Select Committee on Welsh Affairs Fourth Special Report


[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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