HL Deb 31 October 1994 vol 558 cc697-752

3.2 p.m.

Lord Hunt of Tanworth rose to move, That this House takes note of the report of the European Communities Committee on Financial Control and Fraud in the Community (12th Report, HL Paper 75).

The noble Lord said: My Lords, we are debating today the fourth report which Sub-committee A of the European Communities Committee has produced on the subject of fraud in the Community and it is arguably the most worrying of those four. This is not because the level of fraud is necessarily higher, but because, despite warnings from the Court of Auditors and others, so little has been done about it. In 1989 our sub-committee warned: The huge sums of money which are being lost due to fraud and irregularities against the Community are losses borne by all the taxpayers and traders of Europe. This strikes at the roots of democratic societies, based as they are on the rule of law and its enforcement, and it is a public scandal".

Yet, five years later—and I have two quotations—the latest report of the Community's Court of Auditors says:

Many errors and weaknesses mentioned in this report, which concerns questions of legality and regularity as well as sound financial management, had already been brought to the attention of the Commission, the Council and the Parliament more than 2 years ago, with little or no subsequent improvement. In such cases, the Commission has had sufficient time either to act directly or to launch any necessary legislative: initiative",

and again: Much larger sums could be saved if more account was taken of the Court's observations concerning the requirements in terms of the accounting control and financial management. By way of illustration, mention need only be made of the Court's Special Report No 5/88 … It is regrettable that after publication of the Report five years had to elapse before significant irregularities were uncovered".

Appendix 4 to our latest report mentions some pretty hair-raising cases of detected fraud against the Community's taxpayers—large payments for wheat supposedly in intervention but which did not exist, false export declarations, meat shipped round in a so-called carousel between several countries to maximise refunds; subsidies for training courses which never took place; production aid for non-existent cotton and so on. And the House will no doubt recall such episodes as the tobacco scandal and the famous cattle that were driven backwards and forwards across the Ulster-Irish border to get the advantages of subsidies on both sides. We refrained however from trying to put a figure on the total amount of fraud because not all fraud detected in member states is reported centrally and in any case detected fraud is but the tip of the iceberg.

Last year, the president of the Court of Auditors estimated the total annual cost at £6 billion sterling. Professor Klaus Tiedemann, a criminologist at Freiburg University in Germany, who has studied pan-European abuse of government money for 20 years, and who has given evidence to our committee in the past, thinks that between 7 per cent. and 10 per cent. of the Community's total budget is wasted through fraud and improper exploitation of loopholes. It is quite clear therefore that, whether those figures are precisely right or not, we are talking about several billions of pounds sterling each year. It is thus a matter of the utmost seriousness—for honest taxpayers and traders, for the legitimate objectives of Community support, and for the whole credibility and reputation of the European Union itself.

I shall leave others perhaps to bring out the full horror of some of these scandals and will concentrate myself on what we think it is necessary to do to put things right. As a result of studying this question now over six years and paying careful heed to the reports of the Court of Auditors over the same period, the Select Committee has come to the conclusion that the whole approach to the process has been wrong.

In the first place, too much emphasis has been placed on fraud detection and not enough on fraud prevention. Some of the steps now being taken to secure better interchange of information between the Commission and member states about fraudsters and their practices, the introduction of a confidential telephone hotline on which members of the public can ring Brussels direct and report fraud, and proposals for common legal treatment and penalties for fraudsters are welcome enough, but they really do not go to the heart of the problem when the Community itself institutes schemes for subsidies or payments which are themselves an open invitation to fraud.

Strengthening the law against fraudsters on a Community-wide basis should in due course, as I say, be helpful, but it does not detract from the main theme of our report which is that fraud must be prevented from arising by improved procedures and techniques. Perhaps one of the most surprising things that emerged from the evidence that we took from the Commission this time was the absence of any specific central responsibility there for ensuring that new regulations and schemes are as fraud-proof as possible: and, as we said in our report, this is far from being the prime consideration in the policy-making directorates whose main concern is often that the money allotted to them is spent since they face criticism if it is not. Inadequate financial control is at the heart of the problem.

It has of course to be remembered that one of the Community's main roles has been to redistribute money from richer countries to poorer ones or from the general taxpayer or trader to specific industries by way of subsidies, and I am not questioning that. This has, however, encouraged the development of a spending culture in which it is considered more important to spend than to obtain value for money, and this is reflected in the organisation of the Commission itself where there is an undue concentration of financial authorisation and responsibility in DG XX. As we said in our report, we of course do not question the need for effective central financial control, particularly to ensure proper authorisation, but the undue importance attached to the financial controller's "prior visa" has meant that once authorisation is given by DG XX the operational directorates do not take their financial responsibilities as seriously as they should. The financial management in the spending directorates needs to be strengthened and they should plan and control their expenditure so as to ensure that the regulations are obeyed.

There is another way in which the Commission needs to change its practice. It repeatedly talks about the combating of fraud being a matter of "partnership" between the Commission and member states or even that the prime responsibility rests with member states. It is of course true that in many cases it is up to member states to enforce the regulations. It is also true that some fail to do so in a conspicuous way. It is also the case that even when fraud is detected, the amount of money recovered is lamentably low. That proportion also varies greatly between member states. The latter are, however, largely acting as the Commission's agents in disbursing Community funds and it is up to the Commission to specify precisely the controls which should apply and to withhold funds if some members states do not have the requisite procedures and controls or do not implement them properly. Subsidiarity does come into the matter since by definition we are talking about areas where Community competence is already agreed and in force and where it is Community money that is being spent. Article 209a of the Maastricht Treaty imposes an obligation on member states to fight fraud affecting the Community budget as if it were fraud against themselves, and if a member state does not fulfil this obligation the Commission can use Article 169 to bring it before the European Court of Justice which has power to impose financial penalties.

We also believe that the Court of Auditors should be strengthened, particularly since it has a new responsibility under the Maastricht Treaty to certify the reliability of the Community's accounts and the legality and reliability of the underlying transactions. As things stand at present, there must be doubt whether it can discharge its mandate under Article 188c of the Treaty. We also believe that the European Parliament should play a more effective role in the fight against fraud.

The current approach by the Commission, which has been endorsed by the Council, is essentially a step-by-step one, building on the past and attempting to do better in the future. For two reasons, we feel that this approach will no longer suffice. The first is that experience has shown that it does not produce the results needed: fraud is as bad now as it was six years ago. Reports of the Court of Auditors continue to be ignored: and the emphasis is still on detection rather than prevention. The second is that we feel that a more radical approach is needed which does not hesitate to question the roles of the Community's institutions and the way in which they discharge their functions. This applies particularly to the functioning of the Commission.

We feel therefore that the best course would be to appoint a task force of outside experts to undertake a fundamental review of the Community's financial control arrangements to correct the serious defects in administration and procedures to which we have drawn attention. I hope that the noble Lord, Lord Benson, will explain a little more fully why we think that the appointment of a task force would be the right course. However, we have not said that that is the only way of doing things. If the appointment of a task force is not politically acceptable to the Council, we feel that a similar review must be undertaken internally by the Commission but with the help of outside experts. What cannot happen is for the Community to go on as it is at the moment.

We were grateful to the Chancellor of the Exchequer for giving evidence to us on 9th March, and for the extent to which he shared our view about the seriousness of the problem. We have recently received a letter from him giving the Government's response to our report. Given the fact that Her Majesty's Government have been more active than other Community governments in pressing for action against fraud and bad financial control, I find the Government's response a little puzzling. They say that our report will strengthen the hand of UK Ministers and others who are determined to tackle the unacceptable level of fraud and financial irregularity in Community finances. They say that they share many of our views and hope that both the institutions of the Community and other members states will take careful note of them. They welcome our call for more emphasis on fraud prevention, fraud-proofing and improved procedures. They even support our recommendation that more responsibility for financial matters should be placed on the operational directorates in the Commission.

All that is very gratifying. But the Government go on to say that it is necessary to be cautious about launching initiatives like the proposed task force; that while there is a lot of activity now in hand to improve matters progress will inevitably be slow and that much depends on the willingness and ability of member states to take effective action inside their own territory. I take the point about political will—indeed, previous reports of the Select Committee have emphasised the need for it— but I wonder how much longer fraud on the present scale has to continue before radical action is taken. A step-by-step approach would be all very well if it was delivering results. But the Sub-committee does not think that it is.

In conclusion, I should like to thank all who helped us with this inquiry: the witnesses and all my colleagues on Sub-committee A. I should however like to single out two names in particular. I refer first to the noble Lord, Lord Benson, who although no longer a regular member of Sub-committee A, was co-opted again for this inquiry and who thus once again placed his exceptional knowledge of this subject at our disposal. I thank also Mr. Brendan Keith who, when our regular clerk was temporarily diverted to other duties, stepped into the breach with enthusiasm and energy and was responsible for drafting our report. I hope that the report may be of help to the House.

Moved, That this House takes note of the report of the European Communities Committee on Financial Control and Fraud in the Community (12th Report, HL Paper 75).—(Lord Hunt of Tanworth.)

3.17 p.m.

Lord Boardman

My Lords, I was privileged to serve on Sub-committee A under the chairmanship of the noble Lord, Lord Hunt of Tanworth, and I pay tribute to him both for the way in which he chaired the Sub-committee and for the succinct way in which he has summarised the important points of the report. We have had years of complaint about fraud in the Community. The question was considered by a Select Committee here in 1989, again in 1992 and then again this year. But as the noble Lord said, the fraud continues. Indeed, I suspect that it gets worse each year as the crooks get wiser and learn more and more ways in which they can work the Commission and more and more about the lack of proper controls. The rewards for them are enormous.

There are two aspects to this question. The first is prevention, to which the noble Lord, Lord Hunt, referred. The second is detection. Two disciplines apply. The first is that which comes from the centre, from the Commission, and the second is that required within the member states, which are normally the receivers of the largesse. Perhaps I should give an illustration of the sort of situation that has arisen. It shows some of the defects of the system. I refer to the grants for set-aside under the CAP. Under that system, the area which had previously been cultivated arable land is measured and declared. The area that the farmer wants to cultivate again is also measured and declared. One is able to receive a grant for 15 per cent. of that area—or whatever the. proportion happens to be—to leave that part not growing food for consumption. In the United Kingdom, large-scale maps were required from the fanners who applied and who had to show, in considerable detail, how they would work their land. In due course, grants would accordingly be paid. If the maps were a few square yards out, the application failed. How does one apply that discipline to what is happening in countries like Greece, where there are no maps? There is no possible way of checking either on what they have done or what they propose to do.

By pushing through a proposal like this the Commission invited fraud on a massive scale. It is possible that with vast expense someone could measure a plot in Greece, or somewhere similar, and decide whether or not a fanner is cheating. However, I think it highly unlikely that anyone would be brought to book. Yet our farmers rightly and properly carry out the requirements thoroughly and well. That is a system created by the Community and designed, one might say, in order to invite fraud. That is one of the defects in the prevention of fraud to which the noble Lord, Lord Hunt, referred.

The authority to spend money comes from the Commission. A financial controller signs and, we are told, puts a green stamp on expenditure which is requested. All he has to do is, first, ensure that the money is there and, secondly, that the expenditure comes under the general heading in the budget. He is not really concerned with how the money is spent. There is no adequate ex-post audit and I gather that there is seldom an audit of any kind of how the money has been spent.

I suggest that some form of public accounts committee is needed, such as exists in the other place where remarkable research and investigation goes into items of expenditure. Discipline is applied effectively to the control of expenditure, not only on matters which will be investigated, but any others that people think might be investigated. I put that to the Chancellor of the Exchequer when he gave evidence and he said that there was a kind of public accounts committee in the form of the European Parliament. Of course, the European Parliament has the right to fail to discharge the budget or to criticise it, but the way in which it analyses such cases as the set-aside, which I mentioned, must make failure remote and impossible. The discipline which it can apply is quite inadequate.

We then have the Court of Auditors, which has the right to ascertain whether a particular payment has been authorised. Its last report was for the year 1992 and from it one sees that the real criticisms are disregarded by the Commission. They are treated almost with contempt when the Court of Auditors censures the laxity of the financial control which has been applied.

We note the improvement which will arise in the authority and the resources under Maastricht and we must wait to see whether it makes much difference. I believe that it may alter the degree to which the work is done, but I do not think that it will alter the main concept of authorisation and checking of the way in which expenditure is carried out.

The problem appears to start with the budget. A total sum is agreed, which is a multiple of GDP, and a figure is fixed. After that, a variety of people split it up under various headings and then it works downwards until it is ensured that all the money is spent that people have managed to get authorised. One finds quite ridiculous situations. One such came up in a Select Committee report in relation to payments of regional grants. The committee was chaired by my noble friend Lord Aldington who will remember, as I do, that the committee spent money on items like providing public lavatories in Cardiff. There was money over, so that was decided upon. Somehow I do not believe that that is part of the concept of a European Community and of building up regions in accordance with the theory of the Community.

I also recall visiting Italy, looking at the society there and how money was being spent in that region. The finance director of a large, world-competitive company said quite openly: "Each year I put in my capital budget what I need for this plant. I send it through to the head office in Rome so that it can present the budget to the European Community as part of the regional aid that is needed". Again, that is not the original concept fundamental to the European Community; that is, seeing how one can get the maximum slice. A tremendous amount of waste and fraud arises from the system of authorisation in Brussels.

Turning to member states, the table on page 33 of the report is interesting. It gives the number of cases reported and it reports on the degree of fraud in each country. In fact, it reports on the effectiveness of control in individual countries and the political will of the country concerned to exert discipline on expenditure. We want that, rather than the degree of fraud that happens. The report shows that under the CAP investigations the United Kingdom raised 180 cases; Italy, 47; and Ireland, 16. Under the non-CAP investigations the United Kingdom raised 1 37; Italy, 85; and Ireland 4. I do not suggest that that is a ratio applying to the degree of fraud that happens in those respective countries, but it is a true measure of the effectiveness with which we try to discipline the systems that are installed.

There must be a difference in the approach of countries depending on whether they are net payers or net receivers of funds from the Community. There must be an inclination for those who are receivers of someone else's money to be less critical as to how it is spent than if they are net contributors and spending their own money. I wonder whether the scrutiny is quite as severe with some of those who are net receivers and whether they intend to address their powers of scrutiny in the same way as Admiral Lord Nelson did his telescope.

There is a dilemma. It is Community money and as such the Community could, and the report says that it should, have a representative of the Commission in the member state to ensure that the money is properly spent. That has a degree of conflict with the doctrine of subsidiarity and the noble Lord, Lord Hunt, said that subsidiarity would not interfere with that, it would not be affected by it. I wonder whether countries which found that they had inspectors from the Commission crawling over their books might object to it and claim that subsidiarity should allow them to do it themselves. Indeed, we have examples where France refused to allow access to a number of its records when that would have been helpful in examining the effectiveness of the ways in which some of their moneys had been spent.

There is a case for following the practice which happens in multinational companies, where a central auditor has auditors for subsidiary companies which operate overseas and who report to him. The senior auditor has the responsibility and authority to approve practices, checks and controls of the subsidiaries.

The report suggests that an ad hoc group of experts should lay down the principles to be followed. As the noble Lord, Lord Hunt, said, that was not well received by the Treasury and I recognise that problems exist where a number of such bodies have already been set up. There is the high level group on fraud, the unit for co-ordination on fraud protection, Mr. Schmidhuber's committee, Mr. Lachaux's committee and so on. There is a lot of talking going on, but very little that is effective coming out of it.

Some measures seem to be designed by the Commission to limit the influence of the Court of Auditors. Unfortunately, there has been a great conflict between the Commission and the Court of Auditors throughout the time they have existed, so far as I can see. The Commission does not seem to welcome too much interference from the Court of Auditors. I am delighted that under Maastricht both the status and the resources of the Court of Auditors have been improved. It may well be that the Court should be the equivalent of the auditors of the parent company and should have its auditors in the member states who will have full authority to report back to the central auditor.

There is a need for high quality staff and ample resources. When one looks at the potential losses and the fraud that goes on such money would, I believe, be well spent. I welcome the draft regulations that have been proposed for increasing the penalties and the powers of recovery as regards prosecuting wrongdoers. However, I doubt that that will be sufficient while the Commission continues to operate in the way that it does at present. Member states can—and I fear that some of them will—turn a blind eye towards how they spend the moneys they receive.

Finally, much more needs to be done as regards publicity. How often do we hear or read about prosecutions or offences committed by various people or companies in some of those countries? Indeed, the name of the country is very often suppressed and the name of the company is nearly always suppressed. People are defrauding the economies of countries within the Community of vast sums of money—and it is right that they should be exposed and publicity given to the matter. I hope that that will be dealt with in the future.

3.30 p.m.

Lord Bruce of Donington

My Lords, I should also like to express my thanks to the noble Lord, Lord Hunt of Tanworth, for the excellent way in which he conducted the proceedings of Sub-committee A and also for the very cogent way in which he brought all our work together in the report that we are considering this afternoon. Perhaps I may also note with pleasure the participation in today's debate of the noble Lord, Lord Shaw of Northstead, who is to make his maiden speech. I look forward with great anticipation to hearing what he has to say. The noble Lord will recall that we both worked together for four years on the Budgetary Control Committee of the European Parliament. Moreover, although it may seen odd, we very rarely disagreed with one another. As I said, we are all looking forward to hearing the noble Lord's speech.

While I am in the mood of gratitude, perhaps I may also venture to remind the House that much of the report that is before your Lordships this afternoon, and many of the preceding reports, is due to the very fundamental work carried out in the first instance by an ad hoc committee in 1988 under the chairmanship of the noble Lady, Lady Kiddington, whose report was extremely incisive—

Noble Lords

Baroness Robson!

Lord Bruce of Donington

My Lords, I am sorry, I meant to say the noble Baroness, Lady Robson of Kiddington.

In the summary of that report, we concluded unanimously that fraud at that time was a public scandal in the Community. Much of the tone of the investigations which have been conducted since that time and their scope have been due to the work carried out by that committee.

About 10 years ago I ventured to suggest to your Lordships that fraud and irregularity in the Community were a considerable problem. If I may say so with respect to all those concerned, I was pooh-poohed from the Government Front Bench who said at that time that there did not seem to be a problem. That view was also expressed during the course of a visit to the Commission in Brussels which also did not seem to think that it was a problem. However, we now find that it is. We find that it is probably of the extent of £4 billion to £5 billion a year—or the tip of the iceberg. It is quite clear that we must do something about it, not only on the grounds of the maintenance of proper law and order but also for the other reason; namely, that it is costing the British taxpayer something like £500 million a year. At a time when the Government are scrabbling around looking for £5 million here and £5 million there, sometimes by extra impositions on those who are less fortunate in our society, it might be wise for them to pay even more attention to fraud and irregularity which is taking place within the European Community.

In that connection, although the events took place after the publication of the report of Sub-committee A, I am afraid that I cannot avoid referring to the rather unfortunate events which took place last week at the ECOFIN meeting on 21st October where Her Majesty's Government gave way to blackmail by the Italian Government who threatened, unless the fine imposed on them by the European Community was not reduced, not to ratify the agreements concluded in Edinburgh in regard to the European Budget. I regret that the British Government did not stand firm on that occasion. It is not only a question of honour; it is also a question of good finance. If the Italians had in fact vetoed the settlement arrived at in Edinburgh in 1992, nothing could have been better for the United Kingdom. Indeed, it would have saved us making a considerable net contribution. Therefore, I cannot understand why there was such a fuss. The Government could have stood their ground. British governments used to stand their ground at one time, although I am not sure how long ago that was. Nevertheless, there was a time when such things did happen.

The other aspect of the episode that I noticed was the curious silence of the President of the European Commission. One would have thought that anyone who tried to blackmail the Council into agreeing to such an arrangement and thereby frustrating the whole premise of the European Community would have immediately occasioned remarks of at least as caustic a nature, if not as forceful, as those that are from time to time, as a matter of habit, directed against the United Kingdom. Indeed, the UK has only to get the slightest bit out of line before some impertinence from the President of the Commission makes itself evident. However, on this occasion, even though Italy—and, to a lesser extent, Spain and Greece—was at fault in the matter, not a hint of reproach did we hear from the Commission. That is only reserved for the United Kingdom.

I hope that the Government will take a little more robust an attitude about such incidents. I shall not go further and mention the rather curious circumstance in which the new President of the Commission, who I believe deals with the foreign affairs of a country the size of Bristol, is able to take even more powers than M. Delors in taking charge of foreign defence matters and in taking account of economic and monetary union and many other such matters. I have not noticed any reproach in that respect. Of course, it is not for me to pass comment on the merits of either Mr. van den Broek or, indeed, Sir Leon Brittan. But it seems to me that the United Kingdom is beginning to find itself in a peculiar position.

In regard to these irregularities, I shall not elaborate further on the examples that have been given by the noble Lord, Lord Hunt of Tanworth. Indeed, they have been well ventilated in the press. But one thing they do show—the report emphasises this—is that so far as financial control is concerned, the Commission itself exercises very little at all. This indeed is brought out in the report. As long as the expenditure is authorised, that is the end of the matter. Incidentally this is not unusual in countries on the other side of the Channel. They rather tend to adopt the authorisation principle without checking whether the money has been properly spent at all—I divide these matters into two here—and, when it is spent, whether there is value for money.

The Court of Auditors has brought this matter to the attention of the Commission time after time. All the Commission says in response is that—it does not mention irregularities so much; it may be slightly self-conscious there—the detection and prevention of fraud is a matter for the member states. Of course, in part it is. Member states should comply—Greek, Italian and Spanish newspapers please copy!—with the law. Perhaps I should add to that list France as well. But the fact of the matter is, if there is no control at all from the middle—from where the funds emanate—there will not be a proper expenditure of money, lawfully, and also as regards value for money. That must be clear. I have ventured, in debating before your Lordships this very matter, to suggest that the Commission pays attention to Article 209 of the amended Treaty of Rome which imposes that specific responsibility upon it, but its latest reaction in support of its argument that this matter is for member states to deal with is to send us a directive with attached draft legislation to define what fraud and irregularity are. It also suggests that a convention be held to incorporate both of the other two pillars of the Maastricht Treaty into the process in order to enforce it. I do not know whether the noble Lord knows this but I can tell him, if he cares to look this up, that on 14th July 1988 Her Majesty's Treasury sent to the committee of the noble Baroness, Lady Robson, a detailed letter repudiating both concepts. Therefore it now wants us to fight that battle over again.

I have looked at the Government's explanatory memorandum on these two draft pieces of legislation from the Community which will shortly be considered by Sub-committee A and I note that the Government were still considering the matter. Gone was the decisiveness of the Treasury Solicitor of 14th July 1988. Now we are once again in the middle of an ambiguity. There was a time when I was prepared—indeed, at the end of the deliberations on this particular matter which were conducted by Sub-committee A—to go along with the solution proposed by the noble Lord, Lord Benson (and indeed adopted by the committee), that a special outside force should be established to advise the committee and the Council, technically, how all these financial controls—that is what is needed—should be installed, and also to have a fundamental review of the whole of the Community's finances as conducted by the Commission.

Recent events have convinced me that that is not enough. It is quite clear that over the years the Commission has regarded manipulation of finance—this is why it does not want the financial regulations tightened up—as one of its means of achieving its own political ends. That is why at Edinburgh it put forward a projection of own resources for the next five years, knowing full well—which the British public did not know—that that of course automatically decided the Community Budget over the next five years. It did that because it knows that it can manipulate the Budget and the expenditure in the Budget exactly as it wishes, aside from what is already comprised in the agricultural legislation where, again, it has a degree of flexibility. But it can, if it wishes, say to any member state, "We have it in mind to present you with 500 million ecu, or whatever it is, next year, and possibly 700 million the year following because we think you need it in order to maintain or to achieve social cohesion". It then adds, "But of course we shall need your political support in some arguments we are having with the United Kingdom, or some arguments we are going to have with France". That is why the control of finance in the Commission's hands becomes something we can endure no longer.

Therefore I suggest to Her Majesty's Government that when we start negotiating for the 1996 inter-governmental conference, we should lay down that we require a complete unbundling of the whole Commission structure and that we will require a Treasury board, which should be under the control of ECOFIN, to have its representatives at all levels of expenditure in the Commission itself in very much the same way as Her Majesty's Treasury does in the United Kingdom as regards the Treasury departments. That is only one of the reforms. Many others, including the taking away from the Commission of its sole rights of initiative, are needed to restore balance and to restore power where it properly should be within the Council of Ministers. In this way perhaps we may have some impact upon the fraud and irregularity with which the Community at the present time is riddled.

3.47 p.m.

Lord Benson

My Lords, I am grateful to the noble Lord, Lord Hunt of Tanworth, for some kind words recently spoken. I am not sure that I can make any contribution to the debate tonight except to support what he has said in his comprehensive report but perhaps in rather different language. This report adds one more chapter to the pitiful story of maladministration which has been persistent in the Community for a great many years. The facts are not in dispute. Year after year the Court of Auditors has made scathing comments about the Community's administration and has pointed out that huge sums have been paid directly into the pockets of thieving fraudsters.

In this aspect of its affairs the Community only receives and pays money and the moneys it pays out are in accordance with schemes and operations designed by the Commission itself. It does not have to run a ferry service, a railway or an airline or manufacture complicated machinery; it receives and pays money and in paying out money for schemes designed by itself, it pours substantial sums of taxpayers' money directly into the pockets of fraudsters. It is the practice of the Commission usually to lay most, if not all, the blame at the door of the member states. It recently did that in a public announcement on 29th July 1994. That is an unfortunate economy of the truth. Of course the members states have much to be blamed for but the Commission knows very well that it has the moral obligation and, indeed, the statutory obligation to satisfy itself that the money received and paid out by the member states is done efficiently and properly. The Commission has failed to do that for a great many years.

The House may ask whether there are any basic reasons which have led to that extraordinary situation. There are two basic reasons. First, it is quite usual in any organisation, large or small, for the administration to get out of hand; it becomes sloppy; people in charge lose their grip; it becomes out of date; and the administration does not comply with modern conditions. But when that happens, the universal practice world wide, and with unqualified success, is to get rid of the people who were responsible for bringing about that sloppy situation and to replace them with competent and efficient personnel.

With regard to the Community, there is no difficulty at all in identifying the individuals who have created and sustained this public scandal. The difficulty is that the top hamper of the Community is so complex and convoluted that it is impossible to get rid of the people concerned and they remain in office, with the consequences which are obviously.

But there is a second basic reason; that is, that the individuals and institutions which govern the Community at present do not have the courage, ability or the political will to take the necessary remedial steps.

The House is aware that it is the practice of the Government to comment upon Select Committee reports, and that was done, as has been pointed out, by the Chancellor of the Exchequer in a letter dated 23rd September 1994. The Chancellor's letter supported in broad outline all the conclusions and recommendations made in the report bar one; namely, it did not support the recommendation that remedial measures are necessary on the lines specified in the report.

In justifying that decision the letter made the following comment. It said that it is: necessary to be cautious when launching initiatives of this kind"; that it would distract those who are in the front line in dealing with the problem"; that it would divert resources from the detailed attention to individual problem areas which is necessary if concrete progress is to be made"; that it would provide excuses for delay and that progress is inevitably slow". Those phrases do not carry conviction; nor do they demonstrate that the Chancellor's decision was necessarily wise or prudent.

The Chancellor's letter was important for other reasons. It exemplifies very efficiently the attitude of apathy which prevails throughout the whole Community in relation to this public scandal. It fails to remember or to point out that this situation, this public scandal, has existed for a great many years and it is highly probable that it will get worse and not better.

However, the letter was important for another reason. It made it quite clear that the Community has determined to muddle along in the same old way as before, deep in the ruts which have bogged it down for so many years. It comes down to the fact that there are three unmistakable facts. First, there has been gross negligence and, at times, irresponsibility in managing the Community's funds for a great many years. The second is that each year the Community pays out a substantial amount from its total annual resources into the pockets of fraudsters. That can be measured not in millions but in billions. The third is that the Community does not have the technical knowledge or the administrative skill to bring the public scandal to an end.

The evidence in support of those defaults is overwhelming. I draw your Lordships' attention to the scathing reports by the Court of Auditors year after year after year; the Commission's own annual report, which fails to produce any remedial action of any practical value; the absence of audit coverage; and the penetrating reports of Select Committees which are published regularly, the first being as long ago as 1989.

I suggest that the most compelling evidence is the report before the House this evening. I beg your Lordships to glance at pages 29 to 32 of the report. It will be noticed in those columns that transactions have been entered into by the Community without any care or skill. Very often the amounts are huge and those vast sums have been paid in consequence direct into the fraudster's pockets. The evidence is conclusive that that sector of the Community's activities needs radical overhaul.

The groups of individuals who administer the Community's money are 13 in number. They are unco-ordinated and each ploughs its own furrow in any way it thinks fit. At the top there is the Commission, and the Select Committee's report makes it clear that radical changes are necessary in the organisation of the Commission if it is to be possible to safeguard properly the Community's funds.

Then there are the 12 member states, each of which manages its own affairs in its own way and each of which is fiercely autonomous. In some of the member states, the control of Community funds is absolutely disgraceful. There is no central management or direction which brings together and co-ordinates those 13 disparate bodies into a watertight administrative unit which safeguards and preserves the Community's resources. At present, there are 13 different conduits down which money flows out of the possession of the Community straight into the pockets of fraudsters. Those 13 conduits must now be closed.

Bearing in mind the inability of the Community to stop this public outrage for many years, the Select Committee reached the conclusion that there was only one possible course open; that was for the Community to import into its service competent people of high attainment and with considerable reputation, who understand the meaning of the words "financial integrity" and who have been trained for long years in handling large sums of money in different ways and in different countries.

That skilled team should be asked to review the structure and procedures of the Community in safeguarding and dispersing its funds. It should be asked to make recommendations. When it has done so, that same team or another similar team must be imported into the Community in order to see that those recommendations are put into force and that proper programmes of work are set up which are monitored monthly, quarterly or annually until all the recommendations have been implemented properly. There are plenty of people with the skills I have mentioned who are available for the purpose, if only the Community has the courage to import them and take their advice.

There is one other vital consideration. The European Council of Ministers must issue a directive that these arrangements are to be put into force. That directive is necessary to give authority and thrust to this initiative. More than that, unless that directive is in force one can be sure that the apathetic attitude of mind in the Community will soon bring that initiative to nothing. We have to look at this matter in a wider context. The Community is committed to governing the lives of between 200 million and 300 million people, who speak nine different languages and have 12 different cultures, and setting up a federalised government. Whether or not that will be a democratic government remains to be seen. It is also committed to binding together 12 disparate economies under the yoke of a single currency. If the Community attempts to introduce these functions with the same crass incompetence with which it manages its cash book, the future of the Community is doomed and nothing can save it.

Noble Lords

Hear, hear!

4.2 p.m.

Lord Shaw of Northstead

My Lords, I welcome the privilege to speak for the first time in your Lordships' House. I also welcome the privilege of following so distinguished a member of my old profession as the noble Lord, Lord Benson.

By coincidence, at the time that my elevation was announced there was some public talk about the future and composition of your Lordships' House. I sought comfort in some lines from a poem by the greatest of independent Members of Parliament, the late Sir A.P. Herbert. In our defence, he wrote: While the Commons must bray like an ass every day, To appease their electoral hordes, We don't say a thing, 'till we've something to say, There's a lot to be said for the Lords". Between 1974 and 1979 I was a nominated Member of the European Parliament, as indeed were several other Members of your Lordships' House. I am glad to see the noble Lord, Lord Bruce of Donington, in his place and in his usual good voice. It is true to say that we did not always agree, and our disagreements were occasionally fairly firm, but I have to agree with him wholeheartedly that on very many occasions we were in entire agreement. There were several occasions when we had to depend on each other for support. It was certainly the case—and still appears to be so—that he, better than anybody, did his homework.

During those years the work of your Lordships' committees on European affairs was greatly regarded and closely studied. Even that long ago there was a lot to be said for the Lords. So there is today. I hope that the noble Lord, Lord Hunt of Tanworth, will not regard it as presumptuous if I say that the report of his committee today demands the closest possible study by all who have the interests of the European Union at heart. The continued lack of financial discipline that it discloses is deeply worrying. As the report says on page 6: Clearly there is still a long way to go to achieve the sound financial management which Community taxpayers have the right to expect". As I read through the cases of fraud and mismanagement outlined in the report, sadly I go back to 1977. In that year, with great hopes, the European Court of Auditors and the Budget Control Committee in the European Parliament were set up. In December of that year, as rapporteur I was privileged to guide through an agreed budget without for once the need for conciliation. Also in that year, again with myself as rapporteur, following nearly two years of negotiation, involving in the end a new form of conciliation between the Council and Parliament, a new and much improved financial regulation was agreed. I confess that in that year I hoped that we had seen the start of better financial management and discipline. Sadly, as this important report all too clearly shows, it has not happened yet. I only hope that the measures outlined on page 7 of the report will at last begin to make some improvements in the future, although in themselves they are not enough, as the report clearly states.

The lack of progress so far must not be a reason for despair. We joined the Community because we felt that it was right for Britain and Europe. Life thereafter was never going to be a permanent honeymoon. The European Union is both expanding and developing, and big changes and improvements have to be worked for and accepted. The role of its institutions and their practices must be continually scrutinised and updated. Nowhere is this more important than in the way it handles its financial affairs. The long-term success of the European Union depends on the success of the budgetary authority in establishing sound financial management of its affairs. It is a combined operation. The Council and European Parliament together form the budgetary authority, but the implementation of the budget rests, crucially, with the Commission.

The report rightly draws attention to the changes that have already been brought about by the Maastricht Treaty. It also stresses the need for other urgent action in the field of management procedures, financial and internal controls and an audit coverage, as set out in paragraph 40.

The report also refers to a worrying absence of indignation at the amount of fraud and mismanagement in the Community's finances. There has to be not just a change in working practices but a willingness and determination to deal effectively with fraud and mismanagement. For example, several times in the past I have quizzed United Kingdom Ministers after they had attended meetings of finance Ministers in Brussels. I asked what happened when reports of the Court of Auditors which disclosed serious cases of fraud and mismanagement came up. I am sorry to say that I gained the impression that too often such matters were put low on the agenda so that by the time they were reached most Ministers had disappeared to catch their planes back home. Again, while the Budget Control Committee in the European Parliament takes these matters seriously, the report finds that for most MEPs' interest in this scrutiny of spending is minimal. I am sure that we found that many years ago.

In the Commission, as the report indicates, once a "prior visa" has been obtained too much concern is placed on carrying out the policy and too little on the safeguarding of its financial management.

Lastly, in too many of the member states which are in receipt of Community moneys the interest has been, all too understandably perhaps, in getting hold of the money rather than checking that the final recipients are entitled to it.

The committee's main conclusions are summarised in paragraph 57 of its report. They set out the steps for action that have to be taken if fraud and mismanagement are to be controlled. Sound financial management by both the Commission and the member states is essential. It must be right, as paragraph 45 states, that in so far as member states are accepting Community funds they are acting as agents of the Commission in their disbursement. They must, therefore, provide the appropriate administrative structures to reflect that relationship.

The test will come, if indeed it has not already come, when a case arises in which such a structure is not in place and the Commission cannot assure itself that Community funds are going only to those who are entitled to them. Will those funds be withheld? And will the Commission's action also be upheld? It would be disastrous if differing definitions of financial regularity for different member states were to develop.

Finally, I was delighted that under the Maastricht Treaty the Court of Auditors has now been established as a full Community institution. That is something that I have long advocated. Its reporting duties to the Council and Parliament have been significantly increased. Perhaps most importantly, it now has the power to bring other Community institutions before the Court of Justice. I do not anticipate that that will happen often, but it is a powerful incentive for other institutions to take action on matters which in the past would have lain on the table.

I congratulate the committee on a thoroughly researched and constructed report. It deserves the widest possible study.

4.12 p.m.

Lord Barnett

My Lords, it is my considerable pleasure to congratulate the noble Lord, Lord Shaw of Northstead, on an excellent maiden speech. As a fellow accountant, I am not surprised. In another place we frequently disagreed on financial matters, which we debated often. I think that the noble Lord will find that in your Lordships' House we may not disagree quite so often, certainly on party political matters. On this particular subject, as I hope to indicate, we shall certainly agree on a great deal of what is contained in the report. I believe that I can speak for everyone present when I say that we very much look forward to hearing the noble Lord again on many occasions in your Lordships' House. We have no doubt whatever that he will make an excellent contribution to our debates.

I shall refer briefly to the contribution of my noble friend Lord Bruce of Donington. I do not expect often to agree with him on European Union affairs, but when he says that what we read here is a public scandal I agree with him entirely. It is indeed a public scandal. However, we should not be too self-righteous. Under any definition—and I could quote from the Oxford English Dictionary but I shall not do so because of the time factor—fraud exists in the UK. That was highlighted recently by the National Audit Office and the Public Accounts Committee. I am glad to see my noble friend nodding in agreement. As a former Chief Secretary to the Treasury and Chairman of the Public Accounts Committee, I can certainly vouch for the evidence which came before those bodies. I shall refer briefly to more up-to-date evidence which they have produced.

The Select Committee report which we are now debating is extremely disturbing. I should like to congratulate my noble friend Lord Hunt (he is my noble friend because he was Cabinet Secretary when I was in the Cabinet) and the noble Lord, Lord Benson, on their contributions and on the report. As the noble Lord, Lord Benson, rightly said, there is a clear need for a radical overhaul in this field. I have no doubt that the whole of your Lordships' House would agree with that.

My noble friend Lord Hunt gave some examples which caused some laughter in your Lordships' House. He spoke of sheep being transported backwards and forwards across borders in order to obtain extra money by fraud. I am fond of a good joke, but this is not funny. It is our money which is going astray. There are other examples. Page 6 of the report cites large payments made for durum wheat which did not exist. Payments were made in respect of olive oil which was of a quality below that specified. Payments were made for services which were never provided. When we talk about a public scandal that is exactly what those cases are.

The real question is what is being done about it and what is going to be done about it. In paragraph 7 of the report we are told that there is now to be an anti-fraud co-ordination unit (UCLAF). A new director has been appointed, and his staff has been increased from 50 to 100. To put that in perspective, our National Audit Office has 400 staff. That gives an indication of how little that particular unit will be able to do to deal with the many problems brought out in the report and in the speeches which we have heard so far. Therefore, more worrying than the examples which have been given is the lack of action which we are likely to see.

We are told in paragraph 14 that: In evidence it was questioned to what extent the strategy was new. A Treasury witness said that there was ail element of repackaging of old ideas; the document contained no radical views or striking suggestions … The Court viewed the proposals as small steps in the right direction". That is dead right. They are certainly small steps, and not much more.

Therefore, one is bound to ask, and the Minister may be able to tell us, what has happened since then to make us feel that radical solutions are being found. It is not clear. The Commission's proposals, set out in paragraph 11, are incredible. It would be marvellous if they were carried out. It would be lovely to see that happen. However, we know from the report that that is not happening.

It is worth quoting from paragraph 16, where we are told: Criticisms of the present system made in evidence to the Committee are summarised in this Part. Many of these criticisms have, in various guises, also appeared in evidence presented to the Committee over the past five years". Still nothing has happened. We still see the same lack of any firm action. We are told in paragraph 16 that: They throw doubt on the Court's ability to discharge its task fully and on the extent of the audit coverage". These are all very disturbing matters. I see the noble Lord, Lord Tebbit, nodding in agreement with me. I never thought for a moment that I would ever see him nodding in agreement with me on anything connected with the European Union, but on this matter I am sure that he agrees with me.

I wish to emphasise one point, which was also brought out by my noble friend Lord Hunt; namely, the spending culture mentioned in paragraph 21. That is a major reason for fraud, apart from the fact that few people in any of the institutions, whether the European Parliament, the Council or the Commission, take a close interest in the matter. Paragraph 21 states that: The desire to eliminate surpluses also contributes to a spending momentum; a climate is created in which a blind eye is turned to small fiddles because they help to achieve the policy objective —that is to say, in order to meet the spending targets which have been set.

All that has to change if anything is to happen. One is very doubtful that anything will happen. Under the heading Lack of Accountability, paragraph 22 on page 11 is worth quoting. It states: The 'clearance of accounts' procedure, under which the Commission checks, down to the level of the beneficiary, that the amounts declared by Member States are correctly declared and correctly spent, only takes place three years after the spending year in question". It is three years before those accounts are able to be checked. Therefore it is not really surprising that paragraph 24, headed The Council and Political Will, states: Council decisions are taken in a primarily political context, between Member States under pressure from national legislatures and interest groups which are understandably more interested in getting their share of funds than in what they regard as minutiae which matter only to accountants". It should be a matter for more than accountants. It should be a matter for politicians in this country, in other countries, and in the European Community. However, as paragraph 24(iv) states: Uncovering fraud by their citizens could embarrass some Member States more than losing money to fraudsters; and a Member State reporting fraud could end up paying the bill". Therefore your Lordships can again see why so little is done.

Paragraph 23 states that the European Parliament is more interested in spending than in quality. Later the report states—the noble Lord, Lord Shaw, referred to the issue —that Members do not often attend debates on these matters in the European Parliament. My noble friend Lord Bruce of Donington nods. In the House of Commons not many honourable Members attend debates on the Public Accounts Committee. Last Wednesday such a debate was very poorly attended. It is usually only members of the Public Accounts Committee who are present on the Floor of the House to participate in the debate. Therefore we should not be too self-righteous on that issue either.

Paragraph 57 indicates what the committee considers should be done. The noble Lord, Lord Hunt, referred to a task force. My noble friend Lord Bruce of Donington was not too happy with that concept. I prefer the idea of a senior Commission representative in each member state—it is one of the recommendations—who would have real power to do something about some of the events that are occurring.

There are other recommendations. I agree with a new anti-fraud strategy, and for the Court of Auditors to be strengthened. There needs to be more members in the Court of Auditors who know something about the problems. The noble Lord, Lord Benson, referred to that. I very much agree with that. It is recommended that the European Parliament should be given a more important role, but there should be enough Members of the European Parliament taking a real interest in the matter. At present they do not do so.

Finally, we are told by your Lordships' Select Committee that matters should be drawn to the attention of the House. We are drawing the issue to the attention of the House. After today's debate I am sure that that will be that. I am not sure that anything will happen, although the Minister may be able to tell us that the Government will take the matter to heart and that all kinds of things will happen. Being a naive fellow, I shall believe him. However, as I stated earlier, there is no cause for complacency or for self-righteousness because of what happens in our own country.

The House of Commons has debated many good National Audit Office reports and PAC reports. The Eighth Report of the Committee of Public Accounts on The Proper Conduct of Public Business makes interesting reading. With reference to major fraud, under the heading Foreign and Commonwealth Office, paragraph 1 states: The Department's accounting arrangements were open to strong criticism —it is an all-party Public Accounts Committee— and inadequate controls created a climate which was conducive to fraud and theft, and may have heightened the risk of irregularities remaining undetected". That is one of the many reports in this country about what is going wrong with regard to fraud and such areas. There is no cause for complacency in this country.

In conclusion, the issues before your Lordships' House need to be taken very seriously. I was glad to hear that my noble friend Lord Bruce of Donington hopes these matters will be taken seriously at the IGC debates in 1996. I imagine that other matters may be debated on that occasion. My noble friend Lord Bruce of Donington and I may differ about that, as indeed may the noble Lord, Lord Tebbit, but I am glad that he still believes we shall debate the issues at the IGC. I certainly hope that we shall.

We have reports from which we can learn: those of the National Audit Office and the Public Accounts Committee. Those reports are followed by what is called a Treasury minute. Those minutes indicate what action will be taken on the National Audit Office and Public Accounts Committee reports. If action is not taken to remedy fraud, then the Public Accounts Committee (an all-party committee) will wish to ensure that action is taken.

Lord Bruce of Donington

My Lords, before my noble friend sits down, he stated that compared with the European Parliament often only very few Members, perhaps five or six, are present, as well as members of the Public Accounts Committee, when such matters are discussed. I trust that he notes this afternoon that there are no fewer than 70 noble Lords listening to the debate.

Lord Barnett

My Lords, the noble Lord is absolutely right. Your Lordships are very much better than Members in another place in participating and listening to important debates. I entirely agree with my noble friend. That point is certainly true.

However, as I have indicated, having found fraud and major errors, the Public Accounts Committee is able to follow up that finding and ensure that action is taken. I wish that the same could be said about the Community. We should follow the issue through in the way that our Public Accounts Committee follows it through with government departments. That is the way in which we shall stop fraud within the Community. It is clear from the excellent report that we debate that we have a long way to go. But at least the report has highlighted the frauds that have taken place and the inadequacy of the action taken so far. I hope that within the European Community—whether or not individuals are anti-European Union, and I detect that one or two people have that attitude—there will be recognition that action must be taken.

4.28 p.m.

Lord Tebbit

My Lords, it is always a pleasure to follow the noble Lord, Lord Barnett, most particularly when we find ourselves on some common ground. Perhaps I may say too, what a pleasure it is to follow my noble friend Lord Shaw in his maiden speech. I look forward to hearing him many more times—I hope not too often on fraud, although I fear that there will still be much to be said about fraud in the future. I join in thanking those noble Lords who worked on the Select Committee report. It is a very important, although depressing, report.

Essentially it states that there is something wrong in the state of Brussels. However, this afternoon we may have an extension of that. We have a case of Hamlet without the princes. How unusual it is to have a debate on European affairs in which we have not had, and I understand that we are not expected to have, contributions from any of the greatest experts on these matters who are Members of this House—the former commissioners. I am glad to see the noble Lord, Lord Thomson, in his place. Perhaps he holds a watching brief for the noble Lords, Lord Jenkins of Hillhead, Lord Clinton-Davis, Lord Richard or my noble friend Lord Cockfield. I would have wished very much to have heard from them, from the inside, about the difficulties that the Commission has in dealing with fraud; not once, but year after year, with matters getting not better but worse. It is very unusual. I cannot think that we would ever have a debate on the law without hearing from lawyers or judges; or indeed on medicine without hearing from members of the medical profession. And here we have a debate on how the Commission handles its affairs without hearing from the former Commissioners. It is a very, very great loss indeed.

The key paragraph in this report, to which I return again and again, is paragraph 21 on page 11, which has been referred to already. It sums up the whole business. Headed, A Spending Culture, it states: The Community's development has been based on spending, subsidy and redistribution. As a result, a spending culture has developed in which it is considered more important to spend than to decide priorities or obtain value for money … When it was decided in 1988 to double the size of the structural funds over a five-year period, the Commission had trouble finding enough worthwhile projects on which to spend the extra money. One year it did not spend all the funds available; and was heavily criticised by the European Parliament for not doing so. The Commission responded to that criticism by ensuring that all the next year's money was spent". I think that that sums up a great deal of the problem. But much as we should, and rightly must, condemn the fraud and irregularities that go on, I find it difficult to condemn some of those who are no doubt engaged in some of this mischief.

If a Greek or a French tobacco farmer knows that he is to be subsidised to produce tobacco—at the same time, by the way, as he is being taxed to pay the costs of campaigns to stop people smoking the stuff—which is to be dumped in some way, or, if it is not dumped, will be smoked by some unfortunate people outside the European Community (apparently if they get cancer it does not worry us; it only worries us if citizens of the Union get cancer) could one honestly blame him if he decided that it really did not make sense to work in the hot sun tilling the land, sowing the seed and caring for the crop? He might just as well fill in the forms and claim the subsidy without going through that unpleasant ritual. That is the sort of nonsense that promotes fraud. I find it difficult to condemn a man for living under those circumstances in the easiest way possible.

The Select Committee understates the problem. I do not believe that the Commission is incompetent. I think that it simply does not have any interest in solving the problem. Others may take the opposite view. They may say that it is interested in solving the problem but that it is incompetent to do so. One or other of those statements must be true. I am inclined to the view that the problem is not solved because it is not in the Commission's interest that it should be solved.

Paragraph 24 I believe misunderstands the underlying cause of the fraud. Paragraph (i) sets it out rather nicely: Council decisions are taken in a primarily political context, between Member States under pressure from national legislatures and interest groups which are understandably more interested in getting their share of funds"— as the noble Lord, Lord Hunt, has already observed. The paragraph continues in a similar vein. But the real reason why the Commission does not act is, as the noble Lord, Lord Bruce of Donington, implied, that the Commission buys political support by these programmes. That is how it gets its business through. That is the whole "spend-subsidy-redistribute" ethos. The recent settlement of the Italian milk scam was a perfect example of how these matters are arranged. As the noble Lord, Lord Bruce of Donington, said, our Government simply backed down in the face of a vast fraud which it allowed to be inadequately prosecuted and punished.

Whatever Ministers may say—and I hope that my noble friend will use some very strong words—I do not believe that they are as serious as they should be in prosecuting this matter: first, because I cannot understand why we gave in to the Italians when in every respect it was in our interest not to do so; and secondly, because I believe that there is an air of complacency about these issues.

I recently asked a Question in this respect, and received an answer on Monday, 24th October. I asked Her Majesty's Government: Whether they are aware of any case or cases of evasion by the governments of non-governmental organisations of the European Community member states of penalties imposed under the law of the European Community". My noble friend Lady Chalker of Wallasey replied: We are not aware of any such cases".—[Official Report, 24/10/94; col. WA 20.] Not aware of any such cases! Do Ministers no longer read the newspapers? I must confess that I would not blame them if they did decide not to read the newspapers these days, particularly when we know that the editors of some newspapers behave in so scurrilous, scandalous, dishonest and wicked a manner as one editor who has recently been exposed. One should have better taste than to read a newspaper that is edited by a man who forges and steals.

My noble friend went on to say: It is primarily for the European Commission to ensure that penalties are not evaded and it has procedures in place to achieve that. If the Government had evidence of evasion, they would bring this to the Commission's attention".—[col. WA 20.] "And a fat lot of good that would do" I suspect would be the verdict of the Select Committee and of this House.

There will be no end to fraud while these huge sums in largesse are distributed by fonctionnaires intent on buying political support. While they are buying political support for their schemes they will not be too particular if 7 per cent., 10 per cent. or a few per cent. more of the money goes astray. They might at least distribute it more economically.

I believe it was Sir Teddy Taylor, the Member of Parliament for Southend, East, who suggested that most of the agricultural subsidies would be more economically, and possibly more fairly, distributed if the money was collected in notes, put into an aeroplane and flown over the areas in question while it was thrown out from the back of the aeroplane. I doubt whether any more of it would get into the wrong hands than gets into the wrong hands today—and it would cost a great deal less to distribute.

The only solution that seems to be emerging in terms of how this problem could be dealt with is for more power to be given to some agency of the Commission; that the Commission in Brussels should have more power to reach out into member states and oversee what they are doing. That may help, but I do not suppose it will solve the problem. Of course, it may achieve another of the Commission's objectives of increasing the centralised power in Brussels. But I repeat: I do not believe that it is possible to defeat the fraud while the scale of distribution of money is so large and which today is increasing.

The remedy is simple. An axe must be taken to the spending programmes. We will not see an end to the fraud in the CAP until we see an end to the CAP. That is the most obvious step forward. Since the CAP has no function these days except to put up the price of food and redistribute money around, that may not be a bad thing.

I am not one to criticise those who enjoy a good day's shooting at this time of the year—perhaps that is why some of our former commissioners are not here. But I find it difficult to understand why the poor taxpayers of the European Community should not only pay higher prices for their food, but should also subsidise those of us who enjoy a day's shooting. That is what is now happening. As some noble Lords may be aware, set aside land may be used for the planting of crops which provide cover and food for wild birds. I was looking at some the other day. It was a glorious scene: a field of maize subsidised by the agricultural policy. It was full of pheasants and partridges waiting to be shot.

Is that what the policy was designed to achieve? Was it to raise the price of food for the pleasure of the wealthy? I do not want to sound too radical—and let me say that I engage in the sport myself and enjoy it greatly—but I did not think that that was what the CAP was about. I do not believe it is an irregularity—it is certainly not fraud —but it is not an idea which I commend as a proper use of taxpayers' funds.

Sadly, as I said, almost all those with the power to act against fraud or indeed to cut spending have a vested interest in doing neither. That, coupled with complacency and the centralising ambitions of the Commission, are the reasons why year after year the fraud continues. I venture to suggest that next year we shall have another good report from the Select Committee and another increase in the amount of fraud and corruption in the Community itself.

4.43 p.m.

Baroness O'Cathain

My Lords, I have certainly drawn the short straw in following the brilliant speech of the noble Lord, Lord Tebbit. But I welcome the fact that time has been allocated to the debate. I welcome the opening speech of my noble friend Lord Hunt under whose chairmanship I had the honour to serve on the Select Committee. It was an eye-opener for me in many ways. I welcome the report because the facts—I stress the word "facts"—need more visibility and debate. There is too much ill-informed comment undermining the whole European Union and respect for it.

The report contains constructive criticism. There is no need for us to become too involved in destructive criticism; it helps nobody other than the sellers of newspapers. Whatever one's personal view, we are in the European Union whether we like it or not. The population actually voted to be in, and to remain in, the European Union.

Lord Pearson of Rannoch

My Lords, perhaps the noble Baroness will allow me to intervene. She repeats a mistake that is often made when she says that the people of this country voted to stay in the European Union. That is the European Communities with the addition of the justice and home affairs and the common, foreign and security pillars of the Maastricht Treaty. The people of this country, myself included, voted to stay in a common market, which is an entirely different animal from that which we are now considering.

Baroness O'Cathain

My Lords, I should perhaps say European Community rather than European Union. The fact remains that the people of this country voted to stay in the Community. And it cannot be all that bad when Austria, Finland, Norway and Sweden are all anxious to join. We cannot say that they have naive governments. At the risk of sounding repetitious, we are in the Community and should use our influence to change those aspects of it which we and others find unacceptable. One aspect that must be changed is the whole issue of fraud and financial mismanagement.

Both as a member of Sub-committee A and on reading the report I had the overwhelming feeling of impatience in the face of procrastination; impatience with seemingly endless analysis—indeed, paralysis by analysis—leading to no improvement. In fact, one is forced to the conclusion that the answer from the Community amounts to an action-shy strategy. That may be deemed to be somewhat unfair. But perception is everything. The perception is, at best, a lack of urgency or caution, as my noble friend Lord Benson reminded us. At worst it is an unwillingness to tackle the issue.

Apathy in the face of public scandal, as my noble friend Lord Benson said, is rife. The basic problem is two-fold. There happens to be a lack of universal moral and ethical standards throughout the European Community which results in fraud. Secondly, there is an inability to ensure that the highest standards of financial management are universally applied to all activities of the Community.

Fraud is the more difficult of the two problems. However, the fact that it is difficult is no reason not to tackle it with all might. Financial mismanagement can be overcome provided there is a will. As I see it there are two separate types of fraud. The first is a deliberate fraud, not of the sunny nature which the noble Lord, Lord Tebbit, says he can understand, but total deliberate action to steal —not putting too fine a point on it—from all our pockets. The second type of fraud relates to the deliberate bending of the rules.

There will always be a problem in tackling deliberate fraud. Policing processes are out of one's area of experience—at least out of mine. But the determined perpetrators of fraud will always seek other ways, other methods, once one avenue is cut off. It is difficult without first-hand experience to sit in judgment on the efficacy or otherwise, the commitment or otherwise, and the urgency or otherwise of these matters.

I draw attention to another serious aspect of fraud; namely, the deliberate bending or ignoring of the rules with the objective of making money, either by not paying taxes or by claiming refunds, subsidies and suchlike. That type of fraud can be tackled both by policing and—linking directly with my analysis of the second problem—by ensuring that there is much greater emphasis on financial management skills.

The European Union does itself no favours by not tackling those issues. Figures of several billion pounds of fraud must, in all conscience, encourage everyone to take action to stamp out the appalling misuse of the moneys paid by all taxpayers. We have all heard the horror stories—indeed they are there for us to see at pages 29 to 32 of the report. Only some of them are contained in the 12th Report on Financial Control and Fraud in the Community. Some aspects of fraud are not acknowledged and the deliberate bending of the rules giving a competitive advantage to one company in one country over any company in any other country is rife.

I have not been involved in fraud, but I have witnessed at first hand the bending of the rules. There is a rule which says that in meat processing one can have cured meat in one building and raw meat in another. At one stage in my career I was involved in a potential takeover of a meat processing company in another member state. I went to view the facilities and found, to my amazement, that there was cured meat and raw meat in the same building without any partition between the two. I innocently said, "Why is this? What about the European rules?" I was told, "Well, it all depends on who actually monitors them."

That leads me, inextricably, to the conclusion that there may be a case for suggesting that the monitoring of the rules relating to grants and subsidies in member states should be done by an international monitoring force rather than a monitoring force made up of nationals of a national state. I believe that that would overcome the situation.

I know that in this country there are very many people who feel hidebound by their strict interpretation of the rules of the European Community. They are absolutely right to act as they do but they know full well that in other member states this does not happen and that as a result they are involved in higher overheads, higher running costs and, in some cases, become uncompetitive with those in other member states. This matter should be considered. As I say, perhaps there should be an international monitoring force. Every rule in the Community must be fair and be seen to be fair. I can already hear all sorts of voices raised against that proposal. I believe that it merits consideration.

As to financial mismanagement, I prefer to be charitable and state that it can be explained away by incompetence rather than by deliberate action; by an inability to generate a sound financial policy because of the complexity of the systems; and by a lack of adequate training and experience of the staff involved. Are the staff overwhelmed by the volume of work? Do the staff feel—as does our Civil Service—that a minute analysis of each case has to be undertaken before any doubt can be expressed?

As the noble Lord, Lord Boardman, so rightly said, there is a need for high quality staff. It cannot be over-emphasised. That is not to say that the calibre of staff in the Commission is not high in all cases, but in some cases it may be not as high as we would like.

One possible way of raising the calibre of staff would be to ensure that young—or not so young—high-flyers in the civil service of national governments should serve a time in Brussels. Any candidate for the position of deputy secretary or permanent secretary should have spent a term in the Commission. That would encourage a much more active attitude towards improving the calibre of staffing in the Commission. The proposal would not necessarily be agreed by civil servants here or indeed by civil servants in other member states but it is a suggestion which I believe has some merit. I should like some comment from the Minister if he feels able.

The very fact that we are debating the report today will encourage, or should send a signal to, the political masters in this country—including the Chancellor of the Exchequer —and the powers-that-be in Brussels that we are not prepared to let this issue and this report be consigned to the archive, despite what the noble Lord, Lord Tebbit, says. We must keep on at the Commission to have an action programme which is action oriented, not a so-called action programme designed to keep the focus off it. We owe it to every taxpayer in this country to keep the heat on. I am very grateful to my noble friend for all his efforts to raise the heat. We must keep it at a high level.

4.54 p.m.

Lord Butterworth

My Lords, as a member of the sub-committee, I must apologise because an inescapable commitment may prevent me from being here at the end of the debate.

We have heard this afternoon the catalogue of fraud and improper exploitation of financial loopholes which have given rise to this dreadful situation. It is the burden of our report that even the changes which the Commission have introduced since our last report—and this is the fourth in the series—are inadequate to deal with the situation.

The approach of the Commission is based upon the assumption that responsibility for tackling fraud rests primarily with the member states. Therefore success in tackling fraud depends upon a partnership between member states and the Commission. Everything that it has proposed flows from that premise.

It is because of this that the present policy of the Council is essentially—and as it has been described—a step-by-step approach, building on what has already been achieved and attempting to produce better results within the same system.

The Committee is convinced that a wholly new approach must be adopted if we are to stand any chance of success. The solution must be looked for outside the present system. The response of the Government, given in the letter of the 22nd September by the Chancellor of the Exchequer, agrees with most of the analysis of the problem by the sub-committee, but disagrees with the solution which we propose. Our opinion is based upon the conviction that a lasting solution can never be found within the Union by gradually altering the present system, for there does not exist within that system sufficient knowledge or expertise—or indeed the will— to create the conditions for success.

It was this that led us to propose the setting up of the task force, to bring together a group from outside that would be qualified to do two things; first, it would be professionally equipped to study the internal organisation of the Commission and the member states; then, secondly, by reason of its experience in the administration of large-scale operations on a world-wide basis, it would be able to identify the changes that must be made if we are to be successful.

It is by concentrating on administrative and management procedures, financial and internal controls, and audit coverage, that fraud would become first of all more difficult to commit; and, secondly, could be more quickly discovered if committed.

The Chancellor of the Exchequer in his letter, would seem to prefer the step-by-step approach. He fears that the launching of a new initiative such as we are proposing might only distract those who are at present attempting to tackle fraud.

The main burden of our case is that no amount of fiddling—and that is probably the wrong word to use on this subject —no amount of amendment of the existing system can be successful. The Union's funds are distributed by the Commission; and while the member states have an important role, they are essentially acting as agents for the Commission in the distribution of funds. The primary responsibility must rest with the Commission. It is the Commission that is the principal. It is the Commission that must decide, at the centre and in the individual states, what is necessary to produce efficiency in this field. It is for the Commission, acting for the Union, to ensure that there are effective administrative procedures and to see that the financial controls are in place.

For this reason, I can see nothing wrong with our proposal that a senior Commission representative should be appointed in each of the states in order to ensure that the necessary changes, having been identified, are then put into effect. No principle of subsidiarity ought to prevent that officer from being appointed. If the task force does not commend itself then, as our report suggests, the Commission itself should appoint experts to undertake this essential work. In either case the Council must be determined to see that the necessary changes are made. One thing is clear. Every responsible government, as members of the Commission, or as members of the Union, must seek to bring about the changes that are required. Fraud and misapplication can no longer be allowed to continue on this scale and they can only be brought to an end by expertise from outside the Union. Only by the importation of external changes can we succeed.

5.1 p.m.

Lord Desai

My Lords, I join noble Lords who have already spoken in thanking the noble Lord, Lord Hunt, and the Select Committee for their excellent report. Many people have made useful points on the administrative, management and accounting side of the subject and I shall therefore accept that as read and not add to it. I wish to concentrate my contribution on trying to understand what I may call the economics of why the fraud occurs. I believe that, unless we change the incentives for indulging in fraud and change the routes whereby fraud is not only permitted but is actually encouraged, no amount of improving the administration and so on, good though that is, will solve the problem. One point I would urge on the Select Committee in its next report is to consult some of the economists who have studied the economics of fraud and crime—not myself, I am afraid to say—so that the rules themselves are changed and incentives given to detect fraud or prevent fraud rather than allowing rules to exist and survive which encourage fraud.

Let us look at the position as it stands. As the noble Lord, Lord Hunt, said, Article 209a requires member states to, 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". As many noble Lords have pointed out, it is in no member country's interests to do so because many member countries regard any money coming from the Community as a welcome addition, whether or not it is fraudulently taken by the citizens. As long as people think that any money from the Community is good and is not coming out of their own taxpayers' pockets, there is no incentive for a member country to track down fraud. Those who do so will be unpopular in their own country. It will be said, "What is it to you? It is not your money. It is someone else's money". As long as it is generally thought that the Community's money is somebody else's money and as long as we all want a bigger and bigger share of it, that will continue.

I am not a management or an accounting expert, but I can imagine how a member country might act as an agent of the Community so that in the first instance the money would be paid from the member country's coffers and only paid back to the member country after it had satisfied the Commission that the money had been well spent. Let us suppose that a country had to give a certificate. Perhaps it would take three years to do that. I tell the House that that lag would diminish very quickly if the money were taken out of the member country's coffers in the first instance only to be repaid by the Community when the Community was satisfied, and the Court of Auditors was satisfied, that no fraud had occurred. That is a simple change in the rules. It has nothing to do with subsidiarity and nothing to do with the constitution. It is a simple change in the way money is disbursed. It would give an incentive to member countries to do something about fraud. Until that happens fraud is unlikely to be reduced.

As the noble Lord, Lord Hunt, said, subsidiarity is not the problem here. It is the Community's funds that are being disbursed, but as long as there is no cost to the member country of disbursing the funds, as long as there is no return to the member country for checking fraud, there will be no incentive either to stop fraud or to detect it. Therefore, the first thing we need to do is to change the rules whereby this money is handed out.

We should also remember that in federations—this is a confederation and not even a federation—a good deal of log rolling goes on. Indeed, in the Italian case, which was highlighted by the noble Lord, Lord Tebbit, we knew that there was a gigantic fraud. We tried our best to prevent it, but basically there was some log rolling. The Italian Government said, "If you do not concede now, we will not let you do something else"—that something else being unconnected with the question at hand but being a political pay-off. We were in a hurry to advance on another front—the East European question or whatever it was—and so we forgave a large sum of money. The fact that it was forgiven without anyone making a big fuss about it means that it will happen again.

That was not even a case of fraud. It was a case of log rolling. In confederations people regularly do that. The answer is for the European Parliament, or some national parliaments, to be able to put a check on the governments, the Council or the Commission and say, "This is the kind of behaviour which will bring the European Community into disgrace and lose such public support for it as exists for it". It is up to us to remember that this log rolling is an anti-democratic procedure because it happens behind closed doors. We are not consulted about it. Our representatives do these deals: and we have to pay the cost. That half a billion pounds will mean that we will have to pay a little extra.

The report also makes the interesting point in paragraph 24(vii) that the Community's policies are based on the redistribution of income between rich and poor member states. We ought to point out that that is a great mistake. One ought to redistribute money between rich people and poor people and not between rich countries and poor countries. What typically happens is that in poor countries the money does not. go to poor people. Very little of the money goes to poor people. The common agricultural policy, which is a gigantic scandal, hurts us, it hurts the third world, it causes inflation and so on. It is not a redistributive policy. It has consistently helped bigger farmers—richer farmers—and hurt small farmers. Our Government have been very lax in opposing it, partly because of log rolling, because, to have peace and quiet in the Community, we have to be able to live with the extraordinary amount of money which certain inefficient agricultures get. It is true that it is not a progressive redistribution policy; that has to be pointed out. I am not against redistribution. I am against redistribution which is consistently and regularly in favour of the rich.

We must have a system in which there are incentives for monitoring, as is the case in the United Stales. We should study the experience of other federations and confederations and how they handle such questions. Some noble Lords may know of the example of Senator Proxmire of Wisconsin who each year used to present an award to the person who committed the biggest fraud, as it were, against the United States Government. It was either a person obtaining a research grant or a contract, and it was publicised. We should have a House of Lords' award for the biggest fraud committed against the European Commission. That would receive very good publicity and point out to people what is going on.

A lot of these factors are clearly stated in the report and they have not been brought sufficiently to the attention of the people. Incentives for self-monitoring should be introduced by the member countries.

Although the noble Lord, Lord Tebbit, did not like the idea, we must have some kind of central inspection team such as the "Untouchables" during the US prohibition era. There should either be some kind of central agency which will have the power to intervene through monitoring people in other countries or a central and effective body which can detect fraud, expose it and stop it. Above all, we must change the rules which now give an incentive to commit fraud. We must change them in such a way that there is an incentive for monitoring fraud and also preventing it.

5.12 p.m.

Lord Willoughby de Broke

My Lords, like other noble Lords I should like to join in thanking the noble Lord, Lord Hunt of Tanworth, for giving this House the opportunity to debate the quite excellent report of his committee. I also congratulate the members of that committee for their tenacity in extracting answers and information from one or two rather slippery witnesses— answers which demonstrate all too clearly that Community finances are woefully lacking in control, in policing and in accountability.

The number and scale of frauds makes this one of the few growth areas in the Community—claims for subsidy on non-existent olive groves, on rotting wheat, on carousel cattle and on import-export scams in kaleidoscopic variety, are just a few of the better documented frauds.

However, the perpetrators of these frauds should or could be punished by member states and fined or imprisoned. The fact that this happens all too rarely is a point which has been dealt with in the report of the noble Lord, Lord Hunt. But as my noble friend Lord Tebbit pointed out, it is quite hard in some cases to blame individuals for carrying out fraud when they are virtually encouraged to do so by the financial regime in the Community.

More important, I believe, than individual fraud is institutional fraud. By that I do not mean only waste such as the vast expense of the European Parliament, whose low value for money ratio must set some kind of new record, but member state fraud. That is more serious because, first, it is on a larger scale and secondly because to succeed it must have the co-operation or at least the supine indifference of the Commission and of the Council of Ministers. It is more serious, finally, because, as other noble Lords have pointed out, it brings the Community into public disrepute.

Examples which we have heard about already this evening are the misuse by the Italian Government of regional aid moneys to the tune of £5,000 million over three years; the fraudulent conversion of structural fund handouts meant to build tourist hotels but which ended up building holiday villas for the local bureaucracy; national connivance at CAP fraud—I believe that we have had enough of that so I shall not dwell on it—and the misuse of development funds (again in Italy) used to build super highways leading nowhere. Perhaps in some sense that is an analogy for the present state of the European Union.

The most recent and potentially the most serious matter that has arisen is the tame acquiescence by the Commission and by the Council of Ministers, with the honourable exception of Holland and Denmark, to allow the Italian Government to get away with systematic cheating compounded with blackmail. Like the noble Lord, Lord Bruce of Donington, and my noble friend Lord Tebbit, I deplore last week's spavined decision to reduce the exemplary fine levied on the Italian and Spanish Governments for exceeding their national milk quota by several million tonnes. That was not some bureaucratic bungle or some accounting oversight, but deliberate cheating.

Perhaps I may remind your Lordships that quotas were introduced over 10 years ago. Most member states managed in a short time to allocate and administer quotas reasonably efficiently. As a dairy farmer myself I know that farmers in this country at least, as well as in other countries, have undergone a good deal of pain in trying to keep up with quotas. They have had to cut their herds, manage their quotas and manage their breeding and feeding in order to remain within their quota limits because they know that if they do not do that they will be fined heavily and quickly.

However, during those 10 years the Italian and Spanish Governments somehow just managed never to get around to issue a quota at all with the result that their milk production roared full steam ahead. Finally and belatedly, the Commission acted, fining Italy and Spain a hefty £3.7 billion. Howls of anguish from those two states prompted the Commission to "revisit" the matter, as they say, and, stretching credulity to its limits, accepted the Spanish and Italian contention that there were statistical errors in the way they had been allocated quotas. As neither government knew how many farmers it had or how much milk they were producing, the reliability of these statistical errors must be at best questionable.

Nonetheless, the Commission decided to allocate these two countries a further l.5 million tonnes of quota backdated to 1989 which would have had the effect of substantially reducing their liability to the fines. However, Her Majesty's Government spotted that one and, considering that the Commission had exceeded its powers in backdated quota, issued an action in the European Courts to have the original fines confirmed. Italy's response seems to have been brutally simple: unless the British Government withdrew its court action the Italian Government threatened to block the agreement to increase member states' contributions to the EU budget. The Italian Minister's rider was that it was not Italy but Britain that was blocking progress. I suppose that we should at least give him credit for a certain sense of humour.

Last week my right honourable friend the Chancellor of the Exchequer agreed to withdraw the court action, effectively giving in to Italian blackmail. Italy and Spain will now pay a reduced fine of £2.4 billion over a period of four years—or will they? When he comes to answer this debate perhaps my noble friend the Minister can indicate whether and what mechanism exists to make sure that these fines will be paid in full and on time.

As the noble Lord, Lord Desai, said, this cave-in sends out entirely the wrong signals to the fraudsters, governmental or individual, who now know that they can carry on defrauding and get away with it; to the member countries and individuals who actually do their best to obey the avalanche of regulations coming out of Brussels, which is apparently absolutely unceasing; and of course to the taxpayer who ends up by picking up the bill for all these shenanigans.

A golden opportunity to make an effective stand against fraud has been wasted. Far from giving in we should have outfaced the Italian Government and welcomed the opportunity to delay the budget until Italy and Spain agreed to pay the fine in full and, secondly, until the Commission and Council of Ministers agreed to take immediate steps to improve their prevention and policing of fraud. The British taxpayers would at least have given two cheers for this. As it is, the new improved budget gives them the privilege of contributing a further £2.2 billion gross next year to the budget and on present unstoppable form at least £100 million of that will be earmarked for fraud.

State illegalities and irregularities still abound: subsidies to German and Italian steel companies; subsidies to oil producers, to pig farmers and to airlines. Airline subsidy in the alleged single market is calculated to be now running at some £10 million a day, according to a report laid before the Commission at its own request. The legality of Greece's subsidy to its national lame duck airline must be seriously in question, as is the subsidy (on an heroic scale) to Air France of some £12 billion. Those are being puffed as the last once-and-for-all injection of taxpayers' money. If that proves to be the case, I suggest that we may also look forward to a fly-past of pigs over Charles de Gaulle airport in the future.

The Commission's decision to allow Air France that subsidy is, I understand, being challenged in the courts. If the decision goes against the French Government, we ought not be surprised, in the light of the Italian milk fudge, if the French play the same card and cry "foul" or, as the case may be, "pig". I suggest that the many thousands of employees of British Steel and British Airways who lost their jobs in the name of competitiveness will not be impressed.

I have no doubt that my noble friend the Minister will listen carefully to the recommendations of the committee of the noble Lord, Lord Hunt, but he will no doubt point out that we are but one of 12, soon to be 16, and as the noble Lord, Lord Thomson of Monifieth, points out in the report: there is no magic wand that can be waved by one country", which is probably, and depressingly, about right. What makes it even more depressing is that when given the opportunity to ensure that a member state is duly punished if it has openly and over the long term disregarded an agreement to which it was a party, when we have been given the gun, we fire blanks.

I very much hope that my noble friend the Minister will do more than just listen to the recommendations of the committee. I hope that he will do his utmost to ensure that those recommendations are fully implemented and that the report is more than an action plan with no plans for action, for I fear that the taxpayer may soon begin to ask whether the European game is worth the British candle.

5.21 p.m.

Lord Bancroft

My Lords, I ask the House to take as read my strong support for this excellent report and the eloquent and scathing denunciations of the enormous scale of the fraud and the appalling lack of effective action by all those concerned. My noble friend Lord Benson struck a sombre note, as did other noble Lords, including particularly the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Shaw of Northstead, in his most effective maiden speech. My noble friends Lord Hunt and Lord Benson and the noble Lord, Lord Butterworth, referred to our own Government's response to the committee's central proposal; namely, the setting up of a task force of outside experts or, failing that, an inside review helped by outsiders. They used measured language as, of course, will I, but my analysis takes a slightly different form.

By way of preamble I make two points. First, I am neither an accountant nor a farmer. Secondly, it is just a touch ironic that Italy, the capital city of which gives its name to the treaty, should be the author of so much of the fraud. The noble Lord, Lord Boardman, rightly referred to page 33 of the report. It is instructive, although not improving, to read. It seems that two of the ancient Roman virtues, honour and shame, are not in much demand these days Community-wide.

As noble Lords and others have pointed out, the Government's response is in the form of a letter from the Chancellor of the Exchequer dated 23rd September 1994. If, heaven forbid, I were Chancellor—I say "heaven forbid" from clear personal inadequacy and from having worked for a dozen chancellors and seen how burdensome, grinding and thankless the job is—I would have been ashamed to sign the letter. It is not just that it is feeble; it is elementary when it should have been elemental.

As there are not many of us in the Chamber, let me take the House into my confidence. When I joined the Treasury after the war nearly half a century ago, we were trained by our elders to observe certain rules peculiar to the Treasury when drafting negative replies to spending departments, Members of Parliament and even to parliamentary committees. To my astonishment, those antique rules still exist, as the letter demonstrates.

Rule one: flatter and purport to be on the same side as one's correspondent. So, in the Chancellor's letter the committee's report is described as "important and timely" and as strengthening the hand of UK Ministers. The Chancellor, it claims, shares many of the views expressed by the committee.

Rule two: deflect responsibility to others. So, the letter sets up the Community institutions, (he European Parliament, the Commission and the other member states as being really responsible.

Rule three: claim that action is in any event underway. So, the letter says that the Court of Auditors' role is already being strengthened and that—I quote again— a lot of activity is now in hand". Rule four: invoke higher authority. So, in the surprising absence of the Almighty, the letter tells us that the point was made strongly by the Prime Minister in a recent speech.

Rule five: refuse to accept a specific proposal on the grounds that it flies in the face of caution and would be distracting for those already dealing with the problem. So, the letter warns that, a new Task Force … would risk distracting those … in the front line … and diverting resources". Rule six: if cornered, take a deep breath and pass shamelessly from defence to attack. So, the letter damns the task force proposal which is precisely designed to make progress where little has been achieved for many years as providing "excuses for delay". That is a bit rich.

So far, so bad. The letter is a rejection of the committee's central proposal. Bad enough indeed, many of your Lordships might say; but not much better is the fact that the formula of rejection, as I have shown, reveals no sign of development over half a century. I hope very much that the new-look Treasury will do better when it comes on screen next year—

Lord Barnett

My Lords, I doubt it.

Lord Bancroft

My Lords, I thank the noble Lord, Lord Barnett. Indeed, I fear that it may do worse after five reorganisations in the past 33 years. It would, of course, be churlish of me not to welcome the effective re-creation of my old department, the Civil Service Department, in what is called the Office of Public Service and Science.

Incidentally, since we are dealing with public expenditure this afternoon, I commend to all those concerned, including the Minister who is to answer the debate—I hope that I do not lose him on this occasion as I fear that I have on at least one occasion in the past— the report of the group on the Control of Public Expenditure which was published in July 1961 after two years' work. It took the form of a White Paper, Cmnd. 1432, cost one shilling and ninepence, and was chaired by my noble friend Lord Plowden. I am glad to see that 33 years later Sir Colin Southgate and his group have just reached broadly similar conclusions on the Treasury's expenditure control functions after three months' work.

I must mention briefly and finally the last rule about such letters; namely, the private secretary is always to ensure that the Chancellor does not add rococo decoration to the bland alabaster of the draft. The letter demonstrates that this rule, and this alone, has rightly fallen by the wayside. The cool web of language in which the last two paragraphs are wrapped is defaced— yes, defaced—by the addition of what has every appearance of a ministerial final sentence: We will continue vigorously to pursue these issues in every possible forum". I shall repeat that because it is worth rolling around the tongue: We will continue vigorously to pursue these issues in every possible forum". Alpha for not splitting an infinitive; gamma for substance; gamma-minus for conviction.

Gibbon wrote of corruption as the most infallible symptom of constitutional liberty. Gibbon was both wrong and flippant. Wickedness is always deadly serious. I hope, without optimism, that the Government will think again and respond with the necessary action rather than with unnecessary words.

5.30 p.m.

Lord Moyne

My Lords, I must add my congratulations to the noble Lord, Lord Hunt, on his excellent report. It is not merely excellent in itself, but also a remarkably good read—for which I think we have to congratulate Mr. Brendan Keith who, I know, writes beautifully and fluently.

My first reaction on reading it was, "Gogol, thou shouldst be living at this hour", because so many of the scams mentioned in the report could have come out of his novel, Dead Souls. In that, serfs are bought and sold after their death, while nowadays it is phantom wheat, phantom beef or phantom oil. The principle, however, is the same.

The noble Lord, Lord Barnett, of course, is right: this matter is not funny. I excuse that little aside because humour can be a safety valve to keep us sane. In the face of the report and the enormous fraud, we need something like that I quote from page 9 of the report: The Commission's approach starts from the premise that tackling fraud is primarily the responsibility of Member States because they alone have the means and the powers to act". It goes on to say that the UCLAF is doubling its staffing, but only from 50 to 100 people. There we have the point hinted at by the noble Lord, Lord Desai, and others. One has to make it explicit, painful though it is. The point is this: member states have an interest in maximising fraud. It helps their balance of payments; it helps their own fanners; it helps them in many ways, but particularly they get the money. An example, of course, is the Italian milk scam, mentioned by so many noble Lords. It has cost the British taxpayer £500 million.

What then is the solution? I do not agree with the noble Lord, Lord Tebbit, and others who say that we should reduce European unity. The solution is rather that the European authorities should have more powers, more staff and a better policing system. I suggest that something like the old system of the Spanish civil guard should be brought in. The civil guard in any given province of Spain was staffed entirely by people from another province. Surely it is right that the enforcement authorities should act in each country with detectives and enforcement officials from the other countries and not from the country concerned. There should be no Italians looking into fraud in Italy. Nor should there be British looking into fraud in Britain. That, surely, is the principle we should go for.

We must be serious about European union, although in order to be a proper union the European Union must be serious about its organisation. It is no use leaving it to the member states who actually gain by the fraud concerned. As long as it is left to the member states, we will continue to have the problem. The enforcement authorities from the centre must be greatly increased and given powers which override those of local governments.

I conclude with another quotation. It describes what I think is essential if fraud on this enormous scale is finally to be reduced. The committee states on page 18: If they are to be overcome, a force for change even greater than the present forces for inertia is needed to compel the Council to act. We believe that such a force could be supplied by the collective outrage of European taxpayers, if only they appreciated how scandalous the situation is and how urgent the need to stem the fraudulent flow of taxpayers' money". Can the media in this country to start with, and then in the other countries, please take note of that and excite that outrage?

5.35 p.m.

Lord Pearson of Rannoch

My Lords, after so many well-informed contributions from members of the Sub-committee, which produced this excellent but very depressing report, I hope it will be in order if I consider some of the wider European background against which such massive fraud and incompetence take place. I do so because I have come to see that the relationships between the various European institutions and the arrangements for their funding, as decreed by the amended Treaty of Rome, are such as positively to encourage the picture we now see before us; and, indeed, to make it inevitable.

I imagine that it is common ground that fraud works best when those who are being defrauded not only are unaware that they are being defrauded but actually believe that the system which is stealing from them is instead working to their advantage. I suspect that any of your Lordships who were members of Lloyd's during the late 1970s will know what I am talking about. As one whose voice was not heeded then at Lloyd's, I have to say that Europe today has many similarities with Lloyd's then. When you look at it closely, it is not at all the sort of animal which its propaganda proclaims it to be. Nor, I regret, has it ever been.

When it started some time after the last war, it was supposed to be a common market. But its real purpose was as a political tool, created to stand up to the growing menace of the Soviet Union and to prevent Germany from going to war again with her neighbours. Laudable aims, but ones which have been achieved more by the United States of America and by NATO than by Europe. So in reality, Europe has never been a healthy, free-trading market with its political structures growing up to support and advance that trade; it has always been the creature of the political and bureaucratic mind, which may be why the single market took so long to come about.

Those of us who work in the real worlds of commerce and industry know how dangerous it is when politics and bureaucracy are allowed to have too much to say in the workings of our business. So it has always been with Europe. That perhaps explains why more than 60 per cent. of the members of the Federation of Small Businesses recently said that the main effect of the single market was, increased legislation and administrative costs". Only 5.8 per cent. of them said that the single market had brought increased sales opportunities.

As we consider some of the Community's more recent history, however, the mis-match between political fantasy and commercial reality grows to the point where true fraud has taken such a deep root that it is now, I suspect, incurable —at least without radical change.

With the benefit of hindsight, perhaps the first outright fraud to be perpetrated on the British people was the referendum of 1975 when we were assured that we would have been voting only to stay in the Common Market and that no loss of national sovereignly was at stake. Yet there were already many in Europe who had rather different intentions, which they have pursued so relentlessly and successfully since. Yet modern Europhiles still claim that we voted to stay in what they now often wrongly refer to as the European Union 19 years ago. Indeed, my right honourable friend Sir Leon Brittan said precisely that only 10 days ago to a packed audience at Toynbee Hall, blithely ignoring the huge loss of sovereignty caused by the Single European Act and the Maastricht Treaty, which has since taken place.

Another fantasy of the political and bureaucratic mind which is being forced on the people of Europe at ruinous expense is the idea that a market can consist of a level playing field. It has not yet dawned on our Socialist ideologues in Brussels that a market and a level playing field are a contradiction in terms, which is presumably why we are sending £27 million per day until the end of the century to the four so-called poor countries of Greece, Portugal, Spain and Ireland in the guise of what are called structural funds. We have no way of controlling how these funds are actually spent, of course; and so it should not surprise us that the opportunity for waste and fraud appears to be seized with relish by the recipients.

Then of course there is the common agricultural policy, about which noble Lords have spoken so eloquently. This has always struck me as entirely misconceived in theory, and we now know that it is largely fraudulent in practice, consuming half of the Community's so-called budget on its merry way.

I also have to say that "subsidiarity" is turning out to be the sham which many of us predicted it would be during our debates last year on the Maastricht Treaty. We were assured then that Clause 3b of the Maastricht Treaty would protect our sovereignty from further plundering by Europe. Yet the Commission still appears to be churning out new legislative proposals at the rate of around 70 per annum, and on most we can be outvoted by a qualified majority.

If my noble friend does not agree with me, can he assure me that the future of our lettuce growers in this country, and of those who trade in herbal medicines, is safe? Can he assure us that the London bus is not going to be relegated to the scrapheap by Brussels? I do not envy my noble friend his task.

There are many other examples I could give of things in Europe not being as they are held out to be by our political leaders and their bureaucrats, but I come now to what may be the biggest lie of all. That is that we need our membership of the European Union, as presently constructed, for our commercial and industrial well being and indeed, as some would have it, for our survival. There are many who are beginning to doubt this propaganda very seriously. There are those, perhaps particularly Mr. Bill Jamieson, in a recent book entitled Britain beyond Europe, and Mr. Christopher Booker, in his regular Sunday Telegraph articles, who are casting enormous doubt upon it.

It seems to me that the Government do not want to face the question, let alone discuss it, as to whether we might actually be better off outside the Community. In a Written Answer to the noble Lord, Lord Stoddart of Swindon, on 10th October this year, the Government said: It is not possible successfully to establish the specific annual cost or benefit to the taxpayer of the United Kingdom's continued membership of the European Community". —[Official Report, 10/10/94; col. WA97.] In other words, "we do not know". So, I have to ask my noble friend whether the Government really cannot give the answer or whether perhaps they dare not do so.

The Government were certainly less than wholly co-operative in an Answer to me on the same date, 10th October. I had asked—and the Question had been on the Order Paper throughout the Summer Recess—what was the cost to the United Kingdom of the European water directives, and I was told that we did not know. But, fortunately, your Lordships' Select Committee is conducting an inquiry into the revised Bathing Waters Directive and was able to press the Government a little harder than was a humble troublemaker such as myself.

Thus it emerged that we do indeed know how much we are spending on these absurd water directives. We have so far spent £7,360 million on the Urban Waste Water Treatment Directive, and £1,680 million on the Bathing Waters Directive. We guess that we shall spend another £1,000 million annually on the Urban Waste Water Treatment Directive in future, but we have no idea how much the Bathing Waters Directive will cost us in the years to come. Nor do we have any idea how much other European countries have spent on these directives and what if anything they have achieved in other European countries. Subsidiarity rides again, my Lords.Ne buvez jamais I'eau.

I give this as one clear example of the Government refusing to reveal a cost of our membership of the Community when they could and should have done so. Of course, the figures are embarrassing, and so could be an objective cost-benefit analysis of our continued membership of the European Union; but that is no reason why we should shirk it. Apart from anything else, I would not have thought that Mr. Christopher Booker and Mr. Bill Jamieson, and others, are going to go away, and I would have thought the Government would be foolish to go on trying to ignore them or—worse still— to go on trying to dismiss their research with bland statements about having to be "at the heart of Europe" and "changing it from within".

Whether the Government like it or not, the British people are beginning to wake up to the truth about the hundreds of billions of pounds which our membership may be costing us. They do not like being told that we are to spend £23,000 million to convert to twin electric Euro-plugs, or £10,000 million to strengthen our road bridges, and so on.

It is in that context that your Lordships' report on Financial Control and Fraud in the Community is partly so valuable. The national headlines it generated on 29th July this year must have done much to alert the British people to the true nature of the European Union, to which we are alas so firmly and unthinkingly committed.

I end by suggesting some remedies which, although a little radical, are remedies which need to be aired, especially as we start down the road to the next inter-governmental conference in 1996. That conference, the son of Maastricht, looks likely to be the event which will decide whether we proceed inevitably to form part of a sinking European siege economy, with all the trappings of a Socialist superstate, or whether we manage to salvage some vestige of our national independence and well-being.

I welcome the sub-committee's suggestion of a serious, independent task force, but with the Community organised as it is now, I doubt whether it will come into being. If I am wrong—I hope I am—and the task force is set up, I hope it will work fruitfully with a strengthened Court of Auditors in due course.

And so I come briefly to my more radical ideas. Rule number one when fighting fraud is to remove the money from the reach of the fraudsters. In this case, that means re-examining the whole business of the Community's own resources, and the way the Community is funded. For instance, I believe that the time has come to suggest that the common agricultural policy should be repatriated and that the future of the cohesion and structural funds should be reconsidered. But I believe these financial suggestions are unlikely even to be considered unless deeper structural change in the Community takes place.

In this respect, I believe it is essential that the Commission should lose its monopoly to propose legislation. The Council of Ministers should thus become the supreme body of the Union, because it enjoys the democratic respect of Europe, and the Commission should become its servant. I think it would also be helpful if the Commission were to be staffed only by civil servants in future, and not by politicians who may have seen better days. That might help it to accept its new role.

If what I have suggested were to happen, I cannot help wondering if we would need the European Parliament at all. It has never managed to achieve much democratic authority, as we can see by the ever-lower turnout at European elections, and it is really little more than a very expensive talking shop. Each active Member of your Lordships' House costs the taxpayer about £43,000 per year; each Euro-MP costs about £1 million. I trust that puts their value into perspective.

I know this suggestion will horrify many of your Lordships, but I have to ask if we would actually invent the European Parliament if it did not already exist. I have to submit that we would not. Be that as it may, it is hard to see the Parliament being of much help in stamping out fraud. It is in my view the Commission, aided by the proposed task force, by the Court of Auditors, and by its new servile status; it is the Commission which should stamp out any remaining fraud in the Community, after the incredible funds in question have been repatriated. It should do so under the firm direction of the democratically elected Council of Ministers, which would regain some public respect by seeing such action through.

5.50 p.m.

Lord Thomson of Monifieth

My Lords, I am glad that the noble Lord, Lord Pearson, returned to the report that is before the House today in his final remarks. It is a most unusual report and, in many ways, it has provoked an unusual debate. It is unusual because it is relatively unusual for a report of your Lordships' Select Committee to produce a press notice with some startling but thoroughly deserved headlines. For example: Europe's taxpayers are being cheated on a massive scale by dishonest merchants, traders and fanners; … fraud exists on a monumental and growing scale". As the noble Lord, Lord Pearson, said, that attracted the publicity that it deserved.

It has also been an unusual debate because Eurosceptics and those of us who are enthusiastic for the European Union have all shared an absolutely common concern about the problem and scale of fraud which is revealed in the report. I join other speakers in paying tribute to the noble Lord, Lord Hunt of Tanworth, for the way in which he chaired the committee. I am bound to say that I rather relished the impressive, professional scorn that, as a former Cabinet Secretary, he brought to bear on Community administrators and policy makers who are so negligent and sloppy towards taxpayers' money. I also pay tribute to the noble Lord, Lord Benson, for the contribution that he made to today's debate with his formidable special knowledge in accountancy matters.

As has been said, this is the Select Committee's fourth report on Community fraud since 1989. I was grateful to the noble Lord, Lord Bruce of Donington, for the tribute that he paid to an earlier report which was chaired by my noble friend Lady Robson. She would have wished to be here today to make her own contribution, but she is indisposed. She made it clear to me that she thoroughly supports the findings of the report before the House and agrees with the November 1993 report of the Court of Auditors which accuses the Commission of having had enough time to take the necessary remedial measures but of having failed to do so.

I shall confine my remarks to one or two general observations. I shall begin with the mild remark that I believe it is risky for any of us to work ourselves lip into too much of a lather of national self-righteousness on the matter of fraud and to get into the mood of thinking that fraud is something that is committed by foreigners. The noble Lord, Lord Barnett, quoted his experience as chairman of the Public Accounts Committee in another place. I happened to notice a debate in the other place the other day where the report of the noble Lord's successor was being debated. Paragraph 1 says: In recent years we have seen and reported on a number of serious failures in administrative and financial systems and controls within departments and other public bodies, which have led to money being wasted or otherwise improperly spent". Fortunately, although this might turn to debates about sleaze, we still have a decent record in this country of probity in central government. But the same can hardly be said about some of our new quangos or some of the older local authorities. In case we get into too much of a mood of self-righteousness, we should also bear in mind the fact that we are net contributors to the European Community—and I am sure that I carry the noble Lord, Lord Pearson, with me in that respect—with a very small agricultural sector. Therefore, there is not the same opportunity for Community fraud within the United Kingdom. However, I noted that the noble Lord, Lord Hunt, recalled that certain sheep, cattle or pigs, I cannot remember which, went to and fro across the one inland frontier in the United Kingdom on one celebrated fraudulent occasion.

When it comes to dealing with the problem, the first of our recommendations in the report is that prevention is what we should concentrate upon rather than the problems of detection, important though they are. In my view, the Commission carries a very heavy responsibility to produce a massive overhaul of its internal procedures. I apologise to the noble Lord, Lord Tebbit, for the fact that I am such an inadequate representative of the great core of former European Commissioners in your Lordships' House. However, he will have to make do with me. I fairly concede the criticisms of the operations of the European Commission in relation to fraud. I believe that the: report clearly spells out some of the measures which need to be taken. I was most interested to hear what the noble Lord, Lord Barnett, said. It seems to me that one of the internal reforms needed in the Commission is that each director-general of each directorate-general should himself be an accounting officer for his own budget and be responsible to the Court of Auditors and then, through the Court of Auditors, to the European Parliament and to national Parliaments for any failures to behave properly.

Like other speakers, I draw special attention to the recommendation in paragraph 48 of the report of the appointment of a, senior Commission Representative in each Member State… with … the responsibility of advising the Commission on whether the control measures … are adequate". Similarly, I am also attracted like other noble Lords to the proposal that Community funds might be routed through such an office and therefore could be held up if the Commission representative was not satisfied with the arrangements to prevent fraud. I recall from my own time with the European Commission that the Competition directorate, for which I had a brief period of responsibility, was able to enter the territory of member states to mount dawn raids on firms suspected of illegal price fixing. I believe that those responsible for agricultural and structural funds should be provided with powers to take similar action.

However, in saying that, I am most conscious that it illustrates a dilemma which many noble Lords recognised. For example, the noble Lord, Lord Boardman, did so at the beginning of the debate and the noble Lord, Lord Tebbit, characteristically faced up to the dilemma, although I doubt that the solution he offered for it of the dismantling of all the redistributive operations of the Community is a very practical proposition. To those who are most critical of the failure of the Commission and of the Community to deal with fraud, I must point out that it is important to face up to the fact that the only real remedy is some further pooling of sovereignty to give the Commission more effective powers, including powers of inspection and enforcement on the ground. For HMG and, indeed, for Parliament here at Westminster, the difficulty is, as I am quoted as saying in the report, that we are one member state among 12 and no one country can wave a magic wand. For my part, I am bound to say—and I suspect that I speak for others who sat on the sub-committee—I would not mind in the least if, in an ideal world, we could have the noble Lord, Lord Benson, waving a magic wand or even the gathering together a few like-minded people of the kind the noble Lord has in mind for his task force and the waving of an effective big stick. However, that is not the way that things develop in the Community. One has to try the best way one can to work towards the kind of proposal that we have set out in the report for a task force. I reflect the disappointment that has been widely aired in today's debate; namely, that the Government gave such a negative reply to such a proposal—a reply that the noble Lord, Lord Bancroft, analysed so subjectively and wittily. When the Minister replies, I hope that there will be some sign that the Government are ready to reconsider the matter.

Without outside pressure that would come from such a task force, I find it difficult to believe—I speak as a former Commissioner; and I believe that the Commission has many good and able people within it— that the Commission will be able to put its own house in order. I see that the noble Lord wishes to intervene. I give way.

Lord Tebbit

My Lords, I am most grateful to the noble Lord for giving way. I found it difficult to follow his argument at one stage. He suggested that the answer to this fraud problem lay in giving more powers to the Commission, but the Commission has been gaining powers year after year after year as the fraud has increased year after year after year. Does not the noble Lord think we might do better to reverse the process?

Lord Thomson of Monifieth

My Lords, I think with respect the noble Lord is confusing cause and effect here. I am arguing that the Commission requires outside pressure to put its own affairs in order, but equally I am arguing that the European Union, as it is now called, cannot deal effectively with fraud unless the member states are prepared to pool their sovereignty to a greater degree and to ensure that the Commission machinery, shaped by outside pressures, is effective both internally for action in terms of drafting the proposals for expenditure, and then effective in terms of enforcing honesty in the use of these resources on the ground in the member states. I think that is the inevitable logic of the problem that we are facing rather than the proposal of the noble Lord, Lord Tebbit, to dismantle the expenditures of the Community totally.

I believe that our task force proposal is a substantial one and a practical one. I believe it would strengthen the hands of United Kingdom Ministers in the Council of Ministers. It is of course, as I have been arguing, a course that at the end of the day would involve some surrender of sovereignty and some surrender of territorial rights. But as the Government are always opting out of things in Brussels, it might do them a little bit of good for once to be taking a lead in forcing the Commission to become a more efficient and effective instrument of European government.

6.1 p.m.

Lord Peston

My Lords, I join with others in congratulating the chairman and the committee on their important and interesting report. When it was produced, I read it and I found it frightening —or to use the words of my noble friend Lord Barnett, profoundly disturbing. I read it and then it dawned on me that this is not a DTI matter but a Treasury matter. At that I shrugged and said to myself, "Thank goodness it has nothing to do with me". However, as a kind of universal substitute on the Opposition Front Bench, I find myself nonetheless having to deal with it. I wished I had had the sense— but I am a little slow—to take the view that this matter ought to have been dealt with by one of the ex-Commissioners on the Opposition Front Bench; but I did not have the sense to do that.

I should add that in your Lordships' House I do not think anyone should use the expression, "politicians who have seen better days". I of course speak not as a politician but as an economist. Nonetheless, this is not the place for quite that expression. Indeed, I think the problem with the Commission—there are problems with the Commission—is not to do (as I believe the noble Lord, Lord Tebbit, pointed out) with a lack of competence or ability but rather is to do with other things altogether.

If ever a report spoke for itself, this one does. However, that has not stopped most noble Lords from repeating a large amount of what is in the report. I hasten to add that in my brief contribution I shall not do that. I believe all the points have been made, have been underlined and have been underlined yet again. However, a matter that worried me most of all, and which is why I found the report so disturbing, is its opening remarks in paragraphs 1 and 2 that there is no progressive improvement in this matter. That ought to tell us that there is something deep that we need to look at here and that it is not a trivial matter or something that can be dealt with easily.

Before stating what I believe is obviously the problem, I should mention that I do not believe that the analysis of the committee, at the level at which it undertakes that analysis, is mistaken. I do not wish to be interpreted as saying that, although I shall make a few critical remarks. I certainly do not wish to have anything I say interpreted as implying that the recommendations of the committee are not worth carrying out because I do believe they are worth carrying out and I am keen on all of them, not least the recommendation on the task force. I share the disappointment of noble Lords at the Chancellor's response to all of this. It seems to me to have what I would term a touch of complacency about it rather than anything else.

Although I am about to embark on a completely different approach—although it is one the noble Lord, Lord Tebbit, has raised—I believe the committee's analysis of the problem is correct and I believe the suggestions are worth pursuing. However, as an economist, I have to ask why the problem is there in the first place. In my view, it is not remotely the case that it arises because of the intrinsic evil of human beings and because they have a high propensity to be fraudulent. It arises because conditions of an economic kind are created in which fraud is highly profitable.

I shall mention a couple of analogies, the point of which I believe will be obvious. Let us consider prohibition in the United States and all the crime which went with that. Prohibition arose from a misplaced zeal to deal with problems that arose from excessive drinking. If one interferes totally with the market and with consumer demand —namely, through prohibition—one creates precisely the conditions in which gangsters see an opportunity to make profit and they resort to violence and other such methods.

My second example brings me closer to what I wish to talk about. Let us consider smuggling. Smuggling does not arise because people have a propensity to smuggle; it arises because in two different tax regimes there are different rates of excise duty, and essentially people smuggle to make a profit from the difference. Although I am not opposed to Customs officers and Customs intervention, if one really wants to get rid of smuggling one should get rid of the difference in the excise duties. I say these things because I believe that the essential element of the fraud problem is the common agricultural policy. Fraud is not intrinsic to the European Union per se. I remain a strong supporter of the European Union. Fraud does not arise because fraudulent foreigners are somehow sullying us pure British; it arises simply because a system has been set up which is arcane, complex and arbitrary—and one should never forget that it is arbitrary—in the way in which it redistributes funds. Therefore the precise economic conditions for fraud have been created.

I say again that I do not wish to go against what the committee has said. I agreed strongly with the comments of the noble Lord, Lord Shaw of Northstead, in his excellent maiden speech when he spoke of the importance of sound financial management. I shall say a few words about that later. I certainly welcome the noble Lord to our deliberations. There is only a small group of us who tend to spend time on these financial and economic matters, but he is certainly welcome to join us. Sound financial management is important in this matter as is strengthening the powers of the Commission. However, as long as the artificial distortions of markets of the sort perpetrated by the CAP exist, the grounds for fraud will be there and they will stay there. In my judgment as an economist the reason why paragraphs 1 and 2 of this report state that the position is not getting any better is because the underlying forces are, if anything, getting stronger and not weaker. That is the nature of the problem.

I believe my next point is not in any remote sense one on which many of us differ. I believe it is right to give support to agriculture. I have no intellectual difficulty with that, and I can think of good grounds for doing that. However, as I have said before, no one could have dreamt up a more absurd way of helping agriculture than the common agricultural policy. The: problem is not support for agriculture or the need to guarantee our food supplies—we should not forget how important that is—but the fact that a totally ludicrous way of doing that was chosen. Of course we know why that was done. It was because the only way the Community could have become established in the first place was by bribing the French farmers. The Germans were willing to bribe the French fanners via the CAP. That was the story and it is still the story. What I am trying to say is that one should not weaken one's resolve to attack fraud. Fraud needs to be attacked, first because financial probity is good in itself. Financial standards are so important intrinsically that we must always try to maintain them. I also believe that to oppose fraud and maintain high financial standards is efficient. Nonetheless, one must not be over-optimistic about what is likely to be achieved.

I believe that it would be foolish to use an attack on fraud and the CAP as an attack on the European Union as one or two noble Lords have done. To put it at its mildest, I believe that that does more damage and is counter-productive. The reason why those of us who favour the Union wish to see fraud dealt with and these reforms take place is that if it is not done the Union will be placed at risk and the outlook will be one of doom. It will not be destroyed by those who oppose the Union but by the Union itself. That is why those of us who are concerned about these matters must take them immensely seriously.

I could have sworn that when I was in my car I heard the Chancellor of the Exchequer say on the wireless that he would fight the milk business righl to the end. Perhaps when he comes to reply the Minister will tell us what caused the Chancellor of the Exchequer not to die in the last ditch but to die in the first ditch. It does no good if, putting it crudely, people get away with it. The report refers to public opinion. The more fraud is publicised and it is publicly known that people get away with it, the more people will be encouraged to try. I go back to what my noble friend Lord Desai said. If one wants to create a system where fraud seems to be an easy way to make money—and one can get away with it, because it is minimum risk and maximum relurn— what more does one want than the present system? It is important not only to root out but, more and more, to establish the existence of fraud. The report shows the cases. One must go to the next stage and punish the fraudsters severely, and demonstrate that one has done so. It is not even a matter of saying that one will punish them but not make a great fuss about it because one hopes that they will be better boys and girls next time. One wants an extremely uncomfortable fuss to be made, which I confess does not come happily to those in this country.

I thought that the report was not just about fraud but also about value for money in terms of the Union's expenditure. Perhaps the noble Lord, Lord Hunt, will put me right when he comes to reply, if that is necessary. I interpreted paragraph 21, which dealt with a spending culture, to be much more about waste than fraud. I believe that it would be a mistake to regard waste and fraud as the same thing. I am against both, but I do not believe that they should be confused. I go back to a point raised by my old friend Lord Bancroft in relation to the Plowden Report. When it came out I was just a junior economist in the Treasury and he was an Assistant Secretary who was about to become an Under-Secretary. Following the Plowden Report, we believed that we had cracked it so far as public expenditure control was concerned. As a young man, I also believed that to be so. All of the work that I did then was concerned with the rational control of public expenditure, and that kind of thing. En passant, in 1986 I suggested to the then head of the Treasury that there should be a conference to mark the 25th anniversary of the appearance of the Plowden Report to see what progress had been made; but that appeared to fall on deaf ears.

One of the lessons that I thought had been learnt from Plowden in connection with counter-cyclical public investment policy in those days was that it was important to have some good projects. One might not be ready to put them forward, but when funds became available, one would have a list of good projects. What bothers me about paragraph 21 and some of the evidence is that 30 years on from the Plowden Report the Community seems to be making exactly the same mistake that I thought we in the Treasury would not make in those old days. One does not start with the money and try to find something on which to spend it; one tries to look for some decent projects and, when one has the money, one spends it on them. No one need doubt my propensity to spend public money—I do not sit on these Benches because I do not believe in public expenditure—but I am horrified to discover that the Union gets funds together and discovers that it does not have any good projects. I am all in favour of the first task force; but if one wants to set up a second task force it can be one consisting of me. I can tell the Union of several very useful public sector projects that can be set up which will not involve waste.

I hope that I have stayed within reasonable limits of time. My overall intention has been to be as supportive as I can to the committee. My real ambition one day is to be part of a process that gets rid of the CAP and provides some other way to deal with agriculture, which I think will also help to save the Union.

6.15 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

My Lords, we have had an excellent debate, although occasionally I have heard the noise of axes being ground which are not entirely relevant to the subject-matter. I almost failed to understand what one of them was, but I detected that it was an axe being ground.

It is a particular pleasure for me to stand at the Dispatch Box and welcome to this House my noble friend Lord Shaw and say how much I enjoyed his maiden speech. My noble friend spent 30 distinguished years in the other place and five distinguished years as a European Member of Parliament. There are some who believe that the nominated members were arguably better than the current elected ones. However, I do not wish to stray too far down that particular road.

My noble friend reminded your Lordships that in 1977 he was involved in some of the work that led to the setting up of the Court of Auditors. That has run through your Lordships' debate today as a common theme, as it does the report that we are discussing. I understand my noble friend's concern about the lack of progress over the years. Hopefully, some of the decisions that we have taken to enhance the status of the court will help to give it the teeth and muscles it requires. I am sure that I speak for the whole House when I say that I look forward to many more contributions from my noble friend to debates in future.

I turn to the report. First, I say to the noble Lord, Lord Hunt, and his sub-committee that I join in the congratulations expressed by other noble Lords. It is an excellent report and is part and parcel of a number of years' work on an important and difficult issue that has been done by this committee and its predecessors. Most noble Lords are aware that the work done by a Committee of this House has attracted admiration from all around the Union. No other parliamentary body in the Union—if I may so describe it without my noble friend breathing down my neck—has acquired more of a reputation for its expertise in these matters and its determination to put them before the public eye.

We are wholly at one with the sub-committee in condemning the extent of fraud against the Community budget. We do not know exactly how much fraud there is but we know that it is far higher than any responsible national government can conceivably tolerate, and it brings the Union into disrepute. That judgment is not expressed solely in this House or in this country. It is shared by a number of other member states. I believe it is also shared by the outgoing Commission, and I am confident that the incoming Commission will attach high priority to the issue. I find it encouraging that the Commissioners named to look after fraud and the Community budget come from our newly-arriving friends in Sweden and Finland who have a record of probity in public affairs. I believe that that is something to give all of us encouragement.

I turn now to the substance of the issue in front of us. The causes of the present level of fraud are complex. I shall deal with one or two of them later in my speech, but in part the nature of many Community policies has encouraged fraud. The noble Lord, Lord Peston, made that point very clearly. I do not want to sound like a professor of economics—I think we have enough of them already—but if a commodity has one value in one place and another value in another place that is bound to encourage fraud. In addition, the Community brings together national legal systems and administrative traditions and structures which differ, often considerably, between member states. That makes it harder for Community institutions to get to grips with fraud and for member states to co-operate with each other. It also has to be said that not all member states have always demonstrated the same capacity, or even the same willingness, to deal with the problem at Community level as they do in their own countries.

A number of noble Lords mentioned pages 29 to 33 of the report, which set out a catalogue of cases. They do not all relate to the common agricultural policy. I cannot remember which noble Lord led the House to that conclusion. There have been other cases not involving the common agricultural policy. The noble Lord, Lord Desai, wanted a kind of Booker Prize for the best fraud. I suppose that those examples might be considered the short leet for that prize. They make horrifying reading. While one can chortle at the farmers who took their cattle from the North to the South and then from the South back to the North, the fact is that that is an example of a serious fraud which takes money from the European Community's taxpayers and prevents it being used on other worthwhile schemes.

We attach a high priority to the fight against fraud. We secured a number of improvements to the treaty at Maastricht, including the imposition of a duty on all member states to treat fraud against the Community budget as seriously as fraud against their own national finances. The financial management provisions of the Maastricht Treaty are, understandably, rather less in the public eye than some other provisions in the treaty, but I believe that all Members of the House, whatever they may think of the rest of the treaty, will welcome those provisions.

Subsequently, we in the United Kingdom have remained in the forefront of the fight against fraud. We have secured significant improvements in both Commission and Council procedures which are designed to improve the Community's financial management and to increase pressure on fraudsters. The problem for the Government is how to maximise their influence within the Community institutions with other member states in order to achieve the improvements which are necessary at Community level. After all, the United Kingdom is only one of the 12 member states. I make that point in those terms because it is essential that your Lordships should understand that if we are to succeed in our common objective we have to do so through the mechanisms of the Community, formal and informal, because we shall not get anywhere if we attempt to work outside them.

In addition, I draw the attention of the House to the United Kingdom's joint action initiative under the third pillar of the Maastricht Treaty to protect Community finances. Under that initiative member states would commit themselves to ensuring that their anti-fraud laws are brought up to common standards and that there are no gaps in their legal defences which fraudsters could exploit. The noble Lord, Lord Benson, mentioned that particular aspect. It would also serve to improve co-ordination between individual member states and between member states and the Commission.

In addition, the Commission made two proposals in June for a horizontal regulation under Community law setting out the bases of anti-fraud legislation to be incorporated in future sectorial legislation and for a draft convention under the third pillar. Negotiations on those texts are just beginning. We in the United Kingdom welcome the Commission's participation in the debate: and we are, of course, participating constructively in the negotiations.

I turn now to the committee's recommendations. Many of the committee's recommendations are addressed to the Commission and to other Community institutions, such as the European Parliament, and to member states generally. Everybody will hope that those people who have responsibility across the Community will not only read what the committee says in its report but also give the recommendations which are addressed to them serious consideration. I welcome, in particular, the committee's call for the European Parliament to adopt a higher profile on this issue.

The committee considered that the Commission's new anti-fraud strategy is inadequate. In the Government's view the Commission has made efforts to improve its anti-fraud programme, although there is scope for a great deal more progress. I welcome in particular the commitment which the Commission has recently made to set firm objectives and target dates for the individual items in its action programme. In particular, I stress the importance of systematic examination of new legislation, and indeed of existing legislation, in order to make policies fraud proof, or at least as fraud proof as is humanly possible. I welcome also the greater use of risk analysis, so that resources can be targeted to best effect, and the exploitation of intelligence and the emphasis on training at operational level. We in the United Kingdom stand ready to help in any way that we can.

The Government welcome the committee's recommendations for the improvement of the Commission's internal financial operations. Such improvements would have benefits going beyond the fight against fraud into value for money and better financial management generally. I do not want to stray into the second part of that aspect because this debate is very much targeted on fraud. However, there would be side benefits in terms of the fight against fraud, as the noble Lord, Lord Peston, and others mentioned, in making sure that the projects we fund at Community level give value for money and meet the objectives which they are designed to achieve. I believe that we are all at one on that.

We agree, as the committee says, that subsidiarity must not be allowed to be used as an excuse for hindering the Commission in its treaty obligations concerning the management of the Community budget. Indeed, the Edinburgh conclusions made it quite clear that subsidiarity cannot reduce the need for member states to ensure that Community law is properly enforced and to fulfil their obligations to safeguard Community expenditure.

The responsibility for detecting and prosecuting fraud remains, nevertheless, with the member states. Member states have by far the greater resources and power and are by far best placed to ensure compliance on their own territories. I am surprised that the committee has given relatively little weight to the role of the member states in this area and has given quite so much weight to the role of the Commission. In terms of policing the CAP, for example, the Commission could not replicate the work of the Department of Agriculture, which has officials all over the country. We have to rely on member states' systems. In a moment or two I shall turn to one of the proposals which noble Lords made as to how we ensure that member states carry out their obligations.

We also attach great importance to the Court of Auditors. We believe that its work is central to the issues of improving financial management within the Community and fighting fraud against the Community budget. That has been recognised. My noble friend Lord Boardman drew our attention to the matter at the beginning of the debate. In the 1994 budget the court has been strengthened by 25 new posts. It is also worth noting that in the Council's draft budget for 1995 there is a proposed increase in the Court's budget of 4.25 per cent., which is well above the average increase in administrative expenditure of 2.01 per cent. Therefore, in terms of the creation of new posts and giving the Court of Auditors the budget to do its work, we believe that steps are being made in that regard.

I now turn to the question of the task force. We do not find ourselves persuaded that in the current circumstances that would be a worthwhile objective for us to pursue. In his letter to the committee, and in the evidence which he gave to the committee earlier in the year, my right honourable friend the Chancellor of the Exchequer explained clearly why he felt that the setting up of another body would divert attention from making the system work as currently constituted.

Lord Pearson of Rannoch

My Lords, will my noble friend give way? As a matter of fact my right honourable friend the Chancellor of the Exchequer did not say that. What he said to the Select Committee was that all hope was to be vested in Mr. Schmidhuber's report which we were awaiting. He said that the task force would not be necessary because Mr. Schmidhuber was going to be doing the job. But Mr. Schmidhuber has not done the job and the Chancellor still resists the suggestion of the task force.

Lord Mackay of Ardbrecknish

My Lords, Mr. Schmidhuber was the commissioner in charge of fraud. As I have already mentioned, he will be replaced by the Swedish commissioner. My right honourable friend the Chancellor, I think quite separately from whatever Commissioner Schmidhuber was going to say, said that his fear was that if we decide at this stage to go for a high level group supervising the work for five years, that would mean our setting off in a totally different direction from the one we take at present, perhaps undermining what people are already doing. He colourfully stated that we might be seeking to pick up the plant to inspect the roots to see how it is doing when we should in fact let it grow to see whether we can use the plant we have to undertake the things about which we agree. My right honourable friend the Chancellor made that position clear.

He also made clear—given the background to some of the points made by noble Lords and our knowledge of the way in which the European Community and government can sometimes work—that setting up a task force might be used as a nice excuse for not doing anything much now and for saying that we shall await the task force. There is always a good reason for governments, and European Commissions would be no exception, to set up some system and then to say, "Let's not do anything until there is a report". My right honourable friend the Chancellor made clear in his letter and in his evidence that he believed that we should use the machinery that we have at present to deliver the results that we wish to see delivered.

A number of issues were raised in the debate which perhaps I may cover in detail now. The noble Lord, Lord Peston, and others referred to the simple fact that the common agricultural policy is responsible for quite a lot, although not all, of the fraud against the European budget. As noble Lords know, we have been at the forefront of pressing for CAP reform. Some of the measures already adopted will help in the fight against fraud. For example, expenditure on export refunds will be greatly reduced. As we have already mentioned, those refunds have been a source for potential fraud and irregularity. In addition, payments to individual farmers are likely to be easier to control than payments to traders linked to the quality and destination of certain goods.

We shall certainly seek to ensure that the search for means of reducing further the scope for fraud by altering the common agricultural policy will be pursued.

Lord Bruce of Donington

My Lords, will the noble Lord explain why it is proposed sharply to cut down the number of people in Customs and Excise. They are the people who have been responsible for detecting export refund frauds. That covers only 7.5 per cent. of the export refunds at most. How does the noble Lord expect that percentage to be improved by discharging large numbers of people from Customs and Excise?

Lord Mackay of Ardbrecknish

My Lords, I detect another axe being ground. It is not so much the number of people involved—I have read the reports; I am not entirely up to speed on them—but also the quality of the system that one puts in place. The quality of the system does not necessarily depend on vast armies of civil servants and bureaucrats to carry that system out.

I wish to turn to two aspects of the common agricultural policy about which I was specifically asked. I do not wish to go into any great detail in reply to my noble friend Lord Tebbit about the tobacco regime. Given the position on tobacco that I sometimes took on the Back Benches of your Lordships' House, my noble friend will not be surprised to hear my belief that the tobacco regime is not terribly defensible. However, the Community had it in place before we joined. There are farmers who farm tobacco. We are taking steps to ensure that, first, fraud is reduced in the system; and, secondly, that the expense of the system reduces. We are seeing some progress.

I freely admit to my noble friend Lord Tebbit that it seems a little illogical that we spend money, on the one hand, subsidising the growth of tobacco and, on the other hand, seek to persuade people not to use the product. It is a battle that we shall have to continue to fight—to seek to ensure that farmers in the Community can grow something other than tobacco.

Lord Tebbit

My Lords, I am grateful that my noble friend tells me that his heart is in the right place. However, perhaps he will agree that the recent ECOFIN meeting would have been the ideal moment for the Chancellor to say, "No, I shall not let the Italians off their milk fines until we do something about the tobacco subsidy". That is how Italians, Greek, Portuguese and Irish get their way.

Lord Mackay of Ardbrecknish

My Lords, I shall come to the milk subsidies in a moment. My noble friend has slightly jumped the gun. The problem with the tobacco regime is that a fair number of countries have tobacco farmers. As I said, we are one out of 12 member states. But it is a battle that we shall continue to fight because we are seized of the contradictions—I put it no higher—of the tobacco regime.

My noble friends Lord Tebbit and Lord Willoughby de Broke asked specifically about the milk systems. It will take a minute to explain how we have got to where we are. The quota was agreed for Italy and Spain, and to a much smaller extent Greece, in the mid-1980s. Between 1989 and 1993 Italy and Spain simply failed to collect the additional levies from their farmers from over-production. The total not collected was about 4.5 billion ecus.

In 1992 it was agreed that the Spanish and Italian milk quotas from 1994 should be increased. However, in setting out to clear its books, the Commission decided to disallow the amounts which would have been payable in 1989 and 1990 if Italy and Spain had in the past had the extra milk quota given to them by the Council in 1994 for future years only. It indicated that it would do the same for 1991 and, presumably, for 1992 and 1993. That would have meant that Italy and Spain were disallowed only about half the amount they failed to collect and pay to the Community budget.

Accusations were made that the UK Government were not robust on the issue. We were pretty robust because we commenced proceedings before the European Court of Justice arguing that the Commission had backdated quota and that the competence to set milk quotas belonged to the Council and not to the Commission. The Commission denied that it had backdated the quota; it had simply disallowed an appropriate amount taking account of all the circumstances including the new production figures. Competence to disallow belonged to the Commission not the Council. However, we continued with our proceedings. Italy and Spain also commenced proceedings against the disallowance decisions claiming that they were unreasonably severe.

In order to get out of the problem, the German presidency put forward a compromise text: if the UK won its case before the European Court of Justice—that would take two or three years, one can rest assured— the Council would backdate milk quota increases for Italy and Spain with effect from 1991. Thus, Italy and Spain could have been sure that their fines for 1991, 1992 and 1993 would not be greater than those they would have expected from the Commission in any event. Their maximum fines would have been 2.9 billion ecus even if we had won our case.

By voting for the eventual settlement, we secured fines of 3.2 billion ecus. That amount is not to be sneezed at. Those are by far the biggest fines ever imposed for infringements. That is why we did it. It seemed to my right honourable friend sensible to take that agreed solution, imposing those very considerable fines, instead of taking the risk that the court case would not have gone the way we wished and that the Commission would have done what it was proposing to do about reducing the ultimate fine.

Baroness Seear

My Lords, I cannot resist asking the Minister: did we get the money?

Lord Mackay of Ardbrecknish

My Lords, I thought that the noble Baroness was going to ask me to repeat all that. I would simply have commended her to read what I said. We do not of course have the money yet. But from 1995 onwards the countries involved will be paying these fines. They will have their moneys in 1995 and future years disallowed to the extent of 3.2 billion ecus. So rather man it being a failure of the British Government, it was in fact a success on the part of the British Government to make sure that those very large fines were imposed. The House should give a small cheer for that. Perhaps that is what noble Lords are doing.

My noble friend Lord Willoughby de Broke asked me about Air France. That is rather wide of the issue of fraud; it is a matter of competition policy. As on the milk systems, the French are being taken to the European Court over the 20 billion francs that they have proposed as a subsidy to Air France.

The noble Baroness, Lady O'Cathain, asked about UK civil servants spending time in Brussels. I am happy to tell her that UK civil servants from a broad range of departments already work in the Commission. We operate a European "fast stream" to encourage bright UK high-fliers to spend time becoming involved in the working of the Community. I suspect that that is exactly what the noble Baroness was hoping I would say. It gives the Commission the advantage of our civil servants and it also, one hopes, gives our civil servants an insight into the workings of Brussels.

A number of noble Lords suggested that we should consider the idea of having Commission officials in every member state, as it were overseeing what was happening. The Commission already has the power to make unannounced visits to check on member state activities. It does have a programme of planned and unannounced visits which it makes to member states to check that matters are as they should be. We believe that that should be sufficient and that a permanent representative at the Commission would not add any value to the spot checking that we do.

I have spoken for rather longer than I had intended to. The improvements that we all want to see in attacking fraud in the Community budget will take time to achieve. They will not happen overnight. Anyone who believes that there are quick and easy solutions to the problem has not really studied these matters or indeed the report of your Lordships' committee.

I can assure the House that the Government will continue to drive forward the fight against fraud in the Community at every available opportunity. That includes making our case very forcefully at the political level, including in the Council of Ministers. But it also requires detailed involvement in the implementation and operation of Community programmes. Your Lordships' report is valuable evidence of the scale of the problem and of the determination of this House to deal with it. It will therefore be of great help to us in securing our shared objectives.

Lord Pearson of Rannoch

My Lords, before my noble friend sits down, would he agree that he has not actually answered the questions that I put to him on the application of subsidiarity, which should be important in containing financial irregularity and fraud. Specifically, he has given no assurance to our lettuce growers, to our herbal medicine manufacturers and to the London bus that they have any prospect of survival.

Lord Mackay of Ardbrecknish

My Lords, I did think that the debate was about the committee report on fraud in the European Community. I thought that my noble friend's speech ranged rather wider than that in relation to one of the axes that I heard being ground. I hope that he will forgive me if I do not follow him in enlarging the debate to herbal medicines and the general benefits or disbenefits that come to the UK from the European Community.

6.43 p.m.

Lord Hunt of Tanworth

My Lords, I thank the Minister for that reply. I also thank all Members of the House, and perhaps particularly those who were not members of the sub-committee, who have taken part.

I could not help noticing that on 24th October, in reply to a supplementary question, the Minister said that this would be an "all-singing, all-dancing" debate. I began to wonder who were the singers and who were the dancers. But there were certainly some stars out. I am sure that he was not intending to mean that this would be a frivolous occasion. One of the stars was certainly the noble Lord, Lord Shaw of Northstead. It was very nice that it was on the occasion of our report that the noble Lord made his maiden speech on a subject of which he has so much knowledge.

At this hour I shall just make three very quick points. First, reference was made to some of the headlines about the report—"Lords Slam Europe", and so forth. I should like to remind the House that not only was this obviously an all-party committee, but it had its full quota of representatives from different parts of the European spectrum. Those who believe that Britain should be in Europe and should play its proper part in Europe were just as worried and concerned about the situation on fraud and the need to put it right. So it was not a "Euro-slam" in that sense.

Secondly, if I understood the noble Lord, Lord Peston, aright, he seemed to be saying that we had called the report "Financial Control and Fraud" and had then written all about fraud. It was, in fact, the other way round. We were doing an inquiry about fraud, but came more and more to the conviction that it was lack of adequate financial control that was the cause of the problem rather than detecting the fraudsters. Of course, if one puts financial control right, one gets other benefits in terms of value for money, and so on.

Thirdly, on the question of the task force, I hope that the Minister will not mind, since he quoted so extensively from the Chancellor's reply in evidence about "not pulling up the roots", and so on, if I draw his attention to the words which followed. The Chancellor went on to say: My reaction would be, I will smile on the suggestion, but put it on one side until we have seen what the Commissioner is coming forward with at the end of March, and what the Council of Ministers will agree to do in response to this proposal. If thereafter the innate pessimism of your Lordships, after years and years of looking at this, proves to be justified and yet another initiative is running into the sand, then the high level task force could be used again". As the Minister knows, Commissioner Schmidhuber did not come forward in March with his proposals; he came forward in April. They were then squeezed off the ECOFIN agenda in, I believe, May and June. They were finally considered in July and not many decisions were taken on them. As noble Lords know, in the report we call it an action plan with no plan for action (perhaps I have that the wrong way round). That is why we were disappointed.

This has been an important debate. I fully recognise that there is a limit to what any one country can do in pushing for action. I believe that it is only by national parliaments and public opinion stirring up concern about this matter that something will eventually happen.

On Question, Motion agreed to.