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
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.
TITLE 9: INFORMATION
Chapter 3 covers e-EuropeThe 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
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
The number, quality and balance
in topic coverage of projects supported;
The number of Candidate countries
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.
TITLE 15: EDUCATION
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
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
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
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
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