Documents considered by the Committee on 13 July 2016 Contents

2Draft Budget 2017

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; recommended for debate in European Committee B

Document details

(a) Proposed Decision on the mobilisation of the European Union Solidarity Fund; (b) Proposed Decision on the mobilisation of the Flexibility Instrument in relation to the on-going migration, refugee and security crisis; (c) Proposed Decision on the mobilisation of the Contingency Margin in 2017; (d) Draft Budget for 2017

Legal base

Articles 314 TFEU and 106a, EURATOM Treaty; special legislative procedure; QMV

Department

HM Treasury

Document Numbers

(a) (37905), 10763/16, COM(16) 312; (b) (37906), 10764/16, COM(16) 313; (c) (37907), 10765/16, COM(16) 314; (d) (37911), —, SEC(16) 280

Summary and Committee’s conclusions

2.1The Draft Budget and three related proposed Decisions set out the Commission’s proposals for EU expenditure in 2017. This 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 budget expenditure.

2.2In the Draft Budget for 2017 the Commission proposes commitment appropriations2 of €157,657.5 million (£130,303.9 million), which represents 1.05% of EU Gross National Income (GNI). For payment appropriations,3 the Commission proposes €134,898.6 million (£111,493.7 million), or 0.9% of EU GNI.

2.3On the basis of totals for the 2016 Budget which are not yet fully agreed, the Commission says that the Draft Budget represents an increase in commitments of €2,637.5 million (£2,179.9 million) or 1.7% compared to 2016 levels, and a decrease of €8,986.7 million (£7,427.5 million) in payments or 6.2% compared to 2016.

2.4The margin4 under the Multiannual Financial Framework ceiling is €815.4 million (£673.9 million) in commitments and €8007.4 million (£6618.1 million) for payments.

2.5The 2013 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. The Multiannual Financial Framework allows mobilisation of 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, and the Contingency Margin, which is a mechanism to react to unforeseen circumstances as a last resort instrument. The three proposed Decisions would mobilise the EU Solidarity Fund, the Flexibility Instrument and the Contingency Margin for sums included in the Draft Budget.

2.6The Government notes that until the UK leaves the EU it will continue to negotiate, implement and apply EU legislation and that this includes the 2017 Annual Budget. The Government, while making no comments on the specifics of the proposals, tells us, in very familiar terms, that it will continue to work closely with other national governments to ensure budget discipline, the best possible value for money for British and other EU taxpayers from EU spending, and to reduce waste and inefficiency. It also tells us that:

2.7It has been the custom over the years to recommend the Draft Budget for debate before the Council concludes its first reading. It is regrettable that this year the very late publication of the Commission’s proposals for the 2017 EU Budget make it unlikely that they can be debated before the Council’s adoption of its first reading position, let alone before COREPER determines the likely content of that first reading. Nevertheless, we recommend that the documents for the 2017 EU Budget be debated in European Committee B as soon as possible. We suggest that amongst the matters Members might explore during the debate are:

Full details of the documents

(a) Proposed Decision on the mobilisation of the European Union Solidarity Fund to provide for the payment of advances in the general budget of the Union for 2017: (37905), 10763/16, COM(16) 312; (b) Proposed Decision on the mobilisation of the Flexibility Instrument to finance immediate budgetary measures to address the on-going migration, refugee and security crisis.: (37906), 10764/16, COM(16) 313; (c) Proposed Decision on the mobilisation of the Contingency Margin in 2017: (37907), 10765/16, COM(16) 314; (d) Statement of estimates of the European Commission for the financial year 2017: (37911), —, SEC(16) 280.

Background

2.8The Draft Budget (DB) sets out the Commission’s proposals for EU expenditure in 2017. 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 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, probably in November, with the aim of reaching agreement on the 2017 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 2017 will be deemed to have been adopted.

2.9The 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:

2.10The tripartite Interinstitutional Agreement (IIA) of December 2013 on budgetary discipline, on cooperation in budgetary matters and on sound financial management provides:

The documents

2.11The DB for 2017, document (d) is the third of the 2014–20 MFF period. 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.

2.12The DB consists of two main documents: a political presentation (including information on objectives and spending levels for each major EU programme) and details of the financial programming over the MFF (in provisional figures).

2.13The Explanatory Memorandum of 11 July 2016 provided to us by the Financial Secretary to the Treasury (Mr David Gauke) focuses on the political presentation of the DB for 2016, but also touches on the MFF financial programming and Contingency Margin, EU Solidarity Fund and Flexibility Instrument proposed Decisions, documents (a), (b) and (c).

Overview

2.14The political presentation is broken down into six sections. Section 1 covers the Commission’s priorities for the 2017 DB, which it then places within the context of implementation of the EU budget in Section 2. Section 3 puts the DB in the context of the MFF while Section 4 breaks down the key aspects of the DB on a heading-by-heading basis. Details of cross-cutting issues are presented in Section 5 (‘horizontal issues’). Section 6 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 monitoring and biodiversity (Annex III) and an overview of human and financial resources requested for bodies set up by the EU (Annex IV).

2.15The Commission notes that the British people have expressed their wish to leave the EU, but notes that ‘EU law continues to apply in full until the United Kingdom is no longer a member’ and that the DB has been prepared accordingly. It says that the key objectives of the DB are to support ‘jobs, growth and investment’ and to support Member States in managing the challenges of migration and security within the EU.

2.16Three additional elements are included in the DB, that is mobilisation of:

Key figures

2.17The Commission proposes commitment appropriations of €157,657.5 million (£130,303.9 million), which represents 1.05% of EU Gross National Income (GNI). For payment appropriations, the Commission proposes €134,898.6 million (£111,493.7 million), or 0.9% of EU GNI.

2.18In comparing the DB with the 2016 EU Budget the Commission includes in the latter Amending Budget No. 1/20165 and Draft Amending Budgets Nos. 2/2016 and 3/2016,6 which were not yet adopted. On this basis it says that the DB represents an increase in commitments of €2,637.5 million (£2,179.9 million) or 1.7% compared to 2016 levels, and a decrease of €8,986.7 million (£7,427.5 million) in payments or 6.2% compared to 2016.

2.19The margin under the MFF ceiling is €815.4 million (£673.9 million) in commitments and €8007.4 million (£6618.1 million) for payments.

2.20The DB includes €530.0 million (£438 million) in commitments and €981.1 million (£810.9 million) in payments by using the Flexibility Instrument, and €1,164.4 million (£962.4 million) in commitments through use of the Contingency Margin in-year, redeploying commitments from unallocated margin in Heading 2 and 5. In addition, the DB includes €1,265.0 million (£1,045.5 million) in commitments for the MFF’s Global Margin for Commitments (for growth and employment). The DB also includes €1,046.9 million (£865.3 million) in commitments for ‘other Special Instruments’: €315 million (£260.3 million) for the Emergency Aid Reserve (EAR), €168.9 million (£139.6 million) for the European Globalisation Fund (EGF) and €563 million (£465.3 million) for the EU Solidarity Fund. Similarly, it includes €620.0 million (£512.4 million) in payments via such instruments: €315.0 million (£260.3 million) for the EAR, €55.0 million (£45.5 million) for the EGF and €250.0 million (£206.6 million) for the EU Solidarity Fund.

Detail of proposed expenditure by budget heading

2.21Sub-Heading 1a (Competitiveness for growth and jobs): total commitments of €21,109.0 million (£17,446.6 million), representing an increase of 11% compared to 2016, and total payments of €19,298.0 million (£15,949.8 million), representing an increase of 10.9% compared to 2016, leaving a margin of €82 million (£66.8 million) beneath the commitments ceiling. The main changes under this Sub-Heading compared to 2016 include:

2.22Sub-Heading 1b (Economic, social and territorial cohesion): total commitments in 2017 of €53,573.8 million (£44,278.7 million), representing an increase of 5.4% compared to 2016, and total payments of €37,348.7 million (£30,868.7 million), representing a decrease of 23.5% compared to 2016, leaving a margin of €13.2 million (£10.9 million) beneath the commitments ceiling. The main changes under Sub-Heading 1b include:

2.23Heading 2 (Sustainable growth: natural resources): total commitments of €58,901.7 million (£48,682.3 million), representing a decrease of 5.7% compared to 2016, and total payments of €55,236.2m (£45,652.7m), representing an increase of 0.2% compared to 2016, leaving a margin of €639.3 million (£528.4 million) beneath the commitments ceiling. The main changes under Heading 2 include:

2.24Heading 3 (Security and Citizenship): total commitments of €4,272.4 million (£3531.1 million), representing an increase of 5.4% compared to 2016, and total payments of €3,781.9 million (£3125.7 million), representing an increase of 25.1% compared to 2016, leaving no margin beneath the commitments ceiling. Additional commitments are found through use of the Flexibility Instrument and Contingency Margin. The main changes under Heading 3 include:

2.25Heading 4 (Global Europe): total commitments of €9,432.0 million (£7,795.5 million), representing an increase of 2.9% compared to 2016, and total payments of €9,289.7 million (£7677.9 million), representing a decrease of 8.5% compared to 2016, leaving no margin beneath the commitments ceiling. The main changes under Heading 4 include:

2.26Heading 5 (Administration): total commitments of €9,321.7 million (£7,704.5 million), representing an increase of 4.1% compared to 2016, and total payments of €9,324.1 million (£7,706.5 million), representing an increase of 4.2% compared to 2016. This leaves a total margin below the commitments ceiling of €596.3 million (£492.8 million), but of which €514.4 million (£425.2 million) is offset for the use of the Contingency Margin for Heading 3, leaving a margin of €82 million (£67.8 million) for Heading 5. The main changes under Heading 5 include an increase in payments for: pensions and European Schools of €140.4 million (£116.0 million) or 7.7% and administrative expenditure of the institutions of €230.3 million (£190.3 million) or 3.2%.

2.27Heading 6 (Compensations): this heading was intended to help improve the 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 2016, there are neither commitments nor payments under Heading 6.

Mobilisation of the Flexibility Instrument

2.28The 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 within Heading 3, the Commission proposes mobilisation of the Flexibility Instrument for the full annual amount, document (b). This mobilisation totals €530 million (£438.0 million) and is intended to finance support for measures for managing the migration, refugee and security crisis. The Commission estimates that a total of €3.2 billion (£2.6 billion) of the proposed Heading 3 appropriations in the DB will be required to address the challenges of migration, refugee and security crises.

Mobilisation of the Contingency Margin

2.29Additionally the Commission proposes mobilisation of the Contingency Margin, document (c). This is a mechanism to ‘react to unforeseen circumstances as a last resort instrument’, and allows for a maximum of 0.03% of EU GNI to be redeployed between budget headings. The Contingency Margin is cost neutral since all additional commitments are offset by corresponding reductions in other headings. The Commission confirms that the corresponding payments will be found within the MFF payment ceiling. In this case, the Contingency Margin would be used to provide additional commitments totalling €1,164.4 million (£962.4 million) through redeployments from unallocated margin in Heading 2 of €650 million (£537.2 million) and Heading 5 of €514.4 million (£425.2 million). The Commission notes that it has explored all possibilities for reallocation within Heading 3, including reducing the appropriations for the Food and Feed programme and Civil Protection Mechanism, but that the small size of Heading 3 programmes is not sufficient to cover the additional funding needs arising from the migration crisis.

Mobilisation of the EU Solidarity Fund

2.30The Commission also proposes mobilisation of the EU Solidarity Fund for €50 million (£41.3 million) in commitments and payments as part of the DB. This is to allow for advance payments, in accordance with the EU Solidarity Fund Regulation as amended in 2014.

The Government’s view

2.31The Minister first says, in what is a cross-government standard formulation:

“On 23 June, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. It will be for the next Prime Minister to begin negotiations to exit the EU, and until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation. This includes the 2017 Annual Budget.”

2.32The Minister then makes no comments on the specifics of the proposals. Instead, he says, in very familiar terms, that the Government will continue to work closely with other national governments to ensure budget discipline, the best possible value for money for British and other EU taxpayers from EU spending, and to reduce waste and inefficiency. He continues that:

2.33The Minister tells us that, according to the Commission’s proposed DB, the UK’s post-abatement financing share in 2017 would be 13.03%.

2.34Finally, on the timetable for negotiating the 2017 Budget, the Minister says that:

Previous Committee Reports

None.


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 future budget years.

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

4 The ‘margin’ refers to the difference between total commitment appropriations/payment appropriations in the Draft Budget and total commitment appropriations/payment appropriations provided for in the Multiannual Financial Framework.

5 See (37584), 6952/16: Twenty-sixth Report, HC 342-xxv (2015–16), chapter 11 (16 March 2016).

6 (37761) and (37908), on which we expect to report shortly.




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18 July 2016