Select Committee on European Union Thirty-Third Report

The annual budgetary process

16.  After the first two levels of legislation, and in many ways consequent upon them, are the negotiations on the annual Budget.

A brief overview of the process

17.  The present budgetary procedure is set out in Article 272 of the EC Treaty, which stipulates the sequence of stages and the time-limits which must be respected by the two arms of the 'budgetary authority': the Council of Ministers (acting by qualified majority) and the European Parliament, who together establish the annual Budget. The Council has the final say on "compulsory" expenditure, that is, spending that is a direct result of treaty application or acts adopted on the basis of the treaties. In practice this means spending on agriculture. The European Parliament has the final say on all other categories, defined as "non-compulsory" expenditure. Non-compulsory expenditure includes spending on regional policy, research policy and energy policy.

18.  The annual budgetary procedure, as defined in the Treaty, extends from 1 September to 31 December of the year preceding the Budget year in question. In practice, however, a 'pragmatic' timetable has been applied by the three EU institutions since 1977. The different stages of the Budget procedure are as follows:

The Council's second reading

19.  The Council conducts its second reading during the third week of November, after a conciliation meeting with a delegation from the European Parliament. The Draft Budget is amended in the light of the European Parliament's amendments (non-compulsory expenditure) or proposed modifications (compulsory expenditure). As a general rule, the Council's decisions on second reading relating to compulsory expenditure determine the final amount. Unless the entire Budget is subsequently rejected by the European Parliament, the Council has the 'last word' on this category of expenditure. The Draft Budget as amended is then returned to the European Parliament.

The European Parliament's second reading and the adoption of the Budget

20.  In December, the European Parliament reviews non-compulsory expenditure, for which it can accept or refuse the Council's proposals. The President of the European Parliament then declares the Budget adopted and it can be implemented.

The position of the Committee

21.  Although the Financial Perspective sets the overall budgetary spending limits for the annual Budget, and individual spending programmes determine much spending in advance, scrutiny of the annual EC Budget remains important. We appreciate the efforts the Government has already made to coordinate with us over scrutiny of the annual Budget—these have helped our scrutiny of the 2004 Budget—and we ask the Government in the future to bring forward as far as possible production of its Explanatory Memorandum on the PDB to facilitate further the scrutiny process.

22.  The 2004 EC Budget is the first to be presented in the new Activity-Based Budgeting (ABB) format. By focusing spending on outputs rather than inputs, ABB will allow more effective scrutiny in future of value for money. We therefore welcome the introduction of ABB. Over time, ABB will enhance transparency by linking expenditure to clear objectives that can be evaluated through performance indicators. We are encouraged to hear there is wide-spread support for the system both from other Member States and the Commission. We accept that it will take time for the full benefits of ABB to be felt, but we urge the Government to press the EU institutions to make as much use as possible of this new system in evaluating and, where necessary, improving value for money for EC spending.

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