European Union Fraud

HC Deb 19 May 1999 vol 331 cc1079-127

Madam Speaker

We now come to the main business of the day. I have selected the amendment in the name of the Prime Minister.

4.18 pm

Mr. Francis Maude (Horsham)

I beg to move, That this House notes that for four successive years the European Court of Auditors has declined to provide assurance that the transactions underlying payments from the European budget are legal and regular; regrets the failure of the UK Presidency to achieve any concrete measures to tackle fraud and mismanagement in the EU budget; congratulates Mr. Paul Van Buitenen on his courageous action in exposing the incompetence and unwillingness of the European Commission to tackle fraud; condemns the action of Labour MEPs, urged on by the British Government, in seeking to protect the Commission from censure; notes that, despite the vote in the European Parliament to censure the Commission, no Commissioner has yet left office; believes that confidence will only be restored if all existing Commissioners are replaced forthwith; and calls on the Government to ensure that genuine and effective measures to tackle fraud in all of the institutions of the European Union are taken as a matter of urgency.

The debate falls only five months after the Chancellor unveiled his plan for a head of fraud investigations. At the time, the Government said that the proposal was well received. That may have been the case, but the proposal was speedily buried. Each year, according to the Court of Auditors, 5.5 per cent. of the European Union budget mysteriously disappears. That is about £3 billion this year; by coincidence, it is equivalent to the United Kingdom's annual net contribution. It is about £53 for every person in this country.

It is now absolutely clear that there have been cases of mismanagement, wastage and outright fraud, which increase each year as the budget grows. That scandal will not solve itself. For the fourth year running, the Court of Auditors has refused to clear the EU's accounts. It describes the incidence of substantive errors affecting payments as "unacceptable".

Fraud against the EU budget is daily defacing the European Union, which is why it must be a major issue in the European Parliament elections. It is significant that today it is we, the Conservatives, and not the Government who have decided to focus on fraud. The debate gives us a chance to scrutinise the Government's record, because Labour's posturing on fraud in the EU is a matter that, to be frank, it would prefer not to expose to closer scrutiny.

Mr. Derek Twigg (Halton)

If the Conservatives intend to make fraud an issue in the European elections, will the right hon. Gentleman tell us with what record on stopping fraud the Tories can go to the electorate?

Mr. Maude

We have a consistent record of putting forward coherent proposals, which began to make a difference—indeed, I did so myself. We secured some improvements in the Maastricht treaty, which my signature adorns, as Ministers are always keen to remind the House. I am glad to be able to assure the House that that treaty ensured the taking of some steps, albeit not enough, to improve scrutiny. One of the crucial elements, which is just beginning to bear fruit, is the elevation of the Court of Auditors to the status of a proper institution; that was a Conservative Government initiative.

Mr. Dale Campbell-Savours (Workington)

May I tell the right hon. Gentleman that one of the great speeches of my 20 years as a Member of the House of Commons is one made in 1985—nearly 15 years ago—by my right hon. Friend the Member for Blackburn (Mr. Straw), now Home Secretary, on the issue of fraud in the EU? Nothing happened as a result of that speech, and every year thereafter, for the next 10 years, we had conversations about how so little was happening. Only since the election of the Labour Government has the issue gone up the agenda.

Mr. Maude

It is not especially kind of the hon. Gentleman to draw attention to the lack of influence wielded by his right hon. Friend the Member for Blackburn (Mr. Straw), who was not present to answer questions on the private notice question earlier today. It is also significant that, yet again, the Chancellor has failed to come to the House of Commons to answer for the conduct of his Department.

The issue is not only one of securing better management of the EU's finances. It is becoming difficult to find anyone who has even the slightest sense of responsibility inside the Commission—not my words, but those of the independent experts who were eventually given the task of investigating the allegations raised earlier this year by Mr. Van Buitenen.

Mr. Geraint Davies (Croydon, Central)

Will the right hon. Gentleman give way?

Mr. Maude

No. I want to make some progress. We were late in starting the debate and many of my right hon. and hon. Friends want to speak on this important issue.

We want to tackle fraud head on, by dealing with the vacuum of responsibility that originates in the fundamental lack of accountability within the Commission. That absence of responsibility was illustrated by the auditors' discovery that certain Commission officials working overseas had used the interest accrued on their budget funds in the PHARE programme—Poland and Hungary Aid for Reconstruction of the Economy—to buy themselves 26 new cars. It is that lack of responsibility which breeds arrogance and carelessness. Where else can one find Commissioners who, two months after having been dismissed, have yet to clear their desks and leave? Where else can one find a development operation that left behind 1.3 million ecu in the National Housing and Savings Bank of Liberia—a sum that, after nine years, has yet to be reclaimed; or a 600,000 ecu budget for buying flagpoles?

Instilling a sense of accountability is the first, crucial step, but it is not surprising that it has not yet been taken. Is not the problem the Commission's ambitions, which constantly outreach its capacity, its endless drive to arrogate more and more powers to itself, and its constant drive to do more but doing it worse? In its 1997 report, the Court of Auditors noted that the Commission committed at least 330 million ecu for operations which lacked a legal basis"— which were not even legal—and that it overspent on its legitimate activities by 750,000,000 ecu. As the Select Committee on International Development observed: there are huge discrepancies between political priorities and administrative capacity"— in other words, doing more and doing it worse.

No one has made that clearer than Mr. Prodi, the Prime Minister's personal choice for the new President of the Commission. He was brought in precisely to clean up the scandals and the fraud. What was Mr. Prodi's first great initiative? Was it a grand anti-fraud campaign, bringing in clean, new Commissioners or perhaps reinstating the man who blew the whistle and who was outrageously suspended on half pay while the sacked Commissioners kept their first-class seats? Did Mr. Prodi do any of those things? Forget it. His top priority was to expatiate on the absolute necessity of a European army. He is planning not how he can save our money but more ways in which to spend it. The Commission should be doing less, not more—and doing it better. It should not pursue a dogmatic, federalist agenda that taxpayers do not want, let alone want to pay for.

At every turn, there is evidence of an institution that is out of control and is over-reaching itself. For example, its Russian nuclear safety fund cannot account for £100 million of the nearly £600 million that it has spent since 1991. Its Mediterranean fund does not know where £40 million of its budget went in 1997. The European Community Humanitarian Office has already written off much of the £420 million it lent but failed to secure guarantees for. Not only is the Commission over-reaching itself, it is covering up its actions with impunity. Let us consider another example from ECHO, which is run by Commissioner Marin, who was also dismissed but is still there.

Dr. Stephen Ladyman (South Thanet)

rose—

Kali Mountford (Colne Valley)

rose—

Mr. Maude

No, I will not give way at this stage. I will give way later. The debate started late and many hon. Members wish to contribute. In some cases they even made financial allowance for people who don't exist. Here the Commission simply told us untruths. That is not some scare story by The Sun, but a comment by the President of the Court of Auditors. Only under pressure, did the Commission release a document on its humanitarian projects—and, even then, it was so "heavily censored" as "to render it illegible". They are also the words of the President.

It seems that there is only one thing these days with which the Commission is economical: the truth. That is why we are pressing to introduce a new and fully independent anti-fraud office in Brussels. That is a positive commitment that contrasts with the Government's studied evasion of the issue. We are not alone in that call. There was widespread support among Members of European Parliament for James Elles's proposals for the reform of the Commission—except from one quarter, the European parliamentary Labour party. It did not want that. The Conservatives in the European Parliament raised the possibility of an independent fraud office early on, but, as usual, Labour came late to that debate.

Mr. Andrew Love (Edmonton)

rose

Mr. Maude

I will not give way as I must make some progress.

The Chancellor eventually got around to proposing something at the January ECOFIN meeting, but his proposals showed that he had not been paying attention. The Conservatives had campaigned for an independent fraud office precisely because Commission interference in corruption investigations had come to light. Labour just did not get it. Its so-called head of fraud investigations could not have fought his way out of a wet paper bag. He would work in a fraud office that was staffed by Commission officials and based inside the Commission, yet, according to the Prime Minister, he would be somehow independent. We all know the Prime Minister's definition of independence: about as independent as a Labour Back Bencher.

Mr. Mike Gapes (Ilford, South)

rose—

Mr. Maude

The hon. Gentleman is getting very excited, so I will give way to him.

Mr. Gapes

The right hon. Gentleman has mentioned repeatedly an independent fraud office. Is he aware that the Commission and the member states under the German presidency have already agreed to establish such a body? It is not a Conservative proposal: it is already in the system.

Mr. Maude

That intervention illustrates vividly the hon. Gentleman's concept of independence. The proposed fraud office would be based inside the Commission and staffed by Commission officials. It would not be independent, as anyone outside the parliamentary Labour party would understand.

Mr. Geraint Davies

rose—

Mr. Maude

No, I will not give way to the hon. Gentleman.

The fact is that Labour's cosy back-scratching relationship with the European Commission means that it will never take on the Commission. Our demands for an independent fraud office, which would have dealt with the problem, were therefore bypassed in favour of a pseudo-proposal, which would have done nothing to change the status quo.

In January, the Chancellor proclaimed proudly—he is not, of course, here to defend his remarks— We need to move quickly to tackle fraud in the EU. Quickly? We have seen quicker snails. It is not as though the Government did not know about that fraud.

Mr. Love

Will the right hon. Gentleman give way?

Mr. Maude

No. Paul Van Buitenen, enraged by the complacent inertia around him, blew the whistle early in January, explaining why he was speaking out. On 6 January, he said that he was disappointed about the attitude of the Socialist faction, and notably Mrs. Green … because she seems to support the Commission. He continued: Perhaps they have a higher agenda in the Euro. That is right. The socialists are going with the flow in Europe and they do not want to upset the Commission; it is mutual back-scratching.

The subsequent treatment of Mr. Van Buitenen differed considerably from that of the Commissioners, whose downfall his revelations precipitated. That is funny. He was smeared as a religious fanatic. I suppose that the definition of a religious fanatic is one who is able to tell right from wrong. He was suspended on half pay, whereas the Commissioners who were found wanting by the independent experts were left on full pay, full rations and a first-class return ticket on the gravy train.

Mr. Van Buitenen was not the only person to notice that Pauline Green was slow to get on the case. The budget spokesman for the Party of European Socialists resigned in protest at Pauline Green's dilatory stance on fraud. She was not the only one to find Mrs. Green's argument tortuously contrived. First, Mrs. Green tabled a censure motion on the Commission after a majority in the European Parliament agreed with the conclusions of the Elles report. She then declared that the Party of European Socialists would oppose the motion in a vote, since the only way to register confidence in the Commission was to call for censure and then vote against it. Only a trusty double negative would do for that stout upholder of Britain's interests.

How delightfully intimate it all was: the thumbs up; the celebrations, and Commissioner Kinnock gratefully kissing Mrs. Green's hand. It was not, therefore, too surprising that Mr. Santer announced proudly that the Commission's escape from censure amounted to a vote of confidence. Cover-ups, back-scratching and cosy deals to avoid the frightful embarrassment of being held accountable are the story of Labour's brave battle against fraud.

Let us consider the legendary Mrs. Cresson and her cosy ménage, including her live-in dentist, who is employed as an adviser. What did Labour do about that? It supported her. According to Mrs. Green, that was a principled stance—I suppose that, by her standards, it might have been—which helped to achieve a seismic change in the balance of power from the Commission to the Parliament". Well, the earth did not exactly move under Mrs. Cresson that day. What a cop-out that was. Most of Labour's MEPs had not voted for the very report that described the problem of fraud in the first place. They did not vote for the motion withdrawing support from Mrs. Cresson two weeks after she and other Commissioners had resigned and after the independent experts had found her guilty of favouritism.

There has not been much evidence of Mrs. Green campaigning for a new Commission to be appointed, because that would mean the removal of the very people whom she hoped to protect. Her credentials on clean financial management took another tumble when it was revealed that, three years ago, she had—no doubt, coincidentally—arranged a conference outside the EU, in Cyprus, for a number of MEPs and their advisers in the same week in which her adviser was getting married on the island. We are utterly confident that the taxpayer was absolutely delighted to be helping with those travel expenses.

How sensible Mrs. Green was to send her driver out to Cyprus three days before the conference began. He said: We always go early to places, otherwise we get stopped in traffic". He went three days early—that is some traffic jam, particularly as he flew there. [Laughter.] That's right, he flew there, and the taxpayer paid.

We do not even need to dwell on the complex affairs of Mr. Glyn Ford, which bring a new dimension to the phrase "money laundering". We assume that Labour has instituted an urgent inquiry into the extraordinary allegations made in today's edition of the Daily Express. No doubt the Chief Secretary will comment on that when he responds. We assume also that, pending that inquiry, Mr. Ford will be removed from his position at the head of Labour's list of candidates for the south-west region. After all, those at Millbank tower parachuted him in there. If they mean business, they will airlift him out.

Mr. Geraint Davies

Will the right hon. Gentleman give way?

Mr. Maude

No, I will not.

Labour Members' claim to be tough on fraud is pretty thin, and now they have admitted it. The Economic Secretary said we will continue to do everything we can to ensure that the Commission … take action".—[Official Report, European Standing Committee B, 24 February 1999; c.6.] She said that not once, but a further five times in all. We were all agog to know what the "everything" of which she boasted would amount to. Sadly, not very much, which the Minister of State, Foreign and Commonwealth Office, the right hon. Member for Gateshead, East and Washington, West (Ms Quin), was forced to admit only two weeks later. Days before the Commission resigned, she made the shameful admission that the Council has not formally discussed the way in which the Commissioners have performed their duties".

What did the Government do? What was the "everything" of which the Economic Secretary bragged? We know that there were no formal discussions, because that admission has been dragged out of the Government. Were there informal discussions—perhaps a little light conversation over lunch? What was said and what was done, or is the truth that, despite all their protestations, they did nothing and said nothing on this crucial matter? The only thing that they agreed was a cut in the anti-fraud expenditure of 16 per cent. in the 1999 draft budget when fighting fraud was meant to be at the top of their presidency wish list only a year ago.

In the European Parliament, Labour denies that a problem ever existed. In the Council of Ministers, Labour sits on its hands and stays stumm. Is that what Labour Members call leading in Europe? Unlike Labour, Conservatives mean what they say—

Mr. Derek Twigg

Will the right hon. Gentleman give way?

Mr. Maude

I am coming to the end of my speech, because this is a brief debate.

Unlike Labour, Conservatives mean what they say about fraud. People have a clear choice in the European Parliament elections. The Conservative party is determined to be in Europe, but not run by it; the Labour party is so committed to going with the flow in Europe that it is incapable of taking any real steps to combat the fraud that defaces the European Union. It is a simple choice. I commend the motion to the House.

4.37 pm

The Chief Secretary to the Treasury (Mr. Alan Milburn)

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: welcomes the efforts of the Government to work with fellow Member States and European institutions to crack down on fraud against the EU budget; notes the real practical progress made in this regard by the Government during the United Kingdom Presidency of the EU; welcomes the Chancellor's initiative for a strong head of fraud investigations heading an independent fraud prevention office; welcomes the role played by Labour MEPs in securing the establishment of the Committee of Independent Experts; joins the Government in calling for recent events to be used as an opportunity for root and branch reform of the Commission; calls on Romano Prodi, following his recent nomination as President-elect of the European Commission, to place the fight against fraud at the top of the new Commission's agenda; and believes that the only way of reforming Europe is the Government's strong leadership and constructive engagement rather than the Opposition's weak leadership, division and isolationism.

I always welcome the opportunity to debate Europe with Conservative Members and, before I come to the substance of my speech, I thank them for the contribution that they made to our general election victory by debating the issue in the campaign.

Today's debate is not only about the level of fraud in Europe or the fact that fraud is wrong and must be stopped—we can all agree with that. It is about how best we can go about tackling fraud. That takes us to the fundamental issue underpinning the debate: if we are to tackle fraud in Europe successfully, we must do so as part of a wider process of reform in Europe. That requires strong leadership and constructive engagement in Europe, and, unlike the previous Government, that is precisely what we are providing.

Sir Michael Spicer (West Worcestershire)

On the subject of criminality, what is Government policy on corpus juris?

Mr. Milburn

I do not know the answer to that question, I am afraid.

Miss Anne McIntosh (Vale of York)

I think the Chief Secretary used the expression "strong leadership in Europe". Is he aware that the leader of the Labour party in Strasbourg, Pauline Green, tabled a motion to sack the Commission in December 1998, which she withdrew in January 1999? Did Millbank ask her to do so? She then voted against the motion tabled by the centre-right parties. Does he agree that that is hardly strong leadership in Europe?

Mr. Milburn

If the hon. Lady will bear with me, I will come precisely to the sequence of events that led to the appointment of the committee of experts—the so-called committee of wise men—and to the subsequent resignation of the Commission and the President. The shadow Chancellor alluded to that in his contribution, and it is right and proper that I should respond.

If we are successfully to tackle fraud in Europe, we require strong leadership and constructive engagement. That is precisely what we, unlike the previous Government, are providing. That approach is delivering the goods for Britain: the lifting of the beef ban; the successful retention of the United Kingdom's abatement; an excellent deal for the regions of our country thanks to the Agenda 2000 negotiations; real progress on reform of the common agricultural policy, and the commitment in principle to join the single currency if it is in the British economic interest to do so. Those developments show that this Government, unlike the last, are a player rather than a spectator in Europe.

Those developments also show that the leadership that we are giving in Europe to tackle fraud and deal with other issues, and to drive forward the modernisation of European institutions, brings direct benefits to our country and our people.

Mr. Desmond Swayne (New Forest, West)

The Minister may be paying a high price for some of his alleged achievements. May I return him to the question that he was asked a moment ago, and offer him a second opportunity to answer it? Does he agree that introducing corpus juris into our own system, alien as it is to habeas corpus, is far too high a price to pay for dealing with fraud in the European Union?

Mr. Milburn

According to my hon. Friend the Financial Secretary, who, as hon. Members can see, is whispering in my ear, some Conservative MEPs voted against what the hon. Gentleman is advocating. I shall develop that theme in a moment. What the Conservative party says in the Westminster Parliament is very different from what it says in the European Parliament. With the European elections coming up, it is important that we show unity and clarity on European issues.

The approach advocated by the Conservative party would jeopardise all the benefits that the Government have won for Britain in Europe. Weakness, division and isolationism are no way to get the best for Britain from Europe, and they are no way to win the war against fraud in Europe.

Mr. Geoffrey Clifton-Brown (Cotswold)

rose—

Mr. Nick St. Aubyn (Guildford)

rose—

Mr. Milburn

I shall give way to the hon. Member for Cotswold (Mr. Clifton-Brown) and then I shall make some progress.

Mr. Clifton-Brown

The right hon. Gentleman proudly lists the Government's achievements in Europe, but three of them have not yet been accomplished: they are the lifting of the beef ban, joining the single European currency and the final negotiations on the common agricultural policy, which will run into trouble with the World Trade Organisation. I hope that the Chief Secretary will tell the House what the Government have done—particularly when they held the presidency of the European Union—to control fraud in the European Commission, as exposed by Van Buitenen, the whistleblower, given that the committee of experts will be abolished in October.

Mr. Milburn

I shall first deal with the common agricultural policy, and then I shall set out our record on winning the battle against fraud. I shall give a long list of achievements in that regard.

The negotiations in Europe on reform of the CAP produced the most radical reform in the policy's entire history. We wanted to go further, and we shall continue to press for that. I hope that Conservative Members will support the Government in that aim. We all know that the CAP is rotten and does not give a good deal for British taxpayers and consumers. The hon. Gentleman should not negate the achievements that we have managed to win, which have resulted in massive improvements in the CAP and a £65 gain for every consumer in this country. I hope that the hon. Gentleman welcomes that.

Let me make it perfectly clear that the UK Government take the issue of fraud extremely seriously. The current level of fraud is unacceptable. There should be zero tolerance of fraud wherever it occurs, whether it be in the European Union's budget or elsewhere. Taxpayers should be protected from fraud, and from those who perpetrate it. People who help expose it, such as Mr. Van Buitenen, deserve our congratulations.

That is all self-evident, or should be. The Government know that real actions rather than tough words are needed if we are successfully to prevent fraud. That is why we are taking a leading role in Europe in the establishment of a fraud prevention office, which will be strong and effective in fighting fraud.

Mr. William Cash (Stone)

Will the Chief Secretary give way?

Mr. Milburn

I must deal with this point first. It consumed much of the shadow Chancellor's speech, and I want to reply in detail.

My right hon. Friend the Chancellor set out the key requirements for a fraud prevention office at January's ECOFIN meeting. His proposals were warmly welcomed by fellow member states. As a result of the initiative that this Government took—that my right hon. Friend the Chancellor took—the next ECOFIN meeting, at the end of this month, will, I hope, agree to the establishment of an office with a strong independent director, with statutory protection from dismissal, and appointed only after consultation with both the Council and the Parliament.

The director will be debarred from taking or seeking instruction from any Government or Community institution. The office will be able to open investigations on its own initiative. It will have access to buildings and documents, and it will be able to draw up reports, including recommendations for follow-up. The director will report regularly to the Council and the Parliament, and so will be able to alert those bodies if the office's reports are not being acted on. There will also be a supervisory committee, whose members will be appointed by common accord between the Commission, the Council and the Parliament, and which will give the director advice and support. If that is not independent, I do not know what is.

Mr. David Davis (Haltemprice and Howden)

rose—

Mr. Cash

rose—

Mr. Milburn

I will give way first to the right hon. Member for Haltemprice and Howden (Mr. Davis); then I will give way to the hon. Member for Stone (Mr. Cash).

Mr. Davis

Let me ask the Chief Secretary a simple practical question, which arose when my Committee went to Brussels. It seems to be being proposed that the head of the fraud prevention office should be up for reappointment after five years, for a potential two terms, which strikes me as a weakness in terms of the maintaining of his independence. Has the Chief Secretary considered that?

Mr. Milburn

As the right hon. Gentleman knows, I have the greatest respect for the Public Accounts Committee—not least because I used to have the pleasure of serving on it—and I listen carefully to what he has to say about this issue. I can tell him that the director can be appointed only after full and proper consultation with both the Council and the Parliament. This is not purely a Commission appointment. I hope that that will help to reassure the right hon. Gentleman and his fellow Committee members about the integrity and independence of the office.

Mr. Cash

Does the Chief Secretary agree with the assessment of the Economic Secretary, who has said: An independent institution"— of the kind that the Chief Secretary has described— would have less understanding of how the Commission functions and would be likely to encounter barriers in obtaining information about possible fraud—it would not have access to 'inside information"'. Does the Chief Secretary not regard that as a bit thick?

Mr. Milburn

This is an important and interesting question. I think that there are advantages in the location of the director and the office. Let me draw an analogy, in order to reassure Opposition Members.

No hon. Member claims that the Comptroller and Auditor General is not independent, although he is responsible for auditing the procedures and accounts of the House, and although he is an official of the House.

Mr. Maude

rose—

Mr. Milburn

No one claims that the CAG is not independent—unless the shadow Chancellor is about to produce a revelation.

Mr. Maude

rose—

Mr. Milburn

I will give way to the shadow Chancellor in a moment. Let me finish my analogy first.

In similar vein, the director and the office will be independent of the Commission, although they will be located within the body of the Commission, with all the safeguards that I have described.

Mr. Maude

The right hon. Gentleman is making precisely the wrong point in terms of his case. The Comptroller and Auditor General is accountable to the House of Commons—to Parliament—not to the Government. The Government's proposal, to which the right hon. Gentleman says ECOFIN is about to agree, is that the fraud prevention office will be based in the Commission, staffed by Commission officials. It will therefore not be independent. Indeed, the Economic Secretary's words, quoted by my hon. Friend the Member for Stone (Mr. Cash), suggest that the Government accept that it will not be independent in the way that we think it should be.

Mr. Milburn

The right hon. Gentleman continues to make those allegations. I have tried to set out in detail the various guarantees of independence that we have negotiated in proposing that new protection for taxpayers in Europe. I do not believe for a moment that I will satisfy the right hon. Gentleman because I suspect that, again, there is a triumph of ideology over the facts in the Conservative party.

Mr. Geraint Davies

Does my right hon. Friend accept that it would take a number of years to make the new fraud office institutionally independent owing to the requirement to change the treaty? The impact of that, alongside the impact of the office being outside the Commission, would be discontinuity of investigation and more fraud. The current proposal for the statutory independence of the director, along with the other changes that have been described, is the optimal course.

Mr. Milburn

I am grateful to my hon. Friend for those comments. He, too, is a member of the Public Accounts Committee.

Mr. Howard Flight (Arundel and South Downs)

rose—

Mr. Charles Wardle (Bexhill and Battle)

rose—

Mr. Milburn

I will give way in a moment or two. May I deal with one intervention at a time? Then I must make some progress.

I take precisely the points that my hon. Friend the Member for Croydon, Central (Mr. Davies) has made. I think that the position that we have reached, which I hope will be endorsed by ECOFIN, will get the balance right. Conservative Members are rightly agitated about the level of fraud in Europe. They want something done about it now, yet they rail against a measure that will allow us to do precisely that while maintaining the integrity and independence of those who will be charged with investigating fraud.

Mr. Flight

rose—

Mr. Wardle

rose—

Mr. Milburn

I cannot remember which hon. Member was first, but I give way to the hon. Member for Arundel and South Downs (Mr. Flight). I will then make some progress.

Mr. Flight

Transparency of information is crucial in stopping fraud. Where within the proposal is the mechanism for asking searching questions, as happens under our constitution? It is all very well having an auditor—we have an auditor already—but if one cannot get to the truth from outside, there is scope for continuing corruption.

Mr. Milburn

The hon. Gentleman has either not been listening or is determined not to listen to what I have said on the issue. The director of the office of fraud prevention will have all the powers that he wants. He or she will have the powers to demand documents, to enter buildings, to summon witnesses and to report independently. He or she will be accountable more widely than just to the European Commission, which is what the hon. Gentleman is so concerned about. On all those tests, the criterion of independence that the hon. Gentleman rightly seeks is satisfied.

In my and the Government's view, the changes are radical and will make a real difference in tackling fraud.

Mr. Campbell-Savours

Will my right hon. Friend give way?

Mr. Milburn

As it is my hon. Friend.

Mr. Campbell-Savours

I am sorry to interrupt my right hon. Friend.

I have sitting been through these debates for 15 years and they are very interesting. I presume that the director of the new office will produce an annual report. Will that annual report be presented to the House of Commons? Will it be presented at the same time as the report of the European Court of Auditors? Will we have an opportunity to debate the contents of the director's report?

Mr. Milburn

That is a good question. [HON. MEMBERS: "What is the answer?"] Amazingly, I do not know all the answers to all the questions, but I am happy to listen to what my hon. Friend has suggested. I am happy to listen to the Public Accounts Committee's views on the issue. I assure my hon. Friend that, when the director and fraud office undertake their work, they will report not just to the Commission but to the Council of Ministers and the European Parliament. The question that my hon. Friend asks about reporting to the Westminster Parliament is important. We shall explore it, if that is helpful.

Dr. Vincent Cable (Twickenham)

Will the right hon. Gentleman give way?

Mr. Milburn

No. I will make some progress because many Members want to speak in the debate and it is right that they should have an opportunity to do so.

The publication of the report of the independent experts—and the subsequent resignation, rightly, of the Commission and the President—provides the opportunity for a more radical overhaul still of the style of Europe's institutions. The report of the committee of wise men was damning, revealing complacency, a lack of accountability and nepotism. It revealed, as the Prime Minister said, systemic failings in the Commission which had been tolerated for too long.

That brings me to an important issue. Before the Conservative party gets too high and mighty about the problem of fraud in Europe, it is worth remembering that it was in power and in government for 18 years. The Conservatives had the chance to act and failed to do so because, on Europe, they were weak, divided and isolated. All the tough words from the shadow Chancellor and in the motion count for precisely nothing because, in opposition as in government, the Conservatives remain weak, divided and isolated on the question of Europe.

Let us not forget that the man responsible for overseeing the chaos in the Commission, Jacques Santer, was the choice of the then Prime Minister, the right hon. Member for Huntingdon (Mr. Major). Indeed, Mr. Santer was the choice of the Conservative party. When he was a Treasury Minister, the shadow Chief Secretary, the right hon. Member for Wells (Mr. Heathcoat-Amory)—I note that he is not here today—said: we are happy with Mr. Santer and we wish him well. He shows every sign, based on his record, of running an efficient and effective Commission.

Mr. Cash

He was wrong.

Mr. Milburn

There were one or two exceptions, as always—but the party that now condemns Mr. Santer was responsible for putting him there in the first place.

This Government are getting on with the process of reform and modernisation. We have proposed rootand-branch changes to improve the Commission's financial management, accountability and transparency. We now look to Mr. Prodi to drive the reform process forward.

Our reform proposals build on the success that we have achieved to date in tackling fraud. The shadow Chancellor alleged that we have not achieved much. I have a long list which I will run through for his benefit and that of the House. During our presidency, we strengthened anti-fraud operations in Europe. For the first time, European Finance Ministers dealt with fraud in a concerted way. For the very first time, member states reported to ECOFIN on their responses to the Court of Auditors report as it affected their countries. That is a welcome development which we want to continue.

We have used the Agenda 2000 negotiations to push for more effective, better-managed expenditure, with tighter EU spending limits than ever before. On structural funds, the Government have supported the simplification to reduce irregularities and to improve project management. On the common agricultural policy, we have strongly supported moves away from market intervention in favour of direct support for farmers where that is necessary for social or environmental reasons. Each and every one of these reforms will help encourage sounder financial management. That is what the Conservative party appears, at least, to be so concerned about.

This Government have been delivering in the war on fraud in Europe. Nobody pretends it is easy—it is not. It will be a long and hard battle, but we are determined to protect the interests of UK taxpayers.

Mr. Andrew Tyrie (Chichester)

The Minister made it clear a moment ago that he felt that it was quite right that the Commission, which had performed appallingly, should go. Do the Government support the fact that, several months later, the members of the Commission are still in their offices?

Mr. Milburn

The work of the Commission continues, and it is important that we have somebody who can take decisions. I hope that the hon. Gentleman will agree that it would be sensible this time round if we actually got the right people to do the job. It will take some time to secure the best candidates, as I am sure we will. Since the hon. Gentleman is so keen on transparency and accountability, I hope that he will recognise that it is important that the European Parliament has its say about the appointment of the new Commissioners. It is also important that Mr. Prodi, as the new President of the Commission, has a hand in shaping a team that will help drive forward the modernisation and reform programme that we all want in Europe.

Mr. St. Aubyn

Will the Minister give way?

Mr. Milburn

No, I will not give way for a moment. I have given way on umpteen occasions and I really must make progress.

The contrast with the record of the Conservative party when it was in Government could not be clearer. The Conservatives stood out against the introduction of qualified majority voting in the area of fraud prevention. To pretend, as the shadow Chancellor has, that fraud in Europe has somehow only just been invented flies in the face of the facts.

The annual statement of assurance by the European Court of Auditors shows that the level of substantive errors, including fraud, on EU payment transactions rose from 4 per cent. in 1994 to 5.4 per cent. in 1996. According to press briefings, it fell to 5.1 per cent. in 1997. Nobody pretends that such a level is in any way acceptable, but the figures give the lie to the claim sometimes made by the Conservative party, that the problem is not being tackled.

The shadow Chancellor alleged that spending on specific anti-fraud measures in the 1999 EC budget is falling. In fact, spending on those measures is about 4 million euros higher than in the 1997 budget, which was agreed when the Conservatives were in power. The Labour Government are putting our money where our mouth is on tackling fraud in Europe.

The Tories failed to tackle the problem of fraud when they were in government and their party is still failing to take a clear and concerted stand on the issue in Europe. Here I come to the question asked by the hon. Member for Vale of York (Miss McIntosh), and to the shadow Chancellor's allegations about the events leading to the resignation of the Commission and the President.

It is worth reminding the House of the real sequence of events. In early January, it was the leader of the European parliamentary Labour party, Alan Donnelly, who first proposed setting up an independent group of experts to make comprehensive improvements in financial management and accountability. It was Edward McMillan-Scott, the Leader of the Conservative MEPs, who refused Mr. Donnelly's invitation to take a cross-party approach to investigating fraud allegations in the European Commission.

When the European Parliament voted later in January to set up a committee of experts—the so-called committee of wise men—to investigate fraud and mismanagement, of the 17 Conservative MEPs, three abstained on the issue and 12 voted against.

Miss McIntosh

Will the Minister give way?

Mr. Milburn

No. The hon. Lady had her chance and she blew it.

What is more, after many months of detailed work by the Council of Ministers and the European Parliament, Conservative MEPs voted against a Members' statute with detailed rules on MEPs' pay and conditions. Only this month, they voted against a cut in MEPs' salaries and against MEPs having to provide receipts for expenses. The record of the Tory party on fraud in Europe, either in government or in opposition, does not stand up to scrutiny. The party is isolated in Europe, talking tough but failing to act in Britain's national interest. On fraud, as in so many other areas, the party says one thing to the people of Britain and does another thing in Europe.

Miss McIntosh

On a point of order, Mr. Deputy Speaker. I have a serious matter to raise. I put a question to the Minister, to which he was kind enough to listen. It was a very specific question, and I am worried that the House is being misled on the point. Pauline Green tabled a motion for resolution, calling for the resignation of all the Commissioners and—

Mr. Deputy Speaker (Mr. Michael Lord)

Order. That is not a point of order for the Chair. It is a matter for debate.

Mr. Milburn

The Leader of the Opposition, perhaps in recognition of the chaos in the Conservative party on these issues, has called for what he describes as a mix-and-match approach to European policy. Mix-and-match it certainly is. Here in the Westminster Parliament the British Conservative party rails against fraud, yet in the European Parliament the Conservative party votes against taking action on fraud.

Mr. Love

I thank my right hon. Friend for giving way to me, and I hope that the House will not engage in the low politics that the Opposition spokesman adopted earlier, especially his refusal to allow others to respond to his comments. I want to draw my right hon. Friend's attention to the manifesto of the European People's party, which says: EU citizenship should be further developed as an expression of a sense of belonging to the Union. The European Union needs a constitution. Does that contradict the policy of the British Conservative party?

Mr. Milburn

I am sure that the Opposition will be interested to hear what their colleagues in the European Parliament have signed up to. Perhaps it is worth reminding them that five Tory MEPs sit on the executive committee of the European People's party that drew up the manifesto. Two Tory MEPs are vice-presidents of that grouping, and one is its chief whip, so they can hardly disclaim the manifesto on which it will fight the European elections.

Today's debate is revealing. Nobody pretends that fraud in Europe is not an important issue. It is. But there are a host of other important issues in Europe that the Conservative party would prefer to avoid. It cannot debate the single European currency, it cannot debate social reform in Europe and it cannot debate economic policy in Europe—because the Tory party is split from top to bottom on Europe. It says one thing in Europe and another in Britain. It cannot agree on fighting fraud, it cannot agree on the single currency, and it cannot even agree on taxation policy.

The Conservative party in Britain is so extreme that it cannot even agree with its own European MEPs. It is no longer a party that engages with Europe but a party that opposes Europe. Such a party cannot deliver the goods for Britain in Europe, and all the tough talk from the Opposition Benches—

Mr. St. Aubyn

rose—

Mr. Milburn

I am winding up now.

All the tough talk cannot disguise the fact that the Conservative party is weak and isolated, whereas the Government are strong and engaged. The Conservatives have no credibility on fraud or any other European issue. All their double-talk about cleaning up Europe fools nobody. The Tories cannot agree about waging the war on fraud because they are too busy waging war on each other. It is this party and this Government who are heading the fight against fraud in Europe. It is this Government who are now playing a leading role in Europe, and it is the Labour party that is shaping a new Europe that will benefit Britain and its people. I urge my hon. Friends to reject the Opposition motion and back the amendment.

5.8 pm

Dr. Vincent Cable (Twickenham)

The motion invites us to condemn fraud and calls for stronger action against it. I am happy to support that, so far as it goes, whatever the original motives behind its being brought before the House. The fundamental issue at stake, which concerns many of us who are broadly in support of the European project—I think that that includes many Conservative Members, as well as Members from my party and the Labour party—is the fact that fraud is not merely undesirable in itself, but undermines the legitimacy of Europe.

We therefore demand that action against fraud be taken not only at the level of the lowest common denominator of European Governments and at the average level of enforcement, but that best practice should be followed. The Chief Secretary rightly used the phrase "zero tolerance". That is exactly the philosophy that should inspire action against fraud whether in the Commission or in the Parliament, and we support it.

Mr. Christopher Fraser (Mid-Dorset and North Poole)

It is ironic that the hon. Gentleman claims that his party thinks highly of Europe, but he is the only representative from his party present for this debate.

Dr. Cable

I expect that my colleagues are happy for me to carry the banner on their behalf. We strongly support a firm policy on fraud, but it should be put in context. Those of us who sit on European Standing Committee B see the work of the auditors, and I am always struck by the use of the phrase "fraud and irregularities" to describe malpractice in Europe. Some 90 per cent. of the cases that the Court of Auditors uncovers are irregularities—incorrect form filling and failure to follow proper procedure—and do not involve criminal fraud. Irregularities are of course unacceptable and financial procedures must be tightened up, but there is a big distinction between that and fraud. The headline figures for fraud and irregularities are frequently used to exaggerate the extent to which fraud exists in the European Union.

Much of the fraud in European budgetary activities takes place in member states. It is useful to compare the behaviour of individual member states with the behaviour of Commission institutions. Before the debate, I looked at the Customs and Excise figures on criminal fraud in the British system. Our estimates are that around 5 per cent.—or £2 billion a year—of the total domestic excise budget is subject to fraud, which is a similar figure to that for European budgets, especially on the revenue side. Therefore, there is nothing specifically European about fraud. The Conservatives are presumably aware of that which is why they have proposed cutting cigarette duty—one of the main sources of fraud.

Mr. Richard Page (South-West Hertfordshire)

This country has an effective value-for-money unit within the National Audit Office. It is not only fraud that is pulling the European Union down, but the fact that money is not spent as effectively as possible to achieve its objectives. We should pay great attention to both aspects.

Dr. Cable

That is an excellent point. One of the issues on which my colleagues are campaigning in the election is that the role of the Court of Auditors should be enlarged to cover fraud and irregularities and value for money, in the same way as our Comptroller and Auditor General or district auditors. That is a helpful suggestion and I am glad that the hon. Gentleman has made it.

The level of fraud is important, but so is the trend. Some of the examples mentioned by the right hon. Member for Horsham (Mr. Maude) were rather antique. Mr. Marin' s exploits should of course be brought to light, but the example cited took place in 1987 or 1988. The trend in fraud figures is more relevant today. The trend recorded by the Commission through its investigations in the "Fight Against Fraud" report, which is published every year, showed last year a decline of 13 per cent. in fraud and irregularities on the agricultural budget, and a 50 per cent. decline in fraud in relation to structural funds. Many of the actions being taken are beginning to bear fruit.

Miss McIntosh

The hon. Gentleman mentioned a Commissioner by name. Does his party support the Conservative proposal to name and shame individual Commissioners, such as Commissioner Mann and Commissioner Cresson, and to give the European Parliament the power to sack individual Commissioners? The Government are not minded to support that, but will the Liberal Democrats do so?

Dr. Cable

I thought that those Commissioners had already been named and shamed, and fired. It is not entirely clear what additional value would be gained from that proposal.

I wish to suggest what action should be taken, and I believe that we should build on proposals already made. One relates to the Court of Auditors, which performs an important role and should be enlarged. The key area is the independent fraud office, and we welcome its strengthening. I believe that it is now called OLAF, rather than UCLAF. The Chief Secretary listed many additional powers that OLAF will have, and that is welcome. It will be a more genuinely investigative agency.

I have one or two questions about OLAF that I hope the Minister will answer later. Will it have the power of criminal arrest? Can people suspected of fraud be arrested by OLAF? That is an important step, because it does not currently have those powers and is shackled by the lack of them.

Mr. Wardle

I can answer that question. OLAF does not have that power. It simply has the power to present a case to the prosecuting authority in the country concerned.

Dr. Cable

I thank the hon. Gentleman for that answer, but its implications are perhaps uncomfortable for some of his hon. Friends. If the independent fraud office is strengthened in the manner proposed—and in the manner many of us would like to see—it would be a considerable extension of supra-national authority to a European institution. The power to arrest in the hands of a European institution, even one with such unexceptional objectives as the avoidance of fraud, would be a considerable constitutional change. We would welcome it, but I doubt whether all Conservative Members have fully assimilated the implications.

Fraud is prevented not only by institutions but by the underlying policies. The point has already been made that because half of European spending originates in the agricultural budget, many of the problems are associated with agricultural reform. The Conservatives in government and this Government have argued for agricultural liberalisations. The Liberal Democrats regret that this year we settled for a weak compromise that achieved little on dairy farming and made small cuts in cereal prices. We are making slow progress in moving European agriculture to world prices and eliminating extensive subsidies, but there is a broad consensus about the need to do so.

I suggest that the Government should campaign in Europe to eliminate agricultural support for tobacco. Fraud is endemic in that area, but there is no justification

on economic—let alone health—grounds to subsidise that crop. The Government could usefully make policy innovations in that area.

There are specific problems associated with the workings of the Commission, at both Commissioner and official level. My colleagues in the European Parliament acquitted themselves well on that issue, and people from all parties have acted honourably in calling those responsible to account. I am delighted that tough action was taken and that the Commissioners have been asked to leave office. However, how do we ensure in the long term that the Commission works as the servant of the European public instead of being self-serving as it has recently been? The problem lies not so much with the Commissioners as with the European Commission officials, many of whom are appointed on the basis of connection with member state Governments and have a poor standard of public service. There is widespread abuse of expenses, but the officials are protected by Belgian trade unions, which operate restrictive practices that are unacceptable. The implications of reform go further than many people have yet accepted, and I am not sure whether all Conservative Members would be comfortable with the suggestion that the long-term solution is the creation of a professional international civil service that is chosen by competitive selection. That would require a high standard of professional honesty, such as obtains in our own civil service, which specifically precludes national Government interference in appointments and promotions. It would be a radical step forward. Officials would be accountable, through the Commissioners, to the European Parliament.

I hope that the Government are committed to that idea as it would greatly strengthen the credibility of the Commission and the Parliament vis a vis the Council of Ministers. We have long supported in principle evolution towards that position, although I am not sure that all the implications have been fully accepted by those who complain about the lax standards in the Commission.

Mr. Andrew Rowe (Faversham and Mid-Kent)

Would it not be equally effective and a great deal better if the disparity of emolument between European and domestic civil servants were greatly minimised and if the career pattern of national civil servants included a period in the European bureaucracy that was seen as a means of securing advancement rather than, as is frequently the case at present, a backwater to which we can dispatch the type of civil servant who so worries the hon. Gentleman?

Dr. Cable

That is a perfectly valid point. Specific aspects of how the European Commission pays its staff—particularly expatriate allowances—seem incompatible with my idea of a proper European civil service recruited in much the same way that the staff of the World bank, whose approach to their jobs is much more professional, are recruited.

In addition to problems with the Commission, the Parliament is a wasteful institution. Points have been made about a particular Member of the European Parliament, and if he is guilty of malpractice, he should be dealt with appropriately. However, that case involves rather petty sums while rather large sums are wasted by the Parliament, primarily as a result of its operating on three sites. I hope that the Government will make it clear that rationalisation of the Parliament's operations should be a major strategic matter, which could save an estimated £100 million a year.

Mr. John Bercow (Buckingham)

Does the hon. Gentleman agree that all the Commissioners who resigned in March should have ceased to hold office immediately and that none of them should be reappointed beyond his or her existing term? On the conduct of the Parliament, does he agree that it is wholly unsatisfactory that there is no record in the House of Commons Library of the declarations of interests of Members of the European Parliament? Does he agree that it should be possible to obtain a copy of the register of interests from the Library?

Dr. Cable

The latter point seems perfectly sensible. When it comes to the appointment of Commissioners, however, we should recognise that some of them acquitted themselves honourably and well, including Sir Leon Brittan and Mr. Kinnock. Whatever people's political standpoint, we should not tar them all with the same brush. Some selectivity should apply.

I endorse the thrust of the motion as it wishes to be tough on fraud, but I accept that considerable action has been taken, particularly in the Commission. I welcome the creation of a much tougher fraud office. I regret the fact that it is not fully independent, but it is a considerable advance. However, we will continue to press our own argument. If the European Commission and Parliament is to be much tougher on fraud, we logically require a genuine strengthening of European institutions.

5.24 pm

Mr. Gerry Steinberg (City of Durham)

As a member of the Public Accounts Committee, I visited Brussels and Luxembourg in April to look into fraud in the European Union and what was being done about it. The visit was prompted by the National Audit Office's report, "Audit of the General Budget of the European Union for 1997 and Related Developments", and by the whistleblowing of Paul Van Buitenen, an EU official, who, incidentally, ranks as fraudulent not only those on whom he blew the whistle, but everyone else connected with the EU.

To examine fraud in the EU, one must start with what the EU does. In 1997, the total budget was about £54 billion, spent under three basic headings—the common agricultural policy, structural funds and directly managed expenditure, including aid to countries in central and eastern Europe and the former Soviet Union and budget compensation to the newest member states. The United Kingdom is the third largest contributor, paying about £1.3 billion, so our visit was thought appropriate. There is clearly a huge problem.

CAP accounts for 50 per cent. of the Budget and the NAO found errors in CAP payments amounting to around one sixth of the total. Farmers overdeclared areas eligible for subsidy for cereals and set-aside. The errors were exacerbated by generous subsidy and ineffective checks by the paying agencies. Although the overpayments may be relatively small, it would be an understatement to say that the global sum was quite big. In fact, it was huge.

The NAO also detected errors in structural funds payments, which account for about one third of the EU budget. Aid is distributed to member states for operational programmes that can last up to about six years. Often, member states declared expenditure ineligible for funding. The Commission's programme closure procedures did not detect ineligible expenditures.

About £8.9 billion was spent on external aid, but much of it does not go where it is supposed to. Only 82 per cent. of aid intended for central and eastern European countries was paid out, and only 64 per cent. of that meant for southern Mediterranean countries was paid. During 1998, the Commission uncovered suspected fraud in humanitarian aid. The ECHO affair, as it was called, involved aid to Yugoslavia and the great lakes region of Africa. Since 1992, £420 million has gone missing from that project.

In 1998, the PAC reported waste, error and fraud in EU expenditure programmes. Frankly, matters are no better a year later. Four examples of the most appalling cases of fraud are contained in the NAO report.

The first deals with cigarette smuggling from Montenegro. The report states: One of the main routes used by crime syndicates for trafficking cigarettes was through the Federal Republic of Yugoslavia. The cigarettes are loaded onto speedboats declared to be bound for Italy and are offloaded on the Adriatic Coast as contraband. The sole purpose of this is to divert them to the European Union black market. The Commission estimates that this activity results in a loss to the Community General Budget of some … £410 million".

The second example relates to the fraudulent import of olive oil. The report states: Olive oil claimed to be in transit for Israel and Turkey was in fact unloaded in the Community through an ingenious subterfuge. Two ships sailed from France with cargoes of olive oil and sunflower oil. The ships docked in Italy and unloaded the olive oil, but claimed that it was sunflower oil so that the lower level of duty was payable on it. To cover up the fraud, the perpetrators pretended to sell the sunflower oil in exchange for olive oil, even to the extent of driving around empty lorries to justify purchases of fuel. As a result of this fraud, some 5.1 million ECU (£3.4 million) of customs duties were evaded and some … £1.2 million … aid was claimed without entitlement.

The third case related to tourism. In 1990, the European year of tourism was launched. By 1999, 76 bodies or individuals were subject to criminal proceedings or additional inquiries in member states and £3.5 million had been fraudulently paid out.

The last fraud that needs to be mentioned is the Leonardo programme, a four-year youth training programme with a budget of about £450 million, headed by Commissioner Edith Cresson of France. Favouritism and irregularities were rife. All the cases that I have mentioned substantiate the view that there is large-scale organised crime across national borders.

Miss McIntosh

Is the hon. Gentleman aware that the tourism fraud was exposed by the leader of the Conservatives in the European Parliament, Mr. McMillan-Scott? That shows the seriousness that Conservatives attach to fraud.

Mr. Steinberg

I do not for one moment dispute that. I do not attempt to make political points.

The Public Accounts Committee went to Brussels and Luxembourg to see the problems of fraud in the EU. The situation is deplorable and something needs to be done about it.

Mr. Gapes

I do not seek to minimise the terrible things to which my hon. Friend refers, but is it not a fact that about 85 per cent. of the EU budget is controlled not by EU institutions but by national member states? One of the problems with which we are dealing is something over which EU institutions do not have control. It is a problem of transfers between one member state and another, for example, as regards the tobacco scams and other scams to which my hon. Friend has referred.

Mr. Steinberg

My hon. Friend is partly right and partly wrong. There is tremendous irregularity and fraud within the Commission. I agree that a great deal of responsibility lies with the member states, but we cannot blame just one section of the EU. The whole thing seems corrupt. I believe that corruption and fraud are much more prevalent across the EU than in the UK. The standards of probity in public affairs in the UK are higher than in most other western European countries. The report of the National Audit Office refers to places such as Greece, Spain, Italy and Portugal. I do not mean to be disrespectful to those countries, but their record is appalling.

Financial arrangements in the European Union lend themselves to misappropriation and misuse of funds. The structure of the EU is bureaucratic rather than democratic. There appears to be little control over those who participate in corruption and fraud and little effort or capacity to get rid of them. It appears from the examples that I have given that about 10 per cent. of the EU budget is misappropriated and not spent on the purpose for which it was designated. That mis-spend amounts to about £5 billion a year. That is an incredible amount of money.

With great respect to the hon. Member for Twickenham (Dr. Cable), I got the impression from his speech that he was complacent. We heard the same arguments from him as I heard from the European Court of Auditors. The auditors seemed to say, "There is misappropriation and one would expect that to happen with such a huge budget." I do not think that one can say that. The Commission should have high standards.

The recent disclosures by Van Buitenen were already well known before he blew the whistle. It was clear what was going on and he happened to bring it to the fore. Everyone knew what was going on. He showed that the standards of the Commissioners were anything but proper, and collectively they had to resign. The Commissioners ought to have been setting high standards, but they were not. Examples of nepotism and manipulation of funds emerged.

On our visit to Brussels and Luxembourg, we met representatives of the Commission, the EU anti-fraud organisations and the committee of independent experts set up by the European Parliament to examine the way in which the Commission detects and deals with fraud. The anti-fraud organisation, known as UCLAF, has an atrocious record and was clearly unable to do an effective job. It has now been replaced by OLAF. I was little impressed, bearing in mind the seriousness of the situation. The only thing that was apparent was complacency.

We met the Budgetary Control Committee of the European Parliament. Although it recognised the problems and played its part in triggering the resignation of the Commissioners, the fact is that it knew for years that fraud and waste were rampant, yet it tolerated the situation. Can you imagine, Mr. Deputy Speaker, the Public Accounts Committee tolerating such a situation? I cannot, but that seems to be the way things are.

We had a meeting with the European Court of Auditors. That filled me with horror. Its members were apparently so complacent, and I told them so. One of the most disgraceful aspects of EU administration is not only that large sums of money in budgets cannot be properly accounted for but that the auditing and signing-off of EU accounts often runs years into arrears as a result of lax accounting systems, some of which are seemingly riddled with fraud. We all know that it is impossible to run any organisation efficiently without accurate, up-to-date accounts.

It seems to me that the problem with the EU Court of Auditors is the same as in so much of the rest of the EU. Those able and willing to set high standards are dragged down by those who are much more easy going. One amazing statement made at our meeting with the auditors was that fraud was a price worth paying for the Union. I may have misunderstood that because I was dropping off to sleep, but I do not think so. Well, they may think that, but I disagree with them.

After our visit to the EU, the Committee was unanimous in its conclusions. There need to be significant and urgent improvements in the financial culture governing European spending. These issues are central to public confidence and fundamental to the democratic legitimacy of Europe. The Commission must define more clearly who is accountable to whom and for what.

We found that the current arrangements for investigating and prosecuting cases of abuse were inadequate. Rapid action is required to reform the procedures for identifying and handling cases of suspected fraud within the Commission and other EU institutions. That should include a strong, independent head of fraud investigations with statutory protection from dismissal.

The National Audit Office report concludes that it is important that the Commission and member states keep up the pressure on effective implementation of the sound and efficient Management 2000 initiative, which simplifies schemes so that they can be easily and effectively managed and so that the risk of fraud can be reduced. The NAO also concludes that effective action must be taken to pursue and repress fraud across the EU budget. Better arrangements are needed for combating fraud and corruption involving EU institutions.

I intended to sit down and say no more at this stage, which would probably delight everyone, but after listening to the Opposition, I should like to add an extra item. The approach that Opposition Front-Bench spokesmen have taken to the debate is so sad. They have attempted to make EU fraud a party political issue. It is an important issue. The Tory record in government was hopeless. All the cases of fraud that I have mentioned started in the late 1980s and early 1990s, when the previous Government were in power. It is important that this debate has taken place, but why do the Opposition always shoot themselves in the foot? It is plain daft to try to lay the blame on the Government and Labour Members of the European Parliament for allowing fraudulent activities to go on in the EU. The activities have been going on for years, and went on all through the time of Tory government.

I did not intend to ascribe blame, but after hearing the Opposition Front-Bench spokesman, I will. If any blame is to be ascribed, I suggest that 18 years of Tory government in which nothing was done speaks for itself.

5.39 pm

Mr. Charles Wardle (Bexhill and Battle)

I am bound to say that until the hon. Member for City of Durham (Mr. Steinberg) came to his extra points, I agreed with almost everything he had to say. He and I both serve on the Public Accounts Committee and there is broad agreement about what has gone wrong. He and I can debate vigorously many political issues all day long, but until he came to his last item I endorsed his remarks this afternoon. When he came to his final and quickly added last point, and as he looked at the Government Whip and thought that he should score some political points, he was wrong, in that he failed to notice that the Chief Secretary seemed to have swallowed, hook, line and sinker the idea that OLAF will do a more effective job than UCLAF does now. I understand the Government's having agreed to the proposals for the amendment in the regulations that will deliver OLAF and wishing to say that all will be put right, but I believe that the Chief Secretary is absolutely wrong on that.

As the hon. Member for City of Durham said, the Public Accounts Committee visited Brussels and Luxembourg last month. Several of the Committee members either were in their place or are now. I wish to make a couple of comments about the visit to place in context my remarks about the anti-fraud effort.

The Committee's object in its visit was to examine how financial control and accountability of EU funds could be improved within the Commission and in member states. In Brussels, the Committee took evidence from the Commission, UCLAF, the Commission's anti-fraud unit, the budgetary control committee of the European Parliament, Mr. Van Buitenen—the whistleblower—and the committee of independent experts. In Luxembourg, it took evidence from the European Court of Auditors.

Although the Committee's report of its foray into the heart of Euroland will not be published until after next month's European elections, I formed the clear impression—my Committee colleagues who are present in the Chamber can either confirm or deny this—that the Committee was quickly united across party lines in its criticism of the complacency, arrogance, self-interest, lack of even the most rudimentary management discipline, absence of financial controls and failure to tackle fraud that was clearly evident wherever we went.

In a press release agreed by the Committee, there was a call for significant and urgent improvement in the financial culture governing European spending, for better controls to protect the interests of the European taxpayer and for an accounting system based on robust independent and expert procedures. The Committee registered its dismay that proposals to reform UCLAF—this is where I disagree with the Chief Secretary—in the form of the new OLAF fell well short of delivering a genuinely independent anti-fraud unit.

Given the limited time for the debate, I shall resist the temptation to regale the House with the full extent of the financial shambles and the self-serving bureaucratic intrigue that masquerades as the government-in-waiting for Europe. I shall concentrate instead on the inadequacy of the attempts to protect the Community budget from fraud.

There is little doubt but that fraud and financial irregularity are rife throughout the EU spending programme. There is fraud at national level in member states, as the hon. Member for Ilford, South (Mr. Gapes) was allowing—for example, in the common agricultural policy. However, some of the most spectacular rip-offs have taken place under the nose of the Commission, and these were the ones highlighted by Mr. Van Buitenen.

As we have heard, the Leonardo youth training programme, worth £450 million, has been riddled with mismanagement, and blatant favouritism has been shown to certain contractors. The Commission's tourism unit, which has already been alluded to, has been defrauded of at least £3.5 million. The Med programme of economic assistance in the southern member states has been hijacked by a network of firms which has run rings round Commission officials, at huge cost to the European taxpayer. The humanitarian aid office, ECHO, cannot account for £420 million from last year's budget alone. These are only some of the horror stories.

Pitted against corruption is UCLAF, the anti-fraud unit, which operates from within the Commission's central secretariat. That location is a handicap in itself because the Commission is staffed with appointees long on horse-trading skills but short on management instincts. This means that the Commission is an establishment in which transparency and individual accountability are literally foreign concepts. That makes it unsurprising that UCLAF was doomed to failure from its inception.

UCLAF is not, as some people suppose, an internal audit service. Members of the PAC will appreciate that. It may act on audit data produced by the European Court of Auditors, which itself is not allowed to investigate suspected cases of fraud. For some reason best known to the bureaucrats, UCLAF is not allowed to pursue active fraud investigations either. It is merely authorised to assess the financial sums at risk and then draw up cases for submission to public prosecutors in the member states.

In the unlikely event that UCLAF identifies a case for prosecution within the Commission itself, under whose roof it sits, it is supposed to draw that suspected fraud to the attention of the Belgian prosecutors. In other words, UCLAF is not a fraud-busting unit but a co-ordinator of allegations of fraud for the benefit of national prosecutors in member states.

Inevitably this cumbersome and unwieldy procedure has failed to produce results or to deter fraud, and it has already been widely condemned. The Court of Auditors has complained that UCLAF has no standard system for opening, monitoring and concluding procedures. The court says that UCLAF lacks operational procedures for storing and monitoring information, cannot manage its case load effectively and causes long, needless delays.

UCLAF's procedures for dealing with internal discipline and corruption are unclear and incomplete as well. The Court of Auditors has accused it of what it delicately describes as "exaggerated hesitation" before lifting the immunity of staff suspected of fraud. That is because it is under the Commission's roof, of course. Meanwhile, the committee of independent experts has said that UCLAF's remit within the Commission is less clear than it should be and claims that UCLAF appears to be in competition with the internal audit function. The UCLAF staff lack professional skills and often slow down procedures so that the audit trail goes dead. In short, the entire UCLAF operation is a farce. The fraudsters thrive and the taxpayer loses out.

To remedy this sorry state of affairs, at the end of last year the Commission, the Council of Ministers and the European Parliament drew up a proposed regulation for a new fraud prevention office—son of UCLAF, as it were—to be called OLAF, an acronym with a Nordic ring of financial rectitude and authority. This seemingly worthwhile initiative quickly became bogged down in utter confusion when the Council of Ministers resisted the very sensible idea that OLAF should be a distinct legal entity, separate from the Commission, with extra powers of investigation within member states.

After much wheeling and dealing, and to nobody's surprise, OLAF is to stay under the Commission's umbrella, but regulations will be amended to give its new director greater responsibility for the recruitment and promotion of staff and the power to ask for oral information from employees of the Community institutions.

The new director is to report regularly to the Parliament and he will be monitored by an independent external committee. In practice, however, the EU staff regulations, which have for years throttled any attempt to promote outstandingly talented officials, are so prohibitive that OLAF will inherit and be required to keep most of the old UCLAF personnel, in spite of their known lack of professional qualifications. The new director will not be independent at all. He will still be in thrall to the Commission and will have nothing like the clout which national audit offices enjoy in, for example, the United Kingdom—most especially, in Holland or in the Scandinavian member states.

So in spite of the courage of the whistleblower, the condemnation of the Commission by the independent committee of experts and the grand theatrical gesture—

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. Wardle

I shall not for the moment. I appreciate that the hon. Gentleman will have much to say, but time is short and I have nearly come to a conclusion. He always does have a lot to say, and it is always of interest.

In spite of the grand theatrical gesture of the Commission's mass resignation and the fight against fraud, that which is being proposed leaves the EU toothless in its anti-fraud effort. It is all talk and no action. The will to improve accountability and transparency simply does not exist, and the inevitable consequence will be that corruption will increase.

Mr. Deputy Speaker, I am sure that you will allow me a moment longer. For those of us of a sceptical nature, none of this will be surprising. The sceptics might agree with me that the United Kingdom should insist on a properly functioning single market, tried and tested over a suitable period, before the Euro-zealots try to rush headlong into experiments with an unworkable single currency, and into economic and monetary union as a prelude to their real goal of a federal state.

It is essential that the scandal of financial malpractice and fraud in Brussels be adequately addressed. That is why my right hon. Friend the Leader of the Opposition's cautious, step-by-step approach to further integration in the European Union is absolutely right, and why the Government's timidity in dealing with OLAF, which is not an effective successor to UCLAF, is so disappointing.

Euro-enthusiasts of an uncritical disposition ignore the failure of anti-fraud measures at their peril. If the difficulties of checking fraud seem formidable now, they will become far worse if they are not resolved before the EU goes in for more enlargement and yet further extension of treaty competence. With respect to EU fraud, a stitch in time might save nine, but those in Brussels have hidden the needle and lost the thread.

5.51 pm

Mr. Alan Campbell (Tynemouth)

I am grateful for the opportunity to contribute to the debate. The Chamber reminds me of a Public Accounts Committee meeting, but it is the stronger for that.

Tackling fraud in the European Union is an important matter. It is too important to be kicked around by the Opposition during a European election campaign. I associate myself with the comments of my hon. Friend the Member for City of Durham (Mr. Steinberg).

I, too, am a member of the Public Accounts Committee and took part in the visit to Brussels and Luxembourg last month. I do not want to pre-empt the report that will be produced for the House, but I shall make a few observations.

I wonder how many of my colleagues recently received, as I did, a letter appealing to me to support the Conservative party in the forthcoming European election. The letter does not state which Conservative party, but it sets out one of the planks of the Conservatives' campaign, which we heard from the shadow Chancellor this afternoon. It suggests "doing less better" in Europe as one way of tackling fraud. That is an interesting phrase, "doing less better"—presumably there is a comma in it somewhere. It smacks of one of those focus groups which, we understand, are having an increasing influence on Conservative party policy.

For Conservatives to aim to do less, but better, and at the same time to cut the resources paid to Europe, raises some interesting questions. Does "doing less better" mean avoiding or scrapping EU undertakings where fraud is a problem? Given that fraud is a major problem in the common agricultural policy, does it mean scrapping parts of the CAP for British farmers? If so, they should be told about that.

If "doing less better" means that, because there has been fraud in the tourism programme, we should walk away from it, the people of the constituency that I represent should be told. We benefit from £640,000 of European help for tourism in my area. If there is fraud in the ECHO programme, as we have been told, does that mean a block on further humanitarian aid to countries such as Yugoslavia? We need to know.

A much more productive approach would be to make progress on developing a system of proper audit and accountability across Europe. That would require co-operation between member states, as well as leadership, rather than shouting from the sidelines. Listening to some of the Opposition spokesmen this afternoon, one would be led to believe that fraud never occurred during the 18 years in which they were in power, or until Van Buitenen blew his whistle. However, the evidence of fraud in the EU was well known.

In the tourism programme since 1989, more than 70 individuals and organisations have been implicated in wrongdoing, yet it took two years to get rid of the head of the unit, and the director general eventually went in October 1996 only on condition that he was allowed to retire in the interests of the service".

Nepotism, misuse of funds and mismanagement of the programme were taking place, yet at the end of it all, the leader of the Tory MEPs said: I know that what has been going on for years has now been exposed. The hon. Member for Vale of York (Miss McIntosh) says that he played a part in exposing the fraud, and good on him, but the Tories cannot have it both ways. They cannot take credit when fraud is exposed in Europe, and deny that there was fraud there while they were in government.

Even after that, rather shamefully, Tory and Liberal MEPs failed to back Labour MEPs, as we have heard, in their efforts to set up the committee of independent experts. Progress has been made only because certain Governments, particularly our own, have been willing to take the lead and grasp the nettle.

I am trying to adopt a positive approach. Assuming that we accept that Britain's future lies in the European Union—at least half of the Conservative party accepts that—and if we acknowledge that the present Government will not last for ever, we should seek common ground, not only in the House, but with our partners in Europe. We must seize the opportunity for root-and-branch reform.

There is common ground, despite the impression given by the shadow Chancellor, and there should be common cause. As the hon. Member for Bexhill and Battle (Mr. Wardle) said, members of the Public Accounts Committee were united by their view of the complacency that characterised the Commission and parts of the Parliament. That complacency helps to explain the failure to act to root out fraud earlier.

However, the complacency is not universal. I did not detect complacency among the committee of independent experts or among the growing group who are proponents of what might be called a Danish-Dutch-British model of accountability and right of access in the EU. We need to build on that consensus.

Common ground is emerging on the need to develop a new and modern European accounting and audit culture which improves procedures across the member states where 85 per cent. of the budget it spent. There is also common ground on the view that the 15 per cent. of the budget that is spent by the Commission should also be properly accounted for. The Commission cannot shrug its shoulders and say that there are more important matters, such as enlargement, to worry about. I hope that both sides of the debate can unite behind the approach that I have outlined.

Mr. David Davis

I apologise to the hon. Gentleman for missing the first minute of his speech. As the hon. Member for Croydon, Central (Mr. Davies), our colleague on the Public Accounts Committee, has joined us, I want to put a question to him that is important in the context of the debate.

All of us who went to Brussels and Luxembourg were struck by the need for dramatic changes—the hon. Member for Tynemouth (Mr. Campbell) just referred to the Danish-Dutch-British model of accountability. Earlier the hon. Member for Croydon, Central raised as a psychological barrier the need for a treaty change. The Prime Minister has argued that we need root-and-branch reform. Treaty change is not as difficult as it is sometimes portrayed. It is often used as a barrier when it is not one. There have been intergovernmental conferences that have decided on such matters in one day. Does the hon. Gentleman believe, as I do, that we should go for radical reform, or for an interim measure?

Mr. Campbell

I am sure that my hon. Friend the Member for Croydon, Central (Mr. Davies) will want to make his own case. I am not sure whether the right hon. Member for Haltemprice and Howden (Mr. Davis) expects me to answer that question. The issue is where we start from in this debate: whether we can agree as to what can be achieved and whether we can engage in debate constructively and positively. I think that we share common ground as to how radical that reform would need to be.

I want to make one final point about the Commissioners. In future, they cannot hide behind the idea of collective responsibility. We require a clearer understanding of who is responsible for what in the Commission and to whom people should be responsible. If there is shared concern and common ground, that begs the question, which has been asked—at least by Labour Members—as to why the previous Government failed to act sooner. Change will be extremely difficult, but not impossible. There would be much less positive influences for change if a future Government were shouting from the sidelines. Some of the necessary changes will sit uncomfortably with some of the stated aims of cutting back on the roles and resources of European institutions.

I was most interested in the comments of the hon. Member for Twickenham (Dr. Cable), as I, too, want to speak about employment practices in the EU. There seems to be an employment culture that encourages temporary employment and short-termism—even, as the Committee found, among posts in UCLAF itself. Although good and trusted people may be employed under temporary contracts, such contracts can often lead to delays in making appointments. That leads to the setting up of ad hoc arrangements, which in turn lead to accusations of wrongdoing. That employment culture lends itself to nepotism and, expensively, to an over-reliance on consultants and experts.

The European Court of Auditors is aware of that problem, but does not have the power to recommend that institutions should take on more staff, even if, by doing so, European taxpayers would be given greater value for money. In any case, the Court of Auditors is itself constrained by an annual budget that is £10 million less than that of this country's National Audit Office. We were told by the shadow Chancellor that that was one of the legacies of the previous Government.

We require serious debate about resources and how they are used, and about the role of institutions such as the European Court of Auditors. It will not do to try to transfer a particular national model—even our excellent British model. We need to develop a new, European model of audit and accountability, even if those words may be alien to some Members of the House. Tackling fraud relies on constructive engagement in Europe; it cannot be achieved from a position of isolation. This is a serious issue; it is worth much more than to be used as a weapon to beat an anti-European drum. It requires direction and leadership in Europe; I have seen no evidence of that from the Leader of the Opposition, in terms either of Europe or of his own party.

6.3 pm

Mr. Richard Page (South-West Hertfordshire)

In a rare and delicate fashion, I want to raise the debate above the party political level and move it into a more open and nationalistic mode. If any Member of the House were to go out into the highways and byways of Westminster to ask the average British citizen what he or she thought about the financial control of Europe, or what that person thought about the way in which Europe looked after taxpayers' money, there would be, first, a snort of derision, followed by a reply that could probably not be repeated in this House. [HON. MEMBERS: "Unparliamentary."] As my colleagues advise me, the answer would be unparliamentary.

Whatever view one takes of Europe—whether one is for or against integration, or for or against the euro—it boils down to the fact that all of us in the Chamber share a unity of desire to see better accountability of taxpayers' money, so that it is more effectively spent in the European Union. I have no doubt that many of the reservations that are expressed as to the size of the EU budget and the size of the British contribution to that budget are influenced by the thought that, at present, that money is not being well spent.

I am grateful to the hon. Member for Tynemouth (Mr. Campbell), who gave us a trailer for the Conservative party' s European manifesto. That manifesto argues for a reduction in contributions, something that I can support. The pressure for efficiency will become more important, especially as the EU enlarges following the admission of central and eastern European states. That will mean that even larger sums will be involved and, unless there is change, there will be an even greater opportunity for larger sums to be mis-spent and mishandled. With efficiency gains, we can have the penny and the bun. We can still achieve the same objectives, but with lower contributions.

For that reason, as a Member of the Public Accounts Committee—three quarters of whose Members are in the Chamber—I supported the suggestion in our debate earlier this year that we should have an away day to Brussels and Luxembourg so that we could see exactly how the financial controls inside the Commission were implemented. Bluntly, I found a worrying lack of direct accountability, a lack of clear lines of responsibility and a lack of the use of the effective accounting and auditing mechanisms that we take for granted in the UK.

There is a divide between what happens in the UK and what happens in Brussels. The European Parliament is flabby. It must take a firm grip of the situation and ensure that the European Commission has more effective direct management of expenditure, with particular reference to its external aid programmes. At present, it is impossible to tell how fully the Commission has been able to meet programme objectives and how external aid programmes have been operated to ensure that they do not suffer from fraud. We need the implementation and control of schemes that are not susceptible to fraud; at present, the way in which those schemes are set up leaves them wide open to fraud. That is an example of all the problems that are coming from Europe.

I could spend the next half hour going through all the scams that have been running in EU operations during the past few years. I fully accept that many of those scams took place under the previous Conservative Administration. However, that does not mean that we should stop considering them now. We must try to make improvements and move on from the arguments advanced by the Conservative Government at the time of the Maastricht treaty.

I stagger with disbelief at how some of those scams could have gone through. One example is the beef export refund scheme. That scheme carried an inherent risk because the rate of refund for different countries outside the EU varied. Our National Audit Office found that we sent 5 million kg of beef to Mauritius, where there are 1 million people. Surprise, surprise—one of the highest amounts of support was paid for that import.

More recently, in relation to fishing vessels, EU funds were used as incentives for people to fish outside European waters—an objective that we all support—but what did we find? In 90 per cent. of cases, the vessels subsidised were either inactive—sunk—or those people were already fishing outside the EU. That 90 per cent. represented a slight shortfall on the programme objectives. Those who accompanied me on the away day will know what a sacrifice I make by not mentioning the cochineal beetle scam—that was a joy and a wonder to behold.

My worry is that the case of the whistleblower is not a one-off. We must remember that the whistleblower was not a civil servant acting on a whim, who took action on the spur of the moment. For month after month, he tried to persuade his superiors to take an interest in the concerns that he had raised and to take action. From what I gather, the reaction that he received was either direct hostility—that he would be fired if he continued—and threats of other consequences if he did not desist; or initial expressions of interest, only to be followed by the individuals whom he had approached saying that he should forget all about it.

That typifies my concerns about the way in which the Commission operates, that it is far too incestuous and lacking in outside direct and clear accountability. The Commissioners do not appear to own their own directorates, by which I mean that they are far too involved in the creation of policy instead of in directing policy—the tail wags the dog. In turn, the Commissioner becomes more and more a creature of the directorate, rather than the driving force of policy creation. Unless Commissioners exhibit clear independence of thought in the near future, the EU will not drive forward progressively, but will remain locked in a stifling bureaucratic circle.

We have witnessed the resignation of the Commissioners. Until that time, the investigative UCLAF unit was controlled by, and reported to, the Commission. I shall not repeat the words of my hon. Friend the Member for Bexhill and Battle (Mr. Wardle). Although it might be hotly denied, I gained the impression that the careers of individuals within that unit were closely bound up with that of the Commission, so perhaps it would not have been a career-enhancing move for individuals in UCLAF to create too large a wave inside the Commission.

There does not appear to have been an adequate Commission response to the concerns expressed by the Court of Auditors. The argument that the Commission was responsible for only 15 per cent. of expenditure, with 85 per cent. being spent by member states, is totally unacceptable. I am sure that the House believes that the Commission should accept responsibility when fraud occurs and be prepared to investigate it. The report of the committee of wise men has already been quoted, but their conclusions are worth repeating: they found a growing reluctance among the members of the hierarchy to acknowledge their responsibility. It is becoming difficult to find anyone who has even the slightest sense of responsibility. That is a damning indictment of anyone in charge of a directorate of the European Commission.

I know that the Commission has the ability to investigate expenditure, even though, during our visit, we heard that denied, not once, not twice, but three times. That is unacceptable. My hon. Friend the Member for Bexhill and Battle spoke of OLAF, son of UCLAF, and I wonder whether the new unit will be as fully independent as has been promised. I wonder whether it will be able to report fully to the Budgetary Control Committee of the European Parliament. I am not convinced that there will be established a strong enough mechanism to ensure that such concerns are properly and adequately investigated.

I have already said that there needs to be stronger supervision by EU Commissioners of the programmes under their control, but with that has to come a clear-cut policy of prosecutions being pressed when fraud has occurred. Such matters must not be swept under the carpet and the sums lost pushed to one side—that would be unacceptable. The Court of Auditors operates fairly well, but there is no European organisation parallel to our National Audit Office that carries out value-for-money audits. That brings me to the question that I put to the hon. Member for Twickenham (Dr. Cable). There is no body or organisation that reports directly to the European Parliament to ensure that value for money has been obtained, and no equivalent of our Public Accounts Committee to investigate budgetary irregularities or weakness. Such improvements have to be installed as a matter of urgency, if the average member of the British population is to regain confidence in the European movement.

6.14 pm

Mr. Geraint Davies (Croydon, Central)

The subject of our debate today is not the Public Accounts Committee visit to Brussels and Luxembourg, although I had the pleasure of participating in that, but a motion—a facile, self-indulgent motion from a party which for 18 years held a place at the Council of Ministers but consistently failed to act on reports received from the Court of Auditors and make any headway in implementing the changes the court proposed to tackle fraud and improve accountability. In sharp contrast, the Labour Government and the current Members of the European Parliament, especially Pauline Green, have acted in such a way that, for the first time, the European Parliament refused to accept the accounts for the 1996 European budget. A committee of wise men to look into fraud, accountability and good practice was set up, which ultimately resulted in the mass resignation of the entire Commission—a great blow struck by democracy against an administration, which has led to a programme of root-and-branch reform, which we shall see emerge at the ECOFIN meeting on 25 May.

The Opposition's motion calls for the replacement of all the Commissioners, irrespective of their individual culpability. I suppose that is designed to ensure that there would be no operational continuity within the Commission—an outrageous and wrecking move. In addition, the shadow Chancellor has called for the complete institutional independence of the new fraud office, OLAF. Because a new institution would require a treaty change, which must be agreed by all member states, all current investigations would have to be suspended, perhaps for years. The result would be that fraud, instead of decreasing, would escalate out of all proportion. The Opposition motion forgets that the problems of today are linked to the isolationism of the previous Government, and ignores the fact that their proposals would plunge the Commission into chaos. Presumably, that is all part of the hidden agenda of Euro-scepticism, which led to the current Government having to sort out the BSE crisis by abandoning the isolationism and impotence that characterised the previous Government.

That said, there are serious problems with budgetary control, nepotism and so on that I shall confront, instead of addressing the schoolboy motion standing in the name of the Leader of the Opposition. The new Labour Government's agenda is one of transparency, accountability, good housekeeping and partnership in Europe. It is true that, in the overall budget of about £55 billion, there is roughly a 5 per cent. irregularity. That adds up to a lot of money, but it must be recognised that, in this country, when we break down accounts by different Departments, similar rates of irregularity are not unknown—indeed, the level of irregularity in the social security budget is often nearer 8 per cent. The National Audit Office would refuse that particular departmental budget, but accept all the other Departments' budgets overall. The lesson of that is that the budget of the European Commission should be broken down into spending by the Commission, and spending by member states. It might be that the Court of Auditors would say that the transport directorate was fine, but that the structural fund or the agricultural fund was not. We have to consider breaking down budgets and focusing on areas of weakness.

On several occasions during the PAC's three-day visit, I heard well-worn anecdotes—often to do with sampling errors—explaining various irregularities. We were told that, because a road that was built did not receive an environmental audit, it was an irregularity and so formed part of the 5 per cent. financial irregularity. I was told that a 12-hectare field was measured at 13 hectares, and that that irregularity when multiplied from the sample resulted in a gross distortion of 5 per cent. Those are facile and ridiculous arguments: if sampling methodology is correct, such effects will not occur; and if sampling methodology is incorrect, it should be changed. I was shocked by the extent of the complacency with which educated people accepted such excuses for non-action on the part of the Commission.

It is true that 95 per cent. of expenditure is carried out in member states, and that 98 per cent. of irregularities occur within member states. While not being complacent about the changes that must be made in the Commission, much of the problem lies with delivery on the ground. The Commission is playing its part by trying to sort out regular systems of accountability.

We have a very good system in this place. The NAO audits all Government expenditure—putting to one side that which is audited by the Audit Commission—which then goes before the Public Accounts Committee which interviews the permanent secretary responsible for the expenditure. An equivalent system in Europe would involve the Court of Auditors examining all expenditure and bringing it before the Budgetary Control Committee, which would then interview the accounting officer, who should be the director-general of the Commission.

In fact, no one accountable person appears before the Budgetary Control Committee. In Europe, there is an authorising officer for some expenditure. He goes to a financial officer who says, "It seems to be all right, so here's the money". No one knows who is accountable. That is one of the reasons why the Commission does not have the same systems of scrutiny that operate in Britain and in other north European countries. Discussions are continuing about the need to clarify who is accountable for what. I had the pleasure of conversing with Commissioner Monti last week about that subject, and the Commission wants to make such changes.

The Court of Auditors, which conducts the audit, is located in Luxembourg and there is a 280 km round trip to travel to meetings of the Budgetary Control Committee. That committee considers reports for only 10 per cent. of its meetings. What is more, the reports that it considers have already been edited by the Commission using a method called the "contradictory process". If the Court of Auditors points out where the Commission has gone wrong, it will reply, "No, we are not wrong because of this, that and the other". The two bodies must then come to an agreement and there is a filtering of information. Members of the European Parliament, those who serve on the Budgetary Control Committee and the Commission across the road enjoy a cosy relationship. After all, the Court of Auditors—which is independent—is a long 280 km round trip away. We must consider that point.

There is obviously fraud within and outside the Commission. The Naples example has been cited. It involved the discovery that 96 per cent. of applications for subsidy for olive oil processing in Naples were irregular and fraudulent. The problem is not that the Commission sent the money but whether justice was delivered via the local legal system. I assume—perhaps my view is prejudiced—that the mafia was behind those applications. If four applications out of 100 are successful, what will stop the mafia? I do not know. The point is that legal delivery systems on the ground must stop those illegal activities.

On 25 May, a recommendation will be put before ECOFIN. I want the new OLAF body to have operational independence. The director should have statutory independence and be able to approach the European Court of Justice if his or her activities are blocked in any way. As the post would be institutionally independent, the director would have direct access to the Commission.

The Commission wants a separate institution to be created. That would take years to establish and would not allow the same sort of access. At a time when the Commission is being investigated and we know that some Commissioners are culpable, we must smell a rat: who is urging the delays? The current proposals are good. The new body should have the power to investigate fraud not just in member states but in the Court of Auditors, the Commission, the economic and social committee and in the Council of Ministers. The granting of that sort of power will require a change in statute over time, obliging officials across the European Union to report to OLAF and co-operate with its investigations. As the institutions are autonomous, we would need to grant those powers via institutional agreements signed by the institutions. They would have to agree voluntarily to grant access to OLAF. I am sure that they would do so if the right pressure were applied.

We cannot allow those involved in fraud to further their careers within the Commission. There is a danger of "rubbing shoulders". We need to evaluate and audit the nature of benefits and expenditure in those countries from which the Commissioners come. I am thinking specifically of the Commissioner who is responsible for trade with South America, whose country benefited from a disproportionate volume of trade with it. We must ask questions about that sort of occurrence. We should ask also about the nature of the cabinets, and the process whereby a Commissioner appoints several political advisers who, in many instances, determine who receives jobs in the European equivalent of the civil service: the directorates-general. Those political appointees are often given top-level civil service jobs which they are not equipped to handle. We seek efficiency, effectiveness, accountability and transparency in the working of the Commission.

I believe that we should create a new post of vice-president of the Commission in charge of finance, personnel and administration. At present, that work is conducted by individual Commissioners and there are enormous differences in those operations. Romano Prodi has an opportunity to shake up the Commission and its institutions and to shake out fraud. I am sure that he has our undivided support—particularly that of Labour Members—in that endeavour.

The future of Europe and of Britain in Europe does not involve carping and adopting the pathetic divided, isolationist approach that is characterised by the Opposition. We must initiate constructive engagement to ensure greater accountability, transparency and effectiveness for a new Europe in a new millennium where are children can live with pride.

6.27 pm

Mr. Andrew Rowe (Faversham and Mid-Kent)

It has been good to listen to a constructive and positive debate across the House. In the past, scrutiny of the European Union has been paralysed by political ambivalence. Those who support it have been reluctant to expose its failings in case it damaged their case and those who dislike the EU have believed that becoming involved in its workings somehow affords it unwarranted credibility. Therefore, the European Union has escaped proper scrutiny in this place.

I begin from the position of wanting the European Union to work well. We must introduce effective financial controls—what is more, I see no reason why those controls should not apply also to Members of the European Parliament. The need for such controls is shown by our experience in this place. During my time in Parliament, I have witnessed the almost annual tightening of the controls governing our expenditure and I see no reason why we should not insist on a similar tightening for Members of the European Parliament. If they can award themselves expenses that are out of all proportion to their costs, their capacity to scrutinise the misuse of money within the Commission is gravely damaged. The temptation of any group of unaccountable men and women to spend other people's money lavishly on themselves is very great—we have only to look at the building rising above Westminster station to recognise that fact.

It would have been appropriate if the Commissioners had departed when they resigned. Nothing would have sent a clearer signal that they felt accountable, and that is a serious missed opportunity. Of course continuity of decision making is useful, but I suspect that no great disaster would have occurred if the Commission had suffered an hiatus of a few weeks. Furthermore, the argument about fraud might have been advanced further if the European Parliament had had the power to demand the resignations of individual Commissioners.

The Council of Ministers should take some responsibility for putting pressure on EU bureaucracy. The problem is that it never wants to take serious responsibility for carrying out the policies that it creates. Over the years, we have seen a lamentable picture in every EU country when Ministers return to their national Parliament to crow when they have got what they want and to whinge about unfairness when they have not. The result of such populist behaviour has been steadily to build up a view that the Council of Ministers cannot be blamed for anything that results from its decisions.

In their reply to the report of the Select Committee on International Development on the EU development budget, the Government say: The Government agrees that Council policy documents are rarely effectively, consistently or comprehensively translated into operation". If the Council of Ministers cannot ensure that its decisions are carried out effectively, I do not understand how we will get very far in dealing with even the limited matter of fraud.

Much more decision making should be returned to national states. The Government support that, and say: The Government agrees that the Commission should concentrate its intervention on areas where it has comparative advantage over bilateral donors. That is in relation to the development budget. Mr. Prodi states that he supports that belief, and says: Only a few important things should be done in Brussels".

If we consider the mess that is so frequently made of the European Union development budget, we realise that that happens because the EU has neither the personnel nor the skill to control fraud in its development programmes. It should change the structures so that a larger part of the budget is given back to the nation states or to allow individual nations to take the lead in delivering the programmes in particular countries.

Philip Lowe, the director-general of Directorate-General VIII, pointed out, in evidence to the Select Committee, that the budgetary discipline, or lack of it, evident in the EU is far below the standard expected of its peers in the normal budgetary mechanism which other parts of the Commission expect". In its reply, the Select Committee said: We are not surprised to see such concerns emerging from a Community where there are huge discrepancies between political priorities and administrative capacity, over commitment of funds to programmes which cannot disburse them effectively, and serious delays in the payment of some accounts.

The Government say: The Government supports a policy of zero tolerance of fraud. They continue: We also support measures to strengthen the fraud investigation capacity of the Commission. From what I heard in the speech of my hon. Friend the Member for Bexhill and Battle (Mr. Wardle), it sounds as if OLAF, son of UCLAF, will leave the fraudsters with the last "laf".

There are serious defects in the European Union, particularly in its budgetary controls, but that is no reason to seek to destroy the EU any more than housing benefit or social security fraud in the United Kingdom is a reason to seek to destroy local and central Government. Member states, including the UK, seem to be slow to respond to fraud. I was a member of the Public Accounts Committee when we quizzed the Department responsible for disbursing funds in this country paid out under the CAP about CAP fraud. When we asked why no use was made of multinational investigating teams, we were told that although there were 700 staff, it would be impossible to train even a few of them in the necessary foreign language. If that failure of will is common to all member states, it is no wonder that farm fraud still accounts for nearly 1 per cent. of total agriculture expenditure.

Other hon. Members want to speak, so I shall now sit down.

6.34 pm

Mr. Archie Norman (Tunbridge Wells)

In the time that remains, I want to make the simple point that those on both sides of the House have recognised that fraud in the Commission's spending is a very serious problem. Only the hon. Member for Twickenham (Dr. Cable), the Liberal Democrat spokesman, tried to put the problem in proportion, and he was rather unsuccessful. The fraud is widespread.

When fraud and misuse of funds within an organisation occur on that scale, they reveal not that the institution merely needs a better audit committee and a system to investigate fraud, but that it is sick within and that the problem is systemic and chronic, rather than symptomatic, and can be treated only by reform from within.

There is good testimony that approximately 5 per cent. of the EU's total budget is fraudulently spent and that approximately 5 per cent. cannot be accounted for. It is believed that 10 per cent. of the total spending is mis-spent in its end use or subject to fraud. It is important to remember that 5 per cent. of the EU budget is spent on the administrative costs of the Commission alone and, according to simple arithmetic, approximately a further 5 per cent. is spent on the European Parliament. That means that approximately 20 per cent. of the total budget is not delivered to the end user but disappears in administrative cost or through misuse. In addition, as the Chief Secretary to the Treasury said, a large proportion of the budget is wasted through the CAP and, as a result, benefits no one very much.

The problem is long-standing, and it has been pointed out several times that it predates this Government coming into power. In 1994, a House of Lords report stated that fraud in the Commission was prevalent on a monumental scale, reaching into every sphere of Community activity. Its next remark, on a subject close to my heart, struck a chord with me: If any of the big companies in the UK had their accounts qualified in this way the banks would call in their loans, the shareholders would evict the directors and a DTI inquiry would ensue". That would surely be correct in any culture or environment that we know of.

Fraud starts at the top and stretches to the bottom. The culture of the EU is, at worst, one of nepotism and, at best, one of extravagance and a failure to count the pennies and look after people's money well. The Commission has displayed staggering complacency about fraud over the years. Herbert Bosch, the rapporteur on fraud to the Budgetary Control Committee, stated: The Commission is not seriously interested in detecting fraud. It is more interested in covering it up". There we have the problem: there is an atmosphere and culture of indulgence throughout the Commission, which comes from within. Without fundamental reform, that will not be changed.

It is no good Labour Members simply talking about the exact nature and proportions of the fraud—we can all trade points about that, although it is important—and the independence of the fraud investigative unit. That is like trying to catch the horse after it has bolted. The issue is how we change the culture from within and create better accountability and better transparency. That process must start with a new management system, a code of ethics and a new approach to the recruitment and operation of civil servants and officials within the Commission. There must be an end to formal and informal flag-marking of jobs.

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. Norman

No, I do not have much time, and I want to make three or four more points.

The second element of reform is transparent reporting, and the issue of such information must also be timely because accounts from the Commission come out disgracefully late and are of a standard that would not be acceptable in public institutions or companies in Britain.

Thirdly, there must be a strengthened finance or budgetary commission within the EU. I am sure that the Financial Secretary will agree that the pre-eminence of the Treasury in the British governmental system is good for sound government and the use of funds. No such pre-eminence exists within the Commission. If the Commission is effectively to use funds and count pennies, it is vital that the role of the budgetary commission in following, in detail, the spending through to its end use is considerably strengthened.

Finally, there must be a new atmosphere of intolerance and toughness at the top. That must start with the Commissioners, who need explicitly to be held to account for the effectiveness of the spending and any fraud that may result.

In other words, EU fraud is not a problem for which we can graft on solutions from outside or a problem of co-operation or collaboration, but a question whether we are able to grasp the nettle fundamentally to change the culture and ethics of the Commission for ever and from within.

6.39 pm

Mr. John Whittingdale (Maldon and East Chelmsford)

This has been an important and, given the large number of members of the Public Accounts Committee who have spoken, a well informed debate. However, it is worth saying that it has been a long time coming. It is six months since Paul Van Buitenen revealed the scale of the fraud within the European Commission. It is two months since the report of the committee of independent experts, which led to the resignation of the entire Commission.

Immediately following the report's publication, my right hon. Friend the Member for North-West Hampshire (Sir G. Young), the shadow Leader of the House, asked for a debate on the report and on the whole question of European fraud. He repeated that request the following week. However, only now—eight weeks later and in Opposition time—are we finally debating the matter. That is perhaps an indication of the importance that the Government attach to tackling European fraud.

There has always been a problem with fraud and mismanagement in the European budget. The previous Government repeatedly grappled with that problem. Our task was not made easier by the fact that most member states did not have to pay anything into the European budget, and so appeared to show little interest in ensuring that it was properly spent, but, despite that, considerable progress was made.

As a result of British pressure, the Court of Auditors was established as a full institution of the Community and its reports had to be followed up. British pressure forced the Commission to agree to produce an annual report on the fight against fraud for the Council of Ministers and led to the strengthening of the Court of Auditors and the financial controls exercised by the European Parliament under the Maastricht treaty.

The most recent Court of Auditors report is unable to account for £3 billion of expenditure. Not all of that is necessarily due to fraud; maladministration, mismanagement and incompetence are undoubtedly also responsible. However, that figure represents almost half the amount that Britain contributed to the European budget in the year in question. It is money that British taxpayers worked hard to earn and to pay, and they are entitled to demand that action is taken.

Unfortunately, little has been done in the past two years. Despite Ministers' claims that fighting fraud would be a key priority of the British presidency, virtually nothing was achieved. No mention was made of any concrete action in the relevant section of the presidency conclusions following the Cardiff summit. Since then, the Government have never once put fraud and mismanagement in the European Commission on the Council of Ministers agenda. The Chief Secretary talked about the Government's attitude being zero tolerance of fraud. We have seen zero action on fraud.

Dr. Nick Palmer (Broxtowe)

Will the hon. Gentleman give way?

Mr. Whittingdale

I will not, if the hon. Gentleman will forgive me. I have only a short time in which to make my winding-up speech.

In the 1999 preliminary draft budget, overall expenditure on preventing fraud was cut by 16 per cent. To take one sector, the draft budget line showed a reduction from 500,000 euros to 495,000 euros in expenditure on combating fraud in the textile sector. Meanwhile, restaurants and canteens received more than 1 million euros. But the real scandal relates to the fraud and mismanagement that is taking place in the Commission itself.

I pay tribute to Conservative MEPs and, in particular, Edward McMillan-Scott, who has been campaigning on this issue for many years. The hon. Members for North Durham (Mr. Radice) and for Tynemouth (Mr. Campbell) referred to the scandal of what had been going on in the tourism office. Edward McMillan-Scott first drew attention to it in 1990, and in 1995, when he was fed up with the lack of action being taken, he called in the Belgian fraud squad to investigate.

For a long time, Conservative MEPs' warnings were ignored. It was not until Commission official Mr. Paul Van Buitenen blew the whistle that something was finally done. However, when he first reported his findings to the Secretary-General of the Commission, he was told that he would be sacked if he passed his report on to the European Parliament. When he did so, he was immediately suspended.

Although the Commission was prepared to cover up the evidence, the Parliament was not. Given that evidence, it is hardly surprising that the Parliament voted to refuse to approve the 1996 budget. The hon. Member for Croydon, Central (Mr. Davies) seemed to suggest that Pauline Green and Labour MEPs were somehow responsible for that, but the vote was carried in the teeth of opposition from Labour MEPs.

According to The Guardian, Labour MEPs were put under intense pressure by the Prime Minister to, let the Commission off the hook". We know that the right hon. Gentleman wrote personally to Pauline Green to give her her orders, although he has refused to publish that letter.

The German socialist spokesman on the budget committee resigned in disgust at the attempts of the British Labour group to protect the Commission. According to Pauline Green, the group even went so far as to table a motion of censure of the whole Commission and then say that it would vote against, to demonstrate our confidence in the Commission".

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. Whittingdale

No, I have very little time in which to speak.

When a vote was taken, all but two British Conservatives voted in favour of the motion and 53 British Labour MEPs voted against. No wonder Mr. Van Buitenen said that he was disappointed by the attitude of the socialist group and, in particular, Pauline Green. He said: she seems to support the Commission; perhaps they have a higher agenda in the Euro or what".

The report of the committee of independent experts, which was published last March, is a devastating document. It talks of fraud and corruption passing unnoticed at the level of Commissioners themselves and of loss of control by the political authorities over the administration that they are supposedly running. It also states that there is a heavy responsibility for the Commissioners individually and the Commission as a whole. Faced with such a damning indictment, the Commission had no alternative but to resign.

Extraordinarily, eight weeks later, the Commissioners are all still at their desks and behaving as if nothing at all had happened. When they finally go, they will collect substantial pay-offs at public expense. Meanwhile, Mr. Van Buitenen has been moved into a new job in the personnel department. It is outrageous that certain individual Commissioners such as Edith Cresson were not instantly sacked in disgrace, and Conservative MEPs are quite right to refuse to co-operate with her in any way.

Although most Commissioners are not personally guilty, the entire Commission is discredited. The only way to restore credibility is for them to leave their offices immediately and for no Commissioner to be reappointed beyond his term. The Commission should stop trying to extend its power ever wider and should concentrate on doing properly the things it should be doing. Part of the reason why fraud and mismanagement have been allowed to grow unchecked is that the Commission has closed its eyes to everything that does not further its aim of creating a federal state. Its only interest has been to spend more money, not to spend money more efficiently.

Our view is that Europe needs to do less, but to do it better. That is why we have proposed a 10-point plan to root out fraud and maladministration, and why we want a genuinely independent and powerful anti-fraud office. As my hon. Friend the Member for Bexhill and Battle (Mr. Wardle) made absolutely clear, what is on the table at the moment does not involve genuine independence.

Conservative MEPs have been campaigning for such changes for many years. Labour MEPs, on the other hand, have seemed to be more interested in covering up fraud and protecting the Commission. That is perhaps less surprising when we look at their record of waste and abuse of public money. A few weeks ago, we learned how careful the leader of the socialist group is with public money when it was revealed that she had arranged that she could claim travel expenses for attending a wedding in Cyprus.

Today, we have heard that former Labour leader Glyn Ford used his office expenses allowance to pay for his laundry, his decorating, his gardening and even his log cutting. According to his former assistant, his house became a hotel paid for by the Parliament, but because of the absurd electoral system introduced by the Government, he will probably be re-elected next month and his electors cannot even vote against him if they want to. If the Government are serious about cracking down on that kind of abuse, the Minister should make it clear now that Glyn Ford will not be a candidate at the elections next month.

Fraud and mismanagement are endemic throughout the European budget and extend right to the heart of the Commission itself. Conservative MEPs have campaigned over many years to tackle the problem and we have produced a concrete programme of action to achieve that. The Government have done almost nothing, while their supporters in the European Parliament have done their best to sweep the problem under the carpet. I ask the House to support the motion.

6.50 pm

The Financial Secretary to the Treasury (Mrs. Barbara Roche)

As one normally says on these occasions—and it is true in this case—this has been a good debate with some good contributions from Labour Members. The speech by the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) was astonishing, because it fully demonstrated the collective amnesia of Conservative Members. I am grateful for the excellent contribution of the hon. Member for Tunbridge Wells (Mr. Norman), because he reminded us that fraud has been going on in the European Union for a considerable time. What did the Conservative party do when it was in government? Very little indeed. I am also grateful to the hon. Member for Tunbridge Wells for giving me the opportunity publicly to thank him for his remarks on the Budget. He said that it was not a bad Budget for business. I always like to give thanks where thanks are due.

The Government believe that there should be zero tolerance of fraud, which is why the Prime Minister has called for a root-and-branch reform of the Commission. We have put this matter at the top of our agenda. One of our key priorities is financial management reform to ensure better lines of responsibility and personal accountability at all levels and to improve transparency. That important point was raised by members of the Public Accounts Committee.

Other key priorities are the modernisation of personnel policy to ensure a flexible, high-quality service, and the establishment of a management structure that will deliver an effective and flexible service, including in particular a wide review of the present structure of directorates-general and mechanisms for adjusting to changing priorities. None of those measures were taken by the Conservative party when it was in power. Improving contracting, project monitoring and evaluation procedures are other priorities.

It is important that the initiative set out by the Prime Minister and the Chancellor at January's ECOFIN meeting has met with such approval. Hon. Members have spoken about the fraud prevention office, which my right hon. Friend the Chief Secretary outlined. It will have a strong, independent head with statutory protection from dismissal, who will be appointed after consultation with the Council and the European Parliament. The head will be able to open investigations on his own initiative, will have access to buildings and documents, will be able to draw up reports containing recommendations for follow-up action, and will report regularly. That initiative has come from our Government. I expected to receive the congratulations of Conservative Members: I was sadly disappointed and let down when they were not offered.

In the time left, I shall deal with some of the points raised. My hon. Friend the Member for Workington (Mr. Campbell-Savours) asked whether the fraud office's reports will be available for debate in Westminster. That is an important point, and the answer is yes. Reports from the fraud office to the Council and the European Parliament will form part of our parliamentary scrutiny process. All hon. Members know how vigorous that process is, and we are looking forward to that happening.

The hon. Members for Twickenham (Dr. Cable) and for Bexhill and Battle (Mr. Wardle) asked whether the fraud prevention office will be able to arrest fraudsters. Only national and judicial police authorities have such powers, but it is planned to give the fraud prevention office powers to investigate and to pass on the results of its investigations. That is analogous with our National Audit Office.

My hon. Friend the Member for City of Durham (Mr. Steinberg) rightly gave some important examples, about which we share his concern. He also referred to structural funds. The United Kingdom has been concerned about that area, which is why we not only obtained a very good deal for the UK in the negotiations on structural funds but negotiated—especially during our presidency—procedures to deal with the funds. When I had the pleasure to be a Minister at the Department of Trade and Industry I took part in a conference organised in conjunction with the National Audit Office to examine this important area.

My hon. Friend the Member for Tynemouth (Mr. Campbell) made an important point about the need for a new culture of accountability. He is absolutely right, and we are determined to achieve that. I was also delighted to hear the contribution of the Chairman of the Public Accounts Committee, who reminded us of what the Prime Minister said.

The hon. Member for South-West Hertfordshire (Mr. Page) spoke about the European Union, and I was a little disappointed in what he had to say. I should have thought that he would congratulate the Government on the excellent deal that we obtained for the United Kingdom in the Agenda 2000 negotiations. Once again, I feel let down by Conservative Members.

My hon. Friend the Member for Croydon, Central (Mr. Davies) made a measured speech. His analysis of the problem was good, and he made some sensible, practical suggestions for reform. We have been working with the Commission on phase 3 of the "sound and efficient management 2000" initiative, which has resulted in welcome reforms.

The hon. Member for Tunbridge Wells referred to the development budget. My right hon. Friend the Secretary of State shares his concerns and is monitoring the situation closely. The hon. Gentleman made a good joke or a bad joke, depending on one's preferences. I thought that it was not bad at all, so I must break ranks with my hon. Friends who said that it was.

It is a bit rich for the Conservative party to initiate this debate. Let me remind Conservatives of what they have done. They initiated this debate, but what did their MEPs do? The Tory MEPs voted against producing receipts for MEPs' expenses. They voted against a wage cut for British MEPs. I know this will shock my hon. Friends, but I must tell them that Tory MEPs opposed the panel of fraud busters that forced the Commission to resign. I am sorry that Conservative Members are not taking this matter seriously, because this strikes me as an indictment of the record of Tory MEPs.

In January last year, Edward McMillan-Scott, the leader of the Conservative party in Europe, refused Labour MEP Alan Donnelly's invitation to take a cross-party approach to investigating fraud allegations in the European Commission.

Mr. Maude

This is a serious matter.

Mrs. Roche

I agree, and it is a great pity that Tory MEPs did not take it seriously. I shall remind the right hon. Gentleman of a fact that his hon. Friends did not mention. Spending on specific anti-fraud measures in the 1999 budget is 4 million euros higher than in the 1997 budget, which was agreed in late-1996 and negotiated by the Conservatives.

I am not surprised that there is a division between Conservative MPs and MEPs. After all, as Edward McMillan-Scott, their leader, said: Neither I—nor other Parliamentarians—are bound by Shadow Cabinet responsibility. What an indictment. That shows a party that is split from top to bottom.

Much more needs to be done. I can reassure the House that the Government will be working with the new Commission, and with its new President, to ensure that the root-and-branch reform outlined by my right hon. Friend the Prime Minister is achieved, and I know that my right hon. and hon. Friends will back the Government wholeheartedly in that endeavour.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 178, Noes 326.

Division No. 185]	[7 pm
AYES
Ainsworth, Peter (E Surrey)	Brazier, Julian
Amess, David	Breed, Colin
Ancram, Rt Hon Michael	Brooke, Rt Hon Peter
Arbuthnot, Rt Hon James	Browning, Mrs Angela
Ashdown, Rt Hon Paddy	Bruce, Malcolm (Gordon)
Atkinson, Peter (Hexham)	Burnett, John
Baker, Norman	Burns, Simon
Ballard, Jackie	Butterfill, John
Beith, Rt Hon A J	Cable, Dr Vincent
Bercow, John	Campbell, Rt Hon Menzies
Body, Sir Richard	(NE Fife)
Boswell, Tim	Cash, William
Bottomley, Peter Worthing W	Chapman, Sir Sydney
Bottomley, Rt Hon Mrs Virginia	(Chipping Barnet)
Brady, Graham	Chidgey, David
Brake, Tom	Chope, Christopher
Brand, Dr Peter	Clappison, James

Clark, Rt Hon Alan (Kensington)	McIntosh, Miss Anne
Clark, Dr Michael (Rayleigh)	MacKay, Rt Hon Andrew
Clifton—Brown, Geoffrey	Maclean, Rt Hon David
Collins, Tim	Maclennan, Rt Hon Robert
Colvin, Michael	McLoughlin, Patrick
Cormack, Sir Patrick	Malins, Humfrey
Cotter, Brian	Maples, John
Gran, James	Mates, Michael
Davies, Quentin (Grantham)	Maude, Rt Hon Francis
Davis, Rt Hon David (Haltemprice & Howden)	Mawhinney, Rt Hon Sir Brian
Day, Stephen	May, Mrs Theresa
Dorrell, Rt Hon Stephen	Michie, Mrs Ray (Argyll & Bute)
Duncan, Alan	Moore, Michael
Duncan Smith, Iain	Morgan, Alasdair (Galloway)
Emery, Rt Hon Sir Peter	Moss, Malcolm
Evans, Nigel	Nicholls, Patrick
Faber, David	Norman, Archie
Fabricant, Michael	Oaten, Mark
Fallon, Michael	Öpik, Lembit
Fearn, Ronnie	Ottaway, Richard
Flight, Howard	Page, Richard
Forth, Rt Hon Eric	Paice, James
Foster, Don (Bath)	Paterson, Owen
Fowler, Rt Hon Sir Norman	Pickles, Eric
Fox, Dr Liam	Prior, David
Fraser, Christopher	Randall, John
Gale, Roger	Redwood, Rt Hon John
Garnier, Edward	Rendel, David
Gibb, Nick	Robathan, Andrew
Gill, Christopher	Robertson, Laurence (Tewk'b'ry)
Gillan, Mrs Cheryl	Roe, Mrs Marion (Broxbourne)
Gorman, Mrs Teresa	Rowe, Andrew (Faversham)
Gray, James	Russell, Bob (Colchester)
Green, Damian	St Aubyn, Nick
Greenway, John	Sanders, Adrian
Grieve, Dominic	Sayeed, Jonathan
Gummer, Rt Hon John	Shepherd, Richard
Hague, Rt Hon William	Smith, Sir Robert (W Ab'd'ns)
Hamilton, Rt Hon Sir Archie	Soames, Nicholas
Hammond, Philip	Spicer, Sir Michael
Hancock, Mike	Spring, Richard
Harris, Dr Evan	Stanley, Rt Hon Sir John
Harvey, Nick	Streeter, Gary
Hawkins, Nick	Stunell, Andrew
Heald, Oliver	Swayne, Desmond
Heath, David (Somerton & Frome)	Syms, Robert
Heathcoat—Amory, Rt Hon David	Tapsell, Sir Peter
Hogg, Rt Hon Douglas	Taylor, Ian (Esher & Walton)
Horam, John	Taylor, John M (Solihull)
Howard, Rt Hon Michael	Taylor, Sir Teddy
Howarth, Gerald (Aldershot)	Tonge, Dr Jenny
Hughes, Simon (Southwark N)	Townend, John
Hunter, Andrew	Tredinnick, David
Jack, Rt Hon Michael	Trend, Michael
Jackson, Robert (Wantage)	Tyler, Paul
Jenkin, Bernard	Tyrie, Andrew
Johnson Smith, Rt Hon Sir Geoffrey	Viggers, Peter
Jones, Nigel (Cheltenham)	Walter, Robert
Kennedy, Charles (Ross Skye)	Wardle, Charles
Key, Robert	Waterson, Nigel
King, Rt Hon Tom (Bridgwater)	Webb, Steve
Kirkbride, Miss Julie	Wells, Bowen
Kirkwood, Archy	Whitney, Sir Raymond
Laing, Mrs Eleanor	Whittingdale, John
Lait, Mrs Jacqui	Widdecombe, Rt Hon Miss Ann
Lansley, Andrew	Wilkinson, John
Leigh, Edward	Willetts, David
Letwin, Oliver	Willis, Phil
Lewis, Dr Julian (New Forest E)	Wilshire, David
Lidington, David	Woodward, Shaun
Lilley, Rt Hon Peter	Yeo, Tim
Livsey, Richard	Young, Rt Hon Sir George
Loughton, Tim	Tellers for the Ayes:
MacGregor, Rt Hon John	Sir David Madel and
	Mrs. Caroline Spelman.

NOES
Adams, Mrs Irene (Paisley N)	Cunningham, Jim (Cov'try S)
Ainger, Nick	Curtis—Thomas, Mrs Claire
Ainsworth, Robert (Cov'try NE)	Darling, Rt Hon Alistair
Alexander, Douglas	Darvill, Keith
Allen, Graham	Davey, Valerie (Bristol W)
Anderson, Donald (Swansea E)	Davidson, Ian
Armstrong, Rt Hon Ms Hilary	Davies, Rt Hon Denzil (Llanelli)
Ashton, Joe	Davies, Geraint (Croydon C)
Atherton, Ms Candy	Dawson, Hilton
Atkins, Charlotte	Dean, Mrs Janet
Barnes, Harry	Denham, John
Barron, Kevin	Dobson, Rt Hon Frank
Battle, John	Donohoe, Brian H
Bayley, Hugh	Dowd, Jim
Beard, Nigel	Drew, David
Beckett, Rt Hon Mrs Margaret	Drown, Ms Julia
Begg, Miss Anne	Dunwoody, Mrs Gwyneth
Bell, Stuart (Middlesbrough)	Eagle, Angela (Wallasey)
Benn, Rt Hon Tony	Eagle, Maria (L'pool Garston)
Bennett, Andrew F	Edwards, Huw
Benton, Joe	Ellman, Mrs Louise
Berry, Roger	Ennis, Jeff
Best, Harold	Field, Rt Hon Frank
Blackman, Liz	Fisher, Mark
Blears, Ms Hazel	Fitzpatrick, Jim
Blizzard, Bob	Flynn, Paul
Boateng, Paul	Foster, Michael Jabez (Hastings)
Borrow, David	Foster, Michael J (Worcester)
Bradley, Keith (Withington)	Foulkes, George
Bradley, Peter (The Wrekin)	Fyfe, Maria
Brinton, Mrs Helen	Gapes, Mike
Brown, Rt Hon Gordon	Gardiner, Barry
(Dunfermline E)	George, Bruce (Walsall S)
Brown, Rt Hon Nick (Newcastle E)	Gerrard, Neil
Brown, Russell (Dumfries)	Gibson, Dr Ian
Browne, Desmond	Gilroy, Mrs Linda
Buck, Ms Karen	Godman, Dr Norman A
Burden, Richard	Godsiff, Roger
Burgon, Colin	Gordon, Mrs Eileen
Butler, Mrs Christine	Griffiths, Jane (Reading E)
Byers, Rt Hon Stephen	Griffiths, Win (Bridgend)
Caborn, Rt Hon Richard	Grocott, Bruce
Campbell, Alan (Tynemouth)	Grogan, John
Campbell, Mrs Anne (C'bridge)	Gunnell, John
Campbell, Ronnie (Blyth V)	Hain, Peter
Campbell—Savours, Dale	Hall, Mike (Weaver Vale)
Cann, Jamie	Hall, Patrick (Bedford)
Casale, Roger	Hamilton, Fabian (Leeds NE)
Caton, Martin	Hanson, David
Cawsey, Ian	Harman, Rt Hon Ms Harriet
Chapman, Ben (Wirral S)	Heal, Mrs Sylvia
Chaytor, David	Healey, John
Clapham, Michael	Henderson, Ivan (Harwich)
Clark, Rt Hon Dr David (S Shields)	Hepburn, Stephen
Clarke, Charles (Norwich S)	Heppell, John
Clarke, Eric (Midlothian)	Hesford, Stephen
Clarke, Rt Hon Tom (Coatbridge)	Hewitt, Ms Patricia
Clarke, Tony (Northampton S)	Hill, Keith
Clelland, David	Hinchliffe, David
Clwyd, Ann	Hodge, Ms Margaret
Coaker, Vernon	Hoey, Kate
Coffey, Ms Ann	Hood, Jimmy
Coleman, Iain	Hoon, Geoffrey
Colman, Tony	Hope, Phil
Connarty, Michael	Hopkins, Kelvin
Cook, Frank (Stockton N)	Howarth, George (Knowsley N)
Corbett, Robin	Howells, Dr Kim
Corston, Ms Jean	Hoyle, Lindsay
Cousins, Jim	Hughes, Ms Beverley (Stretford)
Cox, Tom	Humble, Mrs Joan
Cryer, Mrs Ann (Keighley)	Hurst, Alan
Cryer, John (Hornchurch)	Hutton, John
Cummings, John	Iddon, Dr Brian
Cunningham, Rt Hon Dr Jack	Illsley, Eric
(Copeland)	Ingram, Rt Hon Adam

Jackson, Ms Glenda (Hampstead)	Meacher, Rt Hon Michael
Jackson, Helen (Hillsborough)	Merron, Gillian
Jamieson, David	Michie, Bill (Shef'ld Heeley)
Jenkins, Brian	Milburn, Rt Hon Alan
Johnson, Alan (Hull W & Hessle)	Miller, Andrew
Johnson, Miss Melanie	Moffatt, Laura
(Welwyn Hatfield)	Moonie, Dr Lewis
Jones, Barry (Alyn & Deeside)	Moran, Ms Margaret
Jones, Mrs Fiona (Newark)	Morgan, Ms Julie (Cardiff N)
Jones, Helen (Warrington N)	Morley, Elliot
Jones, Ms Jenny	Morris, Ms Estelle (B'ham Yardley)
(Wolverh'ton SW)	Mountford, Kali
Jones, Jon Owen (Cardiff C)	Mullin, Chris
Jones, Dr Lynne (Selly Oak)	Murphy, Denis (Wansbeck)
Jones, Martyn (Clwyd S)	Murphy, Jim (Eastwood)
Jowell, Rt Hon Ms Tessa	Murphy, Rt Hon Paul (Torfaen)
Kaufman, Rt Hon Gerald	Naysmith, Dr Doug
Keeble, Ms Sally	Norris, Dan
Keen, Alan (Feltham & Heston)	O'Brien, Bill (Normanton)
Keen, Ann (Brentford & Isleworth)	O'Brien, Mike (N Warks)
Kemp, Fraser	O'Hara, Eddie
Khabra, Piara S	Olner, Bill
Kidney, David	O'Neill, Martin
Kilfoyle, Peter	Organ, Mrs Diana
King, Andy (Rugby & Kenilworth)	Osborne, Ms Sandra
King, Ms Oona (Bethnal Green)	Palmer, Dr Nick
Kingham, Ms Tess	Pearson, Ian
Kumar, Dr Ashok	Pendry, Tom
Ladyman, Dr Stephen	Perham, Ms Linda
Lawrence, Ms Jackie	Pickthall, Colin
Leslie, Christopher	Pike, Peter L
Levitt, Tom	Plaskitt, James
Lewis, Terry (Worsley)	Pollard, Kerry
Liddell, Rt Hon Mrs Helen	Pond, Chris
Linton, Martin	Pope, Greg
Livingstone, Ken	Pound, Stephen
Love, Andrew	Powell, Sir Raymond
McAvoy, Thomas	Prentice, Ms Bridget (Lewisham E)
McCabe, Steve	Prentice, Gordon (Pendle)
McCafferty, Ms Chris	Prescott, Rt Hon John
McCartney, Rt Hon Ian	Primarolo, Dawn
(Makerfield)	Prosser, Gwyn
McDonagh, Siobhain	Quin, Rt Hon Ms Joyce
Macdonald, Calum	Quinn, Lawrie
McDonnell, John	Rammell, Bill
McGuire, Mrs Anne	Rapson, Syd
McIsaac, Shona	Raynsford, Nick
McKenna, Mrs Rosemary	Reed, Andrew (Loughborough)
Mackinlay, Andrew	Reid, Rt Hon Dr John (Hamilton N)
MacShane, Denis	Robinson, Geoffrey (Cov'try NW)
Mactaggart, Fiona	Roche, Mrs Barbara
McWalter, Tony	Rooker, Jeff
McWilliam, John	Ross, Ernie (Dundee W)
Mahon, Mrs Alice	Rowlands, Ted
Mallaber, Judy	Roy, Frank
Mendelson, Rt Hon Peter	Ruane, Chris
Marsden, Gordon (Blackpool S)	Ruddock, Joan
Marsden, Paul (Shrewsbury)	Russell, Ms Christine (Chester)
Marshall, David (Shettleston)	Salter, Martin
Marshall, Jim (Leicester S)	Sarwar, Mohammad
Martlew, Eric	Savidge, Malcolm

Sedgemore, Brian	Taylor, Ms Dari (Stockton S)
Shaw, Jonathan	Temple—Morris, Peter
Sheerman, Barry	Thomas, Gareth (Clwyd W)
Sheldon, Rt Hon Robert	Thomas, Gareth R (Harrow W)
Shipley, Ms Debra	Tipping, Paddy
Simpson, Alan (Nottingham S)	Todd, Mark
Singh, Marsha	Touhig, Don
Skinner, Dennis	Trickett, Jon
Smith, Rt Hon Andrew (Oxford)	Truswell, Paul
Smith, Angela (Basildon)	Turner, Dr Desmond (Kemptown)
Smith, Miss Geraldine	Twigg, Derek (Halton)
(Morecambe & Lunesdale)	Twigg, Stephen (Enfield)
Smith, Jacqui (Redditch)	Vaz, Keith
Smith, John (Glamorgan)	Walley, Ms Joan
Smith, Llew (Blaenau Gwent)	Ward, Ms Claire
Soley, Clive	Wareing, Robert N
Southworth, Ms Helen	Watts, David
Speller, John	Whitehead, Dr Alan
Squire, Ms Rachel	Williams, Rt Hon Alan
Starkey, Dr Phyllis	(Swansea W)
Steinberg, Gerry	Williams, Alan W (E Carmarthen)
Stevenson, George	Williams, Mrs Betty (Conwy)
Stewart, David (Inverness E)	Winnick, David
Stewart, Ian (Eccles)	Winterton, Ms Rosie (Doncaster C)
Stinchcombe, Paul	Wise, Audrey
Stoate, Dr Howard	Wood, Mike
Stott, Roger	Worthington, Tony
Strang, Rt Hon Dr Gavin	Wright, Anthony D (Gt Yarmouth)
Stringer, Graham	Wright, Dr Tony (Cannock)
Stuart, Ms Gisela	Wyatt, Derek
Sutcliffe, Gerry	Tellers for the Noes:
Taylor, Rt Hon Mrs Ann	Mr. Kevin Hughes and
(Dewsbury)	Jane Kennedy.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved, That this House welcomes the efforts of the Government to work with fellow Member States and European institutions to crack down on fraud against the EU budget; notes the real practical progress made in this regard by the Government during the United Kingdom Presidency of the EU; welcomes the Chancellor's initiative for a strong head of fraud investigations heading an independent fraud prevention office; welcomes the role played by Labour MEPs in securing the establishment of the Committee of Independent Experts; joins the Government in calling for recent events to be used as an opportunity for root and branch reform of the Commission; calls on Romano Prodi, following his recent nomination as President-elect of the European Commission, to place the fight against fraud at the top of the new Commission's agenda; and believes that the only way of reforming Europe is the Government's strong leadership and constructive engagement rather than the Opposition's weak leadership, division and isolationism.