Examination of Witnesses (Questions 1-19)
4 MAY 2004
MS PATRICIA
HEWITT MP AND
MR JOHN
NEVE
Mr Steen: Secretary of State, you will
be very, very surprised to know I will be chairing this Committee,
I was equally surprised when I was unanimously elected to represent
the Committee as chairman because all of the Scottish Labour members
who should be on the Committee are busy elsewhere, I apologise
on their behalf.
John Robertson: Not all of us, there
are a couple of us left.
Q1 Mr Steen: Can I welcome you to this
Committee and say that I have been very much looking forward to
you coming here and I am very glad I am chairing the session because
I know you will realise you will get a very fair hearing.
Ms Hewitt: Indeed.
Q2 Mr Steen: You may want to make a short
statement, in which case we will delay our questions but if you
feel you are ready and equipped to deal with what we have to say
I am perfectly happy to kick off.
Ms Hewitt: Thank you very much
indeed for that welcome. I am delighted to be here and I am very
happy to move straight to questions.
Q3 Mr Steen: Very good. I am asking the
first question and that is to do with enlargement and the Government's
view on the Commission's proposal for the size of the cohesion
budget for 2007-13. We are mindful of the 1% figure; I wonder
if you can say something about that figure and how important it
is and your view about the whole amount of money which EU Governments
are going to be asked to give to the Cohesion Fund?
Ms Hewitt: Let me make two points
on that. First of all we take the 1% figure extremely seriously.
That, of course, is pretty much the current proportion of EU gross
national income spent through the Commission. We do not think
it should be any higher and as you will be aware that view is
shared by a number of other Member States. Indeed the heads of
government jointly wrote to the President of the Commission making
that point. We are certainly not supporting, indeed we rather
strongly criticise, the proposals from the Commission—an
increase in the budget to some 1.26%. It is not affordable, particularly
given the fact that a different branch of the Commission is criticising
certain Member States for being outside the Stability and Growth
Pact. It seems quite odd that the Commission itself should be
proposing that increase. The second point I would make is that
whether within a smaller or larger budget it seems quite wrong
in principle that 50% of the proposed Structural and Cohesion
Funds should be allocated to the EU 15 Member States when clearly
the biggest challenge facing the enlarged Community in terms of
social and economic cohesion is the challenge of enabling new
Member States to grow as fast as possible in order to narrow the
gap in their living standards between them and the average across
the EU 15.
Q4 Mr Steen: Can I follow that by asking
you, is it your view that 1% of gross national income is the figure
which should be the maximum that the Commission should receive
right across the board or only on the Cohesion budget?
Ms Hewitt: It is our view that
the overall budget for the Commission should be set at 1% of European
GNI. It would stabilise the spending at around the current proportion
but in cash terms it would allow for annual increases in the European
Union budget well above the growth rates in the national budgets
of most Member States. We think that is the right figure to go
for.
Mr Steen: Thank you very much.
Q5 John Robertson: Secretary of State,
given you said that we are going to stick to the 1% where would
you see any problems if we had to increase the amount of money—and
we might even stick to the 1%—if that kind of increase was
put in across the board? It would of course mean less money for
our domestic situation; can you illustrate what kind of effect
that could have?
Ms Hewitt: You make an extremely
important point. Of course the United Kingdom is a very substantial
net contributor to the European budget, even allowing for the
abatement, so if we were to end up with the very significant increase
in European resources that the Commission is calling for it would
inevitably mean less money for the United Kingdom Government to
invest in regional programmes within the nations and regions of
the United Kingdom as well as in other things. At the end of the
day those spending priorities and spending allocations are judgments
for the Chancellor, but wherever that would fall it would be a
real problem for the United Kingdom.
Q6 John Robertson: Would you bring that
back to the House to discuss the problem we would have with that
kind of increase in financing?
Ms Hewitt: Indeed we would. The
negotiation on the future financial perspective for the European
Union is a matter for my Treasury colleagues. I have no doubt
at all that both the Chancellor and Ruth Kelly as Financial Secretary,
as they negotiate things, they will want to keep the House fully
informed.
Q7 Mr Cash: Secretary of State, who really
calls the shots in relation to the allocation of money through
these funds? I had a very interesting experience in my constituency
where there was a large proposal, assisted area status was being
designated, and the Minister Richard Caborn was involved, and
the Government and the West Midlands Department, and to cut a
long story short it became apparent that the question of where
the money was to go was being determined by a lady in the European
Commission. I was told in terms there was not much point in trying
to take this up with the Government because actually the real
decision was being taken by the European Commission. There was
a map and they did not have the faintest idea where these particular
places were of course but they did have the idea that it would
be a good idea for it to go there. Do you have a control and command
system? Are you the one who makes the decision as to where the
money goes or do you have to defer to the decision of people in
the European Commission?
Ms Hewitt: Under the existing
system we negotiate the map for assisted area status with the
European Commission and our colleagues in the European Union.
Indeed we got a very, very good settlement in terms of the extent
of our communities that were covered by the assisted area map.
You make a criticism which I think we would also make of the Structural
Funds, because this is indeed European money and applicants for
funding have to go through Brussels and through the European Commission,
which then has to judge whether the application meets the criteria
for the Structural and Cohesion Funds, and so on. There is a certain
amount of inevitable bureaucracy and to-ing and fro-ing.
Q8 Mr Cash: That is not what I was talking
about, I was asking who called the shots. I know from my personal
experience, I was told by your Minister that he could not control
the situation and that it was this lady and I got a telephone
number of a lady in Brussels to ring.
Ms Hewitt: The point is if you
are applying for funding under a European programme, including
the Structural Funds Programmes, then there are decisions that
are made in Brussels. That is one of the reasons why we have put
forward an alternative proposal for the funding of regional policy
following enlargement which would leave it to the national government
in the richer EU 15 Member States, including the United Kingdom,
to ensure that there was a proper regional policy in place, and
in our case of course that would mean resources flowing into the
regions, in particular through the Regional Development Agencies
and decisions being made we think much quicker and also much closer
to the areas that need the help.
Q9 Mr Connarty: Welcome, Secretary of
State, I had the pleasure of being in discussion last Monday with
the East of Scotland European Consortium, which are all the local
authorities from the borders to the highlands of Scotland to discuss
policy matters and they are deeply concerned about the statements
in the Report which we published. These are a straight lift from
the Commission's proposals and with the loss of Objective 1, 2
and 3 status and focus on cohesion the rules of the game will
be difficult for them to understand. I think that is the point
of question two, to try to understand exactly what rules of the
game are anticipated in the next financial perspective. We would
like to know what will happen between now and 2007 when the new
financial perspective comes in? Will they begin to see the rules
they know shifting and changing and disappearing? What will be
in its place? That is the question. How can people access the
funds? The United Kingdom is criticised for not being able to
access funds properly and therefore we have to get a rebate.
Ms Hewitt: I think in fact these
are a rather different issue, if I may say so. We need the rebate
and that is not up for negotiation because we do indeed receive
less, notably from the Common Agricultural Policy, and we contribute
more. We contribute well above what other countries of our sort
of economic level contribute on a per capita basis; indeed that
remains the case even after the abatement itself. The issue of
the Structural Funds at the moment is, and as long as the current
financial perspective is operating, the rules stay the same, and
the local authorities you were talking to will be able to apply
for funding in exactly the same way. What we are now thinking
about is what should the rules be in future and how do we deal
with the impact of enlargement.
Q10 Mr Connarty: That is the question
I asked. I thought you were here to answer that question.
Ms Hewitt: That is the argument
we are having. The position that we have been putting forward,
supported by the Scottish Parliament Executive, is that it would
make more sense for European funding and structural funds to be
concentrated on the new Member States and for us in the United
Kingdom and other governments in the richer Member States to ensure
within a national framework there are resources available in Scotland,
in Wales, in Northern Ireland and in the English regions to ensure
those disadvantaged areas can indeed continue to receive the additional
help they need. In order to make that work we are also going to
have to agree with our European partners a new framework of rules
on state aid, which is under discussion at the moment but not
yet finalised. Those state aid rules will set the parameters for
what local authorities and other agencies can spend money on.
Q11 Mr Cash: You mentioned state aid.
For example in relation to the issue of the coal industry I had
a very strong interest in that and vigorously voted against Michael
Heseltine's proposals to close the coal pits when he put it forward
some years ago. What worries me is the fact that under these arrangements
the German Government is giving authorised state aid to the tune
of something of the order of £4 billion a year to support
their mining industry and their miners, the French have now as
of last week closed the last coal mine in France, our coal mining
industry is in a state of continuing decline under this Government
and I would say that the irony of the situation is again that
we are effectively being completely out-manoeuvred and our national
resources—when natural gas is now becoming, as you know
from wearing your other hat and your DTI experience—are
now going to be increasingly drawn from else where, including
Russia, over which we will have no particular influence or control.
The bottom line is that I do not understand the rationale of the
state aid system which appears to be so disadvantageous to the
British national interest. Can you help me?
Ms Hewitt: I will do my best,
although I am sure you will forgive me for saying that I did not
think the British coal industry particularly thrived under the
Conservative party.
Q12 Mr Cash: I did not say it did. I
was extremely critical of fact that we did so much damage to it.
That is another story.
Ms Hewitt: Perhaps I can stress
that over the last six or seven years through coal operating aid
we have put significant sums of money into revenue support for
our struggling coal mines. That scheme has now come to an end
but what we negotiated in its place is a new form of investment
aid—we negotiated that with the European Commission—for
the coal industry, recognising the fact that regional selective
assistance is not available to the coal industry. We put that
in place. We have already allocated the first tranche of grants
for investment aid and we have just opened the door, as it were,
to a second round of bidding. We think it was better to move from
a subsidy for operating costs to support for investment in order
to ensure that we did indeed help those coal mines in the long-term,
in the future.
Q13 Mr Cash: You mean those coal mining
areas. You are very cleverly distinguishing between the areas
which will get money as a result of the mines having been closed.
Ms Hewitt: No, forgive me, I am
talking about direct support to coal mines and coal mining, completely
separate from the Coalfield Community Programme, which is another
very substantial swathe of investment designed to help those communities
where there is no longer any coal mining. The coal operating scheme
that my Department has been responsible for and now the Coal Investment
Aid scheme is direct support to the industry. There was revenue
support under the operating scheme designed to cope with the fact
that world prices were extremely low and we needed to tide our
mines over and invest with aid to give them a long-term future.
The general point, which I think we need to come back to here,
is the issue of state aid rules. Our general approach on this
is there should be less state aid across the European Union and
it should be better quality state aid. It does not make sense
for developed countries to be competing against each other for
how much money they can put in to subsidise these different companies
in different sectors; it is not a very sensible use of taxpayers'
money, which inevitably is limited. What we want to see is the
use of taxpayers' money to deal with underlying market failure
and to build long-term strength in our economy. If I can give
you one example, the regional venture capital funds, which were
designed to correct market failure, make it very difficult for
small and medium-sized firms to get small amounts of capital investment
from the venture capital industry. We came forward with an innovative
proposal for public/private sector partnership with some taxpayers'
money bringing in much more from the private sector so at a regional
level smaller firms would be able to get access to venture capital
funds. It took us rather a long time to get state aid clearance
for that because nobody had ever come along to the Commission
with such proposals. Because we did it we persuaded the Commission
to rewrite the state aid rules so that kind of support to deal
with the real market failure of small firms is now available to
any government across the European Union. That is what I mean
by better state aid rather than simply more of it.
Q14 Mr Steen: Can I thank you for explaining
quite fully a question which was not on all fours with regional
aid. Can I tidy up the end of that question by asking you this,
I think the concern is that in Britain there is innate feeling
that everyone else in the regions get better deals than we do.
Secondly, we put in an awful lot of money and get little out.
Before we move on to the next question can you deal with those
two points?
Ms Hewitt: In terms of what we
put into our regions I think we have a very strong framework for
regional policy. We are of course devolving more and more money
to the nations and regions of the United Kingdom. The fact that
this economic policy is working I think is shown not only by our
overall growth rates but by the fact unemployment has been falling
in every nation and region of our country over the last seven
years. Our economic policy is very clearly working. The second
point I would make is there is no doubt that many other Governments—Mr
Cash mentioned Germany and the coal sector—put more in to
various industries by way of subsidy. We would prefer to concentrate
money on those long-term sources of competitive advantage, including
science and innovation. The third point is that even with the
abatement we still pay more. That is simply a fact of life. If
you look back over the earlier seven year period of 1995-2002
we had the lowest share of European Union expenditure across the
board of any EU country. If it had not been for the abatement
we would have been paying 14 times more than France per head,
10 times more than Italy and after the abatement we still paid
about two and a half times more than both France and Italy. That
is why we have consistently said to our European partners the
United Kingdom abatement is not up for negotiation.
Q15 Mr Cash: Do you think it is appropriate
that today of all days, 25 years after Margaret Thatcher became
Prime Minister, the tribute you have just paid to the rebate is
wholly justified?
Ms Hewitt: I am always prepared
to give credit where credit is due and having made my criticisms
of the way in which restructuring of the mining industry was handled
under the Conservative Government that rebate is entirely justified
and is not up for re-negotiation. Our economic policy and our
regional policy is generally showing good results and I hope Mr
Cash will acknowledge that as well.
Q16 John Robertson: One of the great
problems, particularly in the shipbuilding industry, has been
unfair competition and how the money is going out. One particular
company—not one of mine I might add—Ferguson's are
having some problems with what they think is unfair competition
in tendering. How can we put our money into these systems where
we are not treated fairly? There have been many, many complaints
of unfair competition coming from the rest of Europe and we see
it on a regular basis, particularly in something like shipbuilding
where it is very difficult to compete, what guarantees can you
give me we are not just putting money into these things to go
to other countries and not this one?
Ms Hewitt: It is a very important
point. First of all generally on shipbuilding there is now complete
agreement across the European Union the old system of shipbuilding
subsidies had to come to an end and indeed have done so. The really
big problem we have of unfair competition is not inside the European
Union and that sector; it is with South Korea.
Q17 John Robertson: It is both. It is
not just outside. We know about the outside but the hardest bit
to swallow is the stuff which is happening in Europe.
Ms Hewitt: I was going to come
on to the procurement issue, which was certainly raised with me
not just in relation to shipbuilding but really across our manufacturing
industry. The allegation is made all of the time and it is very
difficult to get solid evidence here, although we are trying.
The Chancellor and I have asked Alan Wood, the United Kingdom
Director of Siemens—we asked him some time ago—to
take a look at this problem of whether or not there is a level
playing field across the European Union for companies who are
bidding for government or publicly financed contracts. The railway
is one example which is often quoted. We are financing the building
of far more trains than any other European country because of
the investment we are making in transport. In Germany and France
100% of the trains they buy get manufactured in those countries,
in Britain it is about 70%. It is more trains because the total
purchase is much bigger and as a percentage it is very significantly
lower. We are a much more open market in practice than some other
countries are in at least some sectors, and we are looking at
that. I have not specifically heard the suggestion made in relation
to the smaller shipbuilding contracts but I would be very happy
to look at that if you want to see more details.
Q18 Mr Tynan: Thank you, Chairman, apologies
for being late. I wanted to develop that point. I am aware that
in Scotland they hardly see a rig yard in the North of Scotland.
I was talking to a friend of mine and he constantly told me Norway
was unfairly subsidising their industry. It is often said there
are unfair subsidies regarding the European partners. You say
that is difficult to prove but there seems to be substantial evidence.
How do you bring that evidence together? How do you react to that
evidence? I have seen unfair competition take place in the past.
Are you convinced that it is now on the wane or do you see something
different?
Ms Hewitt: I think there is still
a problem. I am not aware of the particular details of the Norwegian
case you mentioned; of course that is outside the European Union.
The approach we would take is to support the Commission very strongly
and encourage them to bear down on unlawful state aid and to try
and recast the state aid rules in the way I described, the headlines
being less but better, so instead of different countries putting
in subsidies to try and get an unfair advantage for their industry
you concentrate on building up the transport infrastructure, building
up skills, making sure that companies have decent access to finance,
building up the universities and science-based links with industry—all
of the stuff that really gives you a long-term competitive advantage.
The Commission has promised to come forward with new draft rules
for state aid; they have not yet done so, and we continue to urge
them to do so as quickly as possible so we can all have a look
at them in Government and in Parliament to see whether they will
tackle some of the problems you are drawing attention to.
Q19 Sandra Osborne: Secretary of State,
we appreciate the difficulties of estimating the likely level
of receipts available to the United Kingdom regions under the
Commission's proposals. There are legitimate questions to be asked
and it is very difficult to compare the effects on the regions
of the United Kingdom of the Commission's and the Government's
proposals without some estimate of what might be available. Can
you give us some indication of the regions which might receive
funding under the Commission's proposals and how much they might
receive?
Ms Hewitt: No. I like to help
a colleague, I try and be as helpful as possible to committees
but I cannot help you at all and the reason is that the Commission
have not released any estimate and they have not provided any
detail on what distribution mechanism they have used so it is
a bit difficult for us to try and second-guess them. The even
more fundamental problem is there is no money on the table. The
Commission's proposals are made in the context of a bid for a
1.26% funding formula which, as I said, we and many other Member
States regard as wholly unrealistic because even if figures were
available the money is not there.
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