After several trilogue meetings, on 27 June, the Presidency of the Council of the
European Union, the President of the European Parliament, and the President of the European Commission reached a political agreement on the next Multi-annual Financial Framework for 2014-2020. This meeting was convened by Mr Barroso in a last attempt to reach a compromise deal before the summer break. The compromise deal on the draft regulation laying down the EU's multiannual financial framework (MFF) for 2014-2020 and the interinstitutional agreement (IIA) on budgetary discipline and sound financial management were approved by COREPER on 28 June and then endorsed by the European Council which called for the rapid formal adoption of these documents.


The EU's 2014-2020 budget is the first multi-annual financial framework (MFF) to be adopted under the Lisbon Treaty, which has conferred further powers on the European Parliament. The Treaty on the functioning of the EU provides that the Council of Ministers, acting unanimously, through a special legislative procedure (assent procedure) shall adopt the multiannual financial framework, but after obtaining the consent of the European Parliament. Consequently, the political agreement reached last February by all the EU member states in cutting, for the first time ever in the EU's history, the budget from its previous level, required the consent of the European Parliament. The MEPs have used, therefore, their strong negotiating position to negotiate compromises with the Council and to obtain concessions from the EU’s Member States. In fact, the Member States have made substantial concessions to the European Parliament in order to secure an agreement. Nevertheless, according to the President of the European Parliament, Mr Schulz, “This is not an easy compromise, I must fight in the European Parliament for a majority,” The European Parliament is expected to vote on the political agreement next week, at its last plenary session before the summer break. It remains to be seen whether compromise deal on the MFF will find a majority among MEPs. The compromise deal must be passed by an absolute majority of MEPs. Then, if approved by the MEPs, it would be formally adopted by the Council of Ministers.

Last February’s agreement on the EU's 2014-2020 budget reached by the EU leaders was a victory for David Cameron. Due to David Cameron determination the EU leaders agreed to a multiannual financial framework that reduces EU expenditure for the first time in the EU’s history. The EU leaders agreed for the next seven years €960 billion in commitment appropriations, which will decrease from €975.8bn, representing 1.00% of EU GNI, and payment appropriations would decrease from €925.6bn in 2007-13 to €908.4bn, representing 0.95% of the EU GNI. There has been therefore a substantial reduction from the €1,033bn originally proposed by the European Commission, and there was also a significant cut on budget payments. David Cameron, as well as other EU’s leaders, put his foot down and stand up for taxpayers. However, last March the European Parliament adopted by a vast majority, a resolution on the European Council’s political agreement on the Multiannual Financial Framework. The MEPs rejected the long-term budget for 2014-2020, as agreed by EU leaders and stressed that cannot accept it “without the fulfilment of certain essential conditions;” The European Parliament has not demanded changes to the overall spending ceiling negotiated by the EU leaders but they presented, their own demands for negotiations with the member states on the multi-annual financial framework for 2014-20. In fact, the resolution read, that the MEPs “will only vote on the MFF Regulation and the Interinstitutional Agreement after the successful conclusion of substantial negotiations with the Council”. Such resolution has given to the European Parliament’s representatives “a strong mandate” to negotiate “an overall package that includes, in addition to the MFF, a compulsory and comprehensive revision, a maximum overall flexibility and an agreement on own resources, and that ensures the unity of the EU budget”.
The political agreement reached between the Irish presidency and representatives of the European Parliament and the Commission confirmed the expenditure ceilings agreed by the European Council last February. In order to reach an agreement on the MFF, the member states made substantial concessions to the European Parliament. Hence, under the compromise deal, the draft MFF regulation and the draft IIA addresses the four concessions demanded by the MEPs, including the flexibility of the EU budget, a revision clause, the future of the EU's own resources, and the EU budget unity.

The European Parliament demanded “a compulsory, legally binding and comprehensive revision of the multiannual financial framework decided by qualified majority in the Council." Under Article 312(2) TFEU, “The European Council may, unanimously, adopt a decision authorising the Council to act by a qualified majority when adopting the regulation laying down the multiannual financial framework.” In this way it would be easier to adopt the financial framework since Member States would not have a veto power. This will put the UK in a very weak negotiating position. Unsurprisingly, the MEPs want to make full use of this passerelle clause and remove the UK’s veto, which is absolutely unacceptable. According to the European Parliament “the next European Parliament and Commission – that will come into office following the 2014 European elections – should be in a position to reconfirm the Union's budgetary priorities and carry out a revision of the MFF 2014-2020;” The MEPs have already in mind increasing the budget as they are calling for the financial framework to be revise after the EU elections in 2014. Nevertheless, the MEPs were able to secure a binding revision clause. Under the compromise deal the MFF Regulation will include a revision clause and the Commission will be required to present such review in 2016. The Member States have not yield to all European Parliament's demands and unanimity requirement has not been changed and there is no commitment, in the clause, for increasing the budget, although this is very likely to happen.

The European Parliament has also been insisting for the EU’s unspent money to be kept in the EU budget, instead of being returned to the member states according to their share of the total contribution. The European Parliament's resolution from last March reiterated the European Parliament 's position “that the maximum overall flexibility between and within headings, as well as between financial years, needs to be ensured in the next MFF and decided by qualified majority in the Council;” According to the European Parliament “such flexibility should include the possibility of fully utilising the available margins of each heading in one financial year (for commitment appropriations), as well as an automatic carry-over of available margins to other financial years (for both commitment and payment appropriations);”
The European Parliament wanted to ensure that the amounts committed in the EU budget are entirely spent instead of being return to member states. Some member states, particularly the UK and the Netherlands, were unwilling to make concessions on this, as such transfers from one budget year to the next could have as a result increase spending over the next budget. Some Member States were willing to allow transfers but to a limited amount. The European Parliament has demanded an unlimited flexibility. This is unacceptable, unspent EU money should continue to be returned to national governments. However, under the compromise deal unspent money can be transfer in its entirety over to the next year, for the first three years then the annual adjustments would not exceed the following maximum amounts: 2018: EUR 7 billion, 2019: EUR 9 billion, 2020: EUR 10 billion. It was also agreed that the unspent money could be used for growth and jobs policies, particularly to tackle youth unemployment and strengthen research.

It is well known that the European Parliament favours the idea of direct EU taxes to finance the EU's budget. In fact, it has been demanding, for a long time, a new own resources system. The European Commission’s proposal for a Council Decision on the system of own resources of the European Union, aiming at introducing two new own resources: a financial transactions tax and a “new modernized VAT” reflected, the European Parliament’s demands for new own resources. The MEPs reiterated their support for the legislative proposals on the own-resources package as proposed by the European Commission and stressed that “revenues from the Financial Transaction Tax should be allocated at least partly to the EU budget as a genuine own resource.” The European Parliament also called upon the European Commission to present further proposals on the introduction of new genuine own resources.

The MEPs demands for the EU to have powers to raise its own income through direct taxation were not accepted by member states. In fact, the EU Member States, particularly, the UK, have already ruled out any negotiations on the creation of new EU taxes to fund the budget. The UK Government is strongly against any new EU taxes to fund the EU budget; consequently it could not accept the European Commission’s proposal. The Government believes that tax policy must be determined by Member States at a national level. If Brussels were allowed to levy direct taxes, member states would lose control over how much they send to Brussels. Such proposals encroach on national tax sovereignty. Nevertheless, under the compromise deal, which was endorsed by all EU leaders, a working group of representatives of the Commission, the Parliament and the Council would be set up to assess the future of EU system of "own resources". An inter-institutional conference will take place during 2016 aiming at assessing
the outcome of the group's work.
Then, the Commission will put forward another proposal for amending the system of own resources for the period after 2020.

As regards unity and transparency of the EU budget, it was agreed that “All expenditure and revenue of the EU and Euratom will have to be included in the EU budget.”

The European Parliament has also called “for an ending of existing rebates, exceptions and correction mechanisms;” It is important to recall that the Commission proposed to replace all existing corrections with a lump sum gross reduction on the GNI-based own resources payments. If the Commission’s proposal had been adopted, the UK would end up paying around £70 billion to the EU budget from 2015 to 2020, which is unacceptable, particularly in a time of austerity. David Cameron was successful in defending the UK's rebate during the negotiations on the MFF. In fact, David Cameron stressed, “Under this government, the British rebate is safe.” Nevertheless, in their resolution, the MEPs reiterated their commitment to a reform of the EU financial resources that “phases out all existing rebates and correction mechanisms”. Moreover, France has tried again to reduce the UK's rebate, by demanding agricultural spending in new EU member states not be included in rebate calculations. But, David Cameron was able to secure, again, the UK rebate. He said, “The end result was that the rebate is not only as secure as it was in February but we have secured the necessary extra detail which my… experts tell me is even more detailed than what we have had in the past,”.

The European Parliament has been particularly determinate to resolve the issue of unpaid bills from last year’s budget. The European Parliament, recalling a declaration annexed to the EU Budget 2013, which calls upon the Commission to present a draft amending budget to cover all unpaid payment claims for 2012, stressed “that it will not start negotiations on the MFF until the Commission comes forward with an Amending Budget corresponding to this political commitment, and will not conclude these negotiations before the final adoption by Council and Parliament of this Amending Budget”. The Commission has replied very quickly to the European Parliament’s demands and requested €11.2 billion in extra funding from the member states “to reimburse beneficiaries of EU funded programmes completed across Europe in 2012 as well as to honour the Cohesion Policy claims that will fall due in 2013.” The Financial Secretary to the Treasury described the Commission request as "totally unacceptable”, particularly “at a time when most Member States are taking difficult decisions to reduce public spending;” The Government does not support and will vote against any request for additional payment appropriations for the EU Budget. However, the UK is unable to veto it, as the request for extra funds can be approved if a qualified majority of member states supports it.

On 6 May, the European Commission, the European Parliament and the Council of Ministers, represented by the Irish presidency, reached a compromise deal on the draft amending budget for 2013, whereby the €11.2 billion proposed by the Commission would be paid in two tranches, €7.3 billion to be paid now then €3.9 billion in the autumn. Coreper initially rejected such compromise deal, as member states have been against the idea of contributing with more money into the 2013 budget. Several EU’s member States, the UK, Holland, Germany, Sweden, Denmark and Finland as described the Commission’s request as excessive and could not endorse an additional contribution of €7.3 billion as a first tranche. There was therefore a blocking minority against the amending budget. However, the European Parliament has made clear that it won't accept any proposal from the Member States on the multi-annual financial framework for 2014-20 until the existing funding gaps for 2012 and 2013 are covered. The European Parliament has threaten to freeze all negotiations on the 2014-2020 budget if the member states fail to endorse compromise deal on the draft amending budget for 2013. Germany has yielded to the European Parliament pressure, and, in order to ensure that negotiations with MEPs on the MFF will continue, it has endorsed the €7.3 billion in additional funding for 2013 budget. Consequently, the blocking minority has been lost. The UK, the Netherlands, Sweden, Denmark and Finland cannot block the approval of additional contributions to the EU’s 2013 budget. Hence, on 14 May, the Council reached a political agreement on draft amending budget for 2013. The EU finance ministers agreed to provide €7.3 billion as a first installment. The Council said in a statement that it” is not in a position to agree to the full level of payment appropriations requested by the Commission in draft amending budget 2/2013 at this stage” but it has confirmed “its willingness to take all necessary additional steps to ensure that the EU's obligations are honoured in a second phase, when the Commission will have more information on implementation, the possibilities for redeployment and on budget revenues.” The Council is therefore likely to agreed to provide the remaining €3.9 billion. The UK, which described the request for additional funding as “unacceptable” and voted against it, would be required to contribute with more money for this year budget. The Financial Secretary to the Treasury, Greg Clark, told the European Scrutiny Committee that “this will approximately cost the UK an additional €0.9 billion (£0.76 billion), which will mean an estimated post-abatement UK contribution to the 2013 EU budget of around €17.2 billion (£14.5 billion)”.

The MEPs reiterated, "the European Parliament will not conclude these negotiations before the final adoption by the Council and the Parliament of this amending budget" and demanded “a formal, binding decision by the Council on the full amount of €11.2 billion before concluding the MFF negotiations.” Consequently, following the political agreement, the Council committed “to take a formal decision on the first tranche of DAB 2 no later than ECOFIN Council on 9 July 2013” as well as “to take all necessary additional steps to ensure that the Union's obligations for 2013 are fully honoured. On the basis of a proposal to be made by the Commission in early autumn on the basis of the latest updated estimates regarding payment appropriations, the Council commits to decide, without delay, on a further draft amending budget to avoid any shortfall in justified payment appropriations.”


It is important to note that although David Cameron was able to secure a reduction in the overall EU budget, the UK net contribution is likely to increase. Hence, British taxpayers will continue to pay substantial amounts to Brussels. The time has come to say No and stop paying this vast amount of money for running the EU, which is a failing project. The UK Parliament must be able to decide how money should be spent and not be required to follow the EU failing agendas. Hence, as soon as David Cameron renegotiates the UK's relationship with the EU the better, as he would be able to save even more money for the British taxpayer.