2 PRELIMINARY DRAFT BUDGET 2004
(24582)
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| Preliminary Draft General Budget of the European Communities for the
financial year 2004.
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| Legal base | Article 272 EC; QMV; the special role of the European Parliament in relation to the adoption of the Budget is set out in Article 272
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| Department | HM Treasury
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| Basis of consideration |
EM of 5 June 2003 |
| Previous Committee Report |
None |
| To be discussed in Council
| 16 July 2003 |
| Committee's assessment | Politically important
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| Committee's decision | For debate in European Standing Committee B before 16 July 2003 (together with the Commission's Annual Policy Strategy for 2004)
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Background
2.1 The Commission's Preliminary Draft Budget (PDB) is
the first stage in the Community's annual budgetary procedure.
The 2004 PDB will form the basis of the 2004 Adopted Budget which
is expected to be agreed in mid-December 2004.
2.2 The 2004 PDB sets out the Commission's
proposals for Community expenditure in 2004, together with bids
for the other Community institutions, such as the European Parliament.
On the basis of the PDB, the Budget Council will establish a
Draft Budget on 16 July to be forwarded to the European Parliament
for its first reading some time in late October. The Draft Budget
usually has its Council second reading in mid-November and, after
conciliation if necessary, the budget is usually finally adopted
in mid-December when the European Parliament has had its second
reading.
2.3 The Paymaster General (Dawn Primarolo)
submitted a helpful Explanatory Memorandum on the PDB on 5 June
2003. The official texts of the PDB have not yet been made available,
but in order to provide an opportunity for the House to consider
the PDB prior to the 16 July Budget Council, we have relied heavily
upon the Minister's Explanatory Memorandum. As in previous years,
we are annexing to this Report tables derived from the Explanatory
Memorandum. We understand that the official texts of the PDB will
be available in good time for a debate.
The document
2.4 Although the Budget Council and the
European Parliament set the budget for the following year, each
year's PDB is constrained by the Financial Perspective, which
forms part of the InterInstitutional Agreement (IIA) of
1999 between the European Parliament, the Commission and the Council.
The Financial Perspective has previously set out annual expenditure
ceilings for seven broad expenditure categories, currently over
a period of seven years (20002006). This year the Financial
Perspective has an eighth category for transitional arrangements
for the acceding countries agreed at the Copenhagen European Council
in December 2002.
2.5 The 2004 PDB is the first for a Union
of 25 Member States, anticipating the accession of ten new Member
States in May 2004. The budget adopted in December will be for
the existing Member States (EU-15) and will be for the first four
months of 2004. Agreement on the EU-25 figures will be reached
at the same time, and the EU-25 budget will be formally adopted
as a Supplementary and Amending Budget following enlargement in
May 2004. The 2004 PDB has numbers for both EU-15 and EU-25.
2.6 The 2004 PDB is also the first to be
presented mainly in the new Activity-Based Budgeting (ABB) format.[2]
The 2004 budget negotiations will be conducted on the basis of
ABB documentation. In addition some parts of the documentation
are also presented in the traditional format. Flowing from the
use of ABB the 2004 PDB is as bulky as its predecessors, but it
is set out differently from the previous arrangement of Volumes
0 (sic) to 9. It now consists of:
- Document I — overview
and political presentation of the budget;
- Document II — expenditure analysis by policy
area;
- Document IV[3]
— line-by-line presentation of the budget figures, in ABB
and traditional format, for EU-15 and EU-25;
- Document V — financial programming 2004-2006;
- Working document 1 — activity statements[4]
by budget title;
- Working document 2 — financial statements;[5]
- Working document 3 — legal basis for budget-supported
activity and RAL ('Restes à Liquider', or unspent commitments).
2.7 Unless otherwise stated, the figures
in this report refer to the EU-25, and therefore set out the real
level of expenditure after accounting for enlargement. The annexed
tables[6] referred to earlier
set out the figures at current prices for both EU-15 and EU-25
and both in euros and sterling.[7]
2.8 Finally, it should be noted much of
the budget (including the structural funds, agriculture and programmes
adopted by co-decision) is determined initially by decisions made
outside the annual budget process. To that extent, the budget
process merely provides the budgetary provision for decisions
previously agreed.
SUMMARY OF THE FIGURES
2.9 For commitment appropriations,[8]
the 2004 PDB proposes a total of €112.2 billion (£73
billion). This is an increase of 12.6% over 2003. It reflects
the financial impact of enlargement. The total is €3.4 billion
(£2.2 billion) below the Financial Perspective ceiling. The
comparative EU-15 figures show a more modest increase of 0.7%
over 2003.
2.10 For payment appropriations,[9]
the 2004 PDB proposes a total of €100.7 billion (£65.4).
This is an increase of 3.3% over 2003. The total is €10.9
billion (£7.1 billion) below the Financial Perspective ceiling.
The comparative EU-15 figures show a 2% decrease by comparison
with 2003. Payment appropriations represent 0.97% of Community
Gross National Income compared with 1.04% in 2003.
2.11 Compulsory expenditure[10]
makes up €44.3 billion (£28.8 billion) of total commitment
appropriations (EU-15 €42.5 billion (£27.6 billion)).
Non-compulsory expenditure[11]
makes up €68 billion (£44.2 billion) of total commitment
appropriations (EU-15 €57.9 billion (£37.6 billion)).
The figures for compulsory expenditure payment appropriations
are €44.3 billion (£28.8 billion) - EU-15 €42.5
billion (£27.7 billion). For non-compulsory expenditure payment
appropriations the figures are €56.4 billion (£36.6
billion) - EU-15 €53.0 billion (£34.5 billion).
THE INDIVIDUAL CATEGORIES OF EXPENDITURE
Agriculture (Category 1)
2.12 Total commitment appropriations are
€47.9 billion (£31.1 billion), an increase of 6.9% over
2003 (of which 4.7% is due to enlargement). Within this total
expenditure on the Common Agricultural Policy (CAP) amounts to
€41.3 billion (£26.9 billion) — an increase of
3.1% — and expenditure on Rural Development amounts to €6.5
billion (£4.2 billion) — an increase of 39.1%, up to
the Financial Perspective ceiling. This is because expenditure
for the new Member States has been concentrated on rural development,
whereas direct payments to farmers in these countries will commence
only in 2005.
2.13 The Commission claims that increases
for the EU-15 are due in particular to expenditure on arable crops,
because of the situation in the cereals market and because 2003
payments had been brought forward to the previous year in response
to the floods. It says the mid-term review of the policies for
feeding-stuffs and the milk sector will start to have an effect
on the budget in 2004, but that the greatest impact is not expected
until 2005. The Commission will present revised estimates for
agricultural expenditure in a letter of amendment in October 2003.
Structural Operations (Category 2)
2.14 Commitment appropriations rise by 20.8%
to €41 billion (£26.7 billion), to cater for participation
of the new Member States in the Structural and Cohesion Funds.
The amount related to enlargement is €6.7 billion (£4.5
billion). For the EU-15, commitments are €34.3 billion —
an increase of 1% over 2003. Payment appropriations for this category
are €30.7 billion (£19.9 billion), a 7.5% decrease over
2003. The Commission says the decrease is mainly because the closure
of the pre-2000 programmes was financed in 2003. Expenditure on
the new Member States in 2004 will largely consist of advances.
It adds that Cohesion Fund expenditure for Spain, Portugal, Greece
and Ireland is projected to be at the same level as in 2003.
Internal Policies (Category 3)
2.15 Total commitment appropriations rise
to €8.6 billion (£5.6 billion), a 27.2% increase over
2003, leaving a margin of €82.5 million (£54 million).
Most of this increase — 24% — reflects enlargement.
The Commission notes that €4.8 billion (£3.1 billion)
in commitment appropriations is available for expenditure on research.
It says this shows support for the Lisbon Agenda objectives will
continue to be given a high priority in the enlarged Union.
2.16 The Commission proposes to finance
a number of enlargement-related priorities from this category.
These include adaptation of existing programmes for enlargement
— €938 million (£609.7 million); implementation
of the Schengen agreement in the new Member States — €317
million (£206.1 million); assistance for institution-building
— €221 million (£143.7 million); and nuclear decommissioning
in Lithuania and Slovakia — €138 million (£89.7
million).
2.17 For the EU-15, total increases of €217
million (£141.5 million), as well as the redeployment of
a further €80 million (£52 million) within the category,
are intended to cover new priorities including research and technological
development — €255 million (£165.8 million); transport
and energy — €19 million (£12.4 million); justice
and home affairs — €9 million (£5.9 million);
and health and consumer protection — €7 million (£4.6
million).
2.18 Payment appropriations for Category
3 are €7.5 billion (£4.9 billion), an increase of 20.8%
over 2003.
External Policies (Category 4)
2.19 Commitment appropriations (for EU-15
and EU-25, since external policies are not affected by enlargement)
total €5.0 billion (£3.2 billion), an increase of 0.9%
over 2003. €174 million (£113.1 million) is freed up
in this category in 2004 as a consequence of accession of Cyprus
and Malta and moving assistance to Turkey to Category 7 (Pre-Accession
aid). The level of resources budgeted for beneficiaries of Category
4 in 2004, compared with what the same beneficiaries would have
received in 2003, therefore represents an effective increase of
4.5%.
2.20 Money has been provisionally set aside
for large increases in assistance to the Western Balkans —
by €70 million (£45.5 million), an increase of 12% over
the level originally programmed for 2004 — and the Mediterranean/Middle
East — by €83 million (£54 million), an increase
of 10.7% over the level originally programmed for 2004. There
are also increases for humanitarian aid — by €48.3
million (£31.4 million), an increase of 10.8%; for assistance
to Eastern Europe and Central Asia — by €30 million
(£19.5 million), an increase of 6%; for assistance to Asia
— by €47.5 million (£30.9 million), an increase
of 8.4%; and for the Common Foreign and Security Policy —
by €5 million (£3.3 million), an increase of 8.4 %.
Some of these increase are programmed increases, others represent
increases above the original programme. Aid to Latin America falls
by 8% to €310 million (£201.5 million) — because
of the termination of aid following Hurricane Mitch. Discounting
this temporary measure, this region too has an effective increase
in funding. These proposals leave a total margin of €86
million (£56 million) under the Financial Perspective ceiling.
This could be used for unforeseen emergencies, or for foreseeable
but as yet unquantifiable spending needs in Iraq and the Middle
East.
2.21 The total payment appropriations for
Category 4 are €4.8 billion (£3.1 billion), an increase
of 2.2% over 2003 (if assistance to Turkey, Cyprus and Malta is
discounted so as to allow like-for-like comparison).
Administration (Category 5)
2.22 Expenditure on this category has been
programmed for the EU-25 from 1 January 2004, in order to cover
the additional administrative burdens of the run-up to formal
accession. The total commitments are €6.1 billion (£4
billion), an increase of 14% over 2003, leaving a margin of €45
million (£29 million). The additional commitments relating
to enlargement amount to €725 million (£471.3 million).
2.23 This category covers administrative
expenditure for the Commission and all the other EU institutions.
For the Commission itself the administrative commitments are €2.7
billion (£1.8 billion), an increase of 10% over 2003. The
Commission proposes to use these increased funds to recruit 780
extra staff in 2004, as the start to the recruitment of 3900 additional
staff by 2008 in order to adapt to enlargement.
Reserves (Category 6)
2.24 The commitment (and payment) appropriations
budgeted for reserves total €442 million (£287 million),
a 1.8% increase over 2003. The funds cover the loan guarantee
reserve and the emergency aid reserve — €221 million
(£143.5 million) each. The commitments are within the Financial
Perspective ceilings.
Pre-Accession Aid (Category 7)
2.25 The total commitments proposed are
€1.7 billion (£1.1 billion), a decrease of over 50%
in comparison with 2003. This reflects the absence of new commitments
for pre-accession assistance to the new Member States, leaving
a high margin of €1.7 billion (£1.1 billion). Increases
are programmed for all of the remaining recipients of pre-accession
aid (Romania, Bulgaria and Turkey), including an extra €101
million (£65.7 million) for Turkey.
2.26 Payment appropriations in this category
amount to €3 billion (£1.9 billion), a 3% increase over
2003. This high level reflects payments resulting from previous
commitments for the ISPA, PHARE and SAPARD programmes, as well
as the inclusion of Turkey in Category 7.
Compensations (Category 8)
2.27 This is a new heading agreed as a temporary
measure at the Copenhagen European Council. It is intended to
ensure that the new Member States remain net recipients from the
budget, covering a shortfall of funding as pre-accession programmes
are phased out and full participation from regular programmes,
such as the CAP, is gradually introduced over a number of years.
The commitments budgeted for this category are €1.4 billion
(£0.9 billion), leaving a margin of €0.5 million (£0.3
million).
The Commission's view
2.28 On 30 April 2003 Budget Commissioner
Michaele Schreyer said:
"2004 is an historical year for the EU budget.
In addition to the expenditure for the current Member States,
the budget contains appropriations for 10 new Member States. However,
the EU's expenditure quota will drop to less than 1%. This shows
that there is a firm foundation for the financing of enlargement.
We have managed to reconcile ambitious expenditure programmes
for the enlarged Union and budget discipline."[12]
The Government's view
2.29 The Government is more cautious. The
Minister tells us:
"The Community budget has significant financial
and policy implications. Since the UK is a net contributor to
the EC budget, it is in the UK's interest to restrict growth in
the budget as much as possible, while working to achieve a more
efficient use of existing resources and ensuring that the Financial
Perspective ceilings agreed in Berlin and Copenhagen are respected.
The Government will work with like-minded Member States to maintain
budget discipline and subject all areas of EC spending to rigorous
scrutiny. However, it must be borne in mind that most EC spending
(including agriculture, structural funds and multi-annual programmes)
is largely pre-determined by decisions made outside the annual
budget process, and that the final decision on much of the remainder
is in the hands of the European Parliament.
"Key priorities for the Government in 2004
include external actions (Category 4), where the focus will be
on improving the overall effectiveness of EC external spending,
including larger margins, containment of spending in middle-income
countries, and a greater poverty focus; and administration (Category
5), where the Commission's staff proposals will have to be carefully
examined to ensure value for money. Further priorities include
supporting the successful implementation of ABB in the annual
budget process, and paving the way for a smooth adoption of the
EU-25 budget in May 2004."
2.30 On the financial implications the Minister
adds:
"The UK financing share of the 2004 PDB
has not yet been set — detailed calculations will follow
once the relevant data is available. In the 2003 adopted budget,
the UK's financing share was 19.4% excluding the abatement,
or 14.1% after abatement. The actual net financial cost to the
UK of the 2004 Budget will depend not only on the size of the
budget that is finally adopted, but also on the balance between
different spending programmes within the budget. This determines
the level of UK receipts and subsequently affects the size of
the UK's abatement in the following year."
Conclusion
2.31 As the Minister says, the EU budget
has significant financial and policy implications and it is in
the UK's interest to restrict budget growth and ensure efficient
use of resources and general budgetary discipline. As is customary,
we recommend that the Preliminary Draft Budget (PDB) be debated
in European Standing Committee B, and, as we indicated earlier,
it should be debated together with the Commission's Annual Policy
Strategy (APS) for 2004.[13]
The debate should take place before the Budget Council on 16
July 2003.
2.32 As in previous years, we have found
it necessary to report to the House before the official texts
are available. We have therefore relied heavily upon the Explanatory
Memorandum from the Minister and to a lesser extent on some comment
in Commission press releases. But we expect the official texts
to be available shortly and in good time for a debate.
2.33 The debate
will allow Members to examine in greater detail the Government's
approach to the forthcoming budget negotiations, particularly
as regards any bids for extra spending by the European Parliament.
The UK has a substantial interest in scrutinising the PDB, not
least because of the sums involved and the UK's position as a
large net contributor.
2.34 The debate
will also provide an opportunity for Members to assess the various
policies implicit in the PDB, including those relating to the
common agricultural policy, structural operations, internal policies,
external actions, administration and pre-accession aid.
2.35 Members
might wish also to examine with the Minister to what extent Commission
activity is benefiting from the move to Activity-Based Budgets.
2.36 As noted
above we have also recommended for debate the APS for 2004. Members
will be able to examine to what extent there is a clear relationship
between the APS and the PDB — that is, to what extent the
Commission has been successful in forming the PDB, the means to
carry out programmes and projects, on the basis of the APS, which
establishes the objectives and priorities of the programmes and
projects. Specifically, Members might examine how the PDB matches
the priorities in the APS for 2004 of "embedding" accession,
improving security and stability and promoting sustainable growth.
2.37 Members
might also wish to assess the Commission's suggestions in the
APS concerning multi-annual programming and impact assessments
for all major initiatives.
2 Activity-Based Budgeting is defined by HM Treasury
as a system for making budget decisions which ensures allocations
more closely reflect pre-defined political priorities and objectives.
The system is designed to ensure that priority setting, planning,
monitoring and evaluation better inform the EU's budget setting. Back
3
Document III is expected to summarise human resource proposals.
Back
4
Statements of broad policy activity. Back
5
Statements of more specific policy activity. Back
6
Tables 1 and 3 - appropriations for commitments, EU-15, euros
and sterling; Tables 2 and 4 - appropriations for commitments,
EU-25, euros and sterling; Tables 5 and 7 - appropriations for
payments, EU-15, euros and sterling; Tables 6 and 8 - appropriations
for payments, EU-25, euros and sterling. Back
7
Euros are converted at the 30 December 2002 rate of €1 =
£0.65 GBP. Back
8
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. Back
9
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 financial years. Back
10
Compulsory expenditure is expenditure necessarily resulting from
the Treaty or from acts adopted in accordance with the Treaty.
Its main components are agricultural guarantee expenditure, including
stock depreciation, and the monetary reserve. The Council has
the final say in fixing its total. Back
11
The European Parliament has the final say in determining the amount
and pattern of non-compulsory expenditure. Back
12
Commission Press Notice IP/03/606. Back
13
(24330) 7229/03: see HC 63-xxii (2002-03), paragraph 2 (21 May
2003). Back
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