European Financial Interests

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Miss Johnson: I thank my hon. Friend for his comments. I should touch on agriculture, which he mentioned, as I did not do so earlier. It is important to recognise that we are concerned about irregularities in expenditure in relation to the common agricultural policy. In the UK, we have taken measures to tackle levels of agricultural irregularity, which include the continued development of risk analysis so that we can identify problem areas, greater publicity to ensure that people are aware of controls and ensuring that all targets for carrying out inspections are met. The Ministry of Agriculture, Fisheries and Food has introduced a control plan to clarify its monitoring procedures and to implement new checks, based on the risk analysis.

We must consider the UK's financial management of EU funds. With regard to the Commission's actions in future, the Government do not believe that the way ahead requires a Eurojust, corpus juris proposal. The proper way to proceed is the establishment of a new anti-fraud office with a strong independent director, as has been done. That director should have the power to begin investigations on his own initiative and, as announced, should have immediate access to the Commission and other EU institutions.

As my hon. Friend the Member for Broxtowe (Dr. Palmer) will know, my right hon. Friend the Prime Minister called for root-and-branch reform of the Commission in March 1999. That relates to the year that we are talking about. We circulated several suggestions to the Commission about how it might proceed with the issues. Many of our ideas were incorporated into the Commission reform White Paper, which was published in March. At Cologne and Helsinki, the European Council reiterated its support for the reform process. We have offered advice and experience based on meetings between officials, and we continue to ensure that we are engaged with the developments in Europe.

Mr. Ottaway: I welcome the part of the Minister's reply on the independence of the anti-fraud committee. She described OLAF, which replaces UCLAF, as independent in her opening remarks, but use of that word raises an eyebrow on the Conservative Benches. The body still has the same staff and offices, carries out the same practices and reports to an EU Commissioner. Does the Minister agree that OLAF is not that independent? We welcome what she said about the need for a genuinely independent anti-fraud office.

Miss Johnson: We believe that the OLAF arrangements are right, and have supported them from the start. We were instrumental in the establishment of a strong, independent anti-fraud office. OLAF works in co-operation with the member states and does good work to fight fraud, with a number of major investigations successfully carried out. It is important that OLAF is perceived as effective and independent. I agree with the hon. Gentleman about that. The arrangements that set up the office have ensured its independence, including the appointment of a new head of the office.

One of the strengths of OLAF, which the hon. Gentleman may wish to reflect on in comparison with its predecessor UCLAF, is a strong independent director, who was appointed after consultation with the Council and the European Parliament, and who has statutory protection from dismissal. The director is debarred from taking or seeking instruction from any Government or Community institution, so the position enjoys a strong degree of protection. He is also able to bring actions against the Commission before the European Court of Justice if his independence is threatened in any way.

The director is also able to open investigations on his own initiative, as I have mentioned. He has immediate and unannounced access to buildings and documents. He is able to draw up reports, including recommendations for follow-up. The institutions will have to report to him on whether follow-up recommendations have been implemented. He reports regularly to the Council and the European Parliament, has appeared before both on several occasions, and is able to alert them if the office's reports are not being acted upon.

There is a supervisory committee attached to OLAF, which reinforces the independence of the office. Its members were appointed by common accord between the Commission, the Council and the European Parliament. The office will be a strong force in the fight against fraud. However, I emphasise again that OLAF was still being set up during the period that we are discussing.

Mr. Wilkinson: The Minister is being bland to the point of passivity when she says that fraud in the agricultural sector merely causes concern, and that there is nothing to worry about in the UK in that regard. It may be the case that there is nothing to worry about in the UK, but what is she going to do about fraud on the continent? Does she realise that the Commission inspectors discovered last summer that organised criminals had been producing adulterated butter containing chemical additives and beef by-products normally used only in cosmetics, and had marketed it with the help of Italian, French and Belgian firms, one of which is Flechard? Is she also aware that MEPs are looking into irregularities in flax subsidies in Spain, and may not sign off the 1999 budget until that matter is cleared up? If the MEPs are dissatisfied, and refuse to sign off the 1999 budget, will the Minister back them, or will she back Prodi the crony?

Miss Johnson: I am afraid that I do not recognise some of the descriptions that the hon. Gentleman uses. The common agricultural policy has been the subject of improvements and there have been reforms to the CAP itself. I will attempt to give the hon. Gentleman some comfort, as he is apparently feeling discomfited for reasons that, for the moment, elude me. Those improvements followed reforms undertaken in 1992, and they have been built on. They reduce the reliance on export refunds and market support measures. Those are the areas in which fraud is most common.

The report under discussion refers to 1999. As I said, that is before the new Commission was in place. The UK has supported measures to reduce fraud in the EU budget, and will continue to do so. That includes further simplification of CAP regulations, which will help to reduce simple errors that are often classified as irregularities. The level of errors remains too high, and I agree with the hon. Gentleman on that. I thought that I had emphasised that in my remarks. We must tackle those errors and make the right distinctions between fraud and other kinds of error, stemming from various irregularities. The UK has strongly supported the Commission's action on several agricultural issues, and I fail to see how the hon. Gentleman can make a complaint about the way in which we have prosecuted our case.

Dr. Palmer: Will my hon. Friend welcome the fact that the Commission report shows that serious work has been done to discourage tobacco and alcohol smuggling, which we would all agree is a significant problem in Britain? Will she encourage our partners to continue to accelerate work on the matter, to try to minimise the problem that results in such large losses to the Exchequer?

Miss Johnson: I am sorry, but I missed my hon. Friend's opening words.

Dr. Palmer: I wondered whether my hon. Friend welcomes the fact that the Commission's report shows that serious work is being done on tracking and eliminating evasion of excise duties for tobacco and alcohol.

Miss Johnson: Indeed I do. I share my hon. Friend's concern. We are unhappy about the continued tobacco subsidies, and we continue to—

Mr. Wilkinson: Do nothing about it.

Miss Johnson: We continue to try to bring about change. The hon. Gentleman says that we have done nothing. I think that tobacco subsidies have been established since 1973.

Mr. Wilkinson: And they have not stopped.

Miss Johnson: If it is as easy as the hon. Gentleman alleges to bring about change in this matter, it is a mystery why 18 years of Conservative Governments did not produce results that were so readily to be had.

I may have confused the hon. Member for Croydon, South earlier on one point. The United Kingdom supports Eurojust; I am not sure whether I made that clear. We do not support a common public prosecutor on a European level.

As to agriculture, which was among the issues raised by my hon. Friend the Member for Broxtowe, we have brought about positive development in the management of the relevant budget. Hon. Members on both sides of the Committee know which aspects of agriculture give rise to issues that need to be dealt with, but we have made good progress on which to build in tightening up practices.

Mr. William Ross (East Londonderry): The Minister has already been asked about the 1995 convention on the protection of the Community's financial interests, but a parallel convention deals with corruption in connection with the budget, and that has been ratified by only one state. Which state is that?

Further to the point that was made about tobacco smuggling, the Minister will know that a far bigger problem is the smuggling of fuel across the land frontier of the United Kingdom. I assume that if there were the same incentive to smuggle fuel on the continent of Europe across land frontiers, such smuggling would be on a large scale. How has that been dealt with on the continent, while we have not been able to do so?

Miss Johnson: If the hon. Gentleman wants to furnish me with evidence on the latter point I shall be happy to take it up. I am not aware of any details of such a problem—certainly not from the 1999 report.

I shall need to write to the hon. Gentleman to tell him which member state has ratified the convention. I shall write to him about the fuel question as well, but should be interested to receive any evidence that he has.

Dr. Palmer: Probity in the financial markets is of course particularly important to Britain, with its substantial invisible exports in that context. Will my hon. Friend explain the improvements that have been made with respect to financial regulations?

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Prepared 28 February 2001