European Standing Committee B
Wednesday 18 February 1998
[Mrs. Ann Winterton in the Chair]
Court of Auditors Report 1996
10.30 am
The Chairman: Before I call the Minister, I wish to explain to the Committee that Mrs. Liddell has been unwell of late, so if she feels slightly dizzy during her speech or during questions afterwards I have suggested that she resume her seat. She also has a slight problem with her hearing, so hon. Members who wish to ask questions should do so in a clear voice, which will help the Committee. I am sure that the Minister will be grateful for that assistance.
The Economic Secretary to the Treasury (Mrs. Helen Liddell): I am grateful to you, Mrs. Winterton, as I am for the assistance of the Committee. I shall try hard not to do anything dramatic during my speech. It would not do to stir up the Committee too much.
I welcome the debate on the European Court of Auditors annual report and statement of assurance for the year 1996. Many of the matters that we shall be discussing today are technical, and I shall try to explain them as fully as I can. If I cannot find the relevant sections quickly, I guarantee to come back to such matters in my wind-up speech.
The annual report focuses on particular areas of expenditure selected by the court and analyses them in detail. The Court of Auditors adopts a testing approach to such matters. My explanatory memorandum sets out areas that the court has looked at for the year 1996. Sadly, the general themes of the report are depressingly similar to previous years: the failure to set objectives clearly in advance or to monitor whether they are being achieved; programmes that overlap or which fail to reach the intended beneficiaries; substantial overcompensation of farmers, in excess of real need; and the bunching of payments towards the end of the financial year in a manner that prejudices good financial management.
I should emphasise that, although the Court of Auditors investigates matters relating to fraud, most--but not all--of its criticisms relate to weaknesses in financial management and to weaknesses in the underlying policies rather than to fraud in the criminal sense. A few weeks ago, the Committee had a useful debate on enlargement proposals and we discussed financial management techniques use by the European Union, some of which could most politely be described as eccentric. We are agreed throughout the House that there is a real need for improvement in financial management.
The court presents its statement of assurance, introduced by the Maastrict treaty, for the third time. It has again certified accuracy of the accounts, but it has been unable to certify the legality and regularity of payment transactions. The central estimate of substantive errors is 5.4 per cent. While that is down slightly from the 5.9 per cent. of the previous year, I must say that it is not a good enough improvement; and the statistical techniques that are used as part of the exercises are such that the change is too small to be statistically significant.
For 1996, the court tells us that the level of errors on agricultural expenditure is lower than the average, but that the errors on structural expenditure are above average. That indicates that the reforms of the common agricultural policy introduced in 1992 have brought about the expected reduction in fraud. Less money is paid in export refunds, an area particularly prone to large-scale fraud; and more money is paid directly to farmers for schemes where frauds are easier to detect. We want to encourage such changes in policy. In the long run, they will be a much more effective way of reducing fraud, as they will increase transparency.
The number of errors on structural fund expenditure continues to be a major cause of concern. However, substantive errors do not necessarily mean fraud. Indeed, the vast majority of errors do not relate to fraud. Many errors are caused by genuine misunderstandings, which often stem from the underlying complexity of the regulations governing structural fund expenditure. It seems a matter of common sense to introduce structures with greater transparency, so we must focus more on improved policy-making and clearer regulations. I shall return to that subject when discussing the improvements to be made under the SEM2000 initiative.
I shall now say a little about procedure. Under the treaty, the report of the European Court of Auditors is considered first by the Council, which decides whether to recommend that the European Parliament should grant formal discharge to the Commission in respect of its stewardship of the 1996 budget, and what recommendations should be attached to that discharge. ECOFIN will consider the matter on 9 March. My right hon. Friend the Chancellor of the Exchequer will preside, and I shall occupy the UK national seat. Thereafter, probably in April, the European Parliament will consider whether to grant discharge.
The report relates to 1996--the last full EC budget year--which was the responsibility of the previous Government. As I explained to the Committee in previous debates, we launched an initiative in the intergovernmental conference as soon as we took office in order to strengthen treaty defences against fraud and waste in the EC budget.
We seek to use the opportunity of the UK presidency to further those objectives, which I am sure the whole Committee will share. In that context, we are organising an ECOFIN discussion on 19 May that will consider all aspects of Community finance, including the preliminary draft budget for 1999; the longer term prospects for Community finance under Agenda 2000, particularly with enlargement in mind; the SEM2000 programme; and the fight aginst fraud. We shall co-operate fully with the Austrian presidency during the second part of the year, to take that forward as quickly as possible.
We must ensure that fraud is taken into account when policy is considered. Reported irregularities have dropped from £319 million in 1994 to £169 million in 1996, and that reduction should continue. We shall continue to support the SEM2000 programme, and we are most anxious to see improved control of spending, more than 80 per cent. of which is administered by individual member states.
I may have gone into more detail than the Committee wished. I am happy to answer as many questions as possible. If I cannot give a quick answer, I shall certainly give as full an answer as possible before the end of the sitting.
The Chairman: We have until 11.30 am at the latest for questions to the Minister. I remind Members that questions should be brief and should be asked one at a time. There is likely to be ample opportunity for all Members to ask several questions.
Mr. Hammond: On a point of order, Mrs. Winterton. Would it be possible to close the blind? The sun makes it impossible to see the Minister's face from this side of the Room.
The Chairman: Indeed. Could you do that, Dr. Palmer? Thank you.
Mr. Heathcoat-Amory: I am sorry to hear that the Minister is not feeling very well--none of us feels terrible well after reading the report of the European Court of Auditors. Of course, we shall understand if she not on her usual robust form. Perhaps she will write to us about any questions that she cannot answer on the spot.
I agree with the Minister that there is a depressing familiarity about many of these matters. Indeed, we are witnessing a systematic failure in European Union finance, which makes it all the more alarming that many of the weak areas receive more expenditure--double-figure percentage increases every year--despite the failures identified by the European Court of Auditors.
We are a month and a half into the United Kingdom presidency. The Minister and her colleagues told us in advance that financial weakness would be a key priority during our presidency. I should like the Minister to tell us more about the initiatives that she has launched. She has mentioned the ECOFIN discussion that will take place, but there is nothing new about ECOFIN discussions; they were a feature of the previous two Parliaments without dramatic progress being made. Will the Minister tell the Committee more about what she has done in the past month and a half to tackle the weaknesses identified in the report?
Mrs. Liddell: I am grateful to the right hon. Gentleman, and I shall try to be reasonably robust in my responses. Indeed, the debate may even give me the boost that I need to recover my full health.
We share the view that there are substantial problems in financial management in the European Union. It is not easy to try to turn round such structures. I pay tribute to the previous Government, who introduced a system whereby member states answer the criticisms made against them in the report of the European Court of Auditors. We must build on that system.
During our presidency, we must consolidate the initiatives and programmes that are already in progress. One of our criticisms of the EU is that, whenever a difficulty is encountered, someone, as a great wheeze, dreams up a new initiative to deal with it. We want to develop current initiatives to ensure much greater financial prudence. Much work is going on in customs co-operation--for example, the transit action plan, the action plan against organised crime and getting Europol up and running. We want to use the discharge procedure to highlight the real concerns: over-budgeting, poor objective setting, over-complex legislation, little real evaluation of results--all of which make the budget susceptible to fraud.
We shall work with the European Parliament, which shares our concerns. I have already met the European Parliament Budgets Committee. I am due to meet it again in a few weeks. All member states recognise that there must be absolute certainty about the finacial management of taxpayers' money. We must use the presidency to focus attention across the EU on that. We shall also work with other member states on the SEM 2000 initiative.
We are anxious that anti-fraud matters be given full consideration in the Agenda 2000 discussions. That relates to a previous debate in this Committee. It is important that the European Court of Auditors should be able to give a signal about the quality of financial management that will be required of enlargement countries.
The right hon. Gentleman referred to the ECOFIN discussion of 19 May. At that meeting, we will discuss member states' replies to the criticisms of the European Court of Auditors; that is the first time that that will be done. It will build on the previous Government's initiative in ensuring that member states are forced to reply to those criticisms.
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