House of Commons - Explanatory Note
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Session 2001- 02
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European Communities (Finance) Bill


These notes refer to the European Communities (Finance) Bill as introduced in the House of Commons on 21st June 2001 [Bill 1]

European Communities (Finance) Bill



1.     These explanatory notes relate to the European Communities (Finance) Bill as introduced in the House of Commons on 21 June 2001. They have been prepared by HM Treasury in order to assist the reader of the Bill and help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.


3.     The purpose of this Bill is to enable the United Kingdom to give effect to the new Own Resources Decision, amending the arrangements for financing the Community budget.


4.     Under the current Own Resources Decision - Council Decision of 31 October 1994 (94/728/EC, Euratom) the Community budget is financed primarily from own resources, consisting of:

  • customs duties, including those on agricultural products;

  • sugar levies;

  • the yield from applying a notional rate of VAT, of 1%, to an assessment basis in each Member State which is "capped" at 50% of gross national product ("GNP"); and

  • a fourth resource based on shares in GNP, the rate of which is determined by what is required (given all other revenue) to balance the budget.

5.     The new decision agreed by the Council of Ministers on 29 September 2000 amends the current arrangements for VAT based contributions by reducing the maximum call-up rate to 0.75% in 2002 and 2003 and 0.50% thereafter (thereby increasing Member States' GNP based contributions).

6.     Provision is also made for an increase, from 10% to 25%, in the proportion of Traditional Own Resources, ie customs duties and sugar levies, retained by Member States against collection costs.

7.     The new decision provides for the continuation of the abatement mechanism whereby the United Kingdom benefits from a correction in respect of budgetary imbalances. But the financing arrangements of the correction are changed to reduce the amount borne by Germany, Austria, Sweden and the Netherlands. In addition, provision is made for the United Kingdom to forgo the "windfall" gains it would have received from the changes referred to in paragraphs 3 and 4 above and those which would accrue at the time of enlargement from the switch in payments to acceding states from "pre-accession aid" to "structural funds" and other expenditure which is subject to the UK correction. Similar treatment of a "windfall" was provided for by Article 4(2) of the current Decision.

8.     The new Decision has to be approved by all Member States in accordance with their national procedures before it can enter into force. It will take effect from 1 January 2002 except for the increase in the collection costs and the provisions regarding the abatement mechanism which will take effect from 1 January 2001.


9.     The Bill has two clauses.


Clause 1

10.     Clause 1 provides that the new Own Resources Decision shall be added to the list of Community treaties in section 1(2) of the European Communities Act 1972, thus allowing payments made by the United Kingdom pursuant to the Decision to be charged directly on the Consolidated Fund under section 2(3) of that Act.

Clause 2

11.     Clause 2 repeals the European Communities (Finance) Act 1995 since the wording of section 1(2)(e) of the European Communities (Finance) Act 1972 substituted by clause 1 of the Bill supersedes that substituted by the 1995 Act.


12.     The effect of the new Decision on the United Kingdom's net contribution to the Community budget will depend on the total size and pattern of Community expenditure. However, no increase in the United Kingdom's net contribution is expected to result purely from the introduction of the new Decision since it does not make provision for additional categories of own resources and provides for the continuation of the abatement mechanism.


13.     The Bill will have no effect on public service manpower.


14.     There will be no costs to business resulting from the Bill.


15.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The Chancellor of the Exchequer has made the following statement:

    In my view the provisions of the European Communities (Finance) Bill are compatible with the Convention rights.

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Prepared: 22 June 2001