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• Further enlargement of the EU will lead to the necessary consideration and incorporation of an even greater number of views on what should amount to priority areas for EU Budget expenditure. The increased level of complexity that a greater number of Member States will bring to the existing juste retour approach will be a challenge for agreeing future budgets, internal versus external expenditure, and public goods;

• Additional factors, such as globalisation, an aging population and climate change will also contribute to the challenge of agreeing annual budgets that appropriately reflect the needs across all Member States as they grow in importance and urgency.

Accommodating such factors and their increasing urgency will continue to be a challenge for future policy makers;

• As highlighted by some respondents, the focus of the budget should be more towards future needs, rather than historic patterns.6 One question facing future decision makers may be how the EU accommodates and anticipates future needs when establishing EU Budgets as historic patterns of expenditure and prioritisation become less relevant to the needs of the evolving EU.

Summary of Discussion

4.8 On ‘agreeing the budget’, Chapter Three of this paper discussed:

• The overall size of the EU Budget, which was seen by some to be small as a percentage of GNI, when compared to budgets in Federal budgets in, for example, the United States. However, the unique structure and focus of the EU Budget was recognised, with expenditure not directly comparable with that of Member States;

• The need for a long-term budget period, with respondents largely supporting the need for long-term planning to support recipients, though difficulties were seen in agreeing budget periods by unanimity;

• The length of the MFF period, with discussion of the relationship between the MFF period and European Parliament electoral cycles and the need for flexibility as well as long-term certainty;

• The roles of institutions in agreeing the budgets, with discussion in particular of the role of the European Parliament on the revenue side of the EU Budget system.

Alex Boyd, Note of Discussion on the EU Budget Call for Evidence, 17 January 2014, p 2.

70 Review of the Balance of Competences between the United Kingdom and the European Union: EU Budget

4.9 On ‘spending the budget’, Chapter Three of this paper discussed:

• The value of expenditure in the budget, where in particular Heading 1A, covering expenditure on research and innovation, was seen as a priority for a greater share of the budget due to the perceived positive impact on growth;

• The most effective methods of spend in the budget, where respondents largely accepted that this question depended on the aims of particular programmes, though increased use of innovative financial instruments was suggested by some;

• The link between the UK abatement and value for money, where respondents discussed the UK abatement, with some recognising the link formed by the 2005 ‘disapplication’ between reform of the expenditure side of the EU Budget and the size of the UK’s abatement.

4.10 On ‘running the budget’, Chapter Three of this paper discussed:

• The Financial Management system of the EU Budget, where respondents broadly argued for a continued effort to improve financial management in the EU Budget.

Respondents also supported the ECA, noting the importance of close cooperation between Member States and the ECA;

• The Commitments and Payments system, with several respondents supporting the existing system and its perceived focus on long-term stability and ensuring good value in spend. Others, however, raised significant concerns about the increasing failure of the system, particularly focussing on the growing liability of ‘RAL’, or unspent commitments in the EU Budget;

• Off-budget items, where several respondents raised concerns about the scale of instruments ‘outside the MFF’. Others, however, noted the importance of some of these instruments in providing emergency relief both inside and outside the EU;

• Own Resources and corrections, where respondents discussed the future of the revenue side of the budget, with broad support for the GNI resource as a primary source of revenue. Other revenue streams were discussed, though respondents largely noted that proposed resources like a Financial Transaction Tax would disproportionately impact on the UK. The correction mechanisms on the revenue side of the budget (applicable to several Member States, including the UK and Germany) were also discussed in more general terms, with respondents largely critical of their continued existence, though recognising the negotiating realities which were at cause. Proposals for a generalised correction were discussed, though there was no consensus on how this would be formed.

4.11 While responses from stakeholders to this report suggested that the existing balance of competences with relation to the EU Budget is reasonable (very few responses raised issues – such as the introduction of new taxes to fund the EU Budget – which would impact on Member States’ competences), respondents’ focus on the application of competence on the EU Budget raised several questions about the structures and priorities of the budget.

Chapter 4: Future Options and Challenges 71

4.12 In particular, respondents’ focus on the question of whether the EU Budget provides good value for taxpayers’ money raised, in the first instance, discussion of how to define ‘added value’ and second, which areas of the EU Budget best fit that definition. A significant number of respondents, from a variety of different backgrounds, suggested that despite the open debate about what constitutes good value in the EU Budget context, research and development expenditure, particularly that seen through Heading 1A of the budget, delivers the clearest ‘added value’ for EU Budget funds.

4.13 On structural issues, there was substantial discussion (but little consensus) among respondents on the length of the long-term MFF budget period. There was substantial discussion of the financial management of the budget, however, and while several respondents gave strong support for the work of EU institutions including the European Court of Auditors on this point, there was broad consensus among respondents that more can be done – within institutions and Member States – to improve financial management of EU Budget money and to reduce the rate of error.

4.14 Finally, there was some discussion among respondents of the Own Resources system, with a small number of respondents discussing the previously-proposed introduction of new Own Resources to fund the budget. Respondents showed broad support for the GNI resource and others, including the Scottish Government, noted concerns about the introduction of a Financial Transaction Tax which would (until its rejection by European Council in 2013 and progress by enhanced cooperation among a limited group of Member States) have disproportionately impacted on the UK.

4.15 Several respondents criticised the continued existence of correction mechanisms in the budget system – though some respondents called for a generalised correction to replace the current selection of different mechanisms. While, in this context, several respondents were critical of the UK abatement, several others recognised the link between the abatement and ‘added value’ of the budget, setting it apart from other corrections. Finally, other respondents noted that without the abatement, the UK’s net contribution to the budget would be twice that of France and substantially greater than that of Germany and therefore argued that the UK abatement remains fully justified.

Annex A: List of Evidence Received Ackrill, Professor Robert, Nottingham Trent University Begg, Professor Iain, London School of Economics and Political Science Benedetto, Dr Giacomo, Royal Holloway, University of London Binley, Brian MP, parliamentary delegate to the Council of Europe Boyd, Alex, European Conservatives and Reformists Group, European Parliament Brussels and Europe Liberal Democrats Business for New Europe Centre for European Reform Davies, David TC MP, parliamentary delegate to the Council of Europe Dimitrakopoulos, Dr Dionyssis, Birkbeck, University of London Fresh Start Project Gore, Tony Harutyunyan, Davit MP, parliamentary delegate to the Council of Europe Hodson, Dr Dermot, Birkbeck, University of London Institute for European Environmental Policy Leonardi, Professor Robert, LUISS Guido Carli University, Rome Lyon, George MEP National Farmers’ Union Nicolaides, Professor Phedon, College of Europe Northern Ireland Executive Open Europe Research Councils UK Russell Group 74 Review of the Balance of Competences between the United Kingdom and the European Union: EU Budget Ryan, Professor Cillian, University of Birmingham Scotch Whisky Association Scottish Government Swedish Institute for European Policy Studies Universities UK and UK HE International Unit Welsh Government Wishlade, Fiona, University of Strathclyde WWF - UK Any references to MEPs reflect their status at the time of the Call for Evidence period.

Annex B: Engagement Events A number of engagement events took place during the duration of the Call for Evidence period.

Events listed generated submissions to the Call for Evidence and attendees are given below.

Each event was recorded with a written summary of the discussion, agreed by attendees, which are entered as evidence published alongside this report.

Seminar on EU spending - hosted jointly by HM Treasury (HMT), the Department of Business Innovation and Skills (BIS) and the Department for Environment, Food and Rural Affairs (Defra), November 2013, London • (Chair) Professor John Bachtler, European Policies Research Centre, Strathclyde University.

• Business for Britain

• Convention of Scottish Local Authorities

• Department for Communities and Local Government

• European Commission

• Institute for European Environmental Policy

• National Farmers Union

• National Council of Voluntary Organisations

• Open Europe

• Research Councils UK

• Royal Society for the Protection of Birds Seminar on the EU Budget – hosted jointly by HM Treasury and the United Kingdom Permanent Representation to the European Union (UKRep), December 2013, Brussels • (Chair) George Lyon, MEP, Vice Chair European Committee on Budgets

• Richard Ashworth, MEP, European Committee on Budgets

• Business Europe

• Brussels School of International Studies

• European Commission (Directorate- Generale for Budget) 76 Review of the Balance of Competences between the United Kingdom and the European Union: EU Budget

• European Parliament

• Institute for European Environmental Policy

• National Farmers Union

• Office of the Scottish Executive, Brussels Round-table discussion on the EU Budget, Cohesion and Agriculture reports, Sofia, Bulgaria, December 2013 • (Facilitator) Cat Evans, Europe Directorate, Foreign and Commonwealth Office

• Dessislava Nikolova, Institute for Market Economics (IME)

• Olga Chugunska, Bulgarian Chamber of Commerce and Industry (BCCI)

• Michael Davidson, UK Embassy in Bulgaria Academics round-table discussion on the EU Budget, January 2014, London • (Chair) Harold Freeman, Deputy Director EU Institutions and Policy, HM Treasury

• Professor Dermot Hudson, Birkbeck, University of London

• Professor Dionyssis G. Dimitrakopoulos, Birkbeck, University of London

• Dr Julie Smith, University of Cambridge

• Professor Iain Begg, European Institute, London School of Economics  

• Professor Robert Ackrill, Nottingham Trent University

• Fiona Wishlade, Co-Director, European Policies Research Centre, Strathclyde University Horizontal Interest Groups workshop on the EU Budget, January 2014, London

• Marcus Corry,European Policy Forum

• Charles Crawford, Alumni of the Foreign and Commonwealth Office

• Peter Cullum, Road Haulage Association

• Marie-Madeleine Kanellopoulou, European Commission Office, London

• Graham Mather, European Policy Forum

• Sir Peter Marshall, Alumni of the Foreign and Commonwealth Office

• Francis Morgan, British Airport Authority

• Dr. Charles Trotman, Country Land and Business Association

• Professor Dame Helen Wallace, British Academy Annex C: Other Sources The following list is not exhaustive but sets out some of the main sources drawn upon in

preparing the analysis:

Allen, Grahame, EU Multi-Annual Financial Framework (MFF) 2014-2020, House of Commons Standard Note SNEP 6455 (2013).

Bachtler, John; Carlos, Mendez; and Fiona Wishlade, EU Cohesion Policy and European Integration: The Dynamics of EU Budget and Regional Policy Reform (2013).

Begg, Iain, ‘Funding the EU Budget: A Case for Inaction’, Public Finance and Management, Volume 9, Number 4 (2009).

Blankart, Charles B; and Koester, Gerrit B, ‘Refocusing the EU Budget – An Institutional view’, Centre for Research in Economics, Management and the Arts, Working Paper No. 2009-16 (2009).

Buti, Marco; and Nava, Mario, ‘Constrained Flexibility as a Tool to Facilitate Reform of The EU Budget’, Public Finance and Management, Volume 9, Number 4 (2009).

Cattoir, Philippe, ‘Options for an EU Financing Reform’, Notre Europe Policy Paper, 38 (2009).

Cipriani, Gabrielle, ‘Rethinking the EU Budget: Three Unavoidable Reforms’, Centre for European Policy Studies (2007).

Commission of the European Communities, The MacDougall Report: Report of the Study Group on the Role of Public Finance in European Integration, Volume I (1977).

Commission of the European Communities, The MacDougall Report: Report of the Study Group on the Role of Public Finance in European Integration, Volume II (1977).

Communication from the European Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the National Parliaments, The EU Budget Review, COM (2010) 700 final, October 2009.

Gros, Daniel; and Micossi, Daniel, ‘A Better Budget for the European Union – More Value for Money, More Money for Value’, Centre for European Policy Studies Brief No. 66 (2005).

House of Lords European Union Committee, EU Financial Framework from 2014 (HL 2010-12, 125).

78 Review of the Balance of Competences between the United Kingdom and the European Union: EU Budget House of Lords European Union Committee, The Multi-annual Financial Framework 2014-2020 (HL 2010-12).

Le Cacheux, Jacques. ‘Funding the EU Budget with a Genuine Own Resource: The Case for a European Tax’, Notre Europe Policy Paper, 57 (2007).

Mijs, Arnout; and Schout, Adriaan, ‘Overview Paper, Smart Growth in the EU Budget:

Modernising the EU’, Clingendael European Studies Programme, EU Policy Perspectives Seminar Series (2009).

Osterloh, Steffen; Heinemann, Friedrich; and Mohl, Philipp, ‘EU Budget Reform Options and the Common Pool Problem’, Centre for European Economic Research (2008).

Rotherham, Lee, ‘The Stale Whiff of Fraud: Behind the Latest European Court of Auditors Report’, Journal of Social, Political and Economic Studies, Volume 33(1) (2008).

Santos, Indhira; and Neheider, Susanne, ‘Reframing the EU Budget Decision Making Process’, Journal of Common Market Studies, Volume 49 Number 3 (2011).

Schratzenstaller, Margit, ‘Funding the EU Budget: Need and Options for Reform’, Austrian Institute of Economic Research Paper (2013).

Somai, Miklos, ‘EU Transfers and the Next Financial Framework’, Eastern Journal of European Studies Volume 2 Issue 2 (2011).

Spence, James, ‘A High Price to Pay? Britain and the European Budget’, International Affairs, 88: 6 (2012).

Thompson, Gavin; and Harari, Daniel. The Economic Impact of EU Membership on the UK (2013).

Zuleeg, Fabian. ‘The EU Multi-annual Financial Framework (MFF): Agreement but at a Price’, European Policy Centre (2013).

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