Select Committee on Trade and Industry Annxes to the Report

Memorandum submitted by the Department of Trade and Industry following the Berlin European Council conclusions on Agenda 2000 package and subsequent submission of the UK's proposed areas for Objective 2 for 2000 to 2006

  1.  The Trade and Industry Select Committee reported on 17 June 1998 on issues related to the reform of the Structural and Cohesion Funds. The Committee has asked for an update on the reform of the Structural Funds, and in particular on the Government's simplification agenda and the UK's proposed areas for Objective 2. This memorandum gives details of the outcome of the negotiation on the Structural and Cohesion Fund Regulations, following the Berlin Council's agreement and the adoption by the European Parliament in June.

  2.  In the Department's memorandum published by the Trade and Industry Select Committee in its Seventh report covering Structural Funds, the Government reported that it was pressing to achieve a fair and affordable outcome to the negotiations, keeping the total budget for the funds well below 0.46 per cent of GNP. It argued for consideration of the special positions of Northern Ireland and the Highlands and Islands, and that Member States should have flexibility in the use of criteria to define areas under Objective 2.


  3.  The Berlin European Council on 24-26 March 1999 successfully concluded a package of key reforms needed to prepare the EU for enlargement. Part of this package was the reform of the Structural Funds Regulations.

  4.  At Berlin, the UK achieved all its main objectives in the negotiations—keeping the overall Structural and Cohesion Funds budget down to 213 billion euros (about 10 per cent below the Commission proposal), broken down as 195 billion euros for Structural Funds including transitional support, Community Initiatives and innovative actions, and 18 billion euros for the Cohesion Fund.

  5.  The Government secured the Objective 2 safety net proposed in the draft Regulation. This ensured that 13.8 million people, two-thirds of the UK's existing Objective 2 population, remain covered, thus limiting the reduction which would otherwise have been indicated by the drop in UK unemployment. An additional success was that the new Objective 1 areas (that are currently Objective 1 & 2 or 5b) count towards the calculation of the population ceiling for the "safety net" but do not count against Objective 2 for coverage—a benefit of 3.5 million people. Objective 2 support for the UK should be worth some 3.9 billion euros (£2.5 billion) over the next seven years. The areas that lose Objective 2 and 5b status will be eligible for transitional funding for up to six years. This funding will be worth 700 million euros (about £450 million) in total.

  6.  For Northern Ireland, which will no longer qualify for Objective 1 status (areas with per capita GDP below 75 per cent of the EU average) the UK secured a special package of funding worth some 1,250 million euros (about £820 million) over the next funding period. This package includes a PEACE programme worth 500 million euros, of which 400 million euros (about £230 million) will go to Northern Ireland to support the process of securing peace. A special transitional deal for the Highlands and Islands (which also lose Objective 1 status) provides some 300 million euros (£200 million) over the same period.

  7.  Three new regions qualify for Objective 1 Status: Cornwall, West Wales and the Valleys, and South Yorkshire, Merseyside retains its current Objective 1 status. Thus Objective 1 population coverage in the UK increases from 3.5 million in 1994-99 to 5.1 million in 2000-06. They will receive over 4.685 billion euros (around £3 billion) in funding during the period 2000 to 2006.

  8.  In total, including the transitional coverage, the geographically targeted Objectives will cover 27 million people in the UK, as opposed to 24 million in the present period.

  9.  The total UK allocation from the Structural Funds for the period 2000-06 is about 16.615 billion euros (about £10.7 billion) compared to 14 billion euros about £9 billion) for 1994-99.


  10.  The Committee asked to what extent the Government's simplification agenda has been achieved. Simplification has been achieved in a number of areas.

  11.  The current Regulations were replaced by a general Regulation which contains most provisions, including the standard clauses applicable to all funds. The individual Fund regulations are therefore much shorter.

  12.  It was not possible, however, to achieve a procedure whereby each programme could operate as if based on a single Fund, although Objective 3, and Community Initiatives will operate on a single Fund basis.

  13.  The number of Objectives has been reduced from seven to three. In broad terms Objective 1 stays the same but subsumes the current Objective 6; current Objectives 2 and 5(b) are combined into the new Objective 2; current Objectives 3 and 4 are now in the new Objective 3. This will mean a reduction in the number of programmes and hence in the associated bureaucracy.

  14.  It has also been possible to simplify the new Objective 2 by allowing the allocation of funding to the eligible areas to be used solely for ERDF actions. ESF actions will be funded under Objective 3 which applies throughout the UK. However, if they wish, local partnerships in Objective 2 areas may use a minimum of 5 per cent of allocation for ESF funding.

  15.  The number of Community Initiatives has been reduced from 13 to four. The Commission's original proposal was for just three; INTERREG (for cross-border activities) funded from the ERDF: LEADER (rural development) funded from the EAGGF; and EQUAL (transnational co-operation to combat all forms of discrimination and inequalities in the labour market) funded from the ESF. The European Parliament added a fourth initiative, URBAN (to take account of specific needs of small and medium sized towns suffering from significant economic and social conversion difficulties).

  16.  A further area of simplification is in the commitments and payments system. Currently commitments are linked in a complicated way to progress on payments. The new system will make annual commitments automatic, but decommitment may follow if programmes fail to meet their spending profile.

  17.  There will also be simplification in the verification of additionality. The Commission's proposal to verify this only three times in the seven year programmes has been accepted. Currently verification is annual.

  18.  Another area of simplification is programme duration. All main programmes will last for seven years and transitional programmes for up to six years. In the current programming period, Objective 2 was split into two three year periods. This complicated implementation.

  19.  Finally, the Commission will take financial decisions on the basis of the priorities in programmes, leaving the detail on the implementing measures to be decided by Programme Monitoring Committees. This will allow a degree of flexibility so that programmes can be amended to meet changing circumstances without the need for new Commission decisions.

  20.  Overall, there have been significant changes which will simplify the administration of programmes without reducing value for money and financial control.


  21.  After concluding the negotiations on the Structural Fund Regulation, the Government conducted a public consultation on the determination of eligible areas for Objective 2 funding in April and May.

  22.  In the light of responses to the consultation document, the Government embarked on identifying UK areas of greatest need within the population ceiling of 13.8 million using consistent criteria. In deciding which areas to propose, the Government had to respect the requirement in the Regulation (EC) No 1260/1999 that areas be sufficiently substantial (which the Commission initially advised to mean at least 50,000 population for urban and fisheries areas, and 100,000 for industrial and rural areas).

  23.  Areas which satisfied the industrial and rural criteria at Article 4(5) and 4(6) for automatic qualification amounted to about a third of the population ceiling. The remaining coverage was achieved by reference to Article 4(7) for urban areas; 4(8) for fisheries dependent areas and 4(9)(c) for industrial and rural areas that demonstrated need but did not meet the criteria at Article 4(5) or 4(6). The criteria that the Government used for qualification under Article 4(9)(c) are set out in the document URN99/1021 "The Government's proposals for new Objective 2 areas". The criteria were based on levels of unemployment, in combination with measures of high dependency on industry or agriculture and a decline in those sectors. For urban areas, the respective indices of local deprivation were used in England, Scotland and Wales. Fisheries areas were determined using data from the Ministry of Agriculture Fisheries and Food and, given the relatively small size of the fisheries areas, were combined where possible with coverage under other strands to build a sufficiently large area of coverage.

  24.  These criteria were developed in the light of the responses to the consultation and suggestions of specific areas for inclusion. All areas received equal consideration against he criteria whether or not any representatives were made. In terms of the geographical unit to be used to identify proposed areas, the consensus from the consultation was that the Government should use NUTS V (wards) to allow specific targeting of areas of need. The criteria were designed to ensure, as far as possible, that the areas identified by regional partners as priorities were included.

  25.  The Committee has asked to be provided with lists of the wards referred to which technically qualified under the Commission's criteria but which were removed in favour of coalfield areas and of those which were judged too geographically isolated to make sense in planning terms, as well as the latest global figures on allocations. This information is at Annex A.


  26.  DTI officials have been discussing with the Commission the proposals for the new Objective 2 areas which are submitted on 8 October. DTI has provided additional statistical data to support the proposed areas. A few changes have also been made to the list of proposed wards in order to meet the requirements of the Regulation on statistical data and the minimum size referred to above. The changes were agreed with the Government Offices in England and the Scottish Executive as being in line with regional priorities. They are as follows:


    Torbay—Torwood ward is included;

    Southend—2 wards are exchanged: Victoria and St Lukes for Chalkwell and Leigh;

    Great Yarmouth—1 ward is exchanged: Magdalen West for Gorleston;

    East Staffordshire—2 wards are exchanged: Victoria and Eton for Needwood and Tutbury & Hanbury.



    Wards included—Sidlaw and Carnoustie West.

    Wards deleted—Colliston and Hayshead.


    Ward deleted—Harviestoun.


    Wards included—Dudhope, Central, Menziehill and Gourdie.

    Wards deleted—Wellgate, Baxter Park, Douglas, Whitfield and Trottick.


    Wards included—Dawson and Victoria.

    Wards deleted—Toryglen and Crosshill.


    Wards included—Part of Pathead ward.


    Wards included—Keith, Northern part of Strathisla.

    Ward deleted—Rathford.


    Ward included—Johnstone Cochranemill.

    Ward deleted—Barshaw.

  South Lanarkshire

    Ward included—Fernieger, Part of Fernhill ward.

    Ward deleted—Low Waters.

  27.  The Regional Policy Directorate-General in the Commission is now consulting other interested Directorates-General on the UK's proposals. The Government hopes that this will allow them to approve the areas in principle before Christmas and give them formal approval early in January.

  28.  The four-month timetable for the submission of draft programmes to the Commission starts running from the formal approval date. However, the Regulation allows funding to begin from 1 January 2000 provided that draft programmes are submitted to the Commission by 30 April 2000.

6 December 1999

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