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Session 2001- 02
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European Standing Committee B Debates

2002 Draft Budget

European Standing

Committee B

Monday 19 November 2001

[Mrs. Marion Roe in the Chair]

2002 Draft Budget

4.30 pm

The Economic Secretary to the Treasury (Ruth Kelly): It is nice that you are in the Chair, Mrs. Roe. I am pleased to have the opportunity to discuss the 2002 European Community budget, the Council's draft budget that was established in July and the Commission's preliminary draft budget that preceded it. As the Committee may have gathered, the budget documentation is not everyday reading. It is also extremely bulky. I hope that Committee members have had time to put it in order and that it is in a usable format. During our debate, I shall endeavour to respond to detailed points that are made about the budget.

The Government's views on the totality of the budget and specific issues were set out in the explanatory memorandum, along with the main figures. As Committee members know, much of the EC budget is effectively determined by legislative decisions concerning agriculture, structural and cohesion funds, and research. Other programmes concerning internal policies and external actions are also subject to legislative decisions with multi-annual envelopes. Staff costs—salaries and pensions—are affected by inflation and must be paid.

The United Kingdom wants to ensure that those legislative decisions are respected in the budget, while restricting the growth of other discretionary spending and pressing for more efficient use to be made of all resources. We are determined that the annual budget must respect the 2000-06 financial perspective that was agreed at the 1999 Berlin European Council. The Berlin ceilings are unprecedented as they require annual spending to be kept in line.

Rather than bombard the Committee with numerous totals and percentage changes in the 2001 budget compared with the Commission's preliminary draft budget, I wish to highlight the fact that the Council's draft budget totals 99 billion euros in new commitments and 99.5 billion euros in payments, representing 1.4 per cent. of the Community's gross national product. Those figures respect fully the Berlin financial perspective ceilings. They are, however, significant and the Government continue to impress on colleagues in the Council, the Commission and the European Parliament that it is quality, not quantity, that matters and that the efficiency and effectiveness of European Community spending still have considerable room for improvement.

The Chairman: We now have until 5.30 pm at the latest for questions to the Minister. I remind Committee members that questions should be brief and asked one at a time. All hon. Members are likely to have ample opportunity to ask several questions.

Mr. Howard Flight (Arundel and South Downs): First, I want to welcome you to the Chair, Mrs. Roe. I was under the impression that it was my role to respond to the Minister as opposed to asking her questions.

The Chairman: Members of the Committee will have up to one hour to ask the Minister questions, after which time a debate will follow.

Mr. Flight: I shall therefore waive the question-and-answer session.

Mr. Kelvin Hopkins (Luton, North): I wish to say how pleased I am that you are in the Chair, Mrs. Roe. I welcome my hon. Friend the Minister to the Committee.

Some of us are familiar with such proceedings. I noticed from the report of the scrutiny committee meeting in July that, as a result of the Commission's delay in producing papers, we were unable to debate the preliminary draft budget and only now are we to debate the draft budget. Does my hon. Friend have a relaxed attitude to such matters or have the Government protested to the Commission about its failure to issue the papers in time?

Ruth Kelly: As my hon. Friend knows, the debate is taking place later this year than it usually does because of the general election and the summer recess. Although numerous documents are available for the sitting, the budget process is moving faster than the availability of documents. We supplied the documents to the Committee earlier than is formally required, and we have endeavoured to place as many as we can in the public domain as quickly as possible. Because the process moves so fast, the European Union cannot provide a full set of documents all the time, but we endeavour to make it as easy as we can for hon. Members to take part in today's debate.

Jane Griffiths (Reading, East): I welcome you to the chair, Mrs. Roe. The European Commission has requested 317 new posts for 2002, which will require considerable expenditure. The Government want those posts to be justified. How can they or other parties ensure that the posts are justified, and what is the time scale and process for doing so?

Ruth Kelly: We would like those new posts to be created. They have not been formally approved because the EC has not yet told us about the 400 posts that were to be created and filled last year. It would not be sensible to allocate money for the new 317 posts until we have sufficient information to judge whether the 400 posts have been filled. We are determined to streamline EC processes and crack down on fraud and irregularities. The creation of the new posts is essential to that process.

Dr. Nick Palmer (Broxtowe): Does the Economic Secretary to the Treasury welcome the additional funds allocated to combat the foot and mouth epidemic, and will she ensure that we get the share that we need to cover the massive impact on our rural community?

Ruth Kelly: I thank my hon. Friend for mentioning that important point. Countries that suffer from animal diseases can reclaim sums from the veterinary fund for disease control purposes. The UK is intent on reclaiming significant sums from the EU for foot and mouth disease. Some 800 million euros were allocated in 2001, and a further 800 million euros are allocated for 2002. We shall make sure that we draw down those funds as quickly as we can.

Money from the veterinary fund is treated differently from allocations from the rest of the EC budget. Money is not allocated in advance; people claim from the fund after the event. The process must be audited, and the EC must be convinced that the money will not be wasted. That is underway, and we hope to draw down a substantial tranche of money shortly.

Dr. Palmer: I belatedly welcome you to the chair, Mrs. Roe. Does the Economic Secretary agree that it is difficult to claim all that we can from the EU because in many cases up to 75 per cent. of the sum that we can claim is deducted from the abatement? A restructuring of financial support for agriculture is likely to result from the new trade round. Will my hon. Friend take the opportunity that that presents to work towards securing Britain's rebate in a form that makes it in our interests to claim all that we can for our farmers?

Ruth Kelly: My hon. Friend makes an excellent point. There will be pressure for reform at the agriculture round as a result of the world trade talks. We should welcome that. The UK is in the vanguard in pressing for further agricultural reform, and we shall continue to press our case.

The abatement is justified on the grounds of fairness under the system of contributions to the EC budget. In terms of relative prosperity, the UK is ranked only tenth on GNP per head, but without the abatement we would be the second largest contributor to the EU budget. That reflects mainly the receipts that we receive, such as those from the common agricultural policy—we receive less than half of the number of CAP receipts of France, and fewer than those of Germany, Spain and Italy—and structural receipts, of which the UK received, at last count, only about 5 per cent. of the total funds. We therefore receive less than other member states in respect not only of CAP, but of structural funds. The rationale for abatement was true when it was negotiated in the 1980s, and it remains so today.

Mr. David Lepper (Brighton, Pavilion): I add my welcome to that which the Committee has extended to the Minister.

In her comments on the UK's share of financing of the 2002 budget, the Minister indicates a reduction for the UK of 388 million euros and adds the note:

    ``The gross contribution . . . includes''—


    ``to cover . . . three reserves (monetary, emergency aid, loan guarantee) but this amount will not be called up unless the reserves are used.''

Bearing in mind past experience, will she comment on the likelihood of such sums being needed?

Ruth Kelly: I thank my hon. Friend for that astute point. As he knows, the reserves are not a subject for negotiation in the process. We accept the reserves as a contribution because they may be called on. As he says, we use reserves for several different purposes: 250 million euros are allocated as a monetary reserve; 213 million euros as an emergency aid reserve; and 213 million euros as a loan guarantee reserve. I understand that the monetary reserve will disappear after 2002 because it is supposed to reflect the euro-dollar parity, the rationale for which will change. However, the loan guarantee and emergency aid reserves are likely to be called on, so it would be wise to protect them in their current form.

Mr. Hopkins: May I pursue the points made about World Trade Organisation and farming subsidies? Following the statement in the House by my right hon. Friend the Secretary of State for Trade and Industry on the conclusions of the recent WTO discussions, I understand that, at the last minute, France negotiated a degree of protection for the CAP and arrangements for EU agricultural subsidies. If that is so, can the Minister assure me that we will continue to require our abatement until serious reform of the CAP takes place?

Ruth Kelly: My hon. Friend makes his point well. Given our contribution to the EU budget and the receipts that we receive, and for the sake of fairness, there is a clear and continuing need for UK abatement. As I outlined to my hon. Friend the Member for Broxtowe (Dr. Palmer), a significant proportion of the abatement is due to the workings of the CAP and, until serious reform of that occurs, a need for the abatement will remain.


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Prepared 19 November 2001