House of Commons Hansard Debates for 19 Apr 1993

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That justification can be found only if we believe in a federal state of Europe. If we believe in a nation of Europe, everything fits into place. If we do not, we should not vote for the treaty of Maastricht.

Earlier there was some banter on the Front Bench about Euro fanatics. My hon. Friend the Member for Southend, East came to the rescue when he said that they were not fanatics because they did not really believe in what is proposed. He may have something in that. Indeed, we are presented with the treaty on the basis that, to some extent, we have opted out of it. No one produces firm reasons why we should have the treaty. Instead, we are told that we have opted out of certain parts of it and that the Government have done their best to ensure that we do not experience the worst effects.

I agree with my hon. Friend the Member for Southend, East that the majority of those within the Conservative party and in our constituencies--this is certainly the position in the country generally--do not like the treaty. Some think that it is the best that can be done or the best that we can get. No one, with the exception of one or two of my hon. Friends, says that we want a federal state or a united states of Europe. At the same time, no one who argues against our case is able to show us how a single currency, with the legal system that will pile in behind it along with the money that is pouring in as a result of what has been shown to be an inexorable budgetary process, will not lead to a federal state of Europe. It is clear that there is schizophrenia.

My right hon. and hon. Friends who have been voting through all this stuff will not be able to say in future, "We did not understand what was going on." It was reported in The Times yesterday that some had stated that they realised with hindsight that they had got it wrong. The logic has been spelt out during the many days that we have considered the Bill in Committee. It has been presented to the Committee day after day and night after night. No one can misunderstand now the meaning of the treaty. My hon. Friend the Member for Southend, East has done the Committee a great service in showing logically just how inexorable the process of--

Sir Teddy Taylor : Will my hon. Friend say to the Minister and to all those in the Treasury that if there is any doubt about the activities of that terrible bank, the European Bank for Reconstruction and Development, they should turn to page 91 of the treaty to read about the new banks that will be set up under the Maastricht treaty, which will cost more in own resources? If my right hon. Friend the Minister reads article 7, he will find that he will not be allowed to write them a letter or to phone them if he is worried about their expenditure. If he is worried about the spending of money, perhaps my hon. Friend will tell him to turn to page 91 and to ask himself what he could do when faced with the scandals over spending that will come inevitably with the new European banks, which are part of the EEC.

Mr. Spicer : I thank my hon. Friend for that information and for having generally raised the issue earlier. I hope that we shall receive some good answers from our admirable and competent right hon. Friend the Paymaster General.

Sir John Cope : It might be helpful to the Committee if I begin by describing--it has not emerged so far--what article 201 does and the effect of the Maastricht treaty in

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replacing old article 201 with new article 201. The article relates to the system of setting the ceiling for the European Community's expenditure. It is in part a tidying-up change, and desirable as such. The Community should recognise how events have moved on since the previous treaties were agreed. It removes some out-of-date references to the old system of financing the Community by levies on member states.

Most important, it embeds in the treaty the basis of the hard-won 1985 agreement, that the Community should be financed solely by the so-called own resources. I accept the criticism of the phrase, but it has occurred in treaties for a very long time. In so doing, the new article 201 reinforces the 1985 agreement and the decisions that have been made under it, but it also repeats that the system of own resources and the ceiling to be applied shall be recommended first by the Commission and then by the Council of Ministers--the representatives of the member states--by unanimity, through the European Parliament to the member states themselves for their own constitutional processes. In our case, that means an Act of Parliament.

Any proposal to increase the ceiling on own resources requires an Act of Parliament. The Bill is not such a proposal. It does not arise from Maastricht, but the House in general will be aware that, since the treaty was agreed, there has been a meeting at Edinburgh at which it was agreed to propose increases in the future in the own resources ceiling. Such a proposal will need to come before the House as a Bill, and it will do so in due course, but it is not part of this Bill or the article or anything to do with the treaty.

I believe that such a method of controlling the ceiling of Community finances is the correct one. It was obtained by Baroness Thatcher in the negotiations that led to the 1985 decision. It was built on by her in 1988, and is now built in to the treaty by the clause. My hon. Friends who are critical of spending should at least recognise that that is in itself desirable, given the parameters within which we have to live. It is the right method to ensure accountability.

The system for setting the ceiling on European Community expenditure should be as it is : it should be a decision for member states in their own national Parliaments or through whatever constitung on own resources.

The article strengthens the financial discipline and control over the Community's financing. Those who want budgetary discipline should therefore support the article and the changes it makes to article 201. I do not pretend that it is doing anything other than reinforcing the controls that exist, but it makes them stronger, because they are now to be embedded in the treaty.

Hon. Members who have participated in the debate have not dealt with the effect of the article, but have made more general remarks about own resources and the financing of the Community. Of course, all expenditure must be treaty-based but, in addition, it must come through the European Community budget. The amendment deals with the raising of money. When we have discussed the spending of money, we have discussed the system for the budget, and do so frequently when changes to the Community's budget are proposed. The system is elaborate. It involves the House but is primarily a

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European set of procedures involving some of the institutions about which we have heard such as the budgetary control council, which a former member mentioned in an intervention. It is an important committee, roughly equivalent to the Public Accounts Committee. The third control element is the own resources, the 1.2 per cent., about which I have already spoken and which is a key to the overall control of Community spending.

7.45 pm

Mr. Spearing : Will the Paymaster General confirm the thesis that I suggested in my contribution, and which I shall spell out again? The EC budget is not to be compared with our Budget, which covers the raising of revenue but raised by agreements usually running for five years. In addition, they have estimates for spending. Is not the EC budget therefore the equivalent of our estimates and the Appropriation Act put together, and do they not do a different job? Does he agree that whoever authorises the budget automatically authorises the expenditure?

Sir John Cope : I can accept in general terms the hon. Gentleman's description. In a European Community context, the word "budget" is used primarily for expenditure. We use the word primarily to refer to the Chancellor's Budget statement, which is mainly about taxation and the raising of money. We are in the process of altering that. We shall have a unified budget in the next financial cycle and shall, in a sense, be putting the two halves together, which is the right thing to do. However, that is not directly related to the debate. In the European Community, the word "budget" is primarily about expenditure. That is the way it is usually used.

Mrs. Dunwoody : Is it not also true that a budget appropriation in no way inhibits the Community's introduction of supplementary budgets, which can wholly change the original examination of figures and which, except in retrospect, do not require a close examination even by the European Parliament?

Sir John Cope : Oh yes, they of course require examination. Supplementary budgets can be introduced, but, as hon. Members will be aware, so can supplementary appropriations. In any spending or budgetary system, one needs a method by which one can adjust expenditure in the course of a year if circumstances change. Many references have been made to fraud. They began with my hon. Friend the Member for Southend, East (Sir T. Taylor), who moved the amendment. In this debate, as in others, my hon. Friend's attitude has been that nothing can be done and that the apparatus and methods to control money and spending in the European Community cannot be improved ; the only thing we can do is to spend nothing through the European Community. If my hon. Friend will forgive the phrase, I call that the view of a fanatic of the way to control the EC budget : if it has no budget, there is no problem, and we do not need to control it.

It is a defeatist view. We should not give up the attempt to improve controls on the Community budget. I do not believe that they are as bad as they are sometimes painted, but improvements are desirable and necessary. A considerable amount has been done this year, and, over the past 12 months in which I have had responsibility for

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that aspect, I have obviously paid close attention to the matter, and am glad to report some improvements to the system.

Sir Roger Moate (Faversham) : My right hon. Friend used the words "fanatic" and "defeatist". I suggest that, on the contrary, my hon. Friend's amendment is essentially constructive, as was the manner in which he moved it. In future, the Community must look to a new way of financing its activities, particularly as it faces spectacular enlargement in the years ahead. Can my right hon. Friend name any other world institution that has own resources, yet somehow does not survive because it lacks own resources? Far from being destructive, my hon. Friend is simply suggesting a different way whereby the Community can be funded, directly by this Parliament, rather than have resources of its own.

That arrangement would provide the Treasury and the House with a real means of controlling Community expenditure, where we deem that appropriate, and of preventing fraud. I hope that my right hon. Friend the Paymaster General will, on reflection, withdraw the rather extreme adjectives that he used and will understand that behind my hon. Friend's amendment is a constructive and sensible approach to the Community's future financing.

Sir John Cope : I used an adjective that my hon. Friend the Member for Southend, East applied to me and to others who support the Maastricht treaty.

Sir Roger Moate : Quite right.

Sir John Cope : Every right hon. and hon. Member must decide that for himself--that is not for me to say. My hon. Friend the Member for Southend, East made kind references to me also, and was flattering, but he said that those who support the Maastricht treaty are taking a fanatical view and are fanatics--and they include me, because I support the treaty, with particular regard to its effect on Community finances.

From the intervention of my hon. Friend the Member for Faversham (Sir R. Moate), I may have misunderstood my hon. Friend's proposals for the Community budget. I understood that he wanted to take from the Community all own resources, and he suggested no other method by which it should be financed. I am not sure whether my hon. Friend had in mind--as I took it to be--that there should be no other method of financing the Community. That is why I assume that he wanted to take all resources from the Community, as a means of cutting back its activities severely.

I do not believe that it is necessary to take away all the Community's resources to control them properly. On the contrary, we have taken some important steps forward, including those in the treaty that make member states pursue fraud against the Community's budget with the same vigour as fraud against national budgets. The treaty also improves consideration of the Commission's annual report on fraud. It makes the Court of Auditors a Community institution and gives it the right to pursue its views, which have been insufficiently pursued in the past, in the courts.

Mr. Gill : What my right hon. Friend has just said is absolute nonsense. There is no evidence that the Court of

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Auditors report has brought any improvement. Ministers come to the Dispatch Box each year and say, "We will do this, that, and the next thing," but nothing happens.

I am sorry to take my right hon. Friend into the realm of practicalities, but for years Ministers have been telling us that beef intervention will be brought under control. We have 10 times more beef in intervention stores than we had four years ago, despite the fact that cattle prices in livestock markets are higher than ever before. One would have thought that would trigger the emptying of the stores, to present the public with a commodity at a keener price. It is nonsence for my right hon. Friend the Paymaster General to expect the Committee to believe this rubbish.

Sir John Cope : I was explaining that the Maastricht treaty increases the power of the Court of Auditors to follow up exactly the kind of issues that my hon. Friend cited and that the Court of Auditors mentioned in its reports of previous years. I support the argument that the Court of Auditors should be strengthened in that regard, and I strongly support the treaty because it will do that.

Mr. Cash : Is my right hon. Friend aware that, when Mr. George Carey, who was for a long time the chairman of the Court of Auditors, resigned, he wrote a letter which some of us have seen, and which I dare say my right hon. Friend the Minister has seen too. It is strongly at variance with my right hon. Friend's assessment of the value of the treaty's minimal provisions relating to control over expenditure and fraud. If Mr. Carey expresses such views, it is immensely difficult to understand why my right hon. Friend--who I believe is an accountant of some standing could possibly reach a different conclusion from Mr. Carey.

Sir John Cope : He was not the chairman, but a member of the Court of Auditors. From my hon. Friend's description, I believe that he must have seen a different letter from that which I saw. Nevertheless, I recall certain comments made by Mr. Carey at the time of his resignation, and have discussed them. My hon. Friend's description of the reasons for Mr. Carey's resignation does not conform with my recollection of his remarks. The Court of Auditors will be strengthened by the treaty, which will strengthen the fight against Community fraud.

My hon. Friend the Member for Southend, East referred to recent newspaper articles about carbon/energy tax and suggested that Community proposals might have something to do with a further resource for the Community. That is not so. It is not proposed to introduce any new own resources as a result of either the Maastricht treaty or Edinburgh agreements. In any case, the funding arrangements could be changed only by the Council acting or making recommendations by unanimity. Any such arrangements would need to be approved by the House.

Discussions are under way on a carbon/energy tax, but it is not suggested that that should be part of the Community's own resources, as those who have read the explanatory memorandum on that aspect will know.

Mr. Leighton : How does the Paymaster General justify the bizarre set of taxes that finance the own resources, wherby we pay literally billions and richer countries pay nothing at all?

Sir John Cope : I will return to that point later.

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I was explaining that the carbon/energy tax proposals have been described in an explanatory memorandum, and I do not want to add much to that.

Sir Teddy Taylor : Is it not true that the Edinburgh Council asked the Commission to produce a report for member states on a new fifth resource? I am astonished at the way that the Minister has replied to the debate. I have always had the highest regard for his objectivity. Surely the Edinburgh Council asked the Commission to do this job for it.

Sir John Cope : Yes, but that is not connected with the carbon/energy tax proposals that are flying about and being discussed. They have nothing to do with the own resources of the Community. The preliminary draft for a carbon/energy tax is being discussed by the Community, but those proposals will not affect the own resources of the Community, which is what article 201 and the amendment deal with.

8 pm

My hon. Friend the Member for Worcestershire, South (Mr. Spicer) described Germany and the United Kingdom as the only net contributors. If he looks at the last Court of Auditors' report, he will see that there were five net contributors to the European Community in the last full year upon which the Court of Auditors reported, 1991. They included not only Germany and the United Kingdom but France, Italy and the Netherlands.

Belgium and Luxembourg were also referred to in the

debate--certainly Belgium was mentioned. Belgium benefits considerably from administrative expenditure, which affects its net balance with the Community.

Mr. Michael Spicer : Does my right hon. Friend accept that, over the past 10 years, Britain and Germany have been the only large contributors to this fund?

Sir John Cope : Yes, I certainly accept that, although Germany's contribution is much larger than ours. Nevertheless, I draw the Committee's attention to the very important fact that other countries have recently become net contributors to the Community. We shall discuss later the changes in own resources that were proposed at Edinburgh, but they form no part of this Bill. They will be a matter for future legislation. The change in the balance, in particular the change in the number of net contributors within the Community, will make a considerable difference over the years and will have a dynamic effect, to borrow a phrase from my hon. Friend the Member for Worcestershire, South, on the financing of the Community.

Mr. Richard Shepherd : Has my right hon. Friend had the opportunity to read Sir Michael Franklin's report for the Royal Institute of International Affairs, in which he looks at distributive flows and redistributive elements? When they are broken down to show what each citizen of the new union will receive through his or her national identity, one sees that it amounts to 1,987 ecu per head for those in Luxembourg, whereas Germany contributes, per head of the population, 140 ecu. In 1992, we were, on a per capita basis, the second largest contributor. It is extraordinary that, on that basis, Italy is still the recipient of 10 ecu per head, and Spain 73 ecu, Denmark 97 ecu, Portugal 104 ecu, Belgium 165 ecu, Greece 375 ecu and Ireland 678 ecu per head. That is an insane way of

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financing or redistributing the wealth of the Community, because it bears no relationship to gross domestic product per head.

Sir John Cope : I have not had the opportunity to look at the report to which my hon. Friend refers, but I shall do so. I cannot comment on the figures, but the general points that I made about net contributions are, I believe, correct and important ones for the future financing of the Community.

Mr. Leighton : The right hon. Gentleman says that there are five net contributors to the Community. There is therefore a minority of contributors, and the majority of states pay absolutely nothing at all. That is grotesque. How does the Paymaster General justify that? It is not fair, is it? Ought not contributions to be on the basis of ability to pay, instead of this mad system that we have at the moment?

Sir John Cope : It is not a question of not paying anything at all. It is a question of how the contributions to the Community and the receipts from the Community net out. All the member states contribute to the Community according to the formulae. All the member states, including ourselves, benefit. Member states receive money from the Community. Furthermore, individuals, and individual companies within the member states, receive money from the Community. The question is, what is the net effect of these two processes--the raising and the paying out of money? It is the net effect to which I refer. The net public sector flows amount to about £2 billion a year, although the amount varies from year to year.

Mr. Michael Spicer : How can my right hon. Friend use the word "benefit"? If we get back only a bit of what we give, that is not a benefit ; it is a disbenefit. We have given away money in the process. It is the net figure, surely, that really matters.

Sir John Cope : It is the net effect that matters, and that is exactly what I have been emphasising. The net effect is caused by both negative and positive flows.

Some of my hon. Friends and other hon. Members are concerned about the cohesion fund, and about whether the Community is somehow jumping the gun, in legal terms. I hope that I can reassure them, primarily by referring them to the detailed explanatory memorandum that was submitted to the House of Commons by my right hon. Friend the Minister for Industry on 5 March regarding proposals for the Council regulation. There is no legal jumping of the gun regarding the cohesion fund.

Several hon. Members have referred during the debate to the European Bank for Reconstruction and Development and to the recent criticism levelled at it in the newspapers. Both I and others have pointed out during the debate on the issue that the EBRD is not a European Community institution. It is an institution to which 57 countries belong. That includes the Community countries, but many other non-Community countries are represented on the board of management, are shareholders and are part of it.

There are no accountability lessons to be learnt from the EBRD that are directly relevant to the Community, which has much more elaborate institutions for controlling its finances than the EBRD does. Incidentally, the EBRD's accountability is similar to that for other institutional organisations, such as the World bank. It is that

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machinery which will no doubt inquire into recent press reports. In addition, my right hon. Friend the Chancellor of the Exchequer and departmental officials are playing a part in the investigation. That matter is not, however, germane to this debate.

Mr. Robert B. Jones (Hertfordshire, West) : It is relevant, is it not, that the Court of Auditors has produced loads of reports on the misuse of European Community funds? Our Chancellor of the Exchequer has endeavoured to get these reports debated properly and action taken, whereas other European Community countries have been singularly unhelpful in trying to get any action whatsoever taken. If my right hon. Friend is in favour of additional resources for the European Community, he must surely accept that its present resources need to be spent properly first.

Sir John Cope : I have talked about the Court of Auditors, and I do not propose to add to what I have said. We were talking about the EBRD, which is a wholly different institution with 57 member countries. It is a different scale of institution.

Sir Roger Moate : We fully understand that the EBRD is not a Community institution. However, it is comparable to a range of other EC institutions. Can my right hon. Friend explain to me and to the British public why Community officials and EBRD officials pay no income tax? Will he explain again for my benefit why they should be accorded that extraordinary privilege? If there is any argument for it, could it not be re-examined, because it is rather scandalous?

Sir John Cope : My hon. Friend must take up that matter on another occasion, because it does not arise out of this debate. The EBRD is comparable to the World bank and to other such organisations, and the matter also relates to other diplomatic privileges.

Mrs. Teresa Gorman (Billericay) : I do not know whether my right hon. Friend intends to go back to the subject of the cohesion fund. He talked about not jumping the gun. He must be aware that, at the Edinburgh summit, for example, the European Community promised Mr. Gonzalez, the Prime Minister of Spain, £7 billion out of the proposed cohesion fund towards a hydrolytic scheme. He was guaranteed the money, out of the £17 billion which he hopes to garner eventually from the European fund, to flood the other half of Spain so that the people can grow even more olives and useless things, which we shall no doubt put into storage. That commitment was given to him in exchange for his co-operation over the issue of the Danish opt-out. Will my right hon. Friend explain whether that is a commitment, whether it jumps the gun or not?

Sir John Cope : My hon. Friend has confused a number of different strands. I referred her and other of my hon. Friends to the explanatory memorandum which was issued on 5 March. It explains in some detail what is going on in terms of the cohesion fund. That point is not relevant to the amendment or to the treaty. What is relevant is article 201, which strengthens the disciplines of the Community by restating and improving the controls, especially over the ceiling of own resources. The total of own resources is a matter to which we shall have to return

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on another occasion when debating different legislation. I believe, therefore, that we should not agree to the amendment.

Mr. Andrew Smith (Oxford, East) : The Paymaster General was a little unkind and ungenerous to his hon. Friend the Member for Southend, East (Sir T. Taylor), whom he accused of being a fanatic. The hon. Member for Southend, East may choose to take that as a compliment. He has been generous in this Committee in praising the sincerity of others. A fairer description would be to say that he was very, very sincere in what he was saying about the shortcomings of article 201 and about the system of own resources.

Sir John Cope : I was trying to say that the attitude of my hon. Friend the Member for Southend, East in this matter, as I understood it, was extreme. He used the word "fanatic" about some who, like myself, support the Maastricht treaty. That is a matter for him to describe. I entirely accept his sincerity, which is unquestioned. I also pay tribute to his assiduity not only during our debates on this treaty, but over many years, in pursuing his particular point of view on the European Community.

8.15 pm

Mr. Smith : The Paymaster General's search for acceptable, euphemistic synonyms for fanaticism is intriguing. I think that he is just digging the hole a bit deeper. The hon. Member for Southend, East did well considering that he had such a bad cold. I merely shudder to think how much longer he would have spoken if he had not had that cold. However, I wish him a speedy recovery.

The hon. Gentleman argued that supporting the amendment could bring together various groups in the Committee. I am aware of his sincerity, which we have all just praised. However, I must say that a greater triumph of hope over experience would be difficult to imagine. He was on stronger ground when he appeared to suggest that we might cut cash out of the European Community debate. Even that argument collapsed when people realised that he was talking not about his hon. Friend the Member for Stafford (Mr. Cash), but merely about money. In all seriousness, the hon. Member for Southend, East has overestimated the effect of the amendment. I understood him to claim that it would remove every word of the treaty relating to EC finance. He is clearly overlooking articles 199 and 201a, as well as many other articles in the treaty. The amendment would not have that effect. Many of the points that the hon. Gentleman made--this was also true of the points made by the hon. Member for Worcestershire, South (Mr. Spicer)--were really a repetition of a number of points made at length in our previous debates, especially those on the Court of Auditors.

Nobody has more strongly condemned irregularities, fraud and corruption in the EC than the Labour party has or than I have at the Dispatch Box. However, the question that we must ask is whether the provisions in relation to the Court of Auditors and the control of expenditure make matters better or worse. There are a number of respects in which the Maastricht treaty makes the situation better ; they are set out in articles 206, 290 and 290a, which give stronger powers to the Court of Auditors. At least now the accounts will have to be fully certified by the Court of Auditors which was not the case before. There are extra

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powers for the European Parliament to require the Commission to act on the reports and recommendations from the Court of Auditors. There is also the new legal duty, to which the Paymaster General referred, obliging member states to pursue fraud in relation to EC funds with the vigour that they pursue fraud within their own countries. It is difficult to see how agreeing to the amendment would advance the arguments so sincerely expressed by the hon. Member for Southend, East. Article 201 states :

"Without prejudice to other revenue, the budget shall be financed wholly from own resources."

Is the hon. Gentleman saying that it should not be financed wholly from own resources, but from some further contributions outside the own resources ceiling? I think not. The article also says : "The Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament, shall lay down provisions relating to the system of own resources in the Community, which it shall recommend to the Member States for adoption in accordance with their respective constitutional arrangements." Does the amendment imply that the Council should not act unanimously in the matter, that the European Parliament should not be consulted, that the recommendation should not be made to the member states, or that adoption should not proceed in accordance with their respective constitutional arrangements? I think not. Does the amendment imply simply that there should not be a system of own resources? That is what the hon. Member for Southend, East and those who took a similar position argued for. I find it difficult to see how that argument or any of the other implications could be in the interests of the United Kingdom or of the Community as a whole. The effect of the amendment, as well as presumably scuppering the treaty and its ratification, would be to leave us with article 201 of the treaty of Rome under which the present budgetary practices have developed. Even in terms of the hon. Gentleman's own argument, the amendment could not represent a step forward.

I argue that if closer European co-operation and integration are to proceed --there are many deep and honest difficulties in the Committee on that matter--there must be a system of financing those functions. That system can be discharged effectively only at the Community level. If there is to be stability in the management of the Community's finances, a set of rules for sources and levels of finance seems to me to be essential.

We serve our electorates better if, rather than arguing the somewhat theological point about the extent to which so-called own resources are in fact the Community's own resources, we focus on the question of how well the system serves the Community's common purposes and how far the distribution of the financial costs and benefits of the Community are compatible with principles of economic efficiency and of fairness and social justice.

Mrs. Dunwoody : I am listening to my hon. Friend with great care. I take it that the underlying thought behind his remarks is that he accepts the principle that there will be a growing curve of commitment and a growing movement of money towards the own resources system. Is that the position that those on the Front Bench are arguing?

Mr. Smith : I am accepting that, if the Community is properly to discharge its common functions, it must be adequately financed for that purpose. I do not accept any implications as regards a unitary superstate, which is a

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concept that those on the Labour Front Bench do not endorse. The purpose of the European Community encompasses certain common functions and we need a common system of financing so that those functions can be properly fulfilled.

In one sense, of course, the Community does not have any own resources--any more than the Government do--and my hon. Friend the Member for Newham, South (Mr. Spearing) made that point. The income that it derives either comes from EC citizens or is acquired on behalf of the citizens of the EC, just as its expenditure is undertaken in their name. What should really be at issue in the use of the term "own resources" is the degree to which certain sources of revenue are earmarked for the EC budget within prescribed limits, in the sense that member states have each agreed to take on the obligation to pass certain revenues on to the Community.

Mr. Gill : I appreciate that such a course of action is entirely consistent with the hon. Gentleman's socialist principles. Can the hon. Gentleman enlighten me a little more than my right hon. Friend the Paymaster General was able to enlighten me. What would the hon. Gentleman say to his constituents and what does he suggest I say to mine when they discover that British taxpayers' money will be used, through the cohesion fund, to provide roads and railways in Greece, Portugal, Spain, and southern Ireland, given that many of those constituents see a grave need for those facilities in this country? A case in point is the west coast line from Euston to Glasgow, which has about six more years' life in it and will soon be in need of reinvestment of capital running into thousands of millions of pounds. What are we to tell our constituents when the west coast line breaks down and the money that we might have spent on its renewal has been spent on the four beneficiaries of the cohesion fund?

Mr. Smith : First, I shall tell my constituents--as I do--that Rover, which is already selling a lot of cars to Spain, will be selling even more when investment in that country has succeeded in improving its standard of living and bringing it closer to the average for the Community. Secondly, I shall say that we all benefit in common from the advances that common European Community action can effect. Thirdly, I shall tell my constituents that other sources of Community expenditure benefit many parts of this country and indirectly benefit all its citizens. In previous debates, a number of hon. Members representing some of the most depressed areas of the United Kingdom have made precisely that point. Where the Government have not been prepared to act, we have been able to obtain a measure of assistance through European Community funds.

Mrs. Gorman : It is kind of the hon. Gentleman to gistituency would love to have but cannot afford because they are having to fund such improvements in other countries? Good sensible people in my constituency of Billericay have a word for that, but it is not one that a lady can use in this place.

Mr. Smith : The hon. Lady suggests that we talk common sense. Of course, many of my constituents drive

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Rover cars, and the more such cars are exported to Spain and other countries, the more happily they will sleep in their beds because they will know that their jobs are that much more secure. I hold the conviction that the citizens of all of Europe will be better off to the extent that we co-operate more closely in safeguarding our common economic welfare and security. That is the common sense that lies behind the common purpose of the Community.

Let me return to the question of own resources. I was arguing that the term relates to the extent to which the Community can automatically count on certain funding. As long as there is an overall limit on own resources--and the existence of that limit has not loomed large in the debate, although it is material to the way in which own resources would work in practice--and as long as there is a requirement of unanimity, as there is in article 201, the use of the term cannot imply any right of the Community to set its own tax levels or even to establish its own tax base in the true sense of the term.

On the rather more important questions of fairness and economic efficiency, the details of the own resources system have an impact on the distribution of member states' contributions to the EC budget, to which my hon. Friend the Member for Newham, North-East (Mr. Leighton) rightly drew attention. In relation to, for example, the VAT base element of own resources, those member states with a relatively high VAT base as a proportion of GNP--they include Britain--will be making larger contributions than members with a lower VAT base relative to GNP.

I argue that, because of that, and because the notional VAT base serves no proper and effective economic purpose in the assessment of EC contributions, the capping of the VAT base in 1988 and the Edinburgh decision to reduce it further with effect from 1995, and, indeed, the reduction of the ceiling on the rate of VAT from 1.4 per cent. to 1 per cent. on a notional basket of goods and services, which is taken as the basis for drawing down VAT for EC contributions, are broadly to be welcomed. Hand in hand with that goes the decision to increase the share of Community revenue contributions calculated on the basis of gross national product--the so-called fourth resource, which will be contributing 40 per cent. of revenue by the end of the century. I had expected the Paymaster General to point to that in answer to criticisms from both Conservative and Opposition Members. There has been a shift towards a wealth-related system of contributions. As my hon. Friend the Member for Newham, North-East and others would point out, that has not gone far enough : the relationship between net contribution and wealth is still not nearly strong enough. The Labour party is concerned to ensure that there is a much fairer correspondence between net contributions to the Community and the wealth of member states.

The Financial Times article of 13 February 1992, quoted in the Library briefing, estimated that, even after the United Kingdom rebate, in 1992, the United Kingdom would be the second largest net contributor after Germany even though we rank down at eighth in terms of GNP per head. Another way of looking at it is that our post-rebate net contributions to the EC budget in 1992 will run at something like 0.34 per cent. of GNP as compared with 0.62 per cent. in Germany, but only 0.15 per cent. in

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France and 0.04 per cent. in the Netherlands, while the rest of the member states, some of which are significantly richer than us, will be net recipients. As the hon. Member for Southend, East said, the Financial Times said that it is a scandal that the two countries with the highest average incomes in the Community--Denmark and Luxembourg-- should be net beneficiaries. That is absolutely right. The system must be changed and that will require more significant reforms in the EC budget, upon which we have already touched in earlier debates ; most notably it will require further reform of the CAP.

8.30 pm

Mr. Nicholas Winterton (Macclesfield) : The hon. Gentleman is being remarkably helpful to the Committee. With no disrespect to my right hon. Friend the Paymaster General, he is providing more information which is helpful to the Committee as it reaches a decision on the matter than anything that I heard from my right hon. Friend the Minister.

As the hon. Gentleman has been extremely informative and interesting, will he speculate with the Committee as to why the inequities and injustices in the present system have not already been attended to, bearing in mind that they are so obvious to all? Why are we not debating that rather than the nonsense of this obsolete and useless Maastricht treaty?

Mr. Smith : I support the case for more debate in the House about how we can achieve a more equitable system of contributions and receipts from the EC budget. If the hon. Member for Macclesfield (Mr. Winterton) is not satisfied with the answers from his right hon. and hon. Friends and he is better educated by contributions from the Opposition Benches, that is all to the good.

Changing the system in respect of the EC budget which the hon. Member for Macclesfield and many other hon. Members find so objectionable will require political will and more determination. He asked why there had not been more change given that the inequities are so obvious. However, I dare say that they are not quite so obvious to the majority of member states that are net beneficiaries under the system. Therein lies the problem.

We must continue to argue for sensible reform. The Labour party will do that and will continue to question the sums being spent on the Community's agricultural policy, which lies at the heart of so many of the problems.

Mr. Leighton : What would my hon. Friend say about the other two taxes involved in own resources--the levy on food imports and the tax on industrial imports? They are both very damaging for this country. They are a way of fining and penalising this country for trading with the rest of the world.

Mr. Smith : My hon. Friend draws attention to a very important matter. While I was able to point to the fact that the GNP-based contribution as a share of the Community budget would be increased to 40 per cent. and that the VAT-based contribution would be reduced, the traditional own resources contribution based on agricultural levies and levies on non-agricultural imports stay at 25 per cent. under the projections based on Edinburgh and the previous European Council meeting.

The case for the benefits to be derived from trade that can take place more freely without such a scale of additional levies and duties, particularly freer trade with

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