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HOUSE OF LORDS
European Union Committee
20th Report of Session 2008–09
The EC Budget 2010
Report with Evidence
Ordered to be printed 21 July 2009 and published 30 July 09
Published by the Authority of the House of Lords
London : The Stationery Office Limited
£price
HL Paper 146
The European Union Committee
The European Union Committee of the House of Lords considers EU documents and other matters
relating to the EU in advance of decisions being taken on them in Brussels. It does this in order to influence
the Government’s position in negotiations, and to hold them to account for their actions at EU level.
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weeks an Explanatory Memorandum setting out the implications for the UK. The Committee
examines these documents, and ‘holds under scrutiny’ any about which it has concerns, entering
into correspondence with the relevant Minister until satisfied. Letters must be answered within two
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of Ministers to any proposal still held under scrutiny; reasons must be given for any breach.
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The Committee has seven Sub-Committees which are:
Economic and Financial Affairs and International Trade (Sub-Committee A)
Internal Market (Sub-Committee B)
Foreign Affairs, Defence and Development Policy (Sub-Committee C)
Environment and Agriculture (Sub-Committee D)
Law and Institutions (Sub-Committee E)
Home Affairs (Sub-Committee F)
Social Policy and Consumer Affairs (Sub-Committee G)
Our Membership
The Members of the European Union Committee are:
Baroness Cohen of Pimlico Lord Plumb
Lord Dykes Lord Powell of Bayswater
Lord Freeman Lord Richard
Lord Hannay of Chiswick Lord Roper (Chairman)
Baroness Howarth of Breckland Lord Sewel
Lord Jopling Baroness Symons of Vernham Dean
Lord Kerr of Kinlochard Lord Teverson
Lord Maclennan of Rogart Lord Trimble
Lord Mance Lord Wade of Chorlton
Lord Paul
The Members of the Sub-Committee which conducted this inquiry are listed in Appendix 1.
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euclords@parliament.uk
CONTENTS
Paragraph Page
Summary 4
The 2010 Preliminary Draft Budget 1 5
Box 1: Commitment and Payment appropriations 6
Total appropriations 7 6
The European Economic Recovery Plan 10 7
Table 1: Summary of 2010 PDB Proposals—EUR million
and GBP million 9
Detailed expenditure by Heading 16 10
Heading 1 Sustainable Growth 16 10
Table 2: Sustainable Growth—EUR million
and GBP million 10
Heading 2 Preservation and Management of Natural
Resources 20 11
Table 3: Preservation and Management of Natural
Resources—EUR million and GBP million 11
Heading 3 Citizenship Freedom, Security and Justice 22 12
Table 4: Citizenship, Freedom, Security and Justice
—EUR million and GBP million 12
Heading 4 The EU as a Global Player 25 13
Table 5: The EU as a global player—EUR million
and GBP million 13
Heading 5 Administration 27 13
Table 6: Administration—EUR million and GBP million 13
Budget Review 09 30 13
Appendix 1: EU Sub-Committee A (Economic and
Financial Affairs, and International Trade) 15
Appendix 2: Letter from Rt Hon the Lord Roper, Chairman
of the Select Committee on the European Union, to Ian
Pearson MP, Economic Secretary to HM Treasury, 8 July 2009 17
Appendix 3: European Budgetary Procedure 18
Appendix 4:The Committee Response to the 2008/9 EU Budget
Review Consultation Paper 20
Appendix 5: Glossary 24
Appendix 6: Recent Reports 25
Oral Evidence
Ian Pearson MP, Economic Secretary, Mr Mike Glycopantis, Head of EU
Finances Team, and Mr Mark Collins, Policy Adviser, HM Treasury
Explanatory Memorandum 1
Oral evidence, 11 June 2008 11
NOTE: References in the text of the report are as follows:
(Q) refers to a question in oral evidence
(p) refers to a page of written evidence
SUMMARY
This report informs the House about the Commission’s proposals for the 2010
General Budget of the European Communities. The report summarises the
significant proposed changes to funding under each of the budget headings. We
have been aided in this by oral evidence from the Economic Secretary to HM
Treasury (Ian Pearson MP) and a written Explanatory Memorandum from HM
Treasury.
This is the fourth budget to be drawn up under the current Financial Perspective,
the agreement which sets spending ceilings over a seven year period. The
Commission has stated that the budget aims to aid economic recovery. However,
the EU’s relatively small budget limits its potential to contribute to stimulus
efforts, and the system of multi-year ceilings, though useful for discipline and
stability, inevitably reduces flexibility. In the report, we also express concerns over
the size of the margin—the difference between the Financial Perspective ceiling
and proposed spending levels—under Heading 1a (competitiveness and growth),
which is not currently big enough to accommodate spending as part of the
European Economy Recovery Plan and other unforeseen expenditures.
We have also briefly considered the large proportion of the budget which is spent
on agriculture. We conclude that it is disappointing in the context of the financial
crisis that this proportion remains so large. We do however welcome the efforts of
the Government to reallocate unspent funds under Heading 2 (natural resources)
to Heading 1a (growth and employment).
We have also briefly considered the forthcoming budget review, which is due to be
published before the end of 2009. We look forward to scrutinising this document
on its publication.
The EC Budget 2010
THE 2010 PRELIMINARY DRAFT BUDGET
1. The Committee has scrutinised the EC Budget annually since 2004 on the
basis of oral evidence provided by the Government before the First Reading
of the Preliminary Budget in the European Council. The Committee decided
in the last Parliament that taking evidence from the Government at an early
stage in the budgetary process was the most effective way in which we could
fulfil our parliamentary obligation to scrutinise proposed EU legislation and
so ensure greater accountability and transparency.1
2. HM Treasury provided an Explanatory Memorandum on the Preliminary
Draft Budget (PDB) on 11 June; on the basis of this document we took oral
evidence from the Economic Secretary to the Treasury, Ian Pearson MP, on
30 June. Both the Explanatory Memorandum and the transcript of oral
evidence are printed with this report. As this report was published after the
First Reading of the Preliminary Budget on 10 July, we expressed our views
to the Minister in a letter of 8 July, which is published in Appendix 2 of this
report.
3. The annual EC Budget is largely determined by the previously agreed
Financial Perspective. Despite this, scrutiny of the annual EC Budget plays
an important part in making the budgetary process in the EU more
transparent. Accordingly, the aim of the Committee’s annual report on the
Budget is to inform the House of the issues relating to the Budget and to
scrutinise the Government’s position on the Commission’s Preliminary Draft
Budget. Scrutiny of the Government’s position is particularly important
given that the UK is a net contributor to the EC Budget. We will continue to
consider the Budget until it is adopted and also any Preliminary Draft
Amending Budget presented by the Commission.
4. This report was prepared by Sub-Committee A, whose Members are listed in
Appendix 1. A guide to the annual European budget procedure and a
glossary are presented in Appendix 3 and 5 respectively. We make this
report to the House for information.
5. Spending in the annual EC Budget is divided into eight categories under six
Headings, which are pre-determined by the multi-annual Financial
Perspective:
(1) Sustainable growth:
(a) Competitiveness for growth and employment;
(b) Cohesion for growth and employment;
(2) Preservation and management of natural resources;
(3) Citizenship, freedom, security and justice:
(a) Freedom, security and justice;
(b) Citizenship;
1 European Union Committee, 1st Report (2002–03): Review of Scrutiny of European Legislation (HL 15).
6 THE EC BUDGET 2010
(4) The EU as a global player;
(5) Administration; and
(6) Compensation.
No funding has been allocated to Heading 6 in the 2010 EC Budget.
6. The current Financial Perspective runs from 2007 to 2013, making the 2010
Budget the fourth under the current Perspective. This agreement between
the European Council, the Commission and the European Parliament
provides the financial framework for the EC for seven years, setting a ceiling
for total EC expenditure over the seven years and annual ceilings for each
expenditure Heading. Total EC expenditure is defined in terms of a
percentage of EU Gross National Income (GNI).
BOX 1
Commitment and Payment appropriations
The Preliminary Draft Budget makes a distinction between commitment and
payment appropriations.
Commitment appropriations are the total cost of legal obligations which can be
entered into during the current year, for activities which will lead to
payments in the current and future years.
Payment appropriations are actual transfers of cash from the Community
Budget to creditors during the current year, resulting from commitments
made in the current or previous years.
Total appropriations
7. The PDB proposes commitment appropriations in 2010 of €138,564 million
or 1.18% of EU GNI, an overall increase of 1.5% compared to 2009. For the
entire budget there is a margin of €1,754 million below the Financial
Perspective ceiling for 2010. The PDB allocates total payment
appropriations of €122,322 million, an increase of 5.3% compared to 2009.
This leaves a margin of €12,162 million below the Financial Perspective
ceiling. A full table of commitment appropriations and payments can be
found in Table 1. The Minister told us that this increase was in line with that
outlined in the Financial Perspective for 2010 (Q 21).
8. In his Explanatory Memorandum, the Minister argued that the PDB had
insufficient margins to accommodate the commitments already agreed as
part of the European Economic Recovery Plan (see below), but not allocated
funding within the Budget. Foreseen external action requirements in
Palestine and Kosovo, and further unforeseen requirements will also need to
be incorporated within the margin (p 5). The Minister told us that the
Government would argue for increased margins across all Headings, but with
particular focus on Headings 1a, 3 and 4. He said that the ability to finance
the Economic Recovery Plan using the budget margins has shown their
importance, but he noted that there were disagreements between Members
States over how big these margins needed to be (QQ 31–32). He explained
that the margins enabled a disciplined approach to the budget, so that
unexpected events can be dealt with, without needing revision of Financial
Perspective ceilings (Q 8).
THE EC BUDGET 2010 7
9. We agree that a sufficient margin under Heading 1a must be
maintained under the Financial Perspective ceiling to ensure that
unforeseen commitments and the European Economic Recovery Plan
can be accommodated. We agree with the Government that the
margin allowed by the Preliminary Draft Budget is likely to be
insufficient. To increase the margin, appropriations have to be reduced
under Headings 1a, given that the ceiling is fixed. Where relevant we
comment below on commitments and appropriations that should be reduced
to allow for an increased margin.
The European Economic Recovery Plan
10. The Minister explained in the Explanatory Memorandum that in March
2009 additional funding of €5,000 million outside the 2009 Budget was
agreed to fund broadband and energy efficiency infrastructure projects as
part of the European Economic Recovery Plan (EERP). Of this, €2,600
million was committed from the 2009 Budget and €2,400 million will be
committed from the 2010 Budget, allocated from the Heading margins. The
2009 Budget has been updated to include these commitment appropriations
and payments, whereas the 2010 PDB does not yet include these
appropriations (p 1). Comparisons between 2009 and 2010 figures are
therefore not always accurate. We refer to this in the report where
appropriate.
11. The Minister told us that the €2,600 million allocated to EERP projects in
the 2009 Budget was partly funded using excess funds for agricultural
projects under Heading 2 (QQ 8–9). Of the €5,000 million total, €1,020
million will go toward broadband infrastructure and CAP health check
projects and €3,980 million towards energy infrastructure projects. The
financing for the €1,020 million allocation will come exclusively from
Heading 2, €600 million of which will be covered by the existing 2009
Heading 2 margin. Financing for the energy projects in 2009 will come from
an increase to the Heading 1a margin of €2,000 million offset by a
corresponding decrease in the Heading 2 margin. Excess funding originally
allocated for agriculture projects is therefore being used to fund the EERP.
12. The Commission describe the 2010 Budget as an “instrument of economic
recovery.” The Minister emphasised increased spending under Heading 1a
and the provision of extra funding for core tools to aid recovery (such as the
European Globalisation Adjustment Fund as well as EERP projects) as
examples of how the PDB fulfils this claim (Q 4). He welcomed the increases
in these areas and said that he was “confident that this can play a part” in
stimulating the economy (Q 7). In particular he praised the energy projects
which form part of the EERP, such as development of carbon capture and
storage, which he believed should remain a key priority at both Member
State and EU level (Q 21). He acknowledged that many of these projects
would only have a significant impact in the long term, but argued that the
Recovery Plan should contain a mix of short-term stimuli and longer-term
projects that will benefit the EU after the recession. He said that the EERP
should have policies “that provide real assistance, support jobs and
employment now” whilst ensuring that there is a longer-term “forward facing
agenda”. He concluded that “essentially that means spending less on the
Common Agricultural Policy and more on competitiveness, growth and jobs”
(Q 14).
8 THE EC BUDGET 2010
13. The Minister argued that it was correct to fund the EERP through the
existing budget margins, as this allowed the use of funds from Heading 2,
under which funds for the Common Agricultural Policy are allocated. He
described agricultural spending as poor value-for-money for the EU taxpayer
(Q 12). He said that spending under Heading 2 distorted markets and did
not support a prosperous EU and argued that the Budget “could do more” to
aid economic recovery by further reducing spending under this Heading and
increasing spending under Heading 1 (Q 3). He described it as “curiously
bizarre” that the EU is still spending a significant proportion of the Budget
on agriculture when Europe is focused on climate change and the economic
crisis (Q 19).
14. He argued that in some respects the operating mechanisms of the Budget
forced the use of margins to fund the EERP as there is no provision within
the Budget to react to unexpected events (Q 10). He agreed that seven-year
budgeting through the multi-annual Financial Perspective makes it harder for
the Budget to be adjusted to respond to a crisis and admitted “privately I
might have some sympathy” for a zero-based budgeting system.2 He
commented that the Financial Perspective remains a key tool for budgetary
discipline, but added that the system does need a “fundamental review”. He
said that “until we reshape and modernise the EU Budget overall I think its
ability to effectively support a prosperous EU is limited”. However, he did
note that the Budget was just one of many tools the EU had to respond to
the economic crisis along with coordination of Member State action (QQ 3–4).
We discuss this further in the section on the Budget Review below.
15. The economic crisis has created a need to focus the budget on aiding
economic recovery, which the Commission has recognised. We support the
Commission’s attempts to focus the Preliminary Draft Budget on
economic recovery. However, the EU’s relatively small budget limits
its potential to contribute to stimulus efforts, and the system of multiyear
ceilings, though useful for discipline and stability, inevitably
reduces flexibility.3 In the light of the recession the distribution of the
Budget in favour of agriculture is deeply frustrating.
2 This budgeting system reviews all departmental spending annually, and all expenditure must be approved,
rather than only approving increases to spending.
3 The Committee commented on the length of the multi-annual financial programmes in its Report Future
Financing of the European Union (European Union Committee, 6th Report (2004-05) HL 62).
TABLE 1
Summary of 2010 PDB Proposals—EUR million and GBP million
2009 Budget 2010 PDB % change
Heading CA PA CA PA CA PA
€ £ € £ € £ € £ € £ € £
1. Sustainable Growth 62,202 54,296 46,070 40,215 62,152 54,252 47,365 41,345 -0.1% -0.1% 2.8% 2.8%
1a. Competitiveness for Growth and
Employment 13,775 12,024 11,106 9,694 12,769 11,146 10,982 9,586 -7.3% -7.3% -1.1% -1.1%
1b. Cohesion for Growth and Employment 48,427 42,272 34,963 30,519 49,382 43,106 36,382 31,758 2.0% 2.0% 4.1% 4.1%
2. Preservation and Management
of Natural Resources 56,721 49,512 52,566 45,885 59,004 51,505 58,075 50,694 4.0% 4.0% 10.5% 10.5%
Of which market related expenditure and
direct payments 41,127 35,900 41,080 35,859 43,745 38,185 43,626 38,081 6.4% 6.4% 6.2% 6.2%
3. Citizenship, Freedom, Security
and Justice 1,527 1,333 1,308 1,142 1,629 1,422 1,360 1187 6.7% 6.7% 3.9% 3.9%
3a. Freedom, Security and Justice 864 754 617 539 980 855 720 628 13.5% 13,5% 16.6% 16.6%
3b. Citizenship 663 579 691 603 649 567 640 559 -2.0% -2,0% -7,4% -7.4%
4. EU as a Global Player 8,104 7,074 8,324 7,266 7,921 6,914 7,665 6,691 -2.3% -2.3% -7.9% -7.9%
5. Administration 7,695 6,717 7,695 6,717 7,858 6,859 7,858 6,859 2.1% 2.1% 2.1% 2.1%
6. Compensation 209 182 209 182 - - - - - -100.0% - -100.0%
TOTAL 136,458 119,114 116,172 101,407 138,564 120,953 122,322 106,775 1.5% 1.5% 5.3% 5.3%
Margin 1,754 1,531 12,162 10,616
Compulsory Expenditure 42,799 37,359 42,784 37,346 45,248 39,496 45,152 39,413 5.7% 5.7% 5.5% 5.5%
Non-Compulsory Expenditure 93,658 81,754 73,388 64,060 93,316 81,456 77,170 67,362 -0.4% -0.4% 5.2% 5.2%
Appropriations as % of GNI 1.18% 1.18% 1.00% 1.00% 1.18% 1.18% 1.04% 1.04%
Notes: (1) CA = commitment appropriations (2) PA = payment appropriations
(3) Due to rounding, the sum of the lines may not equal the total
(4) Compulsory/non-compulsory expenditure = Compulsory expenditure is determined by the European Council, non-compulsory expenditure by the European Parliament (p 9)
(5) The exchange rate used to calculate all values in pounds sterling is €1 = £0.8729, the exchange rate on 31 May 2009
(6) Financial Perspective ceilings are adjusted to current prices (i.e. the ceilings for the 2010 Budget are presented in 2009 prices). The 2009 Budget is presented in 2008 prices, whilst the PDB 2010 is presented in 2009 prices
THE EC BUDGET 2010 9
10 THE EC BUDGET 2010
Detailed expenditure by Heading
Heading 1 Sustainable Growth
TABLE 2
Sustainable Growth—EUR million and GBP million
2009 Budget 2010 PDB % change
Heading CA PA CA PA CA PA
€ £ € £ € £ € £ € £ € £
1. Sustainable
Growth 62,202 54,296 46,070 40,215 62,152 54,252 47,365 41,345 -0.1% -0.1% 2.8% 2.8%
1a. Competitiveness
for Growth and
Employment
13,775 12,024 11,106 9,694 12,769 11,146 10,982 9,586 -7.3% -7.3% -1.1% -1.1%
1b. Cohesion for
Growth and
Employment
48,427 42,272 34,963 30,519 49,382 43,106 36,382 31,758 2.0% 2.0% 4.1% 4.1%
16. Under Heading 1a, commitment and payment appropriations have decreased
by 7.3% and 1.1% respectively. The Minister explained that this decrease is
due to EERP commitments being factored into the 2009 Budget, but not yet
the 2010 PDB (p 2). (If the EERP commitments and payments are excluded
from the 2009 Budget, the 2010 PDB sees an increase of 8.4% and decrease
of 6.3% for commitment and payment appropriations respectively.) The
reduction in payments is accounted for by:
• Decrease of funding to the 7th Framework Programme, which includes all
EU research initiatives as part of the Lisbon Strategy for Growth and
Jobs. Funding for the 6th Framework Programme has been phased out;
• A 40% decrease in funding for the Galileo satellite navigation project, on
which the Committee has recently taken oral evidence from the
Government and the Commission.4
• A 24% decrease in funding for the competitiveness and innovation
framework programme.
17. Under Heading 1b, the increase in commitments relative to the 2009 Budget
is largely accounted for by a 9.6% increase in funding to the Cohesion Fund.
The Minister explained that allocations for the Fund included €158bn of
funding for Cohesion policy projects in new Member States. Cohesion
funding in new Members States accounts for 56% of total Cohesion fund
spending in 2013, compared to 24% in 2007 (Q 22). The Committee’s
recent report The Future of EU Regional Policy (HL Paper 141, 19th Report of
Session 141) argued that Regional Policy spending should be focused on
poorer Member States. We are pleased to note that Cohesion Fund will in
future focus on spending in new Member States.
18. As Cohesion funding has previously had a low implementation rate, we asked
the Minister why funding is being increased in this area given that it may not
all be allocated or spent. He told us that the increase in funding to new
Member States was written into the Financial Perspective as part of a
4 Oral evidence transcripts can be viewed online at: www.parliament.uk/hleub
THE EC BUDGET 2010 11
previous political agreement, which he argued the Government should not go
back on (Q 27). He did, however, agree that the implementation or take-up
levels of Cohesion funding were nearly 10% lower than those of the Heading
as a whole (Q 25). However, there is a mechanism for cancelling
commitments that are not turned into payments and the Minister told us that
the Government were seeking to ensure that payment levels take into account
“genuine implementation capacity” (Q 29 and p 5). In recent years the
Commission has worked closely with Member States to increase
implementation rates of Cohesion policy funding which have risen from 68%
in 2001 to 87% in 2008 (Q 30). We are concerned that commitment
appropriations have increased for the Cohesion Fund when it has previously
had a low implementation rate. However, we are pleased to see that real
progress is being made in increasing implementation rates.
19. The Minister expressed concern that the margin of €130 million under the
Financial Perspective for Heading 1 is not big enough to accommodate the
financing of the EERP. He said the Government would seek to agree a larger
margin, particularly under the commitments budget ceiling of Heading 1a
(p 5). The margin under Heading 1a should be increased to meet these
and other currently unforeseen commitments. This requires a decrease
in commitment appropriations, particularly under Heading 1a, where the
margin is very small (Q 31).
Heading 2 Preservation and Management of Natural Resources
TABLE 3
Preservation and Management of Natural Resources—EUR million and
GBP million
2009 Budget 2010 PDB % change
Heading CA PA CA PA CA PA
€ £ € £ € £ € £ € £ € £
2. Preservation
and
Management
of Natural
Resources
56,721 49,512 52,566 45,885 59,004 51,505 58,075 50,694 4.0% 4.0% 10.5% 10.5%
Of which market
related
expenditure and
direct payments
41,127 35,900 41,080 35,859 43,745 38,185 43,626 38,081 6.4% 6.4% 6.2% 6.2%
20. Increases in commitments under Heading 2 are largely accounted for by a
6.4% increase in market-related expenditure or direct aids, as a result of
phasing-in of direct aids to new Member States. The increase in payments
arises largely because of a 31% increase in funding for rural development.
The Minister commented that a large proportion of direct payments had
already been agreed, making it hard for the increase to be lower than that
described in the PDB (p 5).
21. The Minister told us that the large part of the budget spent on agriculture
does not represent good value for money for either the UK or EU taxpayer
(Q 19). The Government has been arguing for complete reform of the
budget in this area and will closely scrutinise increases in these areas in the
2010 PDB, particularly given the low implementation capacity, with much
funding remaining unspent (p 5). He explained that the Government were
12 THE EC BUDGET 2010
able to argue successfully for the unallocated expenditure under Heading 2
to be used as funding for the EERP in the 2009 Budget. He hoped that this
would continue to be the case in 2010 (QQ 8–9). The Committee has
previously commented on spending as part of the Common Agricultural
Policy, which is funded under Heading 2, in its report The Future of the
Common Agricultural Policy.5
Heading 3 Citizenship Freedom, Security and Justice
TABLE 4
Citizenship, Freedom, Security and Justice—EUR million and GBP
million
2009 Budget 2010 PDB % change
Heading CA PA CA PA CA PA
€ £ € £ € £ € £ € £ € £
3. Citizenship,
Freedom,
Security and
Justice
1,527 1,333 1,308 1,142 1,629 1,422 1,360 1187 6.7% 6.7% 3.9% 3.9%
3a. Freedom,
Security and
Justice
864 754 617 539 980 855 720 628 13.5% 13.5% 16.6% 16.6%
3b. Citizenship 663 579 691 603 649 567 640 559 -2.0% -2.0% -7.4% -7.4%
22. Under Heading 3a, the substantial increases in commitments and payments
are accounted for by:
• A €30m increase in commitments and a €44 million increase in payments
to Solidarity and management of migration flows; and
• An allocation of €80 million to fund EUROPOL.
Decreases in commitments and payments under Heading 3b are largely
accounted for by the absence of specific resources allocated to the European
Union Solidarity Fund (EUSF). The EUSF is used to provide emergency
funding in response to natural disasters within the European Union.
23. When asked whether he agreed with the increase in funding to EUROPOL,
the Minister said that this €12m increase was indeed “very substantial”. He
told us that a large proportion of this increase was down to a building
proposal for a new headquarters; this requires scrutiny to ensure that it
provides good value-for-money. He was not convinced that the increase in
funding for EUROPOL represented worthwhile expenditure (QQ 33–34).
The Committee commented on the role of EUROPOL in its report
EUROPOL: coordinating the fight against serious and organised crime (29th
Report Session 2007–8, HL Paper 183).
24. The Minister argued that security was an area of the Budget, along with
Growth and Jobs and Climate Change and Development, where EU
spending would have an important positive effect (QQ 1, 12). However, the
Government were looking to reduce appropriations for commitments and
payments to ensure a sufficient margin below the Financial Perspective,
which is currently €64 million (pp 5–6).
5 European Union Committee, 7th Report (2007-08): The future of the Common Agricultural Policy (HL 54).
THE EC BUDGET 2010 13
Heading 4 The EU as a Global Player
TABLE 5
The EU as a global player—EUR million and GBP million
2009 Budget 2010 PDB % change
Heading CA PA CA PA CA PA
€ £ € £ € £ € £ € £ € £
4. EU as a
Global Player 8,104 7,074 8,324 7,266 7,921 6,914 7,665 6,691 -2.3% -2.3% -7.9% -7.9%
25. The inclusion of the Food Facility in the 2009 Budget largely accounts for
the decrease in commitments, along with a significant reduction in funding
for Development and Relations with ACP States. The reduction in payments
is largely explained by a €516 million reduction in the Instrument for Pre-
Accession.
26. The Minister explained that further expenditure is expected in Kosovo,
Palestine and Georgia and a sufficient margin must be maintained under the
Financial Perspective ceiling to meet these possible future contingencies
(pp 5–6). The Government were considering whether these financing
proposals are realistic given implementation levels.
Heading 5 Administration
TABLE 6
Administration—EUR million and GBP million
2009 Budget 2010 PDB % change
Heading CA PA CA PA CA PA
€ £ € £ € £ € £ € £ € £
5. Administration 7,695 6,717 7,695 6,717 7,858 6,859 7,858 6,859 2.1% 2.1% 2.1% 2.1%
27. The increase in payments is accounted for by a 5.1% increase in pensions
over all institutions, as well as a 2.4% increase in budgets of Other
Institutions and a slight increase in commitments and payments to the
Commission. The budget of European Schools has risen by €6 million
because of an increase in the number of pupils.
28. Although the Minister welcomed the lower increase in the allocation
compared to previous years, he told us the Government intended to question
whether it could not be reduced further (p 6). Increasing efficiency in
Administration spending was a key Government objective for the Budget
negotiations (Q 1).
29. Heading 6, Compensation, no longer has an allocation as part of the PDB
which represents a €209 million reduction to the PDB compared to 2009.
Budget Review 09
30. The European Council of December 2005 agreed that the Commission
“should carry out a comprehensive reassessment of the financial framework,
covering both revenue and expenditure, to sustain modernisation and to
enhance it, on an ongoing basis”. The Commission was asked to conduct a
“full, wide ranging review covering all aspects of EU spending, including the
14 THE EC BUDGET 2010
CAP, and of resources, including the UK rebate, to report in 2008/9”.6 This
review began in late 2007 with the publication of a consultation paper by the
Commission. Our response to the 2008 consultation paper is published in
Appendix 4.
31. The Government response to the consultation paper called for the reorientation
of the budget towards three areas:
• Building a prosperous Europe within a strong global economy;
• Addressing the challenges of climate change; and
• Ensuring security, stability and poverty reduction.
32. The Government’s response focused on the argument for the abolition of
price support and direct intervention in agricultural markets, and for other
payments under the CAP to focus on delivering environmental benefits to
society that would not otherwise be delivered by the market. The Minister
explained that while the United Kingdom will push for the Budget Review to
have an ambitious reforming agenda, other Member States may be “less than
enthusiastic” (QQ 38–40). The Budget Review will be published in 2009 and
we expect to conduct a full inquiry in due course.
6 15915/05.
THE EC BUDGET 2010 15
APPENDIX 1: EU SUB-COMMITTEE A (ECONOMIC AND FINANCIAL
AFFAIRS, AND INTERNATIONAL TRADE)
The Members of the Sub-Committee which conducted this inquiry were:
Lord Browne of Madingley
Baroness Cohen of Pimlico (Chairman)
Lord Haskins
Baroness Hooper
Lord Jordan
Lord Moser
Baroness Northover
Lord Renton of Mount Harry
Lord Steinberg
Lord Trimble
Lord Watson of Richmond
Lord Woolmer of Leeds
Declaration of Interests
Lord Browne of Madingley
Member, Deutsche Bank Advisory Board for Climate Change
Member, Brevan Howard Advisory Board
Managing Partner and Managing Director, Riverstone LLP
Member, PCCW Group of Advisors
Member, Schlumberger Business Consulting Advisory Group
Chairman, Accenture Energy Advisory Board
Member, McKinsey Knowledge Council
President, Royal Academy of Engineering
Chairman, Board of Trustees, Tate Galleries
Baroness Cohen of Pimlico
Non-executive Director, London Stock Exchange plc.
Vice Chairman, Borsa Italiana SA
Non-executive Director, Management Consulting Group plc
Chairman, Trillium Partners Ltd
Lord Haskins
Non-executive Director, JSR Farms Ltd
Advisory Director, Montrose Associates
Chair, Airtrack Railways Ltd
Director, Quarryside Farms Ltd
Pro Chancellor, Open University
Trustee, Lawes Agricultural Trust
Baroness Hooper
Chairman, Advisory Committee of two Barclays European Infrastructure Funds
Council Member, Institute for the Study of the Americas, University of London
Development Trust, National Museums Liverpool
Chairman, European Foundation for Heritage Skills
Chairman, Dance Teachers Benevolent Fund
Executive Council Member, Commonwealth Parliamentary Association
Governor, Royal Academy of Dance
Governor, Centre for Global Energy Studies (20 January 2009)
Vice-President, Hispanic and Luso Brazilian Councils (Canning House)
President, Waste Watch
President, British Educational Equipment & Supplies Association (20 January 2009)
16 THE EC BUDGET 2010
Trustee, The Tablet
Trustee, Anglo Romanian Educational Trust
Trustee, Industry and Parliament Trust
Trustee, St. George’s House, Windsor Castle
Fellow, Royal Geographical Society
Fellow, Royal Society for Arts and Manufacturing
Anglo Ecuadorian Society
Galapagos Trust
Anglo Mexican Society
Anglo Chilean Society
Lord Jordan
Chairman, Homes and Communities Agency Pension Scheme
Lord Moser
Consultant, Askonas Holt Ltd (unpaid)
Board Member, Open University of Israel
Board Member, Menuhin School
Advisory Council Member, London Symphony Orchestra
Chairman, Educational Committee, London Symphony Orchestra
Trustee, Hermitage Rooms, Somerset House
Trustee, Jewish Museum
President, Playhouse Theatre, Oxford
Chairman, Executive Committee, Jerusalem Music Centre
Chairman, Music at Oxford
Trustee, Rayne Foundation
Trustee, Paul Hamlyn Foundation
Trustee, National Centre for Social Research
Committee Member, Zoo Development Committee
Baroness Northover
Farm, West Sussex
Lord Renton of Mount Harry
Ownership of agricultural land in Sussex with wife
Partnership with wife and son in Mount Harry Vines
Lord Steinberg
Life President, Genting Stanley Plc
Executive Chairman, E.G.M.I
Non-executive Director, Medgenics
Director and Chairman, Stanleybet UK Investments
Lord Trimble
No relevant interests
Lord Watson of Richmond
Chairman, CTN communications
Chairman, Havas Media
Chairman, The Cambridge Foundation
President, The European Atlantic Movement
Chairman, Nexus Publishing
Chairman, Raisin Social Wine Importer
Lord Woolmer of Leeds
Member of the All Party Parliamentary Group on Wholesale Financial Markets
A full list of registered interests of Members of the House of Lords can be found at
http://pubs1.tso.parliament.uk/pa/ld/ldreg/reg01.htm
THE EC BUDGET 2010 17
APPENDIX 2: LETTER FROM RT HON THE LORD ROPER,
CHAIRMAN OF THE SELECT COMMITTEE ON THE EUROPEAN
UNION, TO IAN PEARSON MP, ECONOMIC SECRETARY TO HM
TREASURY, 8 JULY 2009
Thank you for your Explanatory Memorandum dated 11 June and for meeting
with Sub-Committee A on 30 June. The Sub-Committee have now considered the
Preliminary Draft Budget (PDB) and have cleared the item from scrutiny. As is
usual practice, the Committee plan to publish a Report on the Budget by the end
of July.
We broadly agree with your position. We support the Government’s efforts to
ensure that EC expenditure delivers value for money, appropriations are based on
realistic spending forecasts and Financial Perspective ceilings are respected.
As the Sub-Committee discussed with you at the meeting last week, the
Committee shares your concern that the PDB has insufficient margins to
accommodate the European Economic Recovery Plan and unforeseen
commitments. We believe that appropriations should be reduced under Heading
1a to increase the margin under the Financial Perspective ceiling.
We support the Commission’s attempts to focus the Preliminary Draft Budget on
economic recovery as a result of the financial crisis. However, we believe that
without fundamental reform of the budget system it is difficult for annual budgets
to respond to changing situations, as a significant review of the Budget is carried
out only once every seven years. The size of the EC Budget also limits any realistic
attempts to stimulate economic recovery through this funding source. We were
pleased to hear that you will push for the Budget Review to have an ambitious
reforming agenda, looking to create a budgetary system that will be able to react
effectively to unexpected events.
We are concerned that in the light of the recession the distribution of the Budget
favours agriculture because we believe that greater spending in other areas could
better contribute to economic recovery. We agree with you that spending on
agriculture under Heading 2 should be reduced.
We would be grateful if you could write to the Committee after 10 July to update
us on progress at Budget ECOFIN. We look forward to working with you both on
this issue and on other dossiers in the future.
18 THE EC BUDGET 2010
APPENDIX 3: EUROPEAN BUDGETARY PROCEDURE
Current Procedure
The budgetary procedure is set out in Article 272 of the Treaty establishing the
European Community, which stipulates the sequence of stages and the time limits
which must be respected by the two arms of the budgetary authority which
together establish the annual budget: the Council of Ministers (acting by qualified
majority) and the European Parliament.
Under the present budgetary procedure, the Council has the final say on
compulsory expenditure. This is spending that is a direct result of Treaty
application or of acts adopted in accordance with the Treaty. In practice, this
mainly means spending on agricultural guarantees. The European Parliament has
the final say on all other categories of spending, which are defined as noncompulsory
expenditure. Examples of non-compulsory expenditure include
spending on regional policy, research policy and energy policy.
The Lisbon Treaty
If the Lisbon Treaty is implemented, changes will be made to this procedure.
Most significantly, the distinction between compulsory and non-compulsory
expenditure will be abolished and the Council and Parliament will have to reach
agreement on all parts of the budget. In our impact assessment of the Lisbon
Treaty, we concluded that this change would increase transparency and make the
agricultural budget more open and balanced between market related expenditure
and funding for rural development.7
The Lisbon Treaty also introduces a “subsidiarity check” which allows Member
State Parliaments to express concerns on subsidiarity directly to the institution
which initiated the proposed legislation. Member State Parliaments working
together can request a review of legislative proposals.
The stages of the annual budget
In practice,8 the stages in the negotiations over the annual budget are as follows:
(1) The Commission draws up a Preliminary Draft Budget (PDB) in May;
(2) The Council conducts its first reading of the PDB in July and establishes
a Draft Budget;
(3) The European Parliament conducts its first reading in October on the
basis of the Council’s Draft Budget;
(4) In November, the Council conducts a second reading on the Draft
Budget to consider any amendments or proposed modifications by the
European Parliament; and
(5) In December, the European Parliament reviews the Council’s proposals
and adopts the Budget.
Preliminary Draft Budget
This report deals with the Preliminary Draft Budget as issued by the Commission
on 29 April 2009. This version of the Budget represents the first stage of the
7 European Union Committee, 10th Report (2007–08): The Treaty of Lisbon: an impact assessment (HL 62).
8 Article 272 of the Treaty establishing the European Community contains later backstop dates.
THE EC BUDGET 2010 19
procedure and provides the basis for subsequent negotiations between the Council
and the European Parliament. The Draft Budget was established on 10 July at the
Economic and Financial Affairs Council.
The Council’s Second Reading
After the Parliament’s first reading, a delegation from the Parliament attends a
conciliation meeting with the Council prior to the Council conducting its second
reading in early November. The Draft Budget is amended in the light of the
European Parliament’s amendments (for non-compulsory expenditure) or
proposed modifications (for compulsory expenditure). As a general rule, the
Council’s decisions on second reading determine the final amount of compulsory
expenditure: unless the entire Budget is subsequently rejected by the European
Parliament, the Council has the “last word” on this category of expenditure. The
Draft Budget as amended is then returned to the European Parliament.
The European Parliament’s Second Reading and the adoption of the Budget
In December, the European Parliament reviews non-compulsory expenditure, for
which it can accept or refuse the Council’s proposals. If there is agreement, the
President of the European Parliament then declares the Budget adopted and it can
be implemented; alternatively the Parliament may reject the draft budget and ask
for a new draft to be submitted.
Resources for the EC Budget
The revenue side for the annual EC Budget has four main sources, collectively
known in the Community as the ‘Own Resources’. These are:
(1) customs duties;
(2) agricultural levies, including sugar levies;
(3) a contribution based on a harmonised base for VAT income in Member
States; and
(4) contributions from Member States based on a proportion of their GNI.
Under Article 269 of the Treaty establishing the European Community, the
Council, acting unanimously, lays down the provisions governing the EC’s Own
Resources. A maximum level for Own Resources of 1.27% EU Gross National
Product (GNP) was set in 1988. This has subsequently been changed to 1.24% of
EU GNI. This change merely reflects the preference for using GNI as a statistical
tool, and does not represent a change in the level of the ceiling.
Over time, the proportions of income from each resource have adjusted to the
current position whereby the GNI-based contribution is the primary source of
income for the EC Budget. In 2007, we supported this development; we found
that no new form of taxation put to us provided the same level of clarity and
certainty as the GNI-based resource.9
9 European Union Committee, 12th Report (2006–07): Funding the European Union (HL 64).
20 THE EC BUDGET 2010
APPENDIX 4: THE COMMITTEE RESPONSE TO THE 2008/9 EU
BUDGET REVIEW CONSULTATION PAPER
1 Has the EU budget proved sufficiently responsive to changing needs?
No. The allocation of funding from the EU Budget remains dominated by historic
influences. We welcome the review as an opportunity to remove many of these and
start afresh with a budget which is suitable for the issues which the Community
currently faces.
2 How should the right balance be found between the need for stability and the need
for flexibility within multi-annual financial frameworks?
We support the principle of multi-annual financial frameworks. The stability and
certainty of funding that they produce is particularly welcome for regions and
projects that are receiving funds from the Cohesion and Structural Funds, and
similar schemes, as it allows the project managers to plan over several years rather
than rush to distribute funding.
3 Do the new policy challenges set out in the consultation document effectively
summarise the key issues facing Europe in the coming decades?
Yes. The list of challenges in section 2.1 of the document is comprehensive and
wide-ranging. As the document implies, financial resources are just one policy
lever that is available to the Commission, and we would not expect the European
Union budget to have to fund activities under all of these headings. National
governments must take steps to address many of these factors themselves. All areas
clearly need to be properly justified against the criterion of EU value added.
4 What criteria should be used to ensure that the principle of European value added
is applied effectively?
The Consultation Paper summarises the case for spending from the EU budget.
European action should provide clear additional benefits compared to action by
individual Member States alone in pursuing policies that promote the European
common interest. It is important to remember that the Commission can act as a
repository of information and best practice, and co-ordinate Member States’
activities, rather than directly spending money itself.
5 How should policy objectives be properly reflected in spending priorities? What
changes are needed?
Direct income support under the CAP should be progressively phased out over the
course of the next Financial Perspective. A significant proportion of the funds
released should remain earmarked for the rural development element of the policy.
There is a place for collective EU investment in ensuring that Europe has a
dynamic economy—because that depends on the EU as a whole improving
capacity and therefore investment in innovation and human capital. As long as the
principle of subsidiarity is respected, we believe there is a place for collective EU
investment in Research and Development (R&D), education and infrastructure
programmes, but this investment can only reach its potential in a fully realised
Internal Market.
We are currently considering the Structural & Cohesion Funds and a report will be
published in May. Our preliminary conclusions are that funding should be
THE EC BUDGET 2010 21
concentrated on the new Member States, where the lack of administrative capacity
is a significant impediment to growth; spending on these programmes should not
occur in wealthier regions. EU cohesion spending should remain transitional, time
limited and geographically focused to assist with economic convergence,
restructuring or diversification. The support should be tapered and it should not
become a permanent policy instrument used by the EU to prop up regions on a
continuing basis.
6 Over what time horizon should reorientations be made?
Reorientations should be completed as soon as possible. A prompt conclusion to
the Budget Review would allow the necessary groundwork to be laid for new
programmes and policies before the end of this Financial Perspective.
7 How could the effectiveness and efficiency of budget delivery be improved?
Developments in the value for money and performance auditing side of the Court
of Auditors’ work would be particularly valuable. The Court already produces
some special reports which go beyond simple audit function, and this is a role that
could be expanded further. We also support work undertaken by Eurostat to
ensure that reliable and comparable statistics are available in all countries: these
are often the only means by which the success or otherwise of an intervention can
be measured. It is important that this work continues and that comprehensive
economic data is available for all regions of the EU.
8 Could the transparency and accountability of the budget be further enhanced?
The lack of a positive assurance from the European Court of Auditors in their
annual Statement of Assurance is a serious problem for the European Union and
the governments of its Member States. We recognise, however, that the EU
budget is relatively small compared to the total government spending in many
Member States and that the resolution of the failure to produce a positive
assurance will require Member State commitment to change.
We encourage the Court to put in place measures clearly to distinguish between
irregularity and fraud and to publish separate figures for the level of fraudulent
transactions and administrative mistakes. Whilst the distinction between fraud and
other irregularities must be made clear, we consider that administrative mistakes
could still indicate deficiencies in the control systems operated by the Member
States or the Commission. Attention should therefore be drawn to both categories
and all sources of error should be taken into account when calculating material
error rates.
The European Court of Auditors should produce a list of those Member States
demonstrating poor management of European funds. We consider that such a list
would encourage all the governments of the Member States to take this issue
seriously. We consider it particularly unacceptable for the government of a
Member State to treat European money with less care than national funds and
urge the Council to make this clear. We are also concerned about the variability of
control standards between Member States. We consider that all European
expenditure should be subject to equivalent standard of control to ensure that the
risk of fraud and error is minimised.
We are strongly in favour of a national Statement of Assurance on the monies
disbursed in each Member State. Such a Statement should be sent to national
parliaments as well as to the Commission as we consider that this will encourage
22 THE EC BUDGET 2010
the Member States to take responsibility for the systems and controls they operate.
Consideration should be given to ensuring the length of time the discharge
procedure takes is not extended. We do not consider that a national Statement of
Assurance requires a political signature.
We recognise the commitment that the Commission has shown to improving its
accounting system. This must continue and the Commission must always aim to
be a global leader in public accounting.
9 Could enhanced flexibility help to maximise the return on EU spending and
political responsiveness of the EU budget?
This is not necessary. The EU budget is best placed to consider wide-ranging,
long-term issues where a multinational approach is most likely to effect change. It
should not aim to be responsive to political pressures which vary more frequently.
National government budgets can fulfil this role instead.
10 What principles should underpin the revenue side of the budget and how should
these be translated in the own resources system?
In principle we would welcome greater simplicity, transparency and a reduced
administrative burden. But we would not wish to propose change for change’s
sake. We therefore see no need for change with respect to the Traditional Own
Resources. On balance we believe it would be no great loss if the VAT Resource
were eliminated. We welcome Eurostat’s continuing work to enhance the
comparability, exhaustiveness and reliability of Gross National Income data, but
we believe it already is sufficiently reliable to provide the statistical base for a
revenue stream. We reject suggestions that the GNI-based revenue stream, or any
other transfer from a Member State, is not a valid funding mechanism.
We do not think a tax on citizens is needed to fund the EU. Any assessment of the
suitability of a tax or revenue generating measure will be subjective and dependent
on the weightings placed on the different attributes considered desirable.
Considered against the criterion of suitability for revenue raising (which should be
the Commission’s sole concern), none of the alternatives as currently set out
demonstrate compelling advantages over the present system.
11 Is there any justification for maintaining correction or compensatory mechanisms?
If real reform of the expenditure side of the Budget were secured, the scale of, and
possibly the need for, the corrections and compensatory mechanisms would be
reduced. The pressing need for reform is on the expenditure side, and in particular
in the area of direct agricultural income support for farmers: without it, the case
for maintaining rebate mechanisms will remain strong.
12 What should be the relationship between citizens, policy priorities, and the
financing of the EU budget?
We welcome the changes to the budget that have been made by the Lisbon Treaty,
in particular the removal of the principle of “compulsory” expenditure which will
enhance the role of the European Parliament.
There is also a role to be played by national Parliaments. We have found it very
useful to produce a report on the draft annual budget each year. Sub-Committee
A of the House of Lords European Union Committee meets a United Kingdom
Treasury Minister between the publication of the Preliminary Draft budget and
THE EC BUDGET 2010 23
the July Budget ECOFIN meeting. The Minister is asked to outline the
Government’s stance on the budget and is made aware of Parliament’s views.
Wider publicity could be given to the Annual Policy Strategy (APS) by the
Council and national governments. The Commission must also explain clearly in
the APS the financial constraints around it, and the ways in which the
Commission can or cannot change its spending priorities within the financial
framework. Political priorities must be matched in budgetary terms, and to do that
it needs to declare which areas of action are receiving less funding in order to allow
it to prioritise others. The Commission, the Council and the Parliament need to
forge a closer link between the budgetary and legislative processes.
Ultimate responsibility lies in the Council, so it is crucial that it assists any effort to
increase the correlation between political priorities and financial resources. The
APS must provide the clear, overarching strategy for the Commission’s coming
year, indicating in each area what are to be the key policy intentions to be
prioritised for implementation of that strategy.
As outlined in our answer to question ten, we oppose a direct tax on citizens or
business.
This response draws on reports recently published by the Committee, including:
• The Future of the Common Agricultural Policy (7th Report, 2007–08;
HL 54) 6 March 2008
• The 2008 EC Budget (33rd Report, 2006–07; HL 160) 30 July 2007
• Funding the European Union (12th Report, 2006–07; HL 64) 14 March
2007
• Financial Management and Fraud in the European Union: Perceptions,
Facts and Proposals (50th Report, 2005–06; HL 270) 13 November 2006
• The 2007 EC Budget (39th Report, 2005–06; HL 218) 10 July 2006
• Future Financing of the European Union (6th Report, 2004–05; HL 62)
9 March 2005
These are all available online at
http://www.publications.parliament.uk/pa/ld/ldeucom.htm
The response also draws on comments made by Lord Grenfell in the House of
Lords on 28 February 2008, during a debate on the report of the European Union
Committee, The Commission’s Annual Policy Strategy for 2008 (23rd Report,
Session 2006–07, HL Paper 123).
http://www.publications.parliament.uk/pa/ld200708/ldhansrd/text/80228–
0013.htm#08022878000205
The Committee plan to conduct an inquiry into the proposals for the Budget
Review when they are available.
24 THE EC BUDGET 2010
APPENDIX 5: GLOSSARY
ACP African, Caribbean and Pacific Group of States
CAP Common Agricultural Policy
EC European Communities
EERP European Economic Recovery Plan
EU European Union
EUROPOL European Law Enforcement Cooperation
EUSF European Union Solidarity Fund
GNI Gross National Income
GNP Gross National Product
PDB Preliminary Draft Budget
THE EC BUDGET 2010 25
APPENDIX 6: RECENT REPORTS
Recent reports from the Select Committee
Access to EU Documents (15th Report session 2008–09, HL Paper 108)
The Review of the Less Favoured Areas Scheme (13th Report session 2008–09,
HL Paper 98)
European Contract Law: the Draft Common Frame of Reference (12th Report
session 2008–09, HL Paper 95)
Correspondence with Ministers—May to October 2007 (11th Report session
2008–09, HL Paper 92)
Recast of the First Rail Freight Package (10th Report session 2008–09, HL Paper 90)
Procedural rights in EU criminal proceedings—an update (9th Report
session 2008–2009, HL Paper 84)
Reports prepared by Sub-Committee A
Session 2008–2009
The future of EU financial regulation and supervision (14th Report, HL Paper 106)
EU Legislative Initiatives in response to the Financial Turmoil (1st Report,
HL Paper 3)
Session 2007–2008
Developments in EU Trade Policy (35th Report, HL Paper 200)
The Future of EU Regional Policy (19th Report, HL Paper 141)
The 2009 EC Budget (18th Report, HL Paper 140)
The euro (13th Report, HL Paper 90)
Solvency II (6th Report, HL Paper 42)
Minutes of Evidence
TAKEN BEFORE THE EC COMMITTEE
TUESDAY 30 JUNE 2009
Present Cohen of Pimlico, B. (Chairman) Steinberg, L.
Haskins, L. Trimble, L.
Moser, L. Woolmer of Leeds, L.
Northover, B.
Explanatory Memorandum by HM Treasury SEC(2009) 610
PRELIMINARY DRAFT BUDGET (PDB) OF THE EUROPEAN COMMUNITIES 2010
Subject Matter
Commission Proposals, the Budget Structure and the Annual Procedure
1. The Preliminary Draft Budget (PDB) sets out the Commission’s proposal for European Community
expenditure in 2010. It represents the first stage in the annual budget procedure,1 and provides the basis for
negotiations between the two arms of the Budgetary Authority (the Council and the European Parliament),
which will result in the adoption of the 2010 General Budget in December 2009.
2. The context for thePDBis determined by the multi-annual Financial Perspective (FP) which sets out annual
ceilings for the six headings of budget expenditure:
(i) Sustainable Growth;
(ii) Preservation and Management of Natural Resources;
(iii) Citizenship, Freedom, Security and Justice;
(iv) The European Union as a Global Player;
(v) Administration; and
(vi) Compensation (temporary measures for Bulgaria and Romania in the first years of accession and no
longer applying after 2009).
The PDB for 2010 will be the fourth of the 2007–13 FP.
3. The PDBis presented in Activity-Based Budgeting (ABB) format with budget appropriations, resources and
staV allocations organised by activity. ABB seeks to tie budgetary resources to clear policy objectives using
appropriate performance indicators and evaluation measures. As part of the 2010 PDB the Commission also
published Activity Statements providing performance information for each activity. These present specific
objectives, planned outputs, and performance measures at the level of individual budget lines as well as higherlevel
activity areas, in line with ABB. Negotiations on the 2010 budget will be conducted on the basis of ABB
documentation.
4. The 2010 PDB presents a Budget Memorandum for the first time. This provides an overview of the main
achievements which have been or will be achieved by the EC Budget. The budget memorandum is organised
around the four priority areas of the Lisbon Strategy and based on information from activity statements.
5. At the European Council on 20 March 2009 agreement was reached between heads of Government on an
additional „5,000 million (£4,365 million)2 package to support energy and broadband infrastructure projects
as part of the wider European Economic Recovery Plan (EERP). Agreement was reached on financing „2,600
million (£2,270 million) of commitment appropriations in 2009 Financing the remaining „2,400 million
(£2,095 million) to be committed in 2010 will be discussed and decided on in the context of the 2010 budget
negotiations. The 2009 budget therefore includes commitments and payments for the EERP while the
commitments for 2010 are not yet entered in the PDB. This is acknowledged by the Commission in the
presentation of its PDB and the comparisons made with the 2009 budget.
1 Terms in italics are explained in the glossary (Annex 2).
2 “This and all subsequent exchange rates will be calculated using the exchange rate on 31May 2009 for June 1 Euro £0.8729 and rounded
to the nearest million.
2 the ec budget 2010: evidence
6. As in previous years, the PDB consists of a General Statement of Revenue and draft estimates of required
appropriations for the nine separate EU institutions (European Parliament, Council, Commission, Court of
Justice, Court of Auditors, Economic and Social Committee, Committee of the Regions, European
Ombudsman; European Data Protection Supervisor). In addition, the Commission publishes Working
Documents alongside the PDB, including a document containing the Activity Statements and a document
containing Financial Statements.
PDB 2010—Overview
7. The Commission’s Annual Policy Strategy for 2010 highlighted the eVect of the economic crisis on EU
citizens and businesses and stressed the importance of EU action towards building the conditions for recovery.
Consequently, the main focus of the 2010 PDB is the role of the budget in relation to the reactivation of
economic activity in Europe and it is described, by the Commission, as being “an instrument for economic
recovery”.3
8. The PDB proposes commitment appropriations of „138,564 million (£120,953 million). This is 1.18% of EU
Gross National Income (GNI). The increase in commitments is „2,106 million4 (£1,838 million) or 1.5%5
above 2009 levels.
9. For payment appropriations the PDB proposes „122,322 million (£106,775 million), or 1.04% of EU GNI.
This represents an increase of „6,150 million (£5,368 million). The percentage increase in payment
appropriations, in comparison to the 2009 Budget is 5.3%.
10. The margin under the FP ceiling is „1,754 million (£1,531 million) for commitments. The margin under
the FP ceiling is „12,162 million (£10,616 million) for payments.
11. Compulsory expenditure accounts for „45,248 million (£39,497 million) of commitment and „45,152
million (£39,413 million) of payment appropriations. This represents increases of 5.7% and 5.5% respectively.
12. Non-Compulsory expenditure accounts for „93,316 million (£81,456 million) of commitment and „77,170
million (£67,362 million) of payment appropriations. This represents a decrease of 0.4% for commitments and
an increase of 5.2% for payments, relative to 2009 levels.
13. Tables summarising the key figures of the 2010 PDB are provided in Annex 1 (in both Euros and Sterling).
PDB 2010—Detail of Proposed Expenditure by Heading
Heading 1 Sustainable Growth
14. Overall, proposed expenditure of Heading 1 is „62,152 million (£54,252 million) for commitment
appropriations and „47,365 million (£41,345 million) for payment appropriations leaving a margin of „130
million (£113 million) under the FP ceiling for commitments; Heading one is divided into two further headings:
Heading la (Competitiveness for Growth and Employment) and Heading lb (Cohesion for Growth and
Employment).
15. For Heading 1a (Competitiveness for Growth and Employment),6 the PDB proposes „12,769 million
(£11,146 million) for commitments and „10,982 million (£9,586 million) for payments. Compared to the 2009
Budget this represents decreases of „1,005 million (£877 million), or "7.3% in commitments and a decrease
of „124 million (£108 million), or "1,1% in payments.
16. The presented decrease in commitment appropriation levels is, in part, due to the inclusion in the 2009
Budget of „2,000 million (£1,746 million) for Energy projects to aid economic recovery (as part of the EERP)
and the fact that EERP commitments are not yet factored into the 2010 PDB. Financing of the remaining
EERP commitments for 2010 will be decided towards the end of 2009 as part of the wider 2010 budget
negotiation. If the Economic Recovery Plan is excluded commitment appropriations increase by 8.4% and
payment appropriations decrease by 6.3%.
17. The reduction in payment appropriations is largely accounted for by:
— The phasing out of the 6th Framework Programme.
— Seventh Framework Programme—a „479 million (£418 million) or a 6.9% decrease.
3 Document 1; Expenditure analysis by multiannual financial framework headings, p 3.
4 Compared to the 2009 EC Budget.
5 This and all subsequent percentage figures include the EERP unless otherwise stated.
6 Excluding European Econoinic Recovery Plan.
the ec budget 2010: evidence 3
— Galileo—„306 million (£267 million) or 40.2% decrease.
— Competitiveness and Innovation Framework Programme—a „117 million (£102 million) or 24.2%
decrease.
18. For Heading lb (Cohesion for Growth and Employment), the PDB proposes commitment appropriations
of „49,382 million (E43,106 million) and 4payment appropriations of „36.382 million (£31,758 million).
These represent an increase of „955 million (£834 million) or 2.0% in commitments and an increase of „1,419
million (£1,239 million) or 4.1% in payments relative to the 2009 Budget. The proposed increase in
commitments within H1b is largely due to a „894 million (£780 million), or 9.6% increase in proposed
expenditure to the Cohesion Fund.
Heading 2—Preservation and Management of Natural Resources
19. The PBD proposes commitments of „59,004 million (£51,505 million) and payments of „58,075 million
(£50,694 million). These represent an increase of „2,282 million (£1,992 million) or 4.0% for appropriations
and „5,509 million (£4,809 million) or 10.5% for payments compared to the 2009 Budget. The PDB reserves
a margin of „1,109 million (£968 million) under the FP ceiling for commitments.
20. The increases in commitments within Heading 2 are largely accounted for by a „2,618 million (£2,285
million) increase (6.4%) in market related expenditure and direct aids. The PDB attributes this increase largely
to the phasing-in of direct aids to the new Member States and an increase in market related expenditure. The
increases in payments are largely due to an increase of „3,203 million (£2,796 million) or 31.3% in rural
development and an increase of „2,547 million (£2,247 million) or 6.2% in market related expenditure and
direct aids. As with Heading la, the 2010 PDB does not include commitments for the EERP which will be
decided on in the course of negotiations.
Heading 3—Citizenship, Freedom, Security and Justice
21. The proposed expenditure on Heading 3 is „1,629 million (£1,422 million) for commitments and „1,360
million (£1,187 million) for payments. This represents an increase in commitments of „103 million (£90
million) or 6.7% and an increase in payments of „52 million (£45 million) or 3.9% relative to the 2009 Budget.
The PDB leaves a margin of „64 million (£56 million) under the FP ceiling for commitments. Heading 3 is
divided into two further headings: 3a (Freedom, Security and Justice) and 3b (Citizenship).
22. For Heading 3a (Freedom, Security and Justice), the PDB proposes commitment appropriations of „980
million (£855 million) and payment appropriations of „720 million (£628 million). This represents an increase
of „116 million (£101 million) or 13.5% for commitments and „103 million (£90 million) or 16.6% for
payments. This leaves a margin of „45 million (£39 million) under the FP ceiling.
23. The increase in commitment and payments within Heading 3a include:
— “Solidarity and management of migration flows”—a „30 million (£26 million) or 6.3% increase in
commitments and a „44 million (38 million) or 14.8% increase in payments.
— “Decentralised agencies”—a „95 million (£83 million) or 68.4% increase in commitments and a „69
million (£60 million) or 49.8% increase in payments. This increase is largely due to the allocation of
„80 million (£70 million) of non-diVerentiated expenditure to fund the European Police College
(EUROPOL) as 2010 is the first year that this is to be financed from the EC Budget.
24. For Heading 3b (Citizenship) the PDB proposes „649 million (£575 million) for commitments and „640
million (£559 million) for payments. This represents a decrease of „13 million (£11 million) or 2% for
commitments and a decrease of „51 million (£45 million) or 7.4% for payments relative to the 2009 Budget.
This leaves a margin below the ceiling for commitments of „19 million (£17 million).
25. The decrease in commitments and payments under Heading 3b is largely accounted for by the absence of
specific allocated resources in the PDB for the European Union Solidarity Fund (EUSF) which as a
contingency instrument is provisioned as needs arise. in addition, for “other actions and programmes” under
this heading there is a reduction of „8 million (£7 million) or 32.7% in commitments and a decrease of „11
million (£10 million) or 12.9% in payments. A further reduction of „15 million (£13 million) for payments
under the “public health and consumer protection programme” helps to explain the large reduction in
payments under Heading 3b of the PDB.
4 the ec budget 2010: evidence
Heading 4—The EU as a Global Player
26. Heading 4 of the PDB proposes commitments of „7,921 million (£6,914 million) in commitments and
„7,665 million (£6,691 million) in payments. This represents a decrease of „183 million (£160 million) or 2.3%
in commitments and a decrease of„660 million (£576 million) or 7.9% in payments relative to the 2009 Budget.
There is a margin of „221 million (£193 million) below the FP ceiling for commitments.
27. The reduction in commitments in Heading 4 is largely accounted for by the inclusion in the 2009 Budget
of appropriations for the Food Facility and by a „333 million (£291 million) or 59.7% reduction in “Other
actions and programmes—Development and relations with ACP States”. In addition, the „67 million (£58
million) decrease in the “European Neighbourhood and Partnership Instrument” and „57 million (£50
million) decrease in “Instrument for pre-accession assistance—Enlargement” contribute to the overall fall in
commitments.
28. The significant reduction is payments within Heading 4 is largely due to the „516 million (£450 million)
or 22.4% decrease to the “Instrument for Pre-Accession”. The other decreases of „103 million (£90 million)
or 18.6% for “Other actions and programmes—Development and relations with ACP States” and „87 million
(£76 million) in “European Neighbourhood and Partnership Instrument” explain the majority of the fall in
payments.
Heading 5—Administration
29. For Heading 5 the PDB proposes commitments and payments of „7,858 million (£6,859 million). This
represents an increase of „163 million (£142 million) or 2.1% in both commitments and payments and leaves
a margin of „230 million (£201 million) under the FP ceiling for commitments.
30. The increase in payments and commitments is accounted for by a „58 million (£51 million) increase or
5.1% in pensions over all the institutions, a „68 million (£59 million) increase or 2.4% in the budgets of “other
institutions” and a 0.9% increase of „32 million (£28 million) in commitments and payments for the
Commission. In addition, the budget of the European Schools has increased by „6 million (£5 million) due to
the increase in the number of pupils according to the Commission.
Heading 6—Compensation
31. The 2010 PDB has no allocation for Heading 6 and the temporary compensation measures for new
Member States. The last year for these measures was 2009. This represents a reduction to the overall budget
of „209 million (£182 million) for both commitments and payments.
Ministerial Responsibility
32. Treasury Ministers are responsible for the Government’s policy on the EC Budget. Other Ministers have
interests in those parts of the budget that are of relevance to their departments.
Interest of Devolved Administrations
33. Policy concerning the EC Budget is a reserved matter under the UK’s devolution settlements but the
devolved administrations may have an interest in some aspects of EC expenditure and have been consulted in
the preparation of this EM.
Legal and Procedural Issues
Legal basis
34. The PDB is presented under Article 272 of the EC Treaty.
European Parliament procedure
35. The European Parliament (EP) participates fully in the budgetary process and formally adopts the budget.
The EP votes by a majority of its members, or a three-fifths majority of the votes cast, depending on the
circumstances, and has the final say in setting non-compulsory expenditure.
Voting procedure
36. The Council votes by qualified majority and has the final say in setting the level of compulsory expenditure.
the ec budget 2010: evidence 5
Impact on United Kingdom Law
37. None.
Application to Gibraltar
38. Not applicable.
Analysis of Fundamental Rights Compliance
39. No fundamental rights issues arise from this proposal.
Application to the European Economic Area
40. Not applicable.
Subsidiarity
41. The EC Budget is a matter of exclusive Community competence and the Commission’s presentation of
the PDB is required by the Treaty.
Policy Implications
42. As a net contributor to the EC Budget it is in the UK’s interests to control growth in the EC Budget, whilst
working to enhance eYciency in the use ofEC resources. The Government will work with other Member States
to maintain budget-discipline and subject all areas of EC spending to rigorous scrutiny. However, it should be
noted that for multiannual programmes agreed under co-decision procedure (including in relation to
agriculture and structural funds) the Budgetary Authority is not able to a agree significant changes to the levels
of EC expenditure set out in the financial envelopes in the relevant legislative acts.
43. The Government’s primary aim in the upcoming negotiations will be to respect agreed and established
budgetary principles. In particular, to ensure that: spending delivers genuine value for money; global
appropriations for payments are based on realistic implementation forecasts (to prevent the emergence of a
large budget surplus); and that FP ceilings are respected by ensuring adequate margins to absorb additional
pressures in relation to the EERP and unforeseen contingencies.
44. It is of concern to the Government that the Commission has presented a preliminary draft budget which
has insuYcient margins to accommodate known and anticipated further expenditure requirements, including
the remaining „2.4 billion part of the EERP package to be financed in 2010 and several expected external
action requirements in Palestine, Kosovo and other areas. The Government will seek to address this unrealistic
budgeting on the part of the Commission in the course of negotiations and will argue for a clear resolution to
financing of the EERP and other expected expenditure needs that maintains budget discipline. A heading-byheading
outline of the Government’s initial intended approach towards the PDB follows.
45. Heading 1 a (Competitiveness for Growth and Employment). The Government remains fully committed to
the Lisbon Agenda and supports much of the spending under this heading such as that on R&D where EU
spending can add real value. The Government will continue to press for further justification on some of the
levels of payment appropriations proposed and suggest appropriate reductions to reflect anticipated
implementation levels and absorption capacity. It will also seek to agree a larger margin under the
commitments budget ceiling to help accommodate the needs of financing the remaining portion of the EERP
„5 billion package to be committed in 2010.
46. Heading 1b (Cohesion for Growth and Employment); With regard to the Structural and Cohesion Funds
under this heading where an increase of 4.1% has been proposed for payments, the Government will also seek
to achieve realistic levels of payments that take into account genuine implementation capacity.
47. Heading 2 (Preservation and Management of Natural resources). The Government considers interventions
in agricultural markets and direct aids to represent poor value for money for EU taxpayers. The Government
intends to question the Commission’s proposed increases in these areas, particularly in light of absorption
capacity. Although it is recognised that much of the increase in direct payments has already been agreed—as
is the case for direct payments related to the phasing in of the new Member States—the Government intends
to scrutinise the remaining increases closely.
48. Heading 3 (Citizenship, Freedom, Security and Justice). The Government is supportive of appropriate EC
expenditure in relation to shared challenges relating to migration, health, crime and terrorism. However, it will
be looking for appropriate reductions to the commitment and payment levels proposed to ensure that the
margin under the financial perspective commitment ceiling is suYcient to meet any unforeseen future
6 the ec budget 2010: evidence
expenditures, and that payment levels more accurately reflect absorption capacity. The Government will
scrutinise the amounts proposed for EUROPOL closely.
49. Heading 4 (The EU as a Global Player). The Government supports appropriate expenditure under this
heading believing that EU external actions can add value to Member States’ independent eVorts to support
development, prosperity and stability in third countries and to address regional and global challenges.We will
continue to look carefully at payments absorption capacity and priorities under this heading to ensure that
financing proposals are realistic. The Government will also press for a suYcient margin to be maintained under
the FP commitments ceiling to meet possible future contingencies and given the expected further expenditure
requirements for Kosovo, Palestine and Georgia as highlighted in the PDB.
50. Heading 5 (Administration). The Government will argue strongly for enhanced eYciency and value for
money from EC institutions administration expenditure Although the Government welcomes the reduction
in the proposed increase compared to previous years, it intends to scrutinise this increase closely and question
whether or not it might be reduced further. The Government also intends to work with like-minded Member
States to closely scrutinise and propose reductions to the allocations for EU agencies across all headings.
Regulatory Impact Assessment
51. Not applicable.
Financial Implications
52. TheUKcontribution to the 2010 PDB is expected to be 14.1% pre-abatement, 10.7% post-abatement. The
actual net financial cost to the UK of the 2010 EC Budget will depend not only on the size of the budget that
is finally adopted, but also on the balance between diVerent spending programmes within the budget. This
determines the level of UK receipts and subsequently aVects the size of the UK’s abatement in the
following year.
Consultation
53. Not applicable.
Timetable
54. Discussion of the PDB began in Council’s budget committee on 5 May 2009. On 10 July the Council will
establish the Draft Budget on the basis of these discussions, which will then be forwarded to the EP. It is
expected that the Draft Budget will be debated by the EP in a plenary session in October. The EP’s
amendments and modifications will be considered at the Council’s second reading in November. A revised
Draft Budget will then be submitted to the EP for its second reading, and formal adoption of the budget is
expected by mid-December.
the ec budget 2010: evidence 7
Annex 1
Table 1a
SUMMARY OF 2010 PDB PROPOSALS—EUR MILLION
Heading Budget 2009(1) PDB 2010 Difference 2010–09 Difference 2010–09
CA PA CA PA CA PA CA PA
1. Sustainable Growth 62,202 46,070 62,152 47,365 "0.1% 2.8% "50 1,295
1a Competitiveness for Growth and Employment 13,775 11,106 12,769 10,982 "7.3% 1.1% "1,005 "124
1b. Cohesion for Growth and Employment 48,427 34,963 49,382 36,382 2.0% 4.1% 955 1,419
2. Preservation and Management of Natural Resources 56,721 52,566 59,004 58,075 4.0% 10.5% 2,282 5,509
Of which Market related expenditure and direct payments 41,127 41,080 43,745 43,626 6.4% 6.2% 2,618 2,547
3. Citizenship, Freedom, Security and Justice 1,527 1,308 1,629 1,360 6.7% 3.9% 103 52
3a. Freedom, Security and Justice 864 617 980 720 13.5% 16.6% 116 103
3b Citizenship 663 691 649 640 "2.0% "7.4% "13 "51
4. EU as a Global Player 8,104 8,324 7,921 7,665 "2.3% "7.9% "183 "660
5. Administration 7,695 7,695 7,858 7,858 2.1% 2.1% 163 163
6 Compensation 209 209 — — — — "209 "209
Total 136,458 116,172 138,564 122,322 1.5% 5.3% 2,106 6,150
Margin 1,754 12,162
Compulsory Expenditure 42,799 42,784 45,248 45,152 5.7% 5.5% 2,448 2,368
Non-Compulsory Expenditure 93,658 73,388 93,316 77,170 "0.4% 5.2% "342 3,782
Appropriations as a % of GNI 1.18% 1.00% 1.18% 1.04%
Notes
(1) CA % commitment appropriations.
(2) PA % payment appropriations.
(3) Due to rounding, the sum of the lines may not equal the total.
8 the ec budget 2010: evidence
Table 1b
SUMMARY OF 2010 PDB PROPOSALS—GBP MILLION
Heading Budget 2009(1) PDB 2010 Difference 2010–09 Difference 2010–09
CA PA CA PA CA PA CA PA
1. Sustainable Growth 54,296 40,215 54,252 41,345 "0.1% 2.8% "44 1,130
1a Competitiveness for Growth and Employment 12,024 9,694 11,146 9,586 "7.3% "1.1% "877 "108
1b. Cohesion for Growth and Employment 42,272 30,519 43,106 31,758 2.0% 4.1% 834 1,239
2. Preservation and Management of Natural Resources 49,512 45,885 51,505 50,694 4.0% 10.5% 1,992 4,809
Of which Market related expenditure and direct payments 30,900 35,859 38,185 38,081 6.4% 6.2% 2,285 2,223
3. Citizenship, Freedom, Security and Justice 1,333 1,142 1,422 1,187 6.7% 3.9% 90 45
3a. Freedom, Security and Justice 754 539 855 628 13.5% 16.6% 101 90
3b Citizenship 579 603 567 559 "2.0% "7.4% "11 "45
4. EU as a Global Player 7,074 7,266 6,914 6,691 "2.3% "7.9% "160 "576
5. Administration 6,717 6,717 6,859 6,859 2.1% 2.1% 142 142
6 Compensation 182 182 pm pm "100% "100% "182 "182
Total 119,114 101,407 120,953 106,775 1.5% 5.3% 1,838 5,368
Margin 1,531 10,616
Compulsory Expenditure 37,359 37,346 39,496 39,413 5.7% 5.5% 2,137 2,067
Non-Compulsory Expenditure 81,754 64,060 81,456 67,362 "0.4% 5.2% "299 3,301
Appropriations as a % of GNI 1.18% 1.00% 1.18% 1.04%
Notes
(1) CA % commitment appropriations.
(2) PA % payment appropriations.
(3) Due to rounding, the sum of the lines may not equal the total.
the ec budget 2010: evidence 9
Annex 2
Glossary
Abatement
The UK’s VAT-based contributions are abated according to a formula set out in the Own Resources Decision.
Broadly this is equivalent to 66% of the diVerence between what the UK contributes to the EC Budget and
the receipts which it gets, subject to the following points:
— the abatement applies only in respect of spending within the EU. Expenditure outside theEU(mainly
aid) is excluded;
— the UK’s contribution is calculated as if the budget were entirely financed by VAT;
— the abatement is deducted from the UK’s VAT contribution a year in arrears.
Activity-Based Budgeting (ABB)
ABB was introduced in 2002 to improve decision-making by ensuring budget allocations more closely reflect
pre-defined political priorities and objectives. Similar to Public Service Agreements in the UK, ABB requires
the EC Budget to be based on a clear justification for intervention and an evaluation of past performance.
It also requires SMART (Specific, Measurable, Achievable, Realistic and Time-bound) objectives and future
performance targets that focus on delivering value for money for the EU taxpayer.
Activity Statements
The presentation of performance information for each area of activity of the European Union, providing the
main elements justifying the level of resources requested by the Commission in the PDB. The statement
includes details of the resources allocated to the activity, as well as associated objectives, indicators, outputs
and outcomes.
The annual budget procedure
The Community’s financial year runs from 1 January to 31 December. The rules governing decisions on the
EC Budget are set out in Article 272 of the EC Treaty and in the Inter-Institutional Agreement. The timetable
is as follows:
— establishment of the preliminary draft Budget by the Commission,normally in May;
— establishment of the draft Budget by the Council in late July;
— first reading by the Parliament in late October;
— second reading by the Council in mid-November; and
— second reading by the Parliament and adoption of the Budget in mid-December.
Commitment and Payment Appropriations
The budget distinguishes between appropriations for commitments and appropriations for payments.
Commitment appropriations are the total cost of legal obligations that can be entered into during the current
financial year, for activities that, in turn, will lead to payments in the current and future years. Payment
appropriations are the amounts of money that are available to be spent during the year arising from
commitments in the budget for the currentor preceding years. Unused payment appropriations may, in
exceptional circumstances. be carried forward into the following year.
Compulsory and Non-Compulsory expenditure
EC expenditure is regarded as either “compulsory” or “non-compulsory”. Compulsory expenditure is
expenditure necessarily resulting from the Treatyor from acts adopted in accordance with the Treaty. It mainly
includes agricultural guarantee expenditure, including stock depreciation. The Council has the final say in
fixing its total.
The European Parliament has the final say in determining the amount and pattern of non-compulsory
expenditure. The growth of this expenditure is governed by the “maximum rate of increase”. Article 272(9) of
the EC Treaty provides a formula for determining this rate, unless the budgetary authority agrees an
alternative figure. Under the Inter-institutional Agreement the Council and Parliament agree to accept
maximum rates implied by the Financial Perspective ceilings.
10 the ec budget 2010: evidence
Financial Perspective
The Financial Perspective (FP) forms the framework for Community expenditure over a period of several
years. The FP for 2007–13 sets expenditure ceilings for six distinct expenditure headings (Sustainable Growth,
Preservation and Management of Natural Resources, Citizenship, Freedom, Security and Justice, The
European Union as a Global Player, Administration, and Compensation), as well as global ceilings for
commitments and payments. The Budgetary Authority (Council and European Parliament) is bound by these
ceilings in the annual budget negotiations.
Financial Statement
The presentation of financial data including balance sheets, revenue and cash flow statements, or any
supporting statement that is intended to communicate an entity’s financial position at a point in time and its
results of operations for a period then ended.
Flexibility Instrument
The Flexibility Instrument was established under paragraph 24 of the 1999 inter-Institutional Agreement,
which allows for expenditure in any given budget year of up to „200 million above the FP ceilings established
for one or more budget headings. Any portion of the Flexibility Instrument unused at the end of one year may
be carried over for up to two subsequent years, but the Flexibility Instrument should not as a rule be used to
cover the same needs two years running. The Flexibility Instrument is intended for extraordinary expenditure
and may only be used after all possibilities for reallocating existing appropriations have been exhausted. Both
arms of the Budgetary Authority must agree to a mobilisation of the Flexibility Instrument following a
proposal from the Commission.
Inter-Institutional Agreement
The Inter-Institutional Agreement (IIA) is a politically and legally binding agreement that clarifies the EC’s
budgetary procedure. Under the Treaty, the Council and the European Parliament have joint responsibility
for deciding the EC Budget on the basis of proposals from the Commission. The IIA sets out the way in which
the three institutions will exercise their responsibilities in accordance with the Treaty, and their respect for the
revenue ceilings laid down in the Own Resources Decision.
Own Resources Decision
The existing arrangements for financing the EC Budget are set out in the Communities’ Own Resources
Decision (ORD). The currentORDwas agreed in September 2000. entered intoUKlaw in 2001 and took eVect
in 2002. It sets an own resources ceiling on the amount the Communities can raise from Member States in any
one year. The ceiling is currently fixed at 1.24% of EU GNl for payments and 1.31% for commitments. As the
Communities are not allowed to save or borrow, revenue must equal expenditure. Budget payments are
therefore limited by the amount of Own Resources that can be called up from Member States.
The ORD lays down four sources of Community revenue, or “own-resources”:
— Customs duties including those on agricultural products;
— Sugar levies;
— Contributions based on VAT; and
— GNI-based contributions.
the ec budget 2010: evidence 11
Examination of Witnesses
Witnesses: Ian Pearson, a Member of the House of Commons, Economic Secretary, Mr Mike Glycopantis,
Head of EU Finances Team, HM Treasury, and Mr Mark Collins, Policy Adviser, Annual Budget, EU
Finances Team, HM Treasury, gave evidence.
Q1 Chairman: Minister, welcome to you and your
colleagues. Thank you very much for tottering over
here on such a hot day. This time last year we had
Kitty Ussher to speak to us and she had been in post
for ten minutes, so we are very grateful to have you,
who have been in post for somewhat longer and you
will have less diYculty with some of our questions.
This is all being broadcast. You are on the record.
You will be provided with a transcript before we print
it. You will have in front of you a list of the questions
that we have asked and a list of our various interests.
We can either start just by asking you questions or, if
it is easier, please make a statement.
Ian Pearson: Let me start by making a few
introductory comments. Despite the weather, I am
delighted to be here and I am grateful to you for
accommodating a change in the time for this session.
I know the Committee has a very well established
reputation for analysis and scrutiny ofEU aVairs and
I really believe that this session can help inform the
government’s position during negotiations over the
2010 EC Budget. I am accompanied by oYcials from
the Treasury. On my right is Mike Glycopantis, the
team leader of the Treasury’s EU finances team and
on my left is Mark Collins, policy adviser working on
the EU annual budget. I am sure they will answer all
the very diYcult questions and certainly some of the
more technical ones. The Government will scrutinise
closely and, where appropriate, challenge the
Commission’s proposed 2010 Budget. It might be
helpful to say something about our overriding
objectives in terms of setting the context which builds
on the information that we have previously supplied.
Our overriding objectives are to ensure budget
discipline, value for money and sound financial
management of EC Budget spending. These
objectives will underpin our position in the
negotiations. Our main priorities are going to be to
push for reductions to payments in areas of the
Budget that are over budgeted, in our view, to push
for suYcient headroom under the relevant financial
framework ceilings to allow in year spending
pressures that may emerge to be accommodated and
also support for reductions to areas of spending that
we believe represent poor value for money including,
as has been mentioned by successive ministers,
agricultural spending and the continued need to bear
down on administration spending as well. We do
however recognise that appropriate EC Budget
spending can play a role alongside other policy tools
in meeting shared EU and global challenges and
therefore we will continue to support suYcient
spending in those areas of the Budget that we believe
represent good value for money, including in
particular spending for jobs, climate change and
development. We also strongly continue to support
the European economic recovery plan and the
additional budget funding for energy and
infrastructure projects. We will be pushing for this
additional funding to be met through the
redeployment of existing resources and margins. I
think that is one of the areas that we will come onto
in our discussions.We also want to continue to work
closely with other EU Member States to achieve our
priorities and I am cautiously optimistic that the
position that will be adopted by the Council at the
Budget Ecofin next Friday will represent an
improvement on the Commission’s proposals. Due to
legal and decision making limitations, the annual
Budget negotiations are not the place for
fundamental budget reform, but we do continue to
attach great importance to the Budget review as a
means of achieving what we want to see, which is a
reorientated Budget equipped to meet the challenges
of the 21st century. The last thing I would want to say
by way of introduction would be to assure the
Committee that we continue to champion improved
financial management of EC Budget funds. As the
majority of EC Budget funds are managed by other
Member States, the government considers that the
core responsibility for such improvements must fall
to those Member States. We try to lead by example.
We will shortly be publishing the second annual
consolidated statement on the use of EU funds in the
UKand we have certainly encouraged other Member
States to do likewise. Thank you very much for
inviting me to make some introductory comments
and I am more than happy to answer any questions.
Q2 Chairman: In introducing this draft Budget to
my Committee I did rather have to explain to some
Members of the Committee that this was not a
Budget as we knew it. It had all been set some time
ago and what we were doing was at best tinkering at
the margins. In commercial funding one would no
doubt make substantial alterations faced with a crisis
such as we have seen but this is not what the issue is
at the moment. We are not doing that. Against that
background however, I was a little startled to see the
Commission describe the Preliminary Draft Budget
as an instrument for economic recovery. Do you feel
that it can act as such?
Ian Pearson: At a time of economic downturn when
there are pressures on growth and jobs, EU activities
in those areas have a more important role to play. The
PDB does contain proposals for continued and in
some cases increased spend in those areas,
particularly under heading 1a, on competition,
research and innovation, and under 1b on structural
and cohesion funds. We certainly welcome that
12 the ec budget 2010: evidence
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
activity to that extent. It also contains core tools to
help both mitigate the eVect of the economic crisis on
individuals and to aid economic recovery. I very
much accept the broad point you make that, if you
were in business, you probably would not be doing
things like this but the reality of this is that we are
where we are with EC budgets and within that there
have been some changes. It is legitimate to point to
those changes that will help the economic recovery
face in the right direction. Of course there remain
certain things in the EC Budget that we think are not
facing the challenges of the 21st century and even
immediate challenges.We want to see changes and no
doubt we will come on to those as well.
Q3 Chairman: Perhaps I could put the point more
directly. Given that the financial perspective plans
spending over a seven year time frame, are the annual
EC budgets able to respond eVectively to things like
the financial crisis?
Ian Pearson: The Budget could do more, particularly
I believe on the agricultural side. Our longstanding
position has been that the Common Agricultural
Policy distorts markets and trade and makes for
higher prices for consumers. It does not support a
prosperous EU. It is also important to remember in
general as well that the Budget is just one of a range
of policy tools that are being deployed in terms of
responding to the economic crisis. Action that has
been taken in virtually every Member State in Europe
is important. Specifically on the seven year time
frame, we believe that the financial perspective
remains a key tool for budget discipline and
underneath this flexibility to respond to significant
and sudden challenges we believe can be secured by
maintaining suYcient margins beneath the financial
perspective ceilings and through the flexibility and
other contingency instruments that are also available
in specific cases. There is scope within the Budget to
be able to respond but your basic point is that if this
was a business you would be going back to zero based
budgeting and a completely fundamental review.
While privately I might have some sympathy for that
as a statement, I do not sense that there is a great
desire in Europe to completely scrap our budgets and
start from a blank piece of paper. One of the
arguments we have made in the Budget review in the
UKis that there does need to be fundamental reform.
I think it strengthens the case that the UK has been
making for a long time about the overall structure
within EU budgets needing to change.
Q4 Chairman: In terms of that case, would it be fair
to say that you need greatly more significant changes
in the PDB than those outlined, the ones they plan to
make, in order to make a meaningful boost to the
economy?
Ian Pearson: Yes, I would agree with you. The
activities in the PDB, particularly initiatives such as
widening the scope for the European Globalisation
Adjustment Fund, can certainly help but until we
reshape and modernise the EU Budget overall I think
its ability to eVectively support a prosperous EU is
limited. That is why I was making the point about the
Budget review process.We believe very strongly in the
UK that this is something Europe needs to do. It has
been part of our strategy to convince other Member
States that there needs to be fundamental reform.
This is not the only tool by which theEU can respond
to the crisis. EU budgets compared with the budgets
of individual Member States collectively are
relatively small and the ability of Member States to
coordinate their action has been an important feature
of what has taken place over recent months. The
European Social Fund, the European Globalisation
Adjustment Fund and measures that are in there are
helpful and welcome but we would like to see far
more radical changes.
Q5 Lord Woolmer of Leeds: Could I return to the
European economic recovery plan? In the
explanatory memorandum, you remind us that the
funding of that plan for 2010 is not yet included in the
commitments. As I understand it, just less than £4.5
billion was the amount going into the recovery plan,
around 2.3 billion spending in the current year and
around 2.1 billion to come in 2010. Do you expect
funding in 2010 to be contained within that £2.1
billion or do you think there could be a desire to
increase the amount in 2010?
Ian Pearson:We have been talking about a five billion
euro package for the European economic recovery
plan. 2.6 billion euros of that was identified through
the European Council and the decisions taken there.
We see that as consistent funding for projects such as
energy and broadband infrastructure. There is an
issue about how the remaining 2.6 billion of funds to
be committed in 2010 will be financed within the
Budget. That is still to be decided and will be done
towards the end of this year as part of the wider 2010
Budget negotiation. It has been agreed within the
financial perspective and the UK has been successful
in negotiating that this should be within the spending
commitments. That is very much our policy and it
will be our approach in the negotiations that will
continue.
Q6 Lord Woolmer of Leeds: You do not expect there
to be further projects put forward by the Commission
as part of the recovery plan? What we see is what we
get, is it not?
Ian Pearson: I never want to rule out entirely that
either the Commission might want to respond to new
pressures that it identifies or that it might have other
good reasons for wanting to come up with new
projects. What we have agreed however at EU level is
the ec budget 2010: evidence 13
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
the economic recovery plan and 5 billion euros as a
stimulus as a contribution to the overall fiscal
stimulus. Most of this is in areas that we believe are
important for growth and jobs for the future, which
is why we very much welcome it.
Mr Glycopantis: There is a list of projects that totals
five billion euros agreed by the Council. Many
Member States made the point that those projects
have to deliver spend and stimulus in 2009 and 2010.
If a project on that list falls by the wayside and it does
not look like it is going to start spending in 2010, the
agreement is that another project can be brought
forward to substitute, so long as it can provide the
stimulus in 2010.
Q7 Lord Woolmer of Leeds: Given that the spending
proposals are in the areas of energy and broadband
infrastructure, given the lead times in that area of
spend, realistically can spending on those key areas in
this year and next year have an eVect on helping the
economy in 2010? Is there not a danger that, in saying
we are going to spend on those things with unrealistic
times, we will lead to hasty spending and poor value
for money?
Ian Pearson: The latter point that you make needs to
be watched because we want to make sure that these
are not hasty decisions but that they are quick
decisions and the right decisions and value for money
is secured. We have always been very strong in
wanting to push to ensure strong value for money. I
believe there is a realistic list of projects that has been
drawn up. A lot of work has gone into looking at
timescales for delivery. I cannot promise you that
some projects will not slip or, in Mr Glycopantis’
terminology, fall by the wayside because they will not
be able to deliver in the right time, but a substantial
amount of work has gone into this in terms of putting
together the package of projects in the first place.We
are confident that this can play a part in helping to
provide the fiscal stimulus that we have been talking
about for some time and want to see.
Q8 Lord Woolmer of Leeds: If these proposals are so
important and significant as a European contribution
to the recovery, is it right to be scratching around to
find ways of funding this from the margins of other
programmes and not even taking a decision on what
else is going to replace it until December? It seems a
very odd way to do business.
Ian Pearson: Yes, we believe it is right to fund it
through the margins. Part of our strategy has always
been to ensure that there are adequate margins to be
able to respond to unexpected events. It is important
we believe to maintain the overall financial
framework envelope and to limit our exposure to
costs. We have tried to look at using margins in
general and argue for bringing forward expenditure
where it is appropriate. At the spring European
Council, we were the leading country arguing for this
budget disciplined financing solution for the whole
five billion package. We think it is the right thing to
do but our wider policy objectives will still remain to
be strict on budget discipline and looking at
modernising the EU Budget overall. When you have
budgets that are under spending in areas like
agriculture where there are margins, it is right that
those margins are used on the projects and areas that
you have been talking about that can help to
stimulate recovery.
Q9 Chairman: You got other people to agree with
you that we should use the agricultural margins?
Ian Pearson: Yes. That was partly the decision that
was reached on the 2.6 billion.
Mr Glycopantis: That was the agreement for 2009 and
that is the decision that we want to settle for the 2010
funding as well.
Q10 Chairman: In a downturn it seems a pity not to
use every ounce of money you can find profitably.
Mr Glycopantis: Yes. This comes back to the point
about having a proper Budget which is a modern
Budget. At the moment, this is a mechanism through
which we are forced to exert downward pressure on
programmes. A more modern Budget would provide
funding in areas that we support as priorities to start
with and would provide a mechanism to do this more
eVectively.
Q11 Chairman: Or the funding mechanisms to cover
real emergencies?
Mr Glycopantis: Yes.
Ian Pearson: All of the 2.6 billion came from
agriculture. Two billion has been allocated for energy
infrastructure and 600 million to cover broadband
and CAP health checks which we were not
particularly keen on wanting to do but it was part of
the compromise and the overall fact that it has all
come from heading two is an important success.
Q12 Baroness Northover: Within these constraints
that you have just been describing and noting what
you said in your introductory remarks about
priorities focusing on jobs, climate change and
development in terms of policy areas, what will be the
government priorities during the negotiations on
this project?
Ian Pearson: There is the need to ensure budget
discipline and value for money from the Budget.We,
along with like minded states, will be wanting to push
for suYcient head room under the relevant spending
ceilings to absorb any future spending increases;
reductions in line with spending capacity to reduce
budgetary under spend where there has been a
previous history; reductions in areas of spending that
represent poor value for money.We want to highlight
a number of areas of agricultural spending where we
believe there is poor value for money.We also want to
14 the ec budget 2010: evidence
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
ensure adequate funding for those areas of the
Budget that we believe represent best value for money
for the taxpayer, which would be in areas like climate
change, focusing on jobs and security as well. We
would like to see that fundamental reorientation of
the Budget. There are limits to what you can do in the
negotiations that will go on from the Preliminary
Draft Budget to the Budget being agreed for 2010.
That is why I have been keen to stress that our
approach needs to be seen within the context of our
wider policy and what we want to do through the
Budget review process for the future.We will do what
we can within the constraints and we have to push in
the right direction.
Q13 Chairman: Much of what you have said
suggests that, when you are looking at what you can
bring forward or spend to help with the recession,
you would think about jobs first. Everybody would
be thinking about what jobs could be safeguarded or
brought forward.
Ian Pearson: Competitiveness and jobs, which go
hand in hand, are important to the European
economy. Projects and initiatives that add value, that
are facing in the direction of the Lisbon agenda that
promote competitiveness as well as employment, are
important. As a former Science Minister, I believe
that the whole R&D area is important for Europe
and can represent good long term value for money for
the UK and for the European taxpayer. Those areas
of jobs, growth and competitiveness, climate change
and also the wider security areas are where we believe
the Budget should best be focused.
Q14 Chairman: These are all good ideas and good
things but they may not short term have a huge eVect
on the recession.
Ian Pearson: We have to distinguish between
measures that can have some sort of immediate
impact and provide a response to current
circumstances and those that will help prepare the
European economy for the upturn. Just as in the UK
we have been designing sets of policies that will be
providing real help now for people and businesses
and also a range of longer term measures that will we
believe help best place the UK economy for the
future. We believe very strongly that a similar
strategy is appropriate to Europe’s circumstances.
We want to do things that will provide real assistance,
support jobs and employment now and support
companies now, at the same time making sure that we
have that forward facing agenda that we believe
Europe needs. Essentially that means spending less
on the Common Agricultural Policy and more on
competitiveness, growth and jobs.
Q15 Baroness Northover: How does development fit
into that? What would be the priorities that the UK
Government would be supporting as far as
development is concerned?
Ian Pearson: We provide a lot of support for
development through UK budgets and other EU
Member States do similar things. There is an EU
budget in terms of development. It is dwarfed in
significance by a lot of other budgets. I do not have
the exact figures to hand. Certainly it has been a
feature of EU budgets in recent years.
Mr Collins:Within heading four, the external actions
part of the EU Budget, the UK has been pushing for
suYcient funding for priorities such as Pakistan,
Afghanistan, Iraq and the Middle East. That is,
where it is supported by spending capacity in those
areas.
Q16 Baroness Northover: You are not tying it into
jobs?
Ian Pearson: I do not think we are tying everything
into jobs. The primary responsibility for tackling jobs
issues lies with EU Member States. Actions that can
be taken at a European level that will help support
people who have been thrown out of work, the
European Globalisation Adjustment Fund being a
case in point. The main responsibility does have to lie
with individual countries. I would want to point to
the “real help now” measures that we have taken as a
UK Government.
Q17 Chairman: Your explanatory note says that on
the whole budgets under heading four have gone
down, but this is partly because we have stopped
giving people pre-accession payments, or at least
stopped temporarily.
Ian Pearson: I think that is the reason, yes.
Q18 Chairman: There is less agreed development
going on at the moment?
Ian Pearson: In pre-accession payments, yes.
Q19 Lord Moser: You referred to value for money
for the taxpayer and obviously that is terribly
important. Nobody would question it as an ideal but
I notice in the Treasury memorandum that in regard
to growth and employment there is pressure for a
reduction in the case of agriculture. The
memorandum says that this is not value for money. Is
there anything generally you can say about how you
look at the Budget in terms of value for money? It is
quite a diYcult argument, is it not? I wonder how
sophisticated it is these days to argue that this is not
value for money and this is value for money and
whether there are any general comments.
Ian Pearson: It is very diYcult to give a yes or no
answer, if the question is: is the EU Budget value for
money overall, yes or no? Clearly there are parts of
the EU Budget that we do believe oVer value for
the ec budget 2010: evidence 15
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
money. Those tend to be in the areas that we believe
are forward focusing, particularly on competitiveness
and growth.We do not believe that large parts of the
EU Budget that are spent on agriculture oVer good
value for money for either the UK taxpayer or, we
would argue, the EU taxpayer as a whole. It is one of
the reasons why we have been arguing for a number
of years now that we want a fundamental
reorientation of the Budget. It strikes me and the
Government as being curiously bizarre that at this
time in the 21st century, when we are focusing on the
challenges of climate change and globalisation in a
hugely competitive world, so much of our budget is
spent on agriculture. We believe fundamentally that
that has to change and that any budget that has such
a significant proportion of it devoted to that pillar we
do not believe can oVer good overall value for money.
That is not to say that there are not good bits within
agriculture, let alone good bits within other parts of
the Budget headings which can oVer value for money.
You are right to say it is more sophisticated than just
a straight yes or no.
Q20 Lord Moser: When you go and negotiate, is it
quite a powerful bit of your negotiating stance or is it
just what everybody has to say: “We must have value
for money”?
Ian Pearson: Everybody says that they believe in
value for money. Everybody has slightly diVerent
views about what that means. I have been involved in
negotiations in a range of diVerent fora over a
number of years and particularly when it comes to
agriculture there are some clear divisions within
Europe between Member States that want to see
more agricultural spend and others that want to see a
fundamental reorientation of the Budget. We will
continue to have those debates within the Council of
Ministers. I have no doubt about that because they
are not going to go away but I do think that, on our
side, we have some very compelling arguments when
we look at the priorities for the European economy as
a whole. Without wanting to talk about the Lisbon
agenda in great detail, it set out a clear sense of future
direction for the EU and the policy statements that
we have had since in terms of growth and
competitiveness do show the direction that we need
to be going in. TheUK finds it very diYcult to accept
that we have this real legacy of providing such
significant amounts of funding from the EU Budget
to one agricultural pillar.
Mr Glycopantis: We look at whether we think it is an
area where the EU should be acting. We have
identified three priority areas which are jobs, climate
change and security.We then look at the second level,
at what kind of action we want. It could be action
through the Budget or the European Investment
Bank or the way that the state aids rules are operated
or other legislation and other regulations are applied.
Obviously the best form of action is sometimes
Member State action. The third level we look at is can
we exercise sound financial control over this area.
That is the framework and we set that up in our
Budget review publication last year and we have
started to increasingly use that in our annual budget
discussions as well.
Lord Moser: I accept all that of course. I remember
my days when I was at Whitehall statistics and if I
had a project the Treasury would say, “Does this
produce value for money?” I would answer by saying,
“There is no way of calculating that.” I used to get
away with that.
Q21 Lord Trimble: The explanatory memorandum
notes that commitment and payment levels have
increased compared to 2009 by something of the
order of five per cent.Will the extra funding be spent
on worthwhile projects?
Ian Pearson: You are right to say that overall
commitment and payment levels have increased in
the 2010 Preliminary Draft Budget compared to 2009
levels. That is broadly consistent with the fact that the
financial framework ceiling is higher for 2010 than
for 2009. Where reprioritisation of existing resources
is possible, we believe we should continue to push for
that. There are worthwhile projects within this higher
ceiling.We support the European economic recovery
plan and the 5 billion euro package within that. We
have already touched on the energy infrastructure
projects and the support for broadband
infrastructure as well, so there are some important
measures within this 2010 Budget which we strongly
support. There are parts of the Budget that we do not
think oVer good value for money and we would like
to see changed. I particularly want to highlight the
energy projects and the development of carbon
capture and storage, where we have been taking
action in the UK. It is a key priority for us, but we
believe it is right as well that action should be taken
at an EU level. The other area I want to highlight
where we have been strong in our support has been
cohesion policy. For the former accession countries,
we have been one of the ones arguing very strongly
for making sure that they have budgets to help build
their economies to cope with the transition. Funding
for that continues in the 2010 Budget.
Q22 Lord Trimble: I have noticed a quite
considerable increase in cohesion fund support.
Ian Pearson: There certainly has been an increase. It
has been an area where spend has been somewhat
lower than in some other areas, mainly because some
of that can take time. The figures show a nine per cent
proposed increase to commitment appropriations to
10.2 billion euros for the cohesion fund. I think there is
an issue about what the spending levels are likely to be
in 2010.
16 the ec budget 2010: evidence
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
Mr Glycopantis: Over the whole financial perspective
in 2007 to 2013, new Member States will receive 158
billion euros in structural and cohesion funds, an
increase of 250 per cent compared to the last financing
period where we were still increasing the percentage
that was going to new Member States. The EU 12’s
receipts will rise from 24 per cent at the start of the
financial perspective to 56 per cent in 2013.
Q23 Lord Trimble: I wonder whether the particular
increase in the cohesion fund, heading 1b, is intended
try to help some of the comparatively new Member
States that are currently experiencing diYculties in
terms of their economies and fiscal positions?
Mr Glycopantis: They had a number of projects in the
European economic recovery plan and they are
receiving a lot of funding from the European
Investment Bank at the moment. The flow of funds
through the structural and cohesion line varies quite a
lot. It was set at the beginning with the framework and
there is a profile of commitments that have been made
over the whole of the framework. Sometimes you will
see rises; sometimes you will see falls.
Q24 Lord Trimble: It is not really a response to the
crisis but something that was built into the framework
at the outset?
Ian Pearson: It was certainly built into the framework
as part of the deal with the accession countries and the
recognition, in thesamewayas funds wereused to help
support the Portuguese, Spanish and Irish economies.
We believe itwasstrategically importantandtherewas
agreementatEUlevel to provide increasing support to
the accession countries over the 2007 to 2013 period.
Some of those accession countries have been looking
at how they can best use that money within the overall
financial perspective to respond to some of the current
diYculties that they have. They have a number of long
term programmesin place as well.Someof those in the
early days spent at a slower rate than was anticipated
but over the period this will be addressed.
Q25 Lord Steinberg: In your explanatory
memorandum, which I thank you for very much
because it is very detailed, you talk about an increase
of 4.1 per cent being proposed for payments. In your
initial remarks you are talking about trying to ensure
that we get value for money and so on and a proposal
of a nine per cent increase. A nine per cent increase at
the moment on anything seems to me to be
outrageous. I am sure you probably agree with me.
Could you tell me how you propose to try and
convince them to the figure of 4.1 that you have put in
your explanatory document and nine per cent which
has been proposed?
Ian Pearson: My understanding is that the proposed
nine per cent increase is to commitment
appropriations, the legal obligations to spend on
funds. It is in line with the financial programming in
the financial framework that has been agreed.We are
concerned about this increase and the implication it
will have for spending in 2010 and in future years,
because commitments can roll forward. It is the
payment appropriations which directly aVect
Member State contributions. Given previous
problemswith implementation, it ismore encouraging
to see a 5.9 per cent decrease in payments in the 2010
PDB, bringing it down to 6.9 billion euros. If we are
talking about implementation rates, the 2008
implementation rate for cohesion fund payments was
78.6 per cent. The overall implementation rate for
heading 1b is 87.7 per cent and that includes the
structural plans as well as the cohesion funds. It is right
that the area of the Budget is contained to reflect past
under-implementation and we believe that the
payment reductions could go further. If, during the
course of the year, implementationimprovesandmore
resources are required, our view would be an
amending budget could always be proposed and
considered by the Council and Parliament. There is a
real issue here in terms of what we said previously
about margins.
Q26 Lord Steinberg: There is no doubt that this
Committee has never beenhappy—Iamsure the same
applies to you, Minister, and your Department—with
the composition of the EU Budget and the way it is
dealt with. Iunderstand that the cohesionfund has not
been spent on a regular basis over the past number of
years. What is the sense in putting in a higher figure
and then saying that we have managed to have a
surplus on that because we have not spent the money?
Ian Pearson: That relates to the point I was trying to
make about implementation rates and the fact that
there have been low implementation rates overall.
Although past performance is not always necessarily a
guide to future performance, you need to bear in mind
the ability to ramp up expenditure to meet some
targets.
Q27 Lord Steinberg: It is a guide?
Ian Pearson: It is a guide.We believe it is an important
guide and part of our strategy has been to focus on
areas where there has been under-implementation and
say, “If thismoneyis not going to be spent, it can either
be reallocated to other areas or we can look at having
more realistic budgets in the first place that are more
likely to aVect the ability to spendandvalue formoney
considerations.” It is an area we want to have a close
look at, I can assure you. I do not disagree however
with the view that accession countries should be
entitled to the support that was politically given to
them when determining the overall financial
perspective. We agreed 158 billion euros. It is money
that politically in theUKwe should feel committed to
continuing to support. If it is not going to be able to be
spent within the appropriate time frames, we will
the ec budget 2010: evidence 17
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
reflect that in budgets. That would be a sensible thing
to do.
Q28 Lord Steinberg: Thank you very much. That is
the first time I have had a minister agree with me.
Ian Pearson: I do not know whether that means I am
doing something wrong or right.
Q29 Lord Trimble: If you are getting a situation
where there is persistent under spend in a
programme, do you not think it appropriate to
suggest that there might be something wrong with the
design of the programme?
Ian Pearson: There has been questioning by the
Commission of individual projects within that
budget heading. The Commission will monitor the
performance of Member States who have
responsibility for implementing the measures within
those programmes. I want to get back however to the
wider political point that there was political
agreement here over the financial perspective that
money would be transferred to the former accession
countries. It is legitimate for them to say, “This is our
money.We want to spend it.” It is right to ensure that
there are value for money constraints and that there
are good projects being invested in. That is arguably
one of the reasons why the spend has been slower
than anticipated. There has been perhaps some overoptimistic
programming in the assumptions in terms
of how quickly some of this money can be spent.
Mr Collins: There is also a rule that exists. It is an N
plus two or N plus three rule. After a certain
duration, commitments in this area, if they are not
turned into payments, will be cancelled; there is a
mechanism that seeks to mitigate this potential
under-implementation.
Q30 Lord Trimble: It does not address the point I
was making. If you are getting persistent under spend
in something, it might be worthwhile looking at the
design of the programme because in some cases there
is a tendency at the Commission to over engineer a
programme.
Mr Glycopantis: Raising implementation rates is a
key objective for the Commission working with the
Member States. Implementation rates were 68 per
cent in 2001 and they are 87 per cent in 2008.We have
seen some improvement and we continue to work
with the Commission and other Member States.
When we look at the annual Budget in year, we
always make a realistic appraisal of what we think
will be spent.
Chairman: That is not only interesting; it is
surprising. It is a huge improvement in the time and
a very eVective piece of work.
Q31 Lord Woolmer of Leeds: Could we return to the
question of margins? The Treasury memorandum
says that margins between commitment
appropriations and the financial perspective ceilings
are too low for several headings. Paragraph 44 says
that the Government is concerned that the
Commission has presented a Preliminary Draft
Budget that has insuYcient margins to accommodate
known and anticipated further expenditure
requirements. Why has this come about? Why is a
Budget coming forward that clearly has margins too
tight? In so far as you can say something other than
what you have already told us, where do you think
spending should be reduced in order to increase
Budget margins?
Ian Pearson: As a rule, we would want to ensure that
the inevitable additional demands on the Budget that
tend to be seen throughout the year can be met within
the Budget margins rather than by requiring
extensive reprioritisation or an increase in the size of
the Budget. That follows the Budget discipline
approach that we were talking about earlier. With
that in mind, we would like to see increased Budget
margins pretty much right across the Preliminary
Draft Budget. The margin between commitment
appropriations and the financial perspective ceiling
in the overall Budget is just under one per cent.
Specifically, we are pushing for reduced commitment
appropriations to ensure increased margins in several
key areas, where we judge that the PDB proposals are
inadequate. These are in heading one, specifically
under heading 1a, competitiveness, growth and
employment, and heading three, citizenship,
freedom, security and justice and in heading four, the
EU as a global player. Again, it is part of our budget
discipline approach.We need to make sure that there
is suYcient margin to accommodate those inevitable
demands that occur through the year. Let us not be
too optimistic in terms of the size of the programme
and then have things happen which we know are
likely to happen, which mean that the Budget would
be exceeded and we have to take other measures in
year. We want to try and guard against that and try
to make sure that we have an appropriate budget and
appropriate margins in the first place.
Q32 Lord Woolmer of Leeds: My question in part
was why do you think this happens. Why has a
Preliminary Draft Budget been put forward that
clearly has a fundamental problem in terms of
margins? You are happy to raise the question and try
to do something about it, but why has the
Commission put forward a Budget that has this
problem with it? Surely their job is to put forward a
Budget that does not have this problem? Member
States should not be arguing about that. It is a matter
of good production and sound Budget proposals.
Ian Pearson: I agree with you that this should be an
area where there is common ground and acceptable
margins should be built into budgets as a matter of
course. Often there can be disagreements about what
is an acceptable level of margin.We have been able to
18 the ec budget 2010: evidence
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
find 2.6 billion in 2009 for the European economic
recovery package and this emphasises the importance
of margins. You have things that happen
unexpectedly. You need some margins in your
budgets to be able to take them into account. The fact
that so much of that came from the policy budget and
the margins in that was a positive thing to do. We
should be having adequate margins in the first place.
Inevitably the Commission will want to see as many
projects as possible going forward and will want to
try to push those margins within its envelope. It is
right that Member States should want to push back
a bit and say, “You need some room in case there are
over spends in particular projects or because more
important priorities emerge.” That is essentially the
debate that we are having with the Commission on
this.
Q33 Baroness Northover: Are you happy with the 80
million euro financing of Europol?
Ian Pearson: The short answer to that is “no”. The
Preliminary Draft Budget proposes a budget of 80
million which is a 12 million euro increase on the 2009
budget. In changing economic circumstances, that is
a very substantial rise in the Budget. We do not
believe Europol’s budget fits in with the budget
neutrality principle agreed by the JHA Council. We
want to work with like minded Member States to
propose eYciency savings in all agency budgets and
to push for eYciency savings until the external
evaluation of agencies which we have called for have
been completed. I understand that the major increase
in the Budget that Europol are proposing is
accounted for by a building proposal for new
headquarters.We are concerned about the increase in
building costs and the lack of information that has
been provided to Member States in suYcient time for
this to be fully considered by the Council so far. We
believe there needs to be greater scrutiny of the
building proposals to ensure that there is a thorough
cost benefit analysis on them.
Q34 Baroness Northover: You have people to go in
and do the building?
Ian Pearson: I am sure whoever were the contractors
would want to be assured that there is value for
money and that this is good value for the taxpayer.
That is the key point. That has not been
demonstrated to us yet.
Q35 Lord Steinberg: Minister, this is a pretty general
question but may have a very potent answer. It would
appear from the questions that we have been asking
you, particularly the last one from Baroness
Northover, that you have got a degree of scepticism
about the whole way in which the EU budget is
proposed. If that is the case do you fight that corner
very rigidly and try and get other Members to
support you, or am I wrong in my summation and
that you are basically happy with the EU budget and
the way it is prepared?
Ian Pearson: I amnot sure ‘scepticism’ is the term that
I would want to use for my views about the EU
budgeting process. Having seen it for a number of
years, it is quite an amazing spectacle about how
budgets get agreed. It is a big horse trade. It is a
negotiation between Member States themselves,
between Member States and the Commission and
between Member States, the Commission and the
European Parliament. The Commission tends to be
very much in the middle on this. We tend to want to
support other Member States who are net
contributors and rightly, in our view, want to ensure
rigorous value for money and want to ensure
appropriate subsidiarity so that when there are things
that should be done by Member States they are being
done by Member States.
Q36 Lord Steinberg:Would ‘uncertainty’ be a better
word than ‘scepticism’?
Ian Pearson: If what I have said indicates to you that I
am sceptical about budgets, as I say, I think it should
indicate really that I have got a degree of realism
about how a deal gets done here. This is not a perfect
world in which we are living and, as your Chairman
rightly said, if this was a business it would be done
very diVerently. It is not a business; it is a dirty big
horse trade.
Q37 Lord Steinberg: Everybody fights their own
corner of course, Minister.
Ian Pearson: And we have to use our best endeavours
to make sure that we can produce an outcome that is
good for the UK taxpayer and good for UK interests
and in line with our view about what the EU’s
interests as a whole ought to be. That is what we have
been trying to do over a good number of years now. I
have been immensely proud about the pro-European
way in which we have sought to pursue policy
objectives. We have not been doing this just with a
narrow British self-interest.We have been pushing at
an EU level for budget discipline because we believe
it is good for Europe. We have been pushing for the
reform of the EU budget because we believe it is good
for Europe. We believe it is good for the UK as well
but if we can have a more competitive Europe that is
focused on growth and a modern agenda then that
has got to be in Europe’s interests. We spend an
enormous amount of time at this and sometimes you
reflect on this and you say, “Why do we take this quite
so seriously when we know there is going be a carveup
here in the end and a budget will be determined?”
and I think the fact that we do take it so seriously
reflects well on the UK and on the good financial
management and disciplines that we seek to ensure
are adopted within Europe. Sorry, that was a bit of
a rant!
the ec budget 2010: evidence 19
30 June 2009 Ian Pearson, Mr Mike Glycopantis and Mr Mark Collins
Chairman:We have just got time to look perhaps a bit
to the future. Lord Haskins?
Q38 Lord Haskins: Last year your predecessor
discussed the Budget Review which apparently has
been significantly delayed. You can imagine that
some of my colleagues who are of a suspicious nature
wonder why the delay is. Perhaps you would be able
to comment on that. When is it likely to be published?
Is it going to have any relevance to the real issue
ahead which is the new Financial Perspective and the
Budget Review process, which I understand starts
next year?
Ian Pearson: There are a number of things I would
want to say on this particular subject. Firstly, I would
emphasise the importance which the UK attaches to
the Budget Review process. We believe that it is an
opportunity to fundamentally reassess and take some
ambitious and strategic views about how the EU
budget can change for the future. It is something that
was an important concession that we gained in
negotiations a number of years ago.We need to make
sure that the EU Member States and the Commission
actually stick to this. We are shortly going to have a
new Commission and I think it is right that we expect
the new Commission to take forward the Budget
Review. It is something that is really outside of the
Financial Perspective negotiations but we want to see
this happening sooner rather than later. I think it
would be better for a new Commission rather than
the old Commission. I have not got a date that I can
give you when the Commission have said that they
are going to announce the Budget Review, but I do
think that it is an important opportunity for again a
commitment to be made at a level far above my pay
grade, by European leaders, to modernise
fundamentally theEUbudget. If during these current
incredibly diYcult economic times we cannot be
taking some big fundamental decisions for the future
then to my mind that shows a lack of political will at
EU level to deal with the real issues that are going to
be aVecting our citizens in the future, and that is why
I think we should be moving forward with this.
Q39 Chairman: You do not see any sinister
connotation in the delay of the Budget Review? You
think it is just in terms of the fact that the
Commission is changing and of course the whole of
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7/2009 432853 19585
the European Parliament is changing as well this
year?
Ian Pearson: There certainly are big changes taking
place so I think there are good grounds for believing
that there are reasonable reasons why the Budget
Review has not been moved forward so far. I am sure,
though, that we in the UK will want to press very
strongly to ensure that this does take place. I know
that there are other Member States, who I would not
want to name, who would be less than enthusiastic
about this, but I believe it is just of such fundamental
importance not just to the UK but to Europe that we
have a long hard look at budgets and spending
priorities for the future. This is something that I think
has got to come and I would like to think that there is
going to be increasing pressure fromotherEUleaders
and other EU countries to say we need to have a
fundamental look at our budgets and how the EU
operates.
Q40 Lord Haskins: It sounds to me like we will
maybe be waiting for it in a year’s time.
Ian Pearson: The sooner this is done, in our view, the
better. I understand that there is a commitment that
there will be a Commission White Paper by the end of
2009. The original wording said it would be in 2008/
2009, as you will be aware. What is vitally important
in my view is what this document says, the fact that
it has been ambitious scope, and that it provides an
opportunity for EU leaders to come together and to
really discuss and debate what a modern set of
priorities for the EU should be going forward. I think
that is the key challenge.
Q41 Lord Haskins: That is a Commission
document?
Ian Pearson: It will be a Commission White Paper.
Q42 Chairman: We hope so too because we have
specifically set aside the time of this Committee to
have a look at whatever it produces, so it is our
assumption indeed that the Budget Review will take
place. Minister, I am conscious that we have already
kept you just over an hour when I know you have
some place else to be. It only remains for me to say
thank you very much indeed for coming and to say
how very useful you have been. I amsure you will find
that out when you see the transcript!
Ian Pearson: Thank you very much for your kind
questioning and generous chairmanship. I have
thoroughly enjoyed this session.