European Standing Committee B
Tuesday 8 July 2003
[Mr. Joe Benton in the Chair]
Annual Policy Strategy for 2004 and the Preliminary Draft Budget
[Relevant Documents: EU Document No. 7229/03.]
8.55 am
The Paymaster General (Dawn Primarolo): Good morning, Mr. Benton. I am pleased to have the opportunity to discuss the Commission's proposals for the 2004 budget. The Financial Secretary to the Treasury, my hon. Friend the Member for Bolton, West (Ruth Kelly), normally deals with such matters, but she is on maternity leave. I am sure that all members of the Committee will want to congratulate her on the birth of her daughter. In her absence, I shall do my best to assist the Committee in debating the annual policy statement and setting out the Government's priorities.
Today's debate, and the earlier hearing in another place, are important occasions, as they allow the Government to demonstrate to Parliament that, as far as possible, they are applying the same sound financial principles and expectations to the EC budget as they apply to the United Kingdom domestic Budget. As ever, the time between official publication of the budget documents and the budget Council is short. My explanatory memorandum was submitted in the expectation that all the documents would be available in time for this debate, and it is disappointing that a few volumes are still not here, for which I apologise. Nevertheless, I hope that the Committee has found useful those documents that are available, including those in volume 0, the general overview.
As a net contributor to the EC budget, the UK's approach to budget negotiations is based on the principles of budget discipline and sound financial management. In particular, we are keen to ensure that the financial perspective ceilings for 2000 to 2006, established in Berlin in 1999 and recently amended to take account of the enlargement negotiations concluded at Copenhagen last December, are fully respected.
The Government have already begun to engage the Council in discussions on the preliminary draft budget, in ECOFIN and in its budget committee. Our discussions have been based on Commission proposals that, I am glad to say, fully respect each and every one of the financial perspective expenditure limits.
In seeking budget discipline, the Government have three broad objectives. The first is to restrict overall growth in the budget, and to secure an appropriate margin under the relevant financial perspective ceiling. The second is to improve the overall efficiency and effectiveness of EC spending. The third is to accommodate UK priorities, when the case for EC
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intervention is clear, without breach of the ceilings or resort to the so-called flexibility instrument.
I take the opportunity to point out two particular developments in 2004 that the Government strongly support. First, this is the first budget to be presented in an activity-based format. That allows the full cost of economic activity to be highlighted, as well as providing for spending to be linked to objectives and targets that can be benchmarked for effectiveness. Once fully implemented, activity-based budgeting will bring the EC budget process closer to that for domestic spending in the UK, where public spending agreements are a vital tool in ensuring that public money is used to best effect.
Secondly, and equally importantly, this is the first budget for the enlarged Union of 25 member states. The Government are committed to making enlargement successful and to ensuring a fair and responsible budgetary outcome for existing and new member states. The current member states have a special responsibility this year for agreeing a budget both for themselves and for the new member states. Although they do not yet have decision-making powers, the accession countries will be welcome participants in budget negotiations.
Hon. Members will recall from my explanatory memorandum that most EC spending is largely predetermined by decisions made outside the annual budget process—compulsory or treaty-based expenditure and expenditure based on pre-agreed, multi-annual programmes. That leaves only a limited opportunity for annual negotiations. In addition, Members will recall that the budgetary process determines that the European Parliament has the final say on non-compulsory spending levels, further limiting the scope of member states to decide the outcome. Within those constraints, the Government will seek to ensure the best possible outcome for 2004.
The Commission draft budget proposes commitment appropriations for an enlarged EU of 25 of €112 billion, or £73 billion. That represents an increase of 12.6 per cent., or of just 0.7 per cent. after accounting for enlargement. Payment appropriations amount to €101 billion, or £65 billion, which represents a 3.3 per cent. increase or a 2 per cent. fall after accounting for enlargement. Consequently, payments score at 0.99 per cent. of member states' gross national income, which is down from 1.04 per cent. in this year's adopted budget. That is a positive move, but we believe that there is scope for further savings in some categories and for more effective spending, and we will argue for improvements.
We believe that our main priorities for 2004 should be budget categories 4 and 5. In category 4—external actions—enlargement-related changes present an opportunity to improve both the effectiveness and focus of the budget. We want to ensure that a greater share is targeted on low-income countries, where the need is greatest and where grant aid can have the most impact. We also want the flexibility to meet the needs of Iraqi reconstruction and the middle east peace plan.
The annual increase to the category 4 ceiling, the transfer of Turkey and the accession of Cyprus and
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Malta offer potential growth of around €300 million. However, the Commission's preliminary draft budget utilises €214 million of that, much of it by way of increases above programmed levels to neighbouring countries, which leaves a margin of just €86 million. The UK will argue against large increases for well-endowed, middle-income countries and press for a larger margin to provide the flexibility that we need. In category 5—administration—we will press the institutions to fully justify their proposals, particularly on the proposed large increases to staff and buildings. When they cannot do so, we will call for appropriate cuts.
At ECOFIN on 16 July, we will aim to reach agreement with the Parliament, wherever possible, on the basis of our priorities. However, agreement at this first reading stage is unusual. Instead, it is likely that the Council will establish a draft budget that is lower than the Commission proposals in many areas, which will provide a good basis for our further discussions with the Parliament later in the year. We look forward to constructive negotiations between Council and Parliament, with a view to agreeing a budget well within the financial perspective ceilings. I commend the motion to the Committee.
The Chairman: We now have until 9.55 am for questions to the Minister. I remind Members that they should be brief and asked one at a time. There is likely to be ample opportunity for all Members to ask several questions.
Mr. Kelvin Hopkins (Luton, North): Thank you, Mr. Benton, and good morning.
I am pleased to see my right hon. Friend the Paymaster General leading us in today's debate, and I want to ask a question that we ask every year. What are the implications of the preliminary draft budget for Britain's abatement and contributions? Furthermore, what are the implications of other factors, such as enlargement and the fact that the euro has appreciated in relation to sterling in the past year? Does my right hon. Friend have any idea of the implications that those factors will have on our abatement?
Dawn Primarolo: First, I assure my hon. Friend that the abatement negotiated for the United Kingdom is in place and protected. If he will forgive me, I am not sure what the precise figure is for the percentage of the budget before and after the abatement. From memory, I think that it is about 19 per cent. before abatement, and obviously it is a lower percentage afterwards. I will return to that at the close of the debate. What is important in all the negotiations is to secure the continued position of the abatement. After enlargement, it will be important to deal with those issues again.
My hon. Friend asks about the impact of exchange rate fluctuations on our commitments. The range is not significant enough to make a huge difference that would trouble us in those areas.
With regard to the final values of the abatement and the budget, we shall not know the final figures, the total budget or the different headings and categories and therefore what the UK will pay overall and where the abatement fits within that. As my hon. Friend
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knows, the interaction between different categories in the budget also has an impact. For instance, receipts for the UK would have an impact on abatement. However, a clear principle running through all the negotiations has been to maintain the position with the UK, both in the 15 countries and in the 25 countries once enlargement occurs, to protect the UK's abatement.
Mr. John Wilkinson (Ruislip-Northwood): It is good to see you in the Chair, Mr. Benton.
The Paymaster General has said that the draft budget is based on sound financial principles and expectations in line with the domestic budget. Can she explain how the increase in agricultural spending, taking it up to €46 billion, is in the interests of British taxpayers? Does not the common agricultural policy cost the average family of four £26 a week extra on their food budget? How is that in line with sound financial principles, and does not it also beggar the third world?
Dawn Primarolo: As the hon. Gentleman knows, the expenditure ceilings in the financial perspective were set in Berlin in 1999 and in the enlargement negotiations in Copenhagen, which were concluded in December 2002. The current position on agricultural expenditure is bound by those financial perspective ceilings.
The hon. Gentleman raises a wider question about common agricultural policy reform. From the experience of his Government and because he follows these debates closely, he will be aware of the difficulty that has been experienced in trying to achieve significant change in that area. However, a major step forward has now been agreed. It breaks the link between subsidy and production, and reduces trade distortions. We expect expenditure on agriculture to reduce gradually in real terms between 2006 and 2013, because most of the reforms will not be implemented in 2005.
It is difficult to quantify precisely the additional costs, but I can tell the hon. Gentleman that expenditure on the common agricultural policy has declined from 60 per cent. in the 1980s to 40 per cent. today. The Government fully expect that expenditure to continue to fall in real terms as the reforms from 2005 are introduced.
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