It is well known that the European Court of Auditors for the 16th year in a row has not signed the EU accounts. Yesterday, the House of Commons debated the implementation of the 2009 EU budget. During the debate Bill Cash made the following interventions:

The Economic Secretary to the Treasury (Justine Greening): I beg to move, That this House takes note of the Unnumbered Explanatory Memorandum dated 25 November 2010 submitted by HM Treasury on the implementation of the 2009 EU budget, I should start by saying that it is a pleasure to have this debate on the Floor of the House, as I believe that this is the first time that that has happened. European Union issues are occupying hon. Members' thoughts at this time, so holding this debate on the Floor of the House demonstrates how important it is to focus also on the crucial issue of ensuring sound financial management of the EU budget. I therefore wish to emphasise at the outset the seriousness with which this Government take the issue. Managing taxpayers' money properly is crucial.

Kelvin Hopkins (Luton North) (Lab): Yet again, the European Court of Auditors has failed to approve the European budget. Will the Minister tell us for how many consecutive years that has occurred?

Bob Russell (Colchester) (LD): Fifteen.

Justine Greening: In fact, it is 16 years, and the Government view that as completely unacceptable. I hope that the hon. Member for Luton North (Kelvin Hopkins) will bear with me while I set out some of the steps we have already taken and those we plan to take over the coming months to play our part in getting these issues tackled.

Mr William Cash (Stone) (Con): My hon. Friend-a member of the coalition Government-knows that I am one of her greatest fans. Having said that, is she aware, as I know she will be, that the irregularities by Bulgaria and Romania in relation to pre-accession funds amount to 81% of all the cases, and that there is also this yawning hole concerning cohesion funds? Really, this is totally unacceptable. I have been involved in such debates for 26 years. Nothing has changed.

Justine Greening: My hon. Friend is right to raise that issue, for lots of different reasons. Two spring to mind. The first is the macro level of the argument, which is that new members joined the EU during the '80s. Those member states got cohesion funds to help to develop their economies. There is a question as to the effectiveness of that spend. We are about to embark on investment in a new group of countries that are coming in. The assumption about and the argument made for the accession countries is opening up markets, but we need to see those economies develop for that business model of the EU to work.

My hon. Friend will be pleased to hear that yesterday I met the Bulgarian Minister who oversees the EU funds in Bulgaria. His entire job is administering those funds. He has been in place for about a year. For the reasons that my hon. Friend mentions, I was keen to talk to the Minister about Bulgaria's perspective. He made the point, which I thought was right, that in the past people said to countries like Bulgaria, "You're not spending the money that we are giving you." His point was that those countries are keen to have it spent effectively, because that is in their interest.

Clearly, countries such as Bulgaria are at an early stage of putting in place the structures and processes. The Minister talked to me about the work that they are starting to do at national level and at regional level to enable better financial management of EU funds. That is a move in the right direction. The question for other member states is what we can do at pan-EU level to make that easier. We should get rid of unnecessary complexity and consider what we can do to help those member states to get along the road to stronger financial management faster. I believe they want to do so.

States such as Bulgaria understand that it is important for their relationship with other EU member states to be seen to be stronger financial controllers of the money that they are getting. They understand why that is important, not only in the medium or long term, but in the short term. The challenge for us is to ensure that we improve the framework within which they are working, and transparency is part of that.

I am aware that I have taken several interventions. In part, that is forcing me to jump to bits of my speech that I will come to shortly anyway. Perhaps I can make a little progress and talk to the House about what I think we need to do, some of the steps that we are taking, and what a better system of financial management at EU level would look like. I shall begin with a little more background to the European Court of Auditors report and go on to the discharge negotiation, of which this debate is an important part-in other words, how we get those accounts signed off.

On the report, it is fair to say that there are some improvements. We have had a positive statement of assurance on the reliability of the EU's accounts, but as we can see and as we have already discussed tonight, everybody agrees that much more needs to be done. The pace of change is too slow, and we see no discernible trend in the right direction. We want to see financial management clearly supporting and controlling spend by the EU.

I shall set out the steps that the coalition has already taken to drive through improvements since we took office in May. It is worth reminding the House that the European Court of Auditors report relates to 2009, prior to the time that the coalition Government were in office. In October, when I was in Brussels having some of my meetings in relation to the EU budget, I took the opportunity to meet the Commissioner in charge of financial management in the EU, Commissioner Šemeta, to talk about our concerns and some of our ideas, and to push the case for transparency and sound financial management. I believe the Commissioner was receptive, and I think he understood that in his role, that needs to be a more fundamental priority than it has been for Commissioners in his position in the past. Since then, we have had a firm but constructive line throughout the negotiations among the member states. Let us not forget that they are responsible for management of 80% of EU funds spent.

The Government and other like-minded member states have pushed for concrete processes in several areas. First, at the pan-European level we must have further simplification of what are excessively complex rules that often hinder, rather than help, strong decision making that drives strong value for taxpayers' money. We must push EU-level auditing toward a more risk-based and proportionate system. Simply checking through receipts in member states that are randomly selected really will not work in future. We need to move towards a system where the European Court of Auditors operates a risk-based approach, where the focus is on member states for which there seems to be evidence of poorer and weaker financial management, and where we understand exactly where the management is breaking down in those processes and control systems. We are keen to ensure that what we do at the level of the European Court of Auditors is done more effectively than it has been in the past, and I plan to meet the European Court of Auditors to discuss those issues.

We are also encouraging member states to take greater responsibility for the funds that they implement, which, as I have said, is the vast majority of the budget. In practice, that means that we are lobbying for member states' annual summaries to be upgraded and published. The UK is currently one of only four member states that publish the sort of consolidated statement that we are debating today. We want more transparency, which we think will drive better financial management; it is not the only consideration, but a key one. The Government have pursued that agenda at the domestic level because we think that it is worth while, so we are pursuing it at the EU level. We need those annual summaries to be published and to contain more meaningful information so that people can use and interpret them.

Justine Greening: We are doing slightly more than talking a good talk. I share my hon. Friend's concern that one key thing driving the budget up was the previous Government's disastrous approach to negotiating the common agricultural policy, which saw us give away a huge chunk of our abatement and, over this Parliament, will cost the British taxpayer about £10 billion. That is totally unacceptable. He says that it is important we bear down on excesses, and I agree. That is one reason why we led the debate to stop the European Parliament's proposal for a 6% rise in spending. We achieved that, and we are now trying to ensure that, when we go into the longer-term debate about the financial perspective over the next seven years, which starts in 2014, we begin to see real-terms reductions. Countries such as France and Germany are backing us up on that, and those are the first steps towards delivering what we want.

My hon. Friend is right that we need to go beyond words and start delivering, and that is absolutely what we want to do. For tonight, the key aspect is how we can ensure that, when we have "decisioned" the funds, the final building block, which is about financial management, is delivered professionally, robustly and with an integrity that companies would recognise. We have to move towards a better system than the one we have picked up.

We are also keen to see some quickly taken measures and short-term gains, such as a one-stop shop that provides better information to those member states implementing EU funds, and a published scorecard of recovery orders against member states. That sort of transparency will start to change the culture, but we have to question how we have reached the position of poor financial management in which we find ourselves. The answer is partly down to culture, which has to change and improve at the EU and member state levels.

Sound financial management is critical, and it brings us closer to our overarching aim, which is a budget that delivers value for money for British and EU citizens. As I hope I am trying to get over, that is not a negative agenda, because securing better value for money is a positive thing to do. It is what we are doing; it is what taxpayers want to see us doing; and it is what all member states should want to do themselves. We believe that we have a positive agenda, and it is not just about picking or prioritising the right objectives. Last year, our excellent debate in the House about the EU budget was a good chance for Members to discuss those objectives. We should return to that over the coming months, but critically we have to ensure that, when we have "decisioned" EU money, it is spent and implemented effectively.

As I said, only yesterday I met Mr Donchev, the Bulgarian Minister overseeing the administration of EU funds in Bulgaria. I am pleased that alongside such meetings, including the meeting that I plan to have with the European Court of Auditors, and the work that we are doing with the European Commission and MEPs in the European Parliament, there is a sense that people are receptive to the need to improve financial management and want to see that happen.

I am keen and grateful for this House's support for the Government in pursuing that agenda, because that is vital. It was important that we could go into the negotiations saying that as a Parliament we stood behind the motion on bearing down on the EU economy and our decision that a 6% rise was unacceptable. We can learn lessons from that. We as a Parliament need to stick together and show solidarity in tackling these issues. That is one step that we must take.

Even my hon. Friend the Member for Stone (Mr Cash), in his role as Chairman of the European Scrutiny Committee, has a role to play, together with his fellow-chairmen of scrutiny committees across Europe, in pushing this sort of issue to the top of the agenda. We have to be prepared to say in all channels that we must get an EU budget that becomes affordable, that is spent on the right priorities, and that is managed in the right way. His role is also vital in being able to back up some Governments while perhaps pressing those for whom this has been less of a priority to put it further up their list of priorities in future.

Mr Cash: This is not in any sense directed at my hon. Friend personally, but one of the big problems in implementing the Lisbon treaty is the increased functions of the EU. Increasing functions increases expenditure, and increasing expenditure has tended to increase the amount of irregularities. I am sure she will understand my concern about the manner in which we are Europeanising not only our own domestic economy, with European economic governance and all the other things that go with it, but inviting ourselves into the arena of a black hole where other member states do not understand the rules and do not much care about them either.

Justine Greening: My hon. Friend will know that Conservative Members, in particular, had a range of concerns about the Lisbon agenda.

Mr Cash: I did not mean the Lisbon agenda: I said the Lisbon treaty. I think that the Lisbon agenda has been an almighty disaster and that the 2020 strategy would fare no better. The Lisbon treaty is the instrument that increases the functions.

Mr William Cash (Stone) (Con): I do not need to speak for very long on this matter, for the simple reason that I have been making the same speech about different auditors' reports for the last 26 years. I am afraid that nothing much has changed. The Economic Secretary is a very dedicated Minister and I have great enthusiasm for what she seeks to achieve. She puts the best possible face on the situation, but unfortunately nothing changes: plus ça change.

The reality is that the British taxpayer is, as the Minister has rightly admitted, under severe duress. We are having to cut back and implement austerity measures, but at the same time this report-which, for the 16th consecutive year, has not been signed off-demonstrates that there are serious errors and mistakes in the system. Those errors consist not merely in the manner in which the accounts have been presented, or in the fact that irregularities and fraud have been identified, but in the very system that has been created. Because of the nature of the problem and its range-and the fact that the documents relating to this debate run to 1,035 pages-it is impossible in 90 minutes to do more than give a general survey of where the whole problem lies.

I mentioned Bulgaria and Romania. The European Scrutiny Committee said that it was inappropriate for them to be brought into the accession procedure when they were, for all the reasons that we identified, which included the fraud that exists in those two countries. I am glad that the Economic Secretary has had a meeting with the Minister responsible for audit in Bulgaria, but I have to say that I do not think that the culture in that country will change very much because of a meeting. The cohesion funds-from the figures that I have already given-are clearly exploited and seriously misused. They represent a significant proportion of the problem. We have a serious problem that is deeply entrenched in the system.

As the Minister knows well, I proposed that we should not only reject the proposals put before us in a debate some months ago, but reject the increase in the budget, and I am glad that the House agreed to do just that. But that is only one side of the equation. The other is the vast sum of money being allocated for the purpose of running this failing European Union. I do not ask the Minister to agree with me on that point, because it would be politically incorrect to do so, but the reality is that it is a failing system. However, I do not need to rehearse the arguments that I have already given for why that is.  

One of the elements at the heart of that is the responsibilities of what is called OLAF, the European Anti-Fraud Office. I would like to refer to OLAF's mission statement, which is on page 729 of this mammoth bundle of motion documents. I can barely hold it up, actually-but fortunately, my wrists are quite strong. The mission statement says:

"The mission of the European Anti-Fraud Office…is to protect the financial interests of the European Union, to fight fraud, corruption and any other irregular activity". 

Hon. Members should note the last words, especially when people talk about actual proven fraud. And by the way, with regard to the cohesion funds, the documents that the European Scrutiny Committee has examined note that the survey in question is only a sample survey-that is something that always fills me with considerable reservations-not a full audit of the kind that one might have expected from the National Audit Office. Indeed, I would go further and say that if we made it Government policy to insist that no standards lower than those of the NAO and the Comptroller and Auditor General should be applied to the European Union, we would really be getting somewhere. Frankly, if the NAO had the opportunity to have a go at these 1,035 pages, plus all the supporting documents, or if it had the opportunity at least to get entrenched in the system, as I have said many times in the past that it should, so that NAO standards and principles were applied to those audited accounts, we might just begin to see some relationship between costs and benefits.

The reality, however, is that vast sums of money-our net contributions and all the rest of it-are poured into that black hole, and it does not work. I am not going to enlarge on all the reasons, which worry me, for our slow economic growth, which in my opinion have something to do with the fact that what we have out there is a dead parrot. The European Union is a system that is incapable of growth-indeed, growth is liable to decrease, compared with that in China, India and the rest-and on top of all that, we have the problems of audit and irregularities that the report demonstrates.

The statement on OLAF's mandate says:

"In pursuing this mission in an accountable, transparent and cost-effective manner, OLAF aims to provide a quality service to the citizens of Europe." 

OLAF's mandate covers

"all EU expenditure and part of the revenue side of the budget. It includes the general budget, budgets administered by the Union or on its behalf, certain funds not covered by the budget but administered by EU agencies"

perhaps that includes the External Action Service, which I hope we will look at in due course-

"and extends to all measures affecting the Union's assets."

That is a very big remit, and I have my reservations about that state of affairs.

The statement continues:

"OLAF's status is hybrid in nature. It is part of the Commission".

Would we have much confidence in the NAO if it were part of the Government? I very much doubt it. OLAF is supposed to be responsible for

"developing and monitoring the implementation of the EU's anti-fraud policies. However it has a measure of budgetary and administrative autonomy, which reinforces the total independence with which OLAF conducts investigations."

Mr Nuttall: Does my hon. Friend agree that one of the problems is that it apparently takes 25 months on average-more than two years-for OLAF to conduct its investigations, and that only 56% of cases have led to follow-up action?

Mr Cash: That is the problem. It is easy for us in this House to make scattergun criticisms of bureaucrats, civil servants and the rest of it, but the real problem is that if something does not work, we have to mend it-and there is no evidence of that happening.

I had an exchange with Lord Kinnock when he was responsible for these matters, and set up the new OLAF arrangements. He got a bit shirty with me in a Select Committee some years ago. People like Marta Andreasen were thrown out, and even before then, there was another chap whose name I cannot remember-

Chris Heaton-Harris (Daventry) (Con): Paul van Buitenen.

Mr Cash: Exactly. The trouble is that the moment anyone starts to get to grips with what is going on, the steel shutters come down and people are thrown out of the European institutional arrangements simply for asking questions that would be regarded as completely normal in any proper democratic system. That is the essence of the problem.

As I have said, I could enlarge at great length on the contents of these 1,035 pages, and every word would be entirely relevant because they are so important. Huge sums of taxpayers' money and resources are being churned into this failing quagmire. This is not just the ranting of a Eurosceptic; it is the reality of what affects the daily lives of the people of this country, and we seem to be prepared to go along with it.

Mr Davidson: Does the hon. Gentleman accept that part of the difficulty of conveying these issues to the electorate is that the sums involved are so enormous? It is difficult for people to understand sums of £10 million here and £100 million there. As the Chair of the European Scrutiny Committee, would he consider undertaking a piece of work that looked at the value for money provided by a European operation in this country? An example would be the European schools, some of which are situated here. Why does not he compare the cost of a European school with the cost of a normal school? It would make sense to people if they could see the extravagance that the European Union applies in such circumstances. That would bring it all home to people far more than any number of quotations involving zillions.

Mr Cash: I rather agree. It would be very nice for me to be able to make a comparison between the different kinds of school systems, but this is not only about schools; it is about everything that moves. The reality is that this all-pervasive, all-encompassing ectoplasm has managed to work its way into every nook and cranny of our lives. It slips under doors and through windows, and it is absorbing us to the point at which we are being totally Europeanised. Within that framework, our taxpayers' money is being absorbed into the bloodstream of the European Union, and the monitoring and accounting is inadequate, which is what this European Court of Auditors report is all about.

Mr Davidson: I was making a much more specific point a moment ago. I was referring not to schools in Europe in general but to the schools that are run by or on behalf of the European institutions themselves, of which there is at least one in the United Kingdom. A comparison of that school with a similar-sized school elsewhere in the UK would be enormously informative to parents and everyone else. Such an exercise would help to overcome the difficulties that we have in explaining the magnitude of the sums involved.

Mr Cash: I certainly agree with the hon. Gentleman's concern. If he would like to write to me about it, I would be more than happy to take the matter up in the European Scrutiny Committee if we have an opportunity to do so. We are going through a process of reinvigorated European scrutiny, as I hope he has noticed, and we are determined to get to the bottom of certain issues. This is one of them.

I do not want to take up too much time, because many others want to speak. I will simply make the general point that this is a failing system with a failed accountancy system, and the taxpayer is being badly affected by the way in which these matters are being conducted. There are always paragons of virtue, but this system falls so far below the threshold of what is required that the whole thing needs shaking up. In a nutshell, I would like to see principles of the same kind that apply to the National Audit Office applied to the European Union, so that the people there can be roasted when they get it wrong.