Protecting the European Community's Financial Interests

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Mr. Andrew Tyrie (Chichester) (Con): I have at least half a dozen questions, so I shall get under way.

At the outset, I should point out that I have no intention of trying to catch out the Minister with a trick question. If she does not know the answer, it will not be her fault. This is a complex matter, and she will be trying to answer questions about an impenetrable morass of paper. First, what is the Government's best estimate of the level of fraud and irregularity in the EU budget—and what is the UK's share of that?

Dawn Primarolo: I can answer the hon. Gentleman's question only partially. I am grateful that he acknowledged that this subject is not normally part of my brief; it is usually covered by a colleague who cannot be here today.

Our best estimate is that somewhere in the region of 20 per cent. of all recorded irregularities could be attributed to fraud. As for a breakdown of that figure, I hope that the hon. Gentleman will bear with me. If I can gain access to more detailed information about individual member states, I will be happy to give it later in the debate; if not, I shall write to the hon. Gentleman.

Mr. Kelvin Hopkins (Luton, North) (Lab): My right hon. Friend may be aware that the reports do not refer to one significant case—that of EUROSTAT. Does she not believe that that underlines the suggestion that the EU is still a ''vast enterprise of looting''? Those are not my words and are stronger than the ones I would use myself. Will she pursue the question of EUROSTAT so that the British Government can get some answers?

Dawn Primarolo: My hon. Friend raises an important series of questions about EUROSTAT. Hon. Members will have noticed that the ECA report on the fight against fraud does not comment on the EUROSTAT allegations. That is because the report covers the financial year 2002—when the case was still

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being investigated. I do not want to say too much about EUROSTAT because the case is ongoing and is a matter for French prosecutors; none the less, to try to give my hon. Friend some reassurance about how seriously the Government take the issues, there are two important points to be made.

The first point is that serious mistakes were made. The attention paid to internal audits was, initially, insufficient; the pace of the investigation was too slow and there were weaknesses in communication between OLAF and the Commission. Changes are obviously needed to address those failings. The Commission has come forward with some proposals that we are studying, because we need to address the issues.

On my hon. Friend's second point, we should acknowledge that the system put in place as part of the reform agenda unearthed the problem at EUROSTAT and that, once the details were fully investigated by OLAF, decisive action was taken. Although it is obviously disappointing, to put it mildly, that there was any wrongdoing, it seems clear from the report so far that the vast bulk of the irregularities relate to practices prior to 2000. So, I understand my hon. Friend's frustration, but the matter will be reported in subsequent years.

Mr. Tyrie: To clarify what I hope to get from the Minister, my first question had four components: the level of fraud and irregularity in the EU; its level in the UK—the Government's best estimate on both—and the division between fraud and irregularity for each of those. Could the Government say whether, in their view, fraud and irregularity is rising or falling in the UK and in the EU?

Dawn Primarolo: I understood the hon. Gentleman's point about the figures that he asked for. Total irregularities in 2002 were 1.136 billion and the 20 per cent. that I mentioned was against that total. I will do my best to get him the information in the way that he required it broken down.

The hon. Gentleman then asked whether there has been improvement. Should he have any sleepless nights, looking at the detail in the ECA report on agriculture will show him that there is a falling rate of fraud. That is attributed to improved reporting and procedures for identifying irregularities and fraud. What is important is a two-track approach. We want to reduce the irregularities. The best way to do so is to have transparency, reporting, accounting and new procedures. In identifying the irregularities, we should learn from them to make sure that they can be prevented in future. If the areas of irregularity are stripped away, we can approach the question of fraud.

If the hon. Gentleman has not come across them, I can give him the references on agriculture in the UK. The ECA identifies falling levels of fraud and attributes it to the better reporting, accountability and transparency that are developing as a result of the new regime.

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Dr. Hywel Francis (Aberavon) (Lab): The European Court of Auditors has been unable to give a positive statement of assurance for, unbelievably, nine years in a row and, despite all the reforms, there appears to be no improvement. Do the Government draw any comfort from the report, or is it once again a case of jam tomorrow?

Dawn Primarolo: The problem has been with the current system, and I share my hon. Friend's concerns about the fact that that has occurred for the ninth year in a row. In my opening remarks, I tried to make it clear that the introduction of the reforms to be completed by 2005 will go a long way towards improving the ability to ensure that the budgets are spent efficiently and effectively and are accounted for.

The problem with the current system is that either there is a positive statement of assurance or there is not. Until this year, it has been hard to judge which areas are improving—hence the question posed by the hon. Member for Chichester (Mr. Tyrie)—and which areas need more attention. This year, as I said to the hon. Gentleman, it is worth looking at the section on agriculture to see where there has been improvement and that there is a fall in fraud. The assurance statement is being used as a tool for ensuring proper assessment and for making recommendations for change.

As I said in my opening statement, I would not like to lead the Committee to believe that a positive assurance statement is imminent. The Government say that it is necessary for the Commission reform process to continue. Together, the legislative changes, the reforms of internal auditing, the new anti-fraud office, the changes in career patterns of officials, the new financial rules and the modernisation of accounts will take us closer to achieving my hon. Friend's objective, which everyone in the Room would share.

Mr. Tyrie: The Minister referred in her speech to the fact that the directorates-general are now required to produce so-called activity statements each year, to show how well they are doing and to bring some sense of good governance to bear on the way in which they run their departments. Does she think that that approach can achieve an effect similar to that achieved by the accounting officer process in the UK?

Dawn Primarolo: We hope that that will be the case. The system is modelled quite closely on the role of accounting officers in the UK, and we regard that as an important change in the responsibilities of the directorates-general.

Anne Picking (East Lothian) (Lab): It is good that the accounting system has changed, but is that enough? To improve matters, should we not also change the culture?

Dawn Primarolo: I agree with the principle underlying my hon. Friend's question. Although it is important to implement legislative, accounting, and transparency procedures to demonstrate that the money is being effectively used, a culture change in approach will also be required to provide the very

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specific details that we and other member states seek. The reform process must continue. It is not simply a matter of changing the rules, important though that is. We must be sure about the legality, reliability and transparency of the accounts, as well as about whether the funds are effectively spent. I hope that I did not mislead my hon. Friend by making it sound as if I was suggesting that by changing the rules we had delivered everything. Governments will have to continue to press hard to ensure delivery and the necessary culture change.

Mr. Tyrie: In an earlier answer, alluding to agriculture, the Minister implied that fraud and irregularity were falling in the EU and the UK. Am I right to assume that we should interpret from that that fraud and irregularity are falling across the board?

Dawn Primarolo: I gave the hon. Gentleman an example of areas in which we can demonstrate that there have been improvements. However, there is still considerable work to be done on the scale of funds and the necessary accountability. The number of irregularities is not sufficient to indicate whether the level is falling, consistent or rising. For instance, the closure of the 1994-99 structural funds programme has affected irregularities, and intensive auditing has revealed a larger number of irregularities. That has been attached to the process and has fed through. The closure of old and very old cases has also had an impact.

I wanted to highlight interesting positive progress, which I attribute to the reforms—I am sure the hon. Gentleman wholeheartedly supports them. None the less, I do not suggest that the job is done and that sweeping changes have been made. Change is occurring but we must continue to pursue it.

Mr. Hopkins: As a member of the Committee for seven years I have debated these issues on seven occasions, and it has struck me during that time that little of the fraud or error relates to the UK. Without wanting to sound too self-righteous on Britain's behalf, will my right hon. Friend point the finger? One suspects that the problems are acute in certain parts of the EU, but that other areas are more scrupulous.

Dawn Primarolo: May I decline my hon. Friend's generous offer to point the finger at any member state? Change is not achieved by unconstructive criticism. The statement of assurance is an important tool because of the need to be able to make recommendations about changes that should be made. The role played by the accounting officer, accruals accounting and transparency are important goals that should be applied across the EU. As my hon. Friend knows, we have been staunch advocates of that process being the best way to proceed. I hope that he will forgive me, but I will not name names, because that is not appropriate.

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Prepared 23 February 2004