Documents considered by the Committee on 8th December 2010 - European Scrutiny Committee Contents


21 Financial management

(31839)

12614/10

COM(10) 403

Draft Decision amending the Inter-Institutional Agreement of 17 May 2006 on budgetary discipline and sound financial management as regards the multiannual Financial Framework, to address the financing needs of the ITER project

Legal base—; co-decision; QMV
DepartmentHM Treasury
Basis of considerationMinister's letter of 2 December 2010
Previous Committee ReportHC 428-ii (2010-11), chapter 9 (15 September 2010), HC 428-iv (2010-11), chapter 2 (20 October 2010) and HC 428-vii (2010-11), chapter 5 (10 November 2010
To be discussed in CouncilPossibly 20 December 2010
Committee's assessmentPolitically important
Committee's decisionCleared

Background

21.1 The Inter-Institutional Agreement on budgetary discipline and sound financial management provides for many aspects of the planning, preparation, execution and control of the EU Budget. The agreement is between the Council, the European Parliament and the Commission — it has no legal base but is politically binding. It is an important tool of budgetary discipline and includes a multiannual Financial Framework. The Financial Framework is intended to ensure that, in the medium term, EU expenditure develops in an orderly manner and within the limits of own resources. It contributes to budgetary discipline by setting ceilings on the amount of funds available to the EU Budget in broad policy areas for each year it covers. The current Inter-Institutional Agreement was agreed in June 2006 and its Financial Framework spans spending over 2007-2013.[98]

21.2 On 4 May 2010 the Commission presented a Communication, ITER status and possible way forward, which, amongst other things, identified a shortfall in funding for the International Thermonuclear Experimental Reactor (ITER).[99] On 12 July 2010 the Council adopted conclusions that confirmed the short-term financing need for additional commitment appropriations for ITER, identified by the Commission as €1.4 billion (£1.24 billion) in 2012 and 2013 — that includes €800 million (£710.48 million) in 2012 and €600 million (£532.86 million) in 2013. The Council called on the Commission to propose securing this funding within the overall ceiling of the current Financial Framework, based primarily on redeployment of funds within Heading 1a of the Budget (competitiveness for growth and employment). At the same time, the Council said that the EU contribution to ITER's construction phase must be limited to €6.6 billion (£5.86 billion) (in 2008 values) over the period 2007-2020, and called for greater cost control and containment.[100]

21.3 The draft Decision is intended to amend the Inter-Institutional Agreement on EU financial management so as to change the Financial Framework for 2007-2013 in order to meet the Council's conclusions of July 2010 on ITER financing. In July 2010 the Commission put forward this as a means of securing €860 million (£763.77 million) of the €1.4 billion (£1.24 billion) additionally required for 2012 and 2013 — it suggested that:

  • €460 million (£408.53 million) be secured through redeployment of funds within the 7th Research Framework Programme under Heading 1a; and
  • a further €400 million (€355.24 million) be transferred, from the unallocated margin of Heading 2 (preservation and management of natural resources) in 2010, to Heading 1a in 2012 and 2013.

This would result in no overall increase to the Financial Framework.

21.4 When we considered this document, in September 2010, we heard that:

  • the Government supports ITER as a vital step to practical fusion energy supply, while considering that important management issues need to be addressed, along with the rising costs of the project;
  • for this reason the Government supported the Council conclusions of 12 July 2010 on ITER, including the call for cost control and containment and for further improvement of the governance of the ITER project;
  • it would argue, therefore, for full identification of the funding shortfall for ITER and for a more substantial proportion of that shortfall to be met through redeployment of funds within Heading 1a; and
  • it was important to note in this context that the Financial Framework already foresees a substantial increase of funding for the 7th Research Framework Programme from 2010-2013, reflecting the continued strategic importance to the EU of research, innovation and development work.

We commented that, whilst we recognised the importance of the ITER project, we shared the Government's concern about the use of unallocated margins. So before considering the proposal further we asked to hear from about developments in the Government's push for a more substantial proportion of the funding shortfall for ITER to be met through redeployment of funds within Heading 1a.

21.5 On 20 October 2010 we reported an interim account from the Government on the negotiations, from which we learned that a large number of Member States shared the Government view. And on 10 November 2010 we reported a further account which revealed some progress towards a satisfactory conclusion. But, noting that an entirely satisfactory resolution of this issue had not yet been achieved, we said we did not wish yet to clear the document. However, we recognised that the Government might need to acquiesce in a conclusion on this matter in the course of the Conciliation Committee 2011 budgetary discussions on 11 November 2010, even though the document remained under scrutiny. Therefore, if the Government judged it appropriate in that context, we agreed, in terms of paragraph (3)(b) of the House of Commons Scrutiny Reserve Resolution of 17 November 1998, that it might join an agreement on the draft Decision. We asked to have an account of developments in due course.[101]

The Minister's letter

21.6 In the event the draft Decision was not agreed during the Conciliation Committee negotiations. So the Economic Secretary to the Treasury (Justine Greening) writes now to tell us of developments, saying that:

  • discussions have taken place in the Council's Budget Committee and in COREPER, to make progress on this issue;
  • there has not been a further formal proposal from the Commission; and
  • recalling that the Council had called for the financing shortfall to be met primarily through reallocation of existing resources in Heading 1a (competitiveness for growth and employment), the European Parliament's position was that the shortfall should be met through an increase to the Financial Framework.

21.7 The Minister reports that the Presidency has, as the basis for possible final agreement with the European Parliament, proposed:

  • a reduction in the amount of funding required from €1.4 billion (£1.24 billion) to €1.3 billion (£1.15 billion)— this is possible because the F4E Agency[102] has identified €100m of savings from the project this year, which reduces the overall figure required;
  • €460 million (£408.53 million) to be found through reallocation of existing resources in Heading 1a in 2012 and 2013; and
  • the balance of €840 million (£746 million) to come from the available budget margins in 2010 and 2011.

She says that:

  • in practice, this would be achieved through revising the Financial Framework to reduce heading ceilings as needed in 2010 and 2011 and increase by corresponding amounts the Heading 1a ceiling in 2012 and 2013, as required for ITER;
  • this would not require an overall increase in the Financial Framework; and
  • any such increase would be completely unacceptable to the Council.

21.8 The Minister continues that the Commission issued a non-paper on 26 November 2010 setting out the latest state of the available budget margins, to support the third element, of €840 million, and showing changes from the situation reported to us previously, in Headings 2 (Preservation and management of natural resources) and 5 (Administration):

  • the Commission's proposed amendment to Draft Amending Budget No 10 to the 2010 Budget[103] reduces the available margin in Heading 2 in 2010 to €484 million (£429.84 million) from its previous level of €814 million (£722.91 million);
  • the Commission therefore proposes using a further €269 million (£238.9 million) from the Heading 2 margin in 2011 for ITER financing — the latest Commission proposed Draft Budget for 2011[104] provides for a total margin in Heading 2 next year of €1,679 million (£1491.12 million), from which this amount would be deducted;
  • in Heading 5 the Commission proposes using €54 million (£47.96 million) from the 2010 Budget margin, rather than the €94 million (£83.48 million) suggested in its previous assessment of the margins — this, and the overall decrease in the amount to be allocated from the Heading 2 margin, is to reflect the reduction in the total amount required for ITER from €1.4 billion to €1.3 billion.

The Minister adds that the available amounts in the 2010 margins of €15 million (£13.32 million) in Heading 1a and €18 million (£15.99 million) in Heading 3a (Freedom, security and justice) are unchanged from the situation reported to us previously.

21.9 The Minister says that:

  • the Government welcomes that this proposal achieves full financing of the ITER shortfall at once, contrary to the Commission's original financing proposal in July 2010;
  • recalling that it wished the proportion of funding found through reallocation to be increased, in order to limit the eventual cost to Member States, there has not been the progress the Government wanted on this;
  • it notes and supports, however, the reduction in the overall figure required for ITER, which will impact on the contributions required from Member States;
  • this has been found through cost savings and the Government will continue actively to push for more such savings in the years ahead;
  • taking into account that its and other Member States' strong efforts have not been able to secure further reprioritisation of existing resources and that the European Parliament's position was to support only fully additional spending, through an increase to the Financial Framework, the Government is of the view that the Presidency's proposal is the best achievable solution in these circumstances;
  • it is important for the future of the ITER project to finalise a solution to the funding shortfall and the Government believes the Council and the European Parliament should now try to bring this negotiation to a close;
  • the Presidency's proposal has been widely supported in the Council and if the European Parliament can agree to it, then it will take effect formally in the new Financial Framework Regulation;[105]
  • discussions of both ITER and this Regulation are ongoing with the European Parliament — it is not yet clear whether the two sides will be able to reach agreement on them; and
  • if they can the Government understands that the Presidency is hoping for the Council to adopt the new Regulation at the Environment Council on 20 December 2010.

Conclusion

21.10 We are grateful to the Minister for her full account of where matters stand on this proposal. We note that the Council appears to have achieved as much improvement as possible, given the circumstances, and, having no more questions to ask, now clear the document.


98   See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:139:0001:0017:EN:PDF.  Back

99   See http://www.iter.org/.  Back

100   (31601) 9424/10 + ADD 1: see HC 428-i (2010-11), chapter 27 (8 September 2010). Back

101   See headnote. Back

102   Fusion for Energy (F4E) is the EU's Joint Undertaking for ITER and the development of fusion energy: see http://fusionforenergy.europa.eu/.

 Back

103   (32094) 15250/10: see chapter 22 in this Report. Back

104   (32214) -: see chapter 22 in this Report.

 Back

105   (31400) 7182/10: see HC 428-vii (2010-11), chapter 5 (10 November 2010). Back


 
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