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EU Regional Policy (EUC Report)

My Lords, I congratulate my noble friend Lady Cohen on securing the debate and on chairing the committee so admirably through the inquiry and the production of the report. I also congratulate the noble Lord, Lord Teverson, on the enthusiasm that he brought to acronyms and linking past programmes to present ones. If people view this debate, they will be full of admiration not only for the enthusiasm with which he embraced all that but for the deep experience that he brought to the subject. I, for one, learnt a number of things from his contribution. Like many Members of the House, I am pleased that, at the start of its report, the committee sets out with clarity what the various funds and objectives are and what they mean for the different countries of Europe, including our own. In the United Kingdom, only Cornwall and the Isles of Scilly, the Welsh valleys and west Wales are full members of the convergence funding programme. The highlands, Merseyside and South Yorkshire are at various stages of phasing in and phasing out. Therefore, we are talking about only a limited number of areas of the United Kingdom where this remains a live issue. However, I agree with the noble Lord, Lord Teverson, that these programmes have been enormously important, not only in Yorkshire, where I live, but in Cornwall and other parts of the country. In his evidence, the current director-general of regional policy, Mr Ahner, reminded us that convergence policy and regional policy are not just about levelling up and getting rid of great inequalities. In parts of Europe, more than in the UK, people have a deep sense of wishing to avoid the domination of the European Union by a small number of powerful conurbations and centres of influence. That desire to do more than just level up and get rid of the great inequalities and to have policies that strengthen the whole of Europe and not just two or three heartland areas is never captured in any discussion in the UK about how European regional policy is seen elsewhere in Europe. These objectives are ambitious, but we should keep in mind the fact that the total amount of European funding devoted to all this is around a third of 1 per cent of the gross national product of the European Union. To keep things in proportion when we talk with enthusiasm about these things, we must remember that what can be achieved through these programmes is modest, although not insignificant, compared to what Governments in member states can and should be doing to address the same issues. It is easy to get carried away with what these policies will achieve across the whole of Europe, given that the funds amount to only a third of 1 per cent of gross national product. I was struck many times by the enormous number—276, I think—of regions and subregions, of which 70 receive assistance through these programmes. There is an enormous amount of detail and almost micromanagement at the European level. There is a question mark over this, on which I shall comment when I speak about Yorkshire. We should also remember that the European Union funds provide match funding. There has to be match funding as well as European funding. It is not just a question of money coming out of Europe; the various agencies have to work to get match funding. In general, I would not overestimate what can be achieved across the whole of Europe on these funds, important though they are for some parts of our own country. I do not say that these are insignificant. For example, in South Yorkshire, in the past six-year or seven-year programme, around €1 billion was received from European regional funding programmes. That did have a real effect. In the past seven or eight years, the centre of Sheffield has been transformed, recast and regenerated. Overwhelmingly, that has been sparked off by European funding. Although I express a word of caution about the effect that one third of 1 per cent of national income can achieve across the whole of Europe, where it is concentrated on significant projects, as opposed to spread over too many projects—the point I think the noble Lord, Lord Teverson, was getting at, saying no much more firmly and earlier—then it can make a difference. In the next seven-year programme, the regional development agency is concentrating on a major project to bring high-speed broadband to the whole of South Yorkshire. That would be truly important and helpful. So I accept that there is a limit to what can be achieved in these programmes but where it is concentrated it can make a substantial difference. In considering whether these funds should continue throughout the whole of Europe, the committee came to the view that where funds are in support of not levelling up but general competitiveness, as opposed to convergence, richer countries such as the United Kingdom should not receive those funds. The Government, in response, confirmed their position. Not only did they agree with that, but they felt that, in principle, they would be willing not to have any regional funding coming to the United Kingdom and that should apply to all the richer countries. The committee, in a previous inquiry and report, had come to a similar conclusion. I agree with that but there are one or two provisos. First, what that is really saying is that it should be for those richer countries that can afford it, such as the United Kingdom, Germany and so on, to decide whether they want to have a regional policy. It is for the Government, political parties and the electorate to decide whether a strong regional policy is a priority. If the Government were to withdraw from regional funding from Europe but did not replace those funds by having strong regional policies, there would be a pretty adverse reaction in Yorkshire, Merseyside, Cornwall, the Highlands and so on. I want to hear from the Minister that the policy of being willing to negotiate over the future of regional funding coming into the United Kingdom would not mean a weakening of resolve of regional policy in the United Kingdom. Secondly, as the noble Lord, Lord Teverson, said, there is a great deal of value in the European approach of seven-year programmes. It provides a certainty and continuity that is lacking in UK government funded programmes. I should be most grateful if the Minister would reflect on that and say whether, in looking ahead, the Government see some merits in longer-term certainty in regional funding programmes and acknowledge that this is a merit of the seven-year approach in Europe. Does he see that being replaced in the UK? I should like to comment on the article in the Financial Times to which the noble Lord, Lord Trimble, referred. It states that some £670 million will have been underspent in the English regions in the 2000-06 programmes, which actually ended at the end of last year for the spillover period. The Government have decided not to ask for an extension period for English regions, although they have supported an extension period for Wales, Northern Ireland and Scotland. It would be extremely interesting to know what the difference is—that is, why the Government have decided not to press for an extension in the English regions but have supported an extension elsewhere in the United Kingdom. What is the Government’s view of the apparent underspend of some £600 million or £700 million in English regions over that period, which I work out to be about 12 per cent of available European Union funding programmes? Secondly, it seems that something is awry when there is no apparent capacity problem, although there is an absorption problem, in England. Why has there been such an underspend in English regions? I turn to two other matters. One is the greater use of loans. I endorse all that the noble Lord, Lord Teverson, said on this; it is an important issue. When Graham Meadows, the former director-general referred to by the noble Lord, Lord Teverson, met the committee, he remarked that in 1989, when he was overseeing German regional development programmes in the European Union, he found that Marshall aid programmes were still going in revolving loan schemes. He was struck by the fact that targeted loan schemes can provide an ongoing contribution to economic development and so on long after the initial grants have emerged on the scene. That was a powerful reminder of the value of loan schemes. In their response to our report, the Government told us that they are actively promoting the use of loans as an alternative to grants. I hope that the Minister will be able to tell us more. They said that several UK European regional development fund programmes in the next period, 2007-13, will set aside some of the allocation to loan funds. It would be helpful to have additional detail on that. I turn to the question of the cost of administration. Some critics of European regional policies have alleged that they involve huge administrative costs. One witness to the committee, Open Europe, suggested in written evidence that the cost of administering European regional funds in the UK totals some £670 million a year, which is more than 4 per cent of the funds available. As noble Lords would expect, the committee looked at that with care, because it would obviously be a substantial apparent waste of taxpayers’ money. The Government’s estimate of the cost to central government of administering these programmes is £28 million a year out of the total UK allocation of European funds of £1.5 billion. The regional development agencies told us in written evidence that the annual cost to English RDAs is around £11 million. Therefore, including the figures for the Welsh and Scottish RDAs and so on, the official data indicate that the total administrative costs to the public sector are no more than £40 million to £50 million, as opposed to the very much larger figure of £670 million suggested to us by Open Europe. The official data indicate a cost of about one-third of 1 per cent. The committee accepted that administration in the UK is not a significant cost or burden when compared with total funds. However, that is not to say that there are no issues. Administration, bureaucracy and delays impact on private sector applicants for funds. In my experience, there are bureaucracies and unnecessary delays. Again, I endorse what the noble Lord, Lord Teverson, said about the need for a much clearer decision-making process and the need to be much firmer and to say no earlier. I would also suggest that too many small schemes are encouraged, whereas it would be better to concentrate on significant schemes that make a real difference. Finally, there is tension between the need for audit control and the burdensome administration that it can produce. A number of our witnesses, including the director-general, commented that the audit requirements on UK regional programmes involving European funds are much more onerous than our internal public expenditure audits. There is something awry here, and the Commission issued a general invitation to applicants from the private sector as well as the public sector to give evidence on where there is unnecessary bureaucracy and administrative costs. I hope that that challenge will be taken up as a result of this debate and the report. There are unnecessary costs and bureaucracy. They are not significant in proportional terms, but if you are caught up in them, they are terribly frustrating and put people off applying. It would be a great shame if good projects were put off for that reason.