The
Committee consisted of the following
Members:
Balls,
Ed
(Economic Secretary to the
Treasury)
Brown,
Lyn
(West Ham)
(Lab)
Buck,
Ms Karen
(Regent's Park and Kensington, North)
(Lab)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Cunningham,
Tony
(Workington)
(Lab)
Evennett,
Mr. David
(Bexleyheath and Crayford)
(Con)
Gerrard,
Mr. Neil
(Walthamstow)
(Lab)
Godsiff,
Mr. Roger
(Birmingham, Sparkbrook and Small Heath)
(Lab)
Goldsworthy,
Julia
(Falmouth and Camborne)
(LD)
Greening,
Justine
(Putney)
(Con)
Howarth,
Mr. George
(Knowsley, North and Sefton, East)
(Lab)
Scott,
Mr. Lee
(Ilford, North)
(Con)
Villiers,
Mrs. Theresa
(Chipping Barnet)
(Con)
Emily
Commander, Committee
Clerk
attended the Committee
European
Standing
Committee
Monday 26
February
2007
[Hugh
Bayley
in the
Chair]
Financial Management
4.30
pm
The
Economic Secretary to the Treasury (Ed Balls):
It is a
great honour, Mr. Bayley, to appear in a Standing Committee
under your chairmanship for the first time. I very much look forward to
this afternoons
proceedings.
This
debate on European Union budget matters is timely because ECOFIN is
meeting tomorrow in Brussels to decide whether to recommendI am
sure that it willapproval of the 2005 budget to the European
Parliament. I welcome the opportunity of this annual debate to take
stock of the EUs efforts to improve the management of its
spending and to counter fraud against its budget. I am sure that hon.
Members will point outI shall start by doing sothat the
debate takes place against the somewhat disappointing and, indeed,
depressing background that for the 12th year running the European Court
of Auditors was again unable to give a positive statement of assurance
on the EUs budget. Although the Court has, with minor
reservations, again been able to confirm the reliability of the
accounts, the proportion of qualified spendingabout two
thirdsin 2005 was essentially the same as the previous
year.
It is clear
that more needs to be done to improve EU financial management, and I am
sure that hon. Members on both sides of the House will suggest
proposals for doing so and urge that it is done as speedily as
possible. It is unacceptable that EU spending is qualified in that way
year after year.
As I
said when we debated the 2007 provisional budget in Committee in spring
or early summer last year, the Government are determined to demonstrate
the actions that can be taken to improve the budgetary position and to
build on the real step forward that was taken during the United Kingdom
presidency in autumn 2005. A plan of action, which was agreed with the
Council, was followed up in 2006 with Commission action plans to try to
improve the position.
As I said in
a written statement to the House in autumn last year, we are determined
not only to act at European level for Commission, Council and budgeting
reform, but to accept responsibility at individual member state level.
It is important that member states take responsibility for improving
the management of EU funds because about 80 per cent. of EU spending
goes on the common agricultural policy and structural funds, which are
programmes with highly complex regulations and a huge number of
beneficiaries, and the management of which is shared between the
Commission and member states. Those programmes are inherently
vulnerable to irregularity. There are many good reasons for radical
reform of the CAP and structural funds, as we have proposed repeatedly
in recent years, but improving EU
financial management is one reason for making progress with wider reform
of CAP and structural
funds.
I
shall return to the wider issue of EU spending reform, but I want first
to set out how member states can do more to improve the management of
programmes. That is why I announced in November that the UK would take
a lead in demonstrating how EU funds can be better managed at national
level and how national Parliaments can be more closely involved in
scrutinising EU spending. From next year onwards, the Government intend
to prepare and lay before the House an annual consolidated statement on
the UKs use of EU funds, which will be prepared to
international accounting standards and, for the first time, audited by
the National Audit Office. The statement and audit opinion will also be
made available to the European Court of Auditors and the
Commission.
Those
arrangements will enhance audit and parliamentary scrutiny of our use
of EU funds in the UK. They will also help us to detect and address any
irregularities. By making ourselves open to greater scrutiny and taking
more responsibility in Parliament and through the NAO, we might well
throw up irregularities, but that is part of the process of scrutiny
which we are accepting for ourselves to improve financial management.
If that additional scrutiny unearths ways in which we can do better, so
be it. The reason for the proposals is not only so that UK taxpayers
have confidence that we are doing everything we can to take seriously
our responsibilities as a member state for the spending of European
money, but to enable the Court of Auditors and the Commission to take
into account the NAOs audit opinion when performing its own
audit and controls.
We have had
discussions not only with other member states, a number of which are
interested in our proposalsthe Dutch and Danish Governments are
engaged in similar initiatives, our Swedish colleagues are considering
a decision and other member states have expressed a great deal of
interestbut with the European Court of Auditors here in the UK.
I have also had discussions with Mr. Kallas, the
vice-president at the Commission who is responsible for such matters.
The initiative has also been warmly welcomed by members of the
Commission and the European Parliament.
We expect, and hope, that other
members states will come forward shortly with similar proposals.
However, there will not be a single model that can be applied
throughout the Union. Different countries have different parliamentary
and scrutiny arrangements. It is clearly more complex to put such
relationships in place in a federal system. Here in the UK, for
instance, we have to take account of the different auditing processes
in Scotland, Wales and Northern Ireland. However, although there is no
single model, I am convinced that all member states can work with their
Parliaments and national audit institutions to improve their management
of EU spending. That will help to make a significant contribution
towards securing a positive statement of assurance on the overall EU
budgets.
I am sure
that we will hear a lot about fraud and corruption in the debate. It is
right and proper that there should be such scrutiny and that EU funds
should be managed with zero tolerance of such behaviour. However, we
should also be clear that corruption and overt fraud are not the main
problems with which we
are dealing. Indeed, that was a conclusion of a thoughtful report by the
House of Lords last year called Financial Management and Fraud
in the European Union: Perceptions, Facts and Proposals, which
I welcomed when I made our UK proposals.
The
Chairman:
Order. The normal tradition in these Committees
is to limit the opening remarks to about 10 minutes. The
Minister will obviously have the opportunity to bring up further
matters when we come to the substantive
debate.
Ed
Balls:
I understand and assure you that I have studied
transcripts of previous debates, Mr. Bayley. I know that it
is also a tradition in such Committees for the Chairman to interrupt
the Minister about two minutes before the deadline to remind him of the
fact that he ought not to overrun. I shall ensure as far as possible
that I do not do that, as I am sure has been the case with my
illustrious predecessors.
One issue for debate is the
balance between fraud on the one hand and irregularity on the other,
and how we can improve our systems and controls to ensure that the
audit process deals with those irregularities, where we are talking not
about intentional fraud, but about how spending is audited and
accounted for. It is also not simply how we manage and budget for EU
spending that should receive proper scrutiny, but how the money is
spent.
I am sure
that we will want to debate the common agricultural policy structural
funds and the wider budget review, which we are discussing with our
European partners and which begin formally this year. There is a lot
more to be done in terms of reform. We all have a
responsibilitynational Governments and Parliaments, the
Commission, the Council and the European Court of Auditors. If we can
get the budget reform processes agreed, implemented and enacted to
improve the scrutiny of spending and have a genuine long-term strategic
review of the European budget to ensure that it is fit for the 21st
century, we will, I hope, rebuild confidence among UK and European
citizens that European spending can work in both the national interest
and the collective European interest. Those are the messages that I
will give tomorrow in Brussels when the Council makes its
recommendation to the European Parliament on discharge for the
management of the EC budget. I shall go there informed by
todays
proceedings.
The
Chairman:
I thank the Minister for his opening statement.
We have until 5.30 pm for questions to the Minister. I remind hon.
Members that questions should be brief and address one topic at a time.
I will come back to hon. Members more than once if they have more than
one question.
Mrs.
Theresa Villiers (Chipping Barnet) (Con): Given the
substantial irregularities that have been identified in the bundle of
papers before the Committee regarding the European Commission budget,
will the Economic Secretary be voting against discharge at ECOFIN
tomorrow?
Ed
Balls:
I will not be voting against discharge; I will join
my colleagues in the Council in trying to build on
the improvements of the past few years and in encouraging further reform
in the coming months. I shall note that irregularities have been
reduced in several areas. Indeed, the scrutiny and approval of
agriculture spending has been improving. Taking a penal or punishing
approach to the budget is not the right way to go, unless we want to
signal that we are backing off from our desire for genuine engaged
reform, and want to try to score political points instead. That will
not be my approach tomorrow
morning.
Julia
Goldsworthy (Falmouth and Camborne) (LD): The Minister
said that the House of Lords report was thoughtful. In his statement of
23 November, he said that he would respond to the reports other
recommendations in the usual way. Will he comment on the
reports concern that unless the statement of assurance gives a
breakdown not only of country but of the different structural
programmes, it will be difficult to sign them off? Will the
Governments consolidated statement of account break matters
down further than merely into a national picture? Will it give a
further breakdown of the different types of funding and how they have
been
administered?
Ed
Balls:
I gave an initial response to the House of Lords
report just after it was published in autumn, and announced a number of
areas in which we will take forward reform. We have since delivered to
the Committee and to Parliament a full response to all the points in
the report. Indeed, we were commended by the Lords for the serious and
substantial way in which we responded to their inquiry. I shall ensure
that a full copy of our response is sent to the hon. Lady.
I assure the hon. Lady that the
statement of assurance that we produce for the UK, which will be
audited by the National Audit Office, will be a full and substantial
piece of work that will go considerably beyond the UK, Scottish or
Welsh spend. It will get into the detail, but, as is consistent with
the NAOs approach, it will be about the process of spend and
audit, rather than simply about trying to find and account for every
bean.
Mrs.
Villiers:
The Economic Secretary said in response to my
last question that he does not want to take a penal approach to the
irregularities in the budget. If a public company had had its accounts
qualified for the past 12 years, its directors probably would have been
jailed by now. There has been a qualification of at least two-thirds of
the budget and serious irregularities regarding 90 per cent. of it. If
that is not enough to justify voting against discharge, what
is?
Ed
Balls:
As I pointed out to the hon. Lady, there have been
improvements in recent years regarding irregularities. The way in which
we have raised the profile of the issues in the UK and with other
member states, proposed substantive proposals for reform and taken on
responsibility for action as member states, while allowing the EU to
keep spending and therefore to keep delivering on its obligations, has
been the right approach. I have no intention of breaking with the
pattern of previous Governments of both parties over the past 12 years
who have taken that approach.
The difference compared with a
decade ago is that the Government are proposing serious and substantive
reforms that are winning support against other member states, rather
than simply railing from the sidelines. In previous debates, the hon.
Lady and I have had the opportunity to discuss whether it is better to
be within the European debate or on its fringes, and I will not repeat
some of the comments that I have made before. We have a difference of
view, with the desire for constructive engagement on our part and a
desire for either a withdrawal to the fringes or an entire
withdrawalI think that is the direction in which she would like
to take uson hers.
Justine
Greening (Putney) (Con): Aside from disagreeing completely
with what the Economic Secretary has just said, I want to know the
Governments assessment of the proportion of fraud and
irregularity that comes from the poor systems of control in the EU,
versus the extent to which people who engage with the EU deliberately
commit fraud, which are possible reasons why fraud might be so high. To
what extent is it the EUs fault, and to what extent are other
people trying to commit fraud against the
EU?
Ed
Balls:
The important point, which I made earlier and which
the hon. Lady might have missed, is that the amount of irregularity
accounted for by fraud or intentional misuse of funds is low. For
expenditure programmes under shared management, suspected fraud
accounted for some 0.3 per cent. of spending. If we consider the
overall reasons for qualification, the vast majority of concern relates
to the process of accounting and auditing, not to intentional fraud
caused by central or member state authorities. In a way, the point is
misconceived. The real issue is about dealing with some of the
irregularity in the process, which needs to be sorted out, rather than
thinking that the problem is fundamentally about fraud. As I said, that
point was made well by the House of Lords in its recent
report.
Julia
Goldsworthy:
In the meeting tomorrow, will the Minister
press the auditors to take into account money that is clawed back,
which contributes to the irregularities at the moment, but is not taken
into account in the following year? Does he agree that that is a way to
try to bring greater transparency to dealing with the irregularities?
Will he press such reform in the development of the road map that is
under discussion?
Ed
Balls:
I remind the hon. Lady of our debates in Standing
Committee on the 2007 budget. One of the points that we have made
strongly this year and in previous years is that ensuring that the
amount of money that is budgeted for is feasible and reasonable for
Governments to spend is an important part of budget reform and that to
over-budget beyond capability does no good at all. At the same time, we
are trying to ensure that we minimise the amount of clawback, and we
will definitely take that into account.
Mrs.
Villiers:
The Economic Secretary seeks to emphasise that
we are talking about minor administrative mix-ups, not about fraud in
every case. I acknowledge that we are
not talking about fraud in every case. However, is he aware of the
letter written by the president of the European Court of Auditors to
Lord Grenfell, in response to the House of Lords European Union
Committee report? That letter
emphasises:
In
fact, as the Courts annual reports have repeatedly made clear,
most areas identified by the Court appear at the financial beneficiary
level, in the amounts claimed from the Community
budget.
Does the
Economic Secretary accept the president of the courts
explanation that we are talking about errors in relation to
paymentspeople being paid public money when they are not
entitled to
it?
Ed
Balls:
The hon. Lady is right to reiterate a point that I
made in my opening remarks: 80 per cent. of expenditure happens under
the full or partial responsibility of member states, irregularities
commonly arise at that point and member states must therefore take
their responsibilities more seriously. I was not in any way trying to
dismiss, belittle or underplay the importance of tackling those budget
issues. In fact, I started by saying that they were an embarrassment,
and I went further: I said that sorting them out requires member
states determined action.
The continuation of such
qualifications undermines the EUs credibility. However, I
should point out that the reason for that is the flaws, weaknesses and
problems in auditing nationallythe hon. Lady is right to make
that pointand not intentional fraud. The House of Lords
Committee in its report, the European Court of Auditors in its report
and I, in my opening remarks, all made that point. We note that there
have clearly been problems in the auditing and accounting of the
European budget over several years.
We have taken
a number of steps to sort the problems out, and we are making progress.
To give one fact: the number of irregularities that member states
detected in the agriculture budget fell between 2004 and 2005 from
3,401 to 3,193, which accounts for 0.21 per cent. of the overall
agricultural budget. However, 3,193 irregularities is an unacceptable
number, and we must do better. We are making progress none the less,
and we must ensure that we accelerate the rate of
progress.
Mr.
George Howarth (Knowsley, North and Sefton, East) (Lab):
Chapter 5 of table 1 draws attention to the fact that, on sheep and
goat premiums, Italy has over-claimed by 10 per cent. and Slovenia by
24 per cent. The report puts that down to poor record keeping, but
over-claims by those amounts might point to something rather more than
poor record keeping. Will the Minister comment on
that?
Ed
Balls:
I am happy to look into that detailed point and to
write back to the Committee as a whole, or to the individual Member as
he would prefer. I do not have evidence to suggest that the problem
goes beyond irregularity into outright fraud or manipulation, but I
accept that the numbers are strikingly different. They may reflect the
different nature of the budgetary process or the budget spend in the
application of the structural funds for that member state. However, I
am happy to look into the detail and to write to my right hon.
Friend.
Mr.
Lee Scott (Ilford, North) (Con): If the irregularities had
occurred in a local authority in this country, whoever the Government
were, serious action would have been taken against that local authority
over such irregularitiesI am not referring to fraud. What is
likely to happen? We have heard that there has been improvement year on
year, but what action will be taken to ensure that irregularities do
not exist? They would not be accepted in this
country.
Ed
Balls:
The hon. Gentleman is right that such things would
not occur in this country, partly because of the nature of our
budgeting and auditing framework, our clear accruals-based accounting
system, which has been in place for many years, the way in which our
accounting officer system works and the National Audit Offices
process-oriented approach to audit. Everybody must consider the way in
which they approach such matters, and the audit system is part of the
reform process and it must be considered. A risk-based approach to
regulation is the right approach across the piece and in the case of
budgeting, and we have not had enough of that in recent
years.
I agree with
the hon. Gentleman that, if the UK system had a history of
irregularity, that would point to a serious problem. The fact that this
degree of irregularity exists in the European context is concerning,
and it is why we have been proposing such a wide range of reforms over
a number of years, to try to improve the situation. As I said, simply
voting against the budget would not be the right way to
go.
Mrs.
Villiers:
We are not talking about voting against the
budget in this instance. The question that we are considering is
whether to vote against the discharge of the
budget.
The
Chairman:
Order. I probably made a mistake, because I am
not supposed to allow interventions during questions. Perhaps the
Minister should reply to the question asked by the hon. Member for
Ilford, North, and I shall then call the hon. Lady to ask her
question.
Ed
Balls:
In the spirit of openness, transparency and proper
scrutiny with which we would like to approach the European budget, I
shall respond. As I have said, given that 80 per cent. of European
spending happens under the responsibility of member states, it is right
that our parliamentary processes should be attuned and should keep
Ministers properly on their mettle in accounting for that spending. If
that requires deviations from the process, I am sure that they can be
accommodated. The hon. Lady is right in what she says, but I have
explained to her clearly the reasons why her approach would be the
wrong one for Europe.
Mrs.
Villiers:
I shall re-emphasise what I said before. One
option, which we should seriously consider, is voting against the
budget as whole. There is a separate vote on discharge of the budget. I
find it difficult to understand why not only the Government but Labour
Members of the European Parliament vote year in, year out to discharge
the budget, despite its being qualified by the auditors.
The Minister tried to focus on
member states administration of EU funds. That matter needs to
be examined, but it seems that the reforms that he is proposing do not
go to the heart of the matter. That issue was raised by the president
of the Court of Auditors in response to the House of Lords
report.
The
Chairman:
Order. Will the hon. Lady ask a question rather
than make a
statement?
Mrs.
Villiers:
Yes, Mr. Bayley.
Emphasis was put on the fact
that the real problem that we must tackle is not the process of audit
by member states but the improvement of financial controls in the
European Commission. Why will the Minister not focus on that? Why does
he solely focus on the process of audit by member
states?
Ed
Balls:
As the hon. Lady has studied these matters in great
detail, I am sure she will be aware that the reforms that we proposed,
and which were agreed, during the UK presidency in 2005 focused
precisely on the issues of financial controls in the
Commission.
Let us
consider what has happened over a number of years: the establishment of
the European Anti-Fraud Office in 1999; the work that Commissioner
Kinnock did in Commission reform; the shift to activity-based
budgeting; the integrated audit and control system; the strengthening
of the role of the Court; the shift to accruals accounting; and the
Commission action plan following the UK presidency of 2005. All those
measures focused on improving the system of budgeting and financial
control in the Commission and at European level.
As I have
pointed out, the majority of problems that are arising in terms of
irregularities are occurring not at the centre but within member
states. That is why, in addition to that range of issues, we are
focusing and will continue to focus on the responsibilities that member
states can take to improve budgetary
management.
ECOFIN
will discuss those matters tomorrow. As the hon. Lady will know, it
will not be a decision-making body tomorrowit will make a
recommendation to the Parliament and it will be for the Parliament to
make the decisions. ECOFINs conclusions will be strong ones and
they will make clear the need for further operational steps to be taken
to improve the position.
The 2005 budget discharge,
which will be debated tomorrow, concerns a budgetary year before a
number of the reforms that followed our presidency in autumn 2005 and
the Commission action plan in 2006 came into effect. Fifty new measures
resulted from those 2006 Commission proposals, and they will affect the
2006 budget, which we shall debate in a year, but not the 2005 budget,
which we shall consider tomorrow in
ECOFIN.
We
are making progress. If one looks at the facts, the European Court of
Auditors gave a positive statement of assurance for all revenue
commitment and administration payments, cleared pre-accession payments
and, in 2004,
agricultural payments managed under the integrated administrative and
control system. That is happening for the first time and covers almost
60 per cent. of agriculture. We now have an assurance on about 35 per
cent. of total EU budget spending. That has happened because the UK did
not pull its punches in debate, was not shy of making strong
recommendations on the need to act, and has not shirked its
responsibilities to improve our positionwhat we are doing with
the enhanced role for the National Audit Office shows that. Our view in
this as in many other areas, whether financial management, financial
regulation or wider European reform, is that we are much more credible
as a country if we take a hard-headed view of our national interests
and European interests at the table rather than withdrawing to the
fringe. The hon. Lady laughs, but as many people in the Conservative
party and among MEPs in Brussels agree with me as strongly disagree.
There is a real divide in the Conservative party on European policies,
not between parties on either side of the
Committee
[Interruption.]
The
Chairman:
Order. I remind hon. Members that this is
a question session and not a debate, so there should not be
interventions.
Julia
Goldsworthy:
On progress and the measures that have been
taken, one of the key elements of the road map that the Government
helped to develop is the commitment to achieve a positive statement of
assurance, which has not been given to the budget for the past 12
years. That contrasts starkly with the comments of Siim Kallas, the EU
Administration Commissioner, who
said:
If this
methodology continues we will never have a positive
DAS
declaration
dassurance, or statement of assurance. Does the Economic
Secretary agree that there should be more wholesale reform and that
some of the incremental measures do not go far enough to deal with some
of the irregularities that we continue to
see?
Ed
Balls:
As the hon. Lady knows, the goal is to achieve a
positive statement of assurance by 2009, and that is what the
Commission is working towards. It is absolutely what we want, and we
believe that a number of reforms in recent years, not least those that
we are proposing for member states, are necessary so that we can
achieve that statement of positive assurance. I cannot give a guarantee
that that will happen by 2009, and I am sure that Mr. Kallas
cannot. However, we believe that it is a deliverable goal if others, as
well as the UK and the Commission, take their responsibilities
seriously. I do not accept that it cannot be achieved, but I accept
that it cannot be achieved without the changes being instituted. It is
still too early to tell whether the reforms that are being put in place
will be sufficient, but they are not incremental or trivial. A proper
shift towards the improvement in the budgetary process that we propose
is
achievable.
Justine
Greening:
The Chief Secretary said that the sort of fraud
and error that occurs in the EU does not happen here. It does. The
Department for Work and
Pensions accounts have been qualified because of inability to
quantify fraud and error for a number of
years.
Will the
Minister give us more details on the consolidated statement and
intention for auditing? For example, in which year will that begin and
when will the audit take place? Will it be a substantive audit with
individual transactions checked, or will it be a broad-brush review of
financial processes? What sort of audit opinion will be given by the
National Audit Office? Will it be based on true and
fair, or will it be something else? Can the Minister make that
information available in the coming weeks so that we can see in advance
what statement the National Audit Office will make?
What will the Minister do if
that statement turns out similarly to be a qualified one, as we have
seen at the European Union level? What actions will he take? Will he
bring the matter to the Floor of the House for debate? It will be
extremely helpful if he can give us more detail on
that.
Ed
Balls:
Those issues are important and deserve proper
scrutiny in the House in advance of the introduction of the new reform
in the UK. I welcome the hon. Ladys questions. The issues that
she raises are exactly the ones that we are discussing with the NAO and
the European Court of Auditors, and we shall also discuss them with the
relevant interested parties in the House. Our plan is to be ready to
make a statement in the spring of 2008, which will cover EU finance
spending for the financial year 2006-07.
It is
ambitious to move that quickly. There are a number of technical and
logistical challenges to overcome, including consolidating data from
different Departments and devolved Administrations. The Dutch
initiative, which was announced before ours, will also not be
operational until 2008. There are a number of things that we need to
think through. The Treasury will be responsible for compiling the
consolidated statements of the UKs EU receipts and how they are
spent, but the relevant Departments and devolved Administrations are
still responsible for accounting to Parliament that funds have been
used correctly. We therefore need to think through the process of
bringing together and auditing that consolidated statement
carefully.
The hon.
Lady is also right that we shall not achieve perfection in any system.
However, in our NAO statement of EU spending we are trying to focus
less on a detailed, micro box-ticking approach, and instead on how
decisions are made and on how processes are audited, rather than on
individual spendingas we do in the reporting to Parliament of
our national spending, through the NAO and other processes, and as we
believe ought to happen more at the European level. The NAO goes about
auditing not simply by shining down a ray of light and looking for
irregularities in one particular area, but by looking at how funds are
spent and the processes through which that happens. If our audit
process throws up weaknesses in how we spend and account for EU
spending, we shall need to take action. We cannot be in a position at
the EU level where there is never a problem or a failure, just as we
are not in that position at the UK level. However, the question is
whether those problems are identified and acted on.
I assure the hon. Lady that we
shall ensure that there is proper time for discussion. I shall
certainly make that time available to discuss the issue with interested
parties before we make proposals to Parliament on how we implement the
commitment.
Mrs.
Villiers:
I am grateful to the Minister for his reply. It
strikes me that if his announcement in November is going to have any
significant impact in the long run, he will have to persuade other
member states. The Netherlands and Denmark were already supportive
before the announcement was made and the Minister said that Sweden is
expressing an interest, but that is only three member states. What
progress is being made with the rest of the European
Union?
Ed
Balls:
I am happy to keep the hon. Lady in touch as we
make progress, step by step. As she knows, the nature of European
discussions is that we try to achieve a critical mass behind an idea.
When I am in ECOFIN in Brussels tomorrow, I shall speak to individual
member states, as well as the Commission, to urge them to follow the
lead that we and other countries are taking.
However, it would be fair to
say that more attention and scrutiny is given to such matters in the UK
than in some other member states. That is a matter for regret, because
we will not be able to build support more broadly for the kind of
European spending and outputs that we want to achieve as a community
unless we persuade publics that we are spending money well and
accounting for it properly. We are trying hard to persuade other
European leaders to give those issues the same priority as we do. After
our initiative last November, I sent a copy of the House of Lords
report to every other Finance Minister in the Union, urging them to
read it, to look at our proposals for the UK and to consider whether,
in a modified way, they could take them up in their
countries.
Julia
Goldsworthy:
In the addendum, which provides the
Governments response to the specific reference to the UK by the
European Court of Auditors, there is a table that shows whether the
Government fully agree with the Courts remarks. In about half
the cases, the Government do not agree with the irregularities that the
Court outlines. Is that standard for other European countries? Will the
Minister comment on how the UK compares with other countries, based on
the number of irregularities for which it is singled out and on the
proportion that the Government contest?
Ed
Balls:
I shall find out whether I have details of the
number of contested irregularities throughout the European Union.
However, it is standard for member states to contest some
irregularities that the Union throws up. The UK is in discussion with
the Commission about alleged irregularities in structural fund spending
in England through the European Regional Development Fund. The
Government, local government officers and the Department for
Communities and Local Government are of the strong view that the way in
which we spent those ERDF expenditures was proper and that we used the
flexibility that we thought it right and proper to use. There is
ongoing discussion with the Commission about that.
In improving the way in which
resources are spent and accounted for, there is a responsibility on all
sidesnot just on member states, but on the auditors and the
Commissionto ensure that we achieve the right balance between
flexibility and proper accounting for
expenditure.
Justine
Greening:
I want to return to a previous answer that the
Chief Secretary gave to one of my questions. He said that we would not
make progress by having the National Audit Office shine a light on
individual transactions. Perhaps I should declare an interest. I am a
member of the Institute of Chartered Accountants, and after many years
in the auditing profession I can tell him that that is exactly how one
carries out an audit. One carries out a combination of analytical
review, considering high-level trends for figures and picking out
individual transactions and following them through the process. Will he
confirm that the NAOs work will be more than a cursory review
of high-level figures, involving substantive testing of individual
transactions throughout the system to find out where fraud and error
and other irregularities may be taking
place?
Ed
Balls:
I can certainly give the hon. Lady that assurance,
and although I let her get away with calling me the Chief Secretary
once before, I must now urge her to stop, because I am only the
Economic Secretary.
The hon. Lady knows
that the NAO reports to this Parliament, that it is independent of the
Executive, that it is held in high regard in the UK and in Europe, and
that it values its independence closely. Independent of any assurance
that I can give her, she can be assured by those facts that the NAO
will not do anything that puts its standing, integrity and independence
at risk. That is true of the area under discussion, too. I am sure that
it will not adopt slipshod practices.
My point was that the NAO, in
its accounting to Parliament for UK expenditure, does not simply shine
a light on one area and look for irregularities; it looks at processes
and the way in which the system as a whole operates, and it does so in
a risk-based way. What we are trying to achieve with our NAO audit of
European spending in the UK and with the reform direction in which we
are encouraging others to go, is not to stop shining the spotlight on a
particular set of transactions, but to balance that with more emphasis
on systems controls and risk than there currently is in the auditing of
European expenditure. I have discussed that in detail with the European
Court of Auditors.
Spot checks are part of the
audit process, but it is important that they are put into a wider
context regarding process and identifying where risks are likely to
arise. That balanced approach, which we achieve in the UK, is what we
hope the NAO will deliver for us in our EU spending. We will then
encourage others to consider it. I hope that I have given the hon. Lady
a full
assurance.
Mrs.
Villiers:
Would the Economic Secretary be happy to invest
his own money in a company that had had its accounts qualified for 12
years? If not, was it responsible of the Prime Minister to sign away
another £7.2 billion of our money to an institution that cannot
get its accounts signed off by its
auditors?
Ed
Balls:
I feel as though we have been here
before.
Justine
Greening:
For 12
years.
Ed
Balls:
As the hon. Lady says, this is the 12th year of
qualification. That period stretches over Governments of both parties.
We are trying to sort out the situation. No one can be confident that
the current system is good enough for the long term, but that is why we
are trying to reform and improve it.
As for resources, the Prime
Minister went to the European Council just over a year ago and struck a
deal that protected the UK abatement, but in the context of an EU that
is expanding its borders and enlarging to the east. The deal that he
achieved was right for the UK. It is not a question of investing my
money, but I am a UK taxpayer and, like everyone else, I want there to
be reform in the EU budget. However, I also think that it is right for
us to sign up to the EU and achieve the gains in investment, employment
and political and economic stability that come from our membership. The
fringe protests that the hon. Member for Chipping Barnet keeps trying
to lure me to endorse would be damaging to the UKs national
interests and to European interests, but when it comes to Conservative
party policy on Europe, the national interest has never figured very
highly.
Julia
Goldsworthy:
Let me bring the Minister back to the
administration of structural funds. My constituency is part of an
objective 1 area. Before I was elected to Parliament, I helped local
community groups and small businesses to access some of the structural
funds, and there was undoubtedly a very bureaucratic process. My
experience, and those of some of the people whom I assisted, was that
confusion arose over additional requirements being made by the
Government, sometimes in areas such as environmental audit, which could
then have an impact on whether there was considered to be an
irregularity under, I imagine, the ECAs reports. In addition to
the measures that he has announced on national statements of accounts,
will the Minister look at internal processes and the
Governments involvement to ensure that they are not adding to
the
confusion?
Ed
Balls:
The NAO audit process that we are putting in place
will enable us to answer such questions even better in future. If we
can improve the auditing and operation of European expenditure in ways
that help payment to be made more effectively, we should definitely do
so. Part of the problem in the case to which I referred was that far
from there being overly bureaucratic engagement by the UK authorities,
local government officers and disbursing authorities tried to approach
matters flexibly, to ensure that match funding could be achieved
sensibly, and ran into some difficulties with the Commissions
views of how rules and processes should be implemented. We are
discussing that in detail with the Commission, as it is important that
we get it sorted out. It is also important that we ensure that the
money continues to flow, and that we do so with proper assurance of
budgetary probity. I believe that we will achieve that. An overly
bureaucratic or inflexible UK approach has not been the problem in the
case that I highlighted.
Mrs.
Villiers:
Mary Keegan, a senior Treasury official, and Sir
Peter Gershon both recently emphasised the importance of having
professional and qualified accountants play a larger role in accounting
and financial control in government in this country. Is the Minister
concerned that so few of the Commissions financial controls are
carried out by people who have accountancy qualifications? Marta
Andreasen was the first chief accounting officer of the Commission to
have such a qualification, but when she was fired, her successor did
not have one.
Ed
Balls:
I carry many facts around with me, but I cannot
claim to know offhand the precise number of qualified accountants
employed by the Commission in the budget and auditing process. I have
always got on quite well with accountants, so I am in favour of more
being involved.
In
November, I made a speech to the Institute of Chartered Accountants in
England and Wales in which I
said:
The role
of the accounting profession is critical to many aspects of my
Ministerial role.
I also
touched on the importance of accounting for Londons role as a
global financial centre and in taking forward issues of international
regulatory co-operation, the difficulties and challenges that we face
in the convergence or otherwise of accounting standards between Europe
and the United States, and the important role that accountants play in
reform of the EU budget. It was to that audience of accountants that I
discussed the EU budget and it seemed very
interestedstaggeringlywhich may suggest that the
accounting profession is keen to play a greater role. If it can do so
in the UK and other European countries, that is all for the
good.
Several
hon. Members
rose
The
Chairman:
Order. I do not want the Committee to stray
beyond its remit. We are here to consider the Commissions
budget and not the regulation of the accountancy profession in the UK
more
generally.
Justine
Greening:
The Economic Secretary has talked about a
risk-based approach, and I agree with him. What is his assessment of
where the key flaws and key risk areas are in the EU budget in terms
not just of the programmes that are most at risk of being accounted for
incorrectly, but of the countries where most of the incorrect payments
take place? What is his assessment of the geographical and remit
risk?
Ed
Balls:
It would be invidious of me to start identifying
individual countries, but it is clear that the CAP and structural funds
budgets make up the large majority of the European budget. They have a
particular geographical coverage, thus it would not be surprising if
the kind of irregularities that we see and deal with arose more in
countries that were greater recipients of CAP and structural funds
expenditure. It would also not be surprising if countries that had a
less long-lived tradition of national parliamentary audit and scrutiny
had further progress to make in ensuring that their national systems of
accounting and audit
were fit for purpose. An overlap or correlation between countries
receiving more structural funds and countries where more irregularities
occur would not surprise me.
The question is
whether we can make progress in helping those countries, the Commission
and the European authorities to reduce the number of irregularities. As
I said, the fact that the number of irregularities in agricultural
spending is falling is an encouraging sign.
Mrs.
Villiers:
Was Neil Kinnock right to fire Marta Andreasen
for speaking out about the inadequacy of the financial controls used by
the Commission, an inadequacy that is confirmed year after year by the
European Court of Auditors?
Ed
Balls:
I shall follow the usual practice of Treasury
Ministers, Economic Secretaries, Financial Secretaries and Chief
Secretaries and not stray into commenting on individual cases and
people. It would be invidious of me to do so, and those are matters to
do with the employment relationship between the Commission and those
individuals. It is important that whistleblowers are properly
protected, and when the Kinnock whistleblowers charter, which
was launched as a reform and then incorporated into staff regulations,
came into force on 1 May 2004, the changes allowed staff to inform
senior Commission officials or OLAF of any concerns and provided
statutory protection for officials who acted reasonably and honestly in
blowing the whistle. The Government strongly support the principle of
allowing people to do that and supporting them when it is reasonable
for them to do so, but I cannot comment on individual
cases.
The
Chairman:
I should say that the individual case cannot
have had any bearing on the accounts of the financial year which we are
considering, although the wider issue of whistleblowing is, of course,
relevant.
Julia
Goldsworthy:
I agree that the national statements will
play a huge role in encouraging member states to raise their game
provided they agree to participate, but does the Minister agree that
that needs to be done continuously to ensure that the Commission does
the same internally? Reports are still outstanding that add into the
accounts, and the synthesis report is not signed off because some of
the internal reports have not been signed off. A huge amount remains to
be done.
Does the
Minister agree that responsibility in national Parliaments must extend
beyond the national statement? Does he agree with paragraph 173 of the
House of Lords report, which states that at least in part there is
a
sporadic and sometimes
capricious way in which this issue is debated in the two
Houses.
The way in which
we are drawing from many different reports illustrates that weakness
and it needs to be resolved, too.
Ed
Balls:
A number of reforms are being enacted. The
Commissions action plan, which was published in January last
year, proposed a number of changes with a clear timetable for
implementation around the simplification
of the management of EU funds, the strengthening of audit assurance, the
development of a single audit approach, and the determination of the
costs and benefits of controls. We are also bedding down and trying to
approve the operation of accruals accounting. We have a new financial
regulation that, in revised form, came into effect only in 2007. I have
talked about the national initiatives and we know, too, that the
European Court of Auditors needs to focus more on risk and value for
money and to ensure that it does not adopt a box-ticking approach. A
wide range of actions need to be taken by a number of actors. As I said
in my statement last November, we all have a responsibility to raise
our game.
Mrs.
Villiers:
Page 611 of the bundle of papers before the
Committee is page 29 of the OLAF report which refers to the dismantling
of the EUROSTAT team, which was put together to investigate what the
Commission admitted was
a vast enterprise of
looting
at the EU
statistical office. The report states that it recommended disciplinary
action to the Commission. What disciplinary action has been taken and
what criminal proceedings are under way in relation to the £3
million that went missing at EUROSTAT?
Ed
Balls:
I have obviously read the document in full. On the
particular point that the hon. Lady raises, when I am in Brussels
tomorrow I shall ensure that I get the extra information that I need to
give her a full reply. I believe that the matter is currently before
the courts in France, Luxembourg and Portugal. Perhaps opportunely for
me, therefore, it would be quite wrong to comment on a matter that is
being scrutinised by the proper judicial processes. However, I shall
ensure that we are fully apprised of the up-to-date situation as of
tomorrow. If there is any additional information, over and beyond what
is in the document, I shall ensure that it is communicated to
her.
Motion made, and Question
proposed,
That the Committee
takes note of an unnumbered explanatory memorandum from HM Treasury
dated 28th November 2006, European Court of Auditors 2005
Annual Report, European Union Documents No. 11399/06 Commission
Communication: Report on the progress at 31st March 2006 on modernising
the Commissions accounting system, No. 11660/06 and Addenda 1-2
Protection of the Communities financial interests: Fight
against fraud: Annual report 2005; unnumbered explanatory memorandum
from HM Treasury dated 10th October, European Anti-Fraud Office: sixth
activity report for the period 1st July 2004 to 31st December 2005, No.
14431/06 and Addendum 1 Commission Report to the European Parliament on
the follow-up to 2004 Discharge Decisions (Summary)European
Parliament Resolutions, No. 14630/06 and Addendum I Commission Report
to the Council on the follow-up to 2004 Discharge Decisions
(Summary)Council recommendations; and supports the
Governments promotion of measures to improve the level of
assurance given on the Community budget.[Ed
Balls.]
5.30
pm
Mrs.
Villiers:
It is scandalous that, for the twelfth year in a
row, the EUs own auditors feel unable to give the
Commissions accounts a clean bill of health. Yet again, the
accounts have been qualified, and yet again, the Court of Auditors does
not have sufficient
confidence in the Commissions financial controls to give the
positive statement of assurance that is necessary. If the Commission
were a private company, its directors would probably have been jailed
years ago for irregularities on such a scale and for such a protracted
period.
Let us
remember that we are not talking about insignificant sums. In the 2005
budget that we are considering, the figure was around €109
billion£73 billion of taxpayers money
that has not been properly accounted for. To make matters worse, our
contributions will increase over the coming years, because the Prime
Minister has given away £7.2 billion extra of our
rebate.
According to
Her Majestys Treasury figures, which many people believe are an
underestimate, the UK taxpayer contributed £3.6 billion for the
year under consideration. Even on the Treasurys cautious
estimate, our net contribution is set to rise to £4.7 billion
this year and to £6.8 billion by 2013. It is a matter of grave
concern that the Government do not take more seriously the
Commissions inability to keep proper track of the money with
which the British taxpayer has entrusted
it.
Let us consider
some of the reasons why the Court of Auditors has denied the
declaration dassurance. Serious irregularities mean that, for a
large part of the budget, the auditors simply cannot be certain what
has happened to the money in question. SAPARD was singled out for
particular criticism. There were only a few problems with
administrative expenditure, and although there were significant risks
in relation to pre-accession programmes, serious irregularities were
limited. Those programmes make up only 10 per cent. of the budget,
however. For the rest of the 90 per cent., the court could not provide
an unqualified opinion. Payments to beneficiaries were still
materially affected by errors, in relation to the CAP,
structural funds, internal policies and external actions.
In relation to structural
programmes, the court concluded that the Commission did
not maintain effective
supervision to mitigate the
risk
of incorrect
payments. In internal policies, weaknesses were revealed
in the supervisory and control
systems which led to a material incidence of errors in payments to
beneficiaries.
Again, we
are talking about money being paid out, not people filling out the form
wrongly. Material errors were also prevalent in the Commissions
external programmes.
I
concede that the report contains some encouraging news in relation to
the CAP, regarding the new integrated administration and control
system. There is some progress there. However, the court expressed
significant reservations about non-IACS spending, where clearance
systems and checks did
not provide reasonable assurance
as to compliance with Community
legislation.
In
addition, the CAP was
still materially affected by
errors.
The
report also contains the usual staples about non-existent sheep and
fictional olive groves, which have characteristic of such reports for
the past decade.
Farmers in new member states have been getting in on the act, with
inflated claims for sheep and goats being made by Slovene farmers, for
example. Farmers in Slovenia were also enterprising in their claims in
relation to imaginary suckler cows. We need to address the concern that
came across strongly in the question and answer sessionnamely,
how much of that is due to fraud, how much to substantive mistakes and
how much to mere administrative
glitches?
The Minister
and apologists for the Commission like to point out that not all the
irregularities referred to in the documents are fraud. That is
certainly true, but it is a mistake to underestimate the significance
of those irregularities, which relate largely to public money being
paid to the wrong person. In many instances, they may well have
involved fraudulent schemes, but as the president of the Court of
Auditors, Mr. Weber, recently pointed out, it is often
difficult to prove fraud in such cases.
In his letter to Lord Grenfell,
to which I have referred several times, in response to the House of
Lords Select Committee, Mr. Weber pointed out that reference
to administrative mistakes understates the problem because, as I said
in questions, the problem relates to payments of the wrong amounts of
money being made to the wrong people. It relates to taxpayers
money being used for purposes for which it was not intended.
In January, Mr.
Weber expanded on those comments to the European Parliament and made
clear the distinction between substantive errors and formal errors.
Substantive errors impact on the amount of money that is paid, whereas
formal errors may well be about the wrong form being filled out or the
deadline being wrong. Mr. Weber told the European
Parliament, regarding the report that we are discussing, that there
were substantive errors in 22 per cent. of the CAP programmes that he
had looked at, 54 per cent. of structural programmes, 32 per cent. of
internal policies and 21 per cent. of internal actions. Only
pre-accession and administrative actions were substantially free of
that kind of serious error. Therefore, we cannot dismiss the lack of a
statement of assurance simply as officials failing to dot the
is and cross the ts.
Some have suggested that the
reason why there is no single statement of assurance is that the ECA is
considering the whole budget and that a number of UK Departments have
had their accounts qualified, including, notoriously, the Department
for Work and Pensions for many years. The Home Office had disastrous
problems with its accounts a few years ago, and, embarrassingly, the
Treasurys accounts have now been qualified because of
significant problems in the tax credit system.
The fact that we have our own
problems with which to deal should not make us complacent, but,
frankly, the Minister seems to be complacent about the problems with
financial controls at the European Commission. President Weber pointed
out to the House of Lords that it is not accurate to compare the
situation at the Commission with the problems that there have been at
the DWP for many years. In his letter, he said:
The NAO quotes an error
rate of 2.2 per cent., which it judges to be substantial and of serious
concern. In the case of agriculture expenditure (outside IACS),
structural measures,
internal policy and external aid the audits of the Court have identified
1evels of irregu1ar or illegal expenditure which are significantly
higher than that. These results are derived on the basis of similar
statistical techniques to those applied by the NAO...They are not
one off results but, rather, have been consistent over a number of
years. There is sufficient and compelling evidence that public funds
are not being spent according to the regulations and the intentions
expressed by the
legislator.
The figures
that I just gave54 per cent. for structural funds and 22 per
cent. for CAPshow significant irregularities.
Little has happened since the
Economic Secretarys November announcement. We have not had a
report from the NAO, and there is no indication that other countries
are coming on board. There is nothing to show, so far, for the November
reform proposals. It has been pointed out that the proposals address
only part of the problem. They do not go to the heart of why the COA
continually refuses, year after year, to sign off the accounts and give
them a clean bill of health.
The point was well made by
Christopher Dickson of the accountants joint disciplinary scheme in a
letter to the Financial Times, in which he accused the Economic
Secretary of having missed the point with his
proposals. In his letter, he
said:
What is
needed is not more vetting of the EU accounts (the Court of Auditors
has shown itself to be perfectly competent to undertake that task) but
rather a proper accounting system with effective controls within the
Commission...This will not happen because the vested interests in
maintaining the status quo are too powerful. When Marta Andreasen was
appointed to be the EUs first chief accountant, she found an
Augean stable of untraceable payments and myriad bank accounts with no
ascertainable controls or signatories.
The problems highlighted in the
papers before the Committee will never be resolved until the Commission
addresses the points raised by Marta Andreasen, and until it starts to
treat whistleblowers better. Mrs. Andreasen was shocked by
what she found. Apart from concern about taxpayers money, her
professional standards drove her to speak out. As a professional, she
felt unable to sign off the accounts because they
were
an open till
waiting to be robbed".
Large
amounts of money could be transferred without using an electronic
footprint, and for daring to speak out, Mrs. Andreasen was
subjected to a campaign of harassment and fired from her job. It was
Andreasen who first highlighted the fact that the
Commission
The
Chairman:
Order. I remind the hon. Lady that that
dismissal took place some years ago, and it cannot be relevant to the
accounts that we are considering. Some wider issues concerning proper
scrutiny of European expenditure are relevant to todays
discussion, and I hope that the hon. Lady will confine her comments to
the accounts that we are looking at this
afternoon.
Mrs.
Villiers:
Absolutely, Mr. Bayley. I am grateful
to you for that guidance. I was not going to refer further to
Mrs. Andreasens dismissal, but I will, if I may,
talk about some of the issues that she raised, because they are still
relevant to the accounts that we are debating.
It was
Mrs. Andreasen who first brought to public attention the
issue of double-entry bookkeeping. I raised the matter with the
Economic Secretary in the Committee last year when I expressed my
concern that the Commission was not using double-entry bookkeeping. The
Economic Secretary said at the time that it was. The House of Lords
Select Committee looked at recent Commission accounts and said that his
view was not shared by former senior officials at the Commission. That
includes not just Marta Andreasen, but Jules Muis.
Paragraph 51 of Select
Committees November report
notes:
In her
evidence, Ms Andreasen claims that in the Commission, the introduction
of a transaction at Directorate General level does not require
a debit and a
credit.
The
Select Committee went on to
conclude:
Both
Mr Muis and Ms Andreasen argue that the records entered by the
Directorates General into the general accounts are inadequate for
genuine double-entry bookkeeping.
Their Lordships concluded in paragraph
53:
In spite
of the improvements which have been made to the accounting system there
are areas which remain in need of attention. We are concerned that
there remains a question over whether local accounting systems in the
Directorates General are indeed compliant with the standards needed for
double entry book keeping. All accounting systems operating in the
Commission should fully support double entry accounting. We expect the
Commission to investigate these allegations and to publish a full
account of its findings.
Justine
Greening:
I am listening with interest to my hon.
Friends comments. It is shocking that something as fundamental
as double-entry bookkeeping is not used in EU accounts. Does she agree
that private companies in all EU countries are capable of double-entry
bookkeeping and use it? There is absolutely no reason why the EU and
all member states cannot use double-entry bookkeeping to produce
accurate accounts, as happens in the rest of their
economies.
Mrs.
Villiers:
Absolutely. In the smallest corner shop
and the largest multinational double-entry bookkeeping has been in
regular use since it was invented by the Venetians during the
renaissance.
Ed
Balls:
Does the hon. Lady accept that the House of Lords
Select Committee report also says of double-entry bookkeeping
that
On the
question of double entry bookkeeping...there is a genuine
divergence of opinion among the professionals at the very top of the
Commissions financial management hierarchy. According to Mr
Gray, the current Accounting Officer, the Commission has always had a
double entry system for the general
accounts.?
The current
accounting officer believes that there is a double-entry bookkeeping
system, and we should put the matter into its proper professional
context, rather than continuing with this low-grade political point
scoring.
Mrs.
Villiers:
It is not low-grade political point scoring to
express grave concerns about the scandalous systems in place in the
European Commission or about the completely inadequate financial
controls that are illustrated graphically by the conclusions of the
Court of Auditors and by the documents under discussion.
President
Weber, in his response to the House of Lords report on the matter,
emphasised that the courts concern about the inadequacies of
the financial control systems are at the heart of why it has refused to
provide the positive statement of assurance. If we are to return to
Parliament in a years time to congratulate the Commission on
having had its accounts signed off, it is vital that we consider those
financial controls.
I
asked the Minister several questions about EUROSTAT, which is discussed
in the OLAF report in the bundle before us. Some £3 million went
missing at EUROSTAT, the statistics agency, squandered on staff perks,
including a riding school and a volleyball team. However, so far, all
that has happened to the people in charge of EUROSTAT at the time is
that they have been shifted sideways.
I suspect
that, when the Minister investigates the position of whoever was
responsible at EUROSTAT, he will find that neither disciplinary
proceedings nor criminal charges have been brought. I should be only
too delighted if the Economic Secretary wrote to me to prove me wrong,
but I am gravely concerned that there has been insufficient follow-up
to the fraudulent activities that occurred at EUROSTAT. The EU will
never receive the positive statement of assurance that it wants unless
it starts not only to treat its whistleblowers better, but to crack
down on the wrongdoers. Over EUROSTAT, the only person who had their
house raided was the journalist who broke the story in the
newspapers.
The
problems that the Court of Auditors identified are not just a few
technical and administrative errors; they provide compelling evidence
that significant sums of taxpayers money are being paid to
people who are not entitled to it. After the Santer Commission resigned
in 1999, the Prime Minister promised us root and branch reform of the
system, but eight years later, very little seems to have changed, as
illustrated by the fact that the Commission cannot get its accounts
signed off by its own auditors.
No one has
been fired over the Santer scandal and no effective disciplinary action
taken has been against any Commission staff over it. In light of those
concerns and in light of the hundreds of pages of reports about the
inadequacies of the Commissions financial controls, how can we
trust it with another £7.2 billion of taxpayers money or
with decisions about our currency, which it would make if the Economic
Secretarys policy of joining the euro were
adopted?
The
Chairman:
Order. We are not here to discuss whether
the UK should join the euro.
Mrs.
Villiers:
It is time for serious and concerted action to
clean up the European Commissions accounts. I urge the Economic
Secretary to take that action
forthwith.
5.48
pm
Julia
Goldsworthy:
All hon. Members present think that whether
the issues are fraud, error or irregularity, every one of them must be
taken very seriously. We all also accept that there will be no
improvements without a robust but constructive exchange. Just by saying
that the accounts will be signed off in 2009, does not mean that they
automatically will be. The fact that the
Administration Commissioner has expressed grave doubts about that shows
how much further there is still to go.
It cannot be acceptable that
for 12 years in succession, the EU accounts have not been signed off
with a positive statement of assurance. However, todays
exchange has highlighted the difficulties of doing so within the
current structures, and the Administration Commissioner himself said
that unless there are significant changes in the methodologies, it will
not happen. The methodologies partly damage the Commissions
reputation even further. Sir John Bourn said in his evidence to the
House of Lords Select Committee that were he required to issue a single
statement of assurance on the UK Governments accounts, he would
be unable to do so because he had qualified 13 of the 500 accounts.
That is exactly what we see before us. That does not mean that the
significance of the problems in some areas is undervalued, but it can
be used to give a misleading impression that every aspect of the EU
accounts is problematic, and that is categorically not the
case.
We have heard
how steps have been taken in the integrated administration and control
system. Where it has been properly applied, it has been effective in
limiting irregular agricultural expenditure, but the fact that new
member states have less effective administrative procedures highlights
again that the issue is not only about structures but about ensuring
that all member states can enforce those administrative structures to
the highest possible standards. The road map will be a way forward in
achieving that, but the case is the same as that with the national
annual consolidated statement. The fact that some states will be able
to take it on is to be welcomed, but, although it does not necessarily
have to be replicated identically in every state, unless its principles
can be applied in every member state, and even if only one aspect has
to be qualified, we will end up with the fundamental problem that there
will not be a positive statement of assurance on all the accounts in
2009.
I welcome the
Governments commitment to producing the annual statement of
accounts, not only because they are improving standards but because it
is a way other than the road map for us to pressurise other states into
taking forward the agenda and taking steps to improve their accounting
measures. I hope that a precedent will follow, but there are still big
questions to be raised about the way in which parliamentary scrutiny in
this place goes ahead. We have a bundle of papers that have done an
excellent job of building up my muscles as I carried them to and from
my office and to the CommitteeI did not feel quite strong
enough to take them all the way down to Cornwall over the recess week
to go over them there. There are issues about the way in which we have
so many fragmented accounts and the way in which we are dealing with
the subject in Committee the day before it is taken before ECOFIN. If
there is a vote today, whatever its outcome, what impact will that have
on the comments that the Minister makes at tomorrows meeting?
The House of Lords was right to say that we sometimes debate such
matters in a capricious way, and it is not necessarily even consistent
from year to year. Simply laying a statement of accounts before the
House will not overcome some of our other problems with the processes
here.
There is much we can do to
improve things at our end. The Commissionpartly through the
road map, but also by going further than thatought to consider
improving its internal procedures. Everybody should take
responsibility, including the new member states. It is important not to
overstate the problems. Not all the irregularities that are reported
are frauds and the problems do not extend evenly to all areas of the
budget. However, it is not acceptable to allow this to continue year on
year, most importantly because of its impact on the wider credibility
of the European Union. As a pro-European, that is my greatest concern.
Reforms such as those that we have suggested must be pursued and
applied uniformly. We must continue with this robust exchange, and must
press and extend the willingness to go beyond what is already in place
to restore the reputation of the EU in this important
respect.
5.54
pm
Ed
Balls:
This has been a useful and timely debate. I shall
ensure that the points that have been raised are properly incorporated
into my comments in Brussels tomorrow. I have some sympathy with the
hon. Ladys views. It is important that we use the parliamentary
scrutiny process in this House properly when it comes to European
decision making, and I take her point seriously.
I am a firm supporter of the
Governments policy on the euro and am strongly supportive of a
hard-headed and constructive engagement in Europe more widely. I am not
an apologist for the European Commission on budget irregularity. I am
in no way complacent. I do not dismiss the matter as simply about
dotting the is and crossing the ts.
I appreciate that the hon.
Member for Chipping Barnet may not read the proceedings of the
Institute of Chartered Accountants in England and Wales regularly, but
had she read my speech of last autumn, she would not have made the
comments that she did. It is clear that we are strongly committed to
acting. Indeed, my predecessor, the Under-Secretary of State for
Health, set out during the UK presidency a clear agenda for Commission
reform. We have followed that up not only by keeping the pressure on
but by taking the lead in trying to persuade other member states to
follow our example of strengthening national parliamentary audit. I
completely reject the idea that we are complacent or not taking things
seriously. Comparison of the range of action in the past two or three
years with that in the two or three years before the Government came to
power makes it clear where leadership on European matters has been; it
has not come from the hon. Lady or her party.
What depresses me about the
hon. Ladys comments is that, while she has made valid points
about the importance of proper audit process and accounting procedure,
she cannot resist resorting again to the peddling of the kind of myths
that the House of Lords, in a cross-party report, tried to encourage us
to avoid. She cannot fail to try to claim, implicitly or explicitly,
that the issue is fundamentally one of
fraud.
Mrs.
Villiers:
I said that fundamentally the issue was about
public money being paid to people who were not
entitled to it. Significant amounts of that might
be due
to fraud; it is difficult to prove. However, whether the cause is fraud
or error, it should not be happening.
Ed
Balls:
I agree completely, but I think that when, as I am
sure they will, members of the public scrutinise the
Hansard
record in the next few days and read our debate, they will conclude
that the Government, in a hard-headed and sensible way, are pursuing
serious reform in Europe, to improve the accounting for the European
budget. The hon. Ladys speeches have resorted to the same old
tired anti-Europeanism to which we have become used from the
Conservative party. There is a continual attempt to insinuate that the
issue is fundamentally one of
fraud.
Mrs.
Villiers:
Is it anti-European to want the Commission to
introduce proper financial controls over taxpayers
money?
Ed
Balls:
As I said to the hon. Lady, and repeat now, it is
the Government, in the past two years, who have, step by step and
action by action, argued for, obtained agreement for and implemented in
the UK serious and long-overdue reforms that should have been in place
when we came to government in 1997. The important thing is that we
build on the solid record of achievement of recent years. The only way
to do that is to be at the centre of the debate, and not to be a
spectator. The wrong thing to do would be to return to
a time when this
country was just a spectator and not a participant in shaping the
future of
Europe.
Those
are not my remarks, but those of Caroline Jackson, a Conservative MEP
talking about the Conservative leaders proposals to withdraw to
the fringes of Europe. As she said:
you cant move to the
centre ground at home and move to the extreme right abroad. That just
doesnt make sense at
all.
It was
her colleague in the European Parliament, Mr. Struan
Stevenson, who said that to move from the mainstream right-of-centre
group in the European Parliament would
mean
we would have to
sit round the table on a weekly basis with these fascists and nutters
that nobody else will sit with.
My conclusion is that the only
way to make serious constructive progress on reforming the European
budget is in a hard-headed way, standing up for the national and
European interest, but making serious proposals for reform. That is the
only way to make progress, and we have demonstrated it in the past two
years. That is what we shall continue to do in the next year, so that
we can get the positive statement of assurance that we all seek. We
shall do that only by being at the centre of the debate, not on the
extreme fringe. I fear that that is where the hon. Lady wants to take
us.
Question
put:
The
Committee divided: Ayes 7, Noes
4.
Division
No.
1
]
Question
accordingly agreed to.
Resolved,
That
the Committee takes note of an unnumbered explanatory memorandum from
HM Treasury dated 28th November 2006, European Court of
Auditors 2005 Annual Report, European Union Documents No.
11399/06 Commission Communication: Report on the progress at 31st March
2006 on modernising the Commissions accounting system, No.
11660/06 and Addenda 1-2
Protection of the Communities financial interests: Fight against
fraud: Annual report 2005; unnumbered explanatory memorandum from HM
Treasury dated 10th October, European Anti-Fraud Office: sixth activity
report for the period 1st July 2004 to 31st December 2005, No. 14431/06
and Addendum 1 Commission Report to the European Parliament on the
follow-up to 2004 Discharge Decisions (Summary)European
Parliament Resolutions, No. 14630/06 and Addendum 1 Commission Report
to the Council on the follow-up to 2004 Discharge Decisions
(Summary)Council recommendations; and supports the
Governments promotion of measures to improve the level of
assurance given on the Community budget.
Committee rose at one minute
past Six
oclock.