Court of Auditors 2009 Report

Opposition Day — [10th Allotted Day] – in the House of Commons at 7:27 pm on 2nd February 2011.

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Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 7:27 pm, 2nd February 2011

I beg to move,

That this House
takes note of the Unnumbered Explanatory Memorandum dated 25 November 2010 submitted by HM Treasury on the implementation of the 2009 EU budget, the Unnumbered Explanatory Memorandum dated 24 November 2010 submitted by the Department for International Development on the activities funded by the Eighth, Ninth and Tenth European Development Funds in the financial year 2009, European Union Document No. 12393/10 and Addenda 1 and 2 on Protection of the European Union's financial interests, European Union Document No. 13075/10 and Addendum, relating to an annual report to the discharge authority on internal audits carried out in 2009, the Unnumbered Explanatory Memorandum dated 22 October 2010 submitted by HM Treasury on the European Anti-Fraud Office's tenth activity report for the period 1 January to 31 December 2009, and European Union Document No. 16662/10 and Addenda 1 and 2, Commission Report to the European Parliament and the Council on the follow-up to 2008 Discharge;
and supports the Government's continued engagement with its EU partners to improve financial management of the EU budget.

I should start by saying that it is a pleasure to have this debate on the Floor of the House, as I believe that this is the first time that that has happened. European Union issues are occupying hon. Members' thoughts at this time, so holding this debate on the Floor of the House demonstrates how important it is to focus also on the crucial issue of ensuring sound financial management of the EU budget. I therefore wish to emphasise at the outset the seriousness with which this Government take the issue. Managing taxpayers' money properly is crucial.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Yet again, the European Court of Auditors has failed to approve the European budget. Will the Minister tell us for how many consecutive years that has occurred?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

In fact, it is 16 years, and the Government view that as completely unacceptable. I hope that Kelvin Hopkins will bear with me while I set out some of the steps we have already taken and those we plan to take over the coming months to play our part in getting these issues tackled.

Photo of Ian Davidson Ian Davidson Chair, Scottish Affairs Committee, Chair, Scottish Affairs Committee

Does the Minister accept that every previous Government, of whatever party, have always said that that situation is unacceptable, yet nothing has ever changed? Why are her Government so soft on Europe?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I completely reject the hon. Gentleman's intervention about this Government being soft on Europe, and I think that even he does not believe it. Far from being soft, we have taken a proactive approach to managing down the EU budget and getting control over it. We are dealing with a key part of that because, as he is aware, we have been leading the debate on the size of the EU budget, with some success. We plan to lead the debate as we enter the next financial perspective about how large the budget should be and the need for it to reduce in real terms over time. He will also be pleased to hear that we are steering the debate on what we should be spending the budget on. However, we are here tonight to debate the fact that although that is crucial, if we do not have the final piece in place-ensuring that once the decision has been taken on that money it gets spent in the way that was intended-we are not fulfilling what we need to fulfil. That means we are not getting value for taxpayers' money, and that is why this debate is so critical.

Mr Davidson asks how we can make a difference. I hope the fact that I am an accountant will bring some- [ Interruption. ] He is groaning, but it is a good thing to be an accountant in this role. I understand some of the technical issues involved in auditing and managing financial accounts and in managing budgets, and I assure him that I shall bring that prior experience to my role as Economic Secretary on behalf of the Government.

Let me set out for the House the background to this issue before taking more interventions from hon. Members who rightly want to have their say on this topic. First, managing taxpayers' money properly is crucial at any level, be it local or national Government or across the EU. It is a key part of the responsibility of Government and essential to the credibility of the EU budget and the European Union as a whole. As I have said, this Government and I, like other Members of the House, find it completely unacceptable that the Court of Auditors was, for the 16th year in succession, unable to provide a positive statement of assurance on the EU's accounts. That is a continuing blot on the EU's reputation and it raises serious questions about the management of EU funds. As I have said, British and EU taxpayers need to know their money is being well spent, but the Court of Auditors cannot provide that assurance. We are talking about large sums of money and it remains difficult to spend them effectively to deliver clearly the results we want-growth, jobs and a stable EU.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

As an accountant, the Minister will understand large numbers. In 2009, reported irregularities in agriculture increased by 43%. Things are getting worse, not better.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman is right that in some areas things are getting worse, but in others they are getting better. The problem is that there is no clear pace of improvement at a rate that will make a big enough difference fast enough. The key challenge that we have to debate tonight and that the Government are keen to push within Europe is how to get that step change. What will it take to make sure that core financial management of EU funds is further up the agenda in the European Union than it has been? I will discuss later how to manage that more effectively.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

There is one way: we could say to the EU, "If you don't balance your books, we won't pay our contributions." Will the Government consider taking that position?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

My hon. Friend echoes a sentiment that many people in the country will feel. Clearly, we have a legal obligation in terms of our payments to the EU budget, but the challenge is sorting out the underlying problem and even doing what he suggests would not do that. We have to address the underlying problem now, and there are ways in which we can do that.

If I can make a little progress, I shall provide some context and talk about the steps that we are taking and are planning to take. It is important to have this debate, because the views of Members across the House and their constituents on the budget are key in pointing out how important this matter is not only for the UK Government but to represent in Europe, which we plan to do. To give some background, the European Court of Auditors report on the 2009 EU budget was published on 9 November 2010. As hon. Members will know, at that time the Government were taking extremely tough decisions domestically, having just published the spending review that was our plan to deal with the largest peacetime deficit in British history. At home, we are taking the steps needed to cut the deficit and start tackling our debt. Actually, the experience is the same for most people and most countries across Europe-member states bringing their deficits under control by cutting spending.

Photo of Henry Smith Henry Smith Conservative, Crawley

I do not doubt the determination of the UK Government to bring down the deficit-nor do I doubt the determination of many other countries in the EU to bring down their deficits-but is it not telling that great countries trying to work together to bring down deficits do not seem to be able to make an impact on the EU, because it is so remote from the peoples of Europe, particularly the people of this country?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

That remoteness-the lack of the ability, day to day, rigorously to monitor how spend is going on-is one reason why we have reached this stage today. Also, it is fair to recognise that 80% of the spending happens at member state level. Therefore, there is some challenging complexity for any system in ensuring that that spend across those disparate member states, some of them new, is effective.

In spite of that, we have to get a grip. Our Government in the UK are getting a grip on departmental spending and the EU needs to do the same. I say to my hon. Friend Henry Smith that I think that there is now an appetite across member states to start to address the issue. There is more of a common agenda-perhaps at the EU and member state level-to address financial management. I welcome that development, but I am also determined to harness it while it is there to get change for the better.

As I was saying, the Court of Auditors report was published at the same time as the EU-level negotiations were taking place on the 2011 annual budget.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport)

The number of member states has risen from nine to 27, and the number of staff involved here has risen to some 200, yet the number of reports produced has gone down from 15 to six. If we are going to get a grip, we also need to get a grip on the financial situation in relation to what the Court of Auditors delivers and the work that it does. Does the Minister agree that something has to be done about that as well?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Yes, I do. The Government thought it totally unacceptable that EU officials received a 3.7% pay rise when our Government had to propose a pay freeze for public sector workers. We are not the only member state taking difficult decisions such as that. The debate the hon. Gentleman is referring to is the one we have already actively engaged in, which is about not only the level of the EU budget, but what we spend that money on and ensuring it is spent on the right things that deliver the right priorities for people on the ground, whichever member state they are in.

We are about to engage in a debate, which is important for the longer term, on how we change that mix of investment to make it more significant. It is called the debate on the financial perspective, and the hon. Gentleman will be aware that that relates to the seven-year plan, whereas early last year we debated the budget for 2011. We have a chance to have that more fundamental debate about how we spend money within Europe. The Government are keen to lead that debate at EU level.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

My hon. Friend-a member of the coalition Government-knows that I am one of her greatest fans. Having said that, is she aware, as I know she will be, that the irregularities by Bulgaria and Romania in relation to pre-accession funds amount to 81% of all the cases, and that there is also this yawning hole concerning cohesion funds? Really, this is totally unacceptable. I have been involved in such debates for 26 years. Nothing has changed.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

My hon. Friend is right to raise that issue, for lots of different reasons. Two spring to mind. The first is the macro level of the argument, which is that new members joined the EU during the '80s. Those member states got cohesion funds to help to develop their economies. There is a question as to the effectiveness of that spend. We are about to embark on investment in a new group of countries that are coming in. The assumption about and the argument made for the accession countries is opening up markets, but we need to see those economies develop for that business model of the EU to work.

My hon. Friend will be pleased to hear that yesterday I met the Bulgarian Minister who oversees the EU funds in Bulgaria. His entire job is administering those funds. He has been in place for about a year. For the reasons that my hon. Friend mentions, I was keen to talk to the Minister about Bulgaria's perspective. He made the point, which I thought was right, that in the past people said to countries like Bulgaria, "You're not spending the money that we are giving you." His point was that those countries are keen to have it spent effectively, because that is in their interest.

Clearly, countries such as Bulgaria are at an early stage of putting in place the structures and processes. The Minister talked to me about the work that they are starting to do at national level and at regional level to enable better financial management of EU funds. That is a move in the right direction. The question for other member states is what we can do at pan-EU level to make that easier. We should get rid of unnecessary complexity and consider what we can do to help those member states to get along the road to stronger financial management faster. I believe they want to do so.

States such as Bulgaria understand that it is important for their relationship with other EU member states to be seen to be stronger financial controllers of the money that they are getting. They understand why that is important, not only in the medium or long term, but in the short term. The challenge for us is to ensure that we improve the framework within which they are working, and transparency is part of that.

I am aware that I have taken several interventions. In part, that is forcing me to jump to bits of my speech that I will come to shortly anyway. Perhaps I can make a little progress and talk to the House about what I think we need to do, some of the steps that we are taking, and what a better system of financial management at EU level would look like. I shall begin with a little more background to the European Court of Auditors report and go on to the discharge negotiation, of which this debate is an important part-in other words, how we get those accounts signed off.

On the report, it is fair to say that there are some improvements. We have had a positive statement of assurance on the reliability of the EU's accounts, but as we can see and as we have already discussed tonight, everybody agrees that much more needs to be done. The pace of change is too slow, and we see no discernible trend in the right direction. We want to see financial management clearly supporting and controlling spend by the EU.

I shall set out the steps that the coalition has already taken to drive through improvements since we took office in May. It is worth reminding the House that the European Court of Auditors report relates to 2009, prior to the time that the coalition Government were in office. In October, when I was in Brussels having some of my meetings in relation to the EU budget, I took the opportunity to meet the Commissioner in charge of financial management in the EU, Commissioner Šemeta, to talk about our concerns and some of our ideas, and to push the case for transparency and sound financial management. I believe the Commissioner was receptive, and I think he understood that in his role, that needs to be a more fundamental priority than it has been for Commissioners in his position in the past. Since then, we have had a firm but constructive line throughout the negotiations among the member states. Let us not forget that they are responsible for management of 80% of EU funds spent.

The Government and other like-minded member states have pushed for concrete processes in several areas. First, at the pan-European level we must have further simplification of what are excessively complex rules that often hinder, rather than help, strong decision making that drives strong value for taxpayers' money. We must push EU-level auditing toward a more risk-based and proportionate system. Simply checking through receipts in member states that are randomly selected really will not work in future. We need to move towards a system where the European Court of Auditors operates a risk-based approach, where the focus is on member states for which there seems to be evidence of poorer and weaker financial management, and where we understand exactly where the management is breaking down in those processes and control systems. We are keen to ensure that what we do at the level of the European Court of Auditors is done more effectively than it has been in the past, and I plan to meet the European Court of Auditors to discuss those issues.

We are also encouraging member states to take greater responsibility for the funds that they implement, which, as I have said, is the vast majority of the budget. In practice, that means that we are lobbying for member states' annual summaries to be upgraded and published. The UK is currently one of only four member states that publish the sort of consolidated statement that we are debating today. We want more transparency, which we think will drive better financial management; it is not the only consideration, but a key one. The Government have pursued that agenda at the domestic level because we think that it is worth while, so we are pursuing it at the EU level. We need those annual summaries to be published and to contain more meaningful information so that people can use and interpret them.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Is there not a vested interest in countries that are net recipients having a relaxed approach to the budgets? It is a bit of a slush fund for them to keep them on side. We are the ones who will be upset about it, because we are net contributors.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I can see why the hon. Gentleman says that, and there is always a risk that that might be the case. Interestingly, when I met the Bulgarian Minister in charge of EU funds, that was precisely not his attitude, because clearly there is a debate about what will happen to structural and cohesion funds in future, given that new member states are now involved and want to see investment to help grow their economies. They also want value for money; they do not want billions of pounds handed over if it makes no difference on the ground. As member states, we need to drive that agenda and point out that it is unacceptable for a 16th audit report not to be given the statement of assurance. At the same time, we must have a positive agenda to work with member states to improve not only our own ability to control the finances and funds that come from the EU, but the ability of other member states to do so.

Photo of Steven Baker Steven Baker Conservative, Wycombe

Does the Minister accept that even when the EU controls its money within its rules, it still manages to waste it? I am thinking in particular of a beautiful hotel I visited in Spain that was in the middle of nowhere-unless one was a skydiver, there was no reason to visit the local village. It seemed a total waste of public money.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

My hon. Friend demonstrates exactly why there is a far broader debate to be had on the EU budget and how the money is spent. Tonight we are debating whether the money has been spent in the way that member states agreed when they negotiated how and on what basis the investment would be split between different countries and what the priorities would be for our individual taxpayers.

The Government are determined to bear down on the size of the budget as a priority. We led the debate on limiting the EU 2011 budget in a way that other member states, at the time when we began to gather support, perhaps thought was ambitious. In fact, it worked. My hon. Friend will be aware that, as we go into the fundamental debate about the financial perspective and the longer-term budget, we will also set the parameters-with countries such as France and Germany, which, alongside us, are net contributors and, therefore, absolutely want to see that money spent effectively-within which that debate can take place.

Having led the debate on the amount, there is then a need to start leading the debate within that about priorities and ensuring, as my hon. Friend says, that we do not have wasteful spending on administration or, as the hon. Member for Luton North said, by individual member states. We have to drive out waste at the EU level. That is what we are trying to do at the national level, and it is unacceptable not to go through the same process at the EU level, too.

Photo of Douglas Carswell Douglas Carswell Conservative, Clacton

My hon. Friend talks a great talk about clamping down on the EU's excesses, but will she please explain why our net contribution has gone up and will continue to go up, and why she is not reducing the amount that we contribute to the EU, when we are having to make reductions in Britain-at home?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

We are doing slightly more than talking a good talk. I share my hon. Friend's concern that one key thing driving the budget up was the previous Government's disastrous approach to negotiating the common agricultural policy, which saw us give away a huge chunk of our abatement and, over this Parliament, will cost the British taxpayer about £10 billion. That is totally unacceptable. He says that it is important we bear down on excesses, and I agree. That is one reason why we led the debate to stop the European Parliament's proposal for a 6% rise in spending. We achieved that, and we are now trying to ensure that, when we go into the longer-term debate about the financial perspective over the next seven years, which starts in 2014, we begin to see real-terms reductions. Countries such as France and Germany are backing us up on that, and those are the first steps towards delivering what we want.

My hon. Friend is right that we need to go beyond words and start delivering, and that is absolutely what we want to do. For tonight, the key aspect is how we can ensure that, when we have "decisioned" the funds, the final building block, which is about financial management, is delivered professionally, robustly and with an integrity that companies would recognise. We have to move towards a better system than the one we have picked up.

We are also keen to see some quickly taken measures and short-term gains, such as a one-stop shop that provides better information to those member states implementing EU funds, and a published scorecard of recovery orders against member states. That sort of transparency will start to change the culture, but we have to question how we have reached the position of poor financial management in which we find ourselves. The answer is partly down to culture, which has to change and improve at the EU and member state levels.

Sound financial management is critical, and it brings us closer to our overarching aim, which is a budget that delivers value for money for British and EU citizens. As I hope I am trying to get over, that is not a negative agenda, because securing better value for money is a positive thing to do. It is what we are doing; it is what taxpayers want to see us doing; and it is what all member states should want to do themselves. We believe that we have a positive agenda, and it is not just about picking or prioritising the right objectives. Last year, our excellent debate in the House about the EU budget was a good chance for Members to discuss those objectives. We should return to that over the coming months, but critically we have to ensure that, when we have "decisioned" EU money, it is spent and implemented effectively.

As I said, only yesterday I met Mr Donchev, the Bulgarian Minister overseeing the administration of EU funds in Bulgaria. I am pleased that alongside such meetings, including the meeting that I plan to have with the European Court of Auditors, and the work that we are doing with the European Commission and MEPs in the European Parliament, there is a sense that people are receptive to the need to improve financial management and want to see that happen.

I am keen and grateful for this House's support for the Government in pursuing that agenda, because that is vital. It was important that we could go into the negotiations saying that as a Parliament we stood behind the motion on bearing down on the EU economy and our decision that a 6% rise was unacceptable. We can learn lessons from that. We as a Parliament need to stick together and show solidarity in tackling these issues. That is one step that we must take.

Even my hon. Friend Mr Cash, in his role as Chairman of the European Scrutiny Committee, has a role to play, together with his fellow-chairmen of scrutiny committees across Europe, in pushing this sort of issue to the top of the agenda. We have to be prepared to say in all channels that we must get an EU budget that becomes affordable, that is spent on the right priorities, and that is managed in the right way. His role is also vital in being able to back up some Governments while perhaps pressing those for whom this has been less of a priority to put it further up their list of priorities in future.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

This is not in any sense directed at my hon. Friend personally, but one of the big problems in implementing the Lisbon treaty is the increased functions of the EU. Increasing functions increases expenditure, and increasing expenditure has tended to increase the amount of irregularities. I am sure she will understand my concern about the manner in which we are Europeanising not only our own domestic economy, with European economic governance and all the other things that go with it, but inviting ourselves into the arena of a black hole where other member states do not understand the rules and do not much care about them either.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

My hon. Friend will know that Conservative Members, in particular, had a range of concerns about the Lisbon agenda.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

I did not mean the Lisbon agenda: I said the Lisbon treaty. I think that the Lisbon agenda has been an almighty disaster and that the 2020 strategy would fare no better. The Lisbon treaty is the instrument that increases the functions.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Let me pick my words more carefully. My hon. Friend is right that Conservative Members had deep concerns about the content of the Lisbon treaty at the time. That is one reason why, as a party, we pushed to have a referendum before going into and signing off on the Lisbon treaty. It is a matter of deep regret that the previous Government chose not to give the British people their chance to have a say on the changes that were proposed via the Lisbon treaty.

The challenge in my role is to ensure that, in terms of where we are today, I stand up for our interests in Britain. One way we need to do that as a Government is to tackle some of the fundamental weaknesses in how the EU works, but my particular concern is financial management, not only at the EU level but at the member state level as funds are spent.

I am sure that other Members will rightly want to have their say on this, so before I finish let me quickly turn to the issue of fraud, which is of great concern to the Government and to hon. Members. I want to be absolutely clear that of course any level of fraud is completely unacceptable. We fully support the work of the Commission and of the European anti-fraud office, OLAF. I am pleased that the European Court of Auditors reports very low levels of fraud in the UK. In 2009, we had a rate of just 0.19 of 1% of spending, but it is still too high. The Government and I will focus on that as we look at how we can tackle this problem. We are therefore deeply concerned that, according to the latest OLAF report, the level of fraud seems to be increasing at the European Union level.

It would be wise for me to point out that the Commission's figures have to be interpreted with care. As we know, fraud and irregularities are not the same thing. Irregularities make up the bulk of the available figures. To my mind, irregularities are also a serious concern, because they are payments that have been made outside the rules. We should not find that acceptable. The figures quoted by OLAF for suspected fraud are increasing. It is not possible to say that fraud is increasing, but there are indications that that may be the case. Even an increase in suspected fraud is unacceptable. The best way to tackle fraud, irregularities, waste and the lack of priorities is ultimately to have better systems, financial processes and financial controls, and a better regime for financial management in the first place.

Photo of David Nuttall David Nuttall Conservative, Bury North

My hon. Friend is right to identify those measures that need to be put in place. Is she aware of whether that is happening in the European Union?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

To my mind, that is the work that we need to ensure happens. I met Commissioner Šemeta in October 2002 to discuss his plan to improve financial management across the EU. The challenge for the Government, which I set out for him and to which he was receptive, is to make that stronger and better, and to make it more of a priority for the EU as a whole. As hon. Members have pointed out, there is a long way to go, but I assure the House that we are making a start.

Photo of Douglas Carswell Douglas Carswell Conservative, Clacton

My hon. Friend was right to highlight that a very bad financial deal was negotiated for the United Kingdom under the previous Administration. Does she therefore think it right that we should promote some of the senior Treasury officials who were responsible for those negotiations to senior positions in UKRep?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Let us be clear that the responsibility for the catastrophic decision on the EU rebate is fairly and squarely political. I hope that the shadow Minister will tell the House why somebody in the Cabinet and the former Prime Minister, Tony Blair, thought it was a good idea to give up the equivalent of £10 billion in rebate over the course of this Parliament, in return for a common agricultural policy review that has taken years to come through and will ultimately be part of an overall budget review and a discussion on the financial perspective. In other words, they gave it up in return for a debate. That was a terrible deal for the UK taxpayer.

I assure my hon. Friend that I will take every opportunity I get, as I am sure he will, to make sure that people remember just how badly the previous Government dealt with this whole area, and just how badly they let down the UK people when it came to standing up for our interests in Brussels and having the judgment to make the right call on behalf of the UK taxpayer. That relates not just to the rebate, but to the Lisbon treaty.

J

Unfortunately, the Economic Secretary failed to address the second part of Mr Carswell's question.
Does she think it right, or does she believe that the officials should be unaccountable to Parliament and the British people?

Submitted by J H Hall

Photo of Ian Davidson Ian Davidson Chair, Scottish Affairs Committee, Chair, Scottish Affairs Committee

I agree completely with what the hon. Lady said about the appalling deal that was reached by the previous Government. I and many of my colleagues took that view at the time.

Does the hon. Lady agree that the rising fraud figures should be approached with caution, because they are often an indication of rising detection rates, which are to be welcomed? Has she made a study of the matter that leads her to believe that some countries are starting to take it more seriously? I used to visit the EU when I was a member of the Public Accounts Committee. We were constantly asked to redefine the rules so that things would no longer be counted as fraud or irregularities because the goalposts had moved. I hope that she would not be amenable to such a settlement of these issues.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman is right, and the discussion with the Bulgarian Finance Minister yesterday showed that statistics can take us only so far. There had been a debate about why Bulgaria had spent only a very small proportion of the funds that had been committed to it, but actually, if there is difficulty in spending those funds effectively, it is good for Bulgaria not to get through all of them until the problems are sorted out.

The hon. Gentleman may be right that there is now a better ability to detect suspected fraud, and he is right that there is substantive change to be made beyond this debate. We need to consider how individual member states can work within the rules to ensure that they are more effective and do not create dysfunctional decisions and systems at national level. The Court of Auditors needs to take a risk-based approach to examining how spend is managed, and it needs to work more proactively with member states so that improvements take place to address the problems that it uncovers. There is a clear agenda to be taken forward.

I look forward to hearing what hon. Members have to say. We have debated this matter on many occasions, which shows how important it is. When the UK Government and the UK people are having to take and bear the consequences of such difficult decisions, it would not be acceptable if we did not go through the same process at EU level with the same intensity. The Government are determined, and I am determined, to ensure that we lead that agenda at EU level. I hope that with the support of the House, we will be able to have some success in doing so.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 8:06 pm, 2nd February 2011

I, too, welcome the fact that this debate is taking place on the Floor of the House rather than in European Committee B, as it has in previous years. It is somewhat ironic that although having it here enables many more Members to take part, it means that we have only an hour and a half to discuss the matter rather than the two and a half hours allowed in Committee.

The Minister was thorough in her explanation of the Government's stance and very generous in taking interventions from Back Benchers. I am aware that at least half a dozen Back Benchers want to take part in the debate and that we are already 40 minutes into a 90-minute debate, so I shall be quite brief. Also, the Minister answered quite a few of the questions that I wanted to ask. There is always a problem in dealing with Court of Auditors reports because of the time lag involved. We are now debating the 2009 report in 2011, so it is useful that we have heard about what has happened in the intervening period.

It is, of course, disappointing that for the 16th year in succession, the Court of Auditors has been unable to provide a positive statement of assurance on payments from the EU budget because of weaknesses that it has identified in the procedures for financial control and management. In fact, it is not just disappointing; as the Minister said, it is entirely unacceptable that we are yet again in that position.

I welcome the fact that for the third year in a row, the Court has given an unqualified positive statement of assurance concerning the reliability of the EU accounts. It is important to stress that that has happened, but it is by no means satisfactory that the Court is not prepared to sign off on the payments, which means that considerable sums are not going where they should and money is being paid out wrongly, whether through fraud-as the Minister said, that is at quite a low level but is still a matter for concern-or through error. It is important that we continue to address the issue.

The direction of travel is correct. In the 2003 budget, only 6% of payments were identified as being free from error, which improved to 47% in 2008. I understand that the figure is now around the 60% mark or more. That progress is far too slow and it is vital for progress to be made more rapidly, because apart from anything else, the failure to sign off the accounts year after year understandably undermines public confidence in the EU and public support for EU membership. Naturally, people want to know that the EU is spending money wisely and well, particularly in difficult economic times when there is belt tightening and concern about how money is spent in this country.

We need more transparency and accountability in EU spending. Crucial to that, as the Minister said, is simplifying the procedures and processes of the allocation of EU money. The Court of Auditors has identified complex rules and regulations and complicated or unclear eligibility criteria as key factors in the high level of error, particularly in respect of structural and cohesion funds. Dealing with that as an ongoing, iterative process must be a priority, and I welcome the fact that the Minister is making those points in an ongoing dialogue with people in the EU, including the Commissioner for financial management, and not simply making them on this annual occasion.

The Commission should try to ensure that future programmes are designed to allow more effective control and monitoring; that should not be an afterthought or something to be looked at when the programme is up and running and the time for scrutiny is upon us. There is also a need to consult member states more, because often it is implementation at member state level rather than at Commission level that leaves something to be desired. Member states must have effective monitoring and management arrangements too. In particular, they should ensure that their compliance systems for spending cohesion funds are every bit as rigorous as their compliance systems on other matters.

The UK took the initiative to enhance its reporting through the annual consolidated statement on the use of EU funds in the UK, which is audited by the National Audit Office and presented to Parliament. The Minister advised the House earlier that only four other member states have adopted that model. I would be grateful if the UK Government continued to press other EU Governments to adopt a similar model and to introduce that element of transparency and accountability to their processes.

Are the Government generally optimistic about future improvements in financial management? I appreciate that it is difficult to forecast such things, but when does the Minister believe we are likely to see a positive statement of assurance? Is next year a realistic goal to work towards, or are we still some way off meeting that objective? Can progress be monitored better within year, and can ongoing improvements be made, so that we do not have to wait for the annual report from the European Court of Auditors, when we are inevitably disappointed by the lack of progress?

I am very much aware of the time, but I should like to make a few comments on specific concerns in the report, in particular in respect of agriculture and cohesion funds. In agriculture, the court says that the single payment scheme and single area payment scheme, including specifically problems with ineligible land and over-declarations of land, are the most urgent issues. The court also identified the need to avoid, in co-operation with national authorities, the payment of ineligible grants for fisheries projects. Has the Minister discussed that with her colleagues in the Department for Environment, Food and Rural Affairs? Are they pursuing the matter at European level? If so, can she advise the House on what progress has been made?

Cohesion funds, which have already been flagged up as a great concern, account for 30% of EU expenditure, so we are talking about very significant sums of money. Uniquely, the rate of material error is above 5%, even if it declined from 11% last year. We are travelling in the right direction, but that rate is still clearly unacceptable.

I note that the auditors recommend that the Commission encourage the more rigorous application of corrective mechanisms by national authorities, to ensure that member states do not substitute ineligible expenditure with new expenditure. Will the Minister advise us on what progress is being made to ensure that the control system for the 2007-2013 programming period will be effective? What is being done about the application of procurement rules in member states, which is also identified as a key concern?

The Minister said that a scorecard of recovery orders would be useful. It is worrying that the overall rate of recovery from beneficiaries who receive EU cohesion funds incorrectly has fallen. It is clearly unacceptable. Does the Minister have any idea why the recovery rate is moving in the wrong direction, and may I urge her to flag that up as something that needs to be addressed as a matter of urgency?

I repeat the point that I made earlier. This needs to be an ongoing and iterative process, and we need to keep a very close eye on it. There is consensus across the House on the need to push this up the policy agenda and I am glad that the Minister is doing what she can to push other EU Governments to address the issue. We will do what we can to support her in those efforts.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee 8:15 pm, 2nd February 2011

I do not need to speak for very long on this matter, for the simple reason that I have been making the same speech about different auditors' reports for the last 26 years. I am afraid that nothing much has changed. The Economic Secretary is a very dedicated Minister and I have great enthusiasm for what she seeks to achieve. She puts the best possible face on the situation, but unfortunately nothing changes: plus ça change.

The reality is that the British taxpayer is, as the Minister has rightly admitted, under severe duress. We are having to cut back and implement austerity measures, but at the same time this report-which, for the 16th consecutive year, has not been signed off-demonstrates that there are serious errors and mistakes in the system. Those errors consist not merely in the manner in which the accounts have been presented, or in the fact that irregularities and fraud have been identified, but in the very system that has been created. Because of the nature of the problem and its range-and the fact that the documents relating to this debate run to 1,035 pages-it is impossible in 90 minutes to do more than give a general survey of where the whole problem lies.

I mentioned Bulgaria and Romania. The European Scrutiny Committee said that it was inappropriate for them to be brought into the accession procedure when they were, for all the reasons that we identified, which included the fraud that exists in those two countries. I am glad that the Economic Secretary has had a meeting with the Minister responsible for audit in Bulgaria, but I have to say that I do not think that the culture in that country will change very much because of a meeting. The cohesion funds-from the figures that I have already given-are clearly exploited and seriously misused. They represent a significant proportion of the problem. We have a serious problem that is deeply entrenched in the system.

As the Minister knows well, I proposed that we should not only reject the proposals put before us in a debate some months ago, but reject the increase in the budget, and I am glad that the House agreed to do just that. But that is only one side of the equation. The other is the vast sum of money being allocated for the purpose of running this failing European Union. I do not ask the Minister to agree with me on that point, because it would be politically incorrect to do so, but the reality is that it is a failing system. However, I do not need to rehearse the arguments that I have already given for why that is.

One of the elements at the heart of that is the responsibilities of what is called OLAF, the European Anti-Fraud Office. I would like to refer to OLAF's mission statement, which is on page 729 of this mammoth bundle of motion documents. I can barely hold it up, actually-but fortunately, my wrists are quite strong. The mission statement says:

"The mission of the European Anti-Fraud Office...is to protect the financial interests of the European Union, to fight fraud, corruption and any other irregular activity".

Hon. Members should note the last words, especially when people talk about actual proven fraud. And by the way, with regard to the cohesion funds, the documents that the European Scrutiny Committee has examined note that the survey in question is only a sample survey-that is something that always fills me with considerable reservations-not a full audit of the kind that one might have expected from the National Audit Office. Indeed, I would go further and say that if we made it Government policy to insist that no standards lower than those of the NAO and the Comptroller and Auditor General should be applied to the European Union, we would really be getting somewhere. Frankly, if the NAO had the opportunity to have a go at these 1,035 pages, plus all the supporting documents, or if it had the opportunity at least to get entrenched in the system, as I have said many times in the past that it should, so that NAO standards and principles were applied to those audited accounts, we might just begin to see some relationship between costs and benefits.

The reality, however, is that vast sums of money-our net contributions and all the rest of it-are poured into that black hole, and it does not work. I am not going to enlarge on all the reasons, which worry me, for our slow economic growth, which in my opinion have something to do with the fact that what we have out there is a dead parrot. The European Union is a system that is incapable of growth-indeed, growth is liable to decrease, compared with that in China, India and the rest-and on top of all that, we have the problems of audit and irregularities that the report demonstrates.

The statement on OLAF's mandate says:

"In pursuing this mission in an accountable, transparent and cost-effective manner, OLAF aims to provide a quality service to the citizens of Europe."

OLAF's mandate covers

"all EU expenditure and part of the revenue side of the budget. It includes the general budget, budgets administered by the Union or on its behalf, certain funds not covered by the budget but administered by EU agencies"- perhaps that includes the External Action Service, which I hope we will look at in due course-

"and extends to all measures affecting the Union's assets."

That is a very big remit, and I have my reservations about that state of affairs.

The statement continues:

"OLAF's status is hybrid in nature. It is part of the Commission".

Would we have much confidence in the NAO if it were part of the Government? I very much doubt it. OLAF is supposed to be responsible for

"developing and monitoring the implementation of the EU's anti-fraud policies. However it has a measure of budgetary and administrative autonomy, which reinforces the total independence with which OLAF conducts investigations."

Photo of David Nuttall David Nuttall Conservative, Bury North

Does my hon. Friend agree that one of the problems is that it apparently takes 25 months on average-more than two years-for OLAF to conduct its investigations, and that only 56% of cases have led to follow-up action?

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

That is the problem. It is easy for us in this House to make scattergun criticisms of bureaucrats, civil servants and the rest of it, but the real problem is that if something does not work, we have to mend it-and there is no evidence of that happening.

I had an exchange with Lord Kinnock when he was responsible for these matters, and set up the new OLAF arrangements. He got a bit shirty with me in a Select Committee some years ago. People like Marta Andreasen were thrown out, and even before then, there was another chap whose name I cannot remember-

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

Exactly. The trouble is that the moment anyone starts to get to grips with what is going on, the steel shutters come down and people are thrown out of the European institutional arrangements simply for asking questions that would be regarded as completely normal in any proper democratic system. That is the essence of the problem.

As I have said, I could enlarge at great length on the contents of these 1,035 pages, and every word would be entirely relevant because they are so important. Huge sums of taxpayers' money and resources are being churned into this failing quagmire. This is not just the ranting of a Eurosceptic; it is the reality of what affects the daily lives of the people of this country, and we seem to be prepared to go along with it.

Photo of Ian Davidson Ian Davidson Chair, Scottish Affairs Committee, Chair, Scottish Affairs Committee

Does the hon. Gentleman accept that part of the difficulty of conveying these issues to the electorate is that the sums involved are so enormous? It is difficult for people to understand sums of £10 million here and £100 million there. As the Chair of the European Scrutiny Committee, would he consider undertaking a piece of work that looked at the value for money provided by a European operation in this country? An example would be the European schools, some of which are situated here. Why does not he compare the cost of a European school with the cost of a normal school? It would make sense to people if they could see the extravagance that the European Union applies in such circumstances. That would bring it all home to people far more than any number of quotations involving zillions.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

I rather agree. It would be very nice for me to be able to make a comparison between the different kinds of school systems, but this is not only about schools; it is about everything that moves. The reality is that this all-pervasive, all-encompassing ectoplasm has managed to work its way into every nook and cranny of our lives. It slips under doors and through windows, and it is absorbing us to the point at which we are being totally Europeanised. Within that framework, our taxpayers' money is being absorbed into the bloodstream of the European Union, and the monitoring and accounting is inadequate, which is what this European Court of Auditors report is all about.

Photo of Ian Davidson Ian Davidson Chair, Scottish Affairs Committee, Chair, Scottish Affairs Committee

I was making a much more specific point a moment ago. I was referring not to schools in Europe in general but to the schools that are run by or on behalf of the European institutions themselves, of which there is at least one in the United Kingdom. A comparison of that school with a similar-sized school elsewhere in the UK would be enormously informative to parents and everyone else. Such an exercise would help to overcome the difficulties that we have in explaining the magnitude of the sums involved.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

I certainly agree with the hon. Gentleman's concern. If he would like to write to me about it, I would be more than happy to take the matter up in the European Scrutiny Committee if we have an opportunity to do so. We are going through a process of reinvigorated European scrutiny, as I hope he has noticed, and we are determined to get to the bottom of certain issues. This is one of them.

I do not want to take up too much time, because many others want to speak. I will simply make the general point that this is a failing system with a failed accountancy system, and the taxpayer is being badly affected by the way in which these matters are being conducted. There are always paragons of virtue, but this system falls so far below the threshold of what is required that the whole thing needs shaking up. In a nutshell, I would like to see principles of the same kind that apply to the National Audit Office applied to the European Union, so that the people there can be roasted when they get it wrong.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 8:29 pm, 2nd February 2011

It is a pleasure to follow Mr Cash, who does such an excellent job in chairing the European Scrutiny Committee, of which I have the honour to be a member and in which I do my best under his chairmanship.

The problem that we face has existed for many years. This is the 14th speech that I have made on these matters. I made the first 13 in European Standing Committees, and I am pleased to be able to make this one on the Floor of the House. Although we are given less time on the Floor of the House, there is a greater focus on debates here and they gain a higher status.

Although I may have said the same thing repeatedly for 14 years, at least the numbers change. Let me introduce a few facts to the debate. In agriculture, which I mentioned earlier, the number of reported irregularities increased by 43% in a single year. The number of irregularities relating to cohesion policy increased by about 20%, and the number of irregularities involving pre-accession funds by 35%. Those are significant figures.

My hon. Friend Kerry McCarthy cited some of the positive conclusions of the report by the Court of Auditors. The big negative is that it was

"unable to give a positive Statement of Assurance on the legality and regularity of expenditure in the areas of agriculture and natural resources, cohesion, research, energy and transport, external aid, development and enlargement and education and citizenship".

That is pretty much what the budget is about. There is not much left, really.

Photo of Henry Smith Henry Smith Conservative, Crawley

Does the hon. Gentleman believe that, despite the best and, I believe, sincere efforts of Her Majesty's Government, the Court of Auditors will ever be able to sign off an EU budget? I doubt it.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The evidence that we have seen so far is not very encouraging, is it? I must say that I agree with the hon. Gentleman.

The hon. Member for Stone made the serious point that the Court of Auditors is not really a separate organisation in the sense that the National Audit Office is in Britain. I should like it to be much stricter. If it were stricter, it might reveal even more irregularities and fraud than it does now, and might bring the European Union into even greater negative focus.

At the end of our last presidency, I urged the Government-from the other side of the Chamber-to call for the abolition of the common agricultural policy, which is the main problem in relation to the budget. We were given endless assurances about reform of the CAP at that time. Apparently, at the end of our presidency, the then Prime Minister, Tony Blair, went to the European Union to call for its reform, if not its abolition, but what he came back with was no reform at all. As was pointed out by the Economic Secretary to the Treasury, he had given away a substantial proportion of our rebate. According to her, it amounted to some £10 billion over a five-year Parliament, or £2 billion a year, which is four times the sum that the Government plan to save by abolishing education maintenance allowance. Tony Blair gave that money away, and not one question was raised before he did it. Apparently he did it on the spur of the moment, hardly even checking with the then Chancellor of the Exchequer.

The Economic Secretary and others have mentioned the previous Government. I believe that the former Prime Minister, who is still a Member of Parliament-my right hon. Friend Mr Brown-was on our side, in a sense. He prevented us from joining the European single currency despite immense pressure from Tony Blair and others, and it could be said that by doing so he saved us from worse difficulties.

Photo of Ian Davidson Ian Davidson Chair, Scottish Affairs Committee, Chair, Scottish Affairs Committee

Does my hon. Friend accept that, at this moment, there are more Members on the Government Benches who are in favour of joining the euro than there are on our Benches?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I do not see many Members on any Benches who are in favour of it at the moment, and I am greatly encouraged by that. I believe that we have a kind of common sense.

I should say to the Economic Secretary that I appreciate her sincerity. I believe that she will fight as hard as she can to support our interests, and the interests of the European Union as a whole as well. It is important for other countries as well as ours that we get these things right as much as we can. As the hon. Member for Stone has suggested, the Economic Secretary and everybody else faces serious inherent problems when considering these matters. It is the system.

The common agricultural policy is one of those problems. If it did not exist and member states simply managed their own agricultural industries, choosing to subsidise where they thought appropriate, not where someone else thought appropriate, the system would be much better. The CAP will cause more difficulty, because when it comes into full effect in respect of the new member states, it will cost much more than anybody anticipated. That is because wages have risen in those countries, so the cost of subsidising agriculture in them will be much higher. There are ongoing problems with the CAP and we ought seriously to suggest to the European Union that the CAP should be abolished, by being phased out or whatever. Let us give notice that we want it abolished-let us say within the next five years, in order to give France time to adjust. That would save a lot of problems, as a range of difficulties in the budget would disappear.

Other areas of the budget have problems, too. The suggestion that I have made several times in the Chamber and in Committee is that we should get rid of the budget in its current form, which is about fiscal transfers. It is about transferring income or money from the more wealthy nations to the poorer ones; it is a redistribution policy. It does not work very well because of the formulaic way in which it is done, with some countries unfairly contributing too much and other countries unfairly receiving too much.

Let us suppose that there were no such thing as the CAP and all the other budgetary arrangements, and the European Union simply transferred a substantial sum to countries that needed it from countries that could afford to pay. For example, we might contribute 0.5% of our gross domestic product and Romania might receive 1% of its GDP. A lump sum would be handed over to the Governments of the countries involved and they would then decide how to spend that largesse. That would be more accountable because those Governments would be accountable to their own electorates. At the moment, no direct accountability is involved and we cannot do much to control the budget spending, but the member states themselves, with their own democratic Parliaments and Governments, could control that spending. That could be done in Britain at least and one hopes that that would spread to other countries.

I have suggested many times that instead of having this complicated arrangement of special budgets for all sorts of different things, we should have a system of a simple payment each year from the more wealthy countries to the poorer countries, in proportion to their living standards. So the wealthiest nations would give according to their wealth and the poorer nations would receive according to their need.

Photo of Henry Smith Henry Smith Conservative, Crawley

Does the hon. Gentleman think that the concept of zero-based budgeting would be helpful?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The hon. Gentleman would have to explain the position to me, because I am not an accountant, but if there were no budget and no European Union at all, that would solve the problem entirely. Given that we are generous by nature and would want to help our fellow European countries to develop, some sort of transfer might be helpful and the European Union would be a way of doing it. So I am not against the idea of wealthy countries contributing to poorer countries, but the current cumbersome approach, which invites corruption and irregularity, is not the way to do it and does not work out fairly. I have made my suggestion a number of times and I hope that, in time, our Government at least will take it seriously. Perhaps we will be able to debate that in the European Councils themselves and discuss completely changing the method by which these fiscal transfers take place. I have made my point and I have spoken for long enough.

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

Before I call the next speaker, may I remind hon. Members that at 8.54 pm I am going to call the Minister to do a three-minute wind-up? There are three speakers to come. The first will be Chris Heaton-Harris.

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry 8:39 pm, 2nd February 2011

Thank you, Mr Deputy Speaker. I just hope that my maths is better than that of the European Commission, so that I know how long to speak for. There is one thing that everybody seems to know about Europe, which is that the European Commission's accounts are not being signed off-this is the 16th year running that that has happened. What most people do not know and what never gets reported is that after the Court of Auditors gives its opinion, a very long process starts, which lasts at least nine months and gives MEPs and the Council of Ministers the power to look into every euro and cent that the Commission has spent in the previous year.

The plain fact is that the Court has no power over the European budget. I shall say that again: the headlines we read every year about accounts not being signed off refer to an institution that has no power over the institution it is checking. The European Parliament and Council, by contrast, have genuine power. If either of them refused to grant discharge-to sign off the accounts-or even if they questioned strongly the measures that the Commission had taken, the Commission would, although not compelled to resign, be under considerable pressure to sort out the problems within its accounts and accounting systems once and for all. There is a ton of jargon around the budget discharge process, but the process itself deserves a lot more scrutiny from the press, public and parliamentarians alike.

The Court of Auditors seems almost embarrassed about its refusal to sign off the Commission's accounts and give that positive statement. It is amazingly difficult to find that information in the Court's own report. As soon as the Court publishes its report, a debate is held in the plenary session of the European Parliament, the Committee on Budgetary Control considers the report, various questions are asked and eventually the European Parliament and the Council of Ministers decide whether to refuse or grant discharge.

The European Parliament has never decided not to grant discharge, so for the past 16 years the Court has refused to sign off the accounts and the Council and the European Parliament have refused to take the Court's advice. They have just said, "Carry on chaps; it's all going pretty well." Let me give a political example. Back in April 2008, when I was still a Member of the European Parliament, Labour MEPs voted, as usual, as they always have, to let that farce carry on, whereas Conservatives MEPs voted against it. We numbered over half the entire opposition in the European Parliament and the discharge was given by 582 votes to 49.

Concurrently, there is also a debate in the European Council among member state Finance Ministers, and the results of that discussion are reported back to the European Parliament, which is why lucky people such as me know about them. That debate rarely lasts longer than a few hours and very few countries seem to care. Rarely does anyone question why money cannot be accounted for correctly, and the purpose of that meeting is pretty much to rubber stamp the accounts. To give credit to the Dutch Government, a few years ago they decided to take a stand against the waste of their citizens' hard-earned cash and they have been finding a few friends more recently. However, I am very wary that what the Minister has said is very similar to what her Labour predecessors have said. This year, the discussion and the vote take place on 15 February.

Alas, the same cannot be said of the British Government as of the Dutch Government. In all the time that Mr Brown was the Chancellor of the Exchequer, neither he nor his Department ever raised any questions about the state of the Commission's accounts in those meetings. He nodded through the accounts like everyone else. The amount of money that is estimated to go missing each year is between £3 billion and £8 billion, which roughly corresponds to the UK's net contribution to the EU every year.

Photo of Nigel Dodds Nigel Dodds Shadow Spokesperson (Justice), Shadow Spokesperson (Foreign and Commonwealth Affairs), DUP Westminster Leader

If these vast sums of irregular, fraudulent or wasteful expenditure were being talked about in relation to the UK, the Chamber would be packed with people on both sides who would be outraged. Would the hon. Gentleman care to speculate on why more Members on both sides of the House are not more concerned about this ongoing waste, fraud and irregularity? Why does he think that the accounts are just passed on the nod?

Photo of Chris Heaton-Harris Chris Heaton-Harris Conservative, Daventry

I shall come back to that in a moment, but I think it is because the money is spent so far away in such a disjointed fashion. It goes up through a system: it goes through our taxes, goes to the European Commission and is spent by third parties. It is all very confused and distant and I think that people are just bored by the fact that the accounts are not being signed off. It is a huge shame.

The Court of Auditors bowed to political pressure a long time ago and no longer gives a figure on the percentage of money it thinks is being spent incorrectly or wastefully, so for years now we have not had any solid figures with which to work. As a former Dutch member of the Court of Auditors, who retired recently, said:

"There was a practice of watering down if not completely removing criticism...All these abuses never came out in the open because of the Kremlin-style information we provided. But it didn't enhance our reputation one bit...I had to threaten to resign as head of the investigation and to inform the outside world" to get some of this information out. We have some real problems.

The accounts are pretty poor. People compare the problems with those accounts with the problems that the Department for Work and Pensions has with its accounts, but EU accounts involve perhaps between 2% and 5% going missing each year through fraud and irregularities, if not a lot more, while the Department for Work and Pensions qualifies about 1% and deals with millions upon millions of transactions. The European Commission simply does not.

What is our money being spent on? We would all be excited to know. Last year, Open Europe brought a number of things to the public's attention: €411,000 for a dog fitness and rehabilitation centre that was never built, €16,000 to Tyrolean farmers to boost their connection with the landscape and €7.5 million of EU funding for a PR campaign for more EU funding for a region of Spain.

In a time of tight budgetary constraint, the Government should make it a proper priority to use our financial clout to sort out the problem once and for all. I believe that we should threaten to withhold even a small part of our contribution until we see some action that protects UK taxpayers' hard-earned cash.

Photo of Steven Baker Steven Baker Conservative, Wycombe 8:45 pm, 2nd February 2011

It is a huge privilege and tremendous pleasure to rise to speak in support of the Government in relation to the European Union. My only regret is that my Whip is not here to see the day.

I pay tribute to my hon. Friend Mr Cash and Kelvin Hopkins, who have seen this farce go on for year after sorry year with these accounts failing to be signed off. I also pay tribute to the Minister, with whom I spoke briefly before the debate. She obviously brings to this matter great sincerity, professionalism and obvious expertise, and she has my full confidence in bringing the right approach to it. Having confirmed the information, I know that this is a boilerplate motion, and I say to her that it fails robustly and resolutely to condemn fraud and error in the EU. In fact, now that I know that these are not necessarily her chosen words, I might say that the motion is dreary jibberish and seems wholly futile.

A total of £11.8 billion went into this budget and only 8.3% of EU spending was given a clean bill of health. Apparently, the rest was materially affected by error. In other words, 91.7% of this public money was given out inappropriately.

I want to share with the House three instances in which public money was given out within the rules. According to Open Europe, an EU subsidy of €500,000 was given to two Swedish fishermen to scrap their fishing vessel. The subsidy was given by the Commission and the Swedish Government as part of the EU's effort to reduce the size of Europe's fishing fleet to address the region's huge problems with overfishing. The subsidy was enough to pay off the fishermen's debts and left them with a substantial amount of money to spare, according to their accounts.

Instead of winding down the business, the two fishermen bought a new boat with this EU money-taxpayers' money-and continued just as before. Extraordinarily, the owners were open with their plans all along and did not break any rules. That is because their new boat is less than 10 metres long, which means that different rules apply and they can continue to fish in the North sea. "We said exactly what we were going to do when we applied for the scrapping subsidy," one of the fishermen said.

We mentioned r sums that are too large to imagine. A total of €8.5 billion was spent failing to improve infrastructure in Sicily. Given the lack of time, I shall not trouble the House with too much of the detail. Suffice it to say that €700 million was spent to improve water supply throughout the island, but the percentage of families who experienced patchy "stop-and-flow" supply of water increased from 33% in 2000 to 38.7% in 2008. I point out the fact that Sicily has a population of only 5 million people. The subsidy amounted to £1,700 per head-clearly not enough to rebuild Sicily, but enough, I would have thought, to rebuild its infrastructure.

Finally, an example that I hesitate to bring to the House in the present circumstances-€2.5 million was spent on an Austrian nomadic contemporary dance troupe. My hon. Friends know that I am a great fan of Austria, but I am not sure that my hard-pressed taxpayers in Micklefield, Oakridge and Castlefield, and indeed in Disraeli, where they are particularly hard pressed, should be paying tax in order to fund a group that travels around Europe meeting and dancing with other dance troupes to contribute to the development of dance. I am sure none of us would condemn the funding of culture, but nomadic contemporary dance troupes should fund themselves.

This is the 16th time that the statement has not been signed off. We should condemn this showcase of fraud, incompetence and, where not fraudulent or incompetent, inappropriate spending. We are told that we cannot withhold our money. What a preposterous situation we have reached when our constituents are being taxed and we cannot withhold money from these ridiculous projects. I hope that next year the Government will bring before the House a motion that much more strongly condemns such waste and fraud. Unless we deal with the problem, the next important question on the EU will be simple-in or out?

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset 8:52 pm, 2nd February 2011

In the time available, I shall try to speak without hesitation, deviation or repetition. I want to deal with one point, EuropeAid, and draw a conclusion from it.

EuropeAid was found not to be perfect by the European Court of Auditors. The ECA noted a high frequency of non-quantifiable errors due to the lack of formalised and structured demonstration of compliance with payment conditions. It found poorly documented and ineffective checks. EuropeAid was terrified by the mighty power of the Court of Auditors coming down before it, so what did it say it would do? It said that it would have a little more training and disseminate a financial management toolkit.

If I were a fraudster, I would be quaking in my boots at a financial management toolkit. That comes to the nub of the problem. Bodies such as EuropeAid could not give a brass farthing. The European Union is fundamentally corrupt because it is undemocratic. There is no check on it from electors. What can the electors of North East Somerset do? They can send me here to rail against it and try to stir the Minister, but the Minister needs no stirring. She is valiantly defending British interests. The shadow Minister, Kerry McCarthy, my neighbour, is in agreement.

But what do the Government face with our European partners? When we look across the channel, we see countries that have been corrupt for generations-for decades. With the Roman empire, we can go back to the tax collectors at the time of Christ who were corrupt. There is institutionalised corruption within Europe. It is an empire that has an emperor, and the emperor has no clothes. We know that. We see the corpulent emperor in his fat rotundity gorging on the money of the British people. I urge Her Majesty's Government to go along with my hon. Friend Steve Baker and say enough is enough. They should say as the great lady said-"It's our money, and you can't have it unless you can prove that you are spending it honestly."

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 8:53 pm, 2nd February 2011

May I say how much I appreciate the contributions made by all hon. Members across the House this evening? They were made with passion and frustration at the continued unacceptable situation of the European Court of Auditors persistently not being able to sign off the statement of assurance that we want signed off to give us the kind of confidence that my hon. Friend Jacob Rees-Mogg was just speaking about. I can tell hon. Members that I share their frustration. My task is to channel that deep frustration into positive steps to address some of our concerns.

In the short time that is left, I shall try to respond to Members on some of the points that they have raised. Kerry McCarthy is absolutely right to say that the procurement rules need to be simplified. The recovery rate is moving in the wrong direction, but we want to see it start moving in the right direction.

My hon. Friend Mr Cash is absolutely right to talk about the need for improved standards. We want to work with other member states to improve the ability of the European Court of Auditor to perform its role. I absolutely agree with Kelvin Hopkins on his frustration with the poor value for money that the common agricultural policy represents. The Government are making the case, as the previous Government started to make, that the fund must become better value for money for taxpayers. His other point about flexibility for member states to make their own decisions on how they spend the money and meet their own priorities was quite right.

My hon. Friend Chris Heaton-Harris is right that one part of the debate that we did not have tonight, and which I thought might have come up more, was the discharge process. He is right to point out that we have not used that process to challenge the poor financial management. I think that previous Governments have just signed that off and said that there was no need for discussion. That is not the position of this Government. We will start using the discharge process and having a discussion at the senior level, because we do not believe that we can afford not to.

Photo of Steven Baker Steven Baker Conservative, Wycombe

I welcome the Minister's remarks, but given the figures that my hon. Friend Chris Heaton-Harris quoted on the European Parliament's voting record, does she not agree that it seems rather futile to expect that the European Parliament might fail to discharge?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Clearly, the European Parliament will take its decisions. I am talking about our role within the European Council and the discussions that we will have as a member state there. I can assure Members that we are talking with other member states about why we find this position unacceptable and to see what support there is for having that proper debate at the European Council meeting on 15 February so that we can resolve some of those outstanding questions and ensure that financial management becomes a priority in a way that it has not been in the past.

Question put and agreed to.

Resolved,

That this House takes note of the Unnumbered Explanatory Memorandum dated 25 November 2010 submitted by HM Treasury on the implementation of the 2009 EU budget, the Unnumbered Explanatory Memorandum dated 24 November 2010 submitted by the Department for International Development on the activities funded by the Eighth, Ninth and Tenth European Development Funds in the financial year 2009, European Union Document No. 12393/10 and Addenda 1 and 2 on Protection of the European Union's financial interests, European Union Document No. 13075/10 and Addendum, relating to an annual report to the discharge authority on internal audits carried out in 2009, the Unnumbered Explanatory Memorandum dated 22 October 2010 submitted by HM Treasury on the European Anti-Fraud Office's tenth activity report for the period 1 January to 31 December 2009, and European Union Document No. 16662/10 and Addenda 1 and 2, Commission Report to the European Parliament and the Council on the follow-up to 2008 Discharge; and supports the Government's continued engagement with its EU partners to improve financial management of the EU budget.