2 Preliminary Draft Budget 2007
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| Preliminary Draft General Budget of the European Communities for the financial year 2007
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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 |
| Basis of consideration | EM of 23 May 2006
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| Previous Committee Report | None
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| To be discussed in Council | 14 July 2006
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| Committee's assessment | Politically important
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| Committee's decision | For debate in European Standing Committee
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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 2007
PDB will form the basis of the 2007 Budget which is expected to
be adopted towards the end of December 2006.
2.2 The PDB sets out the Commission's proposals for
Community expenditure in 2007, 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 14 July 2006 to be forwarded to the European Parliament for
its first reading some time in late October 2006. The Draft Budget
is expected to have its Council second reading in November 2006
and, after conciliation if necessary, its European Parliament
second reading in mid-December 2006, prior to final adoption.
2.3 Although the official texts are not yet available,
the Economic Secretary to the Treasury (Ed Balls) has submitted
a helpful Explanatory Memorandum on the PDB. In order to provide
an opportunity for the House to consider the PDB as early as possible,
we have relied heavily upon that Explanatory Memorandum. As in
previous years, we are annexing to this Report tables derived
from the Explanatory Memorandum.[5]
We understand that the official texts of the PDB should 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 2006 between
the European Parliament, the Commission and the Council. The Financial
Perspective for the years 2007-13 sets out annual expenditure
ceilings for five broad expenditure categories and a sixth temporary
one related to the accession of Bulgaria and Romania.[6]
This year's PDB is the first under the new Financial Perspective.
2.5 The PDB is presented in the Activity-Based Budgeting
(ABB) format.[7] It is
expected to be published in ten volumes, covering a General Introduction
and a General Statement of Revenue, and expenditure proposals
for 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 the volume covering 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.
2.6 It should be noted that much of the budget (including
the structural funds, agriculture and multi-annual 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. It should also be noted that a very large part of the
budget is non-compulsory expenditure on which the final decision
is in the hands of the European Parliament.[8]
SUMMARY OF THE FIGURES
2.7 For commitment appropriations[9]
the 2007 PDB proposes a total of €126.82 billion (£88.04
billion). This is an increase of 4.6% over 2006. This total gives
a margin of €1.58 billion (£1.10 billion) below the
Financial Perspective ceiling. For payment appropriations[10]
the 2007 PDB proposes a total of €116.42 billion (£80.82
billion). This is an increase of 3.9% over 2006. The total is
€7.45 billion (£5.17 billion) below the Financial Perspective
ceiling. Payment appropriations proposed represent 0.99% of Community
Gross National Income compared to 1% in 2006 and the 1.24% ceiling
in the Own Resources Decision about the financing of Community
expenditure.
2.8 Compulsory expenditure makes up €45.57 billion
(£31.64 billion) of total commitment appropriations. Non-compulsory
expenditure makes up €81.25 billion (£56.40 billion)
of total commitment appropriations. The figures for compulsory
expenditure payment appropriations are €45.56 billion (£31.56
billion). For non-compulsory expenditure payment appropriations
the figures are €70.96 billion (£49.26 billion).
There is overall decrease in compulsory expenditure
of 1.0% for commitment appropriations and 0.8% for payment appropriations,
and for non-compulsory expenditure an overall increase of 7.3%
for commitment appropriations and 7.8% for payment appropriations.
THE INDIVIDUAL EXPENDITURE HEADINGS
Heading 1: Sustainable growth
2.9 Overall expenditure under this heading is €54.28
billion (£37.68 billion) for commitment and €44.73 billion
(£31.05 billion) for payment appropriations, leaving a margin
of €122.00 million (£84.69 million) under the Financial
Perspective ceiling for commitment appropriations.[11]
Heading 1a: Competitiveness for growth and employment
2.10 Expenditure under this sub-heading is €8.80
billion (£6.11 billion) for commitment appropriations, an
increase of 11.5% over 2006, and €6.94 billion (£4.82
billion) for payment appropriations, a decrease of 6.5% over 2006
levels.
2.11 The change in commitment appropriations is largely
due to increases in programmes which the Commission considers
crucial to the implementation of the Lisbon Strategy. These include:
- the Seventh Research Framework
Programme increased by 3.1%, against 2006 levels;
- the Competitiveness and Innovation Programme
increased by 52.5%;
- Trans-European Networks increased by 17.7%;
- lifelong learning increased by 29.6%;
- nuclear decommissioning increased by 70.4%;
- a new commitment of €100 million to the
Galileo programme; and
- the Marco Polo programme increased by 60.0%.
The change in payment appropriations is accounted
for by setting levels which properly reflect likely implementation.
The levels include decreases in:
- the Seventh Research Framework
Programme of 7.1%;
- Trans-European Networks of 46.4%; and
- Research programme of 46.5%.
Heading 1b: Cohesion for growth and employment
2.12 Expenditure under this sub-heading is €45.49
billion (£31.58 billion) for commitment appropriations, an
increase of 14.8% over 2006, and €37.79 billion (£26.23
billion) for payment appropriations, an increase of 19.1% over
2006 levels. These increases result from the new generation of
structural and cohesion programmes agreed in the new Financial
Perspective negotiations with higher payments to new Member States.
Heading 2: Preservation and management of natural
resources
2.13 Overall expenditure under this heading is €57.22
billion (£39.72 billion) for commitment appropriations, an
increase of 1.2% over 2006, and €55.68 billion (£38.66
billion) for payment appropriations, an increase of 0.4% over
2006. This leaves a margin of €1.13 billion (£0.78 billion)
under the Financial Perspective ceiling for commitment appropriations.
2.14 The change in commitment appropriations results
mainly from full implementation of the 2003 Common Agricultural
Policy reform, as well as the continued phasing in of new Member
States, increasing planned expenditure on market related aid and
direct aids by 0.8%, against 2006 levels, and on rural development
by 3.0%. The change in payment appropriations comes mainly from
an increase in the European Fisheries' Fund of 40.4%, as against
2006 levels, due to continuing implementation of reform of the
Common Fisheries Policy.
Heading 3: Citizenship, freedom, security and
justice
2.15 Overall expenditure under this heading is €1.17
billion (£0.82 billion) for commitment appropriations, an
increase of 1.2% over 2006, and €1.11 billion (£0.77
billion) for payment appropriations, a decrease of 4.4% over 2006.
This leaves a margin of €99.00 million (£68.73 million)
under the Financial Perspective ceiling for commitment appropriations.
Heading 3a: Freedom, security and justice
2.16 Expenditure under this sub-heading is €571.30
million (£396.00 million) for commitment appropriations,
an increase of 4.0% over 2006, and €427.00 million (£296.00
million) for payment appropriations, a decrease of 19.9%, as against
2006.
2.17 The change in the commitment payments results
from increases which include:
- in accordance with strategic
priorities of the Hague Action Programme, greater planned expenditure
of €58.00 million for the Security and Safeguarding Liberties
Programme and €72.00 million for the Fundamental Rights and
Justice Programme; and
- a 40.1% rise, against 2006 levels, in the cost
of external agencies.
These increases are partially offset by a decrease
in commitment to the Solidarity and Management of Migration Flows
Programme, as funding for external border measures will be replaced
by the External Borders Fund from January 2007. The decrease in
payment appropriations is also due largely to a reduced funding
for the Solidarity and Management of Migration Flows Programme
of 47.5%, against 2006 levels.
Heading 3b: Citizenship
2.18 Expenditure under this sub-heading is €603.00
million (£419.00 million) for commitment appropriations,
a decrease of 1.4% as against 2006 levels, and €680.00 million
(£472.00 million) for payment appropriations, an increase
of 8.9% over 2006.
2.19 The decrease in commitment appropriations comes
largely from reduced funding for the Public Health and Consumer
Protection Programme of 22.7%, against 2006 levels. The increase
in payment appropriations is due largely to new programmes starting
in 2007, which aim at fostering mutual understanding and a shared
European identity. This includes €42.00 million for Culture
2007 and €16.00 million for Youth in Action. Additionally
there is an increase of 32.7% for the Enlargement Programme.
Heading 4: The EU as a global partner
2.20 Overall expenditure under this heading is €6.70
billion (£4.65 billion) for commitment appropriations, a
decrease of 20.2% as against 2006 levels and €7.45 billion
for payment appropriations, a decrease of 13.8%, against 2006
levels. This leaves a margin of €110.00 million (£76.36
million) under the Financial Perspective ceiling for commitment
appropriations.
2.21 The change in commitment appropriations includes:
- the Instrument for Pre-Accession
decreased by 57.2%, as against 2006 levels, (anticipating accession
of Bulgaria and Romania);
- the Development Cooperation and Economic Cooperation
Instrument decreased by 12.2%; and
- the Instrument for Stability (designed to deliver
"an adequate response to instability and crises and to longer
term challenges with a stability or security aspect") increased
by 85.4%.
The change in payments appropriations includes:
- the Instrument for Pre-Accession
decreased by 18.9% (phasing out of payments to the Member States
which acceded in 2004), as against 2006 levels;
- the European Neighbourhood and Partnership Instrument
decreased by 10.1%; and
- the Development Cooperation and Economic Cooperation
Instrument decreased by 8.2%.
Heading 5: Administration
2.22 Overall expenditure under this heading is €7.00
billion (£4.86 billion) for both commitment and payment appropriations,
an increase of 6.0% against 2006 levels. This leaves a margin
of €113.00 million (£78.44 million) under the Financial
Perspective ceiling for commitment appropriations.
2.23 The increase in resources is to provide for
an increase of 903 posts, including 13 new posts devoted to language
services and 230 new posts to prepare for the accession of Bulgaria
and Romania.
Heading 6 Compensation
2.24 Overall expenditure under this heading is €445.00
million (£309.00 million) for both commitment and payment
appropriations, a decrease of 58.6% against 2006 levels. This
leaves a margin €0.35 million (£0.24 million) under
the Financial Perspective ceiling for commitment appropriations.
Expenditure is intended to help improve cash-flow in the national
budgets of Bulgaria and Romania and to finance control actions
at the new external borders of the EU.
The Commission's view
2.25 In a question and answer brief for the press
of 3 May 2006 the Commission said:
"This budget will continue to fulfil the
strategic priorities of this Commission — prosperity, solidarity,
security and external projection — within the limits set
by the new financial framework.
"There has been a clear focus on and increase
of funding for sustainable development goals (heading 1), up 14.3%
compared to 2006, with a total of €54,282.7 million in commitment
appropriations. This is €6.8 billion more than in 2006. Rural
development (heading 2) will increase by 3% to €12,371.4
million. There are significant increases in funding for actions
under Fundamental Rights and Justice, Security and Safeguarding
Liberties (heading 3a). For external projection, there are new
generation programmes such as European neighbourhood and partnership,
development and economic cooperation, and the Instrument for Stability."
2.26 In a press notice the same day Dr Dalia Grybauskaité,
Commissioner for Financial Programming and Budget, is quoted as
saying:
"The budget is more than just numbers: it
is a precise translation of the EU's political goals, mainly stimulating
growth and employment, into concrete financial terms. Once implemented,
this budget can make a substantial contribution to enhancing European
economic competitiveness".
The Government's view
2.27 The Minister, noting that as a net contributor
to the Community budget it is in the UK's interest to control
growth in the budget and achieve a more efficient use of resources,
tells us that the Government will work with like-minded Member
States to maintain budget discipline and subject all areas of
spending to rigorous scrutiny. But he reminds us that much of
the budget is predetermined by policy decisions made outside the
annual budget process and that much of it is non-compulsory expenditure
on which the final decision is in the hands of the European Parliament.
2.28 The Minister says the Government's first aim
will be to respect agreed and established budgetary principles,
particularly ensuring that:
- spending delivers genuine value
for money;
- global appropriations for payments
are based on realistic implementation forecasts, so preventing
emergence of large surpluses;
- Financial Perspective ceilings are respected,
with proper regard being given to the rules governing use of the
Flexibility Instrument; and
- Activity Based Budgeting is fully factored into
the budgeting process.
2.29 The Minister continues that the Government's
key priorities this year include:
- in regard to Heading 1b, Structural
and Cohesion Funds, and a proposed increase in payment appropriations
19.1%, levels of expenditure that take into account the genuine
implementation capacity of new Member States rather than Commission
ambition;
- reprioritisation and a front loading in Heading
4, the EU as global partner, to meet urgent needs for the Common
Foreign and Security Policy and for transitional assistance to
sugar protocol countries;
- ensuring the Commission finds sufficient resource
in Heading 4 to support urgent development needs in Afghanistan
and Iraq; and
- closely examining Heading 5, Administration,
to ensure that the Commission's staff proposals are based on genuine
need, reflect efficiency savings and economies of scale and can
be accommodated under the Financial Perspective ceiling.
Conclusion
2.30 The Community budget has significant financial
and policy implications and the UK has a substantial interest
and role in scrutinising the Preliminary Draft Budget (PDB), not
least because of the large sums involved and the UK's position
as a large net contributor. As the Minister says, 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 PDB be debated in European Standing Committee.
The debate should take place before the Budget Council on 14 July
2006.
2.31 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 understand the main official texts will
be available in time for a debate.
2.32 The debate will allow Members to examine
in greater detail the Government's approach to the forthcoming
budget negotiations, particularly on such issues as the Commission's
proposed staff increases, the use of Activity Based Budgeting
and the relationship of the PDB to the Commission's Annual Policy
Strategy for 2007.[12]
2.33 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, the Lisbon strategy, external actions, and pre-accession
aid.
5 In the annexes and in the following paragraphs €
figures are converted at a May 2006 rate of £1 = €1.4405. Back
6
See (27269) 5973/06 (27302) 6426/06: HC 34-xxi (2005-06), para
2 (8 March 2006) and HC 34-xxvi (2005-06), para 4 (26 April 2006)
and HC Deb, 8 May 2006, cols. 89-142. Back
7
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
8
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. The
Council has the final say in fixing its total. All other expenditure
is classified as non-compulsory. Back
9
Commitment appropriations are the total cost of legal obligations
which can be entered into during a financial year for activities
which will lead to payments in that and future financial years. Back
10
Payment appropriations are the amount of money which is available
to be spent during a financial year arising from commitments in
the budgets for that or preceding financial years. Back
11
An equivalent breakdown of the total margin for payment appropriations
is not available. Back
12
See (27371) 7571/06: HC 34-xxvii (2005-06), para 7 (3 May 2006). Back
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