55. FUTURE FINANCING OF THE EU: WHO PAYS
AND HOW?(6TH REPORT, SESSION 1998-99)
Memorandum from HM Treasury
1. The Government welcomes the Committee's
report as a contribution to the public debate on Agenda 2000.
It is being taken into account in formulating the UK's position
for the Berlin European Council on 24-25 March, which should resolve
the Agenda 2000 negotiation. The following paragraphs set out
the Government's observations on the Committee's opinions, as
expressed in the Report's summary.
2. The Government strongly agrees with the
link which the Committee has drawn between Own Resources and EC
expenditure issues. It is grateful for the Committee's support
in its attempts to ensure that spending in the EU as currently
constituted should by 2006 be stabilised at
85 billion (at today's prices), and concurs with
the Committee that co-financing could be used "to help stabilise
total EU expenditure". The stabilisation of expenditure is
important both as a means of moderating the largest net contributions
to the Budget, and in order to ensure that enlargement is affordable
within the 1.27 per cent of GNP ceiling on own resources. Stabilisation
is consistent with both full CAP reform and a fair outcome for
all member states on structural policies. Stabilisation does not,
of course, imply "cuts" in structural spending but a
maintenance of its aggregate value in real terms at the same level
as in the present period.
3. The Government agrees that scrutiny of
EU spending should be rigorous. The spending of sums of the order
of 1 per cent of GNP is plainly a matter worthy of substantial
and continued debate. The Government invest significant resources
in scrutinising EU spending through the processes of the Council
and official committees, in co-operation with like-minded member
states. It also welcomes the role which the UK Parliament plays
4. The Government notes the Committee's
views on transparency in respect of what UK taxpayers contribute
to the EU, and what they are paying for. It agrees that such transparency
is important. The Government publishes an annual White Paper on
European Community Finances.
Estimates of net contributions are published in the Financial
Statement and Budget Report and other general public spending
documents more detail is given in the Annual Report of the Chancellor
of the Exchequer's Departments. Most EU spending in the UK is
undertaken through UK Government Departments: the Annual Reports
of those Departments explore such spending in the same way as
domestically financed public expenditure. The Government provides
additional information to Parliament, for instance in the form
of explanatory memoranda. The Government will continue to publish
a wide range of information on EC spending.
5. The Government reaffirms its view that
there are many non-financial benefits and costs of EU membership.
Equity does not require equality of net contributions. But it
does require inequalities in those contributions to be fair and
justifiable in the context of differences in prosperity.
6. The Government acknowledges the problems
of fraud in respect of own resources. It continues to press for
improved systems which reduce these. But it agrees with the Commission
"The shortcomings of the system . . . do
not by themselves provide grounds to justify an urgent modification
of the Own Resources Decision."
7. Measures on the expenditure side of the
EU budget (notably the structural and cohesion funds) attempt
to ensure that member states' prosperity is taken into account
in the distribution of EU finances. As has been noted in discussion
of the UK abatement, these measures do not fully achieve the desired
result there are significant discrepancies between the patterns
of national income and net contributions. But the Government agrees
with the Commission that the resolution to these discrepancies
should be found on the expenditure rather than the revenue side
of the budget.
8. The possible use of GDP instead of GNP
in own resources has not been an issue in the present negotiations.
The Government has, however, noted the Committee's consideration
of the issue.
9. Even with the abatement the UK remains
one of the largest net contributors to the EC Budget. Without
it the UK's contribution would be so wholly excessive, having
regard to the UK's relative prosperity, as to be unfair. The Government
fully endorses the Committee's view that "without the abatement,
the UK would remain one of the largest net contributors, and we
agree that some way of remedying the situation would need to be
found" (paragraph 16). That is as true now as it was at the
time of the Fontainebleau agreement.
10. The Committee suggests that there may
be better ways of resolving the UK's net contributions problem,
"through the savings of a reformed CAP and a stabilisation
of expenditure overall by 2006, and possibly through increased
EU expenditure in the United Kingdom" (paragraph 18).
11. Addressing these proposals in turn,
the Government submitted written evidence to the Lords during
the course of the inquiry, which explained why CAP reform is unlikely
to reduce greatly the UK's net contribution compared with that
of other Member States. CAP reform will reduce the amount spent
on intervention prices, but the amount spent on direct aids to
farmers will rise. The Government cannot, therefore, predict with
any confidence that CAP reform will have a significant effect
on the UK's net contribution.
12. With regard to stabilisation of expenditure:
this would be beneficial to all the large net contributors. However,
the benefit to the UK would be reduced by the abatement which
works as a corrector mechanism so that the UK gets only one third
of the benefit which it would otherwise receive. Therefore stabilisation
would only produce modest gains for the UK, in comparison with
other large net contributors.
13. Turning to the Committee's suggestion
of increasing EU expenditure in the UK, a massive redistribution
of spending would be required in order to remedy the difficulty
and to make the abatement unjustified or unnecessary. There has
never been any prospect that Agenda 2000 would deliver a redistribution
of anything like this order. Stabilisation does not improve the
situation: it only prevents it getting worse.
14. Accordingly, the Government will maintain
the UK abatement, as the only viable means of ensuring that the
UK does not face an unfair net contribution. This is wholly consistent
with both ambitious reform of the CAP, and enlargement to central
and eastern Europe, both of which will benefit all member states.
OF THE CAP
15. As the Committee rightly says, co-financing
and CAP reform are independent concepts. Co-financing would not
affect either the benefits to farmers from the CAP or the total
amounts paid by member states towards it: it affects only the
distribution of those amounts. In that context it should be noted
that any reductions in EC spending would be matched by increases
in the demands on member states' domestic finances. The Government's
view is that co-financing must not be allowed to increase the
aggregate burden of the CAP on member states. The Government would
therefore not accept any EC spending reductions arising from co-financing
as relevant to the stabilisation of the EC budget.
12 Latest edition: Cm 3937 (April 1998). Back
Own Resources Report, page 36. Back