European Financial Interests

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Miss Melanie Johnson: First, in answer to some of the hon. Gentleman's closing remarks, it is surprising to hear such a counsel of despair. That is why no one believes that the Opposition are fit to govern in the UK or to take a lead on behalf of the UK in Europe. The counsel that the hon. Gentleman has offered us this morning is neither effective, nor, in some cases, is it possible, and it will not deal with the issues that he claims he is keen to deal with. I am shocked at the general tone and the hopelessness of his remarks. He remarked on the fact that we all have responsibilities here, and that we must deserve the posts that we hold, and be seen to be taking action. In his remarks, the hon. Member for Ruislip-Northwood is surely abrogating his responsibilities and those of his party.

I turn to the remarks of the hon. Member for Croydon, South, who, first of all, introduced a substantial element of hearsay on the question of errors. It will not surprise him to learn that I cannot comment on hearsay. We believe that the error rate is similar to that of previous years, and the court states, officially, in the introduction to the report, that the bulk of errors

    ``concern such matters as small overpayments to farmers''.

That includes a few overpayments to UK farmers. I entirely support the wise counsel of my hon. Friend the Member for Harlow (Mr. Rammell), who suggests that context is important in all these matters. The court states that the errors consist of small instances such as overpayments, not major fraud scandals, and it also states that it supports the reform programme. The hon. Member for Croydon, South is again giving a partial and limited version of the story. It is not worth dwelling on the Swedish report. The hon. Gentleman may have found it amusing, but the fact is that there has been a thorough internal investigation and a report has been sent to the Swedish judicial authorities, which is the appropriate way to deal with such matters.

The hon. Gentleman raised the question of how the European Anti-Fraud Office can achieve anything from within the Commission. The Government believe that an office within the Commission is the right approach, for several reasons. I still maintain that the office is independent, and I gave a list of reasons why we can be confident of its independence, and went through them one by one. I do not propose to repeat that list for the Committee's benefit. The Commission has responsibility, under the treaty, for budget execution, and that responsibility must include instituting effective fraud prevention procedures. We would expect Government Departments to follow up allegations of fraud, and to decide whether disciplinary action should be taken or whether the prosecuting authorities should be involved, and we should expect the Commission to do the same. There is no difference; there is a definite parallel.

Basing the fraud office within the Commission is the right approach, because an office of this sort needs to understand the organisation that it is investigating. It should be on the inside, with access to information on what is going on in the organisation. Past experience bears that out. UCLAF investigated all the fraud allegations that featured in the so-called wise men's report. However, the previous arrangements were weak. I agree with the hon. Member for Croydon, South that they were unsatisfactory, but much of the period that we are discussing is covered by the transition from the previous arrangements to the new arrangements, as I have repeatedly emphasised.

The arrangements were weak because UCLAF had no responsibility for recommending follow-up and no mechanism to ensure that the right course of action was taken as a result of those recommendations. As I said before, OLAF will have the ability to make recommendations on follow-up, institutions will have to report on whether those recommendations are carried out, and the director will be able to report on that to the Council and to the European Parliament. The terms of the director's appointment emphasise his independence, as I outlined previously. For all those reasons, a sea change has taken place in the arrangements, with the change from UCLAF to OLAF. The 1999 report cannot reflect the effects because it deals with a period too early in the process.

The hon. Gentleman mentioned the supervisory committee's report and commented that it was critical. We welcomed the report. The committee was established to ensure that the office was effective and independent of the Commission. The report simply shows that it is doing its job. The Council and the European Parliament agreed that the new office should have 150 new posts. That means that there will be double the number of fraud investigators that were available to UCLAF. The new head is ensuring that he recruits the right people to do the jobs. It is inevitable that it will take time to recruit the people, but the Government continue to press for the office to be fully staffed as soon as possible. I am sure that the hon. Gentleman will accept that it is important that the right people should be recruited, rather than that posts should simply be filled.

The point about Commissioner Kinnock's request for an independent internal audit service has been misinterpreted by the hon. Gentleman. There is a difference between internal audit and fraud investigation, which I am sure that he will accept. Internal auditors support the management in ensuring that internal controls exist to control moneys. They must be independent of the staff making payments. External auditors such as the ECA provide independent assurance of what is happening. However, they are watchdogs, not bloodhounds. The fraud investigators such as OLAF are responsible for detecting and investigating fraud. The elements of the system work well together. The distinctions between the roles and the way in which they fit together need to be understood.

As to what was said about a structure akin to that of the Public Accounts Committee, the latter body has a valuable role in the United Kingdom, as I believe all Members of this House accept. However, there is of course a difference in institutional structure between the United Kingdom and the European Union. We should study the difference in trying to decide whether simple parallels are transferable, or whether we need a more sophisticated approach to designing the right structure for the EU.

The European Parliament is part of the budgetary authority in the European Union. It makes spending decisions that significantly affect financial management. It spends significant amounts of money itself. That is a key difference. The ECA has often investigated and found problems in financial management. We cannot read across directly from the United Kingdom to the EU system. They are fundamentally different.

Mr. Wilkinson: The hon. Lady is making an important point in her typically calm and deliberative way, which we all appreciate, but is not that very difference the heart of the problem? In our national parliamentary institution we, the elected representatives, vote the funds and directly influence how the Government use them. The Government are in turn answerable to us, and we to our electors. In the European Union the funds come in automatically and there is no effective control over the way in which they are spent. Will the Minister abandon the usual bland approach to the matter and tell the Committee what institutional changes she and the Government want, to rectify matters?

Miss Johnson: I thought that I had spent much of the morning explaining how we consider continuing reform to be necessary, and how we judge the present reforms to be making a substantial difference to the previous system—which was in operation in 1999 and which we have been discussing. The hon. Gentleman makes a valuable point, with which I agree, about the key differences between the EU Parliament and the UK Parliament. Those differences are at the heart of the case that I was making. That is why a simple translation of one set of arrangements to a different set is not appropriate. I agree that the PAC plays a valuable role in the UK, but we cannot translate it into EU structures and expect it to have the same value. OLAF gives the right structural answer to tackling fraud effectively in the EU.

The hon. Member for Wycombe made a point about investigation. The treaty gives the ECA powers to audit EU moneys, including investigating the Administrations of member states and going down to the level of the final beneficiary. The UK co-operates fully with ECA requirements. I agree with the hon. Gentleman, who said that we needed to see matters in a wider context. It is important to recognise what needs to be, has been and is being done. OLAF has powers to investigate fraud in member states, and regulations on on-the-spot checks cover the issue.

A question was raised about tobacco by the hon. Member for Ruislip-Northwood. I emphasised the fact that I thought that the subsidies had been in place since 1973. The hon. Gentleman said that it would be easy to do something about them. If so, the Conservatives had 18 years in which that was the case but, strangely, nothing happened. The regime, as amended in 1998, requires the Commission to submit a report on its functioning before 1 April 2002.

I am sure that the hon. Gentleman will be cheered by the news that we plan to use the report as the basis for further pressing our long-term objective of progressive disengagement from the regime. There are eight producer member states, so reform of the regime will need to be handled carefully. We strongly disapprove of it, but it is already in place. We want an end to it for exactly the reasons that he gave, which were health, cost and control.

The hon. Gentleman suggested that we might withhold the UK contribution instead, as a result of concern about levels of fraud and inconsistencies. Minor errors—failure to take action in line with complex regulations—are more the cause of problems than outright fraud is. The hon. Gentleman knows that we could not follow his suggestion, as to do so would be illegal. The previous Government signed treaties that legally oblige us to pay. That is why they never withheld the contribution.

The hon. Gentleman also suggested that the UK should join the European Parliament in refusing discharge. The Council's approach in the past has been based on the reasoning that we should help the Commission to improve, rather than simply considering its failures, especially in the context that we have been discussing today. The arrangements have changed substantially, as has, we believe, effectiveness since the relevant period in 1999. The blame culture could be taken too far, although we were by no means complacent about how matters stood in 1999. The right way forward is to be aware that the fault lies more widely than with only the Commission, and that the Commission can be made more effective.

The European Parliament alone has the power to censure the Commission. That power was given to it by the treaty and ratified by all member states. Our future position is likely to reflect the position that we have taken in the past.

I am grateful to hon. Members for their contributions to our debate, and I ask them to support the motion.

Question put and agreed to.


    That this Committee takes note of European Union Document No. 13572/00, Protecting the Communities' Financial Interests—the fight against fraud: Commission's Annual Report 1999; and the unnumbered explanatory memorandum dated 20th December 2000 submitted by HM Treasury relating to the Court of Auditors' annual report for 1999; and supports the Government's continuing efforts to promote and support measures to improve financial management and fight fraud against the EU budget.

Committee rose at Twelve o'clock.

The following Members attended the Committee:
Michie, Mrs. Ray (Chairman)
Gordon, Mrs.
Hamilton, Mr. Fabian
Lepper, Mr.
Palmer, Dr.
Rammell, Mr.
Ross, Mr. William
Whitney, Sir Raymond
Wilkinson, Mr.
The following also attended, pursuant to Standing Order No. 119(5):
Johnson, Miss Melanie (Economic Secretary to the Treasury)
Mcnulty, Mr. Tony (Harrow, East)
Ottaway, Mr. Richard (Croydon, South)

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Prepared 28 February 2001