Select Committee on European Union Fortieth Report


EC BUDGET 2007

Letter from Ed Balls MP, Economic Secretary, HM Treasury to the Chairman

  As you are probably aware the Council of the European Union formally agreed the 2007 Draft Budget (DB) of the European Communities at the ECOFIN (Budget) Council on 14 July, following conciliation with the European Parliament. The DB was based on a package put together by the Finnish Presidency following discussions of the Commission's 2007 Preliminary Draft Budget (PDB) in the Council's budget committee.

  My Explanatory Memorandum of 23 May 2006 set out the PDB proposals in detail. The DB documents will be published in the autumn and discussed further at the Council's second reading in November, following amendments and modifications proposed by the European Parliament in its first reading in October. The main features of the DB are set out below.

    —  The DB proposes a total of €125, 756.0 million in commitment appropriations, and €114,613.0 million in payment appropriations[9]. This represents a reduction of €1,068.0 million (or 0.8 per cent) for commitments and €1,805.0 million (or 1.6 per cent) for payments compared to the Commission's PDB. These figures are well within the ceilings set by the mulit-annual Financial Perspective (FP), leaving an increased margin of €2,651.0 million under the FP ceiling for Commitments. The reductions are made up of targeted reductions to the proposed increases for specific programmes reflecting the Council's estimate of actual financing needs for 2007, reductions to increases to reflect the quality of certain Activity Statements for upcoming spending and reductions to increases in budgets of decentralised agencies to ensure these are subject to the same budget discipline as other institutions.

    —  In Heading 1 a (Competitiveness for Growth and Employment), commitment appropriations were reduced by €13.9 million and payment appropriations by €176.0 million compared to the PDB, leaving a margin of €135.8 million below the FP ceiling for commitments. This reduction is mainly made up of targeted reductions in increases for specific programmes to reflect the Council's estimate of actual financing needs during 2007. Most noteworthy are the reductions in payment appropriations proposed for:

    —  the Security and Space Research programme (-€50.0 million); and

    —  the Completion of the sixth EC framework programme (-€48.0 million).

  A reduction of €29.1 million and of €22.2 million was made to commitment and payment appropriations respectively on the basis of the quality of Activity Statements. A 2 per cent reduction to the level of commitments and payments proposed for the Lifelong Learning programme make up the bulk of this reduction. The increases proposed for decentralised agencies were reduced by €8.78 million for both commitments and payments.

    —  In Heading l b (Cohesion for Growth and Management), commitment appropriations were not reduced, but the massive increase in payment appropriations was trimmed by €425.0 million. This reduction is split between the completion of Structural Fund and European Regional Development Fund programmes for 2000-2006 (-€345.0 million), the completion of EQUAL programme for 2000-2006 (-€10.0 million), and the completion of specific budget lines of Structural Funds prior to 2000 (-€70 million). These cuts are designed to bring payment appropriations more closely in line with implementation capability, and thereby minimise the budget surplus.

    —  In Heading 2 (Preservation and Management of Natural Resources), commitment and payment appropriations for agricultural expenditure were reduced by €746.4 million and €787.6 million respectively compared to the PDB. This leaves a margin of €1879.9 million below the FP ceiling for commitments. Rural Development spending has not been affected by these reductions, the bulk of which come from:

    —  across the board-reduction in all budget lines dedicated to Interventions in agricultural markets, excluding lines subject to specific reductions (-€365.0 in both commitments and payments),

    —  accounting clearance of previous years' accounts with regard to shared management expenditure under the EAGGF Guarantee Section and under the EAGF (-€205.0 million in both commitments and payments); and

    —  refunds for milk and milk products (-€150.0 million in both commitments and payments).

    —  In Heading 3a (Freedom, Security and Justice), commitment appropriations were reduced by €9.6 million and payment appropriations by €26.8 million compared to the PDB, leaving a total margin of €75.3 million under the FP ceiling for commitments. The overall reduction was mainly achieved through: targeted reductions to specific budget lines where the justification for increases in funding in the PDB was poor (Visa information system, European Refugee Fund and European Fund for Third Country Nationals), and a reduction to Decentralised Agencies, the European Union Agency for Fundamental Rights, Eurojust and Frontex in particular, to take account of implementation capacity.

    —  In Heading 3b (Citizenship), commitment appropriations were reduced by €16.4 million and payment appropriations were reduced by €31.6 million compared to the PDB, leaving a total margin of €49.4 million under the FP ceiling for commitments. This represents reductions to specific budget lines where the justification for funding was poor (Local Actions, Specific actions on priority themes, Completion of Public Health Programme and Transition Facility for new Member States), reductions to subsidies for certain agencies (in particular European Food Safety Authority), and modest reductions on the basis of poor Activity Statements (eg: Developing Cultural Co-operation in Europe).

    —  In Heading 4 (European Union as a Global Partner), commitment appropriations were reduced by €109.6 million and payment appropriations by €185.8 million compared to the PDB, leaving a total margin of €219.6 million below the FP ceiling for commitments. This allows for an increase of €17.5 million for assistance for the reconstruction in Iraq in 2007 compared to the PDB. The reductions were mainly achieved through horizontal top-slicing of big geographical budget lines (totalling €144.3 million for commitments and €179.0 million for payments). Reductions to increases of €5.0 million to commitments and €6.6 million to payments were also made on the basis of poor Activity Statements (International and Financial affairs and European initiative for democracy and human rights), and a modest reduction to the increase in subsidies was applied to the European Training Foundation (decentralised agency). There was a general lack of Council consensus on priorities under this Heading. To achieve the increase in funding for the reconstruction of Iraq, the Government agreed to include the following in the horizontal reduction:

    —  Adjustment Support for Sugar Protocol Countries; and

    —  Co-operation with Developing Countries in Asia.

    —  In Heading 5 (Administration), the big increase in commitment and payment appropriations was reduced by €172.0 million compared to the PDB, leaving a total margin of €290.3 million below the FP ceiling for commitments. This has mainly been achieved by a proposal to delete every second post becoming vacant following the retirement of their incumbents in the period 2007-13. The reduction to the increase proposed for the administration budget is designed to ensure that appropriations for administration are based on a realistic assessment of operation needs, taking into account the increased demands resulting from enlargement while exploiting the possibilities for economies of scale and redeployment of existing staff resources.

    —  There were no changes to the PDB proposal for Heading 6 (Compensations).

  Tables summarising the changes between the PDB and DB are set out in Annex 1 to this letter.

    —  The Government believes the Council's 2007 DB goes a considerable way to meeting its key objectives. In particular the DB maintains budget discipline: it significantly reduces the level of payment appropriations in Headings 1 and 2, to reflect a more realistic forecast of implementation, it has protected increased allocations for Iraq and other UK priority areas (Adjustment Support for Sugar Protocol Countries, Co-operation with Developing Countries in Asia, Humanitarian Aid and CFSP) and it takes a rigorous approach to expenditure in Headings 3 and 5, delivering savings and increased flexibility. In addition, the 2007 DB remains fully consistent with the financial settlement agreed in December 2006 and continues to cater for the needs of enlargement in a budget-disciplined fashion. The Government will continue to pursue its key objectives in the subsequent stages of the 2007 budget process.

AMENDING LETTER NUMBER 1 TO THE PRELIMINARY DRAFT BUDGET 2007

  Amending Letter No. 1 takes account of more up-to-date Member State forecasts of their VAT and GNI bases, Agricultural and Customs Duties, and Sugar Levies (Traditional Own Resources) for 2007. The Advisory Committee on Own Resources agreed these forecasts in Brussels on 19 May 2006. This meeting (held annually) usually takes place before the Commission publishes the PDB but this year this was unable to happen as certain key figures were unavailable. As a result of the rescheduling of this meeting the European Commission was obliged to produce the PDB using old data, with the proviso that this would be amended once the Advisory Committee on Own Resources had met. Amending Letter Number 1 honours this commitment.

7 September 2006


9   For Pound Sterling figures, please refer to the summary table in Annex 1 of this letter. Back


 
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