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Durham and Tees Valley (European Funding)

11 am

Mr. Iain Wright (Hartlepool) (Lab): It is a privilege to have secured an Adjournment debate so early in the new Session and on an issue with such potentially enormous consequences for the future of the north-east—particularly the Tees valley and County Durham—and other regions in the United Kingdom.

Let me warn you in advance, Sir Nicholas, that my speech will not take the form of a wildly rhetorical and passionate argument about Britain's position in the European Union, about EU expansion or even about Britain's future financial contribution to the EU budget. The topics about which I am concerned are somewhat dry and technical, and I am delighted to say that, as a chartered accountant, I shall be able to mention some accounting rules, although I am not sure that others will share my enthusiasm for them. Nevertheless, when there is the prospect of my constituency and other constituencies in Durham and Tees valley receiving £600 million, I can be as dry as the desert.

I shall focus on the technical calculations, which might have an adverse effect on the ability of Durham and Tees valley to secure substantial sums of European money. However, it would be useful briefly to set out the north-east's economic performance in recent decades and the contribution that European funding has made towards narrowing the gap between the north-east and the rest of the UK.

In the 1980s, the north-east, including Tees valley and County Durham, suffered immensely as a result of the decline in its former industrial base in coal mining, shipbuilding, steel and manufacturing. That led to mass structural unemployment in that decade, with 110,000 jobs lost in manufacturing between 1981 and 1997 and significant rises in worklessness and reliance on benefits. That in turn means that the region now needs more than ever to continue to embrace change in the regional labour market and to introduce new industries.

From the late 1990s onwards, however, there have been indications that Durham, Tees valley and the wider north-east are changing. The gross value added growth rate in the north-east has been converging with that of the UK as a whole, particularly since 1998. There is more employment, with 200,000 extra jobs being created in the region in the past seven years, and the prospect of full employment for the first time in decades.

Mr. Kevan Jones (North Durham) (Lab): Does my hon. Friend agree that some structural unemployment is generational? The money that Europe is providing is therefore having to address generational structural unemployment, which, in other areas, has been tackled in different ways.

Mr. Wright : I absolutely agree. There are second and third-generation people in our constituencies and others who were completely reliant on benefits, and European funding has been vital in breaking that cycle and ensuring that prosperity and employment return to the north-east.

Unemployment has fallen much more dramatically in the north-east than in other regions. It has fallen by 26 per cent. since just 2001, although we must recognise
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that the region had higher jobless figures to start with. There are more business start-ups and there is growing business confidence. Companies such as Tees Valley Regeneration are undertaking ambitious regeneration ventures on former brownfield sites such as Victoria harbour in my constituency and Middlehaven in Middlesbrough.

The most significant reason for that economic upturn has been the policies advanced by my right hon. Friend the Chancellor since 1997. Of similar importance, however, has been the assistance provided by European funding in tackling the structural problems faced by Durham and Tees valley. In 2000–06, the north-east was allocated £434 million from the objective 2 programme, which helps regions to adjust to economic and social change, and £194 million from the objective 3 programme that aims to tackle unemployment and low skills and to encourage entrepreneurialism.

I am sure that all hon. Members could give examples of the benefits that European funding has brought to their constituencies. In my constituency, two valuable projects have helped us to address the structural weaknesses in the labour market and the wider economy. Hartlepool Working Solutions was given £250,000 from European social fund money. Its aim is to provide the long-term unemployed in the most deprived areas of the town with training and employment advice, and it has helped almost 1,200 people, of whom 500 have found employment and 670 have gone on to achieve further qualifications and training.

One targeted communities package project was the introduction of information and communications technology centres. With over £800,000 of European regional development fund money, it provided 18 new community facilities, of which 15 have state-of-the-art ICT centres and crèche facilities. Training in computing can now be given in the most deprived areas of Hartlepool.

European funding has had a major impact on Hartlepool. It has helped to increase significantly the skills level of the townspeople and thus to reduce unemployment. Without it, more people would be on the dole. Much progress has been made, but more needs to be done if we are to eradicate completely the structural problems in Tees valley and Durham. That is why continued and expanding European funding is vital.

If I may, Sir Nicholas, I will say a few words on behalf of my hon. Friend the Member for Stockton, South (Ms Taylor), who cannot be here because she is at an Intelligence and Security Committee meeting. She asked me to say that one of the main beneficiaries of European funding in Stockton is Queen's campus of Durham university, which contributes £3 million to the local Tees valley economy. My hon. Friend said:

The Minister for Industry and the Regions (Alun Michael) : My hon. Friend rightly illustrates the benefits of European funding, but will he take into account the fact that three quarters of public spending on regional development comes from UK domestic sources, and that, under any scenario, that proportion is set to
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increase in the near future? That is bound to happen as a result of the enlargement of the EU with the accession of the 10 poorer member states. Following his point about the importance of investment in his area, I emphasise that such work will increasingly be funded domestically.

Mr. Wright : I fully agree with and accept what my right hon. Friend says. All money that is made available to the north-east, particularly to County Durham and Tees valley, is welcome. There has been massive investment in the north-east since 1997. The theme of my speech is that there seems to be a technical and inconsistent argument about the allocation of future European funding that could mean that we in the region will miss out on £600 million. I want to highlight that point, and to make sure that Ministers are aware of the inconsistency and will try to rectify it.

There are grounds for optimism in helping to address those structural issues, but long-standing problems remain: educational attainment still lags behind the national average, and employment in Durham, Tees valley and the wider north-east remains biased towards low-skilled and low-paid work. That is the consequence of long-standing reliance on an economy built on heavy manufacturing, which has largely ended. We have seen the social and economic difficulties experienced by a society and a work force that are adapting to the 21st century requirement for high skills and greater and faster competition after losing one kind of employment. Although there has been growth, the north-east was the slowest growing region in the UK in the past decade. To avoid falling further behind, the region needs to grow at least 25 per cent. faster, and even faster if we are to narrow the gap with the rest of the UK.

I hope that I have shown that Durham and the Tees valley have suffered from structural changes over the past 30 years, although there have been significant improvements recently. We now stand at a fork in the road, and the direction that is taken in the next few months might shape the nature of the sub-regional economy for decades. We can accentuate the positive by building on the improvements of the past few years and ensuring that structural changes to the economy and the shape of the labour market help us to continue to narrow the prosperity gap between us and the rest of the UK, or we can highlight the negatives, thereby losing any progress made in increasing skills and helping to ensure and to accelerate population migration, especially among the young and the economically active.

Highlighting the negatives would leave the area with few prospects and high levels of deprivation and dependency on benefits. Future European funding is therefore vital to the north-east in general and to the Durham and Tees valley economy in particular as it will enable us to tackle the next phase of structural change and ensure that the economy has the necessary strengths and skills to compete in the modern global economy.

The new European funding programme is due to start in January 2007, and I understand that it will have three strands—the so-called three Cs. The first is convergence—targeting poorer regions of the EU with the aim of reducing the gap between their economic performance and that of the rest of the EU. The second is competitiveness—funds will be given to increase the
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competitiveness of regions that are not eligible for the convergence strand. The final strand is co-operation—the aim of joint working and the sharing of best practice.

I understand that the best position for Durham and the Tees valley will be to receive funding from the convergence strand, which would allow us to bring some £600 million into the region for economic development and regeneration for the period 2007–14. We could be eligible for such amounts through what is known as the statistical effect of enlargement, which applies to member regions and sub-regions whose per capita gross domestic product is below 75 per cent. of the EU average.

If we exclude Tyne and Wear, and especially Newcastle, which could be seen as an economic powerhouse in the north-east, the GDP of the north-east is one of the lowest in the country. The GDP per capita for Durham and Tees valley is even lower. The latest figures compiled by Eurostat show that the rolling average GDP of Durham and Tees valley for the period 2000–02 was 75.7 per cent. of the EU average. The relative decline in the period 2001–03––we are growing, but not as fast as other regions—means that the rolling average was about 74.78 per cent. of the EU average. This is the main point that I want to get across—there is the prospect of hundreds of millions of pounds for the region, but our eligibility for the convergence strand is borderline, and every percentage point is vital. A point more, and we receive nothing.

A major problem arises, however, from the calculation of GDP per capita, especially from the inclusion of incomes arising from economy activity that cannot easily be attributed to a geographical region. It is easy to identify such economic activity on land. In my constituency, Heerema is building an oil rig, which can be attributed to the north-east economy, but the extraction of oil and gas from the North sea is less easy to attribute.

The Office for National Statistics assigns such potentially difficult economic incomes to a virtual region of the UK called extra regio—a treatment that is consistent with the European accounting rules. Extra regio is a substantial part of the UK's GDP; it amounts to some 2 per cent. of national income, which is much more than other European states and reflects the importance to the UK economy of offshore oil and gas production.

The problem arises when Eurostat calculates regional GDP from the national data. Eurostat reallocates extra regio to regions pro rata, which has the effect of inflating the GDP per capita of all UK regions by about 2 per cent. Such a sharing out of extra regio is, in fact, contrary to the European system of accounts 1995 accounting procedure—I said that I would mention accounting rules—which is the legal basis for the compilation of EU regional statistics. The ONS has expressed its concern to Eurostat about that gross inconsistency. In June 2005, Len Cook, the national statistician, pronounced that the current treatment of extra regio is

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Alun Michael : I acknowledge my hon. Friend's point. As he has suggested, the UK Government representatives have made that very point to the EU. Indeed, I recently wrote to the Commission to make our position clear and to urge it to introduce improved arrangements for the treatment of extra regio as soon as possible, and in time for the next financial perspective. I agree with the point that my hon. Friend makes.

Mr. Wright : I am extremely pleased with my right hon. Friend's response, because I am not pitting myself against the Government on this matter. On the contrary, I believe that everyone accepts that the system is inconsistent, and that it has a detrimental effect on the UK—particularly on the north-east, but also on other areas. I hope that we can address the inconsistencies.

I shall briefly mention Durham university. Durham county council's economic development section and the Tees valley joint strategy unit have been extremely helpful in highlighting the inconsistencies. Durham university carried out research to establish the components that make up GDP, as measured by Eurostat, and concluded:

such as Durham and Tees valley—

I am concerned that the potentially inaccurate and inconsistent use of inflated statistics may have profound repercussions on the future allocation of funding for Durham and Tees valley. We may miss out on £600 million because of the inclusion of that 2 per cent., which is itself against EU accounting procedures.

Imagine what that £600 million could help to achieve. That sum of money is over three times the budget of One NorthEast, the north-east regional development agency. That money could help to lever in further private and public money, which would help substantially to address the structural weaknesses in the sub-regional economy. We could put in place a 21st century transport infrastructure, such as a co-ordinated rail system in the Tees valley, with linkages to the expanded Teesport and to Durham Tees Valley airport, and a truly world-class logistics and distribution network. The money could help us to continue to address the skills shortages that prevent us from competing fully with the new graduates in China and India. It could also help to continue the progress made in the knowledge economy by Durham and Teesside universities so that real innovation could occur in the renewable energy and biotechnology industries, in which we have the potential to lead the world.

I strongly urge my right hon. Friend, in the remaining weeks of the UK's presidency of the EU, to press for the correction of the current blunt and unfair calculation. I am gratified by what he has said so far, but I want to stress the point that the benefits of that potential £600 million to Durham and Tees Valley would be immense.

11.17 am

Mr. Kevan Jones (North Durham) (Lab): I congratulate my hon. Friend the Member for Hartlepool (Mr. Wright) on securing this important debate. The complaint is often made in the House that
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too many lawyers are Members of Parliament, but having heard from a chartered accountant, I thank God that not more chartered accountants stand for Parliament.

It has already been said that the north-east suffered during the 1980s. It suffered not only the managed decline that we have seen in existing industries but suffered from a Government whose policy ripped the heart out of many parts of the north-east. That included my constituency of North Durham, where the Durham coalfield was closed down more or less overnight. On Tyne and Wear, shipbuilding was also closed down rapidly. Very little support was put in place for those communities, which were solely reliant on the shipbuilding or coal mining industries. Employment figures for the region in 1979 show that 29,000 people were employed in shipbuilding or shipbuilding-related industries on the Tyne; now there are less than 2,000. Where have all those people gone? In many cases, the economically active have moved out of the region, which has led to skill shortages in certain areas. It has also led to the problem in my constituency of a lack of hope: young people have no aspirations to go into higher education or new jobs in regions such as the north-east if opportunities are not there.

We in the north-east are occasionally accused of having a begging-bowl mentality, and it is something of which I have accused some regional politicians over the years. It is important to remember, however, that European funding has actually helped in respect of physical regeneration and some of the issues that affect people. Unlike Scotland and Wales, the north-east does not have a loud voice. I hear what the Minister says about moneys coming from the Government, but unless he can give me an assurance that they will match the £600 million, I will remain sceptical of the claim that the north-east will not lose out to principalities such as Wales.

Alun Michael : In discussing the availability of European finances, it is important to remember that the UK is a net contributor to the European Community budget, which means that all receipts from the EU come at a cost to the UK taxpayer. It is not free money. We contribute about 1.6 euros for every euro we receive. That is the reason why the Chancellor said that recycling money between Europe and the UK may not be the way to go and that it would be better if there were a different European approach. A tighter budget would allow more use of domestic finances to correct imbalances within regions of the UK, which we are already doing. That is not putting regional development on one side; the alternatives are not simply European funding or nothing.

Mr. Jones : I am sorry, but I do not agree. Will the Minister give hon. Members an assurance that if the north-east does not get the £600 million, he will knock on the Treasury's door and ask for that money? In a moment I will highlight some projects that depended on money in the past, and will depend on money in the future. If the Minister can give the assurance that I ask for, many hon. Members from the north-east will go away very happy.
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Alun Michael : It is not a matter of my giving assurances in the Chamber today. I ask my hon. Friend to look at the Chancellor's comments on the future of European funding and at our arguments about needing a tighter, more focused European budget as the focus of the European Union shifts, as it must do, to the improvement in economic activity in the poorest regions, and especially in the poorest countries.

Mr. Jones : I hear what the Minister says, but as my hon. Friend the Member for Hartlepool said, the north-east will lose £600 million. If that were to happen in Wales, no doubt the Taffia would make a big song and dance about losing £600 million. I would like the Minister to say that if the north-east loses that money, it will get it from another source. As I will explain, some projects need funding as they affect the long-term regeneration of the north-east. The north-east is still on the bottom of the pile and if we want to change that, we need the investment.

I recognise that the Minister is a Welsh Member, but I hope that he will also lobby hard for the regions of the north-east, which desperately need Government investment if they are to close the prosperity gap between the north-east and the rest of the country.

There is a lot of criticism about how European Union money is distributed; the trade unions and others worked together to ensure that the money was directed to where it was needed. That is now being done by One North-East, which I accept had five wasted years under the previous chairman and chief executive, but which is now getting its act together and making strategic decisions about where investment from Europe should go to.

The money is vitally needed. I should like to cite a few examples of where it has made a difference in Durham. The first are physical developments, which one can actually see, such as Net Park in the Prime Minister's constituency. My hon. Friend the Member for Hartlepool mentioned how we want to change the nature of industry and how it is viewed in the north-east. Net Park does exactly that: it is a 250-acre site for the creation of modern science-based technology and industry, which is coming out of the regional universities. It is getting nearly £900,000 of European funding. Closer to my constituency, in that of my right hon. Friend the Member for North-West Durham (Hilary Armstrong), the strategic e-business centre at Consett provides high-class office and factory units for emerging e-businesses. In Bishop Auckland, which comes under Sedgefield council, the national railway museum has attracted funding. Those are three examples of how European funding is being used, helping to diversify the north-east economy, in tourism or e-business.

Another important aspect of regeneration, which is often forgotten about, is the development of the individual. We can see buildings going up in the north-east as a result of regeneration, but it is less easy to point to the benefits arising from some of the money being used to increase skills and achievement by individuals. I can cite a couple of projects in Durham, which are improving participation and achievement by 14 to 19-year-olds. The key strategy, which is now in place with the learning and skills council in County Durham and Durham county council, is to get such people into
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employment and raise their aspirations. It has ensured that 16-year-olds can achieve level 1 and 2 qualifications. It is about giving people hope.

There is also a problem in parts of my constituency that have high levels of adult illiteracy. The County Durham project, return to learn, has targeted those hard-to-reach individuals who have limited or, in some cases, no literacy or numeracy skills. To date, 1,300 individuals have been helped: that is 1,300 lives that have been changed directly by European funding. When we have bigger debates about Europe, people should remember those issues.

Finally, one project in my constituency, the Mace Base/Impact project, is trying to target youngsters aged 13 to 16 who display not only low achievements and aspiration but low attendance at school. Some show school attendance below 50 per cent. The project has so far helped 480 young people into vocational education and experience and given them careers advice and hope. In a lot of communities across the north-east, it is all about giving people hope and the confidence that they have a place in the world, whether in the north-east or a wider market.

European structural funds have been important in reducing long-term unemployment, widening participation in lifelong learning and promoting entrepreneurship. This is not an academic debate, although my hon. Friend the Member for Hartlepool makes it sound boring and tedious in terms of some of the accountancy-speak. I hope that I have highlighted that it is not only about physical regeneration but about helping individuals. Remember that boring accountants have a role in life in providing assistance to some of the most vulnerable people in my constituency.

Finally, I would like a guarantee to come out of today's debate that whether the £600 million comes from Europe or is matched by Whitehall the Minister will lobby hard in Europe on behalf of the north-east and, if that fails, he will ask with vigour for the money to be replaced to ensure that vital projects that have been and will be undertaken in the north-east can continue.

Sir Nicholas Winterton (in the Chair): I assure the hon. Gentleman that I did not find either his speech or that of the hon. Member for Hartlepool (Mr. Wright) boring in any way. I found them thoroughly interesting and well-informed.

11.31 am

Vera Baird (Redcar) (Lab): I am thrilled that you found those speeches enthralling, Sir Nicholas. I fear that the level of debate is about to take a nosedive.

I congratulate my hon. Friend the Member for Hartlepool (Mr. Wright) on obtaining the debate, setting out the basis of disadvantage and helping a poor workaday advocate such as me to understand it. I express my gratitude for his drawing the fire of my hon. Friend the Member for North Durham (Mr. Jones), who usually levels it at me as a lawyer. Both my colleagues have coruscating personalities and they have delivered high-powered speeches.

As this poor workaday lawyer tries to grapple with the accounting rules, the position seems to be as follows. The European Union considers Tees valley and Durham
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to have a gross domestic product per head of 75.9 per cent. of the average in the former 15 EU member states. If the average GDP in Tees valley and Durham was less than 75 per cent. per head, we would be eligible for statistical effects funding, whatever that might be—it is money, so it is good.

The GDP of Tees valley and Durham is inflated by a mathematical exercise that says that Great Britain benefits from a 2 per cent. accrual to GDP from offshore oil and gas. The Office for National Statistics puts that in the funny little country called extra regio. I will apply to see whether it has Members of Parliament, I think; I could see myself becoming a Minister quite quickly in extra regio. Heavens above, the EU puts the money out of extra regio, takes away my ambitions, and allocates it across the regions of the UK so that 2.2 per cent. of notional money is added to the GDP of Tees valley and Durham. That is how the figure gets to 75.9 per cent. Fool as I am at mathematics, even I can work out that the true GDP is 73.7 per cent.—below the 75 per cent. figure. It ought, therefore, to bring us the much-needed statistical effects funding. As I understand it, the disadvantage from which we suffer is entirely mathematical.

The reallocation of extra regio funding in such a way does not have much impact in other countries in Europe. That is an important point, because North sea gas and oil give a high figure for the UK. Figures would not be inflated in such a way, for instance, when considering French regional development contributions.

No calculation that I have seen makes that point particularly clear. I look to the Minister, who is a great master of detail, as he has just shown, to help me. I think that I am right that there is not a 2.2 per cent. accrual to the GDP of Tees valley and Durham from North sea oil. Any profit that comes from North sea oil or any enhancement of our average GDP in Tees valley and Durham is already counted in Tees Valley and Durham's money, so that the offshore accrual brought inshore is totally artificial.

Alun Michael : I am grateful to my hon. and learned Friend, not so much for giving way, as for insisting that I respond. Her constituency is likely to be extra-legal, rather than extra finance or extra regio. She is right: I suspect that the background to this is an attempt to ensure that the whole of the country's GDP is somehow reflected in the sum of regional figures. However, we agree strongly with the suggestion that extra-regio money applied to a region provides an element of distortion. As I indicated earlier, I have written in support of the views put forward officially on behalf of the Government to ask for the point to be dealt with in time for the next financial period.

Vera Baird : I am very grateful for that reassurance. I am also grateful to the joint strategy unit in Tees valley, which is funded by the five Tees valley authorities, and which makes it very clear that the UK Government have been consistent in expressing their concerns about the allocation of this extra-regio GDP. There seems to have been correspondence, which I am sure my hon. Friend the Member for Hartlepool will be able to understand, from the Office for National Statistics complaining to
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Eurostat about ESA 95. Eurostat has consistently refused to change the accounting methodology and says that it will not look at it until the next structural funds programme period in 2007. But there are precedents for national Government with a political will, as I am satisfied ours will have, to negotiate special deals for certain areas, particularly those seriously affected by economic decline, as part of the negotiating process in which financial programmes are drawn up. I hope that that process is under way.

If something is not done, we will suffer serious disadvantage. Much regional funding now comes from domestic funding. It is sensible not to make a major contribution into the EU and then fight for some of it back but to measure our contribution in a more balanced way and keep our domestic resources to supplement the GDP of those that need it. The disadvantage is great, however, at between £500 million and £600 million over the next seven years.

I want to reflect what my hon. Friend the Member for North Durham said: this is not about Tees valley and Durham holding out its hand. Historically authorities in London regarded Tees valley and Durham as a hopeless case, the old dosser with a hangover, wearing a raincoat tied up with string with a bottle of brown ale in the pocket, asking for more charity to keep him going. It is not at all like that. We are now a dynamic economy.

Last Thursday I had the pleasure of driving a JCB. Hon. Members were safely well away from that operation although they will be relieved to know that I was not allowed to do it on my own. I did so to cut the first bit of soil to found a new £200 million polyethylene plant at Wilton in Tees valley. Huntsman, an American multinational which already has an ethylene plant there, has historically exported its ethylene product which has been processed in a whole range of places in the world into polyethylene. British polyethylene needs have had to be imported again.

Huntsman could have put that polyethylene manufacturing plant pretty well anywhere in the world because it was already being processed externally. Yet it chose to put it in Teesside. It chose to put it in Wilton in the Redcar constituency because it appreciates that the circumstances there are good. The labour force is strong and committed; the raw materials are readily available; the land is readily available and the Wilton complex itself is a well resourced location with the infrastructure already in place. Huntsman can simply build its fabulous, highly modern plant—the largest for the manufacture of polyethylene in Europe—in Wilton. It is safeguarding 1,700 jobs and will generate more than 400 more, and in the meantime there will be a great deal of construction work. That will add hugely to the sub-regional economy of Teesside. We are dynamic and we can attract such investment. Of course, it was assisted immeasurably by a Department of Trade and Industry grant, which encouraged Huntsman to go there.

A further major centre of development in my constituency is Teesport. Here, perhaps, I can make the point most strongly about the potential danger from any loss of structural funding through the mathematical quirk. Teesport is the second largest port in the UK in terms of volume and the tenth largest in western Europe. Some 10 per cent. of all traffic through UK ports is handled at Tees and Hartlepool. My hon. Friend the Member for Hartlepool and I represent constituencies
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on opposite sides of the mouth of the River Tees. The port has a unique asset in that it is the only port on the east coast that can take 150,000-tonne vessels and provide direct access to the sea in 30 minutes. The port is very important for the chemical industry—the basic industry at Wilton—in terms of the export of feedstock and the import and export of chemicals themselves. The development of agricultural feedstock in relation to chemicals is helping the port to grow.

There is a major steelworks in Redcar—the Corus steelworks—which over the past few years has had to change the basis of its functioning. It was an integrated plant. Historically, its slab and its final steels went into Corus itself, but Corus decided that the steelworks at Redcar would no longer be able to do that, that it was focusing its activities on two other sites, in Wales and Scunthorpe, and that Redcar would have to sink or swim as a merchant mill manufacturing its own slab and exporting it on the export market. In fact, the situation has turned around to some extent so that Corus still wants some of Redcar's steel, but in the immediate future the profile will move away from imports and very much towards exports, with the intention that Corus should export probably about 3 million tonnes of its product over the next few years, in an increasing graph. That will open up more wharfage along the banks of the river and open the potential for an environmental industries park next to the wharf.

Teesport has an ambitious plan for a deep sea container port, which I am heavily involved in trying to promote. One has to pause and say that if we were a statistical effect region because there was not this mathematical quirk and we were awarded convergence funding, that funding would be available to upgrade road and rail infrastructure. Some constraint on the development of Teesport is imposed by the rail infrastructure, and a programme is needed to develop and improve it. There is a need for 21 in-and-out train paths a day; currently, there is the capacity for only 19 in and out. An internal rail link between Corus and the port is urgently needed to enable the port to deal with the increasing requirement for steel slab, which needs to be exported. Within the next three years, I am told, the rail infrastructure improvements to service the proposed deep sea container terminal will be important. Signal improvements will be needed to cope with all the expansion in rail traffic that the developments require, and a new railhead will be needed at another flourishing industrial installation just outside my constituency—Cleveland Potash, a major potash mine.

It is important that our dynamism can continue to develop through all those obvious outlets and it is issues such as infrastructure that make all the difference between Teesport flourishing and perhaps not flourishing so fast. The magic key, the spoonful of sugar that makes the medicine go down, is what we are worried about when we consider the mathematical quirk robbing us of convergence funding.

Today, I am looking for reassurance that the Minister will take on board our situation as an economy that is dynamic but that has a long way to go because of all the depredations over our steel, coal and so on throughout the Thatcher era, and because of the decline in manufacturing generally. We start from a low base, but we are dynamic. I seek reassurance that the Minister takes seriously the need to negotiate for the funding—
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£600 million over seven years is a huge component—and to satisfy us that the Government are in serious negotiation. How optimistic they are about the negotiations to change the mind of the EU; and can the Minister give us reassurances of the kind asked for by my hon. Friend the Member for North Durham, namely that if there is no change in the method of accounting, so that we remain disadvantaged as a result of a European quirk, the funds will be replaced by our own Government?

11.45 am

Mr. Alan Reid (Argyll and Bute) (LD): I congratulate the hon. Member for Hartlepool (Mr. Wright) on having secured this important debate and on the well argued case that he, the hon. Member for North Durham (Mr. Jones) and the hon. and learned Member for Redcar (Vera Baird) have made. I was pleased to hear from an accountant who was able to explain accounting principles in a way that a lay person could understand—I was certainly able to follow his argument.

It has long been one of the principles of the EU that those regions with a lower than average per capita gross domestic product should benefit from the EU's structural funds. Such funds have been of great benefit to many UK regions, including the Highlands and Islands. The Tees valley and Durham area has benefited from European regional development funding in recent years. I note that projects such as Cathedral park and the River Green centre in Durham, and community centres such as the Grange villa community centre, have benefited from European money, and the hon. Members from the north-east were able to explain all the other benefits that European funding has brought to that part of the country. European regions with a low GDP are inclined to suffer from the shutdown of traditional industries, and the Tees valley and Durham area follows that pattern—in recent years it has lost many manufacturing, steel and coal mining jobs.

Regions with a low GDP can also suffer from the geographical disadvantage of being far from Europe's main centres of population, and the European structural fund has an important role to play in creating a level playing field, allowing remoter regions to compete with those at the geographic heart of Europe. Structural funds, as we have heard, can be used to invest in infrastructure, transport and business premises; to give help and support to those seeking to start and develop small and medium-sized businesses; and to train workers—many of whom might have been unemployed for a long time—in the new skills that are needed in the modern world if they are to compete in fields such as computing and internet technology.

It should be noted that London and the south-east also benefit when structural funds assistance is given to remote parts of the UK. Hon. Members from the south-east seem to be forever complaining about the Deputy Prime Minister's plans for more house building in the region. There is clearly a shortage of housing in London and the south-east for those who want to live and work there, but it has to be borne in mind that many of those who have migrated from other parts of the UK to the south-east have done so because of the lack of job prospects in their home regions. They would have preferred to live, work and spend their lives in the areas
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in which they grew up, but economic conditions have forced them to migrate to the south-east, causing the housing problems. Therefore, structural investment in the more remote parts of the UK is important not only for those parts of the country but for London and the south-east. If it were left purely to the market, the whole population would simply move to the south-east and there would be no green grass left there.

Issues have been raised pertaining to Durham and the Tees valley. Hon. Members have made an important point about the statistical quirk that means that Durham and the Tees valley's GDP would be under the 75 per cent. threshold that would qualify it for European structural funding were it not for the fact that European statisticians have added on a notional amount for Britain's oil and gas reserves. I agree that it is entirely illogical to say that Durham and the Tees valley benefits to the extent of 2.2 per cent. of its GDP from Britain's offshore oil and gas reserves. It is undoubtedly not true that that 2.2 per cent. benefits everybody throughout the UK equally. I was pleased to hear the Minister say that the Government are making a case to the European Commission that that notional amount should be excluded from the calculation.

The addition of 10 new members to the EU last year reduced Europe's per capita GDP. That means that in many regions where the average GDP had been below the 75 per cent. threshold before the 10 new states joined, their GDP is now above the 75 per cent. threshold. It is important to bear it in mind that the economic circumstances in those regions have not changed because of the 10 new regions joining the EU.

Last year the European Commission proposed an increase in the structural and cohesion funds budget to allow generous transitional arrangements for regions with a low GDP in wealthier member states. However, the Government rejected that model, and they appear to favour a model under which the European structural and cohesion fund would be much smaller, with its resources concentrated in the EU's poorer member states. Some regions in the UK that might have benefited from transitional funding would not benefit under the Government's model.

As the Minister said earlier, the Government have stated that under their preferred model, national Governments would take over responsibility for structural assistance to their own regions with a low per capita GDP. However, the Government have been vague about the detail, and hon. Members pressed the Minister for assurances.

Before the recess the hon. Member for Hartlepool tried to get information out of the Government, when he tabled a written question asking what estimate the Secretary of State for Trade and Industry

The Minister was not able to answer the question. He said:

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I ask the Minister to bear in mind that we are discussing the budget starting in 2007, which is not far away.

Alun Michael : I am glad that the hon. Gentleman read that reply. If, as he suggests, he has had some contact with the regional funds in the past, he will know full well that it is impossible to anticipate figures well in advance. That is always the case; and, if I may say so, it is always the attitude of Opposition parties to demand figures that they know full well are impossible to produce.

I ask the hon. Gentleman not to suggest that the Government are proposing to re-nationalise regional policy. We are proposing that the focus of EU spending must be a tight budget for the priorities of the poorest regions in the poorest countries of the EU. The Government have already accepted the need to ensure that within the EU-wide context there is a national responsibility for helping the poorer regions.

Mr. Reid : I thank the Minister for that explanation of the Government's policy. However, it is not just Opposition parties who are asking for those assurances, but his hon. Friends. I hope that he will be able to provide them with the assurances that they seek.

11.53 am

Charles Hendry (Wealden) (Con): May I say what a great pleasure it is to appear in this Chamber under your chairmanship, Sir Nicholas? I congratulate the hon. Member for Hartlepool (Mr. Wright) on securing the debate, and on the way in which he introduced it in his normal, articulate manner and with his commitment to his constituency.

It was scandalous that his hon. Friend the Member for North Durham (Mr. Jones) should call him boring and tedious. The Opposition can rejoice in the fact that the people of Hartlepool are now represented by somebody who tells the story in an un-spun and unvarnished way. We take great joy in that.

The hon. Member for Hartlepool understandably feels strongly. He spoke about £600 million being at stake. I felt that the Minister was slightly evasive—am I allowed to say that, Sir Nicholas? That is certainly what the Minister was, but if I were not allowed to say so, I should apologise. He was evasive as to the Government's response. It was interesting to hear about the extra regio aspects of the matter, about which, clearly, no one has told the Deputy Prime Minister; if they had, he would have wanted an elected regional assembly for somewhere out in the North sea. He has probably recognised that that might be the only place in the country where he could win a referendum on establishing such an assembly. However, the point adds an important element to the debate.

The hon. Members for Hartlepool and for North Durham spoke about second and third generations of their constituents living on benefits. There is a question of a new north-south divide opening up. I think that we all welcome the movement of some aspects of government from the cities, and London in particular, to the regions. However, there is a danger that we could go too far down the line of establishing economies in the north that are particularly sustained by public sector jobs—although that professional employment and salaries those bring are important—because of the risk
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of two separate economies: one in the south predominantly driven by the private sector and wealth creation and the ability to give bonuses and shareholdings to employees; and a rather more static one in the north and the regions. We need to keep our eyes open for that.

I began to get to know the region a little about 15 years ago, when I was a special adviser to the then Minister of Trade and Industry, Tony Newton. I think that he, looking back, would still consider the greatest sadness of his political career the fact that he could not secure the future of shipbuilding in Tyneside and Wearside. People do not, I think, understand how much effort he put into the attempt. It was, in the end, European Commission rules that prevented a rescue package from being put in place.

Mr. Kevan Jones : I also have a long memory. The closure of Swan Hunter at that time was directly down to the Conservative Government, who took a political decision to put the last order for the oil replenishment vessel into Barrow rather than Swan Hunter. I am not quite sure how hard the Minister fought.

Charles Hendry : Having been party to the many discussions that went on, I think that Lord Newton had a tremendous personal commitment to the continuation of shipbuilding. I do not want to divert the debate in that that direction, Sir Nicholas, because you would rule that out of order, but the rescue package that he wanted to implement was blocked by European Commission rules on what state aid could be given to manufacturing.

I had the chance to see some of the changes about which the hon. Member for Hartlepool spoke in connection with the resurgence of Hartlepool, when I spent a few days there last year. It would perhaps be churlish to point out that I was there trying to prevent him from winning his seat, but a tremendous amount of new investment is under way, a magnificent change that we are all pleased to see. I hope that the hon. Gentleman will recognise that that investment goes back beyond the time of the present Chancellor and that credit should also be given to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) for his stewardship of the economy, which was the point at which much of the investment started, and which is one reason for his being so adequately prepared to take on the job that he has applied for.

I welcome the Government's engagement in negotiations over the financial framework for 2007 to 2013 and the future of EU structural funding. That is clearly a vital issue and has clearly taken on added importance for the UK since the commencement of our presidency of the European Union. Indeed, that has placed us in the driving seat with respect to future changes. I hope that the Government will take the opportunity to help to maximise the social and economic development of regions across EU member states—something that the structural fund scheme, when administered properly, can play a vital part in helping to achieve.

As we push forward with changes, it is essential that we should have greater national control over the administration and direction of regional development funding. As a sensible and constructive direction in
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which we should be heading—I suspect that the Minister does not agree, but I feel very strongly about it—surely individual member states, rather than EU institutions, know best how regional projects could be developed in the most practical, resourceful and beneficial way. Indeed, that point is acknowledged by the House of Lords European Union Committee in its report. We therefore look to the Minister for reassurances that any reforms will be balanced by the ability of member states to pursue domestic regional development policies. I know that the Minister's Department is committed to creating added value to the funds. Does he acknowledge that that greater element of flexibility is a means by which that could be achieved?

Stemming from that point, there is also an issue regarding financing and the ability of the richer nations to pursue domestic policies in spite of the money that they are ploughing into the EU budget. As has been said, the statistical effect of EU enlargement is central to that in that it has caused average GDP per head to lower, thus making regions in the original 15 members of the EU relatively wealthier. However, as the hon. Member for Argyll and Bute (Mr. Reid) said, there has been no change in the absolute wealth of those regions. In the case of objective 1 regions, where the qualification criterion is an average GDP per head of less than 75 per cent. of the EU average, we are therefore faced with the prospect that our most-in-need regions will not be guaranteed the same funding as previously. What steps are the Minister and his Department taking to address that? Can he guarantee that, following reform, no UK region will face losing out on previous funds it has received, and can he reassure us that there will be resources for us to support such regions domestically if need be?

I hope that, equally, the Government will commit themselves to tackling unnecessary bureaucracy and simplifying decision-making processes. That is a vital way forward for improving the value and efficiency of the structural funds scheme. We know only too well from the uncertainty and complications of common agricultural policy reform the effects that bad administration and poor decision making can have on those whom such schemes are designed to help. We would welcome a commitment from the Minister to ensure that any changes are practical, can be carried through smoothly and are communicated properly to individual member states.

This issue does not just affect the north-east. Constituencies such as mine, in the south-east of England, face huge pressure to build houses because of the economic growth taking place there. Many of us want to see much greater and faster growth in the regions because it will stop the pressure for new house building in our constituencies. EU funding clearly has an extremely important role to play in that and I therefore congratulate the hon. Member for Hartlepool on securing the debate, raising the issue and recognising that it is important not just for his constituency and the north-east region, but for other parts of the country as well.

12.2 pm

The Minister for Industry and the Regions (Alun Michael) : It is always a particular pleasure to appear in this alternative Chamber, under the wit and humour of
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your chairmanship, Sir Nicholas. It is also a pleasure to respond to the thoughtful and vigorous contribution made by my hon. Friend the Member for Hartlepool (Mr. Wright). He did not just speak as an MP appealing to the pork barrel, although, for the avoidance of doubt, I did hear him say the words, "If there's money for my constituency, I'm interested," and who could disagree with that? However, he confronted some real issues about the way in which we deal with European funding and our responsibility to try to promote the economies of regions such as the north-east.

My hon. Friend rightly referred to the enormous problems experienced by the north-east. They are very similar to those experienced in my constituency and other parts of south Wales. I remember the devastation caused to the economy when the steelworks closed and the difficulty of promoting alternative employment and a more entrepreneurial approach to the development of business right across the spectrum. He rightly stressed the progress that has been made—the 26 per cent. drop in unemployment and the success of other Government policies. It is fair to say that changing the economy in the longer term involves a change of culture as well as simple issues of funding and finance.

My hon. Friend made it clear that he is ambitious for his constituency. As a Government, we want to be even more ambitious for the future. In pursuing that objective, we have devolved vastly increasing sums of money to the regional development agencies. Of those regions, the north-east, as is right in terms of its economic problems, gets the most—in comparative terms—of that contribution. We are also considering—I pay tribute to the way in which the Secretary of State has approached this—the way in which city regions can promote the economy. In other words, we are considering how the city or cities in a region can help to drive the economy. I visited Newcastle recently in my hon. Friend's company and it was a salutary and challenging experience. We spent some time going along the banks of the Tyne, and I was struck not just by the fact that many areas were a hive of activity during previous industrial periods but by the immense potential there. That potential is being realised in Newcastle and Gateshead but it extends a long way into the former industrial areas along the Tyne.

We need to promote increased business engagement, which was very much in evidence, as was the partnership between a variety of local authorities in the north-east. I was reassured that the city areas are not seeing the future of the region just as an opportunity for themselves but as an opportunity to work with other local authorities.

I took away from that visit the fact that young people in the area need much greater ambitions. We met very bright young people who love the area but do not think of business as the life for them. We need to take the opportunity, through some of the projects the Government support, to encourage young people into roles of initiative and leadership. I refer particularly to the investment we have made in entrepreneurship education with colleagues at the Department for Education and Skills; the work of Enterprise Insight and enterprise week; the work of social entrepreneurs, which we support and which makes a contribution to the
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economy; the work of bodies such as the Manufacturing Advisory Service, which is organised on a regional level and has proved extremely successful in regions—including the north-east—in helping manufacturers to squeeze a greater return out of the work that they undertake; and the promotion of information and communications technology, which has contributed about 40 per cent. of GDP growth in the European Union in recent years.

We have been pushing for the development of broadband access throughout the country and for greater ambition in ICT. If we are to compete successfully against the growing economies of the world, we need to be ambitious about success not just in parts of the country where industries already exist but across the digital divide, for economies, individuals and communities in all parts of the country. We need to push not just for broadband access, but its use.

I am grateful for the responses we heard from the hon. Members for Argyll and Bute (Mr. Reid) and for Wealden (Charles Hendry), although the latter left me with the impression that he has not been north of Watford very much, except for the odd trip at an election during his time as special adviser. I say to him that there is a great deal more to apologise about than he seemed to accept. Lord Newton is a very nice man but he was part of a Government that devastated business and the regions of this country, particularly places such as the north-east. I make no comment on the hon. Gentleman's advocacy of the right hon. and learned Member for Rushcliffe (Mr. Clarke) as the leader of his party, but I say to him that, whether he takes a step backwards or forwards in time, it will be a long time before his party is able to overcome the guilt it rightly has for the devastating damage it did to this country and to come to be regarded as a contender for office in future.

I was particularly pleased with the contributions of my hon. Friend the Member for North Durham (Mr. Jones) and my hon. and learned Friend the Member for Redcar (Vera Baird), although they were challenging. They demonstrated their knowledge and understanding of their constituencies and what is needed for their future success. My hon. Friend the Member for Stockton, South (Ms Taylor) was unable to attend, but she spoke to me about the matter last night and I know that she wanted to be part of the debate.

In an intervention, I pointed out that the UK is a net contributor to the EC budget. That means that all receipts from the EU come at a cost to the UK taxpayer. It is not free money: we currently contribute about 1.6 euros for each euro we receive. The message that I take from that is that we should make sure that every euro that comes into this country is well spent and should look for better ways of doing things in the longer term. Indeed, change has already taken place. We have significantly increased domestic spending on regional policy across the UK, focusing resources on drivers of productivity, such as skills, infrastructure, enterprise and new technology. Structural funds have played an important part in that.

In Durham and Tees valley, we have committed more than £300 million in grants as part of the current objective 2 programme. The money has been used to support 800 projects, representing more than £520   million of investment and the creation or
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safeguarding of 30,000 jobs. The funds have been used to drive forward initiatives such as the Business Link County Durham project, which has assisted 938 small businesses, the Cathedral Park project, which has been mentioned and which has developed brownfield land in Durham for local businesses, and the Middlehaven project, which will provide essential infrastructure for Middlesbrough. All those are important.

However, domestic programmes play an increasingly important role in the region's regeneration. County Durham's urban and rural renaissance project has focused on addressing development opportunities and improving neighbourhood infrastructure. The incubator initiative at Queen's Meadow business park offers integrated services for promoting business creation and growth. The West Middlesbrough Trust has gained more than £3 million for housing renewal.

Domestic spending in the form of national programmes and co-financing for structural funds plays by far the most important role in our regional development. I accept that it is sometimes difficult to disentangle what is domestic and what is European money, but the important point is that domestic spending—this is a fact—now plays the most important role.

Mr. Iain Wright : Hartlepool has been a huge beneficiary of domestic regeneration funding, including neighbourhood renewal funding and the single regeneration budget. Last week, the Government announced that Hartlepool had received £9.2 million to pump into the town's most deprived wards. That is all very welcome, but the fact remains that, as my hon. Friend the Member for North Durham (Mr. Jones) said, there is £600 million on the table and we are not allowed it because of a statistical quirk. That is the point that I want the Minister to address. Will the Government pledge to fill that gap as far as possible?

Alun Michael : My hon. Friend is wrong: there is not £600 million on any table anywhere—there are calculations that can be made about the likelihood of returns. The point that I am making to my hon. Friend is that for every euro—or, for that matter, every pound—of European funds spent in this country, we have to spend another €1.6 or another £1.6. It is important to bear that in mind when we come back to the key point that I was trying to make to set out the context for our consideration of European funding: three quarters of public spending on regional development in the UK already comes from domestic sources.

Under any scenario, that proportion is set to increase further in the near future. The enlargement of the EU following the entry of 10 poorer countries means that EU regional funding will inevitably and, I am sure that my hon. Friend will agree, rightly shift to those new member states. That situation requires a fundamental reappraisal of EU regional policy, which is what the Government have been trying to promote in debates in Europe. We are determined to push for an effective reform that delivers a good result for the UK as well as for the EU as a whole.

Mr. Kevan Jones : I am not quite sure what point the Minister is trying to make. The advantage of European structural funding for the north-east is that there is no
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need to go through the competition that would be required if the funding were allocated through Whitehall. The important point, however, is that the Minister said that the £600 million is not on the table. Well, I am sorry, but I have got news for him. There are people in the north-east who have projects based on that figure, and those projects are costed and out there. If the money is not there, those projects will not go ahead. I cannot understand why it is so difficult for the Minister to give a commitment to plug the gap if it actually appears.

Alun Michael : I confess that I cannot understand why my hon. Friend finds the point so difficult. The budget has not been agreed, so there is no money on the table. The rules under which money is to be allocated were being debated in Brussels yesterday; indeed, I took part in wide-ranging discussions about them. It is not a question of there being a bag of money on the table that is somehow being denied by the Government. That familiar argument is sometimes used when people have calculated a figure based on a set of assumptions that may or may not come about who then say, "That money is being denied us by an evil Government." That argument is heard more frequently from Opposition Members than from one's own side, but I want to make it clear that there is not a bag of money waiting to be collected from Europe, provided the Government remove an obstruction. It is not true. It is mythology. It is made up. I shall not go there.

Mr. Jones : I do not agree with the Minister. Will he come to the north-east and tell those councils and organisations that have predicated their projects on getting EU funding in this round that they cannot have the money? If it does not come from Europe it will have to come from somewhere else. It is not acceptable for the Minister to say that the money is not there and that we are making it up. Organisations need that money, and if the gap is not to be filled by Europe, it will have to be filled by someone else.

Alun Michael : I sigh deeply because my hon. Friend must accept the fact that there is no budget and therefore that a sum of money is not waiting. We believe that the proposals made by the European Commission are excessive and bad for the UK; as a result, the level of EU funding is being debated. Once the level of funding is decided, a debate is to be had on how that funding should be allocated.

Let us go a little further on the question of reform of the wider EU budget. As the Prime Minister made clear in his speech to the European Parliament in July, we are committed to working towards a deal on the EC budget during our EU presidency. However, it has to be the right deal; it must equip the EU for the challenges of the 21st century, and it should respond to the needs of the 10 new member states post enlargement.

We face a major competitive challenge from countries such as China and India. In those circumstances, we question whether it is right for the EU to continue to spend 40 per cent. of its budget on agriculture and to focus 50 per cent. of its structural fund budget on the older, richer member states. For that reason, we have made a case for a fundamental review of the EC budget during the next financial perspective in order to focus on
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areas where EU intervention will create genuine added value and where the budget is likely to have the greatest impact. We are looking beyond the 2007 financial perspective, but it is time to take a longer look if we are to succeed in getting a more efficient and effective Europe.

My hon. Friends the Members for Hartlepool and for North Durham referred to the theoretical figure of £600 million. Again, I underline the fact that the Government set out the detailed methodology for applying a guarantee of domestic contribution to regional development funding in a written answer on 11 December 2003. If our proposals for reform were to be accepted, we would increase the domestic resources available for regional policy by the amount that our regions would have received had the current arrangements for allocation of structural funds been applied under a no-reform scenario with an EU of 25 member states.

Vera Baird : Will the Minister give way?

Alun Michael : Perhaps my hon. and learned Friend will let me finish dealing with the point; she can then address what I have said.

The information is in the public domain—it has been put to Parliament more than once—yet we still revert to theoretical bags of money. It is not possible to calculate the exact value of the guarantee at this stage, just as it is impossible to calculate the exact value of future structural fund receipts under different reform scenarios. Structural funds are allocated by reference to statistics on regional economic performance across the EU for the most recent three years prior to the programming period for which data are available. Indeed, what my hon. Friend the Member for Hartlepool said about how the figures are calculated is salient at this stage, because until the budget and the rules that are to apply are fixed and known, all figures are theoretical.

In order to calculate the value of the guarantee it will be necessary to know data such as the GDP and employment statistics for the whole of the EU available for the most recent three years prior to the start of the next programme period in 2007. I say that again because the figures for one region have to be set against the figures for regions across the EU. It is likely that the most recent data will be for 2001 to 2003, and they will not be available until the end of 2005 at the earliest. Again, it is impossible to make meaningful estimates at this stage.

The guarantee will be subject to the same additionality requirements as the current structural fund allocations to ensure that the new money does not replace pre-existing structural expenditure, which means that the guarantee will be additional to the Government's current domestic expenditure on regional development, including the domestic resources used to co-finance the structural fund's programmes in the region.

Vera Baird : I appreciate what the Minister is saying about there being no budget overall. However, my
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understanding from the joint strategy unit—the Tees valley-wide joint strategy body—is that the amount of European funding at stake, as its director is quoted as saying, is up to £500 million over seven years to support vital economic development and regeneration projects. I appreciate that we cannot count on that, with its decimal points perfectly in place, while the budget is still undetermined, but my right hon. Friend is casting his net quite wide when he talks about long-term changes in the budget and says that we cannot really rely on a penny until we have sorted everything out. I wonder how realistic that is.

I want to make one further point: the guarantee that funding of this kind will be replaced by domestic sources on the same basis as it is made available from the EU means that the accounting quirk will still be against us. Is that what the Minister wants?

Alun Michael : My hon. and learned Friend mixes two things. First, we want the statistics on which any calculation is made to be the best possible, which is why we made representations to the Commission about how the calculations are made, as I said earlier. I agree with the points that were made earlier; my hon. Friend the Member for Hartlepool made a specific point in addition to the matter of the extra regio money, which I am not entirely sure that I understand. However, I will be happy to look at the detail with him later.

My hon. and learned Friend the Member for Redcar said that people who have spoken to her say that there is "up to" £500 million available. It is easy to use that phrase, but what does it mean? It depends on a series of conditions. We know that the north-east requires the greatest help among the regions of England that require help of different kinds, and will therefore be the greatest beneficiary. However, we cannot put a figure on that at this stage. We are not talking about the long-distant future.

I have talked about two things: first, how the figures will be calculated for the 2007–2012 period and, secondly, about the need for a major overhaul of EU funding and how that is done, as the Prime Minister set out in his speech. We want it to start early and not to wait until the end of the next period so that yet again we are in debates a year or two before the start of a new financial perspective about how the new arrangements will work. People need a longer perspective on how support is provided.

We have made considerable advances already on the matter of statistics. The Commission published its revised draft regional aid guidelines in July. In line with our representations on the Commission's original text, the new proposals are much more flexible: 23.5 per cent. of the UK will fall within the assisted areas compared with only 9 per cent. in the initial proposals. If those changes had not been made, the guidelines would have excluded the possibility of any coverage of the north-east. I am happy to go into greater detail if my hon. Friends want me to, to underline the fact that there are ongoing negotiations in which we are achieving success, not only on some of the great strategic issues but in some of the detailed arguments and on statistical issues.

The difficulty at present is that the member states refuse to agree to the EC budget in June under the Luxembourg presidency. That budget was higher than
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we had advocated at the 1 per cent. level but considerably lower than the large increase for which the Commission had argued. It is incorrect to assume that the Commission's proposal has been agreed, which must be the basis for the £500 million-figure that is being bandied around. We must bear it in mind that if that figure or anything like it were to obtain, we in the United Kingdom would pay £1.60 for every £1 coming in and would be greatly constrained in the provision of money for additional domestic regeneration which we have greatly expanded, particularly into the funding of the regional development agency.

Vera Baird : The Minister is making a clear point about the cost of funding.

I am anxious about the second point that you allowed me to raise, Sir Nicholas. If the Government's undertaking is to replace moneys that would otherwise come from this budget, on a like-for-like basis for eligibility the suggestion is clear that the mathematical quirk that excludes Tees valley will continue because the Government will replicate the existing rules. That worries us and that is what the debate is about. Can the Minister help us?

Alun Michael : No, I think my hon. and learned Friend is wrong. Such matters are inevitably complex. First, the guarantee is based on the response to our proposals, and we have passed to negotiation, trying to get as close as possible to our proposals and away from the Commission's inefficient and expensive proposals. Like for like would have applied if the existing set of rules had applied next time, compared with what we want rather than looking backwards to an earlier period. The statistical anomalies are neutral as regards the way forward we are arguing for.

On the accuracy of statistics on regional and economic performance in the UK, in addition to discussing Eurostat's methodology for allocating extra-regio output, my hon. Friend the Member for Hartlepool questioned the accuracy of statistics on regional economic performance in the UK. The Office for National Statistics is responsible for providing Eurostat with that information and makes use of the best available data and methods that have been agreed throughout the EU to ensure the greatest possible accuracy. However, I am happy to look at any specific anomaly or concerns that my hon. Friend may have and to ensure that they are fully discussed with the Office for National Statistics.
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The reform negotiations to date have been important. The Commission proposed a major increase in its budget, advocating a major 30 per cent. real-terms expansion in the structural funds budget from €257 billion in the current cycle to €374 billion for the next EC financial perspective. It proposes to focus on three new objectives: a convergence objective for regions with GDP below 75 per cent. of EU average, a competitiveness objective for richer regions, and a co-operative objective to finance cross-border co-operation projects, which is likely to focus more on better-off areas in better-off states.

There has been good progress on negotiations to date, but a number of key issues remain to be resolved. More importantly, we still need to reach a settlement on the overall size and focus of the structural funds budget. We also need to reach agreement on a number of technical rules for future programmes.

I spent much of yesterday with Commissioner Danuta Hübner and representatives of the Committee of the Regions and the European Parliament discussing the implications of some of the rules that we are discussing. It is important to understand that at the moment, while we hold the EU presidency, we have the obligation to try to reach an outcome and we are determined to make swift progress towards an agreement, while at the same time maintaining a firm national position on the size and focus of the spending of structural funds, and arguing for a disciplined and sustainable structural funds budget consistent with an EC budget of 1 per cent. of EU gross national income. The argument about the guarantee in the statement relates to the wish to achieve an outcome.

Our discipline proposals would ensure that the EU's limited financial resources were carefully targeted at the poorest countries and the poorest regions in those countries where EU intervention is likely to have the greatest added value. We are acutely aware of the difficulties faced by this country's poorer regions and of their development needs. That is why such regions remain a priority in our work and why an unprecedented guarantee was included as an accompaniment to our proposal on how EU funding should be developed. I assure colleagues that the needs of Durham, the Tees valley and the whole north-east are a high priority in my work with the RDAs and for the Government as a whole.
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