European Scrutiny Committee Contents


2 Preparation of the 2012 EU Budget

(32781)

SEC(11) 498

Statement of estimates of the Commission 2012 Preparation of the 2012 Draft Budget

Document I: Political Presentation

Document II: Financial programming 2013

Document III: Figures by budget line and overall presentation of the changes in the nomenclature between the Budget 2011 and the 2012 Draft Budget

Legal baseArticle 314 TFEU; co-decision; QMV
Document originated 20 April 2011
Deposited in Parliament18 May 2011
DepartmentHM Treasury
Basis of considerationEM 27 May 2011
Previous Committee ReportNone
Discussion in Council22 July 2011
Committee's assessmentPolitically important
Committee's decisionFor debate in European Committee B

Background

2.1 The Draft Budget (DB) sets out the Commission's proposals for EU expenditure in 2012. It is the first stage in the annual process of establishing the EU's budget for the following year and provides the basis for negotiations between the two arms of the Budgetary Authority (the Council and the European Parliament). The ECOFIN Council will negotiate and agree its first reading position on the DB on 22 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 2012 Budget. This will be subject to separate approval by both the Council and the European Parliament, after which the EU's Budget for 2012 will be deemed to have been adopted.

2.2 The context for the DB is determined by the multi-annual Financial Framework (FF), which sets out annual ceilings for the six headings of budget expenditure:

  • Sustainable growth;
  • Preservation and management of natural resources;
  • Citizenship, freedom, security and justice;
  • EU as a global player;
  • Administration; and
  • Compensation (temporary measures for Bulgaria and Romania in their first years of accession, no longer applicable after 2009).

The DB for 2012 is the sixth of the 2007-2013 Financial Framework.

2.3 The DB is presented in Activity-Based Budgeting (ABB) format, with budget appropriations, resources and staff allocations organised by activity. The Commission has also published Activity Statements providing performance information for each activity, presenting 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.

2.4 The DB consists of draft estimates of required appropriations for the EU institutions — the European Parliament, the Council, the Office of the President of the Council (the latter two being treated as one institution for the purpose of establishing the budget), the Commission, the European Court of Justice, the European Court of Auditors, the Economic and Social Committee, the Committee of the Regions, the European Ombudsman and the European Data Protection Supervisor and the European External Action Service.

The Commission' Draft Budget

OVERVIEW

2.5 The Commission explains that the key objectives of the DB are to support fully the EU economy and EU citizens by exploring the leverage effect of the EU budget to reinforce growth and employment opportunities, while sustaining the actions implemented within Member States' national budgets. The DB is also meant to address the objective of smart, sustainable and inclusive growth, as identified in the Europe 2020 Strategy.

2.6 The DB proposes commitment appropriations[6] of €147,435 million (£131,468 million). This is 1.12% of EU Gross National Income (GNI), and an increase in commitment appropriations of €5,324 million (£4,747 million) or 3.7% above 2011 levels.[7] For payment appropriations,[8] the DB proposes €132,739 million (£118,363 million), or 1.01% of EU GNI. This represents an increase of €6,192 million (£5,521 million) or 4.9% compared to the 2011 budget. The margin[9] under the FF ceiling is €1,604 million (£1,430 million) for commitment appropriations and €8,815 million (£7,860 million) for payment appropriations. Tables summarising the key figures of the 2012 DB in both euros and sterling are annexed.

DETAIL OF PROPOSED EXPENDITURE BY HEADING

Heading 1 — Sustainable Growth

2.7 Overall, proposed expenditure of Heading 1 is €67,963 million (£60,603 million) for commitment appropriations and €57,701 million (£51,452 million) for payment appropriations, leaving a margin of €152 million (£136 million) under the FF ceiling for commitment appropriations.

2.8 For Sub-Heading 1a (Competitiveness for Growth and Employment) the DB proposes an extra €1,703 million (£1,519 million) or 12.6% in commitment appropriations and €938 million (£836 million) or 8.1% in payment appropriations, taking total commitment appropriations in 2012 for the Sub-Heading to €15,224 million (£13,575 million) and payment appropriations to €12,566 million (£11,205 million). Major changes are:

  • increases to research and development spending (Seventh Framework Programme 7) — €1.7 billion (£1.5 billion) or 17.7% in commitment appropriations and €0.9 billion (£0.8 billion) or 13.3% in payments;
  • an increase of €31 million (£28 million) or 5.4% in commitment appropriations and €100 million (£89 million) or 33% in payment appropriations for the Competitiveness and Innovation Programme; and
  • as a consequence of the procurement cycle, expenditure on EGNOS and Galileo, the EU satellite navigation programmes, will be €25 million (£22 million) or 12.7% lower in commitment appropriations and €124 million (£111 million) or 24.9% lower in payment appropriations.

2.9 For Sub-Heading 1b (Cohesion for Growth and Employment) the DB proposes commitment appropriations of €52,739 million (£47,027 million) and payment appropriations of €45,135 million (£40,247 million), representing an increase of €1,758 million (£1,568 million) or 3.4% in commitment appropriations and an increase of €3,483 million (£3,106 million) or 8.4% in payment appropriations relative to the 2011 budget. Major changes to payment appropriations are:

  • €2,291 million (£2,043 million) or 8.9% extra funds under the convergence objective;
  • a decrease of €230 million (£205 million) or 3.2% under the regional competitiveness and employment objective;
  • €101 million (£90 million) or 10.4% extra funds under the European territorial cooperation objective; and
  • €1,330 million (£1,186 million) or 17.4% extra funds under the Cohesion Fund.

Heading 2 — Preservation and Management of Natural Resources

2.10 The DB proposes commitment appropriations of €60,158 million (£53,643 million) and payment appropriations of €57,948 million (£51,672 million), representing an increase in commitment appropriations of €1,449 million (£1,292 million) or 2.6% and an increase in payment appropriations of €1,569 million (£1,399 million) or 2.8% compared to the 2011 budget. The DB reserves a margin of €652 million (£581 million) under the FF ceiling for commitment appropriations.

2.11 The majority of the increases can be accounted for by a €1,289 million (£1,149 million) or 3.0% increase in commitment appropriations for market related expenditure and direct aids and a corresponding €1,314 million (£1,172 million) or 3.0% increase in payment appropriations. This is predominately due to two factors — continued phasing-in of direct aid to new Member States and anticipated assigned revenue is down €456 million (£407 million) compared to 2011. Expenditure on rural development remains relatively steady compared to 2011 levels. However, there is an increase of €15 million (£13 million) or 7.0% in commitment appropriations and €56 million (£50 million) or 56% in payment appropriations for the European Fisheries Fund. Expenditure on "other actions and programmes" is to decrease by €18 million (£16 million) or 77.8% in commitment appropriations and €5 million (£4 million) or 17.3% in payment appropriations.

Heading 3 — Citizenship, Freedom, Security and Justice

2.12 The proposed expenditure under this Heading is €2,024 million (£1,805 million) for commitment appropriations and €1,514 million (£1,350 million) for payment appropriations, representing increases in commitment appropriations of €201 million (£179 million) or 11.0% and in payment appropriations of €53 million (£47 million) or 3.7% over 2011. The DB leaves a margin of €81 million (£72 million) under the FF ceiling for commitment appropriations.

2.13 For Sub-Heading 3a (Freedom, Justice and Security) the Commission proposes an increase of €201 million (£179 million) or 17.7% in commitment appropriations and €55 million (£49 million) or 6.8% in payment appropriations compared to the 2011 budget. A margin of €22 million (£20 million) under the Financial Framework ceiling remains. Changes to appropriation within the Sub-Heading include:

  • an increase of €176 million (£157 million) or 28.8% in commitment appropriations and €29 million (£26 million) or 6.9% in payment appropriations for solidarity and the management of migration flows;
  • an increase of €21 million (£19 million) or 8.3% in commitment appropriations and €25 million (£22 million) or 10.8% in payment appropriations for decentralised agencies; and
  • an increase of €8 million (£7 million) or 5.8% in commitment appropriations and a decrease of €14 million (£12 million) or 22.8% in payment appropriations for security and safeguarding liberties.

2.14 For Sub-Heading 3b (Citizenship) the Commission proposes a slight decrease of €0.9 million (£0.8 million) or 0.1% in commitment appropriations and €1.7 million (£1.5 million) or 0.3% in payment appropriations compared to the 2011 budget. This leaves a margin of €16 million (£14 million) below the ceiling in the FF. The main changes include:

  • Europe for Citizens — a decrease of €0.8 million (£0.7 million) or 0.3% in commitment appropriations and an increase of €7 million (£6 million) or 30% in payment appropriations;
  • Civil Protection Financial Instrument — an increase of €0.15 million (£0.13 million) or 0.8% in commitment appropriations and a decrease of €4 million (£3.6 million) or 21.0% in payment appropriations; and
  • other actions and programmes — decreases of €19 million (£17 million) or 42.7% in commitment appropriations and €19 million (£17 million) or 39.5% in payment appropriations.

Heading 4 — The EU as a Global Player

2.15 Under this Heading the DB proposes €9,009 million (£8,033 million) in commitment appropriations and €7,294 million (£6,504 million) in payment appropriations, representing an increase of €250 million (£223 million) or 2.9% in commitment appropriations and €55 million (£49 million) or 0.8% in payment appropriations relative to the 2011 budget. There is a margin of €246 million (£219 million) below the FF ceiling for commitment appropriations. The main changes include:

  • EU guarantees for lending operations — an increase of €121 million (£108 million) or 87.3% in both commitment and payment appropriations;
  • Common Foreign and Security Policy — an increase of €35 million (£31 million) or 10.9% in commitment appropriations and €45 million (£40 million) or 16.5% in payment appropriations;
  • European Neighbourhood Policy Instrument — an increase of €100 million (£89 million) or 5.5% in commitment appropriations and a decrease of €95 million (£85 million) or 7.0% in payment appropriations;
  • Development Cooperation Instrument — a decrease of €71 million (£63 million) or 2.7% in commitment appropriations and an increase of €39 million (£35 million) or 1.8% in payment appropriations; and
  • Instrument for Industrialised Countries (ICI+) — a decrease of €14.5 million (£13 million) or 32% in commitment appropriations and an increase of €2 million (£1.8 million) or 30% in payment appropriations.

 The Commission will present an Amending Letter to the DB before the end of the first semester of 2011, further to the ongoing review of the European Neighbourhood Policy.

Heading 5 — Administration

2.16 For this Heading the DB proposes commitment appropriations of €8,281 million (£7,384 million) and payment appropriations of €8,282 million (£7,385 million), representing an increase of €110 million (£98 million) or 1.3% in commitment appropriations and €112 million (£100 million) or 1.4% in payment appropriations in comparison to the 2011 budget. There is a margin of €473 million (£422 million) under the FF ceiling for commitment appropriations. There is no growth in the Commission's budget, which remains at €3,315 million (£2,956 million) for both commitment and payment appropriations. The change in commitment and payment appropriations is accounted for by:

  • €57 million (£51 million) or 1.7% in both commitment and payment appropriations for the other institutions, including an increase of €1,725 million (£1,538 million) or 2.3% for the European Parliament, €354 million (£316 million) or 3.7% for the Court of Justice, €491 million (£438 million) or 5.8% for the European External Action Service and €84 million (£75 million) or 2.8% for the Committee of the Regions;
  • €50 million (£45 million) or 4.0% in both commitment and payment appropriations for pensions across all the institutions; and
  • €169 million (£151 million) or 1.7% in both commitment and payment appropriations for the European Schools.

The Government's view

2.17 The Economic Secretary to the Treasury (Justine Greening) says that:

  • the Government has been clear that, at a time of ongoing economic fragility in the EU and tight constraints on domestic public spending, a 4.9% increase in EU spending in 2012 is completely unacceptable;
  • the Commission's proposal is not the way to fix the EU's problems and would impose unaffordable costs on taxpayers in the UK and other Member States;
  • the Government rejects the Commission's contention that spending at such levels is essential to deliver growth in the EU — rather, in the midst of the debt crisis, the EU must live within its means;
  • delivering fiscal consolidation remains crucial — in 2010 the Government set out a clear, responsible plan for real budgetary restraint at EU level
  • the Commission's proposal for higher spending in every heading is not consistent with budgetary discipline;
  • as the Prime Minister and other EU leaders made clear in December 2010, action taken to curb annual growth in payments to the 2011 EU budget must be stepped up progressively for the 2012 EU budget and beyond;
  • to deliver this, the Government intends to focus on reducing waste and inefficiency, and ensuring that EU spending delivers high added-value; and
  • this involves encouraging strict prioritisation of spending activities, accommodating new spending pressures by redeployment rather than extra funding, advocating realistic programming that reflects actual implementation rates in order to avoid over-budgeting and promoting sound financial management and greater transparency across all spending areas.

2.18 The Minister the outlines, heading-by-heading, the Government's initial intended approach towards the DB, saying that the Government:

Sub-Heading 1a (Competitiveness for Growth and Employment)

  • believes that spending under this Sub-Heading should send the clearest possible signal about orienting the 2012 EU budget towards sustainable economic growth, competitiveness, and innovation;
  • recognises that EU spending to support measures intended to improve the working of the EU internal energy market, facilitate vital energy infrastructure and support the EU's transition towards a low carbon economy can add value;
  • will, alongside this, maintain its focus on budget discipline and the need for budgeted payments levels based on credible implementation rates;

Sub-Heading 1b (Cohesion for Growth and Employment)

  • believes that the Commission should provide proper justificatory evidence for any increase in payments this year, in order to avoid 'over-programming' — payment appropriations should be set at the minimum necessary to fund programme implementation and be based on realistic implementation rates and estimates of Member States' absorption capacity;

Heading 2 (Preservation and Management of Natural Resources)

  • believes that, given that the Common Agricultural Policy (CAP) accounts for over 40% of the EU budget and that much of this expenditure, in particular in Pillar 1 of the CAP, represents very poor value for money, spending levels under this Heading must be consistent with the trend of actual spending in recent years and a realistic future profile;
  • will closely scrutinise the budget proposals for possible cuts, especially in light of under-spending and margins last year;

Heading 3 (Citizenship, Freedom, Security and Justice)

  • believes that EU expenditure under this Heading can add value by helping to tackle challenges such as migration, organised and cross-border crime, the prevention and suppression of terrorism and challenges linked to health issues — in particular, EU funding should work to develop and sustain a more robust and effective returns policy, helping to ensure that responses to sudden influxes of migrants are addressed through existing levels of EU funding and facilitating swift and acceptable contributions to crisis management, building on experience of the response to unfolding events in North Africa.;

Heading 4 (The EU as a Global Player)

  • believes that EU spending on external activities should continue to focus spend on poverty reduction, counter-terrorism, stability, security and capacity building in priority regions, and in so doing, maintain the EU's level of official development assistance (ODA);
  • holds that, given recent upheaval in the Southern Mediterranean, EU spending via the European Neighbourhood will be important and funding for Afghanistan and Pakistan should be maintained and, with respect to climate finance, sufficient funding should be maintained in order to demonstrate the EU's commitment to leadership of the global climate change negotiations;

Heading 5 (Administration)

  • intends to argue firmly against additional budget allocations for administrative spending; and
  • will, instead, push for reprioritisation and efficiency savings, especially to meet any additional staffing requirements — seeking savings in administrative spending outside of Heading 5 to ensure that programme spending is channelled to the front line will complement this approach.

2.19 On the financial implications of the DB the Minister says that:

  • the UK contribution to the 2012 EU budget is provisionally estimated to be 14.5%, pre-abatement, and 11.5% post-abatement
  • the actual net financial cost to the UK of the 2012 EU budget is contingent on both the size of the final budget and the distribution of spending across programmes within the budget; and
  • these factors determine the level of UK receipts and also affect the size of the UK's abatement in the following year.

Conclusion

2.20 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, this year in European Committee B. The debate should take place before the Budget Council on 22 July 2011.

2.21 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 issues of value-for-money and of absorption and implementation capacity and its relationship to budgetary surpluses.

Annex: Draft Budget 2011 (€ million)

Heading
FF

Ceiling[10]
2012 Draft Budget

CA[11] PA[12]

2011 Budget[13]

CA PA

Difference 2010 budget — 2011 draft budget

CA PA

Difference 2010 budget — 2011 draft budget %

CA PA

1. Sustainable growth

1a. Competitiveness for growth and employment

Margin[14]

1b. Cohesion for growth and employment

Margin

67,614

14,853

52,761

67,963

15,224

129

52,738

22

57,701

12,566

45,135

64,501

13,521

49,387

53,280,

11,627

41,652

3,461

1,703

1,758

4,421

938

3,482

5.4

12.6

3.4

8.3

8.1

8.4

2. Preservation and management of natural resources

Margin

Of which: market related expenditure and direct aids

60,810

48,093

60,158

652

44,180

57,948

44,103

58,659

42,891

56,379

42,788

1,499

1,289

1,570

1,314

2.6

3.0

2.8

3.1

3. Citizenship, freedom, security and justice[15]

3a. Freedom, security and justice

Margin

3b. Citizenship

Margin

2,105

1,406

699

2,024

1,340

66

683.5

16

1,514

868

646

1,823

1,139

684

1,460

813

647

201

201

-1

53

55

-2

11

17.7

-0.1

3.7

6.8

-0.3

4. European Union as a global player

Margin[16]

8,9979,009

247

7,2948,759 7,239250 552.9 0.8
5. Administration

Margin[17]

8,6708,281

473

8,2828,171 8,170110 1121.3 1.4
TOTAL[18]

Margin

Appropriations as a percentage of EU GNI

148,196

1.12%

147,435

1,604

1.12%

132,739

1.01%

142,111

1.12%

126,547

0.99%

5,3246,192 3.74.9

Annex: Draft Budget 2011 (£ million)

Heading
FF

Ceiling[19]
2012 Draft Budget

CA[20] PA[21]

2011 Budget[22]

CA PA

Difference 2010 budget — 2011 draft budget

CA PA

Difference 2010 budget — 2011 draft budget %

CA PA

1. Sustainable growth

1a. Competitiveness for growth and employment

Margin[23]

1b. Cohesion for growth and employment

Margin

60,291

13,244

47,047

60,603

13,575

115

47,026

20

51,452

11,205

40,247

57,516

12,057

44,038

47,510

10,368

37,141

3,086

1,519

1,568

3,942

836

3,105

5.4

12.6

3.4

8.3

8.1

8.4

2. Preservation and management of natural resources

Margin

Of which: market related expenditure and direct aids

54,224

42,885

53,643

581

39,395

51,672

39,327

52,306

38,246

50,273

38,154

1,337

1,149

1,400

1,172

2.6

3.0

2.8

3.1

3. Citizenship, freedom, security and justice[24]

3a. Freedom, security and justice

Margin

3b. Citizenship

Margin

1,877

1,254

623

1,805

1,195

59

609

14

1,350

774

576

1,626

1,016

610

1,302

725

577

179

179

-1

47

49

-2

11

17.7

-0.1

3.7

6.8

-0.3

4. European Union as a global player

Margin[25]

8,0238,033

220

6,5047,810 6,455223 492.9 0.8
5. Administration

Margin[26]

7,7317,384

422

7,3857,286 7,28598 1001.3 1.4
TOTAL[27]

Margin

Appropriations as a percentage of EU GNI

132,146

1.12%

131,468

1,430

1.12%

118,363

1.01%

126,720

1.12%

112,842

0.99%

4,7475,521 3.7 4.9


6   Commitment appropriations set the limit of legal obligations that can be made in the budget year for activities that will lead to payments in the current and/or future budget years. Back

7   Throughout this chapter the figures for the 2011 budget are those of the adopted budget, as amended by Amending Budget 1 and Draft Amending Budgets 2 and 3 - (32443) 5330/11: see HC 428-xxii (2010-11), chapter 11 (30 March 2011), (32631) 8243/11: see HC 428-xxvii (2010-12), chapter 14 (18 May 2011) and (32698) 9211/11: see HC 428-xxvii (2010-12), chapter 18 (18 May 2011). Back

8   Payment appropriations are the amounts of funds available to be spent during the budget year, arising from commitments in the budget for the current or preceding years. Back

9   The margin refers to the difference between appropriations in the DB and appropriations (often referred to as "ceilings") provided for in the Financial Framework.  Back

10   FF = Financial Framework Back

11   CA = commitment appropriations Back

12   PA = payment appropriations Back

13   Budget 2011 includes amending budget 1 and draft amending budgets 2 and 3. Back

14   The margin for Heading 1 (sub-heading 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.  Back

15   Excludes EU Solidarity Fund. Back

16   The margin for Heading 4 does not take into account €258.9m appropriations for the Emergency Aid Reserve, a contingency reserve that sits above the Financial Framework ceilings. Back

17   For calculating the margin of Heading 5, account is taken of the footnote (1) of the financial framework 2007-2013 for an amount of €84m for the staff contributions to the pension scheme. Back

18   Due to rounding, the sum of the lines may not equal the total. Back

19   FF = Financial Framework. Back

20   CA = commitment appropriations. Back

21   PA = payment appropriations. Back

22   Budget 2011 includes amending budget 1 and draft amending budgets 2 and 3.  Back

23   The margin for Heading 1 (sub-heading 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. Back

24   Excludes EU Solidarity Fund. Back

25   The margin for Heading 4 does not take into account €258.9m appropriations for the Emergency Aid Reserve, a contingency reserve that sits above the Financial Framework ceilings. Back

26   For calculating the margin of Heading 5, account is taken of the footnote (1) of the financial framework 2007-2013 for an amount of €84m for the staff contributions to the pension scheme. Back

27   Due to rounding, the sum of the lines may not equal the total. Back


 
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Prepared 6 July 2011