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Lord Desai: My Lords, given the structure of the committee system, the noble Lord should perhaps note that the CAP is outside the remit of Sub-Committee A.

Lord Shore of Stepney: My Lords, I accept what the noble Lord says, but that may be a problem for those who draw the limits, as it were, in the terms of reference of the committees. Clearly if one is going to study the budget one has to cover the CAP--certainly if one is going to deal with the expenditure side--and to say that that is not within one's terms of reference is not adequate.

Putting that aside, there are plenty of reasons why we should have concentrated on the CAP. There is an additional reason. I share the anxieties that I think many members of the committee feel about whether the financing within the 1.27 per cent. GDP ceiling of Community expenditures, let alone preparation for enlargement, will be sufficient given the rate of growth of GDP in the Community. Every forecast brings a lower expectation of growth in the years ahead. In Italy the latest growth rate is reduced to 1.7 per cent. GDP this year, with a pretty ghastly outlook next year, and Germany is in very serious shape. It is now very dubious that they will be able to stick to the present levels of expenditure consistent with an overall ceiling of

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1.27 per cent. That is an additional reason why we should add, as it were, all the weight that we can to reforming the CAP and securing a year-by-year reduction of a substantial kind until something very different from the present CAP is left at the end.

The second point I wish to make concerns the complex subject of Community financing. I think a list of 10 potential taxes is to be found somewhere in the text, but, if one turns one's mind seriously to the subject of Community financing, there is much more than that. With a slightly longer historical perspective, my noble friend would have been able to recall that the present mix of own resources has developed quite considerably. Indeed, up until the very year that we decided to negotiate for entry into the Common Market, as it then was, a GDP system of financing was in place and the own resources system was brought in to welcome the new British intake. How well designed it was to make Britain pay the maximum penalty! There were levies on imported agriculture produce. Who compared with the UK in terms of imported agriculture from the Commonwealth and elsewhere? Of course they knew it. Who other than the United Kingdom traded so heavily with the world outside of Europe and therefore would have to pay the very special brunt and burden of the tariffs and excise duties which are the second of the own resources components? It was no accident that the system was introduced in 1971. They knew perfectly well that we would be making a quite disproportionate contribution to the overall Community budget.

Against that background, I must say that I find some of the things that have been said today quite extraordinary. The report of the committee was careful, but a little uncertain about the justification for our rebate. I was very glad to hear the remarks of the noble Lord, Lord Hussey, which so strongly emphasised that there is no question of changing it until some equivalent benefit is available, and even then the onus of proof will be on the advocates of change.

Having said that, some of the speeches today have been quite extraordinary. The noble Baroness, Lady Sharp of Guildford, was quite unhelpful in what she said about the UK's position and the retention of the rebate. The most culpable of all was my noble friend Lord Barnett, whose remarks were really quite absurd and quite wrong. He described the British rebate or contribution as being peanuts. No, he went further than that. He said that we had to get it into perspective first; it was petty cash. I know a little about this and the whole balance of my noble friend's thinking about Europe was probably reflected in those remarks.

We did an estimate, based on information from the House of Commons Library--I think the Government did so, too--of how much money we had paid net (after the rebate) at 1995 prices in the years since we joined the European Community. In 1995, the figure was £30 billion. I do not know what it has been since, but I would suggest around an extra £8 billion or £9 billion. Perhaps my noble friend, when he comes to reply, can give us the up-to-date figure.

To suggest at any time that that is petty cash is preposterous. To say it on the eve of the Berlin heads of government meeting is irresponsible. My noble friend

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should know, if he does not know, that what he has had to say and what others have had to say will undoubtedly be used and quoted against us by those in the Community who clearly have a vested interest in our giving up the rebate. As I said earlier, the rebate has to be set against the very fact that we were always doomed to pay more under the own resource formula at the moment of its design.

I conclude by saying that the debate is badly timed. The report has, frankly, been far too hastily put together. But I do rather agree with the noble Lord, Lord Howell, that we are approaching, as it were, a fork in the road. A centralist Europe as against a constitutional Europe, as he put it, is developing. Between those alternatives, I have no doubt at all which one I would prefer. Following the events of the past week or so and the revelations, which have now been made public, about abuse and corruption, it is quite extraordinary that anyone should even contemplate giving more power and resources to be administered, decided and used by the European Commission. Surely our thoughts and self-interest should point to the repatriation of a great deal of the power it already has, including expenditure on projects and policies which should properly be run by the governments of the nation states that form the European Union.

8.42 p.m.

Lord Boardman: My Lords, I begin by adding to the tributes that have already been paid to the noble Lord, Lord Grenfell, for his admirable chairmanship of the committee and for producing in albeit a short time--that was not his fault--a unanimous report. I must take issue with the noble Lord, Lord Shore of Stepney, who said that the report should have covered the vast amount of ground to which he referred. However, he will see that the report concerns "who pays and how?". It does not concern how the money is spent. As was pointed out by the noble Lord, Lord Desai, it has nothing to do with the CAP. Although expenditure, of necessity, crept into the report from time to time, the inquiry was not into expenditure. So I congratulate the noble Lord, Lord Grenfell, on preparing the report and thank too, as he did, the Clerk to the committee, Dr. Elizabeth Hopkins, who was of considerable help to all of us.

While I am in the thanking mood, perhaps I may thank the Government for responding to the report so rapidly. They did so very well indeed. I thank the noble Lord the Minister for sending the response round to all of us so that we had an opportunity of seeing it over the weekend. That was very courteous and was much appreciated.

Perhaps I may turn to the abatement, which has been discussed at length during the debate but does not seem to have been understood. Perhaps it is the fault of the committee that we did not make it clear. It was my view, and I believe it was the view of all members of the committee, that there should be no question of surrendering the abatement. That was never in our thoughts. It was suggested that if no progress could be made because of the abatement--if proposals were put to the Government to provide something at least as

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permanent and valuable--they should be prepared to negotiate. I share that view. In their response, the Government said that no proposition was likely to come forward and that in those circumstances they would stand firm on the abatement. I entirely agree with them on that point.

Perhaps I may move from the abatement to the funding system. It has been said by a number of noble Lords that traditional own resources represent a dwindling amount and produce a far smaller amount for the European economy than was previously the case. The VAT resource, although it is capped, produces about 35 per cent. of the total but the main resource comes from GNP. I was surprised--I share the view of the noble Lord, Lord Renton of Mount Harry--that the Government agreed with the Commission that the shortcomings of the present system do not provide grounds to justify an urgent modification of the own resources decision. Yet there is unlimited evidence of maladministration, fraud and massive bureaucracy arising within the common market, primarily with regard to traditional own resources. Indeed, the former Commissioner for the budget, Mr. Liikanen, said in reply to Question 104 on page 50 of the report:

    "we should replace all the different own resources by the GNP resource. It is simply the most objective criterion for national capacity to contribute. We would do away with a major part of bureaucracy in member countries and Brussels and, thirdly, there would be no fraud on the revenue side".
He continued at some length to justify the decision to do away with traditional own resources and to rely on GNP.

I believe that GNP per capita or GDP should be considered. However, that would require unanimous agreement. It would also mean, as far as one can calculate, that some countries--France, Italy and Belgium--would be worse off. It is generally recognised that they should pay considerably more. That change would also benefit those which we consider are paying well over the odds--Germany and the Netherlands. To achieve unanimous agreement on that might be somewhat difficult. But it is logical to do so and to do so now and not to put off doing it, as the Government seem minded to do. They should try to get it done now.

VAT produces some 35 per cent. of Community revenue. But the amount produced is falling. A tremendous amount of fraud and bureaucracy goes with VAT. If a country fails to meet the threshold for VAT forecast for it and is short of a few hundred million pounds, instead of it having to make up the amount out of its GNP contribution, the deficiency is spread among all the members of the Community. A country which has fallen well below the threshold does rather well out of it, which is perhaps an encouragement for less than accurate reporting on that system. I suggest that GDP or GNP per capita would provide a fairer and more equitable basis for membership.

I agree with the Government that, in so far as that would create discrepancies between the prosperity of individual countries, the remedy should not be by jigging about with the contributions they make but should be dealt with on the expenditure side. We should not fiddle with contributions but increase the grants to

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countries such as Greece where need may be greater. We should keep a uniform contribution from them all, based on whatever is the correct percentage of GNP.

The matter of transparency has been raised a number of times during this debate. Far too little is said about what actually happens. Neither the Government nor the Commission seem anxious to promote any figures that make it clear to the general public who pay, how much they are paying to the Community and how the money is spent. I searched through the Red Book--no doubt the Minister will tell me where I should have looked--in an attempt to find a nice table containing all the information. But such information was not apparent to me. It is a great pity. There should be a summary, clear to all, of items of revenue and expenditure between the United Kingdom and the Community. It could and should be done.

Some noble Lords, including the noble Lord, Lord Barnett, said that it was not a large sum. I believe the noble Lord described it as "peanuts". It is 1 per cent. of the GNP of the European Community as a whole. The noble Lord shakes his head. Perhaps I misunderstood him. One per cent. of GNP represents more than the total budget of certain countries--Ireland, for example. It represents more than the total expenditure of this country on welfare. So it cannot be written off as peanuts.

Turning to the expenditure side--

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