§ Mr. Colvin
asked the Chancellor of the Exchequer if he will make a statement on the outcome of the 10 December Budget Council and the latest steps in the 1987 Community budget process.
§ Mr. Brooke
The Budget Council met in Strasbourg on the evening of 10 December in an attempt to reach agreement with the Parliament on the Community budget for 1987. I was in the Chair.
In response to the Council's second reading budget proposals, which respected the budget discipline limits for agricultural and non-obligatory expenditure, the 423W European Parliament's Budget Committee had recommended increases in expenditure which would have taken the budget beyond the budget discipline limit on non-obligatory expenditure by some 293 mecu (£183.8 million*) on commitment appropriations and some 93 mecu (£58.3 million) on payment appropriations. The Council's budget discipline agreement requires that the maximum rate of increase in non-obligatory expenditure laid down in the treaty, 8.1 per cent. for 1987, be respected.
The Council made clear to the Parliament's representatives that, while it was prepared to go a long way towards meeting the Parliament's priorities within the budget discipline-maximum rate totals, it was not willing to increase non-obligatory expenditure in total beyond the maximum rate levels. The Council pointed out that the deficit which was expected to be carried forward from the current year was likely to use up all the remaining resources within the 1.4 per cent. VAT ceiling and that there was therefore no money to finance further increases in expenditure. Belgium, Denmark, France, Germany, Luxembourg and the Netherlands joined the United Kingdom in insisting that the budget discipline limits must be respected.
The Parliament's representatives made clear that they could not agree that the increase in non-obligatory expenditure should be limited to the 8.1 per cent. maximum rate. Hence no agreement was reached between the Council and the Parliament's representatives.
The Parliament's plenary then voted on 11 December for amendments to non-obligatory expenditure whose effect would be to raise both commitment and payment appropriations above the maximum rate of increase, by 185.5 mecu (some £116.4 million) and 88.2 mecu (some £55.3 million), respectively.
When the results of these votes were announced, I formally reminded the Parliament's plenary that the Council had not agreed to raise the maximum rate and that the budgetary procedure provided for in article 203 of the treaty had not therefore been completed.
As the 3 July judgment by the European Court of Justice on the 1986 budget dispute makes clear, the President of the Parliament is not in a position under article 203 of the treaty to declare adopted without the Council's agreement a budget for 1987 which does not respect the 8.1 per cent. maximum rate. From 1 January 1987, therefore, the Community will have to operate under the provisional twelfths regime set out in article 204 of the treaty. The broad effect of this is to limit expenditure on individual lines month by month to one twelfth of the level of the preceding year, though the Council may authorise by qualified majority expenditure in excess of one twelfth subject to the further limitations set out in the treaty. While the provisional twelfths regime lasts, we would expect to make VAT contributions, and to benefit from VAT abatements under the Fontainebleau system, at the same monthly rates as in the current year: the favourable effect on our net budgetary position would however be unwound after a 1987 budget has been adopted.
The Government naturally regret that the Council and the Parliament were unable to reach agreement last week on a budget for 1987 but welcome the Council's determination to insist on adherence to budget discipline.
* All conversions are made at the 1987 budget exchange rate of £1=1.5939