Thank you for your Explanatory Memorandum dated 6 June 2007.

  Sub-Committee A discussed the procedure for scrutiny of the 2008 Preliminary Draft Budget at their meeting on 12 June. They have asked me to express our regret that prolonged contact at Official level has suggested that you are unable to give evidence to the Committee this month. The scrutiny of the Preliminary Draft Budget has become a mainstay of Sub-Committee A's annual work programme and is an issue that the Select Committee takes most seriously. The scrutiny of this item, alongside that of the Commission Annual Work Programme and Annual Policy Strategy, is a crucial part of the Select Committee's work examining cross-cutting European issues as they are being developed. We consider it would be inappropriate if there was an override of the scrutiny reserve on this item.

  The Sub-Committee would be happy to accommodate an evidence session with you on any sitting day this month. Should this not be possible then the Sub-Committee would wish to insist on an evidence session in the first week of July.

  The Sub-Committee also noted that it would help their deliberations if the Explanatory Memorandum could be submitted in a more timely manner in future years. They would also find it helpful if a Minister or Officials were able to give oral evidence between the First Reading of the Budget and its final agreement, to update the Committee on the period of negotiations.

13 June 2007

  Thank you for your Ministry's Explanatory Memorandum dated 6 June and for meeting with Sub-Committee A on 5 July. The Sub-Committee have now considered the Preliminary Draft Budget and have cleared the item from scrutiny. As is usual practice, the Committee plans to publish a Report on the Budget in due course.

  We broadly agree with the Government's position and endorse your priorities. We fully support the Government's efforts to ensure that the principles of affordability, efficiency and value for money underpin all proposed expenditure to the EC budget. The Sub-Committee were also pleased to hear that the Government is still minded to focus the Regional Development and Social Funds where they are most needed. In giving evidence, you discussed hoped-for improvements in the draft budget to be agreed on 13 July. We would be grateful if you would write to the Committee after 13 July to update us on progress at Budget ECOFIN.

  As the Sub-Committee discussed with you at the meeting last week, the Committee has particular concerns relating to the form and transparency of the funding of the Galileo Project. We support your stance to refuse to raise the Financial Perspective ceilings to fund the Project. However, we remain concerned that other Member states will not support your position and that the Government's views may not prevail at Transport Council. The Sub-Committee would appreciate regular updates on the progress of this dossier.

  The Sub-Committee also noted that there appear to be a variety of opinions on the form and purpose of the European Institute of Technology. The Sub-Committee strongly opposes the dedication of a contingency fund towards any purpose other than as a reserve for an urgent situation, and so does not support the Commission's planned use of this as a funding mechanism for the European Institute of Technology. We support your stance that funding for the European Institute of Technology should be found by transparent means within the existing Financial Perspective headings, and also urge the Government to work with all stakeholders to agree on the purpose of the Institute.

  The lack of transparency surrounding the funding of the Commission's Agencies remains a concern, and is a subject which we may choose to return to in the future. We would welcome news of any steps you are able to take in Budget ECOFIN to improve monitoring of their management, budgets and output.

  You agreed to write to the Committee with more information regarding the External Borders Funds, which appears to have had its budget frozen; to give more information on the purpose of the "mobility" line of the administration budget and the reason for its significant increase. The Sub-Committee also noted your aim to negotiate a lower number of additional staff for the Commission.

  The Sub-Committee have asked me to emphasise the conclusions of their Report Financial Management and Fraud in the EU. [7]Although this is not directly related to the matter at hand, the Committee noted that some progress has been made in this field. Given the orders of magnitude involved, the Sub-Cominittee urge the Government to show real determination in energising other Member States to scrutinise actively their own expenditure of EU funds.

  Finally, Baroness Cohen and the Sub-Committee's Members have asked me to thank you for giving evidence so promptly after taking up your new post. We look forward to working with you both on this issue and on other dossiers in the future.

11 July 2007

  Thank you for your letter of 11 July clearing the Preliminary Draft Budget from scrutiny and also expressing the Committee's broad endorsement of the Government's position and priorities. I should also thank Baroness Cohen and the Sub-Committee for their thorough questioning and scrutiny. I am pleased to update you on the progress made at Budget ECOFIN on 13 July.

  The Council of the European Union formally agreed the 2008 Draft Budget (DB) of the European Communities at the ECOFIN (Budget) Council on 13 July, following conciliation with the European Parliament. The DB was agreed by Council unanimously and was based on a package put together by the Portuguese Presidency following discussions of the Commission's 2008 Preliminary Draft Budget (PDB) in the Council's Budget Committee.

  My Explanatory Memorandum of 6 June 2007 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 €128,401.2 million in commitment appropriations, and €119,410.3 million in payment appropriations.[8] This represents a reduction of €717 million (or 0.5%) for commitments and €2,122.8 million (or 1.7%) for payments compared to the Commission's PDB. These figures are well within the ceilings set by the multi-annual Financial Perspective (FP), leaving an increased margin of €3,902.0 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 2008, across-the-board reductions to increases for Heading 1a, 1b and 2 taking into account implementation trends, and reductions to increases in budgets of decentralised agencies to ensure these are subject to the same budget discipline as other institutions.

—  UNDER HEADING 1A (COMPETITIVENESS FOR GROWTH AND EMPLOYMENT), commitment appropriations were reduced by €266.4 million and payment appropriations by €548.4 million compared to the PDB, leaving a margin of €343 million below the FP ceiling for commitments. These overall reductions consist of:

—  across-the-board reductions to commitments of €250 million;

—  reductions to the subsidies for decentralised agencies of €16.4 million;

—  a transfer of commitment appropriations for Galileo into the Reserve, pending a decision on the issue; and

—  similar across-the-board reductions for payments.

—  UNDER HEADING 1B (COHESION FOR GROWTH AND EMPLOYMENT), commitment appropriations were not reduced, leaving a margin of €11.1 million. The PDB's proposed increase in payment appropriations was reduced by €498.0 million, consisting of:

—  reductions to budget lines relating to the completion of 2000-2006 programmes, particularly the European regional Development Fund, of €298.8 million; and

—  reductions to 2007-2013 programmes, taking into account completion and implementation rates, of €199.2 million.

—  UNDER HEADING 2 (PRESERVATION AND MANAGEMENT OF NATURAL RESOURCES), commitment and payment appropriations for agricultural expenditure were reduced by €553.2 million respectively compared to the PDB, leaving a margin of €3,077.3 million below the FP ceiling for commitments. Rural Development spending has not been affected by these reductions, which come from:

—  an across-the-board commitments and payments reduction of €350 million for interventions in agricultural markets, except for budget lines relating to food programmes, the free distribution of fruit and vegetables and school milk;

—  a targeted commitments and payments reduction of €200 million to the budget line relating to the clearance of accounts; and

—  reductions to the subsidies for decentralised agencies of €3.2 million.

—  UNDER HEADING 3A (FREEDOM, SECURITY AND JUSTICE), commitment appropriations were reduced by €4.3 million and payment appropriations by €18.3 million compared to the PDB, leaving a total margin of €60.3 million under the FP ceiling for commitments. These overall reductions were achieved through:

—  a targeted reduction to commitments for the Prince programme of €1 million;

—  a targeted reduction to payments for budget lines relating to the European fund for the integration of third country nationals, the European return fund, Fundamental rights and citizenship, and Fight against violence (Daphne) or €15 million in line with absorption capacities and past implementation rates; and

—  reductions to the subsidies for decentralised agencies of €3.3 million.

—  UNDER HEADING 3B (CITIZENSHIP), commitment appropriations were reduced by €14.6 million and payment appropriations by €44.6 million compared to the PDB, leaving a total margin of €31.1 million under the FP ceiling for commitments. This represents:

—  targeted reductions to commitments and payments for the budget lines, Multimedia actions, Information for the media and specific actions under the "Going Local" communication article of €5 million;

—  targeted reductions to payments for the budget lines Media 2007, Culture 2007-2013, and Youth in action of €30 million; and

—  reductions to the subsidies for decentralised agencies of €9.6 million.

—  UNDER HEADING 4 (THE EU AS A GLOBAL PARTNER), commitment appropriations were increased by €217.6 million and payment appropriations reduced by €364.2 million (including a reduction of €239.2 million to the Emergency Aid Reserve) compared to the PDB, leaving a total margin of €1l2.2 million below the FP ceiling for commitments. This allows for increases in commitment appropriations of €80 million for assistance to Palestine and of €180 million for assistance to Kosovo, both of which are entered in the Reserve. The reductions were mainly achieved through:

—  targeted reductions to commitments for the Instrument for pre-accession (€18.5 million), the evaluation of results, the co-ordination and promotion of awareness and the Prince programme (€10.5 million) and regional and horizontal programmes (€13.4 million) taking into account absorption capacities and past implementation rates;

—  targeted reductions to payments for the same budget lines and those relating to transition and institution-building, and the completion of former co-operation with Turkey, taking into account absorption capacities and past implementation rates totalling €125 million; and

—  a reduction of €239.2 million in payments to the Emergency Aid Reserve.

—  UNDER HEADING 5 (ADMINISTRATION), the large increase in commitment and payment appropriations proposed by the PDB was reduced by €96.2 million, leaving a total margin of €266.8 million below the FP ceiling for commitments. The approach taken by Council was to set an appropriate level for the administrative budget of each institution taking into account their own specificities and their real and justified needs while accepting all new posts relating to the 2004 and 2007 enlargements. In particular, the reductions were achieved through:

—  limiting the global increase of the Council's own budget to 0.2%;

—  applying for other institutions a 2% reduction taking into account efficiency gains and the impact of inter-institutional co-operation;

—  retaining specific decreases on individual budget lines for some institutions taking into account real needs;

—  increasing the standard flat rate abatement on salaries for some institutions, taking into account their current vacancy rate;

—  accepting only a few new posts for new tasks on the basis of justified needs.

—  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.

  During a conciliation meeting between the Council and the European Parliament, five Joint Statements relating to the budget were agreed. These concerned: Structural and Cohesion Funds and Rural Development 2007-2013 programmes; Recruitment in Relation to the 2004 and 2007 Enlargement; Decentralised Agencies; Executive Agencies; and Assigned Revenues. The Government is supportive of these statements, which call for a greater degree of transparency, sound financial management and budget discipline in the areas they concern.

  The Government believes the Council's 2008 DB goes a considerable way to meeting its key objectives for the negotiations. In particular the DB maintains budget discipline: it significantly reduces the level of payment appropriations in Headings 1 and 2, to bring the budget closer to the likely implementation rate and to reduce the likelihood of another large surplus. It also protects allocations for Afghanistan and Iraq and other UK priority areas (Adjustment Support for Sugar Protocol Countries, Cooperation 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 2008 DB remains fully consistent with the financial settlement agreed in December 2005 and continues to cater for the needs of enlargement in a budget-disciplined fashion. Whilst the Government would have welcomed a more ambitious reduction to administrative expenditure, the DB represents a balanced overall package to put to the European Parliament, and the Government will continue to pursue its key objectives in the subsequent stages of the 2008 budget process.

25 July 2007

  Thank you for your letter dated 25 July 2007 regarding the 2008 Draft Budget. This was considered by Sub-Committee A at their meeting on 9 October. The Sub-Committee are grateful for this update, and look forward to receiving details of progress in due course.

10 October 2007

8   For Sterling equivalents of key figures quoted, please refer to the tables in Annex 1.  Back

9   The margin for Heading 1 (sub-heading 1a) does not take into account the appropriations related to the European Globalisation Adjustment Fund (€500m). Back

10   Excludes €234.5m from the Emergency Aid Reserve. Back

11   The margin for Heading 1 (sub-heading 1a) does not take into account the appropriations related to the European Globalisation Adjustment Fund (€500m). Back

12  Excludes €234.5m from the Emergency Aid Reserve.   Back