any qualification. Just as for this increase in own resources it has been considered essential for this Parliament to consider whether to give its approval, so too would that be an absolute requirement in regard to any future question, at whatever stage that might be. That is not purely a British requirement. It is an equally fundamental requirement of every Government and every national Parliament.

My hon. Friend the Member for Northampton, North (Mr. Marlow) accepted that his amendment was defective in regard to one not unimportant word. I think he will appreciate that his amendment would be inappropriate for two other specific reasons. First, it would seek to impose a limit which is substantially below our present contribution to the European Community. Secondly, and more important, if such a condition were imposed, not only would the increase in own resources fall away but the British rebate arrangement would also fall away. It is so linked to the own resources decision that his amendment would remove the protection which the British taxpayer now has.

I deal now with the substance of the amendments of my hon. Friend the Member for Southend, East (Mr. Taylor) and the hon. Member for Great Grimsby (Mr. Mitchell), and to the question whether there could be a time when the House could be asked to consider a further increase in own resources. The reference in the own resources decision to 1·6 cannot on any basis be taken as being either a legal commitment or a political commitment by Her Majesty's Government to consider as acceptable or desirable at any stage an increase in own resources from 1·4 to 1·6. It is not just in the preamble to the own resources decision; it is phrased in a way that makes it abundantly clear that it is little more than a statement of the obvious.

For the simple reason that a number of member states wanted an increase to 1·6 per cent. That was unacceptable to other members states and a compromise was reached which provided a form of words which was acceptable to those who wanted 1·6 per cent., although they well knew that it involved no legal or political commitment by the majority of the member states.

My hon. Friend used the word "compromise". Compromise means that each party goes some way towards the other. To what extent did the British Government go towards the other parties?

To the extent of agreeing a form of words which stated the obvious. It may not have been a good deal for the other side. I shall quote the words of the document to ensure that there is no misunderstanding:

"Whereas the maximum rate may be increased to 1·6 per cent. on 1 January 1988 by unanimous decision of the Council and after agreement has been given in accordance with national procedures."
My hon. Friend is a distinguished lawyer. He will be aware that if he were advising his client about the extent to which that would ensure that own resources were increased to 1·6 per cent. he would say that it was a pretty raw deal. I am sure that my hon. Friend would be the first to advise his client not to rely upon such a document.

My hon. Friend can make whatever interpretation he likes. I do not need to add to that. There is no such commitment, and that is important. Secondly, I repeat that any future increase would have to be subject to the approval of this as well as other national Parliaments.

My hon. Friend the Member for Southend, East, in a short but nevertheless important contribution, asked whether the Government would welcome any proposal for a further increase and whether they would consider initiating such an increase during the course of this Parliament. Naturally, we should have to consider on its merits any request for an increase in own resources, but Her Majesty's Government would not welcome any proposal for a further increase in own resources during this Parliament. I cannot see us initiating any such request.

My hon. Friend will appreciate that we are in Committee and that I have been dealing with specific amendments. He will be aware that the comments which he and others made about the effects of climate on agricultural expenditure do not apply merely to the European Community or to the system of agricultural support in the Community, but apply equally to a system of deficiency payments or any system which must take into account world prices when public expenditure is being considered. Any fair assessment of these matters would take that into account.

On the basis of my comments about the Government's attitude to any further increase in own resources, I hope that my right hon. and hon. Friends will not feel obliged to persist with the amendments.

In the light of my hon. Friend's reply, and in particular the remarks that he made towards the end of his speech, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.