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


48 Financial information on the European Development Fund

Committee's assessment Politically important
Committee's decisionCleared from scrutiny; drawn to the attention of the International Development Committee
Document detailsCommission Communication: Financial Information on the European Development Fund (EDF)
Legal base
DepartmentInternational Development
Document Numbers(36933), 9946/15, COM(15) 295

Summary and Committee's conclusions

48.1 The European Development Fund (EDF) supports actions in the African, Caribbean and Pacific (ACP) countries and the Overseas Countries and Territories (OCTs) social and human development as well as regional cooperation and integration. It is concluded for a multi-annual period (usually five years) and is implemented within the framework of an international agreement between the European Union and the partner countries.

48.2 The EDF amounted to 3% of the annual EU budget in 2008-13. It is financed by direct contributions from EU Member States according to a contribution key and is covered by its own financial rules. The total financial resources of the 11th EDF amount to €30.5 billion for the period 2014-20.[ 357]

48.3 Last November, the then Committee considered a Communication that reflected concerted UK efforts to address the issue of accurate forecasting. The then Minister (Lynne Featherstone welcomed the Commission having now provided forecasting for Member States' contributions for the four year period 2014-18 (see paragraph …. below and our predecessors' Report of November 2014 for details[ 358]).

48.4 In October 2014, the Commission provided estimates for Member State contributions for 2016 of €3,600 million (£2,588.4 million), of which the UK share would be €533.52 million (£383.6 million), for 2017 and 2018 at €3,650 million (£2,624 million) and €3,670 million (£2,639 million) respectively.

48.5 This further Communication outlines how the financial implementation of the 10th EDF for 2014 has led to a change from the October 2014 forecast for funds needed in the second tranche of EDF funding for 2015 to deliver EDF programmes in 2015. The Commission and EIB (European Investment Bank[ 359]) have requested total contributions from Member States for 2015 of €3,400 million (£2,445 million), of which €3,200 million (£2,301 million) will be managed by the Commission and €200 million (£143.8 million) by the EIB; a €200 million (£143.8 million) decrease in the funds managed by the Commission. The UK share of the 2015 spending will be €503.88 million (£362.2 million).

48.6 The Parliamentary Under-Secretary of State at the Department for International Development (Baroness Verma) says "as a Member State who has pushed the Commission to ensure its forecasting improves and its request for funds better reflect the needs of its spending profile", she welcomes this development. But she is not complacent: she and her officials continue to press the Commission for improved forecasting, "in order to ensure excessive cash balances are not lying unutilised for lengthy periods of time" (see paragraphs 47.17-47.20 below).

48.7 Though the sums are relatively small — a 200 million (£143.8 million) reduction in all, and a reduction of €29.64 million (£21.31 million) in the UK contribution — we agree with our predecessors' assessment, that accurate forecasting matters; and accordingly, like them, welcome continued progress on this front.

48.8 We hope to see more such progress when the October 2015 Communication, which will update last year's forecasts for 2014-18, is presented for scrutiny. On that occasion, we would appreciate the Minister providing an update on the Commission's new risk methodology to which she refers, and upon which she is seeking "further understanding", and a clearer explanation of the role this plays in improving the accuracy of the forecasts in question.

48.9 In the meantime, we clear this Commission Communication.

48.10 We also draw these developments to the attention of the International Development Committee.

Full details of the documents: Commission Communication — Financial Information on the European Development Fund: (36933), 9946/15, COM(15) 295.

Background

48.11 The European Development Fund (EDF) supports actions in the African, Caribbean and Pacific (ACP) countries and the Overseas Countries and Territories (OCTs) social and human development as well as regional cooperation and integration.

48.12 The EDF consists of several instruments:

—  grants managed by the Commission;

—  risk capital and loans to the private sector, managed by the European Investment Bank under the Investment Facility; and

—  the FLEX mechanism, which seeks to remedy the adverse effects of instability of export earnings.

48.13 Last November, the then Committee considered a Commission Communication that updated the forecasts given in the Commission's June 2014 Communication and provided estimates of EDF commitments, payments and contributions for the period 2014 to 2018. The then Minister (Lynne Featherstone) welcomed the more accurate Commission forecasting:

"The UK has made concerted efforts to address the issue of accurate forecasting for the EDF. As a result, the EC gave legal commitments to increase the forecasting period for Member States' contributions from two to four years, to minimise variations in Member States' annual contributions, and to manage more closely balances in the EDF account to ensure that funds, and any interest earned, will remain in Member State accounts until needed. The UK welcomes that in this Communication, the EC has provided forecasting for Member States' contributions for a four year period (2014-2018)."

The previous Committee's assessment

48.14 With the EDF amounting to 3% of the annual EU budget in 2008-13; to €30.5 billion for the period 2014-2020; and with the UK contribution in 2014 amounting to €479.40 million, accurate forecasting matters. It was accordingly gratifying that Commission performance, which had improved significantly over the years, under pressure from both Member States and the European Court of Auditors, continued to do so, with further improvements having been made with regard to EDF 11. The previous Committee looked forward to hearing more of the same the following summer.[ 360]

The Commission Communication

48.15 This Communication outlines how the financial implementation of the 10th EDF for 2014 has led to a change from the October 2014 forecast for funds needed in the second tranche of EDF funding for 2015, in order to deliver EDF programmes in 2015.

48.16 In her Explanatory Memorandum of 29 June 2015, the Minister (Baroness Verma) recalls the Commission's October 2014 Communication, which provided estimates for Member State contributions for 2016 of €3,600 million (£2,588.4 million), of which the UK share would be €533.52 million (£383.6 million); and for 2017 and 2018 at €3,650 million (£2,624 million) and €3,670 million (£2,639 million) respectively. She explains that:

—  the updated Commission forecast revises overall Member State contributions for 2015, from €3,600 million (£2,588 million), as proposed last November, to €3,400 million (£2,445 million);

—  this is due to a €200 million (£143.8 million) reduction requested by the Commission for 2015;

—  the UK contribution for 2015 will therefore be €503.88 million (£362.2 million); a reduction of €29.64 million (£21.31 million), which will be reflected in the UK's second instalment for 2015.

The Government's view

48.17 The Minister describes "concerted efforts" to address the issue of accurate forecasting for the EDF; officials have "consistently lobbied hard via the Council Working Group to improve financial oversight and accountability of EDF forecasting", which has included ensuring that the Commission "assesses the need for funds and aligns this with Member States contribution payment profiles, in line with DFID policy on guarding against payment of funds in advance of need". She outlines a new methodology adopted by the Commission that "responds to Member State calls (including UK) during the EDF11 regulation negotiations for more rigorous management of resources"; is therefore confident that the Commission has reduced its call for Member States contributions based on their best estimate of their cash requirements for 2015, and supports the revised forecast.

48.18 Though content with the proposed Communication, the Minister says that she and her officials continue to:

—  press the Commission for improved forecasting, "in order to ensure excessive cash balances are not lying unutilised for lengthy periods of time"; and

—  "seek further understanding" of the Commission's new risk methodology.

48.19 The Minister then notes that, in response to the most recent European Court of Auditor's report on activities of the 8th, 9th and 10th EDFs, she is reassured that the Commission "has an action plan in place to strengthen financial management and control systems, and they have committed to presenting regular progress updates to Member States".

48.20 All in all, the Minister says:

"We have been strong in our support of the importance of good financial discipline. In Council Working Group the UK supported the EC's[ 361] revised forecast and pushed against any amended proposal that would allow payment to the EC in advance of need and hold balances in excess of forecasted spending. We expect to see continual improvements in future forecasts, which we believe will, over time, reduce the variability of in-year and in future years."

48.21 With respect to her own Department, the Minister says:

"DFID can accommodate the change to the UK contribution for 2015 and will have enough time to adjust financial planning accordingly. The DFID financial management framework is robust, and incorporates monthly analysis and formal quarterly reviews of actual, planned and forecast expenditure".

48.22 With regard to the Timetable, the Minister says that, Member States having discussed and supported this Communication in Council Working Group on 26 June 2015, she expects it to be adopted by written procedure by 6 July 2015:

"Should the House of Commons Scrutiny Committee not be able to comment on this Council Decision ahead of it coming to Council, the UK will support the Council Decision. As a Member State who has pushed the Commission to ensure its forecasting improves and its request for funds better reflect the needs of its spending profile it is important the UK backs the Council decision that reflects Commission action on both counts. The decision will also lead to a reduced call on UK funds in 2015."

Previous Committee Reports

None, but see (36425), 14433/14, COM(14) 648: Twentieth Report HC 219-xix (2014-15), chapter 13 (19 November 2014).


357   See Where does the money come from? Back

358   See (36425), 14433/14: Twentieth Report HC 219-xix (2014-15), chapter 13 (19 November 2014). Back

359   See EIB at a glance. Back

360   (36425), 14433/14: Twentieth Report HC 219-xix (2014-15), chapter 13 (19 November 2014). Back

361   European Commission. Back


 
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