European Regional Development Fund

Written evidence submitted by the Industrial Communities Alliance

Summary

· Britain’s older industrial areas are major beneficiaries from ERDF funding, which plays a significant role in overall regeneration efforts

· The Alliance, which represent local authorities across industrial Britain, strongly supports the basic principles of European cohesion policy

· At the present time, the Alliance is sceptical about the merits of ‘repatriation’ of ERDF funds to the UK

· There are serious problems with the delivery of ERDF funding in England in the present spending round, arising particularly from the demise of the RDAs

· At a time of flagging economic growth and weak public finances, the money available from ERDF is a key tool to promote recovery in the regions. Every effort should be made to deliver good quality projects, find matching finance and eliminate the risk of underspend

· The Alliance strongly supports the introduction of a ‘transition’ category of regions in the 2014-20 spending round

· A regional management structure for ERDF funding to the English regions continues to have clear benefits and should be maintained beyond 2013

Industrial Communities Alliance

The Industrial Communities Alliance is the all-party association of local authorities in the older industrial areas of England, Scotland and Wales.

The Alliance was formed in 2007 by the merger of the longer-established associations representing coal and steel areas and includes a wide range of other industrial areas. Over sixty local authorities are currently members. The role of the Alliance is to press for policies and funding streams that deliver economic, social and environmental regeneration in the areas represented by its member authorities.

Alliance local authorities cover many of the parts of Britain that have traditionally been the prime targets of EU regional aid.

The Alliance and its predecessor bodies have therefore been especially closely engaged with EU funding since at least the late 1980s. Outside central government, the experience in dealing with ERDF issues within Alliance authorities is arguably second to none.

ERDF funding: an overall perspective

Taking the long view, the financial support from the European Regional Development Fund (ERDF) has been of immense importance to the regeneration of many of Britain’s older industrial areas.

The precise impact is hard to measure, in part because ERDF has mostly worked alongside activities supported by central and local government. However, overall employment in the assisted regions, and the volume of economic activity, is unquestionably higher than would have been the case in the absence of ERDF funding. In many parts of Britain there are now layers of investment – in roads, sites and premises, and business support – that owe something to ERDF funding.

The Alliance and its member authorities therefore strongly support the basic principles of European cohesion policy. They also support the principle that EU funding should be directed to the weaker regions across Europe as a whole, and towards the less prosperous regions within each member state.

The possible repatriation of ERDF funding

The Alliance is aware that there is an on-going debate about the extent to which EU regional aid should be ‘repatriated’ to richer member states like the UK. The argument is that it is bureaucratic and inefficient to route funding from London to Brussels and thence to the UK regions. The funding could instead be allocated directly from London, and tailored more closely to UK concerns.

When the case for repatriation was first put forward by the UK government, in the negotiations leading up to the 2007-13 spending round, the Alliance neither supported nor opposed the idea. If the ‘guarantees’ from the Westminster government had been sufficient, there was no reason to suppose that there would have been a net loss to the UK regions. In the event, the idea did not win sufficient support from other member states to become a realistic option.

The Alliance was initially attracted to supporting repatriation in the 2014-20 round, provided sufficient guarantees were in place. This view was conveyed to government officials. However, the UK government’s assessment – probably correct – was that there was insufficient support elsewhere in the EU to win the argument and, by and large, it has been quietly dropped in favour of other priorities.

However, circumstances have also changed. The acute squeeze on public spending in the UK now gives no confidence that any funds retained in the UK, rather than paid over to Brussels, would actually be spent on UK regional development. Moreover, the UK would still remain a net contributor to EU regional policy even if the aid were focussed exclusively on the poorest member states.

There is also a concern about timescales. EU funding is typically committed on a seven-year cycle, whereas UK public spending usually operates on a three-to-four year cycle. Inherently, this weakens the value of UK government guarantees to the regions because it makes it difficult, if not impossible, to give guarantees beyond the end of the current public spending round.

At the present time, the Alliance is therefore sceptical about the merits of repatriation of ERDF funds to the UK.

If the UK government, other member states or the EU institutions, wished to revisit the notion of repatriation the Alliance would no doubt maintain its view that the UK regions should not be left worse off if the source of the funding for regional development were to change.

Management of the current 2007-13 spending round

There are serious problems with the delivery of ERDF funding in the present 2007-13 spending round. The problems mostly relate to England.

The Alliance became alert in early 2011 to serious difficulties in delivering the current round of ERDF funding in England. At that time there was still over £1.3bn of ERDF funding contractually uncommitted in the English regions. The concern was that following the abolition of the Regional Development Agencies (RDAs) the main source of matching finance for ERDF funding in England had disappeared. Without matching finance – a minimum of 50 per cent is required in most of England – the money would not be drawn down from Brussels. These concerns were known to be shared by the European Commission.

Indeed, between April and September 2011 progress in allocating ERDF funds in England effectively stalled – only £87m of additional ERDF funding was contractually committed.

The sources of matching finance have all but dried up: the RDAs have been wound up; Local Enterprise Partnerships (LEPs) don’t have significant funding streams of their own; local authorities have little cash because their own funding is being cut and other public sector bodies – the university sector for example – are also facing reduced budgets. EU rules don’t allow ERDF monies to be handed over directly to profit-making companies, so the private sector is largely ruled out as a source of matching finance.

The Alliance was particularly active in highlighting this problem, which primarily manifest itself as a potential underspend in the North and Midlands. The problem is distinctly English – in Scotland and Wales, where there has not been a similar institutional upheaval – a far higher proportion of ERDF funds are contractually committed at this stage.

There is some evidence that the problem eased in the final three months of 2011, perhaps as the new post-RDA administrative arrangements for ERDF bedded in. However, the latest figures available to the Alliance (for January 2012) still show £1.05bn contractually uncommitted in England.

The government’s position is that there are sufficient projects ‘in the pipeline’ – £848m worth according to the January figures – to absorb the remaining funding. The on-going worry is that:

· Quite a number of the projects in the pipeline may not be turned into reality, not least because matching finance remains a problem

· The quality of the projects receiving ERDF funding is likely to be compromised now that the shortage of matching finance has seriously curtailed the competition for funding

· Whereas the RDAs were pro-active in encouraging good projects to come forward, this activity seems to have fallen by the wayside

It is clear that CLG – the managing authority for ERDF funding in England – is now alert to the seriousness of the problem. In particular, the Department is promising to publish guidance for partners in the regions on how best to draw down ERDF funding and it is hoped that this will include guidance on the various sources of matching finance available from central government.

Nevertheless, it remains clear that without a major concerted effort much of the ERDF funding currently earmarked to assist economically disadvantaged areas in England could still go unspent. If this were the case, under the terms of the UK rebate agreement two-thirds of the underspend would revert to the Treasury. The Alliance has been assured by CLG Minister, Baroness Hanham, that it is not the government’s intention that any of the monies should go unspent and revert to the Treasury.

At a time of flagging economic growth and weak public finances, the money available from Brussels is a key tool to promote recovery in the regions. Funding allocated to promote growth in England’s weaker regional economies should not be clawed back by the Treasury as result of inaction on the part of other government departments.

The architecture of post-2013 funding

Whilst the architecture for post-2013 EU funding, and the amounts, is not yet finally settled, the likely main parameters are becoming clear. Subject to final agreement, there will be:

· A top-priority category of ‘less developed regions’, for which West Wales and the Valleys and Cornwall look likely to qualify, where GDP per head is below 75 per cent of the EU average

· Next in the hierarchy there will be ‘transition regions’, defined as NUTS 2 regions (i.e. sub-regions) where GDP per head is between 75 and 90 per cent of the EU average. On current figures the English regions that would qualify are:

Tees Valley and Durham

Cumbria

Lancashire

Merseyside

E Yorkshire & Northern Lincolnshire

South Yorkshire

Lincolnshire

Shropshire and Staffordshire

Devon

Depending on the final figures, there is a strong possibility that Northumberland and Tyne and Wear will also qualify.

· Beyond these there will be ‘more developed regions’ eligible for the lowest level of aid.

The Alliance strongly supports the introduction of the ‘transition region’ category. It would address the problem that, at present, EU funding does not differentiate between regions just above the 75 per cent threshold and the most prosperous parts of the EU. In some respects it would represent a welcome restoration of the former ‘Objective 2’ category of regions, which until 2006 fulfilled this role.

However, using NUTS 2 units as the building block for mapping transition regions is crude and problematic. It would be better to allocate population coverage and funding to member states on the basis of NUTS 2 data but allow more sophisticated mapping of the target areas.

The UK government’s position on ‘transition regions’ is lukewarm at best. This is disappointing. The fear seems to be that this proposal would add a further claim to the overall EU budget. However, with so many UK regions in line to benefit from transition region status it is unlikely that the UK would be a net financial contributor to this new category of assisted regions.

Future management structures

It seems unlikely, in the context of devolution, that there will be any challenge from Whitehall to the principle that EU funds targeted at Scotland and Wales should remain managed in Scotland and Wales. However in England, with the demise of the Regional Development Agencies, the position is less clear.

The current position for 2007-13, in the wake of RDA closure, is that ten regional programmes in England are managed by separate Local Management Committees, supported administratively by CLG staff based in the regions who were mostly moved across from the RDAs.

Looking ahead, Alliance discussions with officials in BIS, which leads on EU funding to the UK as a whole, suggest that the idea of a single EU funding programme for England is under serious consideration. This is seen as potentially simpler, and as a framework that would facilitate the delivery of matching finance from central government sources.

The Alliance and its member authorities have given careful consideration to alternative management structures for ERDF and concluded that a regional management structure continues to have clear benefits.

· Without regional programmes in England there is no guarantee that money would not leak from North to South, including from Transition regions in the North to Transition regions in the South

· In the absence of regional programmes it would be difficult to skew funding to the North, as at present. In the present Competitiveness Strand programmes, per capita allocations to the northern regions are as much as three times the allocations to the South East. This allocation is entirely justified on the grounds of economic need.

· Running programmes at the level of individual LEPs would be problematic and probably a non-starter. Too many small programmes, too much paperwork, likely opposition from Whitehall etc.

· But LEPs could be formally involved by inclusion on the local management committees

· The administration of the funds could if necessary go to Whitehall, so long as the decision making and financial allocations stayed regional

· Although a single England programme would make it easier to align national and EU funds to provide matching finance, this could equally be achieved by providing much better guidance and advice from the centre to the regions.

The demise of the Regional Development Agencies in the English regions has presented a problem for management of EU funds in the future. There may be an opportunity for streamlining but the structures for management need to have a significant regional input and targeting the areas most in need of support should remain the guiding principle for delivery.

Industrial Communities Alliance

April 2012