Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 20-39)



Lord Sharman

  20. Can I ask about the administration category. In your Explanatory Memorandum you talk about an increase in head count of approximately 700 people. We see an increase in expenditure of 14 per cent, which is about

700 million, which is about

1 million per job. I am not being unduly cynical there, but could you give us more information as to how that increase of about

700 million breaks down between increased resources and price increases. Are price increases a significant factor there because looking at that ball, it is an absolutely extraordinary increase in administrative costs?

  (Dawn Primarolo) Stephen, perhaps you could also put on the record the sort of questions that we, as the Government, still want to see answered. Obviously this is very much part of the discussion still going on.
  (Mr Evans) Certainly. There are a range of proposals across the European institutions. As you rightly point out, there are some large increases there. Much of it has been attributed to the accession of the new Member States. We want to ensure that all the institutions are properly able to cope with both the accession and the consequences for the EU policies of that, but equally we are working in the Budget Committee to ensure that we examine each of these institutional bids and make sure that they are both reasonable and that they adopt, and are consistent with, modern practices, including the proper use of IT. Can I just outline some of the big increases which are particularly related to enlargement? For the Commission there is an increase there of

104 million. That is costed to include 780 additional staff and

9.5 million on buildings. That was specifically related to and associated with enlargement. Similarly, for the Council there is

73 million there, including 284 additional staff and

17 million on buildings and for the Court of Justice

73 million again, which includes 606 additional staff and

14 million on buildings. The other smaller institutions have similar proportional increases. We have some reservations and some questions about those proposals. We are actively questioning all the institutions on their commitments. We do not want to jeopardise enlargement. Enlargement is a clear priority and we want to ensure that there are sufficient resources to deal with it. Equally, though, we want to see every opportunity taken up, with enlargement, for economies of scale and for sharing of resources across the institutions. We are pressing them to do that. Where the institutions cannot justify these increases, we will be working with our partners to press for a cut.
  (Dawn Primarolo) Could I just say, of the 780 extra staff at the commission, a substantial number of that staff is to help with translation and interpretation. That is obviously a delicate issue. Whilst pressing on the questions of economies of scale, savings and sharing, we are also mindful of the fact that there are some issues that we need to be careful with in questioning the particular staffing increases and building which obviously go hand in hand.

  21. The only detailed experience I personally have, and this Committee certainly has, of the institutions is the assumption that because there is enlargement you have to have one from everywhere, and this is particularly relevant to the European Court of Auditors which, of course, is pursuing a lunatic policy in terms of its expansion and will only result in further inefficiencies in that organisation.
  (Dawn Primarolo) That also raises the delicate issue of making sure we have an effective Court of Auditors and the reforms that we have been arguing for at the same time as making it as cost effective as possible.

  22. I think in the case of the European Court of Auditors both go hand in hand.
  (Dawn Primarolo) I am sure, yes. Andrew, do you want to say a bit more about the Court of Auditors in particular?
  (Mr Olive) We have put a proposal to the Convention in the form of a paper and some draft treaty text, which is very much in line with your Lordships' report in 2000. We are working with our partners to hopefully get some reforms along that line, to make it more streamlined, perhaps with a nine member board rather than the full 25. We have quite a lot of support from Member States on that. Also, though, you can understand there are issues of representation which other Member States worry about.


  23. I see—and I think you mentioned it, Minister—that this draft budget is going to be produced on the basis of activity-based budgeting. How confident are you that this is actually going to work?

  (Dawn Primarolo) The UK experience itself, since the institutional reforms that we have enacted here in the UK, has been that it has taken time to bed down. Some adjustments may be made. However, I think in the medium to long term clearly, in our view, it is the only way forward. In the long term the benefits are there, but I think Andrew would, in particular, be able to touch on some of the points now, in terms of trying to bring together particular administrations that perhaps have no history of doing that.
  (Mr Olive) Clearly there are some potential very big benefits in all of this. We have seen that from the UK. That would be in terms of greater transparency. We should be starting to use the resources better, because we will have clear objectives. We should be basing it on evaluation evidence. We will have indicators which actually show how the money is being spent. The real benefit should be that we move away from this input-driven approach and have much more of a focus on what we can gain in terms of the use of strategic priorities. So the benefits are clearly there. I am very sure that the Commission have bought in to this. The Commission are very keen to make ABB work, so that is greatly in our favour. We also have a lot of support from some of the Member States—the French are a good example there—so we are working quite well with our partners. In the first draft there are some good examples why they have got their objectives worked out and where they are looking at the sort of outputs that can be helpful. Can I give you some examples? In category 3 there is a good example on the use of energy side. (After a pause) I am sorry, I cannot find that. Equally there are other areas where there are problems and we will be working with the Commission and other Member States to Treasury and improve the quality of those indicators.
  (Dawn Primarolo) As Andrew cannot find specific examples, perhaps it would be helpful if we supplied them to you, so you can see how the issues are coming up, and the approach taken.

  Chairman: Thank you. That would be helpful.

Lord Marlesford

  24. Can I go on to agriculture specifically? The mid-term review: first of all, it is being negotiated now but it will not actually come into effect, as I understand, until 2005. Can one say, therefore, what impact on the 2004 budget the success, or half-success, or failure of the mid-term review will have?

  (Dawn Primarolo) They are literally meeting today. The Secretary of State . . .

  25. Yes. But what are the financial parameters, if any, for the 2004 budget?
  (Mr Lloyd) The Commission has included in the 2004 budget the first tranche of savings that would result from its CAP reform proposals, on the assumption that they are agreed as it is proposed. Those changes are quite limited in 2004. They amount to savings on market support of

97 million compared with a no reform scenario, largely due to price cuts for cereals and dairy. Any changes in relation to direct payments will not start to kick in until the 2005 budget. If, of course, the Commission's proposals are not adopted in their current form, then the Commission will come forward with a rectifying letter later in the year for their proposals then to be adjusted. At the present time, the Preliminary Draft Budget assumes that their proposals will be adopted and give rise to those savings.

  26. In your paragraph 10 submission, the figure for 2004 over 2003 is given as 4.5 per cent, of which a small half amount is due to enlargement. Can you give me an idea—is it really just rural development?
  (Mr Lloyd) The expenditure in the new Member States is made up largely of rural development but also some market support expenditure in 2004.

  27. Finally, can I just ask you a silly question? From the point of view of the British taxpayer, what impact does the considerable change in the exchange rate between the euro and the pound have?
  (Mr Lloyd) There is a short answer to that, which is "very little". There is a very much longer answer, which was actually set out in a memorandum that we supplied, or that the predecessor to Ruth Kelly supplied to this Committee, I think in 2001. I am very happy to summarise that for you if it would be helpful. There are three key elements to it. One is the impact on our gross contributions. The second is the impact on the abatement, and the third is the impact on receipts. Just to summarise those three steps, they more or less sum out to a negligible impact upon the budget. I am very happy to give you more detail on that if you would like.

Lord Sharman

  28. Could you just tell us a little more about the nature of the rural development project in the accession countries?

  (Mr Lloyd) Yes. There are five headings, I think, under which the rural development programme will fall. One is early retirement schemes for farmers. A second is support for less favoured areas. A third is agri-environment programmes. A fourth is afforestation of agricultural land. A fifth is transitional support for semi-subsistence farms to develop into commercially viable businesses.

Lord St John of Bletso

  29. Could I have a very brief question on category 6, which is reserves. The amount of

220 million has been provided for emergency aid reserves. Obviously this is a moving feast in a way, but given the event of there being a cataclysmic disaster and that figure being surpassed, what provision is there for additional reserves, should that ceiling be overrun?

  (Mr Evans) I can give you a brief answer to that. There are three calls or three resources for emergency funds. The first resource should always be the spending within the relevant categories. We are talking about external aid and we are talking about the external actions category. That is one of the reasons why we will be arguing very strongly in 2004 for a very large margin. We know that there are a number of potential calls, not least in the Middle East, for money both bilaterally and at the EU level. Therefore we think the EU should play its part and ensure that it has adequate margin to provide extra resources. Should those resources in the margin be used up, then there is the opportunity to call on the emergency aid reserve. Once that is used up, then there is also the flexibility instrument in the budget. I am not sure of the exact amount, but I think it has an additional

200 million. But those should be absolute last resorts, and do require the agreement of the budgetary authority.

Lord Jones

  30. In the context of EU enlargement, and bearing in mind the national interest and the need for the CAP to be reformed, are you confident that our interests for agriculture are being safeguarded, and can we look to a specifically bigger bite out of that rural development and accompanying measures heading for our industry? Does the Treasury consider how we can best use change for our own industry which is under pressure? The argument is that arguably newer nations coming in will get better benefit than the very efficient British industry, which is worthy of the very best conditions financially.

  (Dawn Primarolo) In terms of provisions currently within the EU15, there are funds for rural development that are set aside. I am sorry; I do not quite understand. The short answer is, yes of course the Government will always be doing its best, balancing all the points that we have discussed thus far about costs abatement, developments that we want to see, how we assist the accession countries and the changes and development inside our own economy. If we are looking specifically at our own rural areas, over and above any discussion with regard to the EU budget, there are priorities the Government pursues in terms of diversification in rural areas, so I am not quite sure whether that was the specific point that you were asking me. Sorry.

  31. You are neither Ms Kelly nor a DEFRA minister.
  (Dawn Primarolo) That is true.

  Lord Jones: But so powerful is your department, I would have liked to have been assured that we are going to gain from the way the budget is distributed.


  32. The UK.

  (Dawn Primarolo) The UK is going to gain, yes. The reduction of CAP will gain.
  (Mr Lloyd) Shall I just add this? We do fully support the direction of the Commission's proposal. As the Minister said they are being discussed as we speak in Luxembourg. We support the decoupling emphasis, the market reforms and the shift in spending to rural development. On that particular point which you have raised, it is, of course, very important that that shift to rural development is made on a fair basis. There must be a fair sharing of the rural development funds. That is an important element of our position. As far as the rural development share to date is concerned, the share of rural development for the EU15 countries in this financial perspective was allocated on the basis of historical spend and in order to top up the United Kingdom's allocation we apply what is known as "voluntary modulation", where we take a skim off the direct payments and redirect that to rural development programmes with Exchequer matched funding. In other words, to an extent we are anticipating the shift towards rural development spending that we are promoting and supporting in the CAP reform negotiations.

  33. The implication is better value for money under the heading "Rural development, accompanying measures" from your point of view for our nation, as opposed to the deficiencies of the CAP overall.
  (Mr Lloyd) That is a key plank of our position, that we would want to see a shift towards rural development.

  34. Are we going to get those post offices saved and bus services?
  (Dawn Primarolo) I am sure the Secretary of State is arguing very strongly today in Luxembourg for exactly the points that have been outlined in what we have said, and I know what her department is pursuing, even though I am not a minister in that department.

Lord Armstrong of Ilminster

  35. I am still trying to understand the figures in the annex to the memorandum. The figure for EU15 contain, under item 7, substantial reductions in expenditure on pre-accession instruments, and exactly the same figures are in EU25. If accession was for any reason delayed, would we get those savings? Perhaps I am not making myself clear?

  (Mr Lloyd) No. It is absolutely clear, Lord Armstrong, and I am sorry to hesitate in replying. The amounts that have been set aside for pre-accession aid for 2004 which, as you say, are the same in the EU15 table as in the EU25 table consist, if you like, of two elements. One is new commitments for Bulgaria, Romania and Turkey. Those are expected to go ahead in those figures, of course, irrespective of the enlargement to include the 10, but they do not include any new commitments for the enlargement 10. If for some reason they did not accede to the EU, there is no reason why we should reinstate pre-accession payments to them for 2004. That has not been agreed. That is not part of the negotiations. What they will receive, however, in 2004 are hang-over payments, payments that result from commitments in earlier years that will then be paid in 2004, but no new commitments for the ten countries are envisaged in 2004 on either scenario.

  36. I wonder what you would like to see us scrutinising with a special rigour in these figures. We want this exercise to be helpful and to contribute, as it were, to the discussion. I think that if you were able to direct us to areas where you think we ought to apply ourselves with special rigour, that would be a great help to us.
  (Dawn Primarolo) It is not really for me to say, but I think the categories which will require a great deal of consideration will be the external policy categories and administration.


  37. Can you say a bit more about those two? It would be very helpful to us.

  (Dawn Primarolo) If we take the administration which is the extra funding of staff and buildings and European institutions, I think you had already touched on this. There is the whole question of value for money. I think we have already touched on a number of questions this morning about the justifications for expansion, and in which particular areas, particularly if we are to continue to see the reform and change that we would all want to see within the European Union, so it is about getting the basics right. On the question of external policy, this really goes to the heart of the question of the margin. We were talking earlier on about other pressures that the European Union would need to be mindful of if it is to continue to be outwardly engaged. All of these issues are important and, of course, the issues of agriculture are vitally important as well, but that has the two Councils operating there and, in particular, the Agricultural Council. It is not for me to choose for you, my Lords, but I think these two categories will probably exercise a great deal of our attention as we go through the budget process.

Lord Marlesford

  38. The figures for administration were the same in EU15 and EU25. Does that mean that we have to assume that the proposals are to spend that much more money on administration whatever happens?

  (Mr Lloyd) I think the difference between the two tables is not that one assumes enlargement and the other does not assume enlargement. Both tables assume enlargement. The difference between the two tables, though, simply shows the increase in commitments that will actually be spent in the new Member States. It is a basis for then being able to calculate the contributions that they will then make to the budget.


  39. On the EU's external spending, Ruth Kelly's letter to us in paragraph 25 talks about the Government's priority being containment of spending in middle income countries and a greater poverty focus. Can somebody say anything about those two points? You stated it as a Government priority.

  (Dawn Primarolo) Yes. I think this was on the issue of retaining flexibility to meet challenges elsewhere—the Middle East, for instance, where I think perhaps you could spell that out in terms of expectations of other Member States, or some other Member States, in our expectation.
  (Mr Evans) It has become a priority for the Government to see reform of the external actions category. External actions are one of the areas of the whole budget where historically and even on the Commission's own evidence its activities are less well directed, and the money is not always spent where it is most needed. There is not always consideration of the need and impact and it is often spread amongst a variety of political objectives. As a consequence of that and the need for reform the Chancellor has prepared a UK action plan for reform of the whole of the category, and that reform would take place both for the remainder of this current financial perspective leading up to 2006, and then more dramatically for future financial perspectives. Obviously there is a limit to what you can achieve in one year. We have to take into account programme commitments and things that have been pre-agreed. Subject to that caveat, we also would want to achieve what we can in terms of a greater poverty focus in next year's Budget. We have to accept that the Union, quite rightly, has this range of policy objectives. What we have concluded is that our best objective for this current year is to secure a much larger margin which will give us the flexibility to deal with foreseeable but as yet uncosted requirements in the Middle East for instance and to try and contain new money, new commitments above programme levels for middle income countries. We also welcome some of the very positive moves such as more increases in humanitarian aid, poverty diseases and migration co-operation where we think that will assist our goal of a more effective budget and a more poverty focused budget. That is really where we have come from for this year. We have to accept that we are negotiating amongst 15 Member States and there are a range of priorities and we will achieve this over time. That is why the Chancellor's plan is divided into the three sections that it is divided into: what we can achieve up to 2006, what we can achieve in terms of management and skills changes both now and into the future, and what we can lock in in the new financial perspective.

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