Brussels inquiry into sell-offs

The European Commission said yesterday that it had begun investigating how privatisations have been handled in Britain, after allegations about the misuse of EU funds and claims by a Labour MP that European subsidies had been "milked" in advance of industry sell- offs.

The Commission would not say whether it believed EU rules had been broken, saying only that it wanted a "wider knowledge" of the subject. It is concerned about the way that state-owned utilities which have received cash from the European Regional Development Fund have later been privatised. Brussels has frequently clashed with the Government over the way Britain administers cash from the regional fund.

Alan Milburn, Labour MP for Darlington, has collated figures from Commons questions to ministers. He said that at least £435m from the fund had gone to projects undertaken by UK public-sector monopolies that were later sold off.

He said: "The UK Government has milked a massive subsidy from the European public purse to fatten up the utilities for privatisation."

The Commission inquiry is Europe-wide and does not focus only on Britain. Requests for information had gone out to all member states in January but no responses had been received, a Commission official said. The inquiry was undertaken by Bruce Millan, the former commissioner for regional policy and a former Labour minister. Monika Wulf-Mathies, the new commissioner for regional policy, is carrying on the investigation.

If EU funds have been used to boost companies before privatisation, it will prove a severe embarrassment for the Government. It has long complained about maladministration of EU cash and charged that EU institutions should be more vigilant over their spending.

Mr Milburn said: "The public has footed a huge privatisation bill - as taxpayers subsidising the transfer of public assets to the private sector and as consumers facing higher domestic charges."