15 Financial management
(a)
(31063)
15208/09
COM(09) 600
(b)
(31068)
15173/09
SEC(09) 1464
| Commission Communication concerning the revision of the multiannual financial framework (2007-2013): Financing projects in the field of energy in the context of the European Economic Recovery Plan (second revision)
Draft Decision amending the Interinstitutional Agreement of 17 May 2006 on the budgetary discipline and sound financial management as regards the multiannual financial framework
Preliminary draft amending budget No. 10 to the general budget 2009: statement of expenditure by section: Section III: Commission
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| Legal base | Article 272 EC; the special role of the European Parliament in relation to the Budget is set out in Article 272; QMV
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| Documents originated |
27 October 2009 |
| Deposited in Parliament
| 29 October 2009 |
| Department | HM Treasury
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| Basis of consideration |
Two EMs of 3 November 2009 |
| Previous Committee Report
| None |
| To be discussed in Council
| 19 November 2009 |
| Committee's assessment |
Politically important |
| Committee's decision |
Cleared |
Background
15.1 The annual budgets of the Community are set within the context
of a multiannual Financial Framework[61]
agreed by the European Council and embedded in an Inter-Institutional
Agreement, between the Council, the European Parliament and the
Commission, on budgetary discipline and sound financial management.
The Financial Framework sets annual ceilings for commitment and
payment appropriations and divides the overall commitment appropriations
into annual ceilings for each of the main budget headings. The
current Financial Framework is for the period 2007-2013, formalised
in the current Inter-Institutional Agreement, of 17 May 2006.
15.2 The Community's in year budgets can be, and
routinely are, amended by the Council and the European Parliament
on the basis of Preliminary Draft Amending Budgets presented by
the Commission.
15.3 In the context of the Commission's Communication,
A European Economic Recovery Plan, the Government told
us that:
- the Commission proposed revising
the 2007-2013 Financial Framework for the purposes of mobilising
€5.00 billion (£4.50 billion) for trans-European energy
interconnections and broadband infrastructure; and
- it should be noted that the ECOFIN Council comments
for the European Council of 11-12 December 2008 specifically referred
to considering the Commission's plan "within the existing"
ceilings and headings of the Financial Framework. [62]
15.4 In December 2008 the Commission proposed the
revision of the 2007-2013 Financial Framework to which we had
been alerted. The revision was to be achieved by amendment to
the current Inter-Institutional Agreement, which set the current
Financial Framework.[63]
The draft Decision would allow a €5.00 billion (£4.50
billion) increase to the Heading 1a (Competitiveness for Growth
and Employment) ceiling for 2009 and 2010, with a corresponding
€5.00 billion reduction to the Heading 2 (Preservation and
Management of Natural Resources) ceiling for 2008 and 2009. The
Government, and like minded Member States, opposed this proposal,
particularly objecting to use of 2008 under-spends and instead
seeking reprioritisation within the existing ceilings.
15.5 The March 2009 European Council endorsed a compromise
which involved no overall increase to the 2007-2013 Financial
Framework or use of funds from previous years, as originally proposed
by the Commission. The main elements of the agreed package were:
- the overall €5.00 billion
reference amount was maintained — €1.02 billion (£0.91
billion) would go toward broadband internet and "CAP Health
Check" related measures and €3.98 billion (£3.56
billion) for energy infrastructure projects;
- financing of the former would be exclusively
from within Heading 2, €600 million (£536 million) of
which would be covered by the existing 2009 Heading 2 budget margin;
- financing the energy projects in 2009 would be
done by a revision of the Financial Framework ceilings such that
an increase of €2.00 billion (£1.80 billion) to the
2009 ceiling of Heading 1a would be offset by a decrease of the
2009 ceiling of Heading 2 by the same amount;
- at least €2.60 billion (£2.30 billion)
of the existing 2009 Heading 2 margin was allocated to finance
the recovery plan;
- the remaining €2.40 billion (£2.10
billion) was to be secured during the course of the 2010 and 2011
annual budget negotiations;
- available resources under Heading 2 to be committed
to meet the remaining €420 million (£375 million) for
broadband internet and CAP Health Check measures; and
- to finance the outstanding €1.98 billion
(£1.77 billion) for energy projects, the remaining margins
available under the 2009, 2010 and 2011 budget ceilings would
be used.
This package was budget neutral both in relation
to the 2009 General Budget and the overall Financial Framework.[64]
15.6 In April 2009 the Commission presented a draft
Decision to amend the Inter-Institutional Agreement and a Preliminary
Draft Amending Budget, both of which were adopted, to change the
Financial Framework for 2009 and the 2009 General Budget in accordance
with the European Council compromise.[65]
The documents
15.7 The Council Decision the Commission proposes
in document (a) is an amendment to the Inter-Institutional Agreement
and the Financial Framework to deal with the outstanding €1.98
billion for energy projects. The result would be:
- an increase in the 2010 ceiling
for commitment appropriations under Heading 1a of €1.59 billion
(£1.42 billion);
- a complete offset of this by decreases to Heading
1b (Cohesion for Growth and Employment) in 2009 by €11 million
(£9.80 million), Heading 2 in 2009 by €1.17 billion
(£1.05 billion) and in 2010 by €124 million (£111
million) and Heading 5 (Administration) in 2009 by €131 million
(£117 million) and in 2010 by €150 million (£134
million);
- a provisional shortfall of €393 million
(£351 million) to cover the full amount foreseen for European
Economic Recovery Plan energy infrastructure projects (that is
€1.98 billion) — the Commission notes that this provisional
shortfall could yet be addressed following the final execution
of agricultural market measures and through further consideration
of all financial availabilities in the course of the 2010 Budget
negotiations;
- no available margin under the Heading 1a ceiling
in 2009 and a margin of €43 million (£38 million) in
2010 (including provision for the proposed decommissioning of
a nuclear plant in Kozloduy, Bulgaria);
- after transfers of €11 million (£9.8
million) from Heading 1b to help offset the increase to the Heading
1a ceiling, no remaining margin under the Heading 1b ceiling in
2009;
- with the decreases to the Heading 2 ceilings
to offset the increase to the Heading 1a ceiling and the funding
of €420 million (£375 million) required under the European
Economic Recovery Plan for broadband projects and CAP Health Check
"new challenges" from within Heading 2, no remaining
margin in 2009 (given that the agricultural year is now ended)
and a margin of €300 million (£268 million) in 2010;
and
- with the proposed decreases to the Heading 5
ceilings to offset the increase to the Heading 1a ceiling, no
remaining margin in 2009 and a margin of €80 million (£72
million) in 2010.
In order to maintain an appropriate relationship
between commitment and payment appropriations, the annual budget
ceilings for payment appropriations would be modified to reflect
the reductions under Headings 2 and 5 in 2009 and the spending
profile foreseen for energy infrastructure projects in 2010-2013.
Overall, the revision to the global ceilings for both commitment
and payment appropriations would be neutral to the budget overall.
15.8 The Preliminary Draft Amending Budget, document
(b), proposes, for the 2009 General Budget:
- a net increase in the forecast
revenue of €478.70 million (£456 million) following
a revision of the forecasts of own resources and other revenue;
- a reduction in payment appropriations for Headings
1a, 2 and 4 (EU as a global player) of €2.77 billion (£2.64
billion); and
- a reduction in commitment appropriations under
Headings 2 and 5 of €359 million (£341.90 million).
The effect of the revision of revenue forecasts and
the reduction in payment appropriations is to reduce Member States'
GNI-based contributions to the 2009 General Budget by €3.25
billion (£3.09 billion).
15.9 The net increase in revenue forecasts results
from:
- a €949.30 million (£904.20
million) reduction in VAT and GNI own resource balances for earlier
years;
- a €400 million (£381 million) increase
in Traditional Own Resources; and
- a €1.03 billion (£0.99 billion) increase
in other revenue, including €529 million (£503.90 million)
from fines, periodic penalty payments and other penalties, €213
million (£202.90 million) from financial corrections, €105
million (£100 million) from other non-assigned contributions
and refunds and €82 million (£78.10 million) from other
interest on late payments and other interest on fines.
As normal the Commission notes that these numbers
are still provisional, because of ongoing verification of VAT
and GNI data and that it may revise the figures in an update letter
from the Commission's Budget Director-General in the course of
the procedure for this amending budget.
15.10 The reduction in payment appropriations comprises:
- €505.40 million (£481.40
million) under Heading 1a with decreases for the Competitiveness
and Innovation Framework Programme, the satellite navigation programmes
(EGNOS and Galileo), the Cooperation, People and Capacities Programmes,
and completion of the sixth Research Framework Programme;
- €1.96 billion (£1.87 billion) under
Heading 2 with decreases for rural development measures, LIFE+,
the European Fisheries Fund and the Reserve for Fisheries Agreements;
- €243.80 million (£232.30 million) under
Heading 4 with decreases for completion of PHARE pre-accession
assistance; and
- €55 million (£52.40 million) under
Heading 5 with savings associated with publishing and translation
service requirements and downward adjustments to remuneration
and allowances.
15.11 The reduction in commitment appropriations
relates to financing the European Economic Recovery Plan, as described
in relation to document (a), increasing margins to allow the full
adjustment of ceilings in that proposal. The reductions proposed,
under Headings 2 and 5, concern rural development and climate
change measures which do not yet have a legal base, maritime affairs
and fisheries and the same administration savings as for the payment
appropriations reductions.
The Government's view
15.12 The Economic Secretary to the Treasury (Ian
Pearson) says, in relation to amending the Inter-Institutional
Agreement and the Financial Framework, document (a), that:
- the €5.00 billion package
is part of a wider Community fiscal stimulus which the Government
supports in line with policies it is pursuing nationally and internationally
to help the global economy recover;
- guaranteed access to funding across the Community
should leverage additional investment and create jobs and could
make the vital difference between projects going ahead or not;
- carbon capture and storage technology development
in the Community as a whole will receive over €1.00 billion
(£0.90 billion) as a consequence of this package;
- agreement on the package represented a good and
hard-fought outcome for the UK that ensures additional investment
for UK energy projects for electricity interconnection, offshore
wind and carbon capture and storage;
- the Government worked with like-minded Member
States at the Spring 2009 European Council to delete any reference
in the European Economic Recovery Plan compromise text to the
possibility of increasing the overall Financial Framework ceiling;
- this is reflected in this Commission Communication
and the Government welcomes this outcome;
- in avoiding an increase to the overall Financial
Framework ceiling the Government has so far ensured that at least
€2.00 billion (£1.80 billion) of 2009 CAP budget margins
will be reallocated to energy infrastructure projects —
this represents a good outcome consistent with the Government's
broader aims for re-shaping the budget and for a fundamental review
of Community budget expenditure; and
- whilst the proposal represents a good starting
point for financing the second tranche of the European Economic
Recovery Plan, a financing gap of €393 million (£351
million) remains and in further negotiations on the 2010 General
Budget the Government will seek a financing solution for the full
amount required and argue for further redeployment, use of available
margins and contingency instruments to be drawn on where appropriate.
15.13 On the Preliminary Draft Amending Budget, document
(b), the Minister says that:
- the Government is content with
the net increase in forecast revenue in line with revised forecasts
proposed in the document and the reduction in planned payment
appropriations, all of which serve to reduce the level of Member
State contributions to the 2009 General Budget;
- in support of good budgeting practice the Government
is in favour of budgeting in line with implementation capacity
and need and of reducing budget appropriations where need no longer
exists or where underspends occur;
- this Preliminary Draft Amending Budget makes
adjustments for budget appropriations which are no longer required
and these reductions seem appropriate and in line with good budget
practice;
- it does not include a reduction in planned payment
appropriations under Heading 1b, which would have been expected
— the Government will seek clarification from the Commission
on this; and
- the Government can support the reallocation of
2009 commitment appropriations from the CAP and Administration
budget headings to help finance the second tranche of the European
Economic Recovery Plan and will explore the possibility of further
such reallocations — this is consistent with agreements
reached at the Spring 2009 European Council and by the Council,
the European Parliament and the Commission in 2 April 2009.
15.14 On financial implications the Minister says,
in relation to document (a), that:
- the increase in overall commitment
and payment appropriation ceilings in 2010 will not have a direct
additional financial impact on the Community budget or on the
UK; and
- the UK post-abatement gross contribution associated
with the whole European Economic Recovery Plan package agreed
at European Council will be an estimated €488 million (£436
million), some €70 million (£62.60 million) less than
what it would have been for the original Commission proposal.
As for document (b) the Minister says that it will
serve to reduce Member States GNI-based contributions by €3.25
billion (£3.09 billion) and the UK share of this reduction
would be €411.90 million (£392.40 million).
15.15 Finally, the Minister tells us that both these
documents will be considered, for adoption, in the context of
the wider discussion of the 2010 Draft Budget at the ECOFIN Council
of 19 November 2009.
Conclusion
15.16 The Council Decision, the Commission proposes
in document (a), to amend the Inter-Institutional Agreement and
the Financial Framework, whilst important, implements a measure
already agreed by the European Council. As such, although we clear
it, we draw the document to the attention of the House. As for
the Preliminary Draft Amending Budget, document (b), we would
not, insofar as it relates to the annual year end adjustments
of revenue forecasts and appropriation underspends, normally draw
it to the attention of the House. But given that it is also, in
part, related to the European Council agreement, whilst clearing
it, we do so draw the House's attention to the document.
61 In previous budgetary periods the Financial Framework
was known as the Financial Perspective and is still often referred
to as such. Back
62
(30213) 16097/08: see HC 19-i (2008-09), chapter 4 (10 December
2008) and HC Deb, 20 January 2009, cols. 626-53. Back
63
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:139:0001:0017:EN:PDF. Back
64
(30280) 17606/1/08: see HC 19-iii (2008-09), chapter 6 (14 January
2009), HC 19-viii (2008-09), chapter 7 (25 February 2009), HC
19-x (2008-09), chapter 1 (11 March 2009) and HC 19-xiii (2008-09),
chapter 11 (1 April 2009). Back
65
(30540) 8624/09 (30543) 8623/09: see HC 19-xiv (2008-09), chapter
13 (22 April 2009). Back
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