Fight Against Fraud

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Mr. Hopkins: Will my hon. Friend undertake to investigate the extent to which Britain has lost out as a result of the underspend in the structural funds budget? Might the Treasury be able to do that?

Ruth Kelly: I thank my hon. Friend for his comment. It is important that we do not lose out as a result of that underspend, and I undertake to investigate the matter. However, we must not forget that we receive a refund of any moneys that are not spent, and we have a period in which money allocated can be used. A project might, therefore, be postponed rather than not implemented. We do not lose out, but I shall of course ask the question and tell him if we have further information.

Several hon. Members raised the issue of EU enlargement and asked what will happen under an enlarged EU and whether candidate, or accession, countries will have the same financial control that is expected or taken for granted in other member states, and what impact that will have on the wider EU budget. The 12 candidate countries currently in accession negotiations must meet minimum EU standards of financial control. That is not to minimise the problems involved. Clearly candidate countries will have difficulties in raising themselves to the appropriate standards. However, as part of the negotiations they must show that they have a legal

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framework that supports accountable financial control systems and that the Government have put or are committed to putting in place legislation and systems to ensure legal and effective use of EU funds, thus minimising fraud and irregularities. The EU will continue to monitor closely the financial control systems of new member states in order to ensure full compliance with the EU acquis prior to accession.

It almost goes without saying that member states will try to support candidate countries in the process, in which the UK is actively involved. Candidate countries attend an annual financial control conference with EU15, which gives them the opportunity to discuss areas of concern and common interest, and there are various bilateral contacts between individual member states and potential accession countries.

The UK has published information on the UK system of financial control on the Treasury website so that candidate countries that are interested in taking advantage of that information can do so. We remain committed to working with them to improve their financial control systems as part of the accession process.

The hon. Member for Buckingham also mentioned SAPARD—the special accession programme for agricultural and rural development—which finances major agricultural and rural development projects and has an annual budget of 520 million euros. Safeguards are in place with regard to the allocation of funds within those projects: a SAPARD agency in a candidate country must be accredited by the Commission—the Commissioner's usual ex-ante approval is waived; the programme must also be approved; and there is an annual financing agreement, as well as a multi-annual agreement, between the Commission and each candidate country to ensure that financial control is as stringent as possible, and that taxpayers' money is used to best effect.

The hon. Member for Buckingham also mentioned that it is stated on page 84 of ''Protection of the Communities' Financial Interests and the Fight against Fraud'' that the Commission can charge member states with amounts to be recovered, and he asked whether that power had ever been used. Those charges are known as financial corrections, and I assure the hon. Gentleman that not only have the powers been used—albeit infrequently—but the UK, in common with other member states, has occasionally been the subject of financial corrections. If the hon. Gentleman is interested, I will write to him with some examples of when that happened.

The hon. Gentleman raised the subject of the European public prosecutor, and he suggested that the Government might agree with the Opposition that the establishment of such a prosecutor would not be the best way to move forward. I am happy to say that he is right about that. The hon. Gentleman asked about the status of the Commission's latest proposals, with regard to that subject. At the end of 2001, the Commission issued a Green Paper on the

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establishment of a European public prosecutor. Responses to that are invited until June 2002, and I am sure that the hon. Gentleman will respond. The Commission will then consider whether to submit another proposal for treaty change to provide a legal base for the establishment of the European public prosecutor.

The Home Office will initiate a wide-ranging consultation to enable people to have input about how the United Kingdom should respond to that. However, as I have said, the UK does not back the idea of a European public prosecutor, in the circumstances that have been proposed. It supports closer judicial co-operation within the European Union to ensure that criminals cannot use legal differences between member states to evade the law, and that British citizens can exercise their legal rights when they travel to other EU countries. That is an important point. The best way to achieve that is not by establishing a European public prosecutor, but by ensuring that there is mutual recognition of court decisions between countries. The different legal systems of Scotland, England and Wales co-operate in that way, and we have successfully co-existed for centuries.

My hon. Friend the Member for Luton, North returned to the idea that there should be more customs staff on our borders. I agree with that, and I point to the announcement that there will be almost an extra 1,000 customs staff. Customs officers have now been given not only the numbers, but the tools that they need to crack down on fraud, particularly with regard to tobacco smuggling.

Mr. Hopkins: Will they be keeping a particular watch on white vans, which frequently come to my constituency loaded with large quantities of cigarettes and alcohol?

Ruth Kelly: The initial indications are that they have been keeping a particularly close eye on white vans, as all the results suggest that we are on track to meet our tough targets on cracking down on cigarette smuggling.

I assure the hon. Gentleman that customs authorities have effectively tackled the problems that he faces in his constituency. I reiterate that the majority of illicit cigarettes—80 per cent. according to customs—do not come from other EU states, but from places such as Dubai, Vietnam and China. Harmonising EU duty rates would have minimal impact on the UK problem because the products are sourced further afield. As I have already outlined, our customs staff are already successfully tackling it. In 2000 tobacco smuggling was reduced by 76 per cent. My hon. Friends might like to report that back to their constituencies to demonstrate the seriousness with which the Government are dealing with smuggling.

I am aware that time is running out. I am grateful to hon. Members for their contributions and sorry if I have not had the time to deal with all their points. The hon. Member for Buckingham asked 50 questions and it is unrealistic to expect them all to be addressed here and now. It is better to provide more detailed information later.

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In conclusion, the latest ECA report has once again highlighted the need for reform, which is an issue that we take seriously. We need reform of the Commission itself, of the way it recruits, of the reward and incentive structures it provides for its staff and, perhaps most importantly, of the responsibilities it places on officials to deliver. Also important are reform of the financial rule book, the introduction of clear principles of budgetary management, the integration of objectives and evaluation in the budgetary mechanism, the clear designation of accountability at official level, reforming the means of tackling fraud and waste, the creation of a fully resourced OLAF and Eurojust to build co-operation between member states and the requirement for a more independent internal audit service.

Those reforms are under way. The Government support the changed agenda because it is the best way to reduce errors and to tackle fraud and waste.

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Although it may take several years before the results can be seen, I am confident that in time this tremendous reform effort by the Commission will bear fruit. We continue to value the input of ECA and OLAF and we are grateful for their detailed reports, which are a true testament to their diligence. We look forward to their further confirmation in the years to come.

Question put and agreed to.


    That the Committee takes note of the European Union Documents Nos. 9208/01, Protecting the Communities' Financial Interests—the fight against fraud: Commission's Twelfth Annual Report 2000, 92707/01, Protecting the Communities' Financial Interests—Fight Against Fraud: Action Plan for 2001-2003, and the Court of Auditors' annual report for 2000; and encourages the Government's continuing efforts to promote and support measures to improve financial management and reduce the opportunities for fraud against the EC financial interest.

        Committee rose at seven minutes to Seven o'clock.

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The following Members attended the Committee:
Widdecombe, Miss Ann (Chairman)
Barrett, John
Cairns, David
Farrelly, Paul

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Francis, Dr.
Hopkins, Mr.
Palmer, Dr.
Picking, Anne

The following also attended, pursuant to Standing Order 119(5):

Bercow, Mr. John (Buckingham)

Caplin, Mr. Ivor (Hove)

Connarty, Mr. Michael (Falkirk, East)

Kelly, Ruth (Economic Secretary to the Treasury)

Pond, Mr. Chris (Gravesham)

Southworth, Helen (Warrington, South)

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Prepared 12 February 2002