Select Committee on European Communities Second Report


9.  DRAFT BUDGET OF THE EUROPEAN COMMUNITIES FOR THE YEAR 2000

Letter from Lord Tordoff, Chairman of the Committee, to Patricia Hewitt MP, Economic Secretary to the Treasury

  We have considered this document [the Preliminary Draft Budget for the year 2000] on the basis of your two Explanatory Memoranda, which we found most helpful. We may decide to take evidence from you at a latter stage in the budgetary process, but for the moment the Committee has asked me to send you our views so that you can take them into account in preparing for the Budget Council on 16 July.

  Like you, we welcome in principle the [proposed] reduction in the financial perspective ceilings to bring them to a more realistic level. But we note that there is very little headroom between those ceilings and the total expenditure proposed in the Preliminary Draft Budget (PDB). This is of particular concern because the Commission says in its Overview that the provision of 280 million euro (in heading 4: external aid) for co-operation with Balkan countries "does not take account of needs arising from recent events and the figure may need to be adjusted . . . which might involve reviewing the financial framework". Is any indication now emerging of what amounts may actually be needed in the financial year 2000? How do you consider that funds should be found to meet that need? How do you envisage that the provision for other items under the heading will be affected?

  On agricultural expenditure, we regret the failure to agree fundamental reform at the Berlin European Council. We note your comment that the Commission's original estimate for expenditure on the traditional CAP exceeded the limit agreed at Berlin, and that the Commission brought the figures into line simply by altering them rather than by proposing any policy change. We should be grateful if you would bring us up to date with the position, and tell us whether the outcome of the Budget Council is a genuine solution or simply another fudge.

  Under the internal policies heading, the programme for trans-European networks is the second largest programme, and provision for it is due to increase by 10 per cent. You comment that you expect the final provision to be lower: can you please explain the United Kingdom's lack of enthusiasm for this programme, and tell us whether other Member States share it? We also note the progress which has been made on eliminating expenditure proposals without a proper legal base. We commend this in principle, but should be glad of reassurance that it is not being used as a pretext to suppress or delay desirable small-scale social projects.

  We note that the provision for pre-accession instruments has been almost doubled. We should be glad to know whether you think that the amount suggested is appropriate, and whether it will be sufficient to allow enlargement to proceed as fast as the United Kingdom would wish.

  We look forward to receiving your comments on these points after the Budget Council, together with your account of the progress made at that meeting. We shall then decide how to take forward our scrutiny of the budgetary process, but in the meanwhile we clear the Preliminary Draft Budget from scrutiny.

7 July 1999

Letter from Lord Tordoff, Chairman of the Committee, to Patricia Hewitt MP, Economic Secretary to the Treasury

  I wrote to you on 7 July with our views on the substance of the Preliminary Draft Budget. We look forward to receiving your reply after the Budget Council.

  In the meanwhile, however, Sub-Committee A would be grateful for some further information. You said in your second Explanatory Memorandum on the PDB that "the fact that our underlying contributions are expressed in sterling means that if the pound appreciates we tend to fund a larger share of the budget, whereas if it weakens we fund a smaller share". We should appreciate a full explanation of the effects of the changes in the exchange rate on the actual United Kingdom contribution to the financing of the EU budget.

16 July 1999

Letter from Patricia Hewitt MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 7 July regarding the 2000 Preliminary Draft Budget (PDB) of the European Communities. I will write again after the recess—alongside the explanatory memorandum on the Council's Draft Budget—to address all the points raised in your letter. Meanwhile, I thought that you might like an early outline of the draft budget established by the Council.

  Clearly one of the important issues in the coming year will be the reconstruction of Kosovo. I was therefore very pleased that the Budget Council agreed to set aside 500 million euros in the 2000 Draft Budget specifically for this purpose, by re-prioritising funds within the external aid ceiling set out in the Inter-Institutional Agreement. The international community rightly expects the EU to play an important role in the rebuilding of Kosovo—alongside other donors and the international financial institutions—and the Draft Budget established by the Council is an important step in making this possible.

  The Council also found significant savings relative to the Commission's PDB in other areas, with payments in the Draft Budget now set to rise only by some 2.8 per cent on 1999, compared to the 4.7 per cent rise proposed by the Commission. Commitments are also set to fall relative to the PDB

  The Council's Draft Budget now passes to the European Parliament for its first reading.

26 July 1999

Letter from Melanie Johnson MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  I am referring to your letter of 7 July regarding the 2000 Preliminary Draft Budget (PDB) of the European Communities. Patricia Hewitt wrote to you on 26 July concerning provision in the 2000 EC Draft Budget for reconstruction in Kosovo. As agreed I would now like to address the other points you raised.

  Regarding agricultural expenditure, despite not going as far as we would have liked, the outcome of the European Council in Berlin nevertheless makes significant reforms to the CAP by bringing it under tighter control than before. Fundamental reform still remains a priority for this Government. It was important, however, that estimates for spending were altered in order to maintain the agreed Berlin ceilings, ensuring budgetary rigour. Some success was achieved at the Budget Council on 16 July where spending figures for agriculture were reduced further by a sum of 375 million euros to stand at 40.5 billion euros.

  The Budget Council on 16 July also agreed to resume examination of agricultural expenditure on the basis of a letter of amendment to be submitted by the Commission this October. This rectifying letter will set out up-to-date forecasts, and possibly reduce appropriations further.

  As you are aware, the importance of pre-accession aid was demonstrated by the creation of a new heading 7 at Berlin. The Draft Budget for 2000 more than doubled pre-accession aid with a provision of up to 3.1 billion euros per annum for all applicant countries. The UK perspective is that this is sufficient to meet our policy of maintaining the momentum for enlargement while reaffirming the commitment to the "pre-accession strategy" made at the Cardiff European Council in June 1998. The Government believes that the Commission has struck about the right balance in its proposals for aid to help the applicants prepare for membership. However it is not enough to find the money; we must also ensure that it is used well. The UK will be active in trying to encourage best value for money. This will help deliver effective enlargement.

  Finally, regarding your concerns over trans-European networks, the allocation in the 2000 Preliminary Draft Budget for trans-European networks amounts to 622 million euros for commitments (an increase of 13 per cent compared with 1999). This lower provision of 4.6 billion euros over the seven-year period is consistent with Commission proposals, and was the outcome of negotiations on the Inter-Institutional Agreement. The adjustment downwards reflects our approach, working with others, towards the TENS programme which is to ensure that the ceilings in the financial perspective hold while maintaining commitments for other priorities in heading 3, including LIFE, Socrates and Youth. Financial rigour is especially important as the European Parliament will be pressing for big increases during conciliation.

  I am also glad of your support on proposals to eliminate expenditure that does not have a proper legal basis and we continue to pursue this issue. I am pleased to say that Commission proposals are designed to make efficient use of existing resources, and pursue a policy of financial rigour in community spending. The Budget Council in July further approved the proposals, but felt that the implementation of important measures, including those to combat violence against children, adolescents and women, could continue without delay. As regards the fight against social exclusion the Council agreed that the Treaty of Amsterdam now ratified would provide the means of adopting the required legal bases. I hope this allays your concerns over suppression of small-scale projects.

29 September 1999

Letter from Lord Tordoff, Chairman of the Committee, to Melanie Johnson MP, Economic Secretary to the Treasury

  I wrote to you on 7 July raising various points on the Preliminary Draft Budget, and we have now been able to consider Patricia Hewitt's reply of 27 July and yours of 29 September. We are grateful to you for responding to our points, though in the context of subsequent stages of the budget procedure we may wish to return to some of them (particularly the adequacy of funding for external aid, given the needs of Kosovo).

20 October 1999

Letter from Melanie Johnson MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  Council's second reading of the 2000 Budget takes place on Thursday, and I am therefore writing to summarise the state of play. In terms of negotiations on the 2000 EC Budget, as you will know, the European Parliament is determined to ensure that the Budget for 2000 finances the EU's share of the Kosovan reconstruction effort.

  However, the Parliament has not included provisions for Kosovo in its first reading of the 2000 Draft Budget. Instead, the EP has concluded that a limited revision of the financial perspective by exceeding the ceiling for category four of the budget is necessary on this occasion. The Parliament has therefore invited the Council to revise the financial perspective in order to allow agreement between the institutions on the entire Budget prior to the Parliament's second reading.

  Last week the Commission pledged 500 million euro towards reconstruction in Kosovo. The Council's current position (agreed at the Budget Council on 16 July), is that it is possible to fund the EU's share of reconstruction costs in Kosovo from within the financial perspective ceilings.

  I will of course send you an EM on the amendments and proposed modifications to the Draft Budget by the Parliament once we have received and deposited a final copy of the document in English. I would also like to thank you for clearing the Council's Draft Budget and will be writing to you shortly to address the points raised in your committee's report of 20 October.

23 November 1999

Letter from Melanie Johnson MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  The House of Commons European Scrutiny Committee wrote to me on 24 November asking for a report on the Budget Council held on 25 November, which I attended.

  In terms of the needs for Kosovo, the Commission proposal of 500 million euro for Kosovan reconstruction includes 30 million carried over from the 1999 budget, 50 million under humanitarian aid and 60 million already existing in the 2000 budget. This leaves 180 million to be found from redeployment in category 4, 60 million euros from use of the flexibility instrument, 10 million from the margin in category 4 and 110 million transferred from category 1b (rural development).

  On 25 November, the Council gave its second reading of the 2000 EC Budget, which was consistent with our UK objectives. The Council agreed with the Commission proposal and made the following amendments. It agreed that the financing of reconstruction in Kosovo in 2000 should be 360 million euro, with a further 140 million to be part of the pledge that the Commission will be allowed to make for 2001. This 360 includes 30 million from 1999, 50 million under humanitarian aid, 60 million already existing in the 2000 budget, 180 from redeployment in category 4 followed by a 40 million flat rate reduction also in the external aid category. The Council also made it clear that it is prepared to use the flexibility instrument, if this can be agreed by the European Parliament.

  The Council was firm that it is possible to meet the EU's share of reconstruction costs in Kosovo without revising the financial perspective ceilings. At its first reading the European Parliament did not enter provision for Kosovan reconstruction or any proposals to use the flexibility instrument, but instead invited the Council to revise the financial perspective. During conciliation on 25 November, the Parliament kept to this position. The European Parliament will meet on 14 December to debate their second reading of the 2000 budget, and will take a vote on 16 December.

  As you mention in your letter there were indeed constraints given the sensitivities of the negotiations involved. Nevertheless the UK did not change its approach to Budget Council from that set down in my letter of 23 November. That is, the UK Government's view is that it is possible to fund the EU's share of reconstruction costs in Kosovo from within the financial perspective ceilings agreed at Berlin. There is no need to revise the IIA financial perspective ceilings while possibilities for redeployment and use of the flexibility instrument still exist.

1 December 1999

Letter from Melanie Johnson MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  I wrote to you on 1 December 1999 reporting on the outcome of Budget Council held on 25 November. The issue of meeting the EU's share of reconstruction costs in Kosovo dominated that Council. In summary, the Council was firm that it would be possible to meet the EU's share of reconstruction costs in Kosovo without revising the new financial perspective ceilings.

  At the European Parliament's second reading, agreement was reached between the Council and the European Parliament not to revise the funding perspective in order to cover provision for Kosovan reconstruction, instead funding has been found within the expenditure ceilings agreed at Berlin, and also includes use of the 200 million euro flexibility instrument.

  As you will be aware, the EC Budget for 2000 was adopted by the European Parliament following its second reading on 16 December. Total commitments for 2000 therefore now total 93.3 billion euro, (3.4 billion euro below the 1999 Adopted Budget). Meanwhile, payments now total 89.4 billion euro, (1.5 billion euro above the 1999 Adopted Budget).

  The UK Government position, shared by most other Member States, was to resist attempts to revise the financial perspective, and we are therefore extremely satisfied with the outcome of the established EC Budget for 2000. I will send an EM on the Adopted Budget for 2000 once we have received a depositable document.

  I also attach an EM on the European Parliament's first reading of the 2000 Budget held in October 1999, in order to keep records complete. A depositable document has not been available until this stage—hence the delay in providing an EM.

13 January 2000

Letter from Lord Tordoff, Chairman of the Committee, to Melanie Johnson MP, Economic Secretary to the Treasury

  You wrote to me three times to update the Committee on the final stages of the procedures on the Budget for 2000. Your letter of 23 November preceded the 25 November Budget Council, on which you reported in your letter of 1 December, and your letter of 13 January told us that the Budget had been adopted. We are grateful for these letters. But we have been surprised to see references in the press to relevant matters which the letters do not mention.

  For example, we understand that when the Council was considering the amendments proposed by the European Parliament the Commission put forward a letter of amendment which would have provided a compromise solution. It would have been helpful at the time to have your reactions to that proposal, which we assume is the one contained in document 13965/99 (now deposited with your Explanatory Memorandum of 17 January 2000).

  Again from the press, we understand that as part of the final agreement the Council gave an undertaking to look again at the ceiling on expenditure in the area of foreign aid once the Commission had presented its medium-term plan for assistance to the Balkans, due in April. Reports referred to this as "a mini-review of the financial perspective". If these reports are correct, they seem to us to shed a somewhat different light on the outcome of the budgetary process. We should welcome your comments.

  We do understand the difficulty of keeping Parliament in touch when business in the EU is moving fast. Similar problems have of course arisen with the scrutiny of in-year changes to the 1999 Budget, about which you wrote to me on 17 January. Sub-Committee A was glad to learn that discussions are in progress between its Clerk and your officials with a view to improving the process in future, so that Parliament can fulfil its scrutiny responsibilities.

  The Sub-Committee has also asked me to thank you for your helpful explanation of the circumstances in which in-year movements of funds have to be made by means of Supplementary and Amending Budgets rather than by transfers of appropriations. And members have expressed particular appreciation of the useful glossary which you provide with all Explanatory Memoranda on budgetary matters.

26 January 2000

Letter from Melanie Johnson MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 26 January.

  I am particularly grateful for the Sub-Committee's positive comments regarding our advice on Supplementary and Amending Budgets and transfers, and also on the glossary we provide with all budget EMs. My attention has been drawn to a minor error in the glossary concerning agricultural expenditure, and this has now been addressed.

  I am of course keen to ensure that the Government's scrutiny obligations in respect of the EC budget are carried out correctly, and always aim to keep you informed of key developments in the EC Budget process, especially when they have clear implications for UK policy. I am therefore concerned that you feel my letters relating to the final stages of the procedures on the Budget for 2000 do not cover certain specific matters.

  You refer to the Commission's "compromise solution" in terms of providing for the EU's share of reconstruction costs in Kosovo. I can confirm that this proposal is that contained in document 13965/99, on which I provided an Explanatory Memoranda on 17 January 2000. I have covered detail of this proposal in previous letters.

  In my letter of 23 November and 1 December, I mentioned the specific issue of the Commission's proposal for revising the financial perspective. The first letter referred to the Commission's pledge of 500 million euro for Kosovan reconstruction, while the second described in greater detail how the Commission proposed this money would be found. I did not refer explicitly to the Commission's proposal as a "compromise", because in the UK Government's view this approach did not represent compromise. The Commission's intention was to revise the financial perspective, in opposition to Council and UK policy. In my letter of 1 December I clearly set out the UK and Council position in regard to this proposal—that there must be no revision of the financial perspectives, and that it was possible to fund the EU's share of reconstruction costs in Kosovo from within existing expenditure ceilings. This represented no change from our established UK Government policy, which is that the expenditure ceilings agreed at Berlin must not be revised.

  You mention that there has been suggestion in the press that, as part of the final agreement on the 2000 Budget, the Council gave an undertaking to look again at the ceiling on expenditure in the area of foreign aid once the Commission had presented its medium-term plan for assistance to the Balkans, due in April. I have no record of the Council giving such an undertaking. The Council was and is firm that the financial perspective ceilings apply and are not up for revision.

  At its second reading of the 2000 EC Budget the Council did invite the Commission to present a global overview of the programming of the appropriations under headings 3 and 4 of the financial perspective, within the context of the budgetary procedure for 2001. The Council asked for this overview (not review) in order to assist with planning and budgeting in these budget categories.

  In terms of medium-term plans for assistance to the Balkans, the Commission produced in December a Communication to the Council and the European Parliament, on which DFID colleagues provided an EM on 28 January. This Communication included mention of a "political" financial reference amount of 5.5 billion euros for EU aid to S E Europe over the 2000-06 period. My understanding is that we now expect the Commission by the end of April to make a formal proposal for a new regulation for aid to South East Europe. I will of course keep you closely in touch with developments on this proposal.

  I attach an Explanatory Memorandum on the Council's second reading of the EC Budget for 2000. This provides more detail on the Council's actions, following on from my letter of 1 December. All financial figures in the EM are provided in euros unless otherwise specified.

8 February 2000

Letter from Melanie Johnson MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  Jimmy Hood wrote to me on 16 February, attaching reports from Agence Europe detailing the EC 2000 budget settlement. These reports seem to be written from the viewpoint of the European Parliament, and paint a rosy yet significantly flawed picture of the settlement which does not have any foundation. I assured the Committee again that the Council did not at any stage agree to revise the financial perspective ceilings for the 2000 budget in order to accommodate aid for Kosovan reconstruction.

  I attach an Explanatory Memorandum on the overview document, (ref: SEC 2000-150), of the adopted budget. This document is not, however, the final adopted budget document, which we are yet to receive. My officials have discussed this with the committee clerk who agreed that provision of an EM on the overview document will be useful and helpful to the committee at this stage. I hope it will be of similar use to your committee.

  I am also responding to the outstanding points raised by the Common's committee in its report of 20 October and 16 December 1999. I apologise for the delay in responding to these questions but am, however, carrying out the committee's recommendations in responding to these questions now that I am submitting an EM on the adopted budget, (letter of 19 January). My officials have also improved the process for receiving committee reports which will allow me in future to address outstanding issues as promptly as those made directly by letter.

  The Committee asked how provision for Kosovan reconstruction could be reconciled with the Government's commitment to increase external aid to the poorest regions in your Committee's report regarding the Draft Budget. The Adopted EC Budget for 2000 actually increases the proportion of aid going to the poorest regions—Africa, Asia and Latin America—as a share of external aid spending, from 18.82 per cent in 1999 to 18.87 per cent in 2000. (This is reflected in the table below.)
Budget 1999 (million euro) Adopted Budget 2000
Co-operation—Asia438 447
Co-operation—Latin America314 336
Co-operation—Southern Africa and South Africa 127124
Total Category 4 Commitments4,672 4,806
Percentage of poorest regions as share of Category 4 spending 18.82%18.87%

  It also asked in its report of 16 December about the prospects for legal action if the European Parliament created a budget which exceeded the financial perspectives. My legal adviser's view is that the Inter-Institutional Agreement (IIA), signed by the European Parliament, Council and Commission on 6 May 1999, including the Financial Perspective, is intended to be binding on all three parties and can be amended only with the consent of all of them (see in particular paragraphs 2 and 4). Hence the European Parliament must adhere to the terms of the agreement and if it failed to do so the Council would have grounds to take action against it in the European Court of Justice.

  If no budget were adopted, in the meantime Article 273 would apply, which provides for an amount of one twelfth of the appropriations for the previous year to be made available to the Commission each month until the matter was resolved.

  I am writing to you separately to answer questions raised by the Commons' committee report concerning exchange rates for the EC budget, and OLAF.

29 February 2000

Letter from Lord Tordoff, Chairman of the Committee, to Melanie Johnson MP, Economic Secretary to the Treasury

  At its meeting on 14 March, Sub-Committee A considered your letters of 8 and 29 February about the process of scrutiny of the EU Budget. I have been asked to thank you for the information contained in those letters, and to say that the Sub-Committee will also be interested in your responses on the points where the House of Commons European Scrutiny Committee has asked for further clarification.

  Attached to your letter of 29 February was an Explanatory Memorandum on the 2000 Budget, based on the overview document. The Sub-Committee considered this, but decided to hold the document under scrutiny until it had been able to consider the full Budget with the help of your further Explanatory Memorandum.

  You will also be interested to know that the Sub-Committee considered the detailed proposals on the organisation of the Parliamentary scrutiny of the budgetary process which had been agreed between your officials and our Clerk. We are very grateful for this co-operation, and we hope that it will help the scrutiny process run more smoothly in future, despite the inevitable problem of documents arriving late.

15 March 2000


 
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