Fight Against Fraud

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Mr. Hopkins: I have been a member of this Committee for about five years. It began with almost every meeting being an acrimonious and bitter struggle across the divide, but has become almost uncomfortably harmonious. The extent of support from the hon. Member for Buckingham for the Government's position is surprising but welcome. However, I feel compelled occasionally to throw a stone in the millpond, because I want to tease out the facts and this is a serious matter. Indeed, that is why the European Scrutiny Committee has referred it to us.

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I hope that my hon. Friend the Minister will not take this too badly, but I am concerned about the distinction between error and fraud. There is a spectrum from error to irregularity—where the jury is out and we do not know whether there is fraud—to definite fraud and then general corruption. Where we are on that line in the European Union is important. The extent to which these are mathematical errors, perhaps because there are not enough civil servants to do the job, is one thing, but deliberate mischief is something else. That distinction must be explored, perhaps in a future sitting or EU report.

I am interested in the comparison between nations because I have been told so often that there are differences in cultures between the various European nations. It may be that we are one of the guilty parties and if so, we should clean up our act. If fraud or dishonesty is not addressed and restrained in any culture, it is bad. One can slip quickly into a life in which one takes fraud, dishonesty and corruption as the norm and honesty as an astonishing exception. That is an unhealthy society, and I want to see one that is open, honest and regular. That is why I am so concerned about alcohol and tobacco smuggling, which introduce many of our citizens into what is effectively petty crime. It is not good for them or society, and I would like there to be many more customs officers so that we can police the ports much more strongly than we do now. I have written to the Chancellor about that in the past and no doubt will do so again.

I prefer that to relaxing our stance and saying, ''Well, what's the matter with a little bit of corruption or fiddling?'' It is not right. If people are poor and need to buy cheap things, there is something wrong with their incomes and they should not be led into thinking that the way to overcome that is to get something off the back of a lorry. It may be an old-fashioned and puritanical view, but it is one that I hold strongly. If we are going to have a decent society, we must take such matters seriously, which is why today's debate is so important. It may be that fraud does not account for a great amount of gross domestic product or the total economy of the European Union, but it is significant politically, culturally and socially.

I am concerned about enlargement because there is a correlation between poverty and fraud and, particularly, corruption. By and large, poor countries are often those with a high level of corruption. I know that from speaking to constituents who come from very poor countries and tell me that those countries are corrupt. It seems as if the only way to deal with that is to become better off. If a country becomes better off, corruption can be gradually dealt with as the people become better fed, housed and educated. They do not have to scramble desperately for every crumb every day of their lives, which is true of too many of our fellow human beings around the world today.

Enlargement is a worry because many of the countries coming into the European Union are much poorer than us, and the scope for corruption might be

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much greater because of the correlation between poverty and corruption. We must ensure that the European Union is regular, open, transparent and clean, and does not practice fraud. We must never tell any country joining the EU that if it keeps quiet, we will turn a blind eye to a few more agricultural subsidies. That is not the way forward. We should establish an honest regime and government in the EU, so that if countries are poor and need assistance, we can help them legitimately with substantial transfers and other forms of assistance to enable them to develop economically and acquire equality within the European Union. Such a challenge may be difficult; nevertheless that is the way in which we should operate.

My hon. Friend the Economic Secretary is relatively new to her post, but she may be not surprised to hear that what I am about to say I have said to her predecessors on several occasions—having been a Member of the Committee for so long. The CAP is a serious problem. It is a natural field for corruption and fraud and, indeed, it has been identified as such on many occasions. The way forward is not only to deal with fraud, but to reform the CAP, and I do not mean just tinkering at the edges. The French said at Nice that they did not mind reform as long as nothing was changed. They are resistant to reform of the CAP. They are mistaken.

Some sensible, radical reforms could be made to the CAP, one of which may be to change the whole system into a deficit financing system rather than a price maintenance system, the sort of system that we used to have in Britain when we had the farm price review before we joined the EU. It was a good way in which to subsidise our agriculture. We could target better and the system would not be so prone to corruption. That is one possible reform.

Many areas do not need subsidies and if we repatriated agricultural subsidies, we would overcome some of the distortions in the fiscal transfers between member states. There are serious problems; some rich countries are substantial net recipients from the European budget, while others are net losers, even though that does not correlate with the standard of living in those particular countries. It depends on whether there is a big agricultural sector. For example, Denmark gains and we lose. Beginning the process of repatriating agricultural subsidies would be a sensible way forward as would be moving towards a system of deficit financing rather than price maintenance.

Another point that was raised earlier was the 11 billion euros underspend, particularly on structural funds. Given that we benefit from the structural funds to a much greater extent than other countries, we may be the losers because of that underspend. I keep writing down a pound sign instead of a euro sign—it is a terrible habit that I must correct. The 11 billion euros underspend on structural funds is serious. We might not have such a big deficit in our budget arrangements with Europe if it were not for the fact that there was such a substantial underspend. Hopefully, when we

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bring forward further spend in later years, it might possibly develop the poorer and depressed areas of this country.

Mr. Bercow: Is there an analogy in the hon. Gentleman's opinion between the underspend to which he has referred in structural funds expenditure and the underspend that is being regularly recorded in the departmental accounts of several British Government Departments? Is the cause the same or are the creatures different?

Mr. Hopkins: I thank the hon. Gentleman for his intervention, but I do not know the answer. I am sure that my hon. Friend the Minister has a better grip on such issues than I have. I should be interested to know the answer, but I suspect that our underspend is because people are being rightly cautious with public money. That is how it should be. I should like to see that money brought forward in future years, so that we can compensate particularly in health, education, the police and elsewhere. I am sure that the Government are taking proper account of those underspends and will bring forward extra spend to compensate for them in future years. Public services have been desperately underfunded for many decades and the Chancellor made the welcome remark only yesterday that he was not going to restrain extra spending on the health service on the instruction of the European Union. That is right, as we spend far less on our health service than do many other EU countries, and it is unacceptable that we should be told not to spend more on it. I applaud the Chancellor for his action.

One could make several other points, but these are the most important ones that concern me. I hope that I did not sound too moralistic, but probity in public spending is important. If people are going to respect Governments and vote enthusiastically to choose between Governments of different colours, they must believe that those Governments will run their countries and public finances properly and sensibly, and that they will do their best to eliminate any fraud and corruption.

6.5 pm

Mr. Connarty: I apologise to hon. Members who have already been through a marathon session, but as a member of the European Scrutiny Committee who referred the documents, I was keen to hear how they would be debated. I hope that more members of the European Scrutiny Committee will follow the documents into the various Standing Committees to which we refer them to see how they are dealt with.

The hon. Member for Buckingham reminded me of an occasion when I served on a Standing Committee with my hon. Friend the Member for Linlithgow (Mr. Dalyell). I know that when I compare the hon. Gentleman to the Father of the House, he will take it as the compliment that it is meant to be. When my hon. Friend said ''and twenty-seventhly'' to an amendment, the Whip decided that it was time to pull the stops and go home. By that time it was four o'clock in the morning.

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It is funny how things come together. I was also reminded that the first Dalyell of The Binns—the family home of my hon. Friend the Member for Linlithgow—made his fortune from adulterated butter, which he bought from various parts of Scotland and sold to the armies of Europe for axle grease. That is how The Binns came to be established as my hon. Friend's family home. It is strange how things that go around come around.

A simple matter, which has not taken up much of the Committee's time, is the directive on excise duty on manufactured tobacco products. That may be a minor matter before the House, but it was of particular interest to those of us who were concerned about how to deal with fraud and the trade that is costing this country £3 billion in excise duty. One way is to agree a common approach throughout the EU to the duties applied to manufactured tobacco and cigarettes.

Hon. Members will see from the document before them that the excise duties were originally proposed to be at least 57 per cent. of the tax, inclusive of the retail selling price, or 70 euros for each 1,000 cigarettes. EU countries did not accept that, and I am not sure what the Government's view was, as the European Scrutiny Committee never found out which Government did or did not vote for it in the Council of Ministers. We know only that one or two countries opposed it. We may have supported the proposal that the duties should be agreed throughout the European Union, but the compromise was 60 euros for each 1,000 cigarettes. That would mean several derogations, which would allow countries to come to those stages slowly.

Does the Minister expect that that approach to excise duties will be effective, especially on cigarettes? The EU made a good attempt to use the tax laws to pull the rug from under the feet of those who are making quite a bit of money from buying cigarettes in one country and smuggling them into this country.

I hope that the documents will be only the beginning of an agreement. Tax can force people to take a more legal approach to the purchasing and sale of goods from the EU. As long as we have such disparate taxation and excise duty throughout the EU, there will always be people who attempt to use illegal methods to make money. It is not just the small trader, as we know. Oil tankers come into this country that have been specially constructed to store millions of cigarettes in and around their legal cargo.

I should have liked to hear the hon. Member for Buckingham speak up more strongly for what has been done in setting up the European anti-fraud office. Commissioner Kinnock's approach and the remit that he took on board is beginning to make some sense of and give some muscle to the anti-fraud process in the European Union. That is not a partisan point. The structure of the European Union and the way that it disperses funds and gives home countries great leeway in how they apply it means that operational standards in some countries benefit the local economies, but do not necessarily provide the best accounting practice. Indeed, in some cases, they are fraudulent.

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One case caught my attention. I was a member of this Committee before I became a member of the European Scrutiny Committee. The types of tobacco grown in the European Union are very damp and so do not dry out quickly. They could be moved around by organised cartels of what was then called the tobacco mafia to various parts of Europe. Payments from the same fund were then made once, twice, three times and occasionally even five times for the same leaf. When investigators got close to the centre of that ring, the person responsible in the European Commission for dealing with it either jumped, fell or was pushed from a fifth storey window in Brussels to his death. There was clearly money and danger in dealing in some of these fraudulent practices.

I am told that the response to that of the European Union was rather strange. We reduced the number of tobaccos that could be grown to eight from 24, but none of it is ever of a fit standard to be used in the EU because of its tar content. We then gave export subsidies to have it exported to Africa and the Caribbean. I am told that we have since moved on. We do not give export subsidies but we still export poisonous tobaccos to other parts of the world and spend more than 1 billion euros in the process. That caught my attention and I have kept up my interest ever since.

The coming of OLAF is a vast improvement. I should have thought that the Opposition might applaud the way that it is structured.

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