Olive Oil

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Mr. Michael Jabez Foster (Hastings and Rye): Following on the theme of fraud, why is there no procedure on the strict liability of member states? Member states such as the UK have an obligation to enforce compliance and they benefit from fraud, indirectly. Is there a way, other than the complex procedure that the Minister has described, of establishing the strict liability of the state that has received the benefit?

Ms Quin: The answer is no. I described in my opening statement the control arrangements in this sector. For other sectors of the CAP, there is a system of disallowance for dealing with financial irregularities. The UK even suffers from that system where, for whatever reason, aid has not been paid out correctly, or producers have claimed in a way that is not in accordance with the strict rules, even when they may have done so completely honestly without any intention to defraud.

Before the current outbreak of foot and mouth disease, my ministerial mailbag was full of letters from Members of Parliament about problems that individual farmers in their constituencies have had in submitting applications for aid under EU rules. Farmers have been filling in forms incorrectly and finding that they were subject to penalties as a result. When member states fail to apply the rules correctly, they may have to make a disallowance payment, which can be a sizeable sum. When producers fill in returns incorrectly, they find that either they do not get the payment that they were hoping for, or that that payment is proportionately reduced.

Mr. Gerald Howarth (Aldershot): I apologise to the Minister for not being present at the outset of her remarks. Like my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice), I recognise that she has great responsibility for dealing with the foot and mouth problem, so I will be brief.

I shall continue on the theme of how to tackle fraud, which was drawn to the Minister's attention by my hon. Friend. We are here in Committee as a result of the European Scrutiny Committee's deliberations. Although the Minister described the matter as disturbing, the Committee took the view that it was little short of a scandal. There is a huge amount of European taxpayers' money involved—£1.36 billion. As net contributors to the European budget, the United Kingdom perhaps has more of an interest in these matters than other countries.

I noted the Minister's remarks to the hon. Member for Hastings and Rye (Mr. Foster) and others about the need to recover these funds, and the mechanisms for so doing. I put it to the Minister that the current arrangements do not seem to be working, particularly in the case of the Italians. I used to be an international banker, and I am well aware of the number of separate accounts that Italian companies maintain: one for the taxman, showing no profit at all, one for the shareholders, showing a profit and one for some other organisation.

I understand the difficulties with Italy. However, the Minister has an opportunity, in intergovernmental meetings with her EU counterparts, to make it clear that the British people vigorously object to such activity. Perhaps she can convey a message from this Committee, which is following on from the work of the Scrutiny Committee, that the House, on behalf of the people of this country, takes an extremely dim view of the way that the Italians have dealt with the matter and that she, on our behalf, is looking to the Italian Government to be much more robust in dealing with clearly unacceptable fraud.

Ms Quin: I certainly would not quarrel with the hon. Gentleman's comments. There are many aspects of the operation of the common agricultural policy that many of us would regard as disturbing or more than disturbing. We have had problems in the olive oil sector. Hon. Members are, quite rightly, equally disturbed about tobacco subsidies. We do not support the subsidies, and we strongly oppose many other aspects of the operation of the CAP. None the less, because the hon. Gentleman missed my opening speech, he missed my saying that the two factors of the regime that the report says are particularly mismanaged have now been changed: the regimes for consumption aid and for export refunds.

The report paints a highly disturbing picture, but it is historical. It lists some on-going problems, particularly on the valid question of recovery to which the hon. Gentleman rightly referred. The last thing that I want is to sound complacent on such a serious matter, but the recent establishment of OLAF and the proposals that the Commission is now putting in place to control production in the olive oil sector will bring about a considerable improvement.

The Chairman: As no more Members wish to put questions to the Minister, we shall now proceed to debate the motion.

Motion made, and Question proposed,

    That the Committee takes note of European Union Document No. 9431/00, Special Report No. 11/2000 of the Court of Auditors on the support scheme for olive oil; and supports the Government's aim of pressing for further reform of the regime to reduce its costs, complexity and opportunities for fraud.—[Ms Quin.]

11.6 am

Mr. James Paice (South-East Cambridgeshire): I thank the Minister for her helpful replies. I do not want to detain the Committee. I wish to raise only two matters. The first is fraud, but not only the historical aspects to which the Minister referred. We must ensure that the system is far more robust. Mechanisms should be put in place, as the hon. Member for Hastings and Rye suggested, whereby national Governments are made liable for money that has been fraudulently claimed. That is an essential prerequisite.

I question the direction of support for the olive oil industry. It is now almost 10 years since the famous MacSharry reforms of the CAP, which, for most arable crop production, shifted away from production aid to direct aid. The Minister touched on that. Even in livestock, we have seen a move away from production aid to area-based aid. I am slightly puzzled, therefore, why the Commission is seeking to choose between payments per tree or per tonne, because both are production based. A tree is a unit of production, and a tonne is the result of that production, but both are clearly aids to production. The Commission's approach runs counter to the trend of reform to the CAP—we support the Government's desire to go much further—and counter to the trend of the GATT and the WTO talks, which the Minister rightly hoped would be operating at the same time as the next review of the CAP regime. I wonder why the Commission should want to choose between two forms of production aid; I do not negate the social need for that aid, but it should become area based, as it is throughout the rest of the European Union.

The Minister touched on the difficulties of negotiation. Only five of the 15 member states have an interest in olive oil, so northern European member states should support further changes from production aid to direct aid. Consistency is needed in the olive oil regime. Reforms to it should be consistent with the reform of other regimes, which are now 10 years old, although the reforms of two years ago have moved us a stage further forward.

The Minister used a term that I can only assume was meant to be a soundbite: ``fraud-friendly mechanism''. I congratulate her on her choice of phrase, but she will probably have to use it somewhere other than a European Standing Committee before it is picked up by the press. Nevertheless, it perfectly describes the situation.

I urge the Government to press for reform of the olive oil regime to move it away from production altogether to a direct aid system consistent with the rest of the common agricultural policy reforms and the demands placed on Europe by the WTO. That would be much fairer and much less of a fraud-friendly mechanism, as we have found elsewhere. The GIS can be used to monitor compliance with an area-based system, but it obviously does not need to be so sophisticated as to identify individual olive trees, which is necessary under the present arrangements.

I hope that the Minister will take from the Committee the view succinctly expressed by my hon. Friend the Member for Aldershot (Mr. Howarth): we in this country are tired of fraud; we want the whole system to be tightened up and the CAP reforms incorporated into a system under which fraud is almost impossible. That would be fairer for us all.

11.11 am

Mr. David Heath (Somerton and Frome): We are asked to agree to the wording of the motion. Although I do not propose to amend it or vote against it, it is phrased in anodyne terms. Had I been asked to draft a motion, I should have expressed myself in more robust terms. The operation of the whole common agricultural policy is a disgrace, but the operation of the olive oil regime—and, as the Minister said, of the tobacco regime—has been a scandal for far too long.

I welcome moves in the right direction to remove the absurd consumption aid mechanism, but I share the concern of the hon. Member for South-East Cambridgeshire about production aid. That is not how we have progressed—or at least what we have advocated—in other areas, where we have moved away from production aid to social and economic aid for disadvantaged regions. The disadvantaged region of the Mediterranean fringe is involved, and there are clear reasons for providing rural economic aid as part of the European strategy, but to do so in a way that allows gentlemen in smart suits to cream off so much of the money provided for different purposes is indefensible.

I note that there is to be an extension of the interim scheme simply because the Commission cannot make up its mind. The Minister says that she accepts the reasons for that; I am not sure that I do. I should have hoped for a more robust view, but let us accept the political reason, which is that, effectively, the matter is paralysed by a blocking minority. That has always been the case, and that is why it is so important that we establish a clear coalition of interests about the need for reform of the CAP and the introduction of a voting mechanism that will allow that to happen.

On the wider question of the audit trail, the hon. Member for Norwich, North made a valuable point about the health aspects of olive oil. It concerns me greatly when I am told that the European food authority will be involved. I see no role for that body in this context, but I do see a need for robust internal systems in member states. I hope that we have now established a robust internal system, but I have yet to be convinced that some other European member states have done the same.

As to auditing, there has been some improvement in systems in recent years. The treaty of Amsterdam moved us a little way and from it came the office that determines the audit trail. I remember trying, during the debate on the treaty of Amsterdam, to introduce more robust systems to connect the Court of Auditors with the very good British audit bodies. That move was unfortunately resisted both by the Government and the Conservative Opposition, but I thought—and still think—that it was important to strengthen those bodies.

The treaty of Nice proposals also deal with the procedures of the Court of Auditors and the means of appointment to the Court. It is pointless to refuse to ratify the treaty of Nice and to declare an intention to fight any addition to qualified majority voting when one is providing a blocking vote of one to a recalcitrant country in the matter of appointments to the Court of Auditors or the mechanisms that are used to fight fraud. The two stances are incompatible.

Italy is clearly in default. I am a great supporter of Italy and like the country very much, but I recognise that anywhere south of Umbria some strange business practices apply. It is curious that a country where the carabinieri are legally empowered to stop someone leaving a restaurant and demand to see a VAT receipt cannot establish how many olive trees there are in the south. The fact remains that Italy has not met its international obligations, and we must continue to remind it and the other countries that are in default of that.

We need to continue to strengthen the audit function in the European Union. It is unacceptable that fraud is costing the EU, on the 1998 figures that I have before me, £3 billion a year. That means that £3 billion of our money is being lost to fraud, which is a scandal. We must enable the auditors at European level to follow European money wherever it goes, without being blocked by the inefficiencies of member states' audit bodies and their inability to do the job properly. We need maximum co-operation between national audit bodies and the Court of Auditors and we need to change our systems so that, as the Minister said, they are no longer fraud-friendly. The reform of the common agricultural policy could go a great way towards that objective.

11.18 am

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