EU Financial Management

I agree entirely with my hon. Friend the Member for Leicester, East (Keith Vaz). We have led the argument for reform in all sorts of EU policy areas, including the Lisbon agenda covering productivity, competitiveness, our response to the challenges of globalisation and the EU’s relationship with the US. We have been a constructive player at the heart of the EU, and we have begun to move the EU in the direction that we think that it should take to meet the challenges that we all face at the beginning of the 21st century. Other matters on which the UK has taken a lead include international security and terrorism. The UK is seen as a credible player that wants to make Europe work, and not as a nation that constantly wants to debate whether we should be in Europe at all. Our approach has gained us significantly more influence and a greater capacity to achieve change than was the case before 1997, when Britain had no credibility in the EU. I shall move on, as I do not want to provoke any more interventions. The other criterion laid down for the road map was that the basis of the internal control system should be a chain of control procedures, with each level having specific defined objectives that take into account the work of others. The ECA also believed that the cost of these controls should be in proportion to the overall benefits that they bring. In the road map, the Commission undertook to make a gap assessment, based on comparing its current control systems with the system proposed by the ECA, but it also proposed a way of gaining the assurance from member states that they currently lack. Building on the ECA’s integrated internal control framework, the Commission suggested that each member state should produce an annual declaration of assurance in respect of its systems for managing Community funds and how they had performed—in much the same way that Government Departments in this country produce an annual statement on internal control, signed by the relevant accounting officer. The European Parliament wanted those member state declarations to be signed by the Finance Ministers, in order to demonstrate accountability and responsibility. Although I have no difficulty with demonstrating accountability and responsibility, there are legal and organisational problems with the European Parliament’s idea. Moreover, the ECA did not say that national declarations were the answer. Without such an indication from the Court, there was little or no chance that member states would be persuaded. However, what was important was our joint ability to reach a practical and unanimous consensus. For the UK presidency, it was vital that the road map should provide an acceptable path for all member states, in the full spirit of co-operative action. ECOFIN on 8 November agreed conclusions that committed both the Commission and member states to take action to improve financial management and the level of assurance that we can give the ECA on the management of the Community budget. Those actions included an assessment by the Commission of the present controls at sector and regional level, and the value of existing statements and declarations. That will force improvement and allow a realistic evaluation of how the information currently provided can be made more effective and useful. They also included an examination and report by the ECA on how the integrated internal control framework would affect its audit approach, taking account of current international auditing standards. That will help to drive further the changes that the Court has already introduced into its methodology. It will also bring it closer into line with the methods used by the United Kingdom’s National Audit Offices, similar bodies in other member stated and the private sector. Another action will be a professional assessment of the level of risks that can be tolerated for different kinds of transactions. At present the ECA applies a blanket 2 per cent. materiality rate for all policy areas, without taking account of complexities. The Commission intends to launch an inter-institutional process this month. With those conclusions, the Council has taken action to help to address the criticisms of EU financial management made by the Court of Auditors. Under the UK Presidency, we have tackled this issue for the first time at Council level, and have agreed actions that will commit member states and the Commission to co-operate in playing an effective role in the shared management of the Community budget. The Commission has now produced its action plan to implement the ECOFIN conclusions, and we intend to monitor progress closely. The Commission has made it a strategic objective to strive for a positive DAS by 2009, but that will not be achieved without the co-operation of member states. The Government will play an active role in strengthening that co-operation. I am well aware that the European Scrutiny Committee is somewhat sceptical of what it considers to be the Government’s optimism with regard to the potential for improvement in financial management and control of the EU budget. I am also aware that people feel that they have been being told that improvements are on the way for a long time. What has changed is that we now have a transparent process and action plan that will lead to the tangible changes, supported by evidence, that those of us who continue to believe in the European Union want to see. This issue is at the heart of the credibility and integrity of the European Union. It is about the relationship between the EU and the taxpayers of Europe. I believe that the UK has played an honourable part in recent times, especially during our presidency, in saying that the issue is exceptionally important. The Commission now has a very different culture and I am optimistic that the 2009 objective can be achieved. However, it will not be achieved if we look to the Commission alone to solve all the problems, because it will also require each member state to take full responsibility for improving their own systems in relation to the expenditure. This process has been an interesting exercise in comparing the respective positions of the parties on the European Union. This is an important issue, and it is good that for the first time in several years we are having this debate on the Floor of the House.