Commission's draft budget for 2014: The Good, the Bad and the Ugly

While all eyes will be on George Osborne and Ed Balls this afternoon, the EU Commission has slipped out its draft annual budget for 2014. This is important as it the first budget to be drawn up using the reduced expenditure limits (or 'ceilings' in EU-speak) agreed by David Cameron and other EU leaders in February. However, the European Parliament so far refused to sign off on these, so they remain provisional for the moment (more on this later). Here is our breakdown of the content of the budget according to the good, the bad and the ugly, continuing an earlier OE tradition.

The Good

Compared with 2013, there's a cut to the 2014 EU budget. The headline figure is a cut in both commitments and payments from €151.6bn and €144.5bn down to €142bn and €135.9bn respectively. This is a 6% cut in commitments and a 5.8% cut in payments. This is clearly a win for David Cameron who was mandated by parliament to secure a real terms cut in spending, but is also not all what it seems to be (see below). Next year's savings would be even lower if not for the fact some spending - such as the new €6bn youth unemployment initiative - is being 'front loaded' onto this years' budget.

Some particularly wasteful spending has been cut, for example the commitments on 'Communication actions' defined as spending aimed at "increasing the interest, understanding and involvement of citizens in the EU integration and policy-making process" has been cut by 20%.

The Bad

Somewhat bizarrely, the above savings have only materialised because a lot of money has been added onto the 2013 annual budget via a number of 'amending budgets' (a favourite tool for the EP and Commission) - increasing the total from €132.8bn to €144.5bn. If not for this additional cash, we would have seen an overall increase in 2014. While some of this additional spending can be justified - for example to accommodate Croatia - many believe that the bulk has been requested by the Commission simply to use up all the available money left under the current long-term budget rather than because it corresponds to an actual need for funds.

The European Parliament has made payment in full of this amount a pre-condition for agreeing to the 2014-2020 budget, and so far most of it has been pledged by member states (although the UK was recently outvoted on committing an additional €7.3bn of the additional funds requested as annual budgets are decided by QMV, not unanimity). In total, €3.9bn remains outstanding, so taking this off the total means we only have a reduction of 3.2%.

The Ugly

The substance of the budget remains broadly unreformed with the bulk of the budget still going towards distorting farm subsidies and regional development subsidies for wealthier member states (although the proportion of the latter has been reduced). In fairness overall spending on the CAP has decreased by 2.3%, but the amount going on farm subsidies tied to land ownership or production levels (the new CAP rules allow some re-coupling) will go up by 0.3%.

Administrative spending is set to go up again by 1.5% overall. The table below gives the full breakdown:

• While the drop in spending on European Schools is welcome, many of the other headings see increases at a time when the EU should be busting a gut to cut down on administrative spending, as member states have been for the last couple of years.
• The Commission has made some cut backs but due to salary increases of 0.9% it sees a 0.1% increase (or 0.8% increase when including cost of Croatia's accession). 
• Spending on EU officials' pensions has also increased by 7.2% due to the number of staff retiring ahead of the entry into force of the new Staff Regulations. This highlights the need to make further and more urgent progress on making EU expenditure on former officials' pensions sustainable.
• While the Court of Auditors, an institution that often flags up EU waste and mismanagement, sees its budget cut by 4.2%, the European Parliament sees its budget go up by 1.7% despite the fact that it has not committed to reducing its headcount unlike other institutions. This news comes the day after we highlighted a video of two MEPs pushing and shoving a journalist who had the nerve to challenge them for allegedly signing in to claim to their daily allowance before 'sodding off' straight away.
• Spending on the EU's 'decentralised agencies' which form the bulk of the EU's 52 quangos are set to receive a 3.8% increase while the European and Economic and Social Committee and the Committee of the Regions see a 0.2% cut and a 0.3% increase respectively despite the fact that these organisations are outdated, with no evidence of their usefulness whatsoever.
• While expenditure on the EU's external policies (aid and development) sees a fairly substantial cut of 8.2%, for some reason the institution that manages this expenditure - Baroness Ashton's External Action Service - has been awarded a 3.2% increase. In contrast the FCO sees an 8% cut in todays spending review.

The deal all rests on the European Parliament agreeing to the 2014 - 2020 MFF otherwise the 2014 budget will revert to 2013 ceilings + 2% for inflation. While this would not be an awful result for the UK mainly because of the security guaranteed by the rebate (see here for details), it would nonetheless most probably not result in an actual cut, thereby undermining David Cameron's claim to have achieved a degree of EU reform by cutting the budget for the first time in EU history.

Meanwhile, MEPs' initial responses don't exactly inspire confidence...

The EU budget proposal of the Commission for 2014 is again supporting the recession and unemployment instead fighting it.
— Hannes Swoboda (@Hannes_Swoboda) June 26, 2013

A triumph for European Parliamentary scrutiny?

As the only directly elected component of the EU machine, taxpayers and citizens have a right to expect that MEPs will stand up for their interests in Brussels, scrutinising the decisions and spending of the other EU institutions.

In recent months, the parliament’s budgetary control committee, marshalled by Monica Macovei MEP, the former Romanian Justice Minister, has been very critical of three EU agencies in particular – the European Environment Agency (EEA), the European Food Safety Agency (FSA) and the European Medicines Agency (EMA) – for “using public money for questionable purposes and for tolerating conflicts of interest in top management”, an an issue we also highlighted in our recent short report on this topic.

Consequently, the Parliament voted to postpone the discharge of the agencies’ 2010 budgets, a strong signal of disapproval by EP standards. However, as the Parliament magazine reported yesterday, German socialist MEP Jutta Haug, the parliament's rapporteur on the EU agencies in the committee - the very person who should be taking the lead on this issue - wrote to the agencies telling them they did not need to co-operate any further with MEPs. In the letter to Catherine Geslain-Lanéelle, director of the FSA, she wrote that:

"I am of the opinion that during the during the 2010 agencies' discharge procedure, the committee has exceeded by far its competences… Consequently, I should like to invite the FSA not to reply to inquiries beyond the comments voted in plenary." 

Could you imagine a UK MP undermining their colleagues by writing to the head of a public body urging them not to co-operate further with a parliamentary investigation into how they spend taxpayers' money?
  
Undermining even this much welcome, even if relatively modest, attempt by MEPs to inject greater scrutiny and transparency into EU spending will surely only further exacerbate the disconnect between what is happening in the real world and the EP bubble.

The EU's problems with agency-itus

The past week has seen the EU come under immense pressure, from press and politicians from across member states, as negotiations for 2011's budget come to a head. However, criticisms have seemed to fall on deaf ears, as the Commission and the European Parliament have continued to push for an overall 5.9% increase in spending.

We released a new report yesterday examining one of the growth areas that provokes serious cause for concern: EU agencies and committees.

While the UK government has announced that it wants to scrap some 190 quangos as part of the spending cuts, the Commission - cheered on by MEPs - has proposed a staggering 8% increase to the budget for EU agencies from 2010 levels.

This would see the EU's annual quango-budget rise by €180mn to €2.4 billion in 2011. The extra cash would be used to fund five new agencies, taking the total number of EU quangos - including the Economic and Social Committee and the Committe of the Regions which are the mothers of all talking shops - to 52. Extra cash will also be sprayed on the existing EU agencies.

And what do taxpayers get in return?

It's Brussels worst kept secret that many of the EU's agencies do not add much value: some duplicate eachother's work; many duplicate work being carried out by the core EU institutions; some deal with issues that shouldn't concern the EU in the first place; while others have no impact on actual policy whatsoever. A worrying number of them tick all of these boxes.

It's also not clear who these agencies are actually accountable to.

We identify eleven agencies and committees which could be downsized or abolished altogether without citizens noticing any difference whatsoever. If combined with 30% efficiency savings, to mirror austerity measures in member states, the EU could save €709mn per year starting in 2011.

First on the list: the Committee of the Regions and the Economic and Social Committee.