House of Commons
Session 2007-08
Publications on the internet
Other Bills before Parliament
Bill Home Page

European Communities (Finance) Bill


 

These notes refer to the European Communities (Finance) Bill as introduced in the House of Commons on 7th November 2007 [Bill 2]

EUROPEAN COMMUNITIES (FINANCE) BILL


EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the European Communities (Finance) Bill as introduced in the House of Commons on 7th November 2007. They have been prepared by HM Treasury in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2.      The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

Bill 2—EN     54/3

SUMMARY

3.     The purpose of this Bill is to enable the United Kingdom to give effect to the new Own Resources Decision (Council Decision of 7 June 2007: 2007/436/EC, Euratom), amending the arrangements for the financing of the annual budget of the European Communities (EC budget).

BACKGROUND

4.     Under the current Own Resources Decision (Council Decision of 29 September 2000: 2000/597/EC, Euratom), and its implementing measures (EC, Euratom) No. 2028/2004 of 16 November 2004, the EC budget is financed primarily from own resources, consisting of:

  • Levies and duties on trade with non-member countries in agricultural goods including sugar;

  • Customs duties on trade with non-member countries;

  • The yield from applying a notional rate of VAT, currently of 1%, to an assessment basis in each Member State which is capped at 50% of Gross National Income (GNI). A call-up rate (currently a maximum of 0.50%) is applied to produce a Member State's VAT-based contribution; and

  • A fourth resource based on shares in GNI, the rate of which is determined by what is required (given all other revenue) to balance the budget.

5.     The current Own Resources Decision also sets a reduced rate of contributions to the UK correction of 25% for Austria, Germany, the Netherlands and Sweden (the balance being paid by the remaining Member States).

6.     The new decision agreed by the Council of Ministers on 7 June 2007 amends the current arrangements for VAT-based contributions by reducing the maximum call-up rate to 0.3%, thereby increasing Member States' residual contributions based on GNI.

7.     For the period 2007 to 2013 only, a reduced maximum rate of call on VAT-based contributions is introduced for Austria, Germany, the Netherlands and Sweden (the Netherlands and Sweden at 0.1%, Germany at 0.15%, Austria at 0.225% compared to the general rate of 0.3%).

8.     For the period 2007 to 2013 only, gross reductions in GNI contributions are introduced for the Netherlands (€605m per annum) and Sweden (€150m per annum).

9.     The new decision provides for the retention of the correction mechanism in favour of the United Kingdom, along with the reduced financing of the correction benefiting Germany, Austria, Sweden and the Netherlands. However, after a phasing-in period between 2009 and 2011, the United Kingdom will participate fully in the financing of the costs of enlargement, except for agricultural direct payments and market-related expenditure, and that part of rural development expenditure originating from the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section.

10.     The new Own Resources Decision will need to be adopted or ratified by all Member States in accordance with their own Constitutional requirements before it can enter into force. It will take effect from 1 January 2009, retrospective to 1 January 2007.

11.     If any Member State fails to adopt the new Own Resources Decision by 31 December 2008 then the current Own Resources Decision (Council Decision of 29 September 2000: 2000/597/EC, Euratom) continues to operate until such time as the adoption process is completed, with the new Own Resources Decision then coming into force on the first working day of the month following the date of notification of the final adoption or ratification, retrospective to 1 January 2007.

TERRITORIAL EXTENT

12.     The provisions of the Bill extend to the whole of the UK.

COMMENTARY ON CLAUSES

13.     The Bill has two clauses.

Clause 1

14.     Clause 1 provides that the new Own Resources Decision shall be added to the list of Community Treaties in section 1(2) of the European Communities Act 1972, thus allowing payments made by the United Kingdom pursuant to the Decision to be charged directly on the Consolidated Fund under section 2(3) of that Act.

Clause 2

15.     Clause 2 repeals the European Communities (Finance) Act 2001 since the wording of section 1(2)(e) of the European Communities (Finance) Act 1972 substituted by clause 1 of the Bill supersedes that substituted by the 2001 Act.

FINANCIAL EFFECTS OF THE BILL

16.     The calculation of the UK correction shall be adjusted by progressively excluding expenditure allocated to Member States which have acceded to the EU after 30 April 2004, except for agricultural direct payments and market related expenditure, and that part of rural development expenditure originating from the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section. This change will be phased in as follows: 20% budgeted in 2009, 70% in 2010, 100% from 2011 onwards.

17.     The additional UK contribution resulting from the reduction in allocated expenditure is limited to €10.5bn in 2004 prices over the period 2007 to 2013. In the event of further enlargement before 2013, except for the accession of Bulgaria and Romania, the amount will be adjusted accordingly.

18.     The effect of the new Decision on the United Kingdom's net contribution to the Community budget will depend on the total size and pattern of Community expenditure.

EFFECTS OF THE BILL ON PUBLIC SERVICE MANPOWER

19.     The Bill will have no effect on public service manpower.

SUMMARY OF THE REGULATORY IMPACT ASSESSMENT

20.     There are no compliance costs for business and no Impact Assessment is therefore required.

EUROPEAN CONVENTION ON HUMAN RIGHTS

21.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The Chancellor of the Exchequer has made the following statement:

    In my view the provisions of the European Communities (Finance) Bill are compatible with the Convention rights.

 
 
Bill Home page  
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries ordering index


© Parliamentary copyright 2007
Prepared: 12 November 2007