Fraud: ECC Report

HL Deb 08 March 1993 vol 543 cc822-59

3.8 p.m.

Lord Aldington rose to move, That this House takes note of the report of the European Communities Committee on The Fight against Fraud [13th Report, HL Paper 44].

The noble Lord said: My Lords, I start by saying how much I look forward to hearing the maiden speech of my noble friend Lord Tebbit. I hope that he will not find my speech too much like a curate's egg for him to follow and also that noble Lords who will be anxious to hear him will bear with me while I draw the House's attention to the report and to the context in which it was made.

For a number of years your Lordships' House has taken a leading position in calling for vigorous steps to be taken by the Community against fraud, in suggesting how this should be done and in emphasising the importance to the Community itself that the fight against fraud should be seen to be efficient, energetic and successful. The report, I hope, makes a worthy contribution to the role of the Select Committee.

The fraud to which it refers reduces the amount of the Community's own resources, as the principal revenues are called, and leads to waste, misuse or misappropriation of funds expended by the Community, particularly in the support of agriculture and regional development. The amounts of the frauds which have come to light and the nature of them have been seen by many as a scandal which damaged the reputation of the Community in public opinion in the Community as a whole and certainly in Britain. There is, moreover, a widespread assumption that the detected fraud, which is all that we can know of, is but the tip of a large iceberg.

Much of the responsibility has lain, and is bound to lie, with member states. None has been without fault. Britain is not without fault. We in Britain cannot claim, either in our public sector or in the private sector, to be in a glass house from which we can safely throw stones at others on the subject of fraud. We can, however, claim to have an ability to detect fraud and to report it, as we are bound to do, which not all other members of the Community match. But the Commission and the Council have a responsibility. They collect the money, they make the rules and they authorise the grants. The Select Committee of this House has over the past four years analysed the problem, scrutinised voluminous documents, taken evidence and published a number of important conclusions in various reports. The report we debate today is not the first and has to be considered in the light of what has gone before.

There is one very strong link in the chain that connects all the activities of the House in the fight against fraud. That is the name of the noble Lord, Lord Benson, whom I am so glad to see here. His experience, skills and unmitigated perseverance have energised and moulded all our reports, all our debates on the Floor of the House and quite often Question Time as well. Who dares in this place to say that advancing years exhaust the passion for truth and the distaste for waffle? I know all about the noble Lord, whom I regard as one of my friends—so do my colleagues on Sub-Committee A—in the give and take of discussion. We know that the smile of that noble Lord always returns. We are very fortunate that he will have more to say today and, I hope, for a very long time to come. I want to make clear to your Lordships how greatly indebted I and the whole sub-committee are to the noble Lord, Lord Benson.

The Select Committee report of 1989, drawn up by an ad hoc sub-committee chaired by the noble Baroness, Lady Robson—who I am glad to see is to reply to the debate later—remains the basic textbook for those who study this urgent and difficult problem. Between that report and the 1992 report Sub-Committee A, supported by the noble Baroness, Lady Serota, when she was chairman of the Select Committee, has sought to keep Treasury Ministers up to the mark. It has stressed the importance of sound financial administration in several reports, such as that in 1991 on regional development and the report at the end of last year on Community finances. In the wide-ranging report in 1990 on economic, monetary and political union, we called for stronger powers for the Court of Auditors and more effective treatment of its reports. In our general conclusions at paragraph 87, we said: While the Community continues to lose billions through fraud — the public's response to the Community is likely to be tinged with cynicism. Ultimately the strength of the Community lies as much in the support of the peoples of Europe as it does in the quality of the decisions it takes".

I remind the House of that report because its subject matter was the subject matter of Maastricht and among the many good things which I believe were achieved for Britain and for the Community was the agreement to do a number of things to help in the fight against fraud: first, to sharpen up the financial control and administration of Community funds; secondly, to enhance the status and effectiveness of the Court of Auditors; thirdly, to specify the role of the European Parliament as well as that of the Commission and the Council in firmer budgetary procedure; fourthly—and perhaps the most important of all—in Article 209a: Member states shall take the same measures … affecting the financial interests of the Community as they take to counter fraud affecting their own financial interests".

Close and regular co-operation for that purpose is required by that article between national administrations with the help of the Commission.

I am well aware that Her Majesty's Government played an important part in getting agreement to those helpful provisions in the Maastricht Treaty. There is also no doubt that during the United Kingdom presidency a further lead was given in the fight against fraud both by the earlier emphasis given by the Chancellor of the Exchequer to sound financial administration in all the Community's activities and also in the setting up of what was called the high level group of officials to examine what needs to be done to comply with the articles and provisions in the Maastricht Treaty, to which I have just referred. In other ways too, I have detected a much improved effectiveness by Her Majesty's Government in the past two years in securing the support of other member states to a change in outlook against fraud.

There never has been in my mind nor, I believe, in the mind of any of my colleagues on the Select Committee, any doubt about the vigorous approach which Ministers in this House wanted pursued. For example, my noble friend Lord Caithness, who will reply, shared with us in 1990, when we saw him and badgered him a little, support for the measures recommended in the 1989 report. But he was not able to secure much progress in ECOFIN. Things have improved recently. I cannot be the only one who wonders whether the British Government's manifest desire to be at the heart of the Community has not made progress in the discussions easier for Ministers.

The official government response to our report was given in a letter from the Paymaster General, my right honourable friend Sir John Cope. The letter was dated 1st March. I believe it is to be found in the Library. It was addressed to myself and to the noble Lord, Lord Hunt of Tanworth, who succeeded me on the sub-committee. Clearly, there is little in dispute between the committee and the Paymaster General. I thank him for his help in our inquiry and for his helpful attitude to any other questions we asked after he had given evidence. However, there remain some points on which I wish to champion the conclusions in the report and draw a response from my noble friend when he replies. I guess—in fact I am fairly sure—that Sub-Committee A will think it right to keep up the pressure on him and his colleagues in future years.

In the opinion section of the report we start and end by emphasising the vital importance of political will. The Government agree with us and have shown their will at Maastricht and in the presidency. But I do not know what their feelings are about an important recommendation we made in paragraph 72, which was: As further evidence of that political will, the Council and the Parliament should ensure that both the Court of Auditors and the Commission have adequate funds for their fight against fraud".

I should add that the Select Committee has commented before on the need to give the European Court of Justice as well as the Court of Auditors adequate resources. In the great arguments about the size of the structural funds and the amounts spent on agricultural support, it does not seem sensible to skimp on the courts or the anti-fraud unit of the Commission, where money can be very well spent in the fight to ensure that the Community's purposes are achieved.

I dealt first with political will. Secondly, there is the question of clear action programmes. The Government share with the committee the importance it attaches to those action programmes having precise goals and target dates. That also was stressed in the 1989 report. I am glad to know, from some documents that I read earlier this year, that the Council and the Commission are implementing that idea, at least in part. We shall need to watch how early programmes work and that new ones are introduced when necessary. It is one thing to accept the principle of action programmes with all their precise goals and target dates, but more difficult to make a real success of them. They will take time to bear full fruit.

While we welcome the training arrangements already made by the Commission, we doubt that they will be sufficient. And it will be vital to ensure that, throughout the Community, staff and members are constantly made aware of the latest fraud devices and of counteractions devised by anyone, anywhere.

The Commission's role embraces legislation, procedures for grants and procedures for control and for co-ordination of best practices throughout the Community. We were in no doubt either that there had been substantial improvements in recent years in the form of legislation and procedures, or that there is still much more that ought to be done, can be done and we believe will be done.

The work of the Lachaux group, set up by the Commission to look for ways of simplifying legislation, will be important. The responsibility for the control of Community funds rest squarely on the Commission. No question of subsidiarity arises to relieve it of that responsibility. But it must ask for and receive the co-operation of member states where the money granted is expended. It must use the final check of the audit by the Court of Auditors and obtain its assistance in improving its own systems and avoiding known risks of misappropriation. I welcome the stress now laid on targeting risks to make the best use of the resources in the Commission and in member states.

The agreements at Maastricht show that the political will exists and provide member states with it if it does not. But that will must be reinforced by sound systems of control. The Commission must be able to satisfy itself that the systems are efficient and reliable. Member states must share their knowledge and experience. I express the hope that our own Treasury will not be too humble in advocating its systems, which it knows work well, despite a proper sensitivity not to interfere with other nations. I am sure that in its turn the Treasury will take full note of the good practices of others.

The Court of Auditors issues reports each year, as well as making special reports. Those reports are illuminating, but also frightening. The newly agreed importance to be given to following them up is extremely welcome. The committee was disturbed by the reply of the Commission to the court's Special Report 2/92, not only on the cost point which we set out in paragraph 67, but also because it seemed to us that the Commission resented the advice being given by the Court of Auditors regarding legislation and other procedures. The Commission should recognise —and most of its members do recognise—the importance of the work of auditors, including the advice and help that they can give.

The audits in member states are just as important. The court must be satisfied that audit procedures are properly carried out; in certain cases referred to in the report they most certainly were not. If national government audit bodies cannot carry out the work needed by the court, then the court should be able to call upon private audit firms to help it. I do not know what the Government feel about that recommendation.

Finally, I turn to publicity and sanctions. Clearly, nothing must get in the way of the judicial process, of proving guilt and recovering misappropriated moneys. But, as we say in paragraph 69, once fraud has been established the names of those responsible —individuals or companies —should be widely publicised with their punishments and sufficient details to deter others and to warn all authorities. It is important also that national parliaments are made aware of the cases of fraud in their own countries. They must be told of successes in detection as well as the reasons why the fraud was possible. Now that the Council, the Commission and member states have joined together in the fight against fraud, national parliaments should exert themselves also. I hope that the media will report the details of detected frauds with the dates when they were committed and perhaps an explanation of how that kind of fraud will not be so easy in the future.

Sanctions and penalties must be available, and are available, for much of what is detected. We were concerned more with the control systems in some countries, which may not seem to the Commission to be effective enough. The government reply gives reassuring information as to what can be done in disallowing agricultural grants. We had in mind also the general principle that should apply in every recipient state; that a financial control system must ensure that grants received from the Commission are used for the agreed purposes and no other. Where such a system does not exist, no grants should be made. That seems to be sound and sensible, but much discussion and persuasion must first take place. It is not as though the Commission has been coy in ensuring that Structural Fund grants for Britain are used for the purposes specified. I have not seen evidence that it has treated other countries to the same discipline.

In commending the Motion to the House, I should like to leave the thought that progress towards effective financial control in the fight against fraud is not only essential to the success of any enlargement of the Community and Union—when it takes place—but will also play an important part in reinvigorating and restoring the confidence of the existing Community. The report is aimed at the future and did not seek to concentrate attention on the censure of the past, except as it furnished lessons for the future. I humbly hope that the debate will follow the same line. I beg to move.

Moved, That this House takes note of the report of the European Communities Committee on The Fight against Fraud [13th Report, HL Paper 44].—(Lord Aldington.)

3.28 p.m.

Lord Tebbit

My Lords, it gives me particular pleasure to be able to make my maiden speech in this House on an aspect of the workings of the European Community on which I think there is very broad agreement and, indeed, on which there is some virtue to be found in the Treaty on European Union.

First, I should like to add my thanks to those already expressed by my noble friend Lord Aldington to all noble Lords on the Select Committee on the European Communities who performed such useful work. In that connection I should say to my noble friend that, having been a Minister for some eight years and in the other place for some 20 years, I am well used to a diet of curate's eggs; his I found quite good in almost every part.

There are certain matters concerning fraud which are well established wherever it occurs. Fraudsters will be attracted to operate wherever there are large sums of money being paid without goods being required to be delivered to the person who authorised the payment. Fraudsters are attracted to operate where accounting procedures are complex; where audit procedures are weak and where agencies handling money have a vested interest in ignoring, collaborating with or evert assisting fraud. And if there is a seemingly inexhaustible supply of money so that an organisation may be fleeced by fraud indefinitely with no danger that it will collapse, well, my Lords, it will attract fraudsters by the thousand.

The European Community, and in particular its agricultural support system and its structural fund provisions, could hardly have been better designed to encourage fraud. The exposure of the extent of corruption in government in Italy reminds us, if we need reminding, that it is naive in the extreme to believe that law or public regulation are treated in the same way in all parts of the Community. Observance of the law by government and its agencies is a matter where a little more social cohesion would do a great deal of good. Indeed, I noted the suggestion that has been made and indeed embodied in the treaty of union that member states should care for the money of the Community in the way that they care for their own taxpayers' money. I should like it to be a little better than that. We should remember that it is British taxpayers' money which is being defrauded and stolen. We have a responsibility for that money even when it passes out of our direct reach and goes through Brussels. Certainly it is unacceptable to me that hard-pressed British and, indeed, hard-pressed German taxpayers' money should be used to contribute to the Mafia via Brussels and Rome. However, it does little good to rail at these evils without offering some remedies.

One remedy would be for the Commission to take a firm line that it would not authorise payment of moneys unless it and the Court of Auditors were fully satisfied that there were in place the systems, the machinery and the people to combat the defrauding of the moneys which were being granted. But my preferred remedy is to strike at the very heart of this problem. If less money was subject to this great churning process, whereby the citizens of Europe are taxed in order to raise the price of food, to damage the economies of our trading partners and indeed to provide electoral backsheesh for governments unwilling to reform or to allow market forces to reform inefficient agricultural systems, there would be a lot less room for fraud.

The problem of corruption has become deeply entrenched and is scarcely recognised as being corruption by some of those who are engaged in it. I do not know whether there is a tobacco fraud quite like the olive tree fraud, but when southern European farmers are paid a subsidy to grow tobacco by the same organisation which campaigns against the use of tobacco, it seems to me that it would not be surprising if they concluded that there could be little wrong with fiddling their accounts to obtain subsidy for an ungrown harvest of an unwanted and unsaleable product.

Whatever palliatives against fraud are put in place —and I would certainly support most of those proposed—we will not really begin even to scratch at the surface of this problem until there is honest government across the Community; and we will not make any substantial impact upon the problem until the Community taxes less, regulates less and subsidises less. In the meantime—and I fear that it may be a very long meantime—I again express my thanks to the Select Committee for holding up a candle of light in the wicked world of European corruption.

3.34 p.m.

Lord Shepherd

My Lords, I know that I speak for every quarter of the House in congratulating the noble Lord, Lord Tebbit, not only on making his maiden speech but on the rather adroit way in which he has done so. The noble Lord comes to the House with a very formidable reputation. I think I can say, as a member of a party that has taken the lash of his tongue on many occasions, that never have we heard him speak with a forked tongue. We have always understood his meaning and the point that he was making. For those who speak without the forked tongue, who speak with that clarity for which the noble Lord is now so well known, there will always be respect in this House, in Parliament and throughout the country. I am sure that we shall hear from the noble Lord on many other occasions.

I hope I may be forgiven if I refer to the very sad death last week of Lord Ridley of Liddesdale. He was a great parliamentarian, as is the noble Lord, Lord Tebbit. He was always in controversy but he was always a gentleman and, to those who knew him, a friend. I hope that the noble Earl, Lord Caithness, will see that our sympathy is conveyed to Lady Ridley.

I congratulate the noble Lord, Lord Aldington, on introducing the report. It is the last report of the sub-committee which he chaired with great distinction. I hope that the report will be helpful to the Government and to the Commission in their battle with fraud. I am not sure yet whether it is a fight against fraud. At the present moment I believe that we are merely skirmishing at the very edges of it, because if the noble Lord, Lord Aldington, is correct what we have perceived or what we know of the degree of fraud is but a tip of the iceberg.

I rather share the noble Lord's view that fraud is a major threat to the Community. Unless it is under a degree of control—it cannot be eradicated completely —it threatens the very stability of our societies within the Community. The Commission has the ultimate responsibility. It is the administrator of the Community. Like other members of other subcommittees, I have wondered from time to time whether the Commission itself has the resources to deal with all the problems and threats that confront the distribution of aid through the structural funds. I wonder whether we should not be looking at strengthening the administrative arm—I shall not use the word "bureaucracy" —of the Community. The Council of Ministers cannot avoid its own responsibility. I remember the letter written by the noble Earl, Lord Caithness, on 21st February 1990 in which he said that the fight against fraud was administration and legislation, not rhetoric. The noble Earl was quite right. But unless we are prepared to provide the machinery for dealing with fraud we shall not make many inroads into it.

The noble Earl will be aware that the Court of Auditors has produced its annual reports and that the Commission has not exactly harmonised with it. The Court of Auditors questions the cost of the Commission's work in a particular field and makes it very clear that unless it is given further funds it will not be able to carry out its operations. Can the noble Earl say whether the Commission and the Court of Auditors have now been provided by the Council of Ministers or by the European Parliament with funds sufficient for them to be able to conduct their various operations in the detection of fraud?

I am sure that the noble Earl will also appreciate that the Community, although it is now a single market, still has its national boundaries, certainly in terms of law enforcement and reports. I suspect that a great deal of the fraud is now across borders and not necessarily within them. That raises the question whether national governments or the law enforcement authorities of those respective countries, or the Commission, have now the resources for being able to trace fraud where it crosses borders.

The noble Lord, Lord Aldington, referred to sanctions. They are all right provided one can detect the crime and bring the people to book. There is fraud across borders, but are we entirely satisfied that we have the right machinery? It is very clear that the Court of Auditors is not seen in that light. It does not have the power or the resources to undertake that kind of investigation. This is an area where in due course the Community will have to make a decision.

I hope that the Government will be quite explicit as regards member states. Having given undertakings, as the noble Lord stated, unless they put their own house in order and arrange their own administration in such a way that these matters can be dealt with, I hope that the Government will agree that the only sanction we have is that the measures will be implemented as proposed in the report.

I have one final comment on this matter. We are not dealing only with fraud within the Community. Quite rightly the Community is giving aid and support throughout the world to the less privileged countries and peoples where the risk is just as great. I wonder whether the noble Earl would think it right that the Commission—which at present has no offices or representation as such in the overseas countries receiving aid—should create a system by which the aid remitted to those countries can be properly monitored. Will the noble Earl go further—because I believe that this is central to the proper accounting of money—and say that the final sums allocated to the various countries could be dispersed by the agency of the Commission in a similar way as for the ODA?

I hope that the Government will respond favourably to the sub-committee's report. I believe that progress has been made but it is perhaps slower than some of us would like. I hope that in two or three years' time, or at a time which is convenient, Sub-Committee A will have another look at this matter because I believe that it is central to the life and spirit of the Community.

3.43 p.m.

Lord Hunt of Tanworth

My Lords, as a member of the sub-committee, I would also like to join in thanking the noble Lord, Lord Aldington, for so skilfully steering us—with the invaluable help of my noble friend Lord Benson—to what I believe is an agreed and practical report. It is also a great pleasure for me to be the first person from these Benches to congratulate the noble Lord, Lord Tebbit, on his maiden speech.

The report gives a somewhat dismal story of fraud. Even since it was published in December we have had three things: the Commission's report for 1990–91 which it has to make on checking the procedures for payments made under the guarantee section of the European Agricultural Guidance and Guarantee Fund; another annual report from the Court of Auditors; and the council's recommendation, which it has to make annually, to the European Parliament on the discharge of the Community budget for 1990–91.

All three of those factors reinforce the subcommittee's message that while a good deal of progress is at last—I say "at last"—being made, there is still a very long way to go in the fight against fraud. The latest report of the Court of Auditors in particular reinforces what the sub-committee said about badly-drafted legislation coming out of Brussels and other failures of administration in the Commission, besides the failure to ensure that control procedures in member states are properly understood and implemented.

The main responsibility for countering fraud must of course lie with the member states. But they will not treat Community funds with the care that they ought to unless the procedures are clear and monitored. That means that the Commission must have the powers, the staff and also the political spur from the Council and the European Parliament to ensure sound financial management of Community funds. I do not believe that that is any way inconsistent with the principle of subsidiarity. I believe that many of us feel that it is one thing to argue that we want a decentralist Community with less power being given to Brussels, but where something has been put within the competence of the Community and the Commission, it needs to be properly administered, efficiently and energetically, and the Commission staffed to do that.

As regards member states, we probably all have our favourite stone that we would like to cast at individual countries. But I agree with the noble Lord, Lord Aldington, that we need to be careful about pillorying because the fact remains that our own record is not good enough, even though one trusts that the number of detected cases here reflects efficient monitoring and policing rather than an above-average level of fraud. We all have a part to play and it is very difficult and highly subjective to try to measure the size of the iceberg which is below the water.

That brings me to the question of political will which the sub-committee has stressed very strongly, which we are glad to see the Government's response agrees with. I am afraid that it is not a matter on which the Council of Ministers or the European Council can take a nice clean decision and say, "We shall have no more fraud". It is going to be a hard slog. That political will needs to be a continuing commitment.

I believe it was Thomas More who once said that governments must, so order what is bad so that it may not be very bad, for it is not possible for all things to be good unless all men are good". I fear that that may be an appropriate text for the fight against fraud.

However, the present level of fraud in the Community is quite unacceptable and in the view of the sub-committee it is reducible. The sub-committee's report has listed some practical steps, which the noble Lord, Lord Aldington, outlined, which can be taken to reduce fraud to a level which I will not say is acceptable but which is not quite so unacceptable as it is now. I very much hope that your Lordships' House will continue to take an interest in this matter and give the political encouragement that we all believe is necessary.

3.48 p.m.

Lord Bruce of Donington

My Lords, I too should like to join in the congratulations extended to the noble Lord, Lord Tebbit, on his maiden speech this afternoon. In the past there have been certain domestic issues on which the views of the noble Lord and myself have sharply diverged, although I have never had the opportunity of expressing them to him personally. But on this issue, as indeed on others which affect our country as distinct from our party and Great Britain as distinct from Europe, I find myself in warm agreement with what the noble Lord has said.

I, too, should like to thank the noble Lord, Lord Aldington, for having extended to me the hospitality of his sub-committee. I sometimes feel that many of my interventions may have been inconvenient, but I thank him for the courtesy. Although I cannot take responsibility in any way for the report that we are discussing, I warmly endorse the sentiments that it expresses.

I must confess to a certain sense of déjà vu in all this. I hope that I shall not offend the House by reminding your Lordships that in June 1979, when I was a Member of the European Parliament, I was entrusted with the task of monitoring its budget and eventually seeking to obtain its discharge. I produced a report which for reference purposes —in case any noble Lord may wish to look it up—was number PE57(176) Revised No. 3 of 15th June 1979. Almost everything that is contained in the noble Lord's report reproduces (in quite a sharp form) the contents of that report of almost 14 years ago. The depressing thing about it is that we all agree that fraud has been taking place for a very long time and with undiminished intensity.

In his report the noble Lord was good enough to extend "fraud" to irregularities and in his speech this afternoon to waste and misuse. Nobody would query the political will of member states or of Community institutions to eliminate fraud, misuse, waste and the extravagant use of funds. Indeed, the Community has published many works about this and a lot of things have been said, but nothing really seems to improve. Whatever the noble Lord's report or the committee may say, I am afraid that they must face up to that fact. Indeed, there is a degree of resignation in the current report because, whereas the one that we reproduced and sent out in 1989 referred to a "public scandal", the current report abandons that concept. Despite the energetic interventions of the noble Lord, Lord Benson, to whom I also wish to pay tribute, the fact of the matter is that, although the current report is full of hope and enunciates the most impeccable of principles, nevertheless in itself it cannot produce what is required.

The first difficulty is that when the reports are eventually made available, they are already far too old. A good part of the report which we are discussing this afternoon deals with the Court of Auditors' report on the accounts for the year ended 31st December 1991. That was a long time ago. If we have another report it will be mid-1994 before we start to discuss what happened in the year 1992. That means that although news about fraud is published in the press, nothing is done. Indeed, there have been some lurid examples of fraud with which I shall not weary your Lordships this afternoon, such as the moving olive trees and the various other items which were mentioned in Der Spiegel. Despite such reports, the fact of the matter is that the Court of Auditors and the Commission will not catch up with the frauds until next year, by which time the horse will have bolted.

We have to face up to the fact that the way in which the accounts are drawn up and the financial disciplines which exist within the Community institutions themselves are not adequate to the task, bearing in mind the nature of the payments out of the funds which was referred to by the noble Lord, Lord Tebbit.

I have with me the Court of Auditors' report. It is a very thick document indeed, but what does it really consist or? The first thing to note is that there is no balance sheet with it. It is a discussion of the revenues and the expenditure of the Community. It goes into terrific detail, with diagrams, but there is no balance sheet in it at all. The first time that we hear of any balance sheet is in connection with the report of the Budget Control Committee of the European Parliament and the discharge when there is a summary balance sheet which is about three inches long and conveys very little. The Court of Auditors' report is really just a long, detailed and tortuous explanation of matters that have come to its attention during the audit. It has to be delivered to Parliament and to the Court of Auditors by the Commission by 1st May every year, whereupon the Commission then spends months and months putting in its replies, and the whole thing is delayed until December before being published. That is entirely the wrong procedure.

The procedure should be that the Community institutions and in particular the Commission, should present the proper accounts to Parliament and the Court of Auditors, amplified if necessary by explanatory notes, in very much the same way as ordinary public companies publish their accounts today. They should be complete accounts in their own right and should contain whatever explanations are required in order to present what we in the United Kingdom would say was a true and correct view. The accounts should be signed and authenticated by the financial officers concerned who, as very well-paid officials, should have to take personal responsibility for their accuracy. The accounts should then go to the Court of Auditors which should then carry out its audit. That would be a much more satisfactory way of dealing with the accounts. It would mean that at least we had the accounts some three months earlier and that they bore some relation to the facts as they were reasonably seen.

That procedure would, however, require considerable amendment to the regulations. Your Lordships may not be aware that the financial regulations were revised in 1979 by Sir Michael Shaw, MP, and myself as Members of the Budget Committee of the European Parliament. We laid down certain conditions, many of which have since been modified. However, what must be rammed home and enforced in the regulations is the responsibility of the Commission's officers (the financial controllers and those who have authorisation over the funds) to withhold payments of any sums to countries which cannot properly authenticate the transactions for which money has already been provided.

As I ventured to point out to your Lordships previously, one of the weaknesses of the financial system in operation throughout the European Community is the excessive regard that is had to the proper authorisation of expenditure as distinct from the verification that that expenditure has in fact taken place for the things for which it was originally granted. Such a system operates in the United Kingdom and Holland but not throughout the Community. I am sure that I carry with me the noble Lord, Lord Benson, when I say that officials who depart from that procedure—who make advances of money, however authorised by the budget resolutions—to countries without knowing whether it will be spent properly should be sacked from the Commission. There should be some disciplinary procedure to ensure that that is done.

Those matters go back to the whole question of consensus politics. I regret that there is some tendency to mutual back-scratching throughout the Community. The noble Lord, Lord Aldington, expresses the hope—it has been expressed by other noble Lords that the provisions of the Maastricht Treaty in that regard will somehow cure it. No amount of legislation or exercises of so-called political will at Council level will cure it. Everyone knows that it is not the members of the Council (ECOFIN) who arrive at those hard-and-fast decisions and ensure their performance. In fact, most members of ECOFIN have ministerial positions within their own countries and do not have the time even to consider the detail. Such measures as are worked out are worked out by the Committee of Permanent Representatives, with the attendance of the Commission the whole time that they are there. It means that action within the officialdom (bureaucracy) of the Commission as a whole tends to lack the finite decisiveness which the exercise of true political will would make imperative.

I shall lay down a marker, if I may, for a possible comment by the Court of Auditors in the year 1994 or 1995. I wish to refer the House and, indeed, the Court of Auditors itself, to the draft budget, as approved by ECOFIN, of the European Parliament. I wish to read out certain items to discover whether noble Lords will agree that some more detailed explanation, including receipts and other documentation, should be supplied by the European Commission and the European Parliament. If noble Lords will turn, as I am sure they have already, to the Draft General Budget of the European Communities for the financial year 1993 Volume 2, entitled "European Parliament", they will find under Title 3 the following budget provisions. While I read them, I want your Lordships to bear in mind the words, "waste", "misuse", "irregularity" and "fraud".

Item 3705 relates to contribution to the secretarial expenses of the political groups and expenses of the non-attached members. It amounts to 9,555,000 ecu or £7,700,000. Item 3706 relates to other political activities. The figure is 4,938,000 ecu or £3,980,000. For information work the figure is £9,672,000. That is aside from the salaries, expenses and travelling expenses of Members of Parliament. It is apart from all matters relating to the running of the European Parliament and its movement between Luxembourg, Strasbourg and Brussels. It is outside all maintenance costs. It is the direct contribution by the Community, of which the United Kingdom bears one eighth of all contributions and makes a net contribution per annum of £1,750 million. That expenditure totals some £32 million and is devoted to political groups.

Each political group has its own independent audit. It is for consideration as to whether, on the basis of those independent audits of political groups—I speak without regard to party; I know that the Socialist group is the largest of the lot, but I am not deterred by that—there should be a suggestion as to how that money is spent: what it goes on. It has nothing to do with the salaries of European Members of Parliament and their expenses, which, incidentally, are higher than those of any Cabinet Minister in the United Kingdom. It is not that; it is money for the groups which they spend as they like.

There is scope for waste, there is scope for misuse and there is scope for irregularity in that—because of course it will not have escaped your Lordships' attention that all the political groups in the European Parliament are steadfastly agreed on putting more power to the centre in Brussels. They are resolutely agreed upon increasing the powers of the European Parliament at the expense of the powers of national parliaments, including our own. Therefore, the possibility—nay, probability—of funds from the political groups going in their respective countries towards the promotion of, among other things, Maastricht and federal union cannot be excluded.

It is high time that such matters were brought under control and were revealed to the public at large. The time has gone —indeed, it went many years ago—when we confused the passing of resolutions in Parliament with the putting forward of amendments to the European budget or questioning the Commission. The time has passed when we regard purely the words we write, the documents we bring into operation—whether they be censorious or approving—as reaching the problem. The problem lies fundamentally in the institutions of the Community, including in particular the Commission and the Committee of Permanent Representatives. It is there that the problem has to be solved. Not until the rights of individual parliaments have been reasserted, not by words but by firm action, will the problem of irregularity and fraud be solved.

4.8 p.m.

Lord Cockfield

My Lords, it is always a great pleasure to follow the noble Lord, Lord Bruce of Donington. His knowledge of the byways of the Community is without parallel, and the fascinating journey along which he took us today has at least saved us from having to concentrate on more serious matters. However, there is one part of his speech with which I am entirely in agreement; that is, in the tribute that he paid to my noble friend Lord Tebbit on a most distinguished maiden speech. It was not only interesting in itself; it had two other great merits. It was brief, and it was uncontroversial. I do not expect that we shall ever hear the same again.

I propose to talk about something that is not in the report produced by my noble friend Lord Aldington and the sub-committee. That is in no way a criticism of the report: in the area with which the report deals, it deals with it thoroughly and convincingly. What my noble friend himself said—namely, that what matters now is putting into effect the recommendations the committee has made—is of course the correct approach. But the report deals with the expenditure side of the account; it hardly touches at all on the revenue side. Again this is no criticism of my noble friend nor indeed of the sub-committee, because the report of the Court of Auditors did not deal with it at any length either. The comments of the Commission in the document before the Select Committee on the subject are also brief.

However, the expenditure side, I suspect, occupies a high profile. The revenue side does not, but in terms of revenue I suspect that fraud on the revenue side may be even more important than fraud on the expenditure side. I shall illustrate that in a moment. The revenue of the Community is derived from four main sources: the customs duties; the agricultural levy; the contribution based upon the VAT, which was introduced by General de Gaulle to ensure that if the Community were ever foolish enough to allow in the United Kingdom as a member, the United Kingdom would have to pay through the nose for the privilege, in which respect his intention has proved to be entirely fulfilled; and, finally, a contribution based upon national income or gross national product.

The Court of Auditors, the Commission and the Select Committee's report deal briefly with the first two sources of revenue, but they are of minor importance out of the total of the own resources. Interestingly enough, in view of what my noble friend Lord Tebbit said, the whistle was blown by the Italian government in July 1988. The incident, if anything, throws credit on the Italian government and not the opposite. There are some uncharitable people who would say that it was by accident and not by design, but I leave that on one side.

In February 1988 the heads of governments agreed to introduce what was called the fourth resource; that is, the contribution based upon national income. As the finishing touches were being put to the regulations to give effect to it, the statistical office of the Italian government suddenly announced that it had underestimated the national income of Italy by 15 per cent. This was due, it said, to a failure to estimate the full size of the unofficial economy.

To give your Lordships an idea of how important the figure is—I want to stress that this is not said in specific criticism of Italy, nor when I make the comparisons am I suggesting that the same is true elsewhere—if you apply the figure of 15 per cent. to the GNP of the United Kingdom, the figure would be £100 billion. If you take 1.2 per cent., which is the level of own resources, that means that if the figure applied to the United Kingdom you are talking about £1.2 billion. As the United Kingdom accounts for about one-seventh of the GNP of the Community the figure we are talking about may be of the order of £8 billion. I mention those figures only to illustrate that we are talking about something of real substance.

I want to go back in history a little. As I have said to your Lordships before, I attempted to deal with the question of fraud back in 1986 when I was promoting a directive to give the Commission the power, in association with the member states, to deal with fraud within the common agricultural policy and other expenditure. The move was blocked by the government of the United Kingdom which, at that time, held the presidency of the Community. However, in January 1989, after I had left the Commission, the then Prime Minister, my noble friend Lady Thatcher, blew her top and there was immediately a smart about-turn on the part of the United Kingdom government. These are the circumstances in which we now head the fight against fraud. Of course nobody told her what part her own Ministers had been playing behind her back. It was probably more than their life was worth.

The importance of this story is exactly the point that my noble friend Lord Aldington makes; namely, that nothing will be done effectively on this other side of the account until somebody of importance, stature and determination is prepared to blow their top. My noble friend used the much more elegant phrase, political impetus. But effectively the two things are the same.

Why has nothing effective ever been done on the revenue side of the account? First, one has to face the argument, as I did back in 1988—and it has been put forward since—that the national income is merely a question of statistics. It is not. That is a total misunderstanding of the situation. As the Italian government admitted, the understatement of national income goes hack to the hidden economy, and the hidden economy goes back to fraud. When all this started, it was the black market, based upon a shortage of goods. It was later called the grey market, then the hidden economy, and finally the unofficial economy. But ultimately it goes back to fraud, because the present driving force of the unofficial economy is a desire on the part of the participants not to be involved with government and in particular not to be involved with the disagreeable necessity of paying taxes. So we are again in the area of fraud. That is the immediate link with the VAT. When you have an unofficial economy, you have extensive fraud on the VAT as well.

There is another important fact. It is well known that some countries—the United Kingdom, Holland, Denmark and Germany—have a high standard of fiscal administration, and indeed of fiscal honesty. Other countries—and I am not singling them out specially, I give them only as examples—such as France, Italy and Greece have much lower standards. When .I was at the Treasury figures were bruited about —I put it like that deliberately—on the question of the efficiency of collection of taxes of this kind. It was thought that while in the United Kingdom we might garner something like 90 to 95 per cent. of the tax due, in other countries the yield might be as low as 60 or 65 per cent. We are not dealing with small figures.

Apart from the question of the impact on the revenues of the Community, there is also the point about the distribution of the burden as between member states. That in turn is underlined by something else; namely, that, increasingly, expenditure outside the CAP—although some CAP expenditure is involved—is dependent upon the income of the state or of the region concerned. That is seen clearly in the cohesion fund where a figure of 75 per cent. of average Community GNP is set as the trigger point for participation in the new fund. The probability is that the four countries involved will qualify whether the figure is 75 per cent. and whether the figures are right or wrong. Nevertheless, the problem exists.

The reluctance to deal with the problem rests, first, on the argument that we are dealing with statistics. I say that we are not; we are dealing with fraud. Secondly, it rests on the argument that if the member state has not collected the money why should it pay money over to the Community? That argument is also fallacious because what is being paid to the Community is not a share of the VAT. What is being paid is a contribution which happens to be calculated by reference to the VAT. If for one reason or another a member state does not collect the VAT due, there is no reason why the Community revenues should suffer as a result. The third argument—my noble friend dealt with it—is that undoubtedly we shall see the old grey mare of subsidiarity trotted out on this occasion too. It will need much more than the application of the whip to the hindquarters of that animal to get it to run.

The issue is one of crucial importance equally to the Community as a whole and to the member states. I am in no way criticising what has been done. What has been done has been done admirably. My noble friend and the committee have set out the lines upon which the existing problem ought to be tackled. I suggest that there is another and equally important problem, and it is about time that that was tackled too.

4.21 p.m.

Lord Jay

My Lords, I congratulate the noble Lord, Lord Tebbit, on his maiden speech. I was.struck in particular by the moderation of his language, which I am sure will endear him to the House. The reputation of the committee and its reports is high, as are the speeches with which the noble Lord, Lord Aldington, introduces them. However, the House owes the committee a special debt of gratitude for the report that we are debating today. It is detailed, factual and candid and it makes practical proposals for attacking what we all know to be a major scandal.

There are two profoundly unsatisfactory aspects of the whole business of CAP fraud and other fraud. The first is that even now we do not know accurately the magnitude of the amount involved. We know that as a whole the common agricultural policy costs the EC taxpayers and consumers at least £25 billion a year. The Minister will tell me whether I am out of date but the sum is substantial, as indicated by the noble Lord, Lord Cockfield. It is raised in part by import taxes on food, which are levied on all the consumers in the Community. Therefore, very large magnitudes are at risk. The committee gives figures for the detected cases of fraud but we do not know how many undetected cases there are or how great are the losses.

The second aspect is that, although the existence of the scandal is so well known, so discreditable and so often deplored, nothing effective appears to be done —or we have no assurance that anything effective has been done. The report indicates that, at present detected fraud is likely to be the tip of the iceberg". That is not encouraging. The report also states that in member states, some individuals and companies deliberately set out to line their pockets by improper use and application of funds and that the, Community's funds are purloined on a large scale". The noble Lord, Lord Cockfield, spoke about the revenue of the Commission and about the frauds in expenditure. I am sure that he was right to do so but I am not clear whether he explained what we should do about that. It is true that a large part of the fault lies not with the central organisation but with the states themselves. On the other hand, surely it is also true that the central organisation has some responsibility if it is conducting a system which it does not believe to be honestly administered at the fringes.

I congratulate the committee on its main proposals. In particular, I welcome the fact that it has gone to the heart of the scandal and has proposed what appears to be a far more effective remedy than those which have so far failed. The committee recommends that the Community should, not authorise any increase in allocation of grants to any member state unless they are satisfied that an effective control system is in force. It also recommends that, relevant grants should be withdrawn following a finding by the European Court that control deficiencies had not been corrected". All the evidence in the report, together with what we have heard today and previously, leads me to the conclusion that unless and until that is done no effective end to the abuses will be achieved.

In a reply to my Question tabled on 4th March I was encouraged to hear from the Minister that the EC Council has at last established a high-level group to pursue the audit of export refunds and other matters. I hope that that high-level group will not hesitate to withdraw grants if all else fails. Incidentally, I also hope that the high-level group in the UK Government will ensure that the EC high-level group is doing its job. If the relevant authorities cannot or will not properly control the use of funds surely the remedy is to cut off those funds at source.

4.28 p.m.

Lord Pearson of Rannoch

My Lords, I should like to add my sincere congratulations to those which have been offered to my noble friend Lord Tebbit on his maiden speech. I must confess that I was a little nervous that my noble friend might not be able to make his maiden speech on any subject connected with the Treaty on European Union without being just a tiny bit controversial. Well, he did so, and I submit that it is a measure of just how serious is the subject we are discussing and just how grave is the extent of the fraud that he was able to say what he said and that none of it was in the least bit controversial.

I hope it will be helpful if I spend a moment or two considering some of the historical background against which the European Economic Community came into being. I hope that it will go a little way to explain why it is now an institution which lives comfortably with so much fraud, malpractice and incompetence. As I understand it, the progenitors of the European Common Market were really more interested in creating a political animal which would prevent another war in Europe and which would be able to stand up to the evil Soviet empire than they were in creating a common market as such. So the European Common Market, the European Economic Community and, if the union treaty is ratified, the European Community is an animal which has been and is to be largely the creation of political, bureaucratic and legal minds. I remind your Lordships that the description "economic" is not dropped from this metamorphosing animal's name until the union treaty is ratified.

I was quite close to the start of this process when I lived and worked in insurance in Italy in the early 1960s. I could see clearly that the political aspirations for the creation of a single market had not much chance of coming to fruition in Italy or anywhere else, and I was puzzled that the politicians, bureaucrats and lawyers in Brussels could really think that it might. Eventually of course insurance was not the only field where the common market did not materialise as the politicians hoped it would. Indeed, it was not until 1st January this year that the single market has actually come into being. Even now I suspect that it is inherently unhealthy and that the massive fraud which we are considering this afternoon, entrenched like cancer in its blood and through all its limbs, is merely one symptom of that fundamental sickness.

It seems to me that, if the common market had developed gradually over many years, perhaps along the lines of a European free trade association, and if the political structures of Europe had grown up to reflect and support a healthy free trading market, they would in turn have been healthy political structures. Instead, the political, bureaucratic and legalistic cart has been put firmly in front of the commercial and industrial horse; and so I for one am not in the least surprised that it is now so bogged down in the mire of corruption and fraud which we see before us.

Having said that, I hope I shall not be accused of being an anti-marketeer, as I and other noble Lords were by my noble friend Lord Mackay of Ardbrecknish in our recent debate on 17th February. I have always been in favour of a common market in which we could participate, but I am not in favour of the political union which is being forced upon us to justify what is turning out to be a corrupt and unhealthy market. Nevertheless, I have to accept that we are where we are and that many people in our industry and commerce believe we need the single market, warts, cancer and all, very much.

I am aware, too, that your Lordships' report sees some hope in Articles 188C, 201A, 205 and 209A of the Treaty on European Union. I am afraid I am not much impressed by those articles. Article 188C would give greater power to the Court of Auditors and greater involvement to the European Parliament and the Council in exposing and discussing fraud. But it does not appear to contain any teeth as such, and I do not see how it is going to help. But I suppose that it would be nonetheless welcome.

Article 201A should be an insult to any self-respecting body because it merely requires the Commission to stay within the Community's resources. It says much about the behaviour of the Commission that such an instruction should be deemed necessary now. Article 205 is in the same vein and requires the Commission to spend the Community budget: having regard to the principles of sound financial management". Is it not disturbing that that should have to be spelt out in that way after all these years? Perhaps it merely confirms what I was saying earlier.

Article 209A contains what I imagine are supposed to be the teeth to enforce the fight against fraud: Member states shall take the same measures to counter fraud affecting the financial interests of the Community as they take to counter fraud affecting their own financial interests". I join my noble friend Lord Tebbit in saying that, in view of recent events in at least one Community country which is a major recipient of our munificence, I would not have thought that this article can give us much confidence.

Article 209A goes on to ordain that member states shall work together with the Commission and the competent departments of their administrations to combat fraud. Quite apart from one's doubts about the intentions of a number of member states in this regard, it would not appear that any co-operation with the Commission would necessarily do much good. I say this because I have been looking at the Commission's draft programme of work for 1993–94, dated 26th January 1993, and I regret to say that the fight against fraud does not appear even to be mentioned among the 34 priorities which the Commission has set itself. I wonder whether my noble friend the Minister can comment on this omission and say whether it gives the Government much comfort in their claim that the Community is taking fraud seriously.

The Commission's programme seems pretty full, and it is worrying that no room can be found for tackling fraud, let alone making it a priority. The programme is deeply depressing in its lack of realism, as one would expect, and in its relentless drive for federalism. For instance, the Commission wants to make the single market a success, which suggests that even the Commission realises that it may not yet be so. To achieve that, among various irrelevancies such as the harmonisation of European company statute, the Commission intends to tackle what it calls its "thorniest problem" in this area, being the—presumably our—delay in abolishing controls on people at the Community's internal frontiers. The Commission will: contribute to an overall strategy to be put in place in 1993 to remedy the situation". I hope that my right honourable friend the Home Secretary has taken note of this somewhat threatening little statement.

The Commission then sets out its priorities for implementing the union treaty, which it has assumed will be ratified. Still blithely ignoring fraud, and indeed the realities of the foreign exchange markets, the Commission makes its first priority to be stage II of economic and monetary union. It states that this: is made more necessary than ever by the slowdown in economic growth, and the recent turmoil on foreign exchange markets. Neither of these factors should be allowed to disrupt or delay progress in laying this vital foundation for the economy of the future Union". It is statements like that which make many of us wonder whether the Community's sickness has not already degenerated into delirium.

Be that as it may, it would not be appropriate in this debate to bore your Lordships with all the other priorities which the Commission has set itself instead of tackling the massive scandal which we are debating. They represent all the socialist federalist paraphernalia which are embodied in the union treaty. The Commission looks forward with relish: to the doubling of assistance to the least prosperous member states and a substantial increase in other structural operations". I thought I had detected a glimmer of hope when I read, Proposals for revision of the regulations governing structural funds will be made in the very near future"; but the hope was snuffed out when I went on to read that this is merely, to avoid any hiatus between current programming and that covering 1994–99". And so it goes on. The social dimension is to be developed; environmental policies are to be integrated into other common policies; the Commission is to have a hopeless shot at making subsidiarity mean something by producing a paper on relations with those whom it arrogantly describes as the "general public". It has much to do in extending its federal union over transport policy, including a "master plan" for railways, air traffic and ports; and over agriculture and fisheries, where it, will continue to defend the Community's interests in the final stages of the GATT negotiations". It looks forward to establishing a common foreign and security policy and to improving inter-institutional relations. Finally, the Commission has presented proposals to make sure that it has what it regards as the necessary financial resources to carry all this out.

I am sure it is obvious that in all these fields of activity the opportunity for fraud and mismanagement exists, and will be taken, on a very large scale. It is not encouraging that the Commission does not appear to wish to confront what is going on.

So I wonder whether I may end by asking my noble friend or one of his colleagues in government to put a straight question to M. Jacques Delors, the Commission President. The background to the question is that when she was Prime Minister, my noble friend Lady Thatcher attempted to have fraud in the EEC put at the top of the agenda for the EEC Summit in June 1989. She was reprimanded by an indignant M. Delors, who said that fraud in the Community was a "phoney controversy" and a "distraction" from more important matters like the "real" issue of economic and monetary union. The question is simply this: does M. Delors still agree with what he said then, and, if not, what precisely do he and his Commission propose to do about it?

4.40 p.m.

Lord Benson

My Lords, we should all be grateful to the noble Lord, Lord Aldington, for chairing this sub-committee and for putting the issues so clearly before the House this afternoon. I am particularly grateful for his kind remarks about my membership. I can only say it was a pleasure to serve under his chairmanship.

Fraud usually comprises two types. The first is management fraud when the directors of a company set out to rob the company which they control, usually in collusion between themselves. That type of fraud is not prevalent in the Community. The second type of fraud is what I shall call institutional fraud, when an institution has the responsibility for receiving and paying large sums of money and it conducts its affairs so inefficiently that the public are very quick to see the defects and set about employing fraud and irregularity to line their own pockets. That form of fraud is rampant in the Community.

The frauds which actually take place occur in the member states and not in the Commission. One might think from that that the Commission is free from blame. That is very far from the case. The frauds committed in the member states are facilitated by loose and inefficient administration which originates in the Commission itself. The policies initiated by the Commission and 'the rules and regulations laid down are confused and complex; the instructions issued are not clear; there is a mass of product classifications; internal controls are not built into the procedures; the audit coverage is wholly inadequate. For those reasons fraud in the Community begins in the Commission.

Happily there is one infallible remedy for institutional fraud which has been tested in the hot fires of experience; that is, to identify the officials at the head of the institution who are responsible for the inefficiency, to get rid of them and to replace them with persons of greater quality and experience. The Commission is unlikely to cleanse its own stable in this respect and it rests with the Council of Ministers to have the courage to require the Commission to appoint persons of much senior quality in its senior positions so that the inefficiency can be eradicated. That is the need for political will which is stressed so emphatically in paragraphs 47 and 71 of the committee's report.

Institutional fraud in the member states is more complex. In each of the member states the administrative procedures for dealing with Community funds are different and, in varying degrees, they are unco-ordinated and manifestly inept. The procedures can never be identical in all the member states but at least some basic administrative principles should be followed in each member state and the Council of Ministers should have the courage to define what they are. One of the most important is that each member state should nominate one institution which has the overall responsibility for administering the receipt and payment of the Community funds.

Of course, the nominated institution may wish to delegate some part of the functions to bodies below it. There is no objection to that provided the structure makes it quite clear that the power to delegate carries with it a responsibility to monitor. That structure is stressed in paragraphs 59 and 60 of the report before the House. In an administrative structure of that type it is possible in the member states to contain fraud because the same infallible remedy can be employed; that is, to get rid of the people who are incompetent and to replace them with people of quality and experience.

The control of fraud in the member states would be enormously enhanced if the recommendation in paragraph 70 of the committee's report were to be adopted; that is, where any member state is consistently in default, Community funds should be withheld. That would do more than anything else to stop the perpetration of fraud very quickly in the member states.

This is not the time or the place to consider the defects in the United Kingdom's control of Community funds. Pages 34 to 39 of the committee's report set out the procedures but a careful study will show that those procedures fall a long way short of the recommendations in this report or in its predecessor. I merely make the comment that it is time the United Kingdom looked at its own procedures and brought them up to date.

There is one series of facts which might be of interest to the House. The Community's budget is not large. It is relatively small. In this country and in a great many overseas countries there are large industrial and commercial groups whose budgets are equivalent in size, or materially greater than the Community's budget. Those groups do not operate only in 12 states. They usually operate in 40 or 50 different territories. They produce half-yearly and yearly accounts. Their results are usually announced within two to three months of the end of the financial year. The accounts are put before the shareholders and approved two or three months later. The audit reports are usually clean. None of the operations of those groups is riddled with fraud and if it was they would soon be bankrupt.

Let us contrast that with the position in the Community which operates in only 12 member states. Its financial year is December but the accounts are not made available to the public for 11 months; that is, in the succeeding December. They are then laid before the European Parliament some months later; altogether perhaps some 16 months after the year end by which time the accounts are hopelessly stale and quite useless for any practical purposes. Year after year the audit reports have contained savage criticisms which have never been properly resolved. The operations underlying the accounts are riddled with fraud.

The result of all that comes down to a very small and narrow issue. For a great many years neither the Commission nor the 12 sovereign governments have shown themselves capable of dealing efficiently with Community funds. For a great many years the Council of Ministers has been fully aware of that situation and it has not had the courage or the character to stop it. It is a grim augury for the future.

If fraud in the Community is to be contained within tolerable limits, the Council of Ministers must exercise its political will by applying the remedies which are set out clearly in the report and which I have attempted to highlight this afternoon. Above all, the Council of Ministers must demand from the Commission and from the 12 member states a standard of work and the programmes of work specified in paragraph 56 of the report before the House.

4.49 p.m.

Lord Lyell

My Lords, it is a great privilege to follow the noble Lord, Lord Benson, in the batting list for today's debate. If any part of the debate in your Lordships' House today is reported, the remarks of the noble Lord, Lord Benson, on proper accounting and auditing should be heard in the Commission. If any of the good sense of the noble Lord, Lord Benson, concerning the need for the political will, which is stressed throughout the report, can be conveyed to Brussels, all the hard work of my noble friend Lord Aldington and his committee will have been well worthwhile.

We owe a debt of gratitude to my noble friend Lord Aldington for allowing us to debate this subject, which goes to the heart of many of our discussions concerning the Community. I am delighted to share the notable occasion of the maiden speech of my noble friend Lord Tebbit. I remember his great strictures nine years ago, from just down the road at No. 1 Victoria Street, on fraud in tobacco. I am delighted that he has lost none of his wit, perspicacity and accuracy. We are delighted to see him here today.

My noble friend Lord Cockfield tried to bring us back to a sense of reality in suggesting that we might look at the income side of the equation of the Community accounts. Perhaps the noble Lord will allow us in all humility—especially accountants like myself and the noble Lord, Lord Bruce—to look at the expenditure, even though we understand that the full and proper audit that is carried out at present costs only 72 million ecus. That is the sum which is spent on auditing and trying to catch up with some of the figures we see in the report.

In paragraph 11, on pages 7 and 8 of the report, for the first time we find a hint of a topic which concerned me for five and a half years—the great subject of agriculture. The table on page 9 shows that in 1991 the United Kingdom reported 131 cases of fraud, totalling 5.1 million ecus. About one third of that was recovered. In Italy there were 56 cases of fraud totalling nearly 42 million ecus. However, only 2 million ecus were recovered. Ireland and Greece submitted nil returns. It seems that Denmark carried out a very efficient audit and recovered a great deal. Fraud totalled just over 1.3 million ecus and 1.12 million ecus were recovered. Even the noble Lord, Lord Benson, would regard that as a very efficient audit.

With the opinion of the Court of Auditors in paragraph 19 the report begins to look at agriculture more deeply and examines how it impinges upon expenditure by the Commission. Paragraphs 19(i) and 19(ii) refer to stabilisers and structural funds, two items which involve even greater sums under the common agricultural policy. I am sure that those are aspects to which my noble friend Lord Aldington and the committee, and indeed the Court of Auditors, will direct their attention.

Still on page 11, paragraph 20 relates—surprise surprise —to milk exports. I understand that the Court of Auditors' work on that particular aspect began in 1987 and is continuing. I am not necessarily surprised since I seem to recall that in 1984 fairly stringent milk quotas were imposed by the Community, supposedly on a Community-wide basis. One member state still claims, after nearly nine years, that it is not sure how many milk producers it has in its territory let alone how much milk is being produced. However, it is sure that there is definitely a need for further milk production this year and next year.

With that in mind I am not surprised by further contributions in paragraph 20 which indicate that when the Court of Auditors looked into one particular aspect of milk exports it found that two companies in two different countries were responsible for 10 per cent. of the Community-wide refunds in milk trading. That may well be the case since large companies may be involved in that line of business. As the noble Lord, Lord Benson, pointed out, multinational companies have large sums of money. I am astonished by the moderation of the committee in paragraph 21 in describing some of the findings as "shocking". I would have used considerably stronger language. In paragraph 22 it is pointed out that neither of those two beneficiary companies had been audited by the authorities in their member states since 1986. However, we might accept the caveat in paragraph 20 that each member state does not have the full capacity to carry out a proper audit, and therefore we ought to bear in mind the wise words of the noble Lord, Lord Benson.

So far as concerns the witnesses who appeared before the committee, I note the excellent comments of the Paymaster General in paragraph 44. I hope that that was not my noble friend on the Front Bench, but from the date I think that he was probably not then the Paymaster General. I was intrigued by the remarks of the Paymaster General and would be most interested to discover one day the thoughts of the noble Lord, Lord Benson, let alone the thoughts of my noble friend Lord Aldington concerning the remarks of my right honourable friend the Paymaster General. It seems to me that his remarks amounted to a classic defensive strategy in the limitation of fraud. It was a splendid holding position. Your Lordships' committee will certainly be able to come down hard on any merely defensive strategy.

The highlight of my study of the report concerned paragraph 46. I enjoyed the comments of Mr. Trojan, who said that fraud and refunds were most prevalent and caused most trouble where different refunds were available in adjacent member states with a common border. Your Lordships will appreciate that, having had the honour to serve in Northern Ireland for five and a half years, that brought home to me the example of the vast agriculture trade in both directions between County Armagh and County Louth. My noble friend Lord Pearson used wonderful words such as "fraud", "malpractice" and "incompetence". Those are words which were hurled at me, as they have been at my successors in Northern Ireland, by practitioners of the agricultural arts because we did not manage to obtain even more funds from our member state government for investment in milk, pigs, cattle, or whatever. That might provide a valuable background to Mr. Trojan's remarks.

I agree very much with the committee when it says in paragraph 55 of the report that full responsibility cannot lie with each member state and that there is a task for the Commission to improve the audit procedure on a Community-wide basis. The committee rightly points out that that may be a three to five-year process. We may have heard that a number of years ago; nevertheless there is merit in heaven for every sinner who attempts to repent.

I congratulate my noble friend Lord Aldington and the committee on the sharpness with which they have brought this matter before your Lordships and, I hope, before the Commission and into the open. They stress once again that it is political will which is at the base of what needs to be done to carry on the fight against fraud. I hope that today's debate and the report of my noble friend Lord Aldington will contribute to that process.

5 p.m.

Baroness Robson of Kiddington

My Lords, I am particularly delighted to be able to take part in the debate today. I wish to add welcoming words from these Benches to the noble Lord, Lord Tebbit, and to thank him for his contribution. Like many other Members of your Lordships' House, I look forward to an occasion when we may not agree with each other quite so much. It is always slightly more fun if one can have a little argument.

I am delighted to read the report. I thank the noble Lord, Lord Aldington, and his committee for what they have achieved. I consider the report a follow-up to the 1989 report. Paragraph 1 lists the 13 recommendations made in the 1989 report in which we suggested that the time limit for the implementation of those recommendations was three to five years. We are almost at the five year limit. Therefore it is appropriate that we consider the problem again.

On page 17 there is an analysis of the extent to which matters have improved with reference to the recommendations in the 1989 report. It is true that certain factors have improved. There is a reduction in the number of classifications of commodities within the Community. Some of the instructions and operating controls have been strengthened and modified. I believe that the passing of information between nations in the Community has improved to a certain extent. The factor that I most welcome is that the advance payments for the European Agricultural Guidance and Guarantee Funds have been stopped. They were one of the great problems; they laid themselves wide open to fraud.

The noble Lord, Lord Tebbit, suggested that fraud would always exist when instructions and regulations were so complicated that there were plenty of loopholes. One of the loopholes which still exists to which the Community must turn its mind is the differentiation between re-export refunds, depending on the country to which one is exporting. Some efforts have been made to streamline the problem, but it has by no means gone away. It leaves the Community open to a tremendous number of frauds in that area.

The report also fails in one aspect, as did the 1989 report. We suggested that the recommendations should be implemented within a period of three to five years. We left it open at that. The present report goes further. It suggests that the Council of Ministers should formally call on the Commission to submit for its consideration a specific action programme for the fight against fraud throughout the Community, setting out the time by which each element is to be completed. Each one of those elements is to be the responsibility of one particular person within the Court of Auditors. That is a tremendously important recommendation because it stands a greater chance of ensuring that some action will be taken.

What worries me and makes me sad is that there does not seem to have been a great improvement in publicising fraud when it is discovered. We now happen to know which countries were involved in the latest milk fraud. But the information was not published originally. So far as I am aware, we do not know the companies or people within those countries responsible for that enormous fraud. While there is no publicity it will not be possible to stop people committing fraud. It has to be publicised throughout the Community. People who commit fraud must not be able simply to move to another country and start again. With a Europe without frontiers it will be much easier for such people to go somewhere else and start the same business for which they were convicted in another country. It is necessary for publicity to go beyond national frontiers.

I agree, too, with the committee's recommendation that we must have sanctions against Community countries which more than once do not fulfil their administrative duties. Unless we have sanctions we shall not stop attempts to benefit unreasonably from Community funds.

The Maastricht Treaty, in so far as it is relevant to the fight against fraud, seems to point to a greater political will than we may have seen in the past. I seek to be more optimistic than most speakers today. I believe that Her Majesty's Government have been most diligent in encouraging the Community to accept the fact that fraud within the Community is not acceptable. Other noble Lords have referred to a point which worries me too—the danger that subsidiarity will be given as an excuse for not allowing the Community to investigate. Under no circumstances must we allow that to happen.

I am delighted that the report appears reasonably positive. There seems to be slightly increased political will compared with 1989. I hope that matters will proceed in that manner.

5.8 p.m.

Lord Clinton-Davis

My Lords, it has been a fascinating debate, not least because of the maiden speech of the noble Lord, Lord Tebbit, with whom I served on opposite sides in another place over a long period of time. The House will be strengthened by his presence, although I suspect that the slightly veiled controversial air which attached to his speech today is not really a fair augury of what is to come, in particular when we deal with Maastricht.

It is right for me to echo the words of many noble Lords in congratulating the noble Lord, Lord Aldington, and his Select Committee on the latest in a series of reports on fraud against the European Community. The important word to emphasise in that regard is "against". May I also join with noble Lords in paying tribute to the noble Lord, Lord Benson, for the indefatigable work that he has done over the years.

Perhaps I may say this in parenthesis to the noble Baroness, Lady Robson. I believe that the three to five-year limitation to which she referred was to operate from the time that the machinery began to be put into place rather than from the date to which she alluded.

I also wish to pay tribute to my noble friend Lord Bruce of Donington. He has been perceptive about a number of matters affecting the issue of fraud. There are those of us who perhaps have a greater affection for the Community than he has, but nonetheless, the criticisms that he has made from time to time are worth listening to.

I also wish to pay tribute to the noble Lord, Lord Cockfield. The work that he did in the Commission, in which we both had the privilege to serve, in this area and many others is something that I shall always hold in the highest esteem. I was proud to work with him as a colleague and as a friend.

There is one point I wish to make, before I embark upon other matters, on what the noble Lord, Lord Aldington, said when I made a faint intervention. He said that he had not had evidence that the same discipline was applied by the Commission to other member states as to the United Kingdom. I do not believe that that is a fair reflection, on the evidence of which I am aware. I do not believe that the Minister would assert that there has been unfair discrimination against the United Kingdom in the field to which the noble Lord alluded. If he was referring to the area of additionality, the reason that the United Kingdom has been selected for attention is that the other 11 member states apply the principles of additionality whereas the United Kingdom has been embattled with the Commission on the issue. However, in a sense that is a peripheral matter and I do not wish to go into it any further.

The House has been rightly indignant about the extent of the fraud and irregularity which afflict so many areas of the Community's activities which have been the subject of this debate. No one can doubt the significance of the issue. It impacts upon the credibility of the Community. The opportunities which are offered for organised crime and irregularities are almost unique. The trouble is that the problems are likely to burgeon, particularly with the new regime on value added tax and the switch from price subsidies to direct payments to farmers which depends unrealistically on the European Commission knowing what a million farmers produce and own. That is a titanic task.

The enlargement of the Community, particularly as concerns Eastern and Central Europe in the future —and perhaps not even the enlargement, but the association agreements—will bring a huge scale of potential difficulties in terms of crime and irregularity.

I believe that the vast majority of fraud is rooted in the fact that the Community pays people to export agricultural goods out of Community territory, with relatively few checks on traders to see whether they are exporting what they claim to be exporting and in the quantities that they claim. The profits made by passing one export off as another are simply enormous, while the risks of being discovered are relatively small. Therein lies so much of the difficulty that confronts the member states, particularly the Commission, in dealing with those issues.

The difficulties of investigation, detection and procuring sufficient evidence to be able to prosecute make it even more remarkable that over a number of years the member states were so reluctant to invest the Commission with the enhanced powers that it sought, through the noble Lord, Lord Cockfield, speaking on behalf of his fellow commissioners, to investigate and take actions which were necessary to combat fraud. Article 209a of the Maastricht Treaty should be seen in the context of Community responsibility, not in terms of the responsibility of individual member states. That is one of the most important points that needs to be emphasised in this debate.

I believe that, as paragraph 39 points out, the effects of the Maastricht Treaty on the fight against fraud are not to be underestimated. I do not wish to refer to it in any great detail, but the Court of Auditors will become a full institution within the Community. It will have additional powers. The European Parliament will have additional powers to set up a temporary committee of inquiry into alleged contraventions or maladministration in the implementation of Community law. It will have the power to appoint an ombudsman. A court of justice will have powers to impose a fine. I have some reservations about that, but it is an improvement on the current position where such sanctions as exist are clearly ineffective.

The Commission has repeatedly sought to emphasise that the reticence on the part of member states, to which I referred earlier, was thoroughly undesirable. Indeed, I believe that it compounded the activities of the fraudsters and that valuable time was certainly lost in being able to set about undertaking the kind of tasks that your Lordships' House recommended back in 1989. That was not the fault of the Commission. Whatever else may be imposed by way of blame on the Commission, that was not its fault. It was the 12 member states who vetoed the proposal put forward by the Commission to strengthen its powers, but those powers were always to be exercised in collaboration with the member states. It could not have been otherwise. Member states had to collaborate—it was not a question of the Commission seeking to impose itself upon the other member states—if fraud was to be detected.

Yet the United Kingdom Government in the presidency back in 1987 sought to adduce arguments based upon the kind of rhetoric of the Commission wanting to lead the investigations and assuming to itself additional powers. That was simply an excuse for inaction, and it is precisely what occurred until 1989.

One of the criticisms that has been made in the debate by a number of your Lordships such as the noble Lords, Lord Pearson of Rannoch and Lord Benson, and others was to the effect that effectively nothing seemed to be happening on the part of the Commission. I think it is because the report was based upon events that occurred a significant time ago that that criticism is unfair. A great deal has been happening. I have taken the trouble to find out, and it is inaccurate to say, as the noble Lord, Lord Pearson, asserted, that the Commission was not dealing with the matter at all.

The report itself indicates that a considerable amount of progress had been made: the simplification of regulations, a reduction in the number of product classifications, the strengthening of internal controls and instructions and so on. Those are all set out in the report, so it is quite unfair to say that even at the time of writing the report the criticism was properly made out.

However, I suggest that a great deal more has happened since and much more is promised for the future. Perhaps I may allude to that at this stage. In order to be able to combat fraud effectively, it is important that the Commission and member states improve their databases and information systems because this is critical in the fight to eliminate fraud.

The Commission has set up a number of systems such as SCENT. Why it has to use acronyms of that kind I am not sure, but to refer to aromatic acronyms in this context seems to be unwise. SCENT (System Customs Enforcement Network) was created in 1987. It is now being considerably improved. A Customs information system has just become operational and will replace SCENT. It will enable direct contact to be set up between Customs offices at border posts, ports and airports and between those offices and the Commission. Approximately 150 terminals are to be installed initially and a further 200 during 1993. I believe that that will be a vital element in fighting fraud. It will be used for communications covering all areas of Customs activity, from fraud involving the budget to drug smuggling. The second phase of that system involves the storage of the information exchanged in a central database. That will require a specific legal base to be undertaken and I shall not enlarge on that.

There is another important database known as IRENE 3 on frauds and irregularities which has just become operational within the Commission. That contains details of all frauds and irregularities to the detriment of the Community budget. That was advised by the council and implemented by the Commission. It brings together all information on frauds and irregularities provided by member states to the Commission in the areas of agriculture, traditional own resources and the structural funds. It will enable that information to be used by the Commission services to help prevent and detect fraud and to monitor the progress towards recovery of the sums involved in those specific cases. I could enlarge on it, but time does not permit. It will add to the armoury available to the Commission, which I believe is extremely important. Other steps are also being implemented. So it is unfair to say that the Commission is not reacting to the problem.

A view was expressed in the report that the Commission was being complacent. I wonder whether that criticism is fair. I believe that the Commission's response has been erroneously interpreted in paragraph 64 and again in paragraph 67. I believe that the Commission sought not to criticise the cost of the audit work that was being undertaken so far as the court was concerned, but to observe that the audit was of a long-term nature and covered a limited area, and that it sought to emphasise that implementation of the court's recommendations on increasing controls would require additional resources to be made so far as the budget authorities—namely the council and the parliament—were concerned.

Of course one needs' to have additional resources. That goes without saying. A comparison was made between the cost of the operational work of the court's report, which was 200,000 ecu, and the Community's budget for anti-fraud actions in 1991, which was 72 million ecu. It should be borne in mind that, of that 72 million ecu, 90 per cent. was designed to strengthen the structures within the member states, permitting the rest to be used by the Commission's own anti-fraud services. Therefore the criticism that was suggested was perhaps slightly wrong. But I support fully the suggestion at paragraph 68 about the potential obstacles posed by data protection laws in certain member states regarding the exchange of information. That matter needs to be tackled urgently.

The question of publicity is a difficult one. But the case is made out for individuals and companies convicted of fraud to have their names publicised. The Commission evidently feels that that presents certain difficulties in terms of the appeal procedures and so on. But I do not see why one should have to wait for an appeal to publicise a name. That is not how it is done in this country. Publicity attaches to the trial and to the conviction in the first place. If the appeal is successful publicity attaches to that as well. Therefore I believe that the Commission needs to think again on that point.

On the question of sanctions, there is something of an inconsistency between the position adopted in this report and that adopted at paragraph 133 of the Select Committee's report on the implementation and enforcement of environmental legislation. In that report it was said that: Objections to the withholding of structural fund grants —because of breaches of the law— are similarly strong; it is unreasonable to impose a penalty on bodies in one region of a Member State, by definition a poor one, for an act or omission committed in another region or by another body". That point needed to be taken more fully into account in the criticism that was made. The court will have the power to impose fines for breaches of the law in the future under Maastricht. My problem with that is that in the final analysis it is the poor old taxpayer who will have to bear the burden. Nonetheless, I believe that it has some value in that attention will perhaps be more vividly directed towards breaches of the law than under the situation at present.

Those are just mild criticisms. Overall this report, like its predecessors, is extremely important. I happened to speak to the Secretary-General of the Commission last week and I can assure your Lordships that the reports are given a very considerable amount of weight, as indeed they are entitled to be. This report will be given the same weight. What I have tried to do is to correct the impression that the Commission was standing idly by in the face of criticisms made about its activities in 1991 and subsequently. I believe that that impression is false. On the other hand, I do not suggest for one moment that the Commission is capable of curing all such matters even within the time limit expressed in the 1989 report. A massive amount needs to be done. Helmut Schmidt once said that the largest room in the world is the room for improvement. That remark applies more particularly in this area than in almost any other I can think of.

5.28 p.m.

The Earl of Caithness

My Lords, I am grateful to my noble friend Lord Aldington for raising the important issue of fraud against the Community budget. The Government welcome the close interest that the committee has taken on this important issue, thank it for its work and are in agreement with most of its recommendations.

I am also grateful to your Lordships for the many constructive comments that have been offered during today's debate. It has been a debate of the highest quality, as is usual on this subject in this House. It has been marked by the very brilliant maiden speech of my noble friend Lord Tebbit, which we all enjoyed so much. We had the benefit of a distinguished former MEP putting a slightly different emphasis to that of the two former Commissioners on the subject. So we have had a useful covering of the ground. I thank also the noble Lord, Lord Shepherd, for what he said about the late Lord Ridley of Liddesdale. My noble friend Lord Tebbit and I have lost a valued and trusted friend in Lord Ridley. I shall certainly pass on the thoughts of the House to Lady Ridley.

As the 1989 report from the committee indicated, the problem of fraud and irregularity has to be addressed in a systematic and patient way. My noble friend Lord Aldington said that the committee had urged the Government to take a leading role. That is exactly what the Government have sought to do, both nationally and in close co-operation with the Commission, the European Court of Auditors and our Community partners.

I listened with great care to what was said by my noble friend Lord Pearson of Rannoch. I thought that he was rather downbeat about the situation. I hope that he will recognise that we have come a long way since 1989. Indeed, I am glad that the committee acknowledges that fact and I am grateful for the words of the noble Baroness, Lady Robson of Kiddington. Let me assure my noble friend, however, that the Government will not become complacent. First, we cannot afford to and, secondly, we are not blameless. At this point I wanted to say something to the noble Lord, Lord Hunt of Tanworth: I am sorry that he is not in his place. It is clear that more needs to be done and after today's debate I am left in no doubt that the House shares that view.

In many respects the key issue that had to be addressed was the perceived absence of the political will to combat fraud and irregularity, both by detection and prevention. The importance of political will was rightly emphasised by the committee. The Government now believe that political will has been firmly established both in the Commission and with our Community partners. My noble friend Lord Aldington was right to say that that in itself was not enough. He raised the question of resources. The budget contains significant amounts to combat fraud, but money is not the real answer. My noble friend Lord Tebbit was right to say that the first point of call should be prevention, which means effective systems of control. Steps are being, and have been, taken to amend legislation. In addition, procedures exist and are being enhanced to ensure that information is exchanged so that the lessons of past mistakes can be taken on board.

What has happened that permits a move from the previous pessimistic view to the rather more optimistic message that I put to your Lordships today? First, the Government were able to use the recommendations in the committee's 1989 report to press the case for the formulation of an effective action plan against fraud. Such a plan was established in 1989 and has been kept under annual review. The centrepiece of that action plan is a 45-point programme covering all aspects of Community expenditure and revenue. The Commission's fourth annual report on the fight against fraud covering 1992 is expected to be published later this month. It should detail the progress made over the past year on the 45-point programme as well as priorities for the future. Those will now form part of a rolling action programme.

That is a useful start. But more important changes have followed. The financial regulations were amended in 1990 to include specific reference to the need for economy and cost-effectiveness of Community spending. The noble Lord, Lord Bruce of Donington, was right, as he so often is on these matters, when he stressed that it was not just fraud and irregularity that concerned the Government and your Lordships, but also waste. Therefore, steps were needed to introduce the concept of "value for money" into the Community's budget jargon.

The Maastricht Treaty builds on that theme, with amendments to Article 205 which make explicit the Commission's responsibility for the sound financial management of the Community's finances. The Maastricht Treaty would also give enhanced powers to the European Court of Auditors and the European Parliament to examine the Commission's implementation of the budget. The importance of sound financial management of the Community budget was emphasised again in the conclusions of the European Council at Edinburgh under the chairmanship of my right honourable friend the Prime Minister. I noted what my noble friend Lord Aldington said in welcoming those moves.

Specifically on combating Community budget fraud, important extra steps were agreed at Maastricht and during the recent UK presidency. As the committee's report notes, the Maastricht Treaty will impose an explicit duty on member states to treat fraud against the Community budget with the same vigour as they treat fraud against national budgets. Constructive steps were also taken under the UK presidency. The economic and finance Ministers established a high level group to consider ways of continuing to improve the Community's performance and, following the report of the group, agreed important extra steps in the fight against fraud. As many of those steps are in tune with the committee's recommendations and the comments made today, I was a little disappointed that the noble Lord, Lord Bruce of Donington, did not give them more than just a warm welcome. For example, regulations still need to be simplified to reduce the scope for fraud. The Government therefore welcome the Commission's commitment to extend the life of its internal working group, the so-called Lachaux group, which will now look at new as well as existing legislation and take full account of anti-fraud issues. Those changes will be important when the group examines the key CAP arrangements. I give way to the noble Lord.

Lord Bruce of Donington

My Lords, I am grateful to the noble Earl. Can he explain the reason why, in all the discussions that have taken place in regard to the reforms to which he referred, nobody yet, not even in the Maastricht Treaty draft, has explained what would happen if the European Parliament declined to give the Commission discharge of the budget? Would he not agree that the threat of not giving a discharge is an empty one, but one that should have been tackled a long time ago?

The Earl of Caithness

My Lords, it is fair to say that many things on fraud should have been tackled a long time ago. I hope that the noble Lord will agree that there has been a substantial improvement in the position since we debated the issue together three or four years ago. He will be pleased at the extra powers given in the Maastricht Treaty to the Court of Auditors and to the European Parliament to make sure that the Commission carries out its work in the proper manner.

Lord Harmar-Nicholls

My Lords, perhaps I can make a point to my noble friend. He talks about the powers in the Maastricht Treaty. Does not the Treaty of Rome have the same powers? Maastricht gives nothing new in terms of powers to deal with the matters we are discussing today.

The Earl of Caithness

My Lords, my noble friend will welcome what the Maastricht Treaty has to say. It clarifies beyond peradventure some of the issues that have been hotly debated as to whether they were in the Treaty of Rome or not. But we shall be discussing that matter on more than one occasion in the long hot summer to come.

The committee emphasised the need for increased exchanges of information. That was highlighted in the consideration of the Court of Auditors' report on export refunds where the high level group concluded that co-operation was the key to overcoming difficulties of that kind. I am glad that that was welcomed by the noble Lord, Lord Clinton-Davis. The Commission has an important role to play and accepts the need to take on a more positive co-ordinating role, including promoting co-operation between member states, facilitating the exchange of information on transnational activities, and promoting mutual assistance arrangements with non-members states. Those changes will be particularly relevant to the problem of export refunds, which the committee's report highlights. In that connection also, your Lordships will be pleased to note that the Commission agreed to bring forward proposals for an audit package to cover multinational companies.

It is important also that officials, both in the Commission and the member states, are well trained and aware of the situation in other members states. The Government agree with your Lordships on that. Following discussions in the high level group, the Commission agreed to draw up an improved fraud awareness programme; that will give greater emphasis to training those administering the reformed CAP.

The noble Lord, Lord Bruce of Donington, made a number of observations in regard to the budgetary procedures and provisions. The Government believe that Community accounts should be transparent and widely available. While the existing procedures can appear cumbersome, they ensure that the expenditure in question is properly examined. The Commission has a key responsibility, under the treaty for the implementation of the budget, to examine closely all expenditure prior to examination by the court. The Commission is obliged to ensure that expenditure in member states has been properly undertaken.

The Commission rightly emphasised the importance of the audit function and the role of the Court of Auditors. Like the noble Lord, Lord Clinton-Davis, the Government attach considerable importance to the work of the court and welcome the enhanced role it was given under Maastricht. As the Government's reply states, careful consideration will be given to any proposals from the court. However, it is important to keep in mind that the court's main role is to deter and prevent fraud rather than to detect it; and to identify failures in the Commission's and the member states' arrangements for financial control so that they can be corrected. The commitment made at Maastricht and the importance ECOFIN Ministers attach to fighting fraud indicate that positive steps are, and will be, taken to detect and prevent fraud. Regulations have been adopted requiring member states to implement anti-fraud measures, including reporting irregularities and fraud to the Commission.

However, that is not enough in itself, and the committee wished to see further publicity given to cases of fraud and irregularity. Subject to the need to avoid prejudicing the judicial process, the Government agree. However, the real value of publicity is not when a fraud is uncovered, although it may be helpful in so far as it shows that financial control is effective, but when the amounts are recovered and the fraudsters are successfully prosecuted. Unfortunately, that is not what interests the media, which choose to highlight the fraud but fail to emphasise the success of detection and, if appropriate, prosecution of the fraudster. I am sure that all noble Lords would agree with and share the sentiments of the noble Baroness, Lady Robson, with regard to the point that she made on the media. I know she will agree that we cannot tell the media what to print, what to show on television or what to put over on the radio, but I hope that they will take note that the more they can highlight the results at the end of the day, the more effective will be the message that we want to convey.

As regards sanctions, a subject mentioned by many noble Lords, the Government share the committee's concerns about the efficient administration of Community funds. I take the opportunity to remind the noble Lord, Lord Benson, who has enormous expertise in this matter and who indeed raised the debate in 1989, that there are penalties and sanctions in place, although, as the committee noted, they may not be widely known. I can confirm to the noble Lord, Lord Jay, that they include the possible disallowance of agricultural expenditure or a requirement to repay structural fund grants. The amounts could be significant and would fall on the member state government, as recommended by the committee. For example, disallowance would mean that the national authority would not be reimbursed for expenditure which it had incurred. However, it is necessary to ensure that financial control and sanctions are applied in a way which encourages better administration.

In a wider context, the Commission has responsibility under the treaty to implement the budget and to ensure that member states meet their obligations. It must therefore satisfy itself that member states have taken appropriate steps to safeguard Community funds. As the Government's evidence to the committee made clear, it is important to ensure that subsidiarity is not used as an excuse for inaction. That point was well made by my noble friend Lord Cockfield, who also paid a handsome and well-deserved tribute to my noble friend Lady Thatcher for her work in connection with this subject. I am glad that your Lordships agree. It is also important to note that the responsibilities of the Commission will be bolstered by the explicit requirement of the Maastricht Treaty for the Commission to ensure the sound financial management of the Community's finances.

The noble Lord, Lord Shepherd, raised the subject of how to ensure that money gets to the true beneficiaries in the third world. I shall skip that by, as the noble Lord does not appear to be in his place, and turn instead to what my noble friend Lord Pearson of Rannoch had to say. He referred in particular to the absence in the draft programme by the Commission of a will to fight fraud. I gather that the absence of a fight against fraud in the Commission's draft work programme appears to be inconsistent with recent steps. If that were to be the case it would be of great concern to the Government. I can reassure my noble friend on that point. However, we believe that it is not the case. I understand that the Commission's anti-fraud unit is currently drawing up a revised work programme to ensure that the fight against fraud is taken forward. The Commission made very clear in discussions during the autumn its commitment to the fight, and in drawing up responsibilities for the new Commission the responsibility for fraud was explicitly allocated to the budget Commissioner. I know that the whole House will have listened with care to my noble friend Lord Lyell. He is a formidable accountant in his own right and has great experience from his time as a Minister in Northern Ireland. He told the House of the kind of discussions that he got into on this matter.

As to the future, the Government will continue to press the views of the committee and your Lordships when considering reports from the Commission and the Court of Auditors, both in formulating the Council's response to those reports and the direction the Community should take in continuing the fight against fraud. In addition the Government will seek to ensure that the "good words" that I have outlined are put into practice. I believe that your Lordships and the Government are at one on the importance of continuing the fight against fraud and irregularity and securing better management of the Community's finances. I am very grateful for the supportive words that have been expressed both in the committee's report and during today's debate.

5.45 p.m.

Lord Aldington

My Lords, I thank those noble Lords who have taken part in the debate. It has rightly been described by several noble Lords, including my noble friend, as a high quality debate. The exciting part was the speech of my noble friend Lord Tebbit. I am so glad that he took part and I look forward to hearing his contributions in the future. I am happy that he found my "egg" not too unacceptable. I found his speech extremely helpful and bracing: it was lucid, short and uncontroversial.

Once again I extend my thanks to my colleagues on the committee for their help and support. They will have been pleased with the general acceptance of the line we have taken in the report as they will have been pleased with the Government's reply which very much follows the line taken by my noble friend Lord Caithness today. We have had some warnings. I was particularly impressed with the reminder given by my noble friend Lord Cockfield of the importance of avoiding fraud on the revenues and of reducing the revenues and the warning that he gave about the future. We must all think about that. I was impressed, because I felt it strongly myself. It was the warning that while all that we say and all that people undertake to do is fine, what we really need is performance. We have to watch performance.

I do not share the view of my noble friend Lord Pearson of Rannoch that the Commission is doing nothing. I know that to be quite wrong, even over the past few years. I know that it is obligated to carrying through a whole number of new procedures and alterations in the course of this year. Nor do I feel any doubts about the value of the Maastricht provisions. They are of enormous importance, particularly the agreement of the member states. I admit to being a little more optimistic than some of my colleagues about the future because I detected in the reports and in the evidence which we received that things really are changing. The noble Lord, Lord Clinton-Davis, leapt to the defence of the Commission. He did not need to do that for my sake, although I believe that it made an error in its reply on the Court of Auditors' report. I shall go on speaking of that, but I do not now believe that it will stand by what it wrote at the time.

I thank your Lordships. We are all agreed, I hope, that fraud against the Community is not acceptable and that we should do our duty as part of our national Parliament to help those who are fighting against it.

On Question, Motion agreed to.