Documents considered by the committee on 10 November 2010, including the following recommendation for debate: Safety of offshore oil and gas activities - European Scrutiny Committee Contents


12   Draft Budget 2011

(a)

(31644)

SEC(10) 473

(b)

(32145)

14828/10

SEC (10) 1199

(c)

(32146)

15251/10

COM (10) 601


Statement of estimates of the European Commission for the financial year 2011 (Preparation of the 2011 Draft Budget)


Amending Letter No 2 to the draft General Budget 2011



Amending Letter No 3 to the draft General Budget 2011

Legal baseArticle 314 TFEU; co-decision; QMV
Documents originated(b) 11 October 2010

(c) 20 October 2010

Deposited in Parliament(b) and (c) 8 November 2010
DepartmentHM Treasury
Basis of considerationMinister's letter of 2 November 2010
Previous Committee Report(a) HC 428-i (2010-11), chapter 5 (8 September 2010), HC 428-iii (2010-11), chapter 6 (13 October 2010) and HC Deb, 13 October 2010, cols 409-459

(b) and (c) None

Discussion in Council15 July 2010
Committee's assessmentPolitically important
Committee's decision(a) Cleared (Debate on the floor of the House on 13 October 2010)

(b) and (c) Cleared

Background

12.1  The Commission's Draft Budget (DB) is the first stage in the annual process of establishing the EU's budget for the following year. The 2011 DB sets out the Commission's proposals for EU expenditure in 2011, together with bids for the other institutions, such as the European Parliament. It provides the basis for negotiations between the two arms of the Budgetary Authority (the Council and the European Parliament), which will result in the adoption of the General Budget by the end of 2010.

12.2  The 2011 Budget will be the first to be adopted according to a new procedure introduced by the Lisbon Treaty. The Council's first reading position on the DB was adopted on 12 August 2010 (the TFEU requires the Council to complete this stage by 1 October), which was then forwarded to the European Parliament. (The UK and six other Member States voted against Council's position for a 2.91% increase in the DB, but this fell just short of a blocking minority.) The European Parliament agreed its first reading position 20 October 2010. As it proposed further amendments to those made by the Council, a conciliation committee has to be convened, with the aim of reaching agreement on the 2011 Budget. This will be subject to separate approval by both the Council and the European Parliament, after which the EU's Budget for 2011 will be deemed to have been adopted. Between the Commission's presentation of the DB and its final adoption it issues a number of Amending Letters, most of which propose technical adjustments, often arising from updated financial data.

12.3  The context for the DB is determined by the multi-annual Financial Framework, which sets out annual ceilings for the five permanent and one temporary headings of budget expenditure: sustainable growth, preservation and management of natural resources, citizenship, freedom, security and justice, the EU as a global player, administration and compensation (temporary measures for Bulgaria and Romania in their first years of accession, which no longer apply). The DB for 2011 is the fifth of the 2007-2013 Financial Framework.

12.4  It is customary for the Government to supplement its Explanatory Memorandum on the DB with reports on the significant further stages of the negotiation of the Budget. Such reports cover any Amending Letters that have issued, unless they are sufficiently important to warrant a separate Explanatory Memorandum.

12.5  We first considered the DB for 2011 on 8 September 2010, when we recommended it for debate on the Floor of the House. We reported the Council's adoption of the DB on 13 October 2010 and the debate took place on the same day.[25]

The Minister's letter

12.6  The Economic Secretary to the Treasury (Justine Greening), before detailing the European Parliament's support, on 20 October 2010, for a 6% increase in payment appropriations in the 2011 Budget, stresses that the Government remains determined to oppose this increase. The Minister then tells us of the Government's efforts in this regard, saying that:

  • on 14 October 2010 she put the case strongly to European Parliamentarians, the Belgian Presidency and the Commission that such a proposal was profoundly out of step with the fiscal consolidation efforts being made in Member States and that it risked damaging the credibility of EU institutions with the taxpayers whom they exist to support;
  • the usual dynamic of the annual budget negotiation would mean that the final discussions would focus on trying to reach agreement between the Council's and the European Parliament's positions;
  • the Government was determined that this should not be the case this year;
  • the Prime Minister therefore led efforts to build an alliance among Member States before and at the European Council on 28-29 October 2010 to block any increase above that already agreed by the Council;
  • as a result, 13 Heads of Government issued a joint letter on 29 October, stating that a 6% budget increase is "especially unacceptable at a time when we are having to take difficult decisions at national level to control public expenditure" and that those Heads of Government "are clear that they cannot accept" any more than the Council's proposed increase; and
  • this means that, either the Council and the European Parliament will have to agree to this level of increase or no agreement will be reached, in which case the 2010 Budget (adjusted for inflation) will be rolled over into 2011 unless and until a final budget for 2011 can be agreed.

12.7  Turning to the European Parliament position on the DB the Minister says that:

  • it proposes a total of €143.1 billion (£124.3 billion) in commitment appropriations and €130.6 billion (£113.4 billion) in payment appropriations;
  • this represents increases for commitment appropriations of €1.3 billion (£1.1 billion), or 0.9%, and €4 billion (£3.5 billion), or 3.2%, for payment appropriations above the level of the Council's position on the DB; and
  • the amount of commitment appropriations in the European Parliament's proposal corresponds to 1.14% of EU GNI, and the level of payment appropriations to 1.04%.

The Minister then gives us some of the details of the increases proposed for each of the budget headings. We annex the Minister's tables summarising the present position.[26]

Sub-Heading 1a (Competitiveness for growth and employment)

12.8  Here the European Parliament increased commitment appropriations by €95 million (£82.5 million) and payment appropriations by €909 million (£790 million), compared with the Council's position, giving a total of €13.5 billion (£11.7 billion) in commitment appropriations and €12.1 billion (£10.5 billion) in payment appropriations. This left a margin of €1.4 million (£1.2 million) under the Financial Framework ceiling for commitment appropriations. The increases in large part reverse the Council's reductions to the DB and exceed DB levels for some budget lines including:

  • an increase of €18 million (£15.6 million) in both commitment and payment appropriations for the Lifelong Learning Programme;
  • an increase of €10 million (£8.7 million) in both commitment and payment appropriations for the People programme;
  • in the energy field an increase of €10 million (£8.7 million) in both commitment and payment appropriations for research related to energy and an increase of €10 million (£8.7 million) in commitment appropriations for the Intelligent Energy-Europe Programme under the Competitiveness and Innovation Framework Programme; and
  • an increase of €10 million (£8.7 million) in commitment appropriations for the Entrepreneurship and Innovation Programme under the Competitiveness and Innovation Framework Programme;

12.9  The European Parliament also decreased commitment and payment appropriations by €47 million (£40.8 million) for the ITER nuclear fusion project.

Sub-Heading 1b (Cohesion for growth and employment),

12.10  Compared with the Council's position, the European Parliament increased commitment appropriations by €10.5 million (£9.1 million) and payment appropriations by €1.1 billion (£1 billion), to €51 billion (£44.3 billion) and €42.6 billion (£37 billion) respectively. This left a margin of €6.4 million (£5.6 million) under the Financial Framework ceiling for commitment appropriations. The amendments restored appropriations throughout the sub-heading to the level proposed in the DB and made increases above this in two areas:

  • €2.5 million (£2.2 million) in both commitment and payment appropriations for a new budget line "Technical assistance and dissemination of information on the EU Strategy for the Baltic Sea Region and an improved knowledge of macro-regions strategy"; and
  • €8 million (£6.9 million) in both commitment and payment appropriations for several new preparatory actions and pilot projects.

Heading 2 (Preservation and management of natural resources)

12.11  The European Parliament proposed a total commitment appropriations level of €59.9 billion (£52 billion) and a payment appropriations level of €58.5 billion (£50.8 billion), leaving a margin of €462 million (£401 million) under the Financial Framework ceiling for commitment appropriations. This represented increases above the Council's position of €864 million (£750 million) and €1.2 billion (£1.0 billion) in commitment and payment appropriations respectively. The European Parliament proposed increases in some areas above the level of the DB, including:

  • €300 million (£261 million) in both commitment and payment appropriations for a new dairy fund, to provide support in particular to milk producers;
  • €25 million (£22 million) in both commitment and payment appropriations for the Programme for Deprived Persons;
  • €10 million (£8.7 million) in both commitment and payment appropriations for the school milk and school fruit programmes; and
  • €8 million (£6.9 million) in both commitment and payment appropriations for specific aid for bee-keeping.

Sub-Heading 3a (Freedom, security and justice)

12.12  Under this sub-heading the European Parliament proposed an increase in commitment appropriations of €4 million (£3.5 million), to a total of €1,139 million (£989 million), and a decrease in payment appropriations of €4 million (£3.5 million), to a total of €848 million (£737 million), compared with the DB. This left a margin of €67 million (£58 million) under the Financial Framework ceiling for commitment appropriations. This represented increases above the Council's position of €15 million (£13 million) in commitment appropriations and €46m (£40m) in payment appropriations. Compared with the DB the most significant changes proposed were:

  • an increase of €2.4 million (£2.1 million) in both commitment and payment appropriations for the DAPHNE fight against violence programme;
  • increases of €1 million (£0.9 million) in both commitment and payment appropriations for the drugs and crime prevention programmes;
  • an increase of €4.5 million (£3.9 million) in both commitment and payment appropriations for preparatory actions and pilot projects;
  • a decrease of €5.2 million (£4.5 million) in both commitment and payment appropriations for the agency for the operational management of large-scale IT systems in the area of freedom, security and justice;
  • a decrease of €4.3 million (£3.7 million) in payment appropriations for the crime prevention programme; and
  • decreases of €2 million (£1.7 million) in payment appropriations for the criminal and civil justice programmes.

Sub-Heading 3b (Citizenship)

12.13  Here the European Parliament proposed an increase in commitment appropriations of €15 million (£13 million), to €683 million (£593 million), and in payment appropriations of €9.9 million (£8.6 million), to €649 million (£564 million), compared with the DB. This left a margin under the Financial Framework ceiling for commitment appropriations of €0.1 million (£0.09 million). It represented an increase above the Council's position of €15 million (£13 million) in commitment appropriations and €29 million (£25 million) in payment appropriations. By and large the European Parliament restored the levels of the DB, but with significant increases for:

  • "annual events" — an increase of €4 million (£3.5 million) in both commitment and payment appropriations, particularly to co-finance organisation of the World Special Olympics Summer Games in Athens next year; and
  • the Youth in Action programme — an increase of €3 million (£2.6 million) in both commitment and payment appropriations.

Heading 4 (EU as a global player)

12.14   Under this heading the European Parliament increased commitment appropriations by €69 million (£60 million), to a total of €8,683 million (£7,542 million), and payment appropriations by €45 million (£39 million), to a total of €7,646 million (£6,641 million), compared to the DB. This left a margin of €1.3 million (£1.1 million) under the Financial Framework ceiling for commitment appropriations and represented increases above the Council's position of €163 million (£142 million) and €635 million (£552 million) in commitment and payment appropriations respectively. The European Parliament restored some of the levels of funding of the DB, the most significant exceptions being:

  • an increase of €100 million (£87 million) in both commitment and payment appropriations for financial assistance to the Palestinian Authority, the peace process and the UN Relief and Works Agency;
  • an increase of €32 million (£28 million) in commitment appropriations and €8 million (£6.9 million) in payment appropriations for cooperation with developing countries in Asia;
  • an increase of €20 million (£17m) in commitment appropriations and €6 million (£5.2 million) in payment appropriations for cooperation with developing countries in Latin America;
  • a decrease of €45.7 million (£40 million) in both commitment and payment appropriations for the Common Foreign and Security Policy, as well as some regrouping of the budget lines;
  • a decrease of €18 million (£16 million) in commitment appropriations and €5 million (£4.3 million) in payment appropriations for the Bananas Accompanying Measures; and
  • a decrease of €17 million (£14.8 million) in commitment appropriations and €2.8 million (£2.4 million) in payment appropriations for cooperation activities other than Overseas Development Assistance.

Heading 5 (Administration)

12.15  The European Parliament decreased both commitment and payment appropriations from the level of the Draft Budget under this heading by €32 million (£28 million), to a total of €8,223 million (£7,142 million) in commitment appropriations and €8,224 million (£7,143 million) in payment appropriations. This left a margin of €193 million (£168 million) under the Financial Framework ceiling for commitment appropriations and represented an increase above the Council's position of €130 million (£113 million) in both commitment and payment appropriations. Compared with the DB the most significant decreases proposed by the European Parliament were, in both commitment and payment appropriations:

  • €9 million (£7.8 million) from the European Economic and Social Committee;
  • supporting the Council's own reduction of €8 million (£6.9 million) in its own budget; and
  • €6 million (£5.2 million) from the budgets of the Committee of the Regions and the European Parliament itself.

12.16  The European Parliament proposed, in addition, creation in Headings 1a, 2, 3a and 4 a generic budget line "Lisbon mid-term review needs" in each area. These are not provisioned with funds at this stage but each line is accompanied by the same set of stipulations from the European Parliament, namely that it and the Council agree, amongst other things on:

  • providing the EU with a sufficient level of spending "Lisbonisation of the budget" and focusing on EU added value;
  • starting a mid-term review of the Financial Framework through the 2011 budget;
  • "proper involvement" of the European Parliament in the process of agreeing the Financial Framework;
  • opening of negotiations on Own Resources; and
  • agreeing "appropriate legislative and budgetary instruments" related to the European Financial Stabilisation Mechanism.

12.17  Turning to the Amending Letters the Minister first, in relation to Amending Letter No 2, document (b), says that it proposes three amendments:

  • an increase of financing for Europol of €552,000 (£479,467) and of its human resources by four extra staff posts. This is to enable Europol to implement the EU/US Terrorist Financing Tracking Program, following the European Parliament's and the Council's consent to concluding the EU/US agreement on the processing and transfer of financial messaging data for this purpose;
  • increases in financing for the three new European Supervisory Authorities, reflecting the proposal to give the European Securities and Markets Authority responsibility for the authorisation and supervision of credit rating agencies and the decision to assign new tasks to it, the European Banking Authority and the European Insurance and Occupational Pensions Authority. No contribution will be needed from 2012 onwards to cover the cost of supervision of credit rating agencies by the European Securities and Markets Authority, but in the transitional year of 2011 the EU budget is envisaged to supply 40% of the costs, with Member States' contributions providing the remaining 60% — €2.5 million (£2.2 million) is needed in additional funding for 2011 and the Amending Letter proposes EU budget funding of 40% of this, that is €1 million (£0.9 million). The additional tasks for the authorities result in the need for an additional €1.7 million (£1.5 million). However, this is offset by a decrease in their budgets of €1.1 million (£1 million), resulting from updated estimates for some costs in their original budget proposals. The net increase required due to the additional tasks is therefore €560,000 (£486,416), of which it is proposed the EU budget to contribute 40%, or €224,000 (£194,566); and
  • creation of a new item on the expenditure side of the budget, and a corresponding article on the revenue side, to provide the budget structure required to make operational the European Financial Stabilisation Mechanism. The Mechanism was agreed on 11 May 2010, after publication of the Commission's DB for 2011. The EU budget would only be required to provide funding, and be subsequently reimbursed, in the event of default on a loan under the Mechanism. The Amending Letter does not therefore propose that these budget lines be provisioned with funds at this stage.

12.18  The Minister, noting that the net effect of this Amending Letter is an increase of €1.8 million (£1.6 million) in both commitment and payment appropriations to the Commission's DB, comments that:

  • the Government strongly supports implementation of the EU/US Terrorist Financing Tracking Program;
  • it believes it essential that the new European Supervisory Authorities have the necessary resources to fulfil their mandates effectively;
  • it believes, however, that the funding required could and should be found through reprioritisation of existing programmed resources in the relevant budget headings and that the proposed increase in the EU budget is therefore neither necessary nor appropriate; and
  • for this reason, the UK did not support adoption of Amending Letter No 2 at the Council's budget committee on 22 October 2010 — all other 26 Member States voted in favour.

12.19  The Minister says that Amending Letter No 3, document (c), concerns three elements:

  • a downwards revision for agriculture expenditure of €346 million (£301 million) in both commitment and payment appropriations. This is based on changing market factors, legislative decisions adopted in the sector since the DB was published, revised estimates of needs for some direct payments and proposals that are expected to impact on the budget in the coming year. The decrease is largely explained by higher than expected assigned revenue received in 2010 and the favourable situation on agricultural markets;
  • a decrease of €1 million (£0.9 million) for commitment appropriations for international fisheries agreements. This is based on the most recent information concerning such agreements; and
  • creation of a new budget line "Energy projects to aid economic recovery — energy efficiency and renewable initiatives". This is needed to make operational an amendment to the energy component of the European Economic Recovery Plan, due to be adopted by the end of this year, to create a dedicated financial instrument to support energy efficiency and renewable initiatives. It is not provisioned with funds at this stage, as it will be funded through existing allocations for the energy component of the Recovery Plan.

12.20  The Minister says that the Government:

  • is content with the Commission's updated estimates;
  • welcomes reduction of the proposed commitments and payments levels in the 2011 budget;
  • supports the proposed amendment to the energy component of the European Economic Recovery Plan; and
  • can therefore support adoption of this Amending Letter.

12.21  Finally the Minister informs us about the next stages of the EU budget procedure, saying that:

  • a conciliation committee of the Council and the European Parliament met for the first time on 27 October 2010;
  • under the Treaty it has 21 days to reach agreement on a Joint Text of the EU Budget for 2010;
  • the Government expects the conciliation committee also to take decisions on the longer-term financing of the ITER nuclear fusion project and to adopt the Regulation on the Multi-Annual Financial Framework and changes to the Financial Regulation and the Inter-Institutional Agreement, all three of which are required by the entry into force of the Lisbon Treaty;[27] and
  • the final scheduled ministerial meeting of the conciliation committee is on 11 November 2010.

Conclusion

12.22  We are grateful to the Minister for her account of the latest developments on negotiating the EU Budget for 2011. We applaud the Government's continued push for budget restraint and look forward to hearing the outcome of the conciliation process.

12.23  We note the Commission's Amending Letters Nos. 2 and 3, documents (b) and (c), and the Government's comments on them. As they will be subsumed in the continuing discussions of the overall budget, whilst drawing them to the attention of the House, we clear them from scrutiny.

Annex: Draft Budget 2011 (€ million)
Heading
FF Ceiling1
Commission Draft Budget 2011
Council first reading position
European Parliament first reading position
Difference between draft budget 2011 — Council first reading
CA2
PA3
CA
PA
CA
PA
CA
PA
1a. Competitiveness for Growth and Employment

Margin4

1b. Cohesion for Growth and Employment

Margin

12,987-

-

50,987

-

13,437

50

50,970

17

12,110

-

42,541

-

13,390

97

50,970

17

11,219

-

41,466

-

13,486

1.4

50,981

6.4

12,128

-

42,551

-

95

11

909

1,085

2. Preservation and Management of Natural Resources

Margin

60,338

-

59,486

852

58,136

-

59,011

1,326

57,315

-

59,876

462

58,512

-

8641,197
3a. Freedom, Security and Justice

Margin

3b. Citizenship

Margin

1,206

-

683

-

1,135

71

668

15

853

-

639

-

1,124

82

668

15

803

-

620

-

1,139

67

683

0.1

848

-

649

-

15

15

46

29

4. European Union as a Global Player

Margin5

8,430

-

8,614

70

7,602

-

8,520

164

7,011

-

8,683

1.3

7,646

-

163635
5. Administration

Margin6

8,334

-

8,255

161

8,256

-

8,093

323

8,094

-

8,223

193

8,224

-

130130
TOTAL

Margin

Appropriations as a percentage of EU GNI

142,965142,565

1,236

130,136

-

1.04%

141,777

2,024

126,527

1.01%

143,070

731

130,559

1.04%

1,2924,032

Due to rounding, figures in difference column may not equal column differences, and sum of rows may not equal total

1  FF = Financial Framework

2  CA = commitment appropriations

3  PA = payment appropriations

4  €500m appropriations for the European Globalisation Adjustment Fund are excluded from calculation of the margin

5   €253.9m appropriations for the Emergency Aid Reserve are excluded from th4e calculation of the margin

6  For calculating the margin for Heading 5, account is taken of the footnote (1) of the Financial Framework 2007-2013 for an amount of £82m for staff contributions to the pension scheme

Draft Budget 2011 (£ million)
Heading
FF Ceiling1
Commission Draft Budget 2011
Council first reading position
European Parliament first reading
Difference between draft budget 2011 — Council first reading
CA2
PA3
CA
PA
CA
PA
CA
PA
1a. Competitiveness for Growth and Employment

Margin4

1b. Cohesion for Growth and Employment

Margin

11,281

-

44,287

-

11,671

43

44,273

15

10,519

-

36,951

-

11,631

84

44,273

15

9,745

-

36,017

-

11,714

1.2

44,282

5.6

10,534

-

36,960

-

83

9.6

790

942

2. Preservation and Management of Natural Resources

Margin

52,410

-

51,670

740

50,497

-

51,257

1,152

49,784

-

52,008

401

50,824

-

7501,040
3a. Freedom, Security and Justice

Margin

3b. Citizenship

Margin

1,048

-

593

-

986

62

580

13

741

-

555

-

976

71

580

13

697

-

539

-

989

58

593

0.09

737

-

564

-

13

13

40

25

4. European Union as a Global Player

Margin5

7,322

-

7,482

61

6,603

-

7,400

142

6,090

-

7,542

1.1

6,641

-

142552

-

5. Administration

Margin6

7,239

-

7,170

140

7,171

-

7,030

281

7,030.

-

7,142

168

7,143

-

113

-

113
TOTAL

Margin

Appropriations as a percentage of EU GNI

124,179

-

123,832

1,0742

113,036

1.04%

123,148

1,758

109,901

1,01%

124,271

635

113,404

1.04%

1,1223,502

Due to rounding, figures in difference column may not equal column differences, and sum of rows may not equal total

1 FF=Financial Framework

2 CA=Commitment Appropriations

3 PA=Payment Appropriations

4 £434m appropriations for the European Globalisation Adjustment Fund are exckuded from calculation of the margin.

5 £221m appropriations for the Emergency Aid Reserve are excluded from the calculation of the margin.

6 For calculating the margin for Heading 5, account is taken of the footnote (1) of the Financial Framework 2007-2013 for an amount of £71m for staff contributions to the pension scheme.


25   See headnote. Back

26   See pp 68-69. Back

27   (31399) 7180/10 (31400) 7182/10 (31401) 7183/10 and (31839) 12614/10: see chapter 5 in this Report. Back


 
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