HC Deb 13 March 1991 vol 187 cc1045-52
Mr. Speaker

I have selected the amendment in the name of the hon. Member for Thanet, South (Mr. Aitken).

10.15 pm
The Financial Secretary to the Treasury (Mr. Francis Maude)

I beg to move. That this House takes note of the Annual Report of the Court of Auditors of the European Communities for 1989. We frequently talk about the level of Community expenditure, but less often about the manner in which Community funds are spent—the "how" rather than the "how much". Tonight's debate enables us to remedy this.

Under the treaty of Rome, the Court of Auditors draws up an annual report on Community revenue and expenditure after the close of each financial year. This goes to the Council of Ministers and the European Parliament, which must examine it along with the accounts and the financial statement that the Commission submits. It then falls to the Parliament, acting on the recommendation of the Council, to give a discharge to the Commission over its implementation of the budget.

This is the court's 13th annual report. The court was established in 1975, in response to pressure for an independent audit body. It does much useful work, but the annual report is pre-eminent. It is the principal means of scrutinising how the Community spends taxpayer's money; of extending to the Community the practices that are routine here; and of ensuring that money is spent in a lawful and regular manner and that financial management has been sound. The court has power to expose incompetence, waste, inefficiency and fraud, and to stimulate change. It deserves our support. I shall say a few words later about our proposals to enhance its authority.

I turn to the court's report on the 1989 budget, which is the subject of today's debate. The explanatory memorandum that I submitted to the Scrutiny Committee comprehensively summarises its contents.

There are some consistent and worrying themes. In particular, there is continuing evidence that certain Community programmes lack objectives that are sufficiently precise. In a number of instances the financial controls needed for proper implementation of certain policies are not in place, are not sufficiently rigorous, or are not being observed properly.

Areas singled out for criticism include agricultural programmes and the structural funds. There are also concerns about research. I will deal briefly with these three areas in turn.

Fifty-four per cent. of spending arises on agriculture guarantee support. In its report, the court criticised a number of programmes for failing to achieve important objectives. Set-aside, for instance, is a scheme to reduce grain production by taking land out of cultivation. A significant amount has been spent on this programme, but that has still not stopped the amount of land under cultivation increasing; and the land that has been taken out of production has frequently been marginal. The Commission will be looking into the court's suggestions to improve the scheme's cost-effectiveness.

We welcome the court's emphasis on the need for simplification of the agricultural programmes and for better implementation and control.

Mr. Andrew Rowe (Mid-Kent)

This may be an ignorant question, but it would help me if my hon. Friend would answer it kindly. To what extent are the programmes and the definitions thereof the responsibility of the Council of Ministers, and to what extent are they the responsibility of the other organs of the Community?

Mr. Maude

That is not in any way a daft question. The Commission makes proposals to the Council of Ministers, and in general they will be detailed and specific. The Council of Ministers makes a decision upon them, having amended them as it thinks appropriate. The detailed drafting of a proposal, at every stage of the negotiation, generally will be in the hands of the Commission but subject to amendment in the Council of Ministers.

Mr. William Cash (Stafford)

Will my hon. Friend note that in the Republic of Germany and in Rheinland Pfalz a clear declaration must be made about the fields to which set-aside should apply? Is he aware that there are no maps showing the location of those fields? In Sicily, the maps that must be produced are obsolete, because the land register dates back to 1940.

Mr. Maude

My hon. Friend vividly makes the point that the system is not working satisfactorily. That is the point to which the Court of Auditors has rightly drawn attention. It is evident that the system of scrutiny has some potency. The Commission will have to introduce proposals to ensure that the scheme operates much more tightly. My hon. Friend is right to draw attention to deficiencies in the way that the scheme works.

Mr. Teddy Taylor (Southend, East)

To be fair to the Commission, which I think should be protected in this instance, may I ask this question: is it not true that the Court of Auditors pointed out that, although 611,000 hectares had been taken out under set-aside, and a fortune spent from public funds to enable that to be done, the number of hectares growing cereals had increased, that cereal production had increased, and that the barley mountain was at an all-time high? The Court of Auditors criticised the scheme as worthless and pointless, not the administration of the scheme by the Commission. Should not my hon. Friend accept that it is the scheme that is wrong, not the administration?

Mr. Maude

My hon. Friend is right to say that the Court of Auditors pointed out starkly that, at the same time as the set-aside scheme, which was designed to take land out of cultivation, was operating, more land came into cultivation. The land that had been taken out generally was poor land at the margins of possible cultivation. There is a problem with the operation of the scheme, and the Court of Auditors has done the Community a service in drawing attention to that. The Community must now resolve those problems.

Rev. Ian Paisley (Antrim, North)

Does the Minister accept that the Council of Ministers has the final responsibility, and that the criticisms by the Court of Auditors are levelled against the Council of Ministers? Why should the Commission get all the stick?

Mr. Maude

It is heartening to find so many champions of the European Commission in this House, and so many who are anxious to spring to its defence. That will be a source of great comfort and support to the Commission. The hon. Gentleman is right to say that the Council of Ministers takes responsibility for the decision to set up the scheme, and for the parameters and the guidelines under which it operates.

However, the hon. Gentleman has considerable experience of these matters, and he will appreciate that the Council of Ministers does not administer the scheme; the Commission administers it. It is for the Commission to respond to the criticisms made by the Court of Auditors. That is its duty under the treaty. The Commission made the original proposal to the Council of Ministers, and I am sure that the hon. Gentleman appreciates the way in which these matters must work.

The court's criticisms of the structural funds include failure to define the fund's objectives properly and the absence of adequate guidelines for implementation. Spending on structural funds increased substantially following the reforms of the Community budget in 1988, but the court rightly observed that those reforms did not guarantee that the funds would achieve their objectives.

Therefore, the Commission must ensure that the funds provide value for money, and the Council will need to follow up the recommendations of the court when it reviews the policy on structural funds.

The court also comments on the Community's research activities, especially work done by the joint research centre for other Commission directorates-general. Because the joint research centre bears the costs of all the work that it does directly, the other parts of the Commission have no incentive to give any research work to outside contractors. The court says that the centre must establish a proper customer-contractor relationship with its internal clients.

The court also criticises the early retirement arrangements at the joint research centre, which were reported widely in the press earlier this year, although some reports did not reflect the situation accurately. The centre does have some significant problems—in particular, a redundancy scheme which is over-generous but which fails, none the less, to match the centre's staffing with its work load. We shall urge the Council to look into that issue.

I must stress again the importance that we attach to achieving good value for the money that is spent by the Community. To that end, we have made suggestions for a series of treaty amendments in the intergovernmental conference on political union which would improve financial management in the Community. These include measures to enhance scrutiny by the European Parliament, to underline member states' obligations to counter fraud, and to develop the responsibilities of the Court 'tif Auditors. These ideas, which we have canvassed widely with our colleagues in the Community, will be discussed increasingly in the coming months.

Next Monday the ECOFIN Council will decide its recommendations on the Court of Auditors report. That recommendation will be sent to the European Parliament to enable it to give the Commission a discharge on that report. Tonight's debate is an important part of this process of scrutiny, and it will be extremely useful to me to hear the views of the House on this matter before I attend the ECOFIN Council on Monday.

Mr. Tim Smith (Beaconsfield)

Further to my hon. Friend's comments about the Government's recommenda-tions for an improvement in the scrutiny arrangements within the Community and the need to encourage Parliament to take more interest, does he agree that, unless we make progress in that respect, we shall continue to have annual debates like this and that will lead nowhere? The European Parliament should take more interest in the scrutiny of Community spending. A committee should be set up along the lines of the Public Accounts Committee of the House, which has some clout; people take some notice of its recommendations.

Mr. Maude

I do not regard annual debates such as this as inappropriate, or as anything but useful. They are a valuable part of the scrutiny process, and I would not want to discount them. However, my hon. Friend the Member for Beaconsfield (Mr. Smith) is correct in saying that it would be desirable for the European Parliament to attach greater weight to the work that it can do to subject the work of the Commission in particular to proper scrutiny. There is a committee which is roughly equivalent to the Public Accounts Committee—the budgetary control committee—and a number of our proposals would enhance its power, especially the power to call specific officials from the Commission before it to interrogate them about the way in which they discharge their responsibilities.

Mr. Charles Wardle (Bexhill and Battle)

Does my hon. Friend think that if this Parliament were to take a closer interest in the findings of the Court of Auditors, and if the European Parliament were to do the same, the first priority would be that the accounts should be delivered sooner? This evening we are considering the accounts for the year up to 31 December 1989, and we are now halfway through March 1991.

Mr. Maude

My hon. Friend makes an important point, but I suspect that it may not be possible to truncate the period to any extent. The court cannot audit the accounts until they have been drawn up at the end of the year. The process of detailed scrutiny by those examining the Court of Auditor's report cannot begin until a little time after the end of the financial year. However, the sooner that scrutiny can be undertaken, the better it will be.

I repeat that we shall debate those matters at ECOFIN on Monday. I look forward to hearing the views of right hon. and hon. Members on this important report.

10.29 pm
Mr. Chris Smith (Islington, South and Finsbury)

Sadly, I must begin with an uncharacteristic note of congratulation to the Financial Secretary. The memorandum before the House is a considerable improvement on those submitted in earlier debates concerning the Court of Auditors and related matters. The memorandum is clear, and it sets out in greater detail than was the case last year the content of the court's report.

It is a pity that the documents for consideration tonight —some of which are lengthy—were available from the Vote Office only on Monday, two days before the debate. I hope that matters can be arranged rather better in future years, so that we may study at greater leisure and length the important and detailed points that the Court of Auditors makes.

The court has performed a useful and important role in identifying the probity and efficiency—or the lack of it —that attaches to the application of European Community funds, and I hope that its observations will be noted not just by the European Parliament but by the Council of Ministers and the Commission.

During the Financial Secretary's speech, there was an interesting exchange about who is responsible for acting as an overseer. The answer is both the Commission and the Council of Ministers, and it is not good enough for the Financial Secretary to say, "The Council of Ministers sets the framework and guidelines, and put the policies in motion, but the Commission administers them," because the Council oversees the Commission's work as part of its administrative responsibilities.

When difficulties and problems such as those identified by the Court of Auditors exist, it behoves not just the Commission but the Council of Ministers—of which the British Government form a part—to act on the court's recommendations.

Many of the court's specific points should be addressed, and I will highlight just five of them. First, it pointed to the absence of any sector-by-sector aggregate budget summary, which meant that it had to add up the individual figures to reach its conclusions. That must be remedied, if at all possible. Secondly, the court drew attention to the continuing overproduction cif butter in the Community by a staggering 25 per cent., and highlighted the consequential complexity of the subsidy regulation.

Thirdly, the Court of Auditors noted the lack of consistent information about the use of the social fund in relation to supporting the long-term unemployed.

Fourthly, the court questioned the direction and efficiency of aid to Bangladesh and especially to the poorest people and areas of that country. Finally, it questioned the lack of management controls in relation to some aspects of aid to central and eastern Europe. Those points sprang out at me when I read the Court of Auditors' report as items that must cause concern.

It is worth noting that the Commission's response to those points has been helpful in some respects, but too hesitant in others. There seems to be a problem ensuring that the findings of the Court of Auditors and its recommendations do not fall into a black hole of inactivity and inaction, but instead are implemented. There must be a continuing drive in the Community to get the best value for money and the best efficiency from the considerable funds that are deployed.

As well as the specific items that the court identified, some larger questions arise; I refer to two that deserve special consideration. The first involves the court's analysis of the development of the regional fund. The regional fund is becoming increasingly important within the Community's overall budget. It is, within a four-year period, doubling in size, and it is therefore very important that it is used wisely and sensibly.

The Court of Auditors' report refers to the benefits of diversification in the use of the regional fund—a process started in 1974 which was consolidated by the budgetary changes and guidelines instituted in 1989. The report also points to the increasing co-operation between national and Commission levels in administering the regional funds. However, it also identifies a remaining weakness in the assessment and monitoring of particular projects and programmes. Given the increasing importance of regional funds in the overall development of the Community and the desire to address imbalances between regions, it is important that that weakness is addressed.

The other specific question arising from the court's report to which I wish to draw attention is the analysis of the budgetary control over the agricultural guidance and guarantee fund. The report states rightly and sensibly that although the fund's overall expenditure may not have exceeded its budgetary guideline figure, that was achieved only by switching between different chapter headings within the overall expenditure level. Several of those chapter headings were exceeded.

If such virement in subsequent years is not possible between chapter headings, there is an obvious danger that the overall guideline figure for agricultural guarantee support might be exceeded. Given the enormous proportion that that section represents of the Community budget at the moment and the over-preponderance given to it within the balance of the overall budget, it is important that we ensure that it is kept within the guidelines. Those two specific points need careful consideration.

Several specific points that need a United Kingdom Government response arise from the report. They may be small, but nonetheless they are important. I point the Government's attention to just four of them.

Under paragraph 1.68, dealing with special agreements with third countries, the report notes that, every month in the case of the amounts deducted by the UK", there is no indication of the reference periods and no way of identifying the amounts concerned". It would be useful to know whether the Government have proposals for rectifying that problem.

Under paragraph 2.25, the court notes that in the United Kingdom the certificates of origin information manual is available only at the Central Customs Office and not more widely available. Have the Government any proposals for ensuring that it is more widely available? Under paragraph 4.3.43, where the report deals with aid for small producers of cereals, it notes: In the United Kingdom the non-retention of invoices also posed difficulties for audit purposes. Have the Government any proposals for rectifying that problem? Under item 4.4.25, dealing with set-aside, which has already been mentioned, the report notes: As at March 1990 neither Italy, the FR of Germany nor the United Kingdom had submitted the reports on the findings arising from inspections which were due by 1 July 1989. Have the Government submitted that report? Are they intent on ensuring that their performance is somewhat better in future?

Those may be small points, but they identify matters in which some improvement on the part of the Government as well as on the part of the Commission and the Council of Ministers might be required.

When we debated this matter last year, I asked the then Paymaster General, who has since risen in the ranks of the Conservative party, what the Government intended to do to improve the resources of the Court of Auditors in fighting fraud in the European Community. The court's report for 1988 identified several serious instances of fraud, and the House was united in feeling that that should be tackled seriously.

At that stage, the Paymaster General told us that the resources available to the anti-fraud section of the Court of Auditors amounted to 30 members of staff. I asked then whether that was regarded as sufficient, and I repeat the question. If it is not sufficient, surely it is one matter in which the bureaucracy in Brussels can act in the interests of the sensible running of the European Community, rather than against it.

We must ensure that the Community operates the substantial funds available to it with probity and efficiency. Of course, the Community has a long way to go in achieving that objective, as do our Government, but the Court of Auditors is a valuable instrument in ensuring that progress is made. We should welcome the report arid demand that all bodies responsible, including our Government and their representatives in the Council of Ministers, take action on the findings.