Fight Against Fraud

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Ruth Kelly: I am certainly not naming any individual tobacco companies. I am stating the principle that the way to combat tobacco smuggling is to take action. For instance, the introduction of the UK duty-paid frank on cigarette packs will lead to clear identification of products on which duty has been paid in advance so that if cigarettes are exported, they cannot be imported back again and avoid that duty. Any cigarette packets that are discovered without that mark on them could be automatically confiscated. A huge incentive in favour of smuggling has therefore been reduced at a stroke.

Mr. Hopkins: I took great pleasure in the Minister's answer to my hon. Friend the Member for Broxtowe. I agree entirely with the Government's view that we should not harmonise duties, but should instead deal with smuggling. That is absolutely right given the dreadful damage that cigarettes do to people's lives. If harmonising is to be done, other EU countries should raise their duties and taxes to our level rather than the reverse.

I draw the Minister's attention to paragraph 4.8 on page 30 of the reference document, which lists the weaknesses identified by Court of Auditors. It refers to an underspend of 11.6 billion euros, mostly on structural measures. As the UK is a net contributor to the European budget—where we gain receipts, they tend to be structural—is not that of particular concern to the UK?

The Chairman: Before I call the Minister, I ask her, although I appreciate the difficulties of speaking from the Front Bench, to face the Chair when replying, for the sake of the Hansard writers?

Ruth Kelly: I apologise, Miss Widdecombe, and shall address my remarks to the Chair in future.

The surplus of 11 billion euros is perhaps an advantage to the UK as a net contributor because we are likely to receive a refund in the following year on some of the money that we have contributed through our own resources. However, it is clearly significant that there should be such a surplus at the end of the year. It suggests partly that the Commission has not acted to reduce the surplus and that it needs to do so, and partly that its own forecasting processes are not particularly accurate and could be significantly improved. If I may defend the Court of Auditors, its forecasts depend largely on figures produced by individual member states, and it would help if the Commission were in more regular touch with member states to assess the reliability of data. If such a surplus is envisaged, some of it should be refunded within the relevant year, rather than at the end of it. I agree with the Court of Auditors that the Commission should use its powers to return money if a similar position arises in future.

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Dr. Palmer: Let me complete my questions on cigarettes. The Select Committee on the Treasury received evidence showing the dramatic impact of anti-smuggling measures on the volume of cigarettes smuggled into this country, which is good news. Am I right that Britain would not favour an increase in excise duty on cigarettes—if only for health reasons—on African and other countries with low rates? I agree with my hon. Friend the Member for Luton, North that that would be the way forward, and does the Minister agree that it would not hinder the anti-smuggling effort?

Ruth Kelly: There are good health reasons why the UK has chosen its current rate of duty on cigarettes. Smoking kills 120,000 people a year. Clearly tax on cigarettes is a major factor inhibiting the growth of smoking. Other member states may consider the evidence and, in the light of their own democratic consultation, decide to follow our example. I would, however, hesitate to impose our approach—taken on health grounds—on other countries that might find it difficult to adjust to the regime or that might decide not to follow that route for historical or democratic reasons. I emphasise that the differential in duty rates is not the primary cause of our difficulties with cigarette smuggling. Italy and Spain place low duty on cigarettes, but also face problems with smuggling. No close correlation exists between the level of duty in a country and the ability and willingness of people to smuggle cigarettes into it.

Mr. Hopkins: May I draw my hon. Friend's attention to page 32 of the Court of Auditors report, which sets out conclusions? Paragraph 4.11 states that

    ''the Court is still unable to compare Member States' ability and efficiency in detecting fraud and other irregularities and recovering any sums involved.''

It seems unable—or perhaps unwilling—to decide in which country fraud occurs. Will the Minister comment? It may be significant to discover which countries are more fraudulent than others. I hope that the UK would be found less fraudulent.

Ruth Kelly: My hon. Friend makes an important point. Perhaps we should be less concerned about the differences between member states than the differences between sectors in the Community budget. To identify what measures need to be taken, it is important to understand how fraudulent activity occurs and in which sectors. Under the Treaty of Nice, which my hon. Friend supported in its progress through the House—

Mr. Bercow: I sincerely hope not.

Ruth Kelly: I know that the hon. Member for Buckingham (Mr. Bercow) did not support it.

For the first time, the Court of Auditors will be able consider specific sectors and specific areas of high risk, not just the global picture, of the EU budget. That important development will assist the combating of fraud.

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The Chairman: As there are no more questions, I will ask the Minister to move the motion.

Motion made, and Question proposed,

    That the Committee takes note of the European Union Documents Nos. 9208/01, Protecting the Communities' Financial Interests—the fight against fraud: Commission's Twelfth Annual Report 2000, 92707/01, Protecting the Communities' Financial Interests—Fight Against Fraud: Action Plan for 2001-2003, and the Court of Auditors' annual report for 2000; and encourages the Government's continuing efforts to promote and support measures to improve financial management and reduce the opportunities for fraud against the EC financial interest.—[Ruth Kelly.]

5.5 pm

Mr. Bercow: I am delighted to get to the nitty gritty. I, on the packed Opposition Benches, do not intend to oppose the Government's motion. There is much good sense in it. There is also much about the Minister's approach that commends itself to my party and, I suspect, to many others. However, there is a serious and, some would say, growing problem of fraud in EU institutions and in member states in their dealings with EU programmes. As the European Scrutiny Committee noted, it is undoubtedly a matter of concern that

    ''the Court's audit work on operational expenditure revealed once again an unacceptable incidence of error affecting the amounts of the payments''.

The Minister was, however, right to distinguish between error and fraud. Similarly, the eligibility of the underlying transactions has frequently been called into question. There are also

    ''weaknesses in the functioning of control procedures in the principal systems covering Agricultural Guarantee and Structural Measures expenditure.''

The growth of traditional own resources fraud is also allied to the phenomenon of the abuse of agricultural and structural funds expenditure. Together, they constitute a smash and grab raid on the funds paid by hard-working taxpayers throughout the European Union. The Court states that

    ''in general, the Commission needs to improve the definition of the objectives of Community programmes and then undertake effective evaluation of their achievement, in order to ensure sound and efficient use of the European Union's resources.''

As of 12 February 2002, no one could say that we always get the best value for every pound that is spent or, dare I say it, every euro. That is manifestly not the case. It ought to be the case in the future. After all, the current budget is 94.5 billion euros, or £58 billion. That is an enormous sum of money, substantially greater than that spent by most major Departments, including, if my memory serves me correctly, the Department for Education and Skills and the Department of Health.

The European Court of Auditors tells us that approximately 5 per cent. of the EU budget was unaccounted for in 2000, which we can also glean from other documents. I suspect that it was merely a mild lapse and an uncharacteristic and infelicitous use of words, but I was a little perturbed when the Minister said that to talk in headline or tabloid terms about £3 billion of public money being wasted was to get the matter grossly out of proportion and to misrepresent

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the position. Explaining fraud, misappropriation or waste is one thing, but excusing it or seeking to downplay its significance is another. The Minister jealously guards her reputation as a frugal steward of the public purse, and I hope that she will agree that to waste up to, or more than, £2.5 billion of public money, or £15 per EU family, remains a significant problem that needs to be addressed.

I make the point in a non-partisan way. I do not dispute that the problems arose in previous years. They are evils that have bedevilled successive Governments. We must consider whether the situation is getting worse and whether the systems in the European Union are conducive to either the counteraction or, arguably, the proliferation of fraud. If it is the latter and the systems are so complex that they lead to waste and misappropriation, something should be done.

The Court of Auditors said that the European Union Executive still lacked an effective modern accounting system and that it had failed to bolster our good friend OLAF, the new European anti-fraud office. John Wiggins, a British member of the court, recently said:

    ''The Commission still doesn't take seriously enough the need to improve its accounts and accounting mechanisms . . . It has tried to tighten up the regulations, but loopholes remain.''

Most of the money is lost from the agriculture and regional aid budgets that make up around 85 per cent. of the European Union budget.

We also have the damning verdict, which was revealed by the Minister but not dwelled on for long, of the President of the Court of Auditors, Jan Karlsson. Presenting the court's annual report to the European Parliament last November, he confirmed that once again something of a pattern has emerged and that the court had chosen not to give the Commission a positive statement of assurance on its execution of the EU budget. To explain a decision that he must have regretted having to make, he said:

    ''Although there are now a number of hopeful signs we cannot give a positive discharge because they cannot be registered in audits yet.''

Ultimately, it is to that that we must come in this debate. We should ask not who has a good idea, or whether there is a report or a debate, but at what point good intention translates into effective action in a way that will save money and make people's lives better. After all, that is the purpose for which we are all here.

Mr. Karlsson went on to say that one of the main problem areas for misspending was what he described—and I animadvert on the point to which I alluded a moment ago—as the ''enormous complexity'' of the EU's regional funding programmes. On 13 November 2001, he said that the ''system of structural funds'' was so complicated that

    ''it was almost impossible to execute''.

Yet the Court of Auditors has reported that the operation of the new European anti-fraud office has been hampered by constraints of staff recruitment and management, together with the problem of inadequate databases.

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I share the desire expressed by the Minister to see a functioning, robust and effective OLAF. However, I hope that she will not in any way relax her guard. The fact that the organisation has been established is only a modest comfort. We must be clear that it has both the resources and authority—a point to which I will return—to make effective investigations and progress in counteracting fraud. The court goes on to complain that the Commission has not introduced adequate control procedures to ensure value for money and sound management of its contribution, particularly to cover the risks highlighted by previous allegations of irregularities and evidence of mismanagement.

More recent work by the French court of accounts makes shocking reading for all Committee members. An official French audit of the common agricultural policy—I am not too sure of the difference between an official French audit and an unofficial one, although I am sure that you will be, Miss Widdecombe—suggested that the documentation on the 9 billion euros, which is £5.47 billion, received each year by French farmers is riddled with accounting errors. The court spent a year trying to understand a policy that eats up approximately half of the European Union's total budget, which is a damning indictment of the folly and inadequacy of the existing system. Eventually it gave up the unequal struggle, and even the high brows on it had to admit in February 2001 that they had failed to come to terms with the content of the policy. I refer those Members who are not immediately familiar with the background not only to the copious documents that we have had to study for today's debate, but to an excellent report on 1 February 2001 in The Times, under the accurate headline, ''Auditors condemn £5 billion tangle of secret farming subsidies''.

The common agricultural policy, which concerns many Members in our constituencies and all Members because of its implications for the public purse, will cost 45 billion euros out of a total EU budget of 98 billion euros. The court repeatedly asked Brussels how many French farmers were receiving subsidies, how much those subsidies were and on what the farmers were spending the money. It never received an answer.

The report offers a savage commentary on the existing system and the inability even of those charged with its administration to understand it properly in stating:

    ''the figures were neither available in their totality nor often compiled at all''.

The court sought to calculate the sums itself and concluded that, in addition to the 7.71 billion euros handed out by the European Union, French farmers received about 1 billion euros from their own Government.

My next point is significant and the Minister will be hanging on it. The court said that there were 1 million recipients in France of agricultural subsidies handed out by Paris or Brussels, yet the country officially has only 663,000 farms. That mismatch does not require further elaboration by me, but it would be helpful to receive an answer or at least an expression of concern from the Minister.

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The court said that the complexity of the system made detailed scrutiny impossible. It went on to say that French agriculture received 300 separate types of subsidy from Brussels, 140 types from Paris and 38 types financed jointly by Brussels and Paris. There are too many schemes, too much complexity, too many hurdles to negotiate and a system that, in the end, is impossible for either the layman or those who operate it to understand. Is not that the root of our problems? I am focusing only on one issue; I could focus on more in detail, but I am conscious that members of the Committee will want to favour us with detailed contributions of their own and it is important that there should be adequate time for that important democratic exercise.

I intend instead therefore to focus my remarks on a series of questions to the Minister. I am inclined to ask questions because that is an important part of the democratic entitlement and responsibility of all hon. Members, so I shall crack on. The hon. Lady will be relieved to know that I asked some questions earlier, so four or five fewer are on my list. Nevertheless, there still many that I should like to ask and I should be grateful for any answers that she can give me now. When she does not have an immediate power of recall, which will be extremely rare in her case, she may be able to provide further and better particulars to me in writing.

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