House of Commons Hansard Debates for 27 Feb 1989

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Short Brothers

3.31 pm

Mr. Kevin McNamara (Kingston upon Hull, North) [by private notice] : To ask the Secretary of State for Northern Ireland whether he wilmake a statement on the future financial reconstruction of Short Brothers plc Belfast.

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Peter Viggers) : The Government recognise the need to restructure the balance sheet of Short Brothers plc in advance of sale to provide a framework for the successful transition of the company into the private sector. In preparation for this, and in order to effect a reduction in the Government's liabilities, we propose to replace the company's indebtedness to commercial banks by convertible loans from the Government at national loans fund rates, with the intention of conversion into equity for disposal on sale of the company. An additional provision of £390 million has therefore been included in the 1988-89 Northern Ireland spring supplementary estimates ; these are covered by the Draft Appropriation (Northern Ireland) Order 1989, which will be laid shortly. To facilitate this, an increase will be necessary in the Northern Ireland Office grant-in -aid to the Northern Ireland Consolidated Fund, which will be provided for by a Northern Ireland Office late spring supplementary estimate. The issue of the loan to the company will be subject to the approval of the European Commission.

Mr. McNamara : I am obliged to the Minister for his statement. I only regret that it arose by way of a private notice question and was not volunteered by him as a statement to the House, as the issue had been trailed extensively in the press over the weekend. Indeed, it was the subject of a hostile leader in The Daily Telegraph this morning.

It is a matter that affects not only Shorts in Northern Ireland but a great number of subcontractors in this country. The future of Shorts has a sad history, which caused the Trade and Industry Select Committee to say that it

"has not developed as part of a carefully planned strategy but in too precipitate a manner."

Whilst we welcome the support that has been given to Shorts on this occasion, we regret very much that the Government were able to find adequate sums only when they intended to privatise the company, and not over the years when adequate capital could have prevented many of the problems with which Shorts has been confronted. The company now finds itself in exactly the same position as Rover was in when it was being sold off to British Aerospace.

There are a number of key questions that still have to be answered. The Minister has announced his arrangement. Presumably--will he confirm this-- this money will come from the contingency fund. Secondly, can he state that the original tranche of £390 million as a supplementary estimate is only part of what is to be an overall package, and that further moneys will be available for whatever company decides, or is chosen, to purchase Shorts? The Select Committee estimated that between £700 million and £850 million would be needed to meet the accumulated deficit, future liabilities, working capital and launching aid for the FJX. The Minister has said nothing

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whatsoever about that launching aid, nor, indeed, has he announced who is to be on the shortlist of prospective purchasers of the company. Is he in a position to make that announcement now, as he has gone some way towards reconstructing the financial position of the company?

Yesterday, it was reported that GEC and Fokker would make a joint bid--GEC for the missiles division and Fokker for the aircraft and airframes division--but that if they were succesful, they would not be keen to pursue the FJX jet because of Fokker's interest in the Fokker F50. Will the Minister confirm that any joint venture bid will be committed to continuing the FJX and that launching capital for the project will be available from the Government? That is fundamental and of the utmost importance to the future of aircraft building in Northern Ireland.

Finally, will the Minister confirm that whoever purchases Short Bros, its headquarters and research and development will be kept in Northern Ireland, and that the proud name of Short will be retained? Instead of being dragged here to make statements on these important matters, will he give an undertaking that he will carefully inform Members from Northern Ireland who are interested in these matters and ensure that statements are made in the House, without his having to be pursued by means of a private notice question? Great sums of public money are at stake and all taxpayers have an interest. In particular, will the Minister give an undertaking that, when the time comes to make his decision on Harland, it will not be announced surreptitiously by a planted question, but in the open on the Floor of the House?

Mr. Viggers : The hon. Gentleman approached this question in his usual manner. We had intended to make the announcement this afternoon by a written question and answer and that would have been entirely appropriate because this is an interim measure as part of the privatisation process. The final amount of any reconstruction will depend on the outcome of negotiations with the prospective purchasers.

The hon. Gentleman said that the measure was precipitate. He must have forgotten that it was on 6 December 1984 when the Government expressed their intention to privatise Shorts. I announced in the House on 21 July 1988 that it was our intention to proceed on the current basis, and our policy has been consistent since then. The hon. Gentleman referred to the company's capital shortfall. That is the result of losses on the profit and loss account. He asked for details of the £390 million. These will be in the spring supplementary estimates. He then asked about lauch aid and prospective purchasers. It would not be helpful to Shorts, Northern Ireland or the United Kingdom as a whole for me to go into detail on our discussions with prospective purchasers. The negotiations are commercially confidential and that must be respected. The preferred option is to sell the company as a single entity. On that basis, proposals have been invited from private sector interests.

Mr. Robin Maxwell-Hyslop (Tiverton) : Will my hon Friend tell me whether statements about launch aid for the FJX will be made by Ministers from the Northern Ireland Office or from the Department of Trade and Industry? Clearly, if it were a United Kingdom firm, statements would come from the Department of Trade and Industry. It is important to know that, not least in relation to who

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will respond to questions when the time is ripe on that matter, bearing in mind the recommendations of the Select Committee, of which I am a member. Which Minister will respond to those recommendations of the Select Committee on Trade and Industry--Ministers from the Northern Ireland Office or the Department of Trade and Industry?

Mr. Viggers : The handling of Shorts is generally a matter for the Northern Ireland Office, but the Department of Trade and Industry has 9.5 per cent. of the shares of Shorts and we consult with it closely. Launch aid for the FJX is tied up completely with our negotiations with prospective purchasers. It would be unthinkable for the Government to proceed with the FJX without knowing the clear intentions of the prospective acquirer.

Mr. Malcolm Bruce (Gordon) : Does the Minister accept that the privatisation of Shorts is regarded as a delicate matter in this House and the Province, and that there is great anxiety that the Government are not giving a forthright, clear exposition of the privatisation? Will he give a clear and absolute assurance that the Government are determined to sell the company as a single entity? Will he make it clear that in those circumstances the Government recognise their obligation to provide the kind of launch aid that the FJX requires to ensure that the company can continue as a single entity? Will he undertake to give the House the assurance that any privatisation will prevent the possibility of subsequent asset- stripping, which is feared in Northern Ireland?

Mr. Viggers : I have said many times that our preferred option is to sell the company as a single entity. I have made it clear that the information memorandum was issued on that specific basis. Launch aid would be something for which the prospective acquirer would be eligible to apply to the Government. Of course, it would be the purpose of Government in Northern Ireland to ensure that the jobs and the skills are kept in Northern Ireland. It is for that reason that we are negotiating with full recognition of the sensitivity of the situation.

Mr. Cranley Onslow (Woking) : How long does my hon. Friend expect that he will need to bring his negotiations to a conclusion?

Mr. Viggers : The privatisation of Shorts is causing concern to those who work for the company. While its board welcomes privatisation--as I believe do many of its workers--nevertheless uncertainty is always bad for any company. We recognise the need for urgency and we shall bring the discussions to a conclusion as quickly as we can.

Mr. Doug Hoyle (Warrington, North) : While I appreciate what the Minister is saying about selling Shorts as an entity, does he agree that the press speculation about GEC and Fokker--that GEC is interested just in missiles and Fokker would not be interested in the FJX--leads to a lot of anxiety and anguish among people in Northern Ireland, especially those who are employed by Shorts?

Will the Minister say categorically that any decision to sell Shorts will involve it being sold to a company that is determined to take up the FJX project, which is essential to the success of Shorts?

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Mr. Viggers : I am not responsible for press speculation, much of which is wide of the mark. It is the Government's clear and express intention that Shorts should be moved to the private sector. It has many high-quality skills and excellent products. We believe that the right place for Shorts is within the commercial disciplines of the private sector and we are confident that it will have a good future.

Mr. Gerald Howarth (Cannock and Burntwood) : I warmly welcome this long overdue reconstruction of the company's accounts, and my hon. Friend's undertaking to expedite as quickly as possible the sale of the company and to relieve the uncertainty. Will my hon. Friend tell the House that the company has a healthy order book and that it is not a company devoid of good products to sell in the market place?

Mr. Viggers : I know that my hon. Friend follows this matter closely. He will be aware that the company has an order book approaching £1,000 million for a number of outstanding projects, including the Tucano, the SD360, the Starstreak missile and, of course, the important aerostructures business for Boeing and Fokker.

Mr. D. N. Campbell-Savours (Workington) : Will the Minister be careful about handing over a company such as Shorts to Lord Weinstock and his colleagues at GEC, who frighten those of us who are interested in protecting the taxpayer and in procurement on defence contracts? Is he aware that when we were examining in the Public Accounts Committee the question of irregularities in procurement and all sorts of overcharging by defence contractors it seemed that invariably GEC was there in the front line? Is it right that Lord Weinstock should be allowed to increase his monopoly when that is clearly against the national interest?

Mr. Viggers : I simply say that I believe that the hon. Gentleman's remarks are a slur on a fine British company.

Mr. Barry Field (Isle of Wight) : My hon. Friend has kindly told us the coupon of the commercial loan stock, but I do not believe that he has told us the terms. Can my hon. Friend inform the House of those terms? My hon. Friend may be aware that Westland Aerospace in east Cowes has been one of the main competitors of Short Brothers in obtaining Boeing composite wing contracts? Can he assure the House, and especially myself, that British taxpayers' money will not be used to subsidise future contracts and to take them--perhaps, to West Germany--in unfair competition with a company that has obtained those contracts through sheer guts and determination, excellent teamwork between management and the work force and without taxpayers' subsidy, despite the fact that unemployment in my constituency is above the national average, rather like Northern Ireland?

Mr. Viggers : As I mentioned in my original response to the private notice question, the loans will be from the Government at national loans fund rates and they will be convertible into the shares of the company at the time of the sale. My hon. Friend makes a fair point on behalf of his constituency company. I shall simply say that the objective is that Shorts should operate in a completely commercial environment.

Mr. Harry Barnes (Derbyshire, North-East) : Are not private enterprise solutions for Northern Ireland, of all places, terribly inappropriate? A. J. P. Taylor, the

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historian, talked about war Socialism as something that operated during the two world wars. There is great conflict in Northern Ireland and surely something that represented the collectivist solution would be the appropriate means of trying to handle the problems of the Province.

Mr. Viggers : Absolutely not. I am delighted that, in the past two years, unemployment has gone down from a headline total of 131,000 to a headline total of 111,000. That drop is not due to the public sector, but principally to the private sector, which has been investing in industry in Northern Ireland. I reject the hon. Gentleman's idea that a collectivist answer would be the right one for Northern Ireland. Although Shorts, which we are currently discussing, has maintained a roughly stable work force, the work force of Harland and Wolff has declined from more than 9,000 to about 3,000 during the time that it has been in public ownership. Such ownership is, therefore, absolutely no guarantee of employment.

Mr. Nicholas Baker (Dorset, North) : Will my hon. Friend confirm once again that the people of Northern Ireland who work at Shorts stand to benefit from, and respond to, a measure of privatisation of the kind proposed just as much as any other people in the rest of the United Kingdom?

Mr. Viggers : My hon. Friend is absolutely right. I believe that 655,000 people work in about 17 enterprises that have been moved from the public sector to the private sector. If one were to ask most of those people now whether they wished to move back into the public sector, with all the problems involved, they would reject that suggestion out of hand.

Mr. Julian Brazier (Canterbury) : In welcoming this commitment to the future of Short Brothers, evidenced by the money made available to it, and to be carried out by the excellent principle of trying to get it into the private sector, may I ask my hon. Friend whether he has taken full account of the position of GEC as one of the potential bidders? That company is already a supplier of electronic components to Shorts and to its competitor, British Aerospace. Has my hon. Friend taken account of the fact that GEC is not only a prime contractor to the naval sector through its ownership of Yarrow Shipbuilders, but is the largest supplier of electronic equipment and is trying to buy the second largest supplier of electronic equipment? Since GEC can be regarded in this context as the referee and one of the players it is rather difficult to see how we can avoid allowing GEC to do rather well out of a monopoly position.

Mr. Viggers : Although individual companies may be prepared to identify themselves as interested in Shorts, it would be wrong for me to be tempted by my hon. Friend to comment upon any individual company. I do not propose to do so.

Mr. Ian Gow (Eastbourne) : Is my hon. Friend aware that the rebuke from the Opposition Front Bench

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spokesman about his answer this afternoon is wholly unmerited? Is not the story of Short Brothers as a company in the public sector a deeply unhappy one? Since more than four years have elapsed since the Government announced their intention to privatise the company, will my hon. Friend understand that on the Conservative Benches, and apparently even in some quarters of the Opposition Benches, the view is that the sooner the company is privatised the better?

Mr. Viggers : I am grateful to my hon. Friend and I am absolutely certain that Shorts has an outstanding future in the private sector.

SCOTTISH GRAND COMMITTEE

Mr. Speaker : With the leave of the House, I shall put together the two motions relating to the Scottish Grand Committee.

Ordered,

That the matter of the National Health Service in Scotland, being a matter relating exclusively to Scotland, be referred to the Scottish Grand Committee for its consideration.

Ordered,

That the matter of Scottish Enterprise, being a matter relating, exclusively to Scotland, be referred to the Scottish Grand Committee for its consideration.-- [Mr. Heathcoat-Amory.]

STATUTORY INSTRUMENTS, &c.

Mr. Speaker : With the leave of the House, I shall put together the seven motions relating to Statutory Instruments.

Ordered,

That the draft Unfair Dismissal (Increase of Limit of Basic and Special Awards) Order 1989 be referred to a Standing Committee on Statutory Instruments, &c.

Ordered,

That the draft Unfair Dismissal (Increase of Compensation Limit) Order 1989 be referred to a Standing Committee on Statutory Instruments, &c.

Ordered,

That the draft Employment Protection (Variation of Limits) Order 1989 be referred to a Standing Committee on Statutory Instruments, &c.

Ordered,

That the draft Drug Trafficking Offences Act 1986 (United States of America) Order 1989 be referred to a Standing Committee on Statutory Instruments, &c.

Ordered,

That the draft Redundancy Payments (Local Government) (Modification) (Amendment) Order 1989 be referred to a Standing Committee on Statutory Instruments, &c.

Ordered,

That the draft Pneumoconiosis etc. (Workers' Compensation) (Payment of Claims) (Amendment) Regulations 1989 be referred to a Standing Committee on Statutory Instruments, &c.

Ordered,

That the draft Social Security (Contributions) Amendment (No. 2) Regulations 1989 be referred to a Standing Committee on Statutory Instruments, &c.-- [Mr. Heathcoat-Amory.]

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Agriculture

[Relevant European Community Documents : Nos. 10140/87 and 10419/88 on use of milk co-responsibility levy funds, 8502/88 on management and control of public storage of agricultural products, 8951/88 on the pigmeat market, 9658/88 on co-responsibility levy on cereals, 9275/88 on aid for conversion of agricultural production and 10416/88 on extensification of agriculture.]

3.48 pm

Dr. David Clark (South Shields) : On a point of order, Mr. Speaker. May I seek your guidance? You will recall that during last Tuesday's debate there was much reference to an important report by Professor Southwood on bovine spongiform encephalopathy. In the course of that debate, the Minister acknowledged the importance of the report and promised that it would be published. Within the past half hour he has kindly sent me a copy. It has come to our attention however, that instead of coming to the House with a statement and allowing hon. Members to cross-examine him, the Minister has called a press conference for later this afternoon outside this House. As the report is extremely serious and links animal health with risks to human health, and as there were two parliamentary questions on the Order Paper for answer on Thursday in the names of the hon. Members for Bromsgrove (Sir H. Miller) and for Torridge and Devon, West (Miss Nicholson), can you advise us as to how we can get the Minister to treat the House with the courtesy that it deserves, by answering to the House rather than to the press?

Mr. Speaker : I hope that that might arise in the debate that we are about to have. Whether Ministers make statements is not a matter for me.

3.50 pm

The Minister of Agriculture, Fisheries and Food (Mr. John MacGregor) : I beg to move

That this House takes note of European Community Documents COM(89)40 on the 1989 Common Agricultural Policy price fixing proposals, Nos. 4536/89 on agricultural markets in 1988, 8960/88 on the sheepmeat regime, 10083/88 and COR 1 on imports of sheepmeat from New Zealand, and 9629/88 on cereals incorporation in animal feed and of the Government's intention to negotiate an outcome on all these measures which takes account of the interests of United Kingdom producers and consumers and of the need to keep Common Agricultural Policy expenditure for 1989 within the Budget figure and for future years within the budgetary guideline.

The House has an opportunity for a wide-ranging debate on agriculture. There is much ground for me to cover in commenting on all the issues set down on the Order Paper. There are a formidable number of issues, but I promise to be as brief as I can and I hope to cover most of them. Without preamble, I will deal first with the central element of the debate--the Commission's proposals for agricultural prices in 1989-90 and related measures.

I should like to deal at the outset with a ludicrous and unwarranted charge by the Opposition which I would have regarded as too petty to mention had not the hon. Member for South Shields (Dr. Clark) tried to build it up over the weekend. That is the suggestion that the debate has been delayed. The truth is the exact opposite. We are holding it as early as possible so that the House can comment on the price package before we get down in earnest to the

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negotiations in the Agricultural Council. The debate is being held much earlier than last year, when it was held on 5 May. It is earlier than in recent years altogether. Before this year, the earliest occasion since 1984 was on 18 March. The debate could not possibly have been held earlier because last Monday I was at the Anglo-German summit in Frankfurt and, much more importantly, because the Select Committee on European Legislation needed to carry out its scrutiny first. I am grateful to the Committee for the work that it has done. I had an opportunity last week to give evidence to it. There is no substance in the Opposition charge.

With regard to the substance of the debate and the documents, I will begin with the price proposals for 1989-90. As the House is well aware, the negotiations on the Commission's price proposals are an annual event and in the past they have been protracted. Last year's settlement in July was painfully late. The Spanish presidency has set itself the commendable target of reaching a settlement in March or April. I am happy to work to that timetable and I hope that we shall be able to reach agreement in good time so that producers may make their decisions in the clear knowledge of the support framework that will obtain in the 1989-90 marketing years.

In making its proposals, the Commission emphasises that it has been guided by a number of principles. By and large, we find ourselves in agreement with most of the principles outlined in the documents. However, two of them are especially important. The first is the need to make production more market oriented. I firmly endorse that. The Council agreement of last February sent a clear message that agricultural production must become more attuned to the needs of the market place, and that support under the common agricultural policies should not be the major determinant in the operation of markets. The last price settlement reinforced that message.

There is still a way to go in reforming the CAP. I therefore agree with the Commission that these price negotiations should result in increased market orientation. This means, in particular, maintaining the restrictive price policy that the Community has followed in recent years, and continuing the process of making intervention less a market outlet and more a final safety net in the market. In those circumstances, it is logical that the Commission should generally propose a freeze in common prices.

At the same time, the Commission has rightly made it clear that it has no intention of adjusting the previously agreed stabilisers, which should be allowed to continue to work automatically when production exceeds the given levels. In all probability they will have the effect of reducing prices further for a number of commodities in 1989-90. There are two good reasons for that. First, while we have already made considerable progress in reducing the excess surpluses in most commodities, we cannot relax the pressures and allow them to grow again. Most people now recognise that the amount of taxpayers' money that we were spending on storage and disposal of surpluses was extremely wasteful of economic resources. Stabilisers are addressed precisely to that issue and must be allowed to work.

Secondly, one of the biggest threats to the CAP and hence to our farmers would be failure to achieve a successful outcome to the GATT Uruguay negotiations. In those negotiations to date, we have rightly claimed

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credit for reforms that we have already achieved. It would weaken our position at a crucial stage in the negotiations if we were seen to be going back on those reforms.

The House will be well aware that the new legal tests on budgetary discipline play an important part in the annual CAP price proposals. The cost of the package must be containable within the agricultural guideline. The Commission's latest estimate shows that in the 1989 guideline there will be headroom of the order of 2.1 billion ecu, or about £1.35 billion. Additionally, the Commission's proposals would save 28 mecu, or £18 million. In 1990, the guideline is provisionally estimated at about 30 billion ecu, or about £19.4 billion. No forecast of expenditure has been made, but the Commission has assured the Council that the cost of the package--94 mecu, or about £61 million--can be accommodated without difficulty.

Given those figures, some people have already started to argue that we can take the pressure off CAP reform, but the Commission--rightly, I believe-- has warned that the effects of the drought in North America have a considerable impact on the headroom in the guideline. It would be irresponsible to allow this temporary improvement to distract attention from the long-term need to work, within the Community and more generally in GATT, to reduce the over-production and excessive support worldwide to which I have already referred.

Moreover, the guideline is a ceiling not an entitlement. Eating it up now by a generous price settlement would only store up trouble for the future, making it much harder and more painful to control expenditure when markets are not so favourable. By the future I could even mean next year's price negotiations. It makes no sense to relax the brakes now, possibly adding new aids, as some member states would wish, only to have to take further much more restrictive measures next year, which could be more damaging to our farmers.

Another requirement of budget discipline is that if the outcome of negotiations shows Council willingness to adopt a more expensive package, Finance Ministers must be involved in the decision-taking process. It was not necessary to invoke this procedure in 1988 as the Commission took management decisions which fully offset extra costs. If any changes increasing costs are made to this year's package, I shall press for equivalent savings.

As I have said, the Commission draws attention in its proposals to the need to tackle the problem of CAP fraud. This is a major principle in the Commission document to which I shall refer. It is an issue that I have been raising regularly in Council meetings since becoming Minister and there is no question but that the United Kingdom has been raising the question of fraud in the CAP more than any other country. I am therefore pleased to see the prominence now being given to it. It is largely as a result of pressure by the United Kingdom Government that we now have first, an anti-fraud unit established in the Commission and, secondly, this new emphasis on the subject. What we now need is action, and in the initial comments that we all made on the package in the Council on 13 February I devoted a large part of my remarks to this subject and to a suggested action programme. I will list briefly some of the points.

In its document, the Commission suggests that there is a need to strengthen both the checks that member states make to prevent fraud, and the penalties applied when fraud is detected. We agree. I believe that we need clear

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operational rules and to agree uniform standards so that member states all understand what is required and apply the rules consistently. I shall promote and support appropriate and cost- effective changes in that area.

I welcome the role of the Court of Auditors in examining the value for money of Community policies and their administration. It has recently highlighted specific weaknesses both in present rules and in the way in which they are being applied.

The Scrutiny Committee draws the House's attention to the importance of the European Court of Auditors' report on intervention. I welcome the Commission's initiative in setting up a working party to study the recommendations of this report. There is a clear need to improve the controls over intervention stocks. I have asked for a discussion in the Council before the end of June, in the current presidency, so that we can consider the working party's report and, I hope, appropriate Commission proposals to tighten up Community rules in this important sector.

The Court of Auditors' findings on export refunds contained in the annual report on 1987 are also worrying. I support strongly the court's view that there should be a minimum level of physical checks on exports, and that such checks should take account of the value of the refunds to be paid and the areas of greatest risk so that there is concentration on the areas that will reap the greatest returns in terms of effort expended. We shall also follow up the court's ideas for Community rules on taking samples and on tightening the system of proofs of arrival. I have pressed the Commission and the Council to agree to the incorporation of the court's recommendations in a regulation which would require all member states to meet those standards.

I have emphasised the importance of following up those two reports by the Court of Auditors, but at present there is no guarantee that any action will be taken on special reports although annual reports are scrutinised in Brussels and by the House. In my view it is essential for the Council to agree a procedure for the future so that the necessary action can be taken on all the court's reports and I have pressed for that. It is also essential that in considering any future policies or major changes to regimes the susceptibility of any new proposals to fraud, or indeed mismanagement, should be much more carefully considered and given greater priority. I believe that this is a vital consideration in examining any changes. Unless we get the system right from the outset and limit the scope for fraud as much as possible, however good the system is thereafter we shall run the risk of further fraud. I am glad to say that we are now beginning to get that message through. I have dwelt on the fraud issue because I know that it is of great concern to the House and to the country generally, as indeed it is to me. Now that the Commission is considering the matter seriously, I am anxious that we should have a major drive in this area.

As is the normal practice, the price proposals themselves fall into three distinct parts. The first part sets out proposals for institutional prices for 1989-90. Secondly, there are proposals for related measures. Thirdly, there are proposals for agrimonetary changes. On prices, the Commission has generally proposed a freeze. However, reductions are proposed for sugar, indica rice and certain fruits and vegetables, some types of wine, field beans and certain types of seed. The Commission also proposes a further reduction in the price of durum wheat,

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and an increase in durum production aid. Increases are proposed in rates of aid for hemp and fibre flax and for certan types of wine. The proposed cuts are generally in line with the restrictive price policy essential if the process of CAP reform is to continue. We therefore support them, although the Government oppose the increases that I have just mentioned and believe that there is scope for some reductions in support where the market situation indicates that that would be appropriate--for example, in the fruit and vegetable sector.

Mr. Michael Shersby (Uxbridge) : Does my right hon. Friend agree that there is a risk of increasing budget expenditure if, for instance, continental farmers grow non-quota beets and compensation has to be paid to the African, Caribbean and Pacific ocean states? What is his attitude to that? Mr. MacGregor : I shall be dealing with sugar almost immediately. I shall then be able to respond to my hon. Friend's intervention.

First, however, I stress the point that I was about to make. When talking about changes in price policy and changes in support prices, it is often forgotten that we are talking about support prices, not prices in the market place.

The Commission has proposed a 5 per cent. cut in sugar support to prevent prices for sugar beet getting too far out of line with those for other arable crops. That is the way it has put it. I acknowledge the case that the Commission has made for a reduction in price, and we welcome any proposals that will carry forward the process of CAP reform. On the other hand, sugar is a complex part of the CAP. Any cut in price has major implications for domestic growers and processors, for ACP countries which export sugar to us under the Lome convention and for the sugar cane refining margin. There are also complicated public expenditure implications. We need to ensure that these problems do not outweigh the benefit of any price cut, and I shall certainly wish to address these issues in negotiations on the price package before we reach a final decision. As in all these matters, that includes listening to what the House has to say today on these matters.

I shall concentrate on just two of the Commission's proposals for related measures. The first is the reduction of the level of monthly increments and access to intervention, where appropriate, in the cereals, rice, oilseeds and proteins sectors. The House will recall that the Commission proposed reductions in the level of monthly increments in 1988. The final settlement included reductions in these increments, though smaller than the original proposals. This year the Commission has proposed a further 25 per cent. reduction in the level of the increments, as well as deferring the start of intervention by one month in 1989-90 and a further two months in 1990-91. For the cereal sector, this would delay the start of intervention until November for the forthcoming harvest and until January thereafter. These proposals on delays and intervention are generally welcome and would represent a significant step in reducing the role of intervention in determining the operation of the markets for these commodities. This should help to ensure the objective that we have set ourselves--that intervention should be used only as a last

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resort, as a final safety net, and not as an alternative market outlet. I am not convinced that the change in the intervention arrangement needs to be phased in over two years. I am doubtful, however, about the wisdom of reducing the level of the monthly increments for oilseeds and proteins, given the substantial price cuts for oilseeds in recent years and the comparatively severe nature of the stabiliser for oilseeds and proteins. Adoption of this proposal could lead to producers switching back into surplus cereals. The result could well be that the change would turn out to be more expensive for the Community budget. I think that the House would agree that that would not make sense.

The second of the related measures is the proposal to extend stabilisers in the fruit and vegetable sectors.

Mr. Ralph Howell (Norfolk, North) : I am concerned that my right hon. Friend is still suggesting that we should be cutting back on cereals. According to the Food and Agriculture Organisation, cereal stocks are at a dangerously low level. The FAO is calling for additional production of 200 million tonnes to bring stocks up to the safety level. It is calling for another 100 million tonnes to be produced to allow for the ever-increasing population that the world has to feed. The dumped market price of grain has just about doubled in the past year, yet we are still acting as though there were a huge surplus. I find that strange, and I think that we are on a most dangerous course.

Mr. MacGregor : If my hon. Friend turns out to be right about supply and demand in cereals, no one will be more pleased than I, but the threat that has been hanging over us in recent years and which has been the most difficult to deal with has been that of surpluses worldwide. Those surpluses have been driving down the world market price and increasing export refunds for the 30 million tonnes, approximately, that we have to export every year. This has been extremely expensive for the Community budget. In addition, there has been the risk of an international trade war in cereals, with no one benefiting at the end of the day. If my hon. Friend turns out to be right, I shall be delighted, but we cannot be sure that the position is as he describes it. The drought in north America last year has had a major impact on the present situation, but we cannot rely on continuous droughts and we know that a large proportion of the American land that was set aside is now coming back into production. We continue to have a substantial need to export cereals to Third world markets. Although world prices have risen, there is still a great difference between prices in the Community and prices coming out of intervention and the world price. We face an expensive arrangement in disposing of the surpluses through export refunds. There is still a problem of surpluses and the stabilisers are designed to correct it. There must be careful monitoring in the years ahead. I am quite sure that that aspect will feature in the GATT Uruguay round.

The second of the related measures extends stabilisers in the fruit and vegetable sector. The impact in the United Kingdom of any changes in this sector will be very small, but the sector is of great interest to us because it also needs the application of stabilisers and as a net contributor to the Community we are, as taxpayers, paying for the regimes. We therefore have a vested interest.

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