2003 Draft Preliminary Budget

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Ruth Kelly: Yes, and it is always prudent to allow a margin for foreseeable and unforeseeable events. Indeed, we continue to press for a greater margin in the negotiations.

The hon. Gentleman asked whether I could identify potential risks, but that might indeed be a little foolhardy. The Seville Council proposed a package of measures to combat illegal immigration, manage external borders and speed up work on common asylum and immigration policies, with target dates being set for each programme initiative. The Commission has been asked to submit by October 2002 a report on the effectiveness of EU budget resources for the return of rejected asylum seekers, the management of external borders and asylum and migration projects in third countries. When the report has been produced—we look forward to that—we shall have to consider the deployment of resources in individual countries and whether we want to make some of the margin available for that.

Mr. Luff: I am beginning to run dry, Mr. Benton, but I have a couple more questions. I think that I am right in saying that the European Commission cannot borrow; it cannot have a borrowing requirement or go into debt. That seems very healthy and sensible, but I would appreciate hearing the Minister's reassurance that any attempt to change that would be resisted by the Government.

Ruth Kelly: Yes, we try to allow a margin for unforeseeable events—and for foreseeable events, as the hon. Gentleman suggested. There is a budget for commitments as well as for payments. In the EU budget, we want realism, effectiveness and efficiency in management of the resources, and that is what we continue to push for.

Mr. Wilkinson: I want to return to the net contribution that the United Kingdom makes to the European Union. The hon. Lady projected expenditure for 2003 of £3.3 billion. Does she think that good value for money for free trade, which is an objective of the WTO anyway? Why do other free trade agreements such as NAFTA, the Association of South-East Asian Nations and the Mercosur to some extent not require subscriptions similar to what we pay for the benefit of free trade? Is it not the truth that we are really subscribing to a union, a superstate that curtails our freedoms and infringes the liberties of the subject?

Ruth Kelly: The hon. Gentleman's views on European co-operation, the single market and anything to do with Europe are well known. The

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Government believe that there are significant benefits from membership of the EU. At the Seville Council it was agreed that we would work together to pursue a common asylum and immigration policy that managed external borders effectively. If we could achieve that, it would be a significant benefit derived from increased co-operation.

The hon. Gentleman mentioned trade. Since the formation of the European Union, the proportion of our trade with other EU member states has increased significantly, and about 3 million jobs depend on it. The single market continues to have an impact on all aspects of economic life. It increases competition, drives down prices and increases consumer choice.

Mr. Wilkinson: I want to ask for a little elucidation about the driving down of prices. In the past when Her Majesty's Ministers have sought to assess the economic benefit to the United Kingdom of the CAP, which constitutes almost half the projected budget for 2003, they have estimated the additional cost to the average family of two adults and two children as £25 or £26 a week. That is due to the extra cost of food, and, of course, the additional burden of taxation that that entails. Will the Minister give us a comparative figure in today's terms, as the last estimates are two or three years old?

Ruth Kelly: The hon. Gentleman points to the share of the CAP as a proportion of the total EU budget. He is correct to say that those figures are slightly out of date, although the peak has now passed and the cost of the CAP to the EU is falling, as was promised in the past. It is significantly down as a share of the total EU budget compared with a decade ago.

The hon. Gentleman also pointed to the impact on prices throughout the European Community. A liberalised European Union telecoms market reduced the cost of a three-minute telephone call between the UK and Italy, for example, from £1.86 to 91p during the decade to 1999. That is the sort of tangible economic benefit that has flowed from membership of the single market.

Mr. Luff: I now return to the subject of the external actions and the aid budget of the European union. Will the Minister express concern about its focus? I am sure that she could. I am not talking only about the way in which it is spent, which has been correctly identified by members of the Committee already, but about whom it is spent on. Does she share my concern that too much of it goes to middle-income countries, and that there is not sufficient poverty focus in the budget? When she goes to the Council, will she take steps with her colleagues to ensure that a proper poverty focus is introduced for the money, however badly it is then spent?

Ruth Kelly: The hon. Gentleman makes an important point. We are pushing for a greater poverty focus in the aid budget. As he no doubt is aware, many of the programmes are multi-annual and committed well in advance. Other member states argue for the need for additional funding to promote political stability in certain regions. That, too, is a good use of the budget, but we want to see more of a focus on poverty. For example, we especially welcome

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the 12 per cent. increase in the Asia budget, which is consistent with the EU development policy of putting greater emphasis on poverty reduction, because two thirds of the world's poor live in Asia. We will continue to push strongly for that, both at this week's meeting and when the draft budget is finalised later in the year.

Mr. Luff: During the Committee's proceedings on 19 November 2001, my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made a statement about the procedure for letting contracts in the EU, which he felt did not offer sufficient value for money because they are simply let rather than bid for in a competitive way. He said:

    ''there is an unhealthy bias toward letting contracts, rather than allowing contracts to be negotiated to give value for money.''—[Official Report, European Standing Committee B, 19 November 2001; c. 12.]

Does the Minister share those concerns, and if so, what is being done about them?

Ruth Kelly: We certainly want to see much greater rationalisation of Community resources, which should be used in a cost-effective and accountable way. Reforms are being pushed through the Commission to achieve those ends, and we fully support the Commission in its important work.

Mr. Wilkinson: May I probe further the line of questioning pursued by my hon. Friend the Member for Mid-Worcestershire about the priorities of the aid budget? I have referred to the fact that aid for Mediterranean partner countries will increase by 5 per cent., whereas aid for Latin America will decrease by 5 per cent. Is the Minister aware of the virtual meltdown of the Argentine economy? Does she realise that the real in Brazil has gone down by 18 per cent. this year? Is she aware of the extreme difficulties faced by Paraguay and Uruguay and the fact that an International Monetary Fund loan has just been disbursed to Uruguay? Is she aware of the unrest in Peru and the deep political crisis that afflicts the Andean region? How can she come to the Committee and say that the aid priorities are right, that relatively rich countries on our doorstep in the Mare Nostrum should receive extra money whereas the poor of Latin America should be further impoverished?

Ruth Kelly: The hon. Gentleman refers to the current unstable situation in Latin America and to the fact that expenditure on that area in the preliminary draft budget has been reduced, as has expenditure on other areas since money has been reprioritised to help the world's poor. Member states decided that the aid budget should focus on alleviating poverty in the world's poorest nations, especially in Asia. That approach is correct, and we have been pressing for greater emphasis on poverty alleviation. My right hon. Friend the Chancellor has been extremely active in setting up the global health fund, to which the EC is also contributing. Therefore I disagree with the hon. Gentleman that we should reprioritise our efforts. I accept his point, however, that we should support regions that are politically unstable.

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The Chairman: If there are no further questions, we shall proceed to debate the motion.

Motion made, and Question proposed,

    That the Committee takes note of the unnumbered Explanatory Memorandum from HM Treasury dated 5 July 2002 relating to the Preliminary Draft General Budget of the European Communities for the financial year 2003; and supports the Government's efforts to maintain budget discipline in the Community.—[Ruth Kelly.]

5.19 pm

Mr. Luff: That was a useful exchange. I hope that the Minister found it enjoyable. We heard some important statements from her, especially on matters relating to aid. I do not want to return to matters raised during points of order and questions, but I am concerned that we were not able to consider Parliament's money during the exchange. Parliamentarians might have interesting views on the issue, and I look forward to returning to it. The proceedings are literally Pythonesque—not only are we without volumes 2, 6 and 9, but we are also without volume 3. I am sure that you will remember the sketch, Mr. Benton: ''There is no volume 3''. It leads directly to the Australian philosophers' song. The volumes that we have are deep and considerable. Had we had the Court of Auditors volume, we would probably have had double the documentation.

This is an important occasion for the House of Commons, because it is one of our rare opportunities to consider a large slice of British public expenditure. I am new to this; it is the first time that I have had the privilege of speaking on such matters. I think it is the first speech that I have ever made on the European Union in my 10 years in the House, but I strongly suspect that veterans of these occasions will feel a certain familiarity as we go through the issues.

I have looked up the remarks that my hon. Friend the Member for Arundel and South Downs made during the debate on 19 November. He was concerned about the need for major and significant reform of the way in which the European budget is managed and organised, about absenteeism, about increases in bureaucracy, about waste and fraud, about the CAP, about civic issues to do with the functioning of structural funds—all matters to which I want to return—and the list goes on and on. I suspect that I could have read out his speech today, inserting up-to-date statistics. Nevertheless, it is an important occasion. It is a shame that more of our colleagues are not present—[Interruption.] Well, perhaps it is a good sign, Mr. Benton.

I thank the Minister for the helpful explanatory memorandum, which is technically what this debate is about, and express my support for a large part of it. We have discussed administrative expenses at some length and the document notes the expenditure on administration. The Scrutiny Committee noted that the proposed spending on administration totals €5.447 billion—up 5.2 per cent.—and that the Commission intends to use the flexibility instrument to fund it. The Commission says that that is to do with enlargement. That is a plausible argument, and I would not wish to say that it is wrong. However, I am sure that it is an argument that the Treasury would wish to test carefully as the budget process unfolds. It is always

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easy for bureaucracies to find excuses for increasing their costs and harder to find ways to drive them down. I hope that that 5.2 per cent. increase will, at the very least, be brought under control in future years.

The explanatory memorandum sets out the Government's key priorities and I am glad to see that administrative spending is one of them. To be fair to the Minister, it makes it clear that the external actions budget needs a greater focus on low-income countries. I am glad that she reiterated that during questioning. However, the Government will face some important issues over the next couple of years, which will shape their consideration of both this and future budgets. I am glad that the share of expenditure is, modestly, predicted to be down 0.1 per cent. on the previous year. Can the Minister tell me whether differing rates of growth in the economies of the EU member countries will affect the calculation during the year? There is some uncertainty about growth rates. I think that the assumption is of an average growth for the period of 3.4 per cent. across the EU 15, although that could change.

The budget is large—some €100 billion, of which just under half goes on agriculture. I share the concern of some hon. Members that not enough goes on structural funds, which are a potentially useful instrument within the EU—[Interruption.] The percentage—not the absolute sum; I am not calling for increases in public expenditure. I would not do that. There is only 9 per cent. on external actions.

We are the second largest net contributor and so it is right that the British Government should be particularly careful in their scrutiny of the budget, although the Germans have a proportionally higher contribution than us. France, despite profiting considerably from the CAP, is also a modest net contributor at about €1.4 billion last year compared with our €3.8 billion. I hope that we can look to the French to be a little more co-operative over some of the issues of managing the European budget than they have been in the past. As the Minister said in her opening remarks, we cannot do an awful lot about the budget because it is preset by legislation and policy making that has been established by the House, the Commission and various European parliamentary bodies well before. However, we can express concern about how the money is spent.

In 2000 the European Court of Auditors refused to give a positive statement of assurance for the seventh year running. In layman's terms, that means that it simply refused to sign off the accounts. Estimates put the percentage of the budget lost through fraud, mismanagement and waste at somewhere between 5 and 8 per cent., although it is difficult to estimate those sums with any real accuracy. Furthermore, because of poor management and—this is often a feature of European spending programmes—unnecessary complexity, a further 14 per cent. of the budget was not spent at all. That resulted in some 20 per cent. of the European Commission's budget being mis-spent or not spent. If those figures are correct they are worrying.

The Special Accession Programme for Agriculture and Rural Development aims to promote rural

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development in accession countries. It has a very large budget, but it is simply too complicated and only a tiny fraction of the millions of euros available was spent. I think that $1 billion were allocated and €60 million were spent. It would be good to see the Minister pressing the Council to remove unnecessary complexity and to ensure that the money that is agreed by the Governments, the Commission and the European Parliament is spent. There is no merit in under-spending.

The European Court of Auditors has commented on the programme. Its president, Jan Karlsson, said that

    ''pre-accession funds might not be available until after accession'',

which is a strange state of affairs to say the least. He also said that the current

    ''system of structural funds is almost impossible to execute''


    ''the schemes and programmes are of enormous complexity''.

It is the same problem. Simplification of the structural funds should make it possible to do a much better job. When asked whether the new Commission had made things better he replied that there were a number of hopeful signs, but we cannot give a positive statement of assurance because they cannot be registered. Mr. John Wiggins, a British member of the European Court of Auditors, said that the situation remained ''unchanged''.

We are facing a budget that, essentially, has many of the characteristics of previous budgets. There are more demands for money from the institutions in the run-up to enlargement. It is a new excuse for more money, staff and buildings. It worried me when I was Chairman of the Agriculture Committee that the impact of enlargement on the EU's budgets had not been properly taken into account by a number of the key players. British Governments, both Conservative and Labour, understood the implications and sought with varying degrees of effectiveness to push the case, but who will end up paying for enlargement? It will be an expensive process.

Speaking as someone who has had to come face to face with asylum policy, through the possible siting of a large asylum centre in my constituency, I am interested to see how the budget develops in relation to a common asylum and immigration policy. That is clearly an area of considerable importance and sensitivity. We can agree that there is a need for joint action, sometimes bilateral with France and sometimes multilateral. The Government have an important task in sorting out exactly how they handle that issue during the negotiations. I look forward to hearing what happens in that respect.

The Minister was a little provocative from time to time. My hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson), who has sadly gone, has his views, and I would have hoped that the Financial Secretary would regard him as the grit in the oyster that makes the pearl, rather than simply trying to kick out the grit as she did in her answers. He made some important points, and I am glad to say that she was once moved to agree with him on trade.

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The Financial Secretary overplays her hand when she talks about the fact that the previous Government were isolated but the current Government are not. It is terribly easy to get one's way on budgetary issues if one gives way all the time. If one's objective is to give way, one always wins. When one gives away opt-outs from various treaty obligations, it is no wonder that people are pleased. It is not difficult to win new burdens, but it was very difficult for Baroness Thatcher to secure the budget rebates in the first place. That was hardly the mark of a Government who did not know how to make EU institutions work to their advantage.

I think that the total figure for the rebate during its operation is £29 billion, which may not mean a great deal to people out there. However, an awful lot of money for each man, woman and child in this country was won by a Government who, the Financial Secretary says, were out of touch and unable to influence the affairs of Europe. I am afraid that the evidence says that she is wrong. You will rule me out of order, Mr. Benton, if I stray down this path too far, but the single European market was a Conservative success story won in the teeth of much opposition. It was a Conservative achievement, pushed by a Conservative Commissioner with the support of a Conservative Government. The rebate and that policy initiative prove how effective we were.

I will not go too far down that route, because this has been a largely consensual sitting to scrutinise the budget's detail. However, it is sometimes worth remembering that the budgetary trade-offs that the Government have had to make to protect the rebate have not been negotiated terribly cleverly. I am particularly concerned that the CAP is still attracting such large sums of money. The reason for that is that in Berlin the Prime Minister set a target to keep the abatement and not worry about the CAP. Mr. Chirac set a different target to ensure that French farmers benefited from the CAP. They negotiated until 3 or 4 am, and several weeks later the European Commission was still trying to transcribe the tape recordings to work out exactly what had been agreed.

We lost the opportunity to reform the CAP at Berlin, and only modest changes were made. We gave in to Chirac, and the result is that the budget that we are discussing today still includes an unreformed common agricultural policy. I hope that the Minister will make strenuous attempts to influence her colleagues in the Department for Environment, Food and Rural Affairs to reform the CAP and to ensure that the budget comes under control. It is not good enough that 47 per cent. of the budget will be spent on agriculture.

During questions, it was pointed out that we spend large sums of money on agriculture that will work directly against the interests of the developing world. I highlighted tobacco and health policy as contradictory, and having an external aid policy while dumping subsidised agricultural exports on world markets is another classic contradiction. The Minister would agree with that. It is not a new

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problem, and the Americans are making matters worse at the moment.

The Minister rightly spoke about poverty in India, which is the second cheapest producer of milk in the world, after New Zealand. We could transform the Indian rural economy, not by pouring large sums of EU or British aid into rural India but by enabling its farmers to sell that milk on world markets. The crucial market is the middle east, which has a big demand for skimmed milk powder, but the EU dumps large quantities of that powder on it. A lot of money, detailed somewhere in the voluminous pages of the budget, is going to subsidise skimmed milk powder exports while other money is going to India and other countries that could use such exports to make up for the way we distort the world market so monstrously. There are huge possibilities for significant simplification of the common agricultural policy, which would stand British consumers, farmers and taxpayers and developing nations in very good stead.

I want to speak briefly on the common fisheries policy. As we explored briefly during questions, a major review is taking place. However, there is a danger that if it is not completed by the end of the year, pandemonium will be created in fisheries policy, so I hope that the Treasury is working closely with DEFRA to ensure that the negotiations are brought to a speedy conclusion. We hope so for the sake of the British fishing industry and for significant budgetary reasons. I am unclear how to take account of the implications of the review without its being completed. I hope that no foot dragging will take place: the target has to be December, when the CFP elapses. I hope that the Government will bring great pressure to bear in order to achieve that target. We do not want artificially stopped clocks in negotiating rooms while details are thrashed out and budgetary uncertainty lingers.

Fraud is another important issue. The sums of money that fall within EU budgets are disbursed by member states, so checking up on fraud is often surprisingly difficult. The European Scrutiny Committee's 12th report includes the findings of the European Court of Auditors report for the financial year 2000. The Committee argued that as the report contained 500 pages it was a difficult report to comment on—often a function of European documentation—but highlighted one important point:

    ''The Court has included its Statement of Assurance that the financial statements of the European Communities are generally reliable except for certain matters . . . However, the Court's audit work on operational expenditure revealed once again an unacceptable incidence of error affecting the amounts of the payments, or the reality or the eligibility of the underlying transactions, as well as weaknesses in the functioning of control procedures in the principal systems covering Agricultural Guarantee and Structural Measures expenditure. The Court states that, in general, the Commission needs to improve the definition of the objectives of Community programmes and then undertake effective evaluation of their achievement, in order to ensure sound and efficient use of the European Union's resources.''

That is an exceptionally serious finding and I hope that the Minister will take with her to Brussels at the end of the week a strong weather eye on fraud.

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John Wiggins, the British member of the Court, was quoted in the Financial Times in November last year as saying:

    ''The Commission still doesn't take seriously enough the need to improve its accounts and accounting mechanisms . . . It has tried to tighten up the regulations, but loopholes remain.''

The British Government should be extremely vigilant in that regard.

I do not want to talk other hon. Members out of time, but I want to return to aid. I am glad that it had priority during questions. I reiterate the importance of ensuring that the aid is disbursed effectively and to the right people. The International Development Committee said in a report of 8 November 2000:

    ''Whilst it is undoubtedly true that many middle-income countries do, indeed, have a considerable number of their populations living in poverty''—

I might add the Minister's point about political instability—

    ''this does not justify the current situation where, for the year 2001 the Commission is proposing to spend €961 million on Mediterranean and Middle Eastern Countries, €1.3 billion in the Eastern Europe and the Balkans (excluding pre-accession expenditure which, in itself amounted to €3.3 billion)—largely middle-income countries—yet, has proposed only €691 million from the Category 4 Budget for Asia, Latin America and Southern Africa combined despite the fact that, as Clare Short told the Committee, a third of people living in absolute poverty are in India alone.''

I want to put fire into the Minister's negotiating tactics: she should argue a very strong case.

Effectiveness is another important matter, as other hon. Members have ably proposed. I shall not reiterate the point, but it is a continuing concern of the entire international development community in the UK that the aid budget is not particularly well spent. I am aware that some attempts are made to counter fraud by asking many questions, but in a disaster and emergency it is probably better to make the payments and ask questions later.

It is difficult to produce valid figures, but I shall not bore the Committee with the reasons why. The Library informs me that the top 10 aid recipients of the EU for 1999—the most recent year for which I could get figures—were Poland, the Czech Republic, Morocco, Romania, the Slovak Republic, Egypt, Bosnia and Herzegovina, Hungary, unspecified ex-Yugoslavian states and Russia. We do not believe that there is one poor country in that list, which is of some concern.

I have not read all the documents, which may surprise members of the Committee. [Hon. Members: ''Shame!''] However, I leafed through them, and it just shows how important it is to look at some of the detail. The Committee is invited to participate in an extraordinary task today: to consider heaven knows how many documents in two and a half hours, excluding the ones that we do not have. There were some fascinating fluctuations in the figures. The Committee will be relieved to hear that I do not want the Minister to respond to each detailed point that I am going to make, as some of them are illustrative. However, if they strike a chord with her, I am happy to hear her comments.

On page 333, volume 4, book 1, we read about the sheepmeat and goatmeat regime, which is very

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interesting. The intervention in the form of storage has increased from €34,736 to €5 million. I wonder why. The ewe and goat premium payments are all over the place, for which there may be a good reason. They decreased from some €1 billion in 2001 to €0.5 billion in 2002, and they will increase to €1.5 billion in 2003. Huge sums are sloshing around, which suggests that a detailed scrutiny of all the documents would keep many people happy.

Pages 115 to 117 detail expenditure resulting from special functions carried out by the institution. Article A-3021 details grants to European think tanks and organisations advancing the idea of Europe. Some €2 million will go to them in 2003, down from €2.2 million in 2002. I would like to know more about how that money is spent. The Committee will be sorry to hear that Journalists in Europe, which received €250,000 in 2001 and 2002, will receive nothing in 2003. All sorts of interesting nuggets are buried away here that could form the basis of speeches in their own right. There is one worthwhile line of expenditure: the preservation of Nazi concentration camp sites as historical memorials.

On page 117, expenditure on town-twinning schemes has decreased very sharply, which surprises me, as many people rather enjoy that aspect of the EU. The figure has decreased from the €12 million appropriation for the current year to €7 million next year. That reduction—€5 million in a year—is huge. There may be a perfectly innocent explanation for that, but I would like to know it.

Page 363 of volume 4, book 2 details expenditure on measures to combat instances of discrimination, exclusion and mistreatment, and grants to the European Monitoring Centre on Racism and Xenophobia. One cannot comment on such an organisation unless one knows something about it. I must admit that I do not, although it may be important, useful and a very good thing, as we have concerns about the growth of right-wing extremism in Europe. Against that background, I wonder why the payments made to the centre in 2001 stood at €4.8 million, but they will be €2.6 million in 2003. One would think in the current environment that expenditure to a useful organisation doing a good job of work would increase, or does the EU think that it is no good at all? Has the EU cut its money, despite the rise in extremism on the mainland of Europe?

Page 319 appears to carry another nugget. That is the general problem with these documents. I must admit that I am a novice in this area, and I do not know what ''PM'' means, although it appears frequently. Is it Prime Minister? Who knows? It signifies a blank—it means that there is nothing there, for whatever reason. I may be enlightened as to the meaning before too long, but we can get the general flavour of what it means.

On page 290, under ''Industry'', the layout of the research programme of the European Research Fund for Coal and Steel is particularly jolly. It has many columns and tables, which are all blank except for eight occurrences of ''PM''. It does not help the Committee or the House, when trying to scrutinise a budget, to be confronted with a blank piece of paper

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with a mysterious acronym or abbreviation lurking on its pages.

I raise the matter of page 199 with trepidation, but it tells us that there is a significant increase in funding of European political parties. I speak as someone who strongly supports the European Union, and I resent the Prime Minister's jibe that all people of sense have been driven from my party. It upsets me when he says that. At any rate, it is worrying that the rising funding is based

    ''on the need for transparency''—

whatever that means—

    ''and the necessary reinforcement of the democratic accountability of the European Union'',


    ''is intended to finance, at European level, political parties which contribute to forming a European awareness and to expressing the political will of the citizens of the European Union.''

What a splendid phrase that is! However, I wonder whether we are right to put the budget up by more than 10 per cent. when we are trying to make administrative savings in the European Commission budget.

On a presentational point, pages 105 to 133 of volume 4, book 3 could be extremely useful to the Committee. Aside from the regular occurrence of ''PM'', there is a helpful table giving the percentage change—

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