Select Committee on European Scrutiny First Report

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[73].

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 is:

    —   0.44 billion 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:

    —   0.86 billion 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 Cohesion Fund.

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 paragraphs:

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 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 ceilings.


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:

    —   establishment of the preliminary draft budget by the Commission, normally 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;

    —  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.

Agenda 2000

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 1999.

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 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.

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. The Berlin European Council set out proposed commitment appropriations for these funds between 2000 and 2006.

Own Resources

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 world market;

    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); and

    GNP­based contributions. 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 costs.

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 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

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