Select Committee on European Union Thirty-Third Report

 

CHAPTER 2: The 2008 Preliminary Draft Budget

23.  As the European Commission has noted[5], the 2008 Budget marks the first time that commitment appropriations for growth and employment policies represent the highest share of the budget, ahead of agriculture and natural resources (i.e. the Common Agricultural Policy). While the payment appropriations have not yet reached this point, it is a tangible demonstration of the increased focus on growth and jobs under the current Financial Perspective. Furthermore, agricultural spending in the 2008 Budget will be lower in real terms than is the case in 2007.

The Budget

24.  As in every year, the 2008 Preliminary Draft Budget makes a distinction between appropriations for commitments and appropriations for payments.

BOX 1

Commitment and Payment appropriations

Commitment appropriations are the total cost of legal obligations which can be entered into during the current year, for activities which will lead to payments in the current and future years.

---

Payment appropriations are actual transfers of cash from the Community Budget to creditors during the current year, resulting from commitments made in the current or previous years.

---

Total commitment appropriations

25.  As the table on page 14 shows, the Commission's Preliminary Draft Budget envisages a total of €129.17 billion for commitment appropriations. This represents an increase of €2,591 million or 2.0% over the 2007 Budget, but is €3,137 million below the ceiling permitted by the Financial Perspective.

Total payment appropriations

26.  The table also indicates a proposed total of €121.58 billion for payment appropriations. This represents an increase of €6,084 million, or 5.3% over the 2007 Budget. However, the level of payment appropriations is still €7,448 million below the Financial Perspective ceiling.

27.  The proposed level of payments is equivalent to 0.97% of EU Gross National Income. This is slightly higher than in 2007, when it was 0.96% of EU GNI, and is €8,216 million below the Own Resources Decision Ceiling of 1.24% of EU GNI.

28.  In her evidence, the Minister outlined the Government's priorities for the negotiation of the 2008 budget. At Q 25, she noted the following targets:

(1)  reduce the budget levels for cohesion funding;

(2)  reduce the generous funding allocated to the "woolly" citizenship programmes under heading 3b;

(3)  maintain sufficient funding for the Global Partner (heading 4) projects, including Afghanistan and development spending in Iraq and Asia;

(4)  maintain sufficient development spending allocated to the ACP countries transitioning out of sugar dependency;

(5)  maintain downward pressure on the administration budget line; and

(6)  ensure that there is sufficient margin between the overall financial perspective ceiling and the commitments in the annual budget to pay for any additional items without renegotiating the Financial Perspective.

Extraordinary budget items

29.  Paragraph 28(6) refers to the possibility that the Council may wish to pursue "important priorities" (Q 25) outside of the budget. This is a reference to the European Institute of Technology and the Galileo Project.

GALILEO PROJECT

30.  On 8 June, the EU Transport Council voted to end talks to establish a Public-Private Partnership (PPP) to develop the Galileo global satellite navigation system and use public funds instead. The UK has not supported this position and the Commission will report to the October Transport Council with funding proposals. While there is a budget line for Galileo, it was included in the Financial Perspective under the assumption that the PPP would go ahead, and the amounts allocated to this budget line reflect administrative and management costs rather than delivery and deployment of the thirty satellite system.

31.  The Minister noted that the Government is "very supportive" of the Galileo Project but also stated that raising the ceiling under the Financial Perspective is "completely unacceptable" (QQ 19, 21) and that they would instead maintain pressure on other budget lines under the Competitiveness for Growth and Employment heading to find funds. This Committee will continue to scrutinise closely the form and transparency of the funding of the Galileo Project. We support the Government's stance in refusing to raise the Financial Perspective ceilings to fund the Project.

EUROPEAN INSTITUTE OF TECHNOLOGY

32.  A second item which has been closely examined, and criticised in its proposed form, by this Committee is the European Institute of Technology (EIT).[6] The budget envelope for this project is €308.7 million, and this has remained the case despite the fact that we were recently told that the EIT will have a gradual launch with only two or three Knowledge and Innovation Communities (KICs) in the first period to 2013, rather than the original proposal of up to six KICs.[7] This project also has a budget line but has been allocated €2.9 million in the Preliminary Draft Budget; a realistic amount to fund the gradual launch might be closer to €100 million.[8]

33.  Our principal concern in this area is that an amount that the Minister agreed was "rather nominal" is allocated to the EIT, and that the Commission has suggested that the rest of the budget be found using the contingency fund of Budget heading 1a. The Minister shared our unease, noting that the Budget-setting authorities will have to work together to "juggle things around and … work out what our priorities really are, because we cannot have a situation where, just because there is a project which may have had initially good merits, that somehow the budget needs to increase—precisely the type of thing that should be avoided in terms of budgetary laxness—although the project may turn out to be worthwhile." (Q 28)

34.  We recommend that EU funding for the EIT should be reduced to a level commensurate with the gradual phased approach which is now envisaged for its implementation; and that the year by year profile of the total budget should properly reflect that phased approach. We recommend, further, that the practice of funding such a major project as the EIT from a reserve budgetary source should not be regarded as acceptable. Contingency funds should be reserved for genuinely unforeseen contingencies regardless of size.

AGENCIES

35.  A number of specialised and decentralised EU agencies have been established to support the Member States and citizens. Each focuses on tasks of a legal, technical and/or scientific nature, and examples include the European Maritime Safety Agency (EMSA), European Defence Agency (EDA), European Police Office (EUROPOL), and Community Fisheries Control Agency (CFCA).[9] The increases in funding for the agencies are allocated under Headings 1a, 3a and 3b, and amount to 24%, 9.5%, and 23% respectively.

36.  We have concerns about the controls that are in place for monitoring spending and administration within these agencies, and we were pleased to note that the Government shares these concerns (Q 13). We support the Government's view that the budgets for the external agencies should be closely examined to ensure they are producing value for money. The oversight and management of the agencies is a subject we may return to in a future report.

TABLE 1

Summary of 2008 PDB Proposals—EUR million and GBP million

Heading		2007 Budget				2008 PDB				Change 2007 to 2008
		Commitments		Payments		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	€	£	€	£	%	€	£	%
1	Sustainable growth	54,854	37,306	44,837	30,494	57,148	38,866	50,161	34,115	2,294	1,560	4.2	5,324	3,621	11.9
1a	Competitiveness for growth and employment	9,368	6,371	7,047	4,793	10,270	6,985	9,539	6,487	903	614	9.6	2,492	1,695	35.4
1b	Cohesion for growth and employment	45,487	30,936	37,790	25,701	46,878	31,882	40,623	27,628	1,391	946	3.1	2,832	1,926	7.5
2	Preservation and management of natural resources (CAP)	56,250	38,256	54,719	37,214	56,276	38,273	54,770	37,249	26	18	0.0	52	35	0.1
	Of which market related expenditure and direct payments	42,712	29,048	42,436	28,861	42,499	28,904	42,447	28,868	-213	-145	-0.5	11	7	0.0
3	Citizenship, Freedom, Security and Justice	1,271	864	1,202	817	1,288	876	1,190	809	17	12	1.3	-12	-8	-1.0
3a	Freedom, security and justice	624	424	474	322	691	470	496	337	67	46	10.8	23	15	4.8
3b	Citizenship	648	441	728	495	597	406	693	471	-50	-34	-7.8	-35	-24	-4.8
4	EU as a global partner	6,812	4,633	7,353	5,001	6,911	4,700	7,917	5,384	99	67	1.5	564	384	7.7
5	Administration	6,942	4,721	6,942	4,721	7,336	4,989	7,336	4,989	393	267	5.7	394	268	5.7
6	Compensation	445	303	445	301	207	141	207	140	-238	-161	-53.5	-238	-162	-53.5
Total		126,575	86,084	115,497	78,550	129,166	87,846	121,581	82,687	2,591	1,762	2.0	6,084	4,138	5.3
Margin						3,137	2,133
Compulsory expenditure		44,597	30,330	44,487	30,256	44,053	29,960	44,057	29,963	-544	-370	-1.2	-430	-292	-1.0
Non-compulsory expenditure		81,979	55,754	71,010	48,294	85,113	57,885	77,524	52,724	3,135	2,132	3.8	6,514	4,430	9.2
As a percentage of GNI				0.96%				0.97%

Notes:  Due to rounding, the sum of the lines may not equal the total. Conversion rate as of 31 May 2007, £1 = €1.4705, €1 = £0.6801

·  Detail by expenditure heading

TABLE 2

Heading 1: Sustainable Growth

		2008 PDB				Change 2007-2008
		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	%	€	£	%
1	Sustainable growth	57,148	38,866	50,161	34,115	2,294	1,560	4.2	5,324	3.621	11.9
1a	Competitiveness for growth and employment	10,270	6.985	9,539	6,487	903	641	9.6	2,492	1,695	35.4
1b	Cohesion for growth and management	46,878	31,882	40,623	27,628	1,391	946	3.1	2,832	1,926	7.5

37.  Overall expenditure in this category for commitments is €87.6 million under the Financial Perspective ceiling.

38.  In Heading 1a (Competitiveness for Growth and Employment), the increases in commitment appropriations are largely accounted for by programmes that the Commission considers crucial to the implementation of the Lisbon Strategy. These include the following:

• 7th Research Framework Programme (increase of €589 million or 11%);
• Trans-European Networks (increase of €129 million or 17.7%);
• Lifelong Learning (increase of €81 million or 9%);
• Galileo (increase of €51 million or 51%).

39.  The increases in Heading 1b (Cohesion for Growth and Employment) result largely from proposed expenditure devoted to the Cohesion Fund, which rises by €1029 million or 14.4%. The Structural Funds continue to be the dominant item under this heading, with commitment appropriations of €38,723 million (a rise of 0.9% or €363 million compared to 2007). The Minister noted (Q 27) that 60% of the Structural Funds go to rich Member States, and thought the need for long-term reform remained. As we have stated before, we support the principle of increasing the Structural Fund receipts accruing to the poorest Member States as this is where European money can add the most value.

TABLE 3

Heading 2: Preservation and management of natural resources

		2008 PDB				Change 2007-2008
		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	%	€	£	%
2	Preservation and management of natural resources (CAP)	56,276	38,273	54,770	37,249	26	18	0.0	52	35	0.1
	Of which market related expenditure and direct payments	42,499	28,904	42,447	28,868	-213	-145	-0.5	11	7	0.0

40.  Commitment appropriations in this category rise by 0.05% or €25.6 million, to €56,276 million. This leaves a margin of €2,524 million under the ceiling agreed in the Financial Perspective. The Government's Explanatory Memorandum notes that market related expenditure and direct payments to farmers decrease by €212.6 million from 2007 (p 2). The Commission notes that 83% of direct aid to farmers is now decoupled from production. It further notes that in 2008 it will undertake a "CAP health check", to assess whether the reformed CAP is functioning satisfactorily.

41.  Increases in commitment appropriations under this Heading include

• A rise of €199.2 million or 1.6% for Rural Development programmes
• A rise of €26.3 million or 10.9% for Life+, an environmental protection programme.

TABLE 4

Heading 3: Freedom, Security, Justice and Citizenship

		2008 PDB				Change 2007-2008
		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	%	€	£	%
3	Citizenship, Freedom, Security and Justice	1,288	876	1,190	809	17	12	1.3	-12	-8	-1.0
3a	Freedom, security and justice	691	470	496	337	67	46	10.8	23	15	4.8
3b	Citizenship	597	406	693	471	-50	-34	-7.8	-35	-24	-4.8

42.  Proposed commitments in this area leave a margin of €74 million under the Financial Perspective ceiling.

43.  Under Heading 3a, there is a €76 million or 24% increase in commitments for Solidarity and Management of Migration Flows. The Minister described this as an extremely important budget line and a very good example of where European co-operation can lead to added value (Q 33). Items under this sub-heading are the External Borders Fund, the European Refugee Fund, the European Return Fund, and the European Fund for the Integration of Third-Country Nationals. We noted that the proposed budget for the External Borders Fund is unchanged on that adopted in 2007, and that the Government raised concerns about absorption capacity under Heading 3a.

44.  Under Heading 3b, there are increased allowances for programmes designed to foster mutual understanding and a shared European identity. This includes a €11.5 million (27.6%) increase in payments for Culture 2007-2013, and €29.5 million for a new programme, Europe for Citizens. The overall decrease in funding under this heading is due to a decrease of €85 million (81.8%) for programmes related to enlargement (i.e. the transition facility for Romania and Bulgaria).

TABLE 5

Heading 4: The EU as a global partner

		2008 PDB				Change 2007-2008
		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	%	€	£	%
4	EU as a global partner	6,911	4,700	7,917	5,384	99	67	1.5	564	384	7.7

45.  Proposed commitments in this area leave a margin of €329 million under the Financial Perspective ceiling. The Commission notes that this is larger than last year, but expects additional appropriations to be required for funding in Kosovo and in the Middle East.

46.  Of note here are commitment increases of:

• €119 million or 9.4% for the Instrument for Pre-Accession;
• €40 million or 28.7% for the Instrument for Stability;
• €34 million or 58.1% for Macroeconomic assistance; and
• €41 million or 25.8% for the Common and Foreign Security Policy.

47.  We are pleased to note that the Instrument for Pre-Accession funding is ring-fenced to Macedonia, Croatia, Turkey and the remaining countries of the Western Balkans. We support the Minister's view that it would be inappropriate to leave Turkey out of this programme at this stage.

48.  Funding under the Instrument for Stability includes €135 million on "Crisis Response and Preparedness" and €27 million for "actions in the area of non-proliferation of weapons of mass destruction". The Minister agreed that these did not look like large sums, but also argued that "the importance of a policy cannot purely be measured in financial terms. Many of the most effective ways of helping neighbourhood countries do not involve huge amounts of budget resources—trade concessions, loans, targeted technical assistance, regular dialogue, shared diplomatic concerns and so on." (Q 43)

49.  The Minister writes that the Government will also prioritise the maintenance of spending at sufficient levels for other items under this Heading, including assistance to sugar protocol countries and the CFSP. In giving evidence she added the need to support development funding in Iraq and Asia. (Q 25)

TABLE 6

Heading 5: Administration

		2008 PDB				Change 2007-2008
		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	%	€	£	%
5	Administration	7,336	4,989	7,336	4,989	393	267	5.7	394	268	5.7

50.  Commitments under this heading leave a €113 million margin below the Financial Perspective ceiling.

51.  Commitments under this heading include a 10.2% increase to fund the pension funds for staff of all institutions, and funding for an increase in staff by 3,960 posts over 2003-8 due to the enlargement to 25 Member States and a further 750 posts over 2006-9 due to the accession of Bulgaria and Romania. The Minister told us that that the Government "believe there can be efficiency and productivity gains in terms of staffing and we have been negotiating very hard at official level on this point in the last few weeks. National administrations are facing restrictions. It is going to be a tough spending round for us here in the UK. That is replicated across Europe. We are making efficiency cuts and we do not think it is right that we should be supporting staffing gains in the European Commission, not just because it is not fair or anything like that, but simply because we think they could do their job more effectively, so we agree 100 per cent and we are negotiating hard on this." (Q 44)

52.  Other funding increases under this heading are related:

• A 9% (€6.4 million) increase to fund security at all Commission buildings and for delegations working outside of the EU.
• A 21.5% (€6.6 million) increase in social provision for staff, including a new childcare facility.
• A 180% (€1.6 million) rise in funding for measures to encourage Commission staff to adopt green travel methods while commuting. The scope of these measures and the increase in commitments is less than was requested for similar initiatives in the 2007 budget.

53.  We also note and support the Government's intention to initiate a "Gershon-type review" as part of the 2008/9 review of the budget (QQ 10, 25), and to take steps to promote productivity and value for money.

TABLE 7

Heading 6: Compensation

		2008 PDB				Change 2007-2008
		Commitments		Payments		Commitments			Payments
		€	£	€	£	€	£	%	€	£	%
6	Compensation	207	141	207	140	-238	-161	-53.5	-238	-162	-53.5

54.  For a fifth consecutive year, the 2008 Budget also includes a sixth heading for expenditure. This heading is intended to improve cash-flow in the national budgets of the newest Member States (Bulgaria and Romania) and to finance control actions at the new external borders of the Union. The amount spent under this heading is less than half of that in 2007; it will cease to exist after 2009 (p 1). Expenditure in this heading leaves a margin of €0.36 million below the Financial Perspective ceiling.

---

5   European Commission press release IP/07/597 Back

6   Proposal to establish the European Institute of Technology (25th Report, Session 2006-7, HL 130) Back

7   ibid at page 20 Back

8   ibid at Q 9 Back

9   More information is available on the Europa website at http://europa.eu/agencies/index_en.htm Back