Select Committee on European Communities Sixth Report



7.  Although the sums involved in the EU budget are relatively small as against total public sector expenditure in most Member States, they are by no means negligible. We consider it essential that there be better national scrutiny of EU expenditure, and that this scrutiny be on a continuous rather than an occasional basis (paragraph 41[10]).

8.  We conclude that the headroom provided by the 1.27 per cent own resources ceiling should certainly be sufficient at present (paragraph 45), but we anticipate that the ceiling will need to be reconsidered at some time in the future (paragraph 46).

9.  There is no dispute over the proposition that the present system of contributions does not produce equitable results (paragraph 53). However, we note that even if there were a direct relationship between the gross contributions to the EU budget of each Member State and its GNP, equity would never demand equality of net contributions (paragraph 54).We agree that more is at stake than can be shown in a simple league table of net contributions, and that more sophisticated comparisons will inevitably depend on heroic assumptions. Nevertheless, we note that, however great the benefits to be derived from membership, the financing of the EU on the present basis could continue only if all Member States were content. This is not the case (paragraph 59).

10.  Although we have analysed remedies on the revenue side separately from those on the expenditure side, we consider that the immediate solution is likely to be a combination of both (paragraph 60).

11.  While it may not be appropriate in the short term to renegotiate the own resources decision (which determines the basis of EU funding), we believe that a renegotiation will be necessary in due course - and that it should come sooner rather than later (paragraph 64). Traditional own resources and the VAT based resource are not only generators of bureaucracy and highly prone to fraud, but also arguably systematic sources of inequitable burdens. We can see considerable advantages in abolishing them, leaving only the GNP based resource (paragraph 71).

12.  We think that consideration should be given to basing the proportion of revenue raised from each Member State on GNP per capita, rather than on total GNP (paragraph 73). And we consider that the choice between GNP and GDP as a proxy for national prosperity should be addressed, particularly if the resource based on it is to assume even greater importance (paragraph 74).

13.  We fully support the principle that there should be proper accountability for the funds spent by the EU, as for all funds collected from taxpayers and spent by the public sector at whatever level. Consideration must be given as to how this accountability can best be achieved, which depends partly on how the funds are raised (paragraph 79).

14.  We do not see a directly collected own resource as a viable option at present, in either political or practical terms. The issue of whether such a resource would be desirable in order to give the EU greater financial autonomy obviously goes beyond the scope of our present enquiry (paragraph 84).

15.  However, we also conclude that in the meanwhile it is crucial for citizens of the EU to know what their stake in EU policies and operations really is. We believe that this increased transparency is possible even while the EU continues to be funded by national contributions. We are already being taxed to finance EU expenditure, yet we have virtually no knowledge of what we are paying - or what we are paying for. We call on the Government to consider without delay how this transparency can be achieved even under the present financing system (paragraph 85).

16.  We recognise that the negotiation of the abatement produced a significant benefit to the United Kingdom (paragraph 86). We agree that it would be unwise to rely on relative growth rates to eliminate the disparities in the "league table" of net contributions compared with per capita GNP (paragraph 91). We accept that, without abatement, the United Kingdom would remain one of the largest net contributors, and we agree that some way of remedying that situation would need to be found (paragraph 93).

17.  We agree that applying the existing rebate mechanism to all Member States which are making excessive net contributions is not a viable option (paragraph 94).

18.  We agree that there is still a problem for the United Kingdom, but we consider that the rebate itself may no longer be the best way of solving it. We therefore take the view that the rebate should be negotiable as part of an overall settlement delivering the result of fairer net contributions. It would be regrettable if the entire package (including CAP reform and the possibility of funding enlargement) were to be lost because the United Kingdom Government insisted that there was only one way of solving its problem. Equipping the European Union to handle enlargement is a very big prize: we urge the Government not to throw it away. It seems to us that a realistic negotiating result for the United Kingdom would be agreement to forgo the abatement on condition that - and only when - the loss can be made up on a permanent basis through the savings of a reformed CAP and a stabilisation of expenditure overall by 2006, and possibly through increased EU expenditure in the United Kingdom (paragraph 97).

19.  We conclude that stabilisation of expenditure does not rule out CAP reform, if Member States can come to terms with the implications for their own farmers. At the time when we were taking evidence, the political will for CAP reform was reported to be emerging, with more Member States prepared to discuss the need for farm price reductions and direct aid cuts. We welcome this as a necessary step towards finding a means of reducing the imbalance in net contributions by stabilising expenditure (paragraph 104).

20.  We continue to believe that cuts in the structural funding received by existing Member States are inevitable, and to emphasise our previous conclusion that "the important point is to ensure that the cuts are fair" (paragraph 106). We also stand by our previous conclusion that continued cohesion funding cannot be justified for those Member States which have met the convergence criteria. However, we believe that it is crucial for the Cohesion Fund to continue in some form as an important instrument for helping new Member States to achieve economic convergence (paragraph 107).

21.  If the Council were to agree to the stabilisation of expenditure, we would hope that, because of the importance which it attaches to enlargement, the European Parliament would not risk jeopardising the entire Agenda 2000 package by refusing to accept it. But in that case we would expect to see hard negotiations over the role given to the European Parliament in the new inter-institutional agreement (paragraph 108).

22.  It is not surprising that the proposal for stabilisation of expenditure has met with a mixed reception. We understand the reasons for the positions of the various parties. We recognise that stabilisation would result in total EU expenditure being below the level proposed by the Commission, and that it would not provide a complete solution to the problems of inequitable net contributions. However, we see no reason to believe that stabilisation would render impossible either the reforms to the CAP or the process of enlargement. We conclude that the arguments in favour of stabilisation are, on balance, weightier than the opposing views held by the Commission and by certain net recipient Member States, and that they should be acted upon (paragraph 109).

23.  We consider that co-financing of agricultural support should be contemplated only if the level of support payments agreed by the Council was adhered to by each Member State; giving discretion to Member States would be a retrograde step (paragraph 111). We should be concerned if the need for fundamental CAP reform were to be disguised by achievement of co-financing, but we were reassured that the two are not seen as alternatives. On that basis, and provided that the savings were used to help stabilise total EU expenditure, we support the principle of co-financing as an adjunct to fundamental CAP reform (paragraph 113).

24.  Although we naturally support the Government in its objective of getting the best possible deal for the United Kingdom within an agreed overall package, we believe that Europe is a concept which to most goes beyond mere deal-making. We trust that the Government will bear this in mind at the European Council (paragraph 114).

10   All cross-references in this Part are to the paragraphs in Part 4 where the Opinions quoted have been derived on the basis of the evidence. Back

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