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Lord Stoddart of Swindon: My Lords, as I said last Wednesday, this debate is premature in the sense that Members of the House have had only six days to realise that the report has been published; to read and assimilate the report; and to discuss and consult with others about it. That is a great pity. It is an important report which should have had wide circulation; it should have been widely read, with wide consultation, and lots of people should have been given the opportunity to take part in a debate upon it. I sincerely hope that in future such an important report will not be rushed on to the Order Paper for discussion in your Lordships' House.

Having said that, I congratulate Sub-Committee A on the report. It was indeed a tight timescale, though it was probably self-imposed, and the committee worked hard to publish in time for the March summit. Unfortunately, that lack of time restricted the range of witnesses called. I feel that rather more witnesses with wider interests should have been called.

There is a good deal of interesting material in the report and some of the evidence confirms what many of us have been saying for a long while. For example, Ms Patricia Hewitt, the Economic Secretary to the Treasury, responded to a question by the chairman, the noble Lord, Lord Grenfell, who asked:

She replied:

    "One cannot assume that all increases in our exports to other European Union members derive solely from membership of the European Union. One must take account of movements in world trade generally, and one may need to make some assumptions about what would happen in the absence of the European Union or our membership of it. One would certainly need to take into account, which Professor Gretschmann's model does not, the increase in imports from other European Union countries, even if one accepts his rather narrow methodology".

That is a significant answer because over many years we have been told by Minister after Minister that the trading aspects have been paramount and that in fact all

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the trading increases have been due just to our membership of the European Union. It is useful, therefore, to have that on record. Furthermore, it again confirms what many of us have said; that is, that in many respects the European Union has been a trading disaster; that our adverse balance of trade, since we joined, has been around £130 billion and that has been added to by £4 billion to £5 billion every year.

Again, the Economic Secretary confirmed that for every £1 that we receive from the European Union, we pay back £1.50; and that is not a good bargain. I wish that some of the local authorities who see their financial saviours as being the European Union would reflect that if the £41 per annum net paid by every man, woman and child to the EU budget were distributed instead on a per capita basis to each local authority, they would gain immeasurably. In Reading, where I live, that would amount to £5.3 million and would avoid my rates going up by 8 per cent. next year.

However, where I do not agree with Ms Hewitt is on her evidence at Question 129, repeated in the report of the Select Committee at paragraph 113:

    "If one goes back to the motivation for the creation of the European Economic Community one has in mind the end of war ... on the Continent of Europe. One can scarcely put a monetary value upon that or suggest that it is worth more to one country than another".
If that were true, her comments might have some relevance, but it is not true. The organisation that has kept the peace in Europe over the past 50 or more years is not the European Union but NATO, which was formed long before the then Common Market came into existence. The greatest threat to Europe came with the Berlin blockade in 1948-49, when the European Union was not in existence. All one needs to keep the peace in Europe is for France and Germany to agree not to go to war. We do not need a European superstate to keep the peace in Europe.

I cannot comment on all the recommendations but agree that a directly collected own resource is not a viable option at present or for the future. The constitutional implications for this and other countries are so involved and important that they cannot be grappled with in the short term. I agree also that there should be greater national scrutiny of the budget. As national parliaments raise the tax--£8,000 million per annum so far as this country is concerned, or 4p on income tax--they should oversee spending by the European Union, although the European Parliament should also have some input.

It is right that expenditure should be stabilised at £60 billion by 2006, but that is not radical enough. The report considers that the self-financing of agricultural support might be a good idea provided that discretion over spending is not given to member states. If they have no discretion, there is no point in doing it. Most people agree, including the Government and most of your Lordships, that the whole of agricultural support should be repatriated to the nation states. The CAP makes no sense at all. It is wasteful and susceptible to fraud. It helps large and rich farmers but hurts small,

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poor farmers. It also costs the consumer dear as well as hurting the environment through intensive farming, which is also a health risk.

Being able to trade on world food markets would bring down food prices in this country and elsewhere and help world farming generally--especially in third world countries.

I shall be told, as we always are, that is unrealistic. Is it really so unrealistic? In the present circumstances, it would make far more sense to have a subsidised common market in cars, but surely no one would agree to that. No one would agree that we should create such a market. We must be prepared to think the unthinkable. Getting rid of the CAP would virtually solve the finance problem and the fraud crisis in one fell swoop. I hope that the Government will pursue that proposal irrespective of it being a distant prospect.

Following the fraud fiasco and the resignation of the whole Commission, the opportunity exists to question its powers and whether many of them should be returned to member states--as was promised by Prime Minister John Major when he agreed to the Maastricht Treaty. The Commission complained last week that it was asked to do too much and said that was one of the reasons for losing control of the budget. Let us help the Commission by relieving it of some of its burdens.

One-third of our overseas trade--about £700 million--is administered--wrongly in my view--by the EU. My right honourable friend the Secretary of State for International Development, Clare Short, is concerned at how the money raised by our taxpayers is used. That money could be and should be repatriated to this country. I hope that, too, will be followed up.

I disagree with the report's central recommendation that Britain's rebate should be negotiated. I find myself on the side of the Government. I do not always find myself on the side of the Government on this issue, but I do so tonight. I am encouraged by press reports and the Government's response to the report that the Prime Minister intends to stick to his position that the rebate is non-negotiable. The reasons given by the Treasury witnesses and the Economic Secretary for retaining the rebate seem sound. I do not believe that the consequences the committee fears may result from Britain keeping firmly to its position will come about. It would certainly be extremely unwise to enter negotiations on the basis that one's opposite numbers around the negotiating table know before the start that one has compromised over a central issue. I hope that the Government will stick to their guns.

The Select Committee has not helped the Government. I hope that the take note Motion will not be construed as an endorsement of the Select Committee's opinion. I do not believe that it would be the opinion of the House to undermine the Government's negotiating position at the summit later this week.

Bearing in mind the crisis in EU financing and the cataclysmic events over the past week, this might be a good opportunity to review the whole concept of European co-operation, modernise the treaties, reverse

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the trend towards further integration and a country called Europe; and rebuild European co-operation based on nation states, voluntary co-operation and democracy.

8.18 p.m.

Lord Hussey of North Bradley: My Lords, the noble Lord, Lord Grenfell, chaired the committee with all the skills and charm of his predecessor--the noble Lord, Lord Barnett--aided by a most excellent secretary. He explained the speed at which the report was considered and written, hoping that it might contribute to a solution of the problems that are likely to crop up in Berlin this week.

I feel honoured to serve on the committee surrounded by noble Lords of great financial experience. I do not intend to weary your Lordships with my views on complicated problems such as reform of the own resources system, the relationship of a member state's gross contribution to its GNP, the co-financing of the CAP and the vagaries of VAT collection. I want to discuss issues that are important to me. Incidentally, I started writing this speech on Monday. By Tuesday morning, the whole picture had changed, rather like a transformation scene in a pantomime.

The Community now comprises 15 states and will shortly be increased. Its aim is to weld this body into a unified whole, at least on the economic side. There are those, of course, who argue that you cannot have a unified economic whole without a unified political whole as well, but I shall not go into that. What is vital is that all the member states should agree on their collective objectives. This inevitably means that some countries will have to sacrifice some national objectives in the interests of the whole. In our inquiry into the European Central Bank, the same point arose. It is the crux of many difficulties. Yet I recall the President of France saying,

    "On major issues I represent my nation and will expect others to do the same".
That is not an exquisite expression of the communautaire spirit.

The issues arise again over the financing of the Community. My life in the media was dominated by how to raise the money to match the costs--except, of course, in the BBC where £2 billion a year came in through the window--but in most businesses the nail-biting struggle concerns the relationship of cost to revenue. Financing the European Community is not an income problem. Everyone believes that the proposed ceiling of 1.27 per cent. of the GNP will raise sufficient resources for the Community to work within its budget with some spare for the accessions. The issue is how the money should be raised and then distributed; the division of the spoils, if you like--an issue on which friends, colleagues and competitors frequently fall out, and have done over the years.

Neither the contributions nor the receipts from this co-operative effort appear to be fairly distributed. As we were convinced that they never would be seen to be fair, under the wise guidance of our chairman we proposed that we should not endanger the chances of agreement in Berlin by too obstinately sticking to Britain's

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self-interest with regard to the abatement. Instead, we raised the issue of whether it should be considered in the negotiations. We believe that the abatement was a classic case where we might accept a reduction on condition that--and only when--the loss can be made up (as your Lordships have heard) on a permanent basis through the savings of a reformed CAP, a stabilisation of expenditure and possibly through increased expenditure in the United Kingdom. All these provisos were directly in line with the Government's negotiating stance. We did not expect that this recommendation would pass without criticism, and nor has it. But I was surprised that the word "undermine" appeared in several newspapers which are not normally bedfellows. A touch of spin there, I thought.

We did not undermine the Government's negotiating position; we preserved it carefully by the conditions that I have just mentioned and, in so doing, we believed that we were demonstrating a practical way in which this country could negotiate in the spirit of the Community and, it is to be hoped, set an example. We matched the loss of a cherished national objective with gains elsewhere in the interests of the Community. This is a proposal that I unhesitatingly support. As our report declares, the Community is a concept, an ideal, of great significance. The original objective was to replace successive centuries of devastating wars with a system that could secure lasting peace. Economic--let alone political--integration came later.

A basic weakness in the constitution is the fault line between the Commission and the European Parliament. The responsibilities of the two have never been clearly defined, but what is relevant is that the Members of the European Parliament are elected, whereas the members of the European Commission are appointed. The Community cannot survive without compromises. There is nothing new about this. The last ditch settlements--usually achieved at the latest hour of the morning--are evidence of hard-fought victories for compromise. But the issues are now more complex. The accession of five new states will present a major financial on-cost. The application by the European Central Bank of "one cap fits all" for interest rates increases the strain. Severe charges of financial mismanagement and neglect are well made. Fraud over VAT is alleged to cost 8 billion euros a year. For too long the CAP has consumed 50 per cent. of the budget. Several countries, not least our own, wish that cost to be substantially reduced.

In all this there is the dual responsibility of the Commission and Parliament. Neither body has survived the past six months without serious criticism of its financial control, and the good life incidentally that many of its members enjoy. To quote the evidence of the Economic Secretary, the role of Parliament in setting the budget is significant. It is part of the inter-institutional agreement which forms the framework with which Agenda 2000 and the financial perspective must be settled. Finally, once the Council has decided on a common position it becomes a matter for discussion with the Parliament.

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There are further issues for the Parliament and the Commission; for instance, the transparency of the Community's activities. The people are entitled to know what they each pay for the Community's costs and what they get back from it, and how the finances are collected, distributed and spent. We are talking of hundreds of millions of people; this is no minor constituency. They must be assured of democratic accountability. This is a prime duty of elected representatives who have long been too far distant from the lives of the people whose livelihoods they influence. In my opinion, it is inevitable that the responsibilities of the elected but, I trust, much reformed Parliament should be extended and those of the unelected Commission should be reduced.

The Council is composed of commissioners allocated posts by the president on the basis of nomination by their member states. That is not a democratic process. The damning revelations of the recent report on the Commission, followed by its mass resignation, have elevated into stark public prominence issues of which many people have been well aware and kept silent, although there are some who conspicuously did not.

I am not a stalwart defender of everything that is printed in our newspapers--indeed, that would be a difficult position to substantiate with any confidence--but at least from the tabloids to the broadsheets there have been strong criticisms. There is an opportunity now to put this right, but it will be extremely difficult and take a long time. A comfortable ticket on the gravy train rapidly becomes a way of life, but root and branch reform there must be.

We hope that we have helped to clarify these issues. Stabilisation of expenditure is critical. The cost of the CAP must be reduced. Misuse of public funds must be ended. Confidence in the government of the Community must be restored and transparent accountability introduced, leaving no doubts in the minds of the people of Europe about the fairness of the proceedings and the manner in which they have been conducted. I hope that this report will be seen to be courageous and fair. I commend it to your Lordships.

8.28 p.m.

Lord Shore of Stepney: My Lords, I am well aware of the work that went into the compilation of this report as I attended at least one of the committee meetings and I could see it for myself. I certainly congratulate my noble friend Lord Grenfell on his presentation of a large and discursive report. However, I believe that it has suffered from a serious defect. The defect is not really the fault of those who participated in the work of the Select Committee, but of whoever set for them the timetable which is referred to in the introduction to the report. January and February were available for the compilation of this report; the period ending on 21st February. All the events which happened after that inevitably could not form part of the report.

Much has happened since 21st February. I wish to comment a little more about what, on reflection, was an impossible task. What were my noble friends on the Select Committee able to do in two months? Yes, they

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were diligent and they managed to hear four witnesses give oral evidence: one from the Commission; a rapporteur on budgetary matters from the European Parliament; a junior Minister very fresh from the Treasury; and a professor, an academic. Frankly, that is not enough. If one has seriously to write a report on the financing of the European Community, with all its complexity--not only on the revenue side but also on the expenditure side--one cannot do it in so short a time span and with so little evidence.

I make that comment at the start with genuine regret because the subject is important. Given the time span available, I wish that the committee had decided to be minimalist in its approach rather than to take on what is really an impossible task. By being minimalist, I would have hoped the committee would have concentrated on what needed to be done to make possible the cost of the new entrants into the European Union. That is the practical problem. The long-term financing, quite frankly, can and will take its time and, within that particular remit, make it possible for new members to join. Surely concentration should have been placed heavily on the CAP.

The remarks of my noble friend Lord Stoddart about the CAP are justified. I do not think that anyone will seriously dispute that. It is a system which not only imposes unnecessary costs for food on virtually every family in the whole of the European Union, but it discriminates against other food producers in a very unfair way, particularly those in developing countries who are denied a market which might otherwise be theirs. Helping us to make an assault on the CAP, we have of course not only the support of large numbers of countries outside but increasingly the influence of the World Trade Organisation which is seeking also to bring about rationality into the food policy of the EU.

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