Examination of Witnesses (Questions 20-39)
KITTY USSHER,
MR JEAN-CHRISTOPHE
GRAY, MR
DUNCAN SPARKES
AND MR
NICHOLAS JOICEY
5 JULY 2007
Q20 Lord Cobbold: Do you think it
will die as a result of that?
Kitty Ussher: I think my personal view is that
there is a strong political support for Galileo. The question
is how it should be financed given that the PPP negotiations seem
to have reached an impasse.
Q21 Lord Cobbold: If it involves
a question of raising the financial perspective, that would be
very difficult.
Kitty Ussher: It must not, and that is why we
must be absolutely vigilant in the other budget lines that come
under heading 1a in order to ensure that, should the Council decide,
there are other options that are available that do not involve
abandoning the whole project or raising the ceiling, because raising
the ceiling is completely unacceptable as far as we are concerned.
Q22 Chairman: Minister, I am familiar
with the Galileo project from another incarnation. My understanding
is that the United Kingdom never considered it a terribly good
idea and used the PPP mechanism to some extent to test commercially
whether this could be funded commercially. The answer is clearly
no, for all the reasons which Mr Sparkes has kindly given us,
but, as you say, it has very strong political support. Is it going
to be enough to have the United Kingdom saying the funding ceiling
must not be raised? The alternative, given the failure of the
PPP, must surely be that the project is abandoned. This seems
to me a real cuckoo in the nest of the budget and a real difficulty,
so you will forgive me if I press you a little on what we are
going to do about it.
Kitty Ussher: I think Galileo can have some
huge benefits. Obviously, you cannot fund good ideas without any
indication of the cost. Everything the Government does at home
or abroad should represent value for money. I think my colleague,
Stephen Ladyman, at the June Transport Council made the point
that we should not proceed with the project unless the costs were
reasonable—in other words, not throwing money down a black
hole—and the German Presidency recognized this. But we do
think it has real potential benefits. I think this is potentially
quite an exciting project for EU Member States to cooperate on
but, of course, there needs to be strong governance, commercial
disciplines, open competition, risk management and all the rest
of it, which is why we favoured a PPP solution, but we must not
compromise on our absolute fixed conviction that the budget ceilings
should remain as they are.
Q23 Chairman: If I may press further,
one of the things that caused the Galileo project not to be one
of our top favourites, as it were, was that the benefit to the
United Kingdom was remarkably thin. If I may, I will just complete
the question. Being as that is my understanding, what plans do
you have to ensure parliamentary scrutiny of this important decision,
which is likely to be taken while both Houses are in recess?
Kitty Ussher: To answer the second point first,
to a certain extent, this is it, and I am listening very carefully
to the points that you raise, and obviously, we are going to the
Commons next week as well. I am presenting you with all the facts
as they are currently available and you are, quite rightly, scrutinising
me on that and expressing concerns where you have concerns, which
will be taken on board. You are in a sense giving me and the Chancellor
our democratic mandate for the pursuit of the budget negotiations
that start at the end of next week. What is traditional is that,
should those facts change substantially, we will of course let
you know and it is traditional for that to take place by correspondence.
I understand it is unusual but, of course, you are totally within
your rights to respond to that if you think there are additional
points that we should be taking account of, and certainly, for
my own part, that is a dialogue I would welcome. In terms of benefits
to the UK, as I have said before, I think it is an exciting project.
What it all comes down to, I think, is priorities. We have agreed
the budget limit and it is up to members of the European Council,
working with the European Parliament, in order to decide what
are the most important projects within that, and what seems to
be clear is that there are a number of different projects being
added to the potential list and ultimately it comes down to priorities
but overall, we do think it is a worthwhile project, otherwise
we would be opposing it.
Chairman: Perhaps this is a gypsy's warning,
but I think the United Kingdom will face very considerable pressure
somehow to go on funding this project.
Q24 Lord Watson of Richmond: Very
briefly, if I may, on the subject of Galileo, as it happens, I
share your enthusiasm for the Galileo project. However, I think
the case for the benefits to the UK has not been adequately made
and I would strongly suggest that the Government turns its mind
to that. Secondly, clearly, this is a possible candidate for unforeseen
surpluses and I think we have to be very careful about this because
there has often been in the past the feeling that major projects
get through in the European Union not through the proper route
but in a slightly fudged away, because not all the money has been
allocated and so on and so forth. Were all that to happen during
the parliamentary recess, I think that would store up unnecessary
trouble. I hope you would agree that, one, the case must be properly
made; two, the method of funding must be absolutely clear; and
three, there really must be genuine Council agreement on this.
This is a huge strategic project and it should not go through
on a fudge.
Kitty Ussher: Yes, I could not agree with you
more. Each budget needs to be considered on its merits and that
applies to both the outcomes and in terms of how much it costs,
and what the value for money is on that. So even if the final
decision is made when the House is not sitting, I feel very clearly
that you have made your representations to me and I understand
what you say. I am told, by the way, on parliamentary scrutiny,
that on Monday the Minister of State for Transport had a debate
on the floor of the House of Commons on this issue, so there has
been that scrutiny already.
Q25 Lord Cobbold: You have made value
for money a very big issue, and rightly so. Do you consider that
overall the proposals represent value for money? You have additionally
said that, when looking at the whole, it comes down to priorities.
What specifically are the Government's priorities?
Kitty Ussher: Our top priority is value for
money, obviously. We think that on the parts of the budget that
focus on research and development, fighting international crime
and terrorism, and managing migration flows, there is a clear
case for working at EU level and we think the proposals that have
been put forward in general represent sufficient value for money.
We are okay with those. We think that there are many areas where
value for money is less clear or non-existent, and these fall
into two categories: the ones that have been a longstanding negotiated
position, where we think we can probably best achieve our aims
through the fundamental review of the EU budget, CAP spending,
and the fact that 60% of structural funds go to wealthier Member
States, which we think is morally wrong and an ineffective use
of money. The second category where we think there is not value
for money are more micro issues, where we feel we can have and
have been having—as I said, I am cautiously optimistic—some
influence over, and these are dealt with in the current budget,
i.e., the one that I am going to start negotiating at the end
of next week. Our priority is there to reduce spending on programmes
that have a poor implementation record because, for precisely
the reasons that Lord Watson said, we do not want to make a decision
to give a certain amount of money and then have it not spent and
we have this money swilling around that all sorts of things could
happen to. We think, in terms of cohesion funding, it is incorrectly
allocated, to start with, but even within that we think the levels
are too high. We also want to reduce spending on programmes that
have weak or inappropriate performance targets. In the jargon,
heading 3b is an example of that, for example, the programmes
on citizenship, which we think are a bit woolly. We want budgets
in those areas that are set at levels that can realistically be
absorbed and reflect our priorities. I do not know if this is
too much detail. In our negotiations we want to ensure that under
heading 4, which is the EU as a global partner, we continue to
provide sufficient funding to areas where it is desperately required,
and we would certainly put Afghanistan right at the top of that,
but also development spending in Iraq and Asia. We do not want
to see any reduction there. We also want to defend development
spending allocated to the ACP countries, transitioning out of
sugar dependency. It is very important to say that we agree with
the reforms to the sugar regime but we want to make sure the transition
in the countries we are closest to is done in an adequate way.
On heading 5, the administration budget, both on the central institutions
that we have talked about and the decentralised agencies that
Baroness Cohen mentioned, we think that efficiency gains can be
realised and therefore the implication is that the overall budget
line at the moment is too generous. We have been making investment
in buildings and IT and we think the financial benefits of that
should be flowing through to a greater extent, and we think they
can make greater economies of scale and we want a Gershon-type
review. In passing on that, I understand that Lord Kinnock five
years ago did introduce a quite effective review of the way that
efficiency gains throughout the whole administration were realised
but we think it is time for another one, Kinnock Plus. The final
priority in terms of our negotiations is to make sure—this
comes back to your earlier point about Galileo—that there
is a sufficient margin between the overall financial perspective
ceiling that has already been agreed and the commitments that
we are discussing now, so that gives some room, if there are important
priorities that we decide when it comes to Council that we want
to pursue, we do need to have a discussion about raising the ceiling,
because that is unacceptable.
Q26 Lord Jordan: Just on the main
priorities, you feel you have a body of support?
Kitty Ussher: As I said, we are cautiously optimistic
about the revised budget that will be put to Ministers at the
end of next week, so we feel, certainly at the Council level,
that we are hopefully making some progress but it is too early
to really say any more than that. Then of course it goes to the
European Parliament, which may have different pressures, and it
comes back to us in November. So whilst we are cautiously optimistic
at stage one, I cannot yet give you an indication of the end of
the process.
Q27 Chairman: I would like to pick
down the headings and give the other members of the Committee
a chance to ask about each of them. If I may start, the Commission
has publicised that commitment appropriations under heading 1,
which includes of course structural funds, exceeds heading 2 for
the first time. You have touched on your concerns regarding the
absorption capacity in some of these spending areas. Would you
like to talk a little more about that?
Kitty Ussher: Yes. I saw the Commission press
release. They are quite proud of the fact obviously that appropriations
under heading 1, which is the main economic heading, exceed heading
2. It is quite interesting that they are keen to show that economics
is taken more seriously than CAP, one presumes, because of the
way they are doing that. It shows at least that their press office
is in the right place. But we can see through this, because it
is quite clear that the spending on preservation of natural resources,
i.e. heading 2, has only fallen because the rest of the budget
has been growing around it. It does increase in absolute terms.
I think the precise figures are a €25.6 million increase
in 2008 in the initial preliminary draft budget proposed by the
Commission, and of course, spending on structural and cohesion
funds still makes up 82% of the spending under heading one, and,
as I have said a couple of times, 60% of this goes to rich Member
States, which we think is wrong. We note their press release but
we think the need for long-term reform remains. We have talked
a little bit about absorption capacity in some of these areas
and certainly with spending on accession countries we think that
is extremely important, but we have to be realistic about the
capacity to spend. We cannot be over-generous because that would
be bad for British taxpayers, so our approach has always been
twin-track, to very much champion enlargement and make the point
that the whole cohesion line of the budget should go to the accession
countries and at the same time provide direct financial support—the
UK is a very generous contributor to programmes of capacity building,
civil service expansion and training and so on—in order
that we can allocate a more generous settlement and they can spend
it effectively but if they cannot spend it effectively, we should
not be allocating them a generous settlement.
Lord Marlesford: I would like to take another
particular project, which has had a lot of publicity, and in Britain's
Parliament a lot of negative publicity: the European Institute
of Technology. You will have noticed that the House of Lords had
a debate on it and a lot of very well qualified people spoke,
of which I was obviously not one. They gave it a total thumbs
down. One of our sub-committees has recently been looking at it.
The extraordinary thing is that here is a project which is of
doubtful merit and which we understand the British Government
is not mad keen on, and apparently, it does not even have its
own budget. It appears to be going to be financed out of a contingency
fund. Is that not a rather extraordinary way of trying to finance
something and, of course, the total budget for the thing is very
small in relation to the sort of thing that it is meant to be
doing. The easy simile is that they want to create another MIT.
Lord Watson of Richmond: We have Cambridge.
Q28 Lord Marlesford: Another Cambridge,
exactly. The risks being seen are, first of all, that the money
allocated is inadequate, and secondly, that the source of finance
is extraordinary, and thirdly, the danger is that some small countries—and
there is no criticism of that—would like to have it. The
only possible solution would be to attach it, if it is going to
happen, to somewhere like Cambridge or some great centre of learning
which already exists, to get a bit of synergy going. Would you
like to comment, particularly from the Treasury point of view?
Kitty Ussher: From the Treasury point of view,
we absolutely share your concerns. The project as a whole could
theoretically have some advantages, and we supported it to start
with as a means of facilitating the conversion of research findings
into commercial opportunities, which is exactly what we have been
doing in Britain and what Europe should be doing more of. We played
a pivotal role in redefining the concept during the initial negotiations,
so in many ways this was a UK-led project—UK-supported certainly.
However, for precisely the reasons that you say, we ended up opposing
it at the Competitiveness Council on the basis that the budget
was totally unjustified. It had been re-scoped and led to quite
serious concerns about whether this is the way taxpayers' money
should be spent, when no source for the budget had been identified.
We were in a minority, so it remains on the table. I think a budget
envelope of €308.7 million has been agreed. If I can just
correct you slightly, your general point is completely right,
but the EIT does have a budget line in the preliminary draft budget.
It seems to be a rather nominal amount compared to the budget
that is actually attached to the project, and this is one of the
things that will have to be urgently sorted out and, in a sense,
it falls into the same category as Galileo, which is that they
are going to have to juggle things around and we collectively,
as the EU, are going to have to 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.
Chairman: That is the second cuckoo in the nest,
of course, of this year's budget.
Q29 Lord Inglewood: This is actually
a point that occurred to me in the context of your remarks to
Lord Watson about Galileo, which is a simple but quite difficult
one. You have explained both the context of the European Institute
of Technology and the fact that in the Galileo project we have
serious reservations in the UK Government about this. If I am
doing my scrutinising properly, I have to say—and I do not
expect you to give me a detailed answer—do we, the UK, have
a line in the sand beyond which we are not going to go, where
we are going to say, frankly, this ought to be pulled?
Kitty Ussher: We will not reopen the financial
perspective ceilings.
Q30 Lord Watson of Richmond: You
have just drawn a line in the sand. Would you not agree that there
is from your perspective, the Government's perspective, rather
a fundamental difference between the EIT proposal and the Galileo
proposal? You have expressed substantial and conceptual doubts
about the EIT, and you have expressed your enthusiasm for Galileo.
So these are actually rather different things. If I may, through
you, Chairman, declaring an interest as the Chairman of the Cambridge
Foundation, I was told by the Vice Chancellor of a conversation
she had with the present President of the Commission, who explained
that the EIT was basically to create an MIT in Europe, to which
the Vice Chancellor said, "You already have one in Cambridge
now." That is part of that remark. What it does illustrate
is the extreme looseness of the thinking around this EIT project.
Kitty Ussher: I should probably clarify what
I am saying. If you asked me personally whether I am in favour
of collaborative space research that could have significant commercial
spin-offs, my answer is completely, yes. I think Galileo is an
interesting project but it is of a completely different order
of magnitude to EIT. Both of them could potentially be exactly
the type of thing Europe could do; both of them could potentially
be enormous white elephants. Cambridge is wonderful.
Q31 Lord Inglewood: This is really
about the business about absorption capacity, implementation capacity.
How can we get this all a bit more realistic, in your view? You
say it is important that those who receive money ought to be in
a position to use it properly, and there is clear evidence that
in a number of countries this has really not been happening. Do
you think from the European point of view there is anything we
should be taking forward to try and ensure that, where money is
allocated, it can then actually be spent properly, in a timely
and genuinely transparent manner?
Kitty Ussher: That is exactly what the European
Commission should be doing, and I hope that by the European Council
expressing their very strong priority in this area, with others
at the forefront of doing so, that that is exactly what they will
do, and I want them to realise that they cannot produce draft
budgets that are over-generous when they cannot at the same time
guarantee that the money will be spent effectively. In a sense,
this is the European institutions working in the way that they
should. The apparatchiks, very good that they are, are putting
forward a proposal, and we are saying, "Hang on, do this
properly. Send it back. Try again."
Q32 Lord Inglewood: Is there any
specific systems that you would recommend based on UK experience
that they should adopt that they do not have now. It may be too
detailed and unfair a question.
Kitty Ussher: No, I cannot give you a specific
system, though we are happy to reflect and come back to you on
that. In terms of does what we are doing now work, I think to
a certain extent it does. Notwithstanding our general points about
reforming the entire way the EC budget works, the stance we are
taking at the moment has in previous years led to budget lines
coming down. Therefore, we think it is the right way to approach
this annual budget this year. As I said, I am cautiously optimistic
about what will come out at the end of next week.
Chairman: Moving smoothly over heading 2, which has
been discussed, Lord Trimble has a question about 3a.
Q33 Lord Trimble: Yes, 3a is spending
on managing migration flows and there is a significant increase
in the heading, so I wonder if you could give us some detail as
to how this money is being spent.
Kitty Ussher: Yes, it is an extremely important
budget line as far as we are concerned. It is important for us
and also for the EU as a whole. It mainly provides for the external
borders fund, which supports Member States who have a heavy burden
in the area of external borders and visa policy. It supports the
European Refugee Fund, now in its third incarnation, for which
€82 million is proposed in this preliminary draft budget.
It supports the new European Return Fund, intended to support
Member States with the integrated management of returning people,
for which €56 million is proposed, and the European Fund
for the Integration of Third-Country Nationals, for which €78
million is proposed. There is a high degree of co-operation between
Member States in this policy area and we think it is a very good
example of where European co-operation can lead to added value.
Q34 Lord Trimble: You mentioned a number
of headings and figures under those headings, but where are the
increases? Are they all increasing at the same rate or are some
increasing and others not?
Kitty Ussher: I know there is an overall increase
for this budget line, which is large; it is 24% or €78 million.
In terms of how each one is increasing, I am delighted to hand
over to Mr Sparkes.
Mr Sparkes: Thank you. I am afraid I do not
have the information to hand about the individual programmes.
Q35 Lord Trimble: Can you supply some
information though?
Kitty Ussher: It is publicly available. We shall
get it to you.
Q36 Lord Trimble: There are increases
on some of them but the External Borders Fund, it says here, is
the same amount as adopted by the budget authority for 2007. This
surprised me because earlier in the same passage it said, "Following
the start-up period in 2007, the year 2008 will be the first full
12-month period of the implementation for the new specific actions
which are grouped in these programmes". Unless I am mistaken,
if this is the first full 12-month period and there was less than
a 12-month in 2007 and if the money is the same for the two years,
that is going to translate into an effective cut for the External
Borders Fund, which surprises me.
Kitty Ussher: You have gone a level beyond my
initial understanding, so I hear exactly what you are saying and—-
Q37 Lord Trimble: I would have thought
that of all the things there it is the External Borders Fund which
is the most important one.
Kitty Ussher: We agree; it is extremely important,
and the proposed amount for 2008 is €170 million. I am hearing
what you are saying about the phasing effects of this and what
we will do is to go and have a look.
Q38 Lord Trimble: I am just reading from
the Commission's Expenditure Analysis by multi-annual financial
framework headings. I know nothing beyond what is on that page
and I am just puzzled by it.
Kitty Ussher: I understand the point you are
making and we will go and see if we share your concerns and we
will provide you with a note on that. Thank you for raising it.
Q39 Chairman: Thank you. If we could
have that further information for Lord Trimble in writing, that
would be great.
Kitty Ussher: We will do that.
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