EU: Financial Management and Fraud (EUC Report)

My Lords, patience is a virtue. If the noble Lord seeks to control himself, he might be rewarded with the answers as I develop my speech. I believe that this report, for which I am grateful to my noble friend Lord Radice and his committee, should have laid to rest— I doubt that it will have done—some of the favourite mythology of Euro-sceptics. There are two very important quotations: the one from Sir John Bourn and another which reads: "““We have been presented with no evidence to support allegations of a culture of corruption within the Commission’s administration””." So there is also very important evidence about the work of OLAF. I notice that we did not hear too much from some of the UKIP members about OLAF. That might be because OLAF is currently engaged in investigating allegations of fraud by one of UKIP’s members in the European Parliament. I am glad to say that, albeit belatedly and somewhat reluctantly, UKIP was forced by the pressure of public opinion to suspend that member from its party, thus reducing its membership by a substantial proportion. However, the British deputy director of OLAF,Mr Nick Ilett, is quoted at paragraph 136 of the report as saying that he is, "““happy that most of the cases which [OLAF] refer[s] to national jurisdictions lead to prosecutions””." The chairman of the OLAF supervisory board—again, a Brit—Ms Rosalind Wright QC, said that it was pretty impressive that three out of four of the OLAF fraud reports reached trial. So, where there is fraud or corruption, there is evidence that it is tackled seriously. These introductory remarks should not be taken or interpreted as complacent acceptance of the status quo being satisfactory, but merely as a warning about those false prophets who see everything in our garden as perfect and everything European as tainted—those whose approach to the European Union is almost xenophobic. There are things that are wrong and things that need to change. Many of those are detailed with admirable clarity in the report of your Lordships’ European Union Committee. Let us look at some of the things that need to change. First, clearly there must be a proper differentiation between fraud and irregularity. One can be a mistake; the other has to have deliberate intention of defrauding the taxpayer. It is no longer satisfactory that fraud and irregularity should be bundled together under a single category. They have to be separated and separately treated. Secondly, the transaction-testing method for looking at the underlying transactions requires only a small number of transactions in the sample. When you extrapolate from a small sample, you can frequently get exaggerated results. I believe that there is a need for a definitive study including national administrations of the statement of assurance statistical methodology. Thirdly, the statement of assurance needs to be disaggregated, as the committee made absolutely clear, into appropriate separate areas of the budget—agriculture, structural funds, energy, research and development, development aid, and administration. Fourthly, in relation to the statement of assurance, the member states who are jointly responsible and who administer between 80 and 85 per cent of the total budget need to have their responsibilities checked and integrated into a system of statements of assurance. All those things are abundantly sensible, pragmatic reforms that show anything but a complacent satisfaction with the status quo. Fifthly, member states must be scrupulous in controlling the efficiency and propriety of the spending of EU money as we expect them to be with our own. Sixthly, there should be a comment by the Court of Auditors on the capacity of each member state properly to fulfil their responsibilities for European expenditure. I want to turn briefly to a couple of things that are not in the report. There are other problems in fraud and financial management that need to be addressed urgently. First, on the revenue side of the budget, the system of traditional own resources needs to be looked at very thoroughly. It is inefficient because it is a declining share of the budget. It is difficult and costly to collect and we are currently having to pay member states an inducement fee of about 20 per cent of their own resources that they collect to encourage them to collect them at the margin. Of course, that sort of system is fraud-prone. We need to spend at least as much time concerning ourselves with fraud in revenue collection as with fraud and irregularity in expenditure. Nowhere is that more evident than in the transit system of the European Union where goods that enter the European Union at our external frontiers have their taxation suspended while goods transit through the EU. Let us take cigarettes as an example. When they get to the port of Algeciras in Spain, they are alleged to have left the European Union by a rubber stamp appearing on the document. They do not go abroad, but return into the European Union. The tax evasion on one lorry load of cigarettes is more than a million euros. I spent a happy, but regretfully relatively useless, 18 months chairing a committee of inquiry into transit fraud. I regret to say that the Governments of the member states have not done everything that they could with that report, although they constantly recognise, in budgetary terms, the loss to our national Exchequer of value-added taxation and other taxes on goods. That sort thing must be looked at. Secondly, we must look once again at the structure of the Court of Auditors itself. With a Court of Auditors for six members states, having one from each member state was okay. It still worked when it was nine, and 10, 12 and 15; but to have a member of the Court of Auditors from each member state in a court of 25, and then 27, each with their own cabinet, creates a top-heavy structure. I hope that Sub-Committee A can at some time return to its excellent work in looking at the Court of Auditors and come up with new ideas on the structure for the audit court itself. We need something based more on the European Investment Bank system, where the political direction comes from Ministers of finance or their representatives and a professional head of audit service is then allowed to get on with the job without 27 appointees of 27 members states fighting over who does what. Reforming the Court of Auditors would be a substantial contribution. I conclude as I started by congratulating the committee on an excellent report. It clearly givesthe lie to the nonsense pedalled by the noble Lords, the members for UKIP, who are never reluctant to pedal the same old myth, even though all the evidence is stacked against them.