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budget of the EC, the only cut they made was to take 20 million off the anti fraud line at the insistence of the British Government. At their second reading, the European Parliament had allocated funds to create 50 extra posts in the Anti Fraud Unit, they voted against this also. Mr. Hurd should remember that under the British Presidency, the Edinburgh Council insisted that the European Parliament continue to meet in Strasbourg, which means Parliament pays about £100 million per year for this decision, rather than being centralised in Brussels. He really should remember that when it comes to fraud, Member States have the prime responsibility for preventing, detecting and prosecuting fraud against the Community Budget and for recovering sums unduly paid out."

We all know what has happened about that promise. Many of us see it as a vague promise arising from the passage of the Maastricht treaty.

The truth is that unless we deal with the problem we will lose the Community because it will be destroyed and discredited. I tell the hon. Member for Harrow, East that it is all right trying to ignore it-- [Interruption.] The hon. Gentleman's speech suggested to me that while he may be concerned about the problem, he believed that it was exaggerated. I believe that we are looking at only the tip of the iceberg.

I have spent much of my life in Italy. I lived there as a child, I have friends and contacts there now and I go there regularly. Fraud is rife not only in Italy but in Greece, Spain and in parts of the CAP budget in France --

Mr. Dykes: And in the United Kingdom.

Mr. Campbell-Savours: Yes, and in the United Kingdom.

Mr. Dykes: Everywhere.

Mr. Campbell-Savours: If it is, it should be dealt with. If we do not deal with it, we will lose the Union. That is why we have a special responsibility.

This issue will surface at the top of the British parliamentary agenda, not because we are anti-Community but because many of us are concerned that the Community might be wrecked unless the problem is dealt with.

Mr. MacShane: Is my hon. Friend aware that the Court of Auditors report, which many hon. Members have mentioned, shows that there were more fraud cases in the United Kingdom than in France or Italy? The sums were larger in France, because the French defraud in a more concentrated way there, but let us pay tribute to the British firms, farms and organisations that go out and show how to milk money from Brussels.

Sometimes I wonder whether we should put ourselves in the position of a German or a French parliamentarian ranting on about fraud in England. How quickly our xenophobic press would pick that up. Parliaments in the rest of Europe, however vigorous and vicious they may be, debate the issue in a rather more measured way.

Mr. Campbell-Savours: I can tell my hon. Friend why there is a higher incidence of fraud, if that is the right way to put it, in the United Kingdom. It is because we detect it. In some other Community countries, people simply do not want to detect fraud.

Mr. Dykes: Very naive.

Mr. Campbell-Savours: The hon. Gentleman may think that I am naive, but last year members of the European Standing Committee were heavily briefed on

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the subject, and I spent several days reading the material. One report in particular, which I have been trying to find, dealt with the different reporting mechanisms in the various European states, and showed how in some states there is resistance within the Administration to identifying fraud. The hon. Member for Harrow, East may shake his head at that; clearly he thinks that the source of the material was poor. But if I remember rightly, the document came from the Court of Auditors. If I find it after I finish my speech, I shall intervene and tell him what it was called.

Mr. Dykes: Will the hon. Gentleman give way?

Mr. Campbell-Savours: No; the hon. Gentleman did not give way to me.

Mr. Dykes: But the hon. Gentleman keeps referring to me. Will he give way?

Mr. Campbell-Savours: All right.

Mr. Dykes: I know that I did not give way to the hon. Gentleman, but that was because I was trying to be brief, and I had said that I did not intend to give way to anybody. However, the hon. Gentleman is repeatedly referring to me, so I am grateful to him for letting me intervene briefly.

As a member of the Select Committee on European Legislation I know that we scrutinise the annual report of the Court of Auditors. The hon. Member for Newham, South (Mr. Spearing), who does more homework than most hon. Members on such matters, knows that too. Every one of those annual reports says that there is fraud in every member state, including the United Kingdom. In many areas the incidence of fraud is greater here than in other countries. Detection systems and cultures vary, but I have visited all the other member states and, with one or two exceptions--deliberately, I shall not name them now--every country thinks that it has the best detection systems, and that others are cheating more than it is.

Mr. Campbell-Savours: That is the hon. Gentleman's view, but it is not mine. If I find the document, I shall give him the reference. I have here a document, the Thomson report, which is about EC agricultural policy for the 21st century. Ministers have repeatedly told us in Parliament that we could not see that report, because it dealt with reform of the common agricultural policy. We have been told again and again from the Dispatch Box that it is a Commission document and is not available to us. My hon. Friend the Member for Stoke-on-Trent, South (Mr. Stevenson) tried to get access to the document before he left the European Parliament, and I understand that several other hon. Members have tried to get hold of it. Finally, I got my local Member of the European Parliament for Cumbria and Lancashire, Tony Cunningham, to extract it from the Commission by one means or another.

The document is extremely significant, and I advise all hon. Members to read it because it deals with reform of the CAP and makes many interesting proposals that should be debated in the House. If we really intend to deal with fraud in the Community we must tackle the structures and frameworks within which that fraud takes place. We must reform the CAP; it desperately needs reform.

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I have been in the House for 15 years now, and the problem is that year after year Members get up and talk about reforming the CAP, but nothing ever happens. Ministers speak from the Dispatch Box in annual agriculture debates. We used to have an annual statement on the settlement, at which hon. Members always asked Ministers for assurances that work was going on to reform the CAP. Very little has happened. All that has happened is that larger amounts have been being spent despite the fact that we have been given undertakings that, over the longer term, there will be reductions in the CAP budget.

We must address the issue and there should be open debate. Documents should not be the unique preserve of Commission officials. The material should be made available to Members of Parliament so that we can deal with the issues. That is the only way in which we shall see proper reform in the Community.

Mr. Duncan Smith: I find myself in pretty near full agreement with the hon. Member for Workington (Mr. Campbell-Savours). He had a more honest and clear view of the problem than did my hon. Friend the Member for Harrow, East (Mr. Dykes), who spent most of his speech trying to hide away some of the problems. He seems to think that we should ignore them because we have to get them in perspective. The reality is that, unless these things are dealt with, there will not be a European Union, because it will have collapsed under the weight of its own inefficiency and fraud. If we wish to continue to see a marketplace here, we would not necessarily wish that to happen. My hon. Friend the Member for Harrow, East went on to say something along the lines that one of the Commissioners had said that fraud was out of all proportion, and that it was really a question of mismanagement. I tell my hon. Friend and other hon. Members that I used to be a business man. When running a company, I would have looked at mismanagement of finance in the same way that I would have looked at fraud. Deliberate mismanagement is the same as fraud. The point about the report by the Court of Auditors is simply that the court is not able to find out how much of the mismanagement is really fraud. In truth, the structures are such that mismanagement is endemic. The mismanagement is part of the system, and leads to further fraudulent mismanagement of money.

The argument for an annual debate on the finances of the European Community is now strong. Each year, we rightly discuss the Budget and the Finance Bill, when the Government seek money for the next year. Yet the reality is that each year, we sit here quietly while European money flows through the Consolidated Fund straight into the European Community. Until the Heads of Government get together to decide whether there should be any more money, Parliaments are denied access to the debate. It is ironic that we should debate the matter here, when the reality is that we do so on the basis of the increase and not the total budget.

The timely arrival of the report by the Court of Auditors has made the debate even more interesting. I looked at the executive summary of the report; the main book is very detailed. It is interesting that, at the beginning of the report, the authors talk about comparing the findings with the annual report for 1983. Even glancing through, one is struck by how little has changed. We have talked about the powers that Maastricht gave the Court of Auditors in

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the whole investigative process. From looking through the reports in 1983, one finds that the present report mentions essentially the same things. The court did not have all the extra powers in 1983. There is no demonstration that the powers under Maastricht have suddenly opened this can of worms. The can of worms was on display; it is just that nobody had the political will to discuss it. There was not the drive. It is only now that we see the inexorable rise of money that the drive has come to find out where the money is going. The report says:

"it is clear that many of the problems then identified in accounting and financial management of the most important areas of Community expenditure have not yet been overcome."

The report talks about the Commission having "made efforts" and about the

"proper level of financial management and control necessary in the complex environment of Community finances."

Nothing has changed. The court was saying the same things back in 1983.

The report talks about mismanagement and about inducements; it touches here on the agricultural side. I know that the hon. Member for Gateshead, East (Ms Quin) went into detail on that point. I shall not go down that road, but will simply reiterate the point. The report says:

"Agricultural management measures are still failing to achieve balanced markets."

The report talks about how aids for distillation, appropriate for temporary production surplus, have been made into permanent encouragement to the reduction of unsaleable wine. It goes on to say:

"the permanent abandonment of vineyards are offset by others which encourage investment in the sector."

It is the particular part which talks about temporary production surpluses made into permanent encouragement which suggests a quiet slide across in practice. That is endemic. It was allowed to happen. Another part of the report is even more fascinating. I ask the Committee to think about the matter as though I were talking about a local council, and that it were an investigation of how councillors were carrying through their practice. The paragraph says:

"The audit continues to discover breaches of the rules governing the placing of contracts with third parties . . . The financial controller's department has sometimes accepted that expenditure be charged to the wrong account or that a single operation be covered by several small private treaty contracts instead of one large contract which would have been put out to tender."

I looked at that, and I could not believe it. I immediately thought that, if it had been a reference to a council in this country and we had been talking about councillors, the Audit Commission would have recommended surcharging them and their disbarment.

That is not only mismanagement. It is now entitled mismanagement, but it is fraud, because it is a misuse of moneys which the Community has no right to abuse and misuse. It is not a case of hiding the problem or pretending that it is out of all proportion: it is a reality. It was just the same in 1983. The travesty is that it is still happening.

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The report even goes on to say:

"The Commission's central accounting system is supported by inadequate documentation which fails to provide a clear `audit trail'".

That is accountants' doublespeak. On numerous occasions, I have seen business accounts vetted by accountants who talk in the first instance about difficulty in finding documentation; a lost trail. That is them giving hint to the fact that it has more than probably been deliberate, that in fact documents have gone missing which nicely hide the reality of the figures.

The report goes on:

"the Commission needs to devote a significantly larger proportion of its staff resources to securing the necessary improvements in the performance of its own services".

I shall come to that matter later, because I want to ask the big question at the end: to whom will those people be accountable, and about what?

There are two other sections with which I want to deal briefly. One section, on the financial audit, makes very interesting reading. I recommend that right hon. and hon. Members read it. It says: "Cases of avoidance of the rules and tenders, the granting of approval ex post facto by the Financial Controller or officials who are not authorised to do so, the absence or inadequacy of supporting documents, items which are not booked in accordance with the provisions of the regulations and various book-keeping procedures are all weaknesses in the internal control system."

They are not weaknesses: they are disasters. Over that period of 11 years, there was no drive to tighten up those aspects.

It is not that we now have people looking into matters and saying that it is a problem. Nobody, at any stage, who controls the money--those same upright individuals about whom my hon. Friend the Member for Harrow, East talked--once asked themselves why they were living with those weaknesses, why they were not doing something about it, why they needed a policeman to come along to tell them it was wrong. If they did not intend it to happen, why did they not stop it earlier? It is the same for our own Government practices, and we should hunt those flaws down on the same basis. However, those disasters come through as

"weaknesses in the internal control system."

The section of the report entitled "European Parliament Building Expenditure" is enlightening. I know that the hon. Member for Gateshead, East said that it was ridiculous that there were two buildings, and possibly a third, and I fully agree. I do not think that anybody in this Committee would for one moment believe that there should be more than one building.

However, in the midst of that discussion, we suddenly find a little gem. The report says:

"It was found that there had been no prior invitation to tender for the execution of the project"--

the building of the Parliament. That is quite incredible. In other words, somehow that invitation was known about, quietly slid along and, somehow, the right people tendered a bid. It goes on:

"The Parliament is obliged to review these aspects for the purposes of obtaining long-term financing for the project at the lowest cost."

The funny thing is that, when one reads the report, one begins to get the feeling that one is almost re-reading through some eastern potentate's book of accounts,

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because one begins to see the number of palaces growing, people with largesse and large salaries. It is as if we are talking about something that is both anti-democratic--

Mr. MacShane: Will the hon. Gentleman give way?

Mr. Duncan Smith: With all due respect, I shall not give way. I am aware that others wish to speak. I wish to draw my remarks to a conclusion.

Some information has been given to me by the hon. Member for Antrim, North (Rev. Ian Paisley), who is now in his place, about Pieter Dankert, who I believe was the president of the European Parliament. The information stems from the debate that took place on the Court of Auditors. I gather that Mr. Dankert said--I am paraphrasing--that it was strange that the Commission seemed not to have co-operated fully and speedily when the Court of Auditors was producing its report. He seemed to say that somehow the process was slowed down.

We must remember what was going on when the report was being written. A number of nations were applying to join the European Community and were holding their referendums. There were Austria--Switzerland rejected membership--Finland and Sweden. The process that I was describing was not completed until shortly after Sweden held its referendum.

I am not trying to suggest that an attempt was made to stop the Swedes knowing about the "company" that they were about to join, but the situation was rather like taking part in a company as a director, for example. Would such a person sign himself in only after he had read the accounts? Applicant countries did not have that opportunity, and they will now be saying, "What have we said we shall join?"

Rev. Ian Paisley: I can confirm what the hon. Gentleman has said, and what Mr. Pieter Dankert said. As the hon. Gentleman has said, Mr. Dankert was a president of the Strasbourg Parliament, and so could not be called a Euro-sceptic. He said that it was interesting to note that, if someone wanted to join a company, he would always examine the books, but in the instance to which the hon. Gentleman was referring the books could not be opened until the referendum took place.

I was a member of the Bureau of the Strasbourg Parliament. During a meeting of the Bureau, the French argued that, unless the issue of the new Parliament building was dealt with quickly and quietly, they would stop the European elections altogether. It was said that the members of the Bureau should not let the matter out of the meeting.

Mr. Duncan Smith: I am grateful to the hon. Gentleman for his intervention. He told me earlier that he wanted to make the specific point.

Time and again, hon. Members on both sides of the House reach the point when they say, "There are problems. There is endemic, deep-seated fraud." As the hon. Member for Workington said, we cannot rely on the figures of some countries when they investigate fraud. Like the hon. Gentleman, I have lived and spent a long time in Italy and various other countries, and have done business with them. I know the culture, which does not lend itself to the genuine examination that I have witnessed in the United Kingdom and in some other

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countries. There is endemic fraud in certain countries, and it is their structures that have given rise to it. It is those structures that we must tackle.

It is no good saying that we should level police on police so that they can investigate each other. That will mean allocating even more money for the next structure that investigates the structure below it, and so on. That is exactly the problem with the Community now. The different structures are not co-operating but hiding themselves from each other as part of a game.

The common agricultural policy, for example, is no longer viable in its present form. Indeed, it has not been viable for a long time. So what must we do with it? The main problem is that moneys go into the Commission and then out to member states. There is no control at Commission level. The members of the Commission are the policemen, and at the same time they control the moneys that go out to member states. It is clear that they are not under any pressure to resolve the problem.

The issue could be settled by repatriating much of the control of the Commission back to member states and leaving the Commission, as it should have been in the first place, adjudicating between nation states. That would give the real cause and the real drive behind checking on fraud. Essentially, in that and all other matters throughout the cohesion fund and every other mechanism in the Commission, at present we give it that money in the first place and then watch it recycled back, through various means, to us and to others.

In reality, restructuring or changing is the answer, not a continual demand for more police, because they will not find out any more. They will just do in 10 years what they have done over the past 11 years, and that is to say, "Oh, surprise, surprise, there is fraud in the European Community, but we cannot obtain a full answer because we do not have full co-operation." Let national Parliaments ask their Governments why we are paying more tax.

Forums across Europe will be the right ones to investigate using their own versions of the Public Accounts Committee, not trying to give central control and central investigation. I therefore urge my hon. Friend the Minister to drive this matter forward into 1996 and reform root and branch the structures that exist in the Community; otherwise, as has been said, we shall inevitably watch the disintegration of what exists there at the moment.

Mr. Shore: I agree with much of what the hon. Member for Chingford (Mr. Duncan Smith) said. It contrasts very starkly with the remarks by the hon. Member for Harrow, East (Mr. Dykes). The hon. Member did not do his cause any good by seeking to minimise the extent and gravity of fraud in the European Community. He would have done very well indeed to have listened to the good advice of my hon. Friend the Member for Workington (Mr. Campbell-Savours).

One of the most telling phrases during the debate came from my hon. Friend the Member for Gateshead, East (Ms Quin). She said correctly and pointedly that the CAP is a fraud-friendly system. It is. No one who has turned his or her mind seriously to the character of the CAP would deny that.

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I do not know whether I may formally move new clause 10 in my name, but we are calling for--

The Second Deputy Chairman: Order. The right hon. Gentleman cannot do so at this stage. Debate is possible, because new clause 10 has been grouped with new clause 3. If new clause 10 were moved, it would have to be moved in the order in which it appears on the amendment paper.

Mr. Shore: I may, however, refer to its terms. We say that "Each year Her Majesty's Government shall make a report to Parliament on the proposals it has made and the progress achieved in combating fraud and waste in Community expenditure as documented in the relevant annual reports of the Court of Auditors."

No one who has followed the annual documentation by the Court of Auditors on fraud, waste and inadequate financial control in the Community over the past decade can fail to see the need for such a new clause. The hon. Member for Chingford made a telling point when he said that the recent report of the Court of Auditors itself made the point that nothing has really changed in the past 10 years. That is a tremendous indictment not of the Court of Auditors but of the Commission and the national Government authorities which should be concerned with combating fraud.

To the dismay of the Government, no doubt, the Court of Auditors published its annual report for the year 1993 as recently as 24 November. What the Court of Auditors and the House of Lords Select Committee had to say in the two major documents to which I shall refer is very telling.

It is absurd for the hon. Member for Harrow, East, who is unfortunately not in his place, to refer to "poisoned propaganda". The Court of Auditors is a professional and competent body which can hardly be challenged by the people whom it has been appointed to investigate and whom it has found it necessary to censure. The Commission's defence is very unconvincing indeed.

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The Court of Auditors said a great deal about CAP and the overseas aid programme. At the beginning of its very gentle general summing up it says:

"Overall, it would be fair to say that the development of Community activities has not been accompanied, either in the Commission or in the Member States, by a commensurate development of the necessary financial management and control systems".

It goes on to say:

"insufficient resources, both in quantity and in quality, have been allocated to ensuring the best use of public money and accountability for it."

They are very measured words, but the charges are documented over and again in the 480 pages which form the report.

I find the last of the House of Lords European Communities Committee reports very convincing-- the idea that it is "poisoned propaganda" is simply ludicrous. The report was published on 19 July this year, so it is very recent indeed. I draw the Chamber's attention to the report's summary, which says:

"The Committee's main conclusions are as follows: the Commission's new anti -fraud strategy is inadequate. It is an action plan with no plans for action."

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Its next finding states:

"there is not enough emphasis on fraud prevention as distinct from fraud detection . . . The former should be an objective of policy and much more attention should be paid to fraud-proofing regulations and schemes".

The Committee's next conclusion says:

"the Commission must accept its responsibility for ensuring proper administration of Community funds and must specify precisely the procedures and controls to be followed by Member States acting as its agents".

Mr. Rowlands: Did the Government accept this?

Mr. Shore: I will come to that point in a minute. I wish to finish with their Lordships' conclusions because they are highly relevant. They continue:

"the Court of Auditors must be strengthened".

They said that in July this year, knowing full well what had gone into the Maastricht treaty and what additional powers it had given to the Court of Auditors. They go on to say:

"the whole of the European Parliament should play a more active role in the fight against fraud and Member States should pay more attention to reports from the Budgetary Control Committee". Another important conclusion states:

"public opinion needs to be informed and motivated".

The public must not be misinformed nor should the truth be hidden from them, as the hon. Member for Harrow, East, who is not in his place, would have us accept. The final conclusion states:

"the present step-by-step approach is not producing sufficient results. A Task Force of outside experts should be appointed to undertake a fundamental review of the way the Institutions are discharging their financial responsibilities and in particular the matters referred to in paragraph 53. Failing that, the European Council must insist on the Commission undertaking such a review itself with the help of outside professionals."

That is a series of quite powerful recommendations. Those conclusions were reached after careful study by a body whose members could hardly be accused of being Euro-sceptics. On the contrary, they are very responsible people who, for the most part, are friends of the European Union.

My hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) has prompted me to ask how the Government will respond to the House of Lords Select Committee report. I think that the whole House would like to have that response.

I conclude my dealings with the report by quoting paragraph 56, which says:

"We emphasise, as we have done in previous reports, that there has hitherto been a lack of political will in the Community to take remedial action, with the result that the integrity of the Community's financial statements is in doubt."

I know that hon. Members on both sides of the Committee will concur fully with those words. It continues:

"It is Europe's honest taxpayers and traders who bear the huge sums"--

the Committee's words--

"lost to fraud against the Community. These losses are a public scandal. Unless the measures described above are set in hand boldly and resolutely, adverse reports will continue to be issued by the Court of Auditors year after year, and such reports will inevitably fail to give the assurances required by the Maastricht Treaty. The Community in the meanwhile will continue to suffer grievous losses through fraud and irregularity. We do not think that any responsible Government would wish to allow that state of affairs to continue."

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