The
Committee consisted of the following
Members:
Chairman:
Mr.
Martyn Jones
Browne,
Mr. Jeremy
(Taunton)
(LD)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Caborn,
Mr. Richard
(Sheffield, Central)
(Lab)
Cunningham,
Tony
(Workington)
(Lab)
Dobson,
Frank
(Holborn and St. Pancras)
(Lab)
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
Heyes,
David
(Ashton-under-Lyne)
(Lab)
Hill,
Keith
(Streatham)
(Lab)
Howarth,
Mr. George
(Knowsley, North and Sefton, East)
(Lab)
Newmark,
Mr. Brooks
(Braintree)
(Con)
Steen,
Mr. Anthony
(Totnes)
(Con)
Ussher,
Kitty
(Economic Secretary to the
Treasury)
Viggers,
Peter
(Gosport) (Con)
Celia
Blacklock, Committee Clerk
attended the Committee
European
Committee B
Monday 12
May
2008
[Mr.
Martyn Jones
in the
Chair]
Financial Management
4.30
pm
The
Chairman:
Does a member of the Select Committee on
European Scrutiny wish to make a brief explanatory
statement?
Keith
Hill (Streatham) (Lab): I do. It is an unadulterated
pleasure to be serving under your chairmanship, Mr. Jones. I
am confident that our proceedings are in entirely safe hands. I also
welcome the Economic Secretary back from the duties of childbirth and
child care, to her public duties. I have heard that young George
Patrick is doing very well
indeed.
I
will explain my role in the Committee and why the European Scrutiny
Committee has recommended this document for debate. Under the new
scrutiny procedures adopted by the House, two members of the European
Scrutiny Committee are nominated to the European Committee, with the
expectation that they will offer an explanation of the significance of
the document or documents under debate. I will do that
briefly.
As
the Committee is aware, the European Court of Auditors reports each
year on the implementation of the European Communitys annual
general budget. Each year, the European Scrutiny Committee recommends
that the annual report be debated, normally in Committee and sometimes
on the Floor of the House. In January, the European Committee held a
very full debate on the European Court of Auditors report for
2006.
The
Commission is obliged to inform member states of references to them in
the auditors annual report and to invite them to respond. In
the document that we are considering, the Commission reports on the
responses of member states to the references in the courts 2006
annual report. When the European Scrutiny Committee looked at the
document, we noted that it gives useful background to the preparation
and conclusions of the auditors report. However, we were
concerned that it contained issues that needed further
examinationnotably, that Spain and the UK between them
accounted for more than half the quantifiable errors in structural
policies. Spain offered no response in relation to more than half the
errors identified. Because we were conscious that the next regular
debate on audit and financial management would not occur until early
next year, we recommended a debate on the document
now.
The
year 2006 is the 13th successive year in which the European Court of
Auditors has been unable to issue a positive statement of
assurancein other words, to sign off the Communitys
annual accounts. That is a highly regrettable state of affairs, which
is of as great concern to supporters of the EU, of whom I count myself
one, as to its
opponents.
It
is important to maintain some perspective on these matters. As the
report indicates, the overall error rate for agricultural payments,
which make up half the
budget, stands at just over 2 per cent. In other words, it is almost at
the point at which this large part of the accounts could be signed off.
It is worth adding that suspected fraud is estimated to account for
only 0.06 per cent. of agricultural appropriations. The
position is more serious with structural funds, where the European
Court of Auditors found that at least 12 per cent. of the total amount
reimbursed to structural policy projects should not have been
reimbursed. It is estimated that fraud accounts for 0.41 per cent. of
structural
appropriations.
It
is right that firm action should be taken to correct the
irregularities. Perhaps my hon. Friend the Economic Secretary could
bring the Committee up to date on progress on the action plan to
strengthen the Commissions supervisory role on structural
actions, which is dealt with in document 5 in the bundle. If the UK is
to play its full part in making such a plan effective, it is vital that
we set our own house in order. In 2006, the European Court of Auditors
found the control system for the functioning of European social fund
objective 3 in Scotland and the European regional development fund in
Merseyside to be ineffective. It was the large number of errors in
structural policy found in the UK that prompted this debate.
It is a very
disappointing situation. We all desire the UK to be seen as a benchmark
for financial probity in the European Union. I understand that the
north-west objective 2 urban programmes remain suspended and that the
Commission has confirmed its decision to impose a financial correction
of €25 million on the United Kingdom. Perhaps my hon. Friend
could bring the Committee up to date on those matters and finally
provide us with a progress report on the Governments excellent
proposal to publish an annual consolidated statement on the UKs
use of European Union funds. Is that still expected to be published
this month?
4.35
pm
The
Economic Secretary to the Treasury (Kitty Ussher):
It is not only a pleasure, but an honour to be serving under your
chairmanship, Mr. Jones, in this my first public foray in
Parliament since a few essential months of family leave. I thank my
right hon. Friend the Member for Streatham for his congratulations. I
congratulate him on his opening remarks and I am looking forward to the
debate. The new arrangements for involving members of the European
Scrutiny Committee properly from the outset in the way in which these
matters are debated are excellent.
The Court of
Auditorss report and wider financial management issues were
debated in Committee in January. I welcome hon. Members
continued interest and the opportunity to consider further the
Commissions and member states reactions to the
courts findings. It is worth being clear from the outset that
the courts inability to give a positive statement of assurance
for the 13th consecutive year on the EUs accounts is
unacceptable.
It
is clear that much more still needs to be done by all actors involved
across the European Community to improve financial management of EU
funds. The European taxpayer needs to be given assurance that the funds
are being properly spent. The Commission needs to continue addressing
the root causes of financial management errors, such as the complex
rules of structural fund
programmesa fundamental problem highlighted by both the European
Court of Auditors and member states. However, member states also need
to ensure that their national management of EU funds is satisfactory.
Some 80 per cent. of EU funds go to the common agricultural policy and
structural funds, for which responsibility is shared between the
Commission and member
states.
The
Government have consistently argued that all member states should take
their responsibilities over the use of EU funds seriously. Improving
internal controls in member states, as well as the Commission, was
central to the proposals
for
a
road map to an integrated internal control
framework
a
bit of a mouthful, but very importantthat were taken forward
under the UK presidency in 2005 and have since shaped actions to
improve financial
management.
This
February, the Government successfully argued for the political
recognition of member states obligations to be recognised in
the ECOFIN conclusions. The Government have also announced that each
year they will lay before the House an annual consolidated statement on
the UKs use of EU funds, audited by the National Audit Office.
The NAO is in the final stages of its work for the 2006-07 period. I
cannot give a precise date to my right hon. Friend, but I understand
that it will report soon.
Britain is
not perfect and has faced problems relating to its management of EU
funds in the past, but we are absolutely not complacent, and that is
why we are at the forefront of pushing for improved financial
management across the EU and UK and why our authorities are continually
working to improve management
procedures.
Having
said that, it is now appropriate to deal with the Commissions
estimate that the UK and Spain accounted for more than half of total
quantifiable errors identified in 2006 by the European Court of
Auditors in structural policies. While the estimated proportion is new,
the ECAs findings are not. We have co-operated fully with the
ECA during the course of its audits of the European regional
development fund programme in Merseyside and the European social fund
in Scotland. The audit process is useful, and we will continue to work
closely with the European Court of Auditors now and in the future.
Responses have been provided to the ECA and, where appropriate, action
immediately taken to address the errors highlighted and to strengthen
management procedures. My right hon. Friend the Financial Secretary
recently wrote on my behalf to ministerial colleagues across the UK to
ensure that this action is being followed through at all levels.
Howeverthis is the crucial pointUK authorities are
still contesting a great number of the findings of the two ECA audit
missions to the UK. In fact, 95 per cent. of the errors are being
disputed.
In
Scotland, the errors found by the ECA accounted for 18.2 per cent. of
expenditure audited, whereas those agreed by the Scottish Executive
following further internal review, accounted for less than 1 per cent.
The errors are administrative and relate to the interpretation of
regulations. They do not concern deliberate misuse of funds. In both
cases, the European Court of Auditors has yet to publish its final
definitive position on its findings. Therefore it is important that the
Commissions estimate is not blown out of proportion. The
findings concern two
programmes out of 550 implemented across the EU. They do not mean that
control systems are necessarily ineffective across the UK. The
incidence of deliberate misuse of funds is extremely
low.
The
discussions between us and the Commission and the European Court of
Auditors are standard procedure. They are iterative and should not blow
us off course. It is vital that we continue to improve financial
management and accounting procedures of EU funds in the UK and across
the EU. The UKs consolidated statement will help us to do that
domestically. The upcoming budget review will be an opportunity to
consider reforms that are still desperately needed to improve the
legality as well as the effectiveness of EU spend. We will continue to
make the case to our European partners of the importance of member
states improving their own financial management. We believe that we are
leading in that regard. We will also continue to make the case for the
Commission to build on existing actions to establish an internal
control framework, and to simplify the complex rules that may result in
many
irregularities.
Mr.
George Howarth (Knowsley, North and Sefton, East) (Lab):
Will my hon. Friend give
way?
The
Chairman:
Order. There are no interventions during the
statement.
Kitty
Ussher:
My right hon. Friend will be delighted to hear
that I am just finishing. I look forward to debating the issues with
all members of the
Committee.
The
Chairman:
We now have until half-past 5 for questions.
Members can ask related questions at the discretion of the
Chair.
Mr.
David Gauke (South-West Hertfordshire) (Con): It is a
pleasure to serve under your chairmanship, Mr. Jones. I
congratulate the Economic Secretary on her return to the Front Bench
after family
duties.
I
congratulate the hon. Lady on her opening remarks. Given that 95 per
cent. of losses identified by the European Court of Auditors are
disputed, and the UK Governments response to the 2006 annual
report contains some serious criticisms of that report, is it the
Governments position that the European Court of Auditors is not
accurately reflecting the UKs
position?
Kitty
Ussher:
I am grateful to the hon. Gentleman for his kind
remarks. Yes, that absolutely follows from what I said. If 95 per cent.
of the findings of the European Court of Auditors are disputed by the
UK Government, we obviously feel that what it says does not reflect
reality.
Mr.
Jeremy Browne (Taunton) (LD): I am also grateful to you
for assuming your position as Chair, Mr. Jones. I am usually
a keen exponent of reducing the number of Ministers, but as the
Treasury has had confidence in it collapse while the hon. Lady has been
away, this seems to be a case where more Ministers may lead to more
successful
outcomes.
Every
year, the Treasury Minister appears before the Committee and says,
We are not complacent. We are
going to turn it round this time. It wont be like this in the
future. What assurances can the Minister give us that she, or
her successor, will not be sitting in that chair saying exactly the
same thing a year from
now?
Kitty
Ussher:
I have made it abundantly clear that any error
rate is regrettable. We dispute what the European Court of Auditors has
said are errors in the UK, and there is an iterative process to provide
a shared analysis of that which has not yet reached its
conclusion.
Regarding
the level of error within the EU budgets as a whole, the processes that
the Government have initiated are bearing fruit. We are rolling out a
process regarding the way in which the European Commission exercises
its internal controls, which will be reviewed in 2009. That came from
an initiative a couple of years ago under the UK presidency. How
individual member states exercise effective controls of spending and
effective auditing is a joint responsibility between them and the
Commission. We are leading the way in Britain by inviting our domestic
auditor, the National Audit Office, to audit a consolidated statement
of how EU budget funds are spent within the UK, and we are open about
that. Areas of improvement might be identified, although I do not know
what they might be at this stage. I see that as a positive step,
because it is only by shining a light on how the system works that we
can hope to make it better. We are in the middle of that process, both
domestically and across the EU. While I cannot say for sure that we
will have a 100 per cent. success rate next year, I feel that the
system is more effective than it was a few years ago and have no reason
to believe that it will not
improve.
Mr.
Howarth:
I wonder whether the Minister could help me on
the tricky subject of the dried grape scheme in Greece. First, could
she explain exactly what the problem is? Secondly, will she let us know
whether she considers that to be an administrative problem, or
something more
sinister?
Kitty
Ussher:
I am extremely grateful to my right hon. Friend
for raising that issue, which has made me as curious as he is about
what the dried grape scheme could possibly be. I shall make it my
absolute priority to find out forthwith and let him know. However, I
make the general point that we do not have executive control over
problems within other member states and can only lead by
example in how we deal with things within the
UK.
Mr.
Gauke:
I am grateful to the Minister for her response to
my earlier question, and I would also be happy if she cared to
elaborate on her answer about the dried grape skins issue in
Greece.
There seems
to be such a difference of opinion between the UK Government and the
European Court of Auditors, and in some cases the European Commission,
over a number of these matters. To what extent does the hon. Lady
accept the point set out in the responses to the questionnaire, which
indicates that many of the problems result from ambiguity within EU
legislation? It appears to be very complex and there seem to be
differing views on what the EU legislation
requires.
Kitty
Ussher:
The hon. Gentleman has put his finger precisely on
the point. The areas of disputethey are 95 per cent. of the
total, so not insignificanthave arisen because we believe that
we and our partner local authorities, and in many cases their partner
organisations, have correctly interpreted the EU regulations, but the
initial findings of the European Court of Auditors seem to suggest
otherwise. The useful outcome of that, however, is that we will
hopefully have a better shared understanding of what those regulations
are when we reach the end of the road. Obviously, at this stage we
believe that our interpretation is correct, but hopefully with a
greater shared analysis across the EU, fewer errors will be made
further down the
line.
Peter
Viggers (Gosport) (Con): On reading through this rather
sad story, I felt that the German comment was really the most incisive
and specific. They
said:
For
the 13th time running, the European Court of Auditors has failed to
deliver a Statement of Assurance pursuant to Article 248 of the EC
Treaty...In Germanys view, this shows that the provisions
of Article 248(1) of the EC Treaty are
unworkable.
Do
the Government agree that certain parts of the treaty are unworkable,
or do they think that tightening it up will solve the
problem?
Kitty
Ussher:
Legislative changes might be required at the end
of the road, but it is too early to say that for sure. There is much to
be gained from a shared understanding of how the existing regulations
should be implemented, as I have just said in answer to the hon. Member
for South-West Hertfordshire. A lot is to be gained from greater
scrutiny of the sort that we are having today, and that inevitably
comes from publishing the findings of the European Court of
Auditors reports and our openness to scrutiny through the
National Audit Office process that we have set up. Therefore, I do not
necessarily feel that this situation has arisen because there is
something fundamentally wrong with the treaty, although further
improvements could be
made.
Mr.
Browne
:
The European Court of Auditors was unable
to give a positive statement of assurance for the 13th year in a row.
In a previous answer, the Minister said that the Government are in the
middle of the process of trying to resolve those difficulties. Will she
give an estimate of how many years she expects this failure rate to
continue? Are we halfway through a 26-year run of failures or will it
be resolved before that? She talked about accountability, and the
Government are very keen on setting targets. Which individuals in the
Government will take responsibility if those targets are not
reached?
The
Chairman:
Order. I remind the hon. Gentleman that although
he can ask a series of questions, he must ask one question at a
time.
Kitty
Ussher:
I am grateful to the hon. Gentleman for his
attempt to pin down specifics that he can wave at us later. However,
that was not the point that I was attempting to make. There are a
number of issues. We kicked off a general process when the UK held the
EU presidency in the second half of 2005 to move towards a better
integrated control framework for the way in which EU funds are spent.
We are at the latter end of that process
and the action plan has pretty much been implemented, but we do not know
the effects and outcomes because it will be reviewed only next year. We
must wait for the conclusions of that review to find out whether we can
push this process forward, together with other member states, to
achieve the next round of efficiency
gains.
We
are also in an iterative process on the specifics of the ECAs
report, which looked at a snapshot of a few projects in 2006. My
understanding is that the Scottish Executive have given their final
response and are waiting for the European Court of Auditors to
pronounce that the Department for Communities and Local Government has
given its initial response and will very soon be giving its final
response. Even then, I presume that it will be some time before the
European Court of Auditors responds. Therefore, in our individual
circumstances and in the wider policy initiative, we are part way
through the
process.
Mr.
Gauke:
As the Minister has said, the UK and Spain account
for more than half the quantifiable errors on structural policies
identified for 2006 by the European Court of Auditors. Will she
indicate whether since 2006 the number of errors identified in relation
to the UK has gone up, down or stayed more or less the
same?
Kitty
Ussher:
The year 2006 is the latest year for which we have
the findings of the ECAs process. The results of our audit are
not available. We will continue to try to drive up standards across the
board, although in the public domain we do not have a formal indication
of whether the error rate has gone up or
down.
If
I might press upon your patience, Mr. Jones, I should add to
my response to the hon. Member for Taunton that the European
Commissions stated goal is to strive for a positive statement
of assurance by 2009. I hope hon. Members feel that that is in the
medium rather than the very long
term.
Peter
Viggers:
What is being done in practical terms to improve
the situation generally? The main underlying reasons for common errors,
highlighted by the member states, include the complexity of Community
legislation. That is something to be debated, discussed and resolved.
There is also a lack of expertise among staff, resulting in negligence
and careless mistakes. On documentation, there is a lack of filing,
inconsistent filing and a loss of documents. What is being done in
practical terms by the European staff to tighten up on those
issues?
Kitty
Ussher:
I am sorry if I did not make myself clear, but I
thought I had described in some detail the process that the European
Commission is part way through to improve its financial management of
EU funds through the action plan that was developed from a UK
initiative for an integrated control framework. That is now in train
and will be formally reviewed in 2009. Perhaps we can revisit the hon.
Gentlemans question once that has been
published.
Mr.
Gauke:
In response to the Economic Secretarys
answer to my last question about what has happened since 2006, I am
looking at the explanatory memorandum submitted by the Treasury on 18
March 2008, which is item No. 3 in the pack. In paragraph 8 it states
that
following new management controls, during 2007 the level of error was
initially high. More errors were found after 2006 as more issues were
identified. To be fair to the Minister, it then states that the level
of error started decreasing as actions were taken to address
them.
Will
she clarify whether more errors have been identified since 2006? More
issues are arising, which I accept are not yet dealt with by the
European Court of Auditors, but of which the Government are
aware.
Kitty
Ussher:
The hon. Gentleman is entirely right. We are
learning from the errors that have been identified, and as we learn
about where errors are likely to arise and shine a
spotlightperhaps in a slightly more focused wayon them,
it is unsurprising that we should find the very things that we know
needed improvement. It is therefore unsurprising that the level of
errors in structural funds is expected to rise publicly before it
falls, because we did not know where to look previously. That is a good
example of how openness in the audit and scrutiny process is positive
and
constructive.
Mr.
Gauke:
I wish to raise some instances of differing
interpretations of EU law. The first is the single payment scheme, on
which the UK appears to have a unique perspective. It believes that
landlords can receive payments under the scheme, whereas the European
Court of Auditors, the Commission and other member states say that the
scheme is for farmers not landlords. The Commission states that the UK
has
inappropriate
criteria for allocations of
entitlements.
Will
the Minister update the Committee as to the status on that, and as to
whether the Government still maintain that their policy and approach to
payments is correct and complies with the relevant EU
legislation?
Kitty
Ussher:
I am sure that I do not need to remind the
Committee of the unfortunate recent history regarding the single
payment scheme. Is the hon. Gentleman talking about the well-documented
issue that has been audited twice by the National Audit
Office?
Mr.
Gauke: It is the issue of golf clubs and local authorities being
able to claim under the single payment scheme, while the view of the
European institutions and other member states is that the scheme is for
farmers on their own
land.
Kitty
Ussher:
I thank the hon. Gentleman for his clarification.
The issue of golf clubs and leisure facilities is interesting because
if you look at the headline there seems to be no particular reason why
those bodies should be eligible for payments under the single payment
scheme. It is therefore unsurprising that little alarm bells started
ringing when the European authorities had a look at that. However, it
seems clear on further investigation that all the claimants were
eligible for capped single payment scheme payments. In some cases,
although the claimants were eligible, some of the geographic areas were
not, and appropriate corrections have been made. The issue looked more
exciting than it ended up
being.
Mr.
Gauke:
I am grateful for that and I will have to come to
terms with the fact that it could be less exciting than it at first
looked.
I
wish to touch upon another area where there was some dispute between
the Government and the Commission, and which has already been touched
upon with regard to the office of the north-west of England and the
financial correction of £25 million. That issue was raised in
our discussions on this matter on 28 January, and the
Financial Secretary described the Commissions position
as
unjust,
disproportionate and somewhat out of date.
She added
that
we are working
to try to understand the continued
criticism.[Official Report, European Standing
Committee, 28 January 2008; c.
10.]
Will the
Minister perhaps give us an update on the position, and tell us whether
it is still disputed and whether we have got any of our money
back?
Kitty
Ussher:
As I made clear earlier, the European regional
development fund programme in Merseyside is disputing 95 per cent. of
the amount that was raised by the European Court of Auditors, so the
update that I can give is that that remains the case and we will
continue to push our view until it reaches a logical
conclusion.
Mr.
Richard Caborn (Sheffield, Central) (Lab): May I ask the
Minster about the clawback that was instituted at the beginning of this
regime of structural funds? Coming from Sheffield and south Yorkshire,
it is nice to see that the north-west was actually in the frame as the
greatest offender, rather than south Yorkshire. What is interesting in
a positive way is the discipline that the clawback has brought to
structural funds. What are the Ministers reflections on that?
Has it brought the type of financial discipline back into the system
that was lacking last time, because it was a little light before the
last round of structural funds? Does she think that some of the
problems that she is encountering with regard to complaints about the
audit are the result of the imposition of the new clawback and the role
of local authorities in that? I welcome that new discipline and think
that it is effective. That has been the case in my own constituency and
in south Yorkshire, and I think that it represents a more effective use
of public moneys across the community.
Kitty
Ussher:
I am grateful to my right hon. Friend and
completely agree with his point. We expect, once the budget years
2000-06 have been closed and sorted, that the error rate will come
down. With regard to my previous answer on the suspensions of the ERDF
payments in April 2006, to which the hon. Member for South-West
Hertfordshire referred, I probably need to clarify that we feel that we
now have a new expertise in Government offices, and the Commission has
lifted its suspensions in five of the six regionseven the
north-west. I am delighted to say that at least 90 per cent. of the
expenditure has now been audited to the level of assurance required by
the Commission.
Mr.
Gauke:
I seek further clarification on that point. As I
understand it, there was a financial correction so that essentially the
equivalent of £20 million had to be paid back. I will be
grateful if the Minister corrects me
if that is wrong. That money has been paid back already. Is there any
prospect that the UK Government or the office of the north-west might
be reimbursed from that if the Government satisfy the Commission that
everything has been done that should have been
done?
Kitty
Ussher:
Obviously, the suspension of the grant was lifted.
I am advised that the financial correction was €25 million,
rather than pounds, which is less than half of the figure originally
mooted by the European Commission, so there is some difference there.
With regard to whether the moneys have been transferred, I will have to
advise the hon. Gentleman a little later
.
Mr.
Gauke:
One other concern raised by the European Court of
Auditors related to physical checks for imports, which can be seen on,
I think, page 22 of the document, which deals with failures to carry
out physical checks. The Government have responded strongly that they
use their resources in an appropriate manner and that they are targeted
and deployed effectively. Can the Minister confirm that that remains
the case and that there is nothing within the ECAs
recommendations, or indeed within the Commissions powers, that
would change the way in which Her Majestys Revenue and Customs
decides to police physical imports? Can she also confirm that
determining how physical checks are undertaken remains a matter for
HMRC and the UK Government? Notwithstanding that, the UK appears to be
substantially out of line with other member states in the way in which
it addresses that matter.
Kitty
Ussher:
I am sure that it will not surprise the hon.
Gentleman to know that the Government stand by what they wrote in their
response on physical checks of imports. We believe that we are using
our resources most effectively in that regard. I shall go back to the
point that we made originally, at the beginning of the debate, that
this is an iterative process and we dispute the vast majority of the
errors found by the European Court of Auditors. I am sure that the hon.
Gentleman will understand that I do not want to get into the specifics
of individual projects, since they may, at the end of the day, be found
to have done everything correctly. If a contrary impression were given
before it was shown to be the case, there would be much concern on the
ground.
The
general point remains as we laid out in our response, which is in the
papers that the hon. Gentleman has in front of himit is not the
quantity of the checks that act as a deterrent, but the quality. We
believe that we have effective triggers to target the checking of
imported goods in the UK and that we have found the right balance here.
People can try to prove the contrary. We are all in the same game of
wanting to raise the quality of the checks that we
do.
Mr.
Gauke:
Within the questionnaire, the European Court of
Auditors raised concern about the lack of sufficient audit trail. The
UK has made the point
that
Retention
of documents can also be difficult for small third sector organisations
where the onerous rules can require retention for 13+
years.
We
are looking at the Commissions action plan. Does the Minister
have any concerns that it may result in
additional record-keeping requirements on organisations within the UK
and may, in particular, create difficulties for independent third
sector organisations?
Kitty
Ussher:
We do not think that we keep insufficient audit
trails and that is the fundamental point of difference. We think that
we keep sufficient audit trails to meet the requirements under
contracts of the amounts of information required on both sides. There
are comprehensive guidance manuals for UK organisations managing and
paying authority staff on how to apply EU legislation, which set out
clearly EU requirements for record keeping. We do not accept the
premise of the hon. Gentlemans question. Obviously, we would
all be concerned if new processes were introduced that reduced the
effectiveness of the moneys being spent, but at the moment we feel that
we are complying effectively.
The
Chairman:
Mr. Gauke, is it a related
question?
Mr.
Gauke:
It is a related question, and you will be pleased
to know that it may be my final question. Page 22 of our bundle states
that the UK highlighted a lack of sufficient audit trail as one problem
that may have caused its position on structural funds. Would the
Minister like to expand upon the sanctions available to the Commission
against member states, particularly in the light of further
developments of the action plan? Does she have any concerns about the
powers that the Commission has, or may have in the future, to enforce
its position and to scrutinise the way that member states spend EU
money?
Kitty
Ussher:
All taxpayers, whether in this country or other EU
member states, want to be reassured that their money is being spent
most effectively. It is one area where spreading best practice across
the EU, leading by example and peer pressure can have a positive
effect. The process that the European Court of Auditors goes through is
having that effect. If in the UK Parliament British Ministers are being
asked questions about grape skins in Greece, obviously some kind of
peer pressure is being exercised in a positive way. I think I have lost
the attention of my right hon. Friend the Member for Knowsley, North
and Sefton, East in this regard. Taxpayers would welcome greater
scrutiny. We are moving in that direction. This Government welcome it
too, because it is a very effective way to ensure that all resources
are spent in the most efficient
way.
Peter
Viggers:
It is disconcerting for British Members of
Parliament to read how confrontational the discussion has become with
the EU. Paragraph 5.69
states:
Among
the new beneficiaries, the Court noted railway companies, horse
riding/breeding clubs, golf/leisure clubs and city
councils.
These
are seen as recipients of support and the support has been switched
from farmers to landlords. The paragraph
concludes:
The
United Kingdom authorities set inappropriate criteria for allocations
of entitlements for investments from the national
reserve.
There
is a reference to paragraph 5.28, which states that landowners in
Germany and Denmark will see the value of their entitlements multiplied
by four and tenfold in England. How will that be resolved? Is it a
legal matter? Will it be resolved in the European courts? Will it be
resolved by discussion?
Kitty
Ussher:
I come back to the original point. I am sorry if I
did not make myself clear, but 95 per cent. of the findings in that
report are disputed by the UK authorities. I hope that I have made
myself clear about the issue around golf and leisure facilities, which
is not as exciting as it looked: none of the claimants were not in the
required category. All claimants met the regulatory definition of
farmer. So while there were some bits at the edges that needed sorting
out, the hon. Gentleman is entirely wrong to imply that we have been
using agricultural funds inappropriately in the leisure sector. I think
that I have also made it clear that we expect to be able to resolve
these issues by an iterative process of discussion with the European
authorities and that process is not yet
complete.
Motion
made, and Question proposed,
That
the Committee takes note of European Union Document No. 7210/08 and
Addendum 1, Commission Report, Member States' replies to the Court of
Auditors' 2006 Annual Report; and supports the Government's promotion
of measures to improve the management of EC Budget funds across the
EU.[Kitty
Ussher.]
5.13
pm
Mr.
Gauke:
For those of us who attended the sitting on 28
January there is a sense of dÃ(c)jà vu about todays
sitting. I have no intention of rehearsing all the arguments that we
ran through then. It is worth noting, as has been mentioned by the
right hon. Member for Streatham and the Minister, that it is appalling
that the EUs accounts have not been signed off now for 13
years. I made the point in our debate in January that it does not
create the outrage that it once did. There is simply wearied
resignation that this appears to be the way that it works. That may
well change.
As the hon.
Member for Taunton pointed out, it is customary on these occasions for
Ministers to say that there are signs of improvement. One can look at
particular aspects where there are signs of improvement. That should be
welcomed. But we are still some way away from signing off everything.
Some quite substantial sums of money are not signed off. The right hon.
Member for Streatham made the point that not all of this is fraud. I
made the point in January that some of the money that is not signed off
is not deemed to be fraud, but very often the EU institutions are not
in a position to assess whether it is fraud or merely inappropriate
spending of some sort. It is often not possible to distinguish between
the two.
It is an
embarrassment that the UK has been highlighted as one of the worst
offenders on structural funds. The Minister was very robust in stating
that that was not our fault and that the European Court of Auditors has
got it wrong. None the less, it is a concern that we have been
highlighted as one of the worst offenders and I am sure that Ministers
share that
concern.
We
are debating this document in the context of the European
Commissions action plan. In the update on that, the Commission
states that it has a responsibility
to
verify
that the Member States are carrying out the tasks entrusted to them
correctly.
I
liked that expression because it leaves no doubt as to the way in which
the Commission thinks that these things work. It is the Commission that
entrusts tasks to
member states and they may or may not carry them out as it wishes. The
Commission is clearly in charge. It goes
on:
Where
it concludes that this is not the case, it must use the available
mechanisms to suspend payments and apply financial
corrections.
That
raises a number of issues on the approach that the Commission is taking
to improve its ability to scrutinise and supervise. Let us accept that
the levels of fraud and of inappropriately spent money are far too
high. That is deeply regrettable and must be addressed. However, I will
raise one or two reservations about the Commission strengthening its
position in this area to explore these
issues.
First,
if the Commission is going to take a more proactive role, will there be
greater interference? For example, what will happen if there is a
genuine difference of opinion on the interpretation of EU law? As we
have heard, there are many genuine differences of opinion on EU law,
such as on the single payment scheme and on the issue of the office of
the north-west of England. It was highlighted by a number of member
states, including the UK, that EU law can be very complex and unclear.
In such circumstances, there can be differing
opinions.
If a member
state holds one position in all good faith, but the European Court of
Auditors and the Commission hold a different position, what will
happen? I would be grateful if the Minister addressed that point in her
remarks. Will the view of the Commission override the view of member
states in detailed, technical areas? As we have heard, such differences
of opinion happen a lot. We have heard that 95 per cent. of the errors
identified by the European Court of Auditors are disputed by the
Government. A number of those disputes are presumably on the grounds of
different interpretations of EU law. In such circumstances, what will
the position
be?
I
touched on the issue of record keeping in my questions. If the
Commission is going to strengthen its position, will it be able to
impose new requirements for record keeping on UK bodies? It will be a
cause for concern if UK bodies have insufficient record keeping and we
would want to see that rectified. The Government have raised a concern
about smaller third sector organisations, which might have to deal with
onerous record-keeping requirements. Again, if the Minister could
address that issue, I would be
grateful.
I
am also concerned about whether the Commission will have more powers to
make financial corrections. Earlier, I quoted the Financial Secretary,
who, in response to my question in January about the north-west of
England, described the Commissions position as being
unjust,
disproportionate and somewhat out of date.[Official
Report, European Standing Committee, 28 January 2008; c.
10.]
If the
Commission is taking positions that are unjust and
disproportionate, what powers will member states have
to resist financial corrections that they consider to be
unjust and disproportionate? Again, I
would be grateful for the Ministers news on that.
With the
Commission seeking to organise member states to a greater extent, in
its role of verifying that they are carrying out the tasks entrusted to
them correctly, there is also the point that the Commission is not
itself
in a particularly strong position to lecture member states. The
expression, Commission heal thyself, springs to mind.
There are problems with internal policies such as research. The
Commission has not got a good record on that and I note that the EU
office that deals with fraudOLAFis finding that more
and more complaints made to it apply in respect of areas directly
managed by the
Commission.
I
also note, and I quoted this last time around, that the European Court
of Auditors has said that the European Commission action plan will have
an impact only in the medium to long term. Therefore, we are not
dealing with something that will be resolved very quickly; this is an
ongoing issue. It is a matter that was raised by the hon. Member for
Taunton. There is a real concern that the issue of the EUs
accounts not being signed off will continue to be with us for some
time.
Of course,
that is a concern when the contributions to the EU budget coming from
the UK have increased. The latest budget settlement has resulted, for
the period of 2007-13, in an increase in net contributions of
£39.3 billion, at 2004 prices, compared to
£22.9 billion, which was the sum for the period 2000-06. We will
make gross contributions in 2007-13 of £71 billion and, of
course, within that we have the abandonment of £7.4
billion worth of rebate, which Tony Blair agreed to in his last few
months as Prime Minister.
So we are
dealing with an organisation that is spending more of our money and an
organisation that may be passing even more laws. A lot of the problems
relate to the complexity and uncertainty of EU legislation, yet the
Government are pushing through a European constitution and reform
treaty that will give the EU more powers to pass legislation, and
legislation that will be difficult to interpret and
understand.
We will not
vote to oppose this action plan or the document in front of us, unless
the Minister says something very surprising. However, I want to put on
record a concern that the fundamental problem that we face here is an
EU that is doing more, passing more legislation and spending more
money, yet what we want, if we want to tackle fraud and the problem of
money being spent inappropriately, is an EU that legislates less and
spends less. That is not something that appears to be on the
Governments agenda.
Instead, it
appears that, as a consequence of the problems, there is a move to pass
to the Commission further powers, in respect of which, for the reasons
I have outlined, we can legitimately ask whether that would be in our
national interest, notwithstanding the serious concerns about fraud. I
hope that the Minister will deal with some of those
concerns.
5.25
pm
Mr.
Browne:
I have found our discussions helpful, and my
starting point is that I do not share in the analysis put forward by
some commentators that, because there is fraud and inappropriate
spending in the European Union, the organisation as a whole must be
intrinsically worthless or corrupt. I suspect that most very large
organisations probably contain some element of inappropriate spending,
and the task is to improve that situation; one does not necessarily
throw ones hands in the air and despair about whether the
organisation should exist at all.
Having said
that, I am close to a state of despair, even if I have not quite
reached it, because the accounts have not been signed off for 13 years
in a row. That is a truly shocking record. I do not doubt the good
intentions and honourable attitude of the Minister. I am confident
about that, not least because she is well known for her strongly
pro-European Union views. It is very much in our interest, consistent
with that attitude, that the organisation should improve its
reputation. However, I despair about Ministers coming before the House
and giving the same bland, catch-all assurances about how they are all
working on the problem, are not in the least complacent, and anticipate
substantial progress, when we know that the whole discussion has an
element of charade about it, because we can predict with some
confidence, on the basis of more than a decade of such ministerial
assurances, that those changes are not likely to progress as quickly as
we should all want.
It is deeply
shameful that Britain is not doing better in this regard. I accept that
the Government dispute some of the findings that have been made, but I
should none the less like our country to have a reputation as the most
aggressive exponent of financial reform and transparency among the 27
states in the European Union. I do not accept that, were a Minister or
anyone else to take over a large private company, for example, its
shareholders and customers would find it acceptable to be told,
Im terribly sorry. We cant sign off the
accounts properly for the 13th year in a row, but dont worry,
were working on it. We cant quite give you a proper
estimate of when well turn it round. Well certainly not
make anyone directly accountable, and no heads will roll if we fail to
get to a satisfactory conclusion at some point, but leave it with us.
Dont worry. Well brush things under the carpet, and
come up with something slightly better next year. No other
organisation would regard that as a satisfactory state of affairs, and
it should not be thought satisfactory for the European Union
either.
We
must remember that it is British taxpayersour
constituentswho pay the bills. In the grand scheme of things,
the proportion of their taxation that we are talking about is very
small compared with the large amounts that they pay towards social
security, the national health service, education and all the other
important provisions for which the Government cater. None the less, we
are dealing with taxpayers money, and the onus is on Ministers
to treat it with the absolute seriousness that it warrants.
In January, I
pressed the Financial Secretary to specify which countries she regarded
as the worst offenders. She
said:
I
am not sure that the most diplomatic thing would be to name the worst
offenders, as the hon. Gentleman suggests.[Official
Report, European Standing Committee, 28 January 2008; c.
9.]
I am going
to suggest that it may not be the most diplomatic thing, but it might
be the most effective and necessary way to proceed. The UK, as the hon.
Member for South-West Hertfordshire has said, is making gross
contributions of £71 billion to the EU between 2007 and 2013. We
should be trying to ensure that that money is properly spent. That
might mean league tables, which the Government are very keen on in many
other aspects of our public life; it might mean naming and shaming
those who fall short of the standards that we expect, which again the
Government are quite quick to
do in other areas of public life. However, that might be necessary to
ensure value for money for the United Kingdom taxpayer and, for that
matter, taxpayers elsewhere in the European Union. As we stand, no
particularly strong penalty appears to be in place for those who
transgress or fall short. Would it not be more reassuring for us all,
Mr. JonesI am not inviting you to agree, but simply
posing a hypothetical questionif, instead of vague assurances,
we were given an absolute plan involving people specifically
responsible for implementing it and sanctions should they fail to do
so? I see no indication that such robust mechanisms are being put in
place.
I see plenty
to recommend the European Union, given what it can offer the United
Kingdom. The ideals of the EU capture many of the values that I wish to
see implemented throughout Europe and the wider world. So somebody in
my position, who wishes the organisation well, finds it extremely
frustrating that my constituents and others place such emphasis on this
issue. However, they are right to do so, because it represents a
serious flaw in the EU, and until it is rectified and improved, and
until we have targets for doing that, the British taxpayer will,
understandably, continue to be greatly
concerned.
5.31
pm
Kitty
Ussher:
It is with some delight that I see that the
allocated time for this debate will not be used, unless hon. Members
would like me to speak for one hour and 25 minutesbut I am sure
that they, too, are delighted that I do not intend to do so.
I shall
answer some of the substantive points raised. The hon. Member for
Taunton and I share the same overall view of the benefits of the
European Union, although I am never quite clear whether Members of Her
Majestys official Opposition share the same viewI could
not resist saying that. Todays debate is a very good example of
how one can be pro-European in general, but pro-reform in Europe on
some of the specifics.
I dispute the
fact that, year after year, Ministers repeat the same
platitudes, but that nothing actually happens. The proportion of funds
approved and, in a sense, certified as error-free, has risen on a
year-by-year basis. At about 40 per cent., it is, of course, still far
too low, but only a few years ago it was about 6 per cent. That is
testament to the fact that action can be taken, although I am in no way
excusing the fact that an enormous amount of progress remains to be
made. I think that the combination of effective auditing, at an EU and
domestic level, combined with a commitment from the European Commission
to improve its internal processesthat commitment is in the
process of being implementedwill have a kind of ratchet effect,
and I am pretty sure that we will be pleased with the direction of
travel after that.
The hon.
Member for South-West Hertfordshire asked about who will win in the
ultimate eventuality of a continuing dispute. We would seek to resolve
any dispute by discussion and the iterative process that I have
described. In the probably unlikely, but quite possible, situation in
which technical people on both sides cannot come to an agreement on how
the rules for the period under discussionin this case, up to
2006should be interpreted, it can, of course, be ruled on by
the independent European Court of Justice. Ultimately, we are
considering
a legal process, rather than a kind of European takeover, which I get
the feeling that Opposition Members would sometimes like to imply that
it
is.
The
hon. Gentleman also said that the amount of money being spent by the EU
is ever rising. In cash terms, I guess that there is a case for that,
particularly with European enlargement, but as a proportion of gross
domestic product it is in fact fallingfrom 1.06 per
cent. of gross national income in 2007 to an estimated 0.98 per cent.
in 2013. Let us not give the impression that this is some kind of
megalithic machine destined to grow. Member states money can be
spent efficiently, and the overall budget as a proportion of the
economy can fall as
well.
Mr.
Gauke:
None the less, will the Minister confirm that the
UKs net contribution will increase very substantially over the
next periodfrom £22.9 billion to £39.3
billion?
Kitty
Ussher:
Perhaps we are straying slightly from the subject
of the debate. As the Minister replying, I cannot ask questions
directly, but perhaps the hon. Gentleman would like to intervene and
explain whether his party supports European enlargement and the idea
that each
country
The
Chairman:
Order. I think that that is stretching the
debate too
far.
Kitty
Ussher:
I would counter by saying that it is the logical
extension of the question that I was just asked. Perhaps it would be in
order not to answer the question.
The
Chairman:
I should not have allowed the question. The hon.
Gentleman got it in when I was not
looking.
Kitty
Ussher:
I shall move on swiftly.
The hon.
Gentleman made another point about the burden on small third sector
organisations. We are always looking to simplify regulations, not only
from the EU, but domestically, and to ensure that the regulatory burden
is as low as possible. That is a key part of the action plan for an
integrated control framework, which the Commission is pushing forward.
As a Government, we emphasised that at the ECOFIN meeting in February,
and ensured that it was kept on the agenda in its conclusions. We shall
continue to do so, because it is our priority. It would be ridiculous
to do
otherwise.
You
will be delighted to know that I am near the end of my contribution,
Mr. Jones. I think that I probably answered the other points
raised adequately in my opening remarks. I am sure that this debate
will continue. I would not presume to put a figure on the error rate in
future years, but I feel that this Government are doing everything that
they can, using all the powers at their disposal, to ensure that UK and
EU taxpayers funds are best
used.
Question
put and agreed
to.
Resolved,
That the
Committee takes note of European Union Document No. 7210/08 and
Addendum 1, Commission Report, Member States replies to the
Court of Auditors 2006 Annual Report; and supports the
Governments promotion of measures to improve the management of
EC Budget funds across the
EU.
Committee
rose at twenty-three minutes to Six
oclock.