The
Committee consisted of the following
Members:
Chair:
Miss
Anne McIntosh
†
Alexander,
Danny (Chief Secretary to the
Treasury)
†
Baldwin,
Harriett (West Worcestershire)
(Con)
†
Boles,
Nick (Grantham and Stamford)
(Con)
†
Coffey,
Dr Thérèse (Suffolk Coastal)
(Con)
Connarty,
Michael (Linlithgow and East Falkirk)
(Lab)
†
Cryer,
John (Leyton and Wanstead)
(Lab)
†
Duddridge,
James (Lord Commissioner of Her Majesty's
Treasury)
†
Hamilton,
Mr David (Midlothian)
(Lab)
†
Heaton-Harris,
Chris (Daventry)
(Con)
†
Hopkins,
Kelvin (Luton North)
(Lab)
†
Kwarteng,
Kwasi (Spelthorne)
(Con)
†
McCarthy,
Kerry (Bristol East)
(Lab)
Wilson,
Sammy (East Antrim)
(DUP)
Alison Groves, Committee
Clerk
† attended the
Committee
European
Committee B
Monday 14
February
2011
[Miss
Anne McIntosh
in the
Chair]
Interinstitutional
Agreement
[Relevant
Documents: European Scrutiny Committee, 2nd report of session 2010-11,
HC 428-ii, chapter 1, 12th report of session 2010-11, HC
428-xi, chapter 5, and 18th report of session 2010-11, HC
428-xvi,
chapter
IJ.]
4.30
pm
The
Chair:
Does a member of the European Scrutiny Committee
wish to make a brief explanatory statement, for no longer than five
minutes, about the decision to refer the relevant documents to the
Committee?
Kelvin
Hopkins (Luton North) (Lab):
It might
be useful to the Committee if I take a few minutes to
explain the background to the documents and why the European Scrutiny
Committee recommended them for debate.
The
interinstitutional agreement on budgetary discipline and sound
financial management provides for many aspects of the planning,
preparation, execution and control of the European Union budget. The
agreement is made among the Council, European Parliament and
Commission, and is an important tool of budgetary discipline that
includes a multi-annual financial framework. The current financial
framework sets annual ceilings for the five broad policy areas of the
EU budget for
2007-13.
The
Commission’s report—document A—on the functioning
of the interinstitutional agreement focuses on three areas:
implementation procedures related to the financial framework,
interinstitutional collaboration and sound financial management of EU
funds. Errors inevitably arise when EU money is spent, and they are
typically involuntary, not fraudulent, errors in spending, for example,
misinterpretation of eligibility criteria when using EU funds. However,
preventing and detecting errors requires controls, which cost money.
The concept of a tolerable risk of error captures the idea that
reducing the error rate beyond a certain point requires an increase in
the cost controls that outweighs the benefit from the resulting
financial corrections—spending returned to the budget.
Commission communication document B develops its ideas on
the concept of tolerable risk of
error.
The
Council’s financial regulation and the rules in the
Commission’s implementing regulation govern the formation,
implementation and audit of the EU general budget. The financial
regulations are subject to triennial or, if necessary, earlier
revision. In document D, the Commission presents its proposal for the
triennial revision of the financial regulation. It amalgamates
amendments from two withdrawn draft regulations; one made technical
changes consequent to the Lisbon treaty and the other implemented the
triennial review findings. It also proposes amendments in connection
with the creation of the European External Action Service.
Document C is
an opinion of the European Court of Auditors on the original draft
regulation, but it remains relevant. Given the even greater importance
of budgetary
discipline at present and its relevance to the debate now beginning on
the financial framework for 2014-20, the European Scrutiny Committee
recommended that the European Committee debate the documents. We
thought it would give Members the opportunity to explore potential
improvements to all aspects of management of the EU’s
finances.
4.33
pm
The
Chief Secretary to the Treasury (Danny Alexander):
I
congratulate the European Scrutiny Committee on choosing to debate the
documents, because as many households and Governments take difficult
steps to balance their budgets, effective financial management of EU
funds is more important than ever. I welcome this opportunity to
discuss the Commission’s recent activity in that
area.
The
steps that the coalition Government have already taken to limit the
costs of the EU budget to the United Kingdom taxpayer form the context
for my views on the documents. First, we worked hard to ensure that
this year’s budget increased by no more than 2.9%. That is not
the freeze we wanted, but it is considerably lower than the 6% proposed
by the European Parliament. Secondly, on 18 December we and several EU
partners published an open letter to Commissioner Barroso outlining our
expectations for the 2012 EU budget. We also set out with partners our
views for the next financial perspective. That shows that through
co-operation with other member states, the coalition can influence
debate in Europe, having made real progress in recent months during our
discussions on the EU budget.
I shall
summarise briefly the Government’s approach to the three
Commission documents before the Committee, specifically on the
proposals for the review of financial regulation, the communication on
tolerable risk of error and the report on the functioning of the
interinstitutional agreement on budgetary discipline and sound
financial management. The three issues under discussion form part of a
framework for the financial management of EU funds. As many Members
here today were present at the debate in the House on this issue less
than a fortnight ago, I will not go into detail on the
Government’s position, but I reiterate our belief that the
changes are taking too long to come into
force.
We
are determined to bring about improvements to EU financial management
and to continue to engage positively with all parties involved. I have
no doubt that these matters will be discussed by the Chancellor at
ECOFIN tomorrow, and it would be wrong to pre-empt what may or may not
be agreed there, but we have made it clear that we expect substantial
reform of EU financial management over the coming year. Transparency
and value for money are at the heart of our approach to public
spending, whether at home or abroad. Sound financial management
underpins our agenda. It is right that we should make more explicit the
links between value for money, transparency, administrative efficiency,
sound budgeting and financial
management.
For
the negotiation of the financial regulation, I welcome the
broad objectives outlined in the Commission’s proposal.
It is right that it focuses on alleviating unnecessary administrative
burdens, streamlining methods of implementation and modernising the
system of risk management and control measures. There are
certain areas, however, on which more work needs to be done, such as
increasing the budget’s transparency and providing proper
cost-benefit analysis for the proposed new flexibility measures. In
other areas we are concerned that the proposals might be premature or
need further detailed consideration before legislative changes are
made; changing the control and management system for member states, for
example. It is too soon to move towards a tolerable risk of error
approach to setting the error rate of the European Court of Auditors.
More work is needed to calculate those rates, and more effort is
required to simplify the rules and regulations. That view is held by
the majority of member
states.
The
Government also believe that the current IIA is an important tool of
budgetary discipline. Via the financial framework, the IIA sets
ceilings on the funds available to the EU budget and broad policy areas
for each of the years it covers. Under the current framework for
2007-13, the ceilings sit well below the own resources ceiling for the
EU budget, which would otherwise be the only constraint. That means
that the financial framework provides an important brake on EU
spending. Furthermore, the financial framework gives the UK more
control over spending levels than the annual budgetary negotiations
allow for, as all major changes to the financial framework must be
agreed unanimously in the
Council.
Finally,
the IIA and financial framework help to ensure that in the medium term
EU expenditure develops in an orderly manner. That aids planning and,
hopefully, improves the quality of EU spending. For those reasons the
Government support the transposition of the IIA into new legislative
documents, as required by the Lisbon
treaty.
The
Chair:
We have until 5.30 pm for questions to the
Minister. I remind Members that such questions should be brief. It is
open to a Member, subject to my discretion, to ask related
supplementary
questions.
Kerry
McCarthy (Bristol East) (Lab):
I broadly welcome what the
Chief Secretary to the Treasury has said. As he mentioned, we recently
held a comprehensive debate in the Chamber on the European
Court of Auditors’ report, and we are back in Committee tomorrow
to look at the budget review. There was another European Committee
sitting on the EU budget not too long ago,
too.
I
intend to focus today on things specific to the documents before the
Committee. May I start by asking about the tolerable risk of error
measures? The Chief Secretary said, and I agree, that it is too soon to
implement the measures. He mentioned that the majority of EU states
take that view, too. Could he tell us more about the discussions with
other EU member states? What chance is there of postponing these
measures? I think he would agree that given the level of concern about
the failure to sign off the accounts for the 16th year in a
row and about the materiality threshold not being met, it would be
wrong to raise it
now.
Danny
Alexander:
I am grateful to the hon. Lady for raising that
important point. Given the landscape of views among member states, we
feel confident that it is too soon to make the proposed move. It is a
judgment call, because we need to weigh the financial cost of
detecting and reducing errors against the financial benefit achieved
through corrections to the money coming in. It is important to remember
that there is a big reputational risk, as well as an actual financial
risk, if the EU is perceived to be moving the
goalposts.
The
proposals have been discussed, in the context of financial regulation,
in the budget committee, which is an official-level committee that in
due course reports to the ambassadors and, potentially, to the Council.
The discussions are at a relatively early stage, and we will keep the
House
updated.
Harriett
Baldwin (West Worcestershire) (Con):
The Government are
encouraging our local councils to publish all expenditure of more than
£500 online. In the interests of transparency, would they
consider suggesting a similar approach to the EU regarding its
expenditure? Having lots of armchair citizen auditors might be
effective in improving the margin of error.
Danny
Alexander:
That is an important point.
Our agenda in the UK is to use transparency—transparency to
citizens, transparency to Parliament and transparency of
information—as much as we can, as a key tool for improving
accountability and ensuring that there is pressure from citizens so
that financial management is sound, money is spent wisely and people
are held to account for how money is spent.
Regarding the
discussions that we will have on these matters, which as I have said
are starting now at the official level, we see transparency as an
important part of our agenda. It is too early to say whether we will
adopt an approach similar to the one we use with local government.
Member states, for example, produce annual summaries of their
expenditure. As a starting point, those should be made publicly
available and member states should provide public analysis of the
financial management data they have for their EU spending so that we
can also use transparency as a tool for improving accountability at EU
level.
Kelvin
Hopkins
:
It is a pleasure to serve under your
chairmanship this afternoon, Miss McIntosh.
Despite the
fact that for 16 years the European Court of Auditors has failed to
sign off the European Union’s budget, it was suggested in the
recent debate in the Chamber that the Court itself is not sufficiently
independent of the Commission, that it could even be considered a
creature of the Commission and that it does not compare with, say, our
National Audit Office. Have the Government raised any concerns about
that at European Union level, and will they be doing so in the
future?
Danny
Alexander:
I agree that progress has been too slow. We
have had 16 years of qualification and many Governments sounding off
about that, and progress has not been far enough or direct enough. I
also agree that a great responsibility rests on member states.
The areas where particular problems exist with EU spending are, in many
cases, those that are managed with member states. Of course, in this
country we publish reports through the NAO on our EU spending so we
also have a domestic check on it. Our view is that the Court of
Auditors is an independent body; it has an important role to play and
we should be supporting it in doing so
more effectively. It is important, however, that pressure is put on
member states to ensure that they too are playing their role to the
full.
Kelvin
Hopkins:
This very day we are discussing in the Chamber
the Budget Responsibility and National Audit Bill, which will further
strengthen the independence and objectivity of the National Audit
Office. Would it not be useful for the Government to suggest to the
European Union that it follows the example that we are setting with the
National Audit Office?
Danny
Alexander:
I am certainly always happy to highlight, and
indeed I have highlighted, examples of good policy practice that the
Government are pushing through. The principal purpose of the Budget
Responsibility and National Audit Bill is the creation of an
independent Office for Budget Responsibility to ensure that economic
forecasting is independent. I can certainly report that a number of
other countries—other European Union member states—are
taking a close interest in that, because they see benefit to their own
fiscal policy in the sort of independent regime that we are
establishing here.
Dr
Thérèse Coffey (Suffolk Coastal) (Con):
I
have never served on this sort of Committee before, so Members must
forgive me if I am not au fait with the procedures. Will my right hon.
Friend give us a view on why the Commission is introducing the
tolerable risk of error? He has already mentioned in his opening
statement that it brings the reputational aspect into question. Is the
proposal about trying to establish that money goes to the right
spending areas, as it is supposed to do, or is it about trying to get
value for money?
Danny
Alexander:
In fairness, it is wrong to describe the
proposal as the Commission introducing a tolerable risk of error. It is
not something that will happen; the proposal has to be discussed among
member states and by the European Parliament before anything happens to
put it into practice. It would be wrong to characterise it as something
that is to happen; it is a suggestion that is being put
forward.
I
am not sure that it is right for me to characterise the
Commission’s reasoning; it is set out in the documentation. The
view seems to be that in different areas of spending, there are
different causes of error, so different thresholds may be appropriate.
We do not think that the time is right for that, because, as has been
said, we have 16 years of accounts being qualified. There is
a risk that the proposal would be seen as a way out of that problem,
whereas actually the way out is better financial management at EU and
member state level. That is what we are pushing for; that is what I am
grateful to the European Scrutiny Committee for highlighting. It also
gives us the chance to demonstrate that the British Parliament wants to
see much greater attention paid to proper financial
management.
Kerry
McCarthy:
On the same point—the tolerable risk of
error—a couple of useful examples are given in the document. The
first is on the research, energy and transport area, where at the
moment there is a 3% error
rate. It is estimated that to bring it down to the
2% materiality threshold would cost €18 million, even if all the
errors were recovered. The document goes on to say that accepting a
3.5% error rate would save €8 million. The conclusion is
that
“on balance the
Commission proposes a TRE level of 2-5%.”
After the cost-benefit
analysis, once we are saving money, we should not be looking at raising
the threshold higher. Will the Chief Secretary tell us why the
Commission seems to think that a TRE as high as 5% should be under
consideration?
Danny
Alexander:
I am not sure that I can help the hon. Lady.
The tolerable risk of error is not the only moving part in the debate.
We think that the overarching priority should be the simplification of
rules and regulations. A lot of the error arises from the fact that
there are extremely complicated rules and regulations. If
the Commission worked through a process, as we are encouraging it to
do, of simplifying the regulations, it would not weaken the ability to
ensure proper financial discipline. The reduction in complexity would
reduce the error rate quite substantially in many areas, which would
mean that the figures would be quite different from the ones quoted. We
would prefer, and are arguing strongly for, the first priority to be
given to simplification, looking at the complexity of rules and
regulations and trying to ensure that the burden of that complexity
is not in itself fuelling error, which is costing taxpayers
money.
Chris
Heaton-Harris (Daventry) (Con):
It is always a pleasure to
serve under your chairmanship, Miss McIntosh, as a former colleague
from the European Parliament. I guess I should start by wearing that
hat. I served in the European Parliament at the same time as the Deputy
Prime Minister, and he and I were both part of a group of people who
tried to bring greater transparency to EU accounts in general, and to
the Council when it was dealing with EU accounts. How is that process
going? It is quite an important factor in terms of transparency. When
we recast the financial regulation, it was the most boring thing one
could ever possibly do in human terms. It became so complicated that
anybody could walk through it and find a way to spend money in a
certain direction. When Deloitte looked at it, it said we could have
the simplest or the most complicated financial regulation, but it was
the culture of the spending body—the European Commission
itself—that needed to change. How do we change
that?
Danny
Alexander:
Those are good points. I commend the hon.
Gentleman for the work that he did in this area with the Deputy Prime
Minister and others when he was a Member of the European Parliament.
There is still a strong body of budget disciplinarians among member
states and in the European Parliament doing valuable work. They are
co-signatories of the letters that we have produced on the overall
budget for the next few years, thus demonstrating the continuing
alliance, strongly fuelled, of course, by the austerity programmes that
many member states are going through.
The cultural
point is interesting. The Court of Auditors’ reports show, for
example, that the error rate in the Commission’s administrative
spending is a lot lower than that in some of the programmes that are
co-managed with member states, such as in the cohesion and structural
funds principally. We need to improve the
Commission’s approach and work with it to get the appropriate
emphasis on alleviating the administrative burdens, streamlining the
methods of implementation and modernising the risk management and
control measures that it has put in place. Within the European Council,
too, we need to ensure that other member states take proper
responsibility to ensure that money is well
spent.
Chris
Heaton-Harris:
Following on from that point directly, back
in 2003, the European Commission tried to introduce something similar.
It was not called a tolerable risk of error, but it was an attempt to
have the goalposts moved slightly, so an error rate of between 2% and
5% would have been okay. I guess that that was because it wanted to be
drawn back to not having a positive statement on its accounts, or its
accounts signed off. I am wary, and most people and Governments who are
net contributors to the European Commission budget should be wary of
moving the goalposts in such a way. At the moment, if anything is to be
done, best practice should be shared across member states about how
European money is spent when it comes one’s way. Although the UK
has not been fantastic at that, we might have been better than some
others. That would be better than allowing the European Commission to
move the goalposts in relation to how the money is hosed
around.
Danny
Alexander:
I agree with the hon. Gentleman that we should
be wary of moving the goalposts, which is something that I hope to have
conveyed to the Committee. Many other things need to be done at a
European level to ensure that financial management is done properly,
too.
Kelvin
Hopkins:
I note that the Chief Secretary has said that the
2% tolerable risk of error has not been accepted by the Government and
that discussions are continuing. However, 2% of public expenditure in
Britain would be the equivalent of about £12 billion—plus
or minus—by my calculation. The argument is that it is not worth
putting money in to collect that, but if it were the equivalent of 3p
or even 6p on the standard rate of income tax—1p on the
rate of income tax is worth £4 billion, so it would be
3p or 6p on the standard rate—would it not be worth using that
to collect the rest of the money or to ensure that it is spent
correctly, especially if it would save such sums? With 2%, are we not
talking very large sums of money?
Danny
Alexander:
Yes, we are, and as the Minister responsible
for public spending in this country, I think it is important that every
penny of UK taxpayers’ money is spent wisely and in a way for
which people are held properly accountable. However, I return to the
point that these brackets contain a range of categories of expenditure
and the errors are due to complexity and the fact that procedures and
accounting processes not properly understood, as opposed to money being
misspent or fraudulently misallocated. A lot of sins, therefore, are
included under this heading, which is why the first step should be
simplification, looking at the rules and regulations, and ensuring that
they are properly understood and that member states understand them
properly. The system should be clear and simple, and it should be
implemented and enforced in a way that is clearly understood. That, in
itself, would reduce error rates.
Kelvin
Hopkins:
On the error rate, is it not possible that
“error” might cover the inappropriate use of money? It
might only be a euphemism for the misuse of funds, and if the EU
categorises all of its lost cash as “error”, it could be
describing something as more innocent than it really is. Will the
Government tease out what is error and what is actually an
inappropriate use of European funds?
Danny
Alexander:
The hon. Gentleman is quite right. Such things
are included, as is the misuse of funds—of course, not applying
the accounting rules properly is also a misuse of funds. Bodies that
accept the funds are required to account for them in a certain way, and
in the end, it is their responsibility to ensure that they do so
properly. In this country, we have had experience of structural fund
programmes where the accounting has not been done properly and, as a
result, money has been clawed back. Therefore, I do not wish to
give the impression that that should not be taken seriously. Ensuring
that we understand the balance between such things is important. For
example, we do that domestically with our social security system. The
clearer, simpler and less bureaucratic the relevant rules and
regulations are, which we can then enforce properly, the more we will
be able to tease out misuse and avoid the errors that compose part of
the overall
total.
Dr
Coffey:
Will the Minister clarify if moves to make such
changes require unanimity or qualified majority
voting?
Danny
Alexander:
They require
unanimity.
Kerry
McCarthy:
I want to press the Minister on the different
stances taken by member states. The Government acknowledge that, as
well as allowing time for the simplification measures to play out,
which we accept and support, there needs to be a push for member states
to take more responsibility to improve the management of EU funds at
national level. Some countries have better records at doing that than
others. Is there a correlation between member states that are perhaps
not doing such a good job and those that are trying to push for the
higher TRE? I am trying to tease out whether some of them are using
this moving of the goalposts to get off the hook in terms of their
responsibility to set their own house in
order.
Danny
Alexander:
It is a bit too early to draw
that correlation, because the debate is at an early stage. The group of
budget disciplinarians includes a range of member states, including
those such as the United Kingdom that have enormous budget deficits of
their own, which are a sign of a need to improve financial management.
Another change that needs to be made is a move to a more risk-based
approach to auditing, so that, for example, larger projects and
institutions that have a proven track record of risk are audited much
more closely, as we would in this country, rather than looking at
everything on an equal basis. That might help to capture part of the
point that the hon. Lady quite rightly
makes.
Chris
Heaton-Harris:
Since 1999 certainly, and I believe since
1997, we have not actually had a published error rate. When we discuss
tolerable error rates, therefore, we
mean tolerable within a zone that the European
Commission is setting, which might possibly be 2% to 5%. Would it not
be better to start from a benchmark of what the actual error rate was
in each individual area of the European Commission’s spending?
We could then move forward from that and judge whether it is
improving.
Danny
Alexander:
As I have said, certainly, transparency and the
availability of information in such areas always helps the
understanding of them, so I would encourage greater transparency of
information in the area that the hon. Gentleman suggests. Returning to
the points that I was making, however, there are reforms that
can be made to the way that such business is done that can help to
simplify the system and to ensure that error is substantially reduced,
which will expose the areas that are most at risk of the problems that
the hon. Member for Luton North has
described.
On
voting, I must say that the unanimity requirement that I referred to
earlier specifically relates to the interinstitutional agreement. The
financial regulation is subject to qualified majority
voting.
Kerry
McCarthy:
On the interinstitutional agreement, I noticed
in the documents that it is politically binding, but not legally
binding. Will the Minister clarify what the consequences of that are if
one of the parties to the agreement fails to meet its
obligations?
Danny
Alexander:
It is an agreement between the institutions,
which is effective in ensuring that we keep the budget down to the
lower ceilings that are contained within the agreement. Obviously, all
parties are obliged to stick to that agreement, so I am not sure that
the circumstance that the hon. Lady describes has
arisen.
Kerry
McCarthy:
It is a political obligation. The Chief
Secretary is basically saying that it is a moral obligation and a
framework within which people will operate. However, what enforcement
and accountability mechanisms will ensure that that happens and that
people come
together?
Danny
Alexander:
It is important to say that while the
interinstitutional agreement is a political one—there is still a
moral or political obligation to stick to it—the rules around
the annual budget that implement it are binding. Furthermore, as the
hon. Lady will know, as a result of the Lisbon treaty, a number of
elements of the interinstitutional agreement are being transposed into
regulations, which also gives them legal
force.
Motion
made, and Question
proposed,
That
the Committee takes note of European Union Documents No. 9193/10,
relating to the functioning of the Interinstitutional Agreement on
budgetary discipline and sound financial management, No. 10346/10 and
Addenda 1 and 2, relating to a Commission Communication on striking the
right balance between the administrative costs of control and the risk
of error, .and Nos. 5129/11 and 15759/10, relating to a proposal for a
Regulation on the financial rules applicable to the annual budget of
the Union and corresponding Opinion of the European Court of Auditors;
and supports the Government's approach to ensure that, especially at a
time when households and governments across the EU are taking difficult
decisions to balance their budgets, EU expenditure must be subject to
strict budgetary discipline and appropriate principles of sound
financial management.—(Danny Alexander.)
5.1
pm
Kerry
McCarthy:
I am not sure that I have a great deal to add to
what we have already discussed during questions, which I am sure will
come as a great relief to the Committee. Both Whips seem glad to hear
that.
We more or
less share the Government’s view that it is too soon to push for
these changes. It seems like a terribly tedious and drawn out process,
as the hon. Member for Daventry, a former MEP, said. I expressed
concern during the debate on the European Court of Auditors report the
other day that, because the 2009 accounts have only just been
scrutinised, there is a time lag between drawing conclusions on what
went wrong during those spending periods and the allocation of funds
and then trying to implement changes. We are always working several
years behind schedule. That is the problem with this, too.
Simplification
measures have been in play for perhaps a couple of years, but it will
be a while before we know their outcome. We support the idea of giving
things a bit more time. There is concern about how the public would
feel if the goalposts were seen to be moved. There is public concern
about the fact that the accounts have yet again not been signed off. At
a time when each country is being asked to put its own house in order
and make significant savings, there is still a public perception that
there is profligacy and bureaucracy, which lead to waste and misuse of
funds at EU level. It is essential that we do all that we can to
restore public confidence in the
EU.
I
wish that there were simpler ways to do it, rather than all these
interinstitutional agreements, financial frameworks, regulations and so
on. Public confidence in the system depends on the public being able to
understand what the mechanisms are for keeping the EU accountable and
having transparency. It is very difficult to have transparency when the
system is so complex. I support the Government in their efforts to work
through that maze of bureaucracy to try to make it as simple and
transparent as
possible.
There
would be real concerns if the tolerable risk of error were raised
significantly above the 2% threshold. Agriculture is mentioned as an
area where it would be difficult to make progress by simplifying the
rules without jeopardising policy objectives. Moreover, to get the
current 2.8% rate down to 2% by increasing controls would cost five
times more than would be recovered. We seem to be in a Catch-22
situation, which means that we will almost have to accept a higher TRE,
and there would be widespread public concern about that. Perhaps the
Chief Secretary could explain how that would fit in with the reform of
the common agricultural policy and everything else that is being done
on that front to try to reduce waste within the agriculture
budget.
Broadly
speaking, we welcome the Government’s efforts. I appreciate that
it is not possible for the Chief Secretary to give a definite timeline
as to when some of these issues will be resolved. It is a case of
waiting for the simplification measures to play out and other things to
happen. Perhaps he could tell us what discussions are going on and at
what point decisions would have to be made. Will things come to a head?
Will we have to reject or accept the changes to the TRE rates, or will
the proposals gradually fizzle out because there is not enough support
in member states for them?
5.5
pm
Chris
Heaton-Harris:
I spent 10 years on the budgetary control
committee, which talked about this issue. I once spent three and a half
hours talking about a couple of amendments to a minor part of a
financial regulation. Indeed, I prepared so much for the debate we had
in the House two weeks ago, but then my contribution was squeezed when
the Minister decided to talk for 40-odd minutes out of a one and a half
hour debate. However, Members will be pleased to know that I will be
brief today.
When I was in
the European Parliament, there was no cross-party agreement on this
issue. Alas, the commissioner who was in charge of the administrative
change at the time was Lord Kinnock, so anything that the British side
did immediately became political. I hope that the one thing that the
Minister and the Financial Secretary will have taken away from the
debates we have had so far is that there is now cross-party agreement
in the United Kingdom. We want things to change on Commission spending
and we want the Commission’s financial management to
improve.
Let me make
just a couple of quick points. Ministers will go into battle on the
next financial perspective in the not-too-distant future, if they have
not already done so. We have a veto on whatever proposals come out of
that. I would very much like to think that we will talk about financial
management when we have that debate.
After that
battle, we have the annual battle in each budget area. The budget is
broken down into the Commission’s seven big spending areas,
including common agricultural spending. There is a big political battle
over how much money is allotted to each area. Then, almost
immediately—the financial year runs from 1 January to 31
December—we get amending budgets from the European Commission,
which transfer quite huge slugs of money from one part to another. Such
things go through the European Parliament without anyone batting an
eyelid. They then come to this House for scrutiny, and we take note of
them, but we should pay more attention to how the Commission manages
its money mid-year, as well as at the end of each year when we look
back.
5.7
pm
Kelvin
Hopkins:
I shall not speak for long. I hope that the
Government will continue to take these matters seriously in discussions
in European Councils. After 16 years, we could become
blasé or complacent about the fact that the budget has not been
signed off. I do not think we would feel quite so complacent if the
Comptroller and Auditor General refused to accept the British Budget
and was constantly saying that the Government had got it wrong. We must
expect the European Union to adhere to the same standards as we do at
national level. We must not accept second-rate financial control,
especially because we are substantial net contributors to the budget,
and perhaps unfairly
so.
It
is astonishing that it would cost so much—possibly five times as
much as the amounts involved—to collect these extra millions or
billions of Euros. As I said, a 2% error in Britain’s
Budget would amount to £12 billion. If it cost five
times as much to collect that, we would be talking about spending
£60 billion to collect £12 billion—I think not. If
we had a few more tax inspectors, we could
collect a lot more than £12 billion in Britain, and the same must
surely be true of the European Union, although things might be
slightly more complicated. Nevertheless, collecting extra cash or
making sure that cash is not misused would surely not cost five times
more than the sums involved.
The problems
arise because of the nature of the EU budget and the fact that it is
spent in a strange way under the CAP and the structural funds. Lots of
pots of money go to different people in different places at different
rates. That promotes fiscal transfers between member states. Some of
those transfers are rather arbitrary and unfair and do not necessarily
relate to the living standards in particular countries. That is one
reason why Mrs Thatcher rightly negotiated the UK rebate. It was very
disappointing when Tony Blair chose to give away a substantial chunk of
that rebate for nothing in return. I found that astonishing. I was here
at the time, and in a debate just before he went off we said that we
wanted a CAP reform. He said he would go away and get it, but he
achieved no reform and came back with less rebate than we had had
before. However, that is history. We are now looking towards a more
rigorous and fairer approach to the European
Union.
I
have suggested on many occasions in Committee sittings and in the
Chamber that we ought to have a fundamental reform of the European
budget. Instead of having complex arrangements, with money allocated
under various headings to various pots, we could have a simple fiscal
transfer at some level from the rich nations to the poorer nations in
the European Union, if that was seen to be appropriate. We would be net
contributors according to our relative wealth, and some of the poorer
countries would be net recipients in exact proportion to their relative
poverty. That would at least be transparent and fair. Responsibility
for allocating member state funding would fall to the member state
Governments, who would no doubt choose to spend it appropriately. I am
sure we would spend it appropriately in Britain if we were net
recipients.
We
would say to the net recipients, “It is your responsibility to
spend it appropriately.” That would be fair. If they did not
spend it fairly within their own countries, at least they would be
democratically accountable. The electorates in those countries could
say, “We have been getting so many billions of euros from the
European Union. We want to make sure that the money is spent
fairly.” They might choose to subsidise agriculture rather
differently. Who
knows?
In
my view, having a standard way of subsidising agriculture across the
European Union is nonsense. Agriculture varies from country to country.
Some countries practise intensive farming, which can represent a much smaller proportion of the total economy, and are, like Britain, net importers of food.
Others are more traditional, less efficient and have a
different approach. We might choose—I have said this many times;
it goes down well with Welsh colleagues—to subsidise Welsh hill
farmers, because hill farming is a part of our culture and preserves
environments. If Welsh hill farmers wanted a subsidy to keep their way
of life going for all our benefit, that would be a good
thing.
Vast
subsidies for grain producers who make millions on the flatlands of
East Anglia might not be appropriate. Some do not believe there should
be subsidies at all and that it should be left entirely to the market.
I am an
interventionist—as one might expect from someone from the left
rather than the right. I am happy to see subsidies where appropriate,
and a degree of intervention by Governments in the economy. The CAP,
however, is complete nonsense, which should be abolished. It should be
left to member states to decide how they subsidise their agriculture
according to their own needs and choice.
I hope that
one day—it is not going to happen soon —we may move
towards a more sensible European Union in which any redistribution
using fiscal transfers across the EU is done on the basis of relative
living standards in the different member states. The rich would
therefore be net contributors according to their wealth, and the poor
would be net recipients according to their relative poverty. That
situation is a long way off, but I hope that one day we will get
there.
5.14
pm
Dr
Coffey: This may be my only opportunity to speak at a European
Committee, so I want to take advantage of it. When I was trying to be
elected to the European Parliament, one of the easiest ways in which to
get applause was to mention the very fact that the accounts had not
been passed off. In addition, I used to say to audiences that one of
the challenges in Westminster was that being put on a European
Committee was often regarded as being put on detention rather than as
being an important part of our legislative scrutiny. So I ought to take
the opportunity to speak while I can.
A key thing
that the whole Committee is united upon is the fact that the tolerable
risk of error is simply ridiculous. Until we can be confident that
money is being spent appropriately, the tolerable risk of error should
not be on the words of the European Commission’s lips. I speak
also as a former management accountant and finance director of a
company. What the Chief Secretary said earlier was absolutely right.
Taking a risk-based approach is the right thing to do, but we have to
ensure that some dull stuff happens, which is the practice of codifying
controls and applying them in risk management. Back in my company, that
was one of the most difficult challenges. Employing governance is not
exciting, but when one can show people the money that has been saved
and the behavioural improvement generated, one can spend one’s
time doing valuable things and allow the controls to look after
themselves, with occasional monitoring. If we rely on auditors to check
that the financial accounts of a business are absolutely correct, we
are living in cloud cuckoo land, because it is easy for a financial
director to run rings around auditors. That system relies on the
integrity and professionalism of the people involved in running the
schemes’ finances, and transparency and accountability make up
another key
part.
Often,
the sanctions that could be applied are another tool. I am not sure how
the sanctions are enforced, and I do not expect the Chief Secretary to
go into great detail—if any at all—on that. MEPs often
said to me that it was the member states that were spending the money
incorrectly, and I would respond, “Well, you’re the ones
dishing out the funds, so stop doing that if they’re being spent
wrongly.” That is one way to try to stem the flow of
funds.
Returning to
the point on transparency that was made by my hon. Friend
the Member for West Worcestershire, I would appreciate it if the United
Kingdom took leadership on that issue and published some of the
information on errors in our own spending programmes that my hon.
Friend the Member for Daventry referred to, so that in the Council of
Europe we can say, from a position of strength: “We are trying
to put our house in order, and we encourage others to do the
same.” We need to ensure that every time an MEP, a Minister in
the Council of Europe or the Commission comes up with a proposal that
means spending more money—we and our constituents putting our
hands in our pockets to pay more tax—we are confident that the
money will be spent appropriately across the European Union, rather
than our perhaps being concerned about
fraud.
5.17
pm
Danny
Alexander:
I am pleased to have been able to take part in
this short and good debate—it has not felt like detention at
all. I will try to answer the few questions briefly, but first it is
important to recognise that the context of the debate has shifted
substantially, both in this country and in other European countries,
because of the austerity regimes and the need to make spending cuts, to
ensure that we deal with our massive budget deficit, to reduce our
borrowing and to live within our means. That is going on in both the UK
and other countries, and across Europe it is promoting a much greater
interest in the proper use of funds that are allocated at European
Union level. We need always to make the argument in that
context.
Two
issues have come across strongly in the debate. One of those issues is
a great concern about the tolerable risk of error and the time scale on
which that would be considered, and the other is a very strong argument
in favour of transparency. As mentioned by the Member for Bristol East,
those issues reinforce already strongly held Government views. The
debate has shown that there is cross-party consensus. Among those from
a traditionally pro-European perspective—the hon. Lady and I
worked together in the dim and distant past on the Britain in Europe
campaign—and those with a more Eurosceptic position, there is a
common view in the United Kingdom that we need to have much stronger
financial discipline at a European
level.
Nick
Boles (Grantham and Stamford) (Con):
And a great success
that
was.
Danny
Alexander:
I did not put that on the record as a success,
but to show that across Parliament there is a common view that budget
discipline, control of public finances and ensuring that European funds
are properly managed are matters of high priority. That is an important
point.
Kelvin
Hopkins
rose—
Danny
Alexander:
I will give way to the hon. Gentleman, for old
times’ sake, if nothing
else.
Kelvin
Hopkins:
I am sure that the Chief Secretary has no doubt
as to my position on the matters. I agree with him entirely on
financial discipline, but he was no
doubt an enthusiast for Tony Blair and his position on the European
Union, so what are his thoughts on casually giving away a great chunk
of our
rebate?
Danny
Alexander:
Actually, one of the points that I wanted to
agree with from the speech of the hon. Member for Luton North was that
the former Prime Minister did the country a grave disservice in giving
away part of the rebate. The hon. Gentleman said that that was in the
past, but we are of course living with the consequences now, with the
UK’s gross contribution rising.
The Government
have just been through a spending review, which is now being
implemented and which has caused difficult decisions to be
taken—rightly, in my view, because of the importance of dealing
with the deficit that we have. However, of course, one element of
public expenditure that is rising is our gross contribution to the EU
budget. That is now the size of the budget of a middle-ranking
Department. It is just less than the Department of Transport budget
but, the way things are going, it could well exceed it in future years.
That helps to make our
case.
The
hon. Member for Luton North also made the case that a responsibility
lies with member states. Although I do not agree with his proposal, it
is important that member states should understand their
responsibilities. As a highland MP, I join the hon. Gentleman in
celebrating
the importance of hill farmers, although that may be stretching the
point of the papers before the Committee
somewhat.
The
hon. Member for Suffolk Coastal rightly made the point that the
“tolerable risk” of error in the proposals is
intolerable, as it were, and that we need proper controls of other
sorts. I can reassure her that the UK is taking a leading role on the
transparency agenda. We are making the case domestically that
transparency is important to greater public understanding and control,
and to the ability to hold politicians and decision makers accountable
here. We think the same about the European level, and we make that
argument
strongly.
I
hope that I have left the Committee in no doubt that the UK Government
attach great importance to continuing strong financial discipline in
the European Union; that the lead that the Prime Minister showed in the
European budget negotiations for this year sent a strong signal in that
regard; and that we shall continue in that manner in the budget
negotiations for the next two years and for the next financial
perspective, to ensure that the strong control of public spending that
we are exerting domestically is also reflected in decisions at European
level.
Question
put and agreed
to.
5.22
pm
Committee
rose.