Examination of Witnesses (Questions 20
- 40)
WEDNESDAY 7 MAY 2003
MR KARL-JOHAN
LÖNNROTH AND
MR PAUL
VANDERMEEREN
Q20 Mr Goodman: How often is a member
state obliged to pay back ESF funding because what they have done
is wide of the Regulations? How is the penalty enforced?
Mr Lönnroth: This is a long
story. If we get a hint or our own audits show that there is an
irregularity we normally ask the member state to explain to us
the reasons for this irregularity. If we are still unhappy we
can launch what we call an article 24 procedure which basically
means that we are either suspending or we require repayment of
the funds. We are actually monitoring the member states as regards
the number of their irregularities. The number of irregularities
detected or informed to the Commission is increasing somewhat,
but it is still small. Over the years it has increased so that
it is now 0.68% of the total funds. You should compare this with
your national situation: how many irregularities do you have in
the UK in your national funding? In European funding it is not
extremely high. We compare it between the member states and there
one can say that the UK is not one of the least affected nor one
of the most affected, but it is a bit higher than the average.
You should not, however, draw too much conclusion from that because
it may also be due to the fact that the control system works in
the UK. We would rather take a positive attitude to that before
we have a second opinion. The fact that the UK has a relatively
high amount of irregularities detected—which is still small
as compared with the total number of your projects—rather
proves that the system detects better than the others. The highest
number of irregularities is, by far, in the Netherlands. Relatively
high also is Denmark. The UK is, I think, fourth in number. I
have a graph which I can let you have. It looks like this: you
have Netherlands here with 890 cases; the UK has 77; Greece has
117; Spain 98; Germany has 93 (for the programming period 1994-99)[7],
[8].
Seventy-seven is a relatively high number, but it is not great.
My submission to you is that that rather proves that the system
detects problems.
Q21 Chairman: I am deeply impressed
by the preparation you have done before coming here. This is very
important evidence for us and you are being very generous with
your answers.
Mr Lönnroth: Thank you.
Q22 Andrew Selous: I would like to
turn to one or two issues that may be specific to the United Kingdom,
it has been put to us in some of the evidence that we have received
that the system of co-financing—which is widely used in
the UK—may disadvantage voluntary and community sector organisations
who are active in this field of work. The co-financing organisations
tend to be, so far as we are aware, government offices, Learning
and Skills Councils, Jobcentre Plus, local councils and so on.
What response would you make to that, that the voluntary and community
sector—of which we are well represented in this field—are
disadvantaged in terms of applying for your funds?
Mr Lönnroth: First of all,
let me give you some figures. We have looked at this and I do
not think that the figures really warrant this criticism. Looking
at objective 3 in England the voluntary and community organisations
have secured, in this period, 20% of the committed ESF funds,
whereas this percentage was 13% in the last period (1994 to 1999).
In terms of the access of voluntary organisations to funding,
this seems to be improving rather than going down. Whether or
not this is due to the co-financing it is difficult to say, but
from the Commission point of view I think this is a rather ingenious
way of working because what previously happened was that the voluntary
organisations had to do a double act in a sense. If there was
a call for tender they had to secure the community funding and
before that—or whatever the sequence was—they had
to secure the match funding. This was not easy for them. Now the
co-funding means that you have one stream of funding. If you get
access to the community project you have immediate assurance that
you also get the match funding. You get that through the co-financing
organisations. Of course, the judgment is still out. We have done
an evaluation which seems to warrant this. We are now doing another
evaluation which is going to be finalised in June or July. Then
there is the mid-term evaluation which we are going to do in the
autumn. We are going to see whether the system works or not, but
it seems to be more positive than negative.
Q23 Andrew Selous: Is it an important
criterion to you that the money that you allocate is additional
money to what would have been spent anyway by the national government
or organisation within the UK? Are you always looking for a degree
of additionality in terms of the money that you are spending?
Mr Lönnroth: I think we are.
I think it is important to ensure the commitment. When I was a
young student in Finland I was responsible for creating a service
for the students in the local swimming pools in Helsinki. There
was a huge discussion as to whether those swimming pools would
be totally free or not. At the end of the day we came to the conclusion
that we should require from those who wanted to have a card to
contribute a very small sum which ensured that only those who
were really interested in that service and who were using that
service would apply. The same philosophy, I think, applies here.
The additionality ensures that there is a link with the needs
and there is a link also with the strategy of the national member
state. Additionality is an important factor.
Q24 Andrew Selous: Do you believe
that the UK loses out at all in terms of being outside the Eurozone
from exchange rate fluctuations in terms of when money is allocated
and when it is received, so far as the exchange rate is concerned?
Mr Lönnroth: I would say
no to that question. I think it is like the flip of a coin. There
is a fixed amount in the Regulation. We had an exchange rate fixed
of £1 for 1.62 euros and with the exchange rate fluctuation
you either win or you lose.
Q25 Andrew Selous: Let me put the
question another way: are you conscious of the buying power of
national currencies in terms of euros of the non-eurozone countries?
Is that an analysis you would give?
Mr Lönnroth: No.
Q26 Andrew Selous: You are purely
accounting for everything in euros.
Mr Lönnroth: You are talking
about the purchasing power parity. This is a nominal exchange
rate which we are using.
Q27 Ms Buck: Can I ask you a bit
more about the mid term review? Could you tell us what the criteria
are for conducting a mid term review and when you have completed
that what will you do to disseminate your findings and good and
bad practice?
Mr Lönnroth: The Regulation
requires that the Commission issues guidelines and those guidelines
are imminent (unfortunately I have to apologise because the guidelines
are a bit late). Then the mid term review is actually going to
have to be delivered by the end of this year. On the basis of
the mid term review the Commission, by 31 March 2004, is going
to allocate the 4% which I just talked about—the performance
reserve—and then decide also whether or not the programmes
should be changed. The criteria for changing the programmes are
pretty constraining in the sense that you would have to demonstrate
to us that there is a considerable change in the labour market
situation, but there are also some other criteria which have now
come about through a process which the Commission has proposed
to make the system a bit more flexible. In terms of good financial
management, for instance, that can be used as a criterion. We
have a new or revised employment strategy which is coming up.
There are some new priorities. We have looked at that and asked
ourselves whether we need to undertake a complete review of the
programmes because of this revised strategy and our response to
that is no because we think—in particular in the UK—the
priorities that you are pursuing actually fit very well, even
within the new priorities of the strategy. I do not foresee that
there will be a complete overhaul of the programmes. I would issue
a health warning since it would be very complicated to do a complete
overhaul. It requires decisions and it takes a long time. I would
rather foresee minor adjustments to the programmes on the basis
of the mid term review, in particular to improve the performance
of some of the measures and priorities that you have.
Q28 Ms Buck: How do you see the distribution
of the 4%? How has that worked in the past? Has it mirrored previous
spending patterns or is it to reward good practice?
Mr Lönnroth: That mirrors
the indicators which I mentioned. Each programme is going to be
evaluated on the basis of these criteria. Then we are allocating
the funds to those who seem to have performed better. If you have
a bit of a problem with some of the equal opportunities actions
and some of those special programmes do not absorb all the money
or the criteria is not fulfilled, then the performance reserve
is not allocated to that but rather to some other programmes.
However, it is UK money so we are not going to give it to Germany;
we are going to give it to some other programme within the UK.
That is how it works.
Q29 Mr Dismore: I would like to ask
you about the EQUAL scheme. What do you think the EQUAL scheme
does that objectives 1, 2 and 3 do not do or which cannot be left
to individual member states' governments?
Mr Lönnroth: It is a programme
of 400 million euros. EQUAL in the UK is one of the biggest community
initiatives. We consider this to be a developmental measure. In
other words, mainstream is implementation of existing programmes,
while we have a little bit of openness in EQUAL to develop new
ideas across the pillars of the European Employment Strategy.
Another important element here is the trans-nationality. This
is the real community value added. We want to create partnerships
which are not only UK or England partnerships but come from other
countries as well. You have, for instance, partnerships which
involve some of the candidate countries; there are partnerships
which involve Hungary and the Czech Republic. The idea is to develop
good practices and create networks in order to exchange those
good practices. That, I think, is the value added. Mind you, it
is a bit complicated as a programme because you have first to
search for the partnerships. We, in the Commission, try to help.
Then the partnerships have to develop an action programme and
after the action programme we have a third element which requires
dissemination. So there are three stages. It takes time, but on
the other hand here you have voluntary organisations and others
who often do not have the capacity to implement things. We have
to admit that it takes a bit more time, but it is very valuable.
The programme here works pretty well even if you have fewer partnerships
than in some other countries.
Q30 Mr Dismore: Are you able to encourage
the government to go in a particular direction or to discourage
them from going in a particular direction? We have, for example,
MPs who have concerns about the way the scheme is operated here,
particularly in relation to asylum seekers.
Mr Lönnroth: We have guidelines
which require member states to focus on some priorities. The Commission
has established those guidelines and we are trying within the
four pillars of the European Employment Strategy to develop new
forms of entrepreneurship, new forms of training programmes and
we also have programmes for asylum seekers. Those are priorities
which we, from a European Union level, are trying to push for,
then it is up to the government, on the basis of those priorities,
to set up and launch the partnerships.
Q31 Mr Dismore: If the government
does not take up one of those then there is nothing you can do
about it.
Mr Lönnroth: We do not have
many other sanctions than to decide or not to decide on the programme.
In this case there was not a problem because we agreed, so the
actual situation did not arise in terms of the UK. Our only sanction
is basically not to adopt the programme and of course that is
a sanction with which we threaten the member state. They normally
comply because money is important for them, even if it is less
than what you get in the national budget.
Q32 Andrew Selous: Can I turn briefly
to the work you do with asylum seekers. What checks do you have
in place to make sure that your funds are going to those who have
valid asylum claims so far as the UK is concerned as opposed to
those who have come here without any proper basis but are seeking
to enter the UK labour market?
Mr Lönnroth: We are relying
on the UK themselves to ensure that these are asylum seekers who
comply with the regulations. Everybody knows the difficulties
with asylum seekers. They are not at the disposal of the labour
market in principle.
Q33 Andrew Selous: That is the point.
A lot of them are within the UK and are going into the black market.
Mr Lönnroth: Indeed. They
cannot be recruited through this measure directly to the labour
market. We are not saying that you have to accept them, but in
case they are accepted we are preparing them for the labour market.
Instead of staying in centres doing nothing, perhaps they could
be given a bit of training so that if the asylum application is
accepted they can be integrated; if it is not they can be sent
back and they would then perhaps have a better chance in their
country of origin because they have better skills and better possibilities.
That is the philosophy behind the idea.
Q34 Andrew Selous: In terms of accountability
within the European Commission of the funds which you are responsible
for administering, to whom is the ESF Committee accountable and
what UK representation is there other than officials from the
Department for Work and Pensions?
Mr Lönnroth: The European
Social Fund Committee is actually the oldest committee. It is
in the treaty, article 146. The Committee is an advisory committee
which means that we have to ask its opinion about every programme
that the Commission is adopting. Now, when the candidate countries
come in . . .
Q35 Andrew Selous: I think you may
have misunderstood my question. My questions was to whom is the
Committee accountable?
Mr Lönnroth: It is accountable
to the Commission.
Q36 Andrew Selous: Directly to the
Commission?
Mr Lönnroth: Yes. I am the
chairman of that Committee. It is chaired by a representative
of the Commission. The Committee itself is tri-partite. You have
the two sides of the labour market, employers and trade unions;
so it is a tri-partite body and it gives the Commission advice
on the Commission's decisions on the programmes and other things.
It is accountable to the Commission.
Q37 Andrew Selous: We understand
that the ESF can fall between the Directorate General for Employment
and Social Affairs and the Directorate General for Regional Policy.
Is that ever a problem? How do those two directorates general
liaise or is there a senior directorate general that takes over?
Mr Lönnroth: That is a tricky
question. If the world were perfect then we would not sit here.
There are always problems and concerns, different points of view
and so on. What happens is that the Directorate General for Regional
Affairs and the other committee which is the European Regional
Development Fund Committee takes the lead[9].
It is the coordinating body as far as financial management is
concerned. In terms of the implementation of the regulation of
financial management, they take the lead. I would not say that
we have major problems, but there are always different points
of view which, through internal coordination mechanisms, we try
to solve and I think, at the end of the day, in spite of difficulties,
we manage to solve. Sometimes it takes time, but generally we
do. We have to consult on employment issues, financial management
for instance. The problem we have is basically due to the nature
of the operations rather than the different directorates general;
we are dealing with training courses, we are dealing with individuals.
You never know when you organise a training course if all the
individuals will appear at the course. You have a different challenge
to monitor the financial implementation of infrastructure investment.
If you build a bridge you know that it is very well defined: you
either have a bridge or you do not have a bridge. But you never
know whether all the unemployed turn up to the course. The regulation—which
is a general regulation—has some difficulties in being flexible
in this. Most of the problems we have relate to that issue. We
are now discussing what kind of means we should adopt in the future
in order to avoid that kind of problem. Should we have several
regulations? Should we have a different kind of regulation in
the future? It is more of a problem of the nature of things than
a problem of people.
Q38 Mr Stewart: The current programming
period runs out, as you well know, in 2006. What is likely to
happen in the UK—although there are arguments about this—is
that all the objective 1 areas (except possibly Cornwall) will
disappear. Most of objective 2 will go, albeit it with transitional
funding. Objective 3 will continue along with community initiatives
albeit with smaller funds as well. In very general terms we will
see a movement of structural funds eastwards to the ten new countries
which, as again you will know, generally have a much poorer GDP
than our own. The Government's policy for ESF and regional policy
is in the jargon repatriating, taking home some of the regional
policy. What view does the Commission have, if any, on this policy
of the UK Government?
Mr Lönnroth: That is a question
I do not really have a mandate to answer. We have of course studied
the UK position with great interest, but it is still only one
position among 15. As I said to you at the beginning, the Commission
is currently preparing its so-called third cohesion report. In
that cohesion report, which will come out in December this year,
the Commission will take a position on how the structure of the
funds, the architecture, delivery mechanism and so on will operate.
In 2004 the negotiations will start. I am expressing myself carefully
because you know that in 2006 at the latest the decisions have
to be taken. They have to be taken by unanimity. Imagine what
will happen: we have 25 member states (at that stage they are
all there) and all the changes to the current system have to be
taken by unanimity. This creates a particular problem because—you
are absolutely right—if we maintain the 75% level that means
mathematically that since the average of the European Union GDP
will go down—GDP per capita of the ten candidate
countries is about 40% of the new average- if nothing is done
Scotland and some of the highlands and islands will disappear
from the objective 1 map. You are absolutely right. We will have
to see what happens. Should we have a transitional arrangement
to take into account that mathematical change? Or do we simply
accept it? Then the question would be: Should the whole cohesion
policy be renationalised? I cannot take a position there, however
I would offer you one thought that it is clear, for the reasons
of disparity and solidarity and all the principles that I said
at the beginning, that we would have to concentrate the funds
on the objective 1 regions, whatever they might be. But I think
there is also a question of legitimacy of the European Union for
the tax payers. I think it will be important that they see they
have some form of benefit from the structural funds across the
whole territory. The second point is that there will certainly
still be social problems, urban problems, problems of criminality,
problems of poverty, problems of lone mothers, problems of equal
opportunities and those are problems across the whole Union, not
only limited territorial problems but problems of social cohesion.
The question is: Should the European Union distance itself totally
from those questions?
Q39 Mr Stewart: There is a lot of
discussion, as you quite rightly say, about the 75% issue. Some
have argued that we should look at spatial issues, areas with
low populations, issues to do with islands and issues to do with
mountains. That effects not just some parts of the area such as
my own constituency, but also other parts of the accession countries.
What is your view on that?
Mr Lönnroth: There are two
options which are being discussed now. Beyond the regions most
lagging behind the question is: What happens outside those regions?
There are two options—presuming that there will be something
outside these objectives—one is to take the Lisbon Strategy
and the European Employment Strategy and other strategies at the
top as an umbrella. The European funding would be based on these
themes: managing change, alleviating poverty, pockets of criminality
and social exclusion, and then the zoning would be left for the
member states. Or you would have the other option which would
be to define in advance the regions, including the mountainous
areas, the sparsely populated areas and so on and then within
those areas there would be a set of criteria which the member
states would then fund. I cannot take a stand on this because
this is something which the leaders—the political decision
makers—will decide at the end by unanimity.
Q40 Mr Stewart: On enlargement, I
think it was the Copenhagen Summit that got together to discuss
the final terms of the ten accession countries. Are there any
implications for the UK in that agreement in terms of the new
structural funds that you have not touched on already?
Mr Lönnroth: The Copenhagen
criteria are about democracy, about the market economy and fairly
general criteria. I do not immediately see implications for the
UK on that apart from the fact that I think the UK has a role
to play, as other member states do, to ensure and support the
achievement of democracy and equal opportunities and what we consider
to be the European social model. So there is a solidarity element
which the UK should play out in its fullest because the UK is
a good performer in many of the criteria. We have several social
models in Europe. There is one in the UK and that has produced
good results in some areas, for instance high levels of employment.
It has produced less good results in some other areas, productivity
for instance. Nevertheless the UK has an in interest in trying
to see whether some of those models can be emulated and developed
and taken into account in the new member states.
Chairman: Gentlemen, that has been extremely
valuable evidence for the Committee's inquiry. May we continue
the dialogue by correspondence if there are bits and pieces of
data or any other pieces of information which may be of assistance.
We are extremely grateful to you for taking the time to come and
make an appearance before us this afternoon.
7 In the regulation 1260/99 for the current programming
period 2000-06, the numbering has changed. The equivalent article
is now No. 39. Back
8
Please refer to graph provided by the European Commission (ESF
19G) at Ev 19. Back
9
The official name is Committee on the Development and Conversion
of Regions. Back
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