Documents considered by the Committee on 26 February 2014 - European Scrutiny Committee Contents


22 Multiannual Financial Framework 2014-2020: revenue

(a)

(35806)

5466/14


(b)

(35807)

5467/14


(c)

(35808)

5468/14


Amended Draft Council Decision on the system of own resources of the European Union


Amended Draft Council Regulation laying down implementing measures for the system of own resources of the European Union


Amended Draft Council Regulation on the methods and procedure for making available the traditional, VAT and GNI-based own resources and on the measures to meet cash requirements (Recast)

Legal base(a) Article 311, third paragraph TFEU and Article 106a EURATOM; consultation; unanimity

(b) Article 311(4), fourth paragraph TFEU and Article 106a EURATOM; consent; QMV

(c) Article 322(2) TFEU and Article 106a EURATOM; consultation; QMV

Deposited in Parliament17 February 2014
DepartmentHM Treasury
Basis of considerationEM of 17 February 2014
Previous Committee ReportNone
Discussion in CouncilPossibly May 2014
Committee's assessmentPolitically important
Committee's decisionCleared

Background

22.1 The February 2013 European Council reached a political agreement on the revenue side for EU budgeting in the 2014-2020 Multiannual Financial Framework (MFF). The agreed financing system (the 'Own Resources' system) for the 2014-2020 MFF sees very little change to the system in place for the 2007-2013 MFF — there will be no new Own Resource, no EU-wide taxes and no change to the UK abatement.

The documents

22.2 These Presidency texts to implement the European Council political agreement replace the Commission's texts of November 2011.[103]

22.3 The amended draft Council Decision, document (a), is the final draft text for the so-called Own Resources Decision (ORD) for the period 2014-2020. The ORD is the most important document in this legislative package, as it sets out the general rules for the financing of EU budget expenditure by Member States, including the budgetary corrections.

22.4 The first amended draft Council Regulation, document (b), is the final draft text laying down implementing measures for the Own Resources system. It sets out the requirements on Member States for the operation of the system and for the control and supervision measures.

22.5 The second amended draft Council Regulation, document (c), is the final draft text on the methods and procedure for making available the traditional, VAT and GNI-based own resources and on the measures to meet cash requirements. It sets out the procedures for Member State financing of the annual EU budget through the Own Resources system, including the arrangements for the holding of an account into which contributions are made, specifying the dates on which payments fall due and the penalties for late payment.

22.6 Member States have provisionally indicated that they are content with these texts, which are now being transmitted to the European Parliament to fulfil its Treaty role, before returning to the Council for formal adoption.

The Government's view

22.7 The Economic Secretary to the Treasury (Nicky Morgan) comments that:

·  the Government believes that this draft Own Resources legislative package is acceptable;

·  the draft ORD, document (a), is faithful to the European Council deals on the 2014-2020 MFF that the Prime Minister negotiated and accurately reflects what has been agreed by the European Council;

·  there is little change to the financing side of the EU budget over the 2014-2020 MFF, particularly to the language on the UK abatement; and

·  the draft ORD text retains the existing categories of Own Resources and does not introduce any new Own Resources or EU-wide taxes to finance the EU budget.

22.8 The Minister then explains some of the detail of the draft ORD, saying that:

·  the Member States' "retention rate" for Traditional Own Resources (TOR), which covers Member States' collection costs for customs duties, is reduced from 25% to 20%

·  this means a larger share of the budget will be financed from TOR with a corresponding reduction in GNI-based contributions;

·  this change will, however, have no impact on the ultimate cost of the EU budget to the UK;

·  for the period 2014-2020, the draft ORD re-introduces the reduced rate of call for VAT-based contributions for Germany, the Netherlands and Sweden, which will be fixed at 0.15% for these Member States compared to 0.3% for all other Member States;

·  Austria, which benefitted from a reduced call rate for its VAT-based contributions over 2007-2013, will revert to a standard call rate (0.3%) over the 2014-2020 MFF;

·  for the period 2014-2020 the draft ORD also re-introduces reductions in the GNI-based contributions of the Netherlands and Sweden and introduces a reduction in these contributions for Denmark;

·  these reductions constitute lump sum corrections for these Member States and are fixed at €695 million (£570.9 million), €185 million (£152 million) and €130 million (£106.8 million) per year respectively;

·  reductions in GNI-based contributions of €30 million (£24.6 million) in 2014, €20 million (£16.4 million) in 2015 and €10 million (£8.2 million) in 2016 are provided also to Austria;

·  all amounts are expressed in 2011 prices;

·  the draft ORD lays down the Own Resources ceilings for payment appropriations (1.23% of total Member States GNI) and commitment appropriations (1.29%) and sets out the method for calculating subsequent changes to these ceilings following the introduction of European System of Accounts 2010 (ESA 2010) by all Member States;

·  the draft ORD retains the current mechanism for the UK abatement and the way it is financed by the other Member States; and

·  several time-limited transitional provisions in the abatement text have, as expected, been deleted, as they expired at the end of 2013 (for example, the cap on the total cost and phase-in schedule of the UK's rebate reduction in 2005).

22.9 The Minister notes that:

·  the ORD requires unanimity in Council, followed by approval by Member States in accordance with their constitutional requirements (in the case of the UK, approval of previous ORDs has taken the form of successive amendments to Section 1(2)(e) of the European Communities Act 1972 — most recently by the European Communities (Finance) Act 2008);

·  the European Parliament is consulted, though its consent is not required; and

·  the ORD will enter into force on the first day of the month following receipt by the Commission of the final notification of Member State approval, but will apply retrospectively to 1 January 2014.

22.10 The Minister continues by briefly describing the two draft Council Regulations accompanying the draft ORD, noting first that there is a slight change from the current system where almost all of the detail on implementation and making payments to the Commission are set out in a single Implementing Regulation.

22.11 The Minister says that:

·  the draft implementing Regulation, document (b), contains elements of the current Implementing Regulation, as well as elements of Council Regulation (EC, Euratom) No. 1026/1999, which determines the powers and obligations of agents authorised by the Commission to carry out controls and inspections of the EU's Own Resources; and

·  it sets out the requirements on Member States for the operation of the Own Resources system and for the control and supervision measures.

22.12 As for draft "making available" Regulation, document (c), the Minister says that:

·  it contains the remaining elements of the current Implementing Regulation and sets out the procedures for Member States financing of the annual EU budget through the Own Resources system;

·  these include the arrangements for the holding of an account into which contributions are made, specifying the dates on which payments fall due and the penalties for late payment; and

·  since this legislative proposal contains in a single new act the bulk of the original legislative act (the Implementing Regulation) and all the amendments made to it, it is presented as a 'recast' of existing Regulations.

22.13 Turning to the financial implications of the legislative package the Minister says that:

·  the actual financial cost to the UK of the 2014-2020 MFF is contingent on a number of factors, including the size of each year's EU budget, distribution of spending across programmes and Member States, implementation, miscellaneous revenues of the EU (for example, fines and penalties imposed by the Commission on private companies and Member States) and, most importantly, economic factors such as relative growth performance and exchange rates;

·  these factors determine the level of EU spend, relative economic sizes of Member States (which in turn determine how the financial burdens are divided) and the value of the UK's abatement;

·  in relation to the 2011 amended Commission proposal for Own Resources legislation,[104] the UK's contribution to the 2014-2020 MFF was provisionally estimated to be around 14.5% pre-abatement and 11.4% post-abatement;

·  the proportion of TOR that Member States keep to cover their collection costs is reduced from 25% per cent of the amount collected to 20% — while this will affect the UK's in-year contributions, it will not affect the ultimate cost of the 2014-2020 MFF to the UK, when the abatement is taken into consideration;

·  this is because, through the abatement mechanism, the UK does not derive any financial benefits or incur additional costs due to any changes to the financing system of the EU since 1984;

·  this "not a penny more, not a penny less" principle ensures that the ultimate cost of the EU budget to the UK today is the same as it would have been under the system that existed in 1984;

·  various changes to the EU financing system since then are reflected in adjustments to the calculation of the UK abatement;

·  for example, changes in the TOR collections costs since 1984 are negated by "TOR windfall gains" adjustments and the effect of the introduction of the Fourth Resource (GNI-based contributions) on the cost to the UK are corrected through the "UK advantage" adjustment;

·  this approach and the underlying principle mean that the UK will not be affected by the change in TOR collection costs when the UK abatement is taken into account;

·  the UK contributes to the annual GNI reductions (lump sum corrections) for other Member States;

·  this means that the UK will contribute to the two new lump sum corrections (for Denmark and Austria) which average at approximately €138.6 million (£113.8 million) per year for the two Member States over the 2014-2020 period; and

·  on the basis of the 2011 estimates for the UK's financing shares, these would cost the UK approximately €20.1 million (£16.5 million) per year.

Conclusion

22.14 Given that this legislative package will implement the European Council's agreement on the current Multiannual Financial Framework, as it relates to revenue for EU budgets for the period 2014-2020, we clear the documents. However, we note that the agreed Own Resources Decision will require an Act to amend Section 1(2)(e) of the European Communities Act 1972 and suggest that Members will want to take that opportunity to examine the Government's assertions in relation to the effects of the Own Resources system for the UK during the period 2014-2020.


103   (33361) 16844/11 (33362) 16845/11 (33363) 16846/11 (33364) 16847/11 (33365) 16848/11: see HC 428-xlv (2010-12), chapter 7 (20 December 2011), HC 428-lii (2010-12), chapter 11 (29 February 2012), HC 86-ii (2012-13), chapter 17 (16 May 2012), HC 86-xi (2012-13), chapter 2 (5 September 2012) and HC Debs, 31 October 2012, cols. 295-346. Back

104   IbidBack


 
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Prepared 11 March 2014