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European Union Committee - Thirty-Fourth Report 
The Multiannual Financial Framework 2014-20

http://www.publications.parliament.uk/pa/ld201012/ldselect/ldeucom/297/29702.htm

 

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You are here: Parliament home page > Parliamentary business > Publications and Records > Committee Publications > All Select Committee Publications > Lords Select Committees > European Union > European Union

The Multiannual Financial Framework 2014-20 - European Union Committee Contents

Chapter 9: summary of conclusions and recommendations  Chapter 2: Principles EUROPEAN ADDED VALUE 266.  We previously concluded that "the MFF negotiation provides an opportunity to move EU spending closer to European Added Value, and this should be the Government's objective". We remain of this view. The various elements of the MFF ought to be negotiated on their objective merits, and a focus on added value can assist in making this happen. National interest in protecting funding streams should not be a block to increasing the impact of EU funding, in any area of the MFF. (paragraph 29) EUROPE 2020 267.  The Commission are right to identify achieving the Europe 2020 strategy as an objective of the next MFF, but this must be balanced with the need to fund other EU priorities, such as protecting biodiversity, and the area of freedom, security and justice. Such balance is necessary so that the EU can respond clearly and collectively to the principal challenges facing it today. (paragraph 33) 268.  We highlight the need to consider spending on the Europe 2020 goals in the context of EAV; Europe 2020 is an EU-level strategy but does not necessarily demand EU-level spending. Alternative EU policy instruments, such as voluntary guidelines or policy coordination may be more appropriate tools in some cases. (paragraph 34) BUDGET SIZE 269.  We previously recommended that the MFF be negotiated and prepared with the same approach and rigour as a business plan. We remain of this view. In a time when restraint is necessary, action should be taken to ensure that the MFF accurately represents funding needs. We would favour greater focus on underspends from the current MFF to inform negotiations and help deliver restraint in the EU budget. (paragraph 41) 270.  The EU budget cannot be exempt from efforts to restrain public spending. We repeat our call for the next MFF not to grow in real terms, with spending to be reprioritised to focus on growth-enhancing areas such as infrastructure, as the EU's long-term prosperity depends on a balance of budgetary discipline and economic growth. It is incumbent upon Member States and the Commission to ensure that austerity does not reduce European Added Value at a time when it is most needed. (paragraph 42) 271.  We are disappointed that the euro area crisis has not stimulated more radical thinking about what policies, supported by what budgets, the EU needs to meet the immense challenges it now faces, particularly in achieving the very difficult task of stimulating sustainable economic growth while progressively reducing excessive budget deficits. We note with disappointment what Figure 1 clearly shows: the Commission's proposals are little more than cosmetically different from the pattern of expenditure in the current MFF, despite the radically changed economic circumstances in which the Union finds itself. In this report, we set out our proposals for a significant rebalancing of expenditure. (paragraph 43) 272.  We urge the Commission, the Government, and commentators to think carefully about the figures that are used in discussing this crucial piece of EU policy. (paragraph 44) Chapter 3: Cohesion PURPOSE OF COHESION FUNDING 273.  We support the proposed introduction of the transition region category, provided that this allows for more appropriate targeting of funding and leads to a more nuanced approach to meeting regional development needs. (paragraph 53) 274.  There are strong arguments for cohesion policy being targeted at poorer Member States, and for cohesion policy to operate at a pan-European level. However, the ultimate aim of EU cohesion policy is "reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions", many of which will be in the poorer Member States. We remain convinced that the European Social Fund is of benefit throughout the Union, but are of the view that other funds, such as the European Regional Development Fund, should be further targeted at poorer Member States with a view to withdrawing it from better-off Member States in the long term. (paragraph 55) 275.  We recognise the importance of the Europe 2020 objectives, many of which dovetail with the traditional mission of cohesion policy. However, cohesion policy is not merely a delivery tool for Europe 2020. We caution against the core aim of cohesion policy being undermined by an unremitting focus on meeting the Europe 2020 objectives. The distinct identity and fundamental objective of cohesion, enshrined in the Treaty as a permanent core objective of the Union, must be safeguarded. (paragraph 58) 276.  As an expression of EU solidarity, cohesion policy is one of the most important elements of the MFF when it comes to improving public awareness of EU action, an important aspect of the MFF that needs to be maintained. (paragraph 59) COHESION FUNDS IN DIFFICULT ECONOMIC TIMES 277.  The economic context of this MFF has strengthened our belief that cohesion policy should play a more defined role in helping Member States in financial difficulties to address structural weaknesses and competitiveness challenges. There is a role for cohesion policy as an effective and necessary counterbalance to the effects of austerity measures. (paragraph 64) 278.  We support the overall envelope proposed for cohesion funding. Cohesion policy has an important role to play in improving growth, and in the context of a rigid seven-year framework, it is vital that funding remains available to meet changes in the economic climate. (paragraph 65) STRUCTURE OF COHESION FUNDING 279.  The Commission's proposals represent a much-needed attempt to improve the impact and effectiveness of EU funds and to encourage a more strategic approach. We support the simplifications and improved synergies offered by the proposed Common Strategic Framework. (paragraph 69) 280.  We recognise the case for thematic concentration on a smaller number of priorities, but remain to be convinced that the Commission's proposals ensure sufficient flexibility for regions and local authorities to focus investment on their own development needs. We urge the Government to ensure that the UK's Partnership Contract retains sufficient flexibility to allow further tailoring through Operational Programmes at the regional level. (paragraph 72) CONDITIONALITY 281.  We endorse the Commission's proposal to enhance the effectiveness of cohesion policy by proposing a series of conditions to the granting and use of cohesion funding. However, we have concerns about the appropriateness of macroeconomic conditionality tools since withdrawing EU funding from an ailing economy might in some circumstances only make matters worse. (paragraph 76) 282.  We remain convinced that a performance reserve could be beneficial, if implemented correctly. However, we agree with the Government that the 2019 date for allocation of funding is too late to have any meaningful impact, and call for the final review and allocation of funds to be brought forward. We call on the Government to ensure that there is clarity and understanding at national, regional, and local level regarding the impact of a performance reserve. (paragraph 80) 283.  We support a combination of ex ante conditionality and a performance reserve designed and implemented at national level that incorporates targets focused on the objectives of the funding and relevant to the context of the programme. (paragraph 81) Chapter 4: Agriculture, fisheries, climate change and the environment COMMON AGRICULTURAL POLICY AND RURAL DEVELOPMENT 284.  We welcome the Risk Management Toolkit and the proposal for making available financial support to cover premiums for crop, animal and plant insurance against economic losses. (paragraph 92) 285.  We recognise that the risk management tools proposed may be intended to serve different purposes. However, we urge the Government to look closely at the range of measures proposed as offering possible scope for budget savings in this area. (paragraph 94) 286.  We welcome the prominence given to the issues of knowledge transfer between research and agriculture in Pillar II. We also welcome the inclusion of a new article on cooperation and the establishment of the European Innovation Partnership, provided that the partnership and its operations are founded on effective, action-based cooperation. (paragraph 96) 287.  We are sceptical that the proposals for CAP reform will deliver the intended environmental benefits. Pillar I payments should be made in return for delivery of public goods, responding to climate change, and protecting biodiversity. The "one size fits all" approach of the Pillar I greening proposal is too inflexible. We would prefer to see greening measures identified at national or regional level, building on the cross-compliance requirements and recognising substantial efforts already made by farmers. (paragraph 100) 288.  We reiterate our view that evolutionary change of the CAP is more likely to succeed than any radical approach. However, we are disappointed that the Commission's proposals largely represent the status quo in terms of agricultural spending. (paragraph 104) 289.  Greater efforts must be made to reduce the CAP budget, and to begin phasing out direct payments and reorientating the CAP towards actions that offer higher European Added Value and greater value for money. It is clear to us that, in the light of current economic challenges, new approaches are required. We strongly regret that the opportunity appears to have been missed to introduce them. The risk of even greater disruption to European economies cannot be ignored. We urge the Government to take into account the consequent need for flexibility while negotiating the new MFF. (paragraph 105) 290.  While the Commission's proposal to more than double funding for investment in agricultural research is welcome, the failure to make any substantial reduction in the overall CAP budget is disappointing. We urge the Government to argue for greater cuts to Pillar I and more ambitious transfer of funds to Pillar II. (paragraph 106) FISHERIES AND MARITIME POLICY 291.  A number of measures within the European Maritime and Fisheries Fund support welcome reform of the Common Fisheries Policy. However, other aspects appear tangential, such as support for inland fisheries and boosting aquaculture. We are concerned that the Maritime and Fisheries Fund is too broad and insufficiently targets funds towards key conservation objectives, such as discard reduction. The instrument should be narrowed to make clear that money will not be spent on infrastructure and aquaculture at the expense of conservation. (paragraph 109) 292.  We consider that the increased budget for the Maritime and Fisheries Fund could be justified if the appropriate focus is attained. It is important that all Member States take seriously the need to reform the sector, and recognise that diversification away from fisheries will be necessary in some instances. (paragraph 110) 293.  We support the provision of limited funding to support better transnational cooperation between sectors reliant on the maritime environment but consider that the Commission's current proposal is over-generous. Further analysis should be carried out to identify whether the entire proposed budget is necessary. (paragraph 111) CLIMATE CHANGE AND THE ENVIRONMENT 294.  We support the distinct Sub-Programme for Climate Action and consider that there is a strong case for an increased budget for the LIFE programme in order to address the challenges of biodiversity loss and climate change. (paragraph 116) 295.  We previously recommended that climate change policies be mainstreamed throughout EU funding instruments alongside a fund devoted to climate-change projects of EU interest. We support the Commission's proposals, which reflect this approach. However, we also observed that, for mainstreaming to work effectively, the Climate Action Commissioner would require a strategic overview across policy areas. We are disappointed that no such mechanism has been proposed. We repeat this recommendation in the interests of promoting strategic use of funds in targeting key climate change objectives, and urge the Government to advocate this approach. (paragraph 117) Chapter 5: Infrastructure and innovation CONNECTING EUROPE 296.  We appreciate the importance of EU-level action on cross-border infrastructure; however, the proposed budget will be difficult to accommodate within the MFF without radical reallocation of funds away from the CAP. We therefore call for a strategic review of the Connecting Europe facility, with European Added Value as the guiding principle, but noting that public investment should only be deployed where the market has failed to act. (paragraph 124) 297.  The balance between transport, energy and telecommunications spending should be a key question within a strategic review of the Connecting Europe facility. There are pressing needs across all sectors, and a focus on transport in the past does not necessarily demand the same today. We urge a greater focus on energy and telecommunications over the course of the next MFF, although there should always be a preference for direct private funding rather than subsidy from the EU budget. (paragraph 126) 298.  We support the Commission's aim to increase private-sector involvement to leverage public infrastructure investment. However, we would advocate a focus on substituting, rather than supplementing, EU funding where appropriate. As with all jointly funded projects, risks and rewards must also be properly apportioned between the public and private sectors. (paragraph 128) 299.  We accept the Commission's role regarding the oversight and coordination of infrastructure development. However, as the Connecting Europe proposal develops, it will be essential that national competences are fully respected. (paragraph 131) HORIZON 2020 300.  We are broadly supportive of the structure and aims of the Horizon 2020 proposal. If implemented correctly, Horizon 2020 could significantly reduce bureaucracy in the research field and help to foster innovation amongst SMEs. Furthermore, the enhanced role for the European Research Council will keep the focus on European Added Value and research-led excellence, which must be at the core of any EU research programme. (paragraph 135) 301.  We do not agree with the Government that the proposed level of spending is "unrealistic"; however, we agree that Horizon 2020 should receive a larger proportion of a smaller budget. Spending must be reprioritised to focus on growth-enhancing areas where EU funding can add most value, and spending on research clearly meets this description. We call strongly for increased budgetary provision on innovation and research to be supported at the expense of other areas, such as the CAP. We also urge the Government to do more to promote and facilitate industry's access to Horizon 2020 funds. (paragraph 138) 302.  The interim review of the Seventh Framework Programmes for Research and Technical Development noted the relatively low success rates of some lower-income Member States when bidding for EU research funds, and highlighted the role of cohesion policy in raising research and innovation capacity. We therefore support efforts to achieve greater alignment between Horizon 2020 and cohesion policy instruments while retaining the important distinction between the two. (paragraph 140) COSME 303.  We support the COSME programme in principle. However, we are concerned at both the level of funding proposed, and the instrument's focus on tourism. In addition to the value offered by the tourism sector, it is important to recognise the many other sectors characterised by a high proportion of SMEs and a high level of growth potential. (paragraph 144) 304.  Like the Government, we remain to be convinced that COSME's loan guarantee facility offers added value and does not simply replace national authorities' schemes. (paragraph 146) Chapter 6: Other expenditure lines EDUCATION AND CULTURE 305.  Erasmus for All is an important proposal. We welcome the Commission's efforts to streamline and simplify the numerous existing programmes. Although we note the Government's position regarding budgetary restraint, we consider that this programme merits a larger proportion of the next MFF. Life-long learning is key for long-term growth. (paragraph 152) 306.  In our report Grassroots Sport and the European Union, we recommended a dedicated funding programme for sport under the next MFF. Therefore, we welcome the proposed sport sub-programme. We stand by our previous recommendation that funds should be allocated to improving dialogue with sports stakeholders, and we urge the Government to rethink their opposition on this point. (paragraph 153) 307.  The cultural and creative sectors' contribution to the EU is fundamentally important. We heard compelling evidence that the increased budget proposed by the Commission for Creative Europe would stimulate job-creation and growth in line with the Europe 2020 strategy. In the context of domestic funding cuts for these sectors, and UK organisations' obvious capacity for attracting EU funding, we call for the Government to support a proportionately larger budget allocation to this area, which represents only a very small proportion of the total MFF. (paragraph 157) 308.  We also call on the Government to reconsider its position regarding the proposed financial facility in the Commission's Creative Europe proposal. Businesses in the cultural and creative sectors often experience greater difficulty in attracting investment than their counterparts in other sectors. The Commission's proposed financial facility could offer an important bridging mechanism between these sectors and private-sector investment. (paragraph 158) SECURITY AND CITIZENSHIP 309.  It is difficult to assess the "right" amount of EU spending on Justice, Rights and Citizenship. We consider that the level of EU activity from 2014 to 2020 should be broadly the same as that in 2013. Consequently, the spending level in 2013 should be maintained in real terms. Savings should be found from elsewhere within the MFF in order to fund this small increase. If necessary, spending on Justice should have a higher priority than the Citizenship programme. (paragraph 167) 310.  We repeat our call for the importance of communicating the work of the EU to citizens to be recognised in the MFF. The Europe for Citizens programme is linked to this important objective. We support the proposed aims of Europe for Citizens and would support a proportionately larger budget for the programme within a reduced MFF. (paragraph 168) 311.  We cannot support the Government's suggestion that any increase in funding for Justice and Home Affairs programmes must come from elsewhere in the JHA budget. This appears to be inconsistent with the Government's long-term approach to the MFF, which emphasises reprioritisation to support key budget lines. We would support modest increases in some aspects of EU home affairs work, such as the work of Europol and the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA), provided these could be funded from savings elsewhere in the MFF. As we have previously concluded, a Cybercrime Centre is essential, but cannot be funded at the expense of other parts of the home affairs budget. Funding must be found from elsewhere in the MFF for this vital Centre. (paragraph 174) 312.  We stress that, due to increased activity in this relatively new area of the EU budget, comparisons with Justice and Home Affairs budgets of earlier years are meaningless. Although we do not support the Commission's proposed budget for Justice and Home Affairs, funding in the next MFF should not fall below that at the end of the current MFF period in real terms. (paragraph 175) 313.  We support the proposed simplification of funds within Heading 3. However, we agree with the Government that a merger between Fiscalis 2013 and Customs 2013 is undesirable, and we remain unconvinced by the case for the proposed budget increase. (paragraph 178) 314.  In our report Healthcare Across EU Borders, we concluded that the Commission and Member States should not underestimate the challenge of the task of increasing the interoperability of patient registers. This aspect of the e-Health proposal is premature and overly ambitious. Funding in this area should be restricted to that necessary to support a feasibility assessment. (paragraph 183) 315.  We previously emphasised the importance of a safe pathway of care and the value of cooperation between service providers through European reference networks. We are in favour of these being supported by the Health for Growth programme. Health promotion is an area that we consider is given insufficient prominence in the Programme. (paragraph 184) 316.  The Consumer Programme is a valuable addition to the policy area, and we see scope for the further development of consumer digital rights. The European Consumer Centre is important for UK consumers, and the network should continue to be well funded. (paragraph 188) 317.  Budget reductions may be possible in relation to training national consumer organisations and awareness-raising campaigns on consumer issues. However, programmes such as RAPEX and increasing the awareness of rights with regard to the digital single market offer particular added value. We support the funding proposed in this area. (paragraph 189) EXTERNAL RELATIONS 318.  We welcome the Commission's efforts to increase the flexibility and agility of funds within Heading 4, as well as the significant simplifications and standardisations of the existing complicated and variable processes. Given these improvements, we are sceptical about the need for the additional year-on-year marginal increases proposed by the Commission for the purpose of delivering increased flexibility. (paragraph 195) 319.  We considered the question of bringing the European Development Fund "on-budget" in 2004, and in our previous MFF inquiry in 2011. We again emphasise the clear advantages that would be offered if the Development Fund were brought within the MFF, including bringing greater coherence to EU aid, and simpler aid procedures. We urge the Government to negotiate particularly for the EDF to be brought "on-budget". (paragraph 196) 320.  We believe that it would be simpler, and potentially more coherent, for the European External Action Service to have a separate, ring-fenced budget. If this cannot be achieved in the current MFF negotiations, we would welcome an indication in the eventual agreement of how much of Heading 5 has been earmarked for the EEAS. (paragraph 199) ADMINISTRATION 321.  We recognise the efforts that the Commission are making to bring the administrative costs of the EU institutions more in line with those of Member States and appreciate the importance of preventing a "capacity deficit" within the EU institutions. However, we agree with the Government that more must be done in this area to reflect the difficult decisions being taken at national level, which is important from a public perspective. In the longer term, we urge the Commission to consider again some of the institutional practices of the EU in order to achieve further administrative efficiencies. (paragraph 205) 322.  Although we support the Commission's efforts to cut the Administration budget for each of the EU bodies, we reiterate that funding for the EU courts must increase during the next MFF period to enable the courts to handle an increasing workload. This increase should be funded from savings elsewhere in the Administration budget. (paragraph 207) Chapter 7: Shape and flexibility of the MFF LARGE-SCALE PROJECTS 323.  We are deeply concerned at the continued funding of Galileo, a project beset by repeated delays and cost overruns, particularly as the Commission's proposals double funding levels. There are opportunities for growth in the space sector, both in infrastructure construction and service development, but Galileo is not the right project to seize these opportunities. Despite the money and political capital already invested in Galileo, we would call for the project to be brought to an end. If it is to continue, the revision of governance is welcome, as it offers greater potential for expert management. (paragraph 213) 324.  We are concerned that the Commission proposes placing ITER and GMES off-budget in the next MFF. The transparency and accountability afforded by the MFF negotiating process is an important element in ensuring the robust management of large projects, even though we recognise that ITER is an international commitment. Moving significant levels of spending off-budget creates the impression of opacity and should be resisted. We are not persuaded by the Commission's argument and would prefer to see greater flexibility within the MFF in order to avoid placing programmes "off-budget". (paragraph 217) OTHER FUNDS 325.  We are concerned about the proposal to move the Solidarity Fund outside the MFF. However, we support the Commission's proposals to speed up the process of agreeing and making available financial assistance in so far as these are consistent with exercising overall budgetary restraint. (paragraph 221) 326.  We acknowledge the case for some form of crisis intervention instrument in the event of large-scale redundancies. However, we are not convinced that the European Globalisation Adjustment Fund is the most effective means by which to provide such support. We see merit in the Government's suggestion that the European Social Fund could meet the purposes of the Globalisation Adjustment Fund, and we would encourage further review of the ESF in this context, perhaps with a view to incorporating a contingency fund within the current Fund. (paragraph 224) FLEXIBILITY WITHIN THE MFF 327.  Flexibility and sound financial governance are not mutually exclusive, and the MFF should strive to offer both via controlled mechanisms for moving funds within Headings in order to allow reprioritisation over the course of the MFF. (paragraph 227) 328.  We remain of the view that the current MFF has proven too inflexible, and that steps must be taken to remedy this. We repeat our call for the MFF to move to a five-year programme. (paragraph 228) 329.  We would again emphasise that, in the light of current economic challenges, new approaches are required. We strongly regret that the opportunity appears to have been missed to introduce them. The risk of even greater disruption to European economies cannot be ignored. Were this to materialise, there could be calls on the EU budget that could not easily be met from the principal budget lines, such as the CAP or cohesion policy. We urge the Government to take into account the consequent need for flexibility while negotiating the new MFF. (paragraph 229) Chapter 8: Income and corrections FINANCIAL TRANSACTION TAX PROPOSAL 330.  We consider that the Commission has failed to make a case for an EU-wide Financial Transaction Tax. We also find the Commission's proposal that an FTT provide funding for the EU budget unsuitable on two further grounds. First, it is likely to fall disproportionately on a minority of Member States, and especially the UK, which could account for 71 per cent of overall revenue under the Commission's proposal. Second, we cannot identify any genuine link between EU policy objectives, such as those of Europe 2020, and an FTT, and so find that the proposed tax fails to be a suitable own resource on the Commission's own criteria. (paragraph 238) VAT-BASED OWN RESOURCE PROPOSAL 331.  We are concerned that a VAT-based own resource is not appropriate for funding the EU budget. The complexity of the VAT-based own resource, and the Commission's own statement that it offers no European Added Value over the GNI-based resource, may make it preferable for it to be removed entirely, which could bring relatively small, although welcome, savings by reducing the administrative costs of collection. This need not necessarily prejudice the UK abatement, although we acknowledge that determining a new base for calculating the abatement might require a difficult negotiation. We nevertheless urge the Government to give further thought to this possibility as part of their response to the own resources proposals. (paragraph 243) INNOVATIVE FINANCIAL INSTRUMENTS AND LEVERAGING 332.  We support the increased use of private finance, but stress that such an approach carries risks for the predictability of EU spending and for efficient and effective funding, which need to be guarded against. We remain of the view that leveraging could be used more widely and effectively if a greater degree of flexibility to move money between headings was available in the MFF. This would help to ensure that large quantities of funding do not lie unused while viable programmes remain unfunded. (paragraph 250) 333.  We recognise the need to revive and expand capital markets in order to finance infrastructure projects, and support the EU project bonds proposal and the Commission's intention to pilot the Europe 2020 Project Bonds Initiative in the current programming period. (paragraph 251) 334.  We recognise the value of innovative financial instruments within cohesion funding. However, as we argued previously, the use of innovative financial instruments should proceed with caution, particularly in Member States with limited administrative capacity. (paragraph 254) 335.  The Commission argued that there were key differences in its new proposal, such as medium-term certainty, but since the UK's net contribution cannot be calculated in advance of the implementation of the annual budget, this cannot be the case. (paragraph 259) ABATEMENTS AND CORRECTION MECHANISMS 336.  We agree that an ideal EU budget would not involve correction mechanisms. However, the UK abatement and other Member States' corrections are residuals. Their existence is the direct result of the imbalance among Member States in EU spending, especially from the CAP. Their removal must be preceded by significant budgetary reform. We regret that this has not been seen in the current proposals. We therefore repeat our view that the UK abatement is justified and must remain until the CAP is fundamentally reformed. (paragraph 261) 337.  This is not to say that we oppose any and all reforms to the corrections system. A generalised corrections mechanism could be viable, as discussed in our previous report, provided that it genuinely respects the principle of preventing excessive budgetary burdens. (paragraph 262) 338.  We acknowledge that the UK abatement might in principle affect the UK's application for and use of EU funds, which would be undesirable. However, we do not consider that this has taken place to any significant extent. We reiterate our view that problems surrounding the correction mechanisms in the MFF must be addressed from the expenditure side. (paragraph 265)