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Column 336one of which is the matter to which the hon. Gentleman has just referred. It is important to make that position clear.
Mr. Cash: No, I am afraid that the hon. Gentleman does not understand what I am saying. I support the Bill but it is at least relevant to consider the extent to which the situation in other member states will delay the Bill beyond the legal requirements that are laid down in article 11 of the own resources decision. The Court of Auditors' report on fraud makes serious criticisms about the way in which the moneys that are received under the own resources decision are being handled.
I understand perfectly, Mr. Morris, if you would rather we elaborated those questions on the next amendment, but for us to understand the implications of the own resources decision we had to have accurate figures. As you know, I was deeply concerned because there was a serious omission from the letter sent by the Chancellor of the Exchequer to all hon. Members, which made the matter, unusually, a national issue. There was a £750 million gap, but I am glad to say that it has now been sorted out. Although the Chancellor of the Exchequer described my original figures as rubbish, he had to change his tune somewhat as the week went by, and fortunately the mistake has now been rectified by information later presented to the House.
All those aspects throw substantial doubt on the way in which the Bill has been brought before the House. However, we have to make the best of the situation as we find it--and that brings me to a question that has caused me much concern, arising out of the manner in which the mechanisms to investigate own resources will operate. I have argued that the Public Accounts Committee ought to work in a spirit of mutual co-operation with the Court of Auditors, and be brought in to play a much larger role than it has so far been able to perform. I have been reading an excellent publication called "The Committee of Public Accounts of the House of Commons", which gives a full description of the functions of the PAC, and explains how it is set up under Standing Order No. 122.
It is clear that it would be highly convenient for the British taxpayer to know with some certainty that the audit would be subject to the high degree of scrutiny and efficiency exercised by the Public Accounts Committee, the second most important Committee of the House. The Privileges Committee is the most important in terms of what is described as scrutiny seniority, and the Public Accounts Committee comes second. The Select Committee on European Legislation, on which I serve, is yet another Select Committee.
The degree of independence of those Committees is reflected by their composition, their chairmanship and the fact that they--or at any rate, the Public Accounts Committee and the Scrutiny Committee--are chaired by members of the Opposition, to ensure that their scrutiny is totally independent. That is significant because the scrutiny process, the audit of the accounts on behalf of
Column 337the taxpayer, has to be done with the complete independence that will guarantee the public the right results from the mechanisms described.
New clause 1 refers to article 8(2) of the own resources decision.
Mr. Nigel Spearing (Newham, South): The hon. Gentleman has just elaborated on the importance of the PAC. Every Member of the House would endorse what he said about that. New clause 6, which the hon. Gentleman tabled but which has not been selected, is also relevant. Has he noticed that new clauses 14 and 15, which have not yet been selected either, but which deal with the same issue, now appear as starred amendments? Does he agree that it would be useful and appropriate to the matters that he is now raising if those new clauses could come into play in a later debate?
Mr. Cash: I understand what the hon. Gentleman means, and I have much sympathy with what he says--but of course I defer entirely to your selection, Mr. Morris. However, it would be possible for a starred amendment to be selected tomorrow so that the matter could be considered then. But even now, as I shall explain, because article 8(2) raises the question of the mechanisms to be employed in investigating questions of audit and accounting, the provisions of Standing Order No. 122 could be extended to give the Public Accounts Committee that additional opportunity to consider such matters and to satisfy the British taxpayer.
Article 8(2) says:
"Without prejudice to the auditing of the accounts and to checks that they are lawful and regular as laid down in Article 188c of the Treaty establishing the European Community, such auditing and checks being mainly concerned with the reliability and effectiveness of national systems and procedures for determining the base for own resources accruing from VAT and GNP and without prejudice to the inspection arrangements made pursuant to Article 209(c) of that Treaty, the Council shall, acting unanimously",
adopt those provisions, and so on.
In a nutshell, article 188(c) says that
"The audit shall be based on records and, if necessary, performed on the spot in the other institutions of the Community and in the Member States. In the Member States the audit shall be carried out in liaison with the national audit bodies or, if these do not have the necessary powers"--
that is an interesting point--
"with the competent national departments. These bodies or departments shall inform the Court of Auditors whether they intend to take part in the audit."
So even in article 188(c), which is referred to in the own resources decision, what I have been saying about the extension of the functions of the Public Accounts Committee is anticipated. All that we need to do is simply to turn the key and allow the PAC to take up those powers, which article 188(c) already anticipated might be necessary to make the system work effectively.
The article continues:
"The other institutions of the Community and the national audit bodies"--
in this context I presume that that would include the PAC and the National Audit Office, on which the PAC relies extensively for its reports--
"or, if these do not have the necessary powers"--
that is the defect that we hope to rectify--
"the competent national departments".
Column 338I hope that the Minister does not mind if from time to time I suggest that the words "the competent national departments" might sometimes be changed to "the incompetent national departments"--for instance, in connection with the Treasury figures the other day. But I do not want to be too rude about that. The article says that the competent national departments
"shall forward to the Court of Auditors, at its request, any document or information necessary to carry out its task." That means that we have a good working opportunity to get the procedure straight, and that would be of immense value and importance to British taxpayers, who would be assured that we were not only working within the context of the treaty itself, as amended up to and including Maastricht, but ensuring that taxpayers' money, as it relates to United Kingdom matters, was properly covered.
There is another argument here. The Maastricht treaty contains an important declaration that national Parliaments should be more involved. What better opportunity is there to run all these things together than to provide a means of achieving those mutual objectives and to make the system work in the interests of the taxpayer? That would show the Government's good faith in tackling fraud and irregularities, and in ensuring proper accounting procedures. I never thought that I should say this, but I must say it because I like to use all the weapons that I can deploy. Even that dreadful concept of subsidiarity could be applied to this issue in the sense that there would be an opportunity to ensure that we got the proper examination of accounts in our domestic sphere in conjunction, as I said, with the operations of the Court of Auditors.
Mr. Rupert Allason (Torbay): Does my hon. Friend agree that one of the principles of subsidiarity, if we truly understand what that term means, is that individual Governments should make up their own minds and be masters of their own destinies on matters relating to the countries concerned? If we cannot rely on our European partners to tackle fraud in the rest of the Union, would it not be highly appropriate for our Government and this Parliament to exercise some control over British taxpayers' money that goes to the rest of Europe?
Mr. Cash: Absolutely. As I shall say when I move to the analysis of gross national product, we must ensure that we do not have two separate sets of books of the kind that are, apparently, well known in Italian domestic tax collection. There are profound reasons why we want to be sure that the arrangements that we propose through our Public Accounts Committee become a model of the manner in which these matters should be dealt with in other countries. The knock-on effect in practical terms of what happens if we do things properly and other member states fiddle the books is that we end up paying much more. It is not merely a question of fraud; it is also a question of mismanagement, the result of which is that we end up paying a much bigger contribution than we should. A lot of profound and important questions are tied up in the intervention by my hon. Friend the Member for Torbay (Mr. Allason).
As I have said, a whole range of matters are laid down under article 209, which deals with obtaining the opinion of the Court of Auditors; that is the dovetailing exercise I have in mind. Article 209(c) says that the Council shall
Column 339"lay down rules concerning the responsibility of financial controllers authorising officers and accounting officers, and concerning appropriate arrangements for inspection."
There we have it in the European context, complemented by our arrangements with the Comptroller and Auditor General, the National Audit Office and the Public Accounts Committee. It is really quite a reasonable package which could result from the Government being constructive and forthcoming in making a change to Standing Order No. 122.
I now refer briefly to Standing Order No. 122; members of the Committee may be interested to be reminded of it. It says:
"There shall be a Select Committee to be called the Committee of Public Accounts for the examination of accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit".
"and of such other accounts laid before Parliament as the committee may think fit"
are important. The Standing Order then says that the Committee shall
"consist of not more than 15 Members, of whom four shall be a quorum."
Standing Order No. 122(3) says:
"The committee shall have power to communicate to any committee appointed under Standing Order No. 130"--
Standing Order No. 130 deals with the setting up of Select Committees--
"such evidence as it may have received from the National Audit Office (having been agreed between that Office and the government department or departments concerned) but which has not been reported to the House."
It so happens that the other accounts laid before Parliament include the reports of the Court of Auditors. We in the Select Committee on European Legislation consider those reports and they are then laid before the House.
Recently--I say this with some concern and I have been critical of this-- the reports have been shuffled together with a lot of other reports and have not been given the single-minded, independent debate that we used to have. Those debates were extremely valuable because people focused on the reports and they were not lost in a welter of other documents. If anything sensible came from the Government on the matter this evening, that point would be sorted out at the same time, thus giving the boxing blue clarity that I seek. Under Standing Order No. 122(3), the Public Accounts Committee would receive the evidence. Thus the whole package is neatly contained in my proposals. 5.15 pm
New clause 4 is grouped with new clause 1; I have examined new clause 1 to the extent that I wished. I raised the question of gross national product in the debate on convergence criteria some months ago. I happened to be rifling through my papers for the debate when I suddenly came across a table that took me a little by surprise. Our distinguished Chancellor of the Exchequer places much importance on the vital matter of convergence criteria and only yesterday, the President of the Board of Trade told us how wonderful it was that we were bringing down inflation, and so on. I had to point out to him that it was
Column 340only because we were now out of the exchange rate mechanism which he so strongly advocated. You will be glad to know, Mr. Morris, that I think that we can skip over that one for the moment.
The fact is that this business of gross national product is really serious. In the debate on convergence criteria, which was prescribed under the European Communities (Amendment) Act 1993, the position became clear. In the tables that deal with how convergence criteria are calculated, east and west Germany are treated separately. I found that pretty astonishing. I thought that the wall had come down and that we were now dealing with one country.
The report by the Court of Auditors, which has only just come out, gives special attention to the scope for manipulating the GNP of a country. The Court of Auditors is, rightly, deeply concerned about the way in which GNP is being calculated. I am prepared to say that there is a higher probability that we are accurate in the way in which GNP is calculated in this country. If GNP is calculated on a double-book basis by some other countries, in which case a shady GNP figure is produced, there will be a profound impact on the amount of own resources that are collected. That is a very serious matter. For many reasons, we want to be quite certain that the GNP is properly calculated in each of the member states.
New clause 4 puts the matter in a nutshell. It says:
"In implementing the provisions . . . of the Council decision of 31st October 1994 . . . the Government shall lay a report before Parliament in each year to the end of 1999, on the operation of the system set out in Article 10 of the Decision in respect of the United Kingdom; and each such report shall include an analysis of-- (a) the revenue which the United Kingdom would be required to provide as own resources entered in the budget of the Communities as compared to the revenue required be provided by other Member States, by reference to the percentages of annual GNP set out in Article 2 of the Decision;"
Secondly, the methods of calculating the GNP of the United Kingdom and each other member state and their accuracy should be put in a report. Finally, the new clause says that there should be an analysis of
"the effects on the United Kingdom, were it to be implemented, of any re- examination made in any year by the Commission, under Article 10 of the Decision, of the correction of budgetary imbalances granted to the United Kingdom."
That final matter is gobbledegook for the Fontainebleau rebate. It may come as some surprise to hon. Members that, under article 10 of the own resources decision, to which our Government have agreed, it says that the Commission shall, not might, by the end of 1999, submit a report on the operation of the system, including a re-examination of the correction of budgetary imbalances granted to the United Kingdom--that is the rebate-- established by that decision. It shall also, by the end of 1999, submit a report on the findings of a study on the feasibility of creating a new own resource, as well as on arrangements for the possible introduction of a fixed uniform rate applicable to the VAT base.
Bearing in mind the fact that under the Maastricht treaty as enacted, there will be economic and monetary union, if not for the United Kingdom, depending on our decision under section 2, certainly for the hard core of other countries, it is no exaggeration to say that by 1 January 1999 those countries will enter into economic and monetary union in the third stage. That is the failure of Maastricht.
Column 341However, if we combine the provisions in article 10 to which I have just referred with that 1999 situation, we arrive at a nuclear point. The new own resource system, which could well be produced under article 10, may well be the arrangements for a completely new financing of the European Community, in addition to anything that we now have before us--all of that by 1999. So, we need to know, through a Government report, what that means, because the own resources report does not say "in 1999": it says "by 1999".
If, for example, by some terrible misfortune, the Government were to fall and if, for example, the Labour Government were to be in power, they would whistle through section 2 of the European Communities (Amendment) Act 1993 and, with the possibility to which I have just referred on the back of it, it is my belief that we could be in a very serious and difficult situation.
Mr. Spearing: The hon. Gentleman has drawn to the attention of the House, and possibly the country, the importance of article 10 of the decision, which the Bill endorses. He is quoting properly from the Official Journal of the Community, No. L 293/9 of 12 November 1994. Is he aware that the words that he is pointing out are also on the amendment paper? If, in future, there were an amendment to include those words as part of a schedule to this new Act, it would be plain for all to see. If that amendment were ever selected, would the hon. Gentleman vote for it?
Mr. Cash: I do not believe in hypotheses, certainly not when confidence motions are floating around. It is difficult enough to make up one's mind when one is faced with a real vote. I shall certainly not engage in a hypothesis of execution as well. The question of GNP is very important because in 1993, the European Community raised £52 billion from the 12 member states, of which the United Kingdom's share was £6.3 billion. Each member state's contribution arises from four sources: VAT, fourth resource payments, customs duties and agricultural and sugar levies. The relative importance of each of them is shown by the proportions which they represent. VAT represents 55 per cent. of the member states' contributions, fourth resource payments 22 per cent., customs duties 20 per cent. and agricultural and sugar levies 3 per cent. The first two items, VAT and fourth resource payments, account for 77 per cent. of the Community's own resources and they are assessed wholly or partially by reference to GNP.
If we consider the way in which article 2 is drawn, which is the basis of revenue for the own resources, we see that a change is taking place. In 1995, the percentage of GNP required of the member states is 54 per cent., but it is 53 per cent. in 1996, 52 per cent. in 1997, 51 per cent. in 1998 and 50 per cent. in 1999. A country's VAT contribution to the Community budget is capped by reference to the country's GNP, while the fourth resource payments are assessed and paid on the basis of a country's GNP as a share of aggregate Community GNP. At the Community level, the total size of the Community's budget has to be held within a certain percentage of aggregate Community GNP, which is currently set at approximately 1.2 per cent.
Therefore, the accurate measurement of each member state's GNP is of crucial importance on two counts--first, in determining the contribution for each member state and, secondly, in determining the overall size of the
Column 342Community budget. The amounts of money involved are absolutely massive and an error of 1 per cent. only in calculating, for example, the German GNP, would mean a difference in her fourth resource payment alone of something like £30 million. The question is how accurate, and how fair between member states, is the measurement of each country's GNP? It is not that accurate and fair, as the Court of Auditors' report makes clear.
On the reliability of GNP measurements, the Court says:
"The Commission's conclusions do not make it possible to form a clear opinion of the degree of reliability of the data currently supplied by the Member States."
That is not a joking matter. It is about the extent to which, and the manner in which the amount of our own resources will be calculated with regard to other member states. If anybody thinks that is a matter of little importance, all I can say is that the taxpayers do not think so. The Opposition, if I may so--I am sure that they would not want to fall out with me this afternoon--may take account of the fact that all their palaver about fraud and so on is relevant only in so far as they properly appreciate the amount of money that British taxpayers are expected to cough up in this exercise. That amount is calculated by reference to the country's GNP.
The Court of Auditors goes on to say:
"It would therefore seem to be rather unrealistic to think that a pronouncement can be made with the necessary rigour, on the reliability and comparability of the GNP aggregates that the member states supply to the Commission."
In other words, the Court of Auditors is saying that the member states are cooking the books. The result is that if we do not cook the books and we come up with a proper and accurate assessment of our GNP, we end up carrying the can.
Earlier, in discussing the fact that estimates of GNP are out of date in general, with some countries' estimates being more out of date than others, the Court of Auditors goes on to say in paragraph 1.92:
"For example, there is the question of the updating of national accounts, with regard to which there is considerable disparity between Member States and for which `reserve' should have been issued concerning GNPs that were determined on the basis of data that were too old (Greece and Portugal)."
There is also the example of the GNP of the former German Democratic Republic. Its previous planned economy is bound to pose problems for the assessment and integration into the GNP of the Federal Republic of Germany. As I have said, most people thought that we had a unified Germany. It seems that that is not the position when it comes to paying money into the Community. It is an amazing state of affairs. I hope that my hon. Friend the Minister will provide us with an explanation.
The Court of Auditors states:
Despite the fact that the four-year time limit has not yet expired (Germany was unified in 1990), it is still astonishing that the Commission has not issued a reserve with regard to this question. This is a very serious matter."
"Reserve" is a technical word for rectification and notification; actions which the Commission is supposed to take. Presumably it takes an incident of staggering magnitude to induce the Court of Auditors to use an expression such as "it is still astonishing", but it did. What are we to make of all this?
Column 3435.30 pm
Mr. Nicholas Budgen (Wolverhampton, South-West): We have seen some recent comment about these matters. It seems that the Commission thought that the Court of Auditors was behaving in an unhelpful way in issuing its recent report. The Commission felt that the court should be rather more careful. It felt that it was undermining the idealism of the Community by revealing uncomfortable truths. Is my hon. Friend aware of those observations from the Commission?
Mr. Cash: I certainly heard of them. As I am a member of the Select Committee on European Legislation, I have had the opportunity to visit the Court of Auditors and to have private sessions with it as well as the more formal ones. One of the most senior members of the court, Mr. Carey, was so dissatisfied with the way in which these matters were being conducted that he--I believe that the hon. Member for Newham, South (Mr. Spearing) had the original letter--tendered his resignation. He thought that the whole thing was going off the wall. Perhaps the hon. Gentleman will deal with that later. I hope that I have not misrepresented the position in any way. It was certainly deeply worrying.
Figures have been provided and the Select Committee on European Legislation in the other place referred to about £4 billion-worth of fraud, or £6 billion. I am coming to believe that we have no idea of the extent of the fraud and that the figure could be as high as £15 billion, or £20 billion for all anyone knows. The Commission has every apparent intention of putting the matter under wraps.
Mr. Budgen: I am grateful to my hon. Friend. I hope that he will forgive me for using that term to describe him. He may remember that the Chancellor of the Exchequer said that the figure of £6 billion-worth of fraud had been plucked out of the air. I know that my hon. Friend follows the Chancellor's observations with great care. What is the Government's figure for fraud in the Community?
Mr. Cash: What are we to make of the GNP issue? The measurement of GNP and the way in which the Community raises money from member states are genuinely complex matters. I make no bones about that. If we read between the lines of the pronouncements set out in the recent report of the Court of Auditors, we find vast areas of what must be described as unfairness when it comes to assessing member states' contributions. If Portugal and Greece are still using 1970s data, as the court says, and if Germany is conveniently forgetting that unification took place, someone somewhere is being treated unfairly.
Column 344We can assume yet again that the country that the Court of Auditors does not mention in its catalogue of GNP sinners is the one whose Government want it to be at the heart of Europe. We are undoubtedly paying for that. The distortions in the figures show that as usual the United Kingdom is playing the game and that the other member states, according to the Court of Auditors, are not.
I say with some sadness that some hon. Members go pottering about claiming that people such as myself are inventing nightmares, goblins or whatever; that we are slightly off the wall; that we do not have any concept of what the European Community is or should be, and that we are a collection of ridiculous, pompous old bores. It might occur to one or two of those hon. Members, who have been grossly negligent in the way in which they have allowed the European Community to burgeon as it has, to reflect that some of us are merely trying to do the job that we were elected to do. We are examining what is going on. The figures that I have produced and the arguments that I have advanced have all focused on the relationship between the United Kingdom Parliament, the Court of Auditors, the European Parliament, the Commission and a mutual arrangement. If we are to make any sense of these matters, we must take up the arguments that I have been addressing. These issues must not be bunged under the carpet. I am informed by unimpeachable sources that during the debate on the EC budget on 28 October, when the House considered cutting out the European Parliament's proposals for an anti-fraud measure, it was said that the Government believed that the "Council's Second Reading budget" was "acceptable". That seems to suggest--I would like to hear the Minister's view--that the Government were going along with that budget rather than putting up a fight to increase the number of anti-fraud arrangements, which included the expenditure of 96,000 ecu for a unit to co-ordinate action against fraud. I would much prefer the matter to be dealt with through the Public Accounts Committee, but the arguments that I have been advancing are extremely relevant to the manner in which the own resources system functions.
"The new Decision has to be approved by all member states in accordance with their national procedures before it can enter into force. It will take effect as from 1st January 1995."
Everything that my hon. Friends and I have been trying to do has been designed to make sure that the House carries out its normal procedures and studies these matters, and that Committees are properly set up to do that as well.
Mr. Cash: Absolutely. If we are to have a Community that works--I have been writing recently about this--and a Community that we want to be a member of, one that does not bully, threaten and cheat us, it is essential that we have complementary arrangements that are enforceable in the other member states. Why should we have debates of this sort, scrutiny arrangements, sittings of the Public Accounts Committee and all our other procedures if the other member states are cooking the books and not properly scrutinising the arrangements? Surely we are not that idiotic. We must insist on complementary arrangements and proper scrutiny as preconditions to any movements within the intergovernmental conference.
Column 345Given the connection between monetary union and own resources, we should also say no to a single currency now. That would clear up much of the trouble.
I see you stirring in your seat, Mr. Morris, and I would not want to inconvenience you by causing you to stand to put me back on the straight and narrow. Accordingly, I shall make my final point. I have sought to explain my reasons for tabling my amendments and new clauses. I am deeply concerned that the Fontainebleau rebate appears to be up for grabs. I cannot understand how that could ever have been incorporated in an own resources decision which is at the heart of the Bill that we are implementing, in accordance, it is said, with our constitutional requirements. In our own Bill--in our own legislation--we are carrying out an obligation imposed upon us by the Government as a result of their not resisting the re-examination of the rebate, to open the question whether what was negotiated for at Fontainebleau should remain on the table. That is a very serious matter.
I hope that we hear from the Minister, to minimise the potential man-traps that lie ahead this evening, a clear statement that we will have the opportunity, through the Public Accounts Committee, to look into all those questions. If we do, we will be able to get the finances of the European Community on to a better footing and, with a bit of luck and determination, also get the other member states to realise that we are not just an old, obsolete dinosaur of a Parliament, that we have some teeth and guts, and that we are going to do something about it.
We all know, I think, in outline form that own resources, which are the theme of the first important debate on this important Bill, relate to no fewer than three very complex and moving formulae: first, that which determines the maximum amount that the European Communities can spend in any one year; secondly, the formula that the nations of the Community contribute, which is an extremely complex affair dealing with levies, VAT and GNP; and, thirdly, the extremely significant rebate methods, to which the hon. Member for Stafford drew attention, whereby up to half of our contributions to the European Community are returned by way of rebates.
Each of those is an extremely complex formula--much more complex even than most people realise. The Bill authorises financial provisions that will last until 1999, at which point--the hon. Member for Stafford spoke of an atomic explosion--they will come to a head. In 1999, the whole caboodle will have to be renegotiated, and, under article 10, which is important, so will the recalculation and reassessment of the United Kingdom's own rebate mechanism. The Bill refers to and authorises a decision to which we will be committed. The Government may accept the new clauses if they so wish as they are not essential to the purpose of the Bill. Indeed, Sir Michael, new clause 1, which was moved by my hon. Friend the Member for Oxford, East (Mr. Smith), new clause 4, which stands in the name of the hon. Member for Stafford, and new clause 12, which stands in the name of my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), are essentially "glasnostic". They deal with the mechanism of the
Column 346procedure, which is almost unbelievably complex, even for those of us who try to understand it and come back to it every five years or so.
The means by which the formulae are drafted, let alone how they work, are almost impossible to discern. Where does one find a textbook or a running commentary on how they have been worked out in the past five years? We had such debates in 1988, Sir Michael, although I do not think that there are many survivors of them, and we know that, in 1999, our successors--some of us might be here then, but probably not many--will face an enormous problem.
The new clauses, especially those on article 8(2), and the extensive requirements of new clause 4, will be an invaluable guide. In the intervening years, if the new clauses are accepted--and I see no reason for their not being accepted--the country will be able to trace a little more easily what is really happening. When the House debates the difficulties of 1999, which will be pretty bad--at least one very important nation in the European Community has said that the British rebate cannot remain as it is, and I heard that from an authenticated source--there will be the most colossal collision. 5.45 pm
I do not understand why the Government should not accept the new clauses. Are not reports to the House open government? Is that not what the Government are supposed to be about? Article 8(2), to which my hon. Friend the Member for Oxford, East referred, treads on the matter of fraud, which we must not debate yet, Sir Michael.