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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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3.54 The Commission pointed to the possible economies of scale that pooling resources could result in and summarised that, as a result, the EU Budget should be used to finance EU public goods; actions that Member States could not finance themselves, or where the collective could ensure better results51 from the EU.52 Examples of EU public goods include Research and Development and Climate policy which are considered more effective when delivered at an EU level than by Member States acting alone, although it is worth noting that at a national level, Member States can and do spend on public goods, including defence. Business for New Europe also argued that the UK gains more out of the Single Market than it contributes to the EU Budget.53

3.55 In its response to the Commission’s Review of the EU Budget in 2009, the Government set out a framework for deciding whether spending proposals were appropriate and offered ‘EU added value’ compared to spending at the domestic level.54 The framework

considered three main areas:

• The right level – spending at the EU level should take place where there are clear additional benefits from collective efforts, compared to Member States acting individually;

• The right action – spending at the EU level should take place where it is appropriate, proportionate and flexible to do so, with consideration to a full range of financing (including both grant and loan finance);

• The right value – spending at the EU level should take place on the available evidence base, facilitating achievement of objectives in the most cost-effective way, backed by sound financial management and with a greater focus on delivery of outcomes in programme design and evaluation.

3.56 Submissions to this report and other relevant sources of literature presented several perspectives about how to define ‘EU added value’ of spend.

Communication from the 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 2010.

The other four were: delivering key policy priorities; a results-driven budget; mutual benefits through solidarity;

a reformed financing of the budget.

European Commission, EU Budget Review, p 4.

Commission Communication, EU Budget Review, p 5.

George Lyon MEP, submission of evidence. IEEP, submission of evidence, p 4 also makes the point that net contributor Member States also need to take account of the indirect benefits of EU membership as well as those seen directly from the EU Budget.

Business for New Europe, submission of evidence.

HMG, Balance of Competences Review: EU Budget, Call for Evidence (2014), p 11.

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

3.57 In their 34th Report of Session 2010-12 the House of Lords European Union Committee

described European added value as:

Spending [that] should take place at EU level only when it is more effective than spending at national level.55

3.58 WWF-UK also saw added value where each euro spent at the European level is more effective than a euro spent at the national level, having an overall impact of reducing public spending in that area while achieving the same results.56

3.59 The Northern Ireland Executive was clear that spending from the EU Budget should occur where ‘there are clear additional benefits from collective effort compared with action solely from individual Member States’.57

3.60 The NFU suggested that the budget should be focussed on areas where ‘it can add value at the EU level and support the single market’.58

3.61 According to the Russell Group, in order to get added value from EU spending, the budget should focus on areas which boost growth and jobs in both the long and short term.59

3.62 The House of Lords European Committee distinguished ‘value added’ from ‘juste retour’.

The latter focuses on the level of funding returning to a Member State from the EU Budget, even if such funding fails to offer demonstrable added value.60 The Committee recognised how difficult it is to arrive at a single definition, but does acknowledge that criteria such as ‘effectiveness, efficiency and synergy’ are helpful considerations.61

3.63 The Institute for European Environmental Policy (IEEP) acknowledged the complexities and challenges of defining ‘EU added value’ when the concept is open to different interpretations by different actors.62 Nevertheless it does suggest that developing a common approach would help to improve the transparency of decision making and help EU expenditure better meet key EU policy objectives.63 IEEP suggests that more of a focus on public goods forms part of that common approach.64

3.64 Whilst views differed on the specificity of how to define added value, a substantial number of submissions expected added value to be taken into account when deciding on which areas of spend to allocate EU funds. It is worth noting, however, that several respondents, particularly from the academic community, recognised that finding a single, clear definition of added value was extremely difficult given the link between this and the varying views among institutions and Member States of the purpose of the EU Budget.65 House of Lords European Union Committee, The Multiannual Financial Framework 2014-2020 (HL 2010-12, 297).

WWF, submission of evidence.

Northern Ireland Executive, submission of evidence, p 2.

NFU, submission of evidence.

Russell Group, submission of evidence.

House of Lords European Union Committee, The Multiannual Financial Framework, p 18.

–  –  –

EU Budget Areas of Spend

3.65 The seven year framework for the EU Budget from 2014 – 2020 was agreed at the end of 2013. It consists of five ‘headings’ or broad areas of spend and is summarised in the text box in Chapter Two. The distribution of budget expenditure between broad spending areas was a significant area of discussion for respondents, with views from a substantial number on the right ‘shape’ of the budget to provide best value for money for taxpayers.

3.66 This report considers the ‘relative’ value of areas of expenditure through the EU Budget, rather than assessing the detail of policy in individual thematic areas and programmes.

Detail on individual areas of spend can be found in other relevant reports as part of the Balance of Competences Review. In particular, the importance of expenditure on research and development is explored in the Research & Development report of Semester Two, while detail on the policy of the Common Agricultural Policy (CAP) and on the Structural and Cohesion Funds is considered in the Agriculture and Cohesion reports of this Semester respectively.

3.67 Some submissions critiqued the overall design of the EU Budget at a high level, describing its overall priorities as misaligned with modern day needs, reflecting a legacy from the 1970s, and as having a distribution between major areas of expenditure ‘very similar to [...] 1957’.66 67 This recognised an inherent inertia in the EU Budget, borne out of the need for the agreement of all Member States – and of institutions including the European Parliament to any substantial reform. An illustration of the evolving shape of the budget is set out in the chart below.

3.68 There was further criticism about the current distribution of spending across headings:

73% of the EU’s budget is spent on CAP and regional policies, while another 6% is spent on administration. This does not leave much funding for other ventures.68 Chart 3.1: Development of EU Budget Expenditure, 1958-2008 1.2

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0.2 0.0 Source: European Commission, History of the Budget (n.d.), available at: ec.europa.eu/budget/reform2008/history/history1957_en.htm, accessed on 6 June 2014.

–  –  –

Business for New Europe, submission of evidence.

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

3.69 Other evidence pointed to the general need for the budget to take into account the

economic circumstances across Member States. According to the IEEP:

The budget has not kept pace with the changing needs of an expanding Europe and there is a corresponding requirement to re-align goals with current and future challenges.69

3.70 IEEP suggested that there are different challenges currently facing the EU, compared to those at the time when the budget was first created. Examples of new challenges include globalisation, climate change and an ageing society. As such a ‘set of workable criteria’ might help ‘to guide the identification of future spending priorities in a more transparent way’.70 Alex Boyd also agreed that ‘The focus of the budget should be more towards future needs, rather than historic patterns’.71

3.71 Other submissions that responded on the question of added value pointed to specific areas of expenditure to increase, decrease or reform as a result of judgements on what was perceived as being high or low value-added spend.

Evidence Presented on Higher Added-Value Spend

3.72 A number of submissions called for increased spending on innovation, research and development (R&D), including responses from universities, academics and other institutions that openly declared an interest in this area of spend.

3.73 Universities UK and the UK Higher Education International Unit (UUK & IU) recognised the significance of this ‘additional funding source for UK universities, particularly in the context of national budgetary constraints’, and in its view, there are grounds to increase the proportion of the budget spent on research.72 Open Europe called for spending on research and innovation to be ‘radically increased’ because it saw this as the ‘the one area where the EU Budget really can add value’.73 Business for New Europe also agreed that R&D spending should be given higher priority within the overall budget.74

3.74 The IEEP described research and innovation as a spending area of ‘longer term strategic relevance’, benefitting local communities in the UK.75 76 Alex Boyd described it as an area where the major focus of spend should be.77

3.75 Professor Cillian Ryan of the University of Birmingham drew attention to positive externalities associated with research funding in the university sector.78 UUK and IU pointed to the benefits of collaborative research brought about by joint funding79, as did Dr

Giacomo Benedetto who noted that:

IEEP, submission of evidence, p 4.

–  –  –

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

Universities UK, submission of evidence.

Open Europe, Seizing the Moment, p 3.

Business for New Europe, submission of evidence. The Russell Group also argued for an increase in the amount of money and proportion of EU Budget allocated to research and innovation; Russell Group, submission of evidence, p 3.

IEEP, submission of evidence.

Note of EU Budget Seminar, Brussels 3 December 2013.

Alex Boyd, Note of Discussion on the EU Budget Call for Evidence, 17 January 2014, p 2-3. In the previous MFF (2007-2013), a significant proportion of research and innovation spending was funded under ‘Heading 1A’ of the budget.

Professor Cillian Ryan, submission of evidence.

–  –  –

Investment in innovation, research and development [...] are considered to be added value because they provide greater collective benefits without being re-distributional spending and at greater efficiency then providing those benefits through exclusively national policies.80

3.76 A submission from the Russell Group drew attention to the suitability of research funding to cross border funding streams, which in turn allowed for the pooling of expertise and benefits from economies of scale.81 Evidence Presented on Lower Added-Value Spend

3.77 While not unanimous, several respondents called for less spending on direct payments as part of the CAP, viewing it as low-value spend.82 Further detail on the value of aspects of the CAP, building on the high-level comments received in response to this report, is explored in Chapter Two of the Agriculture report of this Semester of the Balance of Competences Review.

3.78 Professor Cillian Ryan described agriculture related direct payments as a form of internal transfer analogous to unemployment benefit or a state pension83 because there was no longer a link between payments and production.

3.79 Open Europe pointed to the opportunity cost of CAP payments that could benefit other headings and that resources were being channelled away from where they could have the

biggest effect on jobs and growth. They also noted that:

The main problem with the budget is that far too much money is allocated to wasteful and failing policy areas such as the Common Agricultural Policy and an EU-wide regional development policy.84

3.80 The House of Lords European Committee called for greater reform of the CAP, particularly Pillar One, and for reductions in the CAP budget as well as the gradual phasing out of direct payments to farmers so that funds can be redistributed towards other programmes offering growth potential. In this way the MFF will focus funding on areas that will support growth and encourage innovation.85

3.81 Business for New Europe suggested that the CAP’s share of the budget would decrease from 40% to around 27% by the end of the current budget period.86 Nevertheless there

were still calls for reform:

Large farms in older Member States still receive much more than those in poorer newer Member States, and this needs to change. CAP should not give an increasing amount to farmers if they have more land as this benefits those who need the money least. Too little of the money goes towards improving the environment and boosting sustainability (14%).87 Dr Giacomo Benedetto, submission of evidence.

Russell Group, submission of evidence. Open Europe also noted the potential economics of scale in their submission; Open Europe, submission of evidence, p 27.

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