HC Deb 02 March 1989 vol 148 cc455-99

7 pm

The Paymaster General (Mr. Peter Brooke)

I beg to move, That this House takes note of European Community Documents Nos. 9908/88 on the Annual report of the Court of Auditors of the European Communities for 1987, 8502/88 on the management and control of public storage of agricultural products and 9945/88 on the accounting and financial management of the European Coal and Steel Community; and approves the Government's efforts to press for value for money in Community expenditure.

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

Mr. Brooke

The debate is an important and timely opportunity to consider in some detail a range of questions relating to the control and management of the Community's finances. In its annual and special reports, the Court of Auditors has performed an indispensable service by analysing and publicising such questions. The House would not expect me to agree with everything that the Court of Auditors says, but I am in no doubt about the value of its work. The same goes for the work of the Select Committee on European Legislation: as always, when we debate the work of the court we have the benefit of a clear and thoughtful report by the Committee.

It might be helpful to begin by reminding the House of the role played by the court in the Community's decision-making process. Under the treaty of Rome, the court is required to examine whether all revenue has been received and all expenditure incurred in a lawful and regular manner and whether the financial management has been sound. The Council and the European Parliament are required in turn to consider the court's annual report as part of the discharge procedure for the budget. The Council proposes to the Parliament a recommendation for the discharge and the Parliament decides whether and on what terms to grant the discharge. ECOFIN will discuss the court's report on 13 March. Tonight's debate will influence the Government's position for that Council, at which I shall represent the United Kingdom.

Mr. Tony Marlow (Northampton, North)

I am grateful to the Minister. There are not many hon. Members in the Chamber, and it is helpful if my right hon. Friend gives way from time to time. I wonder whether at this stage my right hon. Friend would let the House know whether he intends to accept what seems to be a fundamentally sensible amendment tabled by the Opposition.

Mr. Brooke

I proposed to deal with the amendment at the end of my speech, but if it would be helpful to my hon. Friend I am happy to comment on the Opposition amendment now.

I have great sympathy with the sentiments that lie behind the amendment, but I believe that in all the circumstances it would not be appropriate for the Government to withhold their approval of the recommendation to the European Parliament on the discharge of the accounts for 1987.

The recommendation is subject to qualified majority voting. A vote against it by the United Kingdom would amount to little more than a gesture. The fight against fraud and mismanagement requires rather more than gestures. But in any case, on the substance of the issue, such a gesture would be misplaced, for two main reasons.

First, by formally withholding approval of the discharge, we would be admonishing the Commission, because the Commission alone is responsible for implementing the budget and drawing up the accounts. If our motive for withholding the approval was to make a broader point about fraud and mismanagement, the impression therefore would be that we were holding the Commission to be largely responsible for such problems. In fact, the responsibility goes much wider.

The second reason has to do with the nature of the discharge procedure. The discharge relates to a specific set of accounts for a single financial year. Strictly, discharge should be withheld only if these accounts are in some way improper. It has nowhere been alleged that that is the case in respect of the 1987 budget

The Court of Auditors report draws attention to accounting procedures and devices that the Community was forced to resort to in 1987 and to which I would expect some of my hon. Friends might animadvert. Those procedures, notably the delayed payments for agricultural market support, were agreed by the Council. They were not unilateral actions by the Commission. It would therefore be inappropriate for the United Kingdom to censure the Commission in the way that the amendment suggests.

Mr. William Cash (Stafford)

My right hon. Friend knows that there was a period of two months within which the national authorities subsumed some responsibility for the discharge of certain moneys in the Community. If it was proved that there had been fraud—I believe that there is some evidence that that is capable of proof—would it not be right for, say, the Public Accounts Committee, or indeed the Government, to pursue the matter on their own account, let alone pursuing the Commission? The Commission has received a heavily qualified audit from the Court of Auditors.

Mr. Brooke

The point that I was making before my hon. Friend intervened was that the Council had supported and sustained the procedures that we adopted at the close of 1987.

Mr. Nigel Spearing (Newham, South)

Will the Minister give way on the question of the amendment?

Mr. Brooke

There are few hon. Members present and the hon. Gentleman will have plenty of opportunity to make points hereafter. However, I will give way.

Mr. Spearing

I thank the Paymaster General for graciously giving way. It might be convenient to intervene now because the Minister animadverted, rightly or wrongly, to the amendment.

Surely the Minister is being slightly inaccurate. The amendment does not say that we should vote against any recommendation by the Council; it says that we should withhold approval, not on principle for ever, but only until we have received the report of the working party, which the Commission itself thought it advisable and necessary to establish. Surely that is rather different from what the Paymaster General said.

Mr. Brooke

I alluded to the amendment only because I was asked a question about it by my hon. Friend the Member for Northampton, North (Mr. Marlow). We can return to the substance of the Opposition's case and their amendment.

I propose to concentrate tonight on the key issues and themes arising from the three documents referred to in the motion. The most important of them relates to fraud and mismanagement involving Community resources. The focus here is on export refunds for beef, to which the court devotes a section of its annual report; and intervention storage, which is the subject of a special report. I am sure that hon. Members would expect me to devote a significant part of my speech to these matters.

But I also want to touch on the implementation of the 1987 budget and the question of getting better value for money from Community resources. I hope that hon. Members will forgive me if, as a result, I pass rather lightly over some other aspects of these very lengthy reports, but I shall do my best to deal with any specific points in my winding-up speech, if the House will allow me one.

Fraud is a crime against Community taxpayers which tarnishes the Community's policies and institutions. There can be no excuse for member states treating it any less seriously than fraud involving national finances. The Government have consistently made clear that we are ready to support any practical and cost-effective measures to combat it. Lest there be any misunderstanding, let me reiterate what has been said by three of my Ministerial colleagues from the Dispatch Box in the past week about a recent allegation made in another place that the United Kingdom vetoed a Commission proposal on fraud. That was simply not the case. All member states voted against the measure in question. The United Kingdom did so because we did not believe that the proposal as drafted would have improved the situation.

By its very nature, the scale of fraud is impossible to quantify.

Mr. Marlow

I think that I heard my right hon. Friend aright when he said that he would support any proposals against fraud. If there was a proposal that the Commission itself should have outposts in Community countries to supervise the expenditure of its money, would my right hon. Friend support that? It is manifestly obvious that until that happens there will be a great incentive in many European countries, perhaps in the United Kingdom, to maximise the amount of Community money that is being expended, perhaps without proper supervision.

Mr. Brooke

In preparing for the debate, I read earlier debates and I recall that my hon. Friend the Member for Northampton, North raised the idea of a supranational authority. It was the more striking because those sentiments are not those I would have expected from my hon. Friend's lips. I shall be listening with great care to the debate in case there is a general view in the House that such a supranational authority should be encouraged.

The court's work on export refunds, which related to beef, scrutinised the effectiveness of controls in the four member states—including the United Kingdom—which account for over 80 per cent. of the expenditure in this sector. The court uncovered evidence of serious deficiencies concerning inspection, verification and other procedures. It concluded that the scope and quality of national controls did not give reasonable assurance that the expenditure concerned was legally and regularly incurred.

As regards intervention storage, the court's special report is hardly less disturbing, although strictly it has to do with mismanagement rather than fraud. The report is highly critical of Commission guidelines and their national implementation, citing in particular the lack of clear central rules, inadequate physical controls by member states and unsatisfactory accounting and audit procedures.

I shall come in a moment to the steps which are being taken in the light of these reports, but, first, it is worth noting—as does the court—that a number of the abuses which have been so tellingly catalogued spring from the very character of the Community's policies and regimes. That is why direct attempts to detect and deter fraud must go hand in hand with firm control of total spending, notably on the CAP. The court rightly points out that the differential between Community and world agricultural prices entails a significant risk of fraud. That problem is being tackled. The agricultural stabilisers agreed last year have already been triggered for a wide range of arable crops. For the key cereals crop, there will be a price cut of 3 per cent. from 1989 onwards.

The position on intervention stocks is also improving. The butter and milk powder mountains all but disappeared last year, and beef stocks fell by over a third.

Mr. Teddy Taylor (Southend, East)

Is it not outrageous for a Minister once again to say in the House that the food mountains have gone down because of reform? Does he not agree with the Agriculture Minister? If he looks up the figures, which have been published time and time again, he will see that they show that the reason for the butter mountain going down was that last year, at a massive cost, we sold 877,000 tonnes of butter, at prices as low as 2¾p per pound, instead of the usual 400,000 tonnes. Does not he accept that it is grotesque, when faced with massive fraud and abuse, for any Minister to try to pretend that the food mountains have gone down because of reform? Does he not accept that there is clear and precise evidence that we had a fire clearance sale, no more and no less?

Mr. Brooke

I would be the first to acknowledge some of the basic facts that my hon. Friend has stated. It is also the case that butter was not being taken into storage because the procedure triggered a moment when that process ceased. While I would be the first to acknowledge that some of the stocks were disposed of by the process that my hon. Friend mentioned, he would be uncharacteristically unfair if he did not acknowledge that the procedures of the Community also played some part.

Mr. Taylor

They played no part, and my right hon. Friend knows that.

Mr. Tim Boswell (Daventry)

Does my right hon. Friend agree that, having emptied the bath at some considerable cost, the most important thing is to ensure that the tap is shut and remains firmly shut?

Mr. Brooke

That is the policy that the Council has adopted in its report.

Mr. Teddy Taylor


Mr. Brooke

If my hon. Friend will allow me, I will make a little more progress. From experience of past occasions, I know that he will not hesitate to intervene again.

None of this diminishes the need to tackle fraud and waste directly. My right hon. Friend the Minister of Agriculture emphasised the importance of firm action on export refunds and intervention storage at the Agriculture Council last month. I shall do all that I can to ensure that such action is taken at the meeting of ECOFIN on 13 March. In particular, I shall be pressing for new proposals from the Commission in two areas: first, the control and monitoring of export refunds, reflecting the recommendations in paragraph 4.56 of the court's report; secondly, the management of intervention stocks, on which an ad hoc group has already been set up to study the court's recommendations. I believe that deadlines should be set for the presentation of these proposals and for the adoption of the necessary measures.

Agricultural fraud gets the headlines, but the problem goes wider. The greatly expanded structural funds give rise to obvious difficulties of financial control and management. The new regulations governing the operation of the funds are commendably robust and straightforward. They show what can be done if the need to prevent fraud is explicitly considered when new legislation is being drafted. But much existing Community legislation is too complicated and open to fraud: "leaky and sprawling" was how a recent press story described it. Ways must be found of simplifying it wherever possible.

Simplification and fraud-proofing of regulations is one of the areas where I hope the Commission's recently established anti-fraud unit will get involved. I and my officials have had detailed discussions with the head of the unit about his objectives and priorities. I have encouraged him to focus, essentially, on practical measures. I emphasise the word "practical". Amidst the welter of recent publicity about fraud it is all too easy to be misled by righteous indignation into believing that there is some quick-fix solution. There is not. Nor can there be in a Community of 12 member states with a great variety of legal and administrative systems. It would be interesting to hear hon. Members' views on the desirability of harmonised systems, or, as I said in response to my hon. Friend the Member for Northampton, North, of some sort of supranational authority to combat fraud.

The fact of national diversity cannot, however, be allowed to become an excuse for inertia. I am therefore much encouraged that the Spanish presidency has organised a discussion of fraud at this month's ECOFIN, going beyond the specific issues arising from the court's reports. That discussion will be an opportunity to identify the areas in which action is needed, and to define the procedural steps which should be taken to create the necessary momentum for change. We can operate only by persuading the Commission and other member states that fraud must be taken seriously. That will be a protracted campaign; some member states have a much more relaxed attitude to fraud than we have in the United Kingdom.

The Government are carefully reviewing all aspects of the problem, but the objectives are reasonably clear. First, we need to strike a judicious balance between carrot and stick to ensure that member states take all necessary measures to prevent, detect and punish fraud against the Community budget. Secondly, we need more and better information on the nature and incidence of fraud in member states. Existing reporting arrangements are failing to provide the Commission with the facts that it needs in order to analyse the position and to design effective counter-measures.

Mr. Marlow

In view of the Government's quite proper desire to assist in overcoming fraud, and the possibility of loose and inadequate accounting within the United Kingdom itself, will my right hon. Friend make it clear that any agencies in this country will provide full and total assistance to anybody from the Commission or from the Audit Commission seeking advice and or information?

Mr. Brooke

Within the proper proprieties that the House would wish any agency in this country to observe, I give my hon. Friend that assurance.

Mr. Cash

If there was any real reason why the court needed to acquire information, sought it and could not acquire it as a result of an obdurate refusal by the agency to provide the information, does my right hon. Friend agree that that is the moment at which Her Majesty's Government should say, "This will not do; we must get to the bottom of this, because it is in our interests to do so"?

Mr. Brooke

I am not clear whether my hon. Friend is speaking to a hypothetical case or to a particular case. The tenor and spirit of my answer follow the answer I gave a moment ago.

Thirdly, we need to consider how far an enhanced role for the Commission in the detection or investigation of fraud could be expected to help reduce the scale of the problem. Fourthly, we need to be satisfied that enforcement standards in all member states reflect the seriousness of the problem. Finally, we need to establish procedures which will enable all new Community legislation to be fraud-proofed, and which will help to root out existing regulations and regimes which are, to coin a phrase, fraudster-friendly.

Let there be no mistaking the Government's determination to cut through the rhetoric about fraud and to pursue workable and effective measures to tackle it. Our determination has been underlined by my right hon. Friend the Prime Minister who has made clear that she will, if necessary, raise the issue of fraud at the Madrid European Council in June.

Mr. Ian Taylor (Esher)

In that context, will my right hon. Friend pay tribute to the civil service in the Brussels Commission, particularly taking note that its secretary-general is a former senior official of the Cabinet Office of this country? Therefore, its standards should be at the level that we would expect in this country and not of the kind that Sir John Hoskyns tried to imply earlier this week.

Mr. Brooke

I am happy to endorse what my hon. Friend correctly said.

I turn now to the court's criticisms concerning the implementation of the 1987 budget. There are three main ones: that almost 20 per cent. of the final budget for 1987 was not charged to the 1987 accounts; that published figures for the growth of agricultural expenditure in 1987—as in 1986 and 1985—significantly understated the actual rate of increase; and that the budget was balanced only by successively adjusting the duration of the agricultural year.

The court goes on to argue that these factors call into question the value of the political objectives set out at the 1984 Fontainebleau European Council, and the budget discipline decisions of the 1988 Brussels European Council.

I would not quarrel with the court's criticisms, but I believe that its conclusion is rather wide of the mark. The accountancy practices to which the court draws attention were the products of a collision between the apparently inexorable increase in agricultural expenditure and the Community's own resources ceiling. It was precisely in order to avoid future collisions of this nature that the United Kingdom insisted during the negotiations on the Community's financing, which culminated last year, that we would not accept an increase in the own resources ceiling until agricultural expenditure had been brought under firm control—until, that is, the Community had adopted rules and procedures to ensure that it could live within its means without recourse to the practices that the court identifies.

The 1987 budget, to which the report relates, was the last to be drawn up and implemented entirely under the ancien regime for budget discipline. The new regime put in place after the February 1988 European Council is altogether more rigorous and watertight. I must therefore take issue with the court's dismissive reference to the superficially more binding objectives regarding budgetary discipline agreed at that Council. The future financing package does not consist of mere objectives. It consists of a panoply of firm controls which have given the Community a solid basis for financial stability.

In the case of agricultural expenditure—which is, rightly, the court's main preoccupation—there are three elements of the new system which go well beyond earlier arrangements. First, the agriculture guideline is legally binding; secondly, it constrains the growth of agricultural spending to a maximum of 74 per cent. of the rate of growth of Community GNP; thirdly, there is no open-ended let-out for exceptional circumstances of the sort that bedevilled the Community's finances in the past. In future, there will be a cash-limited monetary reserve, capable of being drawn upon only in tightly circumscribed situations. These controls are buttressed by the reforms to which I have already referred—systematic depreciation arrangements and automatic stabilisers for all the main agricultural commodities.

I said earlier that the 1987 budget was the final offspring of the old regime. I look forward to the court's report on the 1989 budget, which is the first complete product of the new one. The provision for agricultural spending in that budget is about £1.3 billion below the guideline, and the budget as a whole is over £2.5 billion within the own resources sub-ceiling for 1989.

The third document mentioned in the motion is the court's annual report on the accounting and financial management of the European Coal and Steel Community. The report is intended to give the European Parliament and the Council an insight into the Commission's management of ECSC resources, most of which come from a levy on coal and steel producers, from borrowing on the capital markets and from bank loans.

Mr. Teddy Taylor

Will my right hon. Friend answer a question that I have asked several times and to which I should like an answer? In view of what he has said about his co-operation with the court so that the accounts are properly managed, why did the Council of Finance Ministers, at which he was present, refuse to discuss a report, submitted by the court, which said that the Council's decision to transfer the responsibility for butter dumping from the EEC to member states was unlawful? That refusal meant that nothing could happen.

Mr. Brooke

It is wrong to say that the Council refused to discuss it. It was as a result of the United Kingdom's interventions that the report is now discussed at ECOFIN. That was the basis which we are expanding further at the meeting on 13 March. However, I agree with my hon. Friend the Member for Southend, East that there was disagreement between the Council and the court over that particular measure.

I shall confine my remarks to an aspect of the report that touches on an issue currently before the Council. The court notes that the ECSC's reserves increased in 1987, and calculates that the ratio of total reserves to total assets is higher than recommended by independent consultants. This is relevant to decisions on the current and future funding of the ECSC's programme of social measures for redundant steel workers. The Government have consistently argued that those should be financed, at least in part, by drawing on the ECSC's reserves. The court's report confirms that the reserves are adequate for this purpose.

The Commission, however, considers that there are insufficient resources within the ECSC budget to finance a programme of social measures at the proposed level. It has sought to remedy the alleged shortfall by proposing a transfer to the ECSC budget from the general European Community budget. The Government have resisted this, while making it clear that we are not opposed to the social measures in principle. The matter is to be discussed at the Council of Industry Ministers next Monday.

In my speech on this same occasion last year, I mentioned that I had recently visited the Court of Auditors and had emphasised the contribution that it could make on the subject of value for money in the Community budget. The Community's traditional approach to auditing has tended to concentrate on the regularity and propriety of expenditure by reference to legislative instruments and procedures. That is a necessary function, of course, but I am encouraged by the indications in the latest annual report of the court, moving beyond the traditional approach and towards the concept of value-for-money auditing with which we in the United Kingdom are familiar, but which has yet to take a firm hold in the Community. This shift of emphasis is particularly noticeable in the court's remarks on research and development and the structural funds.

As regards R and D, the court offers a cautious welcome for the programme of evaluation adopted by the Commission in 1983 and extended in 1987, but it urges the Commission to pay more attention to improving its assessment of the implementation and current validity of the R and D framework programme for 1987–91. A mid-term review of this programme is due to take place later this year, and will no doubt lead to proposals by the Commission for new projects and activities in areas which the programme does not at present cover.

I would not wish to prejudge the outcome of the review—some difficult negotiations lie ahead—but it would make neither financial nor industrial sense simply to graft new activities on to the existing programme. It would be a mistake to assume that newly identified research priorities must necessarily be pursued at Community level. Even where this is appropriate, new activities should take the place of existing ones which have outlived their usefulness, which are not producing the intended results or which have been overtaken by other developments. Rigorous evaluation is needed in order to identify candidates for weeding out, just as detailed industrial and scientific assessment is needed to identify potentially worthwhile new projects. The criteria and procedures suggested by the court will be an especially useful input to the negotiations on the review.

As regards the structural funds, the court has some interesting things to say about measuring the impact on regional development of infrastructure investments subsidised by the Community. The precise methodology adopted by the court would not necessarily commend itself to all experts in this sphere, but the expansion of the structural funds which was agreed last year will involve a significant transfer of resources from the richer areas of the Community to the poorer. The greater convergence of member states' economic performance that that transfer is intended to bring about will not happen unless the resources are carefully targeted and the projects to which they apply are scientifically evaluated.

Sir Russell Johnston (Inverness, Nairn and Lochaber)

Will the Minister take this opportunity to clarify whether he agrees with the remark recently made by the Chancellor of the Exchequer, that all regional policy in the Community was a waste of time?

Mr. Brooke

Since I share departmental responsibility with my right hon. Friend, I should verify precisely what he said. However, I am grateful to the hon. Gentleman for drawing my attention to the remark.

I referred earlier to the new machinery for controlling Community expenditure. With that machinery firmly in place, the Government are now taking the debate one step further by focusing on the quality of Community expenditure, not just the quantity. To that end we have formally tabled a detailed series of amendments to the financial regulation, which governs the implementation of the budget. The amendments are designed to provide a legal framework for improving the value for money of Community expenditure, clarifying its objectives and developing measures to indicate how far those objectives are achieved in practice. Those concepts have become an established part of the landscape in our own public sector, but are not yet embedded in the Community's culture. We aim to try to change that.

I believe that many of the court's anxieties about the implementation of the Community budget have been addressed in the future financing package agreed last year. I hope that that will allow the court to develop its work on value for money and cost-effectiveness. Finally, I encourage the court to continue in its role as the scourge of fraud, waste and mismanagement. In that it has the Government's full support.

I accordingly commend to the House the reports mentioned in the motion, and look forward to hearing the views of hon. Members.

7.30 pm
Mr. Stuart Holland (Vauxhall)

I beg to move, as an amendment to the Question, at end to add: and to this end calls on Her Majesty's Government to withhold their approval of any recommendation by the Council of Ministers of the European Economic Community to the European Parliament to discharge the annual accounts of the Community for the year 1987, in accordance with the procedures specified in Article 206B of the Treaty of Rome, until the Council has received and discussed the report of the working party established by the Commission of the European Communities to consider the recommendations of the Special Report No. 5/88 of the Court of Auditors (8502/88) dated 13 September 1988 on the management and control of public storage of agricultural products. It seems to Opposition Members—and, I suspect, to Conservative Members—that: the Minister's unconcern about some of the fundamental implications raised by the auditor's report is simply staggering. The position is highlighted by an excellent report in today's edition of The Guardian, which states: Massive fraud involving an estimated £17.25 billion over the past eight years is causing the EEC to fear that the entire Common Agricultural Policy is being discredited. It is all very well for the Minister to say that that was the ancien regime and that things are changing. He does not face the implications of the report, which in our view falls into two categories, one long-term and one short-term. The short-term category may be the more dramatic, but the long-term one is also important.

One of the reasons why there is so much scope for fraud in the European Community is the price support system that it operates, rather than the deficiency payments system that it should be operating. The system should both enable the consumer to benefit and allow operations to be more transparent in supporting producers. That was the basis of the deficiency payments system. Commodities came in, by and large, at world prices—therefore low prices—and the subsidies went to the producers, that is, the farmers, in a manner that could be effectively scrutinised by the Ministry of Agriculture.

The argument at the time of the debate on the common agricultural policy throughout the early and mid-1960s was that the share of the working population in agriculture in the Community was too high for a deficiency payments system to operate. One out of four workers in the original six countries was employed in agriculture in 1957, but, as I have told the House before and as many hon. Members. present tonight are well aware, the working population in agriculture—at least in the Community of 10, for which figures are readily available—is down to less than 7 per cent.

I will not elaborate on the point unduly, but none the less I think that it should be made. What this means in practice is that production quotas can be set within guidelines for specific farms, concerning head of cattle, grain production, or whatever. If world market prices are then prevailing on the import side, the whole range of fraudulent operations—for example on the export and re-import of beef products highlighted in the auditors' report simply would not be happening, as there would not be subsidies for the export and re-import of beef.

Those long-term structural factors must be addressed. If the Government are not addressing them, whatever they do at an ECOFIN meeting in a few weeks' time will not begin to resolve the fundamental problems.

Mr. Cash

The hon. Gentleman is trying to wrap up the argument in terms of deficiency payments. Wearing their other hat in the Ministry of Agriculture, the Government are trying to deal specifically with how to mitigate surpluses. Those policies, which would be combined with such measures as reducing pollution and the quantity of nitrates—I shall not go into them in detail now—would in aggregate reduce the amount of money required. Clearly that would be the best course to take, and if other countries would adopt the policies that we have been pursuing a good deal of progress might be made.

Mr. Holland

That is probably so. Certainly it is important for us to see agricultural policy as related to other kinds of priority policy, such as the environment and regional development. One of the ways in which reduced expenditure on agriculture could well be reallocated is via the social and regional fund. In the environmental context, for example, the argument is well established that keeping some land under cultivation, which may not in itself be economically viable, is environmentally desirable. It also avoids the grotesque depopulation of the countryside and the "Deserted Village" syndrome that has afflicted various parts of Europe.

Let me return to the short-term implications of what the Government are doing, and the extent to which they are responsible for what has happened. The Minister flipped over that rather easily, saying that responsibility for the monitoring of intervention funds was shared between the Commission and member states. The guidelines are there for the Commission, and some of the auditing and supervision must be done by the Commission, but the responsibility is that of the individual member states. In this instance, it would be the responsibility of member states to establish whether suitable controls are in operation, whether they are accurate on a monthly or annual basis, controls on quantities and quality, the nature of declarations, the source data and accounting arrangements generally—the main items in the auditors' report.

In this context, a letter dated 13 September 1988 is important. It was written by Mr. Marcel Mart, the president of the Court of Auditors, to Karolos Papoulias, at the time president of the Council. It poses questions to be raised with Ministers about what the Government have been, and are doing, in this regard. For example, there is the notorious case, widely reported in the press and mentioned on page 21 of Mr. Mart's letter in its English translation, of the overcrowding of space in storage, preventing any reasonable access or checks. Is the Minister satisfied that that is not occurring in the United Kingdom? What proportion of storage facilities are investigated by the Government each year to ensure that it does not happen?

Page 22 of the letter states: There is only one country"— that is, Denmark— in which volumetric assessment of the quantities of cereals kept in flat storage is feasible. Why is it not feasible for the United Kingdom? Page 25 states that there is a great variety of surveillance and technical differences between various states. In monitoring humidity and knowing how to watch for the presence of insects or to prevent the access of other animals, only Denmark appears to have effective mechanisms for scrutiny. As that factor relates to health, the Government should be rather sensitive to the health quality of food products.

Mr. Marlow

I am sure that the hon. Gentleman understands that measuring the volume of a commodity such as grain does not define the value. The value of that volume of grain varies according to the amount of moisture and impurities in it, and the type of grain that is stored. It is essential that, if any heap of grain, for example, is being measured, the other qualities pertaining to it are examined, otherwise it is impossible to have any idea of the value. That is one reason why so much fraud is apparent at present. I agree with the hon. Gentleman. My point is that Mr. Mart's letter highlight that the Danish have a range of inspection procedures which are relevant, such as temperature probes, monitoring humidity, and under which conditions to ventilate. Of course, it is not simply quantity but quality. Notoriously in the beef case, it is alleged that there are so many different quality specifications that it is impossible to monitor effectively. It has been alleged that there are up to 1,000 different regulations for beef products in the Community. Is that so?

Mr. Boswell

Following the point made by my hon. Friend the Member for Northampton, North (Mr. Marlow) and speaking as a practical farmer, I must say that one of our problems with volumetric measurement is that, unless one has a good standardised measurement of the actual density of the grain, it is difficult to know the tonnage involved. That may vary within the heap, even if one has a standardised volume.

The other point that has concerned me is that the hon. Gentleman has several times referred to the practice in Denmark. As I read the report, I believe that Denmark was not one of the countries considered in the detailed study. In fact, the "D" stands for Deutschland, namely the Federal Republic of Germany. I wonder whether I am right about that, and, if so, will the hon. Gentleman correct his assertion?

Mr. Holland

The hon. Gentleman may be correct and I am most grateful to him. It is certainly confusing if Denmark is expressed by an initial—(D)—which represents Deutschland.

The letter says on page 27 that there is only one case known (France, cereals) where examples are found of storekeepers being financially sanctioned for excessive quality differences. What kind of sanctions are being employed by the United Kingdom Government? Are all our storekeepers angels? Can we assume that they are? How many prosecutions have the Government undertaken concerning any breach of the storage of food regulations?

On page 29, the letter says: since under current arrangements there exists no stable valuation basis for the recording of stock movements and their consequences for the Community budget in the financial accounts". Why is there not such a stable valuation basis for the recording of stock movements in the United Kingdom? Will the Minister answer that question, because for that the Government and not the Commission are responsible?

Another consequence is reported on page 30: profits and losses cannot be attributed to individual transactions. In effect, that amounts to transfer payments and prices being charged by firms in their operations. Why do we not have that transparency? What are the Government doing in that respect?

Sir Russell Johnston

I am not sure about the hon. Gentleman's page references. The page which the hon. Gentlman gave as page 30 is page 67 in my copy of the report.

Mr. Holland

I shall be glad to clarify that. I did say that what we are talking about is a letter from the president of the Court of Auditors of the European Communities, Mr.Marcel Mart, of 13 September 1988 to Karolos Papoulias, then President of the Council of Ministers. That document is available in the Vote Office, and perhaps the hon. Gentleman has it.

Page 31 of this letter—which after all was written by the president of the Court of Auditors to the then president of the Council of Ministers—concerns the timing of submissions on expenditure and expenditure claims. Mr. Mart said: the Member States have an interest in the earliest possible declarations of expenditure because the declaration has to have been submitted before funds can be withdrawn from the EAGGF Treasury account. It was established that the great majority of the intervention agencies draw up their second category declarations in the first week of the month following the month in which the physical operations took place … It will be clear that as such an early moment in time, it is hardly likely that the centrally recorded data in respect of intervention transactions can be complete. What does the Minister say about that, because those who are making those claims should be responsible to him, as the Government are responsible for the operation of our intervention agency?

The cost figures involved in the misallocation relates partly to what have been called Mafiosi-type swindling, but also partly to the inefficiency with which the intervention process is being managed.

Page 43 of Mr. Mart's letter says: no audit is performed by any of the internal audit departments, of the monthly declarations nor of the annual accounts of public storage expenditure, submitted to EAGGF. Why should they not be in the United Kingdom? In fact, what we have heard is that the Government are appalled by what is happening. They say that the problem will be reduced because we will have stabilisers. The fact that cereal prices may fall by 3 per cent. in 1990 is hardly encouraging for rapid progress in that respect. However, no doubt a fall will be more welcome than an increase. What is the Minister doing in the United Kingdom? When will he put his own house in order? When will he report to the House and respond specifically to the allegations that have been made?

Mr. Marlow

I put it to the hon. Gentleman that, as the system is at the moment, my hon. Friend is unlikely to do anything about it at all. The Community funds—especially in the common agricultural policy—are being ripped off right left and centre by every other country in the Community. If my hon. Friend were to do the decent thing—which I am sure he would like to do—it would mean that the United Kingdom would not get its fair share of funds. There is no incentive for my hon. Friend, on his own, to stand up and do the proper thing.

Mr. Holland

I think that the hon. Gentleman, allegedly the hon. Friend of the Minister, has put his finger on it. There is little incentive, as such, for the Government to seek to reduce the transfers which come to the United Kingdom under the guidance and guarantee fund.

However, another argument involves the accountability of Ministers to the House. For example, the Minister gave two main reasons for rejecting the terms of our amendment. First, he said that to accept the amendment would admonish the Commission. Secondly, he said that the discharge relates to specific accounts and whether or not they are improper. In this case, the admonition is not so much of the Commission as of the individual member states and their failure to pursue adequate audit and scrutiny procedures. It is in the sense that this is the appropriate Chamber in which the Minister should be held responsible for the range of issues that I have raised—where either the United Kingdom is not achieving the best practice available in other Community countries or it is failing to ensure that the quality of food or the manner in which claims are made are adequately transparent and supervised.

Moreover, the Minister's argument on the amendment is bizarre in view of a statement made in this House by the Secretary of State for Agriculture, Fisheries and Food. He said: As I have said, the Commission draws attention in its proposals to the need to tackle the problem of CAP fraud … What we now need is action … The Scrutiny Committee draws the House's attention to the importance of the European Court of Auditors report on intervention. I welcome the Commission's initiative in setting up a working party to study the recommendations of this report."—[Official Report, 27 February 1989; Vol 148, c. 29–30.] If there is no sanction at any level, there is no guarantee that the auditors' recommendations will be implemented.

Mr. Cash

The hon. Gentleman is trying to pin blame on the Government. No doubt he regards that as his job. However, at the back of the Court of Auditors report in the Official Journal are the Commission's replies. This is an intricate matter but, when presented with the overwhelming evidence of its failures, the Commission's replies are, to say the least, inadequate.

Mr. Holland

I agree with the hon. Gentleman. Whether the Commission's replies start on page 257 or 265, which I read, they are anodyne in relation to the scale of the crisis that has emerged and the solutions that are needed.

One reason why the Opposition have tabled their amendment is to create a sense of urgency among those concerned in addressing the issues. If, at the 11th hour and 59th minute, one were to withdraw one's objections to the approval of the budget without a fuller implementation of the recommendations of the Court of Auditors, it might not be surprising. The Council is well known for stopping, the clock on many matters.

What is surprising is not simply that the Minister is not prepared to fight, but that he is not even prepared to appear to fight. All we are likely to get is talk, talk and talk again rather than real progress.

We do not agree with Sir John Hoskyns's assertion that Brussels bureaucrats are not answerable to any Parliament. I have some sympathy with Lord Plumb when he says that he is outraged by Sir John's ignorance and asks: Has Sir John been asleep these last 10 years while the directly elected Parliament has been at work? What I am concerned about is whether the British Government have been asleep for the past 10 years since they have failed to fulfil their responsibility to adequately scrutinise those public funds which are being expended by Britain's intervention agency which is located in Reading. That scrutiny has been inadequate and the Government should show far more urgency in addressing the problems.

7.52 pm
Mr. Michael Knowles (Nottingham, East)

I congratulate my right hon. Friend the Paymaster General on not taking the cop-out route of blaming the Commission, which Ministers have taken on previous occasions. That is the easy way out for any Minister responding to his national Parliament. Everybody enjoys having a go at the Commission, especially as it is not represented in Parliaments.

However, there is a real problem about the Council. In the end, the Council is responsible. It has to act and approve in many cases. The Commission can make suggestions to it. It makes many, the majority of which are not approved. If the Council is a cabinet the doctrine of collegiate responsibility applies and my right hon. Friend is its representative here tonight. But if it is a legislative chamber, as it is in many respects, it is unacceptable that it should meet in secret. No one knows what happens.

The problem is that the Council is a hybrid, but I suspect that the balance is changing. We are getting to the stage when something must be done about the Council. Indeed, something must be done about an awful lot of the Community's structure. Everybody knows that it is nonsense to have such a large Commission, yet every nation state wants to be represented. Every language has to be translated and enormous bills result. A great deal of money goes on translating every document. As everyone in the Community knows, the two working languages are English and French and everybody uses them, but, as a matter of national pride, no one will give up their language. Therefore, there is a problem with the Council.

The hon. Member for Vauxhall (Mr. Holland) made a point about deficiency payments. There is an argument for switching to deficiency payments once the agricultural population reaches a fairly low figure. That is not politically realistic; I cannot see other member states switching. Many good questions arose from the president's letter which he quoted, dealing with storage and technical differences between countries, with which I will deal later.

Mr. Holland

Why should deficiency payments be unfeasible as a longer-term objective? From another document before the House, on the European Coal and Steel Community, we see that urgent action should be taken to decide the future of the ECSC after July 2002. If plans can be made for that far ahead for coal and steel can we not plan that far ahead to change the system for agriculture?

Mr. Knowles

One knows the speed at which change comes about within the Community. However sensible or rational, on matters such as this, which require a unanimous decision, someone somewhere will use the veto; in some cases just so that they can be brought off. That is not completely unknown within the Council.

The great difficulty with the system, as emerged from an earlier exchange, is that every member state has an interest in fraud. It is in their interests to grab as much as they can, for fear that other people will grab more. That is a recipe for financial disaster. To be fair, the Court of Auditors has said that time and again. It was reinforced when the European Parliament discharged its report. The Commission has produced plans which go to the Council and then we come to next year's auditors' report. The problem is that the Court of Auditors is a stand-alone institution and has no power in its own right. Nor has any other institution at a level where it could have an effect.

In places, the report makes nasty reading. Chapter 1 in particular is fairly horrible. The way in which the Commission presented the accounts is its responsibility, but, to put it mildly, the Council shares responsibility for that. Amounts of almost 7 billion ecu were not charged to the account. Two months were paid for by member states resources, not by the Community as they should have been, so that people could say that there was only a small increase—under 4 per cent.—in the budget that year. That is true if one runs a 10-month year—it is always easy to make the figures balance in that way—but taking the year as a whole, there was an increase of around 25 per cent. in agricultural spending. The figures were massaged and disguised, and we all know that that was for political reasons.

On butter, other sums were lost—about 1.5 billion ecu. That is being amortised over the next four years. Members were owed almost 700 million ecu and that was postponed until this financial year. Chapter 1 is a real horror story for anyone who believes in accounting. I suspect that if that happened in this country, Treasury Ministers would have a very hard time from the House and especially from the Public Accounts Committee. Indeed, if any director of a company or any council did that to their figures they would find themselves inside a court very rapidly. Yet nothing happens here. We have here the problem, to which the court has drawn attention time and again, of the Commission over-budgeting. It happens every time because people are padding the figures. It gives them maneouvrability during the year to switch them about—and they do.

Mr. Cash

Does my hon. Friend think, however—this is a thought that has been occurring to me since we were recently together in Luxembourg—that when one considers and compares the situation of countries that build up a national debt and then get into a bit of a jam,one sees a certain similarity of approach? The real problem that arises here is not necessarily that they have got into a bit of a jam and there is a budget deficit but that there is quite clearly severe fraud which is not being pursued as vigorously as we would like, and that it is the accounting procedures which must be put right.

Mr. Knowles

If my hon. Friend will bear with me, I will come to the fraud question. I have some sympathy with the point he makes.

We have set up a system in which every member state has a vested interest in fraud. That is a recipe for disaster, and it is the implication of the system of shared management over agricultural funds especially. There are no common Community controls. It is all in the hands of the member states. The Commission pays out the money on the members' declaration and later there will be an examination and a justification. That is a nightmare. Again, as the court has pointed out, the Commission has not put enough resources into this area, and it should.

Agriculture affects the northern states more and co-financing affects the southern states more. There is just not sufficient audit of the regional and social funds. I think I am quoting accurately from the report when I say that they cannot trace the effect of Community expenditure. Admittedly, Commissioner Christophersen is getting more of a grip on the situation, but frankly he needs to get a stranglehold on it the way things are now.

Chapter 4 of the report, in particular, is a horror story. Paragraph 4.68 on page 76 reads: Two Member States (IRL, UK) refused to allow the Court access to scrutiny reports notwithstanding that these checks are required to be carried out under Community law. Then there are paragraphs 4.73 and 4.74. And so it goes on.

On page 193, "Reports and opinions adopted by the Court of Auditors during the last five years", we get a constant repetition. Some of us have read those reports over the years and the same things keep coming up, because the system itself is deficient. We have built a nightmare. People are responding to the problems in a human way, so we have to change the system to work with the grain of human nature and not against it.

My right hon. Friend said that the problem was the regime—I think that was the expression he used. I do not believe that it is. I think that it is more a matter of constitutional balance. The Court of Auditors stands alone as an institution. The European Parliament then discharges with recommendations, and so on round the circle again. We have to look at changes across the range of the institutions of the Community, including the size of the Commission and the whole argument over languages. Indeed, a debate to this effect took place in the European Parliament recently, of which, of course, no notice whatsoever was taken.

Mr. Marlow

While my hon. Friend is considering institutional change, I wonder if he would like to address himself to the question put by our right hon. Friend? Does he believe that Community institutions ought to have more powers of intervention in how the system operates for the expenditure of Community funds and how it is audited and controlled within Community countries, because without this I do not think that we shall get anywhere?

Mr. Knowles

I think that my hon. Friend is right, but I am well aware of the implications of the question he is asking and of why my right hon. Friend did not answer it directly. Without that, I am at a loss to suggest another answer. The system does not work when Community funds are, in a sense, accessed through national Governments. That is the problem. Therefore, the only way is to have the Community's own institutions being able to oversee that function. If someone can suggest an alternative——

Mr. Teddy Taylor

Would not the best alternative be for the Community not to have any funds at all and to concentrate on free trade? Would that not be the best answer for everyone and solve all the problems?

Mr. Knowles

The difficulty here—my hon. Friend knows the problem—is that the Community is much more than a free trade area. It was so designed in its very nature; it is written into the treaties. We tried a free trade area on precisely that basis and in the end we still had, or we decided—history can be written either way—to join the Community. That had massive political implications; one cannot gainsay that. The Commission has a curious hybrid function, part political, part civil service. In a sense, nothing like it has been seen before.

Mr. Cash

My hon. Friend is now getting very close, I suspect, to the centre of his argument. As a result of the previous intervention, he is conceding a point which I know he holds quite strongly, which is that some form of supranationality is required. But will he not accept that the treaty of Rome in no way, in 1957, in 1972 or indeed in 1986 with the Single European Act, prescribes, empowers or creates a political union? When we deal with the central question of finance and control over finance and concede that as a central point with reference to the control of public finance, we are effectively saying that we will have a political union.

Mr. Knowles

We have signed many documents saying that we are in favour of union, and it is not true. The preamble to the treaty referred to producing an ever closer union among peoples of Europe. The implications were clear, they were spelt out, and one has to follow through on the argument. We have a system designed to produce fraud on a massive scale. On the argument of sovereignty—here my hon. Friend and I disagree—we say that we will not accept those controls because that infringes sovereignty; therefore, we have to accept that we go along with the fraud. It is one or the other.

Mr. Marlow

If this is Community money, where is the infringement of sovereignty if Community officials are allowed to supervise it?

Mr. Knowles

I am with my hon. Friend; that is precisely my view, but it is not one that is shared by my hon. Friend the Member for Stafford (Mr. Cash).

Mr. Cash

Does my hon. Friend accept that one can have common standards by which the accounting procedures are administered through the national authorities, and have the bun and the ha'penny, too?

Mr. Knowles

I should live so long, is the answer to that. We have only to look at the report on common standards of looking after food or common standards across the professions—or even in the Court of Auditors itself, and there we are dealing with a professional body. To amalgamate the traditions of British public finance and the public finance of France, Germany and all the others has proved very difficult indeed, and there we have men working very closely in a similar field. They have found it difficult, so how one is going to do that across the 12 member states right through the professions I am not at all certain.

There was reference earlier to the Select Committee's recent visit to the institutions. It is interesting that in the run-up to 1992, the regulations covering public procurement will be enforced by the Commission. There will not this time be dependence on national good will and the hope that people will do it right, because they have learned the lesson; they know what has happened before when they have depended on member states to carry out a common policy. The truth is that the states do not do it, so the Commission has to do it for the Community as a whole.

The same argument applies to paying out Commisssion money. The same argument applies also to the Community's own resources; they are dependent on the member states. For instance, customs duties now all go to the Community, not to the nation states—they merely get a 10 per cent. collection fee. So what has happened? Are the nation states who control the customs officers rigorously collecting customs duties as they used to do when the money went into national treasuries? I suspect not. Customs officers have been diverted to other duties. They are looking more for drugs—we have heard the statements in the House. It applies across the board in the other countries. So the Community as a whole loses both ways. The member states will not collect the money for it properly yet the member states will spend that money like water. And we are surprised when we end up in financial difficulties. One could not have devised a system more likely to produce that result.

The answer is to look at all the institutions, their powers and their relationships to each other. We must think again. We must start talking both to the other member states and to the institutions. There is no point in throwing up our hands and merely saying that we are against fraud as we are against sin, but not following the implications of that argument right the way through. I suspect that the implications are much greater than merely making a saving of some millions or billions of ecu.

8.11 pm
Mr. Nigel Spearing (Newham, South)

I should like to begin on neutral ground by thanking the Paymaster General for his remarks about the reports of the Select Committee on European Legislation. We have three before the House tonight, one on the Court of Auditors' report which is to the fore, that is, HC 15-viii, one on the special storage report, 8502/88, to which my hon. Friend the Member for Vauxhall (Mr. Holland) referred, that of Mr. Mart and his colleagues, HC 15-ii, and the report on steel matters, HC 15-xi

We would all agree, although it was not mentioned by the Paymaster General, that we would like to see proper recruitment, adequate qualifications and good collection of the common Community tariff, also emphasised in the report by the Court of Auditors. One cannot expect a Court of Auditors, with which we all agree and which we praise, to work without proper recruitment of people with proper qualifications. If they are to be a "scourge"—I disagree with that word, for reasons that I shall give in a moment—they must have the tools of their trade, and it is the quality of the human tool that we all agree must be present in this case.

I speak now not as Chairman of the Select Committee on European Legislation, which produced the reports, which are there for the guidance of the House and the public, but in an individual capacity, although I do not do so in a controversial way. It is clear to us all that there are no inbuilt national incentives to detect fraud in the structure of these finances, particularly in respect of food. As the Paymaster General himself has admitted, there is an inbuilt incentive to defraud, both individually and on a national scale. He actually coined the phrase "fraudster-friendly".

Are we becoming a community fit for Arthur Daley to operate in, with its "little earners"? They are not little earners; they are big ones. I understand that some transactions in intervention stores go up to 5 billion a throw. That is not small money. Even a 5 per cent. fraud on such a sum involves a lot of money. So the Paymaster General has more or less given the game away—and he is an accountant. I was very surprised——

Mr. Brooke

I have been called many things in my time, but I have never been called an accountant, and I am not one.

Mr. Spearing

I must apologise to the Paymaster General. Perhaps I was misled by his official title. At least he is an experienced man of business. That would perhaps be a more adequate and accurate title.

The right hon. Gentleman is glad to hear, he says, of the introduction of value for money. Not many of us would disagree with that, but how can we have proper value for money before we have honesty and probity? Surely the best guarantee of value for money is to ensure that we have probity and honesty to start with. That is the normal auditing procedure for firms and organisations in Britain. If one gets a qualified report from an auditor, things begin to happen—unless, of course, it is the Court of Auditors of the European Economic Community.

This is where I disagree with the Paymaster General when he talks about the court being a scourge. He says that we should let the court remain the scourge of the fraudster. What has happened is that the Court of Auditors has blown the whistle, not just once but every year for the past 14 years, and play goes on. It is not the role of the Court of Auditors to chase fraud; it is there to show where fraud exists. Is that not the function of an auditor? So the promotion of a fraud squad inside the Commission, while it may, on the face of it, seem praiseworthy, will work only if that fraud squad, and the auditors, have sufficient evidence on which to work.

I suggest that the court reports show not just that things have gone wrong and that there is fraud but that there is no structure for the prevention and detection of fraud. That must be our major criticism of the food intervention and export structure of the common agricultural policy.

On the European investment bank, paragraph 1.46 of the court's report says: With regard to operations financed from Community resources in which the EIB is involved to varying extents, the Court is justified in fearing that, due to a lack of watchful action on the part of the Commission, its task as a higher external audit authority will gradually become meaningless, if not impossible. The Paymaster General said a little while ago that he would not blame the Commission. That is what he said when I intervened at the beginning of the debate. If for nothing else, surely the Commission could be held responsible for that. It is an extraordinary statement. It is obviously true. The Council must do something about it, and so must the Commission.

Turning to the question of food, which is exercising the mind of the public and the media at the moment, nearly everyone agrees that the CAP needs reform in principle, and all pay lip service to the elimination of fraud, but nothing seems to happen. Why? The answer lies in two distinct but overlapping dimensions: the system, or lack of it, of book-keeping, and its management and supervision by both national and Community authorities. If fraud is to be discouraged, let alone eliminated, there must be both an adequate built-in system, matched to the nature of the transactions and the markets, and effective audit, together with an overlap or junction between the national and Community auditing authorities.

The evidence, however, suggests that neither of those conditions exists. No doubt the Commission would say that it is the fault of the Council and the Council that it is the fault of the Commission. The concept of a joint committee and national management lies at the heart of the issue. It has been referred to by Government Members. If, like me, one is keen on the retention of national competence, how far can one go in ceding authority to the Court of Auditors of the EEC in respect of these matters? Quite rightly, the Paymaster General himself has put that question.

Even if one agrees, as I do, that the nature of joint management must gain the assent of national Governments, surely that right cannot go as far as denying the installation of joint effective management procedures that would provide and control audit quality no less than that expected by any nation in respect of its national institutions or companies. Surely that is self-evident, yet I am afraid that such procedures are what we have not got. Surely, provided that satisfactory controls and systems are in place within a nation, its central Government need not know everything about what is going on and all the individual transactions. But where those controls and systems are not in place, can such information be denied to appropriate bodies? I will come back to that point at a later stage.

Why is fraud rampant in food storage and in the export activities of the EEC? It is because, within the complex transactions, there are no inbuilt dials and gauges to tell us what is going on. Unlike our own firms and organisations, the EEC did not have them built in from the start. When one looks at company accounts, or makes checks in any organisation with which one is familiar—even a tennis club—one finds them. But an audit is only as good as the evidence available to the auditor. If the evidence is inadequate, the opinion is also inadequate. Time and again the Court of Auditors tells us that it does not have enough evidence, so it has no opinion. The accounts are not just qualified; they are found to be unacceptable—except, of course, to the Council of Ministers and the Commission, which merrily discharge them year by year.

This would be totally unacceptable in the case of any social club, shop, works or store in this country, where committees and managers know all about the inbuilt principles of auditing and checking. There is the visible reconciliation of evidence of purchase and the cost of storage in appropriate conditions, including temperature and protection against misuse, moisture and insects. Then there are such factors as access, visibility for checking, elimination of the risk of adulteration—for example watering beer; sale in checkable quantities—for example pints by the glass; and assured quality, as in the case of proof spirits. This has to be backed by matching book-keeping, complemented by schedules of quantities and locations—all subject to regular and, on occasions, irregular audit. Every working men's club in the country, and, no doubt, Tory clubs and golf clubs, too, will know what I am talking about, as does every restaurant and cafe. It is something that most people understand.

Mr. Christopher Gill (Ludlow)

Of course, we are not talking about working men's clubs or Tory clubs, or clubs of any other sort. Will the hon. Gentleman take it from me that, because of the very nature of the commodity, it is probably a practical impossibility, even with hundreds or thousands of inspectors, or auditors, or whatever other form of system of control might be installed, to control it? Its control has defied very many people over very many years. I submit that, where there is no personal interest in controlling such commodities, the sort of fraud that is being experienced now will always be with us. The fault lies in the system, not in its control.

Mr. Spearing

I think that the hon. Gentleman is partly right, but food is particularly difficult to store and to sell because it varies in quality and in quantity—for all the reasons about which he and I would agree. I go with him to that extent, but I disagree with him in that safeguards were not built into the system at the start. The Mart report refers to this. That is where it has gone wrong. Unless and until such safeguards are inserted, fraud will not be detected and there will be every incentive to commit it. That is the essential fact that this House, and, moreover, the Council of Ministers and the Commission must grasp. At the moment they have shown no sign of doing so. Of course, no system is perfect, and there are difficulties in respect of food. But there is an obligation on public bodies to use public money in a responsible way, as I am sure the hon. Gentleman agrees. That is not being done.

It is clear from the evidence that safeguards such as I describe, visible in tens of thousands of enterprises—I will not say clubs—in this country, do not exist within this system. It is even more complicated than the transactions in a restuarant. Instead of the customer paying for his food or drink and consuming it on or off the premises, he makes a bid for surpluses advertised for tender. The person submitting the lowest tender takes away the food, claims to have exported it, in certain quantities and of certain quality, to particular destinations, and, having done so, goes back to the shop with bits of paper and gets up to five times what he paid for the goods.

That, I believe, is a crude, but not an unfair, description of the principles of export restitution as operated in the EEC. Each nation has its own food shop, checked by its own Government. The net expenditure for purchase, storage and export subsidy comes on repayment from the EEC, but not necessarily in the exact amount. However, the Court of Auditors, in its annual and special reports, tells us that the system is wide open to abuse. More regulations on top of the system that we have will be about as effective as corking a leaking boat with paper, since we are told that sufficient evidence is not available. We have to refashion that craft before we can stop the leaks.

Hon. Members may think that I am exaggerating, so I shall turn to the words of evidence from the reports themselves. Special report 8502/88, which for the purposes of the debate I shall call the Mart report, referring to food storage, says: The conclusion that inevitably results from these findings is that it is technically impossible to arrive at any audit opinion whatever, on the view presented by the EAGGF budget accounts, of public storage expenditure. One cannot get anything more blunt than that. The report, in paragraphs 6.13 and 6.14, goes on to show why the system is basically defective. I will save the time of the House by saying simply that the report points out that the system was introduced in 1960 as a temporary measure and that it was unsatisfactory but that nobody wanted to change it and that it is now ingrained. That is clear from the reports of the Court of Auditors.

Paragraph 7 on page 64 of the report says: The charge borne by Member States in respect of technical and financial costs of public storage for the financial year 1986 can be conservatively estimated at about 450 Mio ECU. The result in terms of published financial information is that the official Community accounts do not reflect any more the full costs of the Community's intervention storage policy. That can only mean that nobody knows how much officially, it is costing. Although we may know how much is charged to EEC institutions, we do not know how much each national Government is having to tip in as well. What a situation we are in.

Let me go on to the court's report itself and out of intervention into export restitution. Some of the problems have already been mentioned. Paragraph 4.21 says that the nomenclature for export refunds contains more than 1,200 separate classifications for agricultural produce, including almost 400 for milk products and about 80 for beef. We have to repay, for that little chit that I talked about, no fewer than 80 varieties of beef. It is open to enormous fraud. It is exported to 11 zones throughout the world, so for beef alone there are probably about 800 schedules. The Paymaster General will tell me if I am wrong, but that is what the paragraph says. No wonder, if there are 800 scales of repayment, that there are incentives for fraud. The Paymaster General has the cheek to say that future regulations must be simplified. That is no use, for we must first deal with the existing regulations that provide such a structure.

Paragraph 4.33(b) complains about the lack of spot checking, stating: even where arbitrary national scales of examination have been set, they are not always adhered to by the customs services. Some customs stations had recorded examination rates as low as 1% without an apparent justification". The Commission, to its credit, had a go at persuading countries to adopt a minimum 5 per cent. check rate, which is still not very high. We read on page 258, presenting the Commission's replies—and I have some sympathy for it, and do not wish to be unfair—— At the beginning of 1987 it sent the Council a proposal for a regulation on the monitoring of the payment of amounts granted on export of agricultural products (COM(87)9 final). I looked up that document, and it says, "Let's have 5 per cent. checks," but the nations will not agree.

Mr. Marlow

On another and related point, can the hon. Gentleman tell the House—I think he knows more about Community affairs than anyone else—what action is taken to mark and identify a consignment that leaves the Community so that it cannot come back into the Community in the dead of night and be re-exported again?

Mr. Spearing

My knowledge does not extend that far, but the hon. Gentleman puts his finger on a flaw in the structure. I read somewhere that several thousand lorries are running all over the place—and we all know what happens to containers.

Mr. Dennis Skinner (Bolsover)

My hon. Friend is well versed in matters concerning the Common Market, which has been an unmitigated disaster for the British working people from start to finish. As to lorries crossing borders, it is true that they go back and forth, and that, each time they do so, the amount of money that can be made through fraud is increased. In Ireland that fraud is perpetrated on a slightly different scale. Not only do lorries cross the border, but cattle are being driven back and forth. Every time that the cattle cross the border, their owners get extra money. They are doing it that often that the cattle are finding the way by themselves.

Mr. Spearing

My hon. Friend is right, and I recall that practice being mentioned in a previous report of the Court of Auditors.

Mr. Skinner

Yes, the court admitted it.

Mr. Spearing

The Paymaster General should consider also the situation in this country. If we are to make any fuss in the Council, as we ought to do, we must first ensure that we are behaving properly. I am not sure that we are. Intervention buying in the United Kingdom is not the biggest in the Community. HC 137 of 1988–89—"Intervention Buying: Accounts"—shows that in 1987 we had £376 million of butter in stock, and £122 million of beef. I do not know whether those quantities were physically checked on 31 December 1987, and later I shall ask the Paymaster General a question about physical checks.

However, intervention board report CM404 for 1987 reports: The Board's external trade verification and scrutiny team visited 208 traders during the year to check declarations against company records. As a result financial adjustments were recommended in 74 cases, involving recovery for the Board of £434,713. The report refers to "company records", but not to any check against actual stores. I am not sure that such checks are made. When the Paymaster General replies, I hope that he will say whether continual physical checks are made by the intervention board, or whether it relies on its contractors to do so.

Mr. Cash


Mr. Spearing

I am sorry, but I must move on, because I wish to present several more items of evidence. No doubt the hon. Gentleman will have an opportunity to speak later.

I turn to the 30th report of the Public Accounts Committee for 1987–88, where reference is made to Customs and Excise. If the system is to operate properly, there must be proper inspection at ports. However, paragraph 2(iv) states: We consider that the absence of inspection facilities at some ports is unacceptable. How can one run such a system without any certification at ports? Paragraph 2(vi) of the Committee's report adds: We are surprised that, in the absence of satisfactory C&E records for CAP examination, IBAP"— the Intervention Board for Agricultural Produce—— can be satisfied with the evidence about the level of examination. In other words, the Committee spotlights a weakness in Customs and Excise.

I have some surprising statistics for the House. The United Kingdom comes fourth of the Community countries that benefit from export refunds. At the top of the list is France, with refunds totalling 3,074 mecu. The Netherlands come next, with 1,777 mecu, and Germany third with 1,445 mecu. The United Kingdom ranks fourth, with refunds of 880 mecu. When one considers that the French market is worth £2,000 million per year, those amounts fall into perspective.

It is also significant that the three countries that top the list have a total of 25 votes in the Council. As right hon. and hon. Members well acquainted with the EEC will know but others outside the House may not, 23 votes can produce a blocking third. Any amendments to the rules of the kind that we want to see will have to achieve a two-thirds majority, which could be blocked by the top three countries if they so wish: I am not claiming that they do, but they have that capability.

I have three questions for the Minister. First, does he think that physical checks take place at stores, and that there is a sufficient number of them and that there are physical checks at ports? The evidence of both the Court of Auditors' annual report and the special report suggests that the Paymaster General cannot answer yes to those questions. Secondly, while I understand the right hon. Gentleman's reticence in respect of an earlier request for information, if the Community's audit authority wants information from a national authority, is there not, by contract as it were, an obligation to assure the court that there is an adequate domestic audit procedure or, in the absence of such a procedure, an obligation to provide any necessary facts? It is clear that, alas, we do not have a satisfactory domestic audit procedure.

Thirdly, does the Paymaster General accept the amendment that is on the Order Paper? He cannot say that it is a criticism of the Commission. It is not. It could be interpreted as backing it up. Whatever may be the failures of the Commission—and some of its replies are pretty pathetic—at least it has set up a working party to consult national Governments. Would it not be wise to await the results of that working party, and to discuss those findings—I am not saying that we should accept them—before recommending a discharge of the accounts to the European Parliament, as the treaty provides? That would not only be sensible and wise but would be an action of probity and honesty, and would at least satisfy the people of this country, who are growing increasingly worried at the situation.

The power of this House was founded on, and can only be sustained by, the power to vote money and to scrutinise expenditure. The Paymaster General and the Government should do nothing less at the next meeting of the Council of Ministers on this subject.

8.39 pm
Sir Richard Body (Holland with Boston)

I hope that the hon. Member for Newham, South (Mr. Spearing) realises that the House is much in his debt for all he is doing as Chairman of the Select Committee on European Legislation and for his diligence on this and other EC matters.

Having struggled through most of the 300 pages of the auditors' report, I was left with the desire that Sir John Hoskyns, a fair-minded man, might be persuaded to give enough time to read this report and especially to read that horror story, as my hon. Friend the Member for Nottingham, East (Mr. Knowles) described it, in which 18 per cent. of the Commission's expenditure in 1987, the year with which we are concerned, was unaccounted for. I should like to think that, if Sir John read the report, the next time he had any comments about the Commission, they would be less charitable and generous than they were when he spoke at the Albert hall the other day.

My right hon. Friend the Paymaster General has invited the House to give its opinion on whether there should be a supranational authority to police the expenditure under the common agricultural policy. It seems that logic is driving us in that direction. I have never been a friend of the common agricultural policy. To me, it seems that it was devised by the devil when he was inebriated, but I am in favour—as I hope all of us are—of international co-operation on a number of agricultural issues.

I wish that my right hon. Friend would realise the tremendous potential we have towards that end in Europe through the Economic Commission for Europe. I find it sad that the Foreign Office had turned its back on that institution, which, after all, has the support of almost every country in Europe and certainly every country that is a member of the United Nations. It is uniquely qualified to do some of the tasks that all hon. Members would wish to see done in international co-operation on certain agricultural issues.

The common agricultural policy is, of course, supranational. That is why it is inherently wrong and why it has a number of built-in mechanisms that are unmanageable. I cannot see how we shall ever manage it. If we wish to have a common agricultural policy and if the House is willing to surrender its powers over agricultural policy, we must recognise the inevitable consequence that there will be endless fraud because billions of pounds are sloshing around in the funds. As all the mechanisms are so complex, it is extremely difficult for anyone to understand.

For some time I have, for a particular reason, been studying some of the agricultural reports. I have been a farmer, and have had the advantage of practising at the criminal Bar for 20 years and taking on many fraud cases. But even with those qualifications, I found it difficult to comprehend the frauds. We cannot expect our own police force, overworked as it is, especially the fraud squad, to embark on that work and it would not have the will to do it. Our own Government, recognising that we are one of the main beneficiaries of the refund system, would have to be willing to give the police the necessary resources.

Given the great complexity of the frauds, I am driven to the view that if we want to do something—which will only scratch the surface—it will be necessary to have a team of supranational officials based in Brussels. I hope that it would work under the auspices of the Court of Auditors, the one institution over there in which one can have faith. The force would have to be drawn from all the countries and would have to have the right to come here and look at the books, to pursue matters and to act as a supranational police force.

Mr. Cash

Does my hon. Friend agree that what he is describing is similar to the operations of Interpol? However, the co-ordination required in following fraud, especially in an area such as the Community, presents certain complications. Under the present system, the ultimate prosecution is left to the national authorities.

Sir Richard Body

I agree. I am wholly in favour of Interpol. As an international framework, it is wholly desirable, but it is made up of individual police forces co-operating with each other when their interests converge. That is admirable, but it is not the same as the issue here, when we are dealing with a supranational policy, where supranational funds are involved, where far too much money is available for the purposes and where, inevitably, sticky fingers are trying to get hold of it.

That is why I said that if we want to deal with the problem—and we shall never truly deal with it, because it is too vast—and if we want to try to do something, I am driven to the view that we must have a team based on Brussels under the control, I would hope, of the Court of Auditors, recruiting detectives and accountants internationally and with the power to go throughout the Community. It would need to have powers to match those of our own police force and it might be necessary to go further and to have supranational courts. That seems to be the logic if we decide to go along the supranational road.

Mr. Alan Meale (Mansfield)

Is the hon. Gentleman aware that there are also plans to lessen the customs procedures across the boundaries of member states? Does he not think that it is madness to proceed with such a stupid measure at a time when such vast amounts of fraud are being perpetrated on the Governments of member states?

Sir Richard Body

Indeed, I am at one with the hon. Gentleman on that. The House and our Government must make up their minds about which way they want to go. They have the power, as I have said on numerous occasions, to disengage from the common agricultural policy.

Were they to take that step, they would undoubtedly succeed in causing reforms for other countries, which would be to the advantage of the whole Community. This country, more than any. has it in its power to do something about the common agricultural policy. It is uniquely able to do that. Sad to say, the Government do not have that will at present. I wish that they had the resolution to disentangle this country from the common agricultural policy. As long as we go along with the common agricultural policy, which is essentially supranational, and if we want to work supranationally, we must have a supranational police force to check the frauds to some extent. However, given the complexities, I do not believe that we shall ever see the end of the great frauds that have been committed over the past few years. They will continue despite the assurances that my right hon. Friend sought to give us.

8.48 pm
Sir Russell Johnston (Inverness, Nairn and Lochaber)

In one respect, this debate represents an improvement on our last debate on the Court of Auditors' report, which also took place on 2 March. The Minister may recall rising to his feet at 1 o'clock in the morning on that occasion, and the degree of liveliness that hon. Members exhibited was perhaps slightly affected by the lateness of the hour. This time, we are conducting our debate at a more civilised time.

Nineteen eighty-seven was an exceptional year in terms of the Community's finances. I hope that it will have been the last year in which the Council was late in agreeing the budget, with the result that the previous year's budget had to be extended temporarily, a month at a time. We very much hope that that measure will not need to be used again. The second half of 1987 also saw the implementation of the Single European Act which, among other things, greatly improved the decision-making procedures.

As hon. Members have already said, it is right that we should congratulate the Court of Auditors on an extremely detailed, thorough and forthright report. Some hon. Members remain highly suspicious of all things European, but it is clear that the Court of Auditors is a very effective institution. The Community does not consist of a closed conspiracy of empire-building Eurocrats. It has open institutions that are capable of self-criticism which, on occasions, they conduct extremely well.

I, too, propose to criticise the Commission during my short speech, but I hope that my criticism will be constructive. With respect to the hon. Member for Holland with Boston (Sir R. Body), I thought that Sir John Hoskyns made an extraordinarily loose speech, designed simply to bring the Community into some disrepute—for what reason, I am not very clear. He also took a long time to make such a statement—but I shall not be diverted into talking about him.

It is unsatisfactory that we should be debating the report so long after the year with which it deals, but the debate will at least concentrate our minds on the need to respond—and to respond more effectively than the Government have so far seemed to be responding.

In our debate on the European Community last Thursday, I said that I felt that only the European Parliament could undertake such activities, and I continue to hold that view. The concentration on fraud in the Community is largely due to the constructive, diligent, patient and repetitive work of the European Parliament.

The myth persists that the British taxpayer single-handedly supports the European Community. Page 219 of the auditors' report carries a colourful table from which one can establish that, in fact, we were the second biggest recipient of funds from the structural fund in 1987—receiving 1.2 billion ecu. The United Kingdom's total receipts from the Community were 3,121 mecu. Our contribution—even before taking into account the abatement—was 5,305 mecu—only 55 per cent. of the contribution made by the Federal Republic of Germany. I do not think that we shall hear the Germans complaining in quite the same way about what they pay into the Community, because they feel more than compensated for their contribution by the huge benefits to their industry.

Mr. Cash

The hon. Gentleman may or may not have taken part in the debate on the structural fund directive the other day. It is clear that of the 14 billion ecu to be made available by 1992, 9.2 billion will go to Greece, Portugal, Italy, Nothern Ireland and Ireland, as well as the French overseas departments. The proportion that will go elsewhere—to countries other than the United Kingdom—is therefore somewhat different from the proportion in the picture that he painted.

Sir Russell Johnston

I can only say that I have been citing figures in the report, which referred to 1987. Perhaps we are talking about two different periods, although the hon. Gentleman is right to say that in the most recent round the majority of money went to the Mediterranean countries, particularly Greece and Portugal.

While on the subject of the structural fund, let me point out that the Minister did not respond when I referred to the Chancellor's Chatham house speech. I do not have the cutting on me, but I remember accurately a report of that speech and the questions that the Chancellor answered after it in The Guardian. He was asked about regional policy and the diverting of resources to less favoured areas and replied that he thought it was "positively damaging". It is evident that the Chancellor does not believe in regional policy, although that is not a new thing for him. In 1962 or 1963, before I was elected to the House, I read an article in The Financial Times by the right hon. Gentleman—then a journalist—in which he referred to the "liberal illusion of regionalism". I remember that clearly. At least the Chancellor has been consistent, although he has not been consistent with the Brussels agreement, which increased structural funds and which the Government supported.

Before dealing with fraud itself, I must express my view that for us not to apply the additionality rule to the regional structural funds is a form of fraud. The whole idea of having regional funds at all is to give extra money to deprived areas, but all we have done is to use them as a method of substituting expenditure rather than adding to it.

As we work out the cost of Europe—and I am not talking about fraud here—we should remember that there is also a cost of non-Europe, to be found, for example, in the waste that has resulted from not having a single European market. That cost is difficult to estimate, but some have suggested that it might be nearly five times the Community's present budget—perhaps £126 billion.

The question of fraud has rightly dominated the debate. Many hon. Members already said that the report contains some terrifying passages. Paragraph 4.15 on page 67 of the report, which deals with member states' declarations of expenditure, says that they bear only a tenuous relationship to the actual level of the underlying expenditure. Its analyses, showed, for example, that the average error rate of quantities declared as having left public storage, which determine the losses on sales from intervention to be made good by the Community, was as high as 45 per cent. Paragraph 4.17 concluded: In the absence, taken overall, of adequate independent physical stocktaking and quality control arrangements in the Member States, in the Court's opinion no reliance can be placed on published figures for the quantities and values of products held in intervention storage at the end of the financial year nor on the related expenditure in the year. It could not he much more devastating than that. Inevitably much of our discussion has related to whether we can do anything about it, and if we can do anything about it, what is the best mechanism. The hon. Member for Holland with Boston reluctantly said that we may well have to have a supranational body to deal with the matter as effectively as possible. I agree with what the hon. Gentleman said, and although I know that it is not his natural position, it seems inevitable.

Despite what the Minister said, I am puzzled about what Lord Cockfield said in another place. The Minister made a short statement on the matter, but I was not much clearer about it when he had finished his statement than before he started it. As I understand it, he said that Britain did not veto the anti-fraud proposals from the Commission, but everyone voted against it, suary Lord Cockfield was wrong. On 14 February, Lord Cockfield said exactly that: that not only Britain but all the member countries have voted against it.

I am not clear why that was done. Lord Cockfield obviously considered that it was a good proposition that would enable the Commission to conduct investigations In a way that is not available to it at present. I should like to know why it was opposed. The Minister said that it was an inappropriate measure—a dreadful Civil Service expression that one hears from time to time. When they do not want to tell you why something was done, they tell you that it was inappropriate and that does not mean anything.

Since that was done in 1986, about two and a half years ago, why has there been no follow-up? Why did the Commission just give up? I do not understand that, nor do I understand what the Commission wants in addition to the existing fraud squad established in 1987, the strength of which was doubled as recently as January this year. What did the Commission want to do which the member states unanimously prevented? That is extremely relevant, particularly since fraud on such a scale has been uncovered and, as has been said, the Court of Auditors has pointed out evidence of fraud for many years but no action was taken.

The popular press has given the impression that the United Kingdom is on the march. The Times said: The Prime Minister is spearheading a drive against fraud". It seems to me that the Prime Minister has not been spearheading any drive against fraud and that the United Kingdom, along with the other member countries has not been doing anything about it.

To return to the European Parliament, one of the British members of the Court of Auditors explained the action of the Commission as follows: The Commission was feeling harassed by the European Parliament on the subject of fraud, and were looking for a buffer to protect themselves from the sniping. That reading of the situation was supported by Robert Cotterill in The Independent on 9 February, when he wrote: The emergence of fraud as a significant issue at ministerial level of the European Community brings to a climax a year of patient groundwork by the budget control committee of the European Parliament. In other words, the drive seems to come from the European Parliament rather than from within the Council.

It may be, as the hon. Member for Newham, South (Mr. Spearing) pointed out, that the top three recipients of intervention were not liable to take the lead in controlling this matter. We were fourth in the league, so perhaps we were under similar pressures.

Mr. Skinner

We just got pushed out of a medal place.

Sir Russell Johnston

I am afraid that the hon. Gentleman's remark was too subtle for me.

Mr. Skinner

The hon. Gentleman is a bit before or lately. He does not know whether he is coming or going.

Sir Russell Johnston

At the moment, I am standing still.

In one of the many sections of the report, paragraph 10.102, there is criticism by the Court of Auditors of the Commission's involvement in subsidising a television channel. It was an extraordinary exercise on the part of the Commission. In October 1986, it agreed to grant a subsidy of £1 million ecu to a television channel. It failed, and the Commission is still trying to get back the money. The auditors say that the Commission did not verify as it should that the recipient's financial basis was sound. In many respects it appeared to behave like a babe in the wood. I question the basis on which the Commission subsidised a television channel. There are many points that one could make. It appears that the Commission took the wrong course. It would be interesting to know what the position is now and whether it has been successful in recovering our money.

The report is chastening. There has been widespread fraud and incompetence. The Court of Auditors deserves to be congratulated on the way that it has focused our attention on the problem. The Government are beholden to work vigorously with other member states to do their best to prevent further serious abuses.

9.6 pm

Mr. Tim Boswell (Daventry)

I am grateful for the opportunity to make a brief contribution from a long-standing pro-European viewpoint. As hon. Members have said, the European Community of 12 is an imperfect vessel. Any body with such a large membership must have some diffusion of decision-making and accountability, but, at the hon. Member for Inverness, Nairn and Lochaber (Sir R Johnston) said, there are compensating benefits. I often regard myself as being in the position of Galileo who, after sore torment, reflected on his views on the earth rotating around the sun, is reputed to have muttered, "But yet it does so." It still works in that sense.

In much the same vein, even though it does not do a perfect job, the Court of Auditors' report adequately delves into some of the murkier parts of the Community budget, and the common agricultural policy in particular. We must still get total European expenditure into some context. It represents only a tiny fraction of the total public spending of member states. Even if the whole lot were to be defrauded or wasted, it would still represent only about one year's increment in national Government expenditure. At the same time, all hon. Members must admit that we still do not know how big is the incidence of fraud, yet we can say the same about domestic crime. We would be able also to say that, just as an increase in reported crime may reflect an increase in reporting, an increase in fraud may reflect improvements in auditing systems. It is difficult to tell which is which.

I counsel the House against one possible blind alley. From my experience of the workings of the CAP, I know that there must be a strong temptation for auditors to opt for soft targets. Paradoxically, by that I mean those member states which tend to have the best developed administrative systems and the highest traditional levels of compliance. The House will realise that I am hinting at the countries of the northern tier in the Community, including ourselves. Of course, things can and do go wrong with public money in Britain, Germany and France, but but there is some hope for putting them right.

The position is no longer hopeless south of the Alps. It is possible, for example, to use satellite imaging to count the number of olive trees which evidently grow in such remarkable and heavily subsidised profusion in countries such as Greece and Italy. Hon. Members will appreciate from the experience of milk quotas in the latter—which, after five years, are still not in full operation—that some Community members are more equal than others.

To put it bluntly, if the European auditors were to nose about in the accounts of cereal intervention stores in the United Kingdom, the worst that they might encounter—and I do not think they would encounter obstruction—would be MAFF, but if they did it in Italy they would be running up against the Mafia.

There are three levels at which our common objective of achieving a cut in fraud under the common agricultural policy could be achieved. The first is simply to cut off some of the excess public funds going into the agricultural sector and the CAP. That would be a matter of policy changes, and some hon. Members who have spoken have not given sufficient weight to what has happened so far.

There is a considerable way further to go yet, and I readily admit that in the current year the savings, of about 2 billion ecu, have had a great deal more to do with the American drought than with the measures that have been taken. Those measures have been worth while, but they have not solved the problem.

It is remarkable this year that, because of the drought, we have got back to the budget as well as to the guidelines. It would be wrong not to acknowledge the efforts that have been made to empty the intervention stores, even if we had to knock out the excess stocks to do it. They are now empty, or much more empty than they were, and it is in the interests of everyone to keep them that way. Intervention must revert to the original concept of a case of last resort and not the regular way of doing business.

Mr. Teddy Taylor

My hon. Friend does not believe that, does he?

Mr. Boswell

Yes, I do.

That is the first line of defence: the auditors' and the Select Committee's strictures. Next, fraud can be diminished if the distinctions between the agricultural regimes applying between member states can be reduced. The point of much that was said about the beef regime in the auditors' report is that people profited from the wide disparities between the internal price of beef and the export price, and therefore the refunds.

In the same way, traders profit from the large distinctions that exist between the effective prices in member states. Naturally, this is largely connected with the issue of monetary compensatory amounts and border taxes arising from the different rates of the green currencies.

To some extent the same has applied to special arrangements such as the beef variable premium in the United Kingdom, with the consequential clawback on exports. It has also applied to certain animal health matters. Although there will have to be exceptions in, for example, animal health, I welcome 1992 as a move towards removing further internal occasions for fraud, because it will reduce the differences between member states and the prices farmers in them receive.

At the same time, a quid pro quo is to have an effective Community action squad in place, and the debate has been interesting in taking that concept further than simply the Commission's internal procedures. It may have to be a police force. I was interested in the exchanges about customs forces because, if 1992 is to mean a withdrawal of Community frontier controls, the logic must be Community spot checks at any point within the area of its responsibilities.

I commend the efforts of Her Majesty's Government to put some of those controls in place, although I acknowledge the view held by many people—I have some sympathy with it—that they do not go far enough. I am always concerned, when we are considering regulations, that there should be adequate resources for policing. I would add to that adequate resources within the Intervention Board for Agricultural Produce, to account and monitor and to check its own activities. There have been some signs that it has been inadequately staffed.

The fraud that has been clearly set out in the reports is an extra tax paid by legitimate Community taxpayers such as ourselves to persons unknown. None of us should want to rest in our efforts to remove the occasion for fraud and to provide adequate resources that would make it no longer worth while.

9.15 pm
Mr. Dennis Skinner (Bolsover)

I listened carefully to the hon. Member for Daventry (Mr. Boswell) who I believe could be described as a pro-marketeer, even after all these disastrous years since we had that fateful vote in this place on 28 October 1971. Then we heard the cries of the people like Roy Jenkins, now in the other place, who talked about what would happen when we got into this wonderful market, how we would get economies of scale, how unemployment would fall and everything in the garden would be rosy. He was followed by people like Shirley Poppins and Dr. Death. They were all in the same bed then. They marched into the Lobbies behind the last Tory Prime Minister, taking us into the great nirvana. Everything would be all right for everybody.

Every so often we have a debate in the House which tells us the bald unvarnished truth. There are a few hon. Members on both sides of the House who refuse to give in on the Common Market. When we read the Court of Auditors report, we see the Common Market with all the veneer stripped off. What do we see? We see fraud on a scale that would not be countenanced in this country. If anything of the kind perpetrated in the Common Market was done here, people would be in gaol.

From what I have heard today from hon. Members who reckon to be in the know, including the hon. Member for Daventry who is a fanatical pro-marketeer, this thing started when Roy Jenkins was the head of the show. He came back with a big fat pension. What did he do about fraud? All we can gather is that it has grown almost every year, imperceptibly, until, according to the Prime Minister the other day, about £2 billion is being paid by the British taxpayer, to fill the claret glasses of those in the Common Market.

It is not to feed the Third world, as they said it would he when we went in to the Common Market. It was a grand great strategy to fill the bellies of the spindle-legged kids in Ethiopia, who we saw on our television screens. They do not have two halfpennies to rub together. These great strategists who are now members of the SDP and the SLD and the Liberals and all those in the party that dare not speak its name, told us that the Common Market would solve all those problems. That is why it is in my guts.

The Common Market has been one of the biggest confidence tricks ever perpetrated in this country in my lifetime. I hear about the £6 billion of fraud. In one newspaper it says £17 billion. They cannot even calculate it. It is like having a train robbery every week. But nobody is getting 30 years inside. Nobody is told, "Hey, just a minute. You cannot run away with money on a scale like that." Just imagine.

Then we pick up the paper and read about some old-age pensioner in Britain who does not know which way to turn and is caught in Marks and Spencer pinching a tin of pilchards and put inside. A disabled woman in my constituency was chucked in gaol because she could not pay her television licence. Then we hear hon. Members saying that the Common Market is grand and lovely, but turning a blind eye to the fraud on a massive scale.

Then a Tory has the gall to say, "Oh yes, I have discovered it as well." Sir Henry Plumb rips up his director's card, and God knows what else, because somebody in the higher echelons of the Tory ranks is prepared to open his gills about it. Some of us have been prepared to do that for a long time. The television companies should do something about it. Let us have one television documentary a week on fraud in the Common Market. Why are the television companies not delving into things to find out who the guilty people are?

I have been told by someone who has been on the continent about £2.5 million-worth of goods being on a ship and, when a crate of beef was opened, chicken offal was found underneath. That is one of the tricks. Some people are making money hand over fist. The Mafia are moving in on a big scale. I am told that there are olive trees that exist only on paper. The authorities have been searching for 3,000 olive trees in Italy for the past three years. We are paying money out on those olive trees day after day. What a scandal. Then the Government have the cheek to talk about surcharging Labour councils, not for fraud but because they are providing goods and services for the elderly and disabled. In their efforts to provide services, councils are going to great lengths, but not fraud, so that the people can have a decent existence.

The whole thing is ready made for Del Boy and George Cole. All the ingredients for fraud are there. It seems that people who go across to the Common Market cannot fail to make money on the side. So we have not got the jobs or the money for the regions. The other day my hon. Friends told the Prime Minister about the massive pit closures in Nottinghamshire, Derbyshire, Yorkshire and Wales. The Common Market was supposed to resolve all that, but we cannot even get money for the regional policy. Why? If there is £17,000 million of fraud, we are not likely to get money for Wales, for shipbuilding in the north-east or to keep pits open. It is a sad commentary on what has taken place in the 18 years since the vote in 1971.

Other hon. Members want to speak. We shall come back to this. In the meantime some of us have a job to do—to make it clear to the nation that there will be a body of people here, representing large sections of the population, who believe that it is our duty to expose the fraud, always in the knowledge that the Common Market has been an unmitigated disaster for Britain. Some of us will work night and day until we get out of the mess. We will never surrender the belief that the Common Market has been a complete and utter waste of time and money. On we go, with councils here being attacked because they are providing services. Lambeth, Liverpool and other local authorities are being surcharged, yet the posh bureaucrats can get away with fraud in countries throughout the Common Market.

I do not know what the chairman of the Tory party will say in reply to the debate. Will he answer one question? Can he give me a guarantee that some of that £17,000 million of fraud has not gone into the Tory party coffers?

9.23 pm
Mr. Christopher Gill (Ludlow)

While I shall speak less volubly than the hon. Member for Bolsover (Mr. Skinner) I do not want the Paymaster General to think that I speak any less passionately about the matters that we are considering.

My right hon. Friend was nothing if not realistic. He said that the scale of fraud was impossible to quantify. I understood him to mean that not just in respect of beef export refunds or intervention storage costs, but equally in respect of the structural funds.

The House should not be surprised because, when that amount of money is sloshing around, there will be sharks in its wake who will find some way of getting their teeth into it. The fault must be with the system—and perhaps with us in that we allow it to continue. While I do not have any blind trust in auditors generally, equally I do not share the confidence of Opposition Members who place so much trust in the ability of inspectors to prevent some of the fraud and abuse so apparent in matters such as the food mountains.

Mr Meale

If, as the hon. Gentleman says, he does not have much trust in inspectors, will he explain how the many cases that have been discovered—such as the tens of thousands of lorries that have crossed boundaries and never even been weighed and the tens of thousands of boxes of so-called beef that when opened were found to contain chicken offal—could have been discovered other than by inspectors' examinations?

Mr. Gill

I am glad that the hon. Gentleman asked that question. Before I answer it, I should like to say how heartened I was to hear the Paymaster General say that we must put greater emphasis on practical matters. The hon. Member for Mansfield (Mr. Meale) has raised a practical point, and I hope that when he listens to my reply he will realise that it comes from a practical person.

I have spent a lifetime in a very practical industry—the meat industry—which is at the heart of the problems on which the hon. Gentleman questions me. As a result of my experience after a lifetime in the meat industry, I believe that no number of inspectors will ever obviate the fraud and abuse that we are criticising. I wish it were so, but to believe that that would ever be the case would be a triumph of hope over experience.

Mr. Meale

Will the hon. Gentleman accept that the lesson to be learned from the auditors' report is not to concentrate on the quantity of fraud—which is hard to determine—but to reduce the incidence of it in the future?

Mr. Gill

I listened carefully to what the hon. Member for Newham, South (Mr. Spearing) said about this matter. At one point he invited the House to comment on whether it thought he was exaggerating. In reply to the intervention of the hon. Member for Mansfield I can say that I did not consider that the hon. Member for Newham, South was exaggerating.

I was convinced that if the hon. Gentleman had his way and we were able to employ more and better auditors, we would discover more fraud. What we are considering is purely and simply the tip of the iceberg, which is why, inevitably, I have come to the conclusion that it is the system that is at fault—and we are at fault for allowing it to continue.

I hope that my right hon. Friend is listening and will tell other Ministers that they must concentrate harder to reform or abandon this system which appears to be beyond all reasonable control.

Why do we have structural funds? I believe that we can create a Europe that will achieve the objectives that we Conservatives believe to be important without the structural funds. I was interested to hear the comments of the hon. Member for Holland with Boston (Sir R. Body), who suggested that we could perhaps do better by repatriating agricultural support to the individual nation. Certainly if we did that, agricultural support would be more intelligible, which would benefit those employed in the industry. As hon. Members will have heard me say in the House before, one of the faults of the present system is that it is completely unintelligible to those who earn their living in the industries that are affected. I also believe that, if it were repatriated, agricultural support would be more closely targeted towards the people whom it is intended to help and who, indeed, need that help. Last but not least—I hope that this is of interest to the hon. Member for Newham, South—it would be easier to account for the funds.

I fear greatly that the common agricultural policy could be the rock on which the European Community founders. I do not want to see that: I have a vision of a Europe in which we have removed the fiscal, technical and political barriers and have created a bigger, freer market from which we will all derive greater prosperity. I see the structural funds as an entirely unnecessary extravagance, and I urge my right hon. Friend to serve notice that the House cannot and will not tolerate the position described in the report.

9.35 pm
Mr. Teddy Taylor (Southend, East)

I hope that everyone who has read the report feels physically sick. We see here not only shameful abuse of public funds but grotesque mismanagement and blind inefficiency. Anyone who feels complacent about the report should be shot. It is disgraceful, when we think of the use that could be made of money that is being frauded away.

What worries me are the attitudes that have been conveyed. My right hon. Friend the Minister said that the reason for the overspend of some 20 per cent. was the "ancien regime", the old system of cash. That system was not exactly ancient; it started in 1984 at Fontainebleau. When my right hon. Friend the Prime Minister returned from Fontainebleau she said, "Do not worry about the extra cash: we have spending controls which are binding on the Council."

Does my right hon. Friend the Minister remember that? I sat here—we all sat here—and heard: "Forget about the overspending. It is sorted out now because we have binding controls." Sadly, we can forget about that, because the controls have proved utterly hopeless, fraudulent and wrong. The Government simply stood back and watched the Commission using the accountancy device of a 10-month year.

The Minister, too, has a case to answer, and I hope that some day he will do so. He knows that another device used by the Council and the Commission to get over spending controls was to do something illegal. We transferred spending for butter dumping from the Commission to member states, and the Court of Auditors put in a report saying that that was illegal. The Council did not even discuss that, which was shameful.

We are kidding ourselves if we try to pretend that the CAP is being reformed. Every time we debate these reports we hear that reform is current. We hear about a fall in the value and size of the mountains. We have simply had a fire clearance sale. It is ludicrous to say that the Commission can do things. The report is full of specific criticisms of the Commission and of what can be done.

What on earth can we do? When we receive these reports year after year—when the fraud continues and increases, as does the mismanagement—we must admit that nothing can be done within the existing rules. Euro-police are a joke. We know what is going on: it is identified. I have asked the Government time and again about the specific case of the Mafia obtaining funds for the delivery of non-existent fruit juice to NATO headquarters in Palermo. Everyone knows about it, but what is being done? The answer is nothing, apart—we are told—from inquiries.

There is only one thing that we can do, and that is to decide that our next chance to act is when the Common Market is next bust. It was bust in February 1988, and the Prime Minister gave it another pile of cash. That is when we have a veto—and here again we are told that we have legally binding controls. There were binding controls last time. They did not work then and they will not work now. We must say that the common agricultural policy, by its nature, creates all that nonsense. It is evil spending, because the people who really suffer are the people of the Third world, whom few people care about. If we look at the food aid reports, we can see that they are suffering. It is shameful. Money is allegedly being spent on food to feed the poor, but instead it is going on fraud and mismanagement. We know, too, that we are killing those countries by dumping food at knockdown prices.

The Government should say that the only answer is to repatriate agriculture to member states. The only way we can do that is by saying no when the EEC is next bust and looking for more resources. The same happened when King Charles had no money. He came to Parliament and asked for cash. We said that he could only have it on certain conditions. If we do not receive that message from the report, but instead we have more inquiries, more meetings and more councils, we all know that it will lead to nothing. We will be kidding ourselves. It is a dreadful report. We should admit the simple fact that the position is a disaster, it is shameful and it is horrible. Our only answer is to commit ourselves to asking for repatriation and the end of the CAP the next time the EEC is bankrupt.

9.35 pm
Mr. William Cash (Stafford)

We have heard a catalogue of cases which are quite appalling in their extent and degree. I would like to read out one such example, because there has not been a specific example given which I regard as being quite as bad as this one. At page 74 the report says: the Court notes with concern that one trader, already under investigation for export refund fraud in 1985 in one Member State, was paid some 12 mio ecu in 1986 in another Member State, without any special attention being paid to individual claims, without an investigation of his export refund activities and without a Directive … control. The question thus arises of establishing whether the Commission has at present any system providing it with information on cases of this kind arid allowing it to monitor the Member States' mutual information-supplying activities and react promptly where necessary. That is only one example of the kind of thing that is happening.

The fact is that there have not been sufficient prosecutions. We have actual knowledge in this report of cases of forgery and the like, and—just as, for example, in the area of financial services and the recent attacks on city frauds—there is no way of dealing with the problem.

I do not believe, however, that we need to do this by a supranational authority. The Paymaster General asked us whether we thought this should be done by supranationality or otherwise. It is my belief—which I believe may also be the view of the Court of Auditors—that what are required are common standards applied throughout the Member States, but with each of the national authorities preserving to themselves the right of prosecution. The question is not whether we have evidence of fraud—I believe that evidence has already been made available—hut I am concerned about the prosecutions which need to be made in order to give effect to the requirement which happens to be associated with proper accounting procedures.

In a sense, nothing more than that needs to be said on that subject. However, there have been criticisms of the Community about the manner in which the agricultural system operates. I would like to put one other thought to the House. On a recent visit to Brussels, we heard much about the social dimension. I understand that there must be something in the form of a dimension of that kind. However, when in practice the whole of the agricultural policy, or much of it, in relation to certain member states is effectively run as a vehicle for social engineering and is, in fact, a social policy by any other means, then I ask a question of the hon. Member for Bolsover (Mr. Skinner). Does he agree that it is not right that people—for example, in his mining constituency or in mine—should have difficulties under the existing social fund arrangements on a domestic level, because of the way in which the Community functions?

Inefficiency, incompetence and an inability to see the wood for the trees lie at the heart of the auditors' report. As my hon. Friend the Member for Southend, East (Mr. Taylor) said, people in the Third world are suffering grievously as a result of the problems that drought and the like have visited on them. We have evidence to enable us to remedy most of those problems. I believe that the Government have every intention of doing everything that they can to sort the matter out, and I look to my right hon. Friend the Paymaster General to work as hard as possible to make sure that the matter is remedied forthwith.

9.40 pm
Mr. Tony Marlow (Northampton, North)

There are many horror stories in the auditors' report, but today we have been concentrating on £6 billion of public money which is being expended casually, carelessly and without proper control on the storage of agricultural products and on export refunds for agricultural products. That, as a proportion of the EC budget, is a greater slice than the United Kingdom social security budget. It is without control and out of control. It is maladministered.

As hon. Members have said, there is no proper measurement of the quantities or qualities of commodities in store. There is no proper means by which to access the volume or nature of goods being transported out of the Community. Somebody may look over the back of a lorry or open the occasional box, but less than 1 per cent. of cargoes is inspected and probably less than one tenth of cargoes are analysed in any proper way.

It is open season for fraud. No wonder the EC is ripped off by the Mafia and the IRA. No wonder it is ripped off with three different operatives in Italy to register the number of olive trees. Those trees are registered three times over because the co-operatives want to retain their custom. As my right hon. Friend the Paymaster General said, this is a fraudster-friendly rip-off. It is a £6,000 million slush fund which is completely maladministered.

Why should Britain do something about the problem? In a world of car thieves, the man who does not steal one himself must walk. If everyone else is doing it, we must do it, or we shall be left outside. No individual country will take action.

If we are to take this matter to the EC and the Council of Ministers, we must realise that some countries are doing well out of such frauds. The chap who drives round in a Rolls-Royce, like my hon. Friend the Member for Epping Forest (Mr. Norris), will not, if it is stolen—I am not saying that my hon. Friend's is stolen—want to increase the number of CID members looking for those driving round in stolen cars. Human nature being what it is, there is no incentive for any nation state to do anything about the problem.

If we look at the matter properly and open up what has been happening in the past it will turn out to be a Pandora's box. Governments throughout the EC will be falling like ninepins as all the fraud comes to light and all the horror stories see the light of day.

My right hon. Friend the Paymaster General has asked for suggestions and solutions. I am sure that he would suggest that we should tighten up procedures and have new guidelines. There is common procedure throughout the EC but it is still operated by the individual countries. The slacker they operate the procedures the more benefits they obtain for their country and we shall not get anywhere.

We have to render unto Brussels that which belongs to Brussels. I would not want a great deal to belong to Brussels, but it is Community money, these are Community systems and we must allow Community institutions to supervise them. If we leave it to member countries, we shall get nowhere.

I have one other plea to put to my right hon. Friend. The Audit Commission is universally supported in the House. It is the one non-controversial institution within the European Common Market. It does a good job and we all support it. Let us give it more support, give it the resources, give it the finance, give it the power, so that it can do its job. The House traditionally is concerned with money and with voting supply. Let us see that that money is properly co-ordinated and controlled and let us give the Audit Commission all the support it needs.

9.46 pm
Mr. Holland

It is clearly appreciated by hon. Members on both sides of the House that seldom in the history of public expenditure can so much have been taken from so many by so few so fraudulently.

It is the transparent fraud which scandalises the House. The abuse, however—and many hon. Members seemed to have missed this—has to be dealt with by the intervention agencies of national member states. It is fine for Commission-shooting season to be open—the Commission is to blame for this and for that—but it is the Governments who are responsible for the national intervention agencies. We should not be saying that there is nothing we can do about it. We have a Minister here who is responsible for that national intervention agency. It is there that we need the action; it is from this Minister that we need the action, to get transparency of accounts.

When will a report on these accounts and what the Government are doing be made to the House? I put several specific questions to the Minister earlier about what the Government are or are not doing to follow up the recommendations in the report. I think that hon. Members on both sides of the House have a right to an answer from the Minister now.

9.47 pm
Mr. Brooke

I elicit a degree of hollow laughter on the occasion of these debates, which I have been attending for some years, when I say that we have had an excellent debate, but I repeat those words again tonight. It has been an excellent debate with a series of admirable and valuable contributions.

The hon. Member for Vauxhall (Mr. Holland) raised a number of matters in his earlier speech and he has come back in his final remarks and quite properly said that it is not simply a matter for the Commission; it is a matter for member states as well. I hope that I showed that I was in accord with that in my earlier remarks and I certainly say that I am now.

There was an agreeable paradox in the utterances with which the hon. Gentleman opened his speech at about 7.30. He indicated—as the Opposition have done on more than one occasion—the urgency of the need for corrective action against fraud in the Community. He then proposed what was essentially a long-term solution relating to a change in the basis of agricultural policy. He cited the year 2002 in the context of the Coal and Steel Community and said that if we were ready to think about that year in the context of coal and steel we should be thinking about agriculture too. I am perfectly prepared to think into the next century on the subject of agriculture, but it does not seem to me to march entirely with the degree of urgency which the hon. Member expressed.

Mr. Holland

The Minister is surely aware that I am talking about long-term structural change in the common agricultural policy back to a deficiency payments system which allows food to come in at world prices. If that happens, we do not have this cross-border nonsense that we have seen under the beef regime. The short-term issue is what action the Government will take to investigate this fraud in this country through its own agencies.

Mr. Brooke

I freely acknowledge that I was to a degree pulling the hon. Member's leg, but there is a difference between the two time frames. However, I take the point that he was making.

The hon. Member asked me a series of questions about the intervention agency. He would be the first to acknowledge that those questions were dense and detailed. If he will excuse me, I will deal with them in correspondence with him after the event. They were reasonable questions to ask. I made the point earlier—there is reference to it in the amendment, and both the hon. Gentleman and the hon. Member for Newham, South, (Mr. Spearing) referred to it—about the working party that is engaged on these matters. It has already met on a number of occasions and, I understand, is due to complete its work in April. We are concerned to put on pressure for a deadline for the conclusion of that work when we come to the ECOFIN meeting on 13 March.

My hon. Friend the Member for Nottingham, East (Mr. Knowles) mentioned resources and, in particular, resources of people. The Government have always made it clear that they would be prepared to see greater resources of people put to work by the Commission and would not stand in its way, although the Commission has a habit of asking for large groups of people without specifying what it wants them for.

As to the court, I should be delighted if proposals were put to us—and I totally share with a number of my hon. Friends and other hon. Members their admiration for the Court of Auditors. If proposals were put before the Government they would be looked at reasonably and rationally. In fact, we recently agreed to the appointment of what is known in the Community as an A1, essentially a second permanent secretary on the administrative side, for the Court of Auditors.

I detected in what my hon. Friend the Member for Nottingham, East said a feeling that original sin had something to do with the problems with which we are faced—that is something in which all on the Conservative side would have no difficulty in joining him. He referred to the criticism by the court of the United Kingdom and Ireland for not making scrutiny reports available to the Court of Auditors. In this area we certainly welcome the court's findings.

On the specific criticisms of the United Kingdom, I note that we have met the requirements of the directive and that our instructions for carrying out scrutinies are praised in paragraph 4.67 of the report. We maintain records of scrutinies and are disappointed that the court should draw conclusions on our coverage of scrutinies, based on a small sample. We are considering positively the court's suggestions for improving the quality of scrutinies.

The hon. Member for Newham, South also mentioned the quality of personnel. I am delighted to say, at least with regard to customs and excise, that nearly half the people in customs and excise engaged on this work in the United Kingdom have received or are receiving in the current year special training in what to look for in this area.

The hon. Gentleman spoke of safeguards—I had earlier spoken of simplification. There is not much between us there. He also asked about the built-in controls over intervention storage. He was perhaps blurring the line between fraud and mismanagement, but I would not dispute his point about inadequacy of those controls. It is possibly in recognition of this point, that, as I saidearlier, a working group is now urgently considering the position.

Examination rates for export refunds are as low as 1 per cent. in some cases, and we fully support the Commission's 1987 proposal which would provide for a 5 per cent. physical inspection target. The United Kingdom's current target is 7 per cent., and at ECOFIN I shall press the Commission to adopt the 1987 proposal in the light of the court's recommendations.

The hon. Gentleman also raised the subject of the Intervention Board for Agricultural Produce and physical checks. The IBAP has recently introduced a rolling programme of stocktaking for beef and butter in intervention stocks. Cereal stocks are inspected annually, or more frequently if trouble is suspected, for both quantity and quality. There is also an independent programme of physical checks carried out by the National Audit Office. In addition, the IBAP's contractual arrangements with cold store operators have recently been revised to ensure that the operators shoulder a greater share of the responsibility for loss or deterioration. It is worth noting that the IBAP's arrangements for controlling cereals intervention were complimented by the Commission in its report last year.

If the hon. Member for Newham, South has in mind a particular case of denial of information to the Court of Auditors and would care to write to me about it, I should, of course, investigate and reply as soon as possible.

My hon. Friend the Member for Holland with Boston (Sir R. Body) referred to the Serious Fraud Office and to Interpol. I am delighted to report that the director of the Serious Fraud Office, Mr. John Wood, was very well received when he spoke at the European Parliament's budgetary control committee hearings in Brussels in January. There was also an intervention from Interpol.

As to the intervention in that speech by the hon. Member for Mansfield (Mr. Meale) on the subject of frontiers and the Single European Act, it is the very possibilities of fraud within the clearing-house mechanism that make the Government so determined that that mechanism should not be brought in.

The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) vividly remembers the debate in the middle of the night last year, as I do because the second of the two days—the day into which we moved—was my birthday. The hon. Gentleman referred to what he described as so-called additionality. It is an extraordinary claim that the way in which the United Kingdom treats structural fund receipts is a form of fraud. That is what I understood the hon. Gentleman to be saying. I am afraid that it is a terminological inexactitude of the highest order, and it needs correction. There is no question of the United Kingdom structural fund receipts being used for anything, other than their intended purpose. The hon. Gentleman referred to the Chancellor. I think I detected some exegesis of what the Chancellor had said. However, we shall have a word about it afterwards because I think that there may have been a misunderstanding.

As for why the United Kingdom did not vote for the proposal put forward by my noble Friend Lord Cockfield, the United Kingdom and all other member states took the view that it would not be help, in the pursuit of fraud, to permit Commission officials to conduct investigations, in their own right, in member states. The practical difficulties would be considerable, and it would be necessary for the officials involved to understand, and to comply with, national criminal law. In addition, there is the possibility that member states' own investigations could be jeopardised.

My hon. Friend the Member for Daventry (Mr. Boswell) made a balanced speech and brought in, for the first time, the subject of olive oil, which then returned to the debate. I am glad to say that the account on olive oil—paragraphs 4.107 to 4.114—is a great deal more favourable than those in previous reports were, and I have some sense of the hon. Member for Bolsover (Mr. Skinner) recycling his material. He did, however, do the House a service in injecting some passion into the debate, from which it gained, even if some of his material had been recycled.

The hon. Gentleman raised the subject of the £17 billion that had been mentioned in The Guardian. As the hon. Member for Vauxhall rightly pointed out, that sum was over eight years. It is an interesting question where the figure comes from. My own calculation is that it is probably 20 per cent. of the FEOGA expenditure over the last eight years. Then one asks where the 20 per cent. comes from. I think it comes from an analysis by Professor Tiedemenn, of Freiburg university, for the European Parliament budget committee in 1987, based on Swedish-Finnish frontier fraud and a previous study. It is a demonstration that in this unquantified area the figures are uncertain.

My hon. Friend the Member for Ludlow (Mr. Gill) asked for reform of the system. I refer again to what I said about simplification. What he said about the CAP marches entirely with the Government's views in terms of what they were seeking to do about the future financing proposals.

My hon. Friend the Member for Southend, East (Mr. Taylor) referred to 1984. I did not arrive in my present position until November 1985, but I would be the first to admit that my hon. Friend drew my attention to some of the failings of the Fontainebleau arrangements as soon as I arrived. It is not simply that we had a fire clearance sale. I hope that he will be fair enough to acknowledge that the reduction in intervention stocks is due not just to sales of existing stocks but is the result of policies that have reduced surpluses and, therefore, the quantities that are brought into intervention.

My hon. Friend came back to the 10-month issue—one of which we have had exchanges before. The issue of NATO commodities in Palermo, which has not actually been the subject of a Court of Auditors report—it goes back to a press report in February 1987—has been somewhat difficult to pursue, but I hope to write to my hon. Friend very shortly giving the outcome of my researches.

My hon. Friend the Member for Stafford (Mr. Cash) asked that there should be prosecutions. The whole House will join him in wishing to see that happen and that example served. My hon. Friend the Member for Northampton, North (Mr. Marlow) praised the Court of Auditors. I look forward to sending the report of this debate to Mr. Mart, president of the court.

We have debated for three hours before 10 o'clock rather than having three hours of debate after 10 o'clock. A number of people have asked why we should do something about these matters. The answer is, because of the corrosive effect that fraud has on all our institutions. The whole House has demonstrated that it is against fraud, and I shall carry that message to ECOFIN.

Question put, That the amendment be made:

The House divided: Ayes 18, Noes 97.

Division No. 115] [10 pm
Bell, Stuart Meale, Alan
Buckley, George J. Mowlam, Marjorie
Cunliffe, Lawrence Nellist, Dave
Dixon, Don Pike, Peter L.
Foster, Derek Skinner, Dennis
Haynes, Frank Spearing, Nigel
Hinchliffe, David Wray, Jimmy
Holland, Stuart
Lofthouse, Geoffrey Tellers for the Ayes:
McKay, Allen (Barnsley West) Mr. Ray Powell and
Mahon, Mrs Alice Mr. Harry Barnes.
Alexander, Richard Knapman, Roger
Amess, David Knowles, Michael
Amos, Alan Lang, Ian
Arbuthnot, James Latham, Michael
Arnold, Jacques (Gravesham) Lawrence, Ivan
Ashby, David Lennox-Boyd, Hon Mark
Atkinson, David Lightbown, David
Baker, Nicholas (Dorset N) Lyell, Sir Nicholas
Boswell, Tim MacKay, Andrew (E Berkshire)
Bottomley, Peter Mans, Keith
Bowis, John Mawhinney, Dr Brian
Brazier, Julian Maxwell-Hyslop, Robin
Brooke, Rt Hon Peter Mayhew, Rt Hon Sir Patrick
Browne, John (Winchester) Miller, Sir Hal
Burt, Alistair Mitchell, Andrew (Gedling)
Campbell, Menzies (Fife NE) Mitchell, Sir David
Carlile, Alex (Mont'g) Moynihan, Hon Colin
Carlisle, Kenneth (Lincoln) Neubert, Michael
Cash, William Nicholson, David (Taunton)
Chapman, Sydney Norris, Steve
Clarke, Rt Hon K. (Rushcliffe) Patnick, Irvine
Coombs, Simon (Swindon) Portillo, Michael
Currie, Mrs Edwina Rhodes James, Robert
Durant, Tony Rowe, Andrew
Fallon, Michael Sackville, Hon Tom
Fishburn, John Dudley Shaw, David (Dover)
Fookes, Dame Janet Sims, Roger
Forman, Nigel Steel, Rt Hon David
Forth, Eric Stern, Michael
Franks, Cecil Stevens, Lewis
Freeman, Roger Stradling Thomas, Sir John
French, Douglas Summerson, Hugo
Garel-Jones, Tristan Taylor, Ian (Esher)
Gill, Christopher Taylor, John M (Solihull)
Glyn, Dr Alan Thatcher, Rt Hon Margaret
Gorst, John Thompson, D. (Calder Valley)
Ground, Patrick Thompson, Patrick (Norwich N)
Harris, David Thurnham, Peter
Heathcoat-Amory, David Waddington, Rt Hon David
Heddle, John Wallace, James
Hind, Kenneth Waller, Gary
Holt, Richard Wardle, Charles (Bexhill)
Howe, Rt Hon Sir Geoffrey Wheeler, John
Hughes, Robert G. (Harrow W) Widdecombe, Ann
Hunt, David (Wirral W) Wilkinson, John
Hunt, John (Ravensbourne) Wilshire, David
Irvine, Michael
Jack, Michael Tellers for the Noes:
Janman, Tim Mr. Alan Howarth and
Johnston, Sir Russell Mr. David Maclean.
Jopling, Rt Hon Michael

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 9908/88 on the Annual report of the Court of Auditors of the European Communities for 1987, 8502/88 on the management and control of public storage of agricultural products and 9945/88 on the accounting and financial management of the European Coal and Steel Community; and approves the Government's efforts to press for value for money in Community expenditure.

  2. c499
  4. c499
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