European Scrutiny Committee Contents


5 Draft Budget 2011

(31644)

SEC(10) 473

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

Legal baseArticle 314 TFEU; co-decision; QMV
Deposited in Parliament1 June 2010
DepartmentHM Treasury
Basis of considerationEM of 17 June 2010
Previous Committee ReportNone
Discussion in Council15 July 2010
Committee's assessmentPolitically important
Committee's decisionFor debate on the Floor of the House

Background

5.1 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.

5.2 The 2011 Budget will be the first to be adopted according to a new procedure introduced by the Lisbon Treaty. The ECOFIN Council will negotiate and agree its first reading position on the DB on 24 July 2010 (the TFEU requires the Council to complete this stage by 1 October), which will then be forwarded to the European Parliament. The European Parliament will in turn discuss and agree its first reading position by mid-October 2010 (the TFEU deadline is 42 days after the Council adopts its position). If it proposes further amendments to those made by the Council, a conciliation committee would be convened to meet over 21 days, largely in late October and early November, 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.

The document

5.3 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.

5.4 The DB is presented in Activity-Based Budgeting (ABB) format, with budget appropriations, resources and staff allocations organised by activity. As part of the 2011 DB the Commission has also published Activity Statements providing performance information for each activity. These present specific objectives, planned outputs and performance measures at the level of individual budget lines as well as higher-level activity areas, in line with ABB. The 2011 DB presents a Budget Memorandum for the second time. This thematic overview of the Activity Statements aims to highlight operational policies and activities financed by the EU budget in support of the Europe 2020 Strategy, designed to promote smart, sustainable and inclusive growth.[18]

5.5 As is usual, the DB (previously the Preliminary Draft Budget) consists of a General Statement of Revenue and draft estimates of required appropriations for the EU institutions: European Parliament, Council, Office of the President of the Council (the latter two being treated as one institution for the purpose of establishing the budget), Commission, Court of Justice, Court of Auditors, Economic and Social Committee, Committee of the Regions, European Ombudsman and European Data Protection Supervisor. Once the establishment of the new European External Action Service is agreed, there will also be a draft estimate of required appropriations for that new institution, as well as amendments to the draft estimates of the Commission and Council, to reflect the transfer of functions from those institutions to the External Action Service.

OVERVIEW AND SUMMARY OF THE FIGURES

5.6 The Commission explains that its key objectives with the DB are:

  • to support the EU economy in recovery from the economic and financial crisis; and
  • to help EU citizens by reinforcing economic growth and employment opportunities.

Allied to this, the DB also reflects the objectives of smart, sustainable and inclusive growth as identified in the Europe 2020 Strategy.

5.7 The Commission proposes commitment appropriations[19] of €142,565 million (£121,180 million).[20] This is 1.14% of EU Gross National Income (GNI) and an increase in commitment appropriations of €1,073 million (£912 million) or 0.8% above 2010 levels.[21] For payment appropriations the Commission proposes €130,136 million (£110,616 million), or 1.04% of EU GNI. This represents an increase of €7,179 million (£6,102 million) or 5.8% in comparison to the 2010 Budget. The margin under the Financial Framework ceiling is €1,236 million (£1,051 million) for commitment appropriations and €4,429 million (£3,765 million) for payment appropriations. Tables summarising the key figures of the 2011 DB, in both euros and sterling are annexed.

THE INDIVIDUAL EXPENDITURE HEADINGS

Heading 1: Sustainable Growth

5.8 Overall, proposed expenditure under Heading 1 is €64,407 million (£54,746 million) for commitment appropriations and €54,651 million (£46,453 million) for payment appropriations, leaving a margin of €67 million (£57 million) under the Financial Framework ceiling for commitment appropriations. Heading 1 is divided into two sub-headings — Sub-Heading 1a (Competitiveness for Growth and Employment) and Sub-Heading 1b (Cohesion for Growth and Employment).

Sub-Heading 1a: Competitiveness for Growth and Employment

5.9 The Commission proposes €13,437 million (£11,421 million) for commitment appropriations and €12,110 million (£10,294 million) for payment appropriations. Compared to the 2010 Budget this represents a decrease of €1,426 million (£1,212 million), or 9.6% in commitment appropriations and an increase of €766 million (£651million), or 6.8% in payment appropriations. Major changes are:

  • an increase of €1,044 million (£887 million) or 13.8% in commitment appropriations and €644 million (£547 million) or 10.1% in payment appropriations, for the Seventh Research Framework Programme (including completion of the Sixth Research Framework Programme);
  • an increase of €182 million (£155 million) or 16.8% in commitment appropriations and €3.5 million (£3 million) or 0.4% in payment appropriations for the Trans-European Networks;
  • no commitment appropriations are budgeted for energy infrastructure projects under the European Economic Recovery Plan, as all the relevant commitment appropriations were made in the 2009 and 2010 Budgets — however, there is an increase in payment appropriations of €47 million (£40 million) or 4.6% to reflect the implementation of the projects;
  • a decrease of €698 million (£593 million) or 78.1% in commitment appropriations and an increase of €101 million (£86 million) or 22.2% in payment appropriations for EGNOS and Galileo (the two parts of the EU's geostationary navigation satellite system); and
  • an increase of €23 million (£20 million) or 4.4% in commitment appropriations and a decrease of €40 million (£34 million) or 11.1% in payment appropriations for the Competitiveness and Innovation Framework Programme.

Sub-Heading 1b: Cohesion for Growth and Employment

5.10 The Commission proposes commitment appropriations of €50,970 million (£43,325 million) and payment appropriations of €42,541 million (£36,160 million). These represent an increase of €1,584 million (£1,346 million) or 3.2% in commitment appropriations and an increase of €6,157 million (£5,233 million) or 16.9% in payment appropriations relative to the 2010 Budget. The proposed increase in payments appropriations within the sub-heading is largely due to individual increases of:

  • €3,312 million (£2,815 million) or 14.7% under the convergence objective;
  • €1,740 million (£1,479 million) or 28.5% under the regional competitiveness and employment objective;
  • €222 million (£189 million) or 27.1% under the European territorial cooperation objective; and
  • €898m (£763m) or 13.1% under the Cohesion Fund.

Heading 2: Preservation and Management of Natural Resources

5.11 The Commission proposes commitment appropriations of €59,486 million (£50,563 million) and payment appropriations of €58,136 million (£49,416 million). These represent a decrease of €13 million (£11 million) or nearly 0% for commitment appropriations and an increase of €0.04 million (£0.04 million) or nearly 0% for payment appropriations compared to the 2010 Budget. The DB reserves a margin of €852 million (£724 million) under the Financial Framework ceiling for commitment appropriations. While expenditure on rural development, market related expenditure and direct aids remains relatively steady compared to 2010 levels, there is an increase of €27 million (£23 million) or 8.7% in commitment appropriations and €52 million (£44 million) or 24.3% in payment appropriations for the Life+ (the Financial Instrument for the Environment) programme. And expenditure on "other actions and programmes" decreases by €39 million (£33 million) or 88.7% in commitment appropriations and €19 million (£16 million) or 45.5% in payment appropriations.

Heading 3: Citizenship, Freedom, Security and Justice

5.12 Proposed expenditure under Heading 3 is €1,803 million (£1,533 million) for commitment appropriations and €1,492 million (£1,268 million) for payment appropriations. This represents increases in commitment appropriations of €129 million (£109 million) or 7.7%, and in payment appropriations of €94 million (£80 million) or 6.7% relative to the 2010 Budget. The DB leaves a margin of €86 million (£73 million) under the Financial Framework ceiling for commitment appropriations. Heading 3 is divided into two sub-headings — Sub-Heading 3a (Freedom, Security and Justice) and Sub-Heading 3b (Citizenship).

Sub-Heading 3a: Freedom, Security and Justice

5.13 The Commission proposes commitment appropriations of €1,135 million (£965 million) and payment appropriations of €853 million £725 million). This represents an increase of €129 million (£109 million) or 12.8% for commitment appropriations and €114 million (£97 million) or 15.4% for payment appropriations. This leaves a margin of €71 million (£60 million) under the Financial Framework ceiling. The changes to commitment and payment appropriations within the sub-heading include:

  • increases of €95 million (£81 million) or 18.5% in commitment appropriations and €82 million (£70 million) or 23.4% in payment appropriations for solidarity and the management of migration flows;
  • an increase of €26 million (£22 million) or 24.4% in commitment appropriations and a decrease of €7 million (£6 million) or 9.5% in payment appropriations for security and safeguarding liberties; and
  • increases of €13 million (£11 million) or 5.3% in commitment appropriations and €27 million (£23 million) or 12.8% in payment appropriations for decentralised agencies.

Sub-Heading 3b: Citizenship

5.14 The Commission propose €668 million (£568 million) for commitment appropriations and €639 million (£543 million) for payment appropriations. This represents a decrease of €0.2 million (£0.2 million) or nearly 0% for commitment appropriations and of €20 million (£17 million) or 3.1% for payment appropriations relative to the 2010 Budget. This leaves a margin below the Financial Framework ceiling for commitment appropriations of €15 million (£13 million). The main changes under this sub-heading are:

  • an increase of €8 million (£7 million) or 7.8% and €8 million (£7 million) or 8.2% in commitment appropriations and payment appropriations respectively for Media 2007;
  • decreases of €4 million (£3 million) or 12.2% and €2 million (£2 million) or 7.1% in commitment and payment appropriations respectively for the Europe for Citizens programme; and
  • a net decrease of €10 million (£9 million) or 23.2% in commitment appropriations and €52 million (£44 million) or 54.2% in payment appropriations for "other actions and programmes", including an individual decrease of €12 million (£10 million) or 41.9% and €9 million (£8 million) or 30.8% in commitment and payment appropriations respectively for expenditure on education and culture.

Heading 4: The EU as a Global Player

5.15 The Commission proposes €8,614 million (£7,322 million) in commitment appropriations and €7,602 million (£6,462 million) in payment appropriations. This represents an increase of €453 million (£385 million) or 5.6% in commitment appropriations and a decrease of €186 million (£158 million) or 2.4% in payment appropriations relative to the 2010 Budget. There is a margin of €70 million (£60 million) below the Financial Framework ceiling for commitment appropriations. The main changes under this heading include:

  • an increase of €210 million (£179 million) or 13.2% in commitment appropriations and a decrease of €269 million (£229 million) or 15.1% in payment appropriations for the Instrument for Pre-Accession Assistance;
  • increases in both commitment and payment appropriations of €99 million (£84 million) or 3.9% and €195 million (£166 million) or 9.4% respectively for the Development Cooperation Instrument;
  • increases in both commitment and payment appropriations of €71 million (£60 million) or 32.2% and €16 million (£14 million) or 8.2% respectively for the Instrument for Stability;
  • increases in both commitment and payment appropriations of €45 million (£38 million) or 48% for EU guarantees for lending operations; and
  • decreases in both commitment and payment appropriations of €159 million (£135 million) or 74% and €186 million (£158 million) or 40.7% respectively for development and relations with African, Caribbean and Pacific states.

Heading 5: Administration

5.16 The Commission proposes commitment appropriations of €8,255 million (£7,017 million) and payment appropriations of €8,256 million (£7,018 million). This represents an increase of €346 million (£295 million) in commitment appropriations, €348 million (£296 million) in payment appropriations and 4.4% in both in comparison to the 2010 Budget. There is a margin of €161 million (£137 million) under the Financial Framework ceiling for commitment appropriations. The increase in commitment and payment appropriations is accounted for by increases of:

  • €104 million (£88 million) in commitment appropriations and €106 million (£90 million) in payment appropriations, or 2.9% in both, for the Commission;
  • €141 million (£120 million) or 4.8% in both commitment and payment appropriations for the other institutions;
  • €82 million (£70 million) or 6.9% in both commitment and payment appropriations for pensions across all the institutions; and
  • €19 million (£16 million) or 12.5% in both commitment and payment appropriations for the European Schools.

The Government's view

5.17 The Economic Secretary to the Treasury (Justine Greenaway), whilst commenting that EU expenditure has a role to play in supporting economic recovery throughout the EU and in boosting competitiveness and growth, tells us that the Government is, however, very concerned by the proposed increase in payment appropriations of 5.8% in the DB. She says that:

  • at a time of fiscal consolidation throughout the EU, with Member States' governments reducing public spending to bring down budget deficits, the Government does not consider it appropriate for the 2011 Budget to increase as proposed;
  • the Government will therefore be proposing that the 2011 Budget remains at cash levels equivalent to the 2010 Budget;
  • while there is a limit to the amount of change that can be made to the annual expenditure of co-decided multiannual programmes, whose financial envelopes are established in separate legislative acts, the Government will nevertheless work to control growth in the EU Budget;
  • it will do this through pushing for payment appropriations levels based on realistic implementation forecasts, bearing in mind absorption capacity on the ground, and through close questioning of proposed increases for which the Commission's DB does not provide sufficient justification; and
  • the Government will, at the same time, push for greater value for money in EU expenditure, as well as advocating adequate budget margins below the Financial Framework ceilings, both to ensure the Framework is protected and to provide sufficient flexibility for unexpected and urgent demands in-year.

5.18 The Minister then gives us an outline of the Government's initial intended approach towards the DB, saying that:

  • for Sub-Heading 1a (Competitiveness for Growth and Employment) the Government supports effective EU Budget expenditure that supports low-carbon and sustainable economic recovery and growth;
  • EU expenditure under this sub-heading can add value in areas such as fostering competitiveness, innovation, research and development, and mobility;
  • the Government supports effective EU Budget expenditure towards efficient, sustainable and safe transport systems in Europe;
  • the Government will maintain its focus on budget discipline and the need for budgeted payment appropriation levels based on credible implementation rates;
  • for Sub-Heading 1b (Cohesion for Growth and Employment) the Government notes the sharp rise in the levels of payment appropriations budgeted under this sub-heading;
  • while accelerated implementation of the Structural and Cohesion Funds was to be expected in 2011, the fifth year of the programming period, the Government will push to ensure that budgeted levels are realistic and reflect actual absorption capacity;
  • for Heading 2 (Preservation and Management of Natural Resources) the Government does not believe that interventions in agricultural markets and direct aids are good value for money for the British taxpayer;
  • with that in mind, the Government will scrutinise closely all of the Commission's proposals in this area, to ensure they are realistic and adequately justified;
  • for Heading 3 (Citizenship, Freedom, Security and Justice) the Government believes that effective EU expenditure under this heading can add value in addressing common challenges such as migration, organised and cross-border crime, the prevention and suppression of terrorism, and challenges linked to health issues;
  • it does this through supporting practical, operational cooperation between Member States on specific projects, as well as cooperation between Member States and third countries;
  • the Government will maintain its focus on real implementation rates under this heading, to bear down on any over-budgeting;
  • for Heading 4 (The EU as a Global Player) the Government believes that EU expenditure under this heading should focus on security, stability and poverty reduction;
  • adequate EU funding is especially important to achieve these aims in fragile states around the world, as well as in the EU's neighbourhood;
  • sufficient funding must also be focused on tackling climate change, which can be a source of instability;
  • there should be an increased emphasis on development objectives, including reaching the Millennium Development Goals in poorer countries and regions;
  • for Heading 5 (Administration) the Government does not believe that the overall increase of 4.4% in this heading is justified;
  • now more than ever, it is important for EU institutions and agencies to deliver efficiency savings, better value for money and cost reductions; and
  • accordingly, the Government will push for substantial reductions in this heading.

Conclusion

5.19 As always the EU Budget has significant financial and policy implications and the UK has a substantial interest and role in scrutinising the Draft Budget (DB), not least because of the large sums involved and the UK's position as a large net contributor — it is in the UK's interest to restrict budget growth and ensure efficient use of resources. As is customary, we recommend that the DB be debated. Given the importance of budgetary restraint at this time we recommend also that this debate should be on the Floor of the House and should last three hours.

5.20 In the debate Members may wish to examine the Government's objectives for the forthcoming budget negotiations, as outlined by the Minister, particularly in relation to the size of the overall increase proposed, and the continuing issue of absorption and implementation capacity and its relationship to budgetary surpluses.

Annex: Draft Budget 2011 (€ million)
Heading
FF Ceiling (1)
2011 Draft Budget
2010 Budget1
Difference 2010 budget - 2011 draft budget
Difference 2010 budget - 2011 draft budget %
CA(2)
PA(3)
CA
PA
CA
PA
CA
PA
1. Sustainable Growth

1a. Competitiveness for Growth and Employment

Margin2

1b. Cohesion for Growth and Employment

Margin

63.974

12,987

-

50,987

-

64,407

13,437

50

50,970

17

54,651

12,110

-

42,541

-

64,249

14,863

-196

49,387

1.4

47,727

11,343

-

36,384

-

157.5

-1,426

-

1,584

-

6,923

766

-

6,157

-

0.2

-9.6

-

3.2

-

14.5

6.8

-

16.9

-

2. Preservation and Management of Natural Resources

Margin

Of which: market related expenditure and direct aids

60,338

-

47,617

59,486

852

43,747

58,136

-

43,657

59,499

456

43,820

58,136

-

43,701

-12.6

-

-72.4

0.044

-

-44.4

0

-

-0.2

0

-

-0.1

3. Citizenship, Freedom, Security and Justice

3a. Freedom, Security and Justice

Margin

3b. Citizenship

Margin

1,889

1,206

-

683

-

1,803

1,135

70.7

667.8

15

1,492

852.6

-

639

-

1,674

1,006

18.5

668

0

1,398

739

-

659

-

128.6

128.8

-

-0.183

-

93.6

114

-

-20

-

7.7

12.8

-

0

-

6.7

15.4

-

-3.1

-

4. European Union as a Global Player

Margin3

8,430

-

8,614

70

7,602

-

8,160

(-18)

7,788

-

453.3

-

-186

-

5.6

-

-2.4

-

5. Administration

Margin4

8,334

-

8,255

161

8,256

-

7,909

53

7,908

-

346.5

-

348

-

4.4

-

4.4

-

TOTAL (4)

Margin

142,965

-

142,565

1,236

130,136

-

141,492

528

122,957

-

1,073

-

7,179

-

0.8

-

5.8

-

Appropriations as a percentage of EU GNI 1.14%1.14% 1.04%1.17% 1.02%- -- -

1 The 2010 Budget figures represent the Adopted Budget, as well as the four draft amending budgets to the 2010 Budget, three of which are still subject to agreement by the budgetary authority.

2 The margin for Heading 1 (subheading 1a) does not take into account €500m in appropriations for the European Globalisation Adjustment Fund, a contingency fund that sits above the Financial Framework ceilings.

3 The margin for Heading 4 does not take into account €253.9m appropriations for the Emergency Aid Reserve, a contingency reserve that sits above the Financial Framework ceilings.

4 For calculating the margin of Heading 5, account is taken of the footnote (1) of the financial framework 2007-2013 for an amount of €82m for the staff contributions to the pension scheme.

(1) FF = Financial Framework (2) CA = Commitment Appropriations (3) PA = Payment Appropriations (4) Due to rounding, the sum of the lines may not equal the total

Draft Budget 2011 (£ million)
Heading
FF Ceiling (1)
2011 Draft Budget
2010 Budget1
Difference 2010 budget - 2011 draft budget
Difference 2010 budget - 2011 draft budget %
CA(2)
PA(3)
CA
PA
CA
PA
CA
PA
1. Sustainable Growth

1a. Competitiveness for Growth and Employment

Margin2

1b. Cohesion for Growth and Employment

Margin

54,378

11,039

-

43,339

-

54,746

11,421

43

43,325

14

46,453

10,294

-

36,160

-

54,612

12,634

-167

41,979

1.2

40,568

9,642

-

30,926

-

134

-1,212

-

1,346

-

5,885

651

-

5,233

-

0.2

-9.6

-

3.2

-

14.5

6.8

-

16.9

-

2. Preservation and Management of Natural Resources

Margin

Of which: market related expenditure and direct aids

51,287

-

40,474

50,563

724

37,185

49,416

-

37,108

50,574

388

37,247

49,416

-

37,146

-11

-

62

0.037

-

38

0

-

-0.2

0

-

- 0.1

3. Citizenship, Freedom, Security and Justice

3a. Freedom, Security and Justice

Margin

3b. Citizenship

Margin

1,606

1,025

-

581

-

1,533

965

60

568

13

1,268

725

-

543

-

1,423

855

16

568

0

1,188

628

-

560

-

109

109

-

0.2

-

80

97

-

17

-

7.7

12.8

-

0

-

6.7

15.4

-

-3.1

-

4. European Union as a Global Player

Margin3

7,166

-

7,322

60

6,462

-

6,936

15

6,620

-

385

-

-158

-

5.6

-

-2.4

-

5. Administration

Margin4

7,084

-

7,017

137

7,018

-

6,723

45

6,722

-

295

-

296

-

4.4

-

4.4

-

TOTAL (4)

Margin

121,520

-

121,180

1,051

110,616

-

120,268

-

104,514

-

912

-

6,102

-

0.8

-

5.8

-

Appropriations as a percentage of EU GNI 1.14%1.14% 1.04%1.17% 1.02%- -- -

1 The 2010 Budget figures represent the Adopted Budget, as well as the four draft amending budgets to the 2010 Budget, three of which are still subject to agreement by the budgetary authority.

2 The margin for Heading 1 (subheading 1a) does not take into account £425m in appropriations for the European Globalisation Adjustment Fund, a contingency fund that sits above the Financial Framework ceilings.

3 The margin for Heading 4 does not take into account £216m appropriations for the Emergency Aid Reserve, a contingency reserve that sits above the Financial Framework ceilings.

4 For calculating the margin of Heading 5, account is taken of the footnote (1) of the financial framework 2007-2013 for an amount of €82m for the staff contributions to the pension scheme.

(1) FF = Financial Framework (2) CA = Commitment Appropriations (3) PA = Payment Appropriations (4) Due to rounding, the sum of the lines may not equal the total



18   (31373) 7110/10: see HC 5-xiv (2009-10), chapter 1 (17 March 2010) and Stg Co Debs, European Committee B, 22 March 2010, cols. 3-28. Back

19   The budget distinguishes between appropriations for commitments and appropriations for payments. Commitment appropriations are the total cost of legal obligations that can be entered into during the current financial year, for activities that, in turn, will lead to payments in the current and future years. Payment appropriations are the amounts of money that are available to be spent during the year arising from commitments in the budget for the current or preceding years. Unused payment appropriations may, in exceptional circumstances, be carried forward into the following year. Back

20   This and all subsequent sterling figures in this chapter have been converted at the rate on 28 May 2010 of €1=£0.850. Back

21   Throughout this chapter the figures for the 2010 budget are those of the adopted budget, as amended by Draft Amending Budgets 1-4, that is (31434) 7830/10 and (31435) 7831/10, see HC 5-xvi (2009-10), chapter 11 (30 March 2010 and (31487) 8434/10 and (31506) 8729/10, see chapter 81 of this report. Back


 
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