European Scrutiny Committee Contents


9 Preparation of the 2013 EU Budget

(a)

(33959)


SEC(12) 270



(b)

(34348)

15222/12

COM(12) 624

(c)

(34360)

15272/12

COM(12) 632

(d)

(34456)

COM(12) 716


Statements of estimates of the Commission for 2013 (Preparation of the 2013 Draft Budget)

Document I: Political Presentation

Document II: Figures by budget line and overall presentation of the changes in the nomenclature between the Budget 2012 and the 2013 Draft Budget

Document III: Changes in budgetary remarks and establishment plan staff

Amending letter No 1 to the draft general budget 2013: Statement of expenditure by section: Section III: Commission


Draft amending budget No 6 to the draft general budget 2012: General statement of revenue: Statement of expenditure by section: Section III: Commission

Draft General Budget of the European Union for the financial year 2013: General Introduction

Legal baseArticle 314 TFEU; co-decision; QMV
Documents originated(b) 19 October 2012

(c) 23 October 2012

(d) 23 November 2012

Deposited in Parliament (b) 24 October 2012

(c) 26 October 2012

(d) 5 December 2012

DepartmentHM Treasury
Basis of consideration Three EMs of 11 December 2012
Previous Committee Report (a) HC 86-iv (2012-13), chapter 4 (14 June 2012)

(b)-(d) None

Discussion in Council 6-7 December 2012
Committee's assessment Politically important
Committee's decision(a) Cleared by debate on 12 July 2012

(b)-(d) Not cleared; further information requested

Background

9.1 The Draft Budget (DB) sets out the Commission's proposals for EU expenditure in the following year. It is the first stage in the annual process of establishing the EU's budget and provides the basis for negotiations between the two arms of the Budgetary Authority (the Council and the European Parliament). The ECOFIN Council normally negotiates and agrees its first reading position on the DB in July (the TFEU requires the Council to complete this stage by 1 October), which is then forwarded to the European Parliament. The European Parliament in turn discusses and agrees its first reading position by late October (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, in late October or early November, with the aim of reaching agreement. If conciliation fails the Commission is required to produce a new DB for a further round of negotiation. If that negotiation is not concluded by the end of the year, the budget for the following year is based on the "twelfths" formula, that is the budget for each programme, for each month the actual budget remains unagreed, is one-twelfth of the previous year's budget.

9.2 The context for the DB is determined by the Multi-annual Financial Framework (MFF), 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).

9.3 With the DB for 2013, document (a), the Commission proposed commitment appropriations[30] of €150,932 million (£122,708 million). This is 1.13% of EU Gross National Income (GNI) and an increase of €3,031 million (£2,464 million) or 2.0% above 2012 levels. For payment appropriations,[31] the Commission proposed €137,924 million (£112,132 million) or 1.03% of EU GNI. This represents an increase of €8,818 million (£7,169 million) or 6.8% compared to the 2012 budget. The margin[32] under the MFF ceiling was €2,420 million (£1,967 million) for commitment appropriations and €6,182 million (£5,026 million) for payment appropriations.

9.4 When we considered this document in June we heard that:

  • the Government was very clear that, at a time of ongoing economic fragility in the EU, with countries across the area taking difficult decisions to reduce public spending, a 6.8% increase in EU spending in 2013 is unacceptable; and
  • its key objective was to limit the size of the 2013 EU Budget.

9.5 We commented that the EU Budget had significant financial and policy implications and the Government had a substantial interest and role in scrutinising the DB, not least because of the large sums involved and the UK's position as a large net contributor — it was in the UK's interest to restrict budget growth and ensure efficient use of resources. As is customary, we recommended that the DB be debated. The debate took place on 12 July on the Floor of the House.[33]

9.6 During the course of negotiation of a DB the Commission presents Amending Letters to update forecasts and estimates in the DB. During the course of a financial year the Commission presents to the Budgetary Authority Draft Amending Budgets (DABs) proposing increases or reductions for revenue and expenditure in the current Budget.

The new documents

9.7 Amending Letter No. 1 to the Draft General Budget for 2013, document (b), proposes minor downward revisions to the Commission's forecasts for spending needs in 2013 on Common Agricultural Policy and Fisheries. The net budgetary impact is a €25.1 million (£20.2 million) reduction in both commitment and payment appropriations in the Commission's DB, document (a).

9.8 Draft Amending Budget 6 to the 2012 Budget (DAB 6/2012), document (c), covers:

  • an update in the forecast of revenue for 2012;
  • a request to increase the level of payment appropriations in 2012 by around €9 billion (£7 billion); and
  • a request to reduce the level of commitment appropriations in 2012 by €133 million (£108 million).

Forecast of revenue for 2012

9.9 The Commission has revised the forecasts for own resources and other revenue — budgeting of value added tax (VAT) and gross national income (GNI) balances for earlier years is increased by €497 million (£401 million), Traditional Own Resources (TOR) is reduced by €950 million (£766 million) and other revenue (mainly fines and penalties and interest on these) is increased by €3.53 billion (£2.85 billion). The Commission notes that these calculations for Member States' balances are still provisional because of the on-going verification of VAT and GNI data. It says that it may make further revisions to the figures in the course of the procedure for this DAB.

Payment appropriations in 2012

9.10 The proposed increase in payment appropriations includes:

  • Sub-Heading 1a (competitiveness for growth and employment), an increase of €625 million (£506 million) across 11 budget lines;
  • Sub-Heading 1b (cohesion for growth and employment), an increase of €7.17 billion (£5.81 billion) across 14 budget lines;
  • Heading 2 (preservation and management of natural resources), an increase of €1.17 billion (£949 million) across three budget lines;
  • Sub-Heading 3a (freedom, security, and justice), an increase of €10 million (£8 million), for one budget line; and
  • Heading 4 (EU as a global player), an increase of €67 million (£54 million) across four budget lines.

Commitment appropriations in 2012

9.11 The Commission identifies a number of budget items for which it says part of the available commitment appropriations will not be used by the end of the year.

9.12 In terms of expenditure, the net impact of DAB 6/2012 is to decrease the level of commitment appropriations by €1334 million (£108.2 million) and increase payment appropriations by €9 billion (£7 billion). The net impact of DAB 6/2012 on additional Member State contributions (increased expenditure minus increased revenue) is therefore €5.9 billion (£4.76 billion).

9.13 The Council and the European Parliament did not, despite an attempt at conciliation between 24 October and 13 November, agree on the Commission's DB for 2013, document (a). Consequently the Commission produced, as required a revised DB, document (d). The new DB reflects, for commitment appropriations, the elements of a compromise that were circulated at the Conciliation Committee. For payment appropriations, it is based on the Commission's original DB, as amended by Amending Letter No.1, and assumes that the DAB 6/2012 is agreed in full.

9.14 With the new DB the Commission proposes commitment appropriations of €151,058 million (£122,477 million). This is 1.13% of GNI and an increase of €2,621 million (£2,125 million) or 1.8% over 2012. This would leave a margin of €2,294 million (£2,829 million under the ceiling of the MFF. For payment appropriations, the Commission proposes €137,798 million (£117,126 million), corresponding to 1.03% of GNI. According to the Commission this is a decrease of €955 million (£774 million) or 0.7% compared to payment appropriations in the 2012 Budget (given the assumption that DAB 6/2012 is accepted in full). This leaves a margin of €6,309million (£5,115million) under the ceiling of the MFF.

9.15 Key elements of the new proposal are:

  • Sub-Heading 1a: a number of amendments have been made, resulting in an increase in commitment appropriations to €16,105 million (£13,057 million), an increase of 4.6% on the 2012 budget. Payment appropriations increase by 12% to €13,558 million (£10,992 million) when including DAB 6/2012;
  • Heading 1b: commitment appropriations are set at the level proposed in the original DB, with the exception of the budget line for technical assistance and dissemination of information on the EU strategy for the Baltic Sea Region and an improved knowledge of the macro-regions strategy, for which an amount of €2.5 million (£2.0 million) in commitment appropriations is proposed;
  • Heading 2: commitment appropriations are set at the level proposed in the original DB, as amended by Amending Letter No.1/2013;
  • Heading 3a: commitment appropriations are set at the level proposed in the original DB;
  • Heading 3b (Citizenship): commitment appropriations are set at the level proposed by the European Parliament;
  • Heading 4: commitment appropriations are set at the level proposed by the European Parliament; and
  • Heading 5 (Administration): the position of the European Parliament is proposed for the level of appropriations of all Institutions. The appropriations related to the 2011 salary adjustment are placed in the reserve.

The Government's view

9.16 On Amending Letter No. 1/2013, document (b), the Financial Secretary to the Treasury (Greg Clark) says that:

  • the Government notes the revision to the commitment and payment appropriations requested;
  • the net budgetary impact is a €25.1 million (£20.2 million) reduction in both commitment and payment appropriations in the Commission's DB; and
  • the letter will be discussed as part of the negotiations of the 2013 EU Budget.

9.17 In relation to DAB 6/2012, document (c), the Minister says that:

  • the Government has been clear that there should be real budgetary restraint in the EU, in order to avoid unaffordably high costs to the UK and to UK taxpayers;
  • to deliver this goal, it will work with like-minded Member States and is committed to continue to work hard to limit EU spending, reduce waste and inefficiency and ensure that where EU funds are spent they deliver the best possible value for money for taxpayers;
  • it recalls that it voted against the 2.02% increase in payment appropriations in the 2012 Budget last December;
  • the Council has rejected this Commission proposal;
  • the Government, consistent with its earlier position on the 2012 and 2013 Budgets, voted with the Netherlands, Sweden and Denmark, against the new Council position of €6 billion (£4.9 billion);
  • as the proposal is subject to QMV it was approved by the Council, despite the UK voting against;
  • if adopted unaltered, this proposal would cost the UK an additional €860 million (£718 million) in 2012 based on the UK's share of in EU GNI (14.60%);
  • although some of the increased contribution would be returned to the UK through the abatement in 2013, it is not possible to calculate this amount yet, as it depends on actual implementation and UK's receipts in 2012; and
  • DAB 6/2012 would mean that the 2012 EU Budget for commitment appropriations would increase to €148.44 billion (£119.71 billion) and for payment appropriations would increase to €138.75 billion (£111.9 billion).

9.18 In his Explanatory Memorandum on the revised DB, document (d), the Minister first reiterates the Government's overall approach to EU budgetary matters. He then says that:

  • the Government recalls that it voted against the original Council position of 2.79% increase in payment appropriations in the 2013 Budget;
  • the Council has rejected this Commission proposal;
  • the Government, consistent with its earlier position on the 2012 and 2013 Budgets, voted with the Netherlands, Sweden and Denmark, against the Council's new proposed position of 2.9%;
  • as the proposal is subject to QMV it was approved by the Council, despite the UK voting against;
  • the Commission's provisional estimate of the total post-abatement UK contribution to the EU budget is around 12%;
  • the actual net financial cost to the UK of the 2013 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.

9.19 The Minister tells us that the final deal on the 2013 EU Budget was not concluded when he wrote his Explanatory Memoranda.

Conclusion

9.20 We are grateful to the Minister for this information about developments in negotiation of the EU Budget for 2013. However, he points out that a final deal was not concluded when he wrote his Explanatory Memoranda. So we should like to have an account of the final deal, accompanied by tables, in euro and sterling, showing by budget Heading the commitment and payment appropriations for the 2012 Budget, for the Commission's original Draft Budget for 2013, document (a), for its revised Draft Budget for 2013 and for the adopted Budget for 2013, together with percentage changes. Meanwhile documents (b) to (d) remain under scrutiny.





30   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

31   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

32   Here, "the margin" refers to the difference between total commitment or payment appropriations in the DB and total commitment or payment appropriations provided for in the MFF. Back

33   See headnote and HC Debs, 12 July 2012, cols. 515-538. Back


 
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Prepared 2 January 2013