Protection of the EU’s Financial Interests

Desmond Swayne Excerpts

Monday 8th February 2016 General Committees

[The Chair]

Mr Swayne, do you wish to make a short statement?

[The Minister of State, Department for International Development (Mr Desmond Swayne)]

Mr Leigh, I had not realised that the statement was voluntary. Had I done so, I might have chosen not to make a statement. However, on the basis that I have prepared one, it is probably best if I deliver it.

[The Chair]

Make it snappy!

[Mr Swayne]

I will endeavour to do so.

The issue is of enormous importance to DFID, given that 11% of our official development aid is spent through the EU institutions. It is vital that we ensure it is spent well and according to our own priorities and objectives, to which end we employ 19 officials between Abercrombie House in East Kilbride and No. 22 Whitehall to ensure that that is the case, and we deploy 26 officials as secondees to the European institutions directly. Their main effort is to ensure that the EU’s priorities align with ours and that their procedures and standards reflect ours.

I come to these debates with a certain prejudice. When people complain to me about the unsatisfactory nature of European institutions, I am inclined to say, “Not me, guv. I voted no in 1975.” Nevertheless, notwithstanding such prejudices, I have been impressed by the quality of European aid delivered by the European institutions. What is more, when overseas in some of the countries in which we operate, I find that humanitarian staff are equally complimentary of the quality of European aid. Having read the documents, which are not a particularly good read, it seems that the EU is delivering high-quality aid in spite of lapses in some of its management systems. It is vital that we get on top of that, so that those management systems do not begin to undermine the quality of European aid.

We are concentrating on various aspects of the EU’s procedures. Members of the Committee may remember that we focused last year on the results framework and how results are calculated. We are currently working on a review of procurement and counter-fraud policies. There is an element of frustration in dealing with the reports, because the Committee will appreciate that we made all sorts of observations and criticisms last year that we would expect to be taken into account, but the period covered by the report precedes the criticisms that we made last year, so there is an element of catch-up. It will take time for our observations and demands to be reflected in the reports that we see before us.

As for the development funds, I expect that the auditors will be quietly confident that the appropriate level of seriousness is being attached to the criticisms that were made, but there is an elephant in the room, namely, the European Parliament’s report of some two weeks ago, which made headlines in The Times in London. It reported that half of EU aid is wasted, more specifically that 53% of €20 billion will not be deployed and will not deliver the intended effects.

However, as Field Marshal William Slim used to observe, nothing is ever as bad as first reported. It turns out that it was a report not of the European Parliament but of a Member of the European Parliament who had access to an external assistance management report that was published on the European Parliament website in what I would call a rather unnecessary and unwise fashion. We would not publish live management documents of that sort. Some Members may recall the arguments in the previous Parliament over just such a management document: the risk register. This document is a risk register, on which officials would be expected to record everything that could possibly go wrong unless steps are taken to prevent it from going wrong. The document’s purpose is to ensure that action is taken to prevent that.

Nevertheless, the document has been used to draw up the criticisms that were made, in particular that it will take some 27.5 years to disburse the commitments that have already been made to development projects. That shows the limitations of using a management document that is a snapshot. There will be always be points in a development cycle when more will have been pledged than has actually been deployed and disbursed, particularly in a humanitarian environment such as we have at the moment, with huge crises in Syria, Yemen and South Sudan. Large amounts may have been pledged, but not actually disbursed. I would be more concerned about criticism that we were shovelling money out of the door rather too fast in order to meet commitments, rather than dealing with them proportionately. Typically, a European project lasts some four years, which is to be expected in the circumstances.

Nevertheless, the European Court of Auditors judged that the cost-effectiveness and efficiency of controls have not been demonstrated and it is therefore important that an action plan to deal with that is put in place. That action plan involves intensive management training to ensure that officials comply with the rules, and the deployment of new financial tools to ensure that they are complied with.

In 2011, the financial resource management estimate that we made for the European Union in our own multilateral aid review was that it was actually very good. We have to see this report in that context, but it is vital that this is got right, because one of the most corrosive things in relation to international development is the undermining of public confidence in our commitment through people being told that the money is wasted. Therefore, we have to deal with these issues to ensure that there is no question of that arising.

[The Chair]

We now have question time. Who wishes to kick off?

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[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Edward. May I say I admire how you have generated such a beautiful gender balance on the bench beside you?

I have two questions, if I may. My first is for the Minister of State. I am interested in this issue because I have spent much of my life in parts of the developing world and on aid projects. I have a very precise question, but, by way of a short preamble, I have a lot of sympathy with those who are at times critical of agencies that operate internationally. At one stage in my life I was in Yemen to look at a college built with World Bank money and with United Nations Food and Agriculture Organisation development. My terms of reference were simple: we have built this building, now tell us what to do with it. It was not necessarily the best project that had been set up. The Minister mentioned the recent report, published on the EU website, on the amount of money wasted. He said that in his and the Government’s view, the report was “very good”. Will he explain precisely what “very good” is?

[Mr Swayne]

I was referring to the multilateral aid review that we carry out periodically. The last update was in 2011. We assess the effectiveness of all the multilateral organisations through which we operate as a prelude to deciding on what terms we are prepared to continue using them as development partners. The EU institutions are part of that review. Specifically, we judged their financial controls and their effectiveness in deploying the finance that they are given to deliver projects on the ground to be very good. I said that to counter the criticism set out a couple of weeks ago that they are too slow and that it will be 27.5 years before they can deploy the finance that they have been given. That is a snapshot, or the use of a management tool to draw a wholly inappropriate conclusion.

[Roger Mullin]

My supplementary to the Financial Secretary is also about the international aspects of fraud. Many projects funded through the European Union require multinational partnerships. I am aware that some fraud has occurred in more than one member state. Does he have a general view of how the UK compares with other EU member states on multinational projects?

[Stephen Hammond (Wimbledon) (Con)]

Like so many others, I want to say that it is a pleasure to serve under your chairmanship, Sir Edward. I confess to my right hon. and hon. Friends on the Front Bench that I have not read these documents cover to cover.

[Mr Swayne]

Shocking!

[Stephen Hammond]

It is indeed shocking, although I thought it would be more useful to spend my weekend trying to ensure that my hon. Friend the Member for Richmond Park (Zac Goldsmith) is elected in May.

I agree with my right hon. Friend the Member for Ashford that it is shocking that this is the 21st year in which the accounts have not been properly audited and signed off. That would not be acceptable in the financial world. With my financial hat on, I read three of the chapters, and I would like to test something with the Financial Secretary. Chapter 3 is about getting results from the EU budget. The common themes include poor performance setting, poor planning and objectives that are not fit for management purposes. My hon. Friend will have noticed that it states that budgetary strategy is not aligned with political strategy, which is an explicit criticism of the inability to make proper financial judgments.

Hidden in the documents—the Commission did not even bother to reply—is paragraph 3.79, which gets to the heart of the lack of results in partnership arrangements. I would like to hear from my hon. Friend exactly how the Government will put pressure on the Commission to respond with more a bit more force than its bland statements.

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[Rob Marris]

I have a question for the Minister of State. In her explanatory memorandum dated 10 December, Baroness Verma, the Under-Secretary of State, Department for International Development, pointed out that the European development fund is the European Union’s main development co-operation instrument and that the total budget for it in 2014 was £34.5 billion. She also said that about 15% of that came from the United Kingdom. I say “about 15%”, because in paragraph 2 she says it was 14.68% and in paragraph 21, on page 391 of the bundle, she says it was 14.82%—it is about 15%. The Minister of State referred to 11% of DFID’s budget being spent via the European Union. Could he say briefly what the process is for deciding the percentage of DFID’s budget that is spent via the European Union?

[Mr Swayne]

The fact that 11% of our overseas development aid goes via the European Union is not inconsistent with the fact that 15% of what the European Union spends is accounted for by us. I am not quite sure how that works out mathematically, but I am confident that it is true. The issue of how much is spent—how much comes from us—is an assessment of our share of the European budget. My understanding is that that works on the same basis—[Interruption.] The seventh cavalry has arrived. The ratio of UK funds to the EDF is determined by our gross national income at the beginning of the period. Well, there it is.

[Kelvin Hopkins]

I have one or two questions for the Minister of State. I have attended many such European Committee debates over the past 19 years. There have been concerns in the past about the allocation of aid by the European Union, including that it is less efficient and less well-directed than British Government aid, but the Minister seems to suggest that that is no longer the case. There were two specific accusations: that the aid was not directed to those most in need—the poorest countries, such as sub-Saharan Africa—and that there was a bias towards the better-off Francophone countries around the Mediterranean. Can the Minister tell us whether that matter has been addressed?

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[Mr Swayne]

The hon. Gentleman refers to the fact that he has experienced these Committees over a number of years. I wonder if it has occurred to him that there is at least a possibility that this might be the last such feast he has to attend, depending, of course, on a democratic process somewhat down the road. Nevertheless, with respect to the substantive issue he raises, I am certainly alive to that concern. I came to this role with a whole series of prejudices that have largely been dispelled in respect of the quality of aid delivered by the EU institutions.

[Rob Marris]

You might vote yes.

[Mr Swayne]

There are other priorities.

Given that we spend 11% of our official development aid through the EU institutions, it is important that they reflect our priorities, including that of concentrating on the poorest, rather than on those groups mentioned by the hon. Member for Luton North. I am confident that we have been moving the European Union much more significantly in that direction. I am also satisfied with the progress of the reform programme, certainly in respect of gender—I think we have scored highly on moving the goalposts towards where we want to be.

[The Chair]

If no more Members wish to ask questions we will proceed to the debate on the motion. I call the Minister to move the motion.

Motion made, and Question proposed,

That the Committee takes note of European Union Document No. 11470/15 and Addenda 1 to 6, a Commission Report: Protection of the European Union’s financial interests—Fight against fraud 2014 Annual Report, and unnumbered European Union Documents, the European Court of Auditors’ 2014 Annual Reports on the implementation of the budget and on the activities funded by the 8th, 9th, 10th and 11th European Development Funds; agrees that budgetary discipline and robust financial management at all levels remains crucial, and that EU taxpayers must have confidence that their funds are being effectively managed and implemented at an EU level; expresses disappointment that the error rate for EU budget payments shows only a slight improvement on last year; supports the Government’s efforts to continue to engage with the Commission and Member States to drive improvements to reduce the error rate, in particular, advancing the simplification agenda; stresses the importance of the EU budget achieving results as well as being compliant; and presses the Commission for a clear action plan to address the European Court of Auditors’ recommendations relating to the European Development Fund in order to improve its error rate.—(Mr Gauke).

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[Mr Gauke]

I thank all right hon. and hon. Members for their participation in the debate. I thank the hon. Member for Kirkcaldy and Cowdenbeath for his warm words of appreciation. He brings an amiability to his role as the Member of Parliament for Kirkcaldy and Cowdenbeath that is perhaps unprecedented.

[Mr Swayne]

In recent times.

[Mr Gauke]

Indeed.

I thank the hon. Members for Luton North and for Wolverhampton South West for their questions, which I will attempt to address. I also thank other hon. Members who participated in the debate.

As the Committee is aware, the Government have taken an increasingly robust stance on financial management. Although the estimated European Court of Auditors 4.4% error rate from the 2014 EU budget shows a slight improvement in the estimated level of error, it is a marginal reduction from the 4.5% error rate in the previous year and remains well above the ECA’s acceptable threshold of 2%.

We want to see more ambition and progress in the area, so, as I confirmed earlier, the Government will vote against discharge of the 2014 EU budget at this month’s ECOFIN. That is the most public way for member states to take a tough stance on financial management and the Government continue to make that stand for UK taxpayers. None the less, we welcome the efforts of Vice-President Georgieva to manage the budget better and to focus on performance. The UK is taking a proactive role in driving that agenda forward.

The hon. Member for Luton North asked about the difference between fraud and error, which was touched on by his Front-Bench colleague. Fraud is the deliberate criminal misuse of EU funds. Financial errors are breaches of often complex EU regulations. Of course, the Government take a zero-tolerance approach to fraud. As I said earlier, only an estimated 0.02% of EU payments are established as fraudulent, according to Commission data. The “Fight against fraud 2014 Annual Report” shows that, across the EU, cases of suspected or potential fraud affected around 0.26% of EU payments and 0.8% of EU revenues. Of these, Commission estimates suggest that around 8% are likely to go on to be established as actual fraud. So I do not think we should consider that that 4.4% is all fraud.