Examination of Witnesses (Questions 60
- 68)
TUESDAY 14 SEPTEMBER 2004
THE RT
HON THE
LORD LAWSON
OF BLABY
Q60 Lord Hannay of Chiswick: No, that is
not to do with that.
Lord Lawson of Blaby: First, in regard to repatriation,
obviously the best thing would be to reduce the level of agricultural
support very substantially, wherever it is, whether it is European
or whether it is national. That is far more important than where
it is. Secondly, in so far as it is right to put pressure in that
direction, the way to do it is through the WTO. I always found
when I was a member of the Council of Ministers that a lot of
discussions were vitiated by the fact that most of my colleagues
would forget the world outside Europe a lot of the time. This
was very evident, for example, in discussions over the withholding
tax. You will remember, Lord Hannay, very well, that there was
a huge pressure on the United Kingdom to make London, relative
to Paris and other financial capitals, less attractive for money
by imposing a withholding tax, because they did not think it was
fair that all the money was coming to London and that the City
was benefiting greatly. It never occurred to them, although I
tried to point it out, that if we had imposed a withholding tax,
all that would have meant is that the capital would have gone
to Zurich or New York or some financial centre outside the European
Union. It is the global context that matters in agriculture too.
The Americans support their agriculture, perhaps not quite as
much as the Europeans do—but precise comparisons are difficult
because the methods are so different. The Japanese protect their
agriculture far more than either Europe or the Americans. They
are easily the worst offenders. There is competition obviously
between America and Europe as well, so it is not a question of
trade-distorting competition simply within the European Union;
it is a much bigger thing and is a world problem and has to be
dealt with through the WTO. That remains the case whether Europe
decides to organise its agricultural support on a European basis
or on a national basis. Coming back to your original question
of what is the pressure, I can only repeat myself and I apologise
for doing so: the only pressure is not to entertain any lifting
of the budget ceiling
Q61 Lord Cobbold: Can I move on to the question
of the UK rebate? Do you think the Government will be forced or
be willing to accept the proposals that the Commission has made
on a generalised corrective system, or are there opportunities
for using our rebate as a bargaining position to affect the agricultural
situation?
Lord Lawson of Blaby: The Government cannot
be forced to accept the Commission's proposals. The Government
can have an uncomfortable time but it cannot be forced to accept
these proposals. Indeed, there is a lot to be said for standing
firm, not just in our narrow budgetary interest but also because
any mitigation is likely to relax to some extent the discipline
of the budgetary ceiling. Our rebate puts more pressure on other
Community countries than would be the case if there were not this
rebate, or if the rebate were diminished. If you accept my general
premise, that the ceiling is the pressure for reform, then you
do not want to reduce that pressure. As was envisaged in your
question, some people have said we could agree to these proposals
in return for reform of the CAP. The problem with that is, what
does the reform of the CAP mean? As Lord Hannay was kind enough
to say a moment ago, in a sense the CAP has been reformed. There
have certainly been a number of changes, and changes in the right
direction; but it has not been sufficiently reformed. Therefore
I think you have to have something that is clear-cut, not something
muddled or muddy like reform of the CAP, say that, "the CAP
has served its purpose and should be abolished". Then obviously
the CAP would be phased out over a period of time and our rebate
phased out over the same period of time. This would be entirely
desirable, and of course there would be a logic to it as well
as the logic that has been inherent in the questions you have
been putting, and that is that the inequity of the British position
nowadays arises largely from the fact that the budget is heavily
loaded towards agricultural spending, which does not go on nearly
as much in the United Kingdom as it does in most other European
Union countries. Therefore, if you no longer have a European Common
Agricultural Policy you no longer have the inequity which that
causes to Britain and there is no longer a case for a British
rebate. The link is a perfectly logical one and I think the Government
could well propose that. There are also non-economic reasons for
the CAP. I spend half of my time in rural France and it is a very
attractive environment there, thanks to the protection of French
agriculture. It is a very pleasant environment and way of life.
I can quite see why they are attached to it, quite apart from
their pride in being the second largest food exporter after the
United States—or that is what they claim to be—quite
apart from the fact that there may be some economic benefit to
them. That is the sort of country France is and the sort of country
it wishes to be. I quite understand that, but that is something
that the French taxpayer should pay for, and any other country
that wishes to do the same. There is no reason why it should be
a European responsibility.
Q62 Lord Taverne: On the question of the
rebate, I am a little worried about your replies because it does
seem as if there are some very strong reasons why we should be
somewhat more flexible in our approach to this. The first rebate,
I understand, is likely to be increased, and some of the payment
for this may well fall on the new member nations. Secondly, it
would be politically rather unwise for us to alienate some of
our natural allies in the EU who also object to the rebate very
strongly, such as Poland. Thirdly, the concentration on rebates
does seem to weaken our bargaining power. You say it strengthens
the pressure to retain the ceiling, but the pressure to retain
the ceiling is not just coming from Britain, it is coming from
other members of the EU such as France and Germany. There does
seem to be quite a case for at any rate being flexible in the
approach to it, not necessarily saying we want to give up anything
that we have gained, but saying there may be other ways of achieving
the same end. An ingenious suggestions was put forward at our
last session that there may be a way in which we agree to a common
scheme, which makes much more sense than individual rebates, but
that it is fashioned in such a way that it does not initially
diminish the amount of money it is getting. After all, rich nations
are getting something out of it as well. In the first place this
could be a solution where everyone could claim victory—Britain
because it retained the money it was getting, and the others because
the Commission got reform of the structure. Is it not rather unwise
for us to take this attitude that what we have we hold, and not
an inch shall we yield, when it is causing a great deal of resentment
and weakens our bargaining power on a large number of other issues
in which we might wish to influence the way negotiations go.
Lord Lawson of Blaby: I do not think things
work like that in practice. As I say, we could abandon it over
a period of time and phase out the Common Agricultural Policy,
and in return for that we would phase out the rebate, on exactly
the same timescale. I think there is a problem that you have indicated,
as I acknowledged right at the beginning, about the poor countries
of central and eastern Europe that are now members—and there
are one or two still to come in, who I hope will also join. These
countries have to be helped in some way. I do not think it is
however correct to say that the only way they can be helped is
by abandoning our rebate. One of the great successes that we had
with these countries in the early days was via the Know-How Fund.
As far as I am aware there is nothing in European law to stop
the United Kingdom re-modelling the Know-How Fund to give substantial
assistance to these countries; and that can be done as a British
initiative. As for this ingenious wheeze, in which everybody is
a winner, I am afraid that is not possible. This particular matter
is a zero-sum game: to the extent that some countries gain other
countries lose, and there is no getting away from that.
Q63 Lord Inglewood: Arising out of the point
you made in your last reply, do you see, in political terms, a
very clear, close, definite linkage between the rebate mechanism
and the CAP? Politically, for you, are they opposite sides of
the same coin?
Lord Lawson of Blaby: I think there is a connection
because in the early days there was a double injustice, an injustice
or an inequity, both on the revenue side and on the expenditure
side, because in those days the lion's share of the revenue came
from agricultural levies, and from a share of customs duties.
Because we are a very open economy, with a much bigger amount
of world trade, we were paying more in customs duties—and
still are—but these two were the main sources of revenue.
Now, as the budget has grown and times have moved on and the GDP-related
part of the revenue side is much more substantial, there is no
longer any great inequity there, but there is still inequity on
the expenditure side because of the CAP. So the two things are
linked.
Q64 Lord Hannay of Chiswick: On the rebate,
would you not agree that, as was the case when we negotiated this
under your leadership in 1988, we have to always remember that
a rebate is residual? It is not the first thing we go in and talk
about. The first thing we have to go in and talk about is CAP
reform and Structural Fund reform, which in this case is extremely
important because there is the question about whether you go on
lavishing subsidies to more prosperous members of the European
Union or, as the Government is proposing, which I would support,
whether you phase out most of what pre-existing Member States
had from Structural Funds and focus almost exclusively on the
ten Member States and any others who join. The rebate is a residual
of those debates, and also how much money you spend on research
and development and so on. If you put the rebate up front as the
object of the negotiation, then you create all the tensions and
stresses that we have talked about. However, if it is a residual
of the decisions you reach on other expenditure, then the rationale
for it is much clearer. Then you can discuss at that point whether
a rebate protects the four or five biggest net contributors to
the budget (like Germany, the Netherlands, Britain and so on)
or whether one that only protects Britain is the right way to
go, because you will then know roughly where you come out. Is
that not still the best way to approach it, rather than, as Lord
Taverne said, simply starting with a major statement that it is
there and you are not going to budge an inch and so on?
Lord Lawson of Blaby: I do not disagree with
you at all. Indeed, I was asked about the rebate, and I gave my
view. I was not asked about our negotiating tactics. Incidentally,
the Structural Funds are for the most part a waste of money, in
much the same way as we discovered in this country that the so-called
industrial policies at the national level, the subsidies which
we had been engaged in for a long time, were not producing any
benefits and should be scrapped, and indeed were largely scrapped.
Even though there has subsequently been a change of government,
they have not, quite rightly, gone back to it. This sort of thing
does not help economically and is usually counterproductive, and
the same goes for the European Structural Funds. So the Government's
proposal or suggestion that this spending should be phased out
qua structural policies, and should be changed into forms of assistance
for the poorer, newer countries—which meets Lord Taverne's
point—I think is a very sensible one. All I would be inclined
to do is try and have something written in that this was for a
fixed period, which could be as long as ten years, but I would
like it to be degressive, to use the Community jargon, so that
while it is not suddenly turned off, it would not be a permanency.
The other point is whether we should move from something which
is specific to the UK, or which is to some extent universal, so
that anybody who pays too much should get a rebate. I have to
say that we embarked on this in 1979—although the grievance
was first voiced by Lord Callaghan, when he was Prime Minister,
but it was right at the end of his term of office, and nothing
was done about it. It was something we started work on immediately,
and initially we would have been perfectly happy with a generalised
system. It was the others, particularly France and Germany, who
did not want to institutionalise this. They wanted to make it
something very temporary to help one poor old sick country in
difficulty, for one year originally, and that would be that. It
did not work out that way, but it took a lot of work, in which
you, Lord Hannay, played a large part. There is another aspect
to this: when we began these negotiations, the Treasury did a
great analysis of the costs of the Common Agricultural Policy,
and the full costs—and I am sure this is right—turned
out substantially greater than just the budgetary cost. There
is an economic cost over and above the budgetary cost as a result
of food prices being higher than the world food price. This also
impacts differently on different countries because, in addition
to consumers paying more, farmers are getting higher rewards from
a higher price—not just the financial support—than
they would get from the world food price. The Treasury made a
very careful calculation of the full economic cost. We decided
not to pursue that line, however because although it was undoubtedly
correct there was huge scope for argument because although we
know what the world food price is now, who knows what it would
be if there were no Common Agricultural Policy? Some people would
argue it would be higher because food-producing countries that
rely on the world market would have more customers and therefore
there would be a greater demand for their foodstuffs. Therefore,
we decided to confine it to the budgetary cost, which was easily
calculable, although initially the Commission refused to calculate
it and said it was impossible to do so. Then they said it was
immoral because the juste retour was not communautaire.
Eventually, we calculated it and they could not argue with the
figures, and they had to go on that basis. I say all this because
there is a cost of the Common Agricultural Policy that is over
and above the simple cost, whatever it might be, of net contributions.
Therefore, even if you did sort out the net contribution problem
with this universal mechanism, as you are suggesting, there would
still be this other matter to deal with.
Q65 Chairman: Your advice to the British
Government would be that we should hold on to our rebate unless
there is a corresponding genuine reform in the CAP. Are you saying
that you are against a generalised system of rebate?
Lord Lawson of Blaby: I think we would have
to see what was proposed. I am not in principle against a generalised
system of rebate at all. We have to look and see what is proposed
and whether it would strengthen or weaken the overall budgetary
pressure. That is an important dimension to it. I certainly think
that, without conceding anything at this stage, we should be prepared
to look at the proposals. We should start negotiations, as Lord
Hannay pointed out, with the need to look again at the budget
and what is spent on the Common Agricultural Policy, and the problem
of the poorer member countries with large agricultural sectors
that cannot, as it were, participate in the Common Agricultural
Policy, which is a double inequity for them. We will see where
we get to.
Q66 Lord Inglewood: Do you think the effect
of the rebate has a damaging impact on the domestic public spending
proposals, because there is always an incentive not to go for
European money in order to get some of it back without any strings
attached? Do you think that has a damaging, distorting effect
on domestic public expenditure?
Lord Lawson of Blaby: It is nothing like as
distorting, to use your word, as the policy which used to be pursued
in the old days, in the seventies, of trying to support every
expenditure proposal outside agriculture on the grounds that this
could not be as bad for us as the agricultural spend, and would
diminish the relative weight of agriculture in the budget. That
was the policy that I discovered I had inherited. The Italians
always wanted to spend more and more on everything, and because
there always has been and always will be this Franco-German accord
at the heart of the European Union, which we were not part of
and never will be despite the fond wishes of the Foreign Office,
the then government decided that we should have an Anglo-Italian
alliance and supported all their proposals for higher spending
and then added a few of our own. That did not seem to me to be
a very sensible way of proceeding, and we stopped that. That was
much more distorting.
Q67 Lord Jordan: In trying to find the most
sensible way forward, is it not inconceivable that this Government
prior to an election would even dream of giving up anything on
the rebate because of the political repercussions?
Lord Lawson of Blaby: Yes.
Q68 Chairman: There is also a referendum
as well.
Lord Lawson of Blaby: Absolutely, yes. You have
to remember how hard it was to win the rebate. It did not simply
require the negotiating skills of people like John Kerr, now Lord
Kerr and Lord Hannay sitting there and Michael Butler—all
highly skilled operators, working very hard on this; but it would
never have happened if we had not made it clear that if we did
not get satisfaction, we would withhold our contributions. I think
it is widely known that we had a draft bill printed to give us
the legal authority to withhold our contributions. It was never
published, but it was printed. It was discreetly made known to
those who we negotiated with that this is what would happen if
we did not get satisfaction. Almost certainly the European Court
would have eventually decided that this was illegal and it would
be struck out, but that would have lasted a long time and would
have been quite an effective measure in the context of these negotiations.
Without that threat to withhold our contributions, to the extent
of having the law officers produce a bill, we would not have got
it.
Chairman: Thank you very much indeed, on that
cheerful note! Thank you for your contribution and for what you
have said to us.
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