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General Committee Debates
European Committee Debates
|©Parliamentary copyright||Prepared 17th February 2011|
Publications on the internet
General Committee Debates
European Committee Debates
EU Budget Review
The Committee consisted of the following Members:
Alison Groves, Committee Clerk
† attended the CommitteeThe following also attended ( Standing Order No. 119(6) ) :
Jacob Rees-Mogg (North East Somerset) (Con): It might be helpful to the Committee if I take a few minutes to explain the background to the document and the reason why the European Scrutiny Committee recommended it for debate.
Three instruments set the basic rules for the European Union’s finances. The first is an inter-institutional agreement on budgetary discipline and sound financial management, which provides for many aspects of the planning, preparation, execution and control of the EU budget. The agreement is between the Council, the European Parliament and the Commission. It is an important tool of budgetary discipline and includes a multi-annual financial framework. The financial framework is intended to ensure that, in the medium term, EU expenditure develops in an orderly manner and within the limits of its so-called own resources.
The current inter-institutional agreement was agreed in May 2006 and its financial framework, agreed in December 2005, sets spending ceilings for the period 2007 to 2013. The other two instruments are an own resources decision, which governs the main sources of revenue—the current decision was agreed in June 2007—and the financial regulation of 2002.
Jacob Rees-Mogg: I had just come to the third of the three instruments—the financial regulation of 2002, which sets out detailed provisions on the preparation and management of the annual European Union budget. A triennial revision of the current financial regulations was debated in European Committee B on 14 February 2011.
In December 2005, the European Council asked the Commission to undertake a full, wide-ranging review covering all aspects of EU spending, including the common agricultural policy, and resources, including the United Kingdom rebate, and it was to report in 2008-09. The intention was to inform preparation of all aspects of revenue and expenditure for the 2014 to 2020 period. That request was incorporated into the current inter-institutional agreement.
Although the Commission initiated a public consultation on the issue in September 2007, it did not report on the review in either 2008 or 2009. The communication and the accompanying staff working document are an attempt by the Commission to provide orientations for the future of EU budget expenditure and financing. Among other matters, they discuss revenue correction mechanisms, which include the UK rebate.
In the final section of the communication, the Commission asserts that the EU and national budgets should be seen as complementary and not in competition with one another, and that EU funding should be rational and fair—and perceived as such. It says that it will bring forward a draft regulation setting the next financial framework and a draft decision on own resources in June 2011. Although what exactly the Commission intends to propose for the future of EU finances is not yet clear, the European Scrutiny Committee thought that a debate in Committee about the ideas floated in the communication would be timely.
The Economic Secretary to the Treasury (Justine Greening): May I say what a pleasure it is to serve under your chairmanship, Mr Crausby? I very much welcome the chance to discuss with the Committee the budget review document and the Government’s position on the future of the EU budget. I know that the Committee has waited for the budget review for a long time. As we have heard, the review was commissioned by the European Council in 2005, but the conclusions emerged only at the end of 2010.
The Government inherited a position in which they faced both an urgent need for deficit reduction at home and rising contributions to the EU budget under the seven-year deal agreed by the previous Government. I wish to make a few introductory remarks about the Government’s priorities for future EU budgets and what we have already achieved. Above all, I want to be clear that the Government aim to limit the size of the EU budget. We are implementing a tough deficit-reduction plan at home and many other member states are taking similar action. The EU budget cannot be immune from that process. Growth in EU spending must not undermine our efforts domestically to cut the deficit.
Last year, the Government made strong progress towards achieving their key objective. At the European Council in October, the UK led all 27 member states to agree the important principle that the EU budget to 2020 must reflect the fiscal constraints in member states. The Government have maintained momentum on that initiative.
In December, we issued a letter jointly with Germany, France, the Netherlands and Finland. It states that the EU budget should grow by no more than inflation over the next financial perspective. The letter is an important marker that places specific limits on the growth of the budget over the rest of this financial perspective and the next. That was in addition to our negotiations on the 2011 EU budget, in which we convinced the European Council to stand firm against the European Parliament’s efforts to raise the EU budget by more than 2.91% and to give itself new powers.
We face the task of making the most of the budget review in pursuing our objectives to reform the budget. Of course, that review has not delivered what the previous Government hoped, which was a fundamental review of the budget well ahead of the negotiation of the next financial perspective. However, this Government’s emphasis on budget discipline is a strong spur for reform. Budget discipline will necessitate some hard choices, and an emphasis on where the real added value lies. Powerful forces are arguing for reform throughout the EU. We must ensure that the next few months deliver a real debate about the consultations on the common agricultural policy and the structural funds and about the budget review and the financial perspective.
Europe must also modernise its budget to tackle better key challenges of the 21st century—global competiveness, global warming and global poverty. That must not, however, come at the cost of higher EU spending overall. Instead, we must reduce waste and cut spending from low-added-value areas, to realise savings and to free resources to support European priorities. It is not clear that the Commission’s ambition for reform is strong enough. Although its budget review document encouragingly focuses on supporting growth, it inadequately reflects the difficult economic and fiscal context. A much stronger focus on prioritisation and securing savings is required.
The budget review introduced a broad range of policy proposals, but many of those ideas require much further work. The Commission refrained from giving its view on the majority of those proposals. The UK Government have injected their ideas in their responses to the consultations on the common agricultural policy and structural funds. Ongoing consultations are happening on other areas of the EU budget.
The Committee will be interested in the position on the UK’s abatement and other questions about European Union financing. The budget review helpfully reiterated the principle of fairness set out at the Fontainebleau European Council in 1984, at which the UK abatement was agreed. Expenditure distortions remain a key source of budgetary imbalances, which fully justifies the abatement. We are very clear that we will staunchly defend it. Furthermore, we will not consider any new EU tax, or so-called new own resource, to finance the EU budget.
As we have heard, the budget review is only a precursor to formal negotiation on the next financial perspective, which will begin later this year. Much work remains to be done, and negotiations will be long and difficult. Many opponents will push hard for higher EU spending, but we are committed to standing up for the UK’s interests. I look forward to discussing the budget review in the Committee.
The Chair: We now have until 5.45 pm for questions to the Minister. I remind Committee members that questions should be brief. Subject to my discretion, it is open to Committee members to ask related supplementaries.
The Minister outlined the process by which we reached the current position. The Government argued for a budget freeze and we ended up with a 2.9% increase. I understand that there is a suggestion for an amending
Justine Greening: We are left with two aspects of the problem. There is what the money will be spent on, which we do not disagree with—it is for supporting areas that have suffered flood damage. We have said that we understand why that spend is justified. Our problem is that we believe that it should come out of the existing EU budget. We have only just been through the negotiations to set the 2011 budget, so it is disappointing to be presented with a proposal that exceeds that agreed budget so soon into 2011.
The Government are therefore in ongoing discussions with other member states, which, in many cases, share our concerns. They have been through those same negotiations and, alongside the UK, have stood firm on not going with a bigger budget, as was proposed by the European Parliament. We are determined to ensure that those moneys should not be spent in addition to the agreed 2.9% rise, but should be part of the existing budget that we have already decided.
Kerry McCarthy: There is concern in Wales about the impact of structural funding being withdrawn. My understanding is that the Government and their Members of the European Parliament are not keen on establishing a transitional status, which would give areas whose structural funding is being withdrawn a bit of a soft landing. In a committee meeting of the European Parliament last week, Conservative representatives said that they were also not in favour of competitiveness. I understand that if competitiveness were abolished, east Wales would receive no EU funding. Will the Minister elaborate on those points?
Justine Greening: The hon. Lady is rightly getting into the debate on the future financial perspective. We first need to ensure that structural cohesion funds get the transformation on the ground in the countries where they are being spent. We believe that, over time, a greater share of such funds should go towards new member states. I am sure that hon. Members will be aware that the argument for bringing such states into the European Union was twofold—because they would be able to grow their economies and because the rest of the EU would have the flip-side benefit of having a bigger market within which to trade. We want, over time, to see a share going more towards such states.
We recognise, however, that such a change will not happen overnight, so we expect to see continued social cohesion funds for existing member states throughout the period of the coming financial perspective. The challenge is that although we want social cohesion funds to transform the economies of the new member states, we also want that to happen in the existing ones; we want value for money on the ground.
As the hon. Lady is aware, one of the ways in which to get that value for money is to challenge the percentages of income being set by the EU. We broadly support the 75% income level, but we believe that over time we should see a reduction in the money going towards regions that are currently receiving social cohesion funds. We want a greater share to go towards the new member states.
Critically, at the same time, we realise that national Governments have a key role to play in stimulating their economies and encouraging regenerations in those regions, too. The challenge is for the EU to ensure that the right measures are taken at the EU and domestic levels. We do not believe that we are compromising our support, but we need to ensure that we get the best value for funds at the EU budget level.
Kerry McCarthy: I thank the Minister for that response. Obviously, people are concerned, particularly in Wales, that when austerity measures are implemented in this country, and there is also a possibility of losing out on EU funding, it is a double whammy.
On the section in the communication that deals with research and innovation, it would be helpful from a future perspective to have some British examples of where such schemes and EU initiatives have benefited projects in the UK—otherwise, we deal with the matter in an abstract fashion. There is discussion about leveraging in private investment, public-private partnerships and European innovation partnerships in future. Can the Minister give any examples of where those have worked well in practice, so that we can take a view on whether they are a good thing?
Research and innovation are areas where the Government feel that we can see better value for money in terms of the EU budget. The hon. Lady asked for examples. A number of UK companies were heavily involved in the Galileo project. She raises a valid point about private investment. What we need and would like to see is the role of the European Investment Bank developed, with more funds perhaps being leveraged in through it than has been possible in the past.
Part of the matter is: we have an EU budget—how can we get best value from it? The second part is: how can we use other institutions within the EU to leverage in private sector investment for the benefit of member states?
Kerry McCarthy: This is my final question for now. It would not be an EU budget debate if we were not to talk about the CAP, although it is always water in which one is reluctant to dip a toe. I understand that in the 2011 budget vote in the European Parliament, Conservative MEPs voted against abolishing export subsidies, which could have saved €160 million. Export subsidies are obviously controversial. They are not only costly; they are trade-distorting and harm developing countries. In the context of trying to ensure that the EU budget is well managed and well spent, will the Minister explain why that vote took place?
Justine Greening: I could challenge the hon. Lady to explain why Labour MEPs voted against—I think I am right—a cash freeze, which would absolutely have been in the interests of the UK taxpayer, and would have covered a value of spend far greater than the vote that she is talking about.
We do want to see reform of the CAP. Let us not forget that the backdrop to the budget review was the deal done on CAP in 2005 by the previous Government. That has to go down as one of the most disastrous deals ever done on behalf of the taxpayer.
The then Prime Minister Tony Blair gave away part of our rebate, and the maximum effect of that kicks in from this year. Over the course of this Parliament, that will cost us in the region of £10 billion. He gave it away in return for what? In return for this document—the budget review. There was no actual agreement to reform; there was just an agreement to have a review. I do not think that that was worth £10 billion to the UK taxpayer.
Nevertheless, we do want to see reform of the CAP, and we want to come back to the background of why we were pressing for reform in years gone by. We need to do it in a more successful way in future, and one that is far less costly to the UK taxpayer.
The Minister mentioned so-called own resources. I bring her attention to page 40 of the documentation and the extremely ambitious list of the European Union for setting up its own taxation powers—on the financial sector, greenhouse gas emissions auctions, air transport, EU VAT, EU energy tax and EU corporate income tax. There is a suggestion that new resources should be collected directly by the EU outside national budgets.
Does the Minister agree that the concept of own resources is bogus? They are the resources of the British people and other nationalities. Collecting outside the guise of national treasuries is equally bogus, because it still falls on the underlying peoples. Will the Minister ensure that the EU does not get any further own resources, and that it fully recognises that there is no money beyond the members states’ taxpayers?
Justine Greening: I absolutely assure my hon. Friend that we do not want to see any form of EU tax. We are concerned by the discussion about own resources, set out in the budget review. I can also confirm that when I was in Brussels as part of the 2011 budget negotiation last year, I met the Commissioner and made those points very clearly, pretty much as my hon. Friend has done. We have been very clear that we will not accept any EU tax, own resources or dilution of our abatement.
Justine Greening: We are one of several countries that share concerns about the issue and therefore we will seek to veto any move to own resources or an EU tax. We need to win the argument about why it is a bad idea. I believe we are winning it by finding common ground with our European partners. They are having to take very difficult domestic decisions alongside the UK. In many cases, they are in a similar position to us and they do not want to see own resources or an EU tax come on to the agenda. I made that point to the Commission.
In Britain, people would see a direct link between a European Parliament that had just asked for a 6% rise in its budget and not got it, and a Parliament that came back and suddenly proposed an EU tax or own resources changes, so we have been extremely concerned. Any EU tax would be subject to unanimity, and in that case we would have a veto.
That the Committee takes note of European Union Document No. 15285/10 and Addendum, relating to the EU Budget Review; supports the Government’s efforts to reduce the size of the EU budget and deliver savings and value for money for taxpayers, including a substantial reduction in spending on the Common Agricultural Policy; and further supports its efforts to reprioritise expenditure to support growth and competitiveness and tackle climate change and global poverty and to protect the UK’s abatement, which remains fully justified due to distortions in EU spending.—( Justine Greening.)
Kerry McCarthy: I will keep my comments brief, as this is part of an ongoing discussion. We discussed the inter-institutional agreement in another European Committee yesterday, and there was a debate in the Chamber not long ago about the European Court of Auditors report and the failure to sign off accounts for the 16th year in a row, so many of the issues have been fleshed out. I am sure that we will revisit the issues before long. The process is ongoing, and it seems unduly complex and bureaucratic. As the Minister has already acknowledged, the fact that the budget review was set in train in 2005 and we have only just had the outcome published is not a cause for celebration.
EU spending on the common agricultural policy and the cohesion fund is of most concern; we saw that when the Court of Auditors gave its verdict on how money had been spent in the past. I am sure that the Minister will make robust contributions to the debate when she goes to Europe. We need progress; that is important.
The documentation that Europe provides is extremely worrying in many respects. What is going on and what the European Union is trying to do needs to be more widely known, and the Government should have public support in their valiant efforts to stop it. What we have before us is only a discussion document, but it is several years late. It was promised for 2008 but did not appear until 2010. That, in terms of ordinary business management, is deeply unsatisfactory.
There are also many examples of gobbledegook in the document, and uses of terminology that is fairly meaningless. The European Union is to support “smart growth”. Well, name me an organisation that is in favour of stupid growth. That type of language, which begins to propose expenditure and ways of doing things, has no connection with reality. The document then talks about “clear EU value added”. What sort of
I am concerned about many of Europe’s ambitions, and I have questioned the Minister about own resources. One of the things that the EU wants to do is collect the road tolls from infrastructure projects. On what basis will it do that? How much will it have to give before it decides to put in place a toll? Will it say that once a toll has been established in Portugal we will have to have tolls on our roads, because that will provide some form of cohesion?
I am worried—I declare an interest, because I have an involvement in a financial services business—about the proposals to tax the financial services sector. Again, that is surely a matter for national Governments, not Europe, to deal with. I may part company slightly with Opposition Members here, but I also think that the whole EU approach to spending is of a rather old-fashioned, socialistic kind. It predates new Labour in thinking that big Government fiscal plans lead to benefits. The communication from the Commission regarding the EU budget review says:
“The EU budget has made a real difference to the task of delivering more growth and jobs, boosting research, competitiveness and skills and ensuring that the Union offers particular support to those most in need of solidarity.”
That basically means that through redistributive taxation, the EU is taking money from the British and giving it to the Greeks, which is making everybody richer and happier. That is not my view of the world, and I do not believe that it is the view of most British people.
That is just not good enough. The EU budget is a balance sheet. It is all very well to talk about the spiritual benefits of Europe and the fact that we can all claim Mozart as a fellow European citizen, but budgets are about cash flow—cash in and cash out. It is not some ethereal spiritual experience that we all enjoy across the European Union.
The President of the United States might be rather surprised to hear that the European Union was a larger economy than his own, as might the President of China or the Emperor of Japan. It is not a single economy by any means, and I hope that with robust Parliaments such as this one, we will avoid it being a single economy.
When we are losing billions of pounds every year to the European Union, I am not sure that that is necessarily true. The evidence that the cohesion fund, which is the money for solidarity, has done any good at all is extraordinarily thin. That does not stop the document saying that cohesion is marvellous:
After that grand statement about how successful cohesion has been, the Commission admits that it has absolutely no evidence to support it. On flimsy evidence, it claims that 0.5% of EU gross domestic product has been spent to produce a growth of 0.7% in EU GDP. I have been an investment manager for 20 years, and if I managed to achieve only a 0.2% increase or a 40% return over a 10-year period on the money that I had spent, I would have been fired. That is simply not good enough, and it is not even scientifically attested. The best that the EU can do, according to its most ambitious claims, is relatively negligible.
I will conclude with a paragraph that is so completely incoherent that one wonders why anybody spent money producing it. There is sheer muddle in the Commission’s thinking, and it thinks it can cover up that muddle with complex language:
All of that is being done on our money. We are talking about a programme of enormous ambition—the creation of a superstate. The budget review refers to a single “European economy”. That is something that the British people never asked for and never voted for, but it is being done on the back of our money. Why do I bang on about it? Because the Commission does it in stages. It tries to slip these documents through so that they are not debated, until suddenly a Minister comes back from Brussels saying, “Well, we’ve been outvoted. There is now going to be a tax on EU financial transactions. We didn’t know there was any opposition to it in this country because we’ve never discussed it.” It all just slips through. That has been the European modus operandi since we joined. I am so glad that we have a Minister here with the backbone to stop it, who models herself on a former British Minister who liked to say no when Europe tried to make a great grab for powers.
We have debated that with the Commission. We do not think that €122.9 billion is relatively small. How it is being spent matters, too. My hon. Friend the Member for North East Somerset talked about gobbledegook, and he is right.
Part of the problem in the past was that debate was focused on individual pots of money and individual headings, so attention was distracted from the total amount. One of the benefits, not just for us, but for other member states, of Government focusing attention on the absolute amount is that it is real. It is very hard to argue with how much it tots up to, and very hard to cover it up.
We have made it clear that we want more value for money, and the budget has to be of a constrainable size. We cannot have more and more European priorities at the cost of a higher budget. The other thing that I would say to my hon. Friend is that, on a positive note, more and more of our fellow member states can see for themselves the problems of having a perpetually growing EU budget. We are not alone in making those arguments any more. If one reads the joint letter that was signed by some 13 countries in the run-up to the 2011 budget negotiations, or the letter signed by France, Germany, Finland and the Netherlands on the longer-term prospects for the EU budget, one begins to see that we are winning the argument with other member states about the need to limit the size of the budget. Now that we have made progress on that, we are much better positioned to have the secondary argument about extra value for money and ensuring that the EU budget is spent in the right way and on the right goals.
I welcome the budget review’s prioritisation of jobs, but as with the Lisbon strategy, a strategy is not enough—a budget review is not enough. The budget review is not the EU budget reform that we need. Working with other member states, the Government need to make the argument for the necessity of genuine reform. Over time, we are making some real progress on that, but we should not underestimate the size of our challenge over the coming months.
We are keen for this Parliament to continue supporting the Government, to help us to maintain the momentum that we created at the end of last year for reforming the EU budget. It gave us some real strength going into those negotiations, and we valued it. I can assure Members across the House that we will fight hard to defend our country’s interests in the upcoming financial perspective negotiations that we expect to begin in the summer. We will not forget the debate that we have had today. We will make sure that those concerns are raised.
Mr Geoffrey Cox (Torridge and West Devon) (Con): I have listened with great approval to everything that the Minister has said, but can she give us a commitment on behalf of the Government? In recent months, the number of competencies that the EU has assumed has grown; for example, there is the External Action Service. Page 73 of the documents says that it will be given, under the process that we are discussing, the right to budgetary autonomy, to be treated as an institution and to set its own administrative expenditure. Some might argue that the fact that it is taking on such an expensive process and function at a time of extraordinary constraint on resources is a real worry. Will she give a commitment that we will not agree to ever-extending competencies for the EU, which will simply increase the budget?
Justine Greening: I absolutely can give my hon. and learned Friend that assurance, on two levels. First, we do not want to see any further competencies taken at the EU level. Secondly, we do not want to see any increases in the EU budget—quite the reverse; we want the EU budget to decrease over time. The External Action Service, as he knows, was something that we did not support in opposition. However, it is there now, and we want to ensure that it works effectively. It is a classic example of a proposal that came through with one price tag attached, and where, within months, a higher price
|©Parliamentary copyright||Prepared 17th February 2011|