HC Deb 01 July 1987 vol 118 cc493-501 3.32 pm
The Prime Minister (Mrs. Margaret Thatcher)

With permission, Mr. Speaker, I should like to make a statement about the European Council held in Brussels on 29 and 30 June. I was accompanied by my right hon. and learned Friend the Secretary of State for Foreign and Commonwealth Affairs.

The main issues before the Council concerned the future financing of the Community. The issues were: to improve budget discipline and management; to reform the operation of the common agricultural policy; the structure and size of the Community's resources; continued progress towards the completion of the single European market; and more effective use of the regional and social funds.

In addition, the Council dealt with three important immediate questions: the 1987 budget, the agricultural price package and the proposed oils and fats tax.

The task of this Council was to agree on guidelines that would lead to the necessary decisions at the next meeting of the Council in December. There was considerable agreement on the steps that have to be taken if we are to resolve the problems of the Community's finances. There were two points, however, with which we could not agree. First, we were not prepared to accept that there should be a decision now on the size of Community resources. We have made it clear throughout the discussions that it is necessary, before that question is addressed, to have agreement on effective and binding control over Community spending, including, in particular, agricultural spending. Secondly, we could not accept that the level from which we start to calculate agricultural spending for the future should be simply revised upwards to include every element of overspending in the current year.

Those are substantive points, on which we have both to protect the taxpayer and to take sound and considered decisions for the long-term health of the Community. They also go to the root of whether the Community is really prepared to tackle the problem of agricultural overspending. We agreed, however, first, that the use of the Community's resources should be subject to effective and binding budgetary discipline; and that this must apply to all expenditure and to all the institutions—the Council, the Commission and the European Parliament. Secondly, on agriculture, we agreed that additional measures are required to stop surplus production, and so to reduce costs and keep expenditure within the budget framework.

These reforms could be accompanied by measures to ensure some setting aside of agricultural land, less intensive farming and, in certain circumstances, by selective financial aids within a Community framework. Thirdly, we agreed that arrangements for the United Kingdom to receive an abatement will continue. So far as we are concerned, they must be at least as favourable as those in effect now.

During the rest of this year, the Community has the opportunity — indeed, the task — of translating the guidelines on budget discipline and on agriculture into draft decisions and regulations for our consideration at the December Council.

The Council reaffirmed the importance which we attach to meeting the target of removing, by 1992, the remaining barriers to trade within the Common Market. We should look for decisions by the end of 1988 on product standards, the wider opening of public contracts, the liberalisation of capital movements, insurance, and the mutual recognition of qualifications. These measures, by leading to a freer flow of goods and services and opening up a genuine single market, would help the creation of wealth and jobs.

On research and development, in order not to hinder work on agreed programmes, we proposed that spending could continue at present levels. The question of additional funds falls to be settled later, along with other decisions on future financing.

I made it clear that the United Kingdom would not agree to the new tax on oils and fats, which was proposed by the Commission and supported by France and others. I am glad to tell the House that it was not adopted.

Some detailed, not to say abstruse questions on monetary compensatory amounts on agricultural products were submitted to the Council. There was concern about how some aspects of those would operate in practice. It was therefore agreed that they should he re-examined by 1 July next year. My right hon. Friend the Minister of Agriculture, Fisheries and Food will deal with these matters more fully in his statement.

On the 1987 budget, the Council agreed to a solution on the lines we have advocated: Community funds for agricultural support, instead of being paid in advance, will now be paid in arrears. The Commission's proposal for an intergovernmental agreement to raise additional funds outside the Community budget was rejected.

We went to the Council determined to make progress in bringing Community spending under more effective control than in the past, and thus to ensure that the Community lives within its means. There are now clear guidelines for better control of the Community's finances. The priority task is for the Community to do the detailed work necessary to make those guidelines enforceable. The United Kingdom, and especially this House, has been the driving force behind this approach. We shall continue our efforts to achieve the necessary decisions in the interests of a soundly financed and strong Community.

Mr. Neil Kinnock (Islwyn)

Being in a minority in the EEC is not the worst fate that can befall a nation or a Prime Minister if, as a consequence, the negotiating position is enhanced and positive results are achieved. The question is whether that really will be the outcome, when the Prime Minister has said that she is against giving money to bankrupts and then, in Brussels, proceeded to do precisely the opposite. Is not that exactly what she has done this week—first, by agreeing to a messy, makeshift contrivance over this year's £3.5 billion budget deficit, and, secondly, by acceding to an expensive farm price settlement that will add to food surpluses? Will she tell us why, when the crisis of Common Market insolvency is so obvious, pressing and immediate, she did not use that reality to secure the radical reform and effective control on spending that is manifestly needed now?

We have been here so often before that we are beginning to doubt the Prime Minister. Is not the Prime Minister's failure to press home the negotiating advantage that arises from the present insolvency a result of the fact that while she knows what she is against in the budget and in the common agricultural policy, she does not really know what she is for? She has no positive and precise proposals for the root and branch reform that is needed of the Common Market and the common agricultural policy.

Will the Prime Minister give us an assurance now that she will veto any proposals to put VAT on any items that are currently zero-rated? Will she guarantee that she will prevent any steps to impose VAT on children's clothing and shoes, on fuel, public transport, new housing and on books and newspapers as well as on food?

The Prime Minister

First, I do not think that anyone would take advice from the right hon. Gentleman about effective control over spending. Secondly, there was more than a full blocking minority against an oils and fats tax. People ought not to agree to an intergovernmental agreement as a means of raising more money to meet the deficit on this year's spending. Therefore, it was met in other ways that have been set out in documents that are now in the Library, and those ways are infinitely better.

Thirdly, as the right hon. Gentleman should be aware, there have been and will continue to be, further reforms in the common agricultural policy. He will have heard many times of milk quotas and of the reduction in price that there has been for, I think, five or six years in succession. He will also have heard of things such as guaranteed thresholds and limited intervention on things such as set-aside. These measures will continue. A reduction in price is not enough, and that is why there have to be other measures of the kind that I have mentioned.

There were a number of what are called stabiliser proposals at this meeting and in the Agriculture Council, and we are now seeking to get further guidelines on these translated into regulations for each and every commodity. Value added tax was not even mentioned at this meeting, nor was harmonisation of tax even raised either by the Commission or by anyone else. I stand by precisely what I said during the election campaign.

Mr. Terence Higgins (Worthing)

Is my right hon. Friend aware that throughout the last Parliament the Select Committee on the Treasury and Civil Service urged more effective budgetary discipline in the European Community? My right hon. Friend is to be enthusiastically congratulated on the stand that she has taken. Having said that, is it not the case that the present situation has arisen because we have constantly bailed out the EC by way of temporary measures such as intergovernmental agreements and so on? Since loans to the EC are not allowed and there are no intergovernmental proposals to be agreed, could she say whether she will continue to refuse to accept any further temporary finance to bail the EC out of its present crisis?

The Prime Minister

I gladly applaud and acknowledge my right hon. Friend's efforts in trying to get effective guidelines. He and a number of other right hon. and hon. Members made their points clearly soon after Fontainebleau, when we got agreement in the European Council on guidelines to restrain agricultural expenditure. We got the relevant minute, but I am the first to say, as my right hon. and learned Friend the Foreign Secretary and I said in the last two days, that the agreement that we got in the European Council was not translated into practice by the Agriculture Council nor by the European Council, although we have frequently been trying to get down the amount of spending on the common agricultural policy and on other matters as well. Therefore, this time we said that before we could consider an increase in own resources, those guidelines must be translated into regulations of one kind so that they can be legally enforceable. That is the task that we face between now arid the December Council, and according to how that task is performed we shall have to consider what further steps to take.

Mr. David Steel (Tweeddale, Ettrick and Lauderdale)

Does the Prime Minister confirm that all the other 11 Heads of Government were out of step with her on the package of proposals and that she put forward no alternative package to the one that they had agreed? Does she also accept that agreement on the single market that she supports and that we support is likely to be blocked by others if we do not agree to progress on development of the structural funds? Will she also accept that every time the Council of Ministers fails to reach an agreement the budgetary problems simply get worse and that the lack of an expanded research and development programme, for example, simply weakens the Community? Finally, does she believe that the reforms of the CAP, that we all agree are needed, can only be made on the basis of an immediate reduction in total cost? Is that her view and, if so, has she told her Minister of Agriculture, Fisheries and Food that?

The Prime Minister

I do not know whether the right hon. Gentleman listened carefully to what I said. A number of things were agreed. We could put out the oils and fats tax only with a full blocking minority. Indeed, more than a blocking minority was obtained and rather more than that was obtained against an intergovernmental agreement. If one takes seriously what the right hon. Gentleman says, it seems he agrees with the other 11 that we should have the agriculture price guide for the future at a bloated level increased by all of the exceptional circumstances this year—the price of the dollar and the disposal of agriculture surpluses, all of which have gone into the bloated level. He wants us to agree to that, thus increasing the CAP expenditure, when he says that he wants to reduce it. Moreover, he asks us to agree to that without any discussion in the European Council, which is what they have refused. He asks us to agree to the other point I raised—an immediate increase in the ceiling Of own resources paid to the Community without discussion and without effective financial guidelines. Those were the two points that my right hon. Friend and I refused to agree upon.

Sir William Clark (Croydon, South)

Is my right hon. Friend aware that the vast majority of people would applaud the strong stand she has taken on extra money for the EEC budget? Is it not wrong that the British taxpayer should provide money to help the political ambitions of some continental politicians over agriculture? Does she not agree that if the EEC budget is increased, this will merely exacerbate and exaggerate the surplus we have in the EEC? This is the one thing we have to eliminate. Consequently, nothing should be done with British taxpayers' money that would in any way increase any surplus in the EEC.

The Prime Minister

My hon. Friend has gone to the heart of our case at the Council. Before any money is voted for an increase in the resources of the EEC we must he certain that there will be more reforms in the common agricultural policy and in other spending. That must not be merely embodied in a Council minute, as it has been in the past. It must be enforceable by being put into regulations. That was one of the main differences between ourselves and other people. We want to be certain that that will happen before we look at an increase in own resources. Then we can look at that possible increase in the light of perhaps other means to increase expenditure on things such as research and development. However, because the CAP is now taking up so much, it is not possible to do that.

It is not always easy in the European Council, because nine members of the Council profit financially from being in the Community, as well as profiting in other ways, whereas three of us put in net contributions that are redistributed among the rest of the nine. Naturally, there is always a greater demand for increased expenditure than there is defence against it. We must be certain of the purposes for which it is required.

Mr. James Molyneaux (Lagan Valley)

In fully supporting the Prime Minister's demand for realism, may I ask whether she received the full-hearted support of the Prime Minister of the Irish Republic in view of that unique relationship which found expression in the Anglo-Irish Agreement?

The Prime Minister

I am sure that the right hon. Gentleman's arithmetic is impeccable. Since 11 Members were on one side in certain matters and only one on the other, he will find the answer to his question.

Sir Peter Blaker (Blackpool, South)

Is my right hon. friend aware that she will have the overwhelming support of Conservative Members for the strong stand that she took on the four most important matters at that meeting: the attempt to bring order into the financial affairs of the Community; reform of the common agricultural policy; liberalisation of the internal market; and the rejection of the tax on oils and fats?

The Prime Minister

I am very grateful to my right hon. Friend. The stand that we took was right. We want quicker progress towards a single market. After all, it was in the original treaty of Rome. We want to get enforceable order into the Community's finances, and I believe that the other things that we did were right. The Community has been making progress, but it is slower than we would wish. It was very important to ensure that the proposal for an oils and fats tax was not adopted because it would have had a devastating effect on protectionism in world trade. It would have been leading the way in protectionism, which would have been very bad. Moreover, it would have increased the cost of living in this country, especially because of the increase in the price of margarine and cooking oil. It would have been a bad precedent.

Mr. D. E. Thomas (Meirionnydd Nant Conwy)

What discussion was there on regional and social fund spending by the Council of Ministers? Does the Prime Minister support the principle that if there is to be a reduction in CAP spending, some of the money should be transferred to the regional and social funds to replace jobs that have been destroyed in agriculture and related industries?

The Prime Minister

There was considerable debate on the amount going into the regional and social funds. Since the Fontainebleau agreement in 1984, there has been a substantial increase in the regional and social funds. For example, payments from those two funds have increased by 82 per cent. since that time, which represents a 64 per cent. increase in real terms. Nevertheless, some people wanted to double the amount presently spent on them. Naturally, we cannot agree to that, bearing in mind the fact that the Community is already overspent. When we have effective discipline on spending we can consider the various demands on the budget in a proper light.

Mr. Jim Spicer (Dorset, West)

Despite the fact that my right hon. Friend made it clear that nine of the member states are beneficiaries, is it not a fact that as far back as November 1984 all members of the Council of Ministers agreed that there should be total budget control? Can she give a logical explanation of why the other 11 seem to have reneged on the undertaking that they gave then?

The Prime Minister

We are all beneficiaries from the Common Market. It is the largest trading bloc in the world, and we all benefit in that way. The nine are net financial beneficiaries, and three of us are net contributors. The measures to control expenditure were embodied in the European Council minute. As every hon. Member who represents an agricultural constituency will know, there have been price reductions for many years. There have been milk quotas, which have caused problems in themselves, and there have been limited intervention and limited guaranteed thresholds. Those measures have got surpluses very much lower than they would otherwise have been. Further steps were taken at this meeting. What was not honoured was that the increase in the CAP budget should be less than the increase in own resources. Now we are saying that that must not only be agreed between us but must be enforceable in a regulation.

Mr. Nigel Spearing (Newham, South)

Does the Prime Minister recall that in the early 1980s she said that the 1 per cent. ceiling should not be breached? But on 14 November 1983, at column 611, the former Chancellor of the Exchequer—now the Secretary of State for Foreign and Commonwealth Affairs—said that the government would be prepared to consider going through that ceiling provided that effective control of the rate of increase in agricultural and other expenditure was achieved.

Does the Prime Minister recall that she came back from Fontainebleau claiming that that effective control had been achieved? Who is conning who? Did the EEC con the Prime Minister or did she con Parliament and the people?

The Prime Minister

The hon. Gentleman is quite right. When we got the agreement at Fontainebleau under which own resources were increased to 1.4 per cent. we received an excellent arrangement for rebate which has meant that since the Fontainebleau agreement £3.2 billion has been returned to us by way of rebate. Part of that came from effective control over spending. As I explained, in a minute to the European Council, that has not proved to be watertight. On the contrary, agricultural spending has gone — [Interruption.] As the hon. Member is aware, agricultural spending is decided by majority and does not have to be unanimous. Because of that experience, we are now trying to enforce the agreements by ensuring that they are translated into financial and other regulations. Before we considered any increase in spending, the 1.4 per cent. had to be considered by the House and was passed by the House. Any increase in relation to value added tax or own resources would also have to be ratified by the House.

Several Hon. Members


Mr. Speaker

Order. I have to take account of the fact that there are two other statements after this and the last statement is to do with the meeting of the EEC Agriculture Council. No fewer than 56 right hon. and hon. Members including 22 maiden speakers have applied to speak in the subsequent debate. I will therefore allow questions on this matter to continue for another 10 minutes.

Sir Fergus Montgomery (Altrincham and Sale)

Is my right hon. Friend aware that she earned the gratitude of the British people in the stand that she took in Brussels yesterday? Will she tell Monsieur Chirac that it is a pity that there were not more housewives at that important meeting? Would she finally agree that under her Government, Britain has got its finances in order and would it not be better if the other members of the European Community also followed suit?

The Prime Minister

Yes, I agree with my hon. Friend. Each of us has to apply fairly stringent rules to our finances and that includes many other Ministers present at that European Council meeting. We are saying that stringent rules have to apply to our national financing and they must also be applied to the Common Market financing. That is recognised on both sides of the House. I believe that the Opposition should support us in that objective.

Mr. Bob Cryer (Bradford, South)

The Prime Minister always mentions benefits from this organisation. She admits that the costs are continually soaring. There is a £10 billion deficit in the trade in manufactured goods between the Common Market and the United Kingdom. In spite of the Prime Minister's protestations, food stocks are soaring. What are the benefitss? Would not the best benefit be to withdraw from the Common Market?

The Prime Minister

When the internal market is complete we shall enjoy the benefit of a single market which will help all manufacturing. I believe that it is a great benefit to our farming community and therefore to the whole rural economy for us to be a member of the Common Market. It is certainly a very great political benefit. If we were outside the Community with a very powerful group on the continent of Europe, we would be able to feel the draught very clearly.

Mr. Robin Maxwell-Hyslop (Tiverton)

Has my right hon. Friend seen any perceptible movement among the other Heads of Government towards realising what must now be obvious, that if the common agricultural policy is to support incomes in rural areas rather than the owners of refrigerated warehouses and grain silos, sooner or later quotas will have to come in across the whole spectrum of agricultural produce? How far are we away from grasping and realising that obvious and pressing truth?

The Prime Minister

There have been a number of price reductions and price reviews over the past five or six years——

Mr. Maxwell-Hyslop

They are no good.

The Prime Minister

I hear my hon. Friend say that the prices are no good. I would not say that they are no good. However, they are not sufficient on their own. That is why we have had to introduce quotas. My hon. Friend comes from a part of the country which is aware of the difficulty which that can cause. However, such action had to be taken. There are other mechanisms guaranteeing only a certain amount of the guaranteed threshold. Other measures that are now being established are limiting the times in the year when food can be sold into intervention. We are really trying to move to a position in which intervention becomes a safety net and not merely a means of storing surplus stocks. It is difficult to get rid of the surpluses that we now have, and that are an overhang on the world price, but great efforts are being made and further efforts were made in this price review. My hon. Friend will know that one cannot make changes that are too sudden, bearing in mind the fact that the farming industry cannot take sudden changes because of the cycle of production.

Mr. Alexander Eadie (Midlothian)

Since the right hon. Lady told the House that an effective decision was taken to freeze expenditure on research and development, will she inform the House what impact that will have on the United Kingdom? The right hon. Lady must be aware that in this country great criticisms are made about the spend on research and development. Do she and her Government propose to do anything to deal with any difficulty that may arise in relation to the spend on research and development?

The Prime Minister

Yes. As I said, we made provision for that while we were at the European Council. What we are talking about is not our spending on research and development. As the hon. Gentleman knows, taxpayers' spending on research and development in this country on civil and defence matters is a bigger proportion of our national income than that of most other countries on the continent. We are talking about Community research and development, and we could not agree an increase in that spending because the Community is already overspent far this year. Therefore, any additional spending must be considered when the financial discipline that I referred to is in place. Because there could have been problems on continuing research programmes and obtaining finance we said that the amount of money in this year's budget can continue to be spent, as can the same amount in next year's budget. That should obviate any difficulties that might otherwise have occurred.

Mr. Michael Latham (Rutland and Melton)

Will my right hon. Friend confirm that it remains her policy, in pursuing British objectives—as she said at the annual dinner of the National Farmers Union — to resist any measures that are directly discriminatory against British agriculture?

The Prime Minister

Yes. I think that my hon. Friend is after a particular mechanism that arises time and time again and limits help to farms to the first few head of sheep or cattle, which deliberately helps small farms, but is detrimental to our larger farms because our family farms are bigger. Such proposals arise from time to time, and I believe that they did once again in this Agriculture Council. My right hon. Friend the Minister of Agriculture, Fisheries and Food was stern in refusing to accept them.

Mr. Ron Leighton (Newham, North-East)

Is the Prime Minister aware that I give her eight out of 10 for her performance? The first point that she lost was when she returned on a previous occasion from Fontainebleau and said that she had solved the problem when she had not, as we told her. The second point is one that she could retrieve. We fear that in the future, when it is fudged and mudged in Copenhagen or Bonn, she will once again give more money. That is what we think will happen, and her bluster will not stick. Will she tell us why we should have a common agricultural policy? What is the benefit of it? Are we to assume that this great movement of nations is dependent on a common price for onions? Why do we not repatriate our agricultural policy? Why does not each country have its own agricultural policy? We cannot reform it, so why do we not end the common agricultural policy?

The Prime Minister

I am grateful for the eight out of 10, but I am still wondering a little. We have been negotiating financial arrangements for this country since 1981 and up to the end of 1987 we have secured a return from the Community budget for this country of £6.6 billion, which is a considerable figure. Nevertheless, we are still net contributors. With regard to the other matters that the hon. Gentleman raised, we shall consider increasing own resources when we have that binding, enforceable discipline in place, which is not there at the moment. The hon. Gentleman may recall that even in this brief spell of questioning I have had more applications for Community spending on research and development and on structural funds. An assurance has been sought that we will ensure that Britain's farms are properly treated on a fair basis with those in the rest of the Community. This requires money. We have a thriving rural economy, partly because of the common agricultural policy.

Mr. Michael Fallon (Darlington)

Is my right hon. Friend aware that in reminding the member states' Governments and the Commission of the principle that finance must determine expenditure and not expenditure determine finance she speaks not only for the British people but for millions of taxpayers across Europe?

The Prime Minister

I am grateful to my hon. Friend. My right hon. and learned Friend the Foreign Secretary and I put that point many times on Monday and Tuesday in the debates. We must determine our expenditure according to reasonable income and not tot up our demands and say that we must make the necessary transfers to meet those demands. That is not the way that we must go and I agree with my hon. Friend.

Several Hon. Members


Mr. Speaker

Order. I will endeavour to call on the later statement those hon. Members who have not been called during this statement.