European Union Committee: Multiannual Financial Framework

Lord Williamson of Horton Excerpts

Tuesday 19th June 2012 Grand Committee

[Lord Williamson of Horton]

My Lords, I declare an interest, in that I worked on European affairs in the United Kingdom public service and in the European Commission, and I have pensions from my work. In this debate, I have the role of orphan Annie because I am not a member of the European Union Committee or of any of its sub-committees; perhaps I am even objective.

This comprehensive and high-quality report from the House’s EU Committee is at the heart of our policy towards the European Union, and I thank the committee for it. Subject of course to the economic future of the eurozone, there is surely nothing more important than the establishment of a seven-year budget from 2014 to 2020—perhaps it should be a five-year one—and the priorities for EU action over that period. The committee is right to state at the outset that the multiannual financial framework—the MFF—

“will dictate much of what the EU does until the end of this decade”.

Here in the Moses Room, we are in the big time.

I shall comment on some but not all of the 73 conclusions and recommendations of the committee; that number alone demonstrates the breadth and importance of the subject, and a similar conclusion can be drawn from the 81 Commission proposals for legislation and communications listed in appendix 5. Before I turn to some of those points, I would like to express general principles that in my view should be central to the Government’s approach to the negotiation of the MFF, and I attach great importance to them.

First, the Commission’s budget proposals show some restraint. Total payment appropriations under the current seven-year MFF are 0.16% of gross national income, below the ceiling that sets a cap on the EU’s own resources. The new proposals for 2014-20 would cost 1% of estimated gross national income and leave a margin of 0.23% below the ceiling. I recognise of course that some expenditure—principally the European Development Fund for the benefit of African, Caribbean and Pacific countries—is off-budget, and all off-budget expenditure requires careful scrutiny.

However, while the Commission shows some restraint, I strongly believe that the Government are right to stress the importance of savings and to press for them. After all, this is not an abstract exercise. We are dealing with public expenditure right up to 2020. Recent events have demonstrated that a major cause of the economic crisis in Europe, apart from incredibly bad judgment of risk in many banks, is the too-high level of public expenditure and the extreme difficulty for some member states to finance it. Some 86% of current EU own resources are derived directly from GNI-based and VAT-based resources. Restraint on public expenditure and a rigorous approach to justifying it is a solemn duty on Governments and is in the EU’s interest. Furthermore, in assessing the priorities, investment and employment-creating expenditure—for example, on infrastructure—should have some priority in the EU’s overall interest.

To a considerable degree, our national interest in this seven-year EU budget coincides with that of the EU as a whole. We want savings and strict attention to priorities, both to ensure as far as possible that particular items of expenditure are disproportionately favourable to the UK and because our net contribution has recently risen quite strongly. It is well known that I am rather proud of the UK rebate—I played a small part in negotiating it—which has so far delivered about £68 billion to the UK economy. It is an intrinsic part of the EU budget system and, being subject to unanimity, cannot be changed without our agreement. However, the UK Government agreed to exclude non-agricultural expenditure in new member states from the calculation and this has led to an increase in our net contribution from £3 billion in 2008-09 to £9.2 billion in 2010-11. A hard-headed approach to this change means a tougher negotiating stance on the total EU budget.

On our priorities, I begin with cohesion policy, which is heading 1 in the MFF and is supported by the European regional development fund, the Social Fund and the cohesion fund. In financial terms, this is, as noble Lords have said, an important part of the MFF. In the new proposals, it is 36.7% of the total and is comparable to expenditure on agriculture, food and environmental policy. Evidently, the key issue is to identify the European added value. I favoured regional development when I had some responsibility for European policy, and I still do, but we have to balance it with available public finance. The analysis by the committee is good and I agree with much of it. In particular, I favour the transitional region category, noting on a personal level that it would apply to Devon and Cornwall. It would be sensible to have a performance reserve and some ex ante, but not too bureaucratic, conditionality. Like the Government, I do not favour macroeconomic conditionality.

Agriculture, the food supply and the environment are subjects that I used to know a lot about. Of course, the old CAP has long since vanished. It was a market-based policy with little or no direct payments to farmers. The support prices were set at too-high levels leading to high expenditure on disposing of public intervention stocks and on export subsidies called “refunds”. We have replaced it with a policy that is largely based on direct payments to farmers, which is where the budget costs arise. The question we now have to consider is whether the objective of a viable agricultural industry and a secure and diverse food supply for our people can be obtained with a slightly lower level of direct payments. Some environmental conditionality is already present, which is good. I am not in favour of the Commission’s proposal to add further environmental conditions to 30% of direct payments, which would certainly be more complex and would have doubtful added value. I support the committee’s view that some transfer of resources from Pillar 1 to Pillar 2—that is to say innovation, research and knowledge transfer—should be an objective.

Finally, in view of the time constraints, I will make three bullet points. First, the European Development Fund, which is the biggest element off-budget, should be brought within the multilateral financial framework and, separately, the cost of the European External Action Service should be identified and ring-fenced. Secondly, the case for an EU-wide financial transaction tax has not been made. The last thing we want is more taxes. Thirdly, the committee states that,

“a VAT-based own resource is not appropriate for funding the EU budget”,

and that it might be removed entirely. It also states:

“This need not necessarily prejudice the UK abatement, although we acknowledge that determining a new base for calculating the abatement might require a difficult negotiation”.

The committee’s overall report is truly excellent, but this point seems a trifle naive. I am with the Government when they are quoted in paragraph 233 as having fundamental objections to changes to the own-resource system, notably because the Commission’s proposal,

“would remove the permanency of the UK’s current abatement mechanism”.

The new own-resource decision would require unanimity, so I say to the Government: stick to your fundamental objections.

There is only one ministerial statement that I currently always carry in my wallet. It is a statement by the noble Lord, Lord Sassoon:

“We are very concerned about those growing contributions, and we are working hard to moderate them”.—[Official Report, 8/11/10; col. 1.]