EU BUDGET: UK PROPOSALS WILL HELP BLAIR CUT FARM SPENDING.

Senior Commission agriculture officials explained on December 9 that a combination of changes in the UK proposal plus elements of the package drafted by the Luxembourg Presidency in June would lead to direct aids to farmers and funds for market support being cut by 11-12% by the end of the budget period.

If accepted by EU leaders at their summit meeting on December 15-16, the cuts in farm spending would enable current EU President Tony Blair to claim that he had succeeded in shifting the budget away from supporting farmers. Mr Blair rejected a package drawn up by the Luxembourg Presidency in June, saying that the budget needed to be reworked to cut the amount of money going on the Common Agricultural Policy (CAP).

The compromise tabled by the UK on December 5 proposes financing direct aids to farmers and other forms of market-related expenditure (such as export refunds or the cost of storing unsold cereals or distilling surplus wine) for Romania and Bulgaria when they join in 2007 from within the 2002 agreement on financing of the CAP. The Commission calculated that adding these two countries would cost euro eight billion over the period so finding the funding within the envelope of that agreement reduces the budget for direct payments and market-related expenditure for EU15 by that amount. The ten, and later 12, new member states are excluded from any reduction in direct payments until they reach 100% of the EU15 levels in 2013.

Under the Luxembourg proposal in June, euro six billion for Romania and Bulgaria would be found within the 2002 ceiling so the UK proposal represents an extra two billion saving. French President Jacques Chirac accepted this saving in the June negotiations. The extra two billion cut in the UK proposal translates into cuts in direct aid payments for EU15 farmers of 3% between 2006 and 2013. Altogether, finding euro 8 billion from within the 2002 ceiling would bring down direct payments by 6%. When the effects of modulation (i.e. taking 5% of money from direct aids and market-related expenditure and shifting it to rural development) are taken into account, the budget for direct support will fall over the period by around 11-12%.

Direct aids and market-related expenditure could also be cut even further as the UK is also proposing allowing member states to shave an additional 20% off this budget line and transfer it into rural development. This possibility...