Select Committee on Work and Pensions Minutes of Evidence

Memorandum submitted by Third Sector European Network (ESF 04A)


    —  Description of the Voluntary and Community Sector as referred to in this document.

    —  The Third Sector European Network (TSEN) took over representation of the European funded VCS from NCVO in 1998 it represents approximately 20,000 small and large groups using European funds.

    —  TSEN was meaningfully engaged with the DfEE in the development of agenda 2000.

    —  Agenda 2000 includes substantial focus on hard to help groups and capacity building actions in Policy Field 2 (25% of the programme in England).

    —  The DWP introduced the Co-finance policy in 2002, which has been prejudicial to work with the hard to help and capacity building.

    —  Consultation on the introduction of the policy was politically driven, hurried and incomplete.

    —  Co-finance has lost focus and resources from the current programme.

    —  Capacity building, actions to combat discrimination and work with the disabled are substantially lost from the programme under Co-finance.

    —  Co-finance runs counter to Government policy as expressed in the Compact, the National Action Plan on Social Inclusion and the Cross Cuffing Review as it is withdrawing resources from the VCS for capacity building and inclusion work that were hitherto used effectively.

    —  The strategic focus of Co-finance, employment and training is much narrower than Agenda 2000.

    —  TSEN believes that Direct bidding at least equal to the activity operated traditionally by the VCS (35%) should be retained in all Government regions to ensure that inclusion activities, capacity building and work the hard to help is maintained.


1.  The voluntary and community sector

  1.1  The Voluntary and Community Sector's operations account for 4.8% of the UK's Gross National Product, it employs 4% of the workforce. These figures are greatly enhanced by the volunteer effort, which the sector mobilises in order to fulfill a number of functions, and run a number of services. The sector comprises 182,000 charities with a turnover of £24 billion. It is funded by central government and charitable trusts in equal measure (£1.5 billion), next steps agencies such as the Arts Council and Local Learning and Skills Councils as well as local government and the public (£5 billion). Among the VCS groups are a large number who provide services, sometimes they are the only service providers, as in the fields of terminal care and HIV related work. The majority of voluntary organisations are small, 50% according to the latest NCVO figures, have no paid staff and all voluntary organisations involve volunteers whether as trustees or active members.

2.  Third sector European Network (TSEN) and European funded Voluntary and Community Groups

  2.1  The Third Sector European Network (TSEN) is the body that brings together the voluntary and community sector support agencies in all 9 English regions. These bodies provide technical assistance and encourage the development of voluntary and community sector projects to fulfill the objectives of the structural funds. Agencies working across Objectives 1, 2 and 3 are represented on TSEN, as well as national level agencies. It has a membership of approximately 20 regional and national agencies representing approximately 20,000 providers. (Membership list attached)

  2.2  In 1998 NOVO passed over its seat as a social partner on the Monitoring Committee for the European Social Fund to TSEN when it ceased to be involved with European funded projects, since then TSEN has represented the sector substantially in both the development and operation of Agenda 2000. As the voice of the voluntary sector, it was influential particularly in the design of Policy Field 2 for excluded groups; the retention of 30% advances for training providers and famously the gap guarantee fund that the DfEE put in place to maintain support for voluntary sector funders in the summer of 1999 when the start of Agenda 2000 was delayed by 10 months.

  2.3  As a member of the English Monitoring Committee it was also responsible for co-ordinating the voluntary and community sector input to all Objective 3 documentation for Agenda 2000, the Community Support Framework; the English Operational Plan and the Complement.

  2.4  Each TSEN member undertakes similar work for their region, frequently as members of the Regional Programme Monitoring Committee and as significant actors in regional partnership bodies.

  2.5  TSEN has been engaged with the administration of Objective 3 funds with the DfEE/DWP and the regions for the last five years, as NCVO was before it. This activity was seen as a model of good practice in engaging the voluntary and community sector that was the envy of other European member states. It must be acknowledged that in part the nature and complexity of the English Voluntary and Community Sector has given rise to this close involvement where in other member states the VCS is already much more closely associated with public service delivery.

3.  DWP and Co-finance

  3.1  Since the DWP took control of the Administration of Objective 3 ESF, their control has been co-incident with and identified with one important systematic change. That change is the introduction of Co-Financing.

  3.2  Co-financing is a mechanism whereby the Objective 3 ESF funds are allocated to approved Co-financing Organisations (CFOs). These add in the match funding internally and then invite organisations to bid, offering them 100% funding for their project. As the match funding is taken care of by the CFO, the delivering organisation only has to engage in one set of reporting and does not have to secure 55% of the funding in advance of applying for ESF.

  3.4  The theoretical advantages, and the motivation for introducing this mechanism, are enormous. The first is that the CFOs will usually be sub-regional and therefore nearer to the ground on their patch, so they can better analyse need and plan responses. This advantage might be called "better strategy". Secondly, relieved of match funding obligations, new and smaller groups may be able to deliver projects at community level. This advantage might be called "better access". The third advantage is less administrative burden, at least on the delivering bodies—"less bureaucracy".

  3.5  In practice the CFOs only add in a small percentage of Match Funding as cash, and "attach" Match Funding from existing activity to projects selected to receive ESF funding. While this might make sense where existing mainstream funding is working on the same issues and with the same cohort of beneficiaries it makes no sense at all when dealing with excluded communities— the focus of activity in Policy Field Two ("Equal Opportunities for all and Promoting Social Inclusion").

4.  Introduction of Co-finance-the consultation process

  4.1  The notion of Co-finance was originally introduced in Learning to Succeed[13] the Governments review of Post 16 funding, in the discussion about ensuring the integration of all public funds into Learning and Skills council strategies for post 16 learning. The report actually stated "the European Social Fund in particular makes a significant contribution to the achievement of the Government's education and training priorities . . . in 1999 approximately £1 billion is available to the UK through European Social Fund". However, the authors of that report failed to acknowledge that the design of ESF in Agenda 2000, particularly Policy Field 2, included a whole range of measures to combat exclusion that are not traditionally associated with the Government's education and training priorities. In Policy Field 2 only 27% of activity is expected to be ESF training (74,302 beneficiaries from a total of 226,075 beneficiaries) according to the outcome tables in the Operational Plan.[14] It is these actions, capacity building and measures to combat discrimination, which have become the casualties of the Co-finance policy.

  4.2  During the development stage of Co-finance, TSEN expressed concerns about the extent to which a mechanism designed to maximise the acquisition of ESF through matching government funded training programmes would be able to respond to the various needs which the voluntary and community sector has met by using European funding over the last two programmes.

  4.3  In January 2000 the DfEE announced its consultation on Post 16 Funding, in which it outlined the vision for Co-finance stating "current domestic funding systems have not maximised the incentives to win European funding" This was true of statutory users. The VCS had declared minimal under-spends in the previous programmes. Further, "It will be important to ensure LSCs and ESF funding is accessible to community and voluntary organisations, who are often best placed to provide learning in the most socially disadvantaged communities."[15]

  4.4  Following a limited response to this document the first Co-finance proposal appeared in October 2000 for consultation[16]. This document included determining criteria for CFOs, these included agencies which

    —  have a locus for training

    —  are in the publicly funded sector

    —  would commission provision from other providers

    —  would secure provision of a high monetary value

    —  have established a constructive working partnership with regional and local providers

    —  have money from other sources to use as match funding

    —  Would be able to meet the requirements in relation to quality, monitoring evaluation and audit associated with managing ESF projects

  4.5  The same section compared performance of the previous programme indicating that the VCS had been the largest provider of projects after the DFEE at 21% of programme against 18.5% FEFC and 9% TECs. It had used 12% of the available funding against 13.6% by FEFC and 8.7% byTECs, and whilst the VCS fulfilled all the above criteria with the exception of having a locus for training, its involvement as a CFO was patently disallowed.

  4.6  On the basis of another limited consultation the Co-finance Project Board was established with staff from the DWP, representatives from the newly established National LSC, RDAs, Connexions and Employment Service (about to become Jobcentre +) to introduce the policy.

  4.7  Despite its membership of this board, TSEN as the representative of the VCS was unable to make heard its concerns about the areas that would not be well served by Co-finance. It has to be said that at the time of these discussions other matters such as the timing of the policy, management arrangements (calls for proposals versus tendering), advances and formula funding were also under discussion.

  4.8  A report produced for TSEN[17] by LRDP in 2002, outlined clearly the extent to which the sector has delivered a substantial part of the ESF Objective 3 programme in England in the first two years of Agenda 2000—35% of all approved applications came from the sector.

  4.9  The agencies involved supported 234,520 beneficiaries and operated projects with a total value of £438.8 million. The sector mobilised £241.3 million as match funding from a variety of sources, some government programmes such as New Deal, but also Community Fund, Local Government funds and their own resources including volunteer time.

  4.10  Providing their "own" match funding had enabled projects to receive the actual funds they needed to work with hard to help groups who had traditionally been excluded from government programmes by low unit costs and outcome related funding. TSEN made clear that it was this level of activity that could be jeopardised by the wholesale introduction of Co-finance and lobbied for the retention of substantial direct bidding.

  4.11  In 2002 The Department for Work and Pensions commissioned a report from Fraser Associates to evaluate the implementation of Co-finance. Fraser Associates report, written at a very early stage and therefore resulting in `provisional conclusions'[18] seemed to suggest that the stated aims of Co-finance were at risk of not being met. `The ability of CFOs to respond strategically is limited by the imprecise nature of RDPs' (Regional Development Programmes)[19] and' It is not clear that the aspiration of reduced administrative costs will be realised, at least in financial terms'.[20]

  4.12  Whilst the report concluded that "Access by disadvantaged and excluded communities is substantially guaranteed . . . to the extent that the RDP identifies them".[21] It also concluded that "In delegating resources targeted on disadvantaged and excluded communities to CFOs, the Programme Secretariats should obtain a clear picture of what delegated resources will purchase, and by implication, what is an appropriate level of resource to retain for direct bidding".[22] This exercise has to our knowledge never been undertaken.

5.  Implementation of Co-finance

  5.1  The Co-finance policy was in effect implemented in early 2002. The department approved CFOs; mostly LSCs at this stage, these were subsequently approved by Regional Committees. A small number submitted Co-finance plans for Spring 2002 and announced bidding rounds. In the West Midlands and Southeast LSCs undertook consultation with the VCS.

  5.2  In March 2002 the DWP produced guidance for Co-financing, which was discussed at some length with TSEN as the representative of the voluntary and community sector. Changes to the guidance were agreed relating to advance payments, use of match funding (since it had already become apparent that match funding from most CFOs was `notional'), mapping of CFO activity and the review of CFOs. It is worth noting that by the time the guidance appeared in March 2002 the definition of a CFO was any body that had been granted CFO status by the department.[23]

  5.3  The Guidance also referred again to the need for GOs and/or Regional Committees to map the coverage of CFO activity in the regions in order to determine the activity for which no appropriate CFO exists and therefore the level of Direct bidding that would need to be retained.

6.  Competitive Tendering

  6.1  A significant development of Co-finance, and one which has had a major impact on the VCS, is the introduction of competitive tendering. This was one of the conditions agreed by the DWP with the European Commission in order for CFOs to become the `end beneficiary' in European terms, that is, to enable the agency to recover contract costs (as opposed to actual expenditure) and assume audit responsibility from its providers. CFOs are obliged to let tenders to providers rather than receive bids from providers. (A fuller discussion of these processes is submitted by ESFVON).

  6.2  This process in itself did not form part of the consultation on Co-"finance and has been one of the most exclusive aspects of the introduction of the policy. It is indeed the narrow nature of CFO prospectuses, which is excluding projects in large geographical areas (cf. example given from the Northeast in para. 7.5) and excluding groups such as the disabled and communities which could benefit from capacity building measures.

  6.3  The Department claims competitive tendering both rationalises competition and brings strategic coherence to the ESF process, in practice it allows only for narrow training solutions, top down strategy and offers nothing to community generated strategies, bottom up strategy which have hitherto to been the hallmark of inclusion work in policy field 2, but is arguably applicable across Policy Fields 3 and 5.

7.  The current situation

  7.1  In 2003 most CFOs have been agreed, the majority of funds available from ESF Objective 3 are being routed through CFOs. In programme management terms Regional committees have the responsibility of reviewing CFOs status but there is currently no framework for this activity and to our knowledge in no region have CFOs been reviewed. Nor has any review of coverage of CFOs been undertaken by the DWP or the Government Offices to identify gaps in provision or the direct bidding retention needed with the sole exception of the Southwest which has mapped LSCs.

  7.2  Analysis by TSEN of CFO coverage in S regions (Southwest, Northeast, West Midlands, East Midlands and London) indicates that there are many areas of need not covered by CFOs such as work with the disabled, measures to combat discrimination and capacity building.

  7.3  Project promoters in the sector, whilst being assured by the Co-finance project team that disadvantaged groups would be well catered for, have experienced a range of challenges—many of which have still to be resolved.

  7.4  CFOs submit Co-finance plans to cover parts of measures and parts of Policy Fields it is often unclear even where direct bidding still exists if providers can submit projects in an uncovered measure or for a target group not covered. Competitive tendering has of course exacerbated this process.

  7.5  Emerging evidence[24] suggests that there are clearly geographical inequalities under the Co-finance system; in some cases targeting is so precise as to be exclusive rather than promoting social inclusion. E.g. the LSC for Tees Valley operating in Policy field 2 is only proposing to support projects working with seventeen year olds in their last year at school undertaking GCSEs and Job Centre+ in the Northeast does not operate in Policy Field 2.[25] Thus, projects wishing to provide for anyone but 17 year olds are precluded from applying for European funds.

  7.6  A similar picture of CFOs picking and choosing areas of training to cover emerges as a pattern in London, the Southwest and East Midlands. The report commissioned from Alex Fraser Associates[26] by the DWP on the implementation of Co-finance in 2002 suggested there was a tendency for CFOs to be driven by their own priorities rather than Regional Development Plans; this now appears to definitely be the case.

  7.7  In some regions, early CFOs, (notably LSCs) expressed the desire only to work with Preferred Providers. However the Consolidated Guidance for Co-finance confirmed that organisations developing quality assurance measures should also be considered as subcontractors, this is not applied universally.

  7.8  Some CFOs operate formula and outcome related funding, mechanisms, which have traditionally excluded hard-to-help groups from work with Government programmes.

  7.9  To our knowledge no CFOs allow project providers to bring their own cash or "In Kind" match funding. The 100% funding for projects is usually provided from ESF alone that, as has been said, is matched to existing activities (eg Modern Apprenticeships) within the CFO. This has the effect of reducing the amount of money available to projects for programme activity and the range of activities. If there is no existing programme e.g. Capacity building or New Deal for the Disabled which does not cover those with Learning Difficulties, there can be no Co-financing by LSC or Jobcentre+.

  7.10  CFO selection processes are not always transparent and feedback both to applicants and the Regional committee limited. Few CFOs have an appeal procedure, despite that being recommended by the Consolidated Guidance.

  7.11  The picture currently with Co-finance is unclear since Government Offices, have maintained direct bidding rounds in order to assure their targets on outcomes by December 2003. However it is clear that there is an expectation that by the end of 2003, the majority of funds (over 80% in most cases and 100% in London) will be routed through CFOs and projects currently funded by the GOs will have to apply to CFOs irrespective of their suitability or not at all.

8.  Partnership and communities

  8.1  A cornerstone of the present ESF system, enshrined as one of the operational principles, is that of "partnerships". Over recent years, all parties have worked hard to establish regional partnerships as responsibility has moved away from central government to the regions.

  8.2  The voluntary and community sector played a crucial role in this devolution. It co-operated closely with partners in the planning, marketing, scoring and evaluation of programmes. The experience was hands on. Co-finance presents a real danger of distancing all regional partners from decision-making. As Fraser Associates reported "Almost all of the Objective 3 Secretariats interviewed perceived Co financing plans to be wholly or partially driven by the priorities or agendas of the CFOs . . . Two Secretariats expressed concern that the delivery of more difficult activities and outcomes that were regionally important . . . might not be a priority for CFOs."[27]

  8.3  The whole experience of Objective 3 over the last decade has been to develop selection mechanisms that balance the imperative to address need and the attainment of outputs. Direct bidding is the only proposal that allows this, since the applicants provide specific data. In the case of the voluntary and community sector this data often has the merit of flowing from target communities themselves.

  8.4  If the consideration of applicant-supplied needs evidence is important in Objective 3 in general, it is absolutely essential in Policy Field 2 work. The whole ethos of the policy field (following on from regionalisation and Priority Four in the last programme) is to emphasise the self-activity of disadvantaged communities. Furthermore the policy field is explicitly about involvement, participation, long-term issues and so-called "soft outcomes" and is not amenable to an output formula tendering process at all.

  8.5  The co-financing proposals as a whole will remove communities from participation in the framing of solutions and will fracture partnerships, and reverse the whole process that Policy Field 2 (over a quarter of the programme) is designed to address. In addition many millions of pounds worth of activity at grass roots level may be fragmented by losing the ESF "glue" that binds it into a coherent response to need.

9  Current policy context

  9.1  These changes are occurring at a time when the UK government is committed to developing the capacity of the Voluntary and Community sector as a means of increasing active participation in communities. Both the Compact and the Cross Cutting Review talk of the Government's commitment to creating a framework in which the voluntary and community sector can flourish as well as strengthening the role of the VCS in public delivery.

  9.2  Equally the agenda of the European Union and the Commission is moving towards more work with excluded groups, characterised by the production of the National Action Plans on Inclusion in each member state in addition to the National Employment Action Plans.

  9.3  The UK NAPSI—on which European Anti Poverty Network— an associate group of TSEN was consulted—variously commits government to mobilise all actors, notably voluntary and community groups to help promote inclusion and discusses how the structural funds could be used to promote the inclusion agenda.

  9.4  At present 26% of total Objective 3 funds in England are spent on Policy Field 2 promoting Social Inclusion and Equal Opportunities as opposed to 40% in Scotland.

  9.5  The midterm review of the Structural Funds to be carried out with the European Commission by December 2003 will offer an opportunity to redirect funds to areas and individuals experiencing disadvantage. As part of it's submission to the Monitoring Committee and the Commission TSEN will be proposing the reintroduction of a priority for capacity building and measures to combat discrimination operated through direct bidding. In this way communities will be able to define their own needs in a regionally agreed framework and have access to a sensible allocation from funds for developing solutions.

  9.6  Recent research[28] shows that, in England, 35.1% of all approved 2000/200 1 ESF applications were from the voluntary sector, with an overall policy field breakdown as follows[29]:

    1.  20.8%.
    2.  48.6%.
    3.  17.2%.
    4.  8.8%.
    5.  4.4%.

  This illustrates the continued substantial involvement of the sector in the field of equal opportunities and social inclusion.

  9.7  Any provision retained for the groups helped by the VOS should reflect at least this level of operation.

10.  Conclusions

TSEN believes that—

  10.1  European Funding has been used effectively by some parts of the VCS to work on the inclusion agenda for the last decade.

  10.2  Co-finance was introduced very rapidly and driven by political considerations; consultation was inadequate and as a result there have been unintended consequences.

  10.3  The mechanisms of Co-finance are not only undermining the VCS sectors ability to work with the hard to help but have also lost resources to the programme.

  10.4  Co-finance is destroying the community capacity building work that was and could still be undertaken with European Social Funds, as such the policy runs counter to Government policy as expressed in the Compact, the Cross Cutting Review and Next steps in Volunteering and Giving in the UK.

TSEN recommends that—

  10.5  Direct bidding for European Social Funds, at least equal to the proportion of the English programme used by the VCS (35%) in the early part of the programme should be maintained.

  10.6  That providers should be allowed to continue using their own match funding to match ESF, thereby extending the programme. That the match funding should include match funding `In Kind' and Volunteer time.

  10.7  As part of the mid term review of the Structural Funds the English Monitoring Committee should propose the reintroduction of a priority for capacity building and further measures to combat discrimination.

  10.8  A full consultation by the DWP be put in place to inform the English Government's input into the post 2006 Structural Fund discussions in order to ensure that the focus on the inclusion agenda is retained in any unitary funds that might emerge as a model for the new ESF.

  10.9  This consultation should be congruent with and inform the consultation proposed by the DTI, Treasury and the ODPM in `A Modern Regional Policy for the United Kingdom'.

Tamara F Flanagan
Chair TSEN

31 March 2003

13   Learning to Succeed 1999. Back

14   Operational Plan for England and Gibraltar Revised June 2002. Back

15   Learning to Succeed Post 16 Funding and Allocations First Technical Consultation Paper Jan 2000. Back

16   The European Social Fund proposals for Co-financing in England. Back

17   ESF Co-financing Research-draft report by Chris Allison LRDP Ltd. March 2002. Back

18   Evaluation of the Initial Implementation of ESF Co-financing in England-p 4. Back

19   Ibid. Back

20   Ibid p 73. Back

21   Ibid p 72. Back

22   Ibid p 72. Back

23   European Social Fund-Co-financing Consolidated Guidance March 2002 p 9. Back

24   Analysis of CFO coverage in 4 Government Office Regions, London, Southwest, Northeast and East Midlands by TSEN officer based at CSV. Back

25   Op Cit. Back

26   Implementation of Co-finance, Alex Fraser Associates 2002. Back

27   Evaluation of the Initial Implementation of ESF Co-Financing in England. Back

28   Source: DfES/DWP statistics 2002. Back

29   Op Cit. LRDP report March 2002. Back

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