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6.14 pm

Mr. Geraint Davies (Croydon, Central): The subject of our debate today is not the Public Accounts Committee visit to Brussels and Luxembourg, although I had the pleasure of participating in that, but a motion--a facile, self-indulgent motion from a party which for 18 years held a place at the Council of Ministers but consistently failed to act on reports received from the Court of Auditors and make any headway in implementing the changes the court proposed to tackle fraud and improve accountability. In sharp contrast, the Labour Government and the current Members of the European Parliament,

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especially Pauline Green, have acted in such a way that, for the first time, the European Parliament refused to accept the accounts for the 1996 European budget. A committee of wise men to look into fraud, accountability and good practice was set up, which ultimately resulted in the mass resignation of the entire Commission--a great blow struck by democracy against an administration, which has led to a programme of root-and-branch reform, which we shall see emerge at the ECOFIN meeting on 25 May.

The Opposition's motion calls for the replacement of all the Commissioners, irrespective of their individual culpability. I suppose that is designed to ensure thatthere would be no operational continuity within the Commission--an outrageous and wrecking move. In addition, the shadow Chancellor has called for the complete institutional independence of the new fraud office, OLAF. Because a new institution would require a treaty change, which must be agreed by all member states, all current investigations would have to be suspended, perhaps for years. The result would be that fraud, instead of decreasing, would escalate out of all proportion. The Opposition motion forgets that the problems of today are linked to the isolationism of the previous Government, and ignores the fact that their proposals would plunge the Commission into chaos. Presumably, that is all part of the hidden agenda of Euro-scepticism, which led to the current Government having to sort out the BSE crisis by abandoning the isolationism and impotence that characterised the previous Government.

That said, there are serious problems with budgetary control, nepotism and so on that I shall confront, instead of addressing the schoolboy motion standing in thename of the Leader of the Opposition. The new Labour Government's agenda is one of transparency, accountability, good housekeeping and partnership in Europe. It is true that, in the overall budget of about £55 billion, there is roughly a 5 per cent. irregularity. That adds up to a lot of money, but it must be recognised that, in this country, when we break down accounts by different Departments, similar rates of irregularity are not unknown--indeed, the level of irregularity in the social security budget is often nearer 8 per cent. The National Audit Office would refuse that particular departmental budget, but accept all the other Departments' budgets overall. The lesson of that is that the budget of the European Commission should be broken down into spending by the Commission, and spending by member states. It might be that the Court of Auditors would say that the transport directorate was fine, but that the structural fund or the agricultural fund was not. We have to consider breaking down budgets and focusing on areas of weakness.

On several occasions during the PAC's three-day visit, I heard well-worn anecdotes--often to do with sampling errors--explaining various irregularities. We were told that, because a road that was built did not receive an environmental audit, it was an irregularity and so formed part of the 5 per cent. financial irregularity. I was told that a 12-hectare field was measured at 13 hectares, and that that irregularity when multiplied from the sample resulted in a gross distortion of 5 per cent. Those are facile and ridiculous arguments: if sampling methodology is correct, such effects will not occur; and if sampling methodology is incorrect, it should be changed. I was shocked by the

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extent of the complacency with which educated people accepted such excuses for non-action on the part of the Commission.

It is true that 95 per cent. of expenditure is carried out in member states, and that 98 per cent. of irregularities occur within member states. While not being complacent about the changes that must be made in the Commission, much of the problem lies with delivery on the ground. The Commission is playing its part by trying to sort out regular systems of accountability.

We have a very good system in this place. The NAO audits all Government expenditure--putting to one side that which is audited by the Audit Commission--which then goes before the Public Accounts Committee which interviews the permanent secretary responsible for the expenditure. An equivalent system in Europe would involve the Court of Auditors examining all expenditure and bringing it before the Budgetary Control Committee, which would then interview the accounting officer, who should be the director-general of the Commission.

In fact, no one accountable person appears before the Budgetary Control Committee. In Europe, there is an authorising officer for some expenditure. He goes to a financial officer who says, "It seems to be all right, so here's the money". No one knows who is accountable. That is one of the reasons why the Commission does not have the same systems of scrutiny that operate in Britain and in other north European countries. Discussions are continuing about the need to clarify who is accountable for what. I had the pleasure of conversing with Commissioner Monti last week about that subject, and the Commission wants to make such changes.

The Court of Auditors, which conducts the audit, is located in Luxembourg and there is a 280 km round trip to travel to meetings of the Budgetary Control Committee. That committee considers reports for only 10 per cent. of its meetings. What is more, the reports that it considers have already been edited by the Commission using a method called the "contradictory process". If the Court of Auditors points out where the Commission has gone wrong, it will reply, "No, we are not wrong because of this, that and the other". The two bodies must then come to an agreement and there is a filtering of information. Members of the European Parliament, those who serve on the Budgetary Control Committee and the Commission across the road enjoy a cosy relationship. After all, the Court of Auditors--which is independent--is a long 280 km round trip away. We must consider that point.

There is obviously fraud within and outside the Commission. The Naples example has been cited. It involved the discovery that 96 per cent. of applications for subsidy for olive oil processing in Naples were irregular and fraudulent. The problem is not that the Commission sent the money but whether justice was delivered via the local legal system. I assume--perhaps my view is prejudiced--that the mafia was behind those applications. If four applications out of 100 are successful, what will stop the mafia? I do not know. The point is that legal delivery systems on the ground must stop those illegal activities.

On 25 May, a recommendation will be put before ECOFIN. I want the new OLAF body to have operational independence. The director should have statutory independence and be able to approach the European Court

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of Justice if his or her activities are blocked in any way. As the post would be institutionally independent, the director would have direct access to the Commission.

The Commission wants a separate institution to be created. That would take years to establish and would not allow the same sort of access. At a time when the Commission is being investigated and we know that some Commissioners are culpable, we must smell a rat: who is urging the delays? The current proposals are good. The new body should have the power to investigate fraud not just in member states but in the Court of Auditors, the Commission, the economic and social committee and in the Council of Ministers. The granting of that sort of power will require a change in statute over time, obliging officials across the European Union to report to OLAF and co-operate with its investigations. As the institutions are autonomous, we would need to grant those powers via institutional agreements signed by the institutions. They would have to agree voluntarily to grant access to OLAF. I am sure that they would do so if the right pressure were applied.

We cannot allow those involved in fraud to further their careers within the Commission. There is a danger of "rubbing shoulders". We need to evaluate and audit the nature of benefits and expenditure in those countries from which the Commissioners come. I am thinking specifically of the Commissioner who is responsible for trade with South America, whose country benefited from a disproportionate volume of trade with it. We must ask questions about that sort of occurrence. We should ask also about the nature of the cabinets, and the process whereby a Commissioner appoints several political advisers who, in many instances, determine who receives jobs in the European equivalent of the civil service: the directorates-general. Those political appointees are often given top-level civil service jobs which they are not equipped to handle. We seek efficiency, effectiveness, accountability and transparency in the working of the Commission.

I believe that we should create a new post of vice-president of the Commission in charge of finance, personnel and administration. At present, that work is conducted by individual Commissioners and there are enormous differences in those operations. Romano Prodi has an opportunity to shake up the Commission and its institutions and to shake out fraud. I am sure that he has our undivided support--particularly that of Labour Members--in that endeavour.

The future of Europe and of Britain in Europe does not involve carping and adopting the pathetic divided, isolationist approach that is characterised by the Opposition. We must initiate constructive engagementto ensure greater accountability, transparency and effectiveness for a new Europe in a new millennium where are children can live with pride.

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