Select Committee on European Scrutiny First Report



Amendments and proposed modifications proposed by the European
Parliament in its first reading on 26 October 2000 of the draft
general Budget of the European Union for the Financial Year 2001.


(i) General Budget of the European Union for the Financial Year
2001: the Figures.

(ii) Final Adoption of the General Budget of the European Union for
the Financial Year 2001.

Legal base: Article 272 EC; the special role of the European Parliament regarding adoption of the Budget is set out in the article; qualified majority voting
Department: HM Treasury
Basis of consideration: (a) EM of 15 January 2001
(b) EM of 9 April 2001
Previous Committee Report: None; but see paragraphs 44.5-44.6 below
To be discussed in Council: Not applicable
Committee's assessment: Politically important
Committee's decision: (Both) Cleared


44.1  The annual EC budget is proposed by the Commission, but determined by the budgetary authority comprising the Budget Council[66] and the European Parliament. Each annual budget is required by the Inter­Institutional Agreement (IIA), signed following the Berlin European Council in March 1999, to be set within the limits of the multi­annual financial perspective.[67] The financial perspective sets the overall spending ceiling, year by year, for each of the main categories of expenditure (agriculture, structural operations, internal policies, external action, administration, reserves and pre­accession instruments). The spending ceilings are set in terms of commitments (financial obligations), not payments.[68] The current financial perspective covers a period from 2000 to 2006.

44.2  The main stages in the EC budget procedure are outlined below. The annual budgetary process begins in early May when the Commission agrees its Preliminary Draft Budget (PDB) for the forthcoming year. The PDB sets out the Commission's proposals for Community expenditure together with bids for the other Community institutions. The PDB is sent to the budgetary authority by 15 June. The PDB can subsequently be amended by the Commission by means of a letter of amendment to allow for new information which was not available earlier. The Budget Council considers, and if necessary amends, the PDB. The Budget Council then publishes its Draft Budget (DB), amending the PDB, in July and forwards it to the European Parliament.

44.3  The DB is subject to a first and second reading in the Budget Council and the European Parliament. The Budget Council's first reading of the DB is usually held around late July, with the first reading by the European Parliament taking place in late October. For the DB 2001, the first reading was held on 20 July 2000 in the Budget Council and 26 October 2000 in the European Parliament. The DB 2001 had its second reading on 23 November 2000 and 14 December 2000 in the Budget Council and European Parliament respectively.

44.4  Adoption of the DB follows the European Parliament's second reading. If the Budget Council and the European Parliament fail to agree, conciliation procedures are used. The 2000 budget-making process was controversial in that the Budget Council opposed the European Parliament's amendments seeking to meet new spending priorities, in particular for Kosovo, by increasing the amounts in the financial perspective. At that time, the Budget Council was so firmly opposed to any increase in the financial perspective that it considered taking the European Parliament to the European Court if, by amending the Budget, the spending exceeded the ceilings in the financial perspective. In the event, the budget was adopted without breaching the financial perspective. The process for approving the DB for 2001 was reasonably straightforward, with less pressure for such spending to breach the financial perspective ceilings.

Previous scrutiny

— Preliminary Draft Budget (PDB)

44.5  Our predecessors considered a provisional version of the Commission's PDB on 28 June 2000 and recommended it for debate together with the Commission's proposals for a Western Balkans programme and redeployment expenditure allocated to external actions. The debate was held in European Standing Committee B on 12 July 2000. On 12 July 2000 we also cleared the published volumes of the 2001 PDB.[69] The then Economic Secretary to the Treasury (Miss Melanie Johnson) wrote to our predecessors on 26 July about the outcome of the Budget Council's first reading on 20 July. She said that the Council had rejected the Commission's proposal to revise the financial perspectives so as to allow for increased expenditure in the Western Balkans. The Council's view was that extra Balkans expenditure could be met by re­ordering priorities within the budget-line for external actions (heading 4) of the PDB.

— Draft Budget

44.6  We left the Budget Council's draft budget (DB) uncleared on 25 October 2000, pending further consideration of the DB by the European Parliament.[70] On 22 November we cleared the European Parliament's amendments and proposals, but requested further information after the Budget Council had considered the amendments.[71] The Budget Council held its second reading of the 2001 DB on 23 November. The European Parliament formally adopted the DB at its second reading on 14 December.

The documents

44.7  Document (a) sets out the European Parliament's amendments and proposed modifications to the 2001 EC Draft Budget (DB) at its first reading. Our predecessors cleared these amendments on 22 November 2000. We concentrate here on document (b) which relates to the adopted budget. This document shows that, in terms of commitments, the adopted budget for 2001 totals 96.24 billion euros, which is:

  • billion euros (3.1%) above the 2000 Budget;

  • billion euros under the overall financial perspectives ceiling; and

  • billion euros above the Budget set by the Budget Council's second reading.

In terms of payments, the Adopted Budget is 92.57 billion euros, which is:

  • billion euros (3.5%) above the 2000 Budget;

  • billion euros under the overall financial perspectives ceiling; and

  • billion euros above the Budget Council's second reading Budget.

44.8  In terms of own resources, including payments to reserves, the EC budget represents 1.04% of Community GNP, compared to 1.11% in 2000 and an own resources ceiling of 1.27%.

44.9  The EC budget comprises a number of individual categories: Category 1a (EAGGF-Guarantee), category 1b (rural development), category 2 (structural operations), category 3 (internal policies), category 4 (external action), category 5 (administrative expenditure), category 6 (reserves), and category 7 (pre-accession aid). All spending categories for 2001 show an increase in commitments compared with 2000, with the largest percentage increase in rural development — 10.06%.

44.10  In its overview document, document (b), the Commission summarises the Budget as follows:  

    "The appropriations for agricultural expenditure total 43,297.7 million euros representing a 5.7 % increase on 2000. This amount breaks down into 38,802.7 million euros for market expenditure, on the basis of the updated figures proposed by the Commission in letter of amendment 2/2001. Following the Budget Council meeting (Agriculture) on 22 November 2000 it was decided to provide an additional 40 million euros for fruit and vegetables, 30 million euros for bananas and 14 million euros for nuts. This made it possible to include in the 2001 budget an additional 60 million euros for BSE testing in Chapter B1­3.3. The impact of BSE on the beef sector in general will be assessed in the coming weeks and the Commission will be producing a preliminary draft supplementary/amending budget early in 2001. For subheading 1b (Rural development and accompanying measures), the 4,495 million euros adopted corresponds to the ceiling.

    "Expenditure for structural operations totals 32,720 million euros for commitments and 31,574.4 million euros for payments. This includes 30,005 million euros in commitment appropriations for the Structural Funds, the ceiling set in the financial perspective, and 28,714.4 million euros in payment appropriations.

    "For the Cohesion Fund, 2,715 million euros is available for commitments, as provided in the financial perspective, and 2,860 million euros for payments.

    "Appropriations for internal policies total 6,232.16 million euros for commitments and 5,854.767 million euros for payments. The margin available for the heading is only 39.84 million euros and the increase over 2000 is 3%.

    "In accordance with the wishes of the [Budget] Council and Parliament, the 2001 budget focuses on employment with the launch of a multiannual entrepreneurship programme for small businesses with an allocation of 450 million euros over 5 years. In 2001, 100 million euros will be available for the two lines B5—5 10 and 5 11.

    "The 3,920 million euros in commitment appropriations allocated to research is 8% up on 2000. The total available for payments is 3,610 million euros . The other areas with large increases are transport (23% up on 2000 with 25,205 million euros for commitments) and the area of freedom, security and justice (up by 14.9% at 113.55 million euros ) and to a lesser extent the internal market (8% up at 159.58 million euros ).

    "The main feature of the 2001 budget procedure was the discussion of the financing of the stabilisation programme for the western Balkans. The allocations under the external action heading total 4,928.672 million euros for commitments and 3,920.997 million euros for payments. The increase for commitments over 2000 is only 2.1 % . This compares with an increase of 7.6% for payments. The budget also provides for the flexibility instrument to be used to release 200 million euros for Serbia, so that the real margin for heading 4 is only 6.3 million euros. The flexibility instrument is mobilised for Serbia. which can receive 240 million euros out of the total allocation of 839 million euros for the western Balkans. This amount takes account of the restoration of democracy in Serbia and the 75 million euros in advance financing for Kosovo, which was made possible in 2000 by redeployment within the heading. The MEDA programme totals 741 million euros , but is 20.5% — down on 2000. The CFSP appropriations are far less than in 2000, the reason being that administrative expenditure for special envoys has been transferred to the Council section.

    "Appropriations for administrative expenditure total 4,904.294 million euros, an increase of 3.8 % over 2000 and will finance the 400 new posts for the Commission and the outside staff who will be required to enable the Commission to take over for the time being the work of the technical assistance offices which are to be dismantled.

    "For the other institutions, the total budget is 1,687.136 million euros. Expenditure on pensions is the part of the heading with the largest increase (9.6 %). The total margin still remaining in heading 5 for 2001 is only 34.705 million euros .

    "The appropriations for pre­accession aid total 3,240 million euros for commitments, the ceiling for the heading. After the start­up problems in 2000, the increase in payment appropriations is substantial, but they are still well below the Commitment appropriations."

The Government's view

44.11  The then Economic Secretary to the Treasury (Miss Melanie Johnson) provided us with an Explanatory Memorandum, dated 9 April 2001, on the final adopted budget and also on the overview.[72] As in previous years, when reporting on the budget, we reproduce this Explanatory Memorandum with our Report, as it provides a helpful factual analysis of the adopted budget. The Minister says:

    "The key issue in the agreement of the budget of the EU for 2001 was that of preserving the tight spending ceilings agreed at the Berlin European Council in March 1999 while at the same time covering the EU's priorities for 2001, in particular reconstruction activity in Serbia. The two arms of the budgetary authority, the [Budget] Council and the European Parliament, agreed to mobilise the flexibility instrument (which has a maximum availability of 200 million euros per year) as set out in the Inter-institutional agreement on budgetary discipline of 6 May 1999. Total commitments of 839 million euros were agreed for the Western Balkans on 2001, including 240 million euros for Serbia (of which 200 million euros is from the flexibility instrument), and 175 million euros for Kosovo.

    "The Council did not accept the Commission's proposal to revise the financial perspective ceilings for 2000-06 for categories 1,4 or 7."


44.12  When our predecessors considered the Preliminary Draft Budget and Draft Budget, they noted, among other things, that members of the European Parliament were pressing for an increase in the financial perspective in order to accommodate increased spending in the Balkans. In the event, the Budget Council did not accept the proposal to increase the ceilings for categories 1, 4 or 7 in the financial perspective for 2000-06. We welcome this outcome and have no further questions. We clear the documents.

66  Sometimes referred to as Council. Back

67  The IIA provides a procedure for revising the financial perspective in the event of "unforeseen circumstances". Back

68  The EC Budget distinguishes between appropriations for commitments and for payments. Commitments are the total cost of legal obligations that can be entered into in the Budget year, leading to payments in that or later years. Payment appropriations are the amount available to be spent in the Budget year arising from commitments entered into in the current or previous years. Back

69  (21337) -; see HC 23-xxiii (1999-2000), paragraph 2 (28 June 2000) and (21422) -; see HC 23-xxiv (1999-2000), paragraph 3 (12 July 2000). Back

70  (21636) 10299/00 and 10299/00/1; see HC 23­xxx (1999-2000), paragraph 17 (22 November 2000). Back

71  See HC 23-xxx (1999-2000) , paragraph 17 (22 November 2000) and HC 28-i (2000-01), paragraph 13 (13 December 2000). Back

72  Known as the Figures. Back

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Prepared 30 July 2001