Select Committee on European Union Fortieth Report


Government response to the Thirty-third Report of the House of Lords Select Committee on the European Union, Session 2002-03



  46.  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 co-ordinate 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 (paragraph 21).

  The Government will continue to endeavour to produce an Explanatory Memorandum on the PDB as soon as possible after the relevant Working Documents have been released by the Commission, usually by the middle of May.


  47.  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 in the way in which EC moneys are spent (paragraph 22).

  The Government welcomes the Committee's support for the introduction of ABB. We will continue to work with the Commission, other Member States, and the European Parliament to ensure that ABB is fully implemented.


  48.  We note with approval that the proposed 2004 PDB expenditure levels are within the ceilings set by both the 1999 Berlin European Council and the 2002 Copenhagen European Council (paragraph 26).


External Action (Category 4)

  49.  The Committee agrees with the Government that spending on external action should be a priority for the 2004 Budget. We are encouraged to hear that the Government is proposing a larger margin to deal with foreseeable, but as yet uncosted, spending in Iraq and the Middle East. We urge the Government to do everything in its power to ensure best use of EC spending on external action. The Committee supports the Government's initiative to develop a greater poverty focus for EC external action spending over the next few years, but this focus should not deflect from the EU's other objective of working towards stability in regions such as the Middle East and the Balkans. We would welcome greater clarity on how far the Government considers that the EU can take on ambitious plans for greater external action involvement without substantial increases in spending under category 4 of the EC Budget (paragraph 30).

  The Government believes that external actions resources should be allocated on the basis of need and effectiveness, to help ensure that limited resources are deployed with maximum impact. It is also important to make better use of the range of instruments available. For example, middle income countries could benefit more from loans and technical assistance in the long run, freeing up grant aid for the poorest countries, which are less well placed to benefit from other types of assistance. More effective and imaginative use of resources should enable the EU to achieve far more in the wider world without substantial increases in overall spending. The Government will consider any revision of the ceiling for external actions in the next Financial Perspective in the light of progress made on improving the effectiveness of EC external spending.

Administration (Category 5)

  50.  While emphasising its support for sufficient resources to deal with enlargement, the Government says that it is keen to see strict conditions for value for money applied to these institutional increases. The Committee fully supports the Government in this approach. We also wish to see efficient use being made of these increases in administrative costs through the application of modern management practices and techniques (paragraph 32).

  51.  On a related institutional matter, we would urge the Government, in the forthcoming Inter-Governmental Conference, to continue with attempts to reform the European Court of Auditors. We produced a report on the European Court of Auditors in April 2001, and our view on the subject remains unchanged. In particular, we consider that the European Court of Auditors would be most effective in an enlarged Union if it had a highly qualified chief executive who was appointed impartially. The chief executive would be supported by a large team of audit staff who would report to a part-time, non-executive board of representatives from each of the Members States. We will return to this issue as part of our work on the forthcoming Inter-Governmental Conference (paragraph 33).

  The Government agrees that there would be benefit in reforming the European Court of Auditors, and will press its proposal at the forthcoming Inter-Governmental Conference (IGC) on the new EC Treaty. The UK proposal includes a number of ideas taken from the House of Lords April 2001 report, in particular the idea of the non-executive board of representatives. While the idea of a highly-qualified chief executive has obvious attractions for the UK, as it mirrors the NAO management structure, it was clear in the Convention that many smaller Member States were worried more generally about the erosion of their influence in the EU institutions. The UK proposal therefore tries to find a balance between the 25-member executive and the single chief executive proposed in the 2001 report.


Agriculture (Category 1)

  52.  We ask the Government to explain exactly how the recently-agreed changes to the CAP will affect the final 2004 EC Budget. We call on the Government to use the recent agreement on reform of the CAP to make progress in the Doha round of world trade talks. Furthermore, we continue to urge the Government to push for further reform of the CAP (paragraph 35).

  The impact on the budget of the CAP reform proposals agreed in June will be relatively minor, since the most significant measures will not be implemented until 2005. The latest Commission estimates suggest a total saving of around

90 million in 2004 for Category 1 (Agriculture), compared to continuation of the current CAP policies. The Commission will publish a rectifying letter in the autumn to update its estimates for agricultural expenditure for 2004, which will take full account of the CAP reform package.

  The Government believes that the CAP reform measures should put the EU in a strong negotiating position in the forthcoming WTO negotiations. Nevertheless, we will continue to press for further reform, and will take this up when the Commission publishes its second round of reform proposals in September.

Structural Operations (Category 2)

  53.  We urge the Government to make full use of the new Activity-Based Budgeting rules to ensure that structural fund money in all Member States is properly forecast and effectively spent in order to achieve clear outcomes (paragraph 37).

  The Government will continue to work to achieve these aims in the budget negotiations, including improving the quality of the UK's own forecasting.

Pre-Accession Strategy (Category 6)

  54.  We note with approval that there was a marked improvement during 2002 in the absorption capacity for funds such as the PHARE programme (paragraph 38).


  55.  We concur with the Government's view that the changes to the system of Own Resources proposed in the draft Constitutional Treaty are "unacceptable" (Q41). We support the Government in its efforts to retain the status quo for decision-making in this area (paragraph 41).

  56.  We welcome the proposal that the European Parliament should have a greater say over spending on agriculture (paragraph 43).

  57.  The proposals for a Treaty base for the Financial Perspectives, the simplification of the annual budgetary process and the requirement for the Commission to produce an annual performance report, if adopted, would greatly aid our future scrutiny of EC spending. We welcome these reforms as facilitating greater accountability for EC spending and urge the Government to continue to support these reforms in the Inter-Governmental Conference, which will decide on the final version of the Treaty. We support the Government in its efforts to retain unanimity and the need for national parliamentary ratification for decisions about the level of individual Member State contributions to the Union's resources (paragraph 45).

  The Government welcomes the Committee's support for its approach to the work of the Convention on reform of the annual budget process. The Government is fully committed to improving transparency and accountability in all areas of EC spending, and will approach the forthcoming IGC in this spirit. Establishing a more streamlined and transparent annual budget process will be an important part of this, though it must be stressed that giving the EP a greater say over compulsory expenditure should not be at the expense of maintaining an appropriate balance between the two arms of the budgetary authority.


  58.  The Committee considers that the 2004 EC Budget raises important questions to which the attention of the House should be drawn and makes this Report to the House for information.

  The Government is grateful for the Committee's excellent report, which constitutes a valuable contribution to the debate on the 2004 EC budget.

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