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6.27 pm

Mr. Andrew Rowe (Faversham and Mid-Kent): It has been good to listen to a constructive and positive debate across the House. In the past, scrutiny of the European Union has been paralysed by political ambivalence. Those who support it have been reluctant to expose its failings in case it damaged their case and those who dislike the

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EU have believed that becoming involved in its workings somehow affords it unwarranted credibility. Therefore, the European Union has escaped proper scrutiny in this place.

I begin from the position of wanting the European Union to work well. We must introduce effective financial controls--what is more, I see no reason why those controls should not apply also to Members of the European Parliament. The need for such controls is shown by our experience in this place. During my time in Parliament, I have witnessed the almost annual tightening of the controls governing our expenditure and I see no reason why we should not insist on a similar tightening for Members of the European Parliament. If they can award themselves expenses that are out of all proportion to their costs, their capacity to scrutinise the misuse of money within the Commission is gravely damaged. The temptation of any group of unaccountable men and women to spend other people's money lavishly on themselves is very great--we have only to look at the building rising above Westminster station to recognise that fact.

It would have been appropriate if the Commissioners had departed when they resigned. Nothing would have sent a clearer signal that they felt accountable, and that is a serious missed opportunity. Of course continuity of decision making is useful, but I suspect that no great disaster would have occurred if the Commission had suffered an hiatus of a few weeks. Furthermore, the argument about fraud might have been advanced further if the European Parliament had had the power to demand the resignations of individual Commissioners.

The Council of Ministers should take some responsibility for putting pressure on EU bureaucracy. The problem is that it never wants to take serious responsibility for carrying out the policies that it creates. Over the years, we have seen a lamentable picture in every EU country when Ministers return to their national Parliament to crow when they have got what they want and to whinge about unfairness when they have not. The result of such populist behaviour has been steadily to build up a view that the Council of Ministers cannot be blamed for anything that results from its decisions.

In their reply to the report of the Select Committee on International Development on the EU development budget, the Government say:

If the Council of Ministers cannot ensure that its decisions are carried out effectively, I do not understand how we will get very far in dealing with even the limited matter of fraud.

Much more decision making should be returned to national states. The Government support that, and say:

That is in relation to the development budget. Mr. Prodi states that he supports that belief, and says:

    "Only a few important things should be done in Brussels".

If we consider the mess that is so frequently made of the European Union development budget, we realise that that happens because the EU has neither the personnel nor the skill to control fraud in its development programmes.

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It should change the structures so that a larger part of the budget is given back to the nation states or to allow individual nations to take the lead in delivering the programmes in particular countries.

Philip Lowe, the director-general of Directorate- General VIII, pointed out, in evidence to the Select Committee, that the budgetary discipline, or lack of it, evident in the EU is far below the standard expected of its peers in

In its reply, the Select Committee said:

    "We are not surprised to see such concerns emerging from a Community where there are huge discrepancies between political priorities and administrative capacity, over commitment of funds to programmes which cannot disburse them effectively, and serious delays in the payment of some accounts."

The Government say:

    "The Government supports a policy of zero tolerance of fraud."

They continue:

    "We also support measures to strengthen the fraud investigation capacity of the Commission."

From what I heard in the speech of my hon. Friend the Member for Bexhill and Battle (Mr. Wardle), it sounds as if OLAF, son of UCLAF, will leave the fraudsters with the last "laf".

There are serious defects in the European Union, particularly in its budgetary controls, but that is no reason to seek to destroy the EU any more than housing benefit or social security fraud in the United Kingdom is a reason to seek to destroy local and central Government. Member states, including the UK, seem to be slow to respond to fraud. I was a member of the Public Accounts Committee when we quizzed the Department responsible for disbursing funds in this country paid out under the CAP about CAP fraud. When we asked why no use was made of multinational investigating teams, we were told that although there were 700 staff, it would be impossible to train even a few of them in the necessary foreign language. If that failure of will is common to all member states, it is no wonder that farm fraud still accounts for nearly 1 per cent. of total agriculture expenditure.

Other hon. Members want to speak, so I shall now sit down.

6.34 pm

Mr. Archie Norman (Tunbridge Wells): In the time that remains, I want to make the simple point that those on both sides of the House have recognised that fraud in the Commission's spending is a very serious problem. Only the hon. Member for Twickenham (Dr. Cable), the Liberal Democrat spokesman, tried to put the problem in proportion, and he was rather unsuccessful. The fraud is widespread.

When fraud and misuse of funds within an organisation occur on that scale, they reveal not that the institution merely needs a better audit committee and a system to investigate fraud, but that it is sick within and that the problem is systemic and chronic, rather than symptomatic, and can be treated only by reform from within.

There is good testimony that approximately 5 per cent. of the EU's total budget is fraudulently spent and that approximately 5 per cent. cannot be accounted for. It is believed that 10 per cent. of the total spending is

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mis-spent in its end use or subject to fraud. It is important to remember that 5 per cent. of the EU budget is spent on the administrative costs of the Commission alone and, according to simple arithmetic, approximately a further 5 per cent. is spent on the European Parliament. That means that approximately 20 per cent. of the total budget is not delivered to the end user but disappears in administrative cost or through misuse. In addition, as the Chief Secretary to the Treasury said, a large proportion of the budget is wasted through the CAP and, as a result, benefits no one very much.

The problem is long-standing, and it has been pointed out several times that it predates this Government coming into power. In 1994, a House of Lords report stated that fraud in the Commission was prevalent on a monumental scale, reaching

Its next remark, on a subject close to my heart, struck a chord with me:

    "If any of the big companies in the UK had their accounts qualified in this way the banks would call in their loans, the shareholders would evict the directors and a DTI inquiry would ensue".

That would surely be correct in any culture or environment that we know of.

Fraud starts at the top and stretches to the bottom. The culture of the EU is, at worst, one of nepotism and, at best, one of extravagance and a failure to count the pennies and look after people's money well. The Commission has displayed staggering complacency about fraud over the years. Herbert Bosch, the rapporteur on fraud to the Budgetary Control Committee, stated:

There we have the problem: there is an atmosphere and culture of indulgence throughout the Commission, which comes from within. Without fundamental reform, that will not be changed.

It is no good Labour Members simply talking about the exact nature and proportions of the fraud--we can all trade points about that, although it is important--and the independence of the fraud investigative unit. That is like trying to catch the horse after it has bolted. The issue is how we change the culture from within and create better accountability and better transparency. That process must start with a new management system, a code of ethics and a new approach to the recruitment and operation of civil servants and officials within the Commission. There must be an end to formal and informal flag-marking of jobs.

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Norman: No, I do not have much time, and I want to make three or four more points.

The second element of reform is transparent reporting, and the issue of such information must also be timely because accounts from the Commission come out disgracefully late and are of a standard that would not be acceptable in public institutions or companies in Britain.

Thirdly, there must be a strengthened finance or budgetary commission within the EU. I am sure that the Financial Secretary will agree that the pre-eminence of the Treasury in the British governmental system is good

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for sound government and the use of funds. No such pre-eminence exists within the Commission. If the Commission is effectively to use funds and count pennies, it is vital that the role of the budgetary commission in following, in detail, the spending through to its end use is considerably strengthened.

Finally, there must be a new atmosphere of intolerance and toughness at the top. That must start with the Commissioners, who need explicitly to be held to account for the effectiveness of the spending and any fraud that may result.

In other words, EU fraud is not a problem for which we can graft on solutions from outside or a problem of co-operation or collaboration, but a question whether we are able to grasp the nettle fundamentally to change the culture and ethics of the Commission for ever and from within.

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