European Scrutiny Committee Contents

11 General Budget 2011




COM(11) 9




COM(11) 10

Draft amending budget No. 1 to the general budget 2011: Statement of expenditure by section: Section iii: Commission

Draft Decision on the mobilisation of the EU Solidarity Fund

Legal baseArticle 314 TFEU; co-decision; QMV
DepartmentHM Treasury
Basis of considerationMinister's letter of 18 March 2011
Previous Committee ReportsHC 428-xvi (2010-11), chapter 9 (9 February 2011), HC 428-xviii (2010-11), chapter 4 (2 March 2011) and HC 428-xix (2010-11), chapter 4 (9 March 2011)
Discussed in Council15 March 2011
Committee's assessmentPolitically important
Committee's decisionCleared


11.1 During the course of a financial year the Commission presents to the Council and European Parliament Draft Amending Budgets (DABs) proposing increases or reductions for revenue and expenditure in the current EU Budget — there are about ten DABs each year.

11.2 In 2002 a European Union Solidarity Fund (EUSF) was established to assist financially Member States or candidate countries affected by a "major natural disaster with serious repercussions on living conditions, the natural environment or the economy". The criteria for financial assistance are contained in Council Regulation (EC) No 2012/2002 and the 2006 Inter-Institutional Agreement on budgetary matters provides that the EUSF may be "mobilised" within an annual ceiling of €1 billion (£0.861 billion), over and above the relevant headings of the Financial Framework. The Commission's view is that solidarity aid should be progressive — the allocation of funding should be 2.5% of the total direct damage below the threshold for mobilising the EUSF (0.6% of GNI or €3 billion (£2.6 billion) in 2002 prices, whichever is the lower amount) and 6% of the total direct damage above it.

11.3 In February 2011 we considered:

  • Draft Amending Budget (DAB) No. 1/2011, document (a), which would amend the 2011 General Budget to implement the EUSF Decision proposed in document (b); and
  • the draft Decision, document (b), which would mobilise the EUSF to give budgetary assistance to alleviate the impact of severe flooding in May, June and July 2010 in Poland, Slovakia, Hungary, the Czech Republic, Croatia and Romania.

The total aid proposed was €182.4 million (about £157 million).

11.4 We heard that:

  • the Government supports the broad objectives of the EUSF in providing financial assistance to Member States and countries engaged in accession negotiations in the event of major natural disasters, where the country concerned cannot alone handle the repercussions;
  • given the impact on the agricultural sector, infrastructure, residential and commercial buildings of the Polish, Slovak, Hungarian and Romanian regions affected by heavy rainfall, the Government was content that these applications met the "extraordinary regional disaster" criterion;
  • the Government was satisfied that the Czech and Croatian applications met the condition whereby a country affected by the same major disaster as a neighbouring country might exceptionally benefit from the EUSF;
  • the Government therefore supported the proposed mobilisation of the EUSF;
  • it did not, however, support the proposed method of financing this mobilisation through an overall increase to the 2011 EU Budget;
  • in the light of the Council's successful limitation of the increase, over 2010, in the 2011 EU Budget of just 2.91% the proposal now to increase the budget from that level was completely unacceptable;
  • furthermore, the Government did not consider it necessary — appropriations required to mobilise the EUSF for the six applications could and should be allocated by reprioritising existing resources from areas of the budget that routinely underspend; and
  • the Government had already begun making this case to other Member States and the Commission.

11.5 We said that, whilst we had no problem about the principle of the EU providing EUSF assistance in these six cases, we were concerned, like the Government, about the possibility of such assistance breaching the agreed 2.91% increase over 2010 for the 2011 EU Budget. So we asked to hear about progress in persuading other Member States and the Commission of need to avoid this, before we would consider these proposals further.

11.6 On 2 March 2011 we heard that:

  • in a range of contacts over the previous several weeks the Government had stressed to other Member States and the Commission that, while it supported the purpose of the proposed expenditure, the suggested increase to the 2011 budget was unacceptable;
  • as a result, there was a consistent blocking minority in the Council's Budget Committee against the Commission's proposed means of financing DAB No. 1/2011 by increasing the overall budget size;
  • more recently, discussion had focused on financing the expenditure from the so-called "negative reserve", which is encapsulated in article 44 of the Financial Regulation, was in use in the 1980s and 1990s and was last used in 1997;
  • this procedure enables expenditure to be made now, with the reprioritisation of funds to finance it occurring later in the year — as such, it does not increase the overall size of the EU budget, but enables decisions on reallocation of existing funds to be delayed until implementation rates and needs are clearer later in the year;
  • this solution had attracted majority support amongst Member States in the Council's Budget Committee;
  • while the Government accepted that the solution met the key condition of protecting the 2.91% budget cap for 2011, it nevertheless did not support the use of the negative reserve;
  • it and several other Member States had consistently argued rather that a decision on reprioritisation within the budget need not be delayed until later in the year, but could and should be made now;
  • while the negative reserve was a more regular feature of annual budget management in the past, the Government believed that it was an unnecessary provision and it had suggested, in the context of ongoing negotiations on the Financial Regulation, that its deletion should be considered;[51]
  • the proposal would now pass to COREPER on 2 March 2011, and from there to the European Parliament for consideration before final adoption in Council, scheduled for ECOFIN on 15 March 2011; and
  • the Government was maintaining a Parliamentary scrutiny reserve and had stressed the seriousness with which it viewed these proposals.

11.7 We commented that, like the Government, we would much prefer reprioritisation to be done now, rather than later under the negative reserve procedure. We encouraged the Government, therefore, to continue to resist this element of the revised proposal. Meanwhile the documents remained under scrutiny, pending a further report on developments.

11.8 On 9 March 2011 we heard that:

  • despite the Government's continued engagement with other Member States, and while some shared its view of the use of the negative reserve, a qualified majority of Member States had stated that they would support its use for the DAB
  • COREPER had not taken this item on 2 March 2011, as had been expected;
  • COREPER was now expected to endorse, by qualified majority, the use of the negative reserve and the decision to mobilise the EUSF at its meeting on 9 March 2011;
  • the Council Secretariat had confirmed that Council adoption was still scheduled for ECOFIN on 15 March 2011;
  • while the Government supported the proposed use of the EUSF, the negative reserve procedure was not its preferred financing option, but, unfortunately, the Government and those who shared its view were in the minority in Council and had not been able to prevent this.

We said that:

  • like the Government, we continued to much prefer reprioritisation to be done now, rather than later under the negative reserve procedure;
  • therefore, although adoption of the negative reserve procedure now seemed likely, we encouraged the Government to continue to resist this element of the revised proposal; and
  • the documents would again remain under scrutiny, pending a further report on developments.[52]

The Minister's letter

11.9 The Economic Secretary to the Treasury (Justine Greening) now reports that:

  • on 15 March 2011 the Council adopted both the draft Decision and the DAB;
  • it was agreed that the funding would be through use of the negative reserve procedure; and
  • the Government abstained from the agreement.

The Minister explains that the abstention was for two reasons:

  • it best reflected both the Government's support, in principle, for financial assistance to the flood-damaged countries concerned and its concern about use of the negative reserve procedure; and
  • it best accommodated our urging of continued resistance to use of the negative reserve procedure and the Lords EU Committee's expressed understanding of the merits of delaying reprioritisation of the budget until later in the year.


11.10 We are grateful to the Minister for her latest account of developments. We now clear the documents from scrutiny. But in doing so we note both that:

  • the Government did what it could to prevent use of the negative reserve procedure; and
  • the Government's abstention on the proposal meant that our scrutiny reserve was not breached.

51   (32428) 5129/11: see HC 428-xvi (2010-11), chapter 1 (9 February 2011) and Gen Co Debs, European Committee B, 14 February 2011, cols. 3-18. Back

52   See headnote. Back

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