§ 3.25 p.m.
§ Baroness Robson of Kiddington rose to move, That this House takes note of the report of the European Communities Committee on fraud against the Community (5th Report, 1988–89, HL Paper 27).
§ The noble Baroness said: My Lords, I beg leave to introduce the debate on the report of the Select Committee of the European Communities, the subject of which is fraud against the Community. The investigation was carried out by an ad hoc committee consisting of members drawn from the agricultural, legal and financial sub-committees of the Select Committee. The setting up of the committee was a new experiment. I venture to suggest that after some teething troubles—and members of my committe will understand what I mean—it turned out to be the correct way of dealing with this most difficult subject. It necessitated having the expertise 388 represented at our meetings from the other three sub-committees.
§ Before proceeding to the report, I should like to express my thanks to all the members of the committee for their hard work. In particular, I should like to thank our clerk, Mr. William Sleath, who worked indefatigably and even gave up some of his Christmas break to help us. I should also like to thank our eminent witnesses and single out Mr. Carey of the Court of Auditors. He was of tremendous help, and even went to the trouble of helping us to compile our questionnaire for the Customs and Excise authorities.
§ I am delighted that this afternoon so many eminent speakers will take part in the debate. It is a sign of the importance of the subject to Members of your Lordships' House. I am particularly delighted that the noble Lord, Lord Cockfield, with all his experience, will take part. I am also delighted that the Leader of the House will reply on behalf of the Government.
§ The committee was set up as a result of public concern about the issue of fraud which was evidenced in the press. The inquiry revealed such concern to be fully justified. However, the committee did not consider the question of MEP's expenses or early retirement provisions for health reasons within the Commission. It concentrated on the major problem of unlawful receipts or non-payment of Community funds.
§ The report was published on 10th March, just in time for the ECOFIN meeting on 13th March. The committee welcomed the fact that fraud was a major part of the discussions at that meeting. The Council endorsed the declaration on fraud and foreshadowed new or revised proposals in a number of areas, notably export refunds and intervention storage. It also promised an annual report by the Commission and early discussion of key issues chaired by the head of the Commission's anti-fraud co-ordination unit.
§ Those measures are in line with some of the recommendations contained in the committee's report. But they go only part of the way towards solving the problem. The committee believes that in order to achieve success a three to five-year programme must be initiated and carefully monitored by the Commission's anti-fraud co-ordination unit.
§ I was also delighted to receive a report, published on 23rd March, on behalf of the Committee on Budgetary Control in the European Parliament. Its rapporteur is Mr. Dankert and its recommendations are completely in line with those put forward by the committee of your Lordships' House.
§ I should now like to turn to the contents of the report, and as the introducer my comments will basically be an outline of what it contains. However, many other eminent speakers will no doubt concentrate on special aspects of it.
§ The first part of the report, the introduction, explains the reasons for the inquiry, describes how the terms "fraud" and "irregularity" are used in the report and gives summaries of the Community budget and the structure of the Community. It also 389 deals with the questions of estimates of fraud. Although figures have recently been given in the press varying between £2 million and £6 million per year, no estimate has been accepted as authoritative, although the Commission itself describes it as substantial. Referring again to the Committee on Budgetary Control, that gives an estimate of 10 per cent. However, your Lordships' committee decided not to seek an estimate because in our view that would be to waste time and effort to very little purpose.
§ Parts 2 and 3 of the report seek to explain the main sources of Community revenue and the main types of Community expenditure. Those are considered in turn with a view to describing how fraud takes place and why the system allows fraud to flourish. Those pages lean heavily on the investigations of the Court of Auditors and conclude that controls on income and expenditure are patently inadequate. The blame for that state is spread over all the institutions of the Community and the member states. The system itself places enormous burdens on those administering it and the sums involved create incentives to fraud.
§ For example, the system of advance payment for FEOGA acts as a disincentive to the member states to pursue fraud because, however diligently a member state pursues a case of fraud, the state suffers a loss if the fraudster cannot be traced or goes bankrupt. The Commission has not made fraud prevention a priority when formulating proposals and has not helped member states with clear instructions and a list of irregularities. However, in the last analysis it is the member states which administer the bulk of income and expenditure. It is their failure to apply Community rules strictly and to impose strict controls, their apparent unwillingness to report fraud in full and their reluctance to agree to change in the Council of Ministers which stand out.
§ Some of your Lordships may feel that those two chapters in the report are unnecessarily long, but it was the committee's view that if someone reading the report was to understand the problems which we are highlighting, it is necessary to understand the complicated administrative structure of the Community.
§ Part 4 discusses the audit function in the Community, detection, remedies and co-ordination. Despite the best efforts of the Court of Auditors—and I mean that—Community income and expenditure are not properly audited. Indeed, in spite of serious criticisms made by the Court of Auditors, the Council of Ministers failed to give its report serious consideration. That part then explains where responsibility lies for prosecutions and describes some of the obstacles to cases with international complications. It also discusses some proposals for a harmonised definition of "fraud against the Community" and for increased Commission powers. Finally, the part discusses collaboration between member states and with the Commission and the Commission's anti-fraud co-ordination unit.
§ Part 5 summarises those causes, with the general conclusion that sound financial administration is 390 lacking in the Community and that consequently fraud is widespread. The part ends with a criticism of the failure of the member states to act against fraud. The problem is not a new one and nothing has been done to prevent the losses from increasing.
§ Part 6 gives the committee's recommendations for change. To address the many reasons for fraud, the sub-committee considered that a programme should be devised tackling the problem as a package. Otherwise some steps might be taken in certain areas without any real impression being made to stop the losses. The report proposes that the task of preparing that programme should be given to the anti-fraud co-ordination unit, which at present has neither the staff nor the power to make a real impact.
§ The report then lists some remedies which should be included in the programme I shall mention just a few. There should be clearer regulations and fewer product classifications. In agricultural goods, as long as there are as many as 4,000 different codes and up to 14,000 non-standard recipes for processed goods, you cannot expect Customs and Excise in any of the member states to be able to deal with the problem efficiently. Therefore, it is important that we must reduce product classifications. There must be better instructions given to Customs and Excise and tighter internal controls. Above all, there must be better publicity when fraudsters have come to light. At the moment the inadequate register of fraud reported by member states kept at the Commission does not mention the name of the fraudster. That is under a code name. Therefore, the value of the register is non-existent to the member states.
§ When fraud is detected and prosecuted, the publicity should be very much greater, as should be the communication between member states and the Commission to all other member states that that individual has been convicted of fraud. It is very easy for that person to move to another member state and do the same thing again as long as communication does not exist between member states. That necessitates that we insist that member states should report all cases of fraud and should not be discouraged from full reporting by the fear of financial loss. That is why the report recommends that when a member state can prove that it has done all in its power to apprehend the fraudster but has failed, the loss should be carried by the Community.
§ The Commission will need increased powers of inspection across the full range of Community operations, and the gap which exists in the auditing of Community funds between the powers of the Court of Auditors and the responsibilities of national audit bodies should be closed and close co-operation between the Court and the national audit bodies should exist.
§ There may be some member states which do not have a national audit office in the sense that we have in this country, although even our National Audit Office is not really responsible for auditing Community funds. Member states that do not have the equivalent of a national audit office should be encouraged to employ professional auditors to do the job for them.
§ Perhaps one of the most important things is that the Council should no longer be able to get away 391 with ignoring the Court of Auditors reports. The committee believes that the Council should be obliged to comment on each recommendation by the Court of Auditors and explain whether action will be taken and, if not, why no action is being taken. The aim of such a recommendation is to ensure that more crime is prevented and more detected by putting Community financial operations on a sound footing.
§ For such changes to be implemented it is necessary for the Council of Ministers to take the problem far more seriously than hitherto. In the committee's view the Council has to exhibit real political will on the question of fraud. The Dankert Report refers, in paragraph 9, to exactly that problem. It highlights the fact that the [...](mission has for 12 years put forward proposals to the Council of Ministers on which no decision has been taken.
§ The report has not tried to conceal the problem behind moderate language but I emphasise, above all, that this is not an anti-Community report. It has been produced against the background of a sincere wish to make a contribution to the success of the Community in its advance towards a Europe without frontiers. It is essential, if we are to achieve a Europe without frontiers, that we create an atmosphere of complete trust and co-operation between member states. Therefore, I sincerely hope that your Lordships' House will accept, despite some of the strong language, that this report has been produced with the aim of furthering a Europe without frontiers. The committee has no doubt that the losses involved are serious, even scandalous, and it hopes that the report makes a meaningful contribution to the solution of the problem. I beg to move.
§ 3.43 p.m.
§ Lord Cockfield
My Lords, the report of your Lordships' Select Committee raises issues of great importance which cause real concern and demand urgent and effective action. I am only too glad, therefore, that my right honourable friend the Prime Minister is now treating this matter seriously. I only express the hope that she will have the support of her own Government, which is more than I had when I tried unsuccessfully to take a step to deal with this matter in 1986 –87. Indeed, this somewhat negative attitude towards dealing with this important problem is reflected in the explanatory memorandum which was sent to your Lordships' Committee and of which it took a very poor view.
It is difficult to understand why the Government should react in this way, because if ever there was a country which had the least to fear from active measures against fraud it is our own country. We have a very high level of administration and a high level of fiscal probity, with very little to fear from active measures taken in this field.
I wish to draw your Lordships'attention—this is very relevant in view of what the noble Baroness, Lady Robson, said towards the end of her remarks —to the title of the report: Fraud Against the Community. It is not fraud by the Community and still less is it fraud by the Commission. It is fraud 392 against the Community and that fraud is perpetrated by, or connived in, and certainly not stopped by, the member states of the Community, by their governments, and by their citizens. If anyone is inclined to criticise the Community on these matters they should bear in mind who it is they are criticising. They are criticising their own member state, the government of the member state, their fellow citizens and, indeed, very often themselves.
On 7th February The Times carried a banner headline which read:Thatcher to attack £6bn EEC fraud".The article stated:The Prime Minister is spearheading a drive against fraud in the EEC".It continued:Mrs Margaret Thatcher has taken the initiative because of British concernat the turn of events. It also stated:She rai1sed the subject at last week's Cabinet meeting".It was in view of that report that I put what I thought was a perfectly simple supplementary question to my noble friend Lord Young in your Lordships' House on 14th February. I asked why the proposals that I, on behalf of the Commission, had put forward to deal with the question of fraud had been,vetoed by the United Kingdom in conjunction with the Finance Ministers of the other 11 member states".—[Official Report, 14/2/89; col. 65.]My noble friend was unable to answer the question. I say this not in any criticism of him because he has no departmental responsibility for this matter. The responsibility rests with the Treasury but unfortunately it was my noble friend who I had to question on this matter.
It is important to draw your Lordships' attention to the precise wording of the proposal that I had put forward on behalf of the Commission. The wording was:For the purposes of ensuring that the law on customs or agricultural matters is correctly applied, the Commission may carry out Community administrative and investigative missions in third countries and in the Member States in co-operation with the competent authorities of the Member States".Since then there have been a number of attempts on the part of the Government to explain why they, in conjunction with the other 11 member states, had vetoed this proposal. Frankly, the explanations given are so transparently weak that it would have been wiser to have given no explanation at all. The first limb of the explanation was that the proposal had been rejected by unanimity. Of course it had, and that is what I had said myself; but if one looks at this as a moral issue as distinct from a mere statement of fact it is surely unacceptable for this or any government to argue that if one can find 11 other sinners to shelter behind, one's own transgressions ought to be overlooked.
The second explanation given was this. I quote the actual words used. The Government objected to,Commission-led investigations".Instead, it said,the Commission and the member states working together should tackle the problem".393 That is precisely what I had proposed and that is why I read out to your Lordships the actual text of the proposal that I had put forward. If the objection is simply to the investigation being led by the Commission, surely that is an unacceptable argument. These investigations are designed to deal with the failure of the member state concerned to operate the law correctly or to administer it properly. Surely you would not put the prisoner in the dock on the Bench to lead the investigation into his own shortcomings. That is why it was right and proper that any such investigation should be led by the Commission which represents all the member states.
I have set out these facts in some detail because it is important to bring out the reasons we have made so little progress in this field. Had we taken an important step forward in 1986 –87 to deal with this matter, we would have had two years in which to tackle some of these problems. It is this lack of will that has lain at the heart of the matter. One of the great problems in the Community—we meet it here as well as elsewhere—is that action does not match the rhetoric. We have now got the rhetoric right. We need to take action to back up that rhetoric. My own views on this subject do not differ very much from those that have been put forward in the report of your Lordships' Select Committee.
The first essential is that we must repeat and reinforce the fact that the primary responsibility rests with the individual member state. The member states have signally failed to discharge that responsibility both in terms of commitment and of action. It is essential that the Heads of Government should give the political commitment to deal with this matter. It is useless to leave it to ECOFIN. That is simply a meeting of the Ministers who have themselves failed to deal with this problem. It needs to be tackled at the level of the Heads of Government. My right honourable friend the Prime Minister is entirely right on that point.
There must then be a proper legal framework in which the Commission and the Community as a whole can operate. That framework will inevitably have to confer additional powers on the Commission. That is where the powers should be vested. The member states should be associated with the work that is done in this field. That is precisely what I have said from the very beginning. The Commission must be given adequate resources in terms of both staff and funds to discharge this duty. It may very well be that a great deal of the work can be contracted out in the way that our own Government have increasingly relied on that procedure. If that is to be done the necessary funds must be made available.
It is absurd for the member states to starve the Commission of both the funds and the resources needed to do the job and then to criticise the Commission for the fact that it has not succeeded in dealing with the problems. If the report of your Lordships' Select Committee has suceeded in ensuring that vigorous action is now taken in this field the committee will have more than justified its labours.
§ 3.55 p.m.
Lord Bruce of Donington
My Lords, I find myself in the somewhat extraordinary position, perhaps for the first time, of being able to cite the noble Lord, Lord Cockfield, in support of many of the observations that I shall address to your Lordships. Fraud in the Community is being perpetrated at a rate of between £2 billion and £8 billion a year. In its latest observations on the subject the Commission, and Mr. Delors in particular, puts the figure as somewhere above £2 billion, which was the first estimate of the fraud actually being carried out.
It is important that the people of the United Kingdom realise just how much this fraud is costing them as individuals. We already know from the report put out under the chairmanship of the noble Baroness, Lady Oppenheim-Barnes, that individual families in the United Kingdom are bearing an extra £10 to £12 per week in food costs precisely because of the operation of the common agricultural policy. I do not propose to enter into the arguments about that. It is important to realise that an additional burden is being borne by all our citizens in their role as taxpayers, not only in terms of income tax but also as regards the much larger sums raised by purchase tax and various other excise duties that they pay in one way or another.
The recent estimates of government expenditure put out by Her Majesty's Government show the total net contribution by the taxpayers of the United Kingdom to the Community, after all receipts by way of regional funding and everything else have been taken into account, will amount to £1,970 million in the current year, 1989 –90. On the basis of the estimates given for fraud, every individual in the country will have contributed between £10 and £30 per annum as part of that figure. That is on the assumption that some 20 per cent. of the figure is borne by the United Kingdom. The figure may be larger.
The question of fraud within the EC is not a new one. I was a fellow Member of the European Parliament with the noble Earl, Lord Bessborough. He will recall that myself and Mr. Michael Shaw, who is now Sir Michael, and Sir James Scott-Hopkins, as members of the budget committee, listened to complaints by Commissioner Tugendhat, who was in charge of the European budget at the time, concerning large-scale frauds that had taken place in the famous Como butter scandal. By virtue of that scandal surplus butter was circulated across frontiers, collecting export rebates wherever it went.
There were complaints also that the Italian and French authorities had not given the Commission the support it required in investigating those matters. The noble Earl, Lord Bessborough, will well recall this. He will also recall that when we discussed the matter with fellow members of the European Parliament from Italy and France we received very little support from them.
Moreover, in those days, there was no point in telling the press about fraud within the European Community. There was absolutely no interest in fraud. It was thought that anyone who raised the question was somehow being anti-European and, as it were, below the salt, and that therefore no attention 395 should be paid to it. The fact that no press comment has been made until comparatively recently has been on the assumption, perpetuated by a race of Euro-fanatics, that every time one raises any criticism of the working of the EC one is somehow being anti-European. Fortunately, owing to the perception of Mr. Robin Oakley of The Times, there appeared a feature in that newspaper of 13th October 1987 which made shocking reading and put estimates of losses due to fraud, derived from Commission resources—though not I hasten to add from the noble Lord, Lord Cockfield, who did not associate himself in any way with what appeared—at some £2 billion.
Shortly after that the 1986 Court of Auditors' Report appeared. As your Lordships may recall, on 20th January 1988 I tabled a Question to the Government asking what initiative they proposed to take in the EC Council of Ministers to secure Council action in respect of the large-scale frauds set out in the then latest report of the European Court of Auditors. The Question was answered by the noble Lord, Lord Young of Graffham. At this point I should like to echo the sentiments of the noble Lord, Lord Cockfield. Noble Lords who read the reply of the noble Lord, Lord Young, at col. 207 of the Official Report of 20th January will observe—I shall not quote him exactly unless challenged—that he tended to play the whole thing down and indeed slightly to pooh-pooh the whole idea.
I shall convey his general sentiments in these words because they are quite clearly expressed. He said:However, until it can be proved, there can only be suspicion. We must not listen to reports about suspicion".If ever there was a case for vigilance and for sitting up and taking notice, this was the occasion. However, the Government—and I agree with the noble Lord, Lord Cockfield, on this point—tended to play the whole thing down. So it was that later during the year the European Communities Committee appointed a sub-committee under the chairmanship of the noble Baroness, Lady Robson of Kiddington, to whom I should like to pay tribute for coping with the difficult task of bringing us all together, many of us of a slightly dissident nature, until the final report was produced. I should like also to associate myself with her remarks about Mr. Sleath and the advisers who assisted the committee.
The report was proceeded with. We investigated many matters, with some of which noble Lords who are to speak later may wish to deal in greater detail. Quite clearly, the bulk of the frauds, although not all of them, were concerned with abuses of the system of export restitution and with the disposal of stocks. These were all investigated in some detail, and the report was eventually published. However, in the Question which I tabled shortly before then, the noble Lord, Lord Young of Graffham, gave no details as to what had happened and gave the general impression that things were under control and that the matter would be brought up at the Commission shortly, although, as your Lordships will recall, I had to tell him what his own Minister had been doing 396 two days before at the very meeting to which he referred.
Where is the real responsibility for the prevention and detection of fraud and its prosecution? I should have thought that it lies within each member state. It does not lie with the Commission or with the Council of Ministers. The Commission has no territory over which it has jurisdiction except in one respect. I refer to enforcement of the competition rules in respect of which it can intrude into the conduct of cases in individual member states. However, the member states themselves are primarily responsible. As we are talking in the United Kingdom Parliament, it is appropriate that we should address ourselves to this problem as though it were our own country's problem as well and not try to pass it off into other countries. The only thing we can do here is to try to deal with it ourselves.
It became quite clear in the course of our inquiries that a strategic role in the whole matter was played by Her Majesty's Customs and Excise. That department is responsible for the spot checks made when goods enter or leave this country, although there are no specific allocations in respect of dealing with common agricultural policy goods. It has to deal with the shipments affected by export restitution and the activities of the intervention board locally in disposals of stocks.
However, the number of personnel in Customs and Excise has barely increased at all since 1978. In fact, earlier in the years of the present Administration the numbers were reduced on the grounds of economy. Even today, and bearing in mind that this is not only a question of a greatly increased volume of imports since 1978 but also of increased drug trafficking, there is also that additional burden upon our Customs and Excise officers, some 8,000 in all. They are trying to deal with the situation on the basis of the same number of personnel as existed in 1979.
Therefore, what should we do additionally in Britain? There is no doubt whatever that we should increase the strength and the quality of the Serious Fraud Squad, which ultimately becomes involved when a prima facie case has been made out for investigation. Also, the activities of the National Audit Office in the United Kingdom should be greatly increased. The office produced a most excellent report at the end of 1987 which attracted attention at the time and which explained the various detected cases of fraud that had taken place in connection with the disposal of intervention stocks.
Those measures must be carried out, and they must be carried out in the United Kingdom. The matter is under our control because detection is the most important aspect of all. Once the character who tries to pass out sleepers of wood as hindquarters of beef and get them through the Customs of third world countries in order to obtain rebates upon them knows that there are effective detection methods, that the percentages of sampling is much increased and that the whole matter will be followed through resolutely, fraud will progressively decrease.
I should like to lay before your Lordships a rather important consideration. The law should be 397 indivisible. The maintenance of law and order is the most important function that the Government can undertake. Her Majesty's Government give me the impression, which I believe is widely shared, that as regards the small fraudsters—whom I would not defend—who defraud the state of social security benefits to which they are not entitled, there is immediate and resolute action the moment those cases come to hand. Hundreds of additional personnel are appointed in order to detect them. However, that is not so, I am afraid, when it comes to dealing with the larger-scale frauds. They tend to be fudged and put off.
Your Lordships may remember that I addressed a letter to a former Lord Chancellor, the noble and learned Lord, Lord Hailsham of Saint Marylebone, about the prosecutions in the Peter Cameron-Webb case. I think that noble Lords would have been amazed to hear at the time, as I was, that one of the reasons the case was not proceeded with was that the noble and learned Lord's budget could not run to the expense of employing the number of counsel who would have been required to counter the number of counsel who would have been employed for the defence. I have the exact references to that matter.
I am very glad indeed that, as the noble Lord, Lord Cockfield, pointed out, the Prime Minister will take the matter personally under her wing. Let us hope that that is not just rhetoric; let us hope that there is a determination to do it. I say that even if it means increasing Customs and Excise personnel by a further 500 and even if it means increasing the Fraud Squad by a further 500 and making a deal with it in view of the volume of fraud which exists in the City of London at present—as everyone knows. The authorities should not shrink, if necessary, from increasing the trained personnel of the National Audit Office or providing the office with the necessary funds so that it can get specialist service from outside when investigating fraud.
What can the Commission itself do? I am glad that the noble Lord, Lord Cockfied, has now left the Commission and can view the matter objectively. One of the things it can do is to present to the Council of Ministers proposals, as the noble Baroness, Lady Robson of Kiddington, pointed out, for the simplification of the various regulations under the common agricultural policy which give considerable scope. In the long term the Commission ought to produce proposals for a complete change in the common agricultural policy. But, above all, the Commission should be instructed that it must, so far as it possibly can and within its budget, make information as to fraud interchangeable between states; and compulsorily interchangeable by obtaining the consent of the Council to the proposals which the Commission would lay before it in that event.
So far as concerns the Council—because it can act only on proposals submitted by the Commission—it should take steps to address itself to achieving unanimity with the Commission in its determination to rid the European Community of this scourge which is so costly to the people of Europe. Perhaps I may address the noble Lord the leader of the House as regards the United Kingdom. For the United 398 Kingdom it is a matter of honour, as well as anything else, that we should take steps domestically and ensure effective action to prevent something which may, unless checked, conspire to the dissolution of the Community itself.
§ 4.16 p.m.
§ Lord Benson
My Lords, the annual revenue of the Community is some £25 million and expenditure is much the same amount. The great bulk of that expenditure, and the revenue, takes place in the member states. Under every head of expenditure and revenue in the member states, fraud is rife. The amount has never been quantified, but the estimates vary between £2 billion and £6 billion every year. That is a disgraceful situation.
Perhaps noble Lords would care to think of any organisation within their knowledge; for example, a bank, a department store, or the newspaper shop round the corner. If any such organisation was put on notice that between 10 per cent. and 20 per cent. of its revenue was being frittered away by corrupt practices and irregularities, it would immediately do three things: it would find out why; it would quantify the amount and it would stop what was going on. However, that is not the practice in the Community. The Community has known for many years that fraud is rife in the areas to which the report is directed. The Community has not ascertained or identified the causes. It has not quantified the amount and it has not stopped the fraud. That is a disgraceful situation.
If your Lordships would care to glance at Part 5 of the report, it will be noticed that every well-established administrative procedure for protecting the payment and the receipt of money has been applied either weakly or not at all. The regulations are complex and contradictory. There is a huge proliferation of product classifications. Lucid instructions have not been issued to each operating level. The normal and ordinary internal controls have not been applied. Fraud has not been reported in accordance with the regulations and fraud, when discovered, has not been followed by civil or criminal action. The normal deterrent of publicity has not been used. The training of staff is wholly inadequate. Moreover, the co-operation between officials in the various member states does not take place. That is a disgraceful situation.
If your Lordships would care to glance at parts 4 and 6 of the report under the heading "Audit Function", you will notice that the Court of Auditors is not given enough resources to carry out the obligations imposed upon it by the Treaty of Rome. You will notice that the audit coverage of the Court of Auditors in the member states, where most of the money is collected and received, is wholly inadequate. The Court of Auditors' reports are of high quality. Year after year they make serious criticisms of the financial administration. Year after year those reports are not followed up or are ignored completely.
If your Lordships would care to glance at paragraphs 177 and 204, you will notice that the report says that in all Community institutions and in all member states there has been an absence of 399 political will to stop those corrupt practices. That is a disgraceful situation.
For the record, it is necessary to state, sadly, that this country is as responsible for carrying out those practices, and for the absence of political will, as all the other 11 member states. The report draws attention, merely by way of example, to three major areas where fraud and irregularity have taken place: export refunds, the structural fund and intervention storage. Your Lordships will notice from the report that this country is involved in them all.
A blush of shame should suffuse the cheeks of everyone from the European Council down to the humblest operating level in the member states at the fact that the financial misfeasance has been allowed to continue for so long. The concluding paragraphs of the report describe it as a public scandal; but it is a criticism of the report that it expresses the situation in such moderate terms.
In the past three months a good deal of attention has been given to fraud in the Community, partly as a result of the report. There of course will be much talk and much protestation of good intention, but so far the measures proposed do not get to the heart of the problem. I am sure that we shall be told that the staff of the co-ordination unit has been increased from 12 to 18 and that it is very busy; but the co-ordination unit has neither the power, nor the responsibility or authority for the three institutions where action is needed; the Council of Ministers, the Commission itself, and the member states.
We have been informed that the Commission has now been asked to make an annual report on fraud. That is not the correct institution to make the report. There is no possibility of making a satisfactory report unless one has first decided what one is going to do. There is one way, and one way only, in which that disgraceful situation can be brought to an end. Four simple steps need to be taken. The first is to identify the causes of fraud and irregularity. Just to make the point clear beyond doubt, if a train crashes due to faulty signalling one must correct the faulty signalling; if fires on the Underground take place because lighted cigarettes are dropped on rubbish heaps, one must stop smoking.
In paragraph 183, the report identifies 13 causes of fraud, but there are others. The second step is to prepare a co-ordinated programme embracing all the concerns involved; that is to say, the Council of Ministers, the Commission and the member states. That programme will have to be extended over at least three to five years because of the extent of the defaults. The third step is for the programme to take each cause one by one, and to specify how it is to be corrected; who is to take action and when; and the date on which each phase is to be completed. The fourth step is to ask the Court of Auditors (not the Commission) to make a report each year saying whether that programme is up to date and, if not, who is responsible and why, so that appropriate action can be taken.
It is for that reason that I invite the Minister in the course of his reply to indicate whether it is the Government's intention that such a programme and such a report should be prepared. I say bluntly that 400 if those causes are allowed to continue, as they have in the past, fraud will be rampant in the Community deep into the next century.
There is one cause of fraud in the Community which is not mentioned in paragraph 183; it is mentioned earlier in the report. The first cardinal principle of good administration is that there should be a single unbroken line of responsibility and authority from the decision-making body at the top down through every operating level to the lowest level. That is totally absent in the Community. The top hamper of the Community comprises six separate layers of authority, all disjointed and unco-ordinated. Unless that is corrected no only will it be difficult to stop fraud in the Community, but inefficient administration in the Community will be continued into the future.
I therefore invite the Minister to answer a second question when he replies. Have the Government addressed their mind to simplifying that impossible structure by which the Community is governed, and how and when they propose to bring it into force.
§ 4.27 p.m.
§ Lord Diamond
My Lords, this is an excellent report, as one would expect from the excellence of the individuals who composed the Committee. I want to make it clear that my noble friends and I endorse every one of its recommendations and conclusions. I want also to thank all the members of the committee, of which I was not a member, for their work and constructive thinking. I want to thank the Government for continuing to regard your Lordships' Select Committee on European Affairs with the same authority as they have ever since I was connected with it, which has enabled civil servants of top quality to give evidence to the Select Committee and therefore enabled it to produce such excellent reports.
I am tempted to say that I am grateful to all those who have spoken hitherto for what I might call the clarity of expression. It is a long time since your Lordships' House has been treated, as its intelligence entitles it to be treated, with such clarity of expression on matters which are of the highest importance.
Lest it be thought that I, the third accountant in a row called upon to speak in the debate, am mainly interested because of my professional and government background, let me say straight away that that is not the case. My main interest is the standing, the reputation and the credibility of the Community. I can do no better than quote the words of Mr. Tomlinson, the MEP, who gave evidence to the Committee at paragraph 186 and said:there is no single aspect of Community activity, I believe, that brings the Community into greater disrepute than the kind of fraud about which every one of us has got a legion number of stories".I hope that the Government will take that on board. When they have read the report and listened to the debates in the House, I hope that they will take the necessary action.
There is already a wide belief in the country that the Community is riddled with fraud. We all know how easy it is for people to be led into believing this 401 and how difficult it is to remove that perception when there is perhaps much less justification for it. I therefore fully understand why the noble Lord, Lord Benson, took the view that unless something drastic was done immediately, fraud would continue unabated, if it did not increase, well into the next century.
We shall not receive the necessary support from the British elector and taxpayer for the steps which the Community proposes and for the development of the Community idea if people continue to believe that all they are doing is supporting an organisation which sets up a crooks' kitchen and spends vast amounts of taxpayers' money in support of it. I think that the anxiety that has been expressed is fully justified. In terms of volume none of us can measure the fraud with precision. I can only goon my hunch, my sixth sense which one develops over a period of very many years of working in the field. I listened with interest to what was said by a co-professional about the figure and raising the upper limit already from £6 to £8 billion. I can only say that my hunch is that the figure will be shown to be far nearer the top than the bottom estimates when the whole story has been revealed.
A great deal has been said about where the responsibility lies. It has been said with far greater authority than I could bring, and I therefore propose to turn immediately to the steps which I think ought to be taken in the future, starting now, in order to put the matter right. There are three major headings which I invite your Lordships to consider.
First and foremost is political will, enabling the Government to take a much more positive stand in their attitude to fraud and irregularities. That political will could enable us in this country to share sovereignty with other countries in implementing the cross-border measures which are undoubtedly necessary to trace and bring to account fraudsters. That political will could enable political pressure over the necessary very long period which will be needed to get to the bottom of the series of frauds and the means by which they have been perpetrated. One knows that it is easy to create enthusiasm to start something new. That will be of no avail in this case. We shall have to pursue it over a long period. One cannot maintain that pressure without the political will and determination.
Above all we shall need the political will to simplify the structure, as has been pointed out. It is a major task which needs a great deal of political will, but we shall have to provide it, not only to simplify the structure, the complexity of which is almost beyond belief, but also to adjust the system itself, especially in relation to agricultural products. The complexity of the system seems to me to invite or provide opportunities for fraud. The system itself, involving huge cash handouts, seems a direct encouragement to fraudulent practice.
All this requires political will and determination of a kind which have hitherto not been very noticeable in the Government. I hope that what the noble Lord, Lord Cockfield, has told us about the Prime Minister's present attitudes and intentions will be confirmed by the Leader of the House when he comes to reply to the debate.
402 The second heading is in relation to the audit function. I think that perhaps my professional colleagues will agree with me when I venture the view that 5 per cent. of the value of an audit is to be found in the fraud discovered and 95 per cent. in the fraud deterred lest there should be discovery. But that is only the case if the audit system is well provided, widely practised and highly regarded. There must be full support for the audit systems which we apply in the Community in terms of the necessary manpower and in carrying out the various recommendations which have been made.
If we look at some of the figures for manpower and compare what is expected of those people with what we do every day in our commercial lives, as every noble Lord present knows, in terms of internal audits, we pay two people to do the job of one so that a person's activities may be checked, and external auditors are brought in to see that everything is proper. If we think of what a bank does every day in seeing that the cash at the till is checked, and so on, and of the amount of auditing which goes on in every commercial activity, yet we expect some 10 people to carry out a major auditing function for 11 nations. That is pitiable. This is a serious debate; otherwise one might explode with laughter. So there needs to be full support for the audit function, which can achieve enormous results. The extra expenditure on it will undoubtedly repay itself 10 and 20 times over.
The final heading to which I wish to refer is punishment. As we all know, the major deterrent to crime is the risk of being found out. But what happens at present according to the report? There is a large area where the would-be fraudster works out the following argument: "If I am successful in my fraud, I make a very large gain. If I am unsuccessful and I am found out, I lose precisely nothing. I merely have to pay what was due for payment in any event. I am not fined; I am not pilloried by publicity". Publicity is beneficial not only in making life unpleasant for the fraudster in the future but in deterring others by bringing what happens to their notice. "I am not pilloried, I am not prevented from having another go and continuing the same business, perhaps in a slightly different name, and gaining more fraudulent receipts to the credit of my bank account".
All these matters need attention. I can see no reason why the fraudster should be compelled not only to pay whatever is due but to pay a penalty of three times what would otherwise be payable. We are familiar with this in our tax affairs. I do not see why it should not be translated into our Community affairs.
I have already referred sufficiently to publicity to show how much I believe that it is necessary. I also believe that when a fraudster is convicted of a criminal offence, he should be debarred from continuing in that activity until such a time as he can satisfy the same court that convicted him that it would now be proper to release him onto the commercial world again. So my conclusion is that only if all this is done, and persistently, will we save both the waste of taxpayers' money and the reputation of the Community.
§ 4.40 p.m.
§ Lord Jay
My Lords, I also wish to congratulate most warmly the noble Baroness, Lady Robson of Kiddington, on initiating this debate. I wish to thank the noble Baroness and the Select Committee for an admirable report which has done a great public service in fully exposing what everyone, I believe, now agrees has become a major public scandal.
Out of a total EC revenue of £25 billion, or a little more, as the noble Lord, Lord Benson, said, we now know pretty well that something between £2 billion and £6 billion is being lost through sheer fraud. My hunch is similar to that of the noble Lord, Lord Diamond—the figure is probably nearer the upper limit.
The report of the Select Committee stated that:Fraud and irregularity arise in the member states under all the relevant items of revenue and expenditure".It expresses its deep concern at what it sums up as:The loss of huge sums of Community money each year due to fraud and irregularity, weak financial administration and the absence of adequate controls".What makes these abuses even more deplorable in my view is that the money thus lost is being raised by a highly regressive system of heavy taxes, very largely on food, and other indirect taxes which bear most heavily on those with the lowest incomes throughout the EC. As the report rightly puts it:The huge sums being lost due to fraud and irregularity against the Community are losses borne by all the taxpayers and traders of Europe".I agree with the expression "irregularity against the Community". Nearly £1 billion of what is being raised in the UK itself, on the figures we have been given, must be being lost in this way. That is a solemn thought.
These consequences of this country's adoption of the common agricultural policy come as no surprise to me or to many of those who have long predicted that unconditional acceptance by this country of the policy of high-protectionist food taxation would have this, as well as many other, damaging consequences. Frankly, the only surprise to me is that the frauds are on such a colossal scale. They are not on a scale of millions, as might be expected, but billions. Further, no one has mentioned the fact that with the coming of 1992, if Customs and administrative controls are further relaxed, the situation will become even worse if we are not careful.
It is another great merit of the report that it sets out clearly and candidly the many reforms which now should be introduced. Other noble Lords have added some others today. The Government, I believe, would be wise to spend less time and money on continually publicising 1992 and rather more on firm action to check these scandals before we slide even further down the road of lax administration and fraud. Can we at least be assured tonight, as a minimum, that the Government will press with the utmost energy for the remedies proposed on page 38 of the report?
Unfortunately, as the report says, and as many have mentioned today, a major obstacle is the lack of political will. However, I am not sure that that applies only to the member states. It was indeed 404 rather noticeable that, despite the excellent intentions of the noble Lord, Lord Cockfield, the reaction of Delors to the publication of this report was not to assure us that he was going to tackle the problem seriously but to accuse the committee of making an attack on the Community. I do not think that that is very helpful.
The noble Lord, Lord Cockfield, told us, with much reason, that a major responsibility falls on the member states and not on the Commission. There is much truth in that, but I think the weakness of that argument is that, if the system is such that it is really impossible to administrate without gross fraud, it should never have been adopted at all. My fear is that as long as the Commission tries to maintain—I agree that here the responsibility also lies with the Council of Ministers—a level of food prices which are double or treble world prices, these massive frauds are almost inevitable because the profits arising from fraud are immense in such conditions. If the system involves a level of EC food prices which are double or treble the level of world prices, of course the temptation to fraud is enormous.
§ Lord Mackie of Benshie
My Lords, the noble Lord is of course attacking the policy of the EC. But when he says that prices are double world prices, can he tell me of one area in the world where the farmers are making a great deal of money out of that?
§ Lord Jay
My Lords, I did not say that, and it would not be true. Most of the profits have not gone to farmers but to landowners. However, that is not what I am arguing at the moment. But the truth is that if there was no gap between world prices and EC prices, there would then be no export subsidies, no major storage and, as a consequence, no fraud. The frauds largely consist in ingenious methods of acquiring foods at the world price and selling them to the EC at the artificial EC price. That would not matter if the gap between EC and world food prices was something like 10 or 20 per cent., but for the past 20 years it has averaged 100 per cent., 200 per cent. or even 300 per cent., and that is still the case. It is interesting to recall that under the notorious British Corn Laws of 1815 to 1846 levies never rose above 20 per cent., but here we are dealing with food levies of 100 per cent. to 200 per cent.
The EC Commission, up until the early 1980s, published a most valuable table showing the gap between EC and world prices. It is rather interesting that those figures are no longer published by the EC, which appears not to be very proud of them. But such figures as exist make it clear that EC prices for grain and meat have been running at nearly 100 per cent. above world prices. For dairy products and sugar EC prices have been running at 200 per cent. and even 300 per cent. above world prices. That has been the case now for many years past. That means a food tax of 100 per cent. and upwards on standard foods.
Indeed, one striking symptom of this gap is that some hundreds of thousands of tonnes of butter have been sold to the Soviet Union in the past two years at about one-tenth of the price which is charged to 405 the British consumer. If the Minister has any more up-to-date and accurate figures of the price gap, I should be extremely glad to hear them. If one charges two or three times the market price, one will not of course sell very much of a product. It is a mistake to think that there are, in any real sense, surpluses of those commodities in the EC. There is no surplus to the needs of the consumers. The trouble is that prices are so outrageously high that most people cannot buy what is produced.
Therefore, I am afraid that the conduct of the CAP has not merely laid a heavy burden on living standards within the Community but on top of everything else—raising labour costs and living costs here and elsewhere, and incidentally damaging many other food producers in the outside world as a result of the export subsidies—it has generated this scandal of fraud. By all means let the Government now press as hard as they can in Brussels for all the remedial measures rightly advocated in the report. I believe that that is the minimum that we can ask. However, my own realistic belief is that as long as EC prices are two or three times the world market price the fraudsters, from Portugal to Greece and from Sicily to Northern Ireland, will discover and invent new tricks as soon as one loophole is blocked.
Far the best and the only real remedy would be for the Government to concentrate their future energies on getting EC lood prices down at least to nodding distance with world prices. They should let the EC know that if that is not done by a reasonable date—say, 1992—this country cannot continue to operate the common agricultural policy in this fashion.
§ 4.51 p.m.
The Earl of Bessborough
My Lords, I too must congratulate the noble Baroness, Lady Robson, and her colleagues on this excellent, if highly complex and highly disturbing, report.
Over 10 years ago, when the noble Lord, Lord Bruce of Donington, was rapporteur on the Community budget and I was also a member of the budget committee, I thought that the creation of the Court of Auditors would resolve some of the problems of possible fraud and irregularities. As the noble Lord, Lord Bruce, has mentioned, my honourable friend Sir Michael Shaw in another place—also a member of the European Parliament's budget committee—strongly supported the noble Lord in the creation of the court, as I did myself. He was also supported by my honourable friend Sir James Scott-Hopkins, who succeeded me as Vice-President of the European Parliament. I believe that we must all pay tribute to the noble Lord, Lord Bruce, for his great knowledge of the subject and his very considerable achievements in respect of the Community budget and in the creation of the court. I agree with a good deal, indeed most, of what the noble Lord said.
I have received a first-class brief of over 30 pages on this very complex subject. It would take me well over an hour and a half to deliver it, and your Lordships wil be happy to know that I do not propose 406 to do so. We must accept the complexity of the problems, but I shall be as ruthlessly selective as I can.
I am persuaded that Her Majesty's Government have led the way in seeking to stamp out fraud and crack down on irregularities. I hope that my noble friend Lord Belstead in his reply to the debate will be able to confirm that and tell us how the Government propose to identify and plug existing loopholes. I think that the battle will be long term. Progress cannot be achieved overnight when the governments of 12 member states are concerned. It cannot be achieved overnight any more than control of domestic public expenditure or CAP reform could be. However, I have been assured that the Government are resolute in their determination to deal with the problem.
One of the main problems is that responsibility for stamping out fraud is shared between member states and the Commission. As some other speakers have said, some of the remedies are in national hands. I believe that that is a very important point. The scale of the problem is considerable. One expert has estimated—this has been quoted several times this afternoon—that frauds amount to between £2 billion and £6 billion each year. The noble Lords, Lord Bruce and Lord Benson, quoted those figures. Yet the head of the Commission's anti-fraud unit has told the European Parliament that that figure is much too high. I do not know who is right but I think we must accept that all the figures quoted can be no more than "guesstimates".
In 1987 the Court of Auditors' annual report found weaknesses in intervention arrangements, in export refund payments and in early retirement payments to Commission staff. I know that the Commission has now set up a special working party to examine the court's recommendations on intervention storage. I gather that that work should be completed during this month of April. As I understand it, the Government agree with the court's recommendations and have called for the early implementation of its recommendations, especially in regard to export refunds, so that expenditure is reduced to no more than the amount necessary to allow Community exporters to compete in the world market. That is not a bad thing.
I am also glad to learn that the Government share the view of your Lordships' Committee that Community regulations should be simplified and that there is scope for reducing the number of product classifications, as the noble Baroness said.
On the question of the practices of our own Customs authorities, the committee notes that those vary from port to port. I hope that Her Majesty's Government are looking at that problem as well as that of establishing effective internal controls. I understand that in Britain HM Customs and Excise have, among other things, set a target of 7 per cent. for the level of physical examinations of export goods subject to refunds. I am also glad to note that the Government share the committee's view that better training of staff in anti-fraud work is essential and that seminars in member states are intended to increase awareness of national administrators.
407 I do not know how relevant this is to your Lordships' House, but I was glad to note that the Italian olive oil control agency has been a notable success, and that the Commission announced this March in the Economic and Financial Council (ECOFIN) that it intends to bring forward proposals in regard to improving the exchange of information. I am glad too to read the recommendation supporting the abolition of advance payments for FEOGA guarantee expenditure.
I am particularly glad to learn that, in Britain, fraud against the Community budget is pursued just as vigorously as fraud against the national budget, and that the Government consider that the Commission should crack down hard on member states which try to conceal negligence by evading their obligation to report fraud. I am glad too that our Government recognise the value of publicity for deterrence purposes. The publicity generated by the report of the noble Baroness is a good example of that and is most welcome.
I am also happy to hear that the Government consider that the Commission should be more active in closely scrutinising member state systems for the prevention and detection of fraud and in laying down minimum police standards in, for example, physical inspection.
Finally, as I have said, I am convinced that HMG here in Britain have taken the lead in fighting fraud, enhancing the role of the Court of Auditors and strongly supporting the establishment and operation of the Commission's new anti-fraud unit as well as encouraging the work of the European Parliament's budgetary control committee, which was mentioned by the noble Baroness. I am sure that the noble Lord, Lord Bruce of Donington, supports that work, as I am sure he supports the arrangements introduced by the Intervention Board on Agricultural Produce (IBAP) for successfully controlling cereals intervention, which were complimented by the Commission last year.
All in all, it seems to me that the United Kingdom has consistently made it clear that it will support all practical and cost-effective measures against fraud. I should add that, as far as I understood it, there was no question of Britain vetoing a proposal by my noble friend Lord Cockfield, who made a most important speech this afternoon presenting his proposals to combat fraud. However, as many noble Lords have said, the political will is necessary. It is no use just having the political will of Her Majesty's Government; we need the political will of 12 member states. I very much hope that the remedial proposals in the report of the noble Baroness will be considered seriously by Her Majesty's Government. I look forward to hearing what my noble friend the Leader of the House has to say to all noble Lords on this subject.
§ 5.4 p.m.
My Lords, perhaps I may join in expressing gratitude for and appreciation of the efforts of the clerk, advisers and staff of the committee.
408 It is, I fear, a fact of life that, whenever people are liable to pay a tax or levy, the amount of which is dependent upon facts or figures declared by them, there is a risk that their declaration may tend to understate their liability. Equally, whenever payments, grants or rebates can be claimed which vary in amount according to what one puts on a form, there is a like risk that the content of that form may tend to overstate the entitlement.
People who are scrupulously honest in their personal dealings one with another become somewhat less so when dealing with large and impersonal organisations such as insurance companies or tax authorities. It is hard to think of an organisation which is perceived to be larger or more impersonal than the European Community.
The reasons for that tendency to gild the lily for grants or to be economical with the truth for liability can vary from a deliberate long-term scheme for fraud to a momentary self-serving optimism in rounding statements up or down. It may even be a completely honest mistake, although I believe that it was a distinguished solicitor to the Inland Revenue who once expressed his surprise that, during all his years of experience, every honest mistake made by a taxpayer had always happened to be in the taxpayer's favour.
The tendency to declare too little and claim too much will inevitably increase if the relevant rules seem to be both arbitrary and complicated. I venture to suggest that the report makes it plain that the regulations of the European Community certainly answer both those descriptions. Thus, it should not have come as a surprise to anyone who had thought about the situation to learn that there is a wholesale evasion of liability to the Community and a wholesale milking of the funds of the Community.
Having said that, I must admit that the facts which emerged as the work of the sub-committee progressed came as a great surprise to me. That was probably because I had never before had occasion to address my mind to the problem. I suspect that there may have been many other people in a similar position. But, henceforward, no sensible person can doubt that there is a grave problem and there can in future be no excuses for not recognising and addressing the problem.
That a single trader can, in two years, make £11 million by exporting offal and describing it as prime beef and by importing prime beef and describing it as offal is a scandal that must be tackled. It is perhaps worth mentioning—in defence of that much maligned race, the farmer—that it seems to be the middle men, and not the farmers themselves, who are the prime offenders in this matter.
However, it is one thing to recognise a problem and a pressing need for action; it is quite another to remedy it. There can be no doubt that a much greater simplicity in both the content and drafting of the regulations would be a great help. Paragraph 63 of the report draws attention to the fact that, for agricultural goods, there are 4,000 product codes and over 15,000 recipe codes. Some 3,000 regulations govern that field. In the words of Mr. John Tomlinson, it is a case of, 409a flood of legislation leading to a chaos of ill-understood paper".It is perhaps not suprising that, if the United Kingdom Customs and Excise advice to traders were placed in a pile, it would be seven inches high.
For my part, I do not feel that those who decide the structure and categorisation of, for example, the refund system give any thought—or certainly any adequate thought—to the enforceability of the rules that they make. I very much doubt whether those who make those rules ever think to ask those who will have to operate them whether the rules they make are workable or whether they are an open invitation to fraud. Merely because a system that one is operating is open to fraud and may be abused does not mean that one can throw out the whole system. With respect to the noble Lord, Lord Jay, one does not give up paying social security just because some people abuse it. Whatever is done to clarify and simplify the system, there will still be those who try to take advantage of it. Thus I suggest it must follow that there has to be efficient detection of wrongdoing combined with remedies and sanctions that are both enforced and seen to be enforced.
The noble Lord, Lord Diamond, said that 95 per cent. of the benefit of an audit is the deterrence of those who might commit fraud. Equally I suggest that for every case of fraud that is detected and published one prevents 19 other cases that might happen if people thought that they could get away with it.
I shall return to detection in a moment. Perhaps I may first say something about remedies. In relation to remedies for fraud one's natural reaction is to think primarily, if not exclusively, in terms of the criminal law. There is in my mind no doubt that criminal prosecutions could and should be brought. Although the report goes into some detail about technical legal problems that may hinder prosecutions in a few instances, these are no bar to prosecution in most cases, as in most areas covered by the report the essential problem is not a lack of powers but a lack of use of existing powers.
In any sphere of complicated finance, however, obtaining convictions for fraud is notoriously difficult, as anyone who has read the Roskill Report will appreciate. There will inevitably be many cases where a prosecution cannot be usefully brought even though many of us would be deeply suspicious that fraud had taken place. For these cases and indeed for those where there may genuinely be an irregularity, the civil law should be used, first, to recover the moneys that have been improperly received or not paid and secondly, to recover interest thereon and penalties. I should like very strongly to endorse the suggestion of the noble Lord, Lord Diamond, that the system of penalties that form such an important part of the sanctions for the tax laws should equally be applied to moneys both due to and taken from the Community.
I return to detection. Whenever one has fiscal dues or financial grants one must then have also a well-funded and efficient inspecting and investigating service to discover evasion and irregularity. Within an autonomous country the government will 410 generally find it worth while to incur the expense of such a detection service because the country will be spending its own money in the interests of its own exchequer. The Community, on the other hand, is peculiar in this respect. While the resources belong to the Community as a whole, the task of inspection and detection falls—rightly so—upon the individual member state. Thus the inducement to fund an adequate official service is much less powerful. It is of course true that any fraud on the Community's budget is a proportionate injury to each member state, but it is perhaps a little optimistic to expect, say, Germany or Denmark to spend such sums on ensuring financial probity within their boundaries while the inhabitants of, say, Italy or Geece are seen to be plundering the Community exchequer unhampered by any adequate control by their own state. I use those names purely at random. By omitting the United Kingdom I must not be taken as agreeing with the noble Lord, Lord Cockfield, that there is not a great deal of fraud within this country itself. On that, I wholly endorse what the noble Lord, Lord Benson, said.
Having regard to the fact that the money is being spent within a state to protect the revenues of the Community generally, there must surely be a strong argument for saying that the Community rules should be such as to reward or recompense those states which are diligent in the pursuit of fraud while perhaps also penalising those which are slack. For example, why should the Community not bear the costs of pursuing some rogue to judgment if it transpires that in the end he cannot pay and those costs are unrecoverable? Whether or not that proposition commends itself, in any event the rules should surely not be such as to be a positive discouragement to detection.
At present some of the rules as just that. A country which reports that levies are due but that it has not been able to collect them is at present liable to make up the shortfall. If on the other hand that country does not take the trouble to discover the shortfall or, having discovered it, does not report it, then there is nothing for it to make up. Therefore, the idle and secretive country escapes while the honest and diligent country finds itself making up a shortfall. The situation in that example is to be remedied, as the report makes clear, but I think that it is indicative of the counter-inducement that the system is liable to foster.
If one looks at the problem overall there can be no doubt that this is a very grave matter, not only because of the drain on the funds but also because rampant evasion of liabilities and rampant fraud on grant is a discouragement to honesty in others.
In the past much has been left undone that ought to have been done. With all respect to the noble Lords, Lord Cockfield and Lord Bruce of Donington, I venture to hope that everyone will now eschew both the allocation of blame and the making of excuses for that which is past, and will concentrate on the task of finding remedies for the future.
§ 5.17 p.m.
§ Lord Carter
My Lords, I begin by joining other speakers in thanking the noble Baroness, Lady 411 Robson of Kiddington, for putting down this Motion and enabling us to debate the report. As a member of the sub-committee, I thank her for her chairmanship and the skilful way in which she steered us through a complex subject. I add my own tribute to the work of the committee staff.
As we have agreed, the report reveals a scandalous situation. To put the figures in perspective, if the lower estimate of £2 billion is taken, this is about twice the total net income of the United Kingdom farming industry. If the higher estimate of £6 billion is taken, it is approaching six times the total net farm incomes of all United Kingdom farmers. The irony of that comparison will not be lost on your Lordships because the majority of the fraud, as we know, takes place within the common agricultural policy.
Over the years those of us who have opposed the greater lunacies of the common agricultural policy have been told that we should withhold our criticism because this is the one common unifying policy in the Community. The policy is not that much of an advertisement for the European Community. As a result of the policy we know that farm incomes have been drastically reduced and consumer prices are well above world prices. The policy positively invites fraud, irregularity and corruption, as we have seen.
I think that the extraordinary thing is the political response to the whole question. If a similar report as that produced by the sub-committee or the Report of the Court of Auditors was produced by the Public Accounts Committee or the National Audit Office in this country, one would expect that the elected politicians responsible would have to consider resignation, and among officials heads would roll. However, the Treasury's Explanatory Memorandum to the Court of Auditors Report of 1987 provoked a certain amount of correspondence between the noble Baroness, Lady Scrota, and Sir Peter Brooke, the Paymaster General. Under Financial Implications the Memorandum states:There are no direct financial implications, though improvements in procedures and practices resulting from the Court's work could be expected, over time, to have an impact on the level of the Community budget and on the pattern of member states' receipts".I venture to suggest that Mr. Pangloss could not have put it better.
It seems that when this matter was being debated in the columns of the press, the first reaction was the politicking about where the matter of fraud should come on the agenda for the next European summit. It was all seen as a part of the normal agenda horse trading. There have been a number of references to the lack of political will. We must ask ourselves this. If the politicians refuse to take the matter seriously, why should the traders or the bureaucrats do so?
Although my first job was as an audit clerk, there are others much better qualified than I am in this debate to speak about the various controls and procedures that need to be adopted. I should like to concentrate briefly on those matters that have been within my experience of the Community's operations as a farmer, a farm adviser, a trader and a member of a Commission advisory committee.
412 The fundamental problem is attitude. It is the feeling that somehow European funds are "funny money", and that really fraud against the Community is somehow a "victimless crime". My first experience of this at a practical level was as a member of one of the network of official advisory committees which entailed regular visits to Brussels. The first task always was to fill in the expenses sheet. No proof was required of the expenses; and within two or three hours, long before the lunch break, an envelope would be brought round that would be bulging with crisp Belgian francs. With the number of committees that were meeting, there must have been vast sums of cash floating around the Berlaimont. Those who served on more than one committee—I served on only one—could obtain two or three lots of expenses as their travel expenses for one weekly trip. If one brought an expert adviser, he or she would also be paid without any check on his or her status. As a member of Government committees in this country with their attitude towards expenses, I had the feeling in Brussels that it all seemed to be a long way from the home life of our own dear Treasury. To be fair to the Commission, I understand that the control procedures over expenses are now much tighter. Whether this is due to genuine concern over irregularities or to budgetary pressure, I cannot say.
Another example of attitude, or the "funny money" syndrome, at the micro level was this. There used to be a grants scheme where substantial grants from the Community were available for capital expenditure on farms. But the eligibility depended on the number of labour units on the farm. Many times I have sat down as an adviser with a farmer client and the appropriate official to complete the application form. We had to have a number of labour units to qualify for the grant. The official would say if we were short, "What about the wife? Does she help in the farm office or answer the telephone?" Down she would go for 10 hours a week. "Does the old chap who helps in the garden ever help on the farm? Does he look at the livestock occasionally?" He would go down for another five hours a week. The process went on, with the active encouragement of the official, until we had enough labour units to qualify for the grant. Then we had to show on the form how the resulting grant-aided capital expenditure would reduce the requirement for labour and thereby improve efficiency. When one thinks about it that was quite easy to do. Out went the wife and the gardener for a start!
This is not simply a trivial anecdote. The grant scheme involved very substantial sums of money. The crucial point is this. In my experience, if the same official dealt with an application for grant that was wholly UK-funded, the attitude was totally different. He was helpful; but going by the rule book to the letter. The difference was that this was not funny money from Europe, but UK taxpayers' money with proper control procedures on its expenditure.
Another area of fraud and irregularity that is mentioned in the report concerns me as a trader. It is the possibility that insider dealing is endemic in the operation of the common agricultural policy. 413 Foreknowledge of a change in the rate or the timing of subsidy or some other technical change resulting from a bureaucratic decision has immense commercial value. I am putting it as politely as I can when I say that I have been extremely impressed over time by the extraordinary prescience of certain large traders in their market operations. At times one could not help feeling rather ruefully that perhaps their crystal ball may have received an occasional friendly polish. This was touched on when the committee interviewed Mr. Carey of the Court of Auditors who confirmed that the Court was aware of this problem. He said that certain people seemed to have access to rather earlier information than certain other people. This is bound to be a risk where so-called market management is based on the combination of budgetary pressure and bureaucratic decision which is intrinsic to the operation of the common agricultural policy.
My last point concerns 1992—it was mentioned by my noble friend Lord Jay—and all that it entails. Not once have I seen the obvious possibility of an increase in fraud and irregularity discussed properly as a certain result of the freeing of trade and the ending of border restrictions. As the report points out, Professer Tiedemann, who gave evidence, was concerned that the completion of the internal market would lead to a lot more economic crime. I cannot help wondering whether the committee's report would have been so devastating in its findings if the same apostolic zeal which has been seen in some quarters in this country and in other member states for 1992, and the completion of the Common Internal Market, had been devoted to the rooting out of fraud and irregularity.
Perhaps the most dispiriting feature of the whole business is the low regard of some member states for Community decisions. Let me give one example. As we all know, milk quotas were introduced in the Community in 1984. We all know the trauma that was involved. I understand that Italy has still not produced an acceptable or recognisable scheme for milk quotas. There is still milk super-levy unpaid from last year. That is just one example. However, if member states take this attitude towards decisions of the Community, how can we ever hope to have the co-operation that is needed to deal with this immense problem of fraud and irregularity?
In conclusion, the committee's report reveals a scandalous situation. There is considerable doubt whether there is the political will among the members of the Community to deal with the problem. If the problem is to be solved, it must involve some invasion of national sovereignty. However, if the problem is not dealt with, we can be sure that there will be increasing cynicism among the general public towards the whole European adventure leading to a total disrespect for Community institutions.
§ 5.29 p.m.
§ Lord Bridges
My Lords, my contribution to this debate will be rather brief. However, I should like to intervene in the discussion to make one or two points that seem to me to arise on this important 414 report. We are all agreed that this is a complex subject. It is one fraught with great difficulty. We are extremely fortunate to have before us a report that deals with the topic in such a comprehensive and clear manner.
The report is impartial. It is also timely. These are very large merits when dealing with such a difficult topic. Speaking as one who had no share in the labours of the group who were responsible, I am extremely grateful to them for the work which has been done.
Some noble Lords may ask themselves, as the noble Lord, Lord Benson, has, how it has been possible for fraud to develop to such an extensive scale, apparently unchecked. As this factor is such a large part of the subject, I should like to suggest some explanation of how it may have come about by examining the motives of the two main actors of importance to us in this House, namely the European Commission and Her Majesty's Government. I say "explanation" for I have no wish to excuse the blush of shame which has been correctly applied as the description of this grave problem.
I shall first consider the views of the Commission. I believe that these may be rather more serious and have more merit than is generally supposed in this country. The Commission has taken a consistent attitude to fraud. It has always said that the kind of fraud discussed in the report is a fraud against the Community itself. The Commission has also said that the right way to deal with these offences is to make them a crime against the Community. A proposal along these lines has been before the Council of Ministers since 1976, but the member states have not felt able to agree with the Commission's view. It seems to me, looking back on this proposal and the difficulties it has encountered, that there is a good deal to be said in favour of the Commission's view.
The legal difficulties which the rest of us have seen in this proposal can be found on pages 30 and 31 of the report. But when we take account of the long-term development of the Community and the size and scale of the fraud which we now believe to be taking place, it seems to me that the Commission's original idea may have more merit than was thought at the time. I suggest that some modest legal innovation to confront serious crime should not be excluded in our approach to this problem.
The motives of our Government—here I include not only Her Majesty's Government but their predecessors—are also perhaps less devious or malign than has sometimes been suggested. As a nation we have always been jealous of our legal sovereignty, and many of us understand that attitude. After all, the prospect of investigations on British soil by an international organisation is not very welcome to many British citizens, even if the organisation in question is one of which we are a member. There was also another element present in the attitude of our Government over the years. Since joining the European Community, we have been one of the few member states which has been a net contributor to its budget. At the beginning we were one of two—the other being the Federal Republic of 415 Germany—and now one of three, France having joined the distinguished band of net contributors.
There was thus a natural reluctance on the part of our Government to take steps which would have the effect of reducing the Community's expenditure within our frontiers. This reluctance was strengthened by the belief felt for many years, and only recently dispelled, that there was nothing seriously wrong with the way in which Community funds were spent in this country. Needless to say every other member state in the European Community felt likewise.
These explanations relate to the past attitudes of the Commission and our own Government. The report makes it clear that the scale of fraud is now so great that new attitudes and policies are necessary in all member states and in Brussels, so that the fraud can be brought under control and finally extinguished. All 12 member states would benefit, as a number of previous speakers have already pointed out.
I note that there has also been a considerable degree of unanimity on the political will needed to bring this about. In my experience political will is an easier commodity to prescribe than to provide, so perhaps we might look instead for a new impetus, which is what in practical terms we need. In dealing with such a large problem, a whole programme of diverse measures will be required. These are clearly and comprehensively listed in the report. Broadly speaking, the remedies are of two kinds: first, those measures which require an enhanced and intensified co-operation between member states and the Commission. This is the only immediate way in which we can proceed. I do not believe that I am alone in thinking that practical steps must be taken, in spite of the legal difficulties to which I have referred and which may make more ambitious action difficult.
I was particularly pleased to learn in Brussels two days ago of a change of policy by Her Majesty's Government which could have significant and positive effects. I was told that Her Majesty's Government are now prepared to envisage a change in the own resources regulation which would permit Commission participation in investigations against fraud in this country. This is the point on which the noble Lord, Lord Cockfield, spoke to us earlier in the debate. It is my hope that the Leader of the House in winding up may be able to tell us some more about this development, which could prove to be a significant step.
The second type of measure would require a more far-reaching change of attitude on the underlying legal problem; namely the definition of fraud against the Community. I should like to see a further look at that. The problem is set out in paragraph 173 of the report. It now deserves fresh examination. My suggestion is that the finance ministers of the Community might be encouraged to resume their discussions on this question at a future meeting of ECOFIN. I notice that the noble Lord, Lord Cockfield, does not have a very high opinion of that body. While I disagree with him with some trepidation, I suggest that if a meeting of ECOFIN 416 were to examine this important possibility with the authority of the heads of government of the Community, that might lead to some helpful results.
In short, I believe that this report is an extremely timely document. It gives the opportunity for a fresh impetus and a new approach by our own Government and the governments of other members states and by the Commission. I hope that the opportunity will be taken.
§ 5.38 p.m.
§ Lord Lucas of Chilworth
My Lords, while I do not have any of the agricultural, legal or financial expertise that the noble Baroness, Lady Robson, described her committee as having, nevertheless I enjoyed working under her chairmanship on that committee. I would describe myself as a commercial man, and as time went on I became increasingly frustrated at what I saw to be a general lack of concern over what is now 30-plus years of the existence of the Community which arrives here in 1988 with the cheating of these very substantial sums of money from its funds.
I do not want to be specific, because others before me have noted particular points. But I was especially encouraged by what the noble Lord, Lord Benson, said earlier in this afternoon's debate in relation to the three major points: that of establishing how much a company or an organisation is being defrauded, how this is happening, and what steps can be taken to put an end to it. None of those steps has been taken. I should not blame any one of the institutions other than that which directs the activities; in other words, the "board" in commercial terms, which is the Council of Ministers.
From time to time the European Parliament has made aggravating noises about the matter. The Commission has put forward various proposals but, for one reason or another, the Council of Ministers has failed to instruct or make appropriate provision for action to be taken. That is encapsulated in our report under the term "political will". That is not necessarily the will of the Government of the United Kingdom. It is of all the member states—certainly of 10. One can hardly expect Spain and Portugal, which joined the Community only a short time ago, to be able to exert the influence which older members may have.
I do not wish to pre-judge the debate on 1992 tabled by the noble Lord, Lord Cledwyn of Penrhos, which is due to take place on 3rd May. But, as the noble Lord, Lord Carter, said, this issue is connected with that. We cannot expect to go forward into a fully integrated and open market by 1st January 1993 when that marketplace is being defrauded of enormous sums of money by its constituent members.
The noble Lord, Lord Benson, spoke at length about the anti-fraud co-ordinating unit. The unit is comparatively new and appears to have been set up to deal in the main with the political pressure which is being placed on this issue. Whether the membership of the unit has increased from 12 to 18 is totally irrelevant unless it has the authority with which to pursue its objectives. I am not so sure that it has such authority.
417 The unit can help in the investigation, but I believe that in pursuing and prosecuting the fraudsters we must be extremely careful to ensure that the prosecution rights are retained in each member state. I should not like to find an international body such as the European Community prosecuting in the English courts, for example, where practices are very different. While we are arguing and asking for a greater effort to bring fraudsters or criminals to court, we must ensure that the court is in the domestic country. It behoves each member state to prosecute the cause more vigorously in its own country. In some countries the culture of fraud is somewhat different from that which obtains here.
I should like to make one further point. I am delighted that in recent weeks my right honourable friend the Prime Minister has given voice to the intention that she, and presumably the Government, will take a firmer stand in these matters. If that is so, so be it. The political will, to which noble Lords have referred this afternoon, has been lacking. Therefore, I suggest that if politicians are unwilling to tackle this as a political matter, the effects of 1992, which essentially will be industrial, business and commercial, will force industry, commerce and business—which will meet the bulk of the losses—to exert pressure. That pressure is likely to come upon us before the completion of the Single European Market.
In her opening remarks the noble Baroness, Lady Robson, suggested that the report is partly a contribution to the process of the internal market. It might be seen in that context against the remarks I have made about British business. All the talk will not put aside this matter. We shall be looking for action. I wonder how long it will take the European Parliament to give the Court of Auditors' report its discharge. I hope that when the European Parliament takes on board that report it will be a good deal firmer than it has been in the past and ask for commitment from the council to discharge its responsibilities to reduce, if not end, this wicked waste of money.
§ 5.46 p.m.
§ Lord Seebohm
My Lords, I find that at this stage of the debate almost all the points I wished to make have already been made. I shall be brief and make only two points. First, a number of speeches have been made outside your Lordships' House about fraud and other matters. They give the impression that the Commission is staffed by many bureaucratic pen-pushers, earning tax-free salaries with expense accounts, doing little and winking at fraud. My experience is entirely different. I visited Brussels before I retired from business and I have visited it several times as a member of the Select Committee. My impression of people working in the Commission is very different and I wish that fact to be made more public. They work extremely hard and are committed to trying to make work what some people call "an impossible system".
Secondly, for those people who have not and will not read the report but will read Hansard, it is 418 necessary for me to read two short paragraphs in order that they are printed in Hansard. I believe them to be the nub of the report. I refer to paragraphs 136 and 137 on page 30. Paragraph 136 states:The detection of fraud and irregularity is the responsibility of the Member State within whose territory the fraud or irregularity took place. The prosecution of fraud is the responsibility of the Member State under whose jurisdiction the crime falls, in accordance with national laws. Equally it is for Member States to ensure that there are adequate civil remedies against those who have caused loss, and that those civil remedies are fully and promptly pursued. Fraud is fraud regardless of the ownership of or responsibility for the funds involved. From which it follows that dealing with fraud, and for that matter irregularities, requires a commitment from each Member State to take all the necessary measures to prevent or deter the commission of crime; and to detect and prosecute or sue the individuals or corporate bodies concerned".Paragraph 137 states:Although in some cases, considered in the following paragraphs, there may be international complications which create difficulties, in the great majority of cases those who have not paid their dues or who have acquired funds improperly could be prosecuted or sued under existing procedures if there were the political will in Member States to spend money on detection and remedies".That point has already been made by a number of speakers, but I make no apology for repeating it. I believe that those two paragraphs probably contain the crispest and the best part of the whole report.
Also, I believe that I must say, in addition to those paragraphs, that the Councils of Ministers—and there are six of them—must bear considerable responsibility. As Mr. Carey of the Court of Auditors said in evidence:The Council of Ministers has neglected its responsibilities and its neglect has led to the position where it is easier to believe there is no political will to tackle fraud, than to have any real confidence in our mechanisms".It is true that there is now an anti-fraud unit in Brussels but, unless the staff is greatly increased, it seems to me bound to be ineffective and it is within the member states that effective action must be taken.
The figures for fraud are so great that extensive additional policing and inspection could be very cost effective. From the United Kingdom's point of view as a net contributor to the cost of the EC, our taxpayers are paying for fraud in other countries. Therefore, surely this country should press for common standards and controls throughout the Community as recommended by the Court of Auditors. Furthermore, the appalling laxity of reporting frauds to the Commission must be stopped. An example was given of Germany. According to Professor Tiedemann, Customs in Hamburg detected more than 200 cases of fraud but only four were reported for the whole of Germany. To me, that general blasé approach to fraud is inexplicable and inexcusable. The Court of Auditors, for which I have the highest regard—and the Select Committee has reported very favourably on the Court of Auditors—has done excellent work in calling the attention of all concerned to the problem but it has been regularly disregarded.
Therefore, I come back to my opening remarks that it is not in Brussels, where conscientious staff are doing their best to implement an almost impossible system, that we should look for the solution but in 419 our own country. I hope that in winding up the debate the Minister will be able to tell us what action is being taken to cure the alarming state of affairs so ably demonstrated in this excellent report.
§ 5.53 p.m.
§ Lord Mackie of Benshie
My Lords, I should also like sincerely to congratulate the Committee and my noble friend Lady Robson. It has obviously been a marathon to examine this incredibly complicated subject over so many millions of acres of ground and so many different governments, with an enormous complexity of regulations. I believe that the debate has shown great admiration for the report and practical unanimity in endorsing the steps recommended. It is all very well to analyse the situation; that is the first thing to do. However, I thought that the Committee was very brave when it listed the remedies so confidently and I am sure that it is right.
I should like to say a few words about the origin of the matter but before doing so, I hope that the Minister will relieve my feelings of shock when he comes to reply. I was astonished that the Committee should so unanimously say that member governments were lax with the Community's money. That is quite extraordinary. I am sure that the Minister will reply but I hope that he will not stress the Government's impunity in the past but will tell the House what is to be done in the future on this matter.
The noble Lord, Lord Jay, whose speech I much enjoyed, was totally consistent with his attitude over many years. He said that the main reason for the whole mess is that if there is a low world price and an enormous price inside the Community then of course there will be corruption and fraud. Of course, that is perfectly true. Where I disagree with him is that the surpluses which caused the low world price are exported on to this market at a subsidised price both by ourselves and the United States and it is not a true world price. Any competent producer on the fens of Lincolnshire could not produce, for example, grain at the so-called world price. Therefore, we must look for another way to correct that if the original aims of the common agricultural policy are to be continued and realised.
The common agricultural policy was enormously successful in persuading farmers all over Europe to produce food when it was badly needed. There is no question but that it is far better to have a surplus than a shortage. The problem with the operation of the CAP is that either it was not known how to stop that or there was not the political will to do so. That is the real problem. Certainly, Sub-Committee D of your Lordships' Select Committee which deals with legislation inside the EC has recommended for over 10 years methods by which that could be stopped and indications which could be given to farmers. For example, a freeze on prices would be better than the continuation of the rise in prices which has gone on and has resulted in the extraordinary situation in which we now find ourselves.
I must say that the fault there lies with the Council of Ministers. Time and again the Commission, 420 perhaps gingerly, proposed methods to cut the surplus and time and again for political reasons, the Council of Ministers cut across those recommendations and raised prices when they should have been frozen or dropped. That has not been good for farmers throughout Europe. If one looks at farmers in this country and in the United States, one can see that their income has dropped severely.
Having said that, there are a number of steps which could be taken. The Commission and the Council must vigorously tackle the method of reducing surpluses and having some form of balance. For example, I believe that intervention buying is now being cut back, and rightly so. In my view it is ludicrous to have intervention buying of fresh vegetables and fruit because for years it has been a feature of that kind of farming that you take the risk. You plough them in if there is no market and if there is a good market you make a lot of money.
In 1982 there was a report on olive oil. I had the honour of chairing the sub-committee which dealt with that. In 1982 one recommendation stated:Whatever method of production aid is given it is essential to ensure that scope for fraudulent practices are kept to a minimum; taxpayers will not be willing to continue to meet the costs of the policy if they suspect that funds are being misused. As a matter of urgency control measures should be tightened".There is a nice reference in the present report to olive oil. The Italian Government took steps and have improved the situation enormously. In the olive oil report we made recommendations which were followed.
One recommendation was very simple; namely, that instead of trying to buy in oil—and the extent of the swindle there was apparent even then—the trees should be counted. In the poor areas where it is necessary to maintain the population, culture and so on, the trees should be counted and a fiat rate subsidy should be paid. We cynically said that if the olives drop and there is merely a subsidy paid on the trees, that at least will reduce production and it will be known exactly how much is to be paid. The Commission and the Council must do something like that in order to reduce these enormous subsidies which lead, as the noble Lord, Lord Jay, said, to the degree of fraud which exists.
In this country for many years we have had subsidies for farmers on hill ground. They have occasionally been the subject of frauds. Farmers have overstated the number of ewes on the hills, or they have overstated the number of cows. The Ministry of Agriculture has been unable to count the exact numbers and there has been a limited amount of fraud. I should also say that this fraud has been dealt with extraordinarily well by publicity. Where people have been charged and convicted the resultant publicity has done more good than practically anything else. Therefore, I recommend that section of the report.
I come now to the main reason for the report—the enormous amount of stealing. It is obvious, as the report says, that it is the traders who are involved. They are very much smarter than the farmers and not nearly as honest! They are the people who have been getting away with enormous sums of money. The noble Lord, Lord Diamond, is absolutely right 421 in saying that we should hit them where it hurts—in the pocket. There was a famous case in the 1920s when the national sport of moving goods across the border between Ulster and the Free State was at its height. A very well known man (indeed, he later became a senator in Ireland) was charged and convicted by the sheriff, or whatever he is called in those parts. When passing sentence he said, "£10,000"—which was a large sum of money in those days—"or three months". Without a flicker of hesitation the future senator said, "I'll take the three months. I have never earned that amount of money in three months before".
The noble Lord, Lord Diamond, is right. There is no question but that there should be penalties. I see no reason why the Commission, or our own ministries, should not apply them when someone is charged with or suspected of an offence. I do not see why the subsidy should not be cut off and the offender put on a computerised black list. If he feels he has been unjustly dealt with he can go to the court to appeal for justice, rather than the other way round.
Certainly something savage needs to be done. The figure of £5.8 billion is enormous. It is the kind of figure I am unlikely ever to experience. It has been quoted several times. Clearly we can afford to pay the staffs in the Court of Auditors, and in bodies in this country and the other countries, in order to ensure that the taxpayer is saved that amount of money and—something that is dear to my heart—that the EC and its practices do not come into disrepute.
§ 6.4 p.m.
§ Lord Cledwyn of Penrhos
My Lords, I first join other noble Lords in thanking the Select Committee for this report. The committee has a well-deserved reputation for producing well-researched and penetrating reports on Community affairs and this must, by any standards, be one of the most important documents it has ever published. We are fortunate to have noble Lords of great experience on the committee and we are indebted to them and especially to their chairman, the noble Baroness, Lady Robson of Kiddington, who opened our debate with a full and clear introduction of the report. Other noble Lords have also made valuable contributions. I am sure we were all impressed with the speech of the noble Lord, Lord Cockfield, and his call for urgent and effective action.
We know that allegations of fraudulent dealing in the conduct of Community affairs have been circulating over the past few years and growing in intensity in recent months. My noble friend Lord Bruce of Donington dealt with that in some detail and it is also mentioned in the introduction to the report. It is as well to remember that as far back as 1986 a committee of the European Parliament said that,virtually no form of Community finance is untouched by fraud".That was three years ago! The committee went on to say that fraud not only depletes the resources of the Community—as my noble friend Lord Bruce of Donington said, that includes the British taxpayer 422 —but it distorts competition and, as such, threatens the purity of the internal market.
In fact, it does much more than that; it undermines people's confidence in the future of the European Community. If it is not dealt with decisively and effectively by member governments and the Commission, it could lead to the gradual decline and, ultimately, to the dissolution of the Community itself. It is as serious as that. The facts as presented in the report are therefore a most powerful warning.
We have also been alerted to the facts by the reports of the European Court of A aditors—a very important body. The Court of Auditors said last December that the Common Market budget of £31,000 million,is riddled with fraud, deception and mismanagement".The noble Baroness paid very proper tribute to Mr. C. J. Carey, the United Kingdom member of the court. His evidence spells all this out in impressive detail and his analysis of CAP expenditure is revealing. In his initial statement to the committee on 25th May last, he referred to the Commission's role, which he describes as one of "guidance and supervision". He dealt also with the duty of member states whose ministers and officials have the day-do-day responsibility of putting into practice the policies and measures which cost the money.
The member states have automatic access to the funds they need to implement CAP measures on the basis of monthly unverified statements of their requirements. The more one reads, the more one realises how fraught with unpleasant possibilities the system has become. One of the, report's most significant findings is based on a study of the system of export subsidies or refunds to European beef traders to bridge the gap between world prices and normally higher EC prices. The court found a series of weaknesses in controls operated by member states and also criticised the checking procedures of Customs officials.
The system has all the ingredients of an almighty mess which must be recognised and tackled forthwith. The whole story raises fundamental questions about the whole erratic, illogical and perilous development of CAP; and also about the effectiveness of financial controls provided by the Commission and the member governments. My noble friend Lord Carter listed some of the defects. In fairness, I think Mr. John MacGregor, the Minister of Agriculture, also fully appreciates the dangers and wants to deal with them.
However, the question we have to ask in this debate is whether the Community as a whole, with its 12 governments, has the will, conviction and desire to tackle the problem speedily. As we read the Select Committee's report we must recognise that, with all the complexities of management and administration and with all the loopholes which manifestly exist, this is by no means an easy task. The Community is large and varied, with hugely differing agricultural backgrounds and problems, which the noble Lord, Lord Mackie of Benshie, has just described. However, when the Court of Auditors blames Brussels for failing to control and co-ordinate 423 national procedures the fact emerges that, as things are, the Commission's hands are tied. There is nothing practical that the Commission can do. The Commission can ask questions and inspect the accounts of member states, but where it suspects fraud it cannot send in its own flying squad to see if its suspicions are justified. The truth is that under the present system, as noble Lords have said—the relevant paragraphs 136 and 137 were read by the noble Lord, Lord Seebohm, in his speech—the responsibility falls on national governments. If we read their responses at pages 103 to 112 of the report, they all appear to agree on the essential interpretation of fraud and that it is in fact a crime. However, the noble Lord, Lord Bridges, rightly suggests that that is a point that needs further consideration and study and I agree with him.
At this stage the full extent of the fraud and its cost is not yet known though further inquiries into other sectors; namely, dairy produce and cereals, are now proceeding. But Herr Waechter, the head of the Commission's anti-fraud unit, has said that it may amount to £6 billion or up to 20 per cent. of the budget. That is a sobering thought although Herr Waechter went on to say that,It remains a zone of shadows about which we know nothing".My noble friend Lord Jay and the noble Lord, Lord Diamond, were even more pessimistic and they may well be right at the end of the day. Mr. John Wood, the director of Britain's Serious Fraud Office, also gave evidence to the Select Committee. I read it with considerable interest and I was impressed with his words. He made some very alarming statements. For example, he said:Our own domestic experience (in this country) is that the money obtained by fraud is being used to finance the traffic in narcotics and is also being used to finance the trade in arms and terrorism".Is this true? It is extremely serious and takes us into a new dimension. He warned that the plan to dismantle internal EC borders by the end of1992 would lead to increased fraud. Mr. Raymond Kendall, the secretary-general of Interpol, has issued a similar warning about 1992 saying that it will "open markets to economic crime". These are matters to which we can address ourselves when we debate "1992" in three weeks' time.
These grim predictions are not to be dismissed lightly for they come from the most authoritative sources. We are therefore in a situation where a volume of hard evidence is accumulating to the effect that fraud on a frightening scale is being committed and that large criminal organisations may be involved. But on the other hand neither the Commission nor the member states have thus far combined to deal with the scandal. That is implicit in the recommendations of the Select Committee's report that we are debating and other sources have underlined it.
Mr. John Carey of the Court of Auditors has said:The Commission's response to our Report is a classic demonstration of what is wrong with the system. Faced with the evidence that the thing is not working at grass roots level, what does it do? … they wash their hands of it and say that it is a member state problem".424 What has been the British Government's response? They were guilty of dithering as the noble Lord, Lord Cockfield, rightly charged. But it seems clear now that the Prime Minister is deeply concerned. I earlier mentioned Mr. John MacGregor's constructive reactions.
It has been reported that the Prime Minister has directed the Treasury to lead a Whitehall study of how the money is lost and what powers the Community has to stop it. Furthermore, he has said that she proposes to raise the matter at the Madrid Summit in June. The noble Lord, Lord Cockfield, referred to a headline in The Times of 7th February which described the Prime Minister as "spearheading a drive against fraud". That kind of headline sounds promising, but we need to know a little more than that. I shall be most grateful to the noble Lord the Leader of the House if he will tell us how the Treasury study set up by the Prime Minister is proceeding. Perhaps he can also tell us when it is likely to be completed and whether it will be published when the study is finished. I believe it is a matter of such fundamental importance to Parliament and the country that nothing will satisfy people other than that the study should be available in the public domain.
Further, do the Government have a specific plan and if so, can we be given some idea of what it is? We come back to the basic point that noble Lords have stressed; namely, that detecting fraud, catching the alleged criminal, taking him to court and prosecuting him is a matter for national governments and not for the Commission in Brussels. All the Commission can do with its fraud squad is to co-ordinate the investigation by governments and ensure that they do not cover up fraud. The alarming fact is that governments do have a reason to cover up because if they do nothing the Community takes the loss. But if governments proceed to court and succeed, that money must be paid back to Brussels. That is how I understand the working of the system and perhaps the Minister will confirm that I am correct.
It is not a pleasant scenario and I do not believe that a British Government would participate in so squalid a manipulation. I hope that the Government will press unremittingly for fundamental reform. That involves not only tackling the fraud but also recognising the flaws in the system which make fraud so easy. That is the lesson which emerges from the Select Committee's report. The noble Lord, Lord Benson, did not mince his words when he dealt with the inadequacies of the system.
As I conclude, I shall be grateful if the Minister will tell us what co-operaton exists between Mr. John Wood and his colleagues at the Serious Fraud Office, on the one hand, and Herr Helmut Waechter, the head of the Commission's anti-fraud unit, on the other. I noted that the Paymaster General, Mr. Peter Brooke, said in another place on 2nd March that the Government have not ruled out a supranational agency to control fraud. Perhaps the Minister will be good enough to enlarge on that and explain what formulation the Paymaster General has in mind and whether that is one of the Government's objectives. I believe the House will agree that the Government 425 have been helped substantially to consider and find solutions by this excellent report.
The recommendations of the committee in Part VI are impressive, logical and practical. The remedies that are listed in paragraphs 183 and 186 I hope will be accepted by the Government. We noted that the committee is sensible enough to accept that the programme cannot be carried out in less than three to five years. I feel sure that the deep concern of the committee will be shared by every Member of this House. I propose to quote only a few words from the report that appear in paragraph 205, which states:The huge sums which are being lost due to fraud and irregularity 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 is a public scandal".I hope that the Minister will be able to confirm that this report, which has already been welcomed by the Government, will be accepted and that its practical recommendations will be put to the Commission and other member states for implementation. A failure to take action can have profoundly serious consequences.
§ 6.19 p.m.
§ The Lord Privy Seal (Lord Belstead)
My Lords, this has been a most constructive and informed debate on a report which is important to the Government as we consider how the Community should make progress in combating fraud. I thank all noble Lords who are members of the Select Committee under the chairmanship of the noble Baroness, Lady Robson, for this absolutely excellent report which, as the debate has shown, is detailed and practical in recommending improvements in the Community's arrangements for the prevention of fraud.
There is a great deal of common ground on this subject between the Government and the Committee. I should like to describe what progress has been made reccently by the Community, not least as a result of pressure from the United Kingdom. In this context, I should like to thank my noble friend Lord Bessborough for saying that in his view the United Kingdom has been in the vanguard in facing the need to tackle fraud in the Community.
The Court of Auditors has undoubtedly played a crucial role in raising the alarm over European Community fraud, especially through its report on the 1986 budget (mentioned by the noble Lord, Lord Cledwyn) which devoted a separate chapter to fraud, and its report on the 1987 budget, which deals at length with agricultural fraud and mismanagement. These two reports provide the main backdrop to the intensified efforts which the Community is now making. It was again my noble friend Lord Bessborough who reminded the House that the United Kingdom has been a longtime supporter of the Court of Auditors. I know that the noble Lord, Lord Bruce, has this point very much at heart. It is the truth that the British Government have left the Community in no doubt about the need for follow-up action to the court's reports. My right honourable friend the Minister of Agriculture pressed for this, as the noble 426 Lord, Lord Cledwyn, was good enough to say in his speech. Then in February my right honourable friend the Prime Minister signalled the United Kingdom's grave concern about the extent of fraud revealed by the court and suggested that the issue might be raised at the Madrid European Council in June.
In his speech my noble friend Lord Cockfield gave his opinion that the Council of Economic and Finance Ministers was not the place to tackle the problems of fraud. I should say that ECOFIN has been responsible for ensuring concerted action in the areas highlighted by the Court of Auditors and for establishing a procedure to ensure that fraud remains prominently on the Community's agenda. I am glad to report to the House that at the March meeting of ECOFIN, in the context of its consideration of the court's latest annual report, the Community gave the first real signs of responding adequately to the problems of fraud. In this process I would claim that the United Kingdom played an important part. Before the meeting we had submitted proposals on how the Community should address both the key recommendations in the court's latest report on specific areas of policy where fraud and mismanagement were found to be rife—a word used by several of your Lordships this afternoon—and on ways of raising and carrying forward the momentum of anti-fraud activity in the longer term. We suggested that the Community should commit itself to a firm timetable in taking action in the area of export refunds and intervention storage; in particular, the Commission should be asked both to revise its 1987 proposal on the control and monitoring of export refunds in the light of the court's recommendations, and to bring forward proposals for improving the regulations governing intervention storage. We also urged that the Commission should produce specific proposals for clarifying and tightening up the anti-fraud legislation and controls in agriculture, following its intention, stated in the context of the 1989 price-fixing proposals, to address this issue.
On the more general front, we made two suggestions; first, that the Commission should convene an early meeting of anti-fraud experts to examine key issues, such as the adequacy of the Commission's powers and how best to use, if I may use the expression, "the carrot and the stick" to ensure that member states take all necessary measures; and, secondly, that the Commission should present annual reports to the Council and the European Parliament on anti-fraud action, with the Court of Auditors being associated with the budgetary authority's examinations of these reports.
In addition to our specific proposals, we recognised that fraud is not confined to agricultural expenditure, and we suggested that it would be helpful to have from the Commission a report on its progress in implementing those provisions in the structural funds regulations which deal with the introduction by member states of adequate financial controls in that rapidly expanding area of Community expenditure.
At the end of her most interesting speech at the beginning of the debate, the noble Baroness, Lady Robson, was critical of the stance of the Council of Ministers over the years in reacting to and trying to 427 prevent fraud. That was a view also expressed by other noble Lords. It is true that although the United Kingdom was the only member state to put forward concrete anti-fraud proposals to that ECOFIN meeting, I have to say that there was a good, practical outcome to the meeting. The Commission submitted to the meeting a declaration of intent which took on board, among other things, all six of the United Kingdom's specific concerns to which I have referred. This declaration was endorsed unanimously by the Council, and the Council also agreed to return to the issue of fraud at its June meeting, by which time the Commission will have formulated a number of the proposals it promised in its declaration, and the Council will have had the benefit of the Commission's meeting of anti-fraud experts, which has now been fixed for May.
Perhaps I may take this oportunity to deal with a point made by the noble Lord, Lord Bridges. I can tell the House that at next week's ECOFIN meeting the United Kingdom will urge other Community Finance Ministers to accept a Commission proposal for on-the-spot audit inspections in the area of traditional own resources similar to those which it can already conduct in the area of agricultural expenditure.
At this point I shall try to answer one of the questions put to me by the noble Lord, Lord Benson. He asked whether the Government agree that an anti-fraud programme is needed. The Government agree with the noble Lord. It was precisely for the reasons which the noble Lord gave that the United Kingdom sought at last month's ECOFIN meeting to get agreement on procedures which will enable such a programme to be devised and its implementation to be monitored. I hope that the noble Lord may feel that we are heading in the right direction in giving that answer to one of his questions.
I should like to say a few words specifically about the report. What struck me most forcefully about this remarkable report, apart from the wealth of evidence and the commentary which the Committee managed to amass, is the straightforward practical approach which the Committee takes. It is best summed up in the assessment, which the noble Baroness specifically mentioned in her opening speech, that a properly mounted Community anti-fraud programme will almost certainly require three to five years to implement, and that any attempt to complete it in a shorter time will not be practicable.
The Committee's first major recommendation is that the Community's regulations should be simplified. This objective commands very wide support. If I may take up a point raised by the noble Viscount, Lord Bledisloe, we believe that the Council and the Commission ought to be required to fraud-proof, as it were, all new Community legislation before that legislation is let loose on the Community. However, that is not to say that the Government can simplify the structures by which the European Community is governed, a second point specifically put to me by the noble Lord, Lord Benson. The Government have considered it best over the years to concentrate on practical and achievable measures which we hope will yield early returns. Attempts to 428 alter the structure of the Community's institutions or the way in which it does its business are unlikely to lead to any progress against fraud in the foreseeable future. The noble Lord will forgive me if I give a rather negative reply to that route.
The Committee's second recommendation is that the number of product classifications is an area crying out for simplification, with 1,200 separate classifications alone for agricultural exports refunds. But here we must not aim for oversimplification. Some degree of multiplicity is bound to be built into the system for budgetary purposes. For instance, it would be quite unjustified, and an unjustified waste of money, if we offered export refunds higher than necessary for particular markets, which is what would happen if the number of classifications were reduced by harmonising all rates and so reducing opportunities for some exporters. The Government are saying that they believe any reduction in classifications must be balanced against budgetary and trading considerations.
Noble Lords on the Committee also called for lucid operating instructions. That is a rather regrettable reflection on the Community's anti-fraud provisions and its financial management generally. However, I am glad to report that in response to the Court of Auditors' special report on intervention storage, the Commission has set up a working group to consider, among other things, the scope for issuing Community-wide instructions on physical and accounting controls based on the best practice of member states. It may be that the Commission will be in a position to submit proposals at the June meeting of ECOFIN.
As the committee points out, its recommendation on the need for lucid instructions is also closely linked with the recommendation on the need for effective internal controls in member states, with export refunds and intervention storage particularly in mind. The United Kingdom was surveyed by the Court of Auditors for its studies on both those areas. Perhaps I may say the briefest word about UK practice. Customs and Excise set a 7 per cent. target for the level of physical examination of exports subject to export refunds. It has also issued detailed instructions on the quality of examinations to be conducted. Recently its investigation division has mounted several additional operations targeted on export refund goods. I am glad to say that no evidence of fraud has been discovered in those investigations. As to intervention storage, I am also glad to say that the Court of Auditors had some praise for aspects of our control system, which is encouraging.
On another of the committee's recommendations, perhaps I may make it clear that the Government share your Lordships' view about the need for better training of staff in anti-fraud work—an area where we have made an intensive effort recently. Indeed, 1988 was christened "CAP Training Year" by the chairman of Custons and Excise. By the end of the present financial year, some 4,000 officers will have received training, with particular emphasis on detecting fraud and irregularity in CAP trade.
The Government also very much agree with the committee about the importance of exchange of 429 information both between and within member states, though I think that the committee was a little hard on this country in saying that it would take up to six weeks for an irregularity by a particular trader to be known by ports nationwide. The fact is that the Customs authorities do have a very sophisticated computerised system for processing entries and for rapid dissemination of information about fraud. It is the case that the information has to be input to a computer centrally because staff at ports do not have expert knowledge of the system. However, messages relating to fraud, once the investigation division has evaluated them, are inputted into the system on the day that they are received.
In his speech, the noble Lord, Lord Bruce of Donington, said that so far as he knew there had been no increase in Customs staff since 1978, despite increases in imports and exports as well as the continuing menance of drug smuggling. In reply, I should say to him that in recent years the Customs authorities have installed, as I said, a sophisticated computer system for dealing with imports. That has enabled them to release staff from dealing with paperwork to the examination of cargoes and the gathering of intelligence. But, in addition, more staff have been allotted to the Customs and Excise Investigation Branch, which is responsible for tackling serious fraud of all types, including fraud against the Community budget. If there are any statistics which I can add to that answer, perhaps the noble Lord will allow me to take the matter further by writing to him. However, at the moment, that is all the information available to me.
Lord Bruce of Donington
My Lords, I am most grateful to the noble Lord for what he has said. However, is he aware that his noble friend Lord Young of Graffham, in the course of a WrittenAnswer (given by him on 22nd March of this year in answer to a Question tabled by me) put the number of Customs and Excise personnel—that is, those that are authorised and active, as opposed to clerical staff—at 7,591 in 1978–79 and 7,684 in 1987–88. That is no more than a minuscule increase, bearing in mind the terrific increase in trade passing through the ports over that period.
§ Lord Belstead
My Lords, if I may say so, the noble Lord is making a perfectly fair point. However, so am I. I am saying that technology has meant that staff can be removed from doing what has been absolutely routine work to doing the very important work of examining cargoes and gathering intelligence.
There is just one other crucial recommendation of the committee which I should like to mention. It is one which the Government fully support. The committee recommended that member states should improve their reporting of fraud and irregularities to the Commission so that suitable preventive measures can be devised. However, I recognise the disincentive effect that there could be for some member states who fear being penalised by the Commission for shortcomings in their control systems which the reporting might reveal. That is an 430 area where the Community may need to rethink its approach as between the carrot and the stick. Your Lordships may ask what I mean by that expression. I think that the noble Lord, Lord Cledwyn, wondered whether I would give some detail on the matter. My understanding of the legal position is that the Community will bear any loss arising from irregular payments which have been properly reported, provided that there is no negligence in administration or in recovery action. That is the carrot. So far as concerns the stick, we need to crack down hard on those who attempt to conceal negligence or evade the reporting requirement.
Equally crucial is another of the committee's recommendations. It recommended that the Commission should be more active in its surveillance of anti-fraud systems in member states. I should like to make clear that we attach particular importance to the need for the Commission to lay down minimum standards, for instance, in physical inspections and in monitoring much more closely the data on fraud and irregularity supplied by member states and the adequacy of their overall systems.
One of the committee's main conclusions, and one which was mentioned by several noble Lords, is that publicity is a powerful deterrent to fraud and that it has not been fully exploited in the Community. In the United Kingdom, of course, prosecutions for fraud offences are almost invariably held in open court, so that the details of cases are available to the media. Publicity about Community fraud in general can also help in bringing pressure on authorities Community-wide to focus on ways to defeat it. It is no coincidence that the response has been diligent to the latest Court of Auditors' report, which received wide publicity. In that regard, if I may say so, the committee's report is very helpful in keeping the issue of fraud in the public eye.
In the time available to me perhaps I may very briefly say a word to my noble friend Lord Cockfield, whose speech I found enormously interesting. I am glad that he took part in the debate. I ask him not to underestimate the strength of the objections, on grounds of both practicality and principle, to the proposal about amending the mutual assistance regulation which he made when he was Commissioner—that is, the proposal that Commission officials should, among other things, be allowed to lead administrative and investigative missions in member states.
As I think the debate which we have had this afternoon has shown, noble Lords share one of the objections which was held not just by the United Kingdom but also by all the member states; that is, the feeling that Commission officials involved would need to understand and comply with national criminal law, and the possibility that member states' own investigations could be jeopardised and that what is needed is that such matters should be in the hands not of the Commission but of national member states.
The noble Baroness, Lady Robson, made the point that the National Audit Office has no real audit function in respect of Community money. With respect to the noble Baroness, the NAO has an audit 431 function in respect of all funds which pass through the Exchequer. That includes all the United Kingdom's contributions to the Community budget and most of our receipts from it.
The noble Lord, Lord Diamond, drew attention to the paucity, as he felt, of the staffing of Community funds auditing. I believe that the noble Lord referred to only 10 staff, which I think the noble Lord then said had risen to about 18. Lest there be any misunderstanding about the matter, perhaps I may just say that the Commission's anti-fraud unit was initially only 10 strong. However, that is only a small part of the story. There is also a large anti-fraud section in the Agricultural Directorate. Moreover, fraud and financial control is a major responsibility of many other departments in the Commission. There is also the work of the Court of Auditors and the national auditors.
The noble Lord, Lord Jay, made the point that while Community agricultural prices are two to three times higher than world prices, the temptation to commit fraud would remain high. He asked me whether I could give him the latest information on prices in world markets. The Government fully support efforts to bring Community agricultural support prices more into line with world prices in order to bring the discipline of the market to bear upon agricultural production. The introduction of stablisers and the tightening of budget discipline by the European Council of February last year have greatly helped in that respect. The noble Lord may wish to note that Community support prices for cereals are now less than 50 per cent. higher than world market prices.
I come finally to the questions of the noble Lord, Lord Cledwyn. He asked me about how the Treasury study was going and whether it would be published. The study to which he referred is an interdepart mental exercise. Ministers will consider it shortly. It is not customary for such papers to be published; but the decisions that Ministers take will reflect the strategy which the Government will pursue over the coming months and which they will have culled from the study. I cannot give the noble Lord the undertaking about publication that he wanted, but I hope that my other answer to him on that point will be satisfactory.
§ Lord Cledwyn of Penrhos
My Lords, it would be helpful to the House and everyone else if the Government were to publish some kind of document (perhaps a short White Paper) in which the decisions of Ministers, and the action that they propose, are brought together so that we may know precisely what is taking place.
§ Lord Belstead
My Lords, I can give the noble Lord no undertaking this afternoon; but I shall draw to the attention of my right honourable friend the Chancellor of the Exchequer what the noble Lord has said.
The noble Lord asked me what co-operation there is, and what there will be, between Mr. Wood of the Serious Fraud Office and Herr Waechter of the Anti-Fraud Unit. Mr. Wood of course gave evidence to the European Parliament's budgetary committee 432 hearing into fraud against the Community budget last January. His presence reflected the Government's view that the budgetary committee should have the benefit of an expert view of the role of the Serious Fraud Office and recent changes in United Kingdom law.
It is the Government's intention that there should be the closest co-operation between Herr Waechter's unit and all agencies concerned in detecting fraud against the Community budget.
My right honourable friend the Prime Minister has said in another place that she hopes to raise the issue of fraud at the next European Council, although the form of any Council initiative would be determined in the light of developments between now and then. It is right to keep the issue on the agenda. Fraud, as many of your Lordships have said this afternoon, is a crime against Community taxpayers. It of course has a corrosive effect on the Community's image, and so the report of your Lordships' committee is timely and important. On behalf of the Government, I express my thanks to your Lordships for it.
§ 6.43 p.m.
§ Baroness Robson of Kiddington
My Lords, I should like to thank all noble Lords who have taken part in the debate. The eminent speakers, and the depth of their speeches, are a measure of the concern which the House feels about the problem of fraud against the Community.
I should also like to thank the noble Lord the Leader of the House for his reply and explanation of the Government's actions. We all welcome the actions over fraud taken by Her Majesty's Government and the right honourable lady the Prime Minister. It is with some satisfaction that I was told that at the ECOFIN meeting on 23rd March that the only progressive suggestions were made by the British Government. We are delighted that that is so; but that is one occasion only. There was a lack of action before the 23rd March. I was therefore delighted to hear from the noble Lord the Leader of the House that that will not be a flash in the pan, but that concerted action will continue until the problem has been solved.
As the noble Lord, Lord Benson, said, it will take years to put the matter right. I should like to see your Lordships' House agree to keep the problem under close scrutiny and to continue to monitor progress. I suggest that within a year or 18 months a further debate of this type should take place to see where the Community has reached and what our further contributions should be.
§ On Question, Motion agreed to.