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Baroness Park of Monmouth: My Lords, on a point of information, when those major costs are decided, is there any procedure by which the member states are consulted in an annual budget and told what is the intention; or is the decision taken without consultation?

2.45 p.m.

Lord Whitty: My Lords, the principle of building new parliament sites has to go to the Council of Ministers, and did go to the Council of Ministers during the regime of the previous administration. The precise cost in terms of out turn has probably never been effectively reported.

21 May 1998 : Column 1812

I suspect that that point may be mentioned by my noble friend Lord Bruce in the next debate. Nevertheless, the principle would have been considered by the member states.

The legal force of the present situation does not depend on the Amsterdam Treaty. It was, as noble Lords have implied, established by the agreement at Edinburgh in the European Council in 1992. As a result of that agreement the European Court of Justice decision of 1997, which was inevitable, was that the European Parliament is legally obliged to hold 12 sessions a year at Strasbourg. That ruling did not require changes to the Amsterdam Treaty. It was based on the pre-existing legal position.

I am not going to be tempted by the noble Lord, Lord Inglewood, into discussing the negotiating position during the EMU weekend. Nor am I going to be tempted by my noble friend Lord Stoddart into a generalised attack on our French colleagues on the eve of the World Cup. The fact is that the only way to change the present situation would be by unanimous agreement among the member states. There is no more prospect of getting the French to agree than there was in 1992.

I find the position of the Front Bench opposite rather hard to follow. When in government they were instrumental in brokering the Edinburgh Agreement and regarded it as a negotiating triumph. Now, in opposition, they seem to find it intolerable. The best way to change this position--the only way to change this position--is by introducing majority voting for the site of institutions. But the party opposite is clearly opposed to such extensions.

Lord Pearson of Rannoch: My Lords, the noble Lord is not quite right. That is not the only way in which to address this matter. The other way is to leave the treaty.

Lord Whitty: My Lords, we discussed that at earlier stages. It is clear that this Government do not wish to withdraw from the European Union. That was endorsed by the people at the last general election. It was a clear manifesto commitment that we should be positive in the European Union and that we should be a constructive member of it. That option is not available to this Government although, as stated on many occasions, any future Parliament has that option available to it, but I hope it never takes it. These are the facts of the case. A split site for the European Parliament is unsatisfactory; we all agree on that. We would all like to change it. The Treaty of Amsterdam does not change that problem and it is not the cause. It does not have any additional financial effects compared with the current situation. Therefore, this amendment will not have any real affect and I ask my noble friend to withdraw it.

Lord Bruce of Donington: My Lords, I am rather disappointed with my noble friend's reply to my argument. If the protocol to which I referred made no difference whatever to the pre-existing position, why embark on it at all? Why not leave the treaty as it is? That would achieve exactly the same purpose. The protocol is there for a specific reason. Essentially, it is there to protect the interests of both France and Belgium. They are quite welcome to it. I am not arguing that the seat of the Community should be changed in any way.

21 May 1998 : Column 1813

All I am saying--and I invite another place to say so--is that the existing arrangements, particularly as regards the European Parliament, are a shocking waste of money and ought not to be tolerated. The noble Lord may say that another place has a full opportunity to examine these matters. Normally, that depends on the usual channels, as the noble Lord knows quite well. In this particular case, that is singularly inexplicable. The other place declined the opportunity to debate last year's European budget at all. It put it through at 10.15 in the evening without even bothering to examine it. When considering questions of economies, if your Lordships pass this amendment it would have the effect of ensuring that the other place pays attention to this particular expenditure. I invite the House to support the amendment.

2.52 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 59; Not-Contents, 97.

Division No. 2


Addison, V.
Anelay of St. Johns, B.
Annaly, L.
Belhaven and Stenton, L.
Brabazon of Tara, L.
Braine of Wheatley, L.
Bruce of Donington, L.
Cadman, L.
Charteris of Amisfield, L.
Cope of Berkeley, L.
Courtown, E.
Cranborne, V.
Cross, V.
Cumberlege, B.
Darcy de Knayth, B.
Denham, L.
Elton, L.
Feldman, L.
Henley, L.
Howe, E.
Inglewood, L.
Kenyon, L.
Knollys, V.
Lauderdale, E.
Lawrence, L.
Leigh, L.
McConnell, L.
Mackay of Ardbrecknish, L.
Macleod of Borve, B.
Marsh, L.
Miller of Hendon, B.
Molyneaux of Killead, L.
Monk Bretton, L.
Monson, L.
Moran, L.
Moyne, L.
Moynihan, L.
Munster, E.
Noel-Buxton, L.
O'Cathain, B.
Orr-Ewing, L.
Oxfuird, V.
Park of Monmouth, B.
Pearson of Rannoch, L.
Rathcavan, L.
Renton, L.
Rowallan, L.
Shore of Stepney, L.
Soulsby of Swaffham Prior, L.
Stoddart of Swindon, L. [Teller.]
Strathclyde, L.
Strathcona and Mount Royal, L.
Swinfen, L.
Taylor of Warwick, L.
Tebbit, L.
Waddington, L.
Weatherill, L.
Wharton, B.
Young, B.


Acton, L.
Addington, L.
Alderdice, L.
Archer of Sandwell, L.
Beaumont of Whitley, L.
Berkeley, L.
Blackstone, B.
Blyth, L.
Borrie, L.
Burlison, L.
Calverley, L.
Carlisle, E.
Carter, L. [Teller.]
Clinton-Davis, L.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Evans of Parkside, L.
Ezra, L.
Farrington of Ribbleton, B.
Gallacher, L.
Gilbert, L.
Gladwin of Clee, L.
Graham of Edmonton, L.
Gregson, L.
Grenfell, L.
Grey, E.
Hamwee, B.
Hanworth, V.
Hardie, L.
Hardy of Wath, L.
Hayman, B.
Hilton of Eggardon, B.
Holme of Cheltenham, L.
Hoyle, L.
Hughes of Woodside, L.
Irvine of Lairg, L. [Lord Chancellor.]
Jacobs, L.
Jay of Paddington, B.
Jenkins of Putney, L.
Kennet, L.
Kilbracken, L.
Kirkhill, L.
Levy, L.
Lockwood, B.
Ludford, B.
McIntosh of Haringey, L. [Teller.]
McNally, L.
Maddock, B.
Mar and Kellie, E.
Merrivale, L.
Meston, L.
Methuen, L.
Milner of Leeds, L.
Monkswell, L.
Morris of Manchester, L.
Newby, L.
Nicholson of Winterbourne, B.
Ogmore, L.
Orme, L.
Perry of Walton, L.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Puttnam, L.
Ramsay of Cartvale, B.
Rendell of Babergh, B.
Rodgers of Quarry Bank, L.
Russell, E.
Sainsbury of Turville, L.
St. John of Bletso, L.
Serota, B.
Shepherd, L.
Simon, V.
Simon of Highbury, L.
Smith of Clifton, L.
Steel of Aikwood, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Thomson of Monifieth, L.
Tope, L.
Tordoff, L.
Turner of Camden, B.
Tweeddale, M.
Walker of Doncaster, L.
Wallace of Saltaire, L.
Watson of Invergowrie, L.
Wedderburn of Charlton, L.
Whaddon, L.
Whitty, L.
Williams of Crosby, B.
Williams of Elvel, L.
Williams of Mostyn, L.

Resolved in the negative, and amendment disagreed to accordingly.

21 May 1998 : Column 1814

3. p.m.

Lord Bruce of Donington moved Amendment No. 3:

After Clause 1, insert the following new clause--

Community finances and fraud: report

(". This Act shall not come into force until--
(a) a Minister of the Crown has laid before both Houses of Parliament a report setting out the implications of the Treaty signed at Amsterdam on 2nd October 1997 amending the Treaty on European Union, the Treaties establishing the European Communities and certain related Acts for the sound management of Community finances and the prevention of fraud in relation to Community expenditure; and
(b) the report has been approved by resolution of each House.").

The noble Lord said: My Lords, your Lordships will recall that, specifically in response to a general public demand for far greater oversight of the financial transactions of the European Community, the previous government succeeded in obtaining an amendment under Maastricht on the part to be played by the Court of Auditors. I draw your Lordships' attention to the institutional arrangements affecting the Court of Auditors. A measure was introduced to require the court to issue a certificate to the Community and to parliament requiring a specific assurance as to the regularity of the

21 May 1998 : Column 1815

accounts and so on. I referred to this in some detail in Committee. I shall not pursue that particular aspect further, save to say that for the past three successive years since Maastricht the Court of Auditors has declined to provide both to the Council and to parliament a certificate certifying the legality, propriety and accuracy or otherwise of the accounts presented to it.

The introduction of this new clause to the Treaty of Maastricht was claimed as a very considerable victory by the then government. On Mr. Major's return to this country he claimed substantial credit for it and thought that it marked a considerable step forward in securing the proper control of European Union finances and the manner in which they were dealt with. He was particularly concerned, as I am sure are all your Lordships, with the continued fraud and irregularity occurring among not only some member states but within the Commission itself.

It occurs to me that perhaps your Lordships are unaware of the extent to which this has occurred. Therefore, I should like to draw your Lordships' attention to a report made by the Committee on Budgetary Control of the European Parliament to the parliament itself and to all others concerned. It has not attracted much attention in the press. I shall therefore read to your Lordships its findings. They are not just the findings of the British representatives on the Budgetary Control Committee. One must make a special mention of the work done by Mr. Tomlinson who has taken a prominent part in the work of that committee. It presented a report to the European Parliament this year, which then adopted its own resolution, based upon the report it received.

In order that your Lordships may get some idea of the enormity of these matters, it will be appreciated that for the year ended 1996 our own Comptroller and Auditor-General was involved in the examination of the same matters as were examined by the Court of Auditors itself. It came to the conclusion that fraud throughout the Community was running at anything between £3 billion and £5 billion per annum. That is not an insignificant sum. It is a sum of which British taxpayers bear some 40 per cent. I must again express my disappointment that that matter, which could have been discussed in the other place, was never discussed by the full House.

I shall read some of the findings. I give a health warning here. Some of what I read may be found objectionable by noble Lords who have a sense of fairness and propriety in these matters. The report states:

    "Ever since worries were first expressed in 1989 concerning possible internal fraud and corruption in its tourism unit, the European Commission has withheld relevant information from Parliament, and judging by its reports, from the Court of Auditors, provided information only after unjustified delays and, at times, provided misleading information".

That is a serious allegation on its own which requires an answer. So far none has been provided. The second finding was:

    "The Commission was slow to take a disciplinary action against any of the staff concerned, and has still taken none against the hierarchical superiors responsible for management. Internal investigations were conducted by bodies answering to the Commission administration. The Commission never of its own

21 May 1998 : Column 1816

    accord informed the relevant judicial authorities of its suspicions concerning possible criminal activities by its own staff and in some cases delayed the progress of criminal investigations by refusing to comply with requests for the waiver of official immunity ... Practices, rules and procedures covering the management of direct expenditure, especially relating to calls for tender, are lax, inadequate and, in any case, poorly applied. Administrative practices which were known to be unsatisfactory and irregular were tolerated for a prolonged period by the Commission managers at all levels until they became public knowledge".

Finally--I shall not weary your Lordships with anything other than this--it states:

    "The accountability of the Commission to both political and judicial authorities is neither guaranteed nor enforceable. Parliament's power of discharge is subverted by its inability to obtain the information it requires, while the principle of official immunity can be used to frustrate inquiries by judicial authorities. In these circumstances, the credibility of European institutions is seriously undermined and public confidence in them cannot be restored unless accountability is made to function in practice ".

I could read further sections of the report, including the parliament's response and recommendations on the basis of the report from the Committee on Budgetary Control, from which I have given extracts.

I have studied this subject for well over a quarter of a century. I am certain that the time has come for governments to do something about the Commission in regard to financial irregularities and the systems which permit large scale fraud to take place. As I said, I understood that the new certification by the Court of Auditors would yield a result. Each year for three years the Court of Auditors has declined to give that certification. The reaction of the Council of Ministers, which includes whatever number of our own Ministers it may be, has been, "Well, it is gradually improving. Let it ride".

If the new powers mean something, the refusal to certify can be taken a stage further as meaning that something needs to be done. Let us imagine the case of a large, or even a small, public company in this country whose auditors declined to give it clearance. If it were publicly quoted, and shares were sent to zero, it would be swiftly taken off the quotation list. All kinds of dire consequences would follow. Yet we seem to be powerless.

Let us assume that the Government sought to enforce the new clause affecting the powers of the Court of Auditors. It could decline to discharge the Commission from its responsibilities. But nowhere is it spelt out what would happen if it refused to discharge. The implication underlying it is that a refusal to discharge would be so grave that the Commission itself would resign. Nowhere throughout the Act, or any of its protocols, explanations or legislation, is there set out in respect of the billions spent what would happen in the event of the Commission being refused a discharge. The answer so far is--it is quite right--that there being no legal provision, it is ignored. At heads of government, heads of state, European Council, Council of Ministers level or whatever level it may be, one way of getting to the heart of Europe is to have sufficient guts to raise this matter rather than lying down supinely under the regime

21 May 1998 : Column 1817

which we know is incapable of administering its financial affairs with what we in this country would call reasonable and due propriety. I beg to move.

3.15 p.m.

Lord Moynihan: My Lords, I wish briefly to take the opportunity to return to a specific point that I raised in Committee on the issue of fraud. We all agree on the seriousness of fraud in the Community, particularly in the light of the report, mentioned by the noble Lord, on the 1996 accounts prepared by the European Court of Auditors. We all agree that it revealed unacceptable levels of fraud in the Community.

In the report, fraud was included in the £3 billion figure relating to the spread which the noble Lord raised during his speech. Even that bottom level figure of £3 billion represents 5.4 per cent. of the European budget. It is only fair that the issue is clarified by the Minister. I understand that the figure includes both fraud and errors in implementation, many of which reflect genuine differences of opinion between the European Court of Auditors and the Commission about the interpretation of the rules on eligibility. If that is not the case, I should be grateful if the Minister would respond accordingly.

Because of the state, position and importance of fraud, it has perhaps become the front line in the arguments for and against the extension of QMV. At this stage in the proceedings, it would be wrong to rehearse those arguments again, but I wish to return to one important point. I ask the Minister specifically about the requirement in amended Article 209a, paragraph 2, which is Article 2, paragraph 52, of the Amsterdam Treaty. It 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 wish to know what effect the noble Lord believes the requirement would have in the fight against fraud. He told me that the significance was obvious if we believed, as we do, that in this country our public accounts are conducted effectively.

Clearly, then, we should try to bring the Community accounts up to the same standard. He added that he hoped that this applied to all other member countries, but it is certainly a valuable criterion for the United Kingdom. I could not agree more with those comments, but I asked the question for another reason. In another place, the Foreign Secretary said that one of the reasons why the Government agreed to the extension of QMV was because,

    "we could not get agreement on applying the British standard [on fraud] in other countries".

He went on to make the same point as the noble Lord when he said,

    "However, the treaty says that every country has to apply to European spending the same standards and tests that it applies to its domestic spending. We must apply the system we use for our national budget to European spending in Britain. The same steps must be taken in every other European state".--[Official Report, Commons, 12/11/97; col. 917.]

21 May 1998 : Column 1818

It is the first sentence which concerns me most--

    "we could not get agreement on applying the British standards [on fraud] in other countries"--

in the context of amended Article 209a, paragraph 2.

Accordingly, is the noble Lord satisfied with the standards and tests which other countries apply to their domestic spending? Are they as rigorous as those which we use in this country? If not, what efforts will the Government make to introduce changes in line with those standards which we have in this country, which include the Comptroller and Auditor General and the Public Accounts Committee, to ensure that each member state has proper arrangements for dealing with fraud at a national level in order to make paragraph 2 of amended Article 209a more reassuring? Surely the priority must be to get all member states to adopt proper anti-fraud measures.

It is with a heavy heart and a foreboding of repetition that I reflect that yet again in the Government's negotiations, as happened whenever they had to choose between either standing up for British interests with the risk of being isolated in Europe or submitting to the consensus of our European partners and sacrificing our national interests in the name of co-operation and unanimous agreement, that they chose the latter path. Whenever the Government advanced an idea they believed to be in Britain's interest it was retracted as soon as they failed to achieve instant agreement. Where was the courage of the Government's convictions on measures to counteract fraud? The Foreign Secretary had made it clear where they were when he said,

    "we could not get agreement on applying the British standard [on fraud] in other countries".

However, on a final note I thank the noble Lord for expressing his belief that the serious issue of fraud should be a priority during our presidency. I thank him also for outlining so clearly the progress being made under the presidency and the other changes made by the Amsterdam Treaty to reduce fraud and to improve financial management, including strengthening the role of the European Court of Auditors in detecting fraud and mismanagement. I must ask him what progress he feels has been made.

From these Benches, we support the useful role of the Court of Auditors. We welcome also the Government's commitment to taking forward existing anti-fraud initiatives. But I look forward to a specific clarification of the points that I have made.

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