Wednesday, 6 February 2013

EU admin costs to be focus of new budget summit

EU leaders will meet in Brussels tomorrow for talks aimed at reaching a deal on the next seven year EU budget (Multi-annual Financial Framework) starting in 2014. 

Negotiations on the new MFF broke down in November, according to the Prime Minister due to the dissatisfaction of several countries over the EU Commission's refusal to cut administration costs.

The most recent MFF draft, circulated by EU Council president Herman van Rompuy before the last summit and revealed by Open Europe, proposed spending of €973.5bn.

However, it also proposed large reductions to the UK rebate and showed the Administration budget remaining at €62.6bn - a 12.8% increase over the €55.5bn in the 2007-13 MFF - rather than falling with other public administration cuts in EU member countries.

The Commission, supported by the European Parliament, originally proposed a 5.8% rise in the overall budget framework to €1.033tr, which included a 6% share for Administration.

Speaking to the European Parliament this week, the French President Francois Hollande said that he would accept a reduced EU budget settlement worth around €960bn, which aligns with a German figure circulated at the time of the last summit.

The British government's initial proposal was for a budget of €886bn but is now thought to be arguing for a total of around €940bn over the seven year period.

However, EU Parliament president Martin Schultz last week warned that MEPs would reject any deal that strayed too far from the Commission's original proposal.

EU taxes

Herman Van Rompuy has indicated that he will not circulate any new calculations before talks begin on Thursday. It is also not clear to what extent discussion over direct EU taxes are forming part of the EU budget negotiations.

The EU Council president before Christmas tried to turn the spotlight on Britain by proposing that proceeds from a new Financial Transactions Tax - in which Britain will not participate - should be contributed to Brussels and the amount offset against a country's contributions to the EU budget.

In 2011, the European Commission also proposed replacing the existing VAT-based contribution to the EU budget with a "modernized VAT" to arise "directly from the citizen to the EU".

The plan is thought to entail VAT levied at a fixed percentage by all member states in addition to national rates - likely to be a 1% uniform rate, rather than the 0.3% share of UK revenues the EU collects currently - and then transferred directly to the EU budget.

On the new MFF, David Cameron has pledged "at best a cut, at worst a freeze" in the seven-year spending limits, although Britain's contribution may rise in any case. On 31 October 2012, rebel Conservatives and Labour MPs teamed up defeat the government, with a majority voting for a real terms cut in the EU budget.

2013 budget rises

The EU's next MFF requires unanimous approval of EU member governments. If no agreement is reached in time to allow for legal ratification of the new deal by the end of 2013 - under a political, rather than legal, Inter-Institutional Agreement - the 2013 budget will be rolled over year-by-year with a built-in 2% rise to cover inflation.

Voting in Strasbourg just before Christmas, MEPs approved a €132.8bn (£107.2bn) annual EU budget for 2013. This included a 1.85% increase in the EU's admin costs from €8.277bn (£6.7bn) to €8.430bn (£6.83bn), at a time when member states on the other hand are making cuts to public services and national administration costs.

At €8.3bn (£6.7bn), EU administration costs amounted to 5.6% of the EU budget in 2012, but this will rise to 6.35% in the 2013 budget, showing that the EU's running costs - such as pay and perks for EU staff, plus the cost of buildings and facilities - are growing as a proportion of the overall budget despite Europe's financial difficulties.

Much of this is very visibly wasted on excessive EU pay, perks and grandiose facilities, together with EU self-aggrandisment. Examples include the EU's £45m tribute to itself, the House of European History, and a £250m refurbished 'RĂ©sidence Palace' building for the EU Council and its president Herman van Rompuy, due to open next year.

The 2013 deal also includes an extra €6bn (£4.86bn) added to the 2012 budget to cover EU overspending last year. This is less than the €9bn (£7.29bn) the Commission was demanding, likely resulting in a further request for additional funding being made by the EU as early as September 2013.

The addition of this extra €6bn to the 2012 budget gives the appearance that EU spending in 2013 will fall in comparison. But this does not take into account extra requests for funding predicted by the Commission later next year.

Cameron's challenge

This process of annual and subsequent amending budgets to make up funding shortfalls is making the patterns of the EU's actual spending more and more opaque.

EU Ministers must still formally approve the 2013 deal, but difficulties are not foreseen since the EU's annual budgets are agreed by majority vote. Member governments demanding a budget freeze or cuts are likely to be over-ruled by the majority (17) of net beneficiaries.

David Cameron was powerless to stop Britain's payments to the EU rising in 2013 and must now focus on the 2014-2020 budget framework negotiations to stem our liability to funding the EU's ever-increasing demands for public money.

Tomorrow's summit is a key test of the Prime Minister's EU negotiating abilities because if he cannot get a meaningful cut in Britain's contributions to the EU budget when he has billions of pounds in UK contributions to put on the table, confidence in the prospect of a broader renegotiation of the EU's powers will be significantly undermined.

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