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Lord Eatwell: My Lords, can the noble Lord tell your Lordships' House who paid for the Government's anti-fraud measures in 1991?

Lord Henley: My Lords, there are occasions when there is no need for us to take up what money is on offer. The point I was making is that we have taken up money—for example for improving IT—in the particular examples that I gave. There is no need to then take up further funds in subsequent years merely because money is available when no upgrading of that particular equipment is made. We are not in the position of simply seeking money for the sake of it. That would strike me as being jolly close to being financial mismanagement, fraud or whatever the noble Lord likes to call it.

Lord Bruce of Donington: My Lords, I am grateful to the noble Lord for giving way again on this. The noble Lord has dealt so far with the narrow issue of fraud. Will he now make some observations about irregularities and financial mismanagement in the institutions themselves as distinct from the defects in the member states?

Lord Henley: My Lords, I was dealing with fraud and, I hoped, all matters falling under the general subject of fraud. The noble Lord will be aware that earlier, at Question Time, we debated the subject of the waste which Members of this House see in the tobacco regime. Her Majesty's Government have made their position on that issue absolutely clear and we shall continue to do exactly that. But obviously there are occasions when we cannot convince the other members of the rightness or virtue of our cause. We shall certainly continue to try to do so in that particular case. It would be quite fair to describe that as an example of money that we see as being wrongly spent. We can only do what we can and will continue to do so. The same applies to what I said about fraud and financial management. I hope that the noble Lord will accept that and will now allow me to continue.

I shall move on from the subject of fraud to the CAP. We have argued for and obtained action within the CAP. Again, whatever the noble Lord, Lord Eatwell, has said, it is not a matter which I recollect the last Labour Government ever seeking to do much about. CAP reform has reduced the export refunds, as my noble friend Lord Kingsland quite rightly stressed, and intervention areas particularly open to fraud. Two-thirds of payments are now made direct to farmers and are subject to much tighter controls under the IACS system. Administrative penalties are now applied where there are overclaims.

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I could go on, but the point that I am making—and I can only make it briefly given the time available—is that this Government are, above all others, committed totally and utterly to the fight against fraud. We are committed to it, first, because it is wrong that fraud and financial mismanagement should take place, but also for the reasons given by the noble Lord, Lord Dahrendorf.

Further, I ought to stress, because considerable blame has been placed by many people on the activities of the Commission itself, that we are to have a new Commission. The new Commission has made absolutely clear its determination to improve financial management and to do what it can to act against fraud. The incoming Commission President, Mr. Santer, has already proposed that no proposal should be presented for adoption by the Commission without the prior consent of the budget commissioner. We certainly welcome the statement by Mr. Liikanen, the new budget commissioner, during his appearance before the European Parliament last week on the need for improving cost effectiveness and financial management of Community spending. I am sure that that is something which the noble Lord, Lord Bruce, and others will welcome.

My noble friend Lord Buxton insisted that the Government should have demanded conditions so that the Edinburgh increase took effect only when financial improvements were made. I can assure my noble friend that the Edinburgh European Council certainly insisted on improved procedures for prior appraisal and post hoc evaluation of projects funded from the Community budget. Since Edinburgh that requirement has been written into the Community regulations for the cohesion fund, structural funds and the fourth framework programme for research and development. Certainly that is something which we wish to see developed further.

Lastly on the subject of the CAP, I accept that spending on the CAP has increased in real terms since 1979. However, the Government were the prime mover in introducing the agricultural guideline in 1988—another sign of the Government's negotiating successes—which ensures that agricultural provision will increase at only 74 per cent. of the growth in real GNP. Since the guideline was introduced spending on the CAP has fallen from 68 per cent. of the EC budget to a mere 50 per cent. I believe that the noble Lord will accept that that is at least a step in the right direction.

I shall now move on, again albeit briefly, to the question of the figures and the allegations that my right honourable friend the Chancellor of the Exchequer got his sums wrong. Noble Lords opposite greeted my noble friend's explanation with some mirth. Perhaps I may briefly re-explain for bears of little brain, as I believe the noble Lord, Lord Richard, described himself, the reasoning behind it.

In 1991 the Treasury forecast for the net contribution for 1994-95 was £3.3 billion. In 1992 it was £3.1 billion. In 1993 it was £1.7 billion. The forecast outturn is now £2.4 billion. That figure was released exceptionally by the Chancellor a week before his Budget in order to inform the debate on this particular Bill. Obviously forecasts have changed, but they have not changed in one direction only as some would have us believe.

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Forecasting the net contribution is a very difficult task. One problem is that of budget years, as my noble friend made quite clear. The Community's budget year is the calendar year, as I think the noble Lord knows. Therefore, depending on the distribution of contributions in the Community budget year, those contributions may fall in different United Kingdom budget years. For example, in 1993 it was anticipated that most claims under the reformed CAP regimes would be at the beginning of the Community budget year, but many have in fact been later, which shifts them into a different United Kingdom financial year. Payments are calculated according to certain exchange rate assumptions, according to forecasts of growth in United Kingdom and Community VAT and GNP, and according to inflation forecasts. A correction is then made to take account of outturn of all those factors and the pattern of Community spending. The abatement is obviously a further complicating factor.

The Treasury provided papers to Sub-Committee A of the European Communities Committee earlier this year on the calculation of VAT and GNP own resources and of the abatement, which obviously go into this question in much greater detail than I am able to do. I commend them to the noble Lord. It may take him and his noble friend Lord Eatwell a little further.

Lastly on the question of costs, I wish to refer briefly to the noble Lord, Lord Stoddart, who asked for an assurance and a guarantee that £250 million would be only £250 million in 1999 and would not exceed that figure. Obviously that is not a guarantee that I can give. It depends very much on growth because we are talking about percentages of GNP. Clearly all forecasts are subject to a degree of uncertainty, but I can say for sure that the margin for forecasting error on that £250 million resulting from Edinburgh is certainly much less than the margin of forecasting error on the net contributions as a whole, for the reasons I gave earlier.

Lord Eatwell: My Lords, I am grateful to the Minister for giving way. Perhaps I may take him back for a moment to the Chancellor of the Exchequer's £700 million gaffe. Does he agree that the reason for the unexpected increase in spending was not in this case an issue of timing but was attributable to other factors, some of which he has listed and some of which will be present not only this year but in years to come?

Lord Henley: My Lords, it is connected with other factors and timing. Timing was a factor which came into play and which will always be a factor.

Let us take the example of CAP agricultural payments paid in March this year or in April. Obviously, it makes a fundamental difference to us because, as the noble Lord will know, our accounting year begins and ends in

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April. If some of those payments gradually shift towards the end of the year and the great balance fall in the winter, obviously the position is very difficult. But, broadly speaking, the trend still runs in the same direction. I do not think that I can take the noble Lord any further at this stage.

I shall take one last intervention.

Earl Russell: My Lords, I am fascinated by what the Minister said about exchange rates as a factor. Is he telling us that the increase in the Community budget is in part a consequence of Black Wednesday?

Lord Henley: My Lords, I am not saying that at all. What I said, if the noble Earl had cared to listen to me, was that our forecasts varied both up and down. They were not all in one direction. Obviously, exchange rates can influence these matters. If the noble Earl had listened to me, I said that other matters were of even greater influence.

Perhaps I may conclude by briefly summarising once more the main points of the Bill. The Bill will enable the United Kingdom to adopt the new Own Resources Decision giving effect to the financing agreement which the Government reached at the Edinburgh European Council in December 1992. We believe that that agreement was a good deal for the United Kingdom. It preserves our abatement negotiated by my noble friend Lady Thatcher unchanged until at least the end of the century, and even then it can be changed only by unanimity and with the subsequent approval of Parliament. It increases the overall ceiling on Community revenue by just seven one-hundredths of 1 per cent. of GNP over seven years. It means that the Community budget is expected to grow at a much lower rate between 1992 and 1999 than over the period of 1988-92. It will result in probably five other member states making bigger per capita net contributions than us by the end of the century and will increase our net contribution by some £75 million next year and £250 million in 1999-2000 compared with the present arrangements. That contrasts with the extra bill of around £1 billion by 1999 that would have resulted from the Commission's proposals.

The financing agreement was a major component of the overall Edinburgh European Council conclusions. I cannot stress enough to my noble friend Lord Boyd-Carpenter and others that this was very much a package. Obviously, it would have been open to us, because unanimity was required, simply to have rejected anything; and we would have been much happier with an even lower ceiling agreed. However, in the light of the other parts of the package that were agreed very significantly—obtaining a deal on GATT, enlargement negotiations, and so on—it was quite right for Her Majesty's Government to agree that deal as they did.

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Perhaps I may take noble Lords back to the Statement that was repeated in this House by my noble friend Lord Wakeham, then Leader of the House. I do not remember any particular objections at the time. In fact, I seem to remember a general welcome for the deal that my right honourable friend the Prime Minister brought back on that occasion.

We believe now that it is vital that we deliver on that commitment that we gave at Edinburgh. If we broke our word, the United Kingdom's international reputation

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would be ruined and our effectiveness in future negotiations would be reduced. I believe that that was a good deal for this country and helped to deliver a successful outcome on other key objectives, too. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

        House adjourned at eight minutes before eight o'clock.

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