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The Earl of Balfour: My Lords, perhaps I may ask the Minister one question. Some years ago my keeper died. His rifles were not on my certificate. The police themselves took those rifles into a firearms dealer. I was not allowed to carry them the seven miles to the firearms dealer. Will the Minister consider the point that in certain circumstances it might be better for the police to uplift the guns rather than for the person involved perhaps to have to drive a considerable distance, possibly without the right transport facilities?

Lord Williams of Mostyn: My Lords, I am most grateful for that intervention which reaffirms and underlines a point that I made earlier--that police officers try to be of assistance to members of the public. I am sure that the noble Earl's observation and suggestion will be borne in mind by senior police officers who will see what they can reasonably do to help.

The noble Baroness, Lady Blatch, asked a number of questions, some of which were overtaken by my earlier answers, as she acknowledged. She was particularly concerned about the scheme and how it might work in practice. As the noble Baroness will know, training for the scheme was put in hand a long time ago, in the earlier months of this year. Some parts of the scheme ought to be easy to operate, for reasons that noble Lords have indicated. The rest of the scheme depends on expert assessment. We are content that sufficient progress has been made: first, that the scheme can be up and running on the date specified and, secondly, that it will run with reasonable efficiency.

The noble Baroness specifically asked whether there had been consultations with ACPO and ACPO(S). I can reassure her that there have been full consultations and that, to the best of my knowledge, police officers in the senior ranks are content with the liaison that has been carried out between the Home Office and those senior ranks.

Lord Burton: My Lords, the Minister referred to ACPO. Does what he said relate to ACPO (Scotland) also?

Lord Williams of Mostyn: My Lords, the noble Lord must have misheard me. As I was referring to the noble Baroness, Lady Blatch, I looked at her as I spoke and I must have dropped my voice. I said "ACPO and ACPO(S)". I am afraid that we fall into jargon too often and that I am as guilty as some. I ought to have referred to ACPO (Scotland).

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The noble Baroness, Lady Blatch, asked me a distinct question about whether police stations would have to be licensed as magazines. She asked me further distinct questions, not all of the details of which I managed to catch so perhaps she will forgive me if I write to her on those detailed questions. They are not details that I am putting to one side, but your Lordships may think that those questions are of quite a fine detail of which I should be certain before giving a categorical response.

We believe that this is a fair and balanced scheme. It will not satisfy everyone. It ought to be acceptable to taxpayers, for whom we are the custodians of public funds, and it ought to be acceptable, we believe, to the majority of claimants--that is, acceptable on the financial basis, not on the basis of principle for which the noble Lord, Lord Stoddart, so valiantly contends. I commend the scheme for the approval of this House.

On Question, Motion agreed to.

EC Tobacco Regime: European Communities Committee Report

3.56 p.m.

Lord Reay rose to move, That this House take note of the Report of the European Communities Committee on The EC Tobacco Regime (13th Report, Session 1996-97, HL Paper 73).

The noble Lord said: My Lords, I should like to start, if I may, by warmly congratulating the noble Lord, Lord Donoughue, on his appointment which, so far, I have not had the opportunity to do on the Floor of the House. The noble Lord has many friends and admirers of his manifold talents in all parts of the House and I am quite confident that his new post will give him the opportunity to acquire many more, particularly if he proves to be an energetic and effective promoter of reform of the common agricultural policy.

The occasion of this report by the European Communities Committee of your Lordships' House was the publication by the Commission of its report to the Council on 18th December last on the common organisation of the market in raw tobacco. In the light of that report, which is due to be followed by implementing legislation, Sub-Committee D decided to hold an inquiry into the subject, necessarily brief because of the approaching end of the Parliament. We are grateful to all those who provided us with written evidence: to Professor Marsh of Reading University, an old friend, for his wise and expert advice, and to our Clerk, Mrs. Mary Ollard, for her excellent work on a report which I am sure noble Lords will agree is forceful and readable. I myself am most grateful also to my colleagues who served on the sub-committee.

The Commission's report gives a full and, in the view of Sub-Committee D, eventually damning description of the nature of the current tobacco regime within the EU. The European Union, with 4.6 per cent. of global production in 1994, ranks as a the world's fifth largest raw tobacco producer. This production is spread over eight member states of which Italy and Greece are by

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far the main producer countries with, in 1995, 39 per cent. and 36 per cent. of Community production respectively. Spain and France follow with 13 per cent. and 8 per cent. respectively, and the remaining 4 per cent. is produced in decreasing order by Germany, Portugal, Belgium and Austria.

However, this tobacco is generally of poor quality and is sold for very low prices--although there are exceptions to this general rule, notably in the case of some Greek oriental varieties. The majority of it goes to countries where, in the words of the Commission,

    "living standards are so low that the quality of the tobacco smoked is less important than its price".
Production therefore has to be sustained by subsidy or premium and then kept in check by quota. The cost of these subsidies to the EU's budget is about 1 billion ecu or about £¾ billion a year. These subsidies account on average for no less than 80 per cent. of the revenue received from tobacco production by tobacco producers throughout the Community.

The rationale for the regime, as the Commission explains, is social. Tobacco is a labour-intensive crop, requiring an enormous number of hours work a year, and is typically grown in the Community on very small family holdings, the area planted to tobacco averaging no more than 1.1 hectares per farmer. There are some 135,000 tobacco farmers largely with family workforces, and in addition about 30,000 workers in tobacco-processing depend on local production. There are often few evident alternative economic opportunities in areas where tobacco is grown and without subsidy the farms would no longer be viable. The Spanish Embassy informed us that in Spain 15,000 were employed in tobacco production in disadvantaged areas where unemployment could be as high as 30 per cent.

The outlook for the future is even bleaker than the present depressing situation. Yield per hectare has hardly increased over the past ten years yet the prospects for mechanisation such as has taken place for example in the US, or indeed any investment to improve efficiency, is negligible. Holdings are too small and capital is likely to be lacking. It is also to be doubted whether the incentive to raise either quality or efficiency exists. As the commission says in its report, under the current subsidy regime a producer does best if he grows a low-quality, high yielding variety that entails the least cost and effort. Meanwhile, low wage cost competitors in Africa and Asia are expanding their production, raising quality and increasing market share. All of this leads the Commission to conclude that the European Community's subsidy-dependent tobacco sector is doomed unless the quality of tobacco produced in the Community improves.

Perhaps at this point I should say a word about health. In the eyes of many tobacco is an undesirable crop which causes damage to human health, and on those grounds alone should not be subsidised. The Commission, like many national governments, promotes anti-smoking measures. The contradiction between these policies was reflected in a widely-publicised disagreement prior to the publication of the Commission's report between the two commissioners responsible respectively for agriculture and social

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affairs. It is nevertheless true that no one in the Community would have his access to tobacco curtailed if Community production withered or collapsed as a result of the withdrawal of subsidies. The market would simply be supplied from elsewhere, so the desirability of subsidies can be addressed as well on other grounds.

Having reached the conclusion that it should do something to meet the problems of the sector, and in particular to raise the quality of tobacco produced in the Community, the Commission proceeds to discuss what it has in mind.

Having dismissed the idea of disengagement from support altogether and various other largely dirigiste options, such as the encouragement of fruit and vegetable production or forestry, it puts forward its preferred scenario. In this the premia for tobacco would be modulated according to quality with a fixed element designed to provide a minimum income and a variable element related to the purchase price designed to encourage the production of more expensive varieties.

No change is proposed in the levels of subsidy or the volume of quota so the cost of the regime would not fall. The variable premium would be distributed through producer groups. The Commission also suggests measures to encourage farmers to leave the sector voluntarily: either the buying up of quota or the issue of saleable bonds paying an annuity, each over a seven to 10-year period. It also proposes other measures, including making the quota scheme more flexible.

MAFF suggested to us that the Commission's preferred scenario had some merit in so far as it would introduce for the first time a degree of market sensitivity into the regime. In our view, however, the measures discussed by the Commission stop a long way short of what is required. For one thing, they pay insufficient attention to likely pressures to decouple aid from production in the next World Trade Organisation round. Tobacco, with its high level of subsidy, is a particularly vulnerable sector. They also ignore the problem of how tobacco production within the countries of Central and Eastern Europe may be incorporated into the regime. Current tobacco production in Poland, Hungary and Slovakia would add about 20 per cent. to the EC total production. If and when the next WTO round starts--which I believe is due in 1999--or the countries of Central and Eastern Europe accede to the European Union, the tobacco regime will once again need to be replaced.

The Commission's proposals are also open to criticism on internal grounds. First, it is hard to see what would be achieved by encouraging producers to produce better quality tobacco, even if such efforts were successful, if producers were no more competitive and no less subsidy-dependent growing those varieties than they are today growing cheaper varieties. Secondly, the plan to pass responsibility for administering variable premia to producer organisations, while it might serve to conceal, would not mitigate the extremely bureaucratic nature of the Commission's proposals and would remove the Commission further away from a position where it could control fraud. In our view, that would constitute on the Commission's part an extremely

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undesirable abdication of responsibility for the distribution of Community funds, for fraud has in the past bedevilled the regime.

Perhaps even more importantly, Commission efforts to encourage farmers to leave production are likely to be in vain, as they have been in the past, for the simple reason that any incentive to leave production is likely to be outweighed by the incentives which will continue to be offered to stay in production. Few, if any, funds will be available for such a programme after the subsidies have been paid for.

We would like to see tobacco subsidies and quotas phased out over a period of 10 years or so and a commitment made to do so now. This was also the position of the last Government--the previous Fisheries Minister called the regime "crazy"--and I hope to hear today that that is the position of the Government now. Money so saved could and should be used to ease the transition of those involved to a more profitable economic life. We are emphatically not saying that these communities from one moment to the next should have all public support withdrawn from them. We are very much aware of their degree of dependence on subsidy. But the Community's funds should be spent on ways to end, not perpetuate, this dependence. It is not up to the Commission either to select or reject alternative economic ways of life for these communities.

The Directorate-General of the Commission with responsibility for agriculture sometimes behaves as if it was vying to be the last bastion of the command economy left on the European continent. But local infrastructures can be improved. We saw a great deal of merit in the idea of a saleable bond with annuity attached which could provide the farmer with the means to establish himself in another economic career while providing an income in the meantime.

At the moment the prospects for reform do not look very promising. In calling for reform in the Council of Ministers the UK Government have had support only from Sweden. Tobacco-producing states actively support the regime. The Italian Embassy informed us that it was against any radical reform or any inducements to abandon production; indeed, it wanted the entry of new producers to the tobacco sector to be encouraged. It was suggested to us that other member states who were not producers feared that they might lose their own favourite support schemes under the CAP if they started to attack the tobacco regime. The Government for the time being at least can expect to find themselves in a small minority, but we hope that that will not cause them to lose heart.

Our opposition to the continuation of the EC's tobacco regime is adamant. Indeed, at one point we go as far as to describe the regime as a scandalous waste of taxpayers' money. But perhaps I should put this opposition to the EU's tobacco regime into the context of our attitude to the CAP as a whole. For as long as I have been aware of its work, Sub-Committee D has wanted further reform of the CAP to make it market oriented with a phasing out of support prices and a consequent disappearance of the need for production controls, including quotas and set-aside. The sub- committee has examined plenty of subsidised regimes

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under the CAP, but never have we come across an example of such a large amount of taxpayers' money being used to maintain the production of a commodity so unwanted by the market. In our view, the regime represents a travesty of natural economic life, and consequently requires a remedy far more drastic than anything currently proposed by the Commission. Despite unfavourable signs in the short term, we hope that that is something it will eventually receive.

Moved, That this House take note of the Report of the European Communities Committee on The EC Tobacco Regime (13th Report, Session 1996/97, HL Paper 73)--(Lord Reay.)

4.10 p.m.

Lord Bruce of Donington: My Lords, the House will be grateful to the noble Lord for having introduced this short, pungent and excellently produced report. It reflects not just on the abilities and diligence of the noble Lord, here and in the European Parliament where he and I served together for some time, but also on the individual members of the committee.

When I first read the report I was amazed to find the final opinion stated in terms which might almost have come direct from me in my most moderate mood. The noble Lord paraphrased it, but I must savour the mood of the moment as I read the paragraph in detail. It states:

    "In our view, the subsidy of tobacco production in the European Community is a scandalous waste of taxpayers' money. The entire system of premium payments is designed to sustain production at costs which the market is not prepared to meet. Far from solving the social and economic problems of the areas which it purports to assist, it keeps small scale tobacco growers in poverty and isolation and makes no attempt to help them discover more satisfactory employment opportunities. The tobacco sector is a hole in the ground into which money is being poured with no thought for the long-term prospects of those involved in it. The tobacco regime needs fundamental reassessment".
At my most eloquent, I could not have put that better. No reader of this brief, pungent report could reasonably come to any other conclusion.

We must decide, ab initio, how important the matter is to us. Occasionally we have to have regard to the interests of the UK. I trust that those who are fervent European citizens will pardon my regard for the UK, at any rate for the purposes of this debate. The financial aspect has been dealt with many times. Through the good offices of the Government I have been able to obtain the up-to-date figures in the preliminary draft general budget overview which has recently come into my possession.

The days are long since past when one could obtain a detailed European budget. There was a time, shortly after 15th May, when one could obtain detailed budgetary particulars of all items of expenditure. I am sure that noble Lords are aware of title B 117 of the budget.

I suggest that the financial side is of some significance. We have it on the authority of Her Majesty's new Ministers that there will be the utmost economy in expenditure; and that we shall be iron in our will to keep public expenditure within what are

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considered to be prudent financial limits. In fact we have set limits to the expenditure that we shall countenance, and I suppose that my noble friend Lord Barnett, who unfortunately is not with us at the moment, would echo that to the last word.

At present British taxpayers--those paying tax on purchases, excise duties, customs duties and income tax--spend net through the European Communities £3.5 billion on the official structures and legislation of Europe. I hear no sharp intakes of breath at the enormity of that expenditure. In fact, that it is any burden on the British taxpayer has not even been mentioned. Apart from the expenditure of £3.5 billion being important to the British people, whatever form of direct or indirect taxes one pays, let us narrow it down and find out just how much the tobacco regime is costing UK taxpayers who derive no benefit whatever from it.

Noble Lords will be aware that the noble Lord, Lord Boyd-Carpenter, in particular, has articulated on many occasions over the past five years about the costs being borne by UK taxpayers as a result of the wasteful expenditure of which the committee has given a just description. In case there is any illusion that the Commission has been able to improve the figure over the years, let me give extracts from budget title B 117. In 1994, wicked expenditure under this useless heading cost the European Community £994 million of which £170 million was borne by British taxpayers. In 1995, the figure was £812 million of which £122 million was borne by British taxpayers. In 1997 the figure was £760 million of which £114 million was borne by British taxpayers. For 1998, as I was able to find eventually from a detailed examination of the overview so kindly provided by the Treasury, the expenditure is due to be £746 million of which £113 million will be borne by British taxpayers.

The question for us to decide is whether this matter is important. I am well aware that in certain sections of the House--I can now see the Liberal Benches in front of me rather than to the side of me--there will be an objection that the subject should be raised at all; that to do so is somehow indelicate, anti-European, and anti-Community. Perhaps the only way to obtain the approval of our colleagues in Europe is meekly to accept all this, even to express pleasure that we should be honoured by having to bear the expenditure. Perhaps they will wish us to increase it in order to preserve good relations with Europe and to be able to have a place at the top table. Perhaps we shall be able to do that--

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