Explanatory Memorandum from Miss Melanie
Johnson, Economic Secretary, HM Treasury
General Budget of the European Union for the Financial
Year 2000: The Figures
SUBJECT MATTER
Introduction
1. The 2000 EC Budget was finally adopted following
the European Parliament's second reading on 16 December 1999.
This therefore, is the first budget to be established under the
new Financial Perspective agreed at Berlin in May 1999.
Summary of Figures
2. This EM follows the seven categories of expenditure
which comprise the financial perspective[54].
3. The 1999 Adopted Budget is consistent with
the financial perspective agreed by the European Council at Berlin
in March 1999, and is also consistent with the own resources
ceiling (1.27% of overall Community GNP). The Adopted Budget
respects the commitment appropriations ceilings agreed
in the financial perspective for each category of expenditure
within the budget, and leaves a tight margin under the overall
ceiling for both commitment appropriations and payment
appropriations. A table showing the margin under the fp
ceiling for each category is set out at Annex A.
4. Accordingly, commitment appropriations in
the 2000 Adopted Budget are set to total 93.3 billion euro, which
is:
— 0.8 billion
euro above the Council's second reading of the budget;
— 0.4 billion euro under the financial perspective
ceiling; and
— 3.4 billion euro (or 3.5%) below the 1999 budget.
5. The total for payment appropriations in the
Adopted Budget, relating to commitments entered into in 2000 and
previous years, is 89.4 billion euro, which is:
— 1.5 billion
euro above the Council's second reading of the budget;
— 1.9 billion euro under the financial perspective
ceiling; and
— 3.8 billion euro (or 4.4%) above the 1999 budget.
6. The total to be raised from own resources,
including payments to reserves represents some 1.11 per cent of
Community GNP, compared to the own resources ceiling of 1.27 per
cent.
Individual Categories of Expenditure
7. All categories, except Reserves and Structural
operations, have increased commitments compared with 1999. Despite
this, the Adopted Budget for 2000 nevertheless totals less than
the 1999. The biggest percentage increase has been for Pre-Accession
aid (Category 7), which has grown by 131% due to the drawing together
of various pre-accession measures of the budget into a new category,
and the introduction of two new accession instruments; ISPA (Agriculture)
and SAPARD (Structural actions).
8. Category 1A: The total level of appropriations
for the EAGGF - Guarantee section (funding for the Common
Agricultural Policy) has increased from 37,441 million euro in
1999 to 36,889 million euro in the 2000 budget. This still leaves
a margin of 463 million euro under the fp ceiling.
9. Category 1B: Measures for Rural
Development have increased by 58% from 2,597 million euro
in 1999 to 4,105 million euro in 2000.
10. Category 2: Commitment appropriations
for Structural Operations are down from 1999 by 16.2%.
This is because the 1999 budget included appropriations not implemented
in previous financial years and carried over, as well as rural
development measures now transferred to heading 1 of the new financial
perspective. As a result, payment appropriations for this category
have increased from 30.4 billion euro in 1999 to 31.8 billion
euro in the Adopted Budget, an increase of 1.4 billion euro.
11. The changes made in the Adopted Budget compared
to 1999 commitment appropriations in categories 3, 4 and 5 compared
to the 1999 are summarised in the chart below. Brief descriptions
of the changes made to each category are included in the following
paragraphs.
12. Category 3: Commitment appropriations
for Internal Policies, in the Adopted Budget are set to
total 6,027 million euro - up around 163 million euro (or 2.8%)
from 1999. The biggest changes have been in the following areas;
— Trans-European
Networks are up by 17.6%, or 102 million on 1999;
— Research and Development has experienced
a small increase of 5%, which however has meant a expenditure
increase of 180 million euro;
13. Category 4: Commitment appropriations
in External Actions, have increased from 4,672 million
euro in 1999 to 4,805 million in 2000 (increase of 2.9%). This
is partly as a result of the need to cover aid for the reconstruction
of Kosovo. 360 million euro will be available for Kosovo in 2000.
Meanwhile 20 million euro has been committed to cover aid for
East Timor, and 30 million euro for the victims of the Turkish
earthquake. The table below shows how commitments expenditure
will be broken down in category 4.
— Commitments for
developing countries in Latin America are up on 1999 by 7%.
— Commitments for developing countries in Asia is up
by 2%.
— Humanitarian Aid has experienced an increase in commitment
appropriations of over 30% on 1999 (or 112 million euro).
14. Category 5: Total appropriations for
Administrative expenditure across the European Institutions
are up by around 200 million euro from 1999. They now total 4,704
million euro in 2000. Spending on Commission administration has
seen the greatest growth (5%) in comparison to other EC institutions
(3%).
15. Category 6: Reserves are down
286 million euro, or 24%, from 1999 following cuts in the Guarantee
and Emergency aid reserves.
16. Category 7: Pre-Accession Aid,
has more than doubled since 1999, rising from 1,372 to 3,167
million euro. This reflects the increase in commitments to PHARE
of 15% (207 million euro), and the bringing together of ISPA and
SAPARD into this category.
MINISTERIAL RESPONSIBILITY
17. Treasury Ministers are responsible for the
budget of the European Communities. Other Ministers are concerned
with those sections of the Budget which relate to their own Departmental
interests.
LEGAL AND PROCEDURAL INTERESTS
18. Treaty basis: the Community Budget
is presented under Article 272 of the Treaty of Amsterdam.
19. European Parliament procedure: the
European Parliament participates fully in the budgetary process
and formally adopts the agreed budget.
20. Voting procedure: the Council votes
by Qualified Majority and has the final say in setting the level
of spending on compulsory expenditure in the budget (non-rural
development section of agriculture and some expenditure in categories
4, 5 and 6 of the financial perspectives). The European Parliament
votes by a majority of its members, or three-fifths of the votes
cast depending on the exact circumstances, and has the final say
in setting the level of non-compulsory expenditure (categories
2, 3, 7 and parts of 4 and 5 in the financial perspective, plus
the emergency aid reserve). The classification of expenditure
have been clarified as part of the new Inter-Institutional Agreement.
21. Impact on UK law: none.
22. Subsidiarity: The Community Budget
is a matter of exclusive Community competence and the Council's
establishment of the Draft Budget is required by the Treaty.
POLICY IMPLICATIONS
23. The Government supports the Adopted Budget,
which it believes demonstrates that it is possible to achieve
significant savings on the overall level of EC budget commitments
while respecting the Community's existing obligations.
24. The Government welcomes the fact that the
Adopted Budget has been agreed, giving provision for Kosovan reconstruction
costs, without recourse to revising the fp ceilings.
FINANCIAL IMPLICATIONS
25. The 2000 Adopted Budget forecasts a gross
contribution, after abatement, for the UK of about 11.9 billion
euro (corresponding to approx. 13% of the total). In 1999 the
UK made gross contributions, after abatement, to the EU budget
of 10.4 billion euro (or approx. 12% of the total).
COST COMPLIANCE
26. The EC Budget sets limits on expenditure
by the institutions of the European Communities. It does not place
any compliance costs on business, and therefore a compliance cost
assessment has not been carried out.
28 February 2000
GLOSSARY
The Budget procedure
The Community's financial year runs from 1 January
to 31 December.
The rules which define the structure and implementation
of the Community Budget are set out in Article 203 of the Treaty
establishing the European Union. This stipulates the sequences
of stages and time limits which must be respected by the two arms
of the budgetary authority (Council and European Parliament).
In practice, however, a more "pragmatic"
timetable has been applied by the three institutions which consists
of:
— establishment
of the preliminary draft budget by the Commission by end-April;
— establishment of the draft budget by the Council
in late-July;
— first reading by the Parliament in late-October;
— second reading by the Council in mid-November; and
— second reading by the Parliament and adoption of
the budget in mid-December.
Commitment and payment appropriations
The Budget distinguishes between appropriations for
commitments and appropriations for payments. Commitment appropriations
are the total cost of legal obligations which can be entered into
during the current financial year for activities which will lead
to payments in the current and future financial years. Payment
appropriations are the amount of money which is available to be
spent during the year arising from commitments in the Budgets
for the current or preceding years. Unused payment appropriations
may, in exceptional circumstances, be carried forward into the
following year.
Compulsory and Non-compulsory expenditure
Community expenditure is regarded as either "compulsory"
or "non-compulsory". Compulsory expenditure is expenditure
necessarily resulting form the Treaty or from acts adopted in
accordance with the Treaty. It mainly includes agricultural guarantee
expenditure — including stock depreciation and the monetary
reserve. Non-compulsory expenditure includes expenditure on the
regional development and social funds along with other Community
policies. In the course of the budget procedure, the Council has
the last say in fixing the total of compulsory expenditure and,
within the limits laid down in the "maximum rate" provisions
of the Article 203(9) of the Treaty, the Parliament has the last
say in determining the amount and pattern of non-compulsory expenditure.
Inter-Institutional agreement
The IIA is a political, but not legally binding,
agreement which clarifies the Community's budgetary procedure.
Under the Treaty, the Council and the European Parliament have
joint responsibility for deciding the Community Budget on the
basis of proposals from the Commission. The IIA sets out the way
the three institutions will exercise their responsibilities in
accordance with the Treaty, and respecting the revenue ceilings
which are laid down in the Own Resources Decision. In particular,
it provides for the annual Community budget to be set in the context
of a multi-annual financial framework.
Financial Perspective
The Berlin European Council in March 1999 cleared
the way for the new IIA signed on 6 May 1999, which included an
annual framework covering all Community expenditure between 2000
and 2006. The six categories of expenditure included in the framework
are: Common Agricultural Policy (or agricultural guideline); Structural
Operations (including Structural Funds and the Cohesion Fund);
Internal Policies; External Action; Administration; and Reserves.
The financial perspectives were revised in 1994 with a view to
enlargement of the European Union. This added a seventh category
of expenditure: compensation payments to the new Member States
(Austria, Finland and Sweden). Each of these headings carries
an annual expenditure ceiling in commitment appropriations. The
financial perspectives also indicate the maximum amount of payments
as a percentage of Community GNP so that it may be compared with
the ceiling on own resources.
Agricultural Guideline
The agricultural guideline is a legally binding limit
under which spending on agricultural market support can grow each
year by no more than 74 per cent of the change in Community GNP.
Structural Funds
The Structural funds include the European Regional
Development Fund and the European Social Fund. The Cohesion Fund
supports projects and infrastructure networks in those Member
States with a per capita gross national product which is less
than 90 per cent of the Community average.
Monetary Reserve
A reserve which can be drawn upon to meet excess
agricultural expenditure arising from dollar/euro movements.
Own Resources
The Own Resources Decision lays down four sources
of Community revenue, or "own resources":
— Agricultural
and sugar levies — Agricultural levies have been replaced
by duties on agricultural products and are charged on a range
of commodities imported from third countries. Following the agreement
on agriculture during the Uruguay GATT Round, most agriculture
levies are now fixed. However, for some key commodities, they
continue to vary in line with changes in world prices. Sugar levies
are charged on the production of sugar to recover part of the
cost of subsidising the export of surplus Community sugar onto
the world market;
— customs duties — these
are paid in imports from non-member countries;
— contributions based on VAT —
essentially, this is the amount yielded by applying a notional
rate of VAT to an identical range of goods and services in each
Member State (Member States' contributions are, however, subject
to a cap on the VAT contribution as a share of their Gross National
Products (GNP). The cap, from 1999, has been 1% of their VAT base);
and
— GNP-based contributions —
the amount due is calculated by taking the same proportion of
each Member States' GNP. Because the Community is not allowed
to borrow, revenue must equal expenditure. The GNP resources is
the budget-balancing item and covers the difference between total
expenditure in the budget and the revenue from the other three
resources, subject to the overall own resources ceiling.
Fontainebleau abatement system
The UK's VAT contributions are abated according to
a formula set out in the Own Resources Decision. Broadly this
is equal to 66 per cent of the difference between what the UK
contributes to the Community budget and the UK's receipts, subject
to the following points:
— the abatement
applies only in respect of spending within the Community. Expenditure
outside the Community (mainly aid), amounting to some 7 per cent
of the total expenditure in the 2000 Draft Budget, is excluded;
— the UK's contribution is calculated
as if the budget were entirely financed by VAT; and
— the abatement is deducted from the UK's
VAT contribution a year in arrears.
54 A short description of each term in italics is provided
in the accompanying glossary. Back
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