Explanatory Memorandum from Miss Melanie
Johnson, Economic Secretary to the Treasury
General Budget of the European Union for the Financial
Year 2001: The Figures
Final Adoption of the General Budget of the European
Union for the Financial Year 2001
1. The 2001 EC Budget was finally adopted following
the European Parliament's second reading on 14 December 2000.
Summary of Figures
2. This EM follows the seven categories of expenditure
which comprise the financial perspective.
3. The 2001 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 margin under the overall ceiling
for both commitment appropriations and payment appropriations.
A table showing the margin under the financial perspective ceiling
for each category is set out at Annex A.
4. Accordingly, commitment appropriations in the
2001 Adopted Budget are set to total 96.24 billion euro, which
euro above the Council's second reading of the budget;
1.11 billion euro under the financial
perspective ceiling; and
2.92 billion euro (or 3.1 %) above the
2000 EC budget (including supplementary and amending budgets).
5. The total for payment appropriations in the Adopted
Budget, relating to commitments entered into in 2001 and previous
years, is 92.57 billion euro, which is:
euro above the Council's second reading of the budget;
2.32 billion euro under the financial
perspective ceiling; and
3.18 billion euro (or 3.5 %) above the
2000 EC budget (including supplementary and amending budgets).
6. The total to be raised from own resources, including
payments to reserves represents some 1.04 %of Community GNP, compared
to the own resources ceiling of 1.27 %.
7. The key issue in the agreement of the budget of
the EU for 2001 was that of preserving the tight spending ceilings
agreed at the Berlin European Council in March 1999 while at the
same time covering the EU's priorities for 2001, in particular
reconstruction activity in Serbia. The two arms of the budgetary
authority, the Council and the European Parliament, agreed to
mobilise the flexibility instrument (which has a maximum availability
of 200 million euro per year) as set out in the Inter-institutional
agreement on budgetary discipline of 6 May 1999. Total commitments
of 839 meuros were agreed for the Western Balkans in 2001, including
240 meuros for Serbia (of which 200 meuros is from the flexibility
instrument), and 175 meuros for Kosovo.
8. The Council did not accept the Commission's proposal
to revise the financial perspective ceilings for 2000-06, for
categories 1, 4 or 7.
Individual Categories of Expenditure
9. All categories of expenditure have experienced
an increase in commitments in 2001 compared to 2000.
10. Category 1a: The total level of appropriations
for the EAGGF - Guarantee section (funding for the Common
Agricultural Policy) has increased from 36,889 million euro in
2000 to 38,803 million euro in the 2001 budget, on the basis of
the updated figures proposed by the Commission in letter of amendment
2/2001. This includes an additional 60 million euros for rapid
BSE testing. This still leaves a margin of 1,232 million euro
under the financial perspective ceiling.
11. Category 1b: The greatest percentage increase
among the categories has been for Rural Development measures
(category 1b), which have grown by 10.06% from 4,084 million euro
in 2000 to 4,495 million euro in 2001. Appropriations have been
budgeted up to the financial perspective ceiling.
12. Category 2: Commitment appropriations for Structural
Operations are also up from 2000 by 0.13%. This includes 30,005
million euro in commitments for the Structural Funds, the ceiling
set in the financial perspective, and 2,715 million euro for the
13. The changes made in the Adopted Budget to 2001
commitment appropriations in categories 3, 4 and 5 compared to
2000 are summarised in the chart below. Brief descriptions of
the changes made to each category are included in the following
14. Category 3: Commitment appropriations for Internal
Policies, in the Adopted Budget are set to total 6,232 million
euro - up around 182 million euro (or 3%) from 2000. The biggest
changes have been in the following areas;
a In accordance with
the wishes of the Council and Parliament, the 2001 budget focuses
on employment with the launch of a multi-annual entrepreneurship
programme for small businesses with an allocation of 450 million
euros over 5 years, 100 million euros will be available in 2001;
b Research and Development has experienced an
increase of 8% on 2000, with commitments of 3,920 million euros
now allocated in 2001;
c Transport has seen an increase of 23% on the
2000 budget with commitments this year of 25,205 million euros.
15. Category 4: Commitment appropriations in External
Actions, have increased from 4,825 million euro in 2000 to
4,929 million in 2001 (increase of 2.2%). This is partly as a
result of the financing of the stabilisation programme for the
western Balkans, and the need to cover reconstruction activity
in Serbia. Total commitments of 839 million euros will be available
for the western Balkans in 2001, including 240 meuros for Serbia
(of which 200 meuros is from mobilization of the flexibility instrument),
and 175 meuros for Kosovo. Payment appropriations have increased
by 7.6 % over 2000.
16. Meanwhile commitments for the MEDA programme
are down by 20.5% in 2001 at 741 million euro. CFSP appropriations
are also less than in 2000 as administrative expenditure for special
envoys has been transferred to the Council budget (category 5).
17. Category 5: Total appropriations for Administrative
expenditure across the European Institutions are up by 3.8%
from 2000. They now total 4,904 million euro in 2001. The Commission's
budget (excluding pensions) will rise to 2,599 million euro, which
will assist in financing the 400 new posts for the Commission
related to its reform programme. Expenditure on pensions has seen
the greatest growth (9.6%) from 2000. Spending on the other institutions
(excluding pensions) will be 1,687 million euro, an increase of
1.9% on the previous year.
18. Category 6: Reserves have increased by
10 million euro from 2000, due to the small rise in the Guarantee
and Emergency aid reserves.
19. Category 7: Appropriations for Pre-Accession
Aid are budgeted up to the ceiling at 3,240 million euro in
commitments. Start-up problems in 2000 has meant that payments
have increase by 416 million euro in 2001.
20. 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
LEGAL AND PROCEDURAL INTERESTS
21. Treaty basis: the Community Budget is presented
under Article 272 of the Treaty of Amsterdam.
22. European Parliament procedure: the European Parliament
participates fully in the budgetary process and formally adopts
the agreed budget.
23. 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 (common agricultural policy,
monetary and loan guarantee reserves, and some expenditure in
categories 4 and 5 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
(remaining expenditure in 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.
24. Impact on UK law: none.
25. 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.
26. The Government supports the Adopted Budget, which
it believes demonstrates that it is possible to achieve tight
control on the overall level of EC budget commitments while respecting
the Community's existing obligations.
27. The Government welcomes the fact that the Adopted
Budget has been agreed, giving provision for reconstruction activity
in Serbia, without recourse to revising the financial perspective
28. The 2001 Adopted Budget forecasts a gross contribution,
after abatement, for the UK of about 12.6 billion euro (corresponding
to approx. 13.9% of the total). The UK's gross contribution, after
abatement, in the 2000 Supplementary and Amending Budget No. 1
was around 12.9 billion euro (or approx. 15.1% of the total).
29. 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.
30. The Budget Council held its second reading of
the EC budget for 2001 on 23 November 2000. The EP formally adopted
the budget at its second reading on 14 December 2000.
9 April 2001
The Budget procedure
The Community's financial year runs from 1 January
to 31 December.
The rules governing decisions on the Community Budget
are set out in Article 272 of the Amsterdam Treaty. These rules
have been built on by the Inter-Institutional Agreement. The timetable
is as follows:
of the preliminary draft budget by the Commission, normally by
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;
second reading by the Parliament and
adoption of the budget in mid-December.
Inter-Institutional Agreement and Financial Perspective
The Inter-Institutional Agreement (IIA) is a political
and 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.
The Agenda 2000 package included the new Inter-Institutional
Agreement and financial perspective together with reforms to the
CAP and structural and cohesion funds, and new pre-accession aid
programmes. The main lines of the package were agreed at the Berlin
European Council in March 1999. Agreement on the implementing
legislation was reached between Council and Parliament in May
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
Compulsory and non-compulsory expenditure
Community expenditure is regarded as either "compulsory"
or "non-compulsory". Compulsory expenditure is expenditure
necessarily resulting from the Treaty or from acts adopted in
accordance with the Treaty. It mainly includes agricultural guarantee
expenditure including stock depreciation and the monetary reserve.
The Council has the last say in fixing its total.
The Parliament has the last say in determining the
amount and pattern of non-compulsory expenditure. The growth of
this expenditure is governed by the "maximum rate".
Article 272(9) of the Amsterdam Treaty provides a formula for
determining this rate unless an alternative figure is agreed by
the budgetary authority. Under the Inter-Institutional Agreement
the Council and Parliament agree to accept the maximum rates implied
by the financial perspective ceilings.
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.
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. The Berlin European
Council set out proposed commitment appropriations for these funds
between 2000 and 2006.
The Own Resources Decision lays down four sources
of Community revenue, or "own resources":
Customs duties, including
those on agricultural products - These
are paid on a range of commodities imported from non-member
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 - These are
charged on the production of sugar to recover part of the cost
of subsidising the export of surplus Community sugar onto the
Contributions based on VAT
essentially, this is the amount yielded by applying a notional
rate of 1% to an identical range of goods and services in each
Member State (Member States' contributions are, however, subject
to a cap relating to the size of their Gross National Products);
Commonly known as the 'Fourth Resource'. This resource is calculated
by taking the same proportion of each Member State's Gross National
Product (GNP). It is a budgetbalancing resource and covers
the difference between total expenditure in the budget and the
revenue from the other three resources.
The Berlin European Council agreed that Member States
should aim to agree and ratify a new Own Resources Decision by
1 January 2002. That agreement will have no effect on contributions
for 2001. However, once the new Own Resources Decision has been
implemented, it will have a retrospective, to 1 January 2001,
effect on traditional own resources whereby Member States will
be allowed to retain 25%, as against the current 10%, as collection
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:
applies only in respect of spending within the Community. Expenditure
outside the Community (mainly aid), amounting to around 7 per
cent of the total expenditure in the 2001 Budget, is excluded;
the UK's contribution is calculated
as if the budget were entirely financed by VAT;
the abatement is deducted from the UK's
VAT contribution a year in arrears.
73 A short description of each term in italics is provided
in the accompanying glossary. Back