Annex 2
GLOSSARY
ABATEMENT
The UK's VAT-based contributions are abated
according to a formula set out in the Own Resources Decision.
Broadly this is equivalent to 66% of the difference between what
the UK contributes to the EC Budget and the receipts which it
gets, subject to the following points:
— the abatement applies only in respect
of spending within the EU. Expenditure outside the EU (mainly
aid) is excluded;
— the UK's contribution is calculated
as if the budget were entirely financed by VAT; and
— the abatement is deducted from the
UK's VAT contribution a year in arrears.
ACTIVITY-BASED
BUDGETING (ABB)
ABB was introduced in 2002 to improve decision-making
by ensuring budget allocations more closely reflect pre-defined
political priorities and objectives. Similar to Public Service
Agreements in the UK, ABB requires the EC Budget to be based on
a clear justification for intervention and an evaluation of past
performance. It also requires SMART (Specific, Measurable, Achievable,
Realistic and Time-bound) objectives and future performance targets
that focus on delivering value for money for the EU taxpayer.
ACTIVITY STATEMENTS
The presentation of performance information
for each area of activity of the European Union, providing the
main elements justifying the level of resources requested by the
Commission in the PDB. The statement includes details of the resources
allocated to the activity, as well as associated objectives, indicators,
outputs and outcomes.
THE ANNUAL
BUDGET PROCEDURE
The Community's financial year runs from 1 January
to 31 December. The rules governing decisions on the EC. Budget
are set out in Article 272 of the EC Treaty and in the inter-Institutional
Agreement. The timetable is as follows:
— establishment of the preliminary
draft Budget by the Commission, normally in May;
— establishment of the draft Budget
by the Council in late July;
— first reading by the Parliament in
late October;
— second reading by the Council in
mid-November; and
— second reading by the Parliament
and adoption of the Budget in mid-December.
COMMITMENT AND
PAYMENT APPROPRIATIONS
The budget distinguishes between appropriations
for commitments and appropriations for payments, Commitment appropriations
are the total cost of legal obligations that can be entered into
during the current financial year, for activities that, in turn,
will lead to payments in the current and future years. Payment
appropriations are the amounts of money that are available to
be spent during the year arising from commitments in the budget
for the current or preceding years. Unused payment appropriations
may, in exceptional circumstances, be carried forward into the
following year.
COMPULSORY AND
NON-COMPULSORY
EXPENDITURE
EC expenditure is regarded as either "compulsory"
or "non-compulsory". Compulsory expenditure is expenditure
necessarily resulting from the Treaty or from acts adopted in
accordance with the Treaty. It mainly includes agricultural guarantee
expenditure, including stock depreciation. The Council has the
final say in fixing its total.
The European Parliament has the final say in
determining the amount and pattern of non-compulsory expenditure.
The growth of this expenditure is governed by the "maximum
rate of increase". Article 272(9) of the EC Treaty provides
a formula for determining this rate, unless the budgetary authority
agrees an alternative figure. Under the Inter-Institutional
Agreement the Council and Parliament agree to accept maximum rates
implied by the Financial Perspective ceilings.
FINANCIAL PERSPECTIVE
The Financial Perspective (FP) forms the framework
for Community expenditure over a period of several years. The
FP for 2007-13 sets expenditure ceilings for six distinct expenditure
headings (Sustainable Growth, Preservation and Management of Natural
Resources, Citizenship, Freedom, Security and Justice, The European
Union as a Global Partner, Administration, and Compensation),
as well as global ceilings for commitments and payments. The Budgetary
Authority (Council and European Parliament) is bound by these
ceilings in the annual budget negotiations.
FINANCIAL STATEMENT
The presentation of financial data including
balance sheets, revenue and cash flow statements, or any supporting
statement that is intended to communicate an entity's financial
position at a point in time and its results of operations for
a period then ended.
FLEXIBILITY INSTRUMENT
The Flexibility Instrument was established under
paragraph 24 of the 1999 Inter-institutional Agreement, which
allows for expenditure in any given budget year of up to €200
million above the FP ceilings established for one or more budget
headings. Any portion of the Flexibility Instrument unused at
the end of one year may be carried over for up to two subsequent
years, but the Flexibility Instrument should not as a rule be
used to cover the same needs two years running, The Flexibility
instrument is intended for extraordinary expenditure and may only
be used after all possibilities for reallocating existing appropriations
have been exhausted. Both arms of the Budgetary Authority must
agree to a mobilisation of the Flexibility Instrument following
a proposal from the Commission.
INTER-INSTITUTIONAL
AGREEMENT
The Inter-Institutional Agreement (ll.) is a
politically and legally binding agreement that clarifies the EC's
budgetary procedure. Under the Treaty, the Council and the European
Parliament have joint responsibility for deciding the EC Budget
on the basis of proposals from the Commission. The HA sets out
the way in which the three institutions will exercise their responsibilities
in accordance with the Treaty, and their respect for the revenue
ceilings laid down in the Own Resources Decision.
OWN RESOURCES
DECISION
The existing arrangements for financing the
EC Budget are set out in the Communities' Own Resources Decision
(ORD.). The current ORD. was agreed in September 2000, entered
into UK law in 2001 and took effect in 2002. It sets an own resources
ceiling on the amount the Communities can raise from Member States
in any one year. The ceiling is currently fixed at 1.24% of EU
GNI for payments and 1.31% for commitments. As the Communities
are not allowed to save or borrow, revenue must equal expenditure.
Budget payments are therefore limited by the amount of Own Resources
that can be called up from Member States.
The ORD lays down four sources of Community
revenue, or "own resources":
— Customs duties including those on
agricultural products;
— Contributions based on VAT; and
— GNI-based contributions.
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