APPENDIX 3: THE ANNUAL EUROPEAN BUDGET
CYCLE
Budgetary Procedure and compulsory expenditure
The budgetary procedure is set out in Article 272
of the Treaty establishing the European Community, which stipulates
the sequence of stages and the time limits which must be respected
by the two arms of the budgetary authority which together establish
the annual budget: the Council of Ministers (acting by qualified
majority) and the European Parliament.
Under the present budgetary procedure, the Council
has the final say on compulsory expenditure. This is spending
that is a direct result of Treaty application or of acts adopted
in accordance with the Treaty. In practice this mainly means spending
on agricultural guarantees. The European Parliament has the final
say on all other categories of spending, which are defined as
non-compulsory expenditure. Examples of non-compulsory expenditure
include spending on regional policy, research policy and energy
policy.
If the Lisbon Treaty is implemented, changes will
be made to this procedure. Most significantly, the distinction
between compulsory and non-compulsory expenditure will be abolished
and the Council and Parliament will have to reach agreement on
all parts of the budget. In our impact assessment of the Lisbon
Treaty, we concluded that this change would increase transparency
and make the agricultural budget more open and balanced between
market related expenditure and funding for rural development.[10]
The Lisbon Treaty also introduces a "subsidiarity
check" which allows Member State Parliaments to express concerns
on subsidiarity directly to the institution which initiated the
proposed legislation. Member State Parliaments working together
can request a review of legislative proposals. We do not expect
this procedure to apply to the budgetary process outlined below,
and asked the Minister if the Government agreed. The Minister
said that the Government did not have "formal legal resolution"
of the issue yet, but that their initial analysis was that the
subsidiarity check would apply to the making of policy rather
than its implementation through the budget process (QQ 35-36).
The stages of the annual budget
In practice,[11]
the stages in the negotiations over the annual budget are as follows:
(1) The Commission draws up a Preliminary Draft Budget
(PDB) in May;
(2) The Council conducts its first reading of the
PDB in July and establishes a Draft Budget;
(3) The European Parliament conducts its first reading
in October on the basis of the Council's Draft Budget;
(4) In November, the Council conducts a second reading
on the Draft Budget to consider any amendments or proposed modifications
by the European Parliament; and
(5) In December the European Parliament reviews the
Council's proposals and adopts the Budget.
This report deals with the Preliminary Draft Budget
as issued by the Commission on 6 May 2008. This version of the
Budget represents the first stage of the procedure and provides
the basis for subsequent negotiations between the Council and
the European Parliament. Following the establishment of the Draft
Budget at the 17 July Economic and Financial Affairs Council the
negotiations will continue along the following lines.
The Council's Second Reading
After the Parliament's first reading, a delegation
from the Parliament attends a conciliation meeting with the Council
prior to the Council conducting its second reading in early November.
The Draft Budget is amended in the light of the European Parliament's
amendments (for non-compulsory expenditure) or proposed modifications
(for compulsory expenditure). As a general rule, the Council's
decisions on second reading determine the final amount of compulsory
expenditure: unless the entire Budget is subsequently rejected
by the European Parliament, the Council has the "last word"
on this category of expenditure. The Draft Budget as amended is
then returned to the European Parliament.
The European Parliament's Second Reading and the
adoption of the Budget
In December the European Parliament reviews non-compulsory
expenditure, for which it can accept or refuse the Council's proposals.
If there is agreement, the President of the European Parliament
then declares the Budget adopted and it can be implemented; alternatively
the Parliament may reject the draft budget and ask for a new draft
to be submitted.
Resources for the EC Budget
The revenue side for the annual EC Budget has four
main sources, collectively known in the Community as the '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.
Under Article 269 of the Treaty establishing the
European Community, 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.
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 2007, we
supported this development; we found that no new form of taxation
put to us provided the same level of clarity and certainty as
the GNI-based resource.[12]
10 European Union Committee, 10th Report (2007-08):
The Treaty of Lisbon: an impact assessment (HL 62). Back
11
Article 272 of the Treaty establishing the European Community
contains later backstop dates. Back
12
European Union Committee, 12th Report (2006-07): Funding The
European Union (HL 64). Back
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