Select Committee on European Union Forty-Ninth Report


Letter from the Minister, Ruth Kelly, to the Chairman

  The Commission has presented the Preliminary Draft Budget (PDB) for 2003. I enclose an Explanatory Memorandum outlining the proposals contained in the PDB. The PDB proposes total commitment appropriations of just over

100 billion and payment appropriations of

98,218 billion.

  A number of documents which make up the PDB have not yet been received. These will be deposited as soon as we get them. In some cases we may send you unpublished versions in advance of the formal document, for example I enclose with this letter the "Political Presentation" and "Expenditure Analysis by Activity" which constitute Volume 0 of the PDB.

  The Council will establish its Draft Budget for 2003 on 19 July.

4 July 2002

Letter from the Minister, Ruth Kelly, to the Chairman

  The Council of the European Union formally established the 2003 Draft Budget (DB) of the European Communities on 22 July following conciliation with the European Parliament. The background was set out in my Explanatory Memorandum of 5 July on the Preliminary Draft Budget (PDB). I represented the UK at the ECOFIN (Budget) Council on 19 July.

  The Draft Budget documents will be published in the autumn and discussed at the Council's Second Reading in November. I thought it would be helpful to provide you now with information on the main elements of the Draft Budget agreed by the Council.

  The Draft Budget proposes a total of

99.5 billion in commitment appropriations and

97.0 billion in payment appropriations, reducing the level of commitment appropriations by

487 million and payments by

1,249 million from the Preliminary Draft Budget (PDB). These figures are well within the limits set in the Financial Perspective, leaving a margin of

5.9 billion under the ceiling for total payment appropriations.

  In conciliation the Council and the European Parliament agreed to maintain good budget discipline by refusing to agree the Commission's proposals to exceed the ceilings on the Structural Funds and Administration by a total of

125 million[3], through the use of the flexibility instrument (established in the Inter-institutional Agreement of 1999 on budgetary discipline). In addition, the Council and the Parliament agreed to limit the overall growth in payment appropriations as close as possible to 1.4 per cent (1.0 per cent of GNI).

  In Category 1 (Agriculture), commitment appropriations were cut by

288 million compared to the PDB, to

44.8 billion, leaving a margin of

2.5 billion below the financial perspective ceiling. A declaration was agreed stating that a supplementary and amending budget (SAB) would be raised rapidly if payments proved insufficient. In conciliation Parliament and Council agreed another declaration noting that the Commission will further examine whether the amount proposed in the PDB for animal disease eradication is sufficient.

  In Category 2 (Structural Funds), payment appropriations were reduced by

525 million compared to the PDB. A declaration was agreed calling on the Commission to bring forward a SAB rapidly if payments proved insufficient. In rejecting use of the flexibility instrument of fishing fleet restructuring, the Council and Parliament adopted a declaration committing themselves to finding a way of financing the outstanding

27m before the end of the 2003 budget setting process.

  In Category 3 (Internal policies), commitment appropriations were reduced by

41 million compared to the PDB, bringing the overall total to

6.7 billion and leaving a margin of

122 million below the financial perspective ceiling.

  In Category 4 (External actions), the margin was increased to

80 million (from

60 million in the PDB), bringing total commitments to

4.8 million.

  In Category 5 (Administration), commitment appropriations were reduced by

101 million compared to the PDB, creating a margin of

16 million below the financial perspective ceiling, thereby avoiding use of the flexibility instrument. The reductions were achieved through cuts to the budgets of all the institutions. In conciliation the Parliament agreed to respect the financial perspective ceiling and the Council's own budget and rejected use of the flexibility instrument. In return, the Council accepted that an early retirement scheme would include temporary staff employed in the Parliament's political groups but noted that this would not cause a precedent. In addition, a declaration was agreed noting that the Inter-Institutional Agreement allows the Emergency Aid Reserve to be used for humanitarian aid and, where circumstances require, civilian (ie non-military) crisis operations.

  In Category 7 (Pre-accession aid), commitments were left unchanged but payments for SAPARD were cut by

200 million and ISPA by 100 million compared to the PDB.

  The European Parliament will establish its First Reading of the 2003 budget in October. The Council's Second Reading and a further conciliation with the Parliament will take place on 25 November. The final budget will be adopted after the Parliament's Second Reading in December.

  I attach a table comparing the Draft Budget with the PDB and the 2002 adopted budget.

6 August 2002

COMPARING THE 2003 PDB, 2003 DB AND 2002 ADOPTED BUDGET (millions of euros)
2002 adopted budget
    2003 PDB   Council 1st reading   Change: Council 1st   reading/20002 budget
ComPay ComPay ComPayCom Pay
Category 1
Cat. 1A39,66039,660 40,42040,42040,132 40,1321.2%1.2%
FP 42,68042,680
margin 2,2602,548

Cat. 1B
4,595 4,5954,6984,698 4,6984,6982.2% 2.2%
FP 4,6984,698
margin 00

Total 1
44,255 44,25545,11845,118 44,83044,8301.3% 1.3%
FP ceiling46,587 47,378 47,378
Margin2,332 2,260 2,548

Category 2
33,838 32,12933,99533,538 33,96833,0130.4% 2.8%
Structural operations
FP ceiling33,638 33,968 33,968
Margin-200 -27 0
(flexibility (flexibility
instrument) instrument)

Category 3
6,558 6,1576,7156,132 6,6746,1121.8% -0.7%
Internal actions
FP ceiling6,558 6,796 6,796
Margin0.2 81 122

Category 4
4,803 4,6654,9124,692 4,8924,676,1.9% 0.3%
external actions
FP ceiling4,873 4,972 4,972
Margin70 60 80

Category 5
5,178 5,1785,4475,447 5,3365,3363.6% 3.6%
FP ceiling5,179 5,381[4] 5,381
Margin2 -66 16

Category 6
676 676434434 434434-36% -36%
FP ceiling676 434 434
Margin0 0 0

Category 7
3,328 2,5953,3862,857 3,3862,5571.7% -1.5%
pre-accession aid
FP ceiling3,328 3,386 3,386
Margin0 0 0

98,636 95,656100,00798,218 99,52096,9580.9% 1.4%
FP ceiling101,039100,245 102,315102,938102,315 102,938
Margin2,4034,589 2,3084,7202,767 5,946

  NB Figures may not add up due to rounding.

  Com: Commitments, leading to payments in 2003 and future years.

  Pay: Payments, cash that will be spent in 2003 arising from commitments in 2003 and earlier years.

Letter from the Minister, Ruth Kelly, to the Chairman

  I wrote to you on 6 August describing the outcome of the ECOFIN Budget Council of 19 July which established the Draft EC Budget for 2003. We have now deposited the Draft Budget published by the Council and I enclose an EM formally recording its content (not printed).

  In its report on my letter (reference 23844) the House of Commons European Scrutiny Committee asked to be kept informed about the outcome of the European Parliament's first reading and of the Government's approach to the Council's second reading and conciliation on 25 November.

  The European Parliament (EP) held its first reading on 24 October. The results were posted on its website and I am pleased to set out the main points below. The EP increased commitment appropriations by

672 million (1 per cent) and payment appropriations by

2,942 million (1 per cent) compared to the Council's Draft Budget. It is usual for the EP to increase the budget at this stage before conciliation with the Council at second reading. The increases were made across the various categories of the budget.

  In Category 1 (Agriculture), the EP reversed most of the cuts made by the Council to the Commission's Preliminary Draft Budget. In category 2 (Structural operations), the EP reversed the reduction of

525 million in payment appropriations made by the Council and added a further

500 million in payments for the Cohesion Fund. The EP increased commitment appropriations in Category 2 by

27 million, in line with the Commission's PDB proposal to use the flexibility instrument for fleet restructuring.

  In Category 3 (Internal policies), the EP made increases to a wide variety of lines and introduced new lines for pilot projects in many areas. The result was a reduction in the Category 3 margin from

122 million to only

2.7 million.

  In Category 4 (External actions), the EP's largest increase was for the poverty-related diseases line, including the Global Fund to fight Aids, Tuberculosis and Malaria. The EP also increased a range of other lines, which resulted in commitments exceeding the Category 4 ceiling by

75 million. The EP proposed use of the flexibility instrument to meet this expenditure.

  The EP has reduced spending on Common Foreign and Security Policy from

40.7 million in the Council's Draft Budget to

30 million, the level in the 2002 adopted budget. The EP is also seeking a greater role in CFSP decision-making.

  In Category 5 (Administration), the EP kept to the terms of the agreement reached in conciliation at the July Council and ensured that spending on pre-enlargement administrative costs can be met from within the Financial Perspective ceiling. As a result of frontloading certain expenditure to 2002, it was able to reallocate appropriations from the Parliament's budget to the Commission's budget to enable the latter to recruit 500 temporary staff for enlargement preparations.

  No changes were made to Category 6 (Reserves), which remains at the level in the PDB. In Category 7 (Pre-Accession aid), the EP increased payments appropriations over the Council's Draft Budget by

699 million.

  The Government's view of the Parliament's increases to the Draft Budget is that, in general, they will need to be reduced at the second reading in order to maintain budget discipline and keep within the Financial Perspective ceilings. This view is broadly shared by other Member States. The Council will, however, need to make some concessions to the Parliament's changes as part of the normal process of conciliation.

  Notwithstanding the need to reduce the overall levels of expenditure proposed by the Parliament, the Government welcomes the priority which the EP has given to spending on poverty-related diseases. We are working within the Council to ensure that this priority is recognised in conciliation with the EP.

  The Government's priorities for the Council meeting and conciliation are therefore to maintain budget discipline by reversing or reducing most of the EP's first reading amendments, while increasing the poverty focus of the external aid budget by encouraging the Council to accept as much as possible of the EP's increase for poverty-related diseases. The Government also wishes to protect the budget for Afghanistan and to reject EP demands for greater involvement in CFSP, which, under the EU Treaty is a matter for Member States.

  On payments appropriations the Government would expect the Council to press for a significant reduction in the increases made by the EP as the level of payments in the Council's Draft Budget should be sufficient to cover all outstanding commitments and it would wish to avoid repeating the large surpluses of recent years.

  In Category 5, the Government is pleased that the Parliament has been able to assist the Commission with its pre-enlargement expenditure. There may be some room for a further increase in the Category 5 margin due to a downward revision of assumptions for staff pay rises.

  In its report on my letter of 6 August, the Committee asked for confirmation that the Government was generally content with the way the 2003 budget was developing. We are content that the Council's Draft Budget maintained budget discipline and achieved an incremental increase in the poverty focus of external aid. Ideally, we would have liked it to go further in terms of a greater poverty focus and for this reason we are keen to reach an agreement with the EP that will help achieve that aim.

20 November 2002

Letter from the Minister, Ruth Kelly, to the Chairman

  I wrote to Lord Brabazon on 20 November enclosing a EM on the 2003 Draft EC budget and explaining the Government's approach to the Council's second reading. This took place at the ECOFIN of 25 November immediately after conciliation with the European Parliament. I represented the UK.

  I am pleased to say that the outcome of the conciliation, and hence the Council's second reading, is a Draft Budget which respects firm budget discipline, restricting growth in payments appropriations at the end of the 2003 budgetary procedure to only 1.9 per cent over the 2002 budget, and limiting the use of the flexibility instrument to a minimal call of

12 million (out of a maximum of

200 million) for restructuring of the Community fishing fleet. The outcome also secures other key UK priorities including sufficient resources for the Global Health Fund and increased funding for Common Foreign and Security Policy, without concession to the EP in terms of powers over CFSP decision making.

  The key issue in this year's conciliation was spending on external policies (Category 4), in particular the budget for CFSP and the allocation for the Global Health Fund. In conciliation the EP agreed to a CFSP budget for

47.5 million (up from

30 million in 2002) in exchange for a joint declaration on improving the flow of information between Council and EP which respects the powers of the institutions as set out in the Treaty and the 1999 Inter-Institutional Agreement. Appropriations for the Global Health Fund were increased from

35 million to

42 million, with a declaration stating that a similar amount would be provided from the European Development Fund (which is not part of the EC budget) and that the Commission will take the necessary steps to maintain a seat on the board of the GHF should this contribution prove insufficient.

  The budget authority also agreed to provide

55 million in emergency aid for the Horn of Africa in 2002, with offsetting decreases to food and humanitarian aid lines in 2003. In order to ensure sufficient funds for emergency relief in 2003, it was also agreed that if the appropriations for food and humanitarian aid prove insufficient, the budget authority will take the necessary action to reinforce these lines.

  The level of Category 1a (traditional CAP) expenditure was set at

40,082 million, 1.1 per cent more than in 2002. The figure is lower than at the Council's first reading and reflects the proposals for cuts included in the Commission's Amending letter No 3 (see my EM of 20 November on document SEC(2002)1144). In conciliation the Council accepted, in the interest of transparency, the EP's request to split the budget line for beef and veal export refunds between meat and live animals, but it did not reduce the corresponding appropriations. Funds for rural development (Category 1b) were not changed.

  The budget authority welcomed the Commission's announcement that it is now able to find

15 million of the outstanding

27 million for fishing fleet restructuring through redeployment in 2002. Therefore, the budget authority was able to agree to a call of only

12 million on the flexibility instrument in Category 2 (Structural operations) to finance the remaining tranche of the programme.

  As a result of the conciliation the budget authority accepted an EP proposal for a joint declaration welcoming new pilot projects in Category 3 (Internal policies). In addition, the Council accepted the EP's proposals for increased spending on transport programmes and on the European Refugee Fund.

  In Category 5 (Administration) the budgets for the EP and the Council were fixed at

1.1 billion and

0.4 billion respectively. The Council invited the EP to include a margin of

30 million under the financial perspective ceiling when it finalises the administrative budgets for the other institutions.

  Category 6 (Reserves) remains at the level of the PDB. In Category 7 (Pre-accession aid) the Council reinstated its first reading figure for payment appropriations, which the EP had increased by

250 million. The budget authority accepted the Commission's proposal to increase the estimated surplus on the 2002 budget from £500 million to

1 billiion and enter this as revenue in the 2003 budget.

  While the key aspects of next year's general budget have now been agreed, some aspects of the final budget will only be settled at the EP's second reading which will take place on 19 December . These include setting total commitments for Categories 3, 4 and 5, and hence also the margins under the respective commitments ceilings. The EP can also change the levels of payments for non-compulsory expenditure from Council second reading, but is bound by the agreement reached in conciliation to limit the total growth of payments to 1.9 per cent.

  I attach a table comparing the Council's 2nd reading with the EP's, 1st reading, the Council 1st reading, the PDB and the 2002 adopted budget.

  I am writing in similar terms to the Chairman of the House of Commons European Scrutiny Committee and am copying this letter to Sir Andrew Turnbull.

6 December 2002

2002 adopted budget3 2003 PDB Council 1st reading EP 1st reading Council 2nd reading
ComPay ComPay ComPayCom PayCom Pay
Category 1
Cat. 1A39,66039,660 40,42040,42040,132 40,13240,47640,476 40,08240,082
FP ceiling 42,68042,680 42,680 42,680
Margin 2,2602,548 2,204 2,598
Cat. 1B4,5954,595 4,6984,6984.698 4,6984,6984.698 4,6984,698
FP ceiling 4,6984,698 4.698 4,698
Margin 00 0 0
Total 144,25544,255 45,11845,11844,830 44,83045,17445,174 44,78044,780
FP ceiling46,587 47,378 47,37847,378 47,378
Margin2,332 2,260 2,5482,203 2,598
Category 2
Structural operations
33,83832,12933,995 33,53833,96833,013 33,99534,52133,980 33,023
FP ceiling33,638 33,968 33,96833,968 33,968
0 -27-12
Category 3
Internal Actions
7,157 6,1576,7156,132 6,6746,1126,793 6,2336,6986,121
FP ceiling6,558 6,796 6,7966,796 6,796
81 1223 98
Category 4
External Actions
4,873 4,6654,9124,692 4,8924,6815,047 4,9514,8594,664
FP ceiling4,873 4,972 4,9724,972 4,972
Margin 60 80-75
Category 5
5,178 5,1785,4475,447 5,3655,3655,362 5,3625,3165,316
FP ceiling5,179 5,381 (4) 5,381 5,3815,381
Margin2 -66
16 1965
Category 6
676 676434434 434434434 434434434
FP ceiling676 434 434434 434
Margin0 0 00 0
Category 7
Pre-Accession aid
3,457 2,5953,3862,857 3,3862,5573,386 3,2563,3862,557
FP ceiling3,328 3,386 3,3863,386 3,386
0 00 0
TOTAL98,70695,656 100,00798,21899,548 96,992100,19299,933 99,45496,896
FP ceiling101,039100,245 102,315102,938102,315 102,938102,315102,938 102,315102,938
Margin2,3334,589 2,3084,7202,767 5,9462,1233,005 2,8616,042

  NB  Figures may not add up due to rounding.[5],[6]

  Com:  Commitments, leading to payments in 2003 (2002 in the case of the 2002 adopted budget) and future years.

  Pay:  Payments, cash that will be spent in 2003 (2002) arising from commitments in 2003 (2002) and earlier years.

Letter from the Minister, Ruth Kelly to the Chairman

  I am writing to advise you that the European Parliament adopted the general budget of the European Communities for 2003 at its plenary session on 19 December. This marks the close of the 2003 budget exercise. In your letter of 11 December you asked me to give a final account after the adoption of the 2003 budget. A summary of the main results of the budget procedure is set out below. Key figures can be found in the attached table.

  The 2003 adopted budget is consistent with the financial perspective ceilings agreed by the European Council in 1999. It respects the commitment ceiling for each category of expenditure, and leaves a margin below the overall ceiling for both commitments and payments. The use of the

200 million flexibility instrument was limited to only

12 million, which will be used to fund the restructuring of the Community fishing fleet. In establishing its second reading the European Parliament has respected the package agreed in the November conciliation between Council and Parliament, including extra resources for the Global Health Fund and for the Common Foreign and Security Policy. The result of the conciliation was covered in my letter of 6 December.

  The adopted budget includes

99.6 billion in commitment appropriations, leaving a margin of

2.63 billion below the total financial perspective ceilings. Commitment appropriations have been increased by 0.25 per cent compared with the 2002 budget. Total payment appropriations amount to

97.50 billion or 1.02 per cent of GNP. The increase in payment appropriations was limited to 1.9 per cent as agreed at the conciliation.

  The level of CAP spending (Category 1A) was already agreed at the Council second reading, as the Council has the final say over this part of the Community budget. The appropriations for rural development (Category 1B) are budgeted up to the Financial Perspective ceiling of

4.7 billion. The European Parliament voted to split the budget line for export refunds to separate exports of meat and live animals. The total allocation for agriculture is

44.78 billion, leaving a significant margin of

2.6 billion.

  As agreed in conciliation at the November ECOFIN, an additional

12 million was allocated to Category 2 (structural operations) through the mobilisation of the flexibility instrument, to finance the final tranche of the programme for restructuring the Community fishing fleet after the non-renewal of the fishing treaty with Morocco. The Parliament increased the payment appropriations for Category 2 by

150 million compared to the Council's second reading.

  As usual, the European Parliament reinforced many of the Category 3 (internal policies) budget lines according to its own priorities. The total commitments for internal policies amount to

6.80 million

97 million above the Council's second reading. The main increases were in information and communication (

27 million), labour market and technological innovations (

20 million) and educations (

11 million). As a result of these and other increases the Category 3 margin was reduced to


  In Category 4 (External Actions) the European Parliament respected the agreement reached in conciliations to increase the CFSP budget to

47.5 million and to secure a seat for the Commission on the board of the Global Health Fund by including

42 million for the Fund in the budget (to be complemented by a similar amount from the European Development Fund). For transparency reasons the EP created a separate new budget line for aid for Afghanistan with an allocation of

124 million (further funds for Afghanistan can be provided from other lines, such as the humanitarian aid line). Elsewhere in Category 4 the Parliament made a number of changes compared to the Council's second reading. Additional funds were made available for, among other things, East Timor (

6 million) Latin America (

13 million), TACIS (

17 million) and democracy and human rights (

17.5 million). the total commitments for External action amounts to

4,949 million, leaving a margin of

22.6 million.

  The budget for administrative expenditure totals

5.4 billion. This will allow the Commission to recruit 500 temporary staff from the accession countries to help prepare the institutions for enlargement. The use of the flexibility instrument was avoided through frontloading some administrative spending to 2002, and the final budget therefore meets enlargement related needs while leaving a margin of

21 million under the Category 5 ceiling.

  The total commitments for pre-accession aid amount to

3.4 billion, unchanged from the PDB and the Council's second reading. The parliament decided to increase the payment appropriations for Category 7 by

150m from the Council second reading.

21 January 2003

2003 EC Budget

Draft Budget
Letters of
Council's First Reading Draft
Parliament First
Reading Draft
(including Letter
of Amendment 1)
Second Reading
Draft Budget
of Amendment
Commitment appropriations
Agriculture47,37844,780 44,83045,17444,780 44,780
Structural Operations33,968 34,02733,96833,995 33,98033,980
Internal Policies6,796 6,7166,6746,793 6,6986,796
External Actions4,972 4,9124,8925,047 4,8594,949
Administration5,3815,436 5,3655,3625,381 5,360
Reserves434434 434434434 434
Pre-accession aid3,386 3,3863,3863,386 3,3863,386
Total Commitment appropriations102,315 99,69299,548100,192 99,45499,686
Total Payments appropriations102,938 97,88096,99299,933 96,89697,503
Payments as a percentage of Community GNP 1.021.01

3   This figure includes 66m for administration and 27 million for fishing fleet restructuring as proposed in the Preliminary Draft Budget and 32 million for Common Fisheries policy reform measures proposed in an Amending letter to the PDB (COM 2002 399 final). Back

4   Including 170 million in staff contributions to the pension scheme. Back

5   Including Supplementary and Amending budgets 1-5. Back

6   including 170 million in staff contributions to the pension scheme. Back

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