3 Preliminary Draft Budget 2005
(25654)
| Preliminary Draft General Budget of the European Communities for the financial year 2005
|
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
|
Department | HM Treasury |
Basis of consideration | EM of 11 May 2004
|
Previous Committee Report | None; but see (25420) 6870/04: HC 42-xvii (2003-04), para 7 (21 April 2004)
|
To be discussed in Council | 16 July 2004
|
Committee's assessment | Politically important
|
Committee's decision | For debate in European Standing Committee B
|
Background
3.1 The Commissions Preliminary Draft Budget (PDB) is the first
stage in the Communitys annual budgetary procedure. The 2005
PDB will form the basis of the 2005 Adopted Budget which is expected
to be agreed in mid-December 2004.
3.2 The 2005 PDB sets out the Commissions proposals
for Community expenditure in 2005, 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 2004 to be forwarded to the European Parliament
for its first reading some time in late October 2004. 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.
3.3 The Financial Secretary to the Treasury (Ruth
Kelly) submitted a helpful Explanatory Memorandum on the PDB on
11 May 2004. 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 Ministers Explanatory Memorandum.
As in previous years, we are annexing to this Report tables derived
from the Explanatory Memorandum.[12]
We understand that the official texts of the PDB will be available
in good time for a debate.
The document
3.4 Although the Budget Council and the European
Parliament set the budget for the following year, each years PDB
is constrained by the Financial Perspective, which although
amended to take account of enlargement forms part of the
Inter Institutional Agreement (IIA) of 1999 between the European
Parliament, the Commission and the Council. The Financial Perspective
(for the years 2000-2006) sets out annual expenditure ceilings
for eight broad expenditure categories. The Financial Perspective
was set in 1999 prices, and each year the Commission makes a technical
adjustment (based on variations in Gross National Income and prices)
to bring the Financial Perspective into line with current prices.
For 2005 this adjustment has resulted in an unexpectedly large
reduction in the ceilings for Heading 3 (Internal Policies), Heading
4 (External Actions) and Heading 5 (Administration). Consequently,
the Commission has had to adapt its original expenditure plans,
and there is limited scope for retaining a margin for flexibility
in these headings in 2005.
3.5 Moreover, it should be noted much of the budget
(including the structural funds, agriculture and programmes adopted
by co-decision) is determined initially by policy decisions made
outside the annual budget process. To that extent, the budget
process merely provides the budgetary provision for policies previously
agreed.
3.6 The 2005 PDB is the first full budget for a Union
of 25 Member States. (The 2004 Budget was adopted on the basis
of figures for 15 Member States and was later amended with figures
for 25 Member States for the period May-December 2004.)
3.7 The 2005 PDB is also the first to be presented
wholly in the Activity-Based Budgeting (ABB) format.[13]
Budget negotiations for 2005 will be conducted on the basis of
ABB documentation. The PDB will be published in ten volumes,
covering a General Introduction and a General Statement of Revenue,
and expenditure proposals for the nine separate EU institutions
the European Parliament, the Council, the Commission,
the European Court of Justice, the European Court of Auditors,
the Economic and Social Committee, the Committee of the Regions,
the European Ombudsman and the European Data Protection Supervisor.
Operational expenditure will be set out in Volume IV (the Commission).
In addition, the Commission will publish two sets of Working
Documents entitled Activity Statements and Financial
Statements. These present specific objectives, planned outputs
and performance measures both at the level of individual budget-lines
and for higher-level activity areas, in line with ABB practice.
SUMMARY OF THE FIGURES
3.8 For commitment appropriations,[14]
the 2005 PDB proposes a total of 117.21 billion (£82.60
billion). This is an increase of 5.2% over 2004. It largely
reflects the impact of enlargement-related increases in agriculture
and structural funds. The total is 2.38 billion (£1.68
billion) below the Financial Perspective ceiling. For payment
appropriations,[15] the
2005 PDB proposes a total of 109.54 billion (£77.20
billion). This is an increase of 9.8% over 2004. The total is
4.70 billion (£3.31 billion) below the Financial Perspective
ceiling. Payment appropriations represent 1.03% of Community
Gross National Income compared to 0.99% in 2004.
3.9 Compulsory expenditure[16]
makes up 46.75 billion (£32.95 billion) of total commitment
appropriations. Non-compulsory expenditure[17]
makes up 70.46 billion (£49.65 billion) of total commitment
appropriations. The figures for compulsory expenditure payment
appropriations are 46.78 billion. For non-compulsory expenditure
payment appropriations the figures are 62.76 billion (£44.23
billion).
THE INDIVIDUAL EXPENDITURE HEADINGS
Heading 1: Agriculture
3.10 Overall expenditure under this heading is 50.68
billion (£35.71 billion) for commitment and 50.11 billion
(£35.32 billion) for payment appropriations, leaving a margin
of 764 million (£538 million) under the Financial Perspective
ceiling for commitments.
Heading 1a: Common Agricultural Policy (CAP)
3.11 Total commitment and payment appropriations
are 43.83 billion (£30.89 billion), an increase of
8.9% over 2004. The main reasons for the increase are, first,
enlargement 2005 is the first year in which direct payments
will be made to farmers from the new Member States; and secondly
CAP reform new and additional payments in the dairy, rice,
cereal and nut sectors form part of the reform package adopted
in September 2003. The remainder of the increase is caused by
movements in the /US$ exchange rate, the return to normal
levels of expenditure following front-loading in 2003 to compensate
regions affected by drought, and a range of smaller measures.
Heading 1b: Rural development
3.12 Commitment appropriations are 6.84 billion
(£4.82 billion) an increase over 2004 of 4.7% and
up to the level of the Financial Perspective ceiling. Payment
appropriations are 6.28 billion (£4.43 billion)
an increase over 2004 of 15.3%. These increases also reflect
the impact of enlargement.
Heading 2: Structural Operations
3.13 Commitment appropriations rise by 3.3% to 42.38
billion (£29.87 billion). Commitment appropriations for
this heading are usually budgeted up to the level of the Financial
Perspective ceiling. However, there will be a small margin of
62.5 million (£44.05 million) as Ireland became ineligible
for assistance from the Cohesion Fund in 2004. Payment appropriations
are 35.40 billion (£24.94 billion), a 14.8 % increase
over 2004. This sharp increase is due to a significant rise in
payments to the new Member States, in line with the agreement
on financing for enlargement reached at Copenhagen, and to an
improved rate of implementation expected for outstanding Structural
Funds commitments.
Heading 3: Internal Policies
3.14 Total commitment appropriations rise to 8.96
billion (£6.31 billion), a 2.9% increase over 2004, leaving
a margin in the Financial Perspective of 53.42 million (£37.65
million). In line with the strategic priorities outlined in the
Annual Policy Strategy for 2005 ("Competitiveness and Cohesion"
and "Security and European Citizenship"),[18]
the Commission proposes significant increases for a number of
individual programmes:
- 232 million (£163
million) for the 6th Framework Programme for Research;
- 51 million (£35.94 million) for nuclear
decommissioning and waste management;
- 44 million (£31 million) for justice
and home affairs (in particular for the Visa Information System
II and Schengen Information System programmes, the creation of
a European Police College, and extension of the European Refugee
Fund);
- 37 million (£26.07 million) for education
and culture (in particular for the Socrates and Erasmus Mundus
student exchange programmes);
- 35 million (£24.67 million) for transport
and energy (in particular for the transport Trans-European Network
and transport safety);
- 13 million (£9.16 million) for health
and consumer protection;
- 9 million (£6.34 million) for the
Information Society programme; and
- 8 million (£5.64 million) for taxation
and customs.
These increases are offset by total savings of 177
million (£124.74 million). Payment appropriations are 7.73
billion (£5.45 billion), an increase of 2.9% over 2004.
Heading 4: External Policies
3.15 Commitment appropriations total 5.23 billion
(£3.69 billion), an increase of 1.1% over 2004. This total
exceeds the Financial Perspective ceiling for this heading by
115 million (£81.04 million). The Commission says
the original financial programming for 2005 did not foresee any
assistance to Iraq, and proposes to cover the shortfall by using
the Flexibility Instrument.[19]
3.16 The total allocation suggested for Iraq for
2005 is 200 million (£140.94 million) a 40
million (£28.19 million) rise compared to 2004. Other significant
increases compared to 2004 include the Mediterranean/Middle East
(an extra 38 million; £26.78 million), Asia (an extra
30 million; £21.14) and Food Aid (an extra 17
million; £11.98 million). But compared to the original multi-annual
programming for these budget lines, these appropriations represent
reductions of 10 million (£7.05 million), 2 million
(£1.41 million) and 8 million (£5.64 million)
respectively. In line with the programming, aid to the Western
Balkans is cut by 61 million (£42.99 million) and appropriations
for Human Rights and Democratisation are cut by 20 million
(£14.09 million) compared to 2004. Funding for the Common
Foreign and Security Policy is reduced to 55 million (£38.76
million) 8 million (£5.64 million) less than
in 2004.
3.17 The total payment appropriations for this heading
are 5.01 billion (£3.53 billion), an increase of 1.2%
over 2004.
Heading 5: Administration
3.18 Commitment and payment appropriations are budgeted
up to the Financial Perspective ceiling of 6.36 billion
(£4.48 million), leaving no margin. This is to cover the
Commission's request for 700 additional posts needed to cope with
enlargement, part of a wider initiative to recruit 3,900 extra
staff by 2008. Nearly half 296 of the proposed
new posts would be allocated to translation and interpretation
services, with the remainder allocated to operational services
(in particular under the Internal Policies heading, which accounts
for 243 posts). The overall increase under this heading is a
3.9% rise over 2004.
Heading 6: Reserves
3.19 The commitment and payment appropriations budgeted
for reserves total 446 million (£314 million), a 0.9%
increase over 2003. The funds cover the loan guarantee reserve
and the emergency aid reserve 223 million (£157
million) each. The commitments are, as is usual for this heading,
up to the Financial Perspective ceilings.
Heading 7: Pre-Accession Aid
3.20 The total commitment appropriations proposed
are 1.86 billion (£1.31 billion), a decrease of 7.1%
in comparison with 2004. This covers an allocation of 1.5
billion (£1.06 billion) for Romania and Bulgaria and 300
million (£211.42 million) for Turkey (10 % and 20% rises
respectively over 2004, in accordance with existing programming).
In addition, 50 million (£35.24 million) is budgeted
for decommissioning the Kozloduy (Bulgaria) nuclear plant and
4 million (£2.82 million) for administrative expenditure
relating to the phasing-out of pre-Accession assistance in the
new Member States. As no further commitments can be made to the
new Member States from this heading, a large margin of 1.62
billion (£1.14 billion) is left under the Financial Perspective
ceiling for commitment appropriations. Payment appropriations
for this heading amount to 3.18 billion (£2.24 billion),
an 11.3% increase over 2004. This comparatively high level is
explained by the ongoing implementation of outstanding commitments
to former accession countries from the ISPA, SAPARD and PHARE
programmes.
Heading 8: Compensations
3.21 This is a 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. The commitment and payment
appropriations budgeted for this category are 1.31 billion
(£0.92 billion). This is a decrease of 7.4% over 2004, which
is consistent with the financial settlement agreed at Copenhagen.
The Commission's view
3.22 On 28 April 2004 Budget Commissioner Michaele
Schreyer said:
"With the budget 2005 we have to fulfil the
Union's commitments fixed in the agenda 2000 decision, the accession
treaties and the reform of the agricultural sector. We will increase
the support to the new Member States, enhance the Community policies
for security and meet our responsibility in the external sector.
Nevertheless, we have managed to propose a budget volume which
stays again far below the ceilings of the Financial Perspectives
and in line with the principle of budgetary discipline."[20]
The Government's view
3.23 On the policy implications of the Commission's
proposals the Minister says, in words very similar to those we
have heard in relation to previous budgets:
"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 control growth in
the budget, while working to achieve a more efficient use of 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."
3.24 However the Minister adds:
"Key priorities for the Government in 2004 include
Heading 4 (External Actions), where the focus will be on ensuring
that spending is consistent with budget discipline and delivers
genuine value for money, as well as achieving an appropriate balance
between long-term assistance and emerging priorities (such as
Iraq and CFSP). Heading 5 (Administration) will also be closely
examined to ensure that the Commission's staff proposals are based
on genuine need and can be accommodated under the FP ceiling for
this Heading. The Government will also want to be satisfied that
global appropriations for payments are based on a realistic implementation
forecast, to prevent the emergence of a budget surplus. Finally,
the Government will work to ensure the successful implementation
of ABB in the annual budget process."
3.25 On the financial implications the Minister says:
"The UK financing share of the 2005 PDB has
not yet been set detailed calculations will follow once
the relevant data is available. In the 2004 adopted budget, the
UK's financing share was 17.7% excluding the abatement, or 13%
after abatement.[21]
The actual net financial cost to the UK of the 2005 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
3.26 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. As we have indicated previously, the Commission's
Annual Policy Strategy (APS) for 2005 will be relevant to the
debate.[22] The
debate should take place before the Budget Council on 16 July
2004.
3.27 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. But we expect the official texts to be available
in good time for a debate.
3.28 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 and role in scrutinising the PDB, not least because of
the substantial sums involved and the UKs position as a large
net contributor.
3.29 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
funds, internal policies, external actions, administration and
pre-accession aid.
3.30 Members might also wish to examine with the
Minister both the narrow margins below some of the Financial Perspective
ceilings and, in the case of the External Actions heading, the
proposed use of the Flexibility Instrument, and how well, or otherwise,
Commission activity has benefited so far from the move to Activity-Based
Budgets.
3.31 Members may also wish to examine to what
extent there is a clear relationship between the Annual Policy
Strategy 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 policy
priorities in the APS for 2005 of increased competitiveness and
cohesion, improved security and European citizenship and external
responsibility.
Annex 1
Table 1: Summary of 2005 PDB proposals (
million)
Heading | 2004 Budget[23]
| 2005 PDB
| Change 04/05
|
| CA
| PA | CA
| PA | CA
| PA |
1. AGRICULTURE | 46,781
| 45,693 | 50,675
| 50,114 | 8.3% |
9.7% |
1a. CAP | 40,245 | 40,245
| 43,834 | 43,834 | 8.9%
| 8.9% |
1b. Rural development | 6,536
| 5,448 | 6,841 | 6,279
| 4.7% | 15.3% |
| | |
| | | |
2. STRUCTURAL OPERATIONS | 41,035
| 30,822 | 42,378
| 35,396 | 3.3% |
14.8% |
- Structural Funds | 35,353 |
28,022 | 37,247 | 32,391
| 5.4% | 15.6% |
- Cohesion Fund | 5,682 |
2,800 | 5,132 | 3,006
| -9.7% | 7.3% |
| | |
| | | |
3. INTERNAL POLICIES | 8,705
| 7,510 | 8,959 |
7,729 | 2.9% | 2.9%
|
| | |
| | | |
4. EXTERNAL ACTIONS | 5,177
| 4,951 | 5,234 |
5,010 | 1.1% | 1.2%
|
| | |
| | | |
5. ADMINISTRATION | 6,121
| 6,121 | 6,360 |
6,360 | 3.9% | 3.9%
|
| | |
| | | |
6. RESERVES | 442
| 442 | 446 |
446 | 0.9% | 0.9%
|
- Emergency Aid Reserve | 221
| 221 | 223 | 223
| 0.9% | 0.9% |
- Loan Guarantee Reserve | 221
| 221 | 223 | 223
| 0.9% | 0.9% |
| | |
| | | |
7. PRE-ACCESSION STRATEGY | 1,733
| 2,856 | 1,856 |
3,180 | 7.1% | 11.3%
|
- SAPARD | 227 | 402
| 250 | 542 | 10.4%
| 34.8% |
- ISPA | 453 | 658
| 501 | 703 | 10.5%
| 6.9% |
- PHARE | 810 | 1,604
| 819 | 1,634 | 1.1%
| 1.8% |
- Turkey | 243 | 192
| 286 | 302 | 18%
| 56.8% |
| | |
| | | |
8. COMPENSATIONS | 1,410
| 1,410 | 1,305 |
1,305 | -7.4% | -7.4%
|
| | |
| | | |
TOTAL | 111,404
| 99,806 | 117,214
| 109,540 | 5.2%
| 9.8% |
Financial Perspective ceiling[24]
| 115,609 | 111,555 | 119,594
| 114,235 | |
|
Margin | 4,204
| 11,748 | 2,380
| 4,695 | |
|
| | |
| | | |
(Note: CA = commitment appropriations, PA = payment appropriations.
Figures in table may not add up exactly due to rounding)
Table 2: Summary of 2005 PDB proposals (£ million)
Heading | 2004 Budget[25]
| 2005 PDB
| Change 04/05
|
| CA
| PA | CA
| PA | CA
| PA |
1. AGRICULTURE | 32,968
| 32,201 | 35,712
| 35,316 | 8.3% |
9.7% |
1a. CAP | 28,362 | 28,362
| 30,891 | 30,891 | 8.9%
| 8.9% |
1b. Rural development | 4,606
| 3,839 | 4,821 | 4,425
| 4.7% | 15.3% |
| | |
| | | |
2. STRUCTURAL OPERATIONS | 28,918
| 21,721 | 29,865
| 24,944 | 3.3% |
14.8% |
- Structural Funds | 24,914 |
19,748 | 26,249 | 22,827
| 5.4% | 15.6% |
- Cohesion Fund | 4,004 |
1,973 | 3,617 | 2,118
| -9.7% | 7.3% |
| | |
| | | |
3. INTERNAL POLICIES | 6,135
| 5,292 | 6,314 |
5,447 | 2.9% | 2.9%
|
| | |
| | | |
4. EXTERNAL ACTIONS | 3,648
| 3,489 | 3,689 |
3,531 | 1.1% | 1.2%
|
| | |
| | | |
5. ADMINISTRATION | 4,314
| 4,314 | 4,482 |
4,482 | 3.9% | 3.9%
|
| | |
| | | |
6. RESERVES | 311
| 311 | 314 |
314 | 0.9% | 0.9%
|
- Emergency Aid Reserve | 156
| 156 | 157 | 157
| 0.9% | 0.9% |
- Loan Guarantee Reserve | 156
| 156 | 157 | 157
| 0.9% | 0.9% |
| | |
| | | |
7. PRE-ACCESSION STRATEGY | 1,221
| 2,013 | 1,308 |
2,241 | 7.1% | 11.3%
|
- SAPARD | 160 | 283
| 176 | 382 | 10.4%
| 34.8% |
- ISPA | 319 | 464
| 353 | 495 | 10.5%
| 6.9% |
- PHARE | 571 | 1,130
| 577 | 1,152 | 1.1%
| 1.8% |
- Turkey | 171 | 135
| 202 | 213 | 18%
| 56.8% |
| | |
| | | |
8. COMPENSATIONS | 994
| 994 | 920 |
920 | -7.4% | -7.4%
|
| | |
| | | |
TOTAL | 78,510
| 70,335 | 82,603
| 77,195 | 5.2% |
9.8% |
Financial Perspective ceiling[26]
| 81,472 | 78,615 | 84,280
| 80,504 | | |
Margin | 2,963
| 8,279 | 1,677 |
3,309 | |
|
| | |
| | | |
12
In the annexes and in the following paragraphs figures
are converted at the 31 December 2003 rate of £1 = 1.419. Back
13
Activity-Based Budgeting is defined by HM Treasury as a system
involving reclassification of expenditure into 31 policy areas
with associated activities, each having SMART (specific, measurable,
achievable, relevant and timed) objectives, performance indicators
and evaluation measures. The intention is to shift the focus
from inputs (budgetary resources) to outputs (what is actually
achieved by expenditure) and to make annual budget allocations
more transparent and evidence-based. Back
14
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
15
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
16
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
17
The European Parliament has the final say in determining the amount
and pattern of non-compulsory expenditure. Back
18
(25420) 6870/04: HC 42-xvii (2003-04), para 7 (21 April 2004). Back
19
The Flexibility Instrument is a special provision which allows
up to 200 million (£140.94 million) in extraordinary
expenditure above the Financial Perspective ceilings in a given
budget year. Mobilisation of the Flexibility Instrument requires
the consent of both arms of the Budgetary Authority (the Council
and the European Parliament). Back
20
Commission Press Notice IP/04/554. Back
21
These percentages apply to the 2004 budget as amended for the
EU-25 on 1 May 2004. Back
22
(25420) 6870/04: HC 42-xvii (2003-04), para 7 (21 April 2004). Back
23
Includes Amending Budgets nos. 1, 2, 3, 4, 5 and 6. Back
24
Calculation of the margins includes 175 million added to
the ceilings for Heading 5 to reflect staff contributions to the
pension scheme, in accordance with footnote (1) to the table of
the financial perspective as adjusted for 2005 (OJ No. L 147,
14 June 2003, p. 31). Back
25
Includes Amending Budgets nos. 1, 2, 3, 4, 5 and 6. Back
26
Calculation of the margins includes 175 million added to
the ceilings for Heading 5 to reflect staff contributions to the
pension scheme, in accordance with footnote (1) to the table of
the financial perspective as adjusted for 2005 (OJ No. L 147,
14.6.03, p. 31). Back
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