Select Committee on European Scrutiny Thirty-Seventh Report


57 Draft Budget 2007

(a)

(27805)


(b)

(27605)

10563/06

SEC(06) 762


Draft General Budget of the European Communities for the financial year 2007

Amending Letter No. 1 to the Preliminary Draft Budget for 2007

Legal baseArticle 272 EC; QMV; the special role of the European Parliament in relation to the adoption of the Budget is set out in Article 272
Document originated(b) 14 June 2006
Deposited in Parliament(b) 23 June 2006
DepartmentHM Treasury
Basis of considerationMinister's letter of 7 September 2006
Previous Committee ReportNone
Discussed in Council14 July 2006
Committee's assessmentPolitically important
Committee's decisionCleared

Background

57.1 The Commission's Preliminary Draft Budget (PDB) is the first stage in the Community's annual budgetary procedure. We reported on the 2007 PDB in June 2006[141] and it was debated in European Standing Committee on 11 July 2006.[142] The second stage is the adoption by the Council of the Draft Budget (DB). The 2007 DB was adopted on 14 July 2006. The 2007 PDB and the 2007 DB form the basis of the 2007 Adopted Budget which is expected to be agreed in mid-December 2006, after consideration by the European Parliament in October 2006, further consideration by the Council in November 2006 and subsequent negotiations between the Council and the European Parliament.

The Draft Budget

57.2 The Economic Secretary to the Treasury (Ed Balls) 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 his letter annexes, which we reproduce, helpfully setting out the euro and sterling figures for the six budget categories and the changes in these in relation to the PDB. He tells us that the DB was based on a package put together by the Finnish Presidency and that its main features are as follows.

THE TOTALS

57.3 For commitment appropriations[143] the DB proposes a total of €125.76 billion (£87.30 billion). This is a decrease of 0.8% on the PDB figure and gives a margin of €2.65 billion (£1.62 billion) below the Financial Perspective ceiling. (These annual expenditure ceilings are set in the budgetary Inter-Institutional Agreement of 2006 between the Council the European Parliament and the Commission.) For payment appropriations[144] the DB proposes a total of €114.61 billion (£79.56 billion). This is a decrease of 1.6% on the PDB figure. Payment appropriations proposed in the DB represent 0.98% of Community Gross National Income compared to 0.99% in the PDB and the 1.24% ceiling in the Own Resources Decision about the financing of Community expenditure.

57.4 The Minister says the decreases are made up of reductions to the PDB's proposed increases for specific programmes, reflecting the Council's estimate of actual financing needs for 2007, reductions to increases to reflect the quality of certain activity statements for planned spending and reductions to increases in budgets of decentralised agencies, to ensure these are subject to the same budget discipline as other institutions.

INDIVIDUAL EXPENDITURE HEADINGS

Heading 1a: Competitiveness for growth and employment

57.5 The DB proposal under this sub-heading is €8.78 billion (£6.10 billion) for commitment appropriations, a total net decrease of €13.90 million (£9.60 million) on the PDB figure, and €6.77 billion (£4.70 billion) for payment appropriations, a total net decrease of €176.00 million (£122.00 million) on the PDB figure. This gives a margin of €135.80 million (£94.30 million) below the Financial Perspective ceiling for commitment appropriations.

57.6 The Minister comments that these decreases are mainly made up of targeted reductions in increases for specific programmes to reflect the Council's estimate of actual financing needs during 2007. Most noteworthy are reductions in payment appropriations for the security and space research programme (minus €50.00 million) and for completion of the sixth framework programme for research and development (minus €48.00 million). Reductions of €29.10 million and of £22.2 million are made to commitment and payment appropriations respectively on the basis of the quality of activity statements —a 2% reduction to the level of commitment and payment appropriations for the lifelong learning programme make up the bulk of this reduction. The increases proposed in the PDB for decentralised agencies are reduced by €8.78 million for both commitment and payment appropriations.

Heading 1b: Cohesion for growth and employment

57.7 The PDB proposal for commitment appropriations remains unaltered. But payment appropriations are €37.37 billion (£25.94 billion), a total net decrease of €425.00 million (£295.00 million) on the PDB figure.

57.8 The Minister says this reduction is split between completion of Structural Fund and European Regional Development Fund programmes for 2000-06 (minus €345.00 million), completion of the EQUAL programme[145] for 2000-06 (minus €10.00 million) and completion of specific budget lines in the Structural Funds prior to 2000 (minus €70.00 million). These cuts are designed to bring payment appropriations more closely in line with implementation capability and so minimise the budget surplus.

Heading 2: Preservation and management of natural resources

57.9 The DB proposal under this heading is €56.47 billion (£39.20 billion) for commitment appropriations, a total net decrease of €746.40 million (£519.00 million) on the PDB figure, and €54.90 billion (£38.11 billion) for payment appropriations, a total net decrease of €787.60 million (£547.00 million) on the PDB figure. This leaves a margin of €1.88 billion (£1.31 billion) under the Financial Perspective ceiling for commitment appropriations.

57.10 The Minister says that expenditure on rural development is not affected, the decreases being in agricultural expenditure. The bulk of these come from:

  • an across the board-reduction in all budget lines for interventions in agricultural markets, excluding lines subject to specific reductions (minus €365.00 million in both commitment and payment appropriations);
  • accounting clearance of previous years' accounts with regard to shared management expenditure under the EAGGF Guarantee Section and under the EAGF (minus €205.00 million in both commitment and payment appropriations); and
  • refunds for milk and milk products (minus €150.00 million in both commitment and payment appropriations).

Heading 3a: Freedom, security and justice

57.11 The DB proposal under this sub-heading is €561.00 million (£389.00 million) for commitment appropriations, a total net decrease of €9.60 million (£6.60 million) on the PDB figure, and €400.00 million (£278.00 million) for payment appropriations, a total net decrease of €26.80 million (£18.60 million) on the PDB figure. This leaves a margin of €75.30 million (£52.30 million) under the Financial Perspective ceiling for commitment appropriations.

57.12 The Minister says the overall decrease was mainly achieved through targeted reductions to specific budget lines where the justification for increases in funding in the PDB was poor (the visa information system, the European Refugee Fund and the European Fund for Third Country Nationals) and a reduction to decentralised agencies, in particular the European Union Agency for Fundamental Rights, Eurojust and Frontex, to take account of implementation capacity.

Heading 3b: Citizenship

57.13 The DB proposal under this sub-heading is €586.00 million (£407.00 million) for commitment appropriations, a total net decrease of €16.40 million (£11.40 million) on the PDB figure, and €648.00 million (£450.00 million) for payment appropriations, a total net decrease of €31.60 million (£21.90 million) on the PDB figure. This leaves a margin of €49.40 million (£34.30 million) under the Financial Perspective ceiling for commitment appropriations.

57.14 The Minister says the decreases come from reductions to specific budget lines where the justification for funding was poor (local actions, specific actions on priority themes, completion of the Public Health Programme and the transition facility for new Member States), reductions to subsidies for certain agencies (in particular the European Food Safety Authority) and modest reductions on the basis of poor activity statements (for instance on developing cultural co-operation in Europe).

Heading 4: The EU as a global partner

57.15 The DB proposal under this heading is €6.59 billion (£4.58 billion) for commitment appropriations, a total net decrease of €109.60 million (£76.10 million) on the PDB figure, and €7.26 billion (£5.04 billion) for payment appropriations, a total net decrease of €185.80 million (£129.00 million) on the PDB figure. This leaves a margin of €219.60 million (£152.00 million) under the Financial Perspective ceiling for commitment appropriations.

57.16 The Minister says:

  • this permits an increase of €17.50 million for assistance for reconstruction in Iraq in 2007 compared to the PDB;
  • decreases were achieved mainly through horizontal reductions of big geographical budget lines (totalling €144.30 million for commitment appropriations and €179.00 million for payment appropriations);
  • reductions to increases of €5.00 million to commitment appropriations and €6.60 million to payment appropriations were made on the basis of poor activity statements (on international and financial affairs and a European initiative for democracy and human rights); and
  • a modest reduction to the increase in subsidies was applied to the European Training Foundation (decentralised agency).

57.17 The Minister also tells us that there was a general lack of Council consensus on priorities under this heading and that to achieve the increase in funding for the reconstruction of Iraq the Government agreed to include the following in the horizontal reduction:

  • adjustment support for Sugar Protocol Countries; and
  • co-operation with developing countries in Asia.

Heading 5: Administration

57.18 The DB proposal under this heading is €6.83 billion (£4.74 billion) for both commitment and payment appropriations, a total net decrease of €172.00 million (£119.00 million) on the PDB figures. This leaves a margin €290.30 million (£201.30 million) under the Financial Perspective ceiling for commitment appropriations.

57.19 The Minister says that this reduction has been achieved mainly by a proposal to delete every second post becoming vacant following the retirement of their incumbents in the period 2007-13. The reduction to the increase proposed in the PDB for administration is designed to ensure that appropriations are based on a realistic assessment of operational needs, taking into account the increased demands resulting from enlargement, whilst exploiting the possibilities for economies of scale and redeployment of existing staff resources.

Heading 6 Compensation

57.20 There are no changes proposed in the DB to the PDB figures under this heading leaving overall expenditure at €445.00 million (£309.00 million) for both commitment and payment appropriations. So there continues to be a margin €0.35 million (£0.24 million) under the Financial Perspective ceiling for commitment appropriations.

The Government's view

57.21 The Minister comments that the Government believes the 2007 DB goes a considerable way to meeting its key objectives. In particular it:

  • maintains budget discipline, significantly reducing the level of payment appropriations in Headings 1 (Sustainable growth) and 2 (Preservation and management of natural resources) to reflect a more realistic forecast of implementation, protects increased allocations for Iraq and other Government priority areas (adjustment support for Sugar Protocol Countries, co-operation with developing countries in Asia, humanitarian aid and the Common Foreign and Security Policy) and taking a rigorous approach to expenditure in Headings 3 (Citizenship, freedom, security and justice) and 5 (Administration), delivering savings and increased flexibility;
  • remains fully consistent with the Financial Perspective settlement agreed in December 2006; and
  • continues to cater for the needs of enlargement in a budget-disciplined fashion.

He adds that the Government will continue to pursue its key objectives in the remaining stages of the 2007 budget process.

Amending Letter No. 1 to the Preliminary Draft Budget for 2007

57.22 The Minister tells us that this document takes account of more up to date Member State forecasts of their VAT and GNI bases and of agricultural and customs duties, and sugar levies (the Traditional Own Resources) for 2007. These are usually agreed before the Commission publishes the PDB but this year this was unable to happen as certain key figures were unavailable. As a result the Commission was obliged to produce the revenue statement in the PDB using old data, with the proviso that this would be amended once the revised figures were agreed. This amending letter honours the commitment.

Conclusion

57.23 We are grateful to the Minister for his report on progress in setting the 2007 Budget. We note that the Government is achieving some successes in securing budgetary discipline and look forward to hearing that these gains are sustained in the later stages of the process. Meanwhile we clear the documents.

1 ANNEX

TABLE 1: 2007 PDB and Draft EC Budget - € MILLION
Heading
Financial Framework Ceiling
2007 PDB
Presidency Package 2007
Change PDB/DB
CA
PA
CA
PA
CA
PA
1. Sustainable Growth

1a Competitiveness for Growth and Employment

Margin

1b Cohesion for Growth and Management

Margin

54,405

8,918

45,487

54,283

8,796

121.9

45,487

0.0

44,734

6,944

37,790

54,269

8,782

135.8

45,487

0.4

44,133

6,768

37,365

-14.3

-13.9

13.9

0

0.4

-601

-176

-425

2. Preservation and Management of Natural Resources

Margin

58,351

57,218

1,133.0

55,683

56,471

1,879.9

54,895

-746.4

746.9

-787.6

3. Citizenship, Freedom, Security and Justice

Freedom, Security and Justice

Margin

Citizenship

Margin

1,273

637

636

1,174

571

65.7

603

32.9

1,106

427

680

1148

561

75.3

586

49.4

1048

400

648

-26

-9.6

9.6

-16.4

16.5

-58

-26.8

-31.6

4. European Union as a Global Partner1

Margin

6,578

6,703

110.0

7,447

6,593

219.6

7,262

-109.6

109.6

-185.8

5. Administration

Margin

7,039

7,002

112.7

7,002

6,830

290.3

6,830

-172

177.6

-172

6. Compensation

Margin

445

445

0.4

445

445

0.4

445

0

0

0

TOTAL

Margin

Appropriations for payment as % of GNI

128,091

126,824

1,577

116,418

0.99%

125,756

2,651

114,613

0.98%

-1068

1074

-1805

(1) Excludes €234.5M from the Emergency Aid Reserve

CA = Commitment Appropriations; PA = Payment Appropriations

Figures may not add up exactly because of rounding

TABLE 2: 2007 PDB and Draft EC Budget - £ MILLION
Heading
Financial Framework Ceiling
2007 PDB
Presidency Package 2007
Change PDB/DB
CA
PA
CA
PA
CA
PA
1. Sustainable Growth

1a Competitiveness for Growth and Employment

Margin

1b Cohesion for Growth and Management

Margin

37,768

6,191

31,577

37,683

6,106

84.6

31,577

0.0

31,054

4,821

26,234

37,674

6,096

94.3

31,577

0.3

30,637

4,698

25,939

-9.9

-9.6

9.6

0

0.3

-417

-122

-295

2. Preservation and Management of Natural Resources

Margin

40,507

39,721

787

38,655

39,202

1305

38,108

-519

518.5

-547

3. Citizenship, Freedom, Security and Justice

Freedom, Security and Justice

Margin

Citizenship

Margin

884

442

441.5

815

396

45.6

419

22.8

768

296

472

797

389

52.3

407

34.3

728

278

450

-18

-6.6

6.6

-11.4

11.5

-40

-18.6

-21.9

4. European Union as a Global Partner2

Margin

4,566

4,653

76.4

5,170

4,577

152

5,041

-76.1

76.1

-129.0

5. Administration

Margin

4,886

4,861

78.2

4,861

4,741

201.3

4,741

-119

123.3

-119

6. Compensation

Margin

309

309

0.3

309

309

0.3

309

0

0

0

TOTAL

Margin

Appropriations for payment as % of GNI

88,921

88,041

1094.7

80,817

0.99%

87,300

79,564

0.98%

-741

745.6

-1253

(2) Excludes €234.5M from the Emergency Aid Reserve

CA = Commitment Appropriations; PA = Payment Appropriations

Figures may not add up exactly because of rounding

Conversion rate as of May 2006 : £1 = €1.4405 and €1 = £0.6942


141   (27511): See HC 34-xxxi (2005-2006), para 2 (14 June 2006). Back

142   Stg Co Deb, European Standing Committee, 11 July 2006 cols 3-26. Back

143   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

144   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

145   To promote non-discrimination in employment. Back


 
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