12 Draft Budget 2005
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| Draft General Budget for the European Communities for the financial year 2005
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| Legal base | Article 272 EC; the special role of the European Parliament in relation to the adoption of the Budget is set out in Article 272; QMV
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| Department | HM Treasury |
| Basis of consideration | Minister's letter of 18 August 2004
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| Previous Committee Report | None; but see (25654) —: HC 42-xxi (2003-04), para 3 (26 May 2004)
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| Discussed in Council | 16 July 2004
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
12.1 The Commissions Preliminary Draft Budget (PDB) is the first
stage in the Communitys annual budgetary procedure. We reported
on the 2005 PDB in May 2004[21]
and it was debated in European Standing Committee B on 30 June
2004.[22] The second
stage is the adoption by the Council of the Draft Budget (DB).
The 2005 DB was adopted on 16 July 2004. The 2005 PDB and the
2005 DB form the basis of the 2005 Adopted Budget which is expected
to be agreed in mid-December 2004, after consideration by the
European Parliament, followed by further consideration by the
Council in November 2004 and subsequent negotiations between the
Council and the European Parliament.
The Minister's letter
12.2 The Financial Secretary to the Treasury (Ruth Kelly) has
written in advance of publication of the DB (which will be later
in the Autumn) to tell us what the Council decided in relation
to the DB. The Minister encloses with her letter annexes, which
we reproduce, helpfully setting out the euro and sterling figures
for the eight budget categories and the changes in these in relation
to the PDB.
12.3 She tells us that the main changes to the DB
are:
- The totals.
The DB has €115.98
billion in commitment appropriations and €105.22
billion in payment appropriations. This is a reduction of €1.27
billion (or 1.1%) for commitments and €4.35 billion (or 4.0%)
for payments compared to the PDB. These figures are within the
ceilings set by the multi-annual Financial Perspective (FP), leaving
increased margins of €3.62 billion for commitments and €9.01
billion for payments;
- Heading 1 (Agriculture).
Commitment and payment appropriations for agricultural expenditure
are reduced by €1 billion, leaving a margin of €1.76
billion below the FP ceiling for commitments.[23]
This is a horizontal cut across all chapters greater than €800
million reflecting the Council's estimate of actual financing
needs. It does not affect direct payments to farmers in the ten
new Member States, which are being made for the first time in
2005;
- Heading 2 (Structural Operations).
Payment appropriations are cut by €3 billion, split between
the Structural Funds programmes (€2.45 billion), Community
Initiatives (€253 million) and completion of earlier programmes
(€301 million). The cut is designed to bring payment appropriations
more closely in line with implementation capability, so minimising
the budget surplus;
- Heading 3 (Internal Policies).
Commitment appropriations are reduced by €55.2 million
and payment appropriations by €42.4 million, leaving a margin
of €108.7 million under the FP ceiling for commitments. This
cut is achieved through targeted cuts to annually-decided budget
lines where the justification for funding in the PDB was poor
(such as press and communication and a proposed preparatory action
on security research); by reducing subsidies for certain agencies
(in particular to take account of revised estimates of start-up
costs); and by striking out certain items of unnecessary new expenditure
proposed in the PDB (notably the European Police College and maritime
anti-pollution measures). Allocations for multi-annual programmes
under the co-decision procedure, as amended for enlargement in
2004, are not affected;
- Heading 4 (External Actions).
Commitment appropriations are reduced by €129.4 million and
payment appropriations by €24 million, leaving a margin of
€14.4 million under the FP ceiling for commitments. This
allows the full assistance budgeted for reconstruction in Iraq
in 2005 (€200 million) to be financed within the Financial
Perspective ceiling, removing the need to call on the Flexibility
Instrument.[24] It also
allows for a modest €7.6 million increase in appropriations
for the Common Foreign and Security Policy (CFSP), to €62.6
million (equal to the level in 2004);
- Heading 5 (Administration).
Commitment and payment appropriations are cut by €80.6 million,
leaving an increased margin of €51.9 million under the FP
ceiling for commitments. These cuts are intended to ensure that
appropriations for administration are based on a realistic assessment
of operational needs, taking into account the increased demands
resulting from enlargement while exploiting the possibilities
for economies of scale and redeployment of existing staff resources;
- Heading 7 (Pre-Accession
Strategy). Payment appropriations are
reduced by €200 million (€110 million for the SAPARD
(Special Accession Programme for Agriculture and Rural Development)
instrument and €90 million for assistance to Turkey). This
reflects the Council's expectation that the implementation of
payments for these instruments will be lower than that forecast
in the PDB, in line with a more disciplined approach to payment
appropriations across the budget. These reductions in payments
do not affect the level of pre-accession aid ultimately committed
to the accession countries.
12.4 There are no changes to the PDB proposals for
Headings 6 (Reserves) and 8 (Compensation).
12.5 The Minister also tells us that the Council
and the European Parliament have agreed three procedural declarations
relating to the budget. These
- call for more detailed financial
programming from the Commission for Headings 3 (Internal Policies)
and 4 (External Actions);
- ask the Commission to include the needs of Iraq
in financial programming for 2006; and
- express the willingness of the Council, the European
Parliament and the Commission to cooperate and exchange information
in negotiations on the next FP.
The Government's view
12.6 In relation to the changes to Heading 4 (External
Actions) the Minister tells us:
"Reflecting the lack of Council consensus on
priorities, this package was made possible by a modest horizontal
cut of [about] 2.85% to all the main budget lines, excluding
co-decided programmes, programmes determined by international
agreements, Iraq and Afghanistan. The Government endorsed this
blunt approach in order to secure budget discipline, but successfully
shielded humanitarian aid from the full impact of the cut."
12.7 More generally the Minister says:
"The Government believes the Council's 2005
DB goes a considerable way to meeting its key objectives. In particular,
the DB maintains budget discipline: it significantly reduces the
level of payment appropriations in Headings 1, 2 and 7, to reflect
a more realistic forecast of implementation; it finances Heading
4 within the FP ceiling, while protecting allocations for Iraq
and securing a modest increase for CFSP; and it takes a rigorous
approach to expenditure in Headings 3 and 5, delivering
savings and increasing margins for flexibility. In addition, the
2005 DB remains fully consistent with the financial settlement
for the new Member States agreed at Copenhagen in December 2002.
The Government will continue to pursue its key objectives in the
subsequent stages of the 2005 budget process."
Conclusion
12.8 We are grateful to the Minister for her report
on progress on setting the 2005 Budget. We note that the Government
is achieving some successes in maintaining budgetary discipline
and expect to hear that these gains are sustained in the later
stages of the process. We clear the document.
Annex 1
Table 1: 2005 PDB and Draft EC Budget (Euros)
| (€ million)
| 2005 PDB
| 2005 Draft Budget
| Change PDB/DB
|
| CA
| PA
| CA
| PA
| CA
| PA
|
| Agriculture | 50,675.5
| 50,113.9 | 49,675.5
| 49,113.9 | -1,000.0
| -1,000.0 |
| Margin | 763.5
| | 1,763.5
| | | |
| Structural Operations |
42,378.5 | 35,396.0
| 42,378 | 32,396.0
| 0 | -3,000.0
|
| Margin | 62.5
| | 62.5
| | | |
| Internal Policies | 8,958.6
| 7,728.6 | 8,903.4
| 7,686.2 | -55.2
| -42.4 |
| Margin | 53.4
| | 108.6
| | | |
| External Actions | 5,234.0
| 5,010.2 | 5,104.6
| 4,986.2 | -129.4
| -24 |
| Margin | -115.0
| | 14.4
| | | |
| Administration | 6,388.7
| 6,388.7 | 6,308.1
| 6,308.1 | -80.6
| -80.6 |
| Margin | 0.0
| | 51.9
| | | |
| Reserves | 446.0
| 446.0 | 446.0
| 446.0 | 0
| 0 |
| Margin | 0.0
| | 0.0
| | | |
| Pre-Accession Aid | 1,856.0
| 3,179.8 | 1,856.0
| 2,979.8 | 0
| -200.0 |
| Margin | 1,616.0
| | 1,616.0
| | | |
| Compensations | 1,305.0
| 1,305.0 | 1,305.0
| 1,305.0 | 0
| 0 |
| Margin | 0.0
| | 0.0
| | | |
| Total | 117,242.2
| 109,568.2 | 115,977.0
| 105,221.2 | -1,265.2
| -4,347.0 |
| Financial Perspective ceiling
| 119,594.0 | 114,235.0
| 119,594.0 | 114,235.0
| | |
| Margin |
2,351.8 | 4,666.8
| 3,617.0 |
9,013.8 |
| |
Table 2: 2005 PDB and Draft EC Budget (Sterling)
| (£ million)[25]
| 2005 PDB
| 2005 Draft Budget
| Change PDB/DB
|
| CA
| PA
| CA
| PA
| CA
| PA
|
| Agriculture | 33,990.6
| 33,613.9 | 33,319.8
| 32,943.1 | -670.8
| -670.8 |
| Margin | 512.1
| | 1,182.9
| | | |
| Structural Operations |
28,425.4 | 23,741.9
| 28,425.4 | 21,729.6
| 0 | -2,012.3
|
| Margin | 41.9
| | 41.9
| | | |
| Internal Policies | 6,009.0
| 5,184.0 | 5,972.0
| 5,155.5 | -37.0
| -28.4 |
| Margin | 35.8
| | 72.8
| | | |
| External Actions | 3,510.7
| 3,360.6 | 3,423.9
| 3,344.5 | -86.8
| -16.1 |
| Margin | -77.1
| | 9.7
| | | |
| Administration | 4,295.2
| 4,285.2 | 4,231.2
| 4,231.2 | -54.1
| -54.1 |
| Margin | 0.0
| | 34.8
| | | |
| Reserves | 299.2
| 299.2 | 299.2
| 299.2 | 0.0
| 0.0 |
| Margin | 0.0
| | 0.0
| | | |
| Pre-Accession Aid | 1,244.9
| 2,132.9 | 1,244.9
| 1,998.7 | 0.0
| -134.2 |
| Margin | 1,083.9
| | 1,083.9
| | | |
| Compensations | 875.3
| 875.3 | 875.3
| 875.3 | 0.0
| 0.0 |
| Margin | 0.0
| | 0.0
| | | |
| Total | 78,640.3
| 73,492.9 | 77,791.6
| 70,577.1 | -848.6
| -2,915.8 |
| Financial Perspective ceiling
| 80,217.7 | 76,623.1
| 80,217.7 | 76,623.1
| | |
| Margin |
1,577.4 | 3,130.3
| 2,426.0 |
6,046.0 |
| |
Note: CA = commitment appropriations, PA = payment appropriations.
Figures in table may not add up exactly due to rounding.
21 See headnote. Back
22
Stg Co Deb, European Standing Committee B, 30 June 2004,
cols 3-26. Back
23
There is a global FP ceiling for payments, but this is not sub-divided
for individual categories. So individual category margins are
available only for commitments. Back
24
See para 3.15 of our report on the PDB, cited in the headnote. Back
25
Converted at rate of €1 = 0.67075 (30/6/2004). Back
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