Explanatory Memorandum on European Defence Agency Draft Budget 2017

Explanatory Memorandum on European Defence Agency Draft Budget 2017

Unnumbered Document

EXPLANATORY MEMORANDUM ON EUROPEAN DEFENCE AGENCY DRAFT BUDGET 2017

European Defence Agency: Draft Budget 2017.

Submitted by the UK Ministry of Defence, 28 November 2016

SUBJECT MATTER

1.The European Defence Agency (EDA) 2017 budget proposal was discussed and rejected by Member States at the Ministerial Steering Board on 15 November. The UK presented a counter proposal (Zero Real Growth, an increase in line with inflation) that was agreed.

SCRUTINY HISTORY

2.The House of Lords European Union Committee cleared the 2016 Budget proposal (number 37347) at the Chairman’s sift 1604 on 15 December 2015. The House of Commons European Scrutiny Committee cleared the document on 6 January 2016 in its 14th Report, 15/16 as raising issues of political importance.The then Minister for Europe provided further information in letters dated 14 January and 10 February 2016.

3.As in previous years, scrutiny of the EDA budget documents has been delayed due to their initial classification andLimitédistribution. The EDA provided a non Limité version on 17 November.

MINISTERIAL RESPONSIBILITY

4.The Secretary of State for Defence has overall responsibility for policy on Defence capability and procurement. The Chancellor of the Exchequer, theSecretary of State for Foreign and Commonwealth Affairs, and the Secretary of State for International Tradealso have an interest.

INTEREST OF THE DEVOLVED ADMINISTRATIONS

5.Defence is a reserved matter under the UK’s devolution settlements and no Devolved Administration interests arise. The Devolved Administrations have therefore not been consulted in the preparation of this Explanatory Memorandum.

LEGAL AND PROCEDURAL ISSUES

6.There are no legal or procedural issues arising from this Council document.

APPLICATION TO THE EUROPEAN ECONOMIC AREA

7. None.

SUBSIDIARITY

8.Work carried out by the EDA is in support of Member States’ efforts to improve their Defence capabilities and is carried out on an inter-governmental basis.

POLICY IMPLICATIONS

9.On 8 November, at the EDA Preparatory Committee, Member States discussed High Representative Mogherini’s budget proposal but were unable to reach agreement. The EDA-proposed 6.45% increase to the 2016 Budget corresponded to a total budget of €32.5M. The 2016 budget proposal was supported by all other Member States, but the UK considered it excessive.

10.At the Ministerial Steering Board on 15 Novemberthe UK sought to limitthe EDA budget, and, once again, did not agree to the 6.45% increase that the EDA requested; we were the only Member State to do so. The UKput forward a counter proposal of an increase to the EDA budget in line with inflation (1.67%), and this was agreed by all Member States. The additional funding will be used exclusively for the EDA’s operational budget not salaries and infrastructure, for which expenditure has been frozen again.

11.The UK has blocked – as the lone voice – all requests for an EDA budget increase since 2010, which has resulted in a real term reduction due to the effects of inflation. In the new context of the UK’s exit from the EU it was judged that this stanceshould be reviewed. By proposing a more pragmatic approach, increasing our contribution in line with inflation, the UK reinforced the Government’s stated position of engaging constructively and recognised the EDA had made some progress on UK demands for reform and better performance. In addition it also highlighted the need to avoid unnecessary duplication with NATO and underlined our policy that seeks to ensure EU proposals neither encroach on Member States’ ownership of Defence capabilities, nor disadvantage the UK Defence industry once we have left the EU.

12.The EDA will have a central role as the EU implements its European Global Strategy. It is likely to have a specific role in developing the capability proposals in the Security and Defence Implementation Plan – and implementing the Preparatory Action on EU-funded Defence research, which is an area of potential high value to UK industry.It is therefore importantthat the UKworks with the EDA and other Member States, and avoidscreating a more difficult negotiating environment in the wider discussions over our exit once Article 50 is triggered.

13. Member State contributions are based on GNI and the UK’s allotted share of the requested increase would have required c.£254,000 pa more than the current UK contribution of £3.9M pa. The Zero Real Growth (inflation only)increase equates to approximately £69,000 more pa for the UK. The 2017 budget will uplift to €31M, with the Functional Budget staying at €24.4M and the Operational Budget increasing to €6.6M (from €6.1M).

14.A total block on the EDA budget would disproportionally impact our ability to engage on the development of new industry and capability proposals.The small investment in the EDA, which hasrealised savings to the UK in the delivery of its core objectives, and will now be an important route for access to potentially significant amounts of EU resources for research and UK Defence industry, is a positive step in support of our wider national objectives.

IMPACT ASSESSMENT

15. None.

FINANCIAL IMPLICATIONS

16. Once the budget is adopted the UK will be required to provide funding to the Agency in line with current Member State percentage breakdown of contributions. Contributions are calculated based on Member States GNI; provision has been made in the Departmental costing for this expenditure.

CONSULTATION

17. None.

TIMETABLE

18. The initial draft proposed 2016 Budget was rejected at the 15 November 2016 Steering Board with the UK counter proposal of Zero Real Growth being agreed instead.

THE RT HON EARL HOWE PC

Minister of State in the House of Lords

Ministry of Defence

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