EU: Financial Management and Fraud (EUC Report)

My Lords, that was the whole point. There is investment in the Games, and the issue being debated was how we will get value in terms of the legacy, which I did not think that the noble Lord addressed. But that is last week’s debate and this is this week’s. I am very grateful for the opportunity to respond to this important debate. As my honourable friend the Economic Secretary to the Treasury made clear at the time, the Government very much congratulate the committee on the cogency of its analysis and particularly the chairmanship of my noble friend Lord Radice in producing this thorough, timely and persuasive work. I am well aware that some noble Lords take a different view of the report, but they might well reject almost anything that achieves a balanced view on Europe as this report does. Much of the report appropriately recommends how constructive reforms ought to be made, and I shall come on to those in a moment. However, that could never be enough for some noble Lords because the report is not an unvarnished diatribe against all things European. The Government take a balanced view. We agree with the vast majority of the recommendations made in the report, and we have produced our own initiative to show how member states can better manage EU funds. I heard from the noble Lord, Lord Pearson, when intervening on the noble Lord, Lord Dykes, about one individual who wrote to a newspaper indicating that this initiative has not been universally welcomed, but would any initiative on Europe gain universal welcome in the nation? It certainly would not be welcomed by the noble Lord, Lord Pearson, but it has been welcomed by a wide range of people. Further, other Governments are looking at the British initiative and setting out to follow aspects of it. My noble friend Lord Giddens identified how member states are following our approach. Although we have until 10 pm, I do not intend to take that length of time, but I hope to be able to respond to the questions put to me. Before I attempt to respond to all noble Lords, I want to put the issue into context. The background to the committee’s report is depressing. For the 12th year running the European Court of Auditors has again been unable to give a positive statement of assurance on the EU budget. That is a statement whose truth all of us regret. Although the court was, with some minor reservations, able to confirm the reliability of the accounts, the proportion of spending that was qualified—around two thirds—was essentially the same as in the previous year. That is deeply disappointing and is why we are insistent that improvements should be made. The administrative reform measures were pioneered by my noble friend Lord Kinnock, who in his absence has had rather a tough time in this debate. Would that he were here to respond to certain remarks tonight. However, nearly all the onslaught on my noble friend had nothing to do with his constructive approach to the European position, but concentrated solely on an individual case. I shall not speak from the Dispatch Box about an individual case, but I shall agree with all those—the noble Lords, Lord Pearson and Lord Howard, were prominent in making the case—who have said thatwe need to respect whistleblowers. We want to see that the European Community recognises the value of whistleblowers and their necessary protection. My noble friend Lord Kinnock recommended that, and we as a Government support it. It is unfair to be too critical of the fact that some of these reforms have not yet bedded down and it is too early to pronounce a verdict. However, it is clear that a great deal more needs to be done to improve EU financial management if we are to achieve the positive statement of assurance that our taxpayers deserve. I certainly agree with all those—even with noble Lords who pledge allegiance to UKIP—who say that our taxpayers deserve an assurance that the EU accounts can stand the test of proper auditing. It is unacceptable that EU spending is qualified in this way year after year, and the British Government are taking a lead to make sure that the situation improves. European spending is often accompanied in this country by somewhat hysterical accounts in the press of the degree of fraud and corruption. I would be the last to suggest that any contributor to the debate tonight deserves those epithets, but suffice it to say that almost every transgression referred to this evening with regard to the accounts has been alleged fraud. For example, the late submission of documents, missing the date—clearly an irregularity—was defined by certain noble Lords as irregularity shading inevitably into fraud, and the case is proven against the European Commission. I hear allegations about fraud, but not much substance. In none of the figures we can attest to does the percentage of the European budget that can be identified clearly as fraud seem greatly different from the percentage of nation states’ budgets that are subject to fraud. We accept that the strictly annual nature of the statement of assurance exercise, which is required for the clearance of the accounts, is difficult when there are multi-annual spending programmes within the European budget, but that does not alter the fact that where fraud exists we need to see that it is expunged. We need processes in place to do that. I am sure it will be recognised that a fully positive statement of assurance is quite a tough test to pass. That is why the Controller and Auditor General said in his evidence to the committee that the National Audit Office would not be able to give a positive statement to the UK’s accounts on the same criteria. We can take some comfort from the fact that the vast majority of the irregularities detected by the court are administrative errors rather than outright fraud. I recognise that that statement is a contentious one so far as several noble Lords who have contributed to this debate are concerned, but they need to produce a great deal more evidence than they have done, rather than make assertions about this problem. The second and more important reason why it is difficult to get a positive statement of assurance on EU spending is that around 80 per cent of EU spending goes on the CAP and structural funds, programmes with highly complex regulations and a huge number of beneficiaries, whose management is shared between the Commission and member states. These programmes are inherently vulnerable to irregularity of varying degrees of gravity. There are many good reasons for radical reform of the CAP and structural funds. Improving the EU’s financial management is only one dimension of that, but we certainly need improvements in those areas. The Government are determined to demonstrate how individual member states can accept their responsibility to help improve the management of EU funds, especially the agricultural and structural funds. That is why we announced that the UK would take a lead in promoting the sound management of EU funds by demonstrating how they could be better managed at national level and how national Parliaments can be more closely involved in scrutinising EU spending. From next year onwards our Government intend to prepare and lay before Parliament an annual consolidated statement on the UK’s use of EU funds, prepared to international accounting standards, which will be audited by the National Audit Office. The statement and audit opinion will also be made available to the Court of Auditors and the Commission. These arrangements will enhance audit and parliamentary scrutiny of our own use of EU funds and help us to detect and address any irregularities, thus improving financial management. We will all benefit from that extra scrutiny, and the Court of Auditors and the Commission will be able to take into account the National Audit Office’s opinion when performing their own audit and controls. That initiative is welcomed by the Commission and the European Parliament. We are developing it in consultation with the court. As my noble friend Lord Giddens indicated, the Netherlands, Denmark and Sweden are also part of this process of reform, and other countries are showing considerable interest. It is, of course, fundamentally important that EU money is spent correctly, which is the main focus of today's debate. The debate ranged very widely. I was grateful to my noble friend Lord Radice when he introduced the debate and indicated that one of the crucial aspects of the committee’s findings was that although there were irregularities and the accounts were unsatisfactory, there was no evidence of what constitutes the main contention that infuses so many of the arguments of critics of the European Union. It was expressed quite cogently and forcibly this evening. The noble Lord, Lord Pearson, will nod in response to that accolade, but the noble Lord, Lord Willoughby de Broke, played his full part and the noble Lord, Lord Stoddart, is not shy in his corner. They demonstrated that the contention of great critics of the Community is that fraud is part of the culture. The statement in this report, produced by your Lordships’ Select Committee under my noble friend's chairmanship, denied that, and rightly so. I recognise that there is no way in which we can reach consensus on such fundamental aspects of the committee’s position. I hear what the noble Lord, Lord Pearson, says when he indicates that your Lordships’ committee is stacked with the compliant and the Europhiles, but my fellow Peers exercise judgment on these issues. In any case, they are not all Europhiles. I hesitate to use the word ““sceptic”” because it is such a loaded phrase when used with regard to Europe, but a number of noble Lords are rather more detached in their enthusiasm with regard to Europe. It will not do for the noble Lord, Lord Pearson, to suggest that my noble friend Lord Radice and his Select Committee have been involved in a defence of the European Community.