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.]

EU: Budgets

Lord Williamson of Horton Excerpts

Thursday 2nd December 2010 Lords Chamber

[Lord Sassoon]

My Lords, I reiterate that we take the situation enormously seriously. It is deeply unsatisfactory, but progress has been made. In their latest report, the auditors have been able to certify a greater percentage of EU expenditure as satisfactory than before. There are significant complications with anything that goes to changes in the treaty arrangements in this area, but the UK is leading by example by, for instance, producing this consolidated statement, which a number of other member states are now producing and which is welcomed by the Commission. We are adopting every route to try to get improvement. We are by no means complacent, nor should the European authorities be.

[Lord Williamson of Horton]

My Lords, this is a good report. Does the Minister agree that, in relation to all the administrative expenditure of all the EU institutions, the court concludes without qualification that transactions were free from material error and that the supervisory and control systems complied with the financial regulation? Does he also agree that, in relation to other policies, the court rightly points out that there are some accounting errors and, in agriculture for example, some incorrect claims from member states, which the Commission will no doubt seek to correct and recover, but that this is not a finding of fraud?

[Lord Sassoon]

My Lords, I can certainly confirm what the noble Lord says. This does not necessarily excuse anything. If around 50 per cent of expenditure nevertheless does not meet the standards, whether through laxities in accounting or administration of the expenditure, it excuses nothing. Indeed, the level of fraud itself, which has been much discussed, is nevertheless at a very low level. According to the work of the European Anti-Fraud Office, OLAF, the level of fraud has decreased from 0.2 per cent of expenditure in 2007 to 0.07 per cent in 2008.

EU: Economic Governance

Lord Williamson of Horton Excerpts

Wednesday 27th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, it is likely that proposed treaty changes will be discussed at the meeting of heads of state at the European Council tomorrow. My right honourable friend the Prime Minister will be there. If treaty changes come forward, the coalition agreement is clear. We will look at any other proposals if they do not transfer powers from London to Brussels. That is the position.

[Lord Williamson of Horton]

Since the Statement refers not only to governance but, briefly, to the budget, and since media and other comment on the budget also refers frequently to the risk to the United Kingdom rebate, will the Minister confirm that there is no possibility of a change to the UK rebate, except with the agreement of the United Kingdom Government, because it is subject to unanimity?

[Lord Sassoon]

Indeed, my Lords, that is the position. It is worth reminding ourselves that since my noble friend Lady Thatcher won that rebate at Fontainebleau it has saved Britain £88 billion. That is what tough negotiations in Europe achieved. The previous Government agreed to significant changes to those arrangements, which mean that the abatement has come down very significantly. However, my right honourable friend the Chancellor said after the ECOFIN meeting on 8 September that we will make it clear from the start that:

“We are not going to give way on the rebate. No doubt others will want to put it into the mix but they’ll be wasting their time. People better know that at the beginning of the process or they are certainly going to discover it at the end”.

Noble Lords can see that my right honourable friend the Chancellor will be in the robust tradition set for us by my noble friend Lady Thatcher on these matters.