9 Competitiveness and Innovation Framework
Programme (2007-2013)
| (26495)
8081/05
+ ADD 1
COM(05)121
| Draft Decision establishing a Competitiveness and Innovation Framework Programme (2007-2013) plus Commission staff working document
|
| Legal base | Articles 156, 157(3) and 175(1) EC; co-decision; QMV
|
| Department | Trade and Industry
|
| Basis of consideration | Minister's letter of 13 February 2006
|
| Previous Committee Report | HC 34-i (2005-06), para 20 (4 July 2005); also see HC 38-v (2004-05), para 10 (26 January 2005)
|
| To be discussed in Council | 13 March 2006 Competitiveness Council
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared; further information requested
|
Background
9.1 In its Communication of February 2005 on a renewed Lisbon
strategy,[29] the Commission
proposes to focus efforts on "delivering stronger and lasting
growth and creating more and better jobs". It calls for actions
to deliver growth and competitiveness and to make Europe a more
attractive place to invest and work. It emphasizes the need to
stimulate entrepreneurial initiative, attract sufficient risk
capital to start up businesses, and sustain a strong European
industrial base whilst facilitating innovation and notably eco-innovation,
more and better investment in education and training, the uptake
of ICT and the sustainable use of resources.
The Competitiveness and Innovation Programme (CIP)
9.2 According to the Commission, the Competitiveness and Innovation
Framework Programme (2007-2013) "will bring together into
a common framework specific Community support programmes and relevant
parts of other Community programmes in fields critical to boosting
European productivity, innovation capacity and sustainable growth,
whilst simultaneously addressing complementary environmental concerns".[30]
The established programmes to be merged are:
a) support for SMEs as provided by the Multi-Annual Programme
for Enterprise and Entrepreneurship (MAP);
b) innovation-related activities of the Framework
Programme on Research and Technological Development;
c) promotion and demonstration of environmental
technologies covered by the Financial Instrument for the Environment
(LIFE) programme;
d) the ICT (Information and Communication Technologies)
programmes Modinis, e-TEN and e-Content;[31]
and
e) the Intelligent Energy-Europe (IEE) programme,
the Community's 2003-06 support programme for non-technological
actions in the field of energy efficiency and renewable energy
sources.
The proposal says that the CIP will provide "a
significant and coherent legal basis for Community actions which
share the overarching objectives of enhancing competitiveness
and innovation" and will be more visible and comprehensible
for the public. Because the CIP objectives and target groups are
diverse and "the need to maintain the visibility of its individual
components", it will be composed of specific sub-programmes:
the Entrepreneurship and Innovation Programme, the ICT
Policy Support Programme, and the Intelligent Energy-Europe
Programme.
9.3 The Entrepreneurship and Innovation Programme
aims to foster, in particular, SME competitiveness and to promote
innovation, including eco-innovation. It will incorporate a),
b) and c) and included three proposed funding instruments to be
managed by the European Investment Fund:[32]
- the High Growth and Innovation
SME Facility (GIF) which will make venture capital available
to SMEs at the start-up and expansion phases and for those that
demonstrate high-growth potential in innovation;
- the SME Guarantee Facility (SMEG) which
will provide guarantees and counter-guarantees to financial institutions
making loan facilities available to SMEs; and
- the Capacity Building Scheme (CBS), which
will provide assistance with improving the expertise of financial
institutions investing in SMEs and high growth SMEs and enhancing
financial institutions' appraisal methods for making finance available
to SMEs.
9.4 The ICT Policy Support Programme will
"stimulate the wider uptake of ICT by citizens, businesses
and governments and aim at intensifying the public investment
in ICT" by building on "the lessons learned from the
eTen,
eContent
and MODINIS programmes whilst improving synergies between them
and improving their impact".
9.5 The current objective of the "Intelligent
Energy - Europe"
programme is "to support sustainable
development as it relates to energy and to contribute to the achievement
of the general goals of environmental protection, security of
supply and competitiveness, focusing on the removal of non-technical
barriers, the creation of market opportunities and raising awareness".
Evaluated as cost effective, and that the new programme aims to
provide continuity and accelerate action in relation to the agreed
Community strategy and targets in the field of sustainable energy.
The programme will "help to bridge the gap between the successful
demonstration of innovative technologies and their effective introduction
to the market to achieve mass deployment. It will help to strengthen
the administrative capacity both to develop strategies and policies
and to implement existing regulations, particularly with regard
to the new Member States." [33]
9.6 Overall, the proposal stresses that the CIP will
be simpler than the current arrangements, in which there are multiple
funding schemes and instruments. It says that:
- Community financial instruments
will support SMEs in
traditional sectors, and those investing in ICTs, innovation and
environmental technologies;
- Business and innovation
support services
will: play an important role in ensuring
SMEs' access to information on the functioning and opportunities
of the internal market, providing feedback from SMEs for policy
development and impact assessments, and helping enterprises co-operate
across borders; disseminate information and raise awareness of
innovation-related policies, legislation, and support programmes;
promote the exploitation of the results of research programmes;
and provide brokerage services for technology and knowledge transfer,
and for partnership-building; and
- Networking between stakeholders
will be central to the programme.
Complementarity with other Community programmes
9.7 The proposal discusses at length the CIP's complementarity
with the Structural Funds and Rural Development Policy.
The Commission will propose "Community Strategic Guidelines
on cohesion, which will set out how EU-level priorities —
including competitiveness and innovation — should be taken
into account by the national and regional authorities responsible
for managing structural funds" and will "strongly encourage
managing authorities to pursue investments that are complementary
to EU competitiveness and innovation policy … Similar considerations
hold for many interventions of the new Rural Development Policy".[34]
9.8 The CIP will also complement the 7th Framework
Programme for Research, Technological Development and Demonstration
(FP7-RTD) and the Integrated Action Programme in the field
of Lifelong Learning, as well as facilitating interconnection
with the Trans-European Networks for Transport, Energy and
Telecommunications.[35]
Financial aspects
9.9 The break-down of the proposed budget of €4.2
billion is:
- Entrepreneurship and Innovation
Programme — €2,631
million
- ICT Support Programme — €801.6
million
- Intelligent Energy-Europe Programme — €780
million
A fuller summary of the proposal and our assessment
is contained in the Report of our 4 July meeting.[36]
It was plain from the Minister's comments that it was not only
we who had reservations. Nonetheless, the implication was that
the only open question was the precise scale and shape of the
programme, depending on the outcome of the negotiations on the
2007-13 Financial Perspective and the outcome of the co-decision
process. We accordingly hoped that the Minister would continue
to approach this expansive programme with appropriate rigour,
so that what finally emerged was more likely to achieve the desired
outcomes than was apparent. In the meantime we kept the document
under scrutiny until the Minister could provide more information
about how the outcome of the negotiation on the Financial Perspective
for 2007-13 would affect the proposal. He has now done so in his
letter of 13 February 2006.
The Minister's letter
9.10 In his long and detailed letter of 13 February
2006 (with which he encloses the UK Presidency's Progress report
to the November 2005 Competitiveness Council), the Minister for
Industry and the Regions (Alun Michael) says that, as the proposal
has been put on the March Competitiveness Council agenda for Partial
General Approach, he is accordingly writing to address, where
possible, points we noted in our July report, to update us on
progress and to outline the Austrian Presidency's plan for taking
the proposal forward, ideally to Political Agreement in the summer,
subject to the inter-institutional agreement on the EU budget
for the next Financial Perspectives.
9.11 He agrees with us that weaknesses in the economic
appraisal of CIP and the evaluations of its predecessor schemes,
which were mainly qualitative in nature and did not focus on key
productivity indicators, resulted in assertions for the need for
this Framework Programme rather than a strong evidence-based case.
But the Government has undertaken or drawn on research "which
collectively demonstrates that there are indeed clear market failures
that do require intervention". He cites the joint DTI/Treasury
report "Bridging the Gap" which "showed that early
stage venture capital provision in Europe lags behind that in
the US where long established government intervention has significantly
stimulated the US equity market. Similarly, DTI and HMT productivity
and competitiveness indicators illustrate a number of areas where
the UK, France and Germany lag behind the US …. Even though
the productivity assessment was undertaken to compare the UK to
its major competitors, Departmental economists believe that addressing
these gaps will be as appropriate for less developed Member States.
Furthermore, they consider that Member States cannot coordinate
their actions to ensure the whole of the EU raises its
productivity game without a pan European intervention like CIP".
The recently published European Innovation Scoreboard for 2005
shows the US well ahead of the EU average and most Member States.
The gap, particularly in areas such as early stage venture capital
and patenting, is even more marked for the newer Member States.
Positive messages in the performance in the leading EU countries,
such as Finland and Sweden, which is often better that in the
US, suggests that there is scope for a European-level initiative
that builds on and helps share the experiences of some exemplar
Member States:
"Accordingly, in the Government's assessment,
coordinated support across the EU — rather than leaving
it to the private sector or Member States to act independently
— is needed to encourage and enable Member States collectively
to meet the challenges presented by the US. As the Committee's
report notes, we also have to meet the challenge of the rapidly
industrializing economies of China and India. Overall, the broad
strategy of CIP aligns with the Government's assessment of the
drivers of productivity and based on this information, there is
every reason to believe that most of the component parts of CIP
will contribute to addressing these issues."
9.12 He says that it is also "important to keep
in mind that there is strong pan-European political will for CIP",
recalling the emphasis in the Conclusions of last year's Spring
Council on actions to deliver competitiveness and growth and Heads
of State specific support for a CIP to "lend great impetus
to innovation throughout the European Union by establishing a
new mechanism for financing innovative SMEs with a high growth
potential", with the European Investment Fund diversifying
its financing of innovative SMEs, by streamlining and strengthening
the technical support network for innovation in undertakings and
by supporting the development of regional centres and European
networks for innovation. Although, as we noted, the proposal
is effectively taking forward established programmes, the UK,
Member States and the European Parliament ("who are very
supportive") welcomed it because "not only does the
proposal have the right mix of ingredients and actions to support
SMEs as identified by Heads of State but, importantly I think,
as a new Framework Programme, CIP offers the potential to be more
than merely a re-branding exercise of the programmes to be merged,
provided certain amendments are driven through negotiations".
9.13 With respect to evaluations, the Minister
agrees that the poor quality of evaluations of the existing programmes
has been a large part of the problem with the Commission's case
for CIP. Improvements to the CIP evaluation process was one of
the aspects the UK Presidency Progress report, which Ministers
endorsed at the November Competitiveness Council. Thus fortified,
the UK has lobbied for amendments that:
"will ensure that the Commission undertakes
to clearly define the objectives and articulate the expected impacts
of CIP, identify key impact indicators and adopt improved quantitative
evaluation methodologies to measure the impact of CIP. We have
also stressed the importance of viewing CIP as a pilot whose long-term
future will be dependent on a clear demonstration of its effectiveness.
Allied to this we have underlined the importance of a robust interim
evaluation that will enable mid-term adjustments to be made should
the need arise. I am confident that as a consequence of the UK's
input we can expect to see a sound cross-cutting evaluation of
the Framework Programme and its constituent parts at key stages
which will ensure that by 2013 when CIP completes, any plans for
a CIP2 will be based on solid evidence and proven assessment of
impact."
9.14 Similarly, the Minister says, the UK Presidency
Progress Report confirmed the need for an a co-ordinated approach
to be taken "rather than the three pillar 'silos' the Commission
had proposed". The European Parliament "have agreed
this is important and needs attention". A recent Commission
outline proposal "raises the role of the Entrepreneurship
and Innovation Committee (EIPC) to assist with the coordination
and cooperation across the whole of CIP" which, given its
principal interest in SMEs, access to finance instruments, networks,
innovation and eco-innovation initiatives, will improve integration
of the component parts and further help to ensure that the CIP:
"will be cross cutting and better able to exploit
synergies …. provide the opportunity for CIP to be more progressive
than has been the case in the separate existing programmes and
to have at its heart both SMEs (in particular high growth innovative
SMEs) and the need to bridge the innovation gap between research
and market take up. I am increasingly confident that this approach
will help ensure that CIP is not merely a repacking of actions
'done differently' as your Committee were concerned may be the
case."
9.15 The Minister also addresses at length our questioning
of the Commission view that using EU funds to back financial instruments
for investment in SMEs was justifiable when the European Investment
Fund (EIF) or European Investment Bank (EIB) had tended to have
a lower risk attitude toward SME backing. He says that:
"perhaps UK experience makes the Commission's
case better than they have themselves. The market 'failure' to
finance new and young SMEs, particularly if they are innovative,
is the result of the market acting in a rational manner. With
no track record on which to base investment decisions these types
of enterprises are seen as risky. The EU's own corporate financing
bodies have a responsibility to act rationally and it is, therefore,
understandable when the EIF and the EIB act prudently. However,
they can and should be encouraged to enter the market."
Hence their role as key investors in the Regional
Venture Capital Funds, the UK High Technology Fund and the soon-to-be-launched
Enterprise Capital Funds: "A similar approach in the EU is
to be encouraged". He notes that, generally, UK financial
markets are more developed than similar markets in the rest of
Europe and markedly more so than in the recently admitted new
Member States. "It is difficult to see how fledgling markets
for access to finance in the accession countries in particular,
can be encouraged without the input of a Community programme like
CIP which offers support in access to finance to all Member States".
9.16 The UK has accordingly "strongly argued
that the access to finance measures within CIP should be focused
on increasing risk capital across Europe in line with the Kok
mid-term review of the Lisbon goals and fully supports the inclusion
of the High Growth and Innovative SME facility (GIF) within CIP".
The Government accepts the rationale for an SME Guarantee Facility
as the UK has operated its own Small Firms Loan Guarantee programme
since 1983:
"However, we have expressed our reservations
about the balance of resources being allocated to debt finance
and continue to argue that CIP should place greater emphasis on
measures that will have the greatest economic impact. This will
be our priority position when the Austrian Presidency begins prioritizing
the CIP budget across its constituent parts after the 13 March
Competitiveness Council."
9.17 He then recalls our observation that, in a Financial
Times survey that asked 24 EU business leaders what key EU
reforms were need to match the competitive record of the US and
Asia, the one business leader who ran a venture capital company
noted that tax breaks for US starts-ups were providing the major
competitive advantage over EU equivalents:
"I think it is important to keep in mind that
tax measures are within the competence of individual Member States
— a position the UK regularly underlines — and each
Member State will determine for itself which measures are most
relevant to its own particular circumstances. However, there is
scope for Member States to learn from each others' experiences.
For example, in the UK tax breaks are available through the Enterprise
Investment Scheme, the Venture Capital Trusts and the Corporate
Venturing Scheme. As well as tax schemes, as I have already mentioned,
the UK also has measures which provide direct Government support
for risk capital funds such as RVCFs and the pathfinder ECFs.
Both tax-based schemes and direct investment schemes can achieve
the result of providing support for risk capital to fill the 'equity
gap' for small firms. CIP will allow the approaches to risk capital
investment developed through these and similar schemes to be promoted
across the EU."
9.18 In the case of our remarks on the Commission's
lack of justification of the ICT Policy Support Programme, the
Minister says he is in part, inclined to agree.
"This aspect of CIP incorporates three existing
programmes: MODINIS, eContentplus, and eTEN. Heads of State at
the Spring Council called for improved take up of ICTs by SMEs
and the i2010 strategy (launched by the Commission in June 2005,
and welcomed by EU Ministers in Council Conclusions in December
2005)[37] to focus on
ICT innovation — one of its three overarching objectives.
The ICT Policy Support Programme will help the implementation
of the i2010 Strategy. For example, the monitoring, best practice
sharing and benchmarking work to be carried over from the MODINIS
programme, will measure progress against the achievement of the
i2010 Strategy goals. UK officials have therefore proposed that
the link between CIP and i2010 should be made more explicit in
the framework programme text."
9.19 However, though there will be advantages in
pulling together the existing ICT programmes within CIP, he agrees
with us that such activity should not need a budget of €800m:
"Pulling the three existing programmes together
provides us with an opportunity to weed those aspects that are
less successful and when CIP negotiations turn to its budget and
agreeing priorities, my officials will seek appropriate and proportionate
cuts here. An example is those actions currently within the scope
of the eTEN programme for which there is little evidence to justify
continued support."
9.20 In an earlier progress report letter to our
counterparts on the House of Lords EU Committee, copied to ourselves,
the Minister addressed concerns about avoiding overlap of the
CIP with both FP7-RTD and Structural Funds. On the FP7-RTD,
he says that he has clarified with the Commission where the line
will be drawn between it and the CIP, which will be set out in
the final text of the proposal. Areas of possible overlap and
duplication have been examined, how information services in CIP
will complement and support FP7 has been established, and clarification
obtained that financial instruments, dissemination of project
results and cluster support in both programmes will be orientated
for different purposes. Additionally, it has been agreed that
support for businesses wishing to take new innovations to the
market should be based on the merit of the project, i.e., projects
that have received support from FP7 will not be given preferential
treatment.
9.21 On structural funds, the Minister says
that the Commission have confirmed that Article 53 of the Structural
Fund Regulations prohibit the "double-funding" of a
project and that this will remain the case for the proposed regulations.
In practice, he says, this means that Member States cannot use
structural fund money and funds from other Community instruments
such as CIP to co-finance the same stage of a project; they can,
however, use both funds for different stages of the same project.
Examples to illustrate this point are provided in the Presidency
Paper.
9.22 A further main issue covered during the UK Presidency
was the inclusion of eco-innovation, and particularly concern
at the lack of visibility and specificity of supporting actions.
The Presidency paper sets out recommendations on how this should
be addressed, which he says have won broad support. Although some
are keen for eco-innovation to be managed as part of a separate
sub-programme within CIP (it is currently integrated into the
Entrepreneurship and Innovation Programme), the UK supports the
majority that its integration strengthens the commitment to support
and encourage businesses to take new eco-innovation technologies
to the market place whilst recognizing the specific nature of
market failure in this sector.
9.23 Finally, on the immediate timetable,
the Minister says that negotiations on the CIP budget, and where
priorities should be placed and reductions made, will take place
after the 13 March Competitiveness Council. Recalling that agreement
has yet to be reached between the Council and the European Parliament
on the proposed budget of 1.045% of EU GNI, he says that he is
optimistic that the Commission will come forward with a proposal
for CIP that fits within the new budget envelope. "We will
ensure that in assessing the impact of the new budget for CIP,
actions will be prioritised to bring maximum benefit to high growth
innovative SMEs"
9.24 So, given the outstanding budget issues, the
Austrian Presidency is focussing on textual amendments at this
stage. It is their intention to table a revised text for the whole
programme for Partial General Approach at the 13 March Competitiveness
Council. They will then work towards agreeing budget priorities
and making any further related textual amendments in the spring
with the aim of reaching Political Agreement at either the May
or possible June Competitiveness Council. Currently, the Austrians
have successfully taken forward all of the recommended amendments
called for in the UK Presidency's progress report. "Negotiations
on amendments are ongoing and we will not see a final version
until early March". He is "hopeful that we will see
a revised text that the UK can support".
Conclusion
9.25 We are very grateful to the Minister for
this exhaustive and thorough Report, in which he persuasively
argues the case for the CIP — one which, incidentally, would
seem to be reinforced by developments in the USA, where the recent
National Innovation Act and its proposed President's Council for
Innovation indicates a continuing endorsement of the role of public
policy and funding in integrating research, innovation and small
and medium sized business.
9.26 It is also clear that the UK Presidency has
been used to good effect in giving effect to the sort of CIP that
we, and clearly he, had in mind when first confronted by the Commission
proposal. Even so, it is still not entirely clear, despite the
examples given in the Presidency paper, how complementarity will
be achieved, and overlap avoided, between the Structural Funds,
the 7th RTD Framework Programme and the CIP, when the
scope of the European Regional Development Fund and the CIP are
so similar.[38]
9.27 Against this background, we do not object
to the Minister participating in the Partial General Approach,
on the condition that the budgetary provisions remain under scrutiny
and are excluded from the General Approach, and that he provides
further progress reports. We should be grateful if such reports
would bring us up to date on the various outstanding issues which
remain under negotiation or are still subject to further clarification
regarding the final size and shape of the programme, and any further
measures to ensure complementarity and avoid overlap with other
instruments.
9.28 In the meantime, we shall keep the document
under scrutiny.
29 COM(2005) 24. Back
30
8081/05; COM (2005) 121, page 2. Back
31
Modinis provides financial support for the implementation of the
eEurope 2005 Action Plan: monitoring and comparison of performance;
dissemination of good practice; analysis and strategic discussion
and the improvement of network and information security. eTEN
is the European Community Programme designed to help the deployment
of telecommunication networks based services (e-services) with
a trans-European dimension, focussing strongly on public services.
eContent is a market oriented programme which aims to support
the production, use and distribution of European digital content
and to promote linguistic and cultural diversity on the global
networks. Back
32
The European Investment Fund (EIF) is the specialist risk capital
arm of the European Investment Bank (EIB), with a specific remit
to support the creation, growth and development of Small and Medium-sized
Enterprises. Its tripartite shareholding includes the EIB, the
European Union represented by the European Commission, and a number
of European banks and financial institutions. It intervenes mainly
by means of risk capital and guarantee instruments, either drawn
from its own funds or within the framework of mandates entrusted
to it by the EIB or the European Union. Back
33
8081/05; COM (2005) 121, page 8. Back
34
8081/05; COM (2005) 121, page 10. Back
35
8081/05; COM (2005) 121, page 12. Back
36
See headnote. Back
37
And debated in the European Standing Committee on 8 November 2005.
Back
38
See HC 42-xxxii (2003-04), para 10 (13 October 2004) for our consideration
of the Commission's proposals for the Structural and Cohesion
Funds in 2007-13, including the ERDF. Back
| 
