Examination of Witnesses (Questions 20-39)|
WEDNESDAY 11 JUNE 2003
PRIMAROLO, MP, MR
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
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
9.5 million on buildings. That was specifically related
to and associated with enlargement. Similarly, for the Council
73 million there, including 284 additional staff
17 million on buildings and for the Court of Justice
73 million again, which includes 606 additional staff
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 seeand I think you mentioned it,
Ministerthat 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 Statesthe French are a good example thereso
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
(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.
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
(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 ideais
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.
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
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
(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
200 million. But those should be absolute last resorts,
and do require the agreement of the budgetary authority.
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
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.
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
(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 elsewherethe
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.