Select Committee on European Union Minutes of Evidence

Supplementary Memorandum by HM Treasury

  Thank you very much for the opportunity to present evidence on the 2004 Preliminary Draft EC Budget to Sub-Committee A of the House of Lords European Union Select Committee on Wednesday 11 June. I hope that I and my officials were able to answer the points your Lordships raised to your satisfaction.

  As you will recall, at the end of the evidence session we undertook to provide you with some supplementary information: specifically, some examples of Activity-Based Budgeting in practice from Category 3 of the budget (Internal Policies). Please find this enclosed (Annex A).

  We also offered to provide more detail on the impact of exchange rate fluctuations on the UK contribution to the EC budget. Officials are currently preparing a detailed note on this and will provide you with a copy in due course.

  I hope this information answers any remaining questions your Lordships have. I stand ready to assist the Committee further if required.

25 June 2003

Annex A

Activity Based Budgeting: Examples of objectives and output measures

  There are a number of examples in the 2004 Preliminary Draft Budget (PDB) in which the Commission has set out clear objectives and outputs in support of its budget proposals. The following is one of the best examples because it shows clearly the purpose of the spending and how we can judge its success.


  Chapter 3 covers e-Europe—The documentation for these budget lines in the PDB includes:

    —  a detailed, specific description of what was achieved in 2002;

    —  a clear, SMART objective for 2003 spending; and

    —  measurable indicators and proposals for changes to objectives for 2004.

  For example, Article 3 under this chapter has the objective: "To foster access to and development of European digital content for all" and includes indicators such as:

    —  The number, quality and balance in topic coverage of projects supported;

    —  The number of Candidate countries participating; and

    —  The number of website hits, and size and relevance of the target audience.

  There are also examples in the PDB where the Commission has found it difficult to identify SMART objectives, where evaluation evidence is not yet available or where it has proved difficult to identify appropriate indicators. The following is one example.


  Chapter 2 covers general and higher education. Article 2 includes the Socrates programme, with the stated objective to "Promote European cooperation and quality in education, in particular through implementation of the Socrates programmes in the most efficient and coherent manner". The indicators identified are then largely inputs or at best intermediate outputs such as "The number of beneficiaries" and "The number of schools participating". There are no measures for the increased cooperation or education quality the programme is aimed at.

  On balance, the Commission has done a reasonably good job of identifying objectives and output measures for the first full year of ABB. But it is only really in the early stages of implementing this fundamental change. The Treasury will work with DG Budget and our EU colleagues, in relevant Working Groups and the budget authority, to encourage continuously improved objectives, indicators and evaluation input, so that the ambitions of the ABB reform are realised as soon as possible.

Proposed action plan for reform of EC external assistance

  In 2000, the European Union turned its attention to the reform of its external assistance programmes to improve the speed, impact and visibility of its assistance. Strongly supported by all Member States, the reform has provided the necessary impetus to address many of the constraints EC assistance is faced with. Although considerable progress has been made to date, it is time to step up the pace of reform in order to improve the organisational and policy effectiveness of EC external spending.

  To help achieve this goal and support the ongoing reform process, we propose the following three-point action plan.

  1.  Improving External Actions performance in 2004-06

  The European Union has a broad set of external actions objectives including enlargement, economic growth and stability, humanitarian assistance, conflict prevention, poverty reduction, trade liberalisation and co-operation with third countries on immigration and asylum policy. The promotion of the Millennium Development Goals is central to many of these efforts, with poverty reduction the principal aim of the EC's development policy. The current international situation means that pressure on the external actions budget as a whole is unprecedented. This makes it essential that the allocation of EC external spending in each annual budget 2004 to 2006 is governed by clear objectives and performance indicators to ensure that resources are targeted where they can have the greatest impact.


    —  First, we want to ensure that all external actions programmes with budgetary implications include clear objectives and indicators for their achievement, in line with the introduction of "Activity Based Budgeting" across the EC budget. This will enable a transparent assessment of EC external actions spending, and facilitate the allocation of spending to where it is most effective. All new proposals should be supported by an evidence-based rationale to show that the most effective level of resources and mix of instruments is being proposed.

    —  Second, to complement this results based approach, we encourage the Commission to work towards introducing resource allocation criteria to support the delivery of external actions objectives, recognising that different instruments are appropriate in different contexts. By the end of the current Financial Perspective we want a set of objective and transparent principles to support decisions on the allocation of external assistance. This exercise could build upon the European Development Fund's (EDF) existing resource allocation criteria.

    —  We want to fully apply Activity Based Budgeting with clear performance indicators to any new resources made available in the 2004 budget and in the annual budgeting process until 2006. The development of clear resource allocation criteria for multi-annual programmes should start immediately and be fully used in the next programming cycle.

  2.  Better management of the External Actions spending, now and in the future

  The ongoing reform of the management of external assistance is very welcome and has our support. It has started to address some of the many systematic constraints the EC external actions budget is facing. We would like this to go deeper and further.


    —  First, we want the Commission to deepen the ongoing reform process by pursuing the harmonisation and simplification of financial and administrative procedures to further improve speed of delivery but in particular to release the backlog of old and dormant commitments. This would also include a further reduction of budget lines, and a more consistent use of new flexible development instruments. We would also welcome more decentralization of financial decision-making to EC delegations, both for geographic and thematic resources.

    —  Second, we want to further encourage the development of a quality and performance-based management culture in the Commission, building on the work that has already started (quality support groups, thematic networks, country-based indicator development etc.). This would include ensuring more access to development expertise in the EC. It would also entail the adoption of better planning and forecasting tools as well as better performance management systems, using indicators both in-country and on a corporate-wide basis.

    —  Third, as part of the wider discussions in the Convention and IGC on the future of the EU, we should invite the Commission to review the institutional set-up for managing the EC external actions budget, with a view to ensuring that sufficient political and institutional weight is attached to development objectives and to managing development-related funds.

  3.  Further reforms beyond 2006

  The discussions in the Convention on the Future of Europe and the forthcoming negotiation of the next Financial Perspective for 2007 onwards offer the opportunity to build on previous reforms of the EC external actions budget so as to improve its long term effectiveness.


    —  First, the new Constitutional Treaty should identify and reinforce the principal objectives of EC external assistance, through specific Treaty articles for each external policy area. It should also promote consistency among all external actions objectives and ensure that the specific objectives of each policy area are being taken into account in the implementation of other internal and external policies. [The UK has tabled a paper in the Convention on these points, which has been co-signed by seven EU development ministers.]

    —  Second, decisions on the next Financial Perspective should support specific external actions objectives, the application of appropriate allocation criteria, the application of clear objectives and indicators of performance, and use of the most appropriate instrument(s). This will ensure that resources are effectively allocated according to need and impact, and provide the rationale for a review of the options and conditions for budgetisation of the EDF. As with all expenditure in areas of complementary competence, we should ensure that spending on external actions is focused where it will add most value.

    —  Third, we want to enhance the role of the European Investment Bank to ensure that a range of instruments remain available to support external actions, and particularly that grant technical assistance and loans play an adequate role, where they can be most effectively deployed.

24 June 2003

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