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 provides that the Council, acting unanimously, through a special legislative procedure (assent procedure) shall adopt the multiannual financial framework, but after obtaining the consent of the European Parliament. Hence, the political agreement reached by all the EU member states in cutting, for the first time ever in the EU's history, the budget from its previous level, has to be translated into a Council Regulation and requires the consent of the European Parliament. Hence the European Parliament has the power to accept or reject the agreement reached by the European Council on the MFF, in fact, it has veto power. The MEPs have therefore a stronger negotiating position as they can use their right of rejection to negotiate compromises with the Council and to obtain concessions from the EU’s Member States.

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. Whereas the European Commission has originally proposed a 5.0 percent increase, the EU leaders agreed to a cut of 3% compared with the 2007-13 budget. David Cameron, as well as other EU’s leaders, put his foot down and stand up for taxpayers. However, the MEPs voted against the budget agreed by their countries’ leaders.

Since the beginning of the negotiations, the MEPs have been threatening that they would reject the multiannual financial framework if their demands were not met. Hence, the European Parliament’s recent vote rejecting the EU’s long-term budget successfully negotiated by David Cameron, and agreed by all EU’s leaders, did not come as a surprise. It clearly shows the power of the European Parliament, and its determination to considerably change the budget deal struck by the European Council.

Martin Schulz, President of the European Parliament, said, after the vote, “It is a great day for European democracy”. He is delusional and convinced that by rejecting the MFF agreed by the European Council, the MEPs have taken an "important step for European democracy". The European Parliament is trying to override governments that are responsible to national parliaments for budget expenditure. Having the MEPs overriding the will of national parliaments and elected heads of state, cannot be described as a “step for European democracy”. In fact, it weakens the democratic nation state, as national parliaments, and citizens, are bypassed and stitched up. As David Cameron said, “it is the national parliaments that provide the real democratic legitimacy within the European Union.” It is important to recall that last November the House of Commons voted to reject any deal on the MFF that does not cut spending in real terms, and David Cameron has delivered a real terms cut. As Bernard Jenkin, MP noted “Not only has he brought back a good deal for the British taxpayer, but it was a good day for the British Parliament—this House voted for a cut, and he delivered it.” Bill Cash also stressed, “that the UK national interest is best served when the Government and Parliament are at one”.

The European Parliament adopted, therefore, 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 last month, and stressed that cannot accept it “without the fulfilment of certain essential conditions;” They presented, therefore, their own demands for negotiations with the member states on the multi-annual financial framework for 2014-20.

The MEPs have not expressly opposed the overall spending ceiling negotiated by the EU leaders, but according to Martin Schulz, "The European Parliament will not accept the proposal from the member states unless there is movement on all of these issues". In fact, the resolution reads, that the MEPs “will only vote on the MFF Regulation and the Interinstitutional Agreement after the successful conclusion of substantial negotiations with the Council”. It is noted that the resolution gives 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 European Parliament’s resolution shows the MEPs determination to resolve the issue of unpaid bills from last year’s budget. It is important to recall that the European Commission has tabled a draft-amending budget for 2012 to fill a gap of €9 billion between the payments foreseen in the 2012 budget and the commitments in areas such as research, the Erasmus student exchange programme and EU social and development funds. The member states could not accept this, as they would have to make further contributions to make up for shortfalls in last year’s EU budget. Unsurprisingly, the European Parliament has endorsed the Commission’s proposal for a €9 billion increase on the budget. Nevertheless, the Council and the European Parliament agreed to add €6 billion to the budget for 2012. However, the €2.9bn gap will have to be filled by the 2013 budget. In fact, the European Parliament, has only approved the 2013 budget after having assurance that the 2.9bn would be covered by the EU's member states, adding up to the agreed budget of €132.84 billion. Martin Schulz said in a statement on the EU budget 2013, “Bills for the budget year 2012 cannot be financed through shifting within the already underfinanced budget 2013, but must be provided by the Member States additionally”. The European Parliament, the Council and the European Commission agreed that the Commission will “present at an early stage in the year 2013 a draft amending budget devoted to the sole purpose of covering the 2012 suspended claims” and “without prejudice to the proper implementation of the 2013 budget.” Hence, they promised “to add fresh money during 2013 as soon as this proves necessary to pay outstanding bills from 2012 or to cover the gap between the level of payments adopted and the estimated needs.”
Unsurprisingly, the European Parliament’s resolution recalled the declaration annexed to the EU Budget 2013, above-mentioned, which calls upon the Commission to present a draft amending budget to cover all unpaid payment claims for 2012. In fact, the European Parliament 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”.
It is important to recall that the total payments for the 2013 EU budget amount to €132.84 billion and the commitments amount to €150.90 billion. This represents an increase of 2.9%, compared to the EU budget for 2012. Nevertheless, the member states are likely to be asked to contribute with more money. The MEPs are also demanding “a political engagement from the Council that all legal obligations due in 2013 will be paid out by the end of this year;”

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, in fact, it won’t even enter into negotiations, until the existing funding gaps for 2012 and 2013 are covered. The MEPs want assurances that deficits for 2012 and 2013 are covered so that the new budget cycle starts without any funding gaps. Obviously, this will entail an increase in national contributions, and consequently, member states will not take it lightly.

In order to reach an agreement on the MFF, the EU’s leaders are prepared to make some concessions to the European Parliament namely introducing a clause allowing the budget to be reviewed in two years as well as accepting some flexibility in shifting funds between budget years and headings. However, the European Parliament is demanding “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. It is important to note that Article 312(2) is among the Treaty provisions “where amendment removing need for unanimity, consensus or common accord would attract referendum” under the European Union Act 2011.

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. It is important to recall that the European Parliament was seeking an increase of at least 5% over the 2013 budget for the EU's 2014-2020 budget.

The European Parliament has also been calling for “unused margins, de-committed and unused appropriations (both commitments and payments) in one year's budget should be carried over to the next year and constitute a global MFF margin to be attributed to the different headings.” It is important to mention that under the draft decision on the system of own resources of the European Union proposed by the Commission "Any surplus of the Union's revenue over total actual expenditure during a financial year shall be carried over to the following financial year.”  The European Parliament has 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 present resolution reiterates 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);” This is unacceptable, unspent EU money must continue to be returned to national governments.

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” reflects, the European Parliament’s demands for new own resources. In fact, Guy Verhofstadt MEP said, "This is exactly what we had called for. We need to move from a budget which is based on contributions from member states where national governments fight over the net payments they make to the EU, to one based on own resources."

Under the Commission proposal, the EU would have as own resources: a financial transaction tax and a new VAT resource, the application of a uniform rate to the sum of Gross National Income (GNI) of all the Member States and traditional own resources consisting of levies, Common Customs Tariff duties and other duties.

The MEPs reiterated their call for a “new, genuine own resources for the European budget to progressively replace the current system based heavily on national GNI contributions.” Stressing that “the EU budget should be financed by genuine own resources, as provided for in the Treaty”, the European Parliament calls for “an agreement on an in-depth reform of the own-resources system.” 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 Commission has proposed that part of receipts generated by the FTT shall constitute an own resource for the EU budget, which could “imply that the GNI based resource drawn from the participating Member States would be reduced accordingly.” According to the European Council’s conclusions from 8 February 2013, the participating Member States on the enhanced cooperation on the FTT, “are invited to examine if it could become the base for a new own resource for the EU budget.” But, several member states want such revenues to go to national budgets, and there is no agreement yet among the participating member states on where the proceeds from the FTT should be used.

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 are unlikely to be 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.

The member states are responsible to taxation policy and Brussels should be kept out of it. Obviously, member states want to reduce their national contributions to the EU budget but not in exchange of having Brussels raising taxes directly from citizens and companies to fund the EU budget. Citizens are already facing austerity measures therefore the last thing they need is a EU tax, which will be an additional burden. 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.

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. The Government has estimated that the UK contribution to the next EU financial framework is 11.5%, after the UK rebate has been taken into account. Hence, 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”.

It seems that the MEPs prefer the EU to work under the emergency arrangements than to vote in favour of the European Council’s deal. Martin Schulz has been saying, "If there is no deal, we can live with an annual budget”. It is important to mention that under Article 321 (4) TFEU if the financial framework has not been adopted “ by the end of the previous financial framework, the ceilings and other provisions corresponding to the last year of that framework shall be extended until such time as that act is adopted.” Hence, if there is no agreement by the end of 2013, the 2013 ceilings plus inflation will be extended to 2014 until a new MFF is adopted. Under an Interinstitutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management, the European Commission is responsible for making technical adjustments to the financial framework “on the basis of a fixed deflator of 2 % a year.”

The European Parliament pointed out that if there is no agreement, “it would be ready to reach a swift agreement with the Council and Commission to adapt the internal structure of the MFF to reflect the Union's political priorities, and to ensure that the appropriate legal bases are in place for all EU policies and programmes by 2014”. David Cameron noted, “If no deal is reached, the existing ceilings are simply rolled over and annual budgets are negotiated on a year-by year-basis, taking account of those ceilings”. He stressed that the UK “would not get the reduction we need in the seven-year budget ceilings negotiated by the last Government.” In fact, it would €60bn more than the European Council’s deal.

The Member States will have to return to the negotiating table in order to find a compromise with the European Parliament over the EU’s long-term budget. It remains to be seen what will come out of the negotiations. 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. Thus, as Bill Cash has been saying, “we need a referendum ahead of the European elections in 2014….”