European Union Committee: Multiannual Financial Framework

Lord Boswell of Aynho Excerpts

Tuesday 19th June 2012 Grand Committee

Moved by

[Lord Boswell of Aynho]

That the Grand Committee takes note of the reports of the European Union Committee on the multiannual financial framework 2014-2020 (13th and 34th Reports, Session 2010-12, HL Papers 125 and 297).

[Lord Boswell of Aynho]

My Lords, this Motion invites the Committee to take note of two reports of your Lordships’ European Union Committee, which I now chair, regarding the European Union’s multiannual financial framework, or MFF for short. These reports were published as the Commission produced its overarching framework for the MFF for 2014 to 2020, and following the Commission’s detailed proposals. These proposals are complex but at heart this is a simple, and hugely important, debate. It is about how much money the EU should spend, what it should spend money on and how that spending should be funded.

I should like to begin by thanking my predecessor, the noble Lord, Lord Roper, and the committee members who worked on these two inquiries. Each of our specialist sub-committees examined in detail the spending proposals within its remit, so these two short reports distil a massive amount of research and deliberation. It is indeed a privilege to introduce this timely debate on such a vital topic.

At a time of rapid and wrenching change in the European Union and the euro area, the MFF matters more than ever. The committee is following closely events in the eurozone, but short-term action to stem the current crisis must be consistent with the EU’s long-term objectives. The most crucial of these are enhanced competitiveness to support economic growth, based on a fully functioning single market, and greater value for money spent at European level.

Of course, these reports recognise other important factors in deciding where the EU’s money is spent: for example, the principles of cohesion and solidarity and the importance of environmental action. Yet these must be fitted into a budget of financial restraint and considered on an objective basis. Such an important budget should not contain fudged political deals, but should be transparent about where money is being prioritised, and why.

There are a number of difficulties with the MFF as it has been proposed. There needs to be more restraint, and we call for the next MFF to be no higher in real terms than the current one, which will end in December 2013. Equally important, however, is that this limited budget is spent wisely and directed to where it will do the most good. In our view it is disappointing that the Commission’s proposals contain largely cosmetic changes to the current distribution of spending. Economic circumstances have changed radically; so, too, should strategic budget plans.

In practical terms, the proposed MFF lacks transparency in calculation. Noble Lords will be familiar with the problem of comparing apples and pears. They will also note that there is no systematic resource accounting in it. Anyone reading the Commission’s very lengthy set of proposals, or indeed the Government’s responses, would struggle with the mixed use of real terms and current prices. The overall size of the MFF, and the way each year’s budget increases, are based on out-of-date calculations of gross national income and out-of-date growth forecasts. I submit that more up-to-date figures must be used in negotiations so that a realistic budget can be set. We call for sensible restraint based on accurate figures.

A particular difficulty in such a volatile economic climate is the length of the MFF itself. We would prefer a five-year framework, which could be made consistent or congruent with the European Parliament’s political term, offering some real democratic accountability on the strategic budget. Europe’s economic climate may look very different in five years’ time, and there is no imperative that demands a seven-year MFF.

In any case, long-term projects, such as the Galileo project, do not fit into a seven-year term either. The Commission’s proposed solution, which we oppose, has been to take large-scale or unpredictable projects such as Galileo and ITER out of the MFF entirely, calling them off-budget expenditures. Member states will still have to pay for these, just as they will pay for everything else, but they are not counted as part of the MFF when the Commission talks about the size of its budget. This is not good financial sense; the MFF must be negotiated with the same rigour as a proper business plan. Taking major spending lines off-budget will weaken accountability and reduce transparency. Instead, we would prefer to see more flexibility introduced within and between budget lines so that the MFF can offer a more agile growth agenda.

What of the MFF’s five major headings? Many members of our sub-committees are going to speak in this debate, so I will not speak for too long on the specific programmes that they scrutinised. However, I would like to say a little on the committee’s main conclusions on each heading. Heading 1, “Smart and Inclusive Growth”, is a complicated heading taking up almost half of the MFF. It contains several big programmes, such as cohesion funding, the new cross-border infrastructure programme Connecting Europe, and the new Horizon 2020 programme that will fund research and innovation.

The committee supported much of what was proposed for this heading. Cohesion funding can offer an important counterbalance to stringent austerity, which might have an undesirable impact on vital civil society programmes. It can also, if appropriately targeted, facilitate growth in weak regions, which is vital in the present climate. I am sure that the noble Lord, Lord Harrison, will speak in more depth about the work of his committee on cohesion funds.

The committee also supported efforts to boost research and innovation via Horizon 2020. If implemented correctly, this new programme offers benefits over the current structure with a single set of rules and fewer controls and audits to reduce bureaucracy in the research field. It also offers a more joined-up approach to ensuring that research progresses through the innovation cycle and into the marketplace, so that innovation does not stall. These measures will foster innovation in SMEs, which are vital for Europe’s growth.

Connecting Europe is an ambitious infrastructure programme covering energy, transport and tele- communications. Although EU-level action is important in these areas, the committee questioned whether such a large budget was really necessary for the programme. We recommend a strategic review to ensure that EU spending is secondary to market investment and that only projects that offer real added value are taken forward. I am sure that the noble Baroness, Lady Young of Hornsey, will speak to some of the other programmes in heading 1, such as ERASMUS for All and Creative Europe. However, as an introductory and personal remark, I say that these are important proposals that are sometimes overlooked owing to their smaller size. These programmes can support growth by promoting lifelong learning and supporting the creative and cultural industries in the EU.

The committee found the proposals for heading 2, “Sustainable Growth”, more unsatisfactory. The bulk of this heading is taken up by the common agricultural policy; I remind the House of my personal interest in this area, as a farmer and landowner. The Commission’s proposals reduce only slightly the proportion of the MFF being spent on the CAP. Evolutionary change offers the best path to sustained reform, but the committee strongly disagreed with the semi-status quo that we feel is on offer. The new CAP proposals include the greening of Pillar 1 payments. The committee was sceptical about whether the proposals would deliver the intended environmental benefits. Instead, we supported greater funding for Pillar 2, which will target the challenges of biodiversity and climate change. I know the noble Lord, Lord Carter of Coles, will say more on this.

Regarding heading 3, “Citizenship, freedom, security and justice”, the committee urged that the EU’s growing responsibilities under justice and home affairs should not be ignored. We disagreed with the Government’s suggestion that the budget for this heading should not rise above that over the previous financial framework. We proposed instead funding that matched 2013 expenditure in real terms. This would offer support for the EU’s increasing activity. The noble Lord, Lord Hannay of Chiswick, will have more to say on this heading, I am sure.

Heading 4, “Global Europe”, funds pre-accession instruments and many others, such as the instrument for the promotion of democracy and human rights worldwide. The noble Lord, Lord Teverson, chairman of our sub-committee on external affairs, will lead our discussion on this heading. However, overall the committee supported the funding and increased flexibility that was proposed. We also called for the European External Action Service to have a separate, ring-fenced budget to improve accountability. Perhaps the Minister will tell the Committee whether he thinks this will be possible when negotiations are finalised.

Finally, there is heading 5, “Administration”, which is often in the headlines. The Commission proposes to keep spending in the next MFF level with spending during this MFF. The Commission is also proposing revisions to the staff regulations, which dictate 65% of the spending in this heading, although they are not technically part of the MFF. The committee recognised the Commission’s efforts to bring the EU’s administrative costs more in line with those of member states. However, it agreed with the Government that more should be done to reflect the difficult decisions being taken at national level. I would be grateful if the Minister could update the House on the progress of negotiations over the staff regulations.

I should also mention another aspect of the Commission’s proposals that has been prominent in the news: the financing of the EU budget, particularly the proposals for a financial transaction tax. We concluded that no case had been made for an FTT. The proposal is unsuitable because it would fall disproportionately on a minority of member states, such as the UK, and because it cannot be linked to any genuine EU policy objectives. The committee also questioned whether a VAT-based own resource was appropriate, either as proposed, or in its current form.

The committee also objected strongly to the proposals to eliminate the UK’s permanent abatement and to replace all current correction mechanisms, of which there are many, with lump-sum payments. It cannot be overemphasised that these mechanisms are designed for a purpose: to correct unfairness in member states’ net outcomes. For the UK, such imbalance is particularly owing to the CAP. I hope the Minister will confirm that the UK is strongly opposed to these proposed changes.

Two key themes run through these reports: first, all EU spending must support growth and competitiveness. Secondly, today’s economic crisis is no excuse for ill considered or profligate spending, but reinforces the need for sound underpinnings for work aimed at recovery. The MFF is still very much under negotiation by the Council. The Danish presidency has prepared a “negotiating box” that will be carried forward by the Cypriot presidency. The first major discussion of the MFF will be at the Council meetings on 28 and 29 June. It is therefore important for the House to debate and give its input on these issues so the Minister and the Government are able to take the House’s views into account as negotiations progress. I look forward to the contributions from noble Lords. I hope the Minister will be able to update the House as much as he is able on the Government’s position regarding the Danes’ negotiating box, the alliances being forged with other member states and the way forward at the next Council meeting. I beg to move.

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[Lord Boswell of Aynho]

My Lords, I am very grateful to all those noble Lords who have participated in this debate. I am conscious that the hour presses now, so shall respond only very briefly. The contributions that have been made have reinforced the opinion I have already formed in the first month of work on the EU Select Committee as to the tremendous reservoirs of expertise we have, both in the members and in the staff of our sub-committees and main committee. That has come out very closely and clearly in this debate today, in what is a very technical and at the same time a very important subject. I am grateful for that.

I am also grateful for the Minister’s response. All of us are conscious of, and many of us have direct experience of, the sensitivities of going into a negotiation and the need to have the right kinds of signal to do that. I can probably speak for nearly all the members of the committee and sub-committees in saying that we want to see the maximum amount of flexibility and imagination in the negotiations in terms of the particular options that can be taken and some of the particular interests that have been mentioned today. Even if we may not absolutely coincide with him on the exact framework, many of us would welcome the fact that he has shown a commitment to rigour and so forth. That is not a card to play or throw away at this particular juncture, so we are grateful for the way he has put that and responded. It has contributed to an understanding for which I am very grateful. In that spirit, we wish the negotiations well.

Motion agreed.