1 EU General Budgets for 2014 and 2015
| Committee's assessment
| Politically important |
| Committee's decision | (a)-(d) Cleared from scrutiny after debate in European Committee B on 15 October (e) and (f) Recommended for debate on the floor of the House (decision reported 26 November 2014)
(g)-(j) Not cleared from scrutiny; further information requested
|
| Document details | (a) Draft Amending Budget No. 3/2014
(b) Draft Amending Budget No. 4/2014
(c) Draft Amending Budget No. 5/2014
(d) Letter of amendment to Draft Amending Budget No. 4/2014 (e) Draft Amending Budget No. 6/2014
(f) Draft Regulation to amend the Own Resources Regulation (g) Draft Amending Budget No. 7/2014
(h) Draft Amending Budget No. 8/2014 (i) Letter of amendment to Draft Amending Budget No. 6/2014
(j) Revised Draft Budget for 2015
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| Legal base | Article 314 TFEU; co-decision; QMV
|
| Department
Document numbers
| HM Treasury
(a) (36067), 10340/14, COM(14) 329; (b) (36215), 11775/14, COM(14) 461; (c) (36318), 12954/14, COM(14) 564; (d) (36419), 14403/14, COM(14) 641;
(e) (36427), 14442/14, COM(14) 649; (f) (36506), 15444/14, COM(14) 704; (g) (36429), 14444/14, COM(14) 650; (h) (36547), 16210/14, COM(14) 722
(i) (36558), 16564/14, COM(14) 730; (j) (36567), —, COM(14) 723
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Summary and Committee's conclusions
1.1 The Council and the European Parliament failed
to reach agreement on the Commission's original Draft Budget for
2015. Consequently the Commission presented a revised Draft Budget.
1.2 Negotiation of the EU General Budget for 2015
has been complicated by consideration of a number of Draft Amending
Budgets for the 2014 EU General Budget, some of which we are still
holding under scrutiny. One of these Draft Amending Budgets, which
has been disputed between the Council and the European Parliament,
concerns a very considerable overhang of payments due from earlier
commitments.
1.3 On 9 December, we considered brief comments from
the Government on the revised Draft Budget and heard from it that
it expected the Council to reach an agreement on the proposals
on 12 December. However, we learnt separately that, also on 9
December, the Council's Committee of Permanent Representatives
agreed a position on the Draft Budget, which appeared to be acceptable
to the European Parliament and to be a done deal, which the Council
would merely formally adopt on 12 December.
1.4 We noted the content of the revised Draft Budget,
the Government's brief comment on it and that it had apparently
been, in effect, adopted by the Council. But we observed also
we had little information about how agreement on the 2015 EU General
Budget related to resolution of the disagreement between the Council
and the European Parliament on a number of Draft Amending Budgets
for the 2014 EU General Budget.
1.5 So we asked, before we would consider this document
again, to have a full explanation from the Government of developments
on all these budgetary matters and an explanation of the scrutiny
breaches in relation to these issues. We would then consider whether
we needed to seek further information from a Minister in an evidence
session. Meanwhile the document remained under scrutiny.
1.6 One of the 2014 Draft Amending Budgets, presented
by the Commission in October, concerned a very significant extra
budgetary contribution from the UK, related to revised calculations
of its Gross National Income. However, the Government secured
agreement that such significant demands would be ameliorated by
adoption of a draft Regulation to amend the Own Resources Regulation.
We have recommended that these documents be debated on the floor
of the House, a debate which is still outstanding.
1.7 This chapter also concerns two new documents,
the first is a revised Draft Amending Budget to take account of
Council objection to amendments by the European Parliament of
a routine proposal carrying over unspent revenues from 2013 for
return to the accounts of Member States. The second is a Commission
letter formally amending the Draft Amending Budget on the Gross
National Income, to confirm details of the agreement on amelioration.
1.8 We note the Government's present information
concerning all these documents about the EU General Budgets for
2014 and 2015 and await with interest the further letter we are
promised in the New Year. In addition to the additional information
the Government plans to give us then we should also like to have
responses to the following points, arising from the latest information
given to us:
· the suggestion that the recently concluded
budget negotiation is the first under the 2014-20 Multiannual
Financial Framework seems strange — the 2014 EU General
Budget was adopted in November 2013, on the basis of the present
Multiannual Financial Framework;
· the Government's claim that the final
outcome on the 2014 EU General Budget is fiscally neutral implies
that the estimate for the UK's contribution for 2014 is no different
now to that in November 2013 — we should be grateful for
clarification on this;
· has the overhang of payments due been
cleared by the agreement on the 2014 Draft Amending Budgets;
· we take it the statement that "the
proposed budget for 2015 is €141.2 billion" refers to
payments — we should like to have the commitments figure;
· we should like to have the comparison
of the 2013, 2014 and 2015 totals for both commitments and payments
and in both euros and sterling (based on a single exchange rate);
· given the concerns expressed previously
to us by the Government about the need for adequate margins beneath
the annual Multiannual Financial Framework ceilings we should
like to know what the ceilings are for 2015; and
· whilst realising timetable pressures,
particularly in the concluding stages of the annual budget negotiations,
we are concerned about the Government's performance on scrutiny
of budgetary issues, for instance the lack of prompt and detailed
information about the European Parliament's first reading of the
original 2015 Draft Budget and the delay in the mechanical process
of depositing the revised Draft Budget.
1.9 Once we have all this further information
we will consider how to carry forward our scrutiny of all the
issues, both substantive and procedural.
Full details of the documents:
(a) Draft Amending Budget No. 3/2014: (36067), 10340/14, COM(14)
329; (b) Draft Amending Budget No. 4/2014: (36215), 11775/14,
COM(14) 461; (c) Draft Amending Budget No. 5/2014: (36318), 12954/14,
COM(14) 564; (d) Letter of amendment to Draft Amending Budget
No. 4/2014: (36419), 14403/14, COM (14) 641; (e) Draft Amending
Budget No. 6/2014: (36427), 14442/14, COM(14) 649; (f) Draft Council
Regulation amending Regulation (EC, Euratom) No. 1150/2000 implementing
Decision 2007/436/EC, Euratom on the system of the European Communities'
own resources: (36506), 15444/14, COM(14) 704; (g) Draft Amending
Budget No. 7/2014: (36429), 14444/14, COM(14) 650; (h) Draft Amending
Budget No. 8/2014: (36547), 16210/14, COM(14) 722; (i) Letter
of amendment to Draft Amending Budget No. 6/2014: (36558), 16564/14,
COM(14) 730; (j) Draft General Budget of the European Union for
the financial year 2015: General Introduction: (36567), —,
COM(14) 723.
Background
1.10 Each year a Draft Budget (DB) sets out the Commission's
proposals for EU expenditure in the following year. If in the
final stage of negotiation of the DB the Council and European
Parliament's Conciliation Committee does not reach agreement within
a Treaty defined deadline, the DB falls and the Commission is
required to present a new DB.
1.11 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 EU General Budget.
1.12 In June the Commission presented its DB for
2015.[1] The negotiation
of that DB became linked directly or indirectly with the negotiation
of seven DABs for the 2014 EU General Budget and an amending letter
to one of the DABs, documents (a)-(e) and (g)-(i) and a draft
Regulation concerning Own Resources, document (f). The Conciliation
Committee failed to reach agreement on the DB by the 17 November
deadline. So the Commission was automatically obliged to present
a revised DB.
1.13 One of the 2014 DABs, DAB No. 6/2014, document
(e), presented by the Commission in October, concerned a very
significant extra budgetary contribution from the UK, which was
based on revisions of its Gross National Income (GNI) in the years
2002-13. This payment was to be made by 1 December. However, the
Government secured agreement that such significant demands would
be ameliorated by allowing delayed interest free payments. This
agreement is to be implemented by amendment to the Own Resources
Regulation, as in the draft Regulation, document (f). We have
considered this matter twice and recommended that it be debated
on the floor of the House, so that Members may elicit clarifying
details of the issue.
1.14 On 27 November the Commission presented its
revised DB, document (j), which set out its new proposal for EU
expenditure for 2015. In the new DB the Commission proposed commitment
appropriations[2] of €145,226.3
million (£115,498.5 million), which represents 1.05% of EU
Gross National Income (GNI)[3].
For payment appropriations[4]
it proposed €141,337.3 million (£112,405.6 million),
or 1.02% of EU GNI. When comparing any figures from the revised
DB with the 2014 EU General Budget, the Commission included DAB
No. 1/2014[5] and DABs
No. 3/2014 to DAB No. 8/2014, which had not yet been adopted.
This corresponded to a total EU General Budget 2014 size of €140,369.2
million (£111,635.6 million) in payments. The Commission
said that this DB represented an increase in commitments of €2,536.0
million (£2,016.9 million) or 1.8% compared to 2014 levels,
and an increase of €968.1 million (£769.9 million) or
0.7% in payments compared to the 2014 EU General Budget. The
Commission stated that the margin[6]
under the Multiannual Financial Framework (MFF) ceiling was €1,855.3
million (£1475.5 million) for commitments and €800.0
million (£636.2 million) for payments.
1.15 We considered the revised DB on 10 December,
on the basis of an Explanatory Memorandum of 9 December from the
Government, from which we learnt that it:
· welcomed the fact that the revised DB
represented a €800 million (£636.2 million) cut compared
to the Commission's original proposal;
· continued to think, however, that there
should be a significant margin between the agreed budget and the
annual MFF ceiling for the purpose of sound budgetary management;
and
· noted that the EU budget is agreed by
QMV, and that it would need to work closely with like-minded budget
disciplinarian Member States to deliver the best deal possible
for the UK.
1.16 We learnt separately, from a Council Secretariat
press notice[7] that, also
on 9 December, the Council's Committee of Permanent Representatives
had agreed a position on the DB, which appeared to be acceptable
to the European Parliament and to be a done deal, which the Council
would merely formally adopt on 12 December.
1.17 We noted the content of the revised DB, the
Government's brief comment on it and that the proposal had apparently
been, in effect, adopted by the Council. But we observed also
that we had little information about how agreement on the 2015
EU General Budget related to resolution of the disagreement between
the Council and the European Parliament on a number of DABs for
the 2014 EU General Budget.
1.18 So before considering this document again we
asked to have a full explanation from the Government of developments
on all these budgetary matters. We also wished to have an explanation
of the scrutiny breaches in relation to these issues, particularly
the failure to deposit the revised DB, published on 27 November,
until 10 December.
1.19 We said that once we had this information, on
both the substantive and procedural issues, we would consider
whether we needed to seek further information from a Minister
in an evidence session. Meanwhile the document remained under
scrutiny.
The new documents
1.20 In April the Commission presented its DAB No.
2/2014,[8] which was intended
to budget the surplus revenue resulting from the implementation
of the 2013 budget. On 17 July 2014, the Council completed its
reading of this DAB and on 22 October the European Parliament
voted on it, adopting technical amendments, which were not acceptable
to the Council. Consequently, the Commission now re-presents its
DAB No. 2/2014 as DAB No. 8/2014, document (h), excluding the
European Parliament's technical amendments.
1.21 As with the original DAB No. 2/2014, DAB No.
8/2014 sets out that the implementation of the 2013 budget shows
a surplus of €1.005 billion (£0.838 billion), which
is, therefore, entered as revenue in the 2014 budget and reduces
Member State contributions to that budget by a corresponding amount.
The document sets out the detail of how this figure is arrived
at. The Commission also mentions that Member States contributions
to the 2014 budget will also be influenced by the updated forecasts
of Own Resources bases and calculations for the UK correction,
which were agreed at the annual meeting of the Advisory Committee
on Own Resources on 19 May.
1.22 In his Explanatory Memorandum of 11 December
about this new DAB the Financial Secretary to the Treasury (Mr
David Gauke) recalls that DAB No. 2/2014 has already been cleared
from scrutiny in both Houses and says that:
· the substance of the new DAB is identical
to that of the original one;
· as set out in the Explanatory Memorandum
on DAB No. 2/2014, no policy issues arise from the introduction
of DAB No. 8/2014;
· this is a routine accounting exercise
to record and carry forward unspent revenues in order to enable
the Commission to return surpluses to Member States in the form
of reduced contributions; and
· the Commission cannot carry forward surplus
revenues from the previous year without adoption of a DAB.
1.23 In his letter of 10 December, the Minister writes
further to previous correspondence about the various DABs for
the 2014 annual budget, about the Commission issuing on 4 December
an amending letter, document (i), to DAB No. 6/2014, document
(e), which he arranged to be deposited as soon as possible. He
recalls the situation in relation to this DAB, including the Prime
Minister and Chancellor's comments and reiterates that the Commission
has been working to translate that political agreement on a solution
to the GNI issue to a legal one by proposing amendment of the
Own Resources Regulation, Regulation (EC, Euratom) No. 1150/2000,
as in the draft Regulation, document (f).
1.24 The Minister continues that:
· the Commission's proposed amending letter
to DAB No. 6/2014 accurately reflects the Chancellor's deal at
the 7 November ECOFIN Council and the draft amending Regulation;
· it confirms that, once adopted, the amended
Own Resources Regulation will apply retroactively for the balances
which had to be made available on the first working day of December
and that, as a consequence of the flexibility on making payments,
the Commission revised the amounts entered initially in DAB No.
6/2014;
· therefore, the amended DAB reflects only
the amounts that some Member States effectively made available
to the EU on the first working day of December;
· the amending letter shows that the UK,
Bulgaria, Cyprus, Malta and Slovenia have not paid anything on
the first working day of December and France and Italy paid a
small portion of their total amounts, with all other Member States
paying their full amounts;
· as a result, the Commission now expects
to collect approximately €4,095 million;
· the amending letter also withdraws the
small increase in budgetary appropriations, €93,500 (£77,951)
for the European Ombudsman initially requested in the DAB, as
the Ombudsman has identified further room for redeployment since
then; and
· since the amended DAB No. 6/2014 will
in due course reduce the UK contributions and confirm the Chancellor's
deal at the 7 November ECOFIN Council, the Government intends
to support it.
The Minister's letter of 11 December 2014
1.25 The Minister says that, following a telephone
conversation earlier that day with our Chairman:
· he wanted to update us on the EU budget
negotiations, which had developed rapidly in recent days and were
now reaching a conclusion;
· he thought that it would be helpful to
bring together developments into one place so that we could see
the full context; and
· he would follow up early in the New Year
with a separate letter addressing the more detailed questions
we have posed.
1.26 The Minister then prefaces his remarks by saying
that:
· the Government's approach to the EU budget
is to deliver real budgetary restraint in the EU, in order to
secure the best possible deal for UK taxpayers; and
· both the Chancellor's deal on halving
and deferring the £1.7 billion GNI surcharge and the outcome
of the annual budget negotiations show that it is delivering on
these objectives in Brussels.
1.27 The Minister continues that:
"This has been the first annual budget negotiation
under the new Multiannual Financial Framework (MFF) deal secured
by the Prime Minister in February 2013, which delivered an unprecedented
real terms cut to the EU budget framework.
"As a result of that deal, the proposed
2014 annual budget will be lower in cash and real terms than the
final 2013 budget. This, and the protracted negotiations around
that budget, is evidence that the MFF deal is delivering fiscal
restraint in the EU."
1.28 The Minister says that:
· the budgets for both 2014 and 2015 are
consistent with the MFF and are within its ceiling;
· the proposed 2014 budget includes the
mobilisation of the contingency margin, and both the 2014 and
2015 budgets include the use of special instruments — both
of these instruments are provided for within the MFF;
· the contingency margin enables expenditure
from future years of the MFF to be drawn forward to 2014;
· this drawn forward expenditure must be
offset by an equivalent reduction to the ceilings in future years
of the MFF, so leaving the total MFF ceiling unchanged; and
· the EU General Budget was €144.5
billion in 2013, it will be €139.0 billion in 2014, including
a €3.2 billion mobilisation of the contingency margin, and
the proposed budget for 2015 is €141.2 billion.
1.29 Turning to the individual headings within the
budget for 2015, the Minister says that:
· payment expenditure on Sub-Heading 1a
(research, learning and innovation) will increase by 33% to €15.8
billion in 2015 compared to the final 2014 budget of €11.9
billion;
· payment expenditure on Sub-Heading 1b
(regional growth and employment) will decrease by 4.3% to €51.1
billion in 2015 compared to €53.4 billion for 2014;
· payment expenditure on Heading 2 (agricultural
policy, rural development and fisheries) will decrease by 0.08%
to €56.0 billion in 2015 compared to €56.4 billion for
2014;
· payment expenditure on Heading 3 (immigration,
migration, security and justice) will increase by 1.3% to €1.9
billion in 2015 compared to €1.7 billion for 2014;
· payment expenditure on Heading 4 (EU foreign
policy and international development) will increase by 8.5% to
€7.4 billion in 2015 compared to €6.8 billion for 2014;
and
· payment expenditure on Heading 5 (administration)
will increase by 3% to €8.7 billion in 2015 compared to €8.4
billion for 2014.
1.30 The Minister tells us that:
· a number of different DABs have been agreed
as part of the budgetary deal with the European Parliament;
· whilst some include increases to expenditure
in 2014, other DABs return revenue to Member States, reducing
contributions from the UK; and
· for this reason, taking into account all
the amendments that comprise the 2014 annual budget, the fiscal
impact on the UK is neutral.
1.31 The Minister comments that:
· despite the fact that the EU budget is
falling in real and cash terms in 2014, the Government continues
to believe there should be maximum restraint on the EU budget
with even lower levels of payments;
· it was therefore unable to support the
annual budget package; and
· this package was expected to be voted
on formally in the Council on 12 December.
1.32 The Minister then recalls that:
· at the ECOFIN Council on 7 November, the
Chancellor secured an agreement to change the EU budget rules
permanently, following the demand to the UK for payment of a GNI
surcharge bill for £1.7 billion on 1 December;
· as the Prime Minister said at the time,
while annual adjustments to contributions were a regular part
of EU membership, a sudden and unprecedented demand for a £1.7
billion payment on 1 December was unacceptable; and
· the new rules would allow for payments
to be delayed without interest penalties, up to September the
following year.
1.33 The Minister continues that:
· the change is being achieved through an
amendment to Regulation (EC, Euratom) No. 1150/2000, as in the
draft Regulation, document (f);
· in addition, following discussion with
the new Commission, it was agreed that a full rebate would apply
to the UK payment, and that, for the first time ever, it would
be paid at the same time as any money owed;
· as the Chancellor said to the House on
10 November, the UK's payments have as a result been halved, from
£1.7 billion to approximately £850 million;
· this comprises three elements: the £1.7
billion, which, as set out in the original publication, that is
DAB No. 6/2014, document (e), itself comprises a gross transfer
of £2.9 billion (€3.6 billion), a resulting return transfer
of £1.2 billion (€1.5 billion) and then the rebate,
estimated by the Commission to be worth approximately €1
billion (£850 million) — these collectively come to
a net payment of around £850 million;
· the agreement secured by the Chancellor
is now being implemented;
· the Government has confirmed in correspondence
to the Commission that it will make its payments in instalments
next year;
· as a result, the UK made no payment on
1 December this year and the Commission has confirmed that the
UK will not incur any interest as a result;
· a number of other countries have also
deferred their payments;
· the payments next year will follow the
standard procedure for administering the EU budget, with net payments
incorporating transfers to and from the budget;
· there will be a series of transfers from
the EU totalling £1.2 billion, plus the exceptional application
of the rebate payment of approximately £850 million, and
so totalling approximately £2 billion;
· there will be gross transfers to the EU
budget of £435 million on 1 July 2015, which represents approximately
half the estimated overall net payment, and a further gross transfer
of £2.4 billion on 1 September 2015, which, when offset by
the above payments from the EU of approximately £2 billion,
which the Government understands will be received on or before
this date, represents approximately the other half of the net
payment;
· the agreement reached implies that the
UK's net transfer to the EU for these specific payments will not
exceed £850 million at any one time;
· in practice, these different transfers
will be administered with the other standard monthly EU budget
transfers and aggregated into net payments, including the application
of the rebate; and
· the Government will formally vote in favour
of the amended Own Resources Regulation enabling the agreement
secured by the Chancellor in the Council.
1.34 The Minister comments further that:
· the overall impact on the fiscal position
of the EU budget, including both the annual budget and the deferred
and reduced surcharge, was estimated by the Office for Budget
Responsibility (OBR) in its Autumn Statement forecast on 3 December;
· that forecast made an assumption for the
annual budget which is broadly in line with the actual outcome;
and
· taking this and its other assumptions
into account, the OBR forecasts that the UK's net contribution
to the EU budget will be lower over the forecast period (2014-15
to 2018-19) than assumed at the Budget in March.
1.35 Finally, on the GNI surcharge, the Minister
says that:
· he realises that the Government voting
in favour of the amendment to the Own Resources Regulation is
a scrutiny override and regrets that the Government was unable
to secure clearance before voting;
· this was, however, an amendment that the
Government led the calls for in Brussels, and is one which it
believes is firmly in the UK's national economic interest, legislating,
as it does, for the agreement that the UK made no payment on 1
December and that it will not incur any interest as a result;
· the UK will now pay half of the £1.7
billion bill with which the Government was originally presented
and will do so in instalments next year; and
· this is the best possible deal for the
UK.
1.36 In conclusion the Minister offers to appear
before us in January 2015 in order to give us a further opportunity
to ask questions of the Government on this matter.
Previous Committee Reports
Fourth Report HC 219-iv (2014-15), chapter 5 (25
June 2014), Ninth Report HC 219-ix (2014-15), chapter 4 (3 September
2014), Twelfth Report HC 219-xii (2014-15), chapter 3 (10 September
2014), Thirteenth Report HC 219-xiii (2014-15), chapter 22 (15
October 2014), Eighteenth Report HC 219-xvii (2014-15), chapter
3 (5 November 2014), Nineteenth Report HC 219-xviii (2014-15),
chapter 1 (5 November 2014), Twenty-second Report HC 219-xxi (2014-15),
chapter 1 (26 November 2014) and Twenty-sixth Report HC 219-xxv
(2014-15), chapter 1 (10 December 2014) .
1 See (36139)-(36142): Fifth Report HC 219-v (2014-15),
chapter 3 (2 July 2014), Eighteenth Report HC 219-xvii (2014-15),
chapter 3 (5 November 2014) and Gen Co Debs, European Committee
B, 15 October 2014, cols. 3-26. Back
2
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
3
The DB is based on the forecast of GNI issued after the Advisory
Committee on Own Resources meeting held on 19 May. Back
4
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
5
See (35803) 6096/14: Thirty-eighth Report HC 83-xxxv (2013-14),
chapter 19 (5 March 2014). Back
6
The 'margin' refers to the difference between total commitments/payments
in the DB and total commitments/payments provided for in the MFF. Back
7
See EU Press Release of 9 December 2014. Back
8
see (35970) 9017/14: First Report HC 219-i (2014-15), chapter 33
(4 June 2014). Back
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