Multiannual Financial Framework

David Gauke Excerpts

Wednesday 7th December 2016 General Committees

[The Chief Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship, Mr Hanson. Obviously the debate takes place within the context of the decision made by the British people to leave the European Union. The Government are clear that until the UK leaves the EU, it remains a full member and is subject to the same rights and responsibilities as other member states. This includes paying into the budget, participating in budgetary discussions and ensuring the best possible deal for UK and European taxpayers.

The Commission’s original proposals for the mid-term review were published in mid-September. The initial proposals involved some top-ups of more commitments for certain priorities and; some proposals for increasing the capacity of special instruments, and it recommended a new special instrument to be funded by so-called decommitments. It also recommended removing the cap on underspends that can be rolled over the future years.

The global ceilings for commitments and payments were maintained at the levels previously agreed in 2013 in the face of calls by the European Parliament to revise them. On the basis of no proposed changes to the MFF deal agreed in 2013, we, as part of the Council, began discussions on the substance. Since the Commission’s initial documents, the presidency has been progressing compromise proposals very quickly to expedite a deal. It has done an impressive job of addressing concerns, and we have worked hard with other member states to ensure the proposals are fully consistent with our central principle of budgetary restraint.

The proposals that went to the General Affairs Council on 15 November were even more limited in scope than the original proposals. For example, top-ups or spending increases to lower priority budget headings have now been financed largely through reallocations instead of using unallocated margins. The proposals for increasing special instruments capacity have been reduced from around €4 billion to €150 million per annum, with increases in just two special instruments. The new special instrument has been dropped. Caps on underspends that can be carried forward have been raised only marginally. Some ability to reshuffle funds between special instruments has been retained.

The proposals continue to maintain the global ceilings at their previously agreed levels, again meeting our clear priority, but they also now deliver the type of sensible flexibility that the Government have long argued for. Allowing underspends to be recycled and money to be moved more easily between years and headings will ensure that the Commission can be responsive to unforeseen events without consistently having to request further funds from member states. That is to be welcomed. We have ensured that the degree of financial exposure we signed up to for the MFF period of 2014-20 is unchanged from the original 2013 deal. On that basis the Government are content to allow the mid-term review to pass.

Alongside the mid-term review, the Commission also proposed a review of the financial regulations, which is a set of proposals to simplify financial rules governing EU expenditure. The proposals for the financial regulation review will be progressed to a slower timeframe than the main mid-term review discussions, and the Government support the high-level aims, which are: first, to simplify the rules governing EU expenditure; secondly, to increase its focus on delivering value for money; and thirdly, to allow it to respond flexibly to new priorities. As negotiations progress, the UK will continue to work with others to ensure that the focus remains on sound financial management of the EU budget.

I hope the Committee will pass today’s motion, which gives the Government a mandate to continue to work with like-minded member states in maintaining an overall mid-term review deal that delivers the Government’s priorities of allowing flexibility to respond to new priorities while continuing the overall MFF ceilings.

Documents linking the mid-term review and the 2017 annual budget are also referenced in the motion. The annual budget has already been scrutinised by the Committees of both Houses and I recently welcomed the opportunity to discuss those proposals with hon. Members in Committee. I can confirm that in mid-November we worked hard with like-minded member states in the European Council to advocate a sensible deal for taxpayers on the 2017 annual budget. Our hard work resulted in a budget for next year that is in line with the seven-year deal signed in 2013 and 6% lower than the annual budget deal for 2016.

Again, I hope the Committee will continue to support our overall approach to these matters of working with other like-minded member states to ensure budgetary restraint while we remain members of the European Union.

[The Chair]

We now move to questions, which we have until 10 am to consider. I remind Members that questions should be brief and that this time is for questions; there is an opportunity for debate when we have finished questions.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure to serve under your chairmanship today, Mr Hanson, and indeed to serve opposite the Minister, in my first European Committee. I have a few brief questions. I will put the first three together, because they are all on a similar theme, and it will give the Minister adequate time to respond.

First, as the Minister has said, revised proposals were put forward at the European Council meeting of 15 November. However, as far as I am aware, full details of the revised proposals are not publicly available. Can he outline exactly what has been removed from or revised in the documents, other than that which he has referred to already? Indeed, does he have a date by which the revised proposals will be available?

Secondly, as far as I am aware, the proposals include a doubling of funds for the flexibility instrument and emergency aid reserve, and a new EU crisis reserve. However, the Minister has stated that there will be no new special instruments. Will the crisis reserve fund therefore not go ahead, and, if not, how does the Commission plan to deal with any unforeseen needs in the next four years?

Lastly in this suite of questions, the Minister’s letter to the European Scrutiny Committee said that the commitments proposals for special instruments have been reduced from €3.4 billion to €129 million per annum. Clearly, that is a colossal change of direction, not a minor tweak, so can he confirm exactly what funding will be allocated to which special instruments?

[Mr Gauke]

I thank the hon. Lady for her questions, and I welcome her to her first debate in a European Committee; I confess that this is not my first. It is good to see her in her place.

First, the hon. Lady asked how the proposals have changed since the initial Commission documents. I refer her back to the points I outlined in my opening remarks, but let me be clear: to begin with, top-ups or spending increases to lower priority budget headings have now been financed largely with reallocations, instead of using unallocated margins. We obviously welcome that. Secondly, the proposals for increasing special instruments capacity have been reduced from around €4 billion to €150 million per annum, with increases in just two special instruments. The new special instrument has been dropped, and I will come back to that in a moment. Caps on underspends that can be carried forward have only been raised marginally. Some ability to reshuffle funds between special instruments has been retained.

I will make two observations in respect of where we have got to following the work undertaken by the presidency on these proposals. First, from the perspective of a member state advocating budgetary restraint, this is clearly a move in the right direction. I have attended the negotiations on annual budgets for the past three years, and the dynamic is striking: the Parliament generally calls for a relaxation of controls; the Council of Ministers, although it contains a range of views, generally takes a more budgetary disciplinarian approach; and the Commission tries to broker a position. It is clear that the presidency proposals supported our view pretty strongly.

Secondly, as I said earlier, we believe that there should be greater scope for flexibility to respond to particular needs. In that context, it is better that that is funded by reallocations as much as possible; it should not come back to member states for more money. Again, we welcome the approach that has been set out. The crisis fund has been dropped because of a consensus that it is not required.

The hon. Lady’s third question was about special instruments. No changes have been made to the MFF ceilings. Proposals for placing special instrument repayments above ceilings were dropped early on. The emergency aid reserve increase was reduced from €220 million to €20 million per annum. The flex instrument increase was reduced from €530 million to €130 million per annum, and, as I say, the crisis reserve was dropped.

The hon. Lady asked when the full details would be released. I have outlined the main important areas, and it is now a question of reaching a conclusion on the mid-term review. I am not sure that I can update her about the date at this point.

[Rebecca Long Bailey]

In the written statement on 18 November, the Government confirmed that the UK had in fact abstained on the revised MFF proposals. Given that the documents before us would increase spending on great projects such as the youth employment initiative and Horizon 2020, can the Minister explain the rationale for abstaining and the reasons for the Council’s expediting this matter?

Finally, the documents state that the negotiations for the next MFF will begin next year. The remainder of the current MFF takes us up to 2020, by which time we may have been out of the EU for up to a year, according to the Government’s current timetable. Will the Minister confirm what role the UK will play in negotiating the next MFF? What will happen to our allocation of funding for the remainder of this framework if we have severed ties before 2020?

[Mr Gauke]

On the mid-term review, as I have explained, the current proposal ensures that the payment ceilings that we signed up to over this seven-year deal are preserved. Therefore, we would not be looking to oppose the proposed mid-term review. The proposals are essentially neutral, with respect to what we would expect to pay over the MFF period, but we recognise that some commitments and functioning are likely to outlast our membership. On that basis, we took the view that the most appropriate approach for us to take is to abstain. We think that is the most constructive approach in the circumstances.

The hon. Lady asked what our approach to the future MFF will be. She may be familiar with the answer. This will play into our negotiations for Brexit. In those circumstances, the point at which the negotiations will start for the next MFF will be in 2018. We can assume that we will be in the middle of Brexit negotiations at that point, and our role in the next MFF will also be discussed in those negotiations; I think that the two are linked.

On the hon. Lady’s point about why the mid-term review was expedited, the presidency was keen to make progress and show that the budget proposals could be delivered quickly. That is something we welcome. Sometimes these matters can drag on for some time, but where it is possible to make quicker progress, we should do so. I hope that that is helpful.

[George Kerevan (East Lothian) (SNP)]

I am pleased to serve under your direction, Mr Hanson. The hon. Member for Salford and Eccles (Rebecca Long Bailey) has covered a lot of ground that I would have reservations on, but I agree with the specific issues relating to the 2017 budget.

First, can the Minister confirm that the UK abstained on the reconciliation discussions between the Council and Parliament, and can he justify that? It seems that has a direct relationship to spending next year. Secondly, in the reallocation of funds that led to the increase in spending for next year on immigration and immigration security, how did that impact on previous plans to spend on development and development aid within the budget? Thirdly, given the significant funds that are allocated and the increase in funds that will be allocated for pensions and remunerations to former commissioners, is the Minister satisfied with the rules of conduct governing former commissioners in taking paid remuneration after they leave the Commission?

[Mr Gauke]

First, on why we abstained on the annual budget, it is fair to say that the budget deal has a healthy payments margin of €9.8 billion—over €7 billion more than last year—and we welcomed that. We still believe that the EU could go further to cut lower priority spending from the budget. However, progress has been made, and the UK recognises that by not voting against the budget. We very often voted against the budget in the past because we felt that not enough had been done to deal with wasteful spending and that better value for money could be obtained for the European taxpayer. However, given that the payment margins were healthy this year, we decided not to vote against. More could have been done, but, in the circumstances, we decided to abstain.

On the reallocation of immigration expenditure, I can reassure the hon. Gentleman that the spending on aid was not impacted by increases in internal security. In fact, both have been enhanced.

Pensions remuneration is not a matter for budget discussions; it is a matter for the rules that the Commission applies to itself, so there were no particular discussions on that point. The UK and other member states have pointed out that the European Commission’s administration costs are higher than we would like. Indeed, there has been an increase in recent years, particularly in administration costs, although that has largely been put down to increased security costs, given recent events. The specific point that the hon. Gentleman raised was not part of our discussions.

[Graham Stringer (Blackley and Broughton) (Lab)]

The EU vanity project, Galileo, has massively overspent, not because of need but because of technical and budgeting incompetence. Will the Minister tell us how much extra that has cost the British Exchequer and what that extra expenditure has done to the original cost-benefit analysis of Galileo? Will he also tell us what action the Government took to try to keep that project within budget? If he is unable to answer now—I would not be totally surprised—will he write to Committee members with his response?

[Mr Gauke]

I thank the hon. Gentleman for his question. He has anticipated what I will say, which is that I will write to him with details. I will check, but as far as I understand it, the delays on Galileo have led to fewer commitments in this multiannual financial framework, rather than an increase. Of course, what has happened to the overall project costs is another matter, but my understanding is that it has led to fewer commitments over this period—I caveat that by saying that I will confirm it.

[Graham Stringer]

Finally, it is all very well looking at these budgets with under-expenditures, over-expenditures and changes in the budget, but will the Minister tell us what action the Government are taking, while we are still a member of the EU, to ensure that the EU has signed, audited accounts for all this money?

[Mr Gauke]

The hon. Gentleman takes me into the territory of another of the regular annual debates that we have in this room, or sometimes in the Chamber, on signing off EU accounts. Fraud and error levels fell again this year but are still too high and the issue that he raises continues to apply. We take the financial management of the EU budget very seriously. Taxpayers need to have confidence that their funds are being effectively managed and implemented at EU level. The Government have been robust in holding the Commission to account, including by regularly taking a strong public stand in voting against signing off the accounts. We continue to place pressure on the Commission to improve. We debate the issue regularly, and I look forward to the next time we do—I cannot remember exactly when that will be, but I am sure the hon. Gentleman will be there and will be able to make his points again on that.

[The Chair]

As there are no further questions, I thank Members for being very disciplined in asking questions and not straying into debate.

Motion made, and Question proposed,

That the Committee takes note of European Union Documents No. 12183/16 and Addendum 1, a Communication from the Commission to the European Parliament and the Council on the Mid-Term Review/Revision of the Multiannual Financial Framework 2014-2020: An EU budget focused on results (and Commission Staff Working Document); No. 12184/16, a Proposal for a Council Regulation amending Regulation (EU, Euratom) No 1311/2013 laying down the Multiannual Financial Framework for the years 2014-2020; No. 12185/16, a Proposal for an amendment of the Interinstitutional Agreement 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; No. 12186/16, a Proposal for a Decision of the European Parliament and of the Council amending Decision (EU) 2015/435 on the mobilisation of the Contingency Margin; No. 12187/16 and Addenda 1 to 2, a Proposal for a Regulation of the European Parliament and of the Council on the financial rules applicable to the general budget of the Union and amending Regulation (EC) No. 2012/2002, Regulations (EU) No. 1296/2013, (EU) No.1301/2013, (EU) No. 1303/2013, EU No. 1304/2013, (EU) No. 1305/2013, (EU) No.1306/2013, (EU) No. 1307/2013, (EU) No. 1308/2013, (EU) No. 1309/2013, (EU) No.1316/2013, (EU) No. 223/2014, (EU) No 283/2014, (EU) No. 652/2014 of the European Parliament and of the Council and Decision No. 541/2014/EU of the European Parliament and of the Council; No. 13147/16, Amending Letter No. 1 to the Draft General Budget 2017; No. 13377/16, a Proposed Decision on the mobilisation of the Contingency Margin in 2017; supports the Government’s efforts to work with other Member States to ensure budget discipline on proposals; welcomes the fact that the Mid-Term Review proposals respect the core commitments and payments ceilings agreed in 2013; further welcomes the additional flexibility proposed within the budget to increase the agility of the budget to respond to unforeseen events.—(Mr Gauke.)

--- Later in debate ---

[Mr Gauke]

I thank the European Scrutiny Committee for selecting these documents for debate, and I thank hon. Members for their contributions to our discussion. EU budget negotiations are a challenging process. That said, I am pleased to say that the proposals we have discussed are fully consistent with the multiannual financial framework and provide flexibility, which the Government welcome, to ensure that the Commission can deal with unforeseen needs and does not have to call on member states for additional contributions.

Let me briefly pick up some of the points that have been raised. I will not go into a full discussion of Brexit, which the House will have an opportunity to debate this afternoon, but let me make a point in response to the hon. Member for East Lothian. Given the referendum result, the context in which the UK is operating in the EU is clearly different. However, we continue to play an active part in EU business and have made that clear to other member states.

The Chancellor said in August that the UK

“will continue to have all of the rights, obligations and benefits that membership brings…up until the point we leave the EU.”

That includes seeking to secure maximum budgetary restraint and working alongside like-minded member states in the European Council to avoid higher than necessary cost to the UK and ensure maximum value for money in EU spending. Abstaining from budget votes is not unusual for the UK—we did so before the referendum as well. Were our interests threatened, we would be prepared to vote against and indeed block an agreement, but in this case our interests were not threatened. I attended the discussions on this issue last month, and that underlined the fact that the UK continues to participate fully in such debates.

As I have said, while the UK remains in the EU, we will continue to champion the need for an efficient EU budget that provides good value for the UK and European taxpayer, and press firmly to ensure fiscal discipline by restraining the budget to deliver the MFF deal. In so doing, we will work with like-minded allies to deliver the best possible EU budget deals within the parameters of the negotiations. We will of course keep members of the European Scrutiny Committee updated as appropriate, and I welcome their continued interest in this important issue. I commend the motion to the Committee.

Question put and agreed to.