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«Summer 2014 Review of the Balance of Competences between the United Kingdom and the European Union EU Budget © Crown copyright 2013 You may re-use ...»

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3.11 However, views on the aims of the budget, and therefore how EU Budget funds should be distributed between budget headings, relies on agreement on the fundamental purpose of the budget itself. Responses from the academic community, and discussion at the academic round-table event during the call for evidence period particularly considered the uncertainty around the purpose of the budget.

3.12 Much of the evidence received as part of this report has recognised the political and economic importance to the UK of restraining the size of the EU Budget. However, just as there is debate about how the EU Budget impacts on the national interest, there is equally debate about the national interest itself, with respondents raising several other potential focuses for the EU Budget, relating to the UK interest.

3.13 In considering ‘the rationale for having an EU Budget’, the Centre for European Reform argued that the fundamental rationale was ‘to help poorer parts of the EU develop economically. This is good for those places, but also good for the UK, given economic and trade links’.3 This suggests that the EU Budget could aid the UK national interest through promoting collective growth across Europe.

3.14 Others referenced the impact receipts from the UK budget could have on the UK domestic economy. The Russell Group particularly stressed this point, focussing on

research and innovation, an area of the budget where UK institutions are particularly wellplaced to receive substantial funding from the EU Budget:

EU funding streams are key to the continued growth of research excellence in the UK, to innovation and to the creation of economic value [...] Overall, investment in EU funding streams for research and development generates an excellent return for the UK economy.4

3.15 Finally, several respondents made the link between the EU Budget and the UK national interest through the effect of sharing the strain on public finances. World Wildlife Fund UK (WWF-UK) argued that the budget adds value in:

All areas where each Euro spent at the European level is more effective than a Euro spent at the national level, resulting in reduced overall public spending for achieving the same results (or same overall public spending for better results).5 An assessment of the ‘added value’ of the EU Budget could therefore, in the views of some respondents, be key to assessing the EU Budget and the UK national interest.

3.16 The Welsh Government acknowledged the need for overall budget restraint – in the UK’s national interest, though wanted to avoid an outcome that led to large cuts to income for its rural areas. It also wanted to ensure that Structural Funds would be able to support local disadvantaged communities.6 The consideration of evidence relating to the value of the EU Budget will follow in the Spending the Budget section of this chapter.

3.17 George Lyon MEP specified the need to go beyond the classification of the UK as an overall net contributor and to take into consideration wider benefits which impact other Government priorities, such as job creation and exports that flow from being in the EU Centre for European Reform, submission of evidence.

Russell Group, submission of evidence.

WWF-UK, submission of evidence.

Welsh Government (Jane Hutt AC/AM), submission of evidence.

36 Review of the Balance of Competences between the United Kingdom and the European Union: EU Budget Single Market.7 Business for New Europe also argued that the UK gains more out of the Single Market than it contributes.8 When considering the EU Budget and its impact on the UK national interest, it may also be helpful therefore to consider the wider benefits of EU membership discussed in other reports of the Balance of Competences Review, such as the Research and Development report, to which the UK’s contribution to the budget grants access.

Agreeing the Budget To what extent does the long-term structure of the budget, and the decision-making processes that agree it, have an impact on the national interest?

3.18 In this section, we consider evidence taken on the overarching processes which agree the EU Budget, including the MFF, annual budget and Own Resources Decision. We consider the negotiation and agreement processes for setting budgets in the long and short term;

the voting rights of the institutions in those negotiations; and the length of long-term budget plans. We also consider the total size of the EU Budget, particularly over the medium to long term (for example, 2014-20).

Size of the Budget

3.19 The overall rationale for the budget was seen by many to have a close relationship with the overall size of the budget, an approach seen in recent negotiations. Several respondents, particularly from the academic community, noted that the EU Budget, when compared to federal budgets was comparatively small. The comparison between the EU Budget and federal budgets was originally made as part of the 1977 MacDougall Report, which

considered the future of the EU Budget at that time:

As regards the general level of economic activity, the instruments remain very largely in national hands, but since public expenditure at the Community level might rise from the present level of 0.7% to 2 – 2½% of gross product, it might be possible for Community finance to play some part in stabilisation and growth policy [...] There is a strong contrast between this situation and that of a large public sector federation, like the federations already in existence [...] In existing federations like the United States and the Federal Republic of Germany, federal public expenditure is around 20 to 25% of GNP.9

3.20 This comparison between the EU Budget and federal budgets (particularly those of Germany and the United States), was seen in several responses suggesting that there was a case for a large EU Budget, depending on the tasks set for the budget to perform.10

3.21 Whether this is the ‘right’ comparison, however, is a matter of substantial debate. On one side, some respondents suggested that a budget of approximately one per cent of EU GNI may not be of significant enough size to have a measurable economic impact across the EU.11 George Lyon MEP, submission of evidence.

Business for New Europe, submission of evidence.

Commission of the European Communities, Report of the Study Group on the Role of Public Finance in European Integration (1977) p 20.

Dr Giacomo Benedetto, submission of evidence.

–  –  –

3.22 Others, however, recognised that the current aims of the EU Budget, and the policies that

it funds, are not generally consistent with those of national budgets:

The EU Budget totals less than 1% of EU gross national income, as it does not need to mirror national budgets, for instance for funding direct health care for citizens, or for the running of schools. National budgets do those things.12

3.23 Indeed, the MacDougall Report itself accepted this point to an extent, recognising at that time the potential evolution of ‘a small public sector federation in which the supply of social and welfare services (health, education, social security and welfare) would essentially remain at the national level’.13 Nevertheless, at that time, as the Community continued to develop, a larger budget was foreseen than that we see today.

3.24 Others saw the size of the budget as being ‘about right’, with the primary discussion centring on how the budget was spent. One argument heard in several stakeholder meetings, including with Alex Boyd of the European Parliament was that one per cent of GNI, targeted well at effective policies, could be effective – recognising that one per cent of GNI represents approximately one trillion euros over 2014-20.14

3.25 Finally, there were some who saw the budget as being substantially larger than necessary, reflecting the perceived potential for significant cuts in several areas of the budget (the relative value of which will be considered in the Spending the Budget section of this chapter). The Fresh Start Group particularly saw the potential for substantial reductions in the size of the budget through cuts to the administrative budgets of EU institutions, to EU aid (seeing this as an area for Member States’ action), Education and Culture and Institutional Communications.15

3.26 It is also clear that, if the UK national interest is served by moderating the UK’s contribution to the EU Budget, then a budget of a substantially greater level than that seen currently, naturally resulting in substantially increased contributions, would not fit with that primary objective for the UK in budget negotiations. Business for New Europe recognised this

point in the context of the recent MFF negotiations:

The recently agreed cut of 3.4% in real terms to the 2014-20 budget is a move in the right direction, encouraging a better use of resources, and showing what Britain can achieve if it is active at the negotiating table.16

3.27 As set out in the Prime Minister’s statement in paragraph 3.9, the UK Government has been clear that in its view, the interests of UK taxpayers are best served by securing restraint in the size of the EU Budget. It was this view which underpinned the UK negotiating position for the 2014-20 MFF, a deal which saw the first cut in history in the long-term budget framework, cutting €35bn from the previous period.

3.28 It is the Government’s view that this MFF deal represents a real step towards reform in the EU and is a better-framed budget in terms of growth, jobs and competitiveness. Reform of EU spending is a long-term project, but the agreed MFF delivers important progress and is a good deal both for Europe as a whole and for UK taxpayers.

Brussels and Europe Liberal Democrats, submission of evidence.

Commission of the European Communities, Report of the Study Group on the Role of Public Finance in European Integration, p 20.

Alex Boyd, Note of Discussion on the EU Budget Call for Evidence, 17 January 2014, p 1.

Fresh Start Project, Budget and Institutions (2012) pp 110-115.

Business for New Europe, submission of evidence.

38 Review of the Balance of Competences between the United Kingdom and the European Union: EU Budget Length of the MFF

3.29 A significant area of discussion seen in responses and round-table sessions was on the reflection of the rationale for the budget in some of the key budget structures. The formation and length of the MFF was one such area where national budgets and the EU Budget were widely compared. While the Treaty of Lisbon set a minimum length for the MFF at five years, the common practice since the introduction of MFF periods in 1988 has been to agree MFF ceilings over seven-year periods. For example, 2007-13, 2014-20.

3.30 Discussion in this area split into two core questions: first, should the budget have a longterm period as well as annual negotiations and second, how long should that period be?

3.31 On the need for a longer period (or MFF), there was broad agreement that the introduction of extended planning rounds provided greater certainty in an area which had seen several difficult annual budget negotiations before their introduction in 1988.

3.32 Evidence discussed, for example, the need for and challenges of agreeing a long-term budget by unanimity. Some saw this as a challenge to reform, with Member States able to block reform of particular areas of expenditure, such as the CAP, to protect individual interests. On the other hand, it was noted by others that requiring unanimity also gave the UK the ability to protect its priorities. This ability to veto a long-term budget which conflicted with UK priorities has enabled the UK to achieve significant successes in recent years, including in the most recent MFF negotiations. The UK Government therefore broadly accepts that requiring unanimity on major issues and having qualified majority voting on others, including the annual budget, is defensible.

3.33 Respondents broadly focussed on the following advantages in this area:

• Agreement by unanimity – ‘first, no MFF can be passed unless everyone agrees. This allows the UK but also every other Member State to try to enforce red lines’;17

• Long-term policy planning – ‘in the first two MFFs this new structure for longer-term planning enabled a significant rebalancing of spending between policy areas, notably increasing the absolute and relative importance of structural/cohesion policy’;18

• Difficulty of negotiations – ‘in a system in which so many actors have to be included in the agreements, at least the process need only be gone through every few years’.19 ‘The principle of having a multiyear EU Budget (of seven years) is sensible, as it would be too burdensome to decide on an annual basis’;20

• Budget certainty – ‘a long-term commitment to science, research and innovation is needed to provide stability for the future and ensure the UK can maximise its potential [...] identifying funding opportunities, building international consortia and preparing bids takes time so researchers need to be sure that there will be funding available for projects in the medium- to long-term’;21

• De-politicisation – ‘long-term budgetary periods are much more preferable to yearly budgets because [...] they depoliticise the annual budgetary process’.22 Dr Giacomo Benedetto, submission of evidence.

Professor Robert Ackrill, submission of evidence.

Professor Iain Begg, submission of evidence.

WWF-UK, submission of evidence.

Russell Group, submission of evidence. See also Welsh Government (Jane Hutt AC/AM), submission of

–  –  –

3.34 However, alternative views were also recognised in the evidence:

• Difficulty of aligning with domestic budgets – The Northern Ireland Executive noted, as a recipient from the EU Budget, the challenge ‘where we are asked to provide longer term commitments [...] beyond the current 3 year Budget cycle we in Northern Ireland operate’;23

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