EU auditors raise eyebrows at UK customs control competence

It’s all about trust. Quite apart from their deleterious effect on the all-Ireland economy, member states simply do not trust the UK’s “customs-light” proposals for Ireland. The idea being that you could protect the single market while moving all checks and controls away from the Border, and use trusted-trader schemes and untested technology to track goods.

The protection of the single market and the guaranteeing of animal-food health standards are simply too important to be left to the fantasies of a state that has dodgy form on customs.

The European Court of Auditors (ECA) this week reminded us of as much in its annual report in drawing attention to a major hole in the EU budget left by lax enforcement of the EU customs regime by none other than the UK.

The UK owes the EU a hotly contested €2.7 billion over its failure, despite repeated reminders, to collect VAT and excise on a huge, multiyear Chinese textile and footwear import scam. In March 2019, the European Commission referred the case to the Court of Justice.

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The UK authorities, now making the case for light-touch customs controls in Ireland post-Brexit, turned a blind eye to gross undervaluations of imports which massively reduced tax liabilities for the Chinese.

EU anti-fraud agency Olaf cited the case of women’s trousers declared with a value of 91 cent per kilogram, undershooting the market price of cotton at €1.44 per kilogram. The average price for the trousers declared at customs across the EU was €26 per kilogram.

Tabloid stories

During my first stint in Brussels in the 1990s, the ECA annual report invariably produced a flurry of wild British tabloid stories about allegedly rampant fraud and waste in the EU and glee that the auditors were unable to sign off on the accounts.

In reality, fraud levels were relatively small and the irregularities found in the accounts were largely to do with failures in the member states to apply the strict accounting standards required, or money being paid out to projects that were technically outside the criteria set by the commission.

But a slow process of pressing member states to tighten up on internal controls, and a new emphasis by the court on qualitative assessment of spending, has meant that, for the third year in a row, the auditors have been able to sign off with a qualified opinion on the regularity of the financial transactions underlying the accounts.

The auditors estimate a 2.6 per cent error in 2018 expenditure (2.4 per cent in 2017 and 3.1 per cent in 2016). Errors were found mainly in high-risk spending areas, such as in rural development and cohesion, where payments from the EU budget are made to reimburse beneficiaries for the costs they have incurred. These spending areas are subject to complex rules and eligibility criteria.

Although reflecting an ongoing improvement overall, the Irish member of the court, Tony Murphy, says of his own area of responsibility, cohesion and regional funding, that the error rate on 5 per cent is still concerning. On an annual spend of €23 billion, "5 per cent is 5 per cent" – no small beer.

Serious delays

The report warns that lateness in submitting formal applications for money already pledged has seen serious delays for some member states and may cause cash flow problems for the EU at the end of the budget cycle in 2020 – at the end of 2018, Poland had failed to collect $35 billion in pledged commitments, representing 17 per cent of its total government spend.

At the other end of the scale, one of the best performers, Ireland, well-experienced in milking the Brussels cow, had only outstanding commitments worth €0.9 billion of its allocation, or 1.1 per cent of government spending.

The year 2018 was Ireland’s second year as a net contributor to the EU budget – it received some €2 billion from the EU, €315 million less than it contributed (0.12 per cent of gross national income).

It’s a figure that could easily double in the upcoming expanded budget, not least because of the country’s above-average economic growth rate. Member state contributions are based in large part on gross national income – Ireland’s gross national income-based contribution last year was €1.9 billion.

The UK’s departure and the desire of EU leaders to add several new items such as migration and climate change action to the budget is currently making for difficult talks.

Agriculture received by far the largest contribution – some €1.56 billion, or 76 per cent of receipts. Of that, €1.2 billion constitutes so-called “direct payments” to farmers, and €319 million is in the form of support to “rural development”.

The EU budget accounts for no more than about 1 per cent of the gross national income of all the member states combined. In 2018, spending totalled €156.7 billion, the equivalent of 2.2 per cent of the total general government spending of EU states.