Select Committee on European Scrutiny First Report



Preliminary Draft Budget 2002, Political Presentation.

Legal base: Article 272 EC; qualified majority voting; the special role of the European Parliament in relation to the adoption of the Budget is set out in the Article
Department: HM Treasury
Basis of consideration: EM of 9 July 2001
Previous Committee Report: None
To be discussed in Council: 20 July 2001
Committee's assessment: Politically important
Committee's decision: Cleared, but relevant to any debate on the 2002 EC Budget


50.1  The Commission's Preliminary Draft Budget (PDB) is the first stage in the EC budgetary procedure.

50.2  The PDB for 2002 sets out the Commission's proposals for Community expenditure in 2002, together with bids for the other Community institutions. On the basis of the PDB, the Budget Council will establish a Draft Budget (DB) on 20 July 2001 to be forwarded to the European Parliament for its first reading. The Budget is not finally adopted until December following the European Parliament's second reading.

50.3  The Economic Secretary to the Treasury (Ruth Kelly) submitted an Explanatory Memorandum on 9 July 2001. As in previous years, we are annexing to this Report tables from the Explanatory Memorandum.

The document

50.4  The document, which is the Political Presentation of the PDB for 2002, summarises the PDB and provides a detailed justification of the overall budget figures.

50.5   In previous years, the PDB has consisted of ten volumes. Volume 0 provides a summary and more details than in the overview. Volume 1 gives details of the implications of the budget for member states' gross contributions to the EC, calculated under the Own Resources Decision. Volumes 2, 4, 5, 6, 7, 8 and 9 set out the European institutions' respective budgets, of which Volume 4 (the Commission's budget) is the most important in terms of overall expenditure.[79]

50.6  In terms of commitments,[80] the PDB for 2002 totals 100,328 million euros, which is:

  • million euros (3.5%) above the 2001 Budget,[81] comprising increases of 4.6% for compulsory expenditures, of which 5.0% is for agriculture, and only 2.6% for non­compulsory expenditures; and

  • 1511 million euros under the ceiling set by the Financial Perspective;

50.7  Payment appropriations for the PDB for 2002 are 97,771 million euros, which is:

  • million euros (4.8%) above the 2001 Budget;[82] and

  • million euros below the ceiling set by the Financial Perspective.

50.8  The public expenditure forecasts in the Member States for 2002, which serves as a reference for the preparation of the PDB, show an increase of 3.8%, which indicates that EC payments are forecast to rise faster than total government expenditure by Member States in 2002.

50.9  In terms of own resources, including payments to reserves, the EC budget represents 1.06% of Community GNP, compared with 1.07% in 2001 and an own resources ceiling of 1.27%.

50.10  According to the Commission, the PDB reflects some of the priorities expressed by the European Parliament and the Council at the first trialogue held on 29 March, "in particular the actions to regain consumer confidence in European food safety and continued efforts in the areas of e-learning and immigration and asylum."[83] The Commission also states that the increase in payment appropriations for non­compulsory expenditure "is mainly driven by the necessity to finance outstanding commitments (RAL) and the overall needs have been established with a special attention this year."[84]

50.11  90% of the Budget (including the structural funds, agriculture and programmes adopted by co-decision) is determined initially by decisions made outside the annual budget process.

Expenditure proposals by category

50.12  Agricultural spending (category one), is to rise to 46,222 million euros, or by 5% compared with the 2001 budget. Market­related agricultural expenditure (traditional CAP spending) is to rise by 5.3% over the same period, despite a substantial increase for BSE-related costs previously agreed in the first Supplementing and Amending Budget (SAB 1/2001). A budget reserve of 1,000 million euros is proposed to deal with the unknown additional veterinary and market-related expenditure associated with Foot and Mouth Disease and the beef crisis. For rural development (category 1b), it is proposed to increase spending up to the Financial Perspective ceiling in 2002 ( 4,595 million euros), as was the case in 2001, resulting in an increase of 2.2% over 2001. Although the PDB 2002 proposes an increase of 5% compared with 2001, the Financial Perspective ceiling is increased by 5.8%[85]. The margin below the financial perspective for this category is 365 million euros.

50.13  Proposed expenditure on structural operations (category two), comprising the Structural Funds and the Cohesion Fund, is to rise to 33,638 million euros, equal to the ceiling in the Financial Perspective. This includes the 6,153 million that was unused in 2000 for the years 2002-2006.[86] The effect of this re-budgeting is to increase the ceiling for 2002 by 870 million euros. Commitment appropriations for Structural Funds are to rise by 2.8% in 2002 compared with 2001, to 30,849 million euros. Payment appropriations for structural operations are set at 32,450 million euros, an increase of 2.8 per cent on 2001.

50.14  Proposed commitments for Internal Policies (category 3) are to rise by 4.1% compared with 2001. The margin below the ceiling is proposed to be 68 million euros, exactly half the size of the margin proposed in last year's PDB 2001 (136 million euros). Payments are to rise to 6,057 million euros, an increase of 3.5% on 2001.

50.15  Proposed commitments for External Actions (category 4) are down 2.1% compared with the 2001 budget to 4,826 million euros. This fall reflects the fact that the flexibility instrument was previously used to allow the budget-line in the 2001 budget to be increased by 200 million euros above the Financial Perspective ceiling to support actions in the Western Balkans. The proposed margin for the PDB 2002 amounts to 47 million euros. Payments for External Actions are to rise 9.6% compared with 2001 to 4,296 million euros.

50.16  The ceiling on administrative spending (category 5) has been increased by 5.6% compared with 2001, although proposed expenditure is set to rise to 5,149 million euros, or by 5% compared with 2001.[87] The Commission's administrative spending is to rise by about 3.9% (excluding pensions) after taking account of the need to finance 317 new posts that were approved in 2001 and an increase in salaries (2.7%).[88] The estimated margin is 30 million euros.

50.17  For Reserves, category 6, there is a 26% reduction in proposed expenditure for the three instruments compared with the 2001 budget. This reflects a halving in monetary reserves for agriculture as decided in Berlin. The total spending for this category equals the ceiling for 2002.

50.18  Pre­accession aid (category 7) comprises aid to the candidates for EU membership under PHARE and two new programmes: ISPA (structural aid) and SAPARD (agricultural aid).) Funding for all three instruments matches the sub­ceilings for 2002. Pre­accession aid commitments for 2002 are 3,328 million euros. This is split in the 2002 PDB into 555 million euros for agriculture, 1,109 million euros for structural aid, and 1,664 million euros for PHARE. Payments are set at 2,920 million, an increase of 39% over 2001, which reflects the fact that no payments were made in 2000, the first year for SAPARD and ISPA, but that significant catch­up is expected this year.

50.19  There are no figures for Accession (category eight) in the PDB 2002 since no accession is foreseen for 2002.

The Government's view

50.20  The Economic Secretary to the Treasury (Ruth Kelly) says:

    "The Community budget has significant financial and policy implications. Since the UK is a net contributor to the EC budget it is in the UK's interests to restrict growth in the budget as much as possible while working to achieve a more efficient use of existing resources. The desire for rigour in the EC budget is shared by a majority of member states. Working with like­minded member states, the Government will continue to apply this approach to its detailed examination of the budget. However it must be borne in mind that some 90% of the budget (including the structural funds, agriculture, and programmes adopted by co­decision) is initially determined by decisions made outside the annual budget process, and that the final decision for almost all of the remainder is in the hands of the European Parliament.

    "The UK Government welcomes the broad thrust of the Commission's proposals for 2002. However it is keen, together with budget disciplinarian member states, to see a reduction in the proposed spend on administration in order to keep this firmly under control.

    "The UK Government has also signalled the intention to seek reimbursement of the costs incurred in dealing with the Foot and Mouth outbreak which it is entitled to claim from the EU budget. However, this expenditure should come from within the financial perspective ceiling for category 1. The UK Government also supports the Commission's reform programme, but will want to ensure that the 317 posts requested by the Commission in 2002 are fully justified before agreeing to them.

50.21  As regards the UK's share of financing the 2002 PDB, the Minister says:

    "Currently, the Government expects that the UK's euro financing share of the 2002 PDB will be around 19% (which implies a UK gross contribution, before abatement, of around £11.2 billion or 18.6 billion euro in 2002). This compares with a share of some 19.6% or 17.8 billion euros in the 2001 Adopted Budget. The UK's actual contribution will, of course, be significantly lower after the abatement — which the Government successfully protected during the Agenda 2000 negotiations — is taken into account."


50.22  This Report is based solely on our assessment of the General Introduction (Political Presentation) of the Preliminary Draft Budget. We have reported on this document because it provides our only opportunity to do so before 20 July, when the Budget Council establishes the Draft Budget for 2002.

50.23  Last year, the Preliminary Draft Budget was considered by the previous Committee and debated in European Standing Committee before the Budget Council on 20 July. Unfortunately, this year, owing to a delay by the Commission in publishing the documents, we are unable to recommend a similar debate. However, we will have the opportunity to consider the Draft Budget 2002 and, if necessary, recommend a debate before the Council's second reading of the Draft Budget in November.

50.24  We note that the 2002 Preliminary Draft Budget provides a margin of 511 million euros (for commitment appropriations) below the limits set by the Financial Perspective, compared with a margin of 1,492 million euros in the Draft Budget 2001 budget. We also note that the 2002 Preliminary Draft Budget shows a 5% growth in commitments for agriculture and administration compared with the 2001 budget, the largest growth for any major budget category. The allocation of commitments for traditional Common Agricultural Policy is set to rise by 5.3% compared with the 2001 budget, despite a substantial increase for BSE-related costs previously being agreed in the first Supplementing and Amending Budget for 2001. We welcome the setting up of a budget reserve of 1,000 million euros to deal with the unknown additional veterinary and market-related expenditure associated with Foot and Mouth Disease and the beef crisis.

50.25  As regards the proposed 5% increase in spending on administration, we note that this compares unfavourably with the forecasts of 3.8% increase in public spending in the Member States for 2002. We find it unacceptable that spending on administration in EU institutions should increase significantly faster than the growth of public spending in Member States. Like the Minister we are keen to see a reduction in the proposed increase when the Draft Budget is established on 20 July.

50.26  We clear the document, but it is relevant to any debate on the 2002 EC Budget.

79  Section A of Volume 4 covers the Commission's administrative budget, section B the Community's programme spending and a series of annexes provide further details. Back

80  The EC Budget distinguishes between appropriations for commitments and appropriations for payments. Commitment appropriations are the total cost of legal obligations which can be entered into during the current financial year for activities which will lead to payments in the current and future financial years. Payment appropriations are the amount of money which is available to be spent during the year. These cash payments arise from commitments in the Budgets for the current or preceding years. Commitments appropriations are important, not least because the legal limits in the Financial Perspective are presented in this form. Payments appropriations are important because they determine the contributions made by Member States. Unused payment appropriations can, in exceptional circumstances, be carried forward into the following year. Back

81   Adopted budget plus the first Supplementing and Amending Budget. Back

82  The PDB 2002 is 5.6 % over the adopted 2001 budget. The increase in payment appropriations for non­compulsory expenditure arises mainly from the need to finance outstanding commitments. Back

83  Preliminary Draft Budget 2002, Political Presentation, European Commission Back

84   ibid  Back

85  The agricultural guideline has been calculated in accordance with the new Council regulation budgetary discipline. It represents an overall limit for the expenditure related to category 1, the pre-accession aid in agriculture SAPARD and the amount left available for accession in respect of agriculture (category 8, not represented in the table). Back

86  The Financial Perspective has been adjusted by a decision of the budgetary authority taken at the beginning of May, which increases the ceiling for 2002 by 870 million euros.  Back

87  However, since some institutions have not provided their provisional estimate for 2002, there is some uncertainty over this figure. The Commission has used an estimated growth assumption of 4.3%. Pension expenditure is to rise by 11.3% compared with 2001 budget.  Back

88  The second tranche of the posts was foreseen by the Peer­Group of Commissioners that looked into the Commission's activities and resources. Back

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