EU: Fraud (EUC Report)

Lord Rowlands Excerpts

Wednesday 11th December 2013 Grand Committee

[Lord Rowlands (Lab)]

My Lords, while I have listened to the debate I have tried to recall the evidence we received and the witnesses we heard. I regret to say that my abiding impression of the evidence we took and the witnesses we heard was that there was a kind of collective buck-passing going on and that no one was willing to accept responsibility. Everybody said that they hated fraud and that it was a serious issue, but you did not sense that dealing with it was a priority for any of the institutions. I do not know whether other members of the committee were left with that impression.

Our report found a lack of enthusiasm, a lack of uniformity of approach and weakness in the ability of OLAF to fulfil its remit. The noble Lord, Lord Bowness, reminded us of the rather extraordinary day when we witnessed a kind of internal warfare going on before our very eyes. I hope to goodness that when the Minister replies to the debate, he will reassure us that OLAF has got over that spat. This lack of co-ordination and enthusiasm are partly reflected in the incredible divergence of assessment in relation to the size of the fraud, which reflects the fact that there is no collective grappling with this problem. Incidentally, there is no lack of activity on this issue. I calculated that no fewer than 13 documents and legislative proposals dealing with various aspects of fraud were presented to our committee. It is not a question of lack of activity on the part of the Commission or anyone else but rather, it seems to me, a lack of effective follow-up, and of matching that activity with effective operational action on the ground across the piece.

There have been suggestions about reforming OLAF and Eurojust, and my noble friend Lord Davies mentioned the EPPO. The committee did not, and has not, endorsed the concept of the EPPO. I am sure that he did not intend to create the impression that it had. It did not endorse that concept in the report and has not undertaken a full inquiry into it. I hope that noble Lords do not have the impression that it has endorsed that concept. That is certainly not the case. Of course since we did our report, the Commission has come forward with a proposal. I am afraid to say that, as it was brought forward, it certainly would not have gained my support in any shape or form; I am not sure about other members of the committee. I shall tell my noble friend why. First, this House, the other House and indeed 11 Parliaments found the Commission’s EPPO proposal offensive to the whole principle of subsidiarity.

It is not only that. I have one other suggestion why the Commission’s proposal is fundamentally flawed, and it is exactly one of the points that my noble friend made. The draft seeks to propose exclusive criminal jurisdiction to one office, seeking to override national needs and priorities. I am afraid that that does not make any sense. As my noble friend rightly points out, 80% of the budget is delivered at national level. It cannot be the exclusive criminal jurisdiction of one new office to deal with the issue, when in fact the disbursement of such money is overwhelmingly conducted at national level. It has to be a shared responsibility with shared co-operation. Indeed, the treaty obliges the Commission and member states to deal with this together. Therefore, rather than looking for a solution in a brand new, single office of the kind my noble friend obviously rather likes, I would look for an alternative form of enforced shared co-operation between institutions, governments and national and European agencies. That is where the future solution to these problems lies.

My final point is that, within those improvements that we should have in co-operation and shared responsibility, and within our own arrangements, is the question of having a single agency or point of contact. Interestingly, over a year ago in the evidence that we received, there was a volunteer: Commissioner Leppard of the City of London Police volunteered to be the first point of contact, as members might recall. Indeed, in his evidence, he said that his force was in discussion with the Home Office to develop the concept of the first point of contact being the City police. That was November 2012. We are a year on. How much progress has been made? Is the proposal still considered significant? How far have we got with it? If we have got very little from it, it will only reflect what we all fear: that there is not a willingness to carry some of the reforms and changes through.

That specific proposal was put on the table just over 12 months ago—one organisation saying, “We will be the only point of contact to co-ordinate activities, including the devolved Administrations”. When the Minister comes to reply I would be grateful if he would tell us how far that proposal has gone. I would judge the success of the changes that have occurred by our doing at least the one thing that we can do ourselves: to decide on one single point at which the co-ordination of these activities takes place. If we do not do that, we will not be seen as combating European fraud.

--- Later in debate ---

[Lord Newby (LD)]

My Lords, I am extremely grateful to my noble friend Lord Stoneham for his introduction to this report, to all noble Lords who have spoken and to the committee itself for the detailed report into the fight against fraud on the EU’s finances.

It may be blindingly obvious, but I start by saying that the Government also take fraud and the management of taxpayers’ funds very seriously. We have adopted an increasingly robust stance on financial management, and we remain committed to securing and enforcing the most effective means of fighting fraud at both a national and EU level. Fraud against the EU budget remains a matter of great concern, and this Government have adopted a leading role in calling for improvements to the way EU finances are managed.

I remind noble Lords that we are the first Government to take a firm stance on fraud against the EU budget by voting against the Council’s decision to recommend discharging the Commission of its responsibility to manage the EU budget. We took a stand by abstaining on the Council position on discharge of the 2009 EU budget and increased the pressure by voting against the Council’s recommendation to discharge in 2010 and 2011. We have also continued to encourage like-minded, budget disciplinarian member states to join us in sending the strongest possible message that financial management needs to be improved. In 2010 and 2011, Sweden and the Netherlands joined the UK in voting against the Council’s discharge recommendations and issued a joint statement calling for improvements to the way EU funds are managed.

We have also been at the forefront of the drive for real changes to improve errors within EU budget expenditure. For example, in the light of the European Court of Auditors’ reports confirming that much of the expenditure error is due to excessively complex rules, the Government successfully worked with allies to push for the significant simplification of the complex rules for beneficiaries of EU funds. I note what the noble Lord, Lord Bowness, said about it being disappointing that the Court of Auditors has been unable to provide a positive statement of assurance for the most recent budget, as has been the case for a number of years. The noble Baroness, Lady Morgan of Ely, explained why it is quite difficult to get to the necessary level of assurance. As the noble Lord reminded us, and as I have, over the years, reminded Eurosceptics within your Lordships’ House, it is a very long time since the DWP budget received a similar assurance statement.

When the Government replied to the report in July, the Financial Secretary gave a detailed response to all the findings. While that response still reflects the Government’s overall position, I will seek to respond to some of the additional requests for clarification made by noble Lords.

A number of noble Lords raised concern over the estimated level of fraud against the EU budget. The Government appreciate that the Commission’s assessment of the amount of fraud against the EU budget is an estimate and cannot give a full picture, by which I mean that the real level of fraud is necessarily going to be higher than the figure that it has produced. In order to get more nearly to a figure, it is therefore important to ensure that the quality and consistency of reporting by all member states is of a standard that allows the Commission to receive accurate information upon which to base its estimate.

It is also important that other contributing factors, such as the constant updating of the database, are resolved to improve the data that the Commission receives and holds. The noble Baroness, Lady Morgan of Ely, explained some of the complexity of the process, and although it is very easy to damn it on the basis that it should be possible to sort this out, in practice it is extremely difficult in a 27-member Union to get the kind of consistency and quality of reporting that gives us absolute confidence that the final correct figure has been reached. As the recipient of reporting information from member states, the Government believe that the Commission is best placed to provide such a clear estimate, but more work needs to be done.

I am sorry that the committee finds the Government’s decision not to recognise its estimate of actual fraud disappointing, but we maintain the view expressed by the Financial Secretary in his substantive response. I have a lot of sympathy with the noble Viscount, Lord Eccles, who said that we should not get excited about the absolute estimate of fraud but should worry much more substantively about bearing down on it.

With that that in mind, I turn to our reporting of fraud against the budget. The Government remain committed to this work and do not accept the view that we are lacking in enthusiasm or drive in our approach to tackling such fraud. In line with existing reporting obligations, the Government rigorously collate comprehensive data on fraud and consistently report them to the Commission.

As identified in the committee’s report, the UK does not have a central department or agency responsible for the fight against fraud. Individual departments and agencies are responsible for monitoring and acting on fraud against the EU funds they receive and spend. This does not demonstrate a lack of commitment or dedicated resource but reflects the UK’s national arrangements for handling EU funds. When one is talking about funds being spent by Administrations in Northern Ireland and Scotland, it is natural for them to be contacting the EU directly with information. Furthermore, the Government have a new approach to fraud because the creation of the National Crime Agency has given us the opportunity to pull expertise in anti-fraud work into a dedicated Economic Crime Command. The ECC will work closely with national police forces and partners, as well as with the EU and international equivalents. However, the Government remain of the view that the Commission, as the recipient and collator of fraud statistics, is best placed to provide a breakdown of fraud at an EU level and within individual member states. I shall come back to the question of the single point of contact.

A number of noble Lords raised the issue of VAT fraud, which has been and remains a significant problem. It is, however, worth pointing out that since 2005-06 NTIC fraud estimates have decreased from between £3 billion and £4 billion to around £1 billion in 2011-12, which demonstrates that effort has been put in to tackle this very serious, arguably the single biggest, area of EU fraud that affects the UK. We have had a significant positive impact.

We take seriously all forms of fraud, which is why in the 2010 spending review HMRC was allocated an additional £917 million to help it recover unpaid tax and excise duties in the next four years, of which some £90 million is being spent on tackling organised criminal attacks, and we have had some significant successes. Further, the number of criminal prosecutions across a range of taxes, including VAT, is to be increased fivefold. I am not sure that that is quite the target that the noble Baroness was looking for, but it is an indication of the Government’s ambition in this area. However, it is clear that VAT fraud is not solely a concern for the UK and, noting the committee’s concern and points raised by noble Lords, I can confirm that we encourage other member states to maintain the pressure to reduce VAT fraud within their jurisdictions with the same enthusiasm and vigour that we employ.

I turn to our engagement with the European anti-fraud office, OLAF. It is clear that its success relies on effective co-operation with partners in member states, third countries, international organisations and EU institutions. The Government fully cooperate with OLAF’s work in the UK. Its efforts to detect and tackle fraud, including through seeking financial redress for the EU budget where possible, is highly important to us. The UK, through the National Crime Agency, provides a number of UK-wide liaison services and is taking steps to improve our engagement with Europol, Eurojust and OLAF. This includes, through the NCA, providing bureau services to Europol and Interpol and being home to the UK Financial Intelligence Unit. It does this through the Europol national unit, which is based in the UK International Crime Bureau of the NCA and is supported by the UK national unit based in The Hague. The ENU provides a channel for all UK law enforcement engagement with Europol. The Government believe that the NCA’s work with these agencies and services, including Eurojust, Europol and OLAF, will strengthen co-operation with our European and international partners to fight cross-border fraud.

I return to the question that many noble Lords raised about our response to the requirement to provide a single point of contact. This is, as noble Lords mentioned, something that has been under discussion for some time. City of London Police has indeed offered to be such a contact point and continues to be in discussion with the Home Office. As noble Lords will be aware, the Home Office works in an extremely deliberative way and I hope that we will have a decision on this as soon as possible.

[Lord Rowlands]

I apologise for interrupting the Minister. What is “as soon as possible”, given that we have already had a 12-month pause?

[Lord Newby]

My Lords, it is a slightly flexible definition. The best I can do is draw to the Home Office’s attention the strength of feeling that clearly exists in your Lordships’ House that this decision should now be taken quickly.

Moving on to the European Public Prosecutor’s Office, the Government accept that multijurisdictional crime against the EU budget is European in nature but believe, as noble Lords pointed out, that an EPPO is not the only or the right solution to the problem. The noble Lord, Lord Rowlands, gave some of the arguments for that, but I repeat our view: a centralised European prosecutor with harmonised powers to initiate investigations and order investigative measures is incompatible with the division of responsibilities in many EU countries where law enforcement and prosecutors have different roles from that of the independent judiciary. As such, it would require fundamental changes to those member states’ legal systems and existing operational structures to implement the Commission’s vision of a supranational body with powers of investigation or prosecution within UK jurisdiction.

The Committee asked how the UK would address the shortcomings in existing processes for tackling fraud in the absence of being a participating member of the EPPO. The Government will continue to focus on preventing and tackling fraud against the budget and draw on their new approach to policing fraud. On the response to identified crimes, the Serious Fraud Office uses a similar model to the EPPO by bringing prosecutors and police together to fight serious fraud but there are differences. There are limits to the SFO’s statutory investigative powers but the existence of the SFO at national level is evidence of a domestic model that is similar to the EPPO proposal. Further, the creation of the National Crime Agency’s Economic Crime Command means that we have an opportunity to pull expertise in anti-fraud work into a dedicated policing unit. The ECC will work closely with national police forces and partners as well as the EU and international equivalents.