§ 5.56 p.m.
§ Lord McIntosh of Haringey
My Lords, I beg to move that this Bill be now read a second time.
The purpose of the Bill is to enable the United Kingdom to give effect to the new own resources decision amending the arrangements for financing the Community budget. This decision reflects the conclusions of the Berlin European Council of March 1999 and was signed by the Council of Ministers in September 2000. All member states are now required to ratify this decision, in line with their respective constitutional requirements, by 31st December 2001.
The own resources decision sets out the system for financing the budget of the European communities, the own resources system. This system allows for four types of own resources; first, customs duties, including those on agricultural products, secondly, sugar levies—these two elements are known as traditional own resources—thirdly, VAT-based contributions, and, fourthly, gross national product-based contributions.
Each own resources decision runs for a set period. The current one, agreed in 1994, came into effect on 1st January 1995, and the one we are considering today is due to come into effect from 1st January 2002, with some retrospection to 1st January 2001 for changes relating to traditional own resources collection costs.
The Berlin summit delivered an excellent outcome for the United Kingdom, meeting our key objectives of bringing European Union spending under control and retaining the own resources ceiling at its previous level.
Bringing EU spending under control was a major achievement for the Berlin summit. The previous agreements on EU spending, in 1988 and 1994, allowed for real increases of 17 per cent and 22 per cent over the respective planning periods. The Berlin agreement will stabilise spending through the EU budget and, for the first time, spending in the existing 414 member states will be lower in real terms at the end of a financial perspective—the planning period setting ceilings on EU expenditure—than it was at the beginning. By stabilising overall expenditure as a proportion of GNP over the financial perspective, the agreement paves the way for a successful enlargement.
The Berlin deal also maintained the UK's abatement in full, and maintained the maximum amount of EU expenditure—the overall ceiling for Community Own Resources—at a constant 1.27 per cent of EU gross national product, ensuring strict budget discipline and control of EU spending. UK contributions will not increase as a result of the new own resources decision.
Other changes agreed at Berlin have a neutral financial effect on the United Kingdom. Overall, the new own resources decision is a very good outcome for the UK, leading to no increase in our contributions and keeping the abatement—not a euro more, not a euro less.
The other elements of the Berlin conclusions are also advantageous to the United Kingdom. The tight controls on common agricultural policy spending which we negotiated will mean a fall in the price of cereals, beef and milk, bringing benefits of £1 billion a year in Britain—about £70 per year for the average family of four.
Berlin also secured reforms of the EU's structural and cohesion funds, which streamlined the categorisation of funds and which maintains a level of funding for UK regions amounting to £10 billion over the period 2000–06. These funds are addressing structural difficulties in qualifying regions, assisting economic development and promoting skills throughout the UK.
Clause 1 of the Bill provides for the new own resources decision to be added to the list of Community treaties in Section 1(2) of the European Communities Act 1972. This addition will allow payments made by the United Kingdom pursuant to the decision to be charged directly to the Consolidated Fund under Section 2(3) of the European Communities Act 1972.
The new own resources decision itself is little changed from the 1994 own resources decision. Any changes made to the decision are financially neutral for the UK. Our net contribution to the EU budget will not change as a result of what we are considering today.
As well as maintaining the ceiling for own resources at 1.27 per cent of EU GNP, the main changes to the decision—which are rather technical in nature—are as follows. They allow for an increase in the amount that each member state can retain against the cost of collecting the traditional own resources. This amount was increased from 10 per cent to 25 per cent. They allow for a staged reduction in the maximum call-up rate of the VAT based resource from the current 1 per cent to 0.5 per cent in 2004. They simplify the steps 415 needed to calculate the United Kingdom's abatement—removing unnecessary and redundant calculations—but as the recitals to the own resources decision make clear,this simplification has no impact on the determination of the amount of this correction [the abatement] granted to the United Kingdom".They adjust other member states' shares of the financing of the UK's abatement in order to meet the concerns of Germany, the Netherlands, Austria and Sweden, with no effect on the UK.
In line with previous precedent, the own resources decision also reflects the UK's agreement to forego "windfall" gains arising from the changes to the financing of the EU budget and from a change in the treatment of pre-accession aid which will occur on enlargement. We achieved a position that was, as I have quoted the Prime Minister as saying,not a euro more, not a euro less",and ensured that amounts currently abated will remain abated under the new decision.
The Berlin European Council was an important step forward for the European Community and for the United Kingdom. It makes several important reforms, preparing the EU for the challenges of enlargement, securing no increase in the own resources ceiling, and bringing EU spending under control.
These decisions are vital for the future of Europe, and for Britain as well. Half of the UK's total trade —£132 billion— is with Europe, with 3 million jobs in three-quarters of a million companies affected by that trade. Getting the economic future of Europe right matters for Britain: it is in our interests to see Europe extend its single market, from the 375 million people it includes today, to the nearly 500 million it could include in future. It is in Britain's interests for Europe to make the economic reforms needed if the single market is to expand. So it is right that Britain is one of the leaders of reform in Europe and in the ongoing debate on Europe's future.
Enlargement is the greatest challenge that the EU will face over the coming years. It will bring great economic benefits to eastern Europe, providing an opportunity for growth, development and prosperity. EU membership will help to raise standards of living and spread education and employment opportunities for people in the east.
Expanding the single market will also benefit the west. It will mean increased trade, cheaper inputs, improved access to a larger labour market, greater economies of scale, and more productive investment. As the Prime Minister said in Warsaw,Enlargement to the East may be the EU's greatest challenge, but I believe it is its greatest opportunity".The Berlin summit saw the most radical reform of the common agricultural policy since it was created. We achieved significant price cuts for cereals, beef and milk, bringing cereal prices closer to world levels and lower prices for consumers. Although we should like to see these cuts go further, they are still a significant 416 victory for the United Kingdom. They will see spending on the common agricultural policy declining in real terms from 2002.
The summit also introduced the CAP's "second pillar". This increased focus on rural development is a significant and welcome advance. It moves the CAP away from production-based subsidies and towards support for agri-environment and rural development schemes, removing some of the anomalies of the traditional CAP mechanism.
The Berlin conclusions are not only good for Britain; they are also an important part of the ongoing process of reform in Europe—a process that t he UK is leading.
§ Lord Barnett
My Lords, my noble friend referred to the common agricultural policy and to enlargement. I strongly support the idea of enlargement. Is it government policy to proceed with enlargement even without the major changes in the common agricultural policy that are clearly necessary?
§ Lord McIntosh of Haringey
My Lord, the major thrust of what I have been saying is that many of the changes in the common agricultural policy will take place in the period between 2002 and 2006. As I said, we should like some of them to go further, but, these changes have been agreed by the 15 existing members of the European Union, and, as the noble Lord rightly said, there are essential pre-conditions for enlargement.
At Lisbon, Europe's governments signed up to economic reforms to enhance labour market flexibility and capital and product market modernisation and reform, bringing more open markets and greater competition. At Stockholm the EU pressed ahead with measures to meet the strategic goal: to raise the EU's productivity and employment performance beyond the best in the world by 2010. These measures will complement this Government's domestic efforts to raise Britain's productivity, and we shall continue to support this reform agenda: completing the single market in utilities, energy, telecoms and financial and professional services. And a reformed Europe must be outward looking rather than inward looking—actively pursuing multilateral trade liberalisation and closer transatlantic trading links, through the launch of a new world trade round.
The Government fully support Neil Kinnock's reform programme which will modernise the administration of the Commission. We are also working to reform the institutions and administration of Europe, most recently through the establishment of the new European Anti-Fraud Office, as proposed by the Chancellor of the Exchequer, with independent powers to seek out and investigate fraud against the EU budget resources system.
The Berlin conclusions are an important step in the ongoing process of reform in Europe. They shop that by taking a leading role in reform, and by working together with other member states, we can achieve outcomes which are good for the United Kingdom and good for the European Union. This Bill, ratifying the 417 deal agreed at Berlin, will mean stronger controls on EU spending, the beginnings of a more effective agricultural policy, and no increase in the own resources ceiling. The agreement is good for the United Kingdom, and it is an important step for the European Union. I commend the Bill to the House.
Moved, That the Bill be now read a second time. —(Lord McIntosh of Haringey.)
§ 6.9 p.m.
§ Lord Newby
My Lords, this is a modest Bill, dealing with a modest set of decisions taken at the Berlin summit.
As regards the narrow question of the composition of own resources, we welcome a move to an increasingly GNP-based system. Moving away from VAT and customs payments introduces a fairer system, one that is more transparent and less susceptible to fraud.
One of the most striking aspects of the EU budget is the modesty of its size and scope compared to that of the nation states that make up the European Union. We are talking about a budget which has a ceiling of 1.27 per cent of GDP, compared to public expenditure within the UK which is within a percentage or two of 40 per cent of GDP. So, in the context of overall government expenditure, we are talking about a relatively modest amount.
I refer to the other matter which I consider striking with regard to the nature of the EU budget. Despite the fact that it relates to a market which is subject to cyclical variations and however much the market may collapse and recessions occur when we might wish to spend more on structural funds, for example, we have in effect a cash limit set for five years ahead. So, what we are dealing with here—perhaps I say this in part to reassure the noble Lord, Lord Saatchi, who gets a little worried about the powers of the EU—is a modest budget and one which operates in a very different way to that of a nation state and a budget which, for all the Government's trumpeting of the changes at Berlin, is susceptible to staying as it was. As regards the expenditure side, over the period 2000–06 there is virtually no change at all either in the levels of expenditure for the EU or, indeed, in how that expenditure is divided up.
Much has been made of reforms to the CAP and they are welcome but they are exceptionally modest. To hear the Minister speak, one would think that the CAP expenditure was going to suffer a major fall. In fact, whereas in 2001 CAP expenditure accounted for 45.5 per cent of the overall budget, even after the reforms, in 2006 it will account for 45.8 per cent. Therefore, there may have been some changes and we may find that some goods are now slightly cheaper but overall the place of the CAP within the EU budget has not been substantially affected by the Berlin decisions.
We on these Benches believe that much more radical reforms are needed. In saying that I accept that it is difficult in terms of practical politics to make reforms at all. The noble Lord, Lord Barnett, has already 418 referred to the question of enlargement and how the EU budget will cope with that and the whole question of the CAP. It is not just in the context of enlargement that we need to look carefully at the composition of the CAP and the whole question of production and export subsidies, but we must also look extremely carefully at the implications of the operation of the CAP on the discussions in Doha.
If there is one single area where the developing world feels that it is being short-changed by the EU it is in terms of its failure to compete when exporting to the EU due to the CAP. The developing world's domestic agricultural sectors often suffer through the operation of CAP export subsidies. That situation clearly requires much further change and before enlargement can take place that change will have to be implemented. At the moment the UK Government's attitude towards that further change is unclear.
In terms of the broad span of Community activity, another criticism that we on these Benches have is that there is a tendency for the EU to adopt a proliferation of initiatives under which a small pot of money is allocated to a big issue, huge amounts of paper are created but we simply do not see any substantial follow through. On a whole raft of issues there is a question mark over whether the principle of subsidiarity is in operation and whether the EU is not attempting to do too much not very well rather than a relatively limited range of things extremely well.
That brings me to the question of fraud and mismanagement which the Minister raised. We were, of course, extremely pleased that Neil Kinnock had a reform agenda. We had hoped that that would lead to substantial and relatively speedy change. I think it is fair to say that we, along with him and his team, feel disappointed at the pace of change. The recent report of the Court of Auditors which showed fraud and mismanagement amounting to £2.5 billion—some 5 per cent of the EU budget—is another episode in a catalogue of examples of mismanagement at EU level. As noble Lords are well aware, what we are seeing is expenditure being either fraudulently applied or mismanaged across a raft of areas, certainly across the structural funds, the aid budget and the CAP. It was extremely instructive to hear the comments last week of John Wiggins, the British representative to the Court of Auditors. He pointed out that the problem is not on the whole that of individuals putting European money wrongly in their pockets but of national and regional administrations helping themselves to European money when they are not entitled to it.
Therefore, the onus is very much on the Government and on governments of the EU at national and regional level to look to themselves to put right what is one of the major criticisms—and correctly so—of the way the EU is currently run. There is a whole raft of audit controls currently in the process of being implemented but we are told that they will not produce results until 2003. One can only hope that we do not see another £2.5 billion worth of fraud next year and in 2003.
419 This is a modest measure. We in this House have no option but to approve it, but we shall certainly look for much more fundamental reform when we discuss its successor in a few years' time.
§ 6.16 p.m.
§ Lord Saatchi
My Lords, looking at the list of speakers for the Second Reading debate I wonder whether we have achieved a record low for the number of speakers during the passage of a Bill through your Lordships' House. That may be due to the quality of the three Front Bench spokesmen. However, I prefer to think that it may be due to the fact that the Government, while explaining that they want a more democratic House of Lords, have shown in their proposals for reform of your Lordships' House that they plan not to increase the powers of a more democratic House but, certainly in the area to which the Bill refers—finance—to reduce them.
In accepting a total absence of scrutiny of the Bill in your Lordships' House the Government hide behind a power granted to them by a statute nearly 100 years old; namely, the Parliament Act 1911. Is it not time, while your Lordships' House examines the future of the House, that we consider demonetising money Bills, so allowing the expertise on all sides of your Lordships' House to be brought to bear on the scrutiny of the nation's finances, as it is on all other aspects of our public life?
Turning to the Bill, we on these Benches welcome European enlargement, and the Berlin agreement is, to our mind, in itself not unreasonable. Nevertheless it is important to remember that what the noble Lord, Lord Newby, describes as a modest little Bill —which deals only with 1 per cent of GDP, as opposed to 40 per cent of GDP on public spending and so on—will effectively give our approval to all of last September's EU Council decisions, including those important proposals contained in Clause 16 of the EU document. At some point this evening I should be grateful for an explanation of the Minister's understanding of what Clause 16 is all about. My understanding is that it does not empower the levying of new European taxes but it seems to invite proposals to do so and to review the British abatement. Does he agree that the existence of the clause puts down a marker for things to come? I shall return to that in a moment.
This Bill, although short, has some rather obscure possible meanings. For example, taking the simple question of who pays whom, the Minister said that the UK contribution will not increase. I believe he said that we would keep our abatement and that our net contribution would not change, all of which may be true. However, in our debate last week on the Barnett formula, he and most noble Lords agreed that the key issue on that funding was not the level of increase but the absolute level—it was called the baseline—to which amounts are added or subtracted. Perhaps I may refer the noble Lord to that area for a moment.
When we talk about the amount that this country contributes to or receives from the European Union it seems extraordinarily difficult to arrive at an agreed 420 figure. Estimates vary greatly. It is important to distinguish between the gross contribution and the net contribution that the United Kingdom makes to the European Union budget. One calculation shows that this country sends £1.2 million every hour to the European Union. From that the Minister, being the statistician that he is, will quickly deduce that the sum sent each day is £29 million and that, therefore, more than £200 million per week goes from the United Kingdom taxpayer to the European Union.
I stress the words "from the United Kingdom taxpayer to the European Union" because the Government do not have any money of their own. We are talking about British taxpayers and their net contribution appears to be more than £3 billion a year. Will the Minister confirm that figure?
Another example concerns the use of GNP figures in the document. About which GNP figures are we talking? Are we talking about the official figures or, as in compliance with the Maastricht Treaty, GNP figures in which an allowance is made for the size of the black economies, which differ greatly among member states? The figures used make a material difference to the calculations.
How does the Minister respond to the comparison of the absolute level of the United Kingdom and France? France's gross contribution has been £9.2 billion versus our contribution of £7.3 billion. But refunds to France amount to £8.5 billion versus £3.8 billion to us. The net effect is that France pays £750 million compared with the United Kingdom's £3.2 billion. Why is that when the French economy is broadly comparable in size to that of Britain? Will the Minister justify the difference for us?
Up until this point I have at least been talking about gross or net contributions which governments might or might not agree to make in their own national parliaments. However, is the Minister aware that the Belgian Prime Minister recently outlined a route for bypassing altogether the problems of national parliaments? He recently called for a direct European Union tax to pay for the European Union. He thinks that this tax should be levied directly on all European Union citizens. He is backed by the Belgian Finance Minister and by the German Finance Minister who argued for a European Union-wide tax on 14th June this year. Is it good enough for the Chief Secretary to the Treasury in another place to say that,any change to the tax regime in Europe is a matter for unanimity … we do not accept the need to introduce new taxes".—[Official Report, Commons, 3/7/01; col 143.]?If that is so, will the Minister tell us why the Government agreed to the insertion into the Council decision announced in September 2000 of words that certainly do open up at least the prospect of autonomous revenue-raising powers for the European Union? I refer to the Commission communication entitled Tax Policy in the European Union—Priorities in the Year Ahead. It stated that,while it remains the Commission's view that a move to qualified majority voting at least for certain tax issues is indispensable, the legal basis will, for the present, remain unanimity".421 I should be grateful if noble Lords would note the words "for the present". The communication continues:Given the difficulties in reaching unanimous decisions on legislative proposals, which will be compounded by enlargement, the community should also consider the use of alternative instruments".What are those ominous-sounding alternative instruments? Perhaps I may draw your Lordships' attention to what the European Commission spokesman said on 31st July of this year. European Union Commissioner Schreyer was asked about any autonomous European Union resources that might be planned. She said:An objective could be to replace the existing financing system of the European Union's budget"—that is a system in which our Parliament has a say, as it has today—with one or more European taxes".That would be a system in which we in this Parliament would have no say.
Perhaps we can now see why there have been so few speakers today. Not only are we impotently debating a Bill which, as the noble Lord, Lord Newby, said, we cannot amend and have no alternative but to approve, it is also a Bill which will become law tomorrow after about 30 seconds of Committee, Report and Third Reading stages. If the ideas that I have described come true, the whole of the UK Parliament will be in the same position as your Lordships' House is today— bypassed on money matters by directly levied EU taxes.
There is a widespread and understandable anxiety on the part of many people that we are heading for new direct revenue-raising powers for the European Union. If those new powers flow from the passage of this unscrutinised Bill, it will be, I am sure the Minister will agree, to the great discredit of the Government. The Minister will shortly reassure us that the fears I describe are groundless and that none of this will happen. Many of us fear that it will. I believe that the concerns are genuine. They are frequently expressed. I hope that the Minister will heed them.
§ 6.26 p.m.
§ Lord McIntosh of Haringey
My Lords, I am grateful to both noble Lords for the care they have taken in responding to the Bill. I cannot agree with the noble Lord, Lord Newby, that it is a modest Bill. It is a Bill which sets out the basis on which contributions not only from this country but also the 14 other member states will apply to the European Union budgets for the next six years. The noble Lord is right to say that 1.27 per cent of GNP is a small figure in comparison with national budgets. Of course that is the case. It demonstrates, as I am sure he will agree, how far we are from the scare talk of a federal Europe which is the characteristic of the Benches immediately opposite—and of only some of those noble Lords, I suspect.
422 The noble Lord referred to the common agricultural policy and seemed to suggest that I was saying that somehow expenditure on the common agricultural policy was going to suffer a major fall. That is not what I was suggesting. I was suggesting that although there will be a fall, the major change is the transfer from production subsidies to expenditure on agri-environment and rural development. We would all like to go further. I agree with him on that. I think that all three parties would agree on that. But what has been achieved is significant and worthwhile. I join with his party in saying that we would want more radical reforms.
On enlargement, I am sorry that the noble Lord, Lord Barnett, has not stayed for an answer although perhaps he was so satisfied with the immediate answer I gave him that he did not feel it necessary to listen to the rest of the debate. When we consider the proposals for enlargement very strict caps on pre-enlargement expenditure are provided for in the Berlin settlement.
The noble Lord, Lord Newby, referred to export subsidies. There is indeed provision for export subsidies. But there is no provision for direct aid to farmers in the accession countries to compensate them for any decrease in prices. I think that he would agree that that is a well worthwhile distinction.
The noble Lord referred to fraud. None of us will be happy about fraud. I am not sure to which report of the Court of Auditors he referred. A Court of Auditors report is being presented tomorrow. I understand that it has been on the website of the Court of Auditors for the past half an hour. That means that I have not had a chance to see it. I do not suppose anyone else has had a chance to do so.
§ Lord McIntosh of Haringey
My Lords, there have been various leaks, but it is not at all clear, other than what the UK member of the Court of Auditors said, what reliance can be placed on them. I shall not pretend to any noble Lord that the Court of Auditors is satisfied with progress in reducing fraud. It is likely that the Court of Auditors will say that it will make the same qualifications to the accounts that it has made in the past. However, I am sure that it will make the point that was made by the noble Lord, Lord Newby, that a large part of the shortfall is not fraud, as such, but error and mismanagement and particularly over-claiming by national and regional governments.
The noble Lord, Lord Saatchi, who is fascinated by an earlier settlement of 1911, adheres to his view that we should overturn the 1911 Parliament Act and that this House should retain responsibilities for financial matters equal to that of the House of Commons. Otherwise, I cannot imagine why he is so worried about the lack of scrutiny in this House of a Bill that has been subjected to substantial scrutiny—a long Second Reading debate, lengthy Committee proceedings and subsequent proceedings—in the House of Commons. That is as it should be. He accuses the Government of accepting the lack of scrutiny 423 today as shown by the fact that there are fewer speakers. I would like to have seen more speakers, but I suspect that the lack of speakers reflects not the lack of interest by Members of the House of Lords in financial matters, but their acceptance and approval of the Parliament Act 1911. Long may that continue.
I welcome the support that was expressed for enlargement. In my response I set out the extent to which the Berlin agreement, and therefore this Bill, provide caps on the preparation for enlargement between now and 2006. I shall not add to what was said about fraud, because I do not believe that that added to what the noble Lord, Lord Newby, said.
At first I was puzzled by the reference of the noble Lord, Lord Saatchi, to Clause 16 until I worked out that I believe he means Recital 16, which is referred to in Article 9 of the own resources decision. That article simply replaces Article 10 of the 1994 own resources decision and is no different from the article that it replaces. It allows the European Commission to undertake a review of its own resources system and to put forward proposals for modifying that system as necessary. That has been the case for the past six years and no change is proposed in the new own resources decision. As the Chief Secretary to the Treasury said, it remains the case that proposals for modification put forward by the Commission would have to be considered and unanimously agreed by all member states. There is no qualification and he was right.
The noble Lord, Lord Saatchi, went on to talk about UK contributions and the distinction between net and gross contributions. I do not accept that gross contributions are not a worthwhile consideration because the benefit that this country receives from its membership of the European Union is not confined to its receipts from the European Union. It includes our membership of a single market of 375 million people. That is estimated to have increased output across Europe by 1.5 per cent and that alone would more than pay for our net contribution before any of the other benefits are taken into account.
I remind the noble Lord, as I said earlier, that last year UK exports to the single market were worth £97 billion; that trade with the rest of the UK supports up to 3.5 million British jobs; and the single market brings inward investment into the United Kingdom that created 50,000 jobs last year in the UK alone.
The noble Lord also asked me to make a distinction between the gross contribution and the net contribution, which I am happy to do. I cannot weed out a column of figures, except to say that taking the years between 1995–96 and 2003–04, at current prices, in the first year the figure was just under £4 billion; in the second year, 1996–97, just over £2 billion; in 1997–98, £2.5 billion; in 1998–99, £4 billion; in 1999–2000, £3.3 billion; and in 2000–01, £4.3 billion. In addition, we forecast for 2001–02, £3.4 billion; for 2002–03, £3.5 billion; and for 2003–04, £3.8 billion. Of course, more figures will be produced at the time of the pre-Budget report.
The point is that there were substantial increases in European Union expenditure that continued under the Conservative government. They have now been kept 424 under control, and, together with the continuation of the abatement, for which the noble Baroness. Lady Thatcher, deserves substantial credit, that should dominate the debate.
The next point raised by the noble Lord, Lord Saatchi, concerned the euro tax. He still appears to believe that because the Belgian Prime Minister and some German politicians want a euro tax, that somehow it is coming closer and closer. Nowhere in the decision that is the subject of this Bill does that appear. Decisions on EU taxation of savings, for example, at the Feira European Council, marked a turning point. The UK did what we have always wanted to do which is to embrace co-operation rather than harmonisation in tax matters. At ECOFIN on 10th July Ministers put forward the idea of a euro tax, but it was not just our Chancellor, but also other finance Ministers who rejected it. As the Chief Secretary said on 3rd July in the debate on this Bill,We do not support such a tax and such matters should be decided by national Parliaments, accountable to national populations for the tax decisions that they make".—[Official Report, Commons, 3/7/01: col. 167.]Putting a gloss on it, but without disagreeing with it, fundamentally that means the elected House.
I am grateful to noble Lords for the seriousness with which they have treated this matter. Although it is not controversial, that does not mean that it is modest. I believe that this is an important step forward in our relationships with Europe and I commend the Bill to the House.
§ On Question, Bill read a second time; Committee negatived.