HC Deb 25 February 1985 vol 74 cc127-46 11.16 pm
The Economic Secretary to the Treasury (Mr. Ian Stewart)

I beg to move, That this House takes note of the Annual Report of the European Court of Auditors on the financial year 1983, together with the replies of the institutions; and approves the Government's efforts to ensure that the Court's recommendations are implemented. The procedure for dealing with the Court of Auditors' report was set out in an explanatory memorandum which I submitted a month ago. For the purposes of this debate I wish to draw attention to the very useful report by the Select Committee on European Legislation which was published recently and which contains important passages about the report.

This is not one of the most dramatic items of European Community business that comes before the House. None the less, it is important that we consider not only the provision of expenditure for the Community but the control of expenditure and finance during the financial years.

We have an annual debate on the report, and I am glad that it can take place this year, as it usually can, before the report is cleared by the Council. The European Parliament is required to give discharge by the end of April, acting on the recommendation of the Council. Therefore, we need to keep to that timetable.

I pay tribute to the valuable work undertaken by the Court of Auditors. It has a daunting task in scrutinising the entire range of expenditure in the European Community, and it does it well. I especially welcome the increased stress that the court has laid in recent years on looking at efficiency and value for money in Community expenditure, not confining itself to more technical accounting matters. The court's role is becoming more like that of a European Comptroller and Auditor General. The British Government strongly support that development as valuable and necessary for the whole Community in the proper conduct of its finances.

As the House well knows, the British Government have been a prime mover in the introduction of budgetary discipline for planning Community expenditure. But tonight we are mainly concerned with the way in which such expenditure, once authorised, is controlled and operated. On both counts the Government have consistently been in the lead for better and more effective control. The report represents one of the most important means of improving the system of financial management used in the day-to-day administration of the Community.

In relation to procedure, in recent years we have been pressing for more thorough and rigorous consideration of the court's report by the representatives of the member states. Our objective must be to ensure that management of the Community finances is no less efficient than financial management in the United Kingdom or in other member states.

This year, for the first time, we have persuaded other member states to agree to a more detailed and more structured scrutiny of the report. Official representatives of member states in Brussels have already spent a considerable time going through the detailed contents of the report. In addition to the more detailed technical response, a shorter summary report is being drawn up that will concentrate on the main issues as set out in chapter 1 of the court's report. The British Government, with the support of other member states, have proposed that this should be discussed by the Economic and Finance Council of the Community in March to ensure that the points raised are adequately followed up at ministerial level.

As for the main contents of the report, the British Government identify four main areas of priority. First, there have been serious weaknesses in the Commission's financial planning and expenditure control in the financial year, and these have led to a build-up of unspent payment provision. This means that member states were called on to make available revenue all of which would not be used. The Select Committee has noted that point in its report, one which the Government strongly endorse, and there is certainly room for improvement on that count.

Secondly, the build-up of future commitments under the structural funds — notably the regional and social funds—has been outstripping the rate of payment. The Select Committee draws attention to the court's comment that the present budgetary and legislative framework does not serve to control commitments which mount up from year to year. It must be said that this is due partly to the European Parliament's tendency to enter commitment appropriations into the budget, even when it is clear that the money is not available or could not be spent within the budgetary year in question.

About 7.8 billion ecu in such commitments was outstanding at the end of 1983. The United Kingdom will continue to urge the Commission to put more realistic figures for commitments into the draft annual budgets and to reverse this upward trend in commitment appropriations for which no funds for payment are available.

Thirdly, we are concerned to improve the administration of agricultural guarantee expenditure. The court points to deficiencies in the system of management, illustrated by inadequate control of cash resources during the year. Again, the Select Committee highlights this point.

The Government have been pressing for some time for an improved system for monitoring agricultural payments during the financial year so as to lessen the risk that a sudden shortfall of resources become apparent at a late stage in the year. We have now succeeded in ensuring that the Commission will provide monthly profiles of agricultural guarantee expenditure, which can be examined by member states. The earlier in the year that we can identify potential divergence or overspend, the more opportunity there will be to find ways of dealing with that within the budgetary provisons.

Mr. Tony Marlow (Northampton, North)

When my hon. Friend refers to dealing with the matter within the budgetary provisions, does that possibly also mean having a reimbursable loan at the end of the season to make up the cash?

Mr. Stewart

The management of the agriculture budget during the year should always be contained within the allocated provisions, if that is possible. In previous years, where there has been room within the ceiling of own resources, supplementary budgets have sometimes been introduced and financed through that means. The only reason why there had to be a special inter-Government agreement for 1984 was that the Community had hit the ceiling; it must remain within the ceiling from the point of view of the internal arrangements of the budget.

I should comment on the Community's overseas aid programme and in particular its execution of food aid programmes.

Mr. Nicholas Budgen (Wolverhampton, South-West)

My hon. Friend will know that Accountancy Age has drawn attention to the way in which no provision is made for the contingent liabilities of disposing of the huge stocks of excess food that is held by the Community. It observes that if proper provision for that contingent loss had been added to the accounts in 1983, a charge of about £840 million, would have been added to the accounts. Does that mean that in 1983, 1984 and 1985 the accounts have been, or will be, prepared so as to take no account of these contingent liabilities, and that once we get the increase in own resources to 1.4 per cent. it will be possible to write off all the losses which should have been taken into account in 1983, 1984 and 1985?

Mr. Stewart

My hon. Friend raises an interesting point about the accounting mechanism in the Community. I am aware of the comments that have been made in Accountancy Age and elsewhere, which derive from some comments by the Court of Auditors. To account in the way suggested would be a fundamental change for the Community. It would not be possible to make any accurate provision of the sort that my hon. Friend has described because of the impossibility of predicting market conditions under which sales from intervention might eventually be made, or the timing of them. A programme of disposal from intervention is already built into the agriculture provision. The pace and price of disposal is affected by the resources within the budget from year to year. When I tried to explain this to my hon. Friend on an earlier occasion, I drew attention to the fact that the existence of substantial stocks in intervention meant that the budget discipline, or agriculture guideline, in the next few years would be a tighter one than many supposed as it would include the cost of dealing with intervention stocks.

Overseas aid is an important aspect of the Court of Auditors' report and it is rightly an area of considerable concern to the Select Committee, the House and the public, especially in the light of current problems of famine in Africa. The British Government agree with the court that the preparation, monitoring and evaluation of development projects generally should be much improved. Some progress has been made in these areas since 1983, the year to which the report refers. Thanks largely to United Kingdom initiatives, the new Lomé agreement makes much greater provision for assessment of the efficiency of the aid which is being provided and for improvements where necessary.

We were able to ensure that the Commission's record on food aid in 1984 was considerably better than in 1983 but there is room for further improvement and we intend to maintain the pressure in that area.

These debates give the House an opportunity to comment on the report of the Court of Auditors and the important issues that it raises about the financial management of the Community. I hope that, if I am able to catch your eye a short time before the debate ends, Mr. Deputy Speaker, I shall be able to respond to the issues raised by hon. Members.

Mr. Marlow

rose—

Mr. Stewart

I have already given way to my hon. Friend the Member for Northampton, North (Mr. Marlow). This is a short debate and I want to bring my introductory remarks to a conclusion. If my hon. Friend is able to catch your eye, Mr. Deputy Speaker, I trust that he will make a contribution to the debate. It is important that his views and those of other hon. Members are known to the Commission and to others involved with matters in Europe. As in previous years, I intend to send a copy of the report of the debate in the Official Report and an account of the debate to the new budget Commissioner, Mr. Christophersen, and to the chairman of the Budgetary Control Committee of the European Parliament. I look forward to hearing the views of hon. Members towards that end.

The United Kingdom has secured significant reforms in the Community's procedure for settling its expenditure plans in accordance with the system of budget discipline agreed in Dublin in December, but it is proper that administrative and financial control should be exercised in the implementation of the budget. That is equally important.

The Government therefore welcome this further constructive report from the court of auditors and we support their efforts to ensure sounder financial management and value for money in the execution of the European budget.

I commend the report to the House.

11.30 pm
Dr. Oonagh McDonald (Thurrock)

The motion ends with a statement that the House approves the Government's efforts to ensure that the Court's recommendations are implemented but looking at the report it is clear that we have a long way to go to ensure that the court's strictures on the European Community management procedures are implemented.

The Minister said that he was aware of the comments in Accountancy Age and elsewhere, but I think that he skipped over some of the trenchant criticisms. For example, on 13 December 1984 Accountancy Age referred to the quality of the Commission's financial statements as being so poor that if it were a private-sector organisation a heavily qualified audit report would be unavoidable. That gives us some notion of the extent of the Commission's failings in the presentation of the Community's accounts and shows the justification of the court's criticisms.

The Minister drew attention to the Government's aim of bringing about a new system of budgetary discipline. That is not the subject of today's debate, but we must bear in mind that there is no chance whatever of achieving budgetary discipline in the Community unless the detailed management of the budget is carried out properly. The financial controls and accounting systems must be efficient and accurate if there is to be any chance of achieving budgetary discipline, and at present that is plainly not the case.

The court sums the matter up at the very beginning of its report when it says that the 1983 accounts do not adequately represent the real liabilities of the Community. The Minister cheerfully skipped over the fact that over £7 billion disappears from the accounts, partly through agricultural expenditure and partly through amounts raised for capital projects which get lost in the Commission's bureaucracy. [Interruption.] I hear someone saying from a sedentary position, "Easy come, easy go," and the Government certainly seem happy to hand out more money whenever it is requested. Indeed, we expect to be asked for more in the next few weeks in another reimbursable loan to the Community which will disappear down the drain as well.

The Minister did not do justice to the extent of the criticisms of the Commission's budgetary procedures. I will pick out just a few comments from paragraphs 4.51 and following. The report states: The present budgetary and legislative framework does not serve to control commitments. It goes on to refer to the inadequate control of the management of cash resources, blockages in the charging of expenditure to the budget and persistent delays in the clearing of accounts and concludes that it is doubtful that the Commission can fulfil its treaty obligations of proper control over agricultural expenditure.

It also refers to the need to control cash movements and says that in asking for a direct check on cash movements in relation to agricultural payments to member states, it is asking for something which is only a matter of common sense. Those of us who are not quite as enamoured of the Community as some hon. Members are not at all surprised that when the Court of Auditors asks for procedures to be undertaken as these are a matter of common sense, the Commission and the EC do anything but accept them.

The Minister referred to intervention costs and the problems of predicting the price at which stored goods will be disposed of. One understands that there is a problem and that this depends on assessing world prices. But let us consider the losses in 1983, to which the court refers. Skimmed milk powder lost 84 per cent. of its value; butter, 30 per cent.; and baled tobacco, 87 per cent. If these costs are to be included in the budget in future, one hopes that the Commission will get better at predicting the possible sums to be raised on disposal.

So far, these costs do not come within the budget. The auditors say that the Commission does not provide an estimate of the value of the stockpile or make adjustments when parts of it are destroyed. These should be properly included in the accounts. It is estimated that at the end of 1983 these represented a liability of £4 billion on the EC account.

Any budget which leaves out massive items such as that cannot possibly enable us to ensure that budgetary discipline is followed.

However, the Government claim that they are doing their best to achieve proper control and to ensure that items such as this are included in the accounts. That has not happened so far. I cannot resist saying it — the Government are incompetent in two respects. The costs relating to intervention stocks are not put into the budget, and when we consider where these intervention stocks are stored—where some sort of bonanza seems to be taking place—we are not in on that act either. So long as some advantage can be gained, the Government should at least get a look in.

Paragraph 4.30 shows that 40 per cent. of stocks of beef and veal are in Italy and that an average of 35 per cent. of all stocks are to be found in Germany. This enabled Germany to obtain an additional 42.5 million ECU from the Community. We do not seem to be getting a look in where we could in terms of the bonanza which the Community can provide.

Intervention stocks are transferred from one member state to another, and the transport costs are borne by the Community. Perhaps some member states are transferring stocks from one country to another so that extra money can be made out of the Community. The Court of Auditors decries the necessity for that by saying that the need for the transfers, the transport costs of which were borne by the Community and amounted to 15 million ECUs in 1983, is not clear. There are, therefore, other dodges going on, through which some member states gain, albeit small amounts, but they all add up, from the Community.

Finally on agriculture, I shall deal with fraud. The Court of Auditors made the understatement of the year when it stated that member states do not always have a common conception of fraud and irregularity.

Mr. Budgen

What page?

Dr. McDonald

It is on page 43. It is a delightful statement. I am sure that the Government are making every effort to impose their concept of fraud and irregularity on the Community so that the Mafia will no longer be accused of milking millions from the EC in big farming fraud, when, for example, returns are submitted for olive trees that have never existed. I could give many examples of fraud. However, I shall resist that temptation and say only that the Court of Auditors ends on a despairing note in paragraph 4.39. It states: The fact is that the Commission has not given the requisite degree of priority to exercising its supervisory responsibilities with regard to the prevention of frauds and irregularities to the extent that it has not attempted to improve the organisatiion of its information and has not subjected control systems in the Member States to serious scrutiny with regard to their efficiency. The Court of Auditors is almost wringing its hands in despair about the lack of action by the Commission. What are the Government doing to ensure that proper control is exercised so that fraud is expunged from the Community? Obviously, it is difficult to assess the amount of fraud, but recent press comment suggests that it runs into millions of pounds. If the Commission returns holding out its cap for a further hundred million in the next few weeks, we shall want to be sure that the money will not go into the hands of Sicilian farmers.

There are two further issues, over which the Minister seemed to skip much too lightly. As I wish to be brief and give other hon. Members an opportunity to speak, I shall refer to the Select Committee on European Legislation. It points out what has happened to the regional funds regarding the projects involving port instalations in Scotland. It refers to the 22 firms in receipt of fund aid totalling £21 million, when only one had fulfilled the planned objective for jobs. In its summary the report states some of the projects financed 'were carried out by firms which, in global terms, were making sizeable reductions in their workforce as part of their rationalisation plans'. I wonder why the Minister did not see fit to refer to the importance of the regional funds being directed to job creation. A sum of £21 million was shared out between 22 firms, which is not a bad sum, with no efforts made to ensure that their commitments to job creation were carried out. Most of them were allowed to cut the number of people employed. It is disgraceful that regional funds should be used in that way, and that although this is referred to in the report, the Minister said nothing about it in his opening remarks. I hope that when the Minister replies to the debate, he will give an explicit assurance that further moneys from the regional fund will be used to ensure that real jobs follow from such investment.

The regional and social funds form a small part of the Commission's budget, although in 1983 the share of the social fund increased slightly to just more than 6 per cent. Throughout the Community, the funds enabled 1.8 million of the young unemployed to engage in further job training. That is a small proportion of the young unemployed in the Community, and I hope that the Minister will press for an increased proportion of the funds available to be given to regional and social projects rather than to agricultural spending. Such projects should be properly controlled so that the young will he trained in skills which will lead to jobs, and so that jobs will be created.

The Minister referred to the administration of food aid, which is the most disgraceful and shocking part of the report. I am surprised that he did not refer to it in stronger terms. Paragraph 10.19 states that deliveries of food aid were completed so late that, in some cases, the wheat when it arrived was declared unfit for human consumption. By the end of December 1983, some of the countries in the greatest need of aid, including Tanzania, Zambia, Ghana and Sri Lanka, had received none of the aid promised to them under the 1983 programme. Only 42 per cent. of the cereals, 36 per cent. of the milk powder and 26 per cent. of the butter oil which the Commission had intended to send as food aid was delivered. The Commission claims that 1983 was an untypically bad year and that matters improved in 1984, but the improvement would have to be very great to recover the losses mentioned in the Court of Auditors report.

We want an assurance from the Minister that the skimpy and mean food aid from the EC to Ethiopia will arrive on time and that it will be fit for human consumption—that it will be the sort of food which starving people can eat because it fits their diet. It is disgraceful that so much food is stored, expensively, in the intervention stocks, yet the Commission cannot manage to deliver the food aid on time.

The Court of Auditors report is a damning survey of the Commission's practice, bureaucracy, incompetence, omissions, and its unwillingness to accept criticism and alter its procedures. If the Government are to have any hope of achieving their aim of budgetary discipline—I do not believe that the recent agreement will bring that about—they must take stronger action than they have done so far to improve all the budgetary and administrative procedures of the Commission.

11. 48 pm

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

This is a short debate, and we shall all wish to make short contributions. I understand why my hon. Friend the Minister made one of the shortest contributions of all because, having read the report, I must say that if a British company such as ICI or Unilever had received such an auditor's report, the board would be driven from office and the company might be driven into the hands of the receiver.

We all sympathise with British Ministers because, with this huge organisation, which seems almost impossible to control, they are doing the best they can. Other hon. Members will point out other irregularities, and what is happening is a disgrace. It may be because the staff is picked on the basis of nationality rather than ability. Some of the Commissioners seem to be chosen on the same basis.

In paragraph 1.19, the report shows that one of the simplest things—the placing of contracts with outside bodies—is done incorrectly. Contracts are not put out to tender. We all know the corruption that comes from such practices. We all know what happened with local authorities when they did not put contracts out to tender. We have seen what has happened in this country and can imagine the things that are happening in the Common Market.

As the Court of Auditors says in more than one note, with a kind of despair, despite persistent criticisms of particular activities in earlier reports, no experience seems to have been gained. We should expect that experience will be gained.

I have found a few odd things in this incredible report. Paragraph 15.13 and onwards are to do with EDFs to some of our friends in the Commonwealth and the ex-Commonwealth. It shows that 20 per cent. of the payments are not accompanied by suitable supporting documents, and photocopies are submitted in the place of original documents. Of the photocopies, the auditors calmly say: the photocopies submitted in place of the original documents are sometimes illegible". They send documents that nobody can read. What is more: they bear alterations to the data which has been photocopied. Is there not somebody in the Common Market who knows how to use a photocopier? They could learn from this place, where the photocopying machines go hotter than the mills of war. Is it too much to expect that if photocopies are to be used, there should not be such arrogance and lack of purpose that it is thought that nobody will question the documents that are sent? They are not queried because nobody can read them.

Another disgraceful episode happened in the Caribbean. There is much potential for corruption in the case set out in the report. By the time that they get to item 15, the auditors seem to have got past the shock barrier, and are almost stunned. They use calm words about 4.5 million ecus, which was used for the promotion of tourism in the Caribbean. The report says: This contract did not provide for any Community checks on the expenditure". There was a flat-rate basis for travel, a modest 0.4 million ecus. Moreover, two professional bodies have, under another contract, received 0.5 million ecus … to cover their travel and management expenses, without there being any mention in the contract of Community checks on this expenditure. Throughout the document is the fact not that the Common Market does not try to do some worthy works but that it is done in such an appallingly amateurish way, and the sums of money involved are so appallingly large. Instead of having to come to the House for £119 million, something should be done about this. We had the Minister before the Treasury Select Committee, and he was wise not to take me up on a point that I made. He said that he hoped that he would not have to come to the House for more money. I begged him not to put his political reputation at stake and guarantee that he would not. I can give a guarantee—if he did, before the month was out, we should be asking for another few hundred million. A report such as this suggests that we shall be asked for it again and again.

My remarks are not light-hearted. They are not made by someone who is against what the Common Market is trying to do. It is what it is actually doing that I am against. We have to make economies at home. We have to tell our people that they cannot have this or that. One of the reasons why they cannot is that this hopeless organisation is making such a mess of running our affairs in Europe.

11.55 pm
Mr. John David Taylor (Strangford)

This is a debate that does not arouse much interest. That is why there is such a poor attendance here and why the Ulster Unionist parliamentary party has comprised 50 per cent. of the total Opposition presence throughout the debate.

The Minister rightly emphasised the importance of control of the European Economic Community budget. That is a theme that rings well in the ears of the Ulster Unionist parliamentary party. We want to see greater budgetary control in the EEC, but this auditors' report does not confirm that which has occurred in 1983. We know that in 1984 agriculture has already broken through the 70 per cent. level of total consumption of the budget, and we are all anxious now to see what will happen to agriculture prices in the coming month and whether we shall see any evidence of budgetary control. Within the Ulster Unionist parliamentary party there will be no support for any proposal to raise the own resources to 1.4 per cent. until there is obvious evidence of budgetary control in the EEC.

The Minister mentioned the European Assembly and its role in budgetary matters. In that Assembly there is a body known as the Budgetary Control Committee, which is one of the more effective institutions in the Community. Tribute should be paid to the Conservative Members of the committee, who have been most active in ensuring that there is some level of budgetary control. However, the evidence in the auditors' report is somewhat damning.

When he referred to the European Parliament, the Minister said that it had to give discharge to the auditors' report by April of this year. This raises two questions. The first is the role of the Council of Ministers in the discharge of the auditors' report. The second is the role of the European Assembly itself.

It is more than likely that the House will approve the auditors' report, and it is more than likely that Her Majesty's Government at the Council of Ministers will recommend the discharge of the report. But let us consider the constitutional position whereby the Council of Ministers, as it is bound to arise sometimes if we continue to get reports of this nature, refuses to give discharge to the report. What are the implications of such a refusal? I ask that question because the Council of Ministers alone does not have responsibility for budgetary matters in the Community.

The European Assembly is very much an assembly, and we in Northern Ireland more than anyone else in the United Kingdom know the difference between an assembly and a parliament. The European Assembly has only two real powers. The first is a rather important one, the authority to dismiss the European Commission. The second power is a shared responsibility: that of controlling the budget of the EEC. The Council of Ministers and the European Parliament jointly control budgetary matters.

It is interesting to note that we are discussing the Court of Auditors' report for 1983 when three months ago the European Assembly considered the report for 1982. Then, instead of automatically approving the report for 1982, it refused to give discharge to that report. The House is being asked to approve the 1983 report when one of the partners in the joint budgetary authority has rejected the 1982 report. Discharge has not been given. What was the result of the refusal of the European Assembly to give discharge to the report? Absolutely none. The Commission took no action. It did not respond to the rejection of discharge by the European Assembly. It did not, as one would have expected, offer its resignation. It ignored the European Assembly. Therefore, I want to know whether the Commission has no responsibility whatsoever if at some stage the Council of Ministers likewise refuses to give discharge to the report of the European Court of Auditors for 1983 or for any subsequent year.

12.1 am

Mr. Michael Knowles (Nottingham, East)

May I follow up the point made by the right hon. Member for Strangford (Mr. Taylor) and pay tribute to the budgetary control committee which at least tries, which is more than can be said about anybody else, with this budget, and especially to Peter Price, the European Democratic Group spokesman who is preparing the reply of the European Parliament. I hope that his recommendations will be fairly forceful.

The real problem is who really controls the Commission's expenditure. It is supposed to be controlled by the Council and the European Parliament, but the European Parliament has no effective power. The difficulty with the Council of Ministers is that the members of council, in the form of its individual national Governments, are responsible for the quagmires that are listed in the report. If one is the Government and Parliament concerned, one is getting a fair return on one's investment in the Community, but if it is another Government it is a rip-off and a fraud. Numerous references to national government procedures are to be found in the report. Paragraph 1.17 refers to the fact that control and supervision by the Commission of its services as well as the budgetary authority tend to be hampered by the lack of relevant financial and management information. In some cases there is no formal requirement for such information while in others national administrations and other bodies in the member states have failed to provide any, reports and returns.

That is absolute nonsense. The Council of Ministers will never agree as a whole because it represents individual national governments who are all trying to get action taken on their own behalf. The only supra-national body which can do that is the European Parliament and its independent powers need to be strengthened. [HON. MEMBERS: "Ah."] Ah, there's the rub. The European Parliament is the only body that can do it. It is no good Ministers making promises or Front Bench Opposition spokesmen trying to hold the Minister to account for a body in which he has only a 10 per cent. say. It will always be a trade off. In theory there is a veto, but if one plays the veto game other Governments will play the veto game back. That could very well result in cutting off one's nose to spite one's face.

Reference was made earlier to paragraph 4.37 which deals with no common concept of irregularities. That is putting it gently and mildly.

Paragraph 4.39 goes through the same matter yet again in another form. When one speaks of irregularities in the United Kingdom Parliament one always means other peopls's irregularities.

Paragraphs 7.47 to 7.55 make quite interesting reading.

Paragraph 7.52 says: The public expenditure declared by the national authorities as a basis for calculating the Community contributions under the supplementary measures in favour of the United Kingdom, is a gross amount which does not take account of revenue paid by third parties … nor even, in most cases, other aid paid by the Communities. Every national Government has a vested interest in trying to get the largest piece of the action and will go to its national Parliament and declare what a good boy it is if it gets away with it.

We have had these reports year after year and no action has been taken. There is only one body that can take action on these reports and that is the European Parliament. The Council cannot do it. It has to be the European Parliament, and the sooner that that nettle is grasped the sooner we shall solve this problem.

12.5 am

Mr. Nigel Spearing (Newham, South)

I am pleased to follow the hon. Member for Nottingham, East (Mr. Knowles). We are both members of the Scrutiny Committee and we have produced a report from which I wish to quote. As we are all, including the Economic Secretary, on the side of financial probity, there is no difference between us. It is only a matter of finding out the means to achieve the ends. On that, I join the hon. Member for Nottingham, East. However, I draw his attention to page 186 of the report where, in respect of the cash deficit of the same European Parliament, we read that 4.1 million Belgian francs have gone missing and that the insurance company did not feel that it could pay the amount requested because in its view a serious offence had been committed. The equivalent would be if our deputy accountant in the Fees Office had collared the equivalent of 4 million Belgian francs.

The matter of contracts was referred to by the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). Let me read into the record the Select Committee's summary of that matter. We said: The Court notes also (para. 1.18) that in many areas of Community-financed activity the lessons of experience have not all been learned, despite persistent criticisms of particular activities in its earlier Reports. In this respect the Court instances (para. 1.19) the placing of contracts with outside bodies, pointing out that contracts which might have been the subject of competitive tendering have been placed by private treaty, and that there is no evidence of systematic follow-up and evaluation of the performance of contractors or of a Commission responsibility for co-ordinating practice or for disseminating the lessons of experience". That reads like a formula for fraud. Not only do we have the mistakes which inevitably occur but it seems here, in the words of the Committee's summary of the Court of Auditors' report, that it is far worse. A formula for fraud is built in.

Of course, that paragraph was in respect of the important matter of food aid. As members of the Select Committee on Foreign Affairs said after their recent visit to Ethiopia, it appears that the organisation cannot organise effectively the crumbs from the rich man's table. Indeed, we might say that the crumbs sometimes, according to my hon. Friend the Member for Thurrock (Dr. McDonald), rot from the time that they leave the table to the time that they drop into the hands of those who wish to receive them.

The Scrutiny Committee has recently considered a number of regulations dealing with the transfer of surpluses from one country to another. We have not drawn the attention of the House to those relatively minor regulations, because the amounts of money involved have been relatively small. However, in view of what my hon. Friend the Member for Thurrock has said, perhaps the Committee should reconsider the matter. If the expenditure is required to move surpluses from one country to another, to the benefit only of warehousemen and transport companies, that is a serious matter.

Will the Financial Secretary shed a little more light on the discharge of the budget? What is the use of having an auditors' report if one can do nothing about it when it is highly qualified? If the discharge from the Assembly for the 1982 report was not taken, what difference does it make? We are asked to approve the Government's efforts to ensure that the Court's recommendations are implemented. I do not expect anyone to vote against the motion, but it behoves the Financial Secretary to tell us with what tools and by what method the court's recommendations can be implemented.

I draw attention to a speech made in 1891 which is quoted by Mr. Paul Einzig in the preface to his important book "The Control of the Purse", several copies of which are in the Library: The finance of the country is ultimately associated with the liberties of the country. It is a powerful leverage by which English liberty has been gradually acquired. … If the House of Commons by any possibility lose the power of the control of the grants of public money, depend upon it, your very liberty will be worth very little in comparison. That powerful leverage has been what is commonly known as the power of the purse—the control of the House of Commons over public expenditure. Those are the words of William Ewart Gladstone in a speech at Hastings on 17 March 1891. I do not think that the fact that he made that speech at Hastings was a coincidence. He made a deadly serious point. The power of the House has depended on the leverage of the power of the purse. What leverage do the Government have in public expenditure across the Channel for which the British people pay and which the House has approved up to now? What leverage enables that liberty to be maintained?

12.13 am
Mr. Nicholas Budgen (Wolverhampton, South-West)

I hope that the hon. Member for Newham, South (Mr. Spearing) will forgive me if I deal later with the point that he made at the end of his excellent speech.

I warmly commend my hon. Friend the Economic Secretary for the tact and loyalty with which he moved the motion. Gone are the days when the Prime Minister was saying in what rude people would describe as her somewhat acerbic way, "We want our money back." As my hon. Friend the Economic Secretary loyally reflects, the Government have declared that, since Fontainebleau, the finances of the EEC have been put on a perfectly satisfactory basis.

So whereas in 1979 it would have been the role of a senior Minister to pick up and tear apart this document, and to demonstrate that our money was being wasted in a very profligate way, my honourable, highly tactful and loyal Friend the Minister mentions quite blandly today that there are a few small, almost printing errors, that the Government will politely point out to the other states in the EEC. They will immediately pull their forelocks and say to whoever it may be—Margaret, Geoffrey, or even on a humbler plain, Ian—"Thank you so much for drawing our attention to that small matter. We shall put it right yesterday."

On that basis, my hon. Friend the Minister does not point out, for example, the principal criticism made by Accountancy Age, which is that the contingent liabilities for the disposal of these vast, unwanted and very embarrassing stocks of food have not been included in the EEC accounts. The reason for that is, of course, that my hon. Friend was one of those who urged the Commission that these contingent liabilities should not be included in them. If they are included in the accounts, he will have the embarrassment of coming before the House and asking not, as he did last time, for £120 million, or as he will have to do between now and the end of the year, for perhaps £200 million, but for even larger sums.

My hon. Friend the Minister asserts with great good manners that all is more or less well in the EEC. But one of the arguments that the Government will no doubt put forward is that the EEC's finances are properly supervised by the Court of Auditors. Politicians, particularly English politicians, do the sonorous act extraordinarily well: the rolling stuff about the gratitude that we all feel towards the splendid self-sacrifice of these deeply important gentlemen from all the nation states, and about how wonderful it is that they have so unstintingly given of their best to regulate all that can be regulated, and so on. But others may say, for the sake of argument, "As a matter of fact, all this system of budgetary discipline depends on the will of the nation states". They may add that last year the Council of Ministers agreed that in 1985 cereal prices should be reduced by 5 per cent. but has since resiled from that, and now say that the best that it can do is to suggest that they just might be reduced by 3.5 per cent. It might also be added that there is not much indication of a will throughout the EEC to reduce agricultural overspending.

Nevertheless, there is a fundamental dilemma, and that is that the Court of Auditors is a proper appurtenance if the EEC moves towards a federal state. It is a proper and necessary appurtenance if there is, say, an EEC police force or an EEC criminal law and court. But as long as the EEC is something more like an alliance of nation states, each of which is fiercely resentful of interference from the EEC, such frauds and irregularities will continue. We may laugh about the way in which the unfortunate Irishman from the Court of Auditors was attacked when, I believe, he went to investigate something in Italy, but, as the Government would have pointed out in 1979, the report shows instance after instance of irregularity. We see instance after instance of nation states averting their eyes or conniving at fraud, because they see their own nationals making a killing out of the EEC.

If there were any proposal—my hon. Friend the Member for Nottingham, East (Mr. Knowles) raised the point very fairly—to set up EC police, or if there were, for the sake of argument, any attempt to enforce upon the people of Sicily the standards of honesty that are common in Scotland, there would be a revolt in Sicily. There would be deep resentment in England if Sicilian policemen, coming on behalf of the EC, were to investigate whether proper payments were being made for sheep that were being certified for EC payments.

So long as we resist, as I hope we always will, the extension of the EC into having all the characteristics and powers of a federal state, it is inevitable that fraud, irregularity and evasion will continue. It is no good pretending that, simply because the EC has gone one step towards the appurtenances of a federal state, it has the system of enforcement, of collection and of law that would be the wholly necessary—and, I say, immediately, the wholly rejected—part of bringing any form of regularity to the finances of the EC.

12.21 am
Mr. Tony Marlow (Northampton, North)

I am very pleased to follow the erudite and brilliant speech of my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen).

At 12.21 am, with about 12 hon. Members in the Chamber, we are talking about £3,000 million per annum of our constituents' money—£60 per head. We are talking about a net cost to our constituents, over the past five years, of about £600 million per annum; £12 per head of the population; £2.50 per winter week that could have been spent on heating for those who have been suffering so much recently.

We have just an hour and a half in which a few Members of Parliament can speak to the issue. When we deal with any small measures, relatively important in their own right, we have a Second Reading, we have a Committee stage where we go through the Bill line by line, we come back here for the Report stage and Third Reading, and then the Bill goes to the House of Lords. Everything is properly and fully scrutinised. If money is then spent, we can form up in front of the Government and ask them to account for that expenditure. But this House has very little accountability for money spent within the Community.

The hon. Member for Newham, South (Mr. Spearing) was right to give us the quotation from 1891: once we lose control over the public purse we lose control over the destiny of our people. That is of fundamental importance, and we should bear it in mind in all our consideration of matters in the Community.

What does the Court of Auditors say about the expenditure? Has it been properly looked after? The Court of Auditors has said that the present budgetary and legislative framework does not serve to control commitments. We have heard a great deal about the much-vaunted financial mechanism. It is all things to all men, so that the United Kingdom Government can say to the United Kingdom, "We are going to control expenditure", and the French Government can say to France, "Don't worry — it is not going to be controlled". At the beginning of each year there will be set out how much money is to be spent in each field of Community activity. But commitments have not been controlled. There is no proposal to control commitments any differently in the future from the control used in the past. Even with the much-vaunted financial mechanism, how is the Community's expenditure to be controlled? Paragraph 1.17 states: Control and supervision by the Commission and its services, as well as the budgetary authority, tend to be hampered by the lack of relevant financial and management information. In some cases there is no formal requirement for such information, while in others national administrations and other bodies and Member States have failed to provide reports and returns on time or at all. The French, I dare say, or the Mafia in Italy—too tough a nut to crack.

I heard this morning on the radio the story of a farming couple in Cornwall who had milk and cream quotas. They were producing less milk than they were entitled to, but more cream than they were entitled to—but add the cream and milk together as milk equivalents and they were producing probably less overall than the quotas allowed. Yet because they got the balance wrong, they are to be fined. We, here, have a system that scrutinises, operates and checks up on people. What happens in Italy? Would they be fined in Italy for behaving that way? Yet my hon. Friend the Minister talks about financial mechanism that will control Community expenditure — everything will be all right in future. Is it really?

Let us see what reassurance we can get; let us hope that the strictures of the Court of Auditors will in future lead to remedies But will it? In 1981, the court drew attention to numerou administrative irregularities, including the cashing of two cheques for a total of approximately 4 million Belgian francs. that has still not been resolved. It was reported on three years ago, but nothing has happened yet. Can we really have any confidence that things will be better in the future?

Hon. Members have referred to Accountancy Age, perhaps a more objective source of comment on Community financial affairs. It states: The Commission has failed to take action to remedy the numerous flaws revealed in last year's court of auditors report, which included millions of pounds of cash unaccounted for and almost non-existent budgetary controls. This year's report shows that the position is now slipping out of control. This year's report refers to 1983—what happened in 1984? It fell so much out of control that the Community ran out of money and we had to bring forward what are known as the reimbursable grants. That is an interesting prospect, is it not?

My right hon. Friend the Prime Minister said on 27 June good words: article 119 of the treaty provides that the revenue and expenditure shown in the budget shall be in balance, so it is not right to raise loans for budgetary purposes because it is contrary to that article …I beleive that methods other than loans will have to be found to bring the budget into balance."—[Official Report, 27 June 1984; Vol. 62, c. 1003.] I suppose that a reimbursable advance is not a loan. If it happened once it surely cannot happen a second time, and it surely cannot happen until Community expenditure is properly under control and we do not in future have appalling reports such as this before us today. I am perfectly happy to give way if my hon. Friend the Minister wants to offer us some reassurance here and now that until the Community financial mechanisms are much more effective than those that we have been talking about and reading about, the Government have no intention of bringing before the House another loan or reimbursable advance. I shall be happy to give way if my hon. Friend wants to bring the matter to our attention at this stage. Perhaps he will do so when he replies to the debate.

We discussed the report. If any hon. Member — or you, Mr. Deputy Speaker—had a report on a horse one might own rather like this report, would one breed it? If an hon. Member had a report on a shop in this tenor, would he buy things from it? If any hon. Member had a report on a company in much the same style as this report today, would he invest in it? Of course not.

Is my hon. Friend suggesting to the House that in those circumstances the Government want the House to provide more money by increasing the Community's own resources? Surely not. If the Minister was too polite, or perhaps too shy, to interrupt me earlier, would he care to interrupt now and say that under these circumstances, the Government could not consider asking the House to agree to an increase in own resources? He would surely not expect hon. Members to agree that more of our taxpayers' money should be at the mercy of an organisation such as that.

As my hon. Friend is obviously mute on the subject, perhaps we can go to the Prime Minister for support. In June of last year she said that any new increase in own resources, should it go through all the legislatures"— it was as well that she included that qualification— is primarily to allow for the enlargement of the Community by Spain and Portugal."— [Official Report, 27 June 1984; Vol. 62, c. 1001.] It seems that that may be running into the sand. If Spain and Portugal are not to join the Community on 1 January next year, probably it will not then be necessary—the Prime Minister said as much—immediately to bring before the House a request for an increase in own resources. While there is a delay because of that, all the terrible things that we have been reading about in the report of the Court of Auditors can be put right. Then and only if they are put right, and if Spain and Portugal are elected to the Community—perhaps we can consider an increase in own resources. In view of all the commitments that the Government have given, I am sure that the Minister would not wish to bring forward a request under any other circumstances.

The monster will grow with feeding until it devours us. The Government in Britain try to control public expenditure, and that is a difficult task. There are institutions in this country that generate ever increasing public expenditure. The aged, hospitals, defence, all require great sums, and local government tends to run away with money. Do we also want a massive engine of increased public expenditure on the other side of the Channel? That is a body not of elected representatives but a Commission of bureaucrats competing with each other to increase their empires.

We can keep Community expenditure under control only by not letting it have any more money. Let it deal in a proper and fair way with the money that it now has—in a way about which the Court of Auditors does riot in future have to produce a report such as this—and then we can consider what further steps to take on the Community's behalf.

12.32 am
Mr. Bowen Wells (Hertford and Stortford)

On whichever side of the House we sit and whether or not we support our continued membership of the European Community—and I most certainly do—none of us can welcome the revelations in the report of the Court of Auditors.

I shall dwell on only one aspect, and that is bitterly to regret the way in which the administration of the food aid programme has been illustrated, and I draw attention to the summary at paragraph 10.17, where it is stated: At the end of 1983, quantities equivalent to more than half of an annual programme in cereals, to more than two thirds of an annual programme in milk products and to virtually the whole of an annual programme in butteroil, had still not been delivered … Under these circumstances, the Court requests the Commission to review the entire management system for food aid and then to propose both rules and administrative procedures for at least rectifying the defects, which keep recurring and even worsening, at the expense of the poorest countries of all. The Foreign Affairs Select Committee, of which I have the honour to be a member, visited the Sudan, Ethiopia, Mali and Senegal to see how the food aid was being administered in relation to the desperate problems of the refugees from Chad, Uganda, Eritrea and Tigre and who have fled within the borders of the Sudan and how they have been receiving food to sustain their very lives. The United States had just as much or as little notice of the need for food aid for Sudan as the Commission and it managed to deliver and distribute food aid to the western-most part of the Sudan by the time of the arrival of the members of the Select Committee two weeks ago. The Commission had not delivered any food aid to the Sudan at the time we were there although it had delivered some to Ethiopia.

It is the administrative muddle and bureaucratic procedures which have been illustrated in the report of the Court of Auditors which I ask my hon. Friend the Economic Secretary to take up with great determination with the authorities in Brussels to ensure that the food aid which the population of Britain and of the Community generally want to see delivered quickly arrives before the rains come in June.

It is no good the European Parliament and the Commission saying that it is "their fault" or someone else's fault that the supplies have not reached those who need them. The grain must arrive before June if thousands of lives are not to be lost in the Sudan, Mali, Senegal and Ethiopia. I ask my hon. Friend earnestly to ensure that he sends representatives to Brussels to ensure that the food is placed in ships and that the ships sail. They should monitor their sailing until they arrive at Port Sudan so that previous muddles do not occur in this vital operation.

12.37 am
Mr. Ian Stewart

With the leave of the House, Mr. Deputy Speaker, I wish to reply to the debate. In the time remaining to me I shall endeavour to concentrate on the specific issues that have been raised rather than stray more widely, as I have been tempted to do so by some including my hon. Friend the Member for Northampton, North (Mr. Marlow). I shall resist the temptation of taking up the future financing of the Community. I am sure that we shall have opportunities to debate that issue on future occasions.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) spoke of me—I am not sure whether this was by way of criticism—being tactful in what I am trying to do. He drew attention to my comments as if I were speaking of printing errors. I said that there were serious deficiencies in the Community's financial arrangements. I chose my words carefully, but they were meant most definitely. I hope that the way in which the debate has developed will leave no doubt in the mind of the Court of Auditors, the Commission and the Budget Control Committee of the European Parliament of the concern that is felt in the United Kingdom about the management of the Community's finances as well as about the budget that makes provision for Community expenditure.

The issues that my hon. Friend the Member for Hertford and Stortford (Mr. Wells) raised at the end of the debate were telling ones. The performance of the Community in supplying food aid in 1983 was deplorable. Undoubtedly there were special circumstances at that time—for example, the regulation for food aid was adopted late in 1983, so many of the disbursements were not able to be organised in time. However, matters such as quality control and control of delivery need direct and specific attention, and my right hon. Friend the Minister for Overseas Development, who has been in the Sudan and who was answering questions on these topics this afternoon, is hoping to visit Brussels in the near future—possibly during this week—to raise a number of these matters with Mr. Natali and other members of the Commission. I shall draw to his attention the remarks that have been made in the debate, especially by my hon. Friend the Member for Hertford and Stortford with his direct experience from his recent visits.

The hon. Member for Thurrock (Dr. McDonald) mentioned provision for Scottish ports. Those industrial investments took place between 1978 and 1981 when the recession was biting on shipping and ports and the estimates for jobs that should have been created were not realised. Subsequently, however, as a result of that and other cases, funds have been returned to the Commission when job targets have proved unlikely to be achieved, so at least something has been learnt from that.

The hon. Member for Newham, South (Mr. Spearing) referred to customer contributions in the calculation of subprogrammes. The court found that in two of the subprogrammes the amount was expressed gross of customer contributions. That is mainly a matter for the corporations concerned and the sponsoring departments do not know the details. The practical effect of declaring net amounts in cases of that kind would have been to increase only the nominal rate of Community support to take account of the reduced public expenditure element. It would not affect the total level of Community support which would already have been agreed by the Council of Ministers.

A number of hon. Members, including the hon. Member for Thurrock and my hon. Friend the Member for Wolverhampton, South-West asked about provision for future disposal of stocks. The actual accounting procedure is complicated, but I should emphasise the distinction between two aspects. The first is the long-term cost of disposal of the stocks. Not only is that difficult to estimate, but it is not part of the annual budget, which is a revenue and expenditure item, not a balance sheet item. The costs during the budgetary year are purely those of storage and disposal within that year and are covered under various headings — actual storage costs, interest costs on the funds tied up by purchasing a product into intervention and, finally, gains or losses on sales.

The Court of Auditors raises an interesting point about the accounting treatment of this, but there would be other implications such as potentially increasing the size of the budget.

Mr. Budgen

That was my point.

Mr. Stewart

I should wish to think very carefully before concluding that extra provision of this kind in relation to the agricultural budget would be in the best interests of maintaining control over the management and expenditure of those funds. I am not entirely sure that it would.

The right hon. Member for Strangford (Mr. Taylor) asked what would happen if the Council of Ministers failed to grant discharge. In fact, the Council of Ministers can only make a recommendation to the Parliament, which decides whether to grant the discharge. I believe that the case in 1982 to which the right hon. Gentleman referred, when the European Parliament refused a discharge, was a way of making a political point against the Commission. As the right hon. Gentleman knows, there was considerable dispute between the European Parliament and the previous Commission and the year of the report, 1983, comes under the responsibility of the previous Commission.

That does not mean, however, that we shall not press most strongly to ensure that many of the lessons of this auditors' report are taken on board by the new Commission. I hope that Mr. Delors, as a former Finance Minister with a sound reputation for financial management, will bring his reputation and ability to bear on the finances of the Community because they certainly need it. I do not intend to mince words about the nature of the comments in the report. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) referred to it as an incredible report, and in many ways it is a very serious indictment of the way in which the management of the community budget was conducted in 1983. Some improvements have been made but we shall be looking for many more.

I stress the point that I made in opening the debate. The United Kingdom Government have taken the initiative in tightening up budgetary matters, including the management aspects with which the Court of Auditors is dealing. I was asked what leverage we had. The leverage that we have can indeed be exerted in some respects through the annual budget. I have proposed, and succeeded in getting through the Budget Council, measures to reduce the extra commitments that were being proposed by the Commission or the European Parliament.

We have pointed to the fact that many of the payments provisions included in the budget have not always been spent. That is one of the specific criticisms of the Court of Auditors' report. During the negotiations last year on the supplementary finance, I was able to point to those unspent payments provisions and to say that we would not provide the money that could be found from within the budget because it was there but had not been spent. The supplementary finance would have been significantly higher had we not been able to make sure that those unspent funds were used.

Clearly there is a continuing problem—

Mr. Marlow

rose—

Mr. Stewart

I have only one minute left and must conclude.

We have an important duty to the Community and to ourselves to ensure that many of these problems are properly dealt with. That is why we have suggested that these matters should not just go to the official representatives of member states for consideration before the Council passes a formal recommendation back to the European Parliament at the conclusion of this process, but that Ministers should also consider these matters. I hope that they will be able to do so in the Economic and Finance Council, because I believe that the scale and nature of the problems which have been raised in the context of the 1983 budget—

It being one and half hours after the commencement of proceedings on the Motion, MR. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business).

Question agreed to.

Resolved, That this House takes note of the Annual Report of the European Court of Auditors on the financial year 1983, together with the replies of the institutions; and approves the Government's efforts to ensure that the Court's recommendations are implemented.

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