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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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Note of EU Spending Seminar, Brussels 7 November 2013.

Professor Cillian Ryan, submission of evidence.

Open Europe, Seizing the Moment, p 4.

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

Business for New Europe, submission of evidence, p 2.

Business for New Europe, submission of evidence.

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

3.82 Notably the NFU recognised the need to reform the way the EU Budget is spent:

The NFU has never shied away from budget cuts at the European level for agriculture, but reductions must be applied equally and fairly. In future, the NFU believes that the policies that comprise the CAP should be pared right back to the primary objective of increasing agricultural productivity by promoting technical progress and rational development of agricultural production. Initiatives relating to the social development of the agricultural sector could be left for national competences.88

3.83 The lower agriculture subsidies paid by those Member States that joined the EU from 2004 onwards compared to those paid by the older Member States contribute to concerns surrounding the long-term sustainability of CAP spending and support calls for significant reform. The Balance of Competences report on Agriculture discusses the CAP and the EU approach to agriculture in more detail.

3.84 Views were more mixed on cohesion, the second biggest area of EU Budget expenditure.

The three main structural funds89 that comprise cohesion policy are:

• The ERDF, which finances the promotion of innovation and knowledge transfer, stimulating enterprise and supporting successful businesses, ensuring sustainable development, production and consumption, and building sustainable communities.

It is allocated on a regional basis.

• The ESF, which finances projects in the labour market that focus on improving skills, social integration and access to employment opportunities. It is also allocated on a regional basis.

• Cohesion Fund which finances developments in transport networks, environmental projects, and energy and transport projects that offer environmental benefits.90 It is allocated at national level and is limited to Member States with a national income below 90% of the EU average.

3.85 The House of Lords European Union Committee noted the benefit ESF brought throughout the Union, but that other funds (such as the ERDF) should be targeted at poorer Member States, with a view to withdrawing it from better-off Member States in the long term.91 Limiting funding to less developed and newer Member States was seen as a way of gaining greater added value from the Cohesion Fund.92

3.86 Open Europe noted the benefits of limiting structural funds to EU Member States with income levels at or below 90% of the EU average.93 It further suggested that there is an unsatisfactory correlation between the funding and results of structural funds and that the involvement of all Member States, irrespective of their wealth is economically irrational. It also questioned whether structural funds bring any added value to Britain.94 National Farmers’ Union, submission of evidence.

House of Lords European Union Committee, The Multiannual Financial Framework, p 23.

Established in 1994 to assist less-developed member states with a Gross National Income (GNI) of less than 90% of the EU average.

House of Lords European Union Committee, The Multiannual Financial Framework, p 25.

Note of EU Spending Workshop, London 7 November 2013, p 2.

Open Europe, Seizing the Moment, p 15. A similar view was also expressed by Fresh Start; Fresh Start,

–  –  –

3.87 Business for New Europe was critical of the carousel nature of funds moving from national governments of richer Member States, being routed through the EU, only to come back again to poorer regions of the same Member States.95 It also suggested that funding should be performance-linked, noting that there is no financial incentive in place to reward efficiency or penalties if the money is not used to boost efficiency.96

3.88 Submissions also questioned whether there would be administrative cost savings if more cohesion funding was delivered at the Member State level.97

3.89 The Balance of Competences report on cohesion which discusses the value for money, funding programmes and financial tools in place to support cohesion policy in more detail.


3.90 The majority of submissions that provided responses covering administration called for savings, or a reduction in budget expenditure on administration.

3.91 Open Europe suggested that the European Commission should go further in reducing its headcount to maximise savings on back office and administrative functions, referencing the 33% reduction in back office costs in UK Government departments, agreed as part of the 2010 Spending Review.

To reflect the savings that are taking place in the UK and government departments across Europe, we propose a 20% cut to the Commission’s administration and back office spending, loosely premised on the average cut of 19% to Whitehall departmental spending, and the 16.9% average cuts to Spanish departmental budgets.98

3.92 Proposals to help achieve those savings included reducing allowances and benefits for EU staff, increasing the retirement age to 65 and commissioning an independent review, along the lines of the UK’s 2011 Hutton Review, to examine the long term sustainability of EU pensions.99 Fresh Start suggested the Commission should participate in a cuts and efficiency programme that addresses, amongst other things, overall pay bill and pension arrangements for EU staff.100

3.93 It is worth noting that the new Staff Regulations and the Interinstitutional Agreement (IIA) for 2014-20 introduced a series of reforms which will impact on EU administrative expenditure, including an increase in the retirement age for new staff to 66 and a commitment to reduce the number of staff by 5% between 2013 and 2017.101

3.94 The Scottish Government also called for the Commission to exercise administrative efficiency and reflect the departmental reforms Member States have made.102 Business for New Europe, submission of evidence.

Business for New Europe, submission of evidence.

Note of EU Spending Workshop, London 7 November 2013, p 1.

Open Europe, Seizing the Moment, p 19.

–  –  –

Fresh Start Project, Manifesto for Change, p 17.

Please see: Interinstitutional Agreement 2013/C 373/01 of 2 December 2013 between the European Parliament, the Council and the Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, 2013; and Staff Regulations, Reg. 62/11 as most recently amended by Regulation (EU, Euratom) No 1023/2013 of the European Parliament and of the Council of 22 October 2013, OJ 2013 No L 287, p 15–62.

Scottish Government, submission of evidence.

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

3.95 The Scotch Whisky Association (SWA) provided a different view, calling for the reallocation of administration resources to the Commission’s Directorate-General for Trade. SWA suggested that more resources are required to negotiate Free Trade Agreements that will eventually positively impact the UK’s access to markets.103

3.96 The Commission has recognised a need to search for increased efficiency and performance in its administration. Its 2010 EU Budget review pointed to investigating savings that could be made from developing shared IT systems across institutions and looking at the way it delivers and designs spending programmes.104 Financial Instruments

3.97 Innovative financial instruments (IFIs) are designed to leverage the EU Budget and increase its impact. There are a range of IFIs already in use within the current headings of expenditure. Examples include risk-sharing instruments within research, development and innovation investment and equity instruments used within energy, climate change and infrastructure spending.105

3.98 The Government is broadly supportive of the increased use of private finance and such instruments, provided that they do not lead to an increase in the overall size of the budget, that risks are sufficiently managed and that there is adequate administration of schemes at the Member State level.106

3.99 Most submissions that provided a response to the ‘call for evidence’ question on financial instruments agreed that the appropriate mode of spending depended on the type of activity or project being funded, as well as the type of sector and beneficiary being

supported.107 108 The Northern Ireland Executive in particular summarised this view:

Repayable loans appear to be the Commissions preferred option going forward in the post 2014 period as it gives a rolling return not achieved through a one off grants system.

In developing Operational Programmes however one size does not always fit all and while we plan to use repayable loans in our developing [Operational Programmes], particularly ERDF, it is likely we will maintain some aspects of funding using the traditional grant method.109

3.100 Delegates at the EU-spending workshop thought that there could be more provision of loans rather than grants, suggesting that ‘this would require much better business cases to be developed and more conditionality to funding’.110 The question of whether the European Investment Bank would be better placed to provide loans, rather than using money from the EU Budget, was also raised.

Scotch Whisky Association, submission of evidence.

Commission Communication, EU Budget Review, p 19.

House of Lords European Union Committee, The Multiannual Financial Framework, p 61.

–  –  –

This was a point made by several respondents. For example: Brussels and Europe Liberal Democrats, submission of evidence, p 6; and Fiona Wishlade, submission of evidence, p 4.

WWF-UK, submission of evidence.

Northern Ireland Executive (Simon Hamilton MLA), submission of evidence.

–  –  –

3.101 IEEP argued that financial instruments could make EU funds go further and add value:

EU financial instruments can be seen to add value by multiplying the effect of EU funds when they are pooled with other funds or include a leveraging effect that enables private finance to be attracted. In our view these instruments do have a clear role in supporting the development of a more sustainable European economy.111

3.102 The Welsh Government expressed keen support for the use of alternative modes of expenditure and pointed to the £150m Joint European Resources for Micro to Medium Enterprises (JEREMIE) fund as an example of a scheme that is helping support businesses to grow.112

3.103 However IEEP also asserted that public goods, especially concerning the environment, would continue to require grant financing and that ‘supportive political framework conditions’ are required to ensure that financial instruments exhaust their full potential.113 The UK Abatement

3.104 Several respondents, particularly at the Brussels round table event and in submissions from the academic community, considered the link between the UK abatement and the balance of expenditure described above. This link can be made in several ways.

Some respondents noted a link resulting from the UK’s public priorities in recent budget negotiations – notably the 2014-20 MFF – where some saw the UK’s prioritisation of protecting the UK abatement as a barrier to achieving reform in the budget; for example, on reform of the CAP. Another link made, however, argued that the 2005 reform of the UK abatement set up a link between the abatement and the distribution of expenditure between areas of spend and between Member States. Some argued, therefore, that the UK abatement in its current form was to an extent a reflection of the value of the budget, unlike other correction mechanisms). The own resources system in general, including the revenue side of the budget and other corrections (and generalised corrections) is covered in the Running the Budget section of this chapter.

3.105 The impact of the abatement, and the UK’s position in defence of the abatement, on negotiations was a concern for some respondents. Evidence submitted by Fiona Wishlade of the University of Strathclyde made the case that the UK defence of the abatement

comes at the cost of achieving other successes:

UK defence of the rebate is one of several elements that impede a wholesale reform of the EU Budget.114

3.106 Similar evidence, from the NFU, argued that indeed the abatement could be seen as a disincentive to the UK accessing budget funds by dominating UK Government priorities

during negotiations:

The abatement issue and the UK’s correction can be a deterrent to accessing European funds. Such fiscal plans can dictate the policy negotiation process for the UK.115 IEEP, submission of evidence.

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

IEEP, submission of evidence.

Fiona Wishlade, submission of evidence.

National Farmers’ Union, submission of evidence.

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

3.107 Others were more broadly critical of the existence of the UK’s abatement, and the formula

which underpins it. Phedon Nicolaides of the College of Europe argued:

The present rebate is based on a rather ad-hoc formula that applies only to the UK.

The “burden” for the funding of the rebate that falls on the remaining Member States is also rather arbitrarily adjusted. The whole system is predicated on ad-hoc deals that lack transparency, fairness and economic logic.116

3.108 Other respondents saw no need for change in this area.117 However, Business for New Europe noted the economic logic that it was the abatement which maintained the UK’s net position in the budget.118

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