House of Commons Hansard Debates for 7 Dec 1994

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Those are pretty weighty words. They fully express the proper anxiety that has been articulated in today's debate by hon. Members on both sides of the Committee about the extent of fraud and the difficulty that has been found so far in combating it.

The Government's response to that report is something that we would be interested to hear. The Government have not helped themselves or their reputation by turning down those sums of money which have been offered in two member states to help deal with fraud. My hon. Friend the shadow Chancellor cited some items during his speech on Second Reading. Only yesterday or the day before the political editor of The Guardian , Michael White, had this to say of recent meetings of Budget Ministers on 16 November. The article reads:

"Mr. Heathcoat-Amory agreed to a £3.9 million cut in the anti-fraud budget for 1995, currently set at £100 million and far less than demanded by the European Parliament."

If the Minister agreed to cut £3.9 million from the anti-fraud budget, that undermines his credibility as a Minister who should take such matters very seriously.

The now absent hon. Member for Harrow, East quoted defensively the extraordinary reaction of the European Commission to the Court of Auditors' censure of it. He quoted Mr. David Williamson, the Secretary-General of the European Commission, who made an unwise and foolish statement. He went out of his way to diminish the impact of the report. That is not what he should have done as a person very much involved in the reputation of the European Community. Reference has been made in the debate to the regulation and convention for the protection of the Community's financial interests. That occurs in the new clause moved by my hon. Friend the Member for Gateshead, East. It is obviously germane to the problem of fraud and financial irregularities. A regulation and convention for the protection of the Community's financial interests is now being negotiated within the Community. There is great difficulty in achieving an agreement on the content of that regulation and, indeed, that convention.

The regulation is that part of the procedure of the Community that comes under the old provisions of the Rome treaty and, if agreed unanimously, it would be imposed on us. The convention for the protection of the Community's financial interests has been negotiated on our behalf, under the third pillar arrangement of the Maastricht treaty, by the Home Secretary with the Ministers of Justice and Home Affairs of other Community countries.

The great difficulty is the lack of any agreement on what fraud is. If one cannot reach an agreement on a definition of fraud, frankly, one will not get far with legislation of that type, whether it be a regulation or a convention.

As the Committee will recognise, in new clause 10 we ask the Government to make an annual report to Parliament on their proposals and the progress achieved in combating fraud. That would precisely focus the attention of the Government on what we want to hear from them--not merely the extent of fraud, but what they are doing to combat it. Our proposal makes the Minister's reply a very important contribution to this debate, especially in relation to the recommendations made by the House of Lords Select Committee.

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I have another proposal, which must have occurred to many hon. Members. Fraud should be given the high profile and urgent attention that it needs. Goodness knows, we have enough Commissioners--we do not know quite what to do with them all. One would have thought that the Commission should accept that a senior Commissioner should be given, as his main or only task, the responsibility of combating fraud and imposing adequate financial controls. It would be beneficial for the Commission and for all of us.

Mr. Tim Devlin (Stockton, South): A Commissioner is already responsible for tackling fraud--Mr. Schmidhuber, whose name was mentioned earlier.

It was interesting to see how several hon. Members dealt with an intervention by my hon. Friend the Member for Harrow, East (Mr. Dykes). They said that he was trying to ignore the problems of fraud in the European Union. In fact, my hon. Friend was absolutely right. The report of the Court of Auditors is a report not on fraud but on financial management in the Union as a whole. In the information note attached to the report, which picks out the highlights, fraud is cited only once.

The interesting aspect of coverage of that subject in the United Kingdom is that we constantly hear references to a figure of 6 becu, which is said to be the extent of fraud in the Community. That figure has no basis in fact. Its origin can be found in a report carried out by a German academic some years ago, in an extrapolation of an estimate of 10 per cent. of the Community budget which is possibly lost to fraud. He based those calculations on a specific slaughter premium scheme and extrapolated the amount to all parts of the budget. As such, the example and the amount are totally without justification.

The Court of Auditors' report strongly criticises member states, including the United Kingdom, on financial management. The president of the court pointed out that, as Governments of member states effectively manage about 80 per cent. of the Union's budget, to some degree they are responsible for its proper management. We all know that there are differences in standards of financial probity in member states, but we must bear it in mind that, as the Secretary of State for Social Security has told the House more than once, we have sufficient fraud in our social security system without its negating the whole system. When discussing such matters, we have to take care that we do not debase the institutions themselves when labelling everything in the European Union as fraudulent and dishonest. Hon. Members should not forget that one third of the budget of the European Union is spent in disadvantaged regions of the Union, and that much is spent in the north-east of England, where I come from, and in Scotland. Since 1989, £30 billion has been spent in that way. My hon. Friend the Member for Chingford (Mr. Duncan Smith) has said that it is interesting that, as greater financial contributions are made to the European Union budget, there will undoubtedly be greater scrutiny of the expenditure of the Union. That is only right. After all, each directorate in the Commission has its own computer system which has been contributed by different member states. I do not know which member state introduced the computer system--

It being Ten o'clock, The Second Deputy Chairman-- left the Chair to report progress and ask leave to sit again.

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Committee report progress.

Motion made, and Question put forthwith, pursuant to Standing Order No. 14 (Exempted business),

That, at this day's sitting, the European Communities (Finance) Bill may be proceeded with, though opposed, until any hour.-- [Mr. Kirkhope.]

Question agreed to.

Again considered in Committee.

Mr. Devlin: I shall return to the point which I briefly wanted to make. I have spoken for only three minutes so far. [Interruption.] I shall see my hon. Friend the Member for Salisbury (Mr. Key) later. [Interruption.]

The Second Deputy Chairman: Order. Before the hon. Gentleman continues his speech, may I say that I deprecate what appears to be the post-prandial gossip which is taking place in the Chamber? If hon. Members wish so to engage, I suggest that they leave the Chamber.

Mr. Devlin: It is nice to know that some hon. Members are making such a contribution to diminishing the European wine lake. The point which I wanted to make briefly is that the systems within the Community can be scrutinised heavily. The situation regarding computers is that each directorate has selected a computer system from a different Community country. For instance, the education directorate's computer system has been installed by Greeks, and its software was written by a Greek. It is not one of the most worthy computer systems, and is prone to certain inefficiencies. Across the Community institutions as a whole, there are a large number of well-paid officials who, frankly, are not finding enough to do with their time. Consequently, we could be looking for further productivity improvements from them.

We also have an historic opportunity with the joining of three new countries--Finland, Sweden and Austria--to the Community. A shift will take place in the Community which will give this country a fundamental opportunity. Up until now, the French-speaking countries have had a hold over the institutions in the European Union. We are seeing a shift, and a number of senior policy positions will be taken over by Germans, Austrians and other nationalities.

With the influx of Austrians, Finns and Swedes, English will be used much more as the working language in the Community. We are also seeing a massive improvement in information technology, most of which is written in English. That will have a serious effect on the management of the European Union, because it will mean that the standard of financial management which we have grown used to in this country will be much more amenable to the operating systems within the Union. With that in mind, we can see that there will be a much greater improvement in the future.

Let me finish by identifying an area in which an early improvement in financial systems would be very welcome. I refer to the allocation of European social fund objective 2, 3 and 4 status, and the management of the funds. In my constituency and throughout my region in the north of England, a number of local authorities, voluntary organisations and other institutions have applied

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for ESF objective 2 funding, but they will not find out until half way through the financial year--or even later-- whether they will receive that money.

Organisations in my constituency that applied for funds for their projects in January still have not heard whether they will receive those funds. They are, however, required to spend their money evenly over the year; so they are speculating, taking money that they have earned from other sources--or borrowing money--and then spending it in the hope that later in the year they will receive the funds that they confidently expect. It is not a happy system, because it may mean that a number of worthy organisations are left out in the financial cold.

I look forward to further reforms in the future, but I agree with my hon. Friend the Member for Harrow, East that the whole question has been blown very much out of proportion. We must try to preserve the integrity of the European initiative without necessarily dressing it up in an erroneous cloak of fraud.

Mr. Austin Mitchell: I should have thought that the best way of preserving the integrity of the European initiative was by demonstrating the extent of fraud. That would show whether we can have faith in Europe's control systems and institutions. Rather than saying, as the hon. Member for Stockton, South (Mr. Devlin) seemed to say at one stage, that it is okay as long as some of the money comes to the north-east, we should want all the fraud to be detected so that we know what we are dealing with.

At present, unfortunately, fraud and the European Community are synonymous in the minds of a vast number of people. Indeed, the European Union could almost be called the European Union of fraudsters and related trades. Examples of fraud have been brought home to people by television reports and reports from the Court of Auditors. There is, for instance, the massive olive fraud in Italy: for years, people went around counting the olive trees on the estate and plotting them on maps; then they moved on to superior technology--aerial spotting of olive trees. Subsequently, that technology was itself improved: the spotting was done by means of ortho- chromatic, pan-chromatic, infra-red and ultra-violet film. By that method, all the olive trees could be minutely counted. The comic aspect only gives ammunition to people like me who are strongly critical of the Community. It generates an atmosphere of alienation--a general belief that the Community is all about fraud. Other examples are the piggy-go-round, and the export rebates on goods that never leave the country or else return to it by some roundabout route. I am not talking only about the common agricultural policy, although it is a fraudsters charter that accounts for half the budget. The CAP, along with the enormous fluctuations in commodity prices, gives great scope for fraud, as does tobacco. Our new clause 10 mentions waste as well as fraud. We need to deal with waste. We have spent £1 billion on growing tobacco in Greece, and more billions on expanding the wine lake. We have provided subsidies to cut wine production, and production has increased. All those examples are endemic in the CAP, but trading schemes are also a problem. An element of corruption is present in the Commission itself, and we must ask whether the European Parliament is an adequate means of dealing with fraud. Building contracts for the European Court are an example, as are the travel expenses

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claimed--fraudulently, in some cases--by Members of the European Parliament. Some claim the full fare and then pay a cut-price fare. Wasteful overseas trips are made. How can anyone have faith in an institution that is so redolent of fraud, when so many examples of it are hitting the newspapers?

The sad fact is that policing of that fraud depends on national Governments, who often have a vested interest in sustaining the fraud, or not revealing it because it will draw attention to what is happening, and national Governments who, in some cases, are corrupt. The example of what is happening in Italy was mentioned by my hon. Friend the Member for Workington (Mr. Campbell-Savours). One cannot claim that fraud is not endemic in a system in which politicians are interrogated about fraud and politicians are carried off to prison as a result of fraud.

Perhaps, in passing, I should commend the example of Italy to the Government, because the effect of carrying politicians off to gaol has been a collapse of confidence in the lira; the lira has fallen and Italian exports and Italian manufacturing are booming. It is a precedent that the Government might well choose to follow, given the incompetent way in which they handled our own exit from the exchange rate mechanism.

One cannot assume that, in a system where that is happening in national politics, fraud and corruption are restricted to national politicians; they must be endemic in the society. If they are endemic in the society, we cannot know the scale of what is happening to the European Community's spending in that country.

Italian fraud, Spanish practices and the Irish beef scandal are all examples of a corrupt system that is essentially a fiddlers charter. Other problems are the huge scale of spending, which gives enormous scope for speculation, the conflict between European authorities and national authorities, and the pork barrel mentality whereby, as long as funds are channelled into the "Club Med" states and the poorer states, corruption is accepted. A conspiracy of silence develops in relation to it.

We do not know the scale of fraud. The Chancellor of the Exchequer says, with his usual insouciance, that it is on a small scale--peanuts--but he thinks that of so many things. Our budget contributions are on a small scale--peanuts. Only tomorrow, when he comes to the House with a package on a much bigger scale, shall we discover his definition of something that is not peanuts. It is all peanuts to the Chancellor--but what are the estimates?

The Court of Auditors produced an estimate of fraud and waste last year of between £600 million and £4 billion. I am happy to accept any estimate, provided that it is high enough. The fact is that we do not know. My estimates, from a prejudiced point of view, are as good as the estimates of people whose attitude to the Community is favourable.

That is the aim of the new clauses. It is simply to shed light on the issue from all points of view, as my hon. Friend the Member for Workington said. From the point of view of people who are enthusiastic about and loyal to the Community, it is important that the true scale of fraud, a cancer eating away at the heart of the Community, which is alienating public opinion on a considerable scale, should be known, just as it is important from my point of view that it should be known.

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The true scale of fraud might be high, in which case it will probably fuel my frenzy; it might well be low, in which case it will fuel the enthusiasm of those people who are committed to the Community. We need to know, if we are to deal with the problem adequately and in the effective way in which we tackle fraud in this country; the public want to know, and it is essential for the enlightenment of the public that they be told the scale of the problem. There is a connection between the widespread alienation from Europe which exists, and which is shown by public opinion polls in this country, and the pervasive feeling that what is going on there is a fraudsters charter.

It is hypocrisy for Governments to come back, as the Government have done, year after year, and tell us, "We are strengthening the procedures for fraud, we are voting more money to deal with fraud," and then be found to be voting in the Council for cuts in the provision for tackling fraud. It happened last year, as was revealed by John Tomlinson--our Government supported a £20 million cut in the provision for tackling fraud. When the European Parliament suggested in this year's draft budget that 50 additional staff should be provided for the anti-fraud squad in Europe, the squad was cut with the concurrence of our Government. Such double-talk leads to a collapse in belief in terms of what people say about Europe--one thing is said here and another elsewhere.

What we need and what the new clauses will provide is more light on the subject. Much of the secrecy is due to the Council of Ministers, which is one of the obstacles to dealing with fraud. It will not provide the information to the Court of Auditors or to us. Our new clause 10 simply provides for a report to Parliament on what is being done to combat both fraud, which is endemic, and waste, which is an even more serious problem. New clause 13, tabled by the official Opposition, does not mention waste and does not cover all Community expenditure as our new clause does; it merely deals with the general budget.

10.15 pm

I would expect a Government who are trying to persuade Parliament to agree to raise the ceiling on European expenditure to support the new clauses, and to defend and promote them. If we are giving a concession to the Community by raising the ceiling, it is surely essential to use that as a negotiating counter and say that we have to take action to deal with fraud. The Government have lavished money on the big six accountancy houses, including Coopers and Lybrand and Price Waterhouse. I do not know why the Government do not propose that one of the big six firms of auditors should audit the expenditure and financial procedures of the Commission and the Council.

I had a moment of hope when it was proposed that Sir James Goldsmith should draft into the Commission a team of 200 auditors to find out what is going on. What a good thing that would be. Why do the Government not propose that? Why do they not send Coopers and Lybrand to Brussels to deal with the problems and tell us what is going on? We are asking for more light and more information. If our new clauses are agreed to--they are an essential concomitant of the increase in expenditure and fraud--we shall have achieved that.

Mr. Heathcoat-Amory: I can at least agree with the hon. Member for Great Grimsby (Mr. Mitchell) that we

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are debating a serious issue. Over the past 10 years and more, the United Kingdom has often ploughed a lonely furrow in encouraging and arguing for prompter and more resolute action against fraud and mismanagement in all its forms. We believe not only in direct action to fight fraud, but in tightening up financial discipline at all levels in the European Community and introducing better systems of budgetary management to stop fraud arising in the first place. That is why we are extremely glad that a number of other European Union institutions now take the issue with the same degree of seriousness. The European Parliament sometimes has a reputation for running a sort of global foreign policy rather than looking after the interests of taxpayers. It is extremely welcome that members of that Parliament are grasping the issue and using their own powers to bring the European budget under better control. Member states are also becoming interested, which may have something to do with the fact that more of them are becoming net contributors. Before the end of the century, in terms of net contributions per head, we shall be overtaken by France, the Netherlands, Sweden and Austria, with Germany remaining by far and away the largest net contributor. Italy too is becoming a contributor to the budget so the attitude of those countries towards the need for better financial control has been transformed in recent years.

New clause 3 does not make a great deal of sense because it assumes that it is the United Kingdom that adopts Council regulations. It is not; the Council of Ministers adopts them. We have a veto over their adoption because they must be agreed by unanimous vote, but that distinction is a important one. The regulation specified in new clause 3 has already been submitted to the Scrutiny Committee. That happened on 5 October and it has been recommended for debate, so we do not need a new clause to ensure that that draft regulation is properly scrutinised.

The Opposition sometimes speak as though the draft regulation against fraud were the only one that exists. It is important because it will bring into effect a European Union-wide system of administrative penalties which we very much welcome. A great deal has been happening quite separately from that initiative. For instance, my right hon. and learned Friend the Home Secretary put forward a British proposal under the third pillar of the Maastricht treaty which requires inter-governmental action. It suggested a series of measures to ensure that fraud against the interests of the Community is subjected to appropriate sanctions under national laws. Indeed, it was largely at his prompting that the Justice and Home Affairs Council has now agreed a resolution that will go forward to Essen to be considered by the European Council next weekend.

The hon. Member for Gateshead, East (Ms Quin), who introduced the debate for the Labour party, sought to suggest that the United Kingdom had voted against anti-fraud measures. I want to put that myth to rest. In the draft budget for next year, the Commission asked for anti-fraud resources of some £102 million. That was virtually granted in full by the Council. It is true that it represents a small cut on 1994 but that is because the 1994 budget for anti-fraud measures includes a number of start-up costs and one- off studies and the purchase of capital equipment which obviously do not have to be

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repeated every year, but the operational effectiveness and the number of people deployed on the ground against fraud will remain, and in some cases be enhanced.

Of course the European Parliament, as so often is the case, sought an increase in expenditure for this category as for many others. It wanted some £2 million more spent on agriculture to make sure that the inspection of animals in transit was enhanced. That did not find favour with the Council of Ministers. Another suggested item of expenditure would insert into the operational section of the budget a number of administrative expenditure budgets. Those two items were taken out by the Council of Ministers. If it is of any assistance to the hon. Lady, I can give her the categorical assurance that the United Kingdom did not vote for any cut whatsoever.

There is a wider point, however, that action against fraud is not simply a question of spending more public money. We want more preventive measures and better regulations in Community legislation. We want to improve the discipline of the budget to stop fraud arising in the first place. It is too often the instinct of the European Parliament and Opposition parties to meet expenditure with more expenditure and to judge any organisation simply by the amount of money being spent on it.

Mr. Campbell-Savours: What about social security?

Mr. Heathcoat-Amory: The anti-fraud measures in the European Commission and elsewhere are properly funded and have the required degree of political momentum behind them.

Mr. Campbell-Savours rose --

Mr. Heathcoat-Amory: I am responding to the hon. Gentleman, who spoke earlier in the debate.

The hon. Gentleman referred to the Thomson report on agriculture. I think that he has a copy, but he can also obtain one from the Library where I believe that it was recently deposited by my right hon. Friend the Minister of Agriculture, Fisheries and Food. It is entitled, "European Agriculture in the 21st Century". I believe that it is a rattling good read and I commend it to the House. There is no question of the United Kingdom Government wishing to suppress well thought out and constructive contributions to the debate about CAP reform which itself has an important part to play in reducing the incentives for fraud.

My hon. Friend the Member for Chingford (Mr. Duncan Smith) wanted an annual debate on this and in my final remarks I shall mention an idea along those lines. First, I want to assure him that the United Kingdom Government were instrumental in obtaining for the European Court of Auditors full status as an institution of the European Union during the Maastricht negotiation and ensuring that reports from the European Court of Auditors are not simply filed in the bottom drawer in the Commission but are responded to and acted upon.

Mr. Shore: I hope that the Minister will address himself to the House of Lords Select Committee's July report which particularly mentions, as their Lordships saw it, the lack of powers of the Court of Auditors after the Maastricht treaty.

Mr. Heathcoat-Amory: I was coming to that very point. The right hon. Gentleman rightly drew attention to

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the good work that has been done in another place on the question of fraud and how to fight it. The Government will be responding in due course to their Lordships' latest report, but I can assure the right hon. Gentleman that already many of the constructive proposals that they put forward, including strengthening the European Court of Auditors, are being put in place. I met the European Court of Auditors in London earlier in the summer and I gave it an assurance that it would receive the full support of the British Government and, I presumed, of the House in the good work that it does.

I end by responding to the point about reports to the House. It is an essential task of the Government to keep the House fully informed about what we are doing on the question of fraud and mismanagement. At an earlier stage in the debate I mentioned the annual report submitted to the House on the Community budget. Starting from next year, I propose to expand the statement to include what is being done on budgetary discipline and mismanagement and to counter fraud. A point picked up by other hon. Members but suggested by me was that in some ways the House suffers from a surfeit of different reports, not all of them being properly scrutinised. Therefore, there is merit not in triggering yet another report as a consequence of today's debate, but in incorporating it into a single annual report which will draw together all that the Government are doing on this important issue.

Ms Quin: Despite what the Minister has just said, the Opposition consider that the new clause is still important and that it would be right for the Council to adopt this regulation on the protection of the Community's financial interests so that all of us could feel that something was being done to tackle the problem effectively. For that reason, we shall press the new clause to a Division.

Question put, That the clause be read a Second time:--

The Committee divided: Ayes 255, Noes 319.

Division No. 14] [22.28 pm

AYES

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Abbott, Ms Diane

Adams, Mrs Irene

Ainger, Nick

Ainsworth, Robert (Cov'try NE)

Allen, Graham

Anderson, Donald (Swansea E)

Anderson, Ms Janet (Ros'dale)

Armstrong, Hilary

Ashton, Joe

Barnes, Harry

Barron, Kevin

Battle, John

Bayley, Hugh

Beckett, Rt Hon Margaret

Beith, Rt Hon A J

Bell, Stuart

Benn, Rt Hon Tony

Bennett, Andrew F

Benton, Joe

Bermingham, Gerald

Berry, Roger

Betts, Clive

Blunkett, David

Boateng, Paul

Bradley, Keith

Bray, Dr Jeremy

Brown, Gordon (Dunfermline E)

Brown, N (N'c'tle upon Tyne E)

Burden, Richard

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Byers, Stephen

Callaghan, Jim

Campbell, Menzies (Fife NE)

Campbell, Mrs Anne (C'bridge)

Campbell, Ronnie (Blyth V)

Campbell-Savours, D N

Canavan, Dennis

Cann, Jamie

Carlile, Alexander (Montgomry)

Chisholm, Malcolm

Church, Judith

Clapham, Michael

Clark, Dr David (South Shields)

Clarke, Eric (Midlothian)

Clarke, Tom (Monklands W)

Clelland, David

Clwyd, Mrs Ann

Coffey, Ann

Cohen, Harry

Connarty, Michael

Cook, Frank (Stockton N)

Cook, Robin (Livingston)

Corbett, Robin

Corbyn, Jeremy

Corston, Jean

Cousins, Jim

Cox, Tom

Cunliffe, Lawrence

Cunningham, Jim (Covy SE)

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