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We sometimes go through the motions in such debates. None the less, the issue is hugely important. British taxpayers are becoming increasingly frustrated, and look to the Government to do something about it, but year after year we return to the issue with little sign of
progress and no clear sense of direction from the Government. One detects weariness on the Government’s part that there is little that they can or will do. That is unacceptable. Greater efforts should be made, and there is a need for greater transparency in the system.
Mr. Heathcoat-Amory: My hon. Friend has made the good point that reform is required. Of course, reform was mandated seven years ago in the Laeken declaration, when it was realised that Europe was too remote, bureaucratic and wasteful. Does he find it extraordinary that the Lisbon treaty and the European constitution out of which it grew have nothing to say about the matter? The acknowledged weakness, which has become a scandal, was not addressed in the very instrument—the Convention on the Future of Europe—that was told to reform Europe. Will my hon. Friend, in what are clearly his closing remarks, commit himself and our party to undertaking a genuine reform process, which goes to the root of the problem, rather than simply building stronger and more powerful institutions that are even more remote from the citizen?
Mr. Gauke: I am grateful to my right hon. Friend for his comments. I do not know whether he intends to make further remarks in the debate, but he makes an important point. If I may sing his praises, I understand that, when he served on the Convention, he was almost alone in arguing that any reform of the European constitutional documents should focus on the subject of our debate. Too easily, member states and the European institutions focused on closer integration and building up the institutions rather than addressing the real concerns about what the European Union currently does. I have no doubt that one of the biggest concerns of people in this country is the EU’s failure to spend money wisely, and without irregularities and fraud.
Future reform and attempts to change the structures and so on must focus on bread and butter issues and address the effective working of what we have, rather than effecting some utopian—or dystopian, depending on one’s point of view—vision for the European Union. I am grateful to my right hon. Friend for making that point. Serious reform is necessary, it has not happened yet and there is no sign from the Government that it will happen. It is time that the matter was taken seriously.
Sir Nicholas Winterton (Macclesfield) (Con): I have got in in the nick of time. Will my hon. Friend go a little further in answering the question that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) asked? He has gone a long way, but bearing in mind that the European Union has destroyed our fishing industry and is destroying our aluminium industry—I think that I can get that in under “Financial Management”—is not my right hon. Friend’s question about getting a commitment from Her Majesty’s Opposition a good one? Will my hon. Friend go a little further and say, “Yes, we will include that in our manifesto”?
Madam Deputy Speaker (Sylvia Heal): Order. I remind hon. Members that we are debating the motions before us. If the hon. Member for South-West Hertfordshire (Mr. Gauke) wants to give a brief indication to the hon. Member for Macclesfield (Sir Nicholas Winterton), that would be acceptable.
Mr. Gauke: I am grateful to my hon. Friend and also for your guidance, Madam Deputy Speaker. I remind my hon. Friend that I am here to speak about matters to do with financial management, but I daresay that those who make such decisions will listen closely to his words, as they always do.
There is a frustration that the European Union in recent years has focused not on reform but on, for example, the treaty of Lisbon, which my party continues to oppose. The sooner the European institutions focus on the subject of our debate, the better.
6.4 pm
Michael Connarty (Linlithgow and East Falkirk) (Lab): European debates are a bit like buses—we wait for one for ages, then three come along at the same time. For the first time, we are holding the debates on a Tuesday—they normally happen on a Wednesday to ensure that many members of the European Scrutiny Committee have to choose between its Committee meetings and the debates in the Chamber. Today is a Tuesday—it coincidentally happens to be the day of the inaugural address by the new President of the United States and, when I was voting, I noticed from the crowds surrounding the televisions that that seems to be the point of interest rather than European audit. However, that does not mean that European audit is not important and I am pleased to be here, given that, as Chair of the European Scrutiny Committee, I would not normally get to debate the subject on a Wednesday.
I believe that the glass is half full—indeed, it is almost three quarters full and heading in the right direction. It was interesting to read all the documents in preparation for the debate. Our report of 12 January, which deals with the implementation of the 2007 European Union budget, concludes that
“the European Court of Auditors (ECA) identifies weaknesses in the procedures for financial control and management”—
“such that again it is unable to give wholly unqualified Statements of Assurance for the General Budget and the European Development Funds.”
In the past, the European Court of Auditors has refused to give unqualified assurances of any kind. This time, it has been slightly more positive, not by reducing rigour but by perceiving the benefits of the changes that have taken place in the past few years.
“The document identifies some positive developments in improving management of the Community’s financial resources and we note the Ministers give relatively positive assessments of the situation.”
My hon. Friend the Economic Secretary repeated that this evening. The report goes on:
“But the need for further improvements in financial management and control is still clear.”
We recommended the debate because we believed that it was important
“to consider again not only the continuing weaknesses in financial management”
“the need for further improvement identified in the ECA’s Reports”,
“to examine the justification for the relative optimism about future improvements in financial management.”
The document submitted by the European Union does not have a number. The reference on it is “Official Journal OJ 2008/C 286/01 Volume 51 10 November 2008”. That is the best I can do to identify it. It has 10 chapters, which deal with the subject in detail, and my hon. Friend the Economic Secretary and the hon. Member for South-West Hertfordshire (Mr. Gauke) referred to it. The general introduction includes the heading, “Chapter 1—the Statement of Assurance and supporting information”, under which it clearly states:
“The ECA have given an unqualified positive Statement of Assurance on the reliability of the EU accounts for the first time”.
It is the first time that the ECA has said that it has all the information required to state that the accounts are reliable. That is different from saying that it is happy with what the accounts contain—major errors persist in the budget.
On the general budget, the European Scrutiny Committee states that the European Court of Justice also
“gives a positive Statement of Assurance on the legality and regularity of the underlying transactions in the areas of revenue, ‘administration and other expenditure’ and ‘economic and financial affairs’, estimating that errors in these areas have a financial impact of less than 2 per cent.”.
That is a significant improvement—the glass is more than half full. We should acknowledge those improvements —our Government and our members of the Court of Auditors have called for them and for initiating a new regime. We should not always say that we cannot manage the budgetary process.
“As for the audit of the European Development Funds the Court gives a clean opinion on the accounts but qualifies the Statement of Assurance on the legality and regularity of transactions in so far as they relate to payments.”
That is where our concern should lie.
I shall refer to a letter from David Bostock, a UK member of the European Court of Auditors. He wrote to me as Chair of the ESC, and the letter was tabled at a Committee sitting. The second report in this bundle—which people may wish to read through, although it is very lengthy—is an important document on the fight against fraud. These are the two things we should wish to focus on in looking at any sets of accounts, regardless of whether they are for a private company, a Government Department, a voluntary organisation, a charity or the EU: are the accounts credible and can transactions be properly followed to find out whether payments are bogus or fraudulent?
It is clear that action is being taken by the EU. As we recently noted, it unanimously denied Bulgaria the right to spend European funds. The country had an outstanding sum of €500 million of funds, but there were questions to do with high-level fraud and corruption in that country that were so great that the EU denied it the right to spend the money. This is an important matter, which the ESC has commented on for some time.
Mr. Heathcoat-Amory: The hon. Gentleman is Chair of that Committee, which I serve on. He is putting the best possible gloss on this, but does he not agree with the following:
“The budget headings subject to material error comprise 92.3 per cent. of total expenditure in 2007”?
That amounts to €105.2 billion out of a total budget of €114 billion. There is, therefore, an extraordinary degree of weakness, and no public company could survive such an audit—certainly not for 14 years. Although the situation may be very slightly better than in the past, it is still a catastrophic situation involving a great deal of public money. Why cannot the public sector submit itself to the same degree of discipline and accountability that it imposes on the private sector through company law?
Michael Connarty: I echo that absolutely; we want to have that 100 per cent. We want to establish the credibility of accounts by having the ability to follow the accounts’ income and expenditure to verify that the accounts are proper according to the rules and that the sums are spent in the right area. That is what we try to achieve when we have audit discussions and when we make negative comments—we tend to make negative comments—on reports and question the optimism of those who think this can be done easily. However, we wish it to be done.
The following comments from the European Court of Auditors are interesting, so I shall read them into the record. They come from David Bostock, a UK member of the court, and it is important to recognise that he takes this matter very seriously. In his letter to me, which was tabled to the Committee, he not only discusses the positive aspects of the reports—he is positive on their regularity—but he also expresses concern about some issues.
In paragraph 8 of the letter, David Bostock writes:
“The Court gives a clean opinion on the accounts. They present fairly, in all material respects, the Communities’ financial position as of 31 December 2007, and the results of their operations and cash flows for the year ended 2007. The Commission has been generally successful in implementing accruals accounting”—
which is a new initiative that came in just some years ago.
“This is the first year for which the Court has delivered an unqualified opinion on the accounts. The European Commission’s tendency to describe our qualified opinions on previous years’ accounts as ‘clean’ may however obscure the novelty of this finding.”
It was always a matter of dispute between both our Committee and the Government and the Commission that it used the word “clean” to mean that there were no proven frauds—that there was dubiety but not proof. This new initiative is good, and we should welcome it.
Sir Nicholas Winterton: I have a simple question. Why is it taking so long to have accounts cleared, because they would have to be cleared, certified and audited by professional accountants in this country if they were for a private company? Does the hon. Gentleman not accept that hundreds of millions of euros are still going walkabout every year? Is this an acceptable state of affairs?
Michael Connarty:
I will leave the last part of the hon. Gentleman’s assessment to the auditors and the fraud office, but all I can plead in my own defence is that I have been Chair of the ESC for only two years and things have improved vastly in that time. I do not claim any correlation between those two facts, however.
One of the great difficulties in defending the EU is that people often look at it with a deliberate eye to seeing where they can transact dubious movements of money. There have been scandalous situations in some countries, where individuals have somehow trousered lots of money—£36 million for a single individual in one case—and Bulgaria has clearly not brought itself up to a satisfactory level of financial control and sufficiently reduced corruption to justify its spending the money to which I have referred.
I must add that our Committee can put its hands up and say that we said Romania and Bulgaria should not have been allowed into the EU in 2007; nor should we have made them the offer that if they did not come up to scratch in 2007 and even if they did nothing, they would get in in 2008. As someone said to me privately, that meant that the politicians thought that they did not have to listen to Europe any more, and that if they just waited and did not change anything, their countries would get in. There have been more than 100 contract killings in Bulgaria since it joined the EU; that is a frightening statistic. The excuse we got when we met its Foreign Secretary was, “Well, they hire Russians, and they just go back to Russia after the killings, so we can’t find them.” Things are going on in the world that we would all like to change, but I shall now return to the budget.
Mr. Bostock states in paragraph 11 of his letter:
“In the other areas of expenditure—agriculture and natural resources; cohesion (the Structural Funds and Cohesion Fund); research, energy and transport; external aid, development and enlargement; and education and citizenship—however, the Court concludes that payments are affected by material levels of error”.
The letter continues with the observation
“that supervisory...systems are only partially effective in ensuring that payments are properly made.”
Therefore, there are major identified faults.
“As for 2007, the Structural and Cohesion Funds are the area of spending most affected by error...‘The Court estimates that at least 11 per cent. of the total amount reimbursed should not have been reimbursed’.”
Given that that is known, we think that the next thing to do would be to find out who the people involved were, get the money back and prevent that from happening in the future.
“Rural development accounts for a disproportionately large part of the overall error rate estimated in agriculture and natural resources.”
It is not agriculture and natural resources, but so-called rural development that is the main error area, therefore.
Many other things are worth commenting on, but I shall draw the House’s attention to a point that David Bostock drew to the attention of the Committee. He wrote:
“The latter part of Chapter 1 (from 1.42 onwards) discusses the problems of ensuring that EU spending takes place properly. It leads to the conclusion (in 1.52 to 1.54)”—
of the report before us today, which I find an incredible conclusion—
“that there are political choices to be made about the control of spending and what risk of mis-spending is tolerable.”
No level of mis-spending is tolerable for any political reason. That should be the rule by which the anti-fraud office and the EU run.
“Chapter 2 reports some improvements in the Commission’s supervisory and control systems, notably a greater realism than in previous years in the reports by Commission Directors General about the legality and regularity of the expenditure for which they are responsible.”
That would appear to imply that the directors general previously had greater laxity in what they considered to be realistically acceptable in expenditure.
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