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Ms Stuart: Fundamentally I agree with the hon. Gentleman's argument on an exit clause. However,

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what is his opinion of the proposal by the European People's party, part of his political family, to have an exit clause but only if it is agreed unanimously by all member states?

Mr. Tyrie: That is a trite remark. I am trying to make a serious political point about whether the EU should have an exit clause. I am not making a trivial debating point about what may be going on in the European Parliament.

I am not a sudden convert to the idea of an exit clause. I have pressed the case for such a clause for at least 15 years. I started thinking about it when the Delors report was first debated. There are good arguments for and against currency unions, and reasonable men can disagree about them, but one of the most ludicrous arguments is that the loss of monetary control involved in a currency union is inevitably a one-way ticket and involves the surrender of our nationhood. Currency unions have come and gone over the centuries, and they will do so again. It has always struck me as much better to have the ground rules for withdrawal from a currency union laid out at the start. That could have been done without destabilising the markets and it was a profound mistake that we did not put such a rule into the Maastricht treaty.

I have discussed an exit clause with a good number of people on the convention over the past few months. Initially, I faced strong opposition, including from some senior people. I am pleased that Guiliano Amato, whom I spoke to, and Giscard, whom I did not, appear to be coming around to the idea. I just hope that they fully grasp and articulate the importance of such a clause for entrenching the primacy of the nation state because only if they do that will they get full political value from it. The EU is not—it would be foolhardy to try to make it—anything more than a highly sophisticated set of reciprocal obligations between member states. Perpetuating the illusion that it is anything more, and many try to do that, particularly in continental politics, will at best waste a great deal of bureaucratic and political time; at worst, it will mix a dangerous nationalist cocktail. We are already seeing some evidence of that lethal mix in the domestic politics of France, Austria, the Netherlands and possibly Germany.

My deeper worry about the work of the convention is the lack of appreciation of the scale of the problems that the EU is accumulating, and I say that as somebody who is not a paid-up Europhobe. Those problems are not only the failure of so many policies. Is there anyone in the House who could honestly say that there is any major area of EU spending with which they could agree? There are no takers—not even the Minister, who is frowning. That is the scale of our problem in explaining these issues to the electorate. The convention has not fully grasped the scale of the problems that we are trying to deal with.

There are two straightforward commitments that the Government could make tonight—they have edged towards one of them—which would indicate an appreciation of the scale of the problems. First, it would be helpful if the Government said unequivocally that they fully support an exit clause, not only that they do not see a problem with it. The second, equally important point is that they should put any constitutional arrangement to the electorate in a referendum.

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10.1 pm

Mr. Richard Bacon (South Norfolk): It is a pleasure to follow my hon. Friend the Member for Chichester (Mr. Tyrie). I have enjoyed listening to the debate, and I want to focus on an area that has received little attention this evening or in the Standing Committee on the Convention. The hon. Member for Glasgow, Pollok (Mr. Davidson), with whom I serve on the Public Accounts Committee, referred briefly to the matter, which is of huge importance to the future of Europe. I refer to financial accountability and the control of fraud in the European Union.

I first took an interest in the issue when I read the House of Lords report, XFinancial Control and Fraud in the Community", in July 1994. I shall quote at length from page 1 of that report because it predicates what follows. It says:

XThis is the Select Committee's fourth report since 1989 on fraud and financial irregularity in Community spending. Our 1989 report found that huge sums of Community money were lost each year because of fraud; that financial management was weak; that the failure both to detect fraud and take action when it was detected allowed the fraudsters to continue in business; and that for years there had been no political will to tackle the problem.


By 1992 we detected some signs that the situation might be improving, although there was a long way to go. We were too optimistic. According to the Court of Auditors' Report of November 1993 on the year 1992, there has been 'little or no improvement' in the Community's financial management, despite repeated criticisms made in previous reports."

That report made me realise, back in 1994, that this was something that one should keep an eye on, and I decided that I would do that. The 1995 accounts were qualified by the Court of Auditors, which says that the statement of assurance provides

Xnumerous illustrations of unsatisfactory accounting and financial management".

The same thing happened for the third year in a row when the 1996 accounts were qualified, saying that

Xthe Court declined to provide positive global assurance as to the legality and regularity of . . . the payments",

and it was estimated that about £3.1 billion went missing through fraud. It appears that there had been no change by 1998, for which the report says:

XFor the fifth year in succession the Court found significant weaknesses in the management of the Budget and an unacceptably high rate of error in the transactions underlying payments."

When we reach the reports for 2000, we find the National Audit Office commenting that

Xit remains a matter of serious concern that little progress has been made in reducing the high level of error, which meant that for the sixth year in succession the Court was unable to provide positive assurance on the legality and regularity of the transactions underlying payments."

Page 1 of that report says:

XOverall the Court's Annual Report and Statement of Assurance for 1999 showed little evidence of improvement in the financial management of the European Union compared with previous years."

In May this year, NAO reported on the accounts for last year, and once again the accounts were qualified. The report said:

XFor the year 2000, the Court drew similar conclusions to previous years and for the seventh year in succession qualified its opinion on the reliability of the Community's accounts."

A number of points in that report caught my eye. First,

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XThe Court found that during the year the Commission had entered into legal obligations in excess of the amounts provided for in the Community General Budget."

Secondly,

XThe Court found that the Commission was unable to produce complete and reliable information distinguishing between advance and final payments. It noted that, following similar findings in the Court's report on the financial year 1999, the Commission had said that it would take steps to set out detailed rules for each sector of activity and would apply classifications for different types of payment, in advance of revisions to the Financial Regulation being approved"—

but

XThe Court found no such progress."

In relation to the accounting system, it was noted that

XAs in the previous two years, the Commission experienced difficulties in providing the Court with a set of accounts for audit."

Last Thursday 28 November, the Court of Auditors report, which will not be reported on by the NAO until next year, was published. Once again, the accounts were qualified. The report stated:

XThe Court has been concerned that, while in the past the Commission has recognised at least some of the deficiencies pointed out by the Court, it has not given sufficient priority or devoted sufficient reflection and appropriate resources to overcoming them within a reasonable timescale. The Commission has stated in its reply . . . its commitment to the modernisation and improvement of the accounting system. It now needs to develop urgently a detailed action plan with the necessary resources and a timetable that is both realistic and reasonable."

In other words, after eight consecutive years of qualified accounts, the Commission has not yet come up with a detailed action plan. Consider for a moment what would happen if the accounts of Marks and Spencer or Boots plc were qualified—the directors would be hauled over the coals straight away, in year one.

Angus Robertson (Moray): Will the hon. Gentleman give way?

Mr. Bacon: No—I am sorry, but many hon. Members still want to speak.

Earlier this year, at the beginning of January, the Commission appointed Marta Andreasen to two jobs—budget execution director and accounting officer for the European Union. She quickly pointed out serious and glaring shortcomings: there were no accounting books and no double-entry bookkeeping; staff of the Commission could enter the budget computer system and change entries without leaving a fingerprint or an audit trail. She raised her concerns and was rebuffed. She then tried to raise her concerns with the Court of Auditors and the European Parliament's Budgetary Control Committee, for which she was disciplined.

Compare that with what would happen in this country. In this country, if accounting officers for Departments, who are legally responsible for the way in which money is spent, do not like what a Minister is telling them to do, they are obliged to seek a direction from the Minister. That automatically triggers a process whereby the NAO is informed of what is going on. Having acted in that way, if the accounting officer subsequently comes before the Public Accounts Committee, he or she will be exonerated. In Europe, the

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exact opposite happened to the accounting officer for the whole of the EU. She tried to act honourably and to draw her superiors' attention to her concerns about the serious irregularities that were occurring, but she was rebuffed. What does that say about the EU's seriousness about getting control of those matters?

We are discussing the powers of the EU and its institutions and whether those powers should be extended—whether the European Parliament or the Council of Ministers should have more power, and whether there should be an elected president. What does that track record tell us about the competence of the EU to have any powers at all? What does it say about the competence of the European Union to have any money at all if it cannot look after the money it already has? The solution was eloquently stated in an article in The Times by Rosemary Righter, who said:

XMember states should put the Commission on notice that they will finance only those parts of expenditure that get a clean bill of health."

Taxation is a cardinal matter. It is hard to think of anything other than the acts of making war or imprisoning people that more closely defines what it is to be a state—what it is to have the powers of Government. My constituents work extremely hard to earn the money that they then pay in tax. It is not easy for them to earn enough money to clothe their children and pay the supermarket bills and still have enough left over to go on holiday. If the EU institutions cannot safeguard the moneys entrusted to them by the taxpayers of this country, it is at least open to question whether they should have them at all.

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