Individual Spending Programmes
and the Financial Perspective
12. Spending in the annual EC Budget is divided
into eight categories:
(a) Competitiveness for Growth and Employment;
(b) Cohesion for Growth and Employment;
(c) Preservation and Management of Natural Resources;
(d) Freedom, Security and Justice;
(e) Citizenship;
(f) The EU as a Global Partner;
(g) Administration; and
(h) Compensation.
13. These categories are pre-determined by the
multi-annual Financial Perspective agreement between the European
Council, the Commission and the European Parliament. This agreement
sets both a ceiling for total EC expenditure, defined in terms
of a percentage of EU Gross National Income (GNI), as well as
annual ceilings for each of the seven expenditure categories.
This agreement provides the financial framework for the EC over
a period of seven years. The 2008 Budget is the second to be proposed
under the current Financial Perspective, which governs Budgets
from 2007 to 2013.
14. The European Council of December 2005 agreed
that the Commission "should carry out a comprehensive reassessment
of the financial framework, covering both revenue and expenditure,
to sustain modernisation and to enhance it, on an ongoing basis".
The Commission was asked to conduct a "full, wide ranging
review covering all aspects of EU spending, including the CAP,
and of resources, including the UK rebate, to report in 2008/9"[2].
15. The Minister outlined the Government's preparations
for the forthcoming review, noting that "the Government will
argue that this is hardly a budget designed to meet the challenges
that the EU faces in the 21st century … some fundamental
aspects of the EU budget do not represent value for money. We
have had that view for some time on the Common Agricultural Policy,
where we want fundamental reform, and we also believe it is not
good value for money for such a high proportion of the structural
and cohesion funds to be going to rich Member States. We do not
think that is the point of that type of programme." (QQ 1-2)
16. The Minister explained that the Government
has established three general principles which will form the basis
of its negotiating position. These are:
(1) "that the EU should only act where there
are clear additional benefits from collective efforts, compared
with action solely by individual Member States";
(2) "that where EU-level action is appropriate,
it should be proportionate, flexible and use the most appropriate
policy lever, which may or may not be spending"; and
(3) that there should be the highest levels of
financial management and administration (Q 3).
17. The Minister explained that, with these principles
in mind, work on the Review has already commenced. We were told
that HM Treasury has "started a process within the UK of
analysing the kind of 'fit for purposeness' of all EU spending.
It may well be that that will lead to a conclusion that will have
some very significant implications for our negotiating stance
in the fundamental review but we do not at this stage have a view
on the outcome in terms of absolute levels … we are developing
a UK vision for expenditure and future financing. That is a process
of ongoing work and it is involving a cross-Whitehall effort.
We have already begun some informal conversations with our EU
partners, Member States and the Commission, obviously, but the
Commission itself has not yet published its draft proposal so
we are in that sense at an early stage in all this" (Q 3).
We support HM Treasury's three principles and welcome the news
that work on the 2008/9 review has already commenced in Government.
We request that HM Treasury provide in due course details of the
items of expenditure that it finds not to be 'fit for purpose'.
We particularly welcome the Government's commitment to sound financial
management and the need to pressure all Member States to manage
expenditure with greater care—in line with the recommendations
in our 2006 report.[3]
(QQ 11, 14)
Resources for the EC Budget
18. The money for the annual EC Budget has four
main sources, collectively known as 'Own Resources'; these are:
(1) Customs duties;
(2) Agricultural levies, including sugar levies;
(3) A contribution based on a harmonised base
for VAT income in Member States; and
(4) Contributions from Member States based on
a proportion of their GNI.
19. Under Article 269 of the EC Treaty, the Council,
acting unanimously, lays down the provisions governing the EC's
Own Resources. A maximum level for Own Resources of 1.27% EU Gross
National Product (GNP) was set in 1988. This has subsequently
been changed to 1.24% of EU GNI. This change merely reflects the
preference for using GNI as a statistical tool, and does not represent
a change in the level of the ceiling.
20. Over time, the proportions of income from
each resource have adjusted to the current position whereby the
GNI-based contribution is the primary source of income for the
EC Budget. In our recent report, we supported this development;
other means of funding the Budget are likely to be proposed during
the 2008/9 Review, but we found that no new form of taxation put
to us provided the same level of clarity and certainty as the
GNI-based resource.[4]
The role of scrutiny
21. Although for the most part the annual EC
Budget is determined by policies previously agreed as part of
the Financial Perspective, scrutiny of the annual EC Budget remains
an important means of making the process more transparent. We
appreciate the Government's effort to assist us in our scrutiny
of the annual Budget.
22. This report is the European Union Select
Committee's main contribution to the scrutiny of the EC Budget.
However, as part of our regular scrutiny role, we will continue
to consider the Budget before it is adopted. We will also consider
any Preliminary Draft Amending Budget presented by the Commission.
1 Review of Scrutiny of European Legislation
(1st Report, Session 2002-03, HL 15) Back
2
EM 15915/05 Back
3
Financial Management And Fraud In The European Union (50th
Report, Session 2005-6, HL 270) Back
4
Funding The European Union (12th Report, Session 2006-7,
HL 64) Back
