Documents considered by the Committee on 7 November - European Scrutiny Committee Contents


6 2012 salary adjustment for EU staff

(34206)

13327/12

COM(12) 476

Commission Report on the exception clause (Article 10 of Annex XI of the Staff Regulations)

Legal base
Document originated31 August 2012
Deposited in Parliament7 September 2012
DepartmentHM Treasury
Basis of considerationEM of 20 September 2012
Previous Committee ReportNone; but see (33018) 12919/11: HC 428-xl (2010-12), chapter 12 (2 November 2011)
Discussion in CouncilNo date set
Committee's assessmentPolitically important
Committee's decisionFor debate in European Committee B

Background

6.1 Each year the European Commission proposes changes to the remuneration of EU institutions' staff pay, on the basis of a calculation, known as the 'normal method'. The process for this is set in legislation, the Staff Regulations, which set out the terms of employment of EU officials.[13] The parameters for this calculation have been established with the intention of reflecting economic conditions and purchasing power, including the evolution of civil service remuneration, in eight EU Member States (including the UK).

6.2 Within the Staff Regulations, Article 10 of Annex XI, hereafter referred to as the 'Exception Clause', allows the Commission to put forward alternative proposals, 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.

6.3 The Commission is responsible for determining whether or not there has been such deterioration by assessing objective data. In that context, in March 2012, the Council called upon the Commission to make this assessment in preparation for the 2012 salary adjustment.

6.4 In asking the Commission to undertake this assessment, the Council noted that it had made the same request in 2011, and that the Commission's decision that there was no sudden and serious deterioration in 2011 and the Council's corresponding refusal to approve the 2011 salary adjustment are currently the subject of two court cases before the European Court of Justice. The UK will be intervening in support of the Council Legal Service in both cases.

6.5 Since the Council considered that the 'objective data' used by the Commission in 2011 did not accurately reflect the economic situation in the EU, it also requested the Commission to take into account the number of Member States with an ongoing excessive deficit procedure.

The document

6.6 In this report the Commission presents the third assessment (since 2011) on the application of the Exception Clause, on this occasion in relation to the annual salary adjustment for 2012.

6.7 The Commission recalls the principles underlying the method and the legal interpretation of the Exception Clause based on the judgment of the Court of Justice in Case C-40/10, Commission v Council. The Commission then assesses the economic and social situation of the EU from 1 July 2011 until mid-May 2012, when the 2012 Spring European Economic Forecast was issued.

6.8 In the judgment in Case C-40/10, the Court of Justice stressed that the Exception Clause enables account to be taken of the consequences of a deterioration in the economic and social situation which is both serious and sudden where, under the 'normal method', the remuneration of officials would not be adjusted quickly enough. The Court clarified that the procedure laid down in Article 10 of Annex XI to the Staff Regulations constitutes the only means of taking account of an economic crisis in the adjustment of remuneration and therefore of disapplying the criteria laid down in Article 3(2) of that Annex.

6.9 The method thoroughly measures, through the principle of parallelism, the relevant economic and social situation within the EU, as reflected in decisions of Member States on the salaries of national civil servants. The legislator carefully chose the criteria to be taken into account for the adjustment of remuneration and pensions; these criteria can be applied during both an upswing and a downturn in the economy.

6.10 The Exception Clause is not an economic cycle clause, the Commission says: it is therefore to be used only when there are extreme developments in the EU and only if the method is not able to measure them. It is not to be used whenever the EU is in the downward phase of the economic cycle.

6.11 The Commission has used 15 indicators to assess whether it is necessary to use the exception clause in 2012. The last forecasts of DG ECFIN show that the EU economy is likely to stagnate in 2012 (0.1% GDP growth) and the economic growth will gain momentum in 2013 (1.3% GDP growth). Salaries in the total economy are expected to increase by 2.1% in 2012 and 2013. National officials and EU staff are expected to lose purchasing power in 2012. Until the end of May, none of the Member States had forecast a salary cut in the second half of 2012. The Commission has also addressed the Council's request to examine the number of the Member States in an ongoing excessive deficit procedure and assessed the link of this indicator to government deficit and public debt.

6.12 The report concludes that there has been no sudden and serious deterioration in the economic and social situation within the EU which could not be reflected under the normal method during the reference period of 1 July 2011 to mid-May 2012, and that it is not justified to submit a proposal under Article 10 of Annex XI to the Staff Regulations for the application of the Exception Clause.

6.13 The Commission recalls that, in reply to the difficult general economic context, it has already submitted a draft proposal to the European Parliament and the Council which would lead to significant savings in the next years and to even higher savings in the long term. The proposal includes a new and revised method as well as amendments to the mechanism of the exception clause.

The Government's view

6.14 The Financial Secretary at the Treasury (Greg Clark) deposited an Explanatory Memorandum on this report in Parliament on 20 September. He says 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.

6.15 In particular, the Government is firmly against any proposals for additional spending under Heading 5 in 2011, on the basis that new requirements should be found through reprioritisation and compensatory efficiency savings, including annual salary adjustments.

6.16 Each year Council has an opportunity to vote on proposals to adjust the salaries and pensions of EU officials, and the UK has continued to vote against all proposals which increase remuneration. The Government supported Council's action to invoke the Exception Clause in March 2012.

6.17 While recognising that the normal method reflects the outcome of the process stipulated in the Staff Regulations (taking data provided by Member States into account), given the significant disparity in overall remuneration between EU and Member States' officials, the Government has been clear that it does not support further increases in remuneration for EU officials. The overwhelming majority of UK civil servants earn significantly less than the minimum salary for EU officials, while the majority of EU officials earn very significantly more than the minimum.

6.18 The Government is therefore disappointed that the Commission has reached the conclusion in its Report that a divergence from the normal method is not warranted. The Government considers that the Commission's analysis has not assessed the 'objective data' in the appropriate context; for example, the report makes substantial use of speculative assessments of potential future growth/employment, rather than robust factual data from the period July 2011-July 2012, which is the period which should be under consideration.

6.19 It is also disappointed that the number of Member States with an ongoing deficit procedure was not appropriately taken into account by the Commission.

6.20 The Government will raise its concerns in official-level discussions, emphasising that all data under consideration should be consistent in timescale and that future trends should not be admissible. It cannot accept that the report is a valid analysis of the economic and social situation in the EU as it currently stands.

6.21 The Minister notes that the report is also an additional demonstration of the failings of the current method for adjusting EU officials' salaries, which are under review as part of the ongoing negotiation on changes to the EU Staff Regulations. The Government will continue to support the Council proposal for an alternative method which would ensure the Council has genuine political oversight of and input into any salary adjustments for EU officials.

6.22 The Minister explains that the Commission's report means that the Council will therefore be obliged to pay the salary adjustment of around 0.9% for EU officials in 2013 (final figure to be calculated on the basis of data from Member States). The 2012 and 2013 budget proposals have been prepared on the basis of this adjustment.

6.23 That said, he considers it a likely option that this report will lead again to legal action between the Council and the Commission regarding the use of the exception clause, as has happened for the last two years. Such legal action would be the only recourse for Council attempting to successfully invoke the exception clause at this stage.

Conclusion

6.24 We thank the Minister for his Explanatory Memorandum.

6.25 As we have stated before, the wording of Article 10 of Annex XI of the Staff Regulations, the Exception Clause, as interpreted by the Court of Justice, appears to mean that it can only be invoked in extraordinary circumstances, in other words when there is a "serious and sudden deterioration" of the economic situation in the EU where the principle of parallelism can no longer be applied, rather than in periods of economic downturn. Because Article 10 leaves it to the Commission to make that assessment, it seems unlikely that the Council will succeed in impugning the Commission's assessment before the Court of Justice in the absence of flagrant omissions or distortions of the relevant economic data.

6.26 We await with interest the outcome of the applications before the Court of Justice on the 2011 salary adjustment, and of the negotiations on the amendment of Annex XI (the methodology for adjusting the salaries and pensions of EU officials), which we retain under scrutiny. These negotiations appear to us to offer the best chance of redressing the balance of institutional control over the annual salary adjustments.

6.27 We recommend this document for debate in European Committee B because of the political importance the Government attaches to achieving a salary freeze for EU officials, together with the European Court of Auditors' reports on EU staffing (documents 11964/12 and 13270/12) reported in the previous chapter.






13   http://ec.europa.eu/civil_service/docs/toc100_en.pdf. Back


 
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Prepared 16 November 2012