European Budget Discussions - Implications for Wales

Two days ago, the United Kingdom presidency issued a statement on settling the differences over the European Union budget for the next seven years, beginning in just over a year. It is a set of proposals showing the way forward for the European Union. It also attempts to meet the requirements of the 15 established member states and the 10 new member states.

These proposals include an overall budget of €847 billion, representing 1.03 per cent of EU gross national income. That is 17 per cent less than the commission originally proposed. Therefore, this proposal will maintain tough budgetary discipline for the EU. It will involve significant investment for the new member states in the enlarged union of 25, with the UK offering an extra contribution to the costs of enlargement, amounting to €8 billion, or £5.4 billion, over the budget period. It involves the retention of the UK rebate, which would increase from the current level of €5 billion annually, which is £3.3 billion, to €7 billion, or £4.7 billion, towards the end of the 2007-13 period. It involves no fundamental change in the rebate without a fundamental reform of the common agricultural policy. All spending, including that on agriculture, will be subject to a review during the current budget period.

Since 2001, I have cautioned that Wales would more than likely receive less money from 2007, given the demands of enlargement and the improvement in our own economy. However, under these proposals, Wales’s access to structural funds will be better than most people could realistically have predicted only a year ago. Throughout the period, I have consistently pressed for the best possible deal for Wales in discussions in Cardiff, London, Brussels and elsewhere. However, any budget agreement needs to avoid having adverse effects on UK public finances if it is to be good for Wales. A deal at any cost is not in Wales’s interests, because we would have to bear our share of the UK’s contribution to any settlement. With or without structural funds, we in Wales are not exempt from paying tax or from the consequences of a reduced availability of funds for UK public expenditure. The proposals, as they stand, represent a good deal for Europe, the UK and for Wales.


The UK’s proposals represent an increase of 26 per cent, or €62 billion, in comparison with the current structural funds budget. It suggests that a ceiling of €297 billion, which represents 0.36 per cent of EU gross national income, should be devoted to direct regional policy for 2007-13.

Wales would continue to receive a good level of structural fund receipts in the next financial perspective. We might expect a significant convergence programme, equivalent to Objective 1, alongside a much reduced competitiveness programme, equivalent to today’s Objective 2 and 3, and parts of Wales would be eligible to participate in territorial co-operation programmes, the equivalent of INTERREG, as they do now.

The UK’s proposals would enable the 15 so-called ‘old’ member states to retain similar amounts of receipts as they would have under the previous Luxembourg proposals, and, while the new member states may find that their receipts have been reduced, the far better terms under which they will have to implement their programmes will be far less onerous to them.

These proposals provide a basis for negotiations that will, inevitably, be tough. The conflicting interests of 27 member states—and we must not forget that Romania and Bulgaria will become members, all being well, on 1 January 2007—are at stake. It would be rash to predict an outcome at this stage of the negotiations that will take place in Brussels on 15 and 16 December, and which may be prolonged into Saturday, 17 December.

Overall, the 10 new member states would receive a total of €151 billion. This is a large sum stretching the capacity of the new member states to plan and spend. It is roughly equivalent to two Marshall plans in today’s prices. The UK proposals also suggest some technical adjustments, which mean that these countries will be able to spend more of the money that is allocated to them. In the spirit of European enlargement, and in the interests of developing a prosperous single market for European business, this focus is politically justifiable and economically sensible.

We are already preparing ourselves in Wales for a range of outcomes. We have established an external stakeholder group, and officials are engaging with experts to consider issues for any future programmes. This will stand us in good stead when a deal is agreed. The UK presidency is committed to reaching a deal, if at all possible. No doubt, there will have to be compromise on all sides—such negotiations always involve a sharing of pain. An agreement later this month, broadly along the lines set out in these proposals, is in the best interests of Wales.