European Communities (Budget)

Part of the debate – in the House of Commons at 5:01 pm on 4th December 1990.

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Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury 5:01 pm, 4th December 1990

My hon. Friend is right to say that it is not a question of a clean and straightforward reduction, as has been suggested. Equally, he will be aware that a substantial part of the 30 per cent. has already been harvested—if that is the right word in the circumstances—reflecting the changes in the common agricultural policy since 1986.

I can now provide for the hon. Member for Newham, North-West (Mr. Banks) the sterling equivalents for the figures that I gave earlier on the first revision to the financial perspectives in respect of eastern Europe. The figure for 1990 was £140 million, for 1991 it is £950 million, and for 1992 it is £1,035 million, at a conversion rate of £1 to 1·435 ecu, which is the central exchange rate mechanism rate.

In September 1990, the Commission proposed a further revision to take account of assistance to the front-line states in the Gulf conflict: Egypt, Jordan and Turkey. It was proposed to raise the ceiling for category 4 and for the total ceiling of the financial perspective by 630 million ecu.

In October, a further revision was proposed to take account of the effect on the budget of the unification of Germany. The total ceiling for that purpose was to be raised by 1 billion ecu in 1991 and by just over I billion ecu in 1992. In return, the Council sought savings within current spending to offset those increases in part. In addition, a fourth revision has recently been proposed by the Commission to take account of agricultural rebates to Spain and to Portugal.

I want now to outline this year's budget procedure so far. The Commission presented the preliminary draft budget in July. For 1991, the preliminary draft budget was about 13 per cent. bigger than the adopted budget for 1990. I know that that will rightly concern the House. None the less, that budget was almost 4 billion ecu below the overall ceiling in the financial perspective. Total provision was equivalent to about 1 per cent. of Community gross national product, compared with the 1·19 per cent. ceiling allowed under the own resources decision of June 1988.

Two underlying trends in Community expenditure emerge from the preliminary draft budget. First, it provided for an increase of more than 13 per cent. in expenditure on agricultural market support. That reflected the expected growth in compulsory expenditure on agriculture which resulted from falling world prices rather than from any slackening of control.

Secondly, it provided for an increase of about 20 per cent. in spending on structural operations and on research and development. Those areas now account for almost 30 per cent. of the total budget. The budget also included 65 million ecu for measures to combat fraud, which was further evidence of the Community's desire to root out fraud, although much more remains to be done.

On 27 July, the Council adopted a draft budget about 830 million ecu below that proposed by the Commission and more than 4·7 billion ecu below the overall ceiling in the financial perspective.

In the light of developments in eastern Europe, the Council decided that, exceptionally in 1991, it would not be appropriate to apply the maximum rate procedure to non-privileged, non-compulsory expenditure. However, the Council agreed to cut the Commission's proposed level of non-privileged expenditure by more than it had in previous years and endorsed a robust declaration making it clear that the procedure adopted in relation to this year's budget was an inevitable consequence of developments in eastern Europe and implied no weakening of budgetary discipline.

At the same meeting, the Commission said that it would present proposals for a revision of the financial perspective in the light of German unification. There was strong support from a number of member states—notably from Germany and France—for our view that the revision should cater for unification and for nothing else.

Finally, the Council decided to take the Parliament to court over the 1990 second supplementary budget. The Parliament excluded some 780 million ecu from the amount of the 1989 budget surplus to be taken into the 1990 budget on the basis that inclusion would reduce member states' VAT payments below 1·4 per cent. and that the Parliament had powers under the treaty in respect of revenue. The Council could not and did not accept that, because its immediate practical consequence would have been to postpone bringing to account a substantial part of the 1989 budget surplus, with a consequent delay in member states receiving the benefit of reduced contributions. That would contradict the requirement of the financial regulation that surpluses should be brought to account at the earliest opportunity.

For that reason, and for the more fundamental reason that the Council alone has competence over revenue, the Council agreed to initiate a court action to amend the Parliament's adoption of the second supplementary budget.

The Parliament presented its amendments to the draft budget on 25 October and voted for modifications adding over 1·9 billion ecu in commitments and almost 1·6 billion ecu in payments. In its amendments, the Parliament anticipated the proposed revisions to the financial perspective and thus threatened to breach the existing ceiling. As, in effect the Parliament has the last word on matters of non-compulsory expenditure, its amendments amounted to a challenge to the Council to approve revisions along the lines that it wanted. Otherwise, the financial perspective would be breached, and the inter-institutional agreement would be thrown into question.

Two other problems emerged. The Council debated whether to reject two of the European Parliament's amendments to the structural funds category—known as category 2. These concerned a new environmental fund—LIFE—and a fund called "PERIFRA", intended to alleviate the effects of the Gulf crisis on poorer and outlying regions.

The second problem stemmed from the Parliament's proposals on research. The Parliament wanted two things—first, to reallocate resources within existing multi-annual framework programmes and, secondly, a substantial increase in spending outside those programmes.

The amendments caused a number of difficulties. In particular, the reallocation of resources along the lines proposed could not be reconciled with the framework programmes agreed by the Council in accordance with the treaty and with the inter-institutional agreement, and risked serious damage to the concept of multi-annual planning that the Community has developed to lend certainty to the funding of long-term projects.

Following preparatory work in the Budget Committee and the Committee of Permanent Representatives, the Budget Council undertook its second reading of the 1991 budget. Initial discussion on 15 November was adjourned until 19 November to take account of related Economic and Finance Council discussions of the outstanding revisions to the financial perspective on that day. As expected, the consideration of revisions to the financial perspective dominated decisions on the 1991 draft budget.

In response to the presidency's report on its continuing discussions of the revisions with the Parliament, the Council insisted on a tough line, demanding off-setting savings from within existing headroom in the financial perspective. Moreover, as part of that process, the Council pressed for a satisfactory compromise on the Parliament's amendments to the 1991 budget—in particular, on research. The presidency undertook to seek an acceptable compromise.

In the meantime, the Budget Council duly adopted its second reading position—in particular, it confirmed the rejection of the European Parliament's amendments on research and rejected the LIFE and PERIFRA funds. Furthermore, the Council insisted that agreement to a limited number of new Commission posts should be conditional on implementation of the Court of Auditors' report on improved staff management. The amendments that were accepted amounted to 200 million ecu in commitments and 154 million ecu in payments.

The upshot was a revised draft budget in which commitments—at around 54·9 billion—are about 4·5 billion ecu below the overall ceiling in the financial perspective and in which member states' contributions are equivalent to 1 per cent. of Community GNP, compared with the annual sub-ceiling for own resources of 1·19 per cent.

Following further discussion at ECOFIN yesterday, I think that we may be close to an agreement on revisions to the financial perspective. There would be significant offsetting savings from within the existing headroom, the transfer of the Parliament's amendments on LIFE and PERIFRA funds out of the structural funds category of the budget, and modifications to the Parliament's amendments on research to bring them into line with existing framework programmes. The Parliament will undertake its second reading later in December, with a view to adopting the final 1991 budget before the end of the year.

The budget procedure is always a fairly tortuous affair, and this year has been no exception. We have had to be flexible in responding to major developments in eastern Europe, Germany and the Gulf. Equally, as a substantial net contributor, we have had to be firm in insisting that strict budget discipline is preserved. We shall continue to do so.

At the intergovernmental conference starting next week on institutional reform, we shall press hard for changes to the treaty which will intesify the war against fraud, deepen scrutiny of spending and require ever better value for the money supplied by tax payers and spent by the Community.