2002 Draft Budget

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Mr. Boris Johnson (Henley): I wonder whether the Minister has noticed the interesting item on page 108 of volume 1 of the draft budget, about interest on late payments and fines. It refers to the

    ``Collection of fines imposed for fraud and irregularities which are damaging to the Community's financial interests''.

It then reveals that in 2000, a grand total of nil was produced in pursuit of fraud and other activities that are damaging to the Community's financial interests. The document does not specify will happen this year or the next. Does that entertaining statistic reflect the scrupulous way in which the Community's budget is observed by those who spend, and by those who receive, funds—everyone's general probity—or the failure to crack down on fraud? Is that figure of zero good or bad news, and are there plans to do something about it if it is bad news?

Ruth Kelly: The hon. Gentleman makes an interesting point about fraud and irregularity in the EU budget. We are considering the findings of a report from the European Court of Auditors for 2000, which makes it clear that there are too many irregularities in the budget. However, most of them are errors rather than fraud. For example, small over-payments made to farmers in the CAP budget might be subsequently refunded to the EU.

If we examine only the irregularities reported for 2000, we cannot yet estimate the likelihood of future irregularities. However, we are determined to see that process streamlined, which is why we support Neil Kinnock's process of reform and modernisation of the Commission's structure. We also support the development of new posts to streamline the budget. Any fraud is unacceptable. The outturn in 2000 for fines, periodic penalty payments and other penalties was 117 million euros, so there is still concern about that.

Dr. Palmer: Does my hon. Friend welcome the increase of 20 million euros for freedom, security and justice for which the European Parliament voted? In view of developments since 11 September, should the Budget Council make a further increase to allow for the anti-terrorist drive?

Ruth Kelly: Funding in that important area will play an ever-increasing role. However, the Budget Council will not explore that. In due course, we shall reach agreement about it in the European Parliament.

John Barrett (Edinburgh, West): Will the Minister comment on the large, though decreasing, sum of 984 million euros that is spent on tobacco production, which has a direct, increasing impact on our health service costs?

Ruth Kelly: The tobacco regime is not our priority, as we are committed to its reform. However, it is strongly supported by other member states, particularly those in underdeveloped regions, which rely on tobacco as a source of income. We shall continue to press for reform of the tobacco regime and I hope that we shall convince our EU partners of the need for change.

Hywel Williams (Caernarfon): I, too, welcome you, Mrs. Roe to the Committee—although, being new to the Committee and to the House, perhaps it would be more appropriate if I welcomed myself.

I read with interest the extracts from the European Scrutiny Committee. I refer the Minister to paragraph 50.25, which referred to a 5 per cent. increase in spending on administration. That compares unfavourably with the forecast of 3.8 per cent. My arithmetic suggests an outrageous leap of approximately a quarter in spending on administration compared with the forecast. Has the Economic Secretary been given an explanation for the increase?

Ruth Kelly: The hon. Gentleman is right: there has been an increase in the budget for administration. The United Kingdom Government believe that it is just as important for European Community institutions to have a tight rein on their budgets as it is for member states. We are budget disciplinarians in promoting the case for tight controls on Community expenditures. The aim is to restrict growth in the budget for administration to what is strictly necessary.

We must realise that some spending increases are necessary: for example, unavoidable increases in salaries and pensions, which must be paid out of those budgets. There will be necessary pressure on the budget for administration in the process of enlargement, as Community institutions attempt to grapple with that complex agenda. We argue that, in future, the pressure of increasing costs should be met from the budget that is already allocated.

However, the draft budget still leaves a margin of 53 million euros below the ceiling permitted for that category of spending. We have also requested a study by secretaries-general of the different Community institutions to identify savings to meet the new pressures on the administrative budget. Until the secretaries-general come up with creative ideas for pooling resources, sharing information and creating real savings, we shall continue to press Community institutions to find a way forward that will reduce pressure on that budget.

Mr. Hopkins: May I pursue the question of budget discipline? My hon. Friend's memorandum of 20 July referred to budget disciplinarian member states, and I am confident that the United Kingdom is such a state. I would like to think that there is an official list, but I suspect that there is not, although the Treasury might have its own quiet list. Does my hon. Friend agree that it should be a priority to ensure that all member states behave well with regard to the budget and that they become budget disciplinarians? If they do not, our net contribution may be even more unfair than we suspect.

Ruth Kelly: My hon. Friend is right to draw attention to the need to maintain firm discipline when we are dealing with a vast budget that serves a particular purpose. The political and practical realities are that member states that are net contributors to the EU budget tend also to be the ones that are budget disciplinarians, whereas those that receive great benefits from the EU budget in terms of CAP receipts and structural and cohesion funds tend to be those that would allow greater freedom in the use of EU money and are not so concerned with maintaining a tight grip on finances.

As my hon. Friend is aware, we attempt, in the process of negotiation, to persuade all our partners of the merits of keeping a tight grip on finances, and we shall continue to do so.

Dr. Palmer: I notice in the table of commitment appropriations that there has been a decline of 2 per cent. in commitment appropriations for external action—in other words, foreign aid—but an increase of 9.6 per cent. in payment appropriations. Does the Economic Secretary think that that reflects a more realistic assessment of the payments that it is practical to make? The European Union has been criticised in the past for not delivering the aid that it had planned to provide.

Ruth Kelly: My hon. Friend is right about the importance of commitments being turned into action on the ground. One reason why traditionally payments have not been as high as commitments is the problem of identifying in advance commitments that will be easily translatable into practical action. We continue to press for more realism in the setting of the budget, which would also leave us more flexibility when a need for increased action arises later in the year or in future.

Dr. Palmer: I agree, but does my hon. Friend not feel a little concerned about the European Parliament's reduction of appropriations for the western Balkans, given that we have a considerable stake in that area's stability after our efforts in Kosovo?

Ruth Kelly: There is always a lively debate in the Budget Council as to where commitments are best directed. Some countries argue that we should use the funds to promote political objectives and stability in regions such as the Balkans and certain Mediterranean countries, whereas other countries argue that the objective should be to prioritise poverty alleviation throughout the world. There is a tension between those countries.

Of course, it is important that we have sufficient funds to promote stability in the Balkans, but we have also been arguing for a greater focus on poverty in the use of those moneys. When we consider the situation in Afghanistan, for example, we see that both poverty alleviation and bringing stability to the region are important. That is one reason why we shall argue strongly that the budget should be flexible enough to cope with the additional pressures that may arise as a result of the humanitarian and restructuring crisis in Afghanistan.

John Barrett: One cost that appears to have risen fairly sharply is that of pensions for retired staff, as the Minister mentioned. What is the future trend on pension costs expected to be?

Ruth Kelly: The Commission is attempting to reform its processes and streamline its functions, directing its money more efficiently and protecting itself against fraud and irregularities. As it does so, it is important to have streamlined appointment processes, the right staff in the right positions and sufficient staff to be able to administer budgets, particularly aid budgets, appropriately. That process of change will involve some people retiring, others moving to different jobs and a general restructuring of positions in Community institutions. I believe that that is one reason for the increase in pension costs, some of which will be immediate and some recurring.

The Chairman: If no more Members want to ask questions, we shall proceed to the debate.

Motion made, and Question proposed,

    That the Committee takes note of the Draft General Budget of the European Communities for the financial year 2002 (Volumes 1, 3, 4, 5, 6, 7, 8 and 9); and supports the Government's efforts to maintain budget discipline in the Community.—[Ruth Kelly.]

4.59 pm

Mr. Flight: The European budget and the underlying financial and other management are clearly in need of major reform in both a macro and a micro context. This debate is merely for hon. Members to take note of the draft budget; there is precious little that we can do about it. Some £8 billion gross of British taxpayers' money is involved, between £3.5 billion and £4 billion net.

Sadly, since the resignation of the Santer Commission, notwithstanding the excellent efforts of Neil Kinnock, there has been little improvement or change. The Commission still has absenteeism rates of 5 per cent. and sick leave rates of 6 to 8 per cent. There has been little success in getting rid of employment for life. As the Minister commented, there are another 317 new posts this year after 400 new posts last year, and 234 people are being redeployed. Without looking at the fundamental issues, the Court of Auditors found waste of about 5.5 per cent, which is equivalent to about £3 billion, or £15 per family. In my assessment, the UK Treasury would have no difficulty in cutting about 15 per cent. of the budget in aggregate, and that would be without major fundamental reforms to CAP and structural spending.

At a macro level, the EU is apparently planning for a big bang accession in 2004 of 10 members, but massive work is still needed on major issues, such as reforming CAP and structural funding equal to about 80 per cent. of the total. I cannot see how accession of new members can take place in 2004, as progress is still necessary in discussing and agreeing reform in those difficult areas.

There are one or two minor positives in the 2002 budget process. The rapporteur, Costa Neves, is a sound, sensible, cost-cutting and disciplined individual who deserves our support. The rapporteur is the person who steers the budget through, monitors it and appraises it afterwards. Last year, the rapporteur was Mrs. Haug. Contrary to comments in earlier debates on European finance, Mrs. Haug is recommending own-resource, direct-tax financing. Her report dated 26 June 2001 to the Committee on Budgets sets out specific programmes for direct taxation.

As mentioned earlier, the budget was originally just over 100 billion euros; it is now just under. It is about £60 billion and is up by about 3.3 per cent., with agriculture up by about 5 per cent. There is a boast of great success in getting the proportion of EU GNP down from 1.07 per cent. to 1.06 per cent. initially and now to 1.04 per cent. That is based on an assumption of growth in the EU that is unlikely to be achieved next year. Thus, I expect that the upturn as a percentage of GNP will be higher than last year.

There has been poor management not only of micro issues. On the other side of the coin, there was an underspend of some 10 billion euros last year, which was mostly the result of a shambles in defining a region for the purpose of structural spending. Several areas in the UK—in particular, the north-west—were unable to bid in time. I cannot resist pointing out that the person responsible for that was none other than the right hon. Member for Tyneside, North (Mr. Byers), the Secretary of State for Transport, Local Government and the Regions. Not only has the north-west not received structural funds in good time but it appears that it will not get its west coast main line upgrade in good time, either.

Other areas of underspending were the result of foolish measures. The SAPARD—the special accession programme for agriculture and rural development—for central Europe was far too complex and bureaucratic for the Governments there to implement.

In the course of the EU debate, Conservative MEPs tabled nine key amendments that would have cut approximately 5 billion euros off the agricultural spend, without major change. However, because of a procedural manoeuvre requiring a block vote, they were unable to have the amendments debated.

 
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Prepared 19 November 2001