---

Mr. Ian Davidson (Glasgow, South-West) (Lab/Co-op): I draw to the Minister's attention that I was motivated to come to this debate when I heard him refer to the absence of the hon. Member for Stone (Mr. Cash). Indeed, I was pacing out to arrive here as quickly as I could when I was overtaken by the right hon. Member for Wokingham (Mr. Redwood), who passed me at a rate of knots. I suggest that the Minister refer to other Members who might be brought into the debate.

Mr. Lewis: Had I known what effect my original reference would have, I might not have referred to the
 
7 Mar 2006 : Column 749
 
hon. Member for Stone, but I am always delighted to see my hon. Friend the Member for Glasgow, South-West (Mr. Davidson) in the Chamber, as well as the right hon. Member for Wokingham (Mr. Redwood), who has a long track record on these issues and who I am sure will want to contribute.

Mr. Philip Hollobone (Kettering) (Con): To put this report in the context of a public limited company, were a plc to announce its annual results and have its accounts qualified, there would be a huge impact on its share price. Yet, the European Union carries on from year to year with no effect, and with no real concern from Her Majesty's Government.

Mr. Lewis: It is a shame that the consensus has broken down. To say that there is no real concern from Her Majesty's Government is unfair nonsense. During the course of our presidency, I, together with others, made this a priority. I agree with the hon. Gentleman that, if he is talking about the credibility of the European Union and the relationship between it and taxpayers in the nation states, the issue is incredibly important. As long as the accounts continue to be qualified, they undermine and damage the credibility of the European Union as an institution. Perhaps the difference between us is that I am unhappy that the credibility and integrity of the European Union are undermined whereas I suspect that Conservative Members and, perhaps, one or two of my hon. Friends, are delighted for this continual undermining of the European Union as an institution to continue. The difference is that I want an improvement in the situation so that we cease to qualify the accounts with the consequence that the relationship between the European Union and taxpayers is improved. We should all share that objective. It is also true that the qualification is not, as it is often explained, largely to do with fraud; it is largely to do with inappropriate accounting methods and the difficulty of monitoring expenditure. I do not make any excuses, but sometimes 100 per cent. of the problem is defined as fraud, which is misleading and inaccurate. I share the reservations of the hon. Gentleman, and as long as the European Union's accounts are qualified, any democratic politician should be concerned. Indeed, anybody who believes in the EU as an institution should be concerned and want the situation changed.

Mr. Cash: In respect of proportionality and in terms of whether a discharge is given, does the Minister agree that the amount of money involved is highly relevant? Does he dispute the fact—I doubt that he will as I have the document here—that, with regard to irregularities in expenditure under the European agricultural guidance and guarantee fund, the total amount for 2004 was €82,064,000 and that on structural measures the amount was no less than €531,744,438 in the same year? Does he agree that that is a considerable sum for irregularities?

Mr. Lewis: Yes. There is no difference between us in respect of the continuing concerns about the inability to give full endorsement of the accounts year on year and about the fact that it still appears to be difficult to
 
7 Mar 2006 : Column 750
 
monitor expenditure under significant budget headings. That is especially a source of concern for Members who believe that the EU is a positive institution, making a positive contribution to the world. The question is not whether we condemn or criticise, but what action we can take—

Mr. Cash: To find out.

Mr. Lewis: Indeed, but also to improve the situation. As I shall explain, we moved things on during our presidency; we did not solve all the problems but we said that the issue must be given more prominence and importance at Council level. As a result, progress has been made.

I acknowledged earlier that we had found most problems in respect of payments. In most years, the ECA has been able to give a positive statement of assurance only for administrative payments that were a small part of the budget—about 6 per cent. I am pleased to note that, in the 2004 report, the ECA considers that a substantial part of the agriculture budget—59 per cent.—merits a positive statement of assurance. That is the part managed under the integrated administration and control scheme—IACS—and it amounts to €26 billion from a total agricultural payments budget of €44.3 billion in 2004.

Mr. Robert Goodwill (Scarborough and Whitby) (Con): It must be true that none of the funds has been deployed wrongly by the Department for Environment, Food and Rural Affairs this year, because no farmers have received their cheques. No fraud is taking place this year because so far no money has been given to our hard-pressed farmers.

Mr. Lewis: I am sure that the hon. Gentleman has raised that point with my ministerial colleagues in the relevant Department, but if he wants me to look at the situation after the debate I shall be happy to do so and write to him.

The ECA considers that IACS, where it is properly applied, is effective in limiting the risk of irregularities to an acceptable level. In addition, the 2004 report concludes that pre-accession aid also merits a positive statement of assurance. Taking the large share of agriculture spending, and all pre-accession aid and administration costs, about 35 per cent. of the 2004 budget has been assured by the ECA. As I am sure Members will be at pains to point out, that still leaves a long way to go, but it is an improvement over previous years.

Mr. John Redwood (Wokingham) (Con): The Minister has a difficult task and I am grateful to him for giving way. The OLAF report shows that the financial impact of cases acknowledged by 31 December 2004 was a massive €5.8 billion, yet figure 27 shows that the office has managed to retrieve only €198 million. Can the Minister give us some idea of how much more might come back? I presume that much more is owed to taxpayers.

Mr. Lewis: I cannot give the right hon. Gentleman a direct answer, but I can attempt to find that information for him. At this stage, I am not in a position to give him
 
7 Mar 2006 : Column 751
 
a definitive answer, but I am grateful for his expression of sympathy for my responsibility in this debate. I assure him that there was not a queue of Ministers wishing to lead on these matters.

There have been relative improvements in the 2004 audit, but two thirds of the EU budget does not   meet acceptable standards. The sum involved is about €68 billion, or £46 billion, but honesty and transparency are required, as the true extent of the problem must be defined. Fraud has taken place—I shall comment on that—but there are also errors or irregularities. If the ECA's audit leads it to believe that amounts calculated by member states differ in value by more than 2 per cent. from what it assesses to be the correct figure, it cannot give a positive assurance on that part of the budget. That does not mean that the whole budget sector is subject to error—it is still only a relatively small part. We must be careful, too, to distinguish between irregularities, where payments have been made in contravention of the rules, or where it was not possible to show that the correct procedures have been followed, and fraud, where money has clearly been stolen or used for entirely inappropriate purposes.

Those issues are examined in detail in the "Fight against Fraud" report that was published by the Commission and which incorporates data from the European anti-fraud office—OLAF—to which the right hon. Member for Wokingham referred. For the first time, in the 2004 report, OLAF has succeeded in identifying the amount of suspected fraud reported in agriculture and the structural funds. The relevant figures were 13 per cent. of the total agriculture irregularities and 17 per cent. of the irregularities in the structural funds.

Angus Robertson (Moray) (SNP): I apologise for missing the start of the debate, which began earlier than I expected. Does the Minister accept that many concerns about irregularities in the budget are the result of action by so-called whistleblowers such as Miss Andreasen, Dorte Schmidt Brown and Jules Muis? Will he comment on how the European Union has dealt with those whistleblowers? Does he believe that the situation will improve, as we depend on such people raising concerns if we are to get to the bottom of issues such as fraud in the EU budget?

---