Documents considered by the Committee on 2 November 2016 Contents

2Multiannual Financial Framework 2014–2020: mid-term review and revision

Summary and Committee’s conclusions

Committee’s assessment

Politically important

Committee’s decision

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

Document details

(a) Commission Communication about the mid-term review/revision of the Multiannual Financial Framework 2014–2020; (b) Proposed Council Regulation amending the Regulation laying down the Multiannual Financial Framework for the years 2014–2020; (c) Proposed amendment of the 2013 Interinstitutional Agreement on budgetary discipline, on cooperation in budgetary matters and on sound financial management; (d) Proposed Decision about mobilisation of the Contingency Margin; (e) Proposed Regulation on the financial rules applicable to the general budget of the EU and amending a number of related Regulations and Decisions

Legal base

(a) —; (b) Article 312 TFEU and Article 106a Euratom, special legislative procedure, unanimity; (c) Article 295 TFEU, special legislative procedure, QMV; (d) Article 312 TFEU and Article 106a Euratom, special legislative procedure, QMV; (e) Articles 42, 43(2), 46(d), 149, 153(2)(a), 164, 168(4)(b), 172, 175, 177, 178, 189(2), 209(1), 212(2), 322(2) and 349 TFEU and Article 106a Euratom, ordinary legislative procedure, QMV

Department

HM Treasury

Document Numbers

(a) (38057), 12183/16 + ADD 1, COM(16) 603; (b) (38061), 12184/16, COM(16) 604; (c) (38062), 12185/16, COM(16) 606; (d) (38063), 12186/16, COM(16) 607; (e) (38064), 12187/16 + ADDs 1-2, COM(16) 605

2.1The Commission has presented a mid-term review of the Multiannual Financial Framework for 2014-20, as required by the 2013 agreement on the framework. Its Communication covers three matters: the Multiannual Financial Framework at mid-term, its state of implementation and challenges; strengthening the EU Budget’s focus and flexibility to deliver on priorities and new challenges; and issues for preparation of the next Multiannual Financial Framework.

2.2Consequent on the mid-term review the Commission sets out a financial package of €13 billion (£11 billion) of additional EU funding in 2017–20 for jobs and growth, migration and security. It points out that the global ceilings of the Multiannual Financial Framework are maintained at their previously agreed levels, by use of the margins and reallocation from other areas. The Commission’s financial package is underpinned by four accompanying proposals:

2.3The Government notes that the UK will continue to have all of the rights, obligations and benefits that membership brings, including on EU funding, up until the point it leaves the EU. It says that over the coming period it will be working with other Member States to ensure budget discipline. It reiterates its focus on value for money, reducing waste and inefficiency, prioritisation of funding to meet new challenges such as migration and kick-starting economic growth and responding to new priorities by reallocating funding away from lower priority areas.

2.4These documents represent an important stage in the adoption and management of annual EU Budgets and as such we recommend that they be debated in European Committee B.

2.5We suggest that amongst matters Members might wish to explore in that debate are:

Full details of the documents

(a) Commission Communication: Mid-term review/revision of the multiannual financial framework 2014–2020: An EU budget focused on results: (38057), 12183/16 + ADD 1, COM(16) 603; (b) Proposed Council Regulation amending Regulation (EU, Euratom) No 1311/2013 laying down the multiannual financial framework for the years 2014-2020: (38061), 12184/16, COM(16) 604; (c) Proposed amendment of the Interinstitutional Agreement of 2 December 2013 between the European Parliament, the Council and the Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management: (38062), 12185/16, COM(16) 606; (d) Proposed Decision amending Decision (EU) 2015/435 on the mobilisation of the Contingency Margin: (38063), 12186/16, COM(16) 607; (e) Proposed Regulation on the financial rules applicable to the general budget of the Union and amending Regulation (EC) No. 2012/2002, Regulations (EU) No. 1296/2013, (EU) 1301/2013, (EU) No. 1303/2013, EU No. 1304/2013, (EU) No. 1305/2013, (EU) No. 1306/2013, (EU) No. 1307/2013, (EU) No. 1308/2013, (EU) No. 1309/2013, (EU) No. 1316/2013, (EU) No. 223/2014, (EU) No. 283/2014, (EU) No. 652/2014 of the European Parliament and of the Council and Decision No. 541/2014/EU of the European Parliament and of the Council: (38064), 12187/16 + ADDs 1–2, COM(16) 605.

Background

2.6Council Regulation (EU, Euratom) No. 1311/2013 laid down the Multiannual Financial Framework (MFF) for 2014–2020. This set out the maximum annual amounts (‘ceilings’) which the EU may spend in different political fields (‘budget headings’) over the seven year period. The ceiling for total commitment appropriations3 for the period is €960 billion (£827 billion) and the ceiling for total payment appropriations4 is €908 billion (£782 billion) (at 2011 prices). The Council Regulation also set out the limits for instruments outside the MFF, so-called off-budget instruments. These annual limits are for the European Union Solidarity Fund, €500 million (£431 million),5 for the Flexibility Instrument, €471 million (£406 million),6 for the Emergency Aid Reserve, €280 million (£241 million),7 for the European Globalisation Adjustment Fund, €150 million (£129 million),8 and for the Contingency Margin (up to 0.03% of EU Gross National Income).9 The Council Regulation provides for an annual technical adjustment by the Commission of all these numbers, to take account of changes to EU Gross National Income and prices ahead of the budgetary procedure for the following year — to reflect price changes, a fixed deflator of 2% is used each year.

2.7Article 2 of the Council Regulation provides that:

“By the end of 2016 at the latest, the Commission shall present a review of the functioning of the MFF taking full account of the economic situation at that time as well as the latest macroeconomic projections. This compulsory review shall, as appropriate, be accompanied by a legislative proposal for the revision of this Regulation in accordance with the procedures set out in the TFEU. Without prejudice to Article 7 of this Regulation, preallocated national envelopes shall not be reduced through such a revision.”

The documents

2.8The Commission’s Communication, document (a), covers three areas:

2.9The document sets out the Commission’s mid-term review (MTR) of the functioning of the MFF and proposed changes for the framework’s remaining period. In it the Commission:

2.10The Commission says that:

2.11In summary the Commission’s proposed financial package is as follows. It proposes:

Heading 1a: Competitiveness for growth and jobs

Heading 1b: Economic, social and territorial cohesion

Heading 3: Security and Citizenship

Heading 4: Global Europe

2.12With documents (b), (c) and (d) the Commission proposes several amendments to special flexible funding instruments provided for by the MFF, as follows.

Flexibility Instrument and Emergency Aid Reserve

2.13The Commission proposes, in document (b), to double the annual commitment allocation for both of these instruments in order to provide greater capacity to deal with unforeseen events. This would increase the size of the Flexibility Instrument from €471 million (£406 million) to €1 billion (£861 million) and the size of the Emergency Aid Reserve from €280 million (£241 million) to €500 million (£431 million).

European Union Crisis Reserve

2.14The Commission proposes to create additional flexibility in external action instruments by creating a permanent EU Crisis Reserve. This is intended to allow the EU to react rapidly to crises and events with serious humanitarian or security implications. The Reserve will be funded from decommitted appropriations from year N-2, and the appropriations entered into the general budget of year N as a provision. Any unused appropriations may be rolled over for up to one year. This requires the creation of a new Article 13a of the MFF Regulation, as in document (b), and an amendment to the Interinstitutional Agreement on budgetary discipline, as in document (c). The Commission proposes the Fund could only be accessed with the approval of the Council and the European Parliament.

Global Margin for Commitments and Global Margin for Payments

2.15The Commission proposes to remove the restrictions currently placed on these instruments, which allow unspent payments and commitments to be rolled over into subsequent years. For the Global Margin for Commitments, full rollover of unused commitments will be allowed from 2016, with no restrictions on how these are spent. Previously, only commitments relating to 2014–2017 could be rolled over, and only for policy objectives related to growth and employment. For the Global Margin for Payments, the overall capping of the amount that could be rolled over each year is removed, and all unspent payments in year N will be rolled over to year N+1 for every year of the MFF.

Contingency Margin

2.16The Commission proposes, in document (d), to offset the Contingency Margin mobilised in 2014 earlier than expected. Originally, it was agreed that the Contingency Margin would be offset in 2018–20. However, the Commission advises that there is a larger than expected margin available under the 2017 Budget.

2.17In the section of its Communication about the next MFF the Commission says:

“The Commission is due to make a proposal for the next MFF by the end of 2017. This proposal will be guided by the BFOR [Budget Focussed on Results] initiative and reflect the future challenges and needs of the Union post-2020, assessing both the effectiveness of existing approaches in areas such as cohesion policy, the Common Agricultural Policy and the external action instruments; and the potential for the EU budget to contribute in new areas, such as for example in relation to the completion of Europe’s Economic and Monetary Union, following the roadmap in the Five Presidents’ report, and in defence and security.”

2.18The issues for preparation of the next MFF highlighted by the Commission cover:

2.19The Commission says that an integral part of the MTR is its proposals to simplify general and sectoral financial rules. These are set out in a single proposed Regulation, document (e). The Commission argues that the changes will optimise the spending and impact of EU funds, reduce costs of implementation and reduce the accounting error rate. It points to progress that has been made in simplifying rules for the implementation of EU funds, but states that experience gained since 2014 and through the work of the High Level Group of Independent Experts on Monitoring Simplification of European Structural and Investment Funds indicates room for further simplification.

2.20The Commission’s proposal seeks to revise the general financial rules as well as to make corresponding changes to the sectorial financial rules set out in 15 legislative acts concerning multiannual programmes. It focuses on a number of areas:

The Government’s view

2.21In his Explanatory Memorandum of 17 October 2016 the Chief Secretary to the Treasury (Mr David Gauke) says that:

Previous Committee Reports

None.


3 Commitment appropriations set the limit of legal obligations that can be made in a budget year for activities that will lead to payments in the current and future budget years.

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

5 The EU Solidarity Fund releases emergency financial aid following a major disaster in a Member State or candidate country.

6 The Flexibility Instrument 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.

7 The Emergency Aid Reserve is to enable a rapid response to specific aid requirements for non-EU countries that were unforeseeable when a budget was drawn up.

8 The European Globalisation Adjustment Fund is designed to provide support for workers made redundant as a result of major structural changes in world trade patterns due to globalisation.

9 The Contingency Margin is a mechanism to react to unforeseen circumstances as a last resort instrument.

10 (37911), —: see Eighth Report HC 71-vi (2016-17), chapter 2 (13 July 2016).

11 (38078), 12259/16 on which we will be reporting shortly.

12 (38074), 12201/16 + ADDs 1–3: see Fifteenth Report HC 71-xiii (2016–17), chapter 5 (26 October 2016).

13 (38072), 12192/16: see Fifteenth Report HC 71-xiii (2016–17), chapter 5 (26 October 2016).




4 November 2016