1 Future European Union
finances
| (a)
(25847)
11607/04
COM(04) 487
(b)
(25868)
11741/1/04
COM(04) 501
(c)
(25869)
11745/04
COM(04) 498
(d)
(25874)
11752/04
COM(04) 505
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Commission Communication: Financial Perspectives 2007-2013
Draft Council Decision on the system of the European Communities' own resources
Draft Council Regulation on the implementing measures for the correction of imbalances in accordance with Articles 4 and 5 of the Decision of (…) on the system of the European Communities' own resources
Draft renewal of the Inter-Institutional Agreement on budgetary discipline and improvement of the budgetary procedure
Commission Report: Financing the European Union — operation of the own resources system
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| Legal base | (a), (c) and (d) —
(b) Draft Decision: Article 269 EC and Article 173 Euratom; consultation; unanimity; Draft Regulation: Article 279(2) EC and Article 183 Euratom; consultation; unanimity
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| Department | HM Treasury |
| Basis of consideration | Minister's letter of 17 January 2005
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| Previous Committee Report | HC 42-xxxiv (2003-04), para 13 (27 October 2004)
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| Continuing Council discussion | 17 February 2005 ECOFIN and 21 February 2005 GAERC
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| Committee's assessment | Politically important
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| Committee's decision | For debate on the Floor of the House
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Background
1.1 The Inter-Institutional Agreement (IIA) of 6 May 1999, between
the Commission, the Council and the European Parliament, is a
politically and legally binding agreement which clarifies the
Community's budgetary procedure. It was designed to reinforce
budgetary discipline and improve the budgetary procedure. The
first part of the IIA establishes a Financial Perspective (FP)
— that is, annual budgetary ceilings — and implementing
provisions for the period 2000-2006.[1]
The second part of the IIA relates to improvement of inter-institutional
collaboration during the budgetary procedure. The IIA requires,
during consideration of FP ceilings, adherence to the ceilings
in the Own Resources Decision (ORD). In accordance with Article
269 EC, the ORD sets out sources of revenue for the Community
(known as own resources) and includes provisions on the UK budgetary
rebate.
1.2 In February 2004, the Commission published its Communication,
"Building our common future: Policy challenges and budgetary
means of the enlarged Union 2007-2013", which discussed the
Commission's ideas about policies for the period 2007-2013, together
with its ideas on related issues concerning sources of revenue
(including the UK rebate), expenditure frameworks and budgetary
instruments. The document was intended to start a debate on these
issues with a view to having agreements and legal instruments
in place in plenty of time for preparation of the first annual
budget for the period 2007-2013. In March 2004, we recommended
the document for debate on the Floor of the House,[2]
and that debate took place on 15 June 2004.[3]
1.3 Document (c) is a Commission proposal for renewal,
with amendments, of the IIA. The draft contains FP numbers for
the period 2007-2013, which derive from the Commission Communication
of February 2004. Document (a) is a Commission Communication arguing
again for those numbers and making proposals for the period 2007-2013.
Document (d) is a Commission Communication on the operation of
the current ORD, developing arguments which are used in support
of the draft legislation in document (b) on own resources and
on a substitute for the UK rebate. In October 2004, we considered
these documents and said that we would wish to consider a debate
recommendation early in 2005. To that end we asked for an account
of developments up to and including the December 2004 European
Council.[4]
The Minister's letter
1.4 The Financial Secretary to the Treasury (Mr Stephen
Timms) writes now with such an account. He tells us of activity
during the Dutch Presidency (July to December 2004), of the conclusions
of the European Council and of the plans of the Luxembourg Presidency
(January to June 2005).
1.5 The Minister says the Dutch objective was to
achieve agreement on "principles and guidelines" by
December 2004. After preparations in various working groups Ministers
considered the issues formally in the General Affairs and External
Relations Council (GAERC) and in the ECOFIN Council. On future
expenditure (document (a)) the Dutch adopted a "building
block" approach to frame the discussions. From these discussions
they drew up a set of policy options or building blocks for each
budgetary heading or sub-heading, together with indicative financial
requirements, so as to identify areas of agreement and outstanding
issues for discussion. The intention was to provide a broad menu,
not to hold individual Member States or groups of Member States
to particular "building blocks". On the IIA and flexibility
(document (c)) the Presidency asked all Member States for their
views on the Commission proposals with a view to identifying areas
of agreement. With regard to own resources (documents (b) and
(d)) the Dutch held an orientation debate in the ECOFIN Council.
On the basis of these discussions the Dutch Presidency presented
the European Council with a comprehensive progress report.[5]
1.6 The Minister reminds us that the Government has
a number of objectives for reform of expenditure in the FP for
the period 2007-2013:
- overall, to maintain a limit
on EU budget spending of no more than 1% of EU Gross National
Income (GNI);
- to take opportunities for further reform of the
Common Agricultural Policy within the spending limits already
agreed;
- to refocus structural policy support on the poorest
Member States, within an EU framework;
- to focus internal policy spending on a smaller
number of initiatives with demonstrable added value, especially
in supporting the Lisbon Strategy and in pursuing freedom, security
and justice objectives;
- to improve effectiveness in support of the EU's
and UK's external policy objectives, to which the Millennium Development
goals are central, while retaining flexibility to cope with evolving
needs and crises; and
- in relation to reserves, to provide flexibility
within a disciplined budget framework.
1.7 The Minister then says:
"The Government's main aim for the Dutch Presidency
was … to embed these reform proposals in the progress report
to the December European Council.
"… the UK achieved this aim. There are
building blocks consistent with our proposals … Working with
the other members of the Group of Six Member States calling for
the budget to be stabilised at no more than 1% of EU GNI, we also
demonstrated that an EC budget stabilised at no more than 1% of
EU GNI would be a credible package. The report's generally shared
principles reflect these positions."
1.8 In relation to the IIA the Minister says the
Government's position that discussion in detail was premature
was supported by other Member States and reflected in the progress
report. On specifics, its opposition to the Commission's proposals
on an annual trialogue and a growth adjustment fund is widely
shared by other Member States.
1.9 On own resources and a generalised correction
mechanism (GCM), in place of the UK rebate, the Minister tells
us that the Dutch Presidency progress report summarised an orientation
debate by the ECOFIN Council as:
- a broad majority of delegations
in favour of the current own resources arrangements, but with
some technical improvements;
- an overwhelming majority of delegations against
the Commission's idea of a new tax-based EU own resource; and
- a broad spectrum of views on the proposal for
the establishment of a GCM.
1.10 The Minister tells us that on the basis of the
Dutch Presidency report the December 2004 European Council agreed
"principles and guidelines", which are set out in paragraphs
31-36 of the European Council Conclusions[6]
and which he says are consistent with the Government's overarching
objectives previously described.
1.11 The Minister also tells us that the Luxembourg
Presidency is aiming for political agreement on the next FP by
June 2005, with agreement on the detailed legislative instruments
by the end of the year. He says this work will take account of
all Member States' positions and the Dutch progress report, including
the building blocks and issues at stake. Like the Dutch, the Luxembourg
Presidency will limit discussion of financial issues to an official-level
"Friends of the Presidency Group", with sectoral working
groups aiming to reach consensus on non-financial aspects of the
draft Regulations. Ministers will formally consider future financing
issues in the GAERC, with a view to preparing Conclusions for
the European Council. There will also be discussions in the ECOFIN
Council, given the particular interest of Finance Ministers in
the issues.[7] The Minister
adds:
"The Government supports this approach and will
work towards preparing for a political agreement in June. However,
in view of the possibility that such agreement may not be achieved
by then, the Government stands ready to continue the negotiations
under the UK Presidency."
Conclusion
1.12 We are grateful to the Minister for his summary
of where matters now stand on these important issues. We note
that there has been some progress on some aspects of the overall
package. But we also note the, perhaps worryingly, non-committal
European Council Conclusion on own resources and the related question
of the UK rebate:
"The European Council took note of the presentation
by the Commission of the report on the operation of the own resources
system as well as the proposal to introduce a generalised correction
mechanism, in the light of the various positions expressed up
to now. It called on the Commission and the Council to continue
the examination of all issues arising in this connection, including
a possible simplification of the system."
1.13 We said previously that we were sure the
House would wish to consider these issues again, but that the
time for a further debate was not then ripe. We now think it appropriate
to recommend a debate on the Floor of the House on these documents
and the negotiations on them. Whilst we would not wish such a
debate to take place prematurely, we would expect it to happen
in time for the Government to take account of the views of the
House before discussion of a political agreement at the June 2005
European Council.
1.14 Additionally, given the importance of the
decisions to be reached on both revenue and expenditure issues,
we suggest that:
- as with the previous debate,
for which three hours was allowed, more than one and a half hours
should be set aside for the debate we now recommend;
- the Treasury Committee might, with a view
to informing that debate, consider and report on the issues raised
by the documents; and
- the Minister should send us, in time for the
debate, a tabulation of the latest agreed elements of the building
blocks, as compared with the Commission's original financial framework
proposals, and an assessment of the emerging effect on the overall
numbers for the future Financial Perspective.
1 The FP numbers were amended in the final stages of
negotiation of the 2004 enlargement. Back
2
(25367) 6232/04; see HC 42-xv (2003-04), paras 1-37 (24 March
2004). Back
3
HC Deb, 15 June 2004, cols. 702-748. Back
4
See headnote. Back
5
See Council document 16105/04: http://register.consilium.eu.int/pdf/en/04/st16/st16105.en04.pdf Back
6
See Council document 16238/04: http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/ec/83201.pdf
Back
7
The Presidency plans are set out in Council document 5045/05:
http://register.consilium.eu.int/pdf/en/05/st05/st05045.en05.pdf Back
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