Examination of Witnesses (Questions 1-19)
Ms Kitty Ussher, Mr Jean-Christophe Gray and Mr Paul
Bunsell
11 JUNE 2008
Q1 Chairman: Can I start with the
usual precautions, that this session is being recorded by engineers
from Westminster Sound, so it is on the record. It will be recorded
to a webcast. We ask you all to use the microphones, but I am
sure you were going to do that anyway. The witnesses will get
a transcript of what is said during the session. Welcome, Minister.
Thank you very much for coming. I know it is a busy afternoon.
We are slightly depleted because our Members are downstairs trying
to avert disaster on the European Treaty.
Kitty Ussher: We are very grateful.
Chairman: I do not know that the vote will be
until much, much later.
Lord Watson of Richmond: It is a very emotive
noun which you used!
Lord Trimble: Some of them are down there trying
to achieve it!
Q2 Chairman: Some of them are down
there trying to achieve it, and some of them are possibly down
there trying to achieve other things! At all events, welcome,
Minister. I gather you would like to introduce your people and
make an opening statement. That would be great, whichever way
you would like to do it.
Kitty Ussher: Thank you very much, Baroness
Cohen. It is a pleasure to be here again. It is a rather odd feeling—well,
quite a good feeling for me, because I do not know if you recall
when I was in this chair last year I think I was three days into
the job. So I feel I have come full circle and am now extremely
mature and experienced, and thanks to you for helping me to feel
like that. Time will tell. I have respect for the deliberations
which your Committee undertakes and for your analysis and expertise
in this area. I understand, just for the record, that this hearing
is scheduled slightly earlier than is usual, I think because of
dire constraints running up to the Budget ECOFIN on 17 July, which
I hope to attend, but it is very useful, obviously, and important
for me to have this, and indeed for Parliamentary scrutiny and
democracy for this session to take place in advance of that. In
my team with me I have Jean-Christophe Gray, who is the team leader
of the Treasury's EU finances team, and Paul Bunsell, who is our
policy adviser with responsibility for the EU annual budget and
financial management. I wanted to perhaps set the context of this
year's budget negotiations out for you and then perhaps make a
few remarks as to what we, as the British Government, are hoping
to achieve. This may pre-empt some of the questions which come
and if I can enjoy your patience at this time, it may actually
save time a little later. First of all, the Commission's proposals
for the 2009 Budget will, as in every year, be heavily scrutinised
and challenged by this Government where appropriate. This year's
budget negotiations will also incorporate issues associated with
preparing to implement the Lisbon Treaty concerning matters affecting
the annual budgetary procedure and any institutional innovations
introduced by the Treaty, such as the European External Action
Service, but it is very important in that context to say that
these are general technical level discussions in Brussels to prepare
for the implementation of the Treaty. They have begun and I think
it is sensible that they should do and that we should be ready
to implement the Treaty if all countries have ratified, but as
you have alluded to yourself, we have not actually fully ratified
it yet and we have made it clear throughout and agreed with our
EU partners that no final decisions on Treaty implementation can
be taken until ratification across the EU is confirmed. Our focus
is obviously on ratifying the Lisbon Treaty and we need to be
sensitive to that on-going process, and of course in other Member
States too. Ireland is holding its referendum, hopefully, tomorrow.
The Government's overall and consistently stated objective for
the EC Budget is to ensure that expenditure at the EU level provides
value for money, is affordable, well-managed and that the Budget
is fairly financed by Member States. That will continue to be
our approach towards the 2009 EC Budget and for the range of other
issues that will be at play in the negotiations. In line with
the agreed 2007-2013 financial framework which sets budget ceilings
for annual expenditure and for the budget headings, the budget's
ceiling for payments for the 2009 Budget is lower than that for
2008. There are financial programming reasons for this and it
will not mean that the UK will be taking any less of a rigorous
approach in advocating budget discipline and seeking to contain
budget growth in light of implementation forecasts and absorption
capacity. So our high level priorities for the 2009 EC Budget
will therefore be ensuring that total payment appropriations are
set with the objective of preventing a large budget surplus arising,
ensuring that the financial framework ceilings are adhered to
with adequate margins under budget heading ceilings to provide
for unforeseen expenditure needs. At the more detailed level,
we will continue to bear down on areas of the budget where the
Government questions value for money, particular, as always, agriculture
and administration expenditure and to support sufficient financing
of external expenditure on development and cooperation including
on food aid and CFSP missions. With reference to the very sound
conclusions of your report of last year on the 2008 EC Budget
and on administration expenditure in particular, I can confirm
that the Government will continue to question the Commission on
what efforts are being made to find efficiency savings and economies
of scale in administration spending. Recent Council conclusions
in relation to the discharge of the 2006 EC Budget, which called
for the better financial management of EU agencies, represent
an encouraging development on this front and the Government will
continue to work with like-minded Member States to examine the
efficiency of agencies and EU staffing levels more generally.
I want to now, if I may, turn briefly to the issues associated
with the Lisbon Treaty, which I mentioned earlier, which are expected
to impact on the 2009 Budget negotiations, and I again make the
point that we are concerned with preparatory work and that no
final decisions on Treaty implementation can be taken until ratification
in all Member States is confirmed. The first set of issues will
involve preparations for a new annual budgetary procedure, as
foreseen by the Treaty. The second set of issues will involve
budgetary planning for the institutional innovations introduced
by the Treaty, such as the European External Action Service (EAS),
the new High Representative for Foreign Affairs and Security Policy
and the new European Council President. The Commission has agreed
with the Council that presentation of the provisional budgetary
allocations for these should be deferred to the autumn. It will
be our aim to keep the associated costs to a minimum and to press
for any additional resource requirements to be found from re-prioritisation
within the Administration Budget heading. In the context, if I
might add, of the wider 2008/9 Budget Review, the UK has clear
priorities, as set out in the 2007 Global Europe pamphlet. They
are far-reaching reform of the CAP, a significant increase in
the percentage of structural and cohesion funds spent on poorer
Member States and a reorientation of the Budget towards the challenges
of globalisation, including promoting R&D and innovation,
international development and addressing climate change. Our approach
for the 2008/9 Budget Review is guided by three principles, that
the EU should act where there are clear additional benefits, but
where EU level action is appropriate it should be proportionate
and flexible and that there should be the highest levels of financial
management and administration. I was very glad, my Lord Chairman,
that your Committee gave its endorsement of these principles and
I can assure you I will continue to make the case for our Budget
discipline priorities and these principles when I meet my Budget
ECOFIN colleagues in July. Thank you for your patience in letting
me make these opening remarks and I look forward to the conversations
which follow.
Q3 Chairman: Thank you very much,
Minister. Do you broadly consider that the proposals before us
represent value for money?
Kitty Ussher: No, in that we think there is
more that can be done. We think there is value for money in some
key areas. Examples are traditional British priorities, heading
1a, for example, the Seventh Research Framework programme. We
think this is useful in improving research and development activity
across the EU. We think heading 1b is helpful to the extent that
it facilitates economic development of less wealthy Member States.
Parts of heading 3a (Freedom, Security and Justice) play a worthwhile
role in complementing national efforts to combat international
terrorism and manage migration flows and to share best practice
in combating crime. We have traditionally supported heading 4,
where spending helps to meet millennium development goals, but
we think—you would expect me to say this, and it remains
the case—that value for money in other areas remains questionable.
We think the Common Agricultural Policy, particularly in the context,
perhaps, of high food prices, is something which needs fundamental
reform and we will continue to push that. We also feel that it
is not a good use of European taxpayers' money that 60% of the
structural fund spending goes to wealthier Member States and these
are points which we will continue to push.
Q4 Chairman: You will perhaps know
that we are currently concluding a report on the future of structural
funds and there is some discussion within the Committee as to
the extent to which the British Government and some of the richer
states would in effect be prepared to give up substantial sums
of money, we are speaking about up to £1 billion per year
for the United Kingdom, to get that money to the poorer states
in the EU. That was the discussion we were attempting to resolve
immediately before you arrived. We have not resolved it, but I
would be interested indeed, Minister, whether you think that not
only us but the other net contributory wealthy states would indeed
be prepared to give up really quite a lot of net receipts in order
that the poorer states might benefit.
Kitty Ussher: I am afraid I cannot immediately
solve the problem you were addressing a few minutes ago but, as
I said this time last year, we feel we need to take a principled
point here and that richer Member States have ways of addressing
some of these fundamental economic disparities which are perhaps
not available to poorer Member States and it is the responsibility
of richer Member States to take that broader principled view.
So we will be pushing in this area for fundamental reform, and
indeed the British Government said as much a number of years ago,
in 2003, when we set out our negotiating priorities. That was
at an earlier stage in the relevant negotiations, but it set out
what our view was. I will be extremely interested to read the
conclusions of your forthcoming report.
Chairman: Thank you, Minister. I am not sure
if that was helpful, but it was kindly meant.
Q5 Lord Watson of Richmond: Given,
Minister, your initial answer to the first question, do the Budget
proposals represent value for money, which was a monosyllabic
"No," could I ask you, therefore, whether you are actually
content with the total levels of expenditure proposed by the Commission.
They do not differ substantially from last year, but are you content
with the total levels? You may think they are being spent on the
wrong things, but are you content with the total levels?
Kitty Ussher: The total levels were set out
in the seven year financial perspective. The way to look at this
is that it is not simply an issue of what is the total amount
being spent but what is the value for money of the underlying
purpose of the expenditure, so it needs to be taken in the round.
I guess there is an aspect of what is before us that it is important
to recognise that the overall level has actually come down, and
in that sense, in that we want to create a prioritisation, it
could be seen at a headline level to be encouraging, but I think,
as I said in my opening remarks, that is actually a function of
the way programmes are managed over several years and what we
are seeing is the beginning of the uptake of the new programmes
from this financial perspective when the delays in the programmes
from the previous one have reached their natural conclusions.
You understand my point. So in that we want to bear down on unnecessary
expenditure, the headline answer would be, yes, we are glad that
the Budget is less this year, but that does not necessarily mean
to say that we should not be focusing far more on making sure
that it is value for money. So I would say it is not the overall
level, it is how it is spent that is important. As I said in my
answer to my Lord Chairman's first question, we think there are
some areas where it can be spent more effectively.
Q6 Lord Watson of Richmond: Can I
just ask one supplementary to that? However, in terms of how this
Budget is perceived, particularly by public opinion, albeit the
levels have slightly come down, if we ended up with one of the
things you have stated as something we should avoid, namely a
large surplus, would that raise fundamental questions about the
totality of the Budget at the end? Do you think at this level
a large surplus is a likely outcome?
Kitty Ussher: I do not think a surplus as large
as some of the ones we have seen in previous years is likely,
and I think that is a good thing. The important point here is
that we want budget ceilings to be real, we want there to be proper
financial management and control and clear prioritisation. So
obviously a little bit of a surplus is good in that it gives you
a margin and some headroom for unforeseen events, but if you have
a situation where you are routinely having large surpluses -
Q7 Lord Watson of Richmond: Then
it raises fundamental questions.
Kitty Ussher: Yes, something has gone wrong
in the budgeting planning process. I think we had €15 billion
in 2001 and last year it was €1.5 billion, so that is a clear
improvement. I think it is an indicator that someone has got their
sums right if the surplus is not enormous.
Q8 Lord Watson of Richmond: Whereas
in 2001 they definitely got them wrong?
Kitty Ussher: I think that is extremely clear,
yes.
Q9 Lord Moser: These budgets, of
course, are framed in today's prices, which is inevitable, and
by comparison with last year's the Budget is not very different
from last year. What interests me is that for the first time for
some years Europe—not least Europe, the world, but Europe
too—is facing fantastic economic uncertainties, not least
in inflationary terms. I remember from my days in Whitehall we
tried to get cleverer at forecasting the sensitivity of budgets
depending on what happens to economies, not least inflation, so
I take all these budgets with a very great pinch of salt now,
not least because of the inflationary uncertainty. I am just interested
in whether any work has been done by the Treasury or anywhere,
or in Brussels, to add some margins of error to what is before
us.
Kitty Ussher: Yes. It is not our view that the
recent increases in oil and food prices, for example, throw the
budgets out of kilter. There may be policy implications from those
economic developments. Perhaps I can just defer to Jean-Christophe?
Mr Gray: One example is the impact of high food
prices. As a result of higher food prices, there may be less requirement
for market intervention through the Common Agricultural Policy.
So it is possible that throughout the course of 2009 there is
some surplus in that area. One of the things we will be taking
into account when we are challenging the assumptions in here under
heading 2 is that very issue. So I would give that as one example
where there may be some consequences.
Q10 Lord Moser: I do not want to
go on about this, but in one sense every single line in these
budgets is vulnerable. Every single expenditure is vulnerable
to changes. What is different between now and a year ago is that
we really face some very likely major changes, especially in pricing
in inflation, so I am rather surprised to hear you say that it
is unlikely to affect it very much, whatever happens to European
inflation.
Kitty Ussher: Obviously, the Commission has
economists and macroeconomic forecasting takes place within the
Commission, obviously, and will be used to inform their own budget
projections. I am not sure, to be honest, if the precise mechanisms
have taken that into account. I am also not sure that inflation
levels are so high as to throw it out of kilter completely, but
perhaps, my Lord Chairman, we can provide a note on that point
to reassure you.
Lord Moser: Thank you.
Q11 Lord Trimble: Before I come to
the substance of this, may I just interject? Speaking purely personally,
I am delighted by the principled stance the Government is taking
on regional policy. I hope the Committee will be able to do something
to support that. However, I notice in paragraph 41 of your paper
you say, "The Government's primary aim in the upcoming negotiations
will be to respect agreed and established budgetary principles,"
and in particular you refer to global appropriations being based
on "realistic implementation forecasts". That is partly,
of course, to avoid surpluses. Do you think the Commission is
still making unrealistic forecasts?
Kitty Ussher: I think they are better than they
were, but I think we should be ever vigilant. I also think that
the scrutiny and questioning which the British Government has
historically provided has been shown to have had a positive effect.
Q12 Lord Trimble: Can you give us
some examples of the unrealistic implementation forecasts which
you think are still in the process?
Kitty Ussher: I am sure I can. Under heading
3a (Freedom, Security and Justice) is Solidarity and Management
of Migration Flows. It looks like the implementation rate is around
30%, which obviously proves they do not get their forecasts right,
and other parts of heading 3 as well, Fundamental Rights and Justice,
at around 22%.
Q13 Lord Trimble: Expenditure compared
with the forecasts were 22% and 30%?
Kitty Ussher: I will defer to the expert.
Mr Bunsell: Heading 3a is an area of poor implementation.
Last year, just to give you an example of that, the solidarity
and management of migration flows had an implementation rate of
29.6% and fundamental rights and justice had an implementation
rate of 22.7%. In fact overall the implementation over that specific
sub-heading was in the area of about 42% and yet we are still
seeing increases suggested in this area for 2009. So this is an
area we will be scrutinising very closely.
Q14 Lord Trimble: That is a remarkably
low implementation rate, is it not?
Mr Bunsell: Yes, it is remarkably low. It is
the lowest across the budget.
Kitty Ussher: We will be using these figures
to make our points very strongly.
Lord Trimble: Thank you.
Q15 Lord Moser: I do not make a habit
of these supplementary questions, but one more if I may on this
subject of scrutiny, and so on. There is a reference somewhere,
Minister, but I cannot find it now, that the task at this end
lies with the Treasury, which must be right, for scrutiny of the
Budget, but presumably individual Whitehall departments do their
bit? The reason I ask is because I amuse myself (if that is the
right term) by going through these things to see what has happened
to decisions I was part of, or discussions I was part of when
I was on another European Union Sub-Committee, the Social Affairs
Sub-Committee. I looked up, for example, what happened to the
very precise point which we spent weeks discussing, the proposal
for the European Institute of Innovation and Technology which
Brussels started with. We were rather against it on our Sub-Committee.
This is paragraph 3.1.5. Colleagues from Whitehall, the Education
Ministry, whatever it is now called, also had a great interest
in it. It comes up here at €5.8 million. It is not a big
sum, but has somebody actually gone through all these detailed
figures, whatever is discussed in committees, and so on? Is every
detailed figure in here like that one? Do you see my question?
Kitty Ussher: Not entirely.
Q16 Lord Moser: My question is, our
fellow European Sub-Committees seem to agree with the Department
of Education (as I think it was called) that this was a bad project.
It ends up here with only €5.8million. I am interested in
the scrutiny process, that is all.
Kitty Ussher: The process requires an enormous
amount of coordination—not the scrutiny process but the
actual executive decision-making process obviously requires an
enormous amount of coordination and I am regularly talking to
my counterparts in departments to work out what our priorities
should be. In terms of the scrutiny of this Committee, I think
it is extremely effective and certainly my experience as a Minister
is that your report and some of the transcripts of the evidence
hearings do have a huge impact on the way the Whitehall machinery
(if I can crudely characterise it as such) approaches such questions.
On the EIT, we do still have some concerns as to how it was proposed
and implemented. We had quite a lot of success in actually renegotiating
parts of the package, which meant that when it was finally presented
we thought it was, on balance, a good thing and financed in just
about an acceptable way, and that was the result of a lot of hard
work.
Q17 Lord Moser: I do not want to
waste your time. It is more the process point.
Kitty Ussher: Yes. As a Minister, I feel that
the process is real and holds us to account and makes us portray
and question our own priorities in an extremely effective way
and I am grateful to you for posing the question.
Q18 Lord Woolmer of Leeds: Good afternoon,
Minister. On page 29 of the Preliminary Draft Budget the Commission
say that "climate change is expected to remain at the top
of the policy agenda" in the European Union, not just reducing
greenhouse emissions but also "adaptation to the negative
effects of climate change" and I would like to really follow
one or two things through from that. Clearly, the European Union
has an important role to play in regulatory frameworks but here
we are largely talking about more explicit expenditures on positive
projects, and so on. My broad question is whether you feel, given
the scale and urgency of climate change issues, the expenditure
programmes at the European level are satisfactory in scale and
urgency in addressing the various issues?
Kitty Ussher: I think it is a very real and
pressing challenge, but simply translating that into requiring
a large budget line does not automatically logically follow. There
is a lot of scope for individual Member Governments. There is
also, particularly, a scope for EU action in this area. That does
not necessarily mean that that needs to be an enormous amount
of spending. As an example, I think Europe is leading the world
in carbon trading through the Emissions Trading Scheme and yet
there is not an enormous direct spend attached to that project.
But it is clearly an area where we need to work internationally
and whilst there are domestic initiatives in this area, they cannot
solve the problems by themselves. Another thing I am quite keen
to say on the record around the EU Budget proposals for climate
change is that we feel the Commission can do more to consolidate
the various different relevant projects in this area. It is almost
that different initiatives are scattered throughout the EU budgets
and perhaps if they are brought together in some consolidated
way, either as part of the normal Budget or in some kind of note
form, it might be easier to see how much of the EU Budget was
being spent in this area, which one would presume would lead to
a higher number than is currently available.
Q19 Lord Woolmer of Leeds: I do not
want to disagree with you, but something being important does
not mean to say huge sums have to be spent on it, but nevertheless
some money has to be spent on it. Has the Government formed an
estimate of how much of the Commission's proposed total spend
is on climate change related issues, given the great importance
our own Government appears to give to these matters?
Kitty Ussher: It is quite hard, actually, to
come up with a precise number on climate change, precisely for
the reason I mentioned, in terms of what the EU Budget is spent
on. That is why we encourage greater transparency in this area.
But it is clear where it sits, under heading 1a under the framework
programme. Obviously, there is a large amount of R&D work
going into climate change initiatives. Heading 2 funds adaptation
projects to reduce greenhouse gas emissions, to develop green
technologies and work for the development of necessary IT structures
to support things like the European Emissions Trading Scheme,
as I have just mentioned. Heading 4, obviously, under sustainable
management of the environment, has got a number of relevant initiatives.
It is probably worth making the general point that because we
think the Common Agricultural Policy needs dramatic reform, we
would like to see a smaller proportion of the EU Budget going
on that and a larger proportion going on genuine issues which
require cross-border collaboration such as climate change.
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