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Lord Barnett: My Lords, I never did.

Lord Bruce of Donington: My Lords, my noble friend did not but he may have referred in somewhat minimalist terms to the significance of the monetary contribution of the United Kingdom. I believe that my noble friend will accept that. I am content to let the matter lie on the record. I have a good memory, too. We have to do something very different. We cannot rely on promises and prospects of reform of the common agricultural policy as any substitute for the rebate that has been negotiated. I applaud the decision of the Government to insist on the retention of the rebate. If one considers this year's expenditure, the net payment out of the pockets of United Kingdom taxpayers after the rebate will be £3,457 million. That is not small beer. When one considers expenditure on kidney machines, for example, suddenly it is discovered that they are far

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too expensive; one cannot possibly contemplate 10 new kidney machines each costing £20,000. Hard choices have to be made. Single mothers must make sacrifices. Yet we do not seem to be too much troubled about £3,457 million. I am very glad that my noble friend has indicated on behalf of the Government that something firm and definite is far better than some myth projected into the future by those politicians who control the Commission and the Council.

9.11 p.m.

Lord St. John of Bletso: My Lords, it is always a pleasure to follow the noble Lord, Lord Bruce of Donington. Noble Lords will be pleased to learn that, given the hour, I shall keep my comments this evening quite brief. I endorse the point made by our chairman, the noble Lord, Lord Grenfell. At the beginning of the inquiry and on several occasions during the evidence he made it emphatically clear that he wished to promote open debate. I am grateful to the noble Lord, Lord Grenfell, for having steered the sub-committee in such a masterly way that it has completed its report in time for the summit in Berlin later this week. Like the noble Lord, Lord Boardman, and other members of the sub-committee, I am also grateful for the invaluable assistance of our Clerk, Dr. Elizabeth Hopkins.

It is inevitable that the forthcoming Council meeting will be a bruising battle over finances as each of the member states jockeys to keep as much of the Union's largesse as possible while making substantial financial provisions for the new accession members who will be joining between 2000 and 2006. Clearly, the significance of Agenda 2000 and the entry of several eastern European neighbours is likely to be obscured by horse-trading over CAP reform, members' net contributions and the abatements. While compromises and concessions will have to be made, it should be noted that Germany stands to profit most from the almost 64 million additional consumers when the first tranche of six new applicant countries joins the European Union.

I entirely agree with the noble Lord, Lord Skidelsky, that it is difficult to devise a formula for the European budget which is fair to all member states. What is critical however--it is a point made clearly by the noble Lord, Lord Tomlinson--is that there is an essential need for strict budgetary discipline with greater scrutiny of EU expenditure. There have been many calls for European Union money to be used more effectively. Commissioner Erkki Liikanen has been given the responsibility to knock some rigour into the Commission's financial planning and financial controls.

A common theme throughout most of the inquiries of Sub-Committee A, of which I have been privileged to be part, has been the need for greater accountability of funds spent by the EU. I was encouraged to note in the Government's response to our report that the Government invest significant resources in scrutinising EU spending through the processes of the Council and official committees in co-operation with like-minded states. However, I also believe--it is a point made by the noble Lord, Lord Howell--that it is vital that UK taxpayers should have a clearer understanding as to their stake in EU policies and operations. I was pleased that

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the Government agreed that such transparency is important, especially in the lead up to the referendum when the British electorate will decide whether or not to join the single currency.

Although the Government have made their position clear that they wish to maintain the UK abatement, I hope that they can agree to some form of future compromise such as a quid pro quo on CAP reform, or possibly through increased EU expenditure in the United Kingdom. It would reflect badly on Britain if the main reason for the Berlin Summit not reaching an agreement on the financial framework was as a result of the refusal of the British Government to contemplate any change in the present system.

Despite the strong arguments of my noble friend Lord Williamson for a retention of the UK rebate, we cannot ignore the point made by Commissioner Liikanen that a lot has changed in Europe since 1984 and it is therefore difficult to defend the UK abatement on its own without considering abatements for the other major net contributors. I entirely agree with paragraph 18 of the report which states that,

    "the rebate should be negotiable as part of an overall settlement delivering the result of fairer net contributions".
A point that several noble Lords have made is that if every net contributor were to seek a similar rebate to the UK, this would result in a collapse of the EU budget.

As regards the level of funding needed in the period of the next financial perspective, when we interviewed Commissioner Liikanen and Mr. Naval, they were both confident of the Commission's proposal that maintaining the own resources ceiling at 1.27 per cent. for the next seven years would be sufficient to finance the necessary priority measures of Agenda 2000. However, that proposal was based on the assumption of annual growth of 2.5 per cent. per year for the existing member states, and 4 per cent. for the applicant countries. While I agree that the headroom provided by the 1.27 per cent. own resources ceiling is sufficient at present, I have my reservations with the onset of enlargement as to whether that will be sufficient in the future, particularly if GNP growth forecasts fall short of expectations, and if the reforms of the present spending programmes are not achieved. Clearly it is essential that stabilisation of expenditure and reform of the CAP are achieved soon.

Time and again those Eurosceptic speakers such as my noble friend Lord Harris--he is not present at the moment--refer to the constant problem of fraud and (I think in his words) the "Brussels pantomime". Even though our report did not recommend in the short term a renegotiation of the own resources system, I agree that if in the medium term traditional own resources and the VAT-based resource are abolished leaving only the GNP-based resource, this would considerably reduce both bureaucracy and the constant problem of fraud.

In conclusion, unlike the noble Lord, Lord Desai, I support enlargement of the European Union. Enlargement is now the European Union's major challenge. If the financial hurdles are not overcome in Berlin, it is likely that the timetable for enlargement will be delayed. I refer back to paragraph 18 which states:

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    "Equipping the European Union to handle enlargement is a very big prize: we urge the Government not to throw it away".
I commend the report to your Lordships.

9.20 p.m.

Lord Randall of St. Budeaux: My Lords, I start by saying what a pleasure it was to be on the committee which produced the report that we are debating. As this is a high quality report, which is what is expected of the House of Lords.

Also, I add that our new chairman, my noble friend Lord Grenfell, played a superb role in the production of that report in such a short time, and it was a unanimous report. In particular, he created a good working atmosphere which made being on the committee so enjoyable. I add my thanks also to Dr. Elizabeth Hopkins, our Clerk, for the effective contribution she made.

This report is about funding the European Union in the period between 2000 and 2006. However, I believe that we need to put the whole matter of funding into perspective. We are funding an institution which is vitally important to the security of Britain and the rest of the European Union. Thank goodness the European Union is stable and the possibility of having war within it is negligible.

That contrasts with our recent history in which we had two world wars within a 25-year period with indescribable death and destruction--about 60 million lives being lost. In your Lordships' House, we have noble friends on all sides who have lost their sight and have damaged or lost their limbs. They gave all that for us and we should never forget it. At the same time, we should never again allow conditions to prevail in Europe where others would have to forfeit so much in the same way.

The threat to our security goes beyond the boundaries of the European Union. The current death and destruction in the former Yugoslavia is right on our doorstep. The European Union has a leading role to play, in conjunction with the United Nations and NATO, in order to stifle conflict there. We could be on the edge of war again, according to the news to which I listened at lunchtime today.

The key question which arises is: what can the European Union do to reduce possible threats from countries just beyond its boundaries? In my view, the answer is the enlargement of the European Union. There is now a group of 10 countries, called the CEEC 10--the central and eastern European countries--which can be expected to join the European Union in the not too distant future. Five countries, including Cyprus, will be likely to join in the next phase.

The institutional bonding of the CEEC 10 into the European Union will have the effect, over a period of time, of diminishing the threat of conflict and war. However, in addition to all this, the economic advantages of increasing the size of the European Union to perhaps 25 countries will be enormous. Enlargement, both in terms of security and economic benefit, is a prize we must not lose.

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When one considers Agenda 2000, which presents the EU budget for the period 2000 to 2006, one big item is missing; that is, radical reform. The budget appears to be out of balance because of the disproportionate level of spending on the agricultural policy. That has to change if we are to have sufficient funding for enlargement and if we are to introduce greater fairness in the way that member states contribute to the EU budget.

Since the Select Committee report was published, the whole of the European Commission has resigned and there are uncertainties about the future. However, I believe that the crisis we are in can result in advantage to the European Union. Certainly, there now appears to be a greater chance of radical reform in the European Commission, but we will have to wait and see.

To use the words of the Prime Minister, we must make the European Union more of a "people's Europe". Presently there is--we must admit it--a considerable sense of detachment of the British people from the European Union. They contribute their money to it but, as the report states, they have no idea on what that money is spent. I say that as somebody who is very pro European Union. Certainly, the people are not aware of whether or not the money is spent wisely. That situation cannot be allowed to continue. The Select Committee report advocated greater transparency in the EU budget. Will the Minister tell the House the Government's position regarding the conclusion of the select committee on transparency, as laid down in paragraph 15 of the report? I look forward to my noble friend's reply on that point.

If the Commission is to be seen as a servant of the people, which is what I believe it should be, there has to be greater accountability of the European Union on budgetary matters. Whether we like it or not, there is, unquestionably, a perception that Brussels is too isolated, too distant and not approachable. Again, I believe we have to face up to this. Our MEPs who, on the whole, do an excellent job, do not have the powers or means to make the EU more accountable. There are several ways in which financial accountability could be achieved, but there appears to be no agreed strategy on how that should be done. Can my noble friend the Minister tell the House the Government's position on the question of financial accountability and what they intend to do about it? I look forward to my noble friend's reply on that.

The third question that I should like to ask my noble friend is whether the Government believe that the two Houses that make up the British Parliament should have greater powers of scrutiny of the EU finances, which would lead to greater accountability of the EU both at national state level as well as at the European Union level.

I should like to say a few words about the contributions made by member states to the EU budget as well as about Britain's abatement. The first thing that should happen is for all member states to feel contented with their net contributions. At the moment, that situation does not prevail and it must therefore be dealt with. Reference has already been made to the countries

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which are not content. I shall not go into the details, but they include Germany, Austria, Holland and Sweden. I do not believe that it is particularly difficult to determine the fair gross contributions to be made by member states to the EU budget. We can draw up a list. What is difficult--or seemingly impossible--is to draw up a simple list of net contributions which is seen to be fair to all member states. I think that the fundamental reason for that is that member states receive different benefits from the EU budget.

To be specific, Britain receives the abatement partly--I think, probably mainly--because we are in receipt of relatively small benefits from the common agricultural policy because of the nature of British farming, which is efficient and very advanced. There is, in my view, a case for Britain to negotiate its abatement if, for example, there were radical reforms to the CAP, stabilisation of expenditure, and possibly if more EU money was given to Britain.

If--and I stress the word "if"--those conditions were met, I see no reason why Britain could not be made content with its net contribution while the current abatement changes or even disappears. As I have already stressed, this is all a matter for negotiation, as well as for EU reform. My noble friend Lord Shore of Stepney, who is no longer in his place, suggested that there was surrender here, but it is not a question of surrender; the report proposes a negotiating stance or a way forward, which would have to be negotiated.

In that context, it is worth pointing out that the system of "own resources", together with VAT, forms the basis for funding the European Union. In my view, that system acts as an impediment (because of its complexity) in determining the fair, net contributions to be made by member states.

Finally, I support the comments made on this in the Select Committee's report which suggested that a system based on GNP per capita might be better than the current own resources and VAT arrangement. One additional advantage of that approach is that it would help to reduce fraud in certain member states.

9.35 p.m.

Lord Shaw of Northstead: My Lords, I should like to follow others who have already expressed their thanks to our new chairman for the way in which he has led us in the discussion of this report. The noble Lord has already shown that he is equal to the standard of his distinguished predecessors. We all look forward to a considerable number of reports as a result of his leadership.

This report arises from the need of the EU to look ahead at its future financial needs. I say that because if one is to raise money, it is always good to know what one is to raise it for. The other aspect is that we have to discuss the means by which the monies are to be raised.

Since I first took part in European parliamentary budgetary discussions not only has membership of the European Union greatly increased, but also the size of the EU budget. It has increased enormously. At the same time the diversity of need between the large number of member states has also increased. It will continue to

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increase as and when further enlargement takes place. One of the troubles is that the systems do not seem to have changed much or certainly have lacked a great deal of control.

While our review is primarily concerned with the limited period covering the years 2000 to 2006, it must be helpful for thought to be given to the longer financial perspective. In planning for the short-term it would not be helpful to pursue policies that would make things more difficult for the fulfilment of longer-term policies. The need for such a longer view of our finances and expenditure methods has been greatly increased by the resignation of the Commission and the report of the independent committee.

The report seems to have come as a surprise to many people. Frankly, to me it has come as a tremendous relief. Those of us who have been concerned with these matters have long known what is going on. Neither our words of warning, nor even the warnings of the Court of Auditors seemed, for too long, to have had any effect. Incidentally, I believe that the work of the Court of Auditors has been greatly undervalued in this affair. The strengthening of its status at Maastricht and its subsequent qualified report are the background to the present independent report and the more active role that is now being taken by the European Parliament.

The Berlin European Council meets this week to try to complete the Agenda 2000 negotiations. I am not clear as to where the need for reforms brought out in the independent committee report comes in the council's agenda. Will that committee's report be discussed and what effect will it have on the original agenda? I firmly believe that no further progress can be made on enlarging the EU until those reforms that result from the inquiry have been put in place and prove to be effective. The overwhelming feeling that has come out of this report is that there has to be a deep-seated review of the composition of the Commission and its responsibilities and that it must come quickly.

As regards the raising of revenue, that makes paragraph 64 of our report all the more relevant. It quotes the Court of Auditors as saying,

    "In order to eliminate repeated irregularities, the Commission should ... improve collaboration between itself and the Member States as regards the management and control of traditional own resources".
It goes on to say,

    "The persistence of irregularities in the collection of traditional own resources despite constant pressure for improvement suggests that the problems are inherent in the system".
That makes it all the more urgent that the own resources decision should be renegotiated a soon as possible with a view to funding being based entirely on a GNP-based resource.

Incidentally, I feel that there should be no question of any form of direct EU taxation. Filling in one UK tax return is quite enough and the bureaucracy and complications involved in filling in a European one makes the mind boggle.

The independent committee report must have a direct bearing on the subject of our report and, in my view, on what goes on in Berlin this week. It is essential that the

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opportunity is now taken to look in depth at the manning and scope of the Commission's activities. How many commissioners do we need? How are they and their staff to be appointed? To whom will they be accountable? What are to be their future responsibilities? Until those questions are quickly addressed, slowly but surely we shall slip back into the same old ways, and the answers that have to come in the end will be disastrously delayed.

I have always regarded the Commission as the executive Civil Service of the EU. That it has taken on a greater role is because it has been allowed to do so. A redefinition of the Commission's responsibilities is required. I believe that there are a number of areas where EU activities should be returned to the responsibility of the member states themselves. In broad terms, I would wish to see the Council of Ministers playing more of a Cabinet role; the Commission more of a purely executive role; and the European Parliament, among its other duties, a greater scrutinising role.

In relation to revenue raising and expenditure, it must be remembered that much of the work is carried out by the member states themselves. That being so, the degree of bureaucracy and fraud depends on how simple the systems are made, the clear way in which responsibility is placed on those member states, and the clear and effective audit arrangements that are put in place. That is why Commissioner Liikanen, as my noble friend Lord Boardman said, argued solely for the GNP-based resource as a means of improving the fairness of the system. He said that moving to such a resource would,

    "do away with a major part of bureaucracy in member countries and Brussels ... and there would be no fraud on the revenue side"--
or nearly no fraud.

In relation to expenditure, much of the administration is carried out either by the member states or by independent agencies of one sort or another. Here again, the objectives and stages of fulfilment must be clearly defined and reported on. The programmes must be open to continuous scrutiny. When we set up the Budget Control Committee in the European Parliament in 1977, I had hoped that it would act as effectively as our own PAC. In those early days I am afraid that those hopes were not immediately fulfilled. I hope that now the strictures of the Court of Auditors are being followed up both by that committee and by Parliament itself. I hope that the changes which must come about will be brought about with great urgency. I hope that priority is given to them even over the priorities already given to the Agenda 2000 programme in Berlin this week.

One of the difficulties of the present system is that the presidencies last for six months at a time and it has always been necessary that the presiding presidency should have some success story at the end of that six months. Frankly, if a way could be found for the fundamental reform that is now so urgently needed, that would be a much greater success for the German presidency than the success of Agenda 2000. Perhaps they have a priority. I do not know. My personal feeling is that the priority should be deep-seated reform.

I hope that the report is a preface to other reports based on what will come out of proposals for reform from the Berlin Summit later this week. I fully support the work of

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the committee and the report that it has achieved. I hope that it will not be long before we produce another report, further along the line of reform.

9.45 p.m.

Lord Taverne: My Lords, I do not have a great deal to say by way of comment on the report, which was excellently summarised and elucidated in the introductory speech of the noble Lord, Lord Grenfell. The report is excellent and I have few comments because I do not want to repeat what others have said. My only comment is on the rebate.

I listened to the remarks of the noble Lord, Lord Skidelsky, about the need to veto an end to such a rebate unless we secure certain concessions. I listened to the noble Lord, Lord Barnett. I agree much more with his approach than that of the noble Lord, Lord Skidelsky. Then I listened to the noble Lord, Lord Williamson, who made me think again because he has unrivalled experience. On reflection, it does not seem that there is a profound difference between their comments. No one is suggesting that we should give away the rebate without concessions. No one is suggesting that we should fight to the last ditch for the rebate, whatever concessions may be offered. It is a question of tactics. I prefer the approach advocated by the noble Lord, Lord Barnett, and many others.

It does not do much good to brandish a veto. Too often our deliberations in Brussels are represented as a tennis championship--game, set and match to Britain. It is a sort of macho contest. We win or we surrender. That is not the way to negotiate. A much more sensible approach is advocated by the committee, and I strongly endorse it.

The proper way is shown by the BSE experience. The last government threatened and exercised a veto, using the doctrine of the empty chair, and got nowhere. The present Government have been much more emollient. One person who paid tribute to the better results of that stance was the noble Lord, Lord Plumb, who said that the ban on British beef would not have been lifted if we had continued to negotiate in the way that the last government did.

My main question concerns the total size of the budget. The committee reached the reasonable conclusion that it would be possible up to 2006 to stay within the ceiling of 1.27 per cent., which could even accommodate enlargement. That may be true but a bigger question arises. Will the budget be sufficient for European monetary union? It is likely that within the next two years two new member states will join EMU. Personally, I regard it as more likely than not that by 2004 Britain will be a member of EMU. So all 15 present member states will be members.

Is the budget large enough for EMU? I remember reading the MacDougall report, which demanded strong central resources, at the time of the Werner plan. I actually wrote a pamphlet about it in 1972. I have not re-read my pamphlet because I am not sure that it was particularly good. However, the question arises of the need for central resources. It is extremely significant that there is no push for increasing the EU's central resources. The noble Lord, Lord Shore of Stepney, is not in his place, and it seems to me that debates could be shortened if noble Lords who are

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not present for the wind-up speeches would refrain from speaking. That would certainly make our debates end somewhat earlier.

The noble Lord, Lord Shore, always frightens us--as indeed do many of the anti-Europeans--with the thought of a terrible federal superstate that the Germans are advocating. It is perfectly true that many Germans talk about the need for political union and Mr. Tietmeyer talks about the need for an economic government. But you cannot have an economic government and a federal state without much bigger central resources. You cannot have a federal government with central resources of 1.27 per cent. of GDP of the federal state. This is why I sometimes think it is necessary to draw a distinction between the rhetoric and the reality. The German politicians are not advocating that they should contribute more. They want to contribute less. They are the keenest to limit the total resource to 1.27 per cent. of GDP.

It rather knocks on the head the idea that what we are about to face is a federal superstate when every country is agreed that we shall not increase the central resource of the EU. The next question is: is that right? Is it possible to limit the central resources of monetary union to such a small central budget? Was MacDougall right to say that you needed a much bigger budget? People draw a parallel with the United States because of the stabilising effects on depressed regions of a strong federal budget. If, for example, Texas is in depression, Texans pay less tax and receive more benefits, and therefore the recession is mitigated. Some people have calculated that US federal taxes and transfers offset variations from the national average by as much as 40 per cent. Others put it much lower at 10 per cent.

I have changed my mind about this matter. I used to support MacDougall but I think it is possible that monetary union can function perfectly well without a large central budget. I have been much reinforced in this by an excellent study which I commend to the House. It was done in 1996 for the OECD by three authors, Hoeller, Loeppe and Vergriete. I found that study convincing. They say that the comparison with the United States is not valid as Europe is a completely different animal. The states of the United States do not have the resources for stabilisation. In the European Union there are not the central resources, and they will not exist. However, the resources of the member states are infinitely greater, and the responsibility for dealing with unemployment or regional variations in employment lies primarily with the nation state and will continue to do so.

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