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I would like to add to the questions that have, quite rightly, been raised in the debate by the noble Lord, Lord Willoughby de Broke, by my noble friend Lord

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Brooke of Sutton Mandeville—who, having visited the Court of Auditors, probably knows more about this than anyone else—and other noble Lords. What progress has there been on implementing the action plan? How close do the Government feel that the Commission is to meeting its target of getting the Court of Auditors to sign off a budget by next year?

I support the noble Lord, Lord Willoughby de Broke, on what further consideration the Government have given to the recommendation of, among others, the noble Lords, Lord Grenfell and Lord Radice, that there should be annual debates on audit and financial matters: In the report, it was discovered that Spain and the UK account for more than half of the quantifiable errors in structural policies in the 2006 annual report. What have we done to improve that?

These are really important issues because this is one of the areas where, outside this House, our vision of Europe is always attacked—particularly by some of the press—for what has happened. I hope that we are all resolved that we must get this put right. What are the Government going to do?

Baroness Ashton of Upholland: I am extremely grateful to all who have spoken. I am aware that we had quite a lengthy debate earlier in Committee and I will therefore not repeat all the things that I said before. I will take those as read for the purpose of this debate, but will try to deal with the questions that have been raised. I love the idea that I might be able to satisfy the noble Lord, Lord Stoddart, on an issue to do with Europe. I fear that that will never ever happen—if it does, the drinks are on me.

As the noble Lord, Lord Hunt of Wirral, very eloquently said in his support of the noble Lord, Lord Willoughby de Broke, and his amendment, this is an important issue and one that concerns the UK Government. I know that noble Lords will also not mind if I make clear that we have to make a very important distinction between fraudulent activity and activity of errors. In his references to the UK and Spain, the noble Lord, Lord Hunt of Wirral, described errors. That does not mean that errors should not be put right, but I would not want noble Lords to think that the position held by the European Union in the main is to do with fraud. That is not to diminish the issue of fraud in people’s minds, but to be absolutely clear.

It is clear that most of the irregularities and errors are resolved after the reports come out. In other words, these issues are not about finances going astray but are rather issues of not complying strictly with the rules and regulations that apply, and therefore are dealt with. None the less, I do not think the figure is 31 per cent as the noble Lord, Lord Willoughby de Broke, said—only 40 per cent is able to be signed off at present. I am not trying to suggest that these are not important issues, but a lot of the ways in which they can be dealt with are by making sure that member states and the Commission take responsibility for ensuring that they fulfil their obligations properly, rather than making assumptions about fraud, although that plays its part.

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I will not go through all the different concerns that we addressed before but will rather focus on what noble Lords want to hear in answer to their questions. The noble Lord, Lord Willoughby de Broke, asked about the production of a list. He asked me three questions and I will try to answer him as fully as possible. First, there is not yet a list, as such. I will let him know if I can find out any more information about whether there are any plans for such a list. I will copy that letter to any of your Lordships who participated in the debate and to the Library as well, but as far as I am concerned there is not a list.

We want to make sure that we continue to press for these issues to be dealt with properly and appropriately. The UK has played an important role—for example, in setting up the EU anti-fraud office, OLAF. It is a very active anti-fraud office and has had successes. It has looked at complaints where, for example, more than €20 million has been wrongly claimed and has been able to reclaim that money, at flax producers in 2001 where there had been a false declaration that straw was unsuitable for processing, and at all aspects of fisheries and so on. It has been able to deal with examples of fraud very effectively. We were instrumental in making sure that we had an EU anti-fraud office.

I have already said that we are concerned to make sure that we play our part. We will be publishing a consolidated statement on the use of EU funds in the UK. That will be audited by the National Audit Office and will give Parliament a greater role in scrutinising it. The noble Lord, Lord Willoughby de Broke, asked whether that had yet been published. It will be published soon, but we are waiting for the National Audit Office to finalise its work; once that is ready the statement will be published—but it rests with the NAO, not the Government at present.

The noble Lord, Lord Hunt, asked what had happened to the Commission’s action plan—the report that it produced on progress. A progress report has been produced and most of its points have now been dealt with. The Commission was going to produce a further report on the implementation later this year. As the noble Lord indicated, Mr Balls said in another place that it is the Commission’s objective to try to strive for a positive statement of assurance by 2009 as well. There is clearly an impetus.

In our negotiations on the reform treaty and the constitution which preceded them, the UK has been keen to make as much progress as possible and we have put forward positive suggestions. I do not accept the proposal made by the noble Lord, Lord Pearson of Rannoch, that we should simply withhold the money. That is not the right approach. I can understand why he would feel that even the most dire consequences of so doing would not matter, but that is not the way that we should try to ensure that we get a better outcome and more satisfactory progress.

The noble Lord, Lord Brooke of Sutton Mandeville, who is probably the most experienced person here as he has visited the European Court of Auditors, asked about good practice. It is a very important question and I mouthed as much to him, because if we can get more progress in spreading good practice that would be a better proposition. The

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UK, the Netherlands and Denmark have already published, or will publish, their own initiatives on the use of EU funds. Sweden has also announced that it too will be doing so, or something similar in any event. We hope that other areas will follow suit and that being able to see what is being done across member states will be a good way of demonstrating good practice.

We also have various working groups. There is a working group on Article 280 which is trying to look at co-operation and the prevention of fraud where good practice and best practice across member states plays its part. Good practice is beginning to be seen as a way of combating at least the irregularities of the issues before the European Court of Auditors and the European Union.

The scrutiny committees of both Houses have commented on the report of the Court of Auditors. The Commission recently issued a report of member states’ responses made to it in the 2006 ECA report, which was considered in the House of Commons European Scrutiny Committee in March 2008. The committee recommended a general debate. I agree with noble Lords that it is very important to make sure that Parliament is able to debate, not just through this treaty but in more general terms, what is happening on these important issues. I hope that the work of the National Audit Office, when we get it, will provide another opportunity for the committees to consider the matter and perhaps recommend to the House through the usual channels whether we need to debate those matters further.

6.30 pm

The UK has been very keen to push forward proposals and think about how we might reform the European Court of Auditors. Perhaps, as noble Lords have said, a committee that was set up originally for nine member states now doing the same thing for 27 has a large task. Perhaps there is a better way in which to do that, with an executive board of auditors-general and a more strategic approach. We will continue to press on that. It is clear from the discussions that I have had and from looking through the detail, not least in response to thinking about these amendments, that a lot of work is under way. While it is difficult to see how we can get 100 per cent certainty from the European Court of Auditors, with 27 member states and a Commission—not because of fraud but because of irregularities—the more that we can spread good practice, the more we can push to ensure that the auditing position is the best that it can be. The more that member states and the Commission take responsibility for ensuring the best possible practice and the best way in which to root out any fraudulent activity, then so much the better.

I am grateful to the noble Lord for tabling these probing amendments in what I think has been a useful debate.

Lord Willoughby de Broke: I am grateful to almost everyone who took part in this short debate, particularly to the Minister for a very full reply. I hope that the noble Lord, Lord Radice, did not think

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that I was criticising his report—far from it. I used his second report to make a number of points and ask questions that I think are relevant. I am grateful to the noble Lord, Lord Hunt of Wirral, for enlarging on my points and introducing his own questions. I am grateful, too, to the noble Lord, Lord Brooke, who is the only one of us who has been at the European audit coal face.

I said “almost all”. I was not particularly pleased with the useless intervention of the noble Lord, Lord Dykes. He did not contribute anything to the debate. He said that he wanted to get on with the debate and then spoke for longer than I took on my introductory remarks. I cannot think that that added to the debate at all. Why I wanted to intervene was because he accused me of saying things that were not accurate; I believe that that was his gist. I refute that utterly. Everything that I said came either from the report from the European sub-committee of this House, or from the report of the European Court of Auditors, so what I said was entirely factual and absolutely nothing to do with any propaganda, as he may have feared. I fear that it is the true state of European Union finances at the moment, and nothing fanciful.

I am most grateful to the Minister for having answered our questions so clearly and I am satisfied with the answer to those questions. Accordingly, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 80 and 80A not moved.]

[Amendments Nos. 81 to 83 had been withdrawn from the Marshalled List.]

[Amendment No. 83A not moved.]

Lord Willoughby de Broke had given notice of his intention to move Amendment No. 84:

“(i) Annexed Protocol on the role of National Parliaments in the European Union; and(ii) ”

The noble Lord said: I do not propose to move this amendment but I want to make it clear that I shall talk to the issues arising from it under a later amendment in my name.

[Amendment No. 84 not moved.]

[Amendments Nos. 85 to 89 not moved.]

[Amendment No. 90 had been withdrawn from the Marshalled List.]

[Amendment No. 91 not moved.]

[Amendments Nos. 92 and 93 had been withdrawn from the Marshalled List.]

Lord Hunt of Wirral moved Amendment No. 94:

“(i) any provision that gives Her Majesty’s Government authority to agree to pay, or to pay, any financial penalty imposed as a result of a decision by Her Majesty’s Government not to opt in, or to opt out of, any provision; and(ii) ”

The noble Lord said: We move on now to deal with something that my noble friend Lord Kingsland

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raised briefly late on Monday in the discussion on the provisions relating to justice and home affairs co-operation. I should like to deal with the matter in more depth.

Our concerns with the possibility of financial penalties being imposed on the UK are, of course, inextricably linked with our concerns over just how feasible it will be to exercise our right not to opt-in. The amendment would give us the opportunity to examine the financial penalties consequent on the UK opting in or out of any of the Lisbon treaty provisions. These concerns are entirely shared by the European Scrutiny Committee, which has of course on several occasions reported on the uncertain consequences of exercising this right, and on our ability to safeguard the interests of the UK.

These financial penalties will be levied on the UK if our refusal to opt into an amended measure makes the existing measure inoperable, so the whole package has to be disregarded. The Government will no doubt respond that the provisions allow for only “necessary and unavoidable” financial consequences to be charged to the UK, in what I know they regard as the highly unlikely event of the provisions being implemented. But how can the Minister and her colleagues know this? There is no consensus on what future provisions for integration in this area may look like, so how can we predict whether we will wish to opt in or not? To add to this, the decisions on the inoperability of an existing measure, and on what the “necessary and unavoidable” financial consequences are, are both to be made by QMV—so again, we have no control over exactly what our European neighbours might choose to make us do.

The chairman of the European Scrutiny Committee, Michael Connarty, was utterly clear in his opinion of these provisions when questioning the Foreign Secretary on the matter. He said,

I await the Minister’s comments.

It is unlikely that the Government will be persuaded by me when they were not necessarily persuaded by one of their own colleagues, but I would like to hear them at least attempt to explain why these provisions were allowed to remain in. I beg to move.

Baroness Ashton of Upholland: I am grateful for the opportunity. The noble Lord is normally very persuasive.

We have been very successful in securing the opt-ins, which we will no doubt debate at greater length, so I shall not dwell on the principles behind them. Noble Lords will know that we already have the capacity in some areas to exercise the opt-in and that I exercised or declined to exercise the opt-in when I was a Minister in what is now the Ministry of Justice. I am, then, quite familiar with the process involved here. I am also well aware that, in securing this big and important change, the UK Government expanded our ability to opt into the entire justice and home affairs arena. I believe that is important for the

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UK, for all the reasons that your Lordships have raised and will be raising about ensuring that we are clear about our co-operation and collaboration within the European Union—not least, for example, that our desire to retain control of our own borders in matters regarding them would not lead us to an opt-in.

Having got that security, it is important to recognise that there are implications for the European Union’s entire operation. Personally, I think it quite reasonable that the implications of getting such security are considered by the whole Union. In so doing, it is reasonable to say that if a member state is actively engaged in a European Union operation and decides that, as a consequence of changes having been made in the collapse of the Third Pillar and the move to the First, it no longer wishes to participate, should that operation become inoperable then there will be consequences facing the other 26 member states if a process—an IT system, perhaps—no longer functions at all.

Those consequences would, clearly, result from the UK’s decision. The noble Lord, Lord Hunt, might well agree that it is difficult to think of real examples of that. I cannot think of any where that would currently be the case, yet just as one is always trying to think strategically about the consequence of the UK’s involvement, so it is quite reasonable to think strategically about the UK taking a decision not to participate in something.

These are measured proposals within the treaty. To be clear, as the noble Lord, Lord Hunt of Wirral, elegantly laid out, where the test is “inoperable”, could that be defended in court and could we argue against it? Yes, it could be defended but the decision would have to be that it was inoperable. It would then be decided by qualified majority voting whether, as the noble Lord says, we needed to bear the financial costs in consequence. Before the European Union could demand anything of the UK, there are those very high tests, so I disagree with my honourable friend Mr Connarty, as I am sure that my right honourable friend the Foreign Secretary did in responding to him. I cannot remember his exact response, but I am sure he did that.

I am clear that this is about not bullying but ensuring that, if we and the European Union were in that position, we are all clear that there are consequences for us all. I have no difficulty with what is proposed, and I hope that the noble Lord will be satisfied with that response and feel able to withdraw his amendment.

Lord Hunt of Wirral: We are in the realms of the unpredictable, and it is difficult to contemplate the circumstances in which all this would operate. However, when the Government were preparing to decide whether to agree to these provisions I know that there would have been a detailed brief presented to Ministers on what consequences there could be. The Minister says that it is difficult to work out the situations that might occur, but I am sure that a particular Minister, before agreeing to these provisions, would have received a brief that contained all sorts of possibilities. I wonder whether I might appeal again to the Minister, who said a little earlier that she often finds me persuasive, to return to her colleagues and officials and see whether

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they might be prepared to release all or part of that brief to me, so that I can start to contemplate what is—and I share this with her—difficult to visualise at the moment. She nods; I am delighted, and thank her very much.

6.45 pm

Baroness Ashton of Upholland: I have two examples. I used the one about IT software; the other was that if we were to withdraw from our involvement in an agency there would be consequential costs in bringing our staff home. As the noble Lord would expect, I had asked, “Can we think of examples?”, and I have been given those two, which, although highly unlikely, were the two most obvious where our withdrawal might have consequential costs. It would be quite reasonable, then, to argue that the UK should cover the costs of taking its own staff away or of settling their contracts, which would disappear, et cetera. I do not believe that there are any more, but if I find any then I will certainly send them to the noble Lord. He would expect me to say that, and I would do so.

Lord Hunt of Wirral: That is all I needed to hear and, on that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 95 to 99 had been withdrawn from the Marshalled List.]

[Amendments Nos. 100 and 101 not moved.]

[Amendments Nos. 102 to 104 had been withdrawn from the Marshalled List.]

[Amendments Nos. 105 and 106 not moved.]

[Amendments Nos. 107 and 108 had been withdrawn from the Marshalled List.]

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