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Orders Of The Day

Volume 82: debated on Monday 1 July 1985

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European Communities (Finance) Bill

Considered in Committee.

[SIR PAUL DEAN in the Chair]

7 pm

On a point of order, Sir Paul. I beg to move, That the Chairman do report Progress and ask leave to sit again.

I ask you to take that unusual step because we read in the newspapers today that there was an unsuccessful meeting of the Council of Ministers in Milan at the weekend and as yet the Prime Minister has been unable to report on the matter to the House of Commons.

You will appreciate, I am sure, that the concern of many hon. Members from all parts of the Committee is that the expenditure of the EEC may continue unchecked. We read that there has been a dispute about the areas that might be controlled by majority decision within the Council of Ministers. If that system of majority decision is extended to activities that cost money, the Government's asessment of the future requirements for money for the EEC might turn out to be wrong.

It may be that my right hon. Friend the Prime Minister will be abe to calm all fears and to say clearly that she has no intention of allowing majority voting over any EEC activity that costs money, and it may be that she will also give us clearly to understand that the passage in the communiqué on Fontainebleau to the effect that own resources may be increased to 1·6 per cent. by 1 January 1988 has no effect in her mind and that she has no intention of allowing such increase, but it would be wrong if the Committee were to proceed to discuss the details, for instance, of the 1986 EEC budget without knowing what had been agreed last weekend at Milan and without knowing what the Government's position is.

I am sure that my right hon. Friend the Prime Minister wants to come to tell the House about this. Far and away the best procedure would be to give her the opportunity to come immediately, if she wishes, or otherwise to adjourn consideration of the Bill until such time as she is able to come. To proceed to discuss the details of this important Bill—described by my right hon. and learned Friend the Foreign Secretary as one of the most important matters that we have had to deal with in recent times — without understanding the Government's position in relation to the Heads of Government of our fellow member states of the EEC is to proceed on a quicksand. We simply do not know where the finances of the EEC—

Order. I am listening carefully to the hon. Gentleman, but he is now developing arguments which he would use were I to grant the motion. I think that I have got the drift of his argument. Perhaps he can bring his point of order to a conclusion.

I am grateful, Sir Paul. I ask only that we may be allowed to debate the motion that I put to you. Since I believe that there will be concern in all parts of the Committee that we should proceed on a proper basis, I hope that you will be able to allow a short debate on the issue so that the mood of the Committee may be made known.

Order. I am dealing with the personal application of the hon. Member for Wolverhampton, South-West (Mr. Budgen). As the hon. Gentleman said, and as the Committee will realise, we have made no progress yet in the Committee proceedings. Amendments have been selected and it is the job of the Committee to get on with the business, so I am not prepared to accept the hon. Gentleman's motion.

Order. I have given my ruling. I am not prepared to accept further points of order on this matter. The first amendment to be considered is No. 5.

On a separate point of order, Sir Paul. Considerable concern was expressed in the House earlier today that there has been no statement arising out of the Milan summit. I share the concern of hon. Members on both sides of the Committee that we should proceed with this Bill without a statement on the Milan summit. My point of order relates to the request that a statement be made. It will take only a few moments to deploy the argument.

The Bill seeks to give legal force to a Community treaty. It is a Community treaty that deals with the most sensitive point of all the Community's affairs, that is, the financing of the Community itself. It is 15 years since the Community last had a treaty defining its own resources. We are now for the first time, as it were, seeking to change that agreement in a way that will give greater possibilities for the financing of the Community in future.

The relevance of Milan to this, and the reason why I believe we should have a statement now, is that at Milan what was discussed to our surprise was a further treaty. Apparently a discussion took place and as a result of a majority vote it was agreed that a conference should be held at which the object would be to draft a new treaty to carry forward the affairs of the Community. It is inconceivable that any new treaty would fail to make provision for the financing of the Community. I therefore think it would be right to have a statement.

Order. The right hon. Gentleman will realise that we are now in Committee. This is not a matter over which I have any control. I notice that the Leader of the House is here, and he has no doubt heard what has been said. The right hon. Member for Bethnal Green and Stepney (Mr. Shore) will know from his long experience in this place of the way in which to try to get a statement in due course.

On a further point of order, Sir Paul. The first amendment that you have kindly said you will consider is amendment No. 5, which deals with document COM (85)36, which unfortunately became available only at about 12 noon. I have studied it and it deals with the division between allocated and unallocated expenditure. Two decisions at Milan yesterday that had nothing to do with European union made alterations in what is regarded as allocated and unallocated expenditure. In particular, in relation to a decision on aid it was revealed that unfortunately less than half of the aid allocated to Ethiopia had been delivered. In those circumstances it is impossible for us to consider amendment No. 5 until we know the text of what was agreed at Milan on allocated and unallocated expenditure, otherwise the amendment will be discussed in the dark.

I am grateful to the hon. Gentleman, because he is helping the Committee to make progress. These are precisely the sorts of points that it will be in order for him to make when we come, as we are now doing, to amendment No. 5.

Further to the point of order, Sir Paul. On a point of elucidation concerning Standing Orders Nos. 28 and 29, you have made a ruling that we must proceed and said that you will not accept a motion to report progress. The two groups of amendments to which we shall proceed involve two questions — first, the inclusion of a document and, secondly, a percentage. The third Question that you will put to hon. Members is that clause 1 stand part of the Bill.

Because of the brevity of the Bill, the Question that clause 1 stand part has to do with the principle of the Bill which was discussed last week in relation to the EEC's scope, treaties, purposes and direction as were then extant. We all know that since then conversations have taken place in Milan. It is almost certain that another conference will be held relating to future treaties.

I take it, Sir Paul, that the changed circumstances will be borne in mind in deciding whether to accept a motion to report progress. Given the scope of the Question that clause 1 stand part, a different case might have to be considered. Will you accept representations at that time from hon. Members to move a motion to report progress?

I think that the hon. Member will recognise that the Chair cannot possibly anticipate. There are two groups of amendments to clause 1 and, until we have dealt with them, it is not possible to say whether a debate on the Question that clause 1 stand part would be appropriate or whether the motion to which the hon. Member referred would be acceptable. I am sure that the hon. Member realises that that matter must be judged when we reach that stage.

Further to the point of order, Sir Paul, which the right hon. Member for Bethnal Green and Stepney (Mr. Shore) raised. Back Benchers look to the Chair to protect their rights. I suggest that the rights on which basis the Bill was introduced have been dramatically changed by events in Milan. The Milan summit was not just a mad hatter's tea party of discord and disunity that one can criticise from afar. Last week, the Bill was presented to the House on one basis, which has now changed. The House and the country have been sold the Bill on a false prospectus of many types of reform, especially budgetary reform. Suddenly, there was complete chaos and disunity which not merely changed the rules but removed the playing field and the goal posts. The idea is that hon. Members will proceed to discuss the Committee stage although a completely new treaty and two tiers are seriously envisaged. In addition, many documents appear to have been circulated in press releases —for example, guaranteeing that Britain will vote in the United Nations in unity with her European partners. Not a word about this was disclosed in advance to the House of Commons and no document was placed in the Library.

The House of Commons and the country have been treated in a cavalier fashion. This fact has emerged because of the chaos at the Milan summit. The Chair should protect the rights of Back Benchers who feel strongly about this matter and should suggest that the Whips get together and agree to report progress as soon as possible.

I understand the hon. Member's point. I am sure that he recognises that I have no power to force a Minister to make a statement. Many of the hon. Member's arguments might well be relevant to the amendment that we are about to discuss.

Further to the point of order, Sir Paul. You say that you do not have the power to compel a Minister to make a statement. We understand that and appreciate your difficulties. However, you have the power to allow hon. Members to debate for a short period whether to report progress. If progress were reported, it would allow a Minister—

Order. I have already given a ruling on that matter. I have clearly said that I am not prepared to accept such a motion. I am not prepared to have arguments about that.

7.15 pm

Further to the point of order, Sir Paul. I wonder whether you can help me and many other hon. Members. I think we have a case of Hamlet without the prince. We are asked to vote hundreds of millions of pounds. We are asked to throw money at a problem, but we are not sure what the problem is. The problem is moving. Where must we throw the money? We are not sure. We have read in the newspapers about the Milan conference and the humiliation suffered and snubs received by the Prime Minister. We do not know what the Government's policy towards the Common Market is. I understand—the Leader of the House might be able to help us — that tomorrow we may hear officially about the Government's policy on this problem at which we are asked to throw money. As you know, Sir Paul, our main leverage is our ability to decide whether to vote money. Why vote the money before we have heard the Government's approach?

The Prime Minister may not be available, but the Leader of the House certainly is. He understands these matters better than most. Perhaps he could advise us whether we should proceed this evening to vote more money for something to which the Government might not want to give more money. Perhaps you could help the Committee, Sir Paul, in explaining how we should proceed.

Further to the point of order, Sir Paul. I appreciate that you have said that you have given a ruling. In the light of the observations during the past few minutes by hon. Members on both sides of the Chamber, would you be kind enough to give further thought to your ruling? It is absolutely clear that, if we proceed to deal with the Committee stage now, we shall be groping in the dark—[Interruption.] We shall blunder about. Like a number of people in a dark room, we shall be groping around and, unless we are careful, we shall fall over things. I understand that it is possible that during the next 24 hours light will be shed on these proceedings. If so, would it not make sense for us to delay the consideration of the Committee stage until that light breaks in upon us?

I appreciate the hon. Member's point, but this is not the first time that a Committee has been groping in the dark. It may well be that, if we proceed with the debate and many of these points are raised, we shall see some light where, apparently, there is now darkness. I hope that we shall now continue with the debate.

May I suggest a compromise, Sir Paul? The Committee hopes that my right hon. Friend and hon. Friends on the Government Front Bench will be able to give us the information that we seek. We expect to have a full and informative debate. If, by chance, they do not find it possible to give us the information for which we ask, will you, Sir Paul, help the Committee by giving us some hope that it may be possible to accept the motion to adjourn these proceedings if the mood of the Committee is that it is not yet fully informed? Of course, we hope that over the next hour or so it will be possible for the Committee to be fully informed by my right hon. and hon. Friends, but if, sadly, they fail in that important endeavour, perhaps you would allow this motion to be considered again, Sir Paul.

The Committee has had a good run on these points of order. At appropriate moments, the Chair will always be ready to reconsider these matters. I suggest to the Committee that we begin the debate, see how we go, and see what enlightenment is spread on the issues that we are supposed to be debating.

As I understand it, Sir Paul, the Chair has a responsibility to certify that any Bill presented to the Committee does not infringe any of the privileges of the House of Commons or the procedures that the Bill has to undergo. In order to do that, the Chair must be satisfied that the Bill is correctly printed. Has the Chair considered that the money resolution as printed would appear to have been in order when the Bill was first presented, but the circumstances of the weekend suggest that it is not now correct? Therefore, there might be some doubt about whether the privileges and rights of the House of Commons are in danger because of the weekend's developments. Will you assure us, Sir Paul, that the Chair has had the opportunity to study the Bill, obviously on the basis of information that we do not have at this stage, to ensure that the money resolution is correct and does not infringe any of the rights of the House of Commons?

The amendments are in order or they would not have been selected. We should now proceed with the debate.

On a point of order, Sir Paul. If we allow this debate to progress to clause stand part, we shall have precluded the possibility of moving amendments which might prove to be relevant when we know the nature of the statement to be made by the Prime Minister. We are not capable of judging that at present. If we follow the course that you recommend, Sir Paul, which I accept would normally be the sensible one, it would mean that because of the nature of the Bill, which has one clause, the Committee will have missed the opportunity to table amendments to the clause in the light of the Prime Minister's statement. For that reason, I suggest that we are in a unique position and that an early decision is needed on whether we should progress with the Bill.

If that point were to arise, it would be open to the Committee, when it reaches the debate on the Question, That clause 1 stand part of the Bill, to reject the clause. There are many possibilities open to the Committee. I have already said that we should now proceed with the debate. The Chair is prepared to keep an open mind about a dilatory motion later, but I cannot commit the Chair at this stage. The Committee has work to do and we should proceed with it.

On a point of order, Sir Paul. Would you consider what the position would be if we were able to adjourn these proceedings to allow the Prime Minister to make a statement? It has crossed the minds of several of my hon. Friends that if the Prime Minister can find time to gallivant round the world spending £2·5 million of taxpayers' money — that is what it cost between 1979 and March this year—she has a duty to explain to the House of Commons what happened at the weekend in Milan. You will have noticed, Sir Paul, that the Common Market representatives decided in Milan that the best way to proceed was to adjourn the proceedings there and then and to have a conference. If it is all right for the Common Market to spend all that money bringing over all the Heads of Governments and to push up the value added tax contribution to 1·4 per cent. and then to spend much more organising a conference, surely it is not asking too much to say, through you, Sir Paul, "What is good for them is good for us, and we shall not expend any more money." It could be argued that if we were to delay the enactment of the Bill — well, temporarily shelve it — we would be saving money instead of spending it. I believe that the issue should be dealt with after the Prime Minister has been brought to the House to make a statement.

The hon. Gentleman knows that I have already dealt with that point. We must now proceed with the amendments. I call Mr. George Robertson to move amendment No. 5.

Further to the point of order, Sir Paul. It follows on from the point of order that was raised by the right hon. Member for Swansea, West (Mr. Williams).

Order. I have dealt with many points of order. I dealt earlier with all the points which have been raised recently. The raising of these points of order is becoming an abuse of the Committee's time. The Committee has work to do, and we must get on with it. I call Mr. George Robertson to move amendment No. 5.

Order. I have already explained to the Committee that I am not prepared to take further points of order. The Committee has had a good run on points of order and I have done my best to answer all those that have been raised. Furthermore, I have said that the Chair will always be prepared to consider matters when it can see how the Committee has proceeded. We must now proceed, and I call Mr. George Robertson to move amendment No. 5.

Order. Does the hon. Member for Denton and Reddish (Mr. Bennett) have a point of order to raise which I have not dealt with so far? Is it a different point of order?

Yes, Sir Paul. I asked for an assurance from you, Sir Paul, that the money resolution was correctly printed. When you replied to that point of order, you said that you considered the amendments to be in order. I ask for an assurance, Sir Paul, that the money resolution is absolutely correct as printed and that the Committee is not being misled as a result of the events of the weekend.

The answer to the hon. Gentleman's point of order is yes. It is a wide money resolution, which covers the Bill and the amendments. I call Mr. George Robertson to move amendment No. 5.

Clause 1

Extended Meaning Of "The Treaties" And "The Community Treaties"

I beg to move amendment No. 5, in page 1, line 9, after 'resources', insert

'and related communication COM (85)36'.
Earlier in our proceedings, Sir Paul, you said that some light may be cast upon the events that have already been debated in the ensuing debate on the amendments. However, it will be obvious to members of the Committee that among the Ministers on the Government Front Bench is the Minister of State, Foreign and Commonwealth Office, the hon. Member for Edinburgh, Pentlands (Mr. Rifkind). Opening the debate on the European Community on 20 June, the hon. Gentleman said:
"The Government, and a substantial number of other member Governments do not see any necessity for an intergovernmental conference such as is proposed."—[Official Report, 20 June 1985; Vol. 81, c. 475.]
If the Minister had that degree of perception about the possible outcome of the Milan summit, it is unlikely that he, above all others, will be able to enlighten us this evening on the dramatic turn of events that took place at the Heads of Government summit.

This technical amendment would add to clause 1 a provision showing the calculation of the abatement which is now on offer to the United Kingdom and which was agreed at the Fontainebleau summit. As the earlier remarks concluded, the abatement is at the heart of the Fontainebleau agreement. Without an abatement agreement there would have been no chorusing from the Government about the great success and triumph that Fontainebleau represented for Britain.

7.30 pm

Fontainebleau was designed to be a permanent arrangement. The Economic Secretary to the Treasury went into print in The Times last week, saying that Fontainebleau had changed the rules for ever. Yet the events of last weekend clearly show that in Common Market language, permanency is confined to the last speech that was made rather than to the next speech.

As we are considering the permanence of the United Kingdom's abatement, we cannot ignore events that took place in Milan. Only a week ago Ministers were telling the House that Milan was to be dominated by proposals put forward by the United Kingdom. We were told in a headline in The Observer:
"Britain basks in the EEC's spotlight."
The Sunday Times declared:
"Sir Geoffrey Howe tried to pre-empt the conference by putting forward a series of more modest proposals and it now looks as if the Howe plan will carry the day at Milan."
In The Times last Tuesday, Mr. Ian Murray wrote:
"Britain's quiet takeover of the European Community this year … There are three areas which now dominate EEC thinking and Britain is in the forefront of all of them."
This week's Economist—which went to print before the events of the weekend—was clear on the subject:
"A successful diplomatic offensive by the British."
Thus, we had a well orchestrated attempt to show that the Foreign Secretary was the new triumphant statesman of Europe and that his proposals would dominate a weekend that we now know was a sad humiliation for Britain.

Perhaps the hon. Gentleman in developing his argument will make it clear whether he would prefer the line that the British Government were proposing at Milan to have prevailed or whether he backs the proposals that were made by the other Governments against which we voted. It would be instructive to have the Labour party's view on that.

The hon. Gentleman more than most should know the answer to that, because he, unlike many of his hon. Friends, was present for all the debates that we had on this subject. He will recall, for example, that the debate to which I referred, on 20 June, concluded with the surprising decision by the Government to accept the Opposition's amendment. It may have been unique in this Parliament for an Opposition amendment to be accepted. That amended resolution represented the collective view of the British House of Commons. That made it absolutely clear that the negotiating position taken by the Prime Minister at the weekend represented a fair consensus of the parties.

I would not underestimate, or even disagree with, the Prime Minister's anger. However, that anger is only a cover-up for her incompetence. It is a synthetic fog that masks the fact that she went to Milan unprepared and with her homework undone. The humiliation that was the end result of Milan could have been avoided had she made even a basic assessment of the view of other Governments.

The Minister of State, Foreign and Commonwealth Office, who was the Prime Minister's representative on the Dooge committee, told us that a substantial number of other member Governments did not see the need for an intergovernmental conference. In fact, as seven of them voted at Milan at the weekend, it is clear that there had been a misreading either by the Prime Minister—who, after all, must carry the can—or by her advisers, who not only led her to expect that the British Government's view would be adopted but went to enormous lengths to brief the press so as to get the headlines and carry the fiction that we would be the pioneers of what was to be the new European union.

The Prime Minister underestimated her colleagues in Europe and did too little preparation. This orchestration of press coverage provoked the other nations, which must have had an effect on events at the weekend. Now we have a shambles which makes no contribution to the vast task that needs to be done on behalf of the jobless citizens of the European countries. In having been so spectacularly wrong-footed, the Prime Minister has made this country look like a sick joke in Europe.

The hon. Gentleman is being characteristically less than charitable — [Interruption.] Perhaps I should have said that he was being uncharacteristically charitable.

The hon. Gentleman can take his choice. It is generally recognised throughout Britain that the Prime Minister has done more to secure Britain's interests in Europe, despite the difficulties that she has faced, than any of her predecessors and anyone else in this country could have achieved. The hon. Gentleman should recognise that. To go on berating the Prime Minister for what she has or has not done, given the failures of her predecessors, is wrong, unfair and gross. I wish that he would withdraw his remarks on that aspect.

I hope that the hon. Member for Hamilton (Mr. Robertson) will resist the temptation to take the debate too wide. I appreciate that he is still on his preamble, but I want to hear quite frequent references to the document to which reference is made in the amendment.

You will hear so many references to that document, Sir Paul, in later stages of my speech that you will probably worry about having given me that advice. At present, I am trying to shed that light that you thought might come later in the debate on the events of the weekend and how they relate to the measures contained in the Bill that we are debating. I am sure that you, Sir Paul, and the Prime Minister, will have been deeply touched by what can only be described as some completely uncharacteristic remarks of support from the hon. Member for Northampton, North (Mr. Marlow). Whether or not my charitable nature is characteristic, for that hon. Gentleman to be charitable to the Prime Minister's view of the European Community will, I am sure, be seen unanimously as uncharacteristic.

The Prime Minister was frog marched up the garden path at Milan over the weekend. Our country suffered a humiliation, and we are left with a shambles. That can be put down only to a lack of preparation and incompetence in being out-manouevred by other members states of the Community. The amendment points out the nature of the deal that the Prime Minister has foisted on the nation and how we can be out-manouevred yet again if the Bill goes through unamended.

The hon. Gentleman made the serious charge that the Government were in some way involved in the outrageous press coverage in that joke article in The Times by Mr. Murray, which contained at least five factual errors which have since been pointed out. I should be most disturbed if there were any suggestion that the Government had had any relationship whatever with that ridiculous joke article in The Times, which, I am afraid, is typical of its coverage of EEC issues. Has the hon. Gentleman any proof to substantiate what he said? If not, will he withdraw the scandalous accusation that the Government had some relationship with or support for that outrageous joke article?

I am sure that the hon. Member for Hamilton will not be distracted from the amendment.

Not even by a member of the National Union of Journalists will I be distracted from the serious points that I intend to pursue. If The Times article was the only article that was on the table in a joke form, the Committee might listen more carefully to such remarks by the hon. Member for Southend, East (Mr. Taylor).

The Bill is designed to make amendment and calculation more difficult. Two clauses and an explanatory memorandum that runs to two and half pages seem to be a device to preclude the Committee from properly scrutinising the legislation. When we consider the other documents which we wish to include in the Bill, the nature of the device becomes more evident.

The own resources document is not the only one that must be considered regarding the decision reached at the European Council meeting. Document COM(85)36 and its explanatory memorandum are of crucial importance. The hon. Member for Southend, East has already referred to the variations that are possible within that document. The impact of the document and the loopholes in it could easily affect the calculation if the good will that we are told has existed up to now were to break down. The communication underlines the failures at Fontainebleau. It underlines clearly how much less value are the undertakings than the objective set out by the Prime Minister in March 1984 after the Brussels summit, when she said:
"first, that instead of a lasting, equitable system for Community financing there should be a five-year ad hoc arrangement which would have left us receiving less than the average refund which we received in the years 1980 to 1983."
That is what the Prime Minister said was wrong with the arrangement offered by Community Heads of Government at Brussels in March 1984. She went on to say what she thought of it:
"I made it plain that neither the Government nor the British Parliament could accept such a package. Therefore, I did not agree to any increase in the Community's resources." — [Official Report, 21 March; Vol. 56, c. 1049.]
However, more than 12 months later, the package before us today is worse than the package offered at the Brussels summit in March 1984. Instead of a five-year ad hoc arrangement, we have an arrangement that will last only as long as the 1·4 per cent. limit holds within the European Community. That is how long this permanent arrangement will last.

It is clear from the Community's draft budget for 1986 that if it has already committed 1·35 per cent. of VAT on the strictest of assumptions which have never been adhered to in the past, the duration of the Fontainebleau formula will be only 12 or 18 months. Instead of a five-year arrangement and the "generous" proposition on offer in 1984 at Brussels, we now have an arrangement that will give us less than we got in our average rebates between 1980 and 1983. The arrangement will be less than two years old before it will inevitably have to be renegotiated or subjected to intergovernmental agreement. That will mean pouring more money into the unknown targets that the European Community throws up.

In the explanatory memorandum and the own resources document there is a calculation that provides for two thirds of the real net contribution to be refunded to Britain. But now we are talking about 66 per cent. of a new net contribution. The figures have been massaged carefully by the EEC to reduce the contribution on which the 66 per cent. abatement will be calculated.

7.45 pm

We are fortunate in that the House of Commons Library has done the calculation. Its re search document 174 shows precisely what the rebate would have been in 1982 and 1983 had the Fontainebleau agreement applied. I will spare the House the details of the calculation, but the abatement, which is 66 per cent. of the gap between receipts and payments, would have amounted to £669 million. It estimated that the net contribution to the total budget before the abatement would have been £1,131 million. Therefore, in 1982, the abatement calculated on the Fontainebleau formula would have been 58 per cent. of the net contribution calculated on the new formula that is included in document COM(85)36. We are now talking in comparable terms of an abatement of 58 per cent., not the highly publicised and much trumpeted rebate of 66 per cent., which is often mentioned by Government spokesmen and which is included in the explanatory memorandum.

Is not the difference even larger than that? Perhaps in asking my hon. Friend a question, I could give advance notice to the Government. That abatement is a percentage of the VAT rate that we would otherwise pay, but the abatement as a whole is over our total contribution to the EEC, not just the VAT element. It includes the large element from levies and customs duties that goes to Brussels, apart from the 10 per cent. retained for management costs. Therefore, the figure is even lower than the one given by my hon. Friend.

My hon. Friend, who is a great authority on these matters, is right. Another calculation, which has been used to try to assess the abatement, shows it to be 49 per cent. instead of the much-vaunted figure of 66 per cent. We await with great interest the Minister's speech at the end of this debate, because we wish to see the Government's figures based on the new massaged figures that will be produced if this document is used.

On 24 April, the hon. Member for Southend, East asked the Economic Secretary to the Treasury which items have been subtracted from the calculation that will be made under the Fontainebleau agreement. He received this extremely significant reply:
"The rest of the Commission's communication sets out its proposals for including in the allocated budget items that have hitherto been excluded."— [Official Report, 24 April 1985; Vol. 77, c. 482.]
The Minister peddles the same gobbledegook as the Commission. The hon. Gentleman asks, "What items have been omitted?" and the Minister replies, "Items have been omitted." If this was not a serious matter of enormous importance to Britain, one would have thought that that question and answer came straight out of a "Yes, Minister" script.

The matter becomes even more confused, because the documents do not make clear who will decide which items are included in or excluded from the calculation of Britain's net contribution to the EEC.

That is made clear in the document that the hon. Gentleman is seeking, rightly, to incorporate in the treaty. The Commission makes the decision. Although its current view may be that everything should be brought within the allocated budget, it could change its view next week or next month unless the hon. Gentleman's amendment is successful.

The hon. Gentleman is wrong, despite being right on a number of issues, because it is not clear that this is a matter solely for the Commission. If it were that clear, we would not be seeking clarification this evening. The document COM(85)36, final draft, on page 3 says:

"The non-allocated expenditure will then be limited to those activities which are excluded on principle—development co-operation and similar measures which will be excluded by Council decision."
The hon. Gentleman will find that I am coming to the apparent contrast between that statement and the explanatory memorandum to precisely the same document, which in paragraph 10—and it is signed by the Economic Secretary to the Treasury—says:
"Impact on UK law — None. The paper is an internal Community document which sets out the line of procedure that the Commission intends to follow in a process that is its sole responsibility."

I have a feeling that that is the definition to which the hon. Member for Southend, East is about to draw my attention, but there is a contrast between the two documents, which appear to say two different things.

Does the hon. Gentleman accept that paragraph 4 of the paper given to us by the Treasury clearly states:

"The Commission is now proposing that these items should be included in the allocated budget—some immediately and some gradually"?
It is signed by the Economic Secretary to the Treasury. In other words, he is saying, under his own signature, that the Commission is to determine these things. Surely the hon. Gentleman was not suggesting that that is not the case. The paper signed by the Economic Secretary to the Treasury makes it abundantly clear that it is the Commission, and only the Commission, that has the power to propose these things.

The purpose of my amendment—and the purpose of the debate—is to try to elicit from the Economic Secretary to the Treasury, on behalf of Her Majesty's Government, what precisely is the case. There are conflicting statements, either of which would conflict with the Government's apparent boast that this is a permanent arrangement, which, if enshrined in British law, will lead to a permanent system of rebates for Britain and automatically guarantee that we shall be better off than we were under the pre-existing system.

The hon. Gentleman is right inasmuch as he points to a statement contrasting with the two statements that I have already made. Indeed, the 19th report of the Select Committee on European Legislation says:
"The Committee are advised that once it"—
this document—
"has been endorsed by the Council in this way, the Commission would be obliged to carry out the calculations in the form so endorsed. There could be a legal (as well as a political) base for contending that the Commission could not vary its terms without reference to the Council."
There is a clear conflict between statements made in those different documents and what is being said to the Committee.

No, not at the moment.

There is an important issue of principle at stake here. We have been told, on Second Reading and in the Economic Secretary's article in The Times, that we have a permanent arrangement—something that has changed the rules for ever. The Economic Secretary was driven to say that in his article. Yet it is clear from the documents that the Council can make a decision to vary the terms on which our abatement is calculated or the Commission, off its own bat, can make a decision to vary the conditions under which our abatement is to be calculated; and on the basis of all historical precedent there is no chance that any arragement that they would calculate would be to the financial advantage of Britain.

It is incumbent on the Minister this evening, on behalf of the Government, to spell out precisely which of the conflicting statements is true and, whichever one of them is true, to explain to the Committee how the arrangement can be portrayed as a permanent one when the decision as to the calculation is again to be left in the hands of the faceless bureaucrats who operate in Brussels.

The hon. Gentleman has made the point very clearly that we do not now know what our gap is and that control to calculate our gap is in the hands of the Commission. There are certain rules and the Commission can change them. He has made several points which contradict that position. We are in the early stages of a very important debate. If the Economic Secretary sought to catch Sir Paul's eye because he wanted to state the proper position as a foundation for the debate, would the hon. Gentleman be happy to sit down and let the Economic Secretary make his point?

The hon. Member for Northampton, North knows that I have already shown my generosity in the debate. If the Economic Secretary wanted to enlighten the Committee or, to use your words, Sir Paul, to cast some light on the debate, he would find me more than willing to give way. The House of Commons will come to its own conclusion about the ability of the Economic Secretary to rise to his feet and to enlighten us on the matter. It is conceivable that he is waiting for further instructions—perhaps even from Milan—as to how he should answer the point.

The fact is that the arrangement is not permanent. It is much less generous than the system of rebates, as they were called. We now call them abatements to distinguish them from the previous arrangement. The new system is much less generous than the system of rebates which applied between 1980 and 1983, and which the Prime Minister made her benchmark at the Brussels summit last year. The arrangement is not permanent, because, instead of even the five-year ad hoc arrangement that was offered at Brussels, we have an arrangement which is unlikely to last for more than two years before we are thrown back again into the maelstrom of financial negotiations.

The Bill before us, the abatement that is offered, and the calculation of it that is contained within the document and within the explanatory memorandum still does not provide for a system that puts our contribution to the European Community on the basis that was the objective that the Government set themselves at the beginning of the negotiations— an objective with which the Opposition heartily agreed.

On all those counts, and amid all the confusion that will surround the abatement now and in the future, it is right to underline the sense of failure from which the Government must be suffering in the wake of the Milan summit. We must hope that at the end of the debate the Committee will be more enlightened. If it is, I am sure that it will be even less enthusiastic about the Bill than it has been up to now.

We owe a great debt to the hon. Member for Hamilton (Mr. Robertson) for raising a fundamental and important point on which we must have proper clarification.

The amendment proposes that certain detailed documents on the calculation of Britain's rebate should be incorporated in legislation and thereby not be subject to variation; in other words, they should constitute part of the treaty and not be something to be changed at the whim of the Commission.

What worries me is that, whereas the decision that is incorporated in the clause which the hon. Gentleman is seeking to amend states clearly and categorically that our rebate will be based on applying a formula to the difference between VAT and allocated expenditure, we have an assurance that the definition of allocated spending will not be changed. The assurance in the other paper is that the present criteria on allocated expenditure will be adjusted so as to eliminate the exceptions made for practical reasons.

The Commission is proposing that adjustments should be made so that more items are regarded as allocated expenditure and thereby potentially qualify for a rebate. If the Commission's objective is not regarded as a treaty as the decision is, there will be nothing to stop the Commission from changing its mind and altering what is regarded as allocated expenditure. That will have an effect on Britain's rebate or on the way that it is calculated.

8 pm

If the Government wish to gain approval, quite apart from the inadequacies of the contribution arrangement, we must have some certainty. I have already expressed serious misgivings over the fact that, at a time when the Government are reducing expenditure in many vital areas, for reasons which they have made obvious, and which I support, we shall be paying such an enormous sum into the Common Market. It is important that the Government justify the principle behind the Bill. The formula which the Government believe is good should be clear and not subject to adjustment by the Commission.

My hon. Friend the Minister may think that I am being unduly suspicious. He may claim that the Commission has given that assurance in the document which is covered by the amendment, and that it is in fact contained in a letter which was sent from a Mr. Andriessen to a Mr. Andreotti, who was President of the Council of the European Commission. Is that assurance enough? On the basis of past assurances we cannot accept messages of good will and good intentions from the Commission. We must remember that the Commission is not answerable to the people of this or any other country. It is a body of unelected civil servants. The Commission is constantly changing. Some strange people move in and some unusual people move out. That represents an enormous staff migration.

My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) said during our last debate that the Commission staff was smaller than that of the Scottish Office. That may have been true in the past, but I must point out that the staff of the Scottish Office includes all the warders of Scottish prisons and the staff of the state mental hospital in Carstairs. Even with all those people, the Commission staff is now bigger than that of the Scottish Office. There are now 12,700 staff and, sadly, the numbers are still growing. A Foreign Office Minister wrote to me this morning and said that that number would increase because of the admission of Spain and Portugal, which would mean more staff, including translators.

Is it right that the calculation upon which our rebate will be based should be decided by the Commission and its civil servants? My hon. Friend would save the House a great deal of time if he were to interrupt now and say that my query is answered by the decision—the document which we are incorporating into the treaty. If it is the Commission's decision that it will eliminate unallocated expenditure for the purpose of calculating our rebate, I can immediately resume my seat and say that my fears are groundless. Although there are repeated references to that in the method document, it is not in the decision document, and surely that should worry us.

My hon. Friend may say that I am being unduly suspicious and that the Common Market has always kept its word in the past. Unfortunately, that has not been the case. We have disagreed with the Common Market on many occasions where our national interest has been at stake, and Britain has invariably come off worst. I quote as an example the case of some of my former constituents who worked in the steel industry. They were told that a new policy would be introduced which would be fair to everyone. The Commission gave assurances that everything would be applied fairly. When I and other hon. Members asked about that we were told not to worry and that the Commission would ensure that the policy was applied fairly and properly.

We have all seen the results of that assurance. We know what has happened. The number of people employed by the British Steel Corporation has been cut by more than a half, whereas we know from a written answer that Italy's capacity has increased. Those poor unemployed British steel workers who relied upon the assurance that they had from the Commission are on the dole, while Italy has been expanding its steel industry. That is surely wrong.

My hon. Friend is correctly drawing Italy's conduct to the Committee's attention. Is it not relevant that over the past week it is the Italians who have been leading the cry for greater European unity in Milan, but on the important issue of the steel capacity it was the Italians who let down the Community by not adhering to what was supposed to be Community policy? I am sure my hon. Friend is also aware that it is the Italians who are constantly in breach of rulings of the European Court of Justice—another of the key institutions which will no doubt contribute to increased European unity. How does my hon. Friend explain the fact that the Italians always lecture us — they have been lecturing my right hon. Friend the Prime Minister in Milan about European union — although it is the Italians who are further from upholding the concept of European unity than anyone in the Community?

Order. I hope that the hon. Member for Southend, East (Mr. Taylor) will not be led astray. That point goes rather wide of the amendment that we are discussing.

My hon. Friend has made an important point about the way that the Community's policies work. We could not, however, discuss that point under this narrow amendment. He was right to point out yet another example of the way in which the Commission does not work well unless points are clearly spelt out and entrenched in law.

That is the point of the amendment. It has not been spelt out clearly in the document, which the hon. Member for Hamilton wants to incorporate in the legislation, that the Commission's policy is to eliminate the exceptions of unallocated expenditure. As the hon. Gentleman correctly pointed out, unless that is incorporated and becomes part of the deal we shall have no protection, first, against any decision being changed and, secondly, against the decision being torn up, as my hon. Friend the Member for Mid-Worcestershire (Mr. Forth) said, by the Italians, just as they have torn up other decisions.

Unless we have an agreement on which we can go to the European Court of Justice, we have no protection. I wonder, Sir Paul, whether you have had the pleasure, as some of us had, of reading the European Community's Court of Auditors' report. I was appalled to read how some members of Italy's criminal element have been financing themselves by obtaining huge payments for the destruction of non-existent tomatoes. It cuts down crime, because those people do not need to become involved in crime. They obtained their cash flow by applying to the Italian civil servants to destroy non-existent tomatoes from nonexistent farmers.

Will my hon. Friend comment on the story that we read in the newspapers some months ago that when someone from the European Court of Auditors went to Italy to investigate a number of those allegations he was attacked and suffered a broken leg?

Yes, unfortunately that type of thing is happening. It proves that it is not good enough to have a gesture of good will or good intention from the Commission. We must have the points spelt out so that we can go to the court.

My hon. Friend has referred to the Court of Auditors. Does he appreciate that it has repeatedly made allegations and urged the Commission to put matters right? The Court of Auditors has twice submitted a report to the European Parliament on a number of issues and yet, despite there being an opportunity to put matters right, they have not been put right. The Court of Auditors, laudable body though it may seem, is not proving effective, because neither the Commission nor the European Parliament pays sufficient regard to it.

If this were a wider debate, I should agree with my hon. Friend. It is rather unfortunate that we spend money on this so-called European Assembly. I am sure that no one would notice if it disappeared tomorrow, but we cannot discuss that point when we are dealing with a narrow amendment. Unless the Government can spell the matter out so that we can go to the European Court of Justice, there is no assurance.

My right hon. Friend the Prime Minister is a doughty fighter to control public expenditure. She is a splendid campaigner for common sense in public spending, and she has had repeated assurances from the Commission that it will take steps to cut the export of cheap food to the Soviet Union. Those assurances have been repeated in the House. We know what happens, however—the export of cheap food to Russia is now breaking all records. We are now sending 145,000 tonnes of cheap subsidised food to Russia and Eastern Europe every week, and at the most crazy prices—top quality beef at 35p per pound and wine at 4·5p per litre. If, instead of assurances and good will, we had matters spelt out in law or in treaty, we could go to the European Court of Justice and say, "They are breaking the rules. They are giving money to the mafia to destroy non-existent tomatoes. They are refusing to give compensation for a broken leg suffered by a civil servant who tried to stop it."

Is the hon. Gentleman aware that there is no proper auditing of these accounts? Is he aware that the Court of Auditors does not have the machinery, but relies on national machinery, the quality of which varies? Is he further aware that the intervention price of oranges is decided by the price set in Sardinia, and that the price in Sardinia is set by the supply of water, which is controlled by the Mafia? Therefore, the price of oranges is controlled by the Mafia, and we are all being ripped off.

The hon. Gentleman is absolutely right, but I cannot pursue that matter because it is not covered by this narrow amendment. It makes by blood boil that my local hospital authority has to contemplate ward closures when millions of pounds are flowing daily to the extravaganza of the Common Market. Unfortunately, we cannot discuss that on this narrow amendment.

We should not make the same mistakes again. When we are told that Britain will get a substantial rebate, we must ensure that there are no loopholes. The only way to block those loopholes is to ensure that everything is covered by law, so that we can go to the European Court of Justice.

Why are the Government unwilling immediately to accept the amendment? What would be wrong in incorporating the document? I have looked for an explanation and read the Government's papers. The Treasury document refers to COM (85)36 in the following terms:
"In order to accurately calculate the figures involved, a more detailed methodology is required than could conveniently or appropriately be included in the own resources decision itself'.
What on earth does that mean? We are not incorporating or printing the own resources decision. It is not in the Bill, because if it were there would be 1,000 amendments on account of its inadequacies. We merely have a reference to the fact that the decision is regarded as a treaty in terms of the European Communities Act 1972. If the Government decided to accept amendment No. 5, they would not have to spell it out or print it—they would simply have to say that this Commission decision is included. I cannot understand what is to be lost by doing that. It would mean one extra line in the Bill—perhaps only half a line.

8.15 pm

Can the document covered by the amendment be changed by the Commission, which is comprised of civil servants, or by the Council of Ministers by directive? Is it not just possible that our firm assurance on the rebate could be adjusted by the Commission changing what it regards as unallocated expenditure? I have no complaints about the document COM (85)36, because it says:
"As for the future, the final objective should be to apply the criteria in full, i.e. to eliminate the exceptions made for practical reasons. The final objective will he achieved, as rapidly as possible, as set out in Table 2 in Annex 3: for chapters in the first column: immediately, that is when the breakdown of expenditure for 1985 is calculated;"
The intention is good — all expenditure, with the possible exception of overseas development expenditure, will be included. Rebate will be on total allocated expenditure. That means something. However, there is nothing to stop that being changed unless the policy decision of the Commission is incorporated in law. That is why the amendment should be accepted.

Is COM(85)36 considered too long for inclusion? That cannot be the answer, as it is no longer than the decision. As was said several times during the points of order that were raised, we are still somewhat in the dark about amendment No. 5. because relevant decisions have been made in Milan. We have read in the papers — it might or might not be true — that they are thinking of setting up some grand new office to establish a European political policy, under which, it has been suggested, Governments would be instructed on how to vote at the United Nations. Will that use allocated expenditure, or unallocated expenditure? I do not know, but we are entitled to know.

Some people have said that it would be good to have a Community foreign policy. I remember the invasion of Afghanistan, when the Council of Ministers issued a statement that was less strong than that issued by the Italian Communist party. The Government are using money to establish a new bureaucracy which will form a Common Market Foreign Office. It will obviously be a big thing and expensive, and it is quite likely that some of our Foreign Office staff who work on EEC affairs will join it.

I have another question which also arises directly out of the meeting at Milan, which is why we should not be debating the Bill today. We should know first what was decided in Milan, rather than what accurate newspapers, such as The Guardian, and inaccurate ones, such as The Times, have to say about what might have been agreed. It has been confirmed in parliamentary answers that overseas aid expenditure has gone haywire because, although the Common Market said at Dublin that it would send 1·2 million tonnes of food to the drought-afflicted countries of Africa before their harvest, it has not been able to do so.

The Common Market has managed, however, to expand its export of cheap food to the Soviet Union, Bulgaria, East Germany and Czechoslovakia, but the export of 1·2 million tonnes of food to the Sahara has gone wrong. It seems that less than half has been delivered. We shall therefore have a substantial underspend. It is tragic that, when the Common Market is overspending wildly on the export of cheap food to Russia, on steel and on the expense of the European Assembly, the one area on which it is underspending substantially is aid to Ethiopia, Mali and other countries facing hardship.

We cannot discuss that matter on this narrow amendment, but what will happen to the money that is saved by not sending food to Ethiopia and Sudan because of inefficiency or a lack of will? Will the money be allocated expenditure for next year? According to the decision, money can be carried forward after 1986, but can it be carried forward from 1985?

This is a matter on which we must advance. If we do not incorporate the measure, what will happen to 1985 underspending, which has meant that, tragically, the Common Market has failed to keep the promise made at Dublin, to deliver food to the drought-stricken countries of Ethiopia, Mali and Sudan? I should like to know what the score is. Is that allocated or unallocated expenditure?

Surely the Minister accepts that on this bad deal for Britain, according to the estimates in the Treasury White Paper, we as a nation will pay £970 million net into the Common Market in 1987, which is well above what we have paid in previous years and much more than countries such as Italy which are paid for being members of the Common Market. If we are to pay the absurdly high sum of £1 billion a year net into the Common Market, surely the least that we are entitled to is a clear assurance that the total will not be increased by an administrative decision of the Commission.

Is it sensible for a great democracy such as Britain to have such decisions in relation to the amendment made by people who are not elected, but are civil servants of the Common Market? European union just cannot work, because the democratic tradition of the continent is so different, by giving more power to the Administration rather than to the politicians.

Surely the Minister can accept that even on this poor agreement for Britain, which will mean spending £1 billion a year on our net contribution, we must have certainty. We cannot have that certainty until the basis of allocated expenditure is spelt out in such a way that if anyone should try to cheat, and if the Commission tries to change the rules, we can go to the European Court of Justice and demand that something be done. Can we go to the European Court of Justice on the basis of a letter that was written way back in February 1985 from Mr. Andriessen to Mr. Andreotti? We cannot do that, but we can go to the court if something is regarded as a treaty, or is fact. Therefore, I think that the good intentions of the Commission, and its intention to eliminate the exceptions to allocated expenditure, must be incorporated as part of the treaty. Then we can do something if attempts are made to change our contribution.

I hope that the Minister will not simply say that we have full confidence in our friends in the Community, that they will do everything right. The way that things are going, the Minister may well find that before the Bill has been law for six months the Community has been changed. The six original members will have their Common Market, and the others, including ourselves, will be in a different sort of Common Market. What will be our position then in appealing to the Commission to carry out its message of good will? It is abundantly clear that the six original members of the Common Market are desperately keen to go their own way and have a treaty of union and goodness knows what.

The British people would never stand for us being involved in such a denial of our basic democracy. The change will come. Unless it is spelt out in law, we have no assurance at all. Without that assurance it would be possible for the Commission or the Council of Ministers to say that they had decided to change what they regarded as allocated expenditure and that they were pressing a new decision, passing a new directive. They should do so by majority vote, because more things can now be done by majority vote, but where is our protection? The Minister might say that it would be intolerable if that happened and that the Republic of Ireland and Denmark might rush to our aid. That is not much help if all the other member states are voting against us. Britain is sometimes on its own in the EEC. We do not have many friends in the Community, so that could happen. Therefore, we must incorporate the measure.

The Minister may say, "Even if the calculation is incorporated it will not safeguard us fully against the dangers, because it says simply that the objective of the Commission is to eliminate unallocated expenditure." Of course it will not be a full safeguard, but at least it will be something on which we could go to court. If one incorporates the provision in a treaty, saying that something is the objective and intention, one has something to go on, instead of nothing. If we do not do that, what is already a tragic deal for Britain, which will cost us £1 billion per year, will look a great deal worse.

As the Minister is aware, we are all the time finding out that things are worse than they were. The other day we received the appalling information that on top of our £5 billion net contribution so far, £1,700 million of our receipts are not receipts to Britain, but payments to British traders to send cheap food to Russia. So the money does not come to us at all. Therefore, we are finding all the time that it is costing more and more. Unless we can firm up on what has allegedly been the deal, we shall be relying totally on the good will of the Commission and the Council of Ministers. That is not good enough for us. The Government are insisting that we pay £1 billion net per year to the Common Market. We must say, "That is all. No more." When I say "no more", I mean, as well as no more contributions, no more fiddles, frauds or ways of getting around it. Unless that is incorporated, we have no assurance.

For once, let the Common Market be united and say whether it agrees with the British deal. We should say whether we think £1 billion a year is too little, as some of our right hon. Friends think, or whether £1 billion a year is too much, as I believe. Whether we disagree or agree with that, let us agree at least to firm up the arrangement so that the Common Market cannot make us pay more by shifting round allocated and unallocated spending.

I hope that the Government will accept the amendment. I hope that they will not reject it because they say that it is inadequately drafted. I hope that they will agree to another one to firm up the arrangement. We want a clear, binding assurance that we shall not give the Common Market a penny more than the £1 billion net payment a year under the agreement. That is more than enough for me. I hope that every hon. Member, including those who vote for the Government and think that the Common Market is the best thing since sliced bread, will at least agree that we should not leave a loophole, which will mean that the £1 billion a year could become £1·25 billion or £1·5 billion. It should not happen at a time when the Government and the Treasury are telling local authorities and hospital authorities to cut down on spending. We must be firm on the matter. If we are not firm there, we might as well give up.

The hon. Member for Southend, East (Mr. Taylor), which, after all, is the VAT capital of the country, has put a most compelling case. We look forward to the Minister's reply.

In the relative informality of Committee, I should like to thank you, Sir Paul, for your patience at the beginning of our proceedings. However, you may recall that when the European Communities Bill was discussed in 1972, your predecessor, Sir Robert Grant-Ferris, started taking points of order at 3·30 pm one day. I think that they went on all night for some 16 hours, and we started on the first amendment at 7 am the next day. That was not surprising because the points of order, like those that we are dealing with at the commencement of the Committee, were about the powers of the House and its control of money. That is the heart of the power of Parliament.

The amendment relates to the method of calculation of such a transfer of money. It is a refinement; it is an additional requirement that we are making of the Government in the way in which the hon. Member for Southend, East described, precisely to put that formula and its rules into treaty form and into British legislation by becoming part of the Act. Unless the amendment is accepted, that will not happen.

The calculations relating to the flow of money are important. During the discussion of the Bill to which I have just referred, the then Prime Minister said that those matters did not affect the Crown, and that the position of the Queen would be unaltered. However, that is not true, because the money that will flow from the Act, the treaty and that calculation, if it is incorporated, relates to section 2(3) of the European Communities Act itself, which states:
"There shall be charged on and issued out of the Consolidated Fund or, if so determined by the Treasury, the National Loans Fund the amounts required to meet any Community obligation to make payments to any of the Communities or member States, or any Community obligation in respect of contributions to the capital or reserves of the European Investment Bank."
It then lists all sorts of other obligations placed on the House and the Treasury. The document that we want to include in the decision will determine the sums that the Treasury is obliged to pay. In other words, it affects the obligation of the Crown to pay without further question more or less moneys. That is why we want the document included in the decision.

8.30 pm

The decision, which is Cmnd. 9549, says in article 3, paragraph 3:
"The rates shall be calculated as follows."
Subparagraphs 3 and 4 spell out how the calculations relating to rates and rebates are made. One might have thought that that was sufficient. What is the need for any further document? As the hon. Member for Southend, East said, there is considerable further documentation in COM (85) 36. Indeed, a full description is given in the Treasury financial memorandum, which the Financial Secretary signed on 27 March, and which the hon. Member for Southend, East quoted. I repeat the extraordinary sentence:
"In order accurately to calculate the figures involved, a more detailed methodology is required than could conveniently or appropriately be included in the own resources decision itself."
That is an extraordinary statement. I am not blaming the Financial Secretary for inserting it in the explanatory memorandum because it is a true description. Why is it not included in the decision in Cmnd. 9495, which was originally a council document translated into a British command paper? I shall return to that point towards the close of my remarks.

The Scrutiny Committee on European Legislation in its fifth report this Session, HC 5 XIX, comments on the status of the document. It states:
"The Committee understand that the calculations proposed in this instrument follow precisely the form expected following discussions with the Commission and that it meets the Government's requirements accordingly. They note from the Treasury Explanatory Memorandum that the Council of Ministers will be invited to endorse it by a statement in its Conclusions when it finally adopts the new Own Resources Decision (i.e. placing on the record that the Commission has proposed this method of calculation and that it has been accepted by Member States). The Committee are advised that once it has been endorsed by the Council in this way, the Commission would be obliged to carry out the calculations in the forms so endorsed: there could be legal (as well as a political) base for contending that the Commission could not vary its terms without reference to the Council."
I take it from that that there may be other possibilities. The Committee continues:
"The Committee note that the unusual status of the present instrument arises from its origins in Article 3(3), (4) and (5) of the main 'Own Resources' instrument."
If the instrument arises from the decision, why can it not be part of it? Why is that instrument not part of the designated documents, which make up the whole treaty? We look forward to the Minister's replies to those questions.

Did the hon. Gentleman's Committee believe that the Government could go to the European Court of Justice, if the Council of Ministers or the Commission decided to adjust what they regarded as allocated expenditure for the purpose of Britain's repayment?

I am grateful to the hon. Gentleman because that is the legal nub of the matter. The matter is completely uncertain. It is uncertain whether the Commission can change the formula with or without the permission of the Council, whether the Council's decision must be unanimous or in some other form, and, whatever the outcome of that, whether COM(85)36 is part of the treaty. The formula is not part of the decision, and, therefore, I am not sure whether the European Court of Justice could accept locus in it. The court might accept locus because the document is a council decision. If there were an argument between the Council and the Commission about who had the final say about whether COM(85)36 should be changed and, if the document changed, within what limits, there might be locus for the European Court of Justice. I do not know whether it is binding as an international treaty and as a Community treaty, which is what our Bill attempts to designate. That is a grey area which should not exist. That is a reason why the amendment should be accepted.

The Government have not made it clear how they stand in relation to other parts of the calculation, of which the document is part. I referred to that in a brief intervention in the speech of my hon. Friend the Member for Hamilton (Mr. Robertson). During the past few weeks, all the talk has been about VAT contributions. The percentage has been raised from 1 per cent. to 1·4 per cent., and it has been claimed that the present Community partners will have to raise their VAT contributions to 1·35 per cent. while ours will be less than 1 per cent. We forget that the VAT element is but one component, albeit an important one, of our contributions to the EEC.

That was spelt out in the document produced by the Scrutiny Committee, HC 78 VI, Session 1983–84 entitled:
"Future Financing of the European Community."
Table 1 is clearer there than any Government statement. The Economic Secretary will correct me if I am wrong, but I have not seen the table brought up to date so clearly. It shows that in 1982, the last year shown in the table, our VAT contributions amounted to £1,554 million. However, our combined customs duties and agricultural levies amounted to more than £1,200 million. Therefore, although the VAT element was greater than that of levies and customs, it was only slightly more than half of the total contribution.

The reason for new own resources is that the agricultural levies and the customs duties are a fixed sum. If anything, they may decrease, but they cannot be enlarged unless the common Community tariff is increased. That would not bring in a great increase. Therefore, all the increase must fall on the VAT element, which is why the 1 per cent. ceiling has had to be increased. At this stage, I must ask the Economic Secretary to confirm that the 1 per cent. VAT contribution is incorrect and that the figure is more like 10 per cent. of VAT take.

One of two consecutive articles by Mr. Ian Murray, which tell us why we should have passed the Bill last week, got that entirely wrong. He implied that the 1 per cent. VAT was 1 per cent. of VAT yield. In our Select Committee report it was clear that the figure was 10 per cent. or more of VAT yield, even at 0·98 per cent., or whatever we paid last year. As a rough guide, therefore, a 1 per cent. VAT contribution means about 10 per cent. of our VAT take.

Let us consider what has happened so far. I am obliged to the Library for providing figures not easily ascertainable without poring over many pages of Hansard. I understand that the provisional figure for our VAT own resource contribution for 1984 is about £1,729 million while the amount arising from customs duty and agriculture levels is about £1,500 million. I mention those figures because the Economic Secretary, whom I am glad to see in has place, in his article in The Times of 25 June made great play, as all the publicity does, of the fact that we shall be paying much less as a result of the rebate formula being discussed in this debate. The article says:
"Although the VAT rate for other member states is put at 1·35 per cent., the UK's Fontainebleau abatement of over £800 million means that our VAT rate would be 0·82 per cent., well below the current ceiling."
I hope that when the Economic Secretary replies to the debate he will confirm two facts. First, the 1·35 per cent. is the enhanced VAT rate for the other partners and not the standard rate on which our 0·82 per cent. would be calculated. In other words, to the casual reader the gap seems much greater than it really is. If that is the case, as I have every reason to believe that it is, the Economic Secretary should say so and tell us why that inaccuracy occurred in his article in The Times.

The Economic Secretary shakes his head, but I understand that the figure of 1·35 per cent. in the documents which have emerged unofficially from Luxembourg includes the additional VAT contribution that our partners would have to carry as a result of our abatement. One of the complexities of this matter, with which even in Committee we have scarcely been able to grapple, is that the document under discussion provides for a cascade of recalculations. The rebate to Britain is calculated and that amount is then redistributed to increase the VAT contribution of the other member states. Moreover, that is not the end. There is a second cascade because the German contribution is then abated by 30 per cent., which is also redistributed. I suggest, therefore, that the 1·35 per cent. relates to the second final calculation and that the standard rate is more like 1·28 per cent., as has been unofficially quoted in Brussels. The hon. Gentleman's article in The Times thus makes the difference appear greater than it really is.

My main complaint about the Government's wide publicity on this is that the abatement is not even as great as I have suggested if I am right about the 1·28 per cent. standard rate because the abatement relates to our total contribution and not just to the VAT element. The Library tells us that the total contribution for 1984 will be about £3,259 million. If the abatement mechanism comes into effect our VAT rate may well fall to 0·82 per cent. and thus be below the 1 per cent. as the Government claim. My complaint is that the Government are applying the reduction just to the VAT contribution and not to the whole contribution. If one goes into a motor car showroom and is told that the basic price of a car is £5,000 and the extras are another £5,000 but that there is a rebate of 66 per cent. on the extras, the ultimate price will be reduced from £10,000 to between £7,000 and £8,000, but it would be quite wrong to claim that one had secured a rebate of 66 per cent. on the price of the car. The Government in their publicity have successfully exaggerated the rebate because it should be applied across the whole range of our contributions and not just to the VAT surcharge.

8.45 pm

At the end of document COM(85)36, which has been omitted from the decision that we are asked to endorse in the Bill, there is a series of tables and annexes setting out the exact criteria relating to allocated expenditure. The hon. Member for Southend, East repeatedly and effectively asked why the definition of allocated expenditure was not included in the decision when clearly it should be there. It is not found in the decision or even in document COM(85)36, but in the annexe to that document. The Economic Secretary said that that document is illustrative, but if he cannot accept the inclusion of the whole document he should at least agree that the annexes should be part of the decision. If he cannot agree to include them he must tell us why they were not included in the first place. Although those illustrative figures and calculations are extremely helpful, especially the calculation of Britain's 66 per cent., it may have been regarded as inappropriate to include illustrative figures in a treaty. Nevertheless, it is highly appropriate and indeed essential that the definition of allocated expenditure should be included. It is a matter of frightening complexity. The abatement of 66 per cent. about which the Government have been shouting so much applies only to the difference between our VAT share contribution and our share of allocated expenditure—that is the nub of the formula—so the definition of allocated expenditure is vital and should have been included in the decision. That is why the amendment has been moved and that is why I shall support it.

The hon. Member for Newham, South (Mr. Spearing) has much assisted the Committee by explaining the importance of the definition of allocated expenditure. In so doing, he has reminded us of the fundamental conflict which occurred in Milan at the weekend. The Government frequently refer to the arrangement that they so fortunately and skilfully obtained at Fontainebleau as a permanent reduction of 66 per cent. in our contribution to the EEC. They also stress that instead of the old arrangement, whereby we paid a gross contribution and snatched back a rebate later after many rows and difficulties, we shall now have an abatement and make a net contribution. As the hon. Member for Newham, South so helpfully pointed out, however, the Government have said very little about the basis on which the 66 per cent. reduction is calculated. That is important.

I hope that I do not see disagreement where none exists, but I suspect that last weekend at Milan there was a fundamental conflict between my right hon. Friend the Prime Minister and the Foreign Office. It may well be that the Foreign Office had got the whole thing nicely lined up for a sell-out from which the Prime Minister would not be able to escape.

In no way, Mr. Walker, do I wish to give you unnecessary exercise, but I say that because we are talking about allocated expenditure, and expenditure is at the very root of political decision. Ten days ago my extremely eloquent hon. Friend, the Minister of State, Foreign and Commonwealth Office, spoke about the Foreign Office's attitude towards majority decisions — [Interruption.] I hope, Mr. Walker, that you will not keep looking as though you are about to take some unnecessary exercise, because this is about expenditure. My hon. Friend said:
"The Government believe that it is desirable to encourage more majority voting within the Community." — [0fficia/Report, 20 June 1985; Vol. 81, c. 472.]
My hon. Friend went on to explain that at length. As he does not speak from any notes or prepared text, no doubt he spoke from the bottom of his Foreign Office heart, for I assume that even the Foreign Office has a heart. He explained that he and the Foreign Office were in favour of a substantial extension of majority voting in the Community.

Was that just a fraud? Was it just something that he thought up as a Gaullist bit of hypocrisy in order to con the rest of the EEC? That is not the spirit of the modern Foreign Office. It does not talk in terms of the British national interest or of trying to put forward the legitimate interests of our people. It talks, as do American Foreign Secretaries, in terms of human rights and morality. It uses all the jargon that Mr. Gladstone used to use. It no longer talks like vulgar, coarse old Tory Foreign Secretaries of State. There is not the sort of talk that Mr. Disraeli would have enjoyed as he denounced the moralistic vapours of Mr. Gladstone.

I am tempted to call the Minister of State my right hon. Friend. I am sure that as he speaks on foreign affairs with the voice of the modern Tory party, he will become just that. However, I am sure that my hon. Friend was right when he put forward the Foreign Office view about wanting more majority voting. We then must ask the Prime Minister about the areas in which we want this extra majority voting, because if the area is in any way to be important, it is likely to lead to extra expenditure. If my hon. Friend means majority voting in relation to an extra burst of the European international outlook, that will not cost very much. But if, for the sake of argument, he believes that majority voting should, for instance, be allowed on the setting up of the new secretariat that will concern itself with EEC foreign affairs policy, that will surely give rise to increased allocated expenditure.

My hon. Friend obviously knows a great deal more about this than most of us. He has said that the new Common Market foreign office will mean allocated expenditure. How does he know that? Ever since I read the reports of Milan, I have tried to discover whether this will be allocated or non-allocated expenditure. Where has my hon. Friend learnt of this firm decision which I cannot obtain from any Government Department? Who told him that it would be allocated expenditure?

I am not saying that, and I apologise to my hon. Friend and the Committee if I have given a false impression. I was simply saying that the area in which the British Government would agree to an extension of majority voting ought to be carefully defined. If we talk in the eloquent terms in which the Minister of State — who I hope will soon be my right hon. Friend — spoke 10 days ago, that will give rise to extra allocated expenditure, and the poor old British taxpayer will have to pay for it.

My hon. Friend the Member for Southend, East (Mr. Taylor) reasonably attacks me for the looseness of my speculation. But that looseness is entirely caused by the fact that, sadly, the Prime Minister is unable today to see off a large number of European nation states and the Foreign Office by explaining that she wants the most important limitation of this extension of majority voting. That inevitably leads me to loose speculation which my hon. Friend, with his practical Scottish mind, finds deeply disagreeable.

I point to an attitude towards public expenditure—for EEC is certainly public expenditure — that was recently indicated by my right hon. Friend the Minister of Agriculture, Fisheries and Food. On 13 June, I asked my right hon. Friend, when he was trying to agree some form of restriction on the prices of cereals, whether he had inquired if the proposals were within the budgetary guidelines. In what was no doubt a Freudian slip, he said:
"I have been alone in asking the Commissioner, at almost every point of the negotiations, whether he remains satisfied that the cost of the package is within the financial discipline that has been agreed for the agricultural budget."—[Official Report, 13 June 1985; Vol. 80, c. 1039.]
If we do not know where the majority voting is to be extended, we shall find that the base—

My hon. Friend knows that this issue exercises my mind and worries me almost as much as it worries him. He will be aware that this Bill is about setting a limit and a ceiling on the amount of Community expenditure. He is saying that if we are to go towards majority voting, other policies may be brought forward, with detrimental effects on the interests of the British taxpayer. Within the allocation of European policies that might have an effect, but there is to be a real ceiling on European expenditure because we shall agree to a 1·4 per cent. limit.

The Government have given no sign that they would dream of exceeding that 1·4 per cent. ceiling. I am sure that when my hon. Friend the Economic Secretary makes his winding-up speech, he will go beyond that and say that not only will the Government not go beyond the 1·4 per cent. ceiling in the life of this Parliament but that they have no intention, and it would be over their dead body, that there should be any further loans or intergovernmental agreements. I think that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) is unnecessarily concerned.

9 pm

I hope that my right hon. Friend the Prime Minister will see off the Foreign Office tomorrow and explain that she is not prepared to agree to any majority agreements that could give rise to extra allocated expenditure. That, as you were implying to me by your firm look, Mr. Walker, is what we are talking about.

Order. That is not what we are talking about, because, as I understand it, there is no reference in the Bill to, nor has it any relationship with, majority decisions taken within the Council of Ministers or any other meeting in the EC. I hope that the hon. Gentleman will keep to the terms of the amendment and the Bill before the Committee.

On a point of order, Mr. Walker. It may be helpful to the Chair to know that during points of order earlier, the Second Deputy Chairman ruled that it was in order for us to discuss things to do with the Milan summit in the course of our debates on these amendments.

Order. The hon. Member for Thanet, South (Mr. Aitken) has raised a point of order and I shall respond. As I understand it, the Second Deputy Chairman ruled that it was in order to refer to the meeting in Milan in so far as that related to our proceedings. It is highly questionable whether it would be in order to discuss the effects of majority decisions on the Bill before the Committee.

I think that you will agree, Mr. Walker, that we are trying to incorporate within the Bill a Community decision. The Community decision refers to allocated expenditure; but, as my hon. Friend the Member for Northampton, North (Mr. Marlow) pointed out, it does not define allocated expenditure. I am saying that if we are not careful, an extension of majority voting, which was so eloquently advocated by the Foreign Office, but sadly apparently not with the approval of my right hon. Friend the Prime Minister, over the weekend, might mean that there is a majority decision — for the sake of argument., setting up an enhanced EC energy policy, which has been fashionable among those who are keen on the EC — which will have an effect on British interests.

It might be said that there can be an enhanced energy policy but we shall not allow it to be regarded as allocated expenditure. That is to say, the EC can, if it wishes, carry on spending all the money that it likes on some policy that it has enforced by majority ruling, but the British are not prepared to pay. These are some of the issues that my right hon. Friend the Prime Minister will be able to clarify when she makes her statement to Parliament tomorrow, as I hope she will. It would be difficult, even for a loyal supporter such as myself, to try to support her position if she failed to come to the House of Commons even tomorrow.

My hon. Friend the Member for Southend, East spoke about the activities of the European Court of Auditors. He made a certain amount of fun of the Italians. In many instances, the Italians are not as nationalistic as we as a nation are, but they displayed a rather violent nationalism when they set about the gentleman from the Court of Auditors who wished to inquire whether they were ripping off the rest of the Community. I do not wish to make fun either of the Italians or of the unfortunate nark who came to inquire into their activities. They demonstrated for all to see an interesting problem in the EEC.

We all complain about the dishonesty of other nation states in the Community. We talk about the way in which the Germans are reluctant to allow cereal prices to be reduced. We talk about the potential that the Greeks have for creating another wine lake. We talk about the problems of persuading the Irish to accept milk quotas. But we come to one fundamental question every time that we do so: would we as a nation accept a supranational authoritative EEC enforcing against us any of the decisions of the EEC?

If we were sitting at home, for instance, filling in our suckler cow subsidy or our sheep subsidy form and, bang, bang, there was a knock on the door and a big man with a staff in his hands, perhaps with a Napoleonic eagle on the top or some other symbol of pan-European authority, came in and said, "Let me look at your application for sheep subsidy," suspecting that we had falsely claimed for too many sheep, what would happen? Would we say, pulling the remains of our forelock, "Yes, oh great and good man from the EEC, we invite you in. Pray look at all our books," or would we say, "Pray leave our house. We much admire you, but we do not wish you to interfere in our affairs"?

Some of my constituents resent the advice that gentlemen from Customs and Excise give them about their VAT forms. I also observe that, despite all the eloquence of my about-to-be right hon. Friend from the Foreign Office in his advocacy of Gladstonian and moralistic views about foreign affairs, sadly we remain a very nationalistic nation.

I suspect that we would entirely resent any form of EEC authority. Those wicked men in Italy who so attacked the gentleman from the Court of Auditors demonstrated that if the Italians, the least nationalistic of our friends in the close family of the EEC — is not the gobbledegook good, and am I not becoming communautaire? — can behave in that manner, so long as we are in the Community we shall have frauds, evasions and growing resentment between one nation state and another at the way in which other nation states spend the money that is collected for these apparently idealistic purposes.

The hon. Gentleman made a big point about the extra expenditure, allocated or unallocated, which could come from majority decisions. Will he comment on the words of the Prime Minister about what stuck in her gullet? Apparently what stuck in the right hon. Lady's gullet — I suspect that we shall have to wait till tomorrow to hear what she has to say about it — was that the Germans paid lip service to majority decisions, but, when it came to cutting marginally the return to their Bavarian farmers, they were prepared to veto it. So the German lip service to majority—

Order. Interventions should be brief, and equally they should be relevant. I find it difficult to relate any of this to the amendment. I hope that hon. Members will stick to the amendment. Mr. Budgen.

If I may respond to the first part of the hon. Gentleman's intervention, perhaps I may then give way again because he may regard my answer as inadequate. Those are all issues that my right hon. Friend the Prime Minister will, if given the opportunity—

Order. We are not talking about what the Prime Minister may or may not say tomorrow or any other day. We are discussing the document COM(85)36. I hope that the Committee will stick to that.

Exactly, Mr. Walker. We are trying to find out what allocated expenditure means. We are asking who will pay when majority decisions are taken in future. Will they be debited to allocated expenditure?

Order. If the hon. Gentleman can tell me where in this document, to which the amendment relates, there is reference to majority decisions in future, he may be in order, but I fail to see it. I hope that we can get back to the amendment that is before the Committee.

While I deeply respect your decision, Mr. Walker, I am addressing all my remarks to the term "allocated expenditure." One of the great dangers of the EEC is to talk in terms of policies and objectives as though they did not cost money. We have a large number of Keynesian supporters of the EEC on this side of the Committee. By their vigour and idealism they illuminate these debates, but they always talk about policies in vacuo as though, for instance, an EEC energy policy had no cash consequences. If there are majority decisions over whatever defined area, they will have an effect upon allocated expenditure. Therefore, it is better that we should define strictly "allocated expenditure" so that majority decisions cannot extend the expenditure of the EEC. That is the limited point. I hope that in due time the Committee will be able to support the sensible amendment on this point tabled by the Labour party.

I support the amendment which would incorporate COM (85) 36. I assume that the copy before the Committee is the final draft. It should be incorporated in the Bill because it defines the machinery for operating the Council's decisions. That machinery would define the disputed areas of allocated expenditure. It is not the most exciting, appetising or thrilling of documents but because of the definition it gives to the agreement it is essential to incorporate it in the Bill.

That is even more essential after the setback of the Milan summit. That setback was heightened by the enormous hype that the Foreign Office went in for in advance of the summit. We were told what the British achievements would be. We heard about the quiet British takeover. How odd all those headlines are now. They emphasise the subsequent failure. It might be more relevant to discuss this matter in the clause stand part debate.

The point is that we suffered a setback. Therefore, it is even more curious that the Government are proceeding at such speed with this measure when all the counsel on diplomacy and negotiation would argue for proceeding much more slowly, or dragging our feet so as to strengthen our negotiating position in subsequent discussions. The Government decided to press ahead, which was a mistake.

9.15 pm

Undoubtedly, the Prime Minister was let down by the way in which the Foreign Office prepared her and the Government for the Milan summit. She was made a fool of by the Foreign Office's hype and the lack of briefing about the predictable realities. It was always predictable that, at the end of the discussions, Britain, with two other maverick states, would be in a minority.

The fact that the Prime Minister was let down does not exclude the fact that her position at Milan was essentially right. She opposed the rush to revise the treaties and, effectively, the rush to a two-speed Europe. In 1975, Britain decided in a referendum to accept the treaties. Presumably, the Prime Minister's reluctance to follow the Gadarene rush to revise the treaties stems from the need to hold a referendum to make that change. Some of us argue that this legislation would justify holding a referendum. Any change in the basis of the agreement on which the Common Market rests along the lines suggested in Milan would require a referendum.

I have no doubt that these changes will go ahead, despite opposition by the British Government. We are rapidly moving towards a two-speed Europe—a first and second-class Europe in which we are the second-class passengers. The Government will eventually have to go along with this proposal because it suits their interests, whatever the legal restrictions it imposes on their decision-making power. Progress towards this end is irresistible. During that process, the usual cries will be made—"Can we afford to be left out? Should we not go along with it? Should we make more concessions? Should we prove that we are more communautaire? Should we get within the guiding nucleus?" We shall be dragged step by step along a road along which the public do not want us to go. We were initially tricked into taking this road and it is not in our interests to pursue it. Following the Milan summit, this process is almost inevitable.

We need to take a firm and clear position. If the amendment is accepted, we shall stop the remorseless process that is dragging us further down the road towards revising the treaty of Rome and towards a more powerful Community. That is why the rush to pass this legislation is extraordinary and why we on this side of the Chamber will vote for the amendment to give us a firmer, stronger negotiating position. The definition to which the amendment refers will enable us to do that. Ideally, the Government should put the Bill into cold storage. They have shown their reluctance to do so by extending the procedures and dragging their feet. The Government should strenghten their negotiating position in future proposals. As the Government have failed to take up that stance, hon. Members must tie their hands with this amendment.

Does the hon. Gentleman not think that he is exaggerating when he talks about "this side of the Chamber" having to do this or that? In fact, he is supported by three hon. Members on his side of the Chamber. Is it not a bit of a cheek to the electors who elected the hon. Gentleman and other hon. Members to talk about having to hold a referendum when only three Labour Members want to support him in this momentous decision? That is a ridiculous stance.

The hon. Gentleman has asked me to intrude in domestic grief, which I have been doing for most of the evening. It is the domestic argument within the Conservative party which is the prime feature of our discussion. I was saying that the Opposition will vote to support the amendment. The discussion is focused primarily on the differences within the Conservative party and the hon. Member for Canterbury (Mr. Crouch) is a well-known protagonist on one side of the Community argument. He should not try to shift the consequences of the discussion between his right hon. and hon. Friends by diverting the argument and involving Opposition Members.

The amendment must be accepted because of the inadequate definition that is set out in the agreement. We must provide a firmer basis for the definition in our law than it would have if we passed the Bill as it stands.

It is clear that the Bill has an unsatisfactory title. It should have been given the title of the European Community (Refinance) Bill at the very least. My amendment, which was intended seriously, sought to change its title to the European Community's Bigger Bail Bucket Bill. Apparently that amendment was considered unworthy of appearing on the Notice Paper.

I am grateful to the hon. Gentleman. I am sympathetic with much of what he is saying, but how will adding this particular document strengthen the Bill when-1 know that he, like me, respects the Economic Secretary to the Treasury — the Economic Secretary, in his explanatory memorandum, says in paragraph 10 on United Kingdom law:

"The paper is an internal Community document which sets out a line of procedure that the Commission intends to follow in a process that is its sole responsibility."
So this particular document is at the whim of the Commission. The hon. Gentleman and his colleagues seek to put this in as part of the Bill on the basis that it will strengthen the Bill. How does it strengthen the Bill when it is a whimsical piece of nonsense in the hands of the Commission in Brussels?

I shall address myself to that argument in a few minutes. It is important and I wish to take it up specifically. I think that we must try to define the current whim of the Commission in our legislation so as to stop the whim changing.

As I have said, I tabled an amendment that was designed to change the title of the Bill. The amendment before us is designed to specify he contents of the bucket. The Government have been triumphant in telling us that they have secured a rebate. Apparently they expect the country to gibber with gratitude at their self-described skill and effectiveness in securing the rebate. We are supposed to regard the Government's achievement with a kind of adulation in our eyes as alliance Members show when listening to the speeches of the right hon. Member for Plymouth, Devonport (Dr. Owen).

The Government have agreed to a fundamental shift in financial power towards Europe and towards the Commission and to give larger contributions in return. Our contributions, even after all the rebates and all the allowances, will be £973 million for 1987. That is the estimated figure on the basis of the Blue Book. We are seeing the introduction of greater contributions and a shift in power towards the Market. We are agreeing permanently to underwrite the common agricultural policy, which, despite all the vaunted limitations, which have no effect against German vetos, remains a bottomless pit.

We cannot limit expenditure on the CAP by means of the Bill, but I wish that that were possible. The enactment of such a Bill would be a field day in introducing the limitations that must be imposed on the CAP. However, we can specify the procedures by which our so-called rebate is to be decided.

The hon. Member for Northampton, North (Mr. Marlow) used the word "whim." The document that we are discussing describes the present disposition of the Commission in relation to the calculation of the formula, which, although it may not be ideal, is at least decisive. If it is not incorporated either in the decision or the treaty, there will be some scope for its change without necessarily the agreement of the UK. That is the objective of including it in the decision.

Precisely, and my hon. Friend, with his knowledge of these issues, anticipates a point that I shall be emphasisng. We can specify exactly what we are doing and, as my hon. Friend pointed out in his speech, we are not getting the 66 per cent. that the Government have claimed we are getting. We are getting a rebate of 66 per cent. on the difference between the value added contribution and allocated expenditure, and the latter is inadequately defined.

Will the Economic Secretary explain whether allocated expenditure includes the £300 million a year paid to British agri-business to export food at knock-down prices to Europe? Is that part of the allocated expenditure with which we are dealing in the Bill? All that we are getting is a rebate on the difference between VAT and that allocated expenditure. It does not include the other contributions that we make, the food levies and tariffs that go directly to the EEC.

We can specify how the rebate system will work. We must specify that, whatever the Government say about this having been a permanent victory and a permanent decision on rebates. This is essentially a temporary arrangement. It lasts only for so long as the 1·4 per cent. ceiling on VAT lasts, and all indications are that that will not last long. As soon as the 1·4 per cent. ceiling is raised, our rebate system, of which the Government have made such a triumph and fetish, will be back in the melting pot with everything else.

At that time, when we come to try to extend it and even improve on it, we shall be back in a minority of one arguing in an even more difficult situation because, by then, the other member states will be well aware of the increases in their VAT contributions which have been necessary to reduce ours. That is causing resentment already, even before the scheme comes into operation. The fact that it will be in operation at that stage will heighten that resentment and make it more difficult to get the rebate system extended.

It is, therefore, not a permanent but a temporary rebate system. For that reason we must include all the definition that we can in this piece of legislation. That is why we must include, as the amendment says, "COM(85)36" in it. The whole system can be varied by the Council and the Commission. That is my reading of the situation. Indeed, it already has been varied by the Commission. After all, the Government's explanatory memorandum on the document dealing with the method of calculation and correction defines the expenditure from which the gap will be calculated, and says:
"The Fontainebleau Council agreed that the expenditure to be included in the calculation should be that 'allocated in accordance with the present criteria'. This in principle means everything that is not obviously intended for the benefit of third countries ie. development aid. In practice certain other items of expenditure have in the past been excluded because of practical difficulties in allocating them to Member States."
The Commission now proposes that those items should be included in the allocated budget, some immediately and some gradually. Therefore, even at the start of the process, it has changed the basis on which the allocation is decided. How can we trust the Commission, if it has done that already, not to make changes which will further weaken Britain's position?

9.30 pm

That change in the allocation system should have been strongly opposed. Why should a system that has been accepted and become almost traditional — if anything can be traditional in the Common Market — be changed by the Commission simply for the opportunistic purpose of increasing the British allocation and, therefore, decreasing the gap to be filled by the rebate system? That should have been contested, but apparently the Treasury accepted it. The 19th report of the Select Committee on European Legislation states:
"The Committee understand that the calculations proposed in this instrument follows precisely the form expected following discussions with the Commission and that it meets the Government's requirements."
It was the Government's decision not to oppose the change in the allocation, and the Committee is now seeking to enforce that by specifying the inclusion of this system of adjustment in the document. Since that basis of allocation has been accepted by the Government, all that the Committee can do is to confirm the Government's decision and incorporate it in the Bill.

We must do that, because unless the document is incorporated in the Bill the Commission and the Council can change their minds. Once it has been ratified by all the member states and it is included in the final ratification by the Council, it will be accompanied by a declaration that is not binding, not by a decision that is binding. I hope that the Economic Secretary can enlighten us on this point. My understanding is that the declaration which would incorporate that machinery would not be binding in the same way as a decision, which it is now too late to get, would be binding. Therefore, it could be changed by the Commission.

The Minister might say that we can take for granted the good faith of the Commission. If we can trust the Commission, there should be no objection to the incorporation of its decision in our legislative process, thus effectively making it a condition of payment, and thus specifying the exact machinery by which payments should be made. My view, which is perhaps more cynical, is that we cannot trust the Council, because of the unpredictability of its decisions, or the Commission. We heard earlier in the debate how little we should trust the Commission's decisions when the fundamental moral decision on the scale of aid to Ethiopia has not been fulfilled. We must also accept the political position and the pressures under which the Council and the Commission will be.

Despite the increase in VAT contributions, the Community will still be in severe financial difficulties. In that position of severe financial difficulty, anything that is not essential — common agricultural policy expenditure is essential and is mounting steadily — will have to be squeezed to make way for the continual increase in CAP expenditure. The concessions made to Britain will be one area in which the squeezing process is certain to continue by the traditional method of re-jigging, recalculating and re-working the figures, trimming the concession by administrative decision. In resisting that process we are as popular as the man in the Amplex advert. That is the sort of influence we have on the councils of the Commission.

I do not trust the Commission or the Council which may well change the arrangement; therefore it is important to incorporate it in our law. The amendment would provide the legal basis to object to any change in the machinery that the Government have accepted. On that basis, we are seeking to ratify the Government's decision and incorporate it in our legislation. Once it is incorporated in our law it cannot be changed, because that is the condition on which we are making the payment in the first place, and it is certainly the basis for an objection in the court to any attempt to change it.

The amendment is vital because the process of change is going on apace in Europe and the pattern of that change is against us. We are not in a strong position in the EC. We are a natural and inevitable minority in an institution that does not suit us. As we are constantly trying to improve the inadequate terms on which we joined the EC, and to redress the difficulties that we have faced, we are always negotiating from a position of weakness. Therefore, it is always difficult to get changes made. We are not beneficiaries from the CAP in the way that the other member states are.

The whole tenor of the debate in Milan has been to underline our inevitable minority position of difficulty. In that position we need all the strength and legal clarity and all the firm negotiating positions that we can get. That is the reason for the amendment. We can always be communautaire, as the Euro-enthusiasts would like us to be. Indeed, the Foreign Office, which is the prime home for the Euro-enthusiasts, would like us to be cornmunautaire and to lie on our back and be tickled by the toe of the Common Market, but that should not be the position of this House. We should seek to get the existing agreement incorporated in our legislation. It is no use expecting that political decisions will not be changed in directions that are unfavourable to us. We can oppose that process by incorporating the Commission's own decisions—accepted by the Government — in the clause.

There have been some cogent arguments in favour of the amendment, in particular from the hon. Member for Great Grimsby (Mr. Mitchell). I hope that by now the Minister has been persuaded that we must have firmer provisions in the Bill.

In the past there have been many misunderstandings. My hon. Friend the Member for Canterbury (Mr. Crouch) and I were once shoulder to shoulder in agreement. Years ago we argued together in favour of Britain being in the Community. We then hoped that there would not be perpetual bickering and misunderstanding, nearly always about money. It has not advanced the cause of European unity, as the Minister knows only too well. Therefore, it is essential that our position should be made absolutely clear. It is not good enough for the Foreign Office to say that we are among friends.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) talked about Disraeli. I shall go further back to Palmerston, who said that a nation did not have friends: it only had interests. I sometimes wish that the Foreign Office would remember those words. They were said when only two or three clerks were employed in the Foreign Office. The Foreign Office was then a great deal more effective not just on the world stage but in looking after our wider interests than some of us believe it is today. It is in our interest to be part of Europe and to try to solve a number of problems with our European partners.

There are two points where there will be trouble in the next few years if we do not get the Bill right. My hon. Friend the Member for Mid-Worcestershire (Mr. Forth) has been an almost lone voice with his warnings about what might happen when Spain and Portugal enter the Community. I visited those two countries not long ago with the Select Committee on Agriculture. I applaud and support everything that my hon. Friend has warned the House about, argued about elsewhere and written in articles.

I do not believe that we have realised what the cost of Spain and Portugal's entry will be. That does not relate solely to the common agricultural policy. We shall be doing things to Portugal which will cause great damage to that country's economy. We shall then need more money — not for the common agricultural policy because that will not help Portugal — for the regional and social funds to prevent an increase in unemployment among those Portuguese farmers who will be driven off the land as a result of the common agricultural policy.

We understand that one of the reasons why we seek to bring in Spain and Portugal is to strengthen their role in Western Europe and to make them more certain NATO partners. If they become impoverished and have increased unemployment, in addition to the 30 per cent. rate of inflation that they now have, that will not make them suitable NATO allies. That is why my hon. Friend was correct to say that we have not correctly understood the great burden that will be placed upon us and upon Portugal when Spain and Portugal enter the Community.

We must be ready to advance a great deal more money to Portugal—a great friend of ours, as we are all aware—to enable it to play its part in the Community.

The story of Spain is different. There will undoubtedly be an added cost to the common agricultural budget as a result of Spain's admission to the Community.

I am also worried about development aid. My hon. Friend the Minister has given us the explanatory memorandum. If I understand it correctly, development aid is secluded. In the allocation of the budget there may be items of development aid which will not be considered under the Bill. In the past 12 months there has been a considerable increase in public interest in the Third world. At the same time, we have been growing angry about the mounting wheat surplus. All of us in the House know that under the common agricultural policy we cannot hand over the wheat, maize or those other commodities that could be eaten in those countries where there is starvation. Those items must come under a different heading in the Community budget. I understand that they will not be affected by the Bill. It seems that there is likely to be another bumper harvest this year, and we already have millions of tonnes of surplus wheat. If we have still more, there will be a demand that some of it go in development aid to countries which need it. The explanatory memorandum says that such expenditure would be outside the allocated budget.

Those two areas are in danger of causing trouble, bickering, ill feeling and accusations of bad faith. We have had that for 20 years now and if we want genuine progress towards European co-operation, we must take every step to prevent matters getting worse. I therefore support the amendment and hope that my hon. Friend will be good enough to accept it.

9.45 pm

Like my hon. Friend the Member for Holland with Boston (Mr. Body), I shall be brief, not least because we should move on to the important group of amendments that my right hon. Friend the Member for Worthing (Mr. Higgins) intends to introduce.

This has been a useful debate because, at the heart of the amendment lies the worry that the so-called permanent arrangements for rebates and abatements is impermanent. Several hon. Members have drawn attention to the fact that we are already spending 1·35 per cent. of own resources and that it does not take much of a push to reach the 1·4 per cent. limit. Once we are over that limit, the whole edifice of these abatements and rebates is in jeopardy.

My hon. Friend the Economic Secretary to the Treasury seemed recently to suggest that even the weather might push expenditure over the 1·4 per cent. limit. If the basis of these arrangements is that shaky, we must get something more certain. Certainty is the one thing that we lack in much of the Bill and in many of the calculations. The Bill should be called the European Communities (Temporary Finance) Bill. The arrangements are built on sand, or rather quicksand in view of the conflicting statements on the Government's explanatory memorandum and the Commission's document.

The explanatory memorandum honestly states the truth. It says that there will be no impact on United Kingdom law and that:
"The paper is an internal Community document which sets out the line of procedure the Commission intends to follow in a process that is its sole responsibility."
In plain English, we have to trust the Commission. Trusting the Commission, however, is the triumph of hope over experience.

My hon. Friend the Member for Southend, East (Mr. Taylor) drew attention to the fact that the Commission's assurances that the quantity of food being sold cheap to the Soviet Union and its satellites would be reduced have proved worthless. My hon. Friend the Member for Mid-Worcestershire (Mr. Forth) mentioned the unreliability of the Italians. It is a fallacy to say that we can treat the Commission as a rock on which all calculations can be based.

In addition to the already doubtful and shaky basis for our calculations, we have had the dramatic events of the past 48 hours at the Milan summit. I suppose that a good communautaire figure would say that the situation is now movementé. After those convulsive changes and extraordinary disagreements, how can we possibly put trust in the Council of Ministers or the Commission itself as being a firm, rocklike structure on which calculations on Britain's level of contributions and abatement can be based? Therefore, my plea is that what is needed above all, with regard to the amendment, is not a sentiment of Foreign Office good will—"Trust the Community"—but a firm legal basis. If there is a row, can we go to court? At the moment, the answer seems to be definitely no.

What we are after is certainty. In later amendments, we are after limits. I noticed the other day that my hon. Friend the Member for Watford (Mr. Garel-Jones), who seems to be wearing a more anxious expression than usual on his normally cherubic countenance, was reported as saying words to the effect that the rebellion on the Bill would not amount to very much because it would be just the usual few old lags. I say to my hon. Friend that the old lags may be few in number — not that that has ever mattered in this place, because, as Burke said, one man with conviction makes a majority — but the few old lags are being joined by a great and powerful ally. The title of that ally is the march of important events. The events at Milan have shown the Government's vague, hopeful, optimistic sentiments to be quite worthless.

I am sorry that the point of order at the beginning of the debate was not decisively accepted, although a broad hint was dropped by the Chair that it might be accepted. We are debating those hoped-for certainties in a vacuum when as a result of the Milan summit nothing is certain in the Common Market any more. We have chaos and confusion. The whole institution is in disarray. If, despite all that chaos, we say that we can be absolutely certain that our little abatement arrangements will be rock solid, that is dangerous nonsense. That is why the Opposition amendment deserves the support of the whole House.

We have had an important debate on an amendment which, at first sight, looked as if it were simply a technical amendment. The Economic Secretary's article in The Times of 25 June will give us the reasons for the doubts. In that article he says:

"Britain's abatements are now entrenched into the Community's financial legislation and cannot be changed without our agreement."
When we began to look at that, we realised that that was not clear in the Bill, so it was necessary to include the abatement document as part of the Bill. Therefore, our amendment makes that abatement mechanism legally binding.

On further examination, the following question arises: who can change the abatement mechanism? From the Select Committee's report it is clear that the Committee considered, on its examination of the document,
"that the Commission could not vary its terms without reference to the Council."
That is stated on page 8 of the 19th report. The Committee then notes the unusual status of that document and concludes that the communication — the consultative document to which we have referred in the debate — may be seen as
"additional help to Member States in understanding the Decision rather than a matter of formal necessity."
When we look at the explanatory memorandum provided by the Economic Secretary, which has been much quoted in the debate, it appears that the abatement mechanism is a procedure for the Commission alone. The debate has brought that uncertainty clearly to light. Hon. Members on both sides of the House have contributed to that. The Economic Secretary must tell us clearly who can change the abatement mechanism. That is in doubt from an examination of his explanatory notes, the report of the Select Committee on European Legislation, and even of the document which, regarding the allocation or exclusion of expenditure, on page 3 states:
"similar measures … will be excluded by Council decision."
Annexe 3, table 2, to which an earlier part of the document directs us, refers to expenditure still to be allocated and expenditure to be excluded by chapter. It talks about chapters to be incorporated immediately by the Commission. Even in that consultative document, 5046/85, there appears to be some confusion about who is meant to take what decisions. The Economic Secretary must answer that question this evening. Unless that matter is sorted out, he cannot say, as he said in his article in The Times, that
"Britain's abatements are now entrenched into the Community's financial legislation and cannot be changed without our agreement."
Hon. Members have rightly referred to the Milan summit, the way it ended and the future. Today's leader in the Financial Times makes the point clear when it states:
"Mrs. Thatcher must now rethink her position. Since she attaches great importance to the liberalisation of the Community's internal market and the removal of all national barriers to trade, it is essential to reach agreement on how the necessary decisions are to be taken. This means that she must reach an accommodation on the constitutional issues with the majority of the member states, on political as well as practical grounds."
I wish to emphasise the phrase
"how the necessary decisions arc to be taken."
If decisions are to be taken by majority voting in future, because of the collapse of the Milan summit and all the acrimony, anger and hostility which that generated, and if the Council can alter the abatement mechanism or decide what counts as allocated expenditure and what does not, that could be taken by a majority decision and we could, presumably, be voted down. The issue of who takes what decisions is of crucial importance. The Economic Secretary must answer that question.

The reduction in our contributions has been expressed misleadingly. The agreement reached at Fontainebleau provides for a refund of 66 per cent. of the difference between the United Kingdom's VAT share payment to the allocated budget and its receipts from the allocated budget. Yet if we apply the Fontainebleau mechanism to our 1982–83 payments, the figure would not be 66 per cent., but 58 per cent. in 1982 and 52 per cent. in 1983. The reason for that is that the Commission has decided that some, if not all, of our payments of agricultural levies and customs duties count as payments to the Community. The 66 per cent. figure is therefore misleading and suggests that our refunds from the Community will be better in the future. In fact, our net payments to the Community will increase to reach almost £1 billion in 1987–88, as the Government's own public expenditure White Paper shows.

Not only have we an abatement mechanism which now looks insecure and subject to change but the position has been presented by the Government in a misleading fashion suggesting that we shall do better in the future—

It being Ten o'clock, the Chairman left the Chair to report Progress and ask leave to sit again.

Committee report Progress.

Business Of The House

Ordered,

That, at this day's sitting, the European Communities (Finance) Bill and the Further Education Bill [Lords] may be proceeded with, though opposed, until any hour. — [Mr. Garel-Jones.]

European Communities (Finance) Bill

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.