EU Financial Management

I apologise for not being in the Chamber at the start of the debate. I did not for a moment believe that merchant shipping would not take up the full time allocated—it was unexpectedly treated with brevity. I shall set out our position and suggest some directions that we should like reform to take. Whether the issue is fraud, error or irregularity, Liberal Democrats take it extremely seriously. It is completely unacceptable that for the 11th successive year the ECA cannot sign off the EU’s accounts with a positive statement of assurance. I am conscious, however, that we need to be careful about throwing stones—as other Members have remarked. As the House knows, the EU presents its accounts for audit in a global fashion, whereas in the UK we present them Department by Department. As others have pointed out, the National Audit Office has qualified the accounts of the Department for Work and Pensions on more than one occasion, so if there was a global set of UK accounts, they would all be qualified. The uncertainty and mistrust that flow from unsatisfactory sets of accounts undermine the whole purpose and image of the EU, so we want to tackle the problem as aggressively as possible. May I propose three ways in which we could tackle the issue? First, as the House is well aware, 80 per cent. of the EU budget or approximately €65 billion is spent by the nation states. Policy is set at EU level, but the responsibility for spending and payment, primarily of the common agricultural policy subsidies and the structural funds, is delegated to national level. The European Parliament, in its discharge report on the last annual budget, called for national Finance Ministers to sign off a national statement of assurance for each member country, with the goal of making sure that each member state takes full and proper responsibility for spending and payments inside its national boundaries. Ministers rejected that at the last European Council—they are not anxious to be accountable to the European Parliament. At a minimum, however, a key national body, whether the NAO in this country or an equivalent body in other countries, ought to take on that responsibility, as we need a detailed audit trail from the bottom to the top. It could be constructed as a pyramid, with each audit built on a sound audit at the level below. We could then begin to force each nation to face up to its responsibilities as a member of the EU. Once national statements are made, as my hon. Friend the Member for Solihull (Lorely Burt) suggested, we can begin to consider the issue of penalties. It is not acceptable for people to recognise that information is not properly controlled or monitored year after year and that there is a potential for error or fraud but to fail to take reasonable action. The total elimination of payments may not be required but a penalty could be imposed. As the EU grows and more countries join as a result of accession, there is a danger that those countries will not put in place the proper auditing structures, controls and monitoring. By starting on the wrong foot, we will compound the problem and the issue will escape us in its complexity. Secondly, the Commission’s internal system of controls are a concern. We cannot place the whole problem on the shoulders of the nation states. It is unacceptable that parliamentary recommendations have not been followed, as they require key members of the Commission to sign off essential reports such as the annual activity reports and declarations on which the synthesis report is based. Whether it is a director general, the secretary general or the internal auditor who is accountable, there must be a structure so that the Commission takes internal responsibility far more aggressively and positively for the accounts that it presents. Thirdly, we have often talked about tolerance of the risk of error. The NAO has a tolerance rate of about 1 per cent., as it accepts that there is a point at which chasing error is far more costly than the error itself. There is therefore an acceptable benchmark, but as discussions proceed in the EU it is critical that the error tolerance rate should be very low. It could be 1 per cent., as it is in the NAO. We must treat the EU as a sophisticated, developed organisation and, if we are to have confidence in it, we should not apply the standards that we would attach to overseas aid to developing countries. Finally, when the EU talks to the developing world and tells the United Nations that it must be careful about the way in which it offers aid to new and emerging economies it should make certain that it is purer than Caesar’s wife. We take a proactive stand over and over again, telling developing countries that they must clean up their auditing act, but for us to do so from a position where we can be criticised strikes me as unacceptable. I speak as a pro-European. There is nothing less acceptable to a pro-European than to sit by and look at an unreformed EU that permits a relatively low standard of auditing to continue year after year. For the credibility of the European Union, which I consider to be an important part of our future, we must pursue the kind of reforms suggested in the road map, and we probably have to go beyond that.