3 Annual adjustment of the remuneration
of EU staff
| (33454)
17625/11
COM(11) 825
+ ADD 1
(33455)
17627/11
COM(11) 829
| Draft Regulation adjusting, from 1 July 2011, the rate of contribution to the pension scheme of officials and other servants of the European Union
Commission staff working paper: Eurostat report on the 2011 update of the 2010 actuarial assessment of the Pension Scheme for European Officials
Commission Communication to the Council providing supplementary information on the Commission report on the exception clause of 13 July 2011
|
| Legal base | Article 83a Staff Regulations; co-decision; QMV
|
| Documents originated | 24 November 2011
|
| Deposited in Parliament | 29 November 2011
|
| Department | HM Treasury
|
| Basis of consideration | EM of 5 December 2011
|
| Previous Committee Report | None; but see (33018) 12919/11: HC 428-xl (2010-12), 2 November 2011 (chapter 12)
|
| Discussion in Council | 19 December 2011
|
| Committee's assessment | Politically important
|
| Committee's decision | For debate on the Floor of the House
|
Background and previous scrutiny
3.1 These documents relate to the European Commission's annual
proposals for two related adjustments to the salaries of EU officials:
the 2011 annual salary increment; and the annual staff contribution
rate to the pension scheme.
3.2 The Committee reported on a Commission report
to the Council on the Exception Clause on 14 September 2011.[5]
The Commission has now provided supplementary information to the
Council in the form of a Communication, which explains, based
on economic criteria from mid-may to November 2011, why the Exception
Clause cannot be invoked for the 2011 salary adjustment.
The documents
LEGAL BASE AND PROCEDURE
3.3 The proposal to adjust salaries is based on Article
65 of the Staff Regulations (the Conditions of Employment of Other
Servants of the European Communities, and Annex XI of those regulations.
3.4 The proposal to adjust pensions is based on Articles
83a of the Staff Regulations, and Annex XII of those regulations.
3.5 The Commission's report on the Exception Clause
was requested under Article 10 of Annex XI of the Staff Regulations.
3.6 Amendment of the conditions of service for EU
officials of the EU institutions, including their salary adjustment
and post-employment benefits, is a matter for the Council acting
in co-decision with the European Parliament and voting by QMV.
3.7 No Council decision is required on the Commission's
supplementary information on the Exception Clause.
SALARY ADJUSTMENT
3.8 On 24 November 2011, the Commission presented
a proposal for the 2011 annual salary adjustment. Article 65 and
the Annexes of the Staff Regulations provide the criteria for
the Commission to review and adjust the level of remuneration
and pensions of EU officials annually. These provisions were made
with the intention of ensuring that EU officials benefit from
the same evolution in purchasing power as civil servants in national
administrations, in line with changes in the cost of living over
the course of each year.
3.9 Eurostat employs a methodology set out in Annex
XI of the Staff Regulations to calculate the size of any adjustment
applicable each year, using data on Civil Service salaries, and
inflation, supplied by eight Member States (including the UK)
annually.
ADJUSTMENT TO REMUNERATION AND PENSIONS IN BELGIUM
AND LUXEMBOURG
3.10 During the latest reference period (from June
2010 to July 2011), the purchasing power of civil servants in
the sample of Member States on average decreased by -1.8%, and
the change in the cost of living for officials living in Brussels
was calculated as 3.6%.
3.11 Based on these figures, the Commission has proposed
that a 1.7% increment for 2011 is necessary to maintain parallel
development in purchasing power with national civil servants in
the Member States.
ADJUSTMENT TO REMUNERATION AND PENSIONS OUTSIDE BELGIUM
AND LUXEMBOURG
3.12 The rates of pay and pensions for EU officials
based in other countries are also adjusted to give them equivalent
purchasing power with those of employees and pensioners in Brussels
as of 1 July each year.
PENSIONS CONTRIBUTIONS FOR OFFICIALS
3.13 In accordance with the provisions of Article
83(a) and Annex XII of the Staff Regulations, the Commission presents
to the Council each year an updated version of the five-yearly
actuarial[6] assessment
of the pension scheme, the purpose of which is to determine the
rate of contribution required to maintain its actuarial balance
and to establish whether employee contributions are sufficient
to finance one third of the benefits payable.
3.14 On the basis of this proposal from the Commission,
where it is shown there is at least a 0.25 percentage point gap
between the current contribution rate and the rate required to
maintain actuarial balance, the Council is required to decide
each year on the adjustment of the rate of contribution to the
pension scheme effective from 1 July.
3.15 Eurostat's report concluded that the rate of
contribution for 2010 required to maintain the pension scheme's
equilibrium (the actuarial balance) is 11%[7]
of the basic salary. Taking effect from 1 July 2011, this
represents a decrease in contributions of 0.6% on 2009 (11.6%).
This is greater than the 0.25 point threshold, and Council is
now required to vote on this proposal.
EXCEPTION CLAUSE — SUPPLEMENTARY INFORMATION
3.16 The Council invoked the Exception Clause for
the 2011 salary adjustment in January 2011, in order to seek a
legal method of departing from the automatic salary adjustment.
In line with the Staff Regulations, the European Commission was
then required to evaluate economic conditions, to assess whether
the exception clause should be applied.
3.17 The "Exception Clause" allows the
Commission to put forward alternative proposals for annual salary
adjustments, departing from the method when there is a serious
or sudden deterioration in the economic or social conditions in
the EU, which the method is not able to measure. The Commission
implements the Exception Clause according to an analysis of the
definitions and procedures, which are set out in the Committee's
Report of 2 November.[8]
3.18 The supplementary information in the Commission's
Communication is based on the Commission's review of the data
included within the forecast released by the Commission on 10
November 2011. The Communication reconfirms the Commission's conclusion
that the conditions for using Article 10 (in combination with
Article 336 TFEU) are not met, but which still allows using Article
336 TFEU directly in order to modify the Staff Regulations if
this is considered to be politically appropriate.
3.19 The Commission reviewed its analysis in response
to a Council request, following its failure to provide for an
alternative salary adjustment in its report of July 2011. The
supplementary information informs the Council of the Commission's
decision not to propose an alternative salary adjustment for 2011.
We set out the Commission's conclusions below:
"In accordance with the exception clause
laid down in Article 10 of Annex XI to the Staff Regulations,
the Commission is to examine whether there is a sudden and serious
deterioration in the economic and social situation within the
Union assessed in the light of objective data.
"Moreover, according to the judgment of
the Court of Justice in Case C-40/10, the Commission must assess
whether the above economic and social data is to be qualified
as 'an extraordinary situation' 'where under the normal method
the remuneration of officials would not be adjusted quickly enough'.
"As the Commission assessed in its Report
of the 13 July 2011, 'Deterioration' is a term used to describe
a worsening of the economic and social situation. Whether a 'serious'
deterioration of the economic and social situation has occurred
should be determined with reference to both the magnitude and
duration of the identified economic and social impacts. Whether
a 'sudden' deterioration of the economic and social situation
has taken place has to be considered with regard to the speed
and predictability of the economic and social impacts. In
this context it is particularly important to distinguish normal
fluctuations of the economic cycle from those caused by external
events.
"The forecasts released by DG ECFIN on 10
November 2011 show worsening trends for 2011 as compared to the
Forecast released in spring both as regards economic and social
indicators and that the European economy is currently experiencing
a turmoil.
"However, despite short-term indicators
pointing to an ongoing slowing of economic activity in the EU,
the overall growth performance for this year is still relatively
strong. In particular, GDP is forecasted to continue to grow in
2011 along a trend at around 1.6% similar to the level of 2010
(2.0%) while, as a matter of comparison, it decreased by 4.2%
in 2009. The forecasted standstill in the last quarter of 2011
is expected to be limited to that quarter with a modest GDP growth
being expected for the first quarter 2012.
"In addition, the unemployment rate remains
stable in 2011 at the same level as in 2010 (9.7%) while employment
growth is expected to be positive for the first time in 2011 (0.4%)
after decreasing for two years (-1.8% in 2009 and -0.5% in 2010).
"The compensation in total economy is forecasted
to remain at a high level in 2011 (3.0%), while in the public
sector the figure is much lower (0.6%) and in line with the loss
of purchasing power for EU officials as calculated by the method
(-1.8% in 2011).
"General government deficit within the EU
is projected to decrease further from close to 7% in both 2009
and 2010 to 4.7% in 2011 according to the Autumn and Spring Forecasts.
Fiscal consolidation is forecasted to progress with public deficits
set to decline, even though EU public debt remains a constant
concern for the EU economy at least since 2007.
"Even though the Autumn Forecast for 2011
clearly describes a less favourable economic and social context
than the Spring Forecast, it follows from the criteria set out
in Article 10 of Annex XI to the Staff Regulations as interpreted
by the Court of Justice that the EU is not facing an extraordinary
situation with regard to the method as defined by the Court,
where, under the 'normal method', the remuneration of EU officials
would not be adjusted quickly enough to take account of measures
taken by the Member states for national civil servants. In addition,
although there would be a relatively high increase in the compensation
of employees in total economy, the increase in the compensation
of employees in the general government is expected to be modest
which will be reflected by the application of the method."[9]
FINANCIAL IMPLICATIONS
3.20 On the basis that the Communication means that
the Commission will not act upon the exception clause for the
2011 annual salary adjustment, there remains no legal option for
Council but to pay the salary adjustment of around 1.7% for EU
officials in 2011 and 2012.
3.21 The 2012 EU Budget deal was made on the basis
that no additional funds would be made available in 2012 to pay
the 2011 salary adjustment. The Commission and the EU institutions
will therefore redeploy roughly €45 million (£38.5 million)
within the 2012 budget to meet any additional payroll costs.
3.22 The proposal on pensions has no impact on the
level of EU expenditure. However, revenue to the EU budget will
decrease by €11.3 million (£9.67 million) in 2011 and
by €22.6 million (£19.3 million) in future years.
The Government's view
3.23 The Financial Secretary at HM Treasury (Mr Mark
Hoban) deposited in Parliament an Explanatory Memorandum on these
documents on 5 December. In it he says that the Government has
been clear that it wants to see real budgetary restraint in the
EU over the coming years, as well as the longer term, in order
to avoid unaffordably high costs to the UK and to UK taxpayers.
EU annual pay adjustments have important implications for the
overall staff costs of all EU institutions, which in turn affect
overall administrative costs in Heading 5 of the EU Budget. The
Government is taking a "very tough position" on EU administrative
expenditure, reflecting significant efforts to reduce public administrative
expenditure domestically. The UK Government has implemented a
two-year pay freeze for all UK officials, and recently announced
that all public sector pay awards will average 1% for each of
the two years following this pay freeze. In this context, the
UK has continued to vote against all proposals which would increase
remuneration.
3.24 To this end, the Government supported Council's
action to invoke the Exception Clause in early 2011. Furthermore,
the UK, alongside a large number of Member States, has repeatedly
expressed dissatisfaction with the salary and pension adjustment
proposals, both in terms of substance and in terms of procedure
(formal proposals were first circulated on 24 November, yet require
Council approval by the end of 2011).
3.25 The Government remains "profoundly disappointed"
that the Commission believes that the supplementary information
provided to its report confirms that divergence from the method
is not warranted. Given the significant disparity in overall remuneration
between EU and Member States' officials, and ongoing efforts in
Member States to curb public pay, the Government has been clear
that further increases in remuneration for EU officials are inappropriate.
EU pay must be subject to similar discipline and a significant
lag in the effect of MS' actions to limit public sector pay on
EU staff pay is unacceptable. Therefore, the Government will continue
to vote against the salary adjustment. This approach is consistent
with earlier decisions, reflects both the UK's domestic situation
and its policy of EU budgetary constraint and underlines its view
that the Commission's assessment of the economic situation is
incorrect.
3.26 Should other Member States adopt positions similar
to the UK, this would indicate a strong consensus that current
arrangements are inadequate and require urgent reform. Precedent
suggests that the legality of a decision by the Council to block
the proposed salary adjustment might be challenged by the Commission,
thereby incurring additional costs. Present circumstances are
novel in some respects, the Minister says, and the Government
will closely monitor any future legal actions.
3.27 The Government notes the technical proposal
to amend the rate of contribution to the pensions scheme for EU
officials, to maintain actuarial balance. While the Government
does not dispute the calculation underlying this proposal, it
is important to view a drop in EU staff's contributions to their
pensions as part of their overall remuneration package and, in
particular, the concurrent proposal to increase their salaries.
This overall package is already far too generous according to
the Minister, and so the Government intends to vote against this
revision to pension contribution rates.
Conclusion
3.28 As we concluded in our Report on 2 November,[10]
the assessment required of the Commission in considering the Exception
Clause — whether there has been a sudden and serious deterioration
in the economic and social situation within the EU — appears
to be a one-sided exercise. We have quoted at paragraph 3.19 of
this Report the Commission's justification for not invoking it,
and we think supports our view. We note, in particular, the following
conclusion:
"Even though the Autumn Forecast for
2011 clearly describes a less favourable economic and social context
than the Spring Forecast, it follows from the criteria set out
in Article 10 of Annex XI to the Staff Regulations as interpreted
by the Court of Justice that the EU is not facing an extraordinary
situation with regard to the method as defined by the Court...".[11]
3.29 We therefore await with interest the Government's
reports on the negotiations on the amendment of Annex XI (the
methodology for adjusting the salaries and pensions of EU officials),
on which we have reported previously.[12]
Otherwise, the Council appears to be bound to accept the Commission's
annual assessment of the economic situation in the EU and the
consequent annual increase in the remuneration of EU staff.
3.30 These documents, though technical in content,
raise issues of far greater political importance, which is that
the remuneration of EU staff appears to be increasing annually
while there is a wage freeze for civil servants in the UK and
other Member States. And there is little the Government can do
about it. As the Minister for Europe says in his Explanatory Memorandum,
this has led to "significant disparity in overall remuneration
between EU and Member States' officials".
3.31 We therefore recommend these documents be
debated on the Floor of the House, such debate to include discussion
of:
- the application of the Exception
Clause in the light of Case C-40/10, European Commission
v Council of the European Union, and the scope for
its reform; and
more generally, how the Government intends to
achieve its stated aim of freezing the salaries and pensions of
EU staff in the forthcoming negotiations on the Multiannual Financial
Framework and on the reform of the Staff Regulations.
5 See headnote. Back
6
Actuarial values represent the value, at the calculation date,
of the benefits that will be paid from the Pension Scheme in the
future, discounted to the present. Back
7
This rate represents one third of the ratio between the service
cost (€1,206 million) and the total of annual basic salaries
(€3,638 million). Back
8
See headnote. Back
9
See pp. 10-11 of the Commission Communication. Back
10
See headnote. Back
11
See p.11 of the Commission Communication. Back
12
(33074) -: HC 428-xl (2010-12), 2 November 2011 (chapter 10). Back
| 
