Remuneration of EU Staff

Chloe Smith Excerpts

Tuesday 21st February 2012 Commons Chamber

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I beg to move,

That this House takes note of European Union Documents No. 17625/11 and Addendum, relating to a draft Regulation adjusting, from 1 July 2011, the rate of contribution to the pension scheme of officials and other servants of the European Union and a Commission staff working paper: Eurostat report on the 2011 update of the 2010 actuarial assessment of the Pension Scheme for European Officials, and No. 17627/11, a Commission Communication to the Council providing supplementary information on the Commission report on the Exception Clause of 13 July 2011; questions the European Commission’s conclusion that recent and challenging economic conditions do not warrant application of the Exception Clause; regrets that the Commission has not modified the salary adjustment method this year; stresses that consequent increases in EU staff pay, proposed by the Commission, are completely unacceptable when as part of its fiscal consolidation plans the Government has imposed restraints on public sector pay; notes that the framework for setting EU remuneration requires reform to increase Member States’ oversight and control, which the ongoing review of the EU Staff Regulations may enable; and commits to achieve very significant reductions in EU administrative spending in the next Multiannual Financial Framework as part of the UK’s overarching goal to impose real budgetary restraint.

I welcome the opportunity to discuss the 2011 EU salary adjustment and the Government’s agenda to reform and reduce EU administrative spending. The House is familiar with the context for EU spending: while Europe’s economy remains very fragile, delivering and supporting plans to consolidate public finances remains crucial and, at the same time, we must also seek to promote growth using available resources.

There are two clear implications for the EU budget. First, the EU must live within its means; high spending is not the way to fix Europe’s problems. Secondly, all EU spending must deliver the highest added value. Strict and rigorous prioritisation is necessary to reduce waste and inefficiency.

Over the past few years, the Government have worked hard to establish a new framework for budget discipline at EU level. That is an important task because current EU spending targets, agreed by the previous Government, set a rising trajectory for EU spending to 2013 that is no longer realistic.

We have pursued our goal with considerable success. For 2011, growth in EU spending was limited to 2.91%, far below the unacceptable 6% increase demanded by the Commission and European Parliament, and last year, the 2012 EU budget was set at only 2.02% above the original 2011 budget, exactly as proposed by the European Council in July. That delivered on the Prime Minister’s determination to freeze the EU budget in real terms, and set spending €4 billion below the level advocated by the European Parliament.

A drive to limit EU administrative savings is a key plank of the Government’s approach to budgetary restraint at EU level. It reflects the tough domestic measures the Government are taking to find savings. As set out in the spending review, the administrative budgets of central Whitehall Departments will be reduced by 34%, saving £5.9 billion a year by 2014-15 so that resources can be focused on front-line services.

The EU should show a similar drive to find efficiency savings. Any suggestion of waste in the EU budget damages the standing of the EU institutions and of the EU as a whole. Its ambition, however, is evidently lacking. Strikingly, for 2012 the Commission proposed to save only €695, much less than one 1,000th of its €3.3 billion budget. We are clear, however, that the EU institutions must manage themselves and the programmes that they help to manage far better and on lower budgets. We have called for a cash freeze in EU administrative spending in recent annual budget negotiations and we want to see cash cuts in that area over the next multi-annual financial framework.

Today, I can inform the House that the Chancellor took the unprecedented step of voting against discharging the accounts for the 2010 EU budget. We have not seen enough progress in reducing the level of errors in EU transactions, which is unacceptable. We should remember that national taxpayers stand behind the EU budget and that is why we have clearly signalled the need for important and urgent improvements to the quality of EU financial management.

[Mr William Cash (Stone) (Con)]

I am sorry to intervene on the Minister because of the effects of her unfortunate accident, but is there a blocking minority against the proposals and has it been exercised? May I ask whether we are not only voting against it, but have voted against it, and what the outcome was?

[Miss Smith]

I think I will cover all those points in my speech, although I am grateful to my extremely well-informed hon. Friend for his prompt to do so.

Let me turn now to the 2011 EU salary adjustment. The Commission’s attitude towards EU staff pay adjustments is another clear indication of its estrangement from reality. In the UK, the public sector pay bill makes up more than half of departmental resource spending, so action on pay is inevitably part of the Government’s fiscal consolidation strategy. Accordingly, the Government have announced a two-year public sector pay freeze for those earning above £21,000, with pay awards following that averaging only 1%. Those measures are estimated to save around £3.3 billion a year by 2014-15.

At EU level, on the contrary, staff remunerations counted for 69% of the Commission’s budget in 2011, which means that EU annual salary adjustments have important implications for the size of EU administrative costs. However, rather than taking action to reduce its wage bill the Commission proposed to increase it by 1.7%, representing an extra €39 million, in the year from July 2011, despite the fact that the vast majority of EU officials earn significantly more than most public officials in the UK and many other member states.

I turn now to the position of the UK and the Council. Clearly, any pay increase for EU staff is unacceptable. In conjunction with other member states, the Government called on the Commission to lower its proposals, taking into account the economic situation and the policy measures in many member states to curb public wage bills. The request was made not once but twice, first in December 2010 and again in November 2011. The requests were made by invoking the so-called exception clause—article 10 of the 11th annex to the EU staff regulations—the only means for seeking to alter the mechanistic salary adjustment process under the current system.

Each time, the Commission has stubbornly refused to reduce growth in EU staff pay. Its defence for its inaction has been internally inconsistent, self-serving and, as the European Scrutiny Committee observed, one-sided. By claiming that there has been no

“sudden and serious deterioration in the economic and social situation”

in the EU, the Commission has undertaken faulty analysis. For example, it based its rosy evaluation on forecast indicators that did not pertain to the period defined for its assessment.

More seriously, the Commission ignored the huge number of important fiscal consolidation measures adopted and implemented by member states during the period under review. The Commission itself has strongly advocated such measures, yet incredibly it used stabilising debt and deficit levels to justify higher pay for its own staff.

Most seriously of all, the Commission has manipulated the current system to deprive member states of the opportunity to evaluate the situation independently and to adopt appropriate measures, at a time when it is evident to us all that taking immediate action to curb growth in EU staff pay is the right thing to do. That is why the UK and the wider Council rejected the 1.7% pay increase in December. It is also why we have blocked reductions in EU staff contribution rates to their pension scheme. In addition, the Council has lodged a court case against the Commission for mishandling the 2011 salary adjustment.

The Council’s decision to proceed with legal action against the Commission indicates the seriousness with which we treat the issue. Should the Council lose the case, it will simply add weight to our view that the current process is defunct and cannot adapt properly to difficult economic circumstances. In any event, reform of the salary adjustment system is urgent. The ongoing review of the EU staff regulations, which set out the rules in this area, provides an important opportunity to make that happen.

Delivering a subtler and more responsive way of setting EU staff pay, which empowers the Council to make suitable adjustments in times of economic distress and more generally, is an important objective. One part of the Government’s broader agenda to achieve efficiency gains and financial savings in the EU budget is via reform of the staff regulations that determine such a high level of the EU’s administrative budget.

Overall, the potential for savings is high. This dossier is subject to qualified majority voting and co-decision with the European Parliament. Our success will depend on building firm alliances, so the Government are already working closely with other member states to agree cost- saving ideas that can command broad support in Council.

[Mr Christopher Chope (Christchurch) (Con)]

Does my hon. Friend agree that the problem of co-decision with the European Parliament is that its Members already have their fingers in the till and are giving themselves a substantial pay increase for the coming year?

[Miss Smith]

I certainly agree that everybody associated with European institutions needs to show restraint at this time, as I think the debate will show in some detail, so I very much welcome my hon. Friend’s intervention. He will be reassured that alongside the measures I have already laid out, we intend to pursue the modernisation of EU institutions, in order to help them become more effective, and to encourage a better geographical spread of EU officials from across member states.

[Jacob Rees-Mogg (North East Somerset) (Con)]

Further to the point made by my hon. Friend the Member for Christchurch (Mr Chope), is the Minister aware that the European Court of Justice has ruled that sufficient circumstances did not exist for abandoning the pay rise proposed in 2009? It has therefore been judge in its own cause, abandoning one of the founding principles of natural justice.

[Miss Smith]

My hon. Friend makes a further fine point, as he frequently does. By failing to restrain the budget, the Commission is almost, metaphorically speaking, acting as judge and jury in its own case, deciding the matter in a way that could clearly be said to be self-serving. My hon. Friends will all be pleased to hear that reform of the staff regulations is extremely important in the next multi-annual financial framework, because it is there that we can control administrative expenditure year in, year out.

The House is aware that we need to promote budgetary restraint at every opportunity. That is the UK’s top priority. That means that we need to ensure that the EU budget contributes to domestic fiscal consolidation. The Prime Minister has stated, jointly with his EU counterparts, that the maximum acceptable expenditure increase through the next financial perspective is a real freeze in payments. To deliver this, we want very substantial reductions in many areas of EU spending, compared to the Commission’s proposals, including on salaries, pensions and benefits, as well as discretionary administrative spending, such as buildings policy and IT. The EU cannot continue to insulate itself from cuts at the expense of UK taxpayers.

[Mr Nigel Dodds (Belfast North) (DUP)]

The Minister talks about ways of cutting back expenditure. What representations have the Government made recently on the terribly wasteful and inefficient practice by the European institutions, particularly the Parliament, of moving between Strasbourg and Brussels? Have the Government pressed that issue recently?

[Miss Smith]

As I hope my comments have made clear to all hon. Members in the Chamber, this Government take extremely seriously all aspects of budgetary restraint. I firmly expect us to review the situation with the same principles at hand. We are looking for the kind of restraint in the EU institutions that we can show proudly to UK taxpayers back at home. That is what I am laying out today across a number of areas. I mentioned buildings policy, for example, in my comments a moment ago.

I shall conclude in order to allow other hon. Members to have their say on this extremely important topic. The Commission must not be allowed to cosset its officials with pay packages that are grossly inflated. It has a clear responsibility to put forward an ambitious programme of reform to reduce its administrative budget. That is why this Government will continue to challenge the current system in order to contain the costs of Europe. I commend the motion to the House.

--- Later in debate ---

[Miss Chloe Smith]

I thank colleagues on both sides of the House for an interesting and consensual exchange of views. The British Parliament has clearly said today that it believes that the Commission’s proposals to increase EU staff pay are unacceptable, and that they serve only to demonstrate how out of touch the institution is with the domestic challenges that we face. This shows how important it is to act in our national interest, financially and politically.

I shall do my best to respond to the questions that have been raised in the debate. If I leave out any details, I shall attempt to furnish colleagues with that information in other ways if they so wish. I shall respond first to some of the political points that have been made. It was suggested that the Prime Minister’s actions in looking after our national financial interests could have left the UK isolated in Europe, but it is clear to most Members that he has stood up for the UK’s national interests. Indeed, even President Sarkozy said last week at the Anglo-French summit that he might have acted in the same way. In contrast, the former Prime Minister gave up a large slice of our rebate, leaving us £2 billion a year worse off, as has been ably pointed out.

Several hon. Members have asked what action the Government will take to deliver on our tough stance. In the ongoing review of the staff regulations, we are seeking to deliver savings in a number of ways: first, by cutting the package of allowances for EU staff, especially the 16% expatriation allowance; secondly, by improving the affordability of EU pensions, which I know my hon. Friend the Member for Bury St Edmunds (Mr Ruffley) will be pleased to hear; and thirdly, by adjusting the system for EU staff pay so that we can avoid higher pay in future. That adjustment involves a complicated method with which some colleagues will be familiar.

[Chris Bryant (Rhondda) (Lab)]

The Minister has just nodded towards the hon. Member with the wonderful tie, the hon. Member for Bury St Edmunds (Mr Ruffley)—

[Chris Bryant]

I think that his tie and mine are from the same shop. In fact, I know they are. The hon. Gentleman read out a long list of places where he thought there should be either no representation or minimal representation, including Papua New Guinea. Papua New Guinea has a high level of representation because it has the second largest rain forest in the world, and it is essential to climate change work. If the EU is to perform its work effectively, it needs representation there, and I hope that the Minister will not succumb to easy attacks.

[Miss Smith]

Nor will I succumb to interventions that could take us far beyond the scope of today’s debate. I know, however, that the hon. Gentleman will be particularly pleased to hear that the lobby that we have put in place to give effect to our tough stance has already had an effect. For example, the Commission, having been put under pressure, is preparing to reduce European Union staff levels by 5% between 2014 and 2020.

Returning to the actions taken in the past year to deliver the agenda for EU administrative spending, and to what we are doing on staff regulations reform, I can tell the House that the UK has been a signatory to two joint letters calling on the Commission to deliver “significant” savings in EU administrative spending over the next multi-annual financial framework. One was signed by 17 member states, and it represents a strong blocking minority, which I know my hon. Friend the Member for Stone (Mr Cash)—who has moved from his place—will be happy to note. He will be pleased to know that we intend to hold that strong blocking minority together as we press for more specific changes to the way in which the EU institutions work.

I refer hon. Members to two more letters, one of which is dated 20 February 2012 and deals with a plan for growth in Europe. It has been signed by 12 European Union leaders, and it talks about the effort that we must all make to put our national and international finances on a sustainable footing. In the second, dated 18 December 2010, our Prime Minister and those of four other countries state that the challenge to the European Union is not to spend more but to spend better.

A number of questions were asked about the cost of court cases. The costs of the 2009 court case were met from existing Council budgets, as per normal standards. However, it is clearly not ideal to deal with these matters through court cases. Clearly we need to seek deeper reform, and that is what we are endeavouring to do. I was asked whether we should distinguish between high and low-earning EU staff. Other hon. Members have spoken eloquently about this today, notably in respect of the judiciary. EU officials fall into the category of highly paid officials, and we therefore think that they are a legitimate target for key financial savings.

My hon. Friend the Member for Stone asked whether the Government were taking a blocking minority on the 2010 EU budget discharge. I am afraid he is still not in his place to hear my answer, but I shall be happy to discuss it with him later. At ECOFIN today, the UK voted against that; it was not, in technical terms, a blocking minority.

My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) asked how the Commission could possibly not invoke this course of action, and said that the economic situation was patently a crisis. I know that he will welcome my agreeing with him on that. There is patently an economic crisis, and highly paid officials cannot be immune from that. I know that he will appreciate being reminded that the Delphic oracle talked about “nothing in excess”. I believe that that applies to EU salaries, and the House has eloquently agreed with me today.

Our debate today sends a clear signal that the Commission must take the challenge of modernising its institutions far more seriously and, most important, it must work harder to deliver efficiency savings in administration. Stopping an unjustified hike in EU staff pay is an obvious and good place to start, and our debate today sends a clear signal that we stand behind the principle outlined in the court case brought against the Commission for refusing to take action on the 2011 salary adjustment. Disputing higher staff pay in 2011 was not only the right thing to do; it also highlighted the fact that the current process is defunct and cannot adapt properly to difficult economic circumstances.

[Kate Hoey]

If the court rules in the wrong way, if there is no change, and if all our protests here come to nothing, does the Minister agree that no one in the European Union will listen unless the Government take back some of the money from the amount that we were going to pay? When are we going to do something practical to show that we mean what we say, rather than simply repeating all these warm words that never change anything?

[Miss Smith]

The hon. Lady makes a fine point. I want to reassure her that the Prime Minister has worked hard during the past year to take serious action, and the Chancellor has taken serious action at ECOFIN today to demonstrate how seriously we take the improvement of the way in which the EU budget is managed and spent. The action that she suggests might be at the far end of the spectrum, but we take the full agenda very seriously none the less. We are resolved to lobby hard for cuts to EU administrative spending in future years, as part of the real freeze in the overall EU budget over the next framework. I commend the motion to the House.

Question put and agreed to.

Financial Services bill (programme) (No. 2)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the Order of 6 February (Financial Services Bill (Programme)) be varied, in paragraph 2, by the substitution for Tuesday 20 March of Thursday 22 March.—(Mr Dunne.)

Question agreed to.