21 Financial management
| (31839)
12614/10
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 ITER project
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| Legal base | —; co-decision; QMV
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| Department | HM Treasury
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| Basis of consideration | Minister's letter of 2 December 2010
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| Previous Committee Report | HC 428-ii (2010-11), chapter 9 (15 September 2010), HC 428-iv (2010-11), chapter 2 (20 October 2010) and HC 428-vii (2010-11), chapter 5 (10 November 2010
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| To be discussed in Council | Possibly 20 December 2010
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
21.1 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.[98]
21.2 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).[99]
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 (£1.24
billion) in 2012 and 2013 — that includes €800 million
(£710.48 million) in 2012 and €600 million (£532.86
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, the Council said that the EU contribution
to ITER's construction phase must be limited to €6.6 billion
(£5.86 billion) (in 2008 values) over the period 2007-2020,
and called for greater cost control and containment.[100]
21.3 The 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. In July
2010 the Commission put forward this as a means of securing €860
million (£763.77 million) of the €1.4 billion (£1.24
billion) additionally required for 2012 and 2013 — it suggested
that:
- €460 million (£408.53
million) be secured through redeployment of funds within the 7th
Research Framework Programme under Heading 1a; and
- a further €400 million (€355.24 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.
21.4 When we considered this document, in September
2010, we heard 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;
- it would argue, therefore, for full identification
of the funding shortfall for ITER and for a more substantial proportion
of that shortfall to be met through redeployment of funds within
Heading 1a; and
- it was 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.
We commented that, whilst we recognised the importance
of the ITER project, we shared the Government's concern about
the use of unallocated margins. So before considering the proposal
further we asked to hear from 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.
21.5 On 20 October 2010 we reported an interim account
from the Government on the negotiations, from which we learned
that a large number of Member States shared the Government view.
And on 10 November 2010 we reported a further account which revealed
some progress towards a satisfactory conclusion. But, noting that
an entirely satisfactory resolution of this issue had not yet
been achieved, we said we did not wish yet to clear the document.
However, we recognised that the Government might need to acquiesce
in a conclusion on this matter in the course of the Conciliation
Committee 2011 budgetary discussions on 11 November 2010, even
though the document remained under scrutiny. Therefore, if the
Government judged it appropriate in that context, we agreed, in
terms of paragraph (3)(b) of the House of Commons Scrutiny Reserve
Resolution of 17 November 1998, that it might join an agreement
on the draft Decision. We asked to have an account of developments
in due course.[101]
The Minister's letter
21.6 In the event the draft Decision was not agreed
during the Conciliation Committee negotiations. So the Economic
Secretary to the Treasury (Justine Greening) writes now to tell
us of developments, saying that:
- discussions have taken place
in the Council's Budget Committee and in COREPER, to make progress
on this issue;
- there has not been a further formal proposal
from the Commission; and
- recalling that the Council had called for the
financing shortfall to be met primarily through reallocation of
existing resources in Heading 1a (competitiveness for growth and
employment), the European Parliament's position was that the shortfall
should be met through an increase to the Financial Framework.
21.7 The Minister reports that the Presidency has,
as the basis for possible final agreement with the European Parliament,
proposed:
- a reduction in the amount of
funding required from €1.4 billion (£1.24 billion) to
€1.3 billion (£1.15 billion)— this is possible
because the F4E Agency[102]
has identified €100m of savings from the project this year,
which reduces the overall figure required;
- €460 million (£408.53 million) to be
found through reallocation of existing resources in Heading 1a
in 2012 and 2013; and
- the balance of €840 million (£746 million)
to come from the available budget margins in 2010 and 2011.
She says that:
- in practice, this would be
achieved through revising the Financial Framework to reduce heading
ceilings as needed in 2010 and 2011 and increase by corresponding
amounts the Heading 1a ceiling in 2012 and 2013, as required for
ITER;
- this would not require an overall increase in
the Financial Framework; and
- any such increase would be completely unacceptable
to the Council.
21.8 The Minister continues that the Commission
issued a non-paper on 26 November 2010 setting out the latest
state of the available budget margins, to support the third element,
of €840 million, and showing changes from the situation reported
to us previously, in Headings 2 (Preservation and management of
natural resources) and 5 (Administration):
- the Commission's proposed amendment
to Draft Amending Budget No 10 to the 2010 Budget[103]
reduces the available margin in Heading 2 in 2010 to €484
million (£429.84 million) from its previous level of €814
million (£722.91 million);
- the Commission therefore proposes using a further
€269 million (£238.9 million) from the Heading 2 margin
in 2011 for ITER financing — the latest Commission proposed
Draft Budget for 2011[104]
provides for a total margin in Heading 2 next year of €1,679
million (£1491.12 million), from which this amount would
be deducted;
- in Heading 5 the Commission proposes using €54
million (£47.96 million) from the 2010 Budget margin, rather
than the €94 million (£83.48 million) suggested in its
previous assessment of the margins — this, and the overall
decrease in the amount to be allocated from the Heading 2 margin,
is to reflect the reduction in the total amount required for ITER
from €1.4 billion to €1.3 billion.
The Minister adds that the available amounts in the
2010 margins of €15 million (£13.32 million) in Heading
1a and €18 million (£15.99 million) in Heading 3a (Freedom,
security and justice) are unchanged from the situation reported
to us previously.
21.9 The Minister says that:
- the Government welcomes that
this proposal achieves full financing of the ITER shortfall at
once, contrary to the Commission's original financing proposal
in July 2010;
- recalling that it wished the
proportion of funding found through reallocation to be increased,
in order to limit the eventual cost to Member States, there has
not been the progress the Government wanted on this;
- it notes and supports, however, the reduction
in the overall figure required for ITER, which will impact on
the contributions required from Member States;
- this has been found through cost savings and
the Government will continue actively to push for more such savings
in the years ahead;
- taking into account that its and other Member
States' strong efforts have not been able to secure further reprioritisation
of existing resources and that the European Parliament's position
was to support only fully additional spending, through an increase
to the Financial Framework, the Government is of the view that
the Presidency's proposal is the best achievable solution in these
circumstances;
- it is important for the future of the ITER project
to finalise a solution to the funding shortfall and the Government
believes the Council and the European Parliament should now try
to bring this negotiation to a close;
- the Presidency's proposal has been widely supported
in the Council and if the European Parliament can agree to it,
then it will take effect formally in the new Financial Framework
Regulation;[105]
- discussions of both ITER and this Regulation
are ongoing with the European Parliament — it is not yet
clear whether the two sides will be able to reach agreement on
them; and
- if they can the Government understands that the
Presidency is hoping for the Council to adopt the new Regulation
at the Environment Council on 20 December 2010.
Conclusion
21.10 We are grateful to the Minister for her
full account of where matters stand on this proposal. We note
that the Council appears to have achieved as much improvement
as possible, given the circumstances, and, having no more questions
to ask, now clear the document.
98 See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:139:0001:0017:EN:PDF.
Back
99
See http://www.iter.org/. Back
100
(31601) 9424/10 + ADD 1: see HC 428-i (2010-11), chapter 27 (8
September 2010). Back
101
See headnote. Back
102
Fusion for Energy (F4E) is the EU's Joint Undertaking for ITER
and the development of fusion energy: see http://fusionforenergy.europa.eu/.
Back
103
(32094) 15250/10: see chapter 22 in this Report. Back
104
(32214) -: see chapter 22 in this Report.
Back
105
(31400) 7182/10: see HC 428-vii (2010-11), chapter 5 (10 November
2010). Back
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