The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the statement has been welcomed by the European Commission, the European Court of Auditors and a number of member states, including the Netherlands, Sweden, Denmark and Spain. The Council of Ministers will continue discussion of national statements in the new year. The Government are, of course, very grateful for the support expressed by the sub-committee of this Houses Select Committee on the European Union.
Baroness Cohen of Pimlico: My Lords, I thank the Minister for his Answer. The EU published a qualified audit opinion on the transactions underpinning the budget and urged member states to try to manage European funds better. Does my noble friend accept that member states are to blame and what do the Government intend to do about it?
Lord Myners: My Lords, over 80 per cent of European expenditure is conducted and carried out through member states. We expect the highest quality of probity and pursuit of value for money in the expenditure of European funds, as we do in our own national funds. The UK has set an example in providing leadership to our fellow European states in setting high standards of audit and we will continue to make representations to our partner countries in Europe to encourage those that have not yet introduced national audits to do so. I am encouraged by the fact that a number of other countries have already indicated that it is their intention so to do.
Lord Trimble: My Lords, can the Minister turn his attention not to countries but to programmes? Can he confirm that the highest incidence of accounting problems exists with regard to the cohesion fund and the new rural development fund? Does that not indicate that those programmes ought to be looked at again?
Lord Myners: My Lords, I thank the noble Lord, Lord Trimble, for his question. He is correct in his observation. Indeed, the Government have put
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Lord Waddington: My Lords, is it not rather odd to suggest that all the blame rests on the member states and none on the EU? What right has the EU to dish out money to member states without being satisfied that they have proper accountancy arrangements in place to ensure that the money is properly spent?
Lord Myners: My Lords, I thank the noble Lord, Lord Waddington, for his question. Our representations about improving the quality of national audit are an integral part of improving the efficacy of European fund distributions. That will ensure that there is a link-up between the supervision and direction that come from Brussels and the quality of expenditure implementation in member countries.
Lord Pearson of Rannoch: My Lords, has the Minister read the Thunderer column in yesterdays Times by the much respected Marta Andreassen, now the treasurer of the UK Independence Party? She is, of course, the former EU chief accountant who was disgracefully sacked in 2002 for refusing to sign off its fraudulent accounts. Are the Government aware that the position of Miss Andreassen and others is that the problem lies not at allor comparatively littleat the member state level but almost entirely at the level of the Commission, which refuses to put in the controls that would make auditing our moneys possible?
Lord Myners: My Lords, we wish to see the highest quality of integrity in the preparation of the EUs accounts and the control of EU expenditure. That requires efficacy at every level in Brussels and in member countries.
Lord Myners: My Lords, I thank the noble Lord, Lord Dykes, for his question. I believe that that figure comparesit is in roughly the same rangewith those of other European countries and is, in my judgment, at an adequate level.
Lord Tomlinson: My Lords, is my noble friend aware that, during our debates in this House on the amending treaty on the European Union, it was reported that the Comptroller and Auditor-General very much doubted whether, if we applied the same auditing standards in the United Kingdom as those required by the statement of assurance, we would have received a statement of assurance in this countrywe would have been on a par with the European Union?
Lord Naseby: My Lords, is it not a fact that the European Court of Auditors has qualified the accounts for the past 10 years? I ask this as someone who has sat on the Public Accounts Committee. Is it not also a fact that not a single countrynot even ourselvescomes up to the required standards? While we have had hope from the Minister, when will we get some real, positive results?
Lord Myners: My Lords, I thank the noble Lord for his observation. There has been consistent progress, as indeed the European Court of Auditors noted in its statement yesterday. However, there is still some distance to travel.
Lord Stoddart of Swindon: My Lords, is it not the height of stupidity and neglect for an organisation such as the Commission continually to hand over money to member states that then fraudulently convert it for other purposes?
Lord Myners: My Lords, I thank the noble Lord for his observation. We have to be very careful. When the EU Court of Auditors points to areas where it cannot give assurance, that does not necessarily mean fraud. In fact, the EU is quite specific in saying that it believes that the amounts that can be attributed to fraud are less than 0.03 per cent of total expenditure. However, there is a serious problem and a continuing challenge to us all to encourage our partners in Europe to improve the quality of monitoring the effectiveness of expenditure.
To ask Her Majestys Government whether they support the European Commissions proposals for further regulation of the use of pesticides in the European Union, which are currently being considered by the European Parliament.
The Minister of State, Department of Energy and Climate Change & Department for Environment, Food and Rural Affairs (Lord Hunt of Kings Heath): My Lords, the Government generally welcome the European Commissions proposed thematic strategy for the sustainable use of pesticides but are concerned that any strengthening of the already strict authorisations regime for pesticides should be justified, science-based and proportionate. We are particularly concerned about the possible impact of the proposed marketing regulation in the absence of a detailed impact assessment from the European Commission.
Lord Willoughby de Broke: My Lords, I am most grateful for, and rather heartened by, the Ministers response. I think that this directive is to be signed off in January next year and it will then be 18 months before it becomes law. Will the Government use their best endeavours to ask the Council of Ministers and the Commission to set up an expert working group to examine, as he says, the scientific risk-based proposals and to carry out an impact assessment in respect of agriculture, horticulture and consumers in the EU?
Lord Hunt of Kings Heath: My Lords, I have considerable sympathy for the noble Lords point and I shall certainly consider it. He is right to suggest that decisions in relation to the directive are likely to be made over the next few weeks. He will know that this Government have raised concerns in the appropriate quarters, and we continue to do so. I thoroughly agree that any decision in this area ought to be based on the science.
Lord Walton of Detchant: My Lords, what scientific evidence exists to suggest that pesticides other than organophosphates carry any significant risk to human and animal health which would justify further constraints on their use?
Lord Hunt of Kings Heath: My Lords, the noble Lord is well qualified to ask that question. I am not aware of any such evidence, and we have consistently asked the European Commission to undertake the necessary work to provide the evidence. It is very important that in this, of all matters, any decision should be based on the evidence and the science.
Lord Hunt of Kings Heath: My Lords, the position is not entirely clear at the moment. We will have to await the conclusion of the discussions and then, if a directive is passed, see what the impact on the import regulation is. The position is not clear because the directive is based on what are described as hazard criteria, whereas the regime for regulating maximum residue levels in treated produce, which is how imports are dealt with, is based on a risk assessment. The noble Lord will know that one of our concerns is the move from a risk-based to a hazard-based assessment.
Lord Livsey of Talgarth: My Lords, I am pleased that the Minister agrees that the regulation of pesticides should be based on objective scientific evidence. Can he tell us whether the vote of the committee of the European Union in favour of banning certain chemicals will have an impact on human health, or will reduce the productivity of arable crops? In other words, are we going to have a second Irish potato famine without copper sulphate sprays and so on, or are there going to be increased cases of cancer among certain people in the community?
Lord Hunt of Kings Heath: My Lords, I hope that it does not come down to that choice because we do not believe that the introduction of the directive as currently proposed will have any direct impact on consumers health. As far as the potential impact on production is concerned, my understanding is that the withdrawal of one triazole that is crucial for protection against fungal disease of wheat could result in a loss of yield of up to 30 per cent in cereals. There are other potential losses in the horticultural area, particularly where there is nothing in the pipeline at the moment that could replace those pesticides. That is why we are continuing to press our concerns within Europe on this matter.
The Lord Bishop of Newcastle: My Lords, would the Minister agree that, if implemented, these proposals could lead to significant declines in crop yields, an increase in food prices and many arable and vegetable farms becoming unviable? Will he therefore seek to ensure that the European Parliament considers these proposals within a much wider strategy for European and world food security?
Lord Hunt of Kings Heath: My Lords, it is a little early to talk about increasing prices. I have already referred to the potential reduction in yields. That is why we are concerned and why we continue to make representations in Europe.
Lord Taylor of Holbeach: My Lords, will the Minister return to the impact of these regulations on consumers? He said that he saw the regulations having no impact whatever on consumer health, but they undoubtedly reduce the availability of local, home-grown produce for consumers, and there is a risk that the food that is available may not be subject to the same controls as those on European-grown produce. I have to declare an interest as a farmer and grower.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the Financial Services Authority and the UK Statistics Authority do not routinely collect information on leverage ratios. However, the FSA is currently considering whether a leverage ratio could be adopted as a useful supplement to risk-based measures of capital.
Lord Lea of Crondall: My Lords, I thank my noble friend for that positive reply. Does he agree that at the heart of the disaster which the banks and other financial institutions have recently inflicted on everyone, including themselves, in part through their bonus-driven irresponsibility and lack of transparency, was the pushing up of their average leverage ratios by 50 per cent, to unprecedented heights? Secondly, does he agree that we should no longer rely on the Citys self-serving mantra that self-regulation brings international competitiveness?
Lord Myners: My Lords, there undoubtedly was a trend over recent years on the part of banks both to increase their leverage and to reduce their liquidity and holding of marketable instruments. The sources of the problems affecting the banking industry are numerous and global. Certainly, questions are being asked throughout the world about the need to strengthen regulation. Indeed, we have invited the noble Lord, Lord Turner, the chairman of the Financial Services Authority, to look at the opportunity for reforms in UK financial services regulation. Remuneration policies have been an issue there; we have made specific requirements in that connection where we have participated in the recapitalisation of banks; and the FSA has said that it will be looking with increased intensity at the issue of remuneration as an incentive effect for recklessness in regulated institutions. On my noble friend's final point, I suggest that we are no longer in an environment of self-regulation; we clearly have strong regulation through the Financial Services Authority; self-regulation was a feature of the past.
Lord Newby: My Lords, given the degree of reckless lending by the banks, does the Minister think that there is now a case for having a separate regulatory regime for, on the one hand, retail and day-to-day business banking and, on the other hand, investment and the more esoteric types of banking which have brought the bulk of the problems on the banking sector?
Lord Myners: My Lords, the noble Lord, Lord Newby, makes an interesting point, which is being debated in academic circles: the distinction between thin banks and wider banks. However, the reality is that banking institutions are increasingly complex and it is very difficult to identify a bank that fits neatly into either of those categories. In this respect, it is interesting to note that in the United States, the investment banks have very recently sought registration under the Federal Reserve Bank, so they have become wider banks, rather than remaining narrower banks. The issue of defining effective regulation and ensuring that we are aware of the consequencesto ask ourselves who we are regulating and whyis at the heart of the work that the FSA and the Treasury will be doing on regulation in future.
Lord Howard of Rising: My Lords, does the Minister agree that splitting the regulation of financial companies and businesses between three separate organisations, the Treasury, the FSA and the Bank of England, made a significant contribution to the muddle that we are in today?
Lord Desai: My Lords, does my noble friend agree that it is not yet time to assess the crisis, because the crisis is not over yet? Should we also not be careful not to design a regulatory system to cure a crisis which has already passed but to anticipate what may arise in future?
Lord Myners: My Lords, my noble friend exhibits great wisdom in his observation. That is precisely why we have asked the Financial Services Authority to reflect in a considered way on the lessons to be learnt, and why we are working with other states, because this is not just an issue of national regulation, there are clearly challenges here concerning international regulation of financial institutions. Our Prime Minister will be putting that to the fore in his representations at the important meetings due to be held in Washington this weekend.
Lord Hamilton of Epsom: My Lords, following the observations of my noble friend Lord Howard, was it not a great mistake to remove bank supervision from the Bank of England? It was widely recognised to have the expertise to deal with banks, which is certainly something that the FSA has not got.
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