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3.30 pm

That equation is necessarily difficult, as is shown by the fact that the benefit from the UK abatement changes every year. In 1991, the abatement was worth £2,497 million at cash prices—£2.5 billion. In 1995, it was worth £1.2 billion, and in 2002 it was worth £2 billion. Its value changes every year because it contains so many variables. No doubt the calculation of what the UK would have retained, if it had kept all those cumulative windfall gains, depends on many other variables such as the base of consumer expenditure underlying the VAT element of the own resources decision or the different rates of duty and levy collected in each country. Those variable factors would be part of the calculation.

One would not expect the Minister to give precise figures in order for us to make a decision, but one could expect ranges of figures—an indication of the size we are talking about. For example, is the UK rebate worth between £1 billion and £2 billion each year—depending on those factors—and is the amount that we would have gained from the windfalls between £500 million and £1 billion? Such a range of figures would be useful. The Committee could then come to a final decision about whether successive Governments were wise to fight so hard for the UK rebate, not only at Berlin but before that in 1988 and 1992.

The Minister raises her eyebrows to the ceiling—clearly, the calculation is difficult—but if we are to hold the Government to account for their decisions on negotiations made on behalf of the UK taxpayer we need those figures. Successive Governments may cumulatively—almost unknowingly—have cost the UK taxpayer a lot of money in net terms. By defending that sacred cow of Fontainebleau and by going to the wall and saying that we will fight to retain the UK abatement, we may be doing ourselves an injustice and costing the UK taxpayer more.

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It is time to examine the matter in detail, because we shall no doubt return to the reform of the EU budget and the own resources decision in five or six years, when another European Communities (Finance) Bill will appear before a successor Parliament. If we do not get the figures right—if the Treasury and the Foreign and Commonwealth Office do not start to work them out—we shall again get it wrong in future negotiations on reform of the EU budget.

Perhaps we should change our whole negotiating position. Perhaps—I do not know, because I do not have the figures—we would earn an awful lot of prestige and benefit in European diplomacy and in our standing in the European Commission if we said, "Hold on, we are prepared to look at the issue of the UK rebate, but we will only even consider giving it up if all the windfall gains that you previously asked us not to take are given back to us." We might benefit from that approach. Instead of mounting a jingoistic, nationalistic—even prejudiced—defence of the Fontainebleau agreement, we might realise that it was to our benefit to lay a certain sacred cow to rest.

In some areas of the UK, the rebate has negative effects. Hon. Members may be aware that agriculture suffers from the rebate. The argument is complicated, as European financial discussions always are. The knock-on effect of the green pound and the associated calculations is that UK agriculture does not benefit as substantially as it might from agrimonetary compensation.

Mr. Flight: I entirely support the point that the hon. Gentleman makes, but is not the reason for those effects that, under Fontainebleau, the UK is obliged to contribute 70 per cent. of the cost of the exchange rate adjustment and that, over the past few years, the Government have failed to do so?

Mr. Davey rose

Angus Robertson (Moray): The Conservatives negotiated that arrangement.

Mr. Davey: The hon. Member for Arundel and South Downs (Mr. Flight) is right but, as the hon. Member for Moray (Angus Robertson) points out, the negotiations were conducted by a Conservative Government. If the UK Government pay their fair share of agrimonetary compensation under the green pound revaluation compensation mechanisms, the UK loses out in the following year when the rebate is clawed back. Her Majesty's Treasury therefore never wants to pay out as much as it should in agrimonetary compensation and UK farmers are disadvantaged.

That is a real problem. It is a particularly British problem as more and more countries adopt the euro. We shall be the only country that could receive agrimonetary compensation, so changing the nature of that agreement—only we shall have a real interest in it—will become nigh on impossible. That disbenefit for UK farmers stems from the retention of the UK rebate, so by looking again at the sacred cow of the UK rebate we might obtain a better deal not only for UK taxpayers but for UK farmers.

All those statements are conditional—we do not have the information before us. Even with the best will in the world, my researches before the Committee sat did not

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produce the relevant information. During my exchanges with the Minister on Second Reading about the definition of "windfall gain" and in her subsequent, kind letter of 16 July, copies of which were sent to the hon. Member for Arundel and South Downs and to the Library, it has become clear that the point is of some substance.

We needed those exchanges in order to be sure what a windfall gain was: whether it was a genuine, one-off gain or a cumulative gain. From the hon. Lady's letter, it appears that the gain is cumulative, which is what worries me. We have established that the gain is cumulative, so the UK could have given up an awful lot of money in order to retain its abatement.

The Economic Secretary will be glad to know that I do not expect her to give me detailed figures today, which would be quite demanding, but on Third Reading on 16 October, when the House will be asked to consider whether such agreements are really in the UK's interest, we will need that information. I hope that my contribution will set minds a-thinking in Her Majesty's Treasury and in the Foreign and Commonwealth Office about whether the UK could adopt a position at future negotiations that might save us money and might also help our farmers.

Ruth Kelly: I am glad to say that once again we have had an interesting and good-natured debate. I pay tribute to my hon. Friend the Member for West Renfrewshire (Jim Sheridan), who spoke with passion about the employment situation in his constituency, and about the need to consult workers and protect their rights. He spoke from his own experience in manufacturing. He also pointed out the need to engage constructively with Europe. I look forward to hearing from him again on this subject, and I am sure that he has a significant contribution to make to the House.

The Opposition spokesman, the hon. Member for Arundel and South Downs (Mr. Flight), referred to article 9, which we discussed on Second Reading. I thought that I had dealt with the matter fully at the time and made it absolutely clear that any taxation changes would need to be agreed by unanimity. There is no prospect of the United Kingdom endorsing such an approach. I am, however, glad that he decided to congratulate the Chancellor, and I look forward to his doing more of that.

The hon. Gentleman referred to the definition of GNP. As he said, we discussed that after Second Reading, and I am glad to be able to give him a little more detail about it. I can assure him that all member states calculate three independent measures of GNP: production, income and expenditure. Those calculations are made in accordance with worldwide guidelines on national accounting. The three measures are balanced using supply-use tables. The balancing process ensures that even though certain illegal production can filter into a measure, it will generally be picked up in one of the calculations. For example, income from selling stolen goods may be spent legally and will therefore be picked up in the expenditure measure. I hope that I have reassured the hon. Gentleman on that point.

In an interesting contribution to the debate, the hon. Gentleman also talked about the size of the transfer payments in the EU. As yet, there are no signs of economic and monetary union leading to new fiscal powers for the EU. EMU has left decisions on fiscal

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policy firmly with member states, and those are co-ordinated, in a non-binding way, through the broad economic guidelines.

Mr. Flight: The specific issue that I raised was not about resisting EU taxation and tax harmonisation, but about whether the euro can succeed as a currency within euroland without adequate transfer payments. I note that the Chancellor has recently attached great importance to being interested in the euro only if it is a success.

Ruth Kelly: I thank the hon. Gentleman for that clarification, but I repeat that there are no signs of such pressure arising, and fiscal authority remains with member states. The question of the euro's success is implicit in the five economic tests, and no sixth test is being introduced.

The hon. Gentleman went on to deal with the common agricultural policy and the forces at work due to enlargement. I assure him that the United Kingdom is at the forefront of the nations urging the EU 15 to expand and encouraging other states to join, as long as they meet the criteria, of course. I assure him also that 2004 is a realistic date. Although the Berlin ceiling provides for market support and rural measures, it does not include direct aid measures for farmers in the candidate countries. We hope that the EU will consider that issue in 2002, so clearly there will be pressure for further reform in the years ahead.

I disagree with the hon. Gentleman's comment that CAP reforms have been watered down by the UK's approach. We are in the vanguard of those pressing for reform of the policy. The agreement that was reached was for the most radical reform of the CAP since its creation. It will provide a benefit to the average family worth £70 a year and achieve significant price cuts for beef and cereals. Of course, we want further, deeper cuts, and we will press for those with our neighbouring countries in Europe. For the first time, funds will be transferred to rural development.

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