House of Commons - Documents considered by the Committee on 21 July 2015

Documents considered by the Committee on 21 July 2015 - European Scrutiny Contents

3 EU General Budgets for 2015 and 2016

Committee's assessment	Politically important
Committee's decision	Not cleared from scrutiny; for debate in European Committee B
Document details	(a) Draft Decision about use of the EU Solidarity Fund in 2016 (b) Draft Budget for 2016: political presentation (c) Draft Budget for 2016: financial programming 2017-20 (d) Draft Decision about use of the Flexibility Instrument in 2016 (e) Letter of amendment No 1 to the draft general budget 2016: Financing of the EFSI Guarantee Fund. (f) Draft Amending Budget No. 6 to the General Budget 2015
Legal base	Articles 314 TFEU and 106a, EURATOM Treaty; co-decision; QMV
Department	HM Treasury (a) (36821), 9404/15, COM(15) 281 (b) (36899), —, SEC(15) 240 (c) (36900), —, SEC(15) 240 (d) (36906), 9403/15, COM(15) 238 (e) (36955), 10343/1/15, COM(15) 317 (f) (36988), —' COM(15) 351

Summary and Committee's conclusions

3.1 The Draft Budget sets out the Commission's proposals for EU expenditure in 2016. It is the first stage in the annual process of establishing the EU's General 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 context for the Draft Budget is determined by the Multiannual Financial Framework for the period 2014-20, which sets out annual ceilings for the six headings of budget expenditure.

3.2 In the Draft Budget for 2016 the Commission proposes commitment appropriations[ 30] of €153.53 billion (£110.39 billion), which represents 1.04% of EU Gross National Income (GNI). For payment appropriations,[ 31] the Commission proposes €143.54 billion (£103.21 billion), or 0.98% of EU GNI.

3.3 On the basis of totals for the 2015 Budget which are not yet fully agreed, the Commission states that the Draft Budget represents a decrease in commitment appropriations of €8,413.3 million (£6,049.2 million) or 5.2% and an increase of €2,260.9 million (£1,625.6 million) in payment appropriations or 1.6% compared to 2015 levels. The margin[ 32] under the Multiannual Financial Framework ceiling is €2,208.5 million (£1,587.9 million) for commitment appropriations and €1,143.5 million (£822.2 million) for payment appropriations.

3.4 The Interinstitutional Agreement on budgetary matters provides the possibility of finance for ("mobilisation of") the EU Solidarity Fund, which releases emergency financial aid following a major disaster in a Member State or candidate country, and the Flexibility Instrument, which provides funding in a given financial year for clearly identified expenses which could not be covered by one or more budget headings without exceeding their expenditure ceilings. These two draft Decisions would mobilise the EU Solidarity Fund and the Flexibility Instrument for sums included in the Draft Budget.

3.5 The Commission has the option of publishing Amending Letters to update its Draft Budget while it is still subject to negotiation. This first Amending Letter for the 2016 Draft Budget concerns more certain estimates for the European Strategic Investment Fund, the legislation for which was agreed after publication of the Draft Budget.

3.6 The Government emphasises to us, in standard terms, its commitment to budgetary restraint and discipline, notes particularly the somewhat misleading basis of the Commission's comparisons with the 2015 General Budget, notes that level of expenditure proposed is consistent with the Multiannual Financial Framework and that the margins under the Framework ceilings have increased compared with 2015 and says that, given that these budgetary matters are decided by QMV, it will need to work closely with like-minded budget disciplinarian Member States to deliver the best deal possible for the UK.

3.7 The Government tells us that the Council is likely to adopt its position on the Draft Budget for negotiation with the European Parliament in early September. It says that the Council position reduced the Commission proposal by €0.56 billion (£0.40 billion) in commitment appropriations and €1.42 billion (£1.02 billion) in payment appropriations, while backing the funds proposed by the Commission for priority areas, resulting in an overall position of €153.30 billion (£110.22 billion) in commitment appropriations and €142.10 billion (£102.1 billion) in payment appropriations. It states that this left a €2.6 billion (£1.87 billion) margin below both the annual commitment and payment appropriation ceilings and that, compared to the current 2015 Budget, this would represent a decrease of 5.4% in commitment appropriations and a minor increase of 0.59% in payment appropriations.

3.8 Related to the annual budget cycle is reconciliation of Member State revenue contributions as GNI numbers become more certain. This Draft Amending Budget for the 2015 General Budget concerns a routine adjustment of revenue calculations and, more importantly treatment of a significant retrospective GNI based contribution attributed to the UK. The Government explains to us how this Draft Amending Budget would affect the UK's net contributions for 2015.

3.9 It has been the custom of our predecessors to recommend the Draft Budget for debate before the Council concludes its first reading and we intend to continue that very appropriate practice. Accordingly, we recommend that the documents for the 2016 General Budget be debated in European Committee B. Our inevitably late consideration of these documents mean that a debate is not possible before the Summer Recess. But despite the Government's expectation we have been able consider these proposals before the Council's first reading of the Draft Budget is completed. So it is important that, if at all possible, the debate takes place before the Council finalises its first reading, which we understand will be early in September.

3.10 We suggest that amongst the matters Members might explore during the debate are:

· the degree of support the Government is receiving from other Member States for a disciplined approach to next year's EU Budget;

· the significance for budgetary discipline of the proposed mobilisation of the EU Solidarity Fund and the Flexibility Instrument; and

· the consequences of the Draft Budget for budget lines from which the UK particularly benefits.

3.11 As for the Draft Amending Budget, we recommend that it should too be debated, on the same occasion, in European Committee B. In addition to exploring the background to this issue Members might wish to establish what the year-end UK net contribution is likely to be as a result of the present and expected DAB adjustments.

Full details of the documents: (a) Draft Decision on mobilisation of the EU Solidarity Fund to provide for payment of advances in the 2016 Budget: (36821), 9404/15, COM(15) 281; (b) Statement of Estimates of the Commission for 2016 (Preparation of the 2016 Budget): Political Presentation: (36899), —, SEC(15) 240; (c) Statement of Estimates of the Commission for 2016 (Preparation of the 2016 Budget): Financial programming 2017-2020 (Provisional figures): (36900), —, SEC(15) 240; (d) Draft Decision on the mobilisation of the Flexibility Instrument for the provisional measures in the area of international protection for the benefit of Italy and Greece: (36906), 9403/15, COM(15) 238; (e) Letter of amendment No 1 to the draft general budget 2016: Financing of the EFSI Guarantee Fund: (36955), 10343/1/15, COM(15) 317; (f) Draft Amending Budget No. 6 to the General Budget 2015: (36988), —, COM(15) 351.

Background

3.12 The Draft Budget (DB) sets out the Commission's proposals for EU expenditure in 2016. 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 Economic and Financial Affairs (ECOFIN) Council expects to negotiate and agree its first reading position on the DB in early September (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 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, largely in late October and early November, with the aim of reaching agreement on the 2016 General Budget. This will be subject to separate approval by both the Council and the European Parliament, after which the EU's General Budget for 2016 will be deemed to have been adopted.

3.13 The context for the DB is determined by the Multi-annual Financial Framework (MFF) for the period 2014-20, which sets out annual ceilings for the six headings of budget expenditure:

· Smart and inclusive growth;

· Sustainable Growth: natural resources;

· Security and Citizenship;

· Global Europe;

· Administration; and

· Compensation (temporary measures previously connected to the accession of Croatia).

3.14 During the course of negotiation of the EU General Budget for the following year the Commission may present Amending Letters to its DB.

3.15 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 — there are normally about ten DABs each year.

The Commission's Draft Budget

3.16 The DB for 2016 is the second of the 2014-20 MFF. As well as programme expenditure, it includes 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.

3.17 The DB consists of two main documents: a political presentation (including information on objectives and spending levels for each major EU programme), document (b), and details of the financial programming over the MFF (in provisional figures), document (c).

3.18 The tripartite Interinstitutional Agreement (IIA) of December 2013 on budgetary discipline, on cooperation in budgetary matters and on sound financial management provides the possibility of finance for ("mobilisation of") the EU Solidarity Fund, which releases emergency financial aid following a major disaster in a Member State or candidate country, and the Flexibility Instrument, which provides funding in a given financial year for clearly identified expenses which could not be covered by one or more budget headings without exceeding their expenditure ceilings.

3.19 The Explanatory Memorandum of 11 June 2015 provided to us by the Financial Secretary to the Treasury (Mr David Gauke) focuses on the political presentation of the DB for 2016, document (b), but also touches on the MFF financial programming and the EU Solidarity Fund and Flexibility Instrument draft Decisions, documents (a), (c) and (d). We annexe to this chapter two tables, from that Explanatory Memorandum, illustrating, in euros and sterling, the key DB figures. In his second Explanatory Memorandum, of 14 July 2015, the Minister describes and discusses the Commission's Amending Letter, document (e).

OVERVIEW

3.20 The political presentation is broken down into five sections. Section 1 covers the Commission's priorities for the 2016 DB, which it then places within the context of the MFF in Section 2. Section 3 breaks down the key aspects of the DB on a heading-by-heading basis. Details of cross-cutting issues are presented in Section 4 ('horizontal issues'). Section 5 consists of annexes, which include the 2014-2020 MFF in current prices (Annex I), the DB broken down by policy area and financial framework headings (Annex II), details of the intended contribution made by the DB to climate tracking and biodiversity (Annex III) and an overview of human and financial resources requested for bodies set up by the EU, or agencies (Annex IV).

3.21 The Commission states that the key objective of the DB is to 'provide a new boost for jobs, growth and investment'. Three major new elements are included in the DB:

· measures relating to the proposed creation of the European Fund for Strategic Investment (EFSI)[ 33] under Sub-Heading 1a — in addition to redeployment from existing EU funding, the Commission proposes to complete its financing for 2016 by making use of the Global Margin for Commitments, for an amount totalling €351.4 million (£252.7 million), though at the time of the DB's publication negotiations on the EFSI were ongoing;

· the proposed mobilisation of the Flexibility Instrument totalling €124.0 million (£89.2 million) for additional funding under Heading 3 to provide temporary support to asylum and migration measures in Italy and Greece; and

· the proposed reinforcement of operational programmes and decentralised agencies under Heading 3 amounting to €123.2 million (£88.6 million) in commitment appropriations to respond to migratory pressures in 2016, building on related measures proposed in DAB No. 5/2015.[ 34]

KEY FIGURES

3.22 The Commission proposes commitment appropriations of €153,529.5 million (£110,387.7 million), which represents 1.04% of EU Gross National Income (GNI). For payment appropriations, the Commission proposes €143,541.5 million (£103,206.3 million), or 0.98% of EU GNI.

3.23 Including Amending Budget No. 1/2015,[ 35] and excluding as yet unadopted DABs for 2015, the current 2015 budget totals €161,800.4 million (£116,334.5 million) in commitment appropriations and €141,214.0 million (£101,532.9 million) in payment appropriations. When comparing any figures from the DB to the 2015 Budget, the Commission includes Amending Budget No. 1/2015, and unadopted DABs, DAB No. 1/2015,[ 36] DAB No. 3/2015,[ 37] DAB No. 4/2015[ 38] and DAB No. 5/2015.[ 39] This corresponds to a current 2015 Budget size of €161,942.7 million (£116,436.8 million) in commitment appropriations and €141,280.5 million (£101,580.7 million) in payment appropriations. As such, the Commission states that the DB represents a decrease in commitment appropriations of €8,413.3 million (£6,049.2 million) or 5.2% and an increase of €2,260.9 million (£1,625.6 million) in payment appropriations or 1.6% compared to the 2015 Budget. The margin under the MFF ceiling is €2,208.5 million (£1,587.9 million) for commitment appropriations and €1,143.5 million (£822.2 million) for payment appropriations.

3.24 The DB includes €124.0 million (£89.2 million) in commitment appropriations and €45.7 million (£32.9 million) in payment appropriations for the Flexibility Instrument and €351.4 million (£252.7 million) in commitment appropriations for the Global Margin for Commitments. The DB also includes €524.6 million (£377.2 million) in commitment appropriations for 'other Special Instruments': €309.0 million (£222.2 million) for the Emergency Aid Reserve, €165.6 million (£119.1 million) for the European Globalisation Adjustment Fund and €50.0 million (£36.0 million) for the EU Solidarity Fund. Similarly, it includes €389.0 million (£279.7 million) in payment appropriations for such instruments: €309.0 million (£222.2 million) for the Emergency Aid Reserve, €30.0 million (£21.6 million) for the European Globalisation Adjustment Fund and €50.0 million (£36.0 million) for the EU Solidarity Fund.

DETAIL OF PROPOSED EXPENDITURE BY BUDGET HEADING

3.25 Sub-Heading 1a — Competitiveness for growth and jobs:

· total commitment appropriations of €18,618.4 million (£1,307.4 million), representing an increase of 6.1% compared to 2015;

· total payment appropriations of €17,518.1 million (£12,595.5 million), representing an increase of 11.4% compared to 2015; and

· a margin of €200.0 million (£143.8 million) beneath the commitment appropriations ceiling.

3.26 The main changes under Sub-Heading 1a include:

· an increase in payment appropriations for the Connecting Europe Facility of €225.2 million (£161.9 million) or 15.5%, for Education, Training and Sport (Erasmus+) of €418.2 million (£300.7 million) or 30.1% and for the Common Strategic Framework for Research and Innovation (including Horizon 2020) of €978.9 million (£703.8 million) or 10.5%;

· a decrease in payment appropriations for large infrastructure projects of €180.7 million (£78.2 million) or 9.6% and for energy projects to aid economic recovery of €230.6 million (£146.4 million) or 56.7%; and

· inclusion of resources allocated to the EFSI, totalling €2,050.0 million (£1,474.0 million) in commitment appropriations and €520.0 million (£373.9 million) in payment appropriations.

3.27 Sub-Heading 1b — Economic, social and territorial cohesion:

· total commitment appropriations of €50,821.7 million (£36,540.8 million), representing a decrease of 15.9% compared to 2015. The significant decrease in commitment appropriations arises from the impact of the reprogramming of commitment appropriations which remained unused in 2014 due to the late adoption of certain operational programmes under Sub-Heading 1b, Heading 2 and Heading 3. When neutralising the impact of the reprogramming exercise, total commitment appropriations for 2016 represent an increase of 2.5% compared to 2015;

· total payment appropriations of €49,060.1 million (£35,274.2 million), representing a decrease of 4.0% compared to 2015; and

· a margin of €15.3 million (£11.0 million) beneath the commitment appropriations ceiling.

3.28 The main changes under Sub-Heading 1b include:

· an increase in payment appropriations for transition regions of €1,900.5 million (£1,366.5 million) or 212.9%, for competitiveness (more developed regions) of €1,739 million (£1,250.3 million) or 25.9% and for the Common Strategic Framework for Research and Innovation of €978.9 million (£703.8 million) or 10.5%; and

· a decrease in payment appropriations for the Cohesion Fund of €5,902.3 million (£4,243.8 million) or 47.0% and for European Territorial Cooperation of €180.2 million (£129.6 million) or 15.7%.

3.29 Heading 2 — Sustainable growth: natural resources:

· total commitment appropriations of €63,104.4 million (£45,372.1 million), representing a decrease of 1.2% compared to 2015;

· total payment appropriations of €55,856.9 million (£40,161.1 million), representing a decrease of 0.2% compared to 2015; and

· a margin of €1,157.6 million (£832.3 million) beneath the commitment appropriations ceiling.

3.30 The main changes under Heading 2 include:

· an increase in payment appropriations for the European Agricultural Fund for Rural Development of €699.6 million (£503.0 million) or 6.3%; and

· a decrease in payment appropriations for market related expenditure and direct payments (CAP Pillar 1) of €588.3 million (£423.0 million) or 1.4% and for the European Maritime and Fisheries Fund of €238.6 million (£171.6 million) or 24.9%.

3.31 Heading 3 — Security and Citizenship:

· total commitment appropriations of €2,670.0 million (£1,919.7 million), representing an increase of 9.7% compared to 2015;

· total payment appropriations of €2,259.0 million (£1,624.2 million), representing an increase of 17.1% compared to 2015; and

· no margin beneath the commitment appropriations ceiling.

3.32 The main changes under Heading 3 include:

· an increase in payment appropriations for the Asylum, Migration and Integration Fund of €133.7 million (£96.1 million) or 35.0%, for the Internal Security Fund of €42.4 million (£30.5 million) or 15.5%, for food and feed of €46.5 million (£33.4 million) or 21.6% and for decentralised agencies (for example FRONTEX) of €46.0 million (£33.1 million) or 8.3%; and

· a decrease in payment appropriations for pilot projects and preparatory actions of €5.8 million (£4.2 million) or 32.1%.

3.33 Heading 4 — Global Europe:

· total commitment appropriations of €8,881.7 million (£6,385.9 million), representing an increase of 5.6% compared to 2015;

· total payment appropriations of €9,539.2 million (£6,858.7 million), representing an increase of 28.5% compared to 2015; and

· a margin of €261.3 million (£187.9 million) beneath the commitment appropriations ceiling.

3.34 The main changes under Heading 4 include an increase in payment appropriations for the Instrument for Pre-accession Assistance of €523.8 million (£376.6 million) or 33.7%, for the European Neighbourhood Instrument of €539.3 million (£387.8 million) or 34.1%, for the Development Cooperation Instrument of €587.2 million (£422.2 million) or 27.4% and for humanitarian aid of €147.3m (£105.9m) or 16%. There are no significant decreases in payment appropriations proposed under Heading 4.

3.35 Heading 5 — Administration:

· total commitment appropriations of €8,908.7 million (£6,405.4 million), representing an increase of 2.9% compared to 2015;

· total payment appropriations of €8,910.2 million (£6,406.4 million) representing an increase of 2.9% compared to 2015; and

· a margin of €574.3 million (£412.9 million) beneath the commitment appropriations ceiling.

3.36 The main changes under Heading 5 include an increase in payment appropriations for pensions and European Schools of €93.3 million (£67.1 million) or 5.4% and administrative expenditure of the institutions of €154.9 million (£111.2 million) or 2.2%. There are no significant decreases in payment appropriations proposed under Heading 5.

3.37 Heading 6 — Compensations. This heading was intended to help improve cash-flow in the national budget of Croatia, agreed during accession negotiations. The facility was limited to the year 2014 only. As a result, as in 2015, there are neither commitment nor payment appropriations under Heading 6.

MOBILISATION OF THE FLEXIBILITY INSTRUMENT:

3.38 The 2014-2020 MFF Regulation allows for the mobilisation of the Flexibility Instrument to allow the financing of clearly identified expenditure which could not be financed within the limits of the ceilings available for one or more headings of the MFF. Having examined all possibilities for re-allocating appropriations, the Commission proposes, with a draft Decision, document (d), mobilisation (use) of the Flexibility Instrument. This mobilisation, incorporated into the DB, would total €124.0 million (£89.2 million) of commitment appropriations and €45.7 million (£32.9 million) of payment appropriations, and is intended to complement the financing of a set of temporary asylum measures to help relieve pressure on the asylum and migration systems of Italy and Greece. The total cost budgeted in 2016 for these measures is estimated at €150.0 million (£107.9 million).

MOBILISATION OF THE EU SOLIDARITY FUND:

3.39 The Commission also proposes with another draft Decision, document (a), mobilisation of the EU Solidarity Fund to provide €50 million (£35.6 million) in commitment and payment appropriations for inclusion in the DB.

AMENDING LETTER NO. 1

3.40 This Amending Letter, document (e), amends the DB to reflect the impact of the political agreement on the financing of the EFSI reached between the Council and the European Parliament, which facilitated the adoption of the EFSI Regulation on 24 and 25 June. Since this political agreement was reached after publication of the DB, this Amending Letter serves to update the relevant lines of the Commission's proposal for 2016. The Council and the European Parliament are expected to take the revised figures into account in their deliberation of the 2016 General Budget.

3.41 The following changes have been made to the DB:

· redeployment of commitment appropriations from Horizon 2020 would be reduced by €153 million (£108.8 million): from €317.9 million (£226.2 million) to €164.9 million (£117.3 million);

· redeployment of commitment appropriations from the Connecting Europe Facility would be reduced by €150 million (£106.7 million): from €650 million (£462.4 million) to €500 million (£355.7 million);

· these redeployments would be compensated by a corresponding increase in the use of the unallocated margin under Sub-Heading 1a and the Global Margin for Commitments;

· the unallocated margin left under Sub-Heading 1a would decrease by €111.4 million (£79.2 million): from €200 million (£142.3 million) to €88.6 million (£63 million);

· use of the Global Margin for Commitments would be increased by €191.6 million (£136.3 million): from €351.4 million (£250 million) to €543 million (£386.3 million).

3.42 The net impact of these changes in 2016 would be an increase of €303 million (£215.6 million) in commitment appropriations. The overall level of payment appropriations would remain unchanged.

Draft Amending Budget No. 6/2015

3.43 DAB No. 6/2015, document (f), provides for a revision in the forecast of Member State Traditional Own Resources (TOR) contributions (customs duties and sugar levies), revisions to Member State hypothetical harmonised VAT-bases and GNI-bases and the budgeting and financing of revisions to the UK abatement. The combined effect of the changes proposed in the DAB reduce the overall level of contributions required from Member States by €1.4 billion (£1.1 billion) from the adopted General Budget for 2015 and change the contributions of Member States.

REVISION OF THE FORECAST OF TOR, VAT AND GNI BASES

3.44 The revenue of the EU General Budget is largely derived from the EU's Own Resources, which comprise TOR contributions, contributions based on a hypothetical harmonised VAT base, and GNI-based contributions, as set out in a document known as the Own Resources Decision (ORD).[ 40] The ORD sets out the system by which Member States finance the annual EU Budget.

3.45 In line with established practice, this DAB presents updated forecasts for VAT-based and GNI-based contributions, as well as revisions to forecasts of TOR. The changes to Member State VAT and GNI-bases from which the revised contributions flow were agreed at a meeting of the Advisory Committee on Own Resources (ACOR) on 19 May. The revised TOR forecasts were also agreed at this meeting.

3.46 Compared with the assumptions used for the 2015 General Budget, based on VAT bases and GNI bases agreed by ACOR on 19 May 2014, both the total uncapped VAT-base and the total capped VAT base[ 41]have been revised down by 1.3% and the total GNI base has been revised up by 0.4%. Forecast custom duties have increased by 6.8% on the estimate used in the 2015 General Budget. There has been no adjustment to the forecast of sugar levies provided in the in the 2015 General Budget.

3.47 The DAB shows that UK shares of EU VAT and GNI bases have increased from the 2015 General Budget — the share of the EU VAT base has increased from 16.4% to 18.4% and the share of the EU GNI base has increased from 15.4% to 16.4%.

UK ABATEMENTS (2011 - 2014)[ 42]

3.48 This DAB includes a definitive calculation of the 2011 UK abatement, which is €198 million (£167 million) higher than the figure budgeted in Amending Budget No. 4/2014. It includes revisions to the 2012, 2013 and 2014 UK abatements:

· the 2012 abatement has been revised up by €512 million (£418 million) on the calculation provided in Amending Budget No. 6/2013;

· the 2013 abatement has also been increased, a change of €381 million (£318 million) on the figure provided in Amending Budget No. 4/2014; and

· the revised calculation for 2014 sees a reduction of €889 million (£693 million) from the initial figure provided in the 2015 General Budget.

The Government's view

3.49 In his first Explanatory Memorandum the Minister introduces, in regularly repeated terms, his comments, by saying that:

· the Government has been clear that it wants to see real budgetary restraint in the EU over the coming years, as well as the longer term, in order to reduce costs to the UK and to UK taxpayers; and

· to deliver this goal, the Government is committed to continue to work hard to limit EU spending, reduce waste and inefficiency in all areas of the budget, and to ensure that where EU funds are spent they deliver the best possible value for money for taxpayers.

3.50 The Minister then comments that:

· the Government notes that the proposed level of expenditure outlined in the DB is consistent with the annual ceiling for commitment and payment appropriations set out in the MFF;

· it believes that there should be a significant margin between the agreed budget and the annual ceiling, as this represents sound budgetary management;

· with a commitment appropriations margin of €2,208.5 million (£1,587.9 million) and a payment appropriations margin of €1,143.5 million (£822.2 million), the Government notes that the proposed margins have increased compared to 2015;

· while the Government supports the principle of the EU Solidarity Fund and, in this instance, the objectives of the mobilisation of the Flexibility Instrument, it has been consistently clear that it wants to see real budgetary restraint in the EU in order to avoid unaffordably high costs to the UK; and

· the Government's view is that the Commission should always look first to reallocate funds from within existing agreed budgets to meet emerging pressures.

3.51 The Minister gives a brief summary of the Government's views on the Headings, saying that:

· the Government welcomes the DB's focus on growth, jobs and competitiveness programmes which Sub-Heading 1a (Competitiveness for Growth and Jobs) supports;

· this use of EU funding represents some high value spend and benefit to UK companies;

· the Government welcomes the Commission's measured approach to payments for Sub-Heading 1b (Economic, social and territorial cohesion);

· the level of payment appropriations requested sees a decrease of 4% compared to 2015;

· the Commission states that the level of payments identified will be sufficient to phase out the backlog of unpaid payment claims relating to 2007-2013 programmes by end-2016, as well as to ensure the proper implementation of 2014-2020 programmes;

· payment appropriations should be set at the minimum necessary to fund programme implementation, and based on realistic implementation rates and estimates of Member States' absorption capacity;

· the Government notes that in the DB the Commission proposes that Heading 2 (Sustainable Growth: Natural Resources) should remain at approximately 40% of the overall budget, and continues to believe that much of this expenditure, in particular Pillar 1of the CAP, represents very poor value for money;

· the Government welcomes, however, the fact that, across the 2014-2020 MFF period, overall CAP spending will fall by 13% compared with the previous MFF period;

· the Government notes that Heading 3 (Security and Citizenship) will see a significant increase in payment appropriations compared to the 2015 Budget in order to fund emergency measures in relation to asylum and migration;

· instruments funded through Heading 4 (Global Europe) need to be funded appropriately if the EU is to deliver on its priorities of poverty reduction, building stability and security in external countries and increasing the prosperity of the EU through stronger ties with external countries;

· the Government is disappointed that Heading 5 (Administration) payments have marginally increased in the DB, meaning that Heading 5 remains around 6% of the total budget; and

· greater budgetary restraint is still needed on administration — in particular, it is important that cost reductions result from the institutions' commitment to reduce staff by 5% from 2013-2017.

3.52 The Minister also notes two further separate points:

· the DB is agreed by QMV and the Government will need to work closely with like-minded budget disciplinarian Member States to deliver the best possible deal for the UK; and

· according to the DB the UK's post-abatement financing share in 2016 is 13.9%.

3.53 In his second Explanatory Memorandum, on the Amending Letter, document (e), the Minister says that:

· the Government supports the establishment of the EFSI to raise growth prospects across the EU and boost private sector investment;

· it welcomes that the Regulation is clear that the establishment of the EFSI is fully consistent with the terms of the Multiannual Financial Framework for 2014-20;

· as part of the political agreement reached on the EFSI, the Government welcomes the protection of the 'Strengthening frontier research in the European Research Council', 'Marie-Sklodowska-Curie actions' and 'Spreading excellence and widening participation' programmes;

· these programmes will not contribute to the redeployment from Horizon 2020 for the provisioning of the EFSI Guarantee Fund;

· the UK, along with all other Member States, supported the final EFSI text in COREPER on 25 June; and

· Member States will not be asked to vote on this Amending Letter.

3.54 In his Explanatory Memorandum of 20 July 2015 on DAB No.6/2015, document (f), the Minister says that:

· this DAB updates the Commission's forecasts of contributions for 2015, and will be reflected in changes for Member States contributions for 2015 once the DAB is adopted;

· these changes are routinely anticipated in Office for Budget Responsibility (OBR) forecasts, for the purpose of forecasting UK public expenditure;

· the changes in this DAB have already been anticipated in the OBR's most recent forecast;

· changes to the GNI base and VAT base forecasts will affect payments made to the EU in 2015;

· UK TOR payments are calculated from the UK's actual customs duties and sugar levies and will not be based on the forecasts in this DAB;

· the Commission's upward revisions to calculations of UK abatements between 2011 and 2014 reduces the UK's post abatement contributions by €202 million (£208 million);

· compared to the 2015 Budget, the DAB shows a total increase in the UK's gross post abatement contributions of €1.3 billion (£1.0 billion), of which €0.4 billion (£0.3 billion) is due to upward revisions to TOR contributions, €0.3 billion (£0.2 billion) due to VAT-based contributions, €0.7 billion (£0.5 billion) due to GNI-based contributions, and €-0.2 billion (£-0.2 billion) due to revisions proposed; and

· this moves the Commission's estimates closer to the OBR's July 2015 expectation of UK contributions over 2015 — changes to both forecasts have been driven by an increase in the UK's forecast share of the EU economy.

The Minister's letter of 15 July 2015

3.55 The Minister writes further to his first Explanatory Memorandum on the DB to inform us that the Council's position on the Commission's proposals was agreed by COREPER on 8 July. He says that:

· this position reflects in-principle Council agreement and will trigger a formal Council vote by written procedure, which will conclude in early September; and

· the Government does not expect any objections to the agreement to arise during written procedure as all Member States supported the proposal in COREPER, with the exception of Denmark and the Netherlands, who placed scrutiny reserves but fully intend to lift these and support the Council position in the written procedure.

3.56 The Minister reports that:

· the Council position reduced the Commission proposal by €0.56 billion (£0.40 billion) in commitment appropriations and €1.42 billion (£1.02 billion) in payment appropriations, while backing the funds proposed by the Commission for priority areas;

· this resulted in an overall position of €153.3 billion (£110.22 billion) in commitment appropriations and €142.1 billion (£102.1 billion) in payment appropriations;

· this left a €2.6 billion (£1.87 billion) margin below both the annual commitment and payment appropriation ceilings; and

· compared to the current 2015 Budget, the Council position on the 2016 Budget would represent a decrease of 5.4% in commitment appropriations (largely caused by the reprofiling of commitment appropriations that took place last year) and a minor increase of 0.59% in payment appropriations.

3.57 The Minister says that the Council made reductions to the DB across all of the budget headings, setting these out as follows:

· in Sub-Heading 1a, the Council reduced the Commission proposal by €140 million (£100.66 million) in commitment appropriations and €435million (£312.77 million) in payment appropriations, while preserving the funds required for the EFSI, COSME, to support small and medium sized enterprises, and Erasmus+ to improve youth employability;

· this leaves a commitment appropriation margin of €230 million (£165.37 million) under the Sub-Heading;

· in Sub-Heading 1b, the Council reduced the Commission's proposal by €3 million (£2.16 million) in commitment appropriations and €220 million (£158.18 million) in payment appropriations, while still being wholly consistent with the payment plan as agreed between the institutions earlier this year;

· this leaves a commitment appropriation margin of €19 million (£13.66 Million) under the Sub-Heading;

· in Heading 2, the Council reduced the Commission's proposal by €200 million (£143.80) in commitment appropriations and €250 million (£179.75 million in payment appropriations;

· €200 million (£143.80) of these cuts in both payment and commitment appropriations were borne by the European Agriculture Guarantee Fund, which is market related expenditure and direct payments;

· this leaves a commitment appropriation margin of €1.36 billion (£0.98 billion) under this Heading;

· in Heading 3, the Council reduced the Commission's proposal by €25 million (£17.98 million) in commitment appropriations and €34 million (£24.45 million) in payment appropriations, while protecting all funding for programmes dealing with migration pressures;

· as the Commission's proposal mobilised the Flexibility Instrument (as in document (d)) above the Heading 3 commitment appropriations ceiling, the margin in Heading 3 remains zero even with these reductions;

· in Heading 4, the Council reduced the Commission's proposal by €163 million (£117.20 million) in commitment appropriations and €450 million (£323.55 million) in payment appropriations, while protecting humanitarian aid and the Common Foreign and Security Policy instrument which allow flexibility to respond to short term priorities;

· this still results in 22% growth in this Heading compared to last year;

· this leaves the Heading commitment appropriations margin at €425 million (£305.58 million), again, leaving greater flexibility for Heading 4 to respond to unforeseen external events; and

· in Heading 5, the Council reduced the Commission's proposal by €31 million (£22.29 million) in both payment and commitment appropriations — the Government welcomes this cut in the administrative budget of the EU.

3.58 Reminding us that, as he had said in his original Explanatory Memorandum, the Commission's DB was consistent with the 2014-2020 MFF, the Minister comments that:

· the Council's position further increased the overall margins available in 2016, allowing greater flexibility to respond to unforeseen needs in 2016, and in future years;

· the Government judges that the Council position supports the long term delivery of the MFF; and

· the Government therefore supported the Council position in COREPER and intends to formally vote in favour in the written procedure.

3.59 The Minister continues that:

"I recognise that, regrettably, this constitutes a scrutiny override. However, as your Committee has not yet reconvened and won't be able to scrutinise the proposal before the written procedure closes, and that supporting this Council position places us in a stronger position for the autumn negotiations on the budget, I believe that it was in the UK's interests to support the Council position at this time."

3.60 In this letter the Minister also discusses DAB No.6/2015, document (f), which concerns the rebate the UK will receive on the 2014 surcharge payment.[ 43] He asserts that this is important in a number of ways. He says that, first, the DAB confirms the rebate the UK will receive its surcharge payment following the Chancellor's agreement last year and that this rebate will be paid simultaneously in the same year as making the UK payment — the normal procedure is for the rebate to be paid with a year's lag. The Minister says that, secondly:

· the DAB sets out that the UK will receive a higher rebate than originally estimated by the Commission last autumn;

· its previous estimate was for a rebate of around €1 billion (£0.72 billion), and the OBR included a figure of £0.8 billion in its Economic and Fiscal Outlook for the 2014 Autumn Statement;

· the DAB confirms the rebate at €1.1 billion, which represents around £0.9 billion at the relevant exchange rates;

· this means that the total net surcharge payment from the UK to the EU will be under £0.8 billion, less than half of the original bill of £1.7 billion; and

· this is, again, a reduction to the net payment of £0.9 billion forecast by the OBR in its Autumn Statement 2014 publication.

3.61 The Minister recalls that in December 2014 he explained to the predecessor Committee that the process for paying the different transfers relating to the surcharge is being administered with the other standard monthly EU budget transfers, and aggregated into net payments.[ 44] He then sets out that:

· the agreement on the surcharge meant the UK would make two payments to the EU, and there would be various repayments, including the exceptional application of the rebate on the surcharge;

· these now sum to the net payment of under £0.8 billion;

· the payment profile has been updated since December;

· the Commission paid the UK the first tranche of its repayment from the surcharge, worth £0.5 billion, in February;

· this was earlier than expected, and well in advance of the UK making any payments to the EU;

· the Government's original assumption was that the UK would not receive any repayments from the EU ahead of it making payments;

· the Government paid the first of the UK's instalments, £435 million, to the Commission, at the beginning of July, and will pay the balance in September;

· as well as the publication of DAB No.6/2015, the Commission will publish a DAB containing the second tranche of repayments from the surcharge;

· these two DABs will then have to be adopted by the Council and the European Parliament; and

· the overall impact of this means that for the majority of the year, despite the fact that the UK is a net contributor from the surcharge overall, the UK has been a net recipient, and indeed the largest net recipient of all Member States.

Previous Committee Reports

None.

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 future budget years. Back

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

32 The 'margin' refers to the difference between total commitment appropriations/payment appropriations in the DB and total commitment appropriations/payment appropriations provided for in the MFF. Back

33 (36540) 16115/14, (36605) 5112/15 + ADD 1, (36607) 5317/15: see Twenty-seventh Report HC 219-xxvi (2014-15), chapter 7 (17 December 2014), Thirtieth Report HC 219-xxix (2014-15), chapter 5 (21 January 2015), Thirty-second Report HC 219-xxxi (2014-15), chapter 1 (4 February 2015), Thirty-fifth Report HC 219-xxxiv (2014-15), chapter 2 (4 March 2015) and Gen Co Debs, European Committee B, 24 March 2015, cols 3-18. Back

34 (36881) 9000/15: see chapter 4 of our Second Report HC342-ii (21 July 2015). Back

35 Which was DAB No. 2/2015, (36611) 5469/15: see Thirty-first Report HC 219-xxx (2014-15), chapter 8 (28 January 2015). Back

36 (36607) 5317/15: see Thirty-second Report HC 219-xxxi (2014-15), chapter 1 (4 February 2015) and Gen Co Debs, European Committee B, 24 March 2015, cols 3-18. Back

37 (36795) 8014/15: see chapter 82 of this Report. Back

38 (36796) 8015/15: see chapter 34 of this Report. Back

39 Op cit. Back