European Financial Interests

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Mr. David Lepper (Brighton, Pavilion): Did the Minister hear, on the radio this morning, a debate involving Commissioner Kinnock about the reform programme that he is introducing and reporting on? Does she agree that there seems to be some confusion in that news item over exactly to whom those reform proposals apply? There was a representative of another political party—I did not catch whether it was the Conservative party or the UK Independence party—[Interruption.] It was a genuine confusion on my part. I did not hear which party the person represented; it could have been either of those two. There seemed to be some confusion about whether the reforms on which Commissioner Kinnock is currently reporting apply to members or to Commissioners or to those working for the Commission. Will the Minister say more about the Kinnock report?

Miss Johnson: I can talk about it, but only on the basis of informal information and the coverage of the matter. I have not had the chance to study the document myself yet, and I am not sure whether it is available to us. I heard part of the news item to which my hon. Friend refers. I would be pleased to talk more about the matter, because the reform White Paper is a wide-ranging and comprehensive document, and it will take time to put all the proposed changes in place. Much has been done already. There has been consideration of how the financial regulation might be reformed and proposals have been made by the Commission for agreement by the member states. A code of conduct for Commissioners and Commission officials has also been introduced, and disciplinary procedures have been overhauled. There have been initiatives to encourage promotion on merit and better representation of women. I mentioned previously the publication of the ``whistleblowers' charter'' and the measures on senior appointments, including plans for senior officials to be subject to a system of appraisals involving outside assessors.

One of the results that we want is a more flexible, transparent and meritocratic system of remuneration for Commission staff. We want staff to be rewarded for good performance, rather than receiving automatic increments merely for staying in their post. It is important that remuneration should consist primarily of a fair and competitive basic salary and that allowances should be linked closely to the costs incurred. We support reforms that would accomplish those goals—some fully and some less completely. In particular we expect the reforms to establish a simpler career structure, with the abolition of the false distinctions that prevent advancement on merit. We want some unjustified allowances, such as payments to secretaries for typing skills, to be abolished, and family allowances to be provided at a flat rate instead of as a percentage of salary, which benefits the best-paid most.

Mr. Kinnock suggested in his interview this morning that many of those issues are being tackled. I hope that that will reassure my hon. Friend as it does me. I am sure that there is much work to be done on achieving the reforms, but things are certainly moving in the right direction.

Mr. John Wilkinson (Ruislip-Northwood): Why does the Minister persist in her bland euphemism of ``substantive error'' to describe the damning indictment of consistent malpractice that is contained in the Court of Auditors' report? Is not there grave evidence of fraud? Is the Minister aware that Members of the European Parliament will summon two senior European Commission officials to explain their actions in a subsidies fraud investigation? I refer to Mr. Legras and Mr. Jean-Louis Dewost. Is she aware that the fine of 17.6 million euros against the Flechard company has been reduced to 3 million euros? Was that at the behest of the French Government? Is the Minister aware that, in addition to the two officials of the European Commission whom I have mentioned, another 10 are to be summoned by Members of the European Parliament before they are prepared to sign off the 1999 budget?

Miss Johnson: As I have said, the Government believe that any level of fraud against the EC budget is unacceptable. We continue to work with the Commission and member states to fight fraud. There must be zero tolerance of fraudsters. It is right that inquiries should be carried out to ensure that no undue influence has been exerted, in response to the points that the hon. Gentleman made. The Government are against political pressure being applied to the Commission as it has been suggested may have happened. However, general reforms will help. Clearer guidelines on how financial corrections—fines—should be applied are important. The reform of the career system that has been proposed by Mr. Kinnock emphasises promotion on merit rather than the influence of member states, as I have said.

Mrs. Eileen Gordon (Romford): I agree with my hon. Friend the Minister that fraud is intolerable. I welcome the Government's commitment to zero tolerance of fraud. After all, the law-abiding citizens of the European Union must pay for the fraud in the end.

What is the United Kingdom doing to improve its financial management of European Union funds? What measures has it taken to improve prevention, with respect to the administration of EU funds in the UK?

Miss Johnson: We have done several things, at several levels. We can make good progress in a variety of ways. One is by tackling issues at the European level of treaties and proposals. For example, the Amsterdam treaty supported the previous Government's intergovernmental conference proposals when it gave the European Court of Auditors the right of recourse to the European Court of Justice to protect its prerogatives and when it clarified the ECA's right of access to carry out audit work. Things can be done at that level, but we should also use the various councils and other on-going European forums to debate such topics.

My hon. Friend, who touched on the subject, will be keen to hear that we have done much to improve our management of EU funds. The Department of Trade and Industry has clarified the definitions of fraud and irregularity, and has provided additional guidance to other Departments on reporting irregularities. Following another ECA recommendation, the DTI also circulates quarterly lists of the irregularities that are reported to other Departments for checking.

The Department of the Environment, Transport and the Regions has issued guidance to all Government offices about carrying out the required check of 5 per cent. of all expenditure of structural fund moneys; and suspected irregularities in the European social fund are reported to the Department for Education and Employment specialist verification and audit section—the VAS. Suspected fraud cases are referred by the VAS to the Department's special investigation unit. The Ministry of Agriculture, Fisheries and Food has introduced a control plan for the European Agricultural Guidance and Guarantee Fund, which clarifies monitoring procedures and introduces new checks that are based on risk analysis.

It is important that member states should take responsibility for their expenditure; much EU expenditure is being spent by member states and they should be responsible for it. We have done much to ensure that that happens, and we are taking further steps in the European arena to ensure better fraud prevention in the UK's administration of EU funds. For example, we have introduced interest charges on customs debts to encourage early repayment; we are implementing a civil penalty regime for customs duty evasion and other regulatory offences; and all anti-fraud customs activities are now co-ordinated within the Department. UK customs has developed close co-operation with the customs authorities of eight other member states, and we expect to expand that network. We have also signed a bilateral memorandum of understanding with France, the Netherlands and the Republic of Ireland.

The Department for Education and Employment held a seminar on fraud for representatives of the Government offices and of the devolved Administrations. A great deal of work is in hand, but it is incumbent on us as a significant player in Europe to ensure that other member states take similar action. It is a serious matter.

Sir Raymond Whitney (Wycombe): The Minister, in her last reply, said that much of that expenditure is the responsibility of member states. I believe that it is in the order of 80 per cent. Although we should not neglect the other 20 per cent., the management of the 80 per cent. is crucial.

Miss Johnson: I agree entirely with the hon. Gentleman. I, too, believe that it is about 80 per cent., but I do not have the exact figure. It is important that those responsibilities should be properly discharged. The EU must take some responsibility for the implementation of the budget under the treaty, and the Commission is given discharge ultimately by the European Parliament. It is not for the Commission to dodge those responsibilities, but it is ultimately for member states to monitor their expenditure correctly. We have done more to ensure that they must co-operate with the Commission, so that the parts of the budget for which they are responsible are administered under the principles of sound financial management. One of the relevant initiatives is SEM 2000, the sound and efficient management initiative, which is designed to strengthen such matters across member states.

Dr. Nick Palmer (Broxtowe): As one would expect, having heard the comments made by the hon. Member for Wycombe (Sir R. Whitney), the report notes that the bulk of the errors occur in the main expenditure programme managed by the public authorities in member states, especially small overpayments to farmers. The 1995 convention on the protection of the communities' financial interests, which the United Kingdom was among the first countries to ratify, has still not been ratified by all our EU partners. What steps is the UK taking to encourage our partners to strengthen the relevant activities, especially in terms of ratifying that convention?

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Prepared 28 February 2001