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Lord Wallace of Saltaire: I do not entirely follow the noble Lord, Lord Pearson of Rannoch, in his wider speculations. I do, however, agree that fraud continues to be a major problem for the European Union. I share also the noble Lord's view, as do many others on these Benches, that the balance of the budget is still perverse and that reform of the common agricultural policy is an important part of reducing levels of fraud and the perverse flows that adversely affect the United Kingdom.

I disagree with the noble Lord that we do not have allies from other countries. Commissioner Likkonen, the Finnish Commissioner, is doing extremely good work at present in beginning to put into effect reforms of some of the more inefficient sections of the Commission from which we have suffered far too long.

As this is the last amendment of the evening, rather earlier than I had expected, I take the opportunity to congratulate the noble Lord, Lord Moynihan, on his remarkable stamina over the past two days. I think that he may well have been on his feet for more or less five hours during that time. That is, indeed, quite a remarkable achievement. I rather hope that the noble Lord will not have to be on his feet for very much longer.

11.45 p.m.

Lord Moynihan: I am grateful to the noble Lord. It is important for the sake of the record for me to point out that I was not on my feet for five hours at a stretch. At every stage of the detailed consideration of this Committee work I did attempt to keep my remarks as brief and concise as I could. Nevertheless, as I am sure the noble Lord accepts, there was much detail to be covered in some of the groupings of amendments. I apologise if, on occasion, I had to speak for 15 or so minutes in order to cover those details. However, I shall not do so on this last amendment, although I welcome the fact that we appear to have a quorum in the Chamber for the first time. That is probably because of the fascinating and detailed intellectual argument that I am about to rehearse in the context of Amendment No. 56. Indeed, I cannot think why else it should be so.

I shall simply make one important point; namely, that in the context of the fight against fraud there is the question about the use of QMV. In the Amsterdam Treaty, the Government agreed to give the Community enhanced powers to combat waste and fraud by creating a specific legal basis for measures to combat fraud against the Community budget to be adopted by QMV.

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Article 209a of the TEC, at paragraph 4, provides for the Council to act according to the co-decision procedure of Article 189b, to adopt,

    "necessary measures in the fields of the prevention of and fight against fraud affecting the financial interests of the Community".

The Government have frequently used fraud to justify the massive extension of QMV. On his return from Amsterdam the Prime Minister told another place:

    "It is important for this country that we have QMV in certain areas ... Fraud is one such area".

As I understand it--although I would like confirmation from the Government Front Bench--the argument runs that, if we are to have an effective provision to tackle fraud, it has to be decided by QMV. Otherwise, if a country were accused and redress demanded because of the misdemeanours and mismanagement of funds by that country's officials or institutions, without QMV it is very unlikely that the EU would be able to ensure that any country used the money that it was allocated for that intended purpose. If there were no QMV and if unanimity was required, that country could veto any measures proposed.

As I understand it, the argument continues that, if one believes in an effective European Union, any objective examination of the issues leads one to conclude that QMV must be extended. I have just heard a call from behind me asking what QMV may be: it is qualified majority voting. Perhaps that noble Lord was fortunate enough to have escaped some of the detailed deliberations of this Committee; indeed, we went into that question at great length. So the argument goes that this is a positive example of where it is essential to extend QMV. That is why powers to combat fraud and waste were increased at Amsterdam by allowing the Council to take action by QMV to prevent and combat fraud against the Community budget and by strengthening the powers of the Court of Auditors to investigate the use of Community funds.

However, there is a counter argument upon which I would appreciate the Government's comments. As with many of the Government's arguments, we believe that this fails to take into account how, on occasion, Europe would work in practice. As has long been agreed, one of the fundamental reasons for retaining the veto is to enable better negotiations to take place than would otherwise be the case. The fact that Conservative proposals on fraud at the IGC did not attract full support one, two and three months before the summit does not, in my contention, mean that they would not have been agreed at the weekend of the summit itself.

As the Opposition is only too well aware, things are often agreed at the very last minute at European summits. Countries who preserve their veto and who are prepared to use it are those who can bring others to the negotiating table. In our view, that is how the law on fraud should be made--by unanimity. Then the enforcement measures of that law can be made by QMV in the ordinary course of events.

I should like to ask the Minister specifically about the requirement in amended Article 209a, paragraph 2 (Article 2, paragraph 52 of the Amsterdam Treaty) which states that:

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    "Member states shall take the same measures to counter fraud affecting the financial interests of the Community as they take to counter fraud affecting their own financial interests".

what effect does the Minister really believe that that requirement will have in the fight against fraud?

There are a number of other points I wanted to raise in the context of fraud but I think they were admirably covered on two other occasions during our proceedings. A speech at an earlier stage this afternoon by the noble Lord, Lord Bruce of Donington, referred to the issues of fraud, and there was a more comprehensive speech in the context of QMV yesterday. A series of speeches was given by noble Lords on this subject, so I shall not delay the Committee any longer by developing some of those themes. But I have to put on record that a number of them were worth going into in much greater detail than we had the opportunity to do at the time.

In conclusion, I thank the Minister and his colleagues for the courteous way in which they have responded throughout Committee proceedings to many detailed questions that have come from these Benches. I personally believe that in comparison with similar Committee stages that I have either attended in another place or read about on European matters, this was conducted in a very constructive spirit, one which analysed questions about what was best for Britain, and also how Britain could best contribute in Europe. Where noble Lords felt that we should not be contributing, strong arguments were made by them and listened to and respected. For those reasons, and from the Opposition Benches, I thank the Government Benches for the work that they have done to ensure the success of that, and particularly the Whips.

I conclude by asking the noble Lord whether he would answer the point that I have raised and to thank noble Lords on all sides of the Committee for their much appreciated constructive approach to this very complex subject, to which we will return at Report stage.

Lord McIntosh of Haringey: I am delighted to see that the noble Lord, Lord Pearson of Rannoch, is determined to go out of this Committee stage with a bang rather than a whimper. He has always been a fundamentalist; he has always taken the view that Britain should withdraw from the European Union. He has now gone further in saying that the whole project should be abandoned. We have to admire the consistency and the stringency of his point of view, whether or not we agree with it. It is quite clear that this Government, like the last Government, do not agree with that point of view.

On the issue of fraud, of course he is right in pointing out the seriousness of the problem. The National Audit Office published, only last week, an assessment of the report of the 1996 account which was prepared by the European Court of Auditors. The National Audit Office takes the view, as do the Government, that the accounts reveal unacceptable levels of fraud. We are talking about an amount of £3 billion, which is 5.4 per cent of the European budget. Having said that, this figure includes not only fraud but also errors in implementation, many of which reflect genuine

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differences of opinion between the European Court of Auditors and the Commission about the interpretation of the rules on eligibility. That figure is not an estimate of wastage because it includes a number of technical infringements; for example, about the timing of payments. But of course the noble Lord is right, as are other noble Lords who have taken part in this debate, including the noble Lord, Lord Wallace of Saltaire, that this level of errors is a cause for serious concern.

When the European Court of Auditors' report was published last November, Ministers made it clear that much work remains to be done before Community finances are as well managed as our national Budget. This is a priority during our presidency. Before I leave that point, I express my regret that my noble friend Lord Bruce of Donington is not with us at this late hour. He has pursued the issue of fraud with indomitable application. He probably knows more about it than any other Member of this Chamber. His contribution, even at this late hour, would have been valuable.

I have said that we believe this matter should be a priority during our presidency. I shall return to that point in a moment. I ought to respond to the noble Lord, Lord Moynihan, and mention ways in which the Amsterdam Treaty has the potential to reduce fraud and to improve financial management. There will be three main changes. First, the role of the European Court of Auditors in detecting fraud and mismanagement is strengthened. The treaty gives the Court of Auditors recourse to the European Court of Justice to protect its right to audit Community funds. This means that if the Court of Auditors is blocked by another institution from properly carrying out its duties it can take that institution to the Court of Justice. The Court of Auditors' right to audit those in receipt of Community expenditure right down the line to end users is clearly set out. That removes any past ambiguity. The Court of Auditors' right to audit Community funds managed by the European Investment Bank will be protected even if the agreement under which the audit is carried out breaks down. The Court of Auditors is now doing very useful work, and member states and the Commission are taking its reports more seriously. Further increases in the European Court of Auditors' powers under the Amsterdam Treaty should ensure that this continues.

The second main change concerns the Community's ability to take action against fraud, which is enhanced. That relates to the points made by the noble Lord, Lord Moynihan. Under the revised Article 209a, a specific legal base is created for adopting measures against fraud. Previously these had to be adopted under the cover-all provisions of Article 235, which requires unanimity and results in delay and less efficient legislation. In future--as the noble Lord has said, and as the article states--measures will be adopted by majority voting. Apart from anything else, this will permit quicker action to be taken. The use of qualified majority voting should not be seen as a threat; it is a tool to be used, and in this case it will be possible to take decisions unencumbered by the threat of veto from an offending member state. In that regard I confirm what the noble Lord, Lord Moynihan, said. That does not mean that there is not still a role for negotiations. I think it would

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be perverse if we were to object to this extension of QMV when it is so clearly in everyone's interest that there should be the power to take this action to prevent fraud.

The noble Lord asked me about the significance of paragraph 2, which states that member states shall take the same measures to counter fraud affecting the financial interests of the Community as they take to counter fraud affecting their own financial interests. I should have thought it was rather obvious that if we believe--as we do--that our own public accounts are conducted effectively, we should try to bring the Community accounts up to the same standard. I hope that applies to all other member states, but it is certainly a valuable criterion for this country.

The third major way in which the Amsterdam Treaty will reduce fraud is through a requirement placed on member states to co-operate with the Commission to ensure sound financial management of Community funds. That is what the Amsterdam Treaty does. It is not as dramatic as some people would like. It is not as dramatic as the Government would like, but these are significant changes. What will we do during our presidency in this regard? A lot of work on financial management and the fight against fraud is already under way.

During the presidency we are concentrating on taking forward existing initiatives, rather than distracting attention by launching new ones. The Commission's SEM 2000 initiative--sound and efficient management--is the focus of work on financial management. It has already made considerable progress, particularly in improving co-operation between the Commission and the member states. For example, the Commission's financial controller has signed bilateral co-operation agreements with the financial controllers in many of the member states. There have also been improvements in budget forecasting and execution, and we are pushing forward with SEM 2000 work during our presidency. We hope to get agreement to amendments to the financial regulation which sets out detailed rules for drawing up, implementing and auditing the EU budget.

In addition, under our presidency we are using the budget discharge procedure to highlight key financial management issues such as the need to set clear aims for expenditure and evaluate results against these; to better

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define eligibility criteria; and to ensure proper follow-up to previous Court of Auditor reports. We are working to pass on good practice in financial management to central European applicants for membership so that they develop effective financial systems before they join the European Union. They have been invited to a financial control conference in London in June.

Following the European Parliament's report of last year on transit fraud, which highlighted the vulnerability of the Community transit system to fraud and suggested that co-operation between European Union Customs authorities should be strengthened, we are encouraging that as well. We are also pursuing work on criminal fraud in the Justice and Home Affairs Council as part of the recent action plan on organised crime. We plan to use the 19th May ECOFIN to focus further on financial management and fraud issues, including a further report on SEM 2000, the annual fight against fraud reports, and member states' responses to the ECA report.

The amendment would require us to make an annual report on fraud issues. Let me make it clear that we are already doing so and that this amendment is therefore unnecessary. I hope that the noble Lord, Lord Pearson of Rannoch, will withdraw it.

Finally, since this is the last amendment in our extended Committee stage, although it is customary in this Chamber to confine pleasantries and congratulations to the end of a Bill, I certainly echo the thanks of the Government Front Bench to all who have made constructive contributions to our Committee stage.


Lord Pearson of Rannoch: I do not know whether it is in order for me to echo from the Back Benches the sentiments of gratitude which have been offered to the Government Front Bench for the patience and detail with which they have answered our queries. I am especially grateful to the noble Lord, Lord McIntosh, for the generosity of his comments about this particular amendment, which, in those circumstances I have much pleasure in withdrawing.

Amendment, by leave, withdrawn.

Remaining clause agreed to.

House resumed: Bill reported without amendment.

        House adjourned at four minutes past midnight.

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