4 Statistics
| (30664)
10343/09
COM(09)238
| Draft Council Decision on the allocation of financial intermediation services indirectly measured (FISIM) for the establishment of the gross national income (GNI) used for the purposes of the European Communities' budget and its own resources
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| Legal base | Article 269 EC; consultation; unanimity
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| Document originated | 26 May 2009
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| Deposited in Parliament | 1 June 2009
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| Department | HM Treasury |
| Basis of consideration | EM of 21 June 2009
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
4.1 "Financial intermediation services indirectly measured"
(FISIM) is an estimate of the value of the services provided by
financial intermediaries, typically banks, for which no explicit
price is charged — rather these services are paid for as
part of the margin between rates applied to savers and borrowers.
The allocation of FISIM within the Community system of national
and regional accounts (the European System of Accounts 1995, ESA
95) in order to establish gross national income (GNI) was defined
in Council Regulation (EC) No. 448/98 and was implemented from
1 January 2005 by Commission Regulation (EC) No. 1889/2002. However,
for the purposes of the Communities budget and own resources[19]
the allocation of FISIM is not automatically applied, instead:
- adoption of a Council Decision modifying ESA 95 is required
under Article 8(1) of Council Regulation (EC) No. 448/98; and
- if it is established that the allocation of FISIM
constitutes a significant change in GNI, the Council shall decide,
under Article 2(7) of the Own Resources Decisions (ORDs) of 29
September 2000 and 7 June 2007, that such modifications apply
for the purposes of both the ORDs.
The document
4.2 In presenting this draft Decision the Commission:
- considers that allocation of
FISIM in establishing GNI used for the purposes of the Communities
budget and own resources would have a significant impact on Member
States' estimated own resources contributions and would also modify
the ceilings for payments and commitments as established under
the ORDs;
- notes that Commission Regulation (EC) No. 1889/2002
required Member States to allocate FISIM in their annual ESA 95
data transmissions and that this requirement was not fully complied
with until the transmission of ESA data in September or October
2008; and
- as the requirement has now been complied with,
the Commission is able to put forward this proposal.
4.3 The draft Decision is intended to allocate FISIM
for establishing GNI used for the purposes of own resources by
modifying ESA 95 in accordance with Council Regulation (EC) No.
448/98 and apply the modification in accordance with the ORDs.
The proposal would enter into effect retrospectively to 1 January
2005, in line with the entry into effect of Commission Regulation
(EC) No. 1889/2002 (and so affect own resource calculations made
under the first ORD).
The Government's view
4.4 The Economic Secretary to the Treasury (Ian Pearson)
tells us that:
- the Office for National Statistics
has incorporated the allocated FISIM methodology into the UK National
Accounts, in line with Council Regulation (EC) No. 448/98;
- in that sense, it now produces the estimates
required for compliance with the Regulation; and
- the UK would be able to meet the proposal for
the inclusion of FISIM in the calculation of the fourth resource,
that is the GNI contribution.
4.5 The Minister continues that the Government has,
however, some concerns about whether this is the right time to
make such a change, saying that:
- some doubts remain about the
timing of the inclusion of FISIM in GNI given that the legislation
requires Member States to have a long enough history of collecting
source data to the required quality and that the method is proved
to be robust and reliable, replicating economic reality as closely
as possible;
- in particular, for budgetary purposes, the data
span should be at least five years — the Office for National
Statistics data span is only just over five years, so some caution
is urged about the robustness of the estimates;
- developments of financial markets in the last
eighteen months suggest that the allocated FISIM method has some
difficulties when there are significant changes to the interest
rates and that in the UK there may be only three and a half years
to four years for which stable data are available, possibly too
short a period to satisfactorily prove the robustness of the data
source and the methodology;
- Eurostat has expressed concerns about the methodology
and has proposed that a task force be established to consider
this, and recent issues, further and to have a closer look at
the details;
- this task force is likely to convene later this
year, with its results likely to impact on ESA 2012;[20]
- there are other proposals regarding GNI which
could, along with FISIM, be dealt with as part of a package in
the context of the current review of the Community Budget and
the next, post-2013, Financial Perspective and as part of ESA
2012; and
- if the proposal is adopted now it is almost certain
that estimates will require revision and that such revisions could
be significant.
The Minister says that these concerns will be raised
during forthcoming discussions about the draft Decision and the
Government will be looking to ensure the adoption of a cautious
approach.
4.6 On the financial implications of the draft Decision
the Minister tells us that:
- inclusion of FISIM in GNI is
likely to increase Member States' GNI-bases used for the purposes
of the calculation of own resources;
- the Government does not yet know the impact of
this on the UK's contributions;
- the retrospective impact, back to 2005, is likely
to be two-fold, with Member States first having to adjust the
GNI-based contributions they made in these years, in a one-off
exercise, and, since the level of expenditure from the Budget
will not have changed, the Commission then having to propose an
Amending Budget to reduce Member States GNI-based contributions
to offset the excess revenue accruing from the one-off exercise;
- the impact on the contributions of the EU27 as
a whole will be zero, although there will be fluctuations in the
contributions of individual Member States; and
- the UK and other Member States need more information
on this point.
Conclusion
4.7 Clearly "financial intermediation services
indirectly measured" will have to be taken into account in
calculating Gross National Income for the purposes of assessing
the own resources liabilities of Member States. However we note
the Government's seemingly well-founded caution on the timing
of this proposal. So before considering the draft Decision further
we should like to hear the outcome of the Government's attempt
to secure a cautious approach to the matter. We should also like
to hear about the clarification being sought of the possible financial
impact of the proposal.
4.8 Meanwhile the document remains under scrutiny.
19 There are four sources of Community revenue, or
"own resources" - customs duties including those on
agricultural products, sugar levies, contributions based on VAT
and GNI-based contributions. Back
20
ESA 2012 is the planned replacement for ESA 95. Back
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