GOVERNMENT RESPONSE TO WELSH AFFAIRS COMMITTEE
FIRST REPORT ON EUROPEAN STRUCTURAL FUNDS
[Paragraph 3] We intend to continue to monitor
developments closely, and to maintain pressure on the UK Government
to ensure that Wales receives a fair settlement in the next Comprehensive
Spending Review.
The Government notes the Committee's views.
[Paragraph 8] It will be a considerable challenge
for Wales to achieve the aim of 100% take-up of the Structural
Funds money available.
The Government notes the Committee's views, but is
confident that the partnership approach between Government and
the Assembly, which is responsible for the Objective 1 programme
in Wales, and the hard work of the Welsh partnership in preparing
for Objective 1 should ensure that Wales is well equipped to meet
the challenge.
[Paragraph 9] It is essential that Wales make
maximum use of the opportunity presented by Objective 1 status.
The Government concurs with this. The securing of
Objective 1 status for West Wales and the Valleys by the Government
provides a real opportunity to boost the economy of Wales and
deliver long term gains to all of the people in Wales. In addition
to the work of the Assembly in involving a wide range of partners
in drawing up and implementing the strategy, Ministers have held
meetings with a range of organisations from the public, private
and voluntary sectors across Wales to raise awareness of the opportunities
offered by Objective 1.
[Paragraph 12] We recommend that the Government
and the Assembly, jointly, publish a simple but authoritative
guide to public expenditure in Wales, setting out in simple terms
how both UK and European funding operate in Wales.
The Government, in consultation with the Welsh Assembly,
Scottish Executive and Northern Ireland Departments, will produce
this summer an updated version of the Statement of Funding Policy,
first published in March 1999. The Government agrees with the
Committee that the guidance should be simple and authoritative,
and explain UK and European funding. This requirement will be
fully reflected in the new version of the Statement.
[Paragraph 13] We were assured by Ms Alison Jackson,
Head of the Wales Office, that the payment from the Treasury would
be immediate.
Article 32 of the EC Structural Funds Regulations
states that "The paying authority shall ensure that the final
beneficiaries [projects] shall receive payment of their contribution
from the Funds as quickly as possible and in full. No deduction
shall be made." The paying authority includes the Treasury
and other national and regional authorities involved in the transmission
of EC payments.
[Paragraph 14] We urge the National Assembly to
provide for advance payments where appropriate and to ensure that
the availability of advance payments is well publicised.
The First Secretary of the National Assembly for
Wales responded to this point in his letter of 7 March.
[Paragraph 16] We were assured that there would
be no circumstances in which the Assembly found itself unable
to pay its bills or in which a properly approved project found
that its valid claim was not met.
Valid claims submitted by projects would relate to
funds that had already been committed. It is for the Assembly
to manage European funding, together with other programmes, within
its overall Departmental Expenditure Limit.
[Paragraph 18] We urge the UK Government to allow
for additional public expenditure cover in Wales in 2000—2001
if claims are significantly higher than expected.
The Assembly estimates that Objective 1 expenditure
for the financial year 2000—2001 will be around £25
million, which has already been budgeted for within the existing
provision. The First Secretary has made a commitment to meet all
Objective 1 expenditure in that year.
[Paragraph 19] We realise that the Assembly is
entering a period of negotiation with the Treasury and will not
wish to declare its full hand too soon, but we feel that the power
of Wales's case would be enhanced by greater clarity [on European
Social Fund; baselines; Objectives 2 and 3].
The Secretary of State for Wales negotiates the financial
provision for Wales with the Treasury and these are matters which
are being clarified as part of the Spending Review.
[Paragraph 20] We urge the UK Government to make
a clear and early commitment, within the context of the CSR, that
it will raise Wales's public expenditure cover to allow full take-up
of European receipts.
The Prime Minister has already said that he will
not let Wales down and the Government is aware of the importance
of the issue in Wales.
The Chief Secretary to the Treasury recognises that
Objective 1 is new for Wales. How West Wales and the Valleys can
take full advantage of the opportunities presented by Objective
1 status is a key issue for the Government. The Secretary of State
for Wales and the Chief Secretary to the Treasury have asked their
officials to work together with Assembly officials to look at
the issues as part of the 2000 Spending Review. The implications
for the Welsh block arising from Objective 1 funding are an important
feature of the Spending Review, which is underway and will conclude
in July.
The Prime Minister made clear during his recent trip
to Wales that match funding is needed in the Objective 1 programme,
and that the Government has no intention of squandering what it
has won for Wales. This will be considered as part of the Spending
Review.
[Paragraph 22] Whether it is realistic to expect
to raise £309 million from the private sector in West Wales
and the Valleys is questionable, and will clearly depend on the
kind of projects funded.
The figures in the financial tables of the Objective
1 plan for West Wales and the Valleys are a matter for the National
Assembly for Wales and the Welsh partnership. The percentage split
of match funding between public and private sectors in these tables
is however consistent with the main 1994—1999 Structural
Funds programmes in wales.
[Paragraph 23] It would be helpful if the National
Assembly would clarify how Lottery funding is treated in its estimated
requirements for match funding.
The First Secretary of the National Assembly for
Wales responded to this point in his letter of 7 March.
[Paragraph 24] We urge the Government to increase
the funding made available to Wales in the next CSR settlement
sufficiently to meet in full the public sector element of match
funding.
As in previous Structural Funds programmes, match
funding remains the responsibility of the project sponsor. This
ensures that the applicant is committed to the project and that
projects are consistent with local or regional priorities. In
addition to match funding from the private sector there are many
sources of public sector match funding from a range of programmes
run by Government Departments, local authorities and other public
bodies, not all of which need necessarily come from within the
Welsh block. These include New Deals, Employment Zones, and the
National Lottery. As noted above, the implications of Objective
1 funding are being considered as part of the Spending Review.
[Paragraph 28] We support the initiative of the
Assembly Secretary for Economic Development in seeking to exempt
Structural Funds from the operation of the Barnett Formula. At
the same time, we accept that it is best not to complicate the
current negotiations by seeking an immediate review of the Barnett
Formula as a whole, [...] it must be recognised that there is
increasing dissatisfaction in Wales with the way the Barnett Formula
operates. This is an issue to which we shall return.
The Devolution White Paper 'A Voice for Wales' confirmed
that changes in the spending allocations to the Assembly's budget
would be largely tied to changes in comparable spending programmes
in England.
The Chief Secretary to the Treasury recognises that
the award of Objective 1 status to West Wales and the Valleys
is new and the implications of this will need to be carefully
examined in the Spending Review.
[Paragraph 29] The principle of additionality
cannot be called in aid to require the UK Government to provide
additional public expenditure cover for Wales.
The European Structural Funds Regulations provide
that additionality is determined in the sum of regions covered
by Objective 1 in any Member State. The Government is satisfied
that the additionality requirement has been met for the latest
Objective 1 programmes over the UK.
[Paragraph 31] In our view, responsibility for
administering European Social Fund payments to Wales should be
transferred, with appropriate resources, from DfEE to the National
Assembly, when it is practicable to do so.
The First Secretary of the National Assembly for
Wales responded to this point in his letter of 7 March.
[Paragraph 32] We urge the UK Government to respond
positively to proposals from the Assembly for the use of operating
aid to aid economic development in Wales.
The National Assembly proposed last year a doubling
of the research and development tax credit for small and medium-sized
enterprises (SMEs) in derogation 87 (3) (a) areas of the UK. The
UK Government could not agree to adding a geographical differentiation
to the research and development tax credit because it would undermine
the relatively simple design and administration of the credit,
and open up potential for abuse of more generous credits in assisted
areas. This particular tax measure is aimed at providing a general
stimulus to R&D investment by SMEs across the UK. Other non-tax
measures are better suited to stimulating regionally-based economic
development.
The UK Government is not aware of any further such
proposals from the Assembly.
Any proposals for operating aid would have to be
submitted to and approved by the European Commission in advance
of any implementation under the State Aid rules. This applies
to all public funding including from Community sources, such as
Structural Funds, where the beneficiary falls within the meaning
of Art 87 (1) of the Treaty of Rome (a particular firm, sector
or business activity).
[Paragraph 33] We urge the National Assembly to
ensure that the private sector is fully involved in the Structural
Funds process. The involvement of businesses, at local as well
as national level, will be vital to the enduring success of the
programme.
The Government concurs with this, although it is
a matter for the National Assembly for Wales. The First Secretary
of the National Assembly for Wales responded to this point in
his letter of 7 March.
[Paragraph 34] We share the view expressed to
us that the wind-up of the Task Force was premature, and fear
that this may have impacted on the progress of the Objective 2
plans. We urge the Assembly to ensure that the new structures
for overseeing the implementation of the Structural Funds programme
are established without delay.
The First Secretary of the National Assembly for
Wales responded to this point in his letter of 7 March.
[Paragraph 35] We call on the Government, and
the National Assembly, to respond to our Sixth Report of last
Session [on Denbighshire County Council's Funding Legacy] without
further delay.
The Government submitted its response on 29 March
2000.[8]
[Paragraph 36] We urge the UK Government, in negotiation
with the European Commission, to reconsider its proposed Objective
2 map.
On 22 December 1999, the European Commission approved
in principle the United Kingdom's proposed Objective 2 map for
the period 2000—2006 submitted on 8 October 1999. It formally
approved the map on 30 March 2000 after the necessary consultation
with the committees provided for in the Structural Funds Regulations.
There is no possibility of renegotiating the map now.
[Paragraph 37] We urge the UK Government to respond
swiftly to this Report by making a clear public commitment that
it will provide Wales both with public expenditure cover for the
anticipated European grants and also with additional funding to
meet in full the costs of the public sector match funding requirement.
The Prime Minister has confirmed that he will not
let Wales down. The Prime Minister made clear during his visit
to Wales that the Government will not squander what is has won
for Wales. The Chief Secretary to the Treasury has stated that
he fully appreciates the needs of Wales and the importance of
the help Objective 1 status will give to West Wales and the Valleys.
Because of its complexity as well as its importance to Wales,
Objective 1 can only be resolved as part of the Spending Review
process.
Rt hon Paul Murphy MP
Secretary of State for Wales
Wales Office
2 May 2000
8 The Government and National Assembly for Wales responses
have been published as the Third Special Report, Session 1999-2000,
HC216. Back
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