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Lord Hunt of Kings Heath: My Lords, before we move to the Statement on the European Council, I remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

European Council, Vienna, 11th-12th December

4.26 p.m.

The Lord Privy Seal (Baroness Jay of Paddington): My Lords, with the leave of the House I will now repeat a Statement being made in another place by my right honourable friend the Prime Minister. The Statement is as follows:

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    national financial markets, better co-operation between the IMF and other actors, strengthened prudential and regulatory standards.

    "Much of the discussion in Vienna was about Agenda 2000. This is a wide-ranging and important negotiation embracing the reform of the common agricultural policy to help the consumer, create a more efficient and competitive agriculture sector and reduce the burden to the taxpayer; and reforms to the structural and cohesion funds to ensure that they are fair and affordable, including after enlargement. On future financing, the UK is among a large group of member states arguing for stabilisation of expenditure at current levels by the year 2006. Vienna confirmed the political objective of reaching overall agreement at a special meeting of the European Council on 24th and 25th March.

    "As for the British budget rebate, I repeat what I said in Vienna. The rebate is still fully justified and will remain. Even with it, the UK is the fifth largest net contributor in per capita terms, while we are ninth or tenth in terms of GNP. We still pay far more than countries such as France, with the equivalent population and slightly higher national income.

    "On enlargement, the European Council welcomed the fact that the first practical results have been reached in negotiations with Cyprus, Hungary, Poland, Estonia, the Czech Republic and Slovenia. It also welcomed progress made by Romania, Slovakia, Latvia, Lithuania and Bulgaria; welcomed the reactivation of Malta's application; and recognised the importance of implementing the EU's strategy to prepare Turkey for membership. Work in all these areas will intensify next year.

    "In the UK presidency my right honourable friend the Deputy Prime Minister led work in the EU on integrating environmental policy into other community polices. The Austrian presidency carried forward this work in the fields of transport, energy and agriculture. At Vienna we agreed that it should be developed further into the areas of international development, the internal market and industry.

    "At Cardiff, I launched a debate on the future development of the EU which was carried forward at the informal summit in October. We agreed in Vienna further steps to make a reality of subsidiarity and improve the effectiveness of EU institutions. We will issue a millennium declaration setting out the Union's priorities for the period ahead at the end of next year, to coincide with a new Commission taking office.

    "At the informal summit in October, I urged the strengthening of the EU's foreign policy, not least by backing it with a credible capability for military action in regional crises where the US or NATO as a whole does not wish to be engaged. The joint declaration agreed with the French at St. Malo on 4th December gave us a sound basis on which to build this initiative. It was widely welcomed by partners at Vienna. We agreed that work should be taken forward under the German presidency. There is of course no question of undermining NATO in any way. Strengthening European defence capability will strengthen NATO.

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    "On current foreign policy issues, we underlined the urgency of bringing the parties in Kosovo to a political agreement and the importance of the EU continuing its political and economic support for the Middle East peace process. We repeated our readiness to help Russia overcome its present severe difficulties, and agreed that Russia should be the subject of one of the first CFSP common strategies when the Amsterdam Treaty enters into force.

    "The Vienna Council made useful progress on the economic and employment points, and above all laid a solid foundation for the difficult Agenda 2000 negotiations in the next three months. Britain's interests were safeguarded and promoted without difficulty. We defended our positions, in a constructive way, just as others defended theirs.

    "In the days before Vienna we issued joint statements with Spain on structural reform, with Sweden on social policy, with France on defence and with Germany on tax. All of these were welcomed in the discussion and reflected in the conclusions. At Vienna itself we helped shape the debate on economic and employment issues, on Agenda 2000, on enlargement and other issues in sensible directions, fully consistent with our interests.

    "This Government have transformed Britain's relations with the rest of the European Union since they took office. It is in the fundamental interests of this country that we remain fully engaged in the debate on the development of the EU. On this side of the House we have the confidence in our arguments, and in our ability to build support for them, to believe that we can win the debates in Europe in favour of economic reform, and an open and decentralised Europe.

    "Those who would end up by taking us out of Europe, or so far to its margins as to eclipse any serious influence in Europe, would profoundly damage this country. This Government will not be swayed from their positive and constructive European policy. I have no doubt that this is the right course for Britain's future."

My Lords, that concludes the Statement.

4.36 p.m.

Lord Strathclyde: My Lords, I thank the noble Baroness the Leader of the House for repeating this important Statement and wish to go on to ask her some questions and make some comments about the issues that she has raised.

First, though, does she recall that, after the so-called informal Council that took place at Poertschach some weeks ago, my noble friend Lord Cranborne and I pressed for a Statement to be made in the House on the undertakings given on European defence integration, on tax harmonisation and on closer integration? Does she agree that at the time no Statement was given to this House because of the disinclination of her right honourable friend the Prime Minister to make a Statement in another place? Does the noble Baroness now agree that, in the light of what has taken place at the Vienna summit, it is clear that substantial efforts

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were already in train at that earlier summit to give new momentum to European integration and that it would have been better to have made a Statement? Indeed, does she accept that the Prime Minister might have been in a stronger position at the Vienna summit if he had had the reaction and support of the British Parliament behind him? Will she therefore give the House an assurance that, as this process develops, Statements will in fact be given in this House on important informal summits such as the Poertschach meeting?

Turning now to the substance of the issues decided in Vienna, I welcome the reaffirmation of the need to take action against the scandal of Community fraud. Will she accept, however, that the problems of fraud have long been identified and that we on this side will find it disappointing to read that a review in Council of the fight against fraud will not take place until December 1999? Is she aware that we also welcome the restatement of the aim to widen membership of the Union? But has she also noted that, while the Presidency Conclusions speak of "new momentum on integration" and "a new impetus towards a defence role for the European Union", they refer only to maintaining momentum on enlargement? Can the noble Baroness inform the House whether the Government's prime strategic objective is to widen the Union or to deepen it? If widening the Union is the objective, what specific success can she report for British influence in Vienna?

I welcome the underlining of the commitment to subsidiarity and the reduction of unnecessary regulation. This is something for which my right honourable friend Mr. Major, when he was Prime Minister, laboured long and hard. Will she give the House examples of Community legislation that has been modified or repealed under this agreement as a result of the British Government's initiative?

So much for what we can welcome. Will the noble Baroness note our concern and disappointment as regards the overall outcome of the summit? Is she aware that the pronouncements of the Prime Minister on the issues before this summit were somewhat confused, and that they have not become any more convincing or consistent the more often they are repeated? Does she agree that the Prime Minister tends to emphasise a different line depending on where he is speaking? Did she note his remarks on GMT when he said that my noble friend Lady Thatcher was right to stand firm for Britain's interest, but that on the other hand she was wrong to stand so firm? Is the Prime Minister standing anywhere on his European policy except on his head?

What did the Prime Minister mean when he said that the UK rebate was up for negotiation? Is it, and what were the conclusions of Vienna on this? What did the Prime Minister mean when he wrote in The Times today that there is a genuine debate on aspects of tax harmonisation? Is the noble Baroness aware that the Prime Minister agreed in Council to pursue work on a directive on taxation of savings and a directive on interest and royalties? In that work what do the United Kingdom Government rule in and what do they rule out?

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The Council emphasised the need to combat harmful tax competition. What tax competition do the UK Government consider harmful? The Council agreed that it wished to get national tax structures,

    "to develop in a more employment-friendly way",
and commissioned a study on company taxation. What will the UK Government say to UK business on this? What are their objectives in agreeing to it? What is the Government's policy on a Europe-wide withholding tax?

The Presidency Conclusions talk of a new impetus on European defence integration following the Poertschach meeting. How far are the Government prepared to go in dismantling the Western European Union? Will the noble Baroness the Leader of the House allow a debate in government time and explain what specifically they see as the long-term role of the European Union on defence?

I believe that the Government have come to a crossroads. The rhetorical plaster that the Prime Minister has put over his incoherent policy on Europe is coming off. The European Council conclusions--endorsed by the Prime Minister--proclaim new momentum on European integration. The train is on the move. Are the Government on the train, or off it? Are they trying to apply the brakes, or propel it forward? I think that this House needs to know the principles guiding the Government's policy on Europe. I hope soon we shall be told that.

4.42 p.m.

Lord Rodgers of Quarry Bank: My Lords, while I thank, as always, the noble Baroness the Leader of the House for repeating the Prime Minister's Statement, I hope that I am not alone in looking forward to the day when reports of the European Council will be seen as too routine to deserve such formal prime ministerial Statements. In practice, the report was of a relatively quiet weekend in Vienna, despite the predictions of stormy and difficult negotiations. Almost all there is to know has already been said in the communique, in press briefings and on television. In that respect I certainly do not intend to follow the noble Lord, Lord Strathclyde, in discussing yesterday's television programmes or, for that matter, today's newspapers. I shall limit my remarks rather rigorously and show discipline by dealing with the Statement itself.

I hope that there is much for all of us to endorse. As regards enlargement, certainly I think we can endorse what the Statement says, although the process of enlargement is much too slow. I do not think Vienna accelerated the pace in any way at all. As regards the British budget rebate, we have been told what we always knew--despite the noise which was made by the Conservative Party in advance of Vienna--namely, that it was never seriously at risk. As regards strengthening the European Union's foreign policy with a credible capacity for military action, I think that step was widely endorsed in both Houses of Parliament only a week ago. It is good to hear that jobs remain Europe's top priority and I hope they still remain a top priority here and we shall not always be carried away with regard to the

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percentage or the decimal point of inflation. I think we all know that the common agricultural policy remains a great unsolved problem with which the European Union must continue to battle.

I cannot work up nearly as much passion as the Prime Minister on duty-free sales and I wonder whether that was entirely a wise use of prime ministerial time. However, I may be an exception on that matter, even in your Lordships' House, and therefore I rest my case. As regards tax harmonisation, despite all the excitement that was a dog that did not bark. I welcome the fact that the Statement acknowledges, properly, that there is a place for reform to reduce distortions in the single market. It was necessary and inevitable that certain tax matters should be looked at in the light of the single market and its proper functioning as a level playing field.

The noble Baroness the Leader of the House repeated--as it was proper to do--the Government's claim to have transformed Britain's relationships with the rest of the European Union since they took office. There is at least an element of hyperbole in that. I do not doubt that the Government have created good will and optimism and I think that we on these Benches greatly welcome that. However, it is too soon to say whether they have delivered a whole new way of treating Europe, or if they are willing to explain to the nation as a whole exactly the nature of relationships within the European Union. They need to describe the whole negotiating process; that is, that negotiations inevitably involve statements of position, give and take and compromise when 15 nations properly seek to defend their own interests. They need to say also that, whatever the short-term problems may be--and sometimes difficult short-term concessions--the objective must always be the long term and where Britain's long-term interest lies. As we see the matter from these Benches, it lies unequivocally with active participation in the European Union.

My only question is one which I think the noble Baroness would describe as rhetorical. Is not the real choice for any government today between sharing fully in the move towards the development of the European Union, declaring now their intention to participate in the euro at a specific early date--that is one possibility--or effectively to move into a semi-detached position (as Her Majesty's Opposition appear to be doing) with the logic of becoming a lame duck member of the Union or getting out altogether? Will the noble Baroness endorse my view that these are the two historical alternatives which shine through all the detail of the weekend in Vienna?

4.47 p.m.

Baroness Jay of Paddington: My Lords, I am grateful to both noble Lords for their contributions and for their general welcome of the Statement. I accept that the final question of the noble Lord, Lord Rodgers, is largely rhetorical. However, he referred--I think the Statement also reflects this--to a division in understanding on the long-term future of European commitment as between this side of the House and his Benches and those in the main opposition party.

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However, I say to the noble Lord, Lord Strathclyde, that that underlines the difference of principle. Although I would not go quite so far as the noble Lord, Lord Rodgers, in advocating the immediate, or at least time-limited adoption of the euro, we share his main sentiments and they certainly underline the principles behind much of the Government's attitude to European discussion.

The two noble Lords appear to differ on whether this Statement should have been made at all. As regards the report to Parliament on the informal earlier summit, I say to the noble Lord, Lord Strathclyde, that I am, of course, aware of the correspondence between his predecessor and myself on this subject. I have taken advice on this matter since the noble Viscount, Lord Cranborne, raised it at an earlier stage. I understand that it is extremely rare--I believe there has been only one such occasion in the past decade--to report informal summits to Parliament. I believe this is also relevant to the position that the noble Lord adopted on the question of holding another debate on some of these issues in government time. I point out that recently there has been not only your Lordships' debate on the Strategic Defence Review but also a whole day on the debate on the humble Address. Those debates covered many of the subjects. There have been opportunities recently to look at them in general terms and I do not feel that the House has been left uninformed, as discussions have proceeded. I am sure that through the usual channels that situation will continue.

The noble Lord raised specific points about tax harmonisation. As I said in repeating the Statement, the issue did not attract controversy at the summit because it became a matter on which the issues which the noble Lord sought to describe as being of some immediate concern, were not addressed. I quote directly from the conclusions:

    "Co-operation in the tax policy area is not aiming at uniform tax rates".
The UK will not support any action at the EU level or anything which does damage to business competitiveness or jobs. There is no question of tax changes being imposed upon the UK. If we consider the taxation proposals which might be in Britain's national economic interests, there are obviously some in which interesting discussions and developments may arise at the EU level. We have long supported action within the G7, the EU and the OECD to combat harmful tax competition. That action will continue.

The noble Lord also raised questions of welfare and employment. Those, too, are matters where agreements at Vienna continued the policies which had been established in the immediately preceding summits. The noble Lord was concerned that the discussion on fraud would only come to fruition later in the year. I hope he agrees that some of the substantive decisions on ways of combating fraud, and the joint activities between the European partners which have led to much more detailed discussion both of the possibilities of investigating fraud within the individual countries and within the European institutions, are to be welcomed. I am sure they will be taken forward with vigour.

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In response to the noble Lord's questions, I end by saying that he asked me to define the position of the Government in the long term. I need only repeat that the welfare of the United Kingdom will be vigorously pursued by the Prime Minister and all members of the Government who engage in discussions with the European Union at every possible level. However, we believe that the prosperity and security of this country can be achieved and advanced through the European Union. We see it as part of the mature development of European politics to which we hope all parties agree.

4.53 p.m.

Lord Shore of Stepney: My Lords, I echo my noble friend's thought that the Statement was excessively long on words and extremely short on acts and decisions. Those will be left to the Council when the Germans take on the presidency at the beginning of this coming year.

I wish to raise two points with the noble Baroness at this stage. The first is on taxation, which the Government's press spokesmen have underplayed almost as ludicrously as some hysterics have overplayed it in the press. After all, no fewer than five separate taxes are on the agenda and were discussed. I wish to ask the noble Baroness about two taxes: those on which directives are being prepared and those which are expected to be agreed by the Helsinki council in six months' time. Have we reached an agreement on the two taxes? I refer to the tax on savings and the tax on interest and royalties.

That apart, I have one short question on which I seek reassurance from my noble friend in regard to the section on external relations. Euro-land, with its euro, will be represented on the IMF and the G7--those major forums. Is it really the case that, as the communique states, not only is it desirable for the Community to speak with one voice but that the Community must speak with one voice? Does that mean that Britain's independent voice and vote on the IMF and G7 is now to be brought to an end?

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