House of Commons - Work and Pensions

Select Committee on Work and Pensions Sixth Report

5 Concepts

34. The specific activities that can be supported by the ESF are set out in some detail in a series of programming documents known as Single Programming Documents or Operational Programmes. In the UK 20 different Structural Fund programmes contain ESF funding. These are: the Objective 1 programmes in Cornwall and the Isles of Scilly, Merseyside, South Yorkshire and West Wales and the Valleys; the transitional Objective 1 programmes in the Highlands and Islands and Northern Ireland; the Objective 2 programmes in the East of England, East Midlands, London, North East, South West, West Midlands, Yorkshire and the Humber and West Scotland; the Objective 3 programmes in England, Scotland and Wales; the Equal programmes in Great Britain and Northern Ireland; and the PEACE II programme in Northern Ireland. In the case of Objective 3, there is a national programme for each of the countries comprising Great Britain (Northern Ireland does not qualify for Objective 3 because it benefits from a transitional Objective 1 programme). The overall framework for the Objective 3 programmes throughout GB is set out in a so-called Community Support Framework (CSF). The CSF "sets the broad strategy and priorities for using Objective 3 to support employability and human resource activities in Great Britain. It shows how Objective 3 in Great Britain will contribute to the European Employment Strategy and the UK's National Action Plan for Employment."[46] Outlines of the GB's Objective 3 Community Support Framework and Objective 3 Programme for England are included in the written evidence.[47] The structural funds regulations emphasise the importance of partnership. For example, member states are required to draw up the types of funded activities in partnership between the Commission and local authorities and other bodies, as designated by Member States. In the UK, a range of organisations are consulted on the content of programmes, including, public authorities, economic and social partners, equal opportunities and environmental agencies and V&C sector.[48]

35. Any "legally constituted organisation" may apply for ESF money, including voluntary organisations, local authorities and individual companies. Potential projects are scored, appraised and selected through a process of bidding or tendering. The process is managed by Government Offices, the Scottish Executive and the Welsh Assembly Government in their respective areas. Successful projects on the ground need to demonstrate that they:

"add value (in other words, they would not have taken place or would be less effective without ESF support);[49]
give good value for money;
contribute to meeting the ESF Objectives or Community Initiative (and therefore, the National Action Plan for Employment); and
meet the more specific targets and requirements of the appropriate Regional Development Plan[50], Single Programming Document or Operational Plan."

In short, projects must be able to demonstrate that without EU money they would not have taken place, or would have taken place in a different, less effective way.

Additionality

36. ESF funding pays for a proportion of a project's total costs, with the remainder, which is known as "match-funding" or "co-financing", being provided from public and (less likely) private sources, with at least 10% being provided by a public authority. For example, a college of further education or some publicly funded training body, such as a Learning and Skills Council may provide match-funding. There are, therefore, two distinct components that make up the funding stream for ESF supported projects: the ESF grant itself for a proportion of the total costs and the so-called match-funding component, which covers the balance of the project's total cost. As noted, the ESF grant varies up to 45% of the total project cost in Objective 2 and 3 areas to a maximum of 75% in Objective 1 regions. Match-funding may be provided as "benefits in kind" contributions, or (less likely) in the form of hard cash.[51] The former can take the form of staff time or accommodation.

37. Expenditure from the ESF, like structural funds generally, must comply with the principle of additionality. The Structural Fund Regulation states that "In order to achieve a genuine economic impact, the appropriations of the Funds may not replace public or other equivalent structural expenditure by the Member State."[52] This indicates that the ESF grant, as the appropriations from the ESF, must represent an extra funding stream to the spending provided by domestic programmes and cannot be used as a replacement for that mainstream funding. In this way, expenditure from the Structural Funds is required to result in additional activity. Mr Pascoe (Learning Skills Council) gave us an example, when he told us that the £150 million the LSC receives from the ESF was additional money. He said: :

38. The principle of additionality is sacrosanct. Its importance is reflected in the European Commission's continuing interest in ensuring that Member States fully comply with the principle and the steps taken by member states to ensure their full compliance. A breach of the additionality principle is likely to result in repayment to the Commission of monies disbursed and possible decommitment of the programme and loss of subsequent funds. Compliance with the additionality principle is verified in a number of ways:

"When programmes are prepared, Member States are required to indicate: their total public or equivalent expenditure in regions covered by Objective 1; and their total public expenditure on active labour market policy for Objectives 2 and 3.As a general rule, the level of national expenditure should be at least equal to that achieved in the previous programming period.

Direct bidding and co-financing organisations

39. In the UK there are two distinct systems of allocating ESF funding: direct bidding and co-financing. Under the system of direct bidding, applicants apply directly to Government Offices for ESF funding. The Government Offices manage the process of appraising and selecting the best applications. Selection panels comprising Government Office staff and regional partners score applications and recommend lists of projects for approval to Regional Committees. Approved projects are required to find the match-funding while also bidding for ESF grant. The system of direct bidding is described in the following chart[55]:ESF - The Old Application System

European Union 2003

40. In September 2001, a new system called co-financing was introduced in England.[56] Under co-financing, the ESF grant and the match-funding are provided jointly from co-financing organisations (CFOs). CFOs are certain large public sector bodies that have been awarded CFO status and currently include the Learning Skills Council, Jobcentre Plus, six local authorities, one Connexions Partnership, three Regional Development Agencies and one Business Link.[57] CFOs have a number of distinguishing features, such as being public bodies with their own budgets that can be used for the purpose of match-funding and have a remit for supporting ESF funded activities and entering into contracts with third parties. According to the DWP, under co-financing:

41. The system of co-financing is described in the following chart[59]:How does it work?

European Union 2003

42. When organisations apply for CFO status, they must set out how they intend to improve the effectiveness and efficiency in the management of ESF funding while reducing the administrative burdens on service providers. Applications to become CFOs are judged by Regional Committees. The CFO submits a co-financing plan to the Government Office setting out, amongst other things, its consultations with partners, its priorities and expected results. The CFO then publishes its prospectus, against which it invites service providers to submit tenders. The CFO assesses tenders against the published criteria and accepts those that best fit the criteria. There is no right of appeal under co-financing when an application for funding is rejected.[60] From 2003, the majority of the regional ESF funding in England will be channelled from Government Offices to providers via CFOs.[61]

43. For the Objective 3 programme, an element of direct bidding still exists in all areas of Great Britain, except London. Co-financing, on the other hand, only exists in Objective 1 regions and 3 areas of England. The relative merits of direct bidding and co-financing are discussed in section 6.

46 Ev 89 Back

47 Ev 9899 Back

48 Ev 88, para 3-19 Back

49 Adding value could mean increasing the number of beneficiaries; helping beneficiaries who would not be eligible for mainstream programmes; providing enhanced or more intensive support, such as one-to-one provision; and providing additional outcomes, such as higher qualifications or more jobs. Back

50 Ev 92, para 5.6 Back

51 At least 10% being provided by a public authority Back

52 See Annex D, Ev 117. Back

53 Q41 Back

54 See Annex D, Ev 118 Back

55 Source is DWP Back

56 The first CFOs became operational from September 2001 following the creation of Learning and Skills Council. The origins of co-financing stem from the White Paper "Learning to Succeed" (June 1999) and two subsequent technical funding consultation papers published in early and mid 2000. Back

57 The full list of CFOs is set out in Annex C, Ev 100101 Back