Documents considered by the Committee on 15 September 2010 - European Scrutiny Committee Contents

9   Financial management



COM(10) 403

Draft Decision amending the Inter-Institutional Agreement of 17 May 2006 on budgetary discipline and sound financial management as regards the multiannual Financial Framework, to address the financing needs of the INTER project

Legal base—; co-decision; QMV
Document originated20 July 2010
Deposited in Parliament28 July 2010
DepartmentHM Treasury
Basis of considerationEM of 8 September 2010
Previous Committee ReportNone
To be discussed in CouncilNo date known
Committee's assessmentPolitically important
Committee's decisionNot cleared; further information requested


9.1  The Inter-Institutional Agreement on budgetary discipline and sound financial management 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 has no legal base but is politically binding. It is an important tool of budgetary discipline and includes a multiannual 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 own resources. It contributes to budgetary discipline by setting ceilings on the amount of funds available to the EU Budget in broad policy areas for each year it covers. The current Inter-Institutional Agreement was agreed in June 2006 and its Financial Framework spans spending over 2007-2013.[18]

9.2  On 4 May 2010 the Commission presented a Communication, ITER status and possible way forward, which, amongst other things, identified a shortfall in funding for the International Thermonuclear Experimental Reactor (ITER).[19] On 12 July 2010 the Council adopted conclusions that confirmed the short-term financing need for additional commitment appropriations for ITER, identified by the Commission as €1.4 billion (£1.2 billion) in 2012 and 2013 — that is includes €800 million (£660 million) in 2012 and €600 million (£495 million) in 2013. The Council called on the Commission to propose securing this funding within the overall ceiling of the current Financial Framework, based primarily on redeployment of funds within Heading 1a of the budget (competitiveness for growth and employment). At the same time, Council said that the EU contribution to ITER's construction phase must be limited to €6.6 billion (£5.4 billion) (in 2008 values) over the period 2007-2020, and called for greater cost control and containment.[20]

The document

9.3  This draft Decision is intended to amend the Inter-Institutional Agreement on EU financial management so as to change the Financial Framework for 2007-2013 in order to meet the Council's conclusions of July 2010 on ITER financing. The Commission puts forward a means of securing €860 million (£709 million) of the €1.4 billion (£1.2 billion) additionally required for 2012 and 2013 — it suggests that:

  • €460 million (£379 million) be secured through redeployment of funds within the 7th Research Framework Programme under Heading 1a; and
  • a further €400 million (€330 million) be transferred, from the unallocated margin of Heading 2 (preservation and management of natural resources) in 2010, to Heading 1a in 2012 and 2013.

This would result in no overall increase to the Financial Framework.

9.4  The Commission explains its analysis underlying this proposed use of the margins, saying that:

  • the actual and estimated margins under Heading 1a for the remaining years of the current Financial Framework are too limited to be able to contribute to the ITER financing solution;
  • in particular, there is no margin in 2010, due to the financing of the European Economic Recovery Plan this year;
  • it estimates the margin will be €50.10 million (£41.30 million) in 2011, €34 million (£28 million) in 2012 and €47 million (£39 million) in 2013;
  • instead, it proposes to redeploy funds for ITER within existing allocations in Heading 1a — specifically €100 million (£82 million) in 2012 and €360 million (£297 million) in 2013, both from the 7th Research Framework Programme;

9.5  As for available actual and estimated margins in other budget Headings, from which funding might be reallocated to ITER, the Commission judges that margins are too limited to be of use in Headings 1b (cohesion for growth and employment), 3a (freedom, security and justice), 3b (citizenship), 4 (EU as a global player) and 5 (administration). It suggests that only the margin for Heading 2 in 2010, amounting to €456.20 million (£376.30 million), can offer more flexibility — especially once agriculture expenditure for 2010 has been confirmed. It suggests, therefore, reducing the Financial Framework ceiling for commitment appropriations for Heading 2 in 2010 by €400 million (£330 million) and correspondingly increasing the ceiling for commitment appropriations for Heading 1a by €160 million (£132 million) in 2012 and €240 million (£198 million) for 2013. The Financial Framework ceilings for payment appropriations would be changed in the same way.

9.6  The Commission suggests that decisions on financing the outstanding amount of €540 million (£445 million) should be made at a later stage, starting with the conciliation process between the Council and the European Parliament on the 2011 EU budget in October-November 2010, and using subsequent annual budgetary procedures if necessary. The Commission also suggests that the three institutions adopt a joint declaration to this purpose, by the latest at this autumn's conciliation meeting.

The Government's view

9.7  The Economic Secretary to the Treasury (Justine Greening) says that the Government supports ITER as a vital step to practical fusion energy supply, while considering that important management issues need to be addressed, along with the rising costs of the project — for this reason the Government supported the Council conclusions of 12 July 2010 on ITER, including the call for cost control and containment and for further improvement of the governance of the ITER project. She then comments on the actual funding proposal to meet the shortfall, saying that:

  • the Government believes it essential that additional financing for ITER is identified within the overall ceiling of the Financial Framework and is pleased that the Commission proposal respects this principle;
  • it is disappointed, however, that the proposal identifies only a portion (€860 million (£709 million)) of the shortfall required;
  • it believes that it would be preferable, primarily for clarity of future budget-setting, for the whole additional amount to be identified — and its financing agreed — in negotiations this autumn if possible;
  • it is concerned, bearing in mind the July 2010 Council conclusions' call for the additional financing to be identified 'primarily through redeployment within Heading 1a', that, of the amount identified in the Commission's proposal, almost half is sourced from unallocated margins in Heading 2;
  • it considers that research and innovation expenditure under Heading 1a represents significantly higher value for money than expenditure under Heading 2;
  • it is concerned, nevertheless, that the balance of funding sources proposed does not fully reflect the Council conclusions' emphasis on redeployment of existing funds, before use of unallocated margins;
  • redeployment would not entail eventual additional cost to Member States, in contrast to the use of unallocated margins; and
  • at a time of fiscal consolidation across the EU, it is important that future additional financial contributions for ITER from Member States are limited.

The Minister tells us that the Government will argue, therefore, for a more substantial proportion of the funding shortfall for ITER to be met through redeployment of funds within Heading 1a. She adds that it is important to note in this context that the Financial Framework already foresees a substantial increase of funding for the 7th Research Framework Programme from 2010-2013, reflecting the continued strategic importance to the EU of research, innovation and development work.

9.8  On the future financial implications the Minister says that:

  • the proposal would have the effect of increasing the level of commitment appropriations in the EU budget by €400 million (£330 million) over 2012-2013 — €160 million (£132 million) in 2012 and €240 million (£198 million) in 2013;
  • as the proposal concerns commitment appropriations only, there is no immediate financial impact on the UK;
  • this would occur when payment appropriations flow from these commitments in the next Financial Framework from 2014 onwards.

9.9  Finally the Minister tells us that a Council position on the proposal is likely to be reached before conciliation with the European Parliament on the 2011 EU Budget begins in mid-October 2010.


9.10  Whilst we recognise the importance of the ITER project we share the Government's concern about the use of unallocated margins. So before considering the proposal further we should like to hear from the Minister about developments in the Government's push for a more substantial proportion of the funding shortfall for ITER to be met through redeployment of funds within Heading 1a. Meanwhile the document remains under scrutiny.

18   See  Back

19   See  Back

20   (31601) 9424/10 + ADD 1: see HC 428-i (2010-11), chapter 27 (8 September 2010). Back

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