Select Committee on European Scrutiny Fourth Report


The European Scrutiny Committee has made further progress in the matter referred to it and has agreed to the following Report:—



Draft general budget of the European Communities for the year 2002.

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
Deposited in Parliament: 29 October 2001
Department: HM Treasury
Basis of consideration: EM of 24 October and Minister's letter of 5 October 2001
Previous Committee Report: None; but see (22497) — : HC 152-i (2000-01), paragraph 50 (18 July 2001)
To be discussed in Council: 22 November 2001
Committee's assessment: Politically important
Committee's decision: For debate in European Standing Committee B


1.1  On 18 July 2001, the previous Committee cleared[1] the Commission's Preliminary Draft Budget (PDB) for 2002 on the basis of a summary document, known as the political presentation. In clearing the document, the Committee said that it would have the opportunity to consider the Draft Budget 2002 and would, if necessary, recommend a debate before the Council's second reading of the Draft Budget in November. It also noted that the PDB would be relevant to any debate on the 2002 EC Budget.

1.2  On 20 July 2001, the Budget Council established the Draft Budget (DB), incorporating changes made to the proposals set out in the 2002 PDB. The Council and European Parliament will discuss the DB again on 22 November 2001 just before the Council's formal second reading of the DB later that day, when it will consider any amendments made by the European Parliament in its first reading. The final Budget will not be settled until the European Parliament's second reading in December 2001.

1.3  The Economic Secretary to the Treasury (Ruth Kelly) outlined the key points from the Budget Council's first reading on 20 July in her letter of 5 October. The Minister subsequently provided a more detailed account in her Explanatory Memorandum of 24 October, which we publish as an annex to our Report.

The document

1.4  In her letter of 5 October 2001, the Minister summarised the commitments appropriations and payments appropriations for the 2002 DB as follows:[2]

    "The Council Draft Budget proposes a total of _99.0 billion in commitment appropriations and _95.6 billion in payment appropriations, reducing the level of commitment appropriations by _1,355 million and payments by _2,208 million from the Preliminary Draft Budget. These figures are well within the limits set in the Financial Perspective, leaving margins of _1,830 million for commitments and _4,646 million for payments.

    "An issue of major interest to the UK has been EU expenditure on BSE and Foot and Mouth Disease [FMD]. The Council rejected the Commission's proposal to create a _l billion reserve for needs arising from the FMD and BSE crises, and issued a joint statement with the European Parliament asking the Commission to cover these requirements by using appropriations still available in 2001, and including any additional amounts on the relevant budget line in a rectifying letter to the 2002 budget."

1.5  During its first reading of the DB, the Council reduced the total of payment appropriations proposed in the Commission's PDB from _97.8 billion to _95.6 billion. In tables 1 and 2, we set out the relevant figures comparing the 2002 PDB with the 2002 DB and with the 2001 Adopted Budget.

1.6  Overall, compared with the PDB, the DB has reduced commitments by 1.3%, including reductions of 2.9% in sub-category 1A (traditional CAP), 1.1% in category 4 (external actions), 0.7% in category 3 (internal actions) and 0.4% in category 5 (administration). In terms of payments, the DB proposes reductions in all categories, except category 6 (reserves) and sub­category 1B (rural development). For example, compared with the PDB, sub-category 1A (traditional CAP) funds have been cut by 2.9%, category 4 (external actions) by 3% and category 7 (pre-accession aid) by 13%. The other categories have been reduced by a little more than 1%. Further details are set out in the attached Explanatory Memorandum.

1.7  On 24 October 2001 the European Parliament voted during its first reading of the DB to add _3.2 billion in commitments and _625 million in payments to the figures approved by the Council after its first reading of the DB on 20 July 2001. We will report formally on the European Parliament's first reading of the DB when we receive an Explanatory Memorandum from the Minister. However, for convenience, and in view of our recommendation for a debate, it may be useful to outline the main elements of the DB, as approved at the European Parliament's first reading:

    —  Agriculture: payments amount to _40.8 billion, which is _368 million more than the Council's original proposal, and reverses reductions in proposed agricultural market spending made to the PDB by the Council and reductions to the milk distribution programme in schools.

    —  Structural Funds: commitments amount to _33.6 billion and payments to _33.7 billion, the latter being an increase of _1.470 billion in relation to the draft proposed in Council;

    —  Internal Policies: commitments amount to _6.6 billion and payments to _6.2 billion, or _106.7 million and _165.3 million respectively more than that provided for by the Council. The European Parliament agreed the following increases:

      —  internal market (up _17.7 million in commitments and _14.8 million in payments);

      —  area of freedom, security and justice (up _19.9 million and _6.9 million);

      —  research (up _51.6 million in payments); and

      —  education (up _26.8 million and _ 41.315 million).

    —  External Policies: commitments amount to _4.9 billion and payments to _4.8 billion; the EP reduced to zero the margin of _45 million set by the Council and agreed to reallocate _113.8 million of the _125 million earmarked for the fisheries agreement with Morocco to different external actions. The _125 million had been placed in reserve by the Commission and left unchanged by the Council. So as not to exceed the ceiling for this heading, the European Parliament reduced the spending intended for the Common Foreign and Security Policy (CFSP) and for aid for the Western Balkans;

    —  Administration: payments of _5.2 billion, representing an increase of _49 million, which, it is argued, partly reflects the expansion of institutions as a result of enlargement. This increase also largely eliminates the _53 million margin left by the Council; and

    —  Pre-Accession aid: payments were increased to _2.9 billion compared with _2.5 billion in the original Council proposal.

1.8  Overall, the European Parliament's actions produce a total EU budget of _98.7 billion (commitments) and _99.6 billion (payments).

The Government's view

1.9  In her Memorandum of 24 October 2001, the Economic Secretary to the Treasury (Ruth Kelly) says:

    "The Government supports the Draft Budget established by the Council in July. It leaves adequate margins below the category 1 and 4 ceilings, and extends the category 5 margin. The margin below the category 3 ceiling leaves some scope for the European Parliament to include provision for its priorities.

    "The Draft Budget does not include a reserve provision for claims by the United Kingdom and other Member States for expenditure on foot and mouth disease and BSE. Instead the Council decided to leave a margin below the category 1 ceiling and called on the Commission to make provision for these needs, within the ceiling, in its autumn rectifying letter to the 2002 PDB.

    "The margin in category 4 was increased to secure flexibility in the 2002 budget for additional spending if needs arise".

UK's share of financing the 2002 Budget

1.10  As regards the UK's share of financing the 2002 Budget, the Minister says:

    "The 2002 Draft Budget implies a gross contribution, after abatement, for the UK of _13,230 million, which corresponds to an underlying contribution of £8,176 million.[3] This represents a reduction for the UK from the PDB of _388 million (£240 million).

    "The gross contribution to the 2002 DB includes _122 million (£76 million) to cover the UK's contribution to the three reserves (monetary, emergency aid, loan guarantee) but this amount will not be called up unless the reserves are used. The UK abatement in 2002 included in the DB is _4,626 million (£2,859 million).

    "The actual net financial cost to the UK of the 2002 EC budget will depend not only on the overall size of the budget that is finally adopted, but also on the balance between different spending programmes within the budget. This determines the level of UK receipts and subsequently affects the size of the UK's abatement in the following year."


1.11  We note that the Council has sought to increase the margins below the Financial Perspective ceiling for some spending categories, especially for agricultural spending, which we welcome. We also welcome the Council's rejection of the Commission's proposal to create a _l billion reserve for needs arising from the foot and mouth disease and bovine spongiform encephalopathy (BSE) crises, and its decision to use instead appropriations still available in 2001.

1.12  We note that, on the basis of the Council's first reading and after abatement, the United Kingdom's gross contribution towards the financing of the 2002 EU Draft Budget is estimated at _13,230 million, or £8,176 million. These figures underline the clear interest that the UK has in having its priorities reflected in the 2002 EU budget while maintaining a strong budgetary discipline.

1.13  We recommend that the 2002 Draft Budget be debated in European Standing Committee B before 22 November 2001, when the Council has its second reading.

1  (22497) -; see headnote to this paragraph. Back

2  Commitments appropriations refer to the legal obligations entered into that lead to payments in 2002 and future years. Payments appropriations refer to cash that will be spent in 2002 arising from commitments entered into in 2002 and earlier years. Back

3   Converted at the rate of £1=1.618123 euro used to establish the revenue amounts in the PDB. Back

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Prepared 14 November 2001