Annex
GLOSSARY
Abatement
The UK's VAT-based contributions are abated according
to a formula set out in the Own Resources Decision. Broadly this
is equivalent to 66% of the difference between what the UK contributes
to the EC Budget and the receipts which it gets, subject to the
following points:
- the abatement applies only
in respect of spending within the EU. Expenditure outside the
EU (mainly aid) is excluded;
- the UK's contribution is calculated
as if the budget were entirely financed by VAT:
- the abatement is deducted from
the UK's VAT contribution a year in arrears.
Activity -Based Budgeting (ABB)
ABB was introduced in 2002 to improve decision-making
by ensuring budget allocation more closely reflect pre-defined
political priorities and objectives. Similar to Public Service
Agreements in the UK, ABB requires the EC Budget to be based on
a clear justification for intervention and an evaluation of past
performance. It also requires SMART (Specific, Measurable, Achievable,
Realistic and Time-bound) objectives and future performance targets
that focus on delivering value for money for the EU taxpayer.
The annual budget procedure
The Community's financial year runs from 1 January
to 31 December. The rule governing decisions on the EC Budget
are set out in Article 272 of the EC Treaty and in the Inter-Institutional
Agreement. The timetable is as follows:
- establishment of the preliminary
draft Budget by the Commission, normally in May;
- establishment of the draft
Budget by the Council in late July;
- first reading by the Parliament
in late October;
- second reading by the Council
in mid-November; and
- second reading by the Parliament
and adoption of the Budget in mid-December.
Commitment and Payment Appropriations
The budget distinguishes between appropriations for
commitments and appropriations for payments. Commitment appropriations
are the total cost of legal obligations that can be entered into
during the current financial year, for activities that, in turn,
will lead to payments in the current and future years. Payment
appropriations are the amounts of money that are available to
be spent during the year arising from commitments in the budget
for the current or preceding years. Unused payment appropriations
may, in exceptional circumstances, be carried forward into the
following year.
Compulsory and Non-Compulsory expenditure
EC expenditure is regarded as either "compulsory"
or "non-compulsory". Compulsory expenditure is expenditure
necessarily resulting from the Treaty or from acts adopted in
accordance with the Treaty. It mainly includes agricultural guarantee
expenditure, including stock depreciation. The Council has the
final say in fixing its total.
The European Parliament has the final say in determining
the amount and pattern of non-compulsory expenditure. The growth
of this expenditure is governed by the "maximum rate of increase".
Article 272(9) of the EC Treaty provides a formula for determining
this rate, unless the budgetary authority agrees an alternative
figure. Under the Inter-Institutional Agreement the Council
and Parliament agree to accept maximum rates implied by the Financial
Perspective ceilings.
Financial Perspective
The Financial Perspective (FP) forms the framework
for Community expenditure over a period of several years. The
FP for 2007-2013 sets expenditure ceilings for six distinct expenditure
headings (Sustainable Growth, Preservation and Management of Natural
Resources, Citizenship, Freedom, Security and Justice, The European
Union as Global Partner, Administration, and Compensation), as
well as global ceilings for commitments and payments. The Budgetary
Authority (Council and European Parliament) is bound by these
ceilings in the annual budget negotiations.
Flexibility Instrument
The Flexibility Instrument was established under
paragraph 24 of the 1999 Inter-institutional Agreement, which
allows for expenditure in any given budget year of up to €200
million above the FP ceilings established for one or more budget
headings. Any portion of the Flexibility Instrument unused at
the end of one year may be carried over for up to two subsequent
years, but the Flexibility Instrument should not as a rule be
use to cover the same needs two years running. The Flexibility
Instrument is intended for extraordinary expenditure and may only
be used after all possibilities for reallocating existing appropriations
have been exhausted. Both arms of the Budgetary Authority must
agree to a mobilisation of the Flexibility Instrument following
a proposal from the Commission.
Inter-Institutional Agreement
The Inter-Institutional Agreement (IIA) is a politically
and legally binding agreement that clarifies the EC's budgetary
procedure. Under the Treaty, the Council and the European Parliament
have joint responsibility for deciding the EC Budget on the basis
of proposals from the Commission. The IIA sets out the way in
which the three institutions will exercise their responsibilities
in accordance with the Treaty, and their respect for the revenue
ceiling laid own in the Own Resources Decision.
Own Resources Decision
The existing arrangements for financing the EC Budget
are set out in the Communities' Own Resources Decision (ORD).
The current ORD was agreed in September 2000, entered into UK
law in 2001 and took effect in 2002. It sets an own resources
ceiling on the amount the Communities can raise from Member States
in any one year. The ceiling is currently fixed at 1.24% of EU
GNI for payments and 1.31% for commitments. As the Communities
are not allowed to save or borrow, revenue must equal expenditure.
Budget payments are therefore limited by the amount of Own Resources
that can be called up from Member States.
The ORD lays down four sources of Community revenue,
or "own resources":
- Customs duties including those
on agricultural products;
- Sugar levies;
- Contributions base on VAT;
and
- GNI-based contributions.
| 
