Documents considered by the Committee on 9 November - European Scrutiny Committee Contents

1 EU Structural and Cohesion Funds



COM(11) 615

+ ADDs 1-4

Draft Regulation of the European Parliament and Council laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund covered by the Common Strategic Framework and laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1083/2006

Commission staff working papers

Legal baseArticle 177 TFEU; co-decision; QMV
Document originated6 October 2011
Deposited in Parliament13 October 2011
DepartmentBusiness, Innovation and Skills
Basis of considerationEM of 2 November 2011
Previous Committee ReportNone
Discussion in Council16 December 2011
Committee's assessmentPolitically important
Committee's decisionFor debate in European Committee C


1.1 One of the objectives of the European Union is to "promote economic, social and territorial cohesion, and solidarity among Member States."[1] Successive enlargements of the EU have significantly increased differences in levels of development against a variety of economic and social indicators. The EU's cohesion policy seeks to reduce these disparities by using the EU's Structural and Cohesion Funds to provide targeted financial assistance to Member States and their regions. These Funds account for more than one third of the EU's budget and amount to €347 billion for the period 2007-13.[2] They comprise the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund.

1.2 The current objectives of EU cohesion policy are set out in a Regulation adopted in 2006.[3] Most of the Funds (€212 billion for 2007-13) are earmarked for programmes supporting the Convergence objective. This objective seeks to increase the competiveness of the least-developed regions (those where GDP per head is less than 75% of the EU average) through higher growth, productivity and rates of employment. The remaining Funds are divided between the Regional Competitiveness and Employment objective (€55 billion), which promotes growth and employment in regions not covered by the Convergence objective, and the European Territorial Cooperation objective (€7.8 billion) which encourages cross-border cooperation. The Cohesion Fund provides nearly €70 billion to support investment in transport and environmental infrastructure in the 15 Member States (not including the UK) which currently have a GDP per head of less than 90% of the EU average.

1.3 In November 2010, the Commission published a Communication on the future of EU cohesion policy which highlighted the challenges facing the EU in light of a deep economic crisis, rising unemployment and poverty, and the need to switch to a low-carbon economy. It proposed a number of significant reforms to EU cohesion policy which, if agreed, would take effect in the next financial period (2014-20). These included a greater concentration of resources on the objectives and headline targets set out in the Europe 2020 Strategy on jobs and growth, a clearer focus on delivery and results, stronger economic conditionality, and more effective monitoring and evaluation systems.[4]

The draft Regulation

1.4 The draft Regulation is one of a package of measures proposed by the Commission to align expenditure for the EU's cohesion policy with the objectives and headline targets set out in the Europe 2020 Strategy.

1.5 The draft Regulation is based on Article 177 of the Treaty on the Functioning of the European Union (TFEU) which provides for the adoption of EU Regulations to "define the tasks, priority objectives and the organisation" of the Structural and Cohesion Funds as well as "the general rules applicable to them and the provisions necessary to ensure their effectiveness and the coordination of the Funds with one another and with other existing financial instruments." It would repeal the 2006 Regulation and establish new objectives for EU cohesion policy during the next financial period from 2014-20.

1.6 The draft Regulation proposes the creation of a Common Strategic Framework ("CSF") to govern the EU's existing Structural and Cohesion Funds (the ERDF, ESF and Cohesion Fund) as well as the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF). These funds are referred to collectively as the "CSF Funds" and Part Two of the draft Regulation sets out the common provisions which apply to all of them. Part Three of the draft Regulation establishes the general provisions which apply only to the ERDF, ESF and the Cohesion Fund. More detailed provisions for each of the CSF Funds will be included in separate Regulations.

1.7 The Commission says that its proposal follows a process of extensive consultation with stakeholders, including Member States, regions, social and economic partners, academics and international institutions which indicated that there was a need to:

  • focus on fewer, more strategic objectives which are in line with the Europe 2020 Strategy;
  • concentrate resources on developing the conditions for sustainable development and growth;
  • improve coordination between the different Funds and other EU policies and financial instruments and ensure that they complement each other;
  • set clear and measurable targets and improve monitoring and evaluation systems; and
  • seek to reduce administrative costs and burdens while also minimising the risk to the EU budget.

1.8 The Commission notes that its proposal for the next EU Multiannual Financial Framework suggests a total allocation of €376 billion for economic, social and territorial cohesion for the period 2014-20, broken down as follows:

  • €162.6 billion for the less-developed regions;
  • €53.1 billion for the more developed regions;
  • €38.9 billion for in-between (transition) regions;
  • €11.7 billion for territorial cooperation;
  • €68.7 for the Cohesion Fund;
  • €0.926 billion for outermost and sparsely populated regions; and
  • €40 billion for a new transport, energy and ICT Connecting Europe Facility.[5]

This global figure does not include financial assistance under the EAFRD and the EMFF for rural development and fisheries.

Part Two of the draft Regulation — common provisions applicable to the CSF Funds

1.9 The draft Regulation sets out a number of common principles which underpin the provision of CSF Funds and identifies eleven broad thematic objectives which the Funds are intended to support. The principles include a commitment to:

  • work in partnership with a broad range of stakeholders in order to develop, implement, monitor and evaluate national programmes which are financed by CSF Funds—the Commission may produce a European code of conduct to provide guidance on implementing the partnership principle;[6]
  • promote gender equality and prevent discrimination on grounds of sex, race, ethnic origin, religion or belief, disability, age or sexual orientation; and
  • ensure that CSF Funds are used for sustainable development and to protect and improve the environment.

1.10 The thematic objectives are all designed to support the EU's Europe 2020 Strategy and focus on investment in education, research and innovation; ICT; competiveness; resource efficiency and the transition to a low-carbon economy; sustainable development; employment and labour mobility; social inclusion and measures to tackle poverty; and more efficient public administration. Suggested priority actions for achieving these objectives will be set out in separate Regulations establishing specific rules for each CSF Fund.

1.11 In order to provide a more strategic framework for implementing the thematic objectives, the Commission says that it will propose a Common Strategic Framework which will highlight the "key actions" which each CSF Fund is intended to support. This Common Strategic Framework will provide the basis for each Member State to develop its own Partnership Contract, agreed with the Commission, setting out how it intends to use CSF Funds to achieve the thematic objectives. The Partnership Contracts will, in turn, provide the framework for the development of operational programmes containing detailed information on how EU Structural and Cohesion Funds are to be utilised in a given region.

1.12 The draft Regulation includes a number of conditionality provisions which are intended to create incentives for Member States to establish the necessary policy, regulatory or institutional conditions at a national level to ensure that programmes supported by CSF Funds deliver the Europe 2020 objectives and targets. So, for example, Member States must ensure that their Partnership Contracts are consistent with the EU's integrated guidelines on economic and employment policy. They must also include a "performance framework" establishing clear and measurable targets for different stages of the programming period.

1.13 Attainment of these targets is linked to the introduction of a new "performance reserve." The draft Regulation specifies that 5% of the total allocation for each Member State (by category of region and by Fund) must be set aside and then allocated, following a mid-term performance review, to programmes which have successfully met their targets. A failure to meet the targets set out in each Member State's performance framework may lead to a suspension or cancellation of payments from the CSF Funds.

1.14 In addition, the draft Regulation seeks to establish a much closer linkage between EU cohesion policy and economic governance, on the grounds that sound economic policies are essential to ensure that CSF Funds are spent effectively. So, for example, the Commission may ask a Member State to amend its Partnership Contract to bring it into line with recommendations issued within the framework of the EU's broad economic or employment guidelines or excessive deficit procedure, and may suspend CSF payments if a Member State fails to do so. In some cases, some or all of a Member State's CSF payments must be suspended until it has taken effective action to correct macroeconomic imbalances. However, any suspension of payments must be "proportionate and effective" and take into account the economic and social circumstances of the Member State concerned.

1.15 The power to suspend payments is complemented by a provision enabling Member States to request an increase of 10% in the EU's contribution to their CSF programmes if they are experiencing temporary liquidity problems and are receiving assistance from one of the EU's financial support mechanisms.

1.16 The draft Regulation includes provision for CSF Funds to support community-led local development involving coalitions of local action groups, and seeks to simplify and streamline rules concerning eligibility for CSF Funds, financial management, and monitoring and evaluation of the use of CSF Funds. It also proposes greater flexibility to invest CSF Funds in a broader range of innovative financial instruments, as a means of leveraging additional sources of funding.

Part Three of the draft Regulation — general provisions applicable to the European Regional Development Fund, the European Social Fund and the Cohesion Fund

1.17 Part Three of the draft Regulation focuses specifically on the objectives of EU cohesion policy, as implemented through the EU's Structural Funds — the European Regional Development Fund (ERDF) and the European Social Fund (ESF) — and the Cohesion Fund, and includes provisions on the geographical coverage of support, financial assistance, monitoring and evaluation, and management and control systems.

1.18 The draft Regulation proposes two objectives for EU cohesion policy:

  • Investment for growth and jobs, to be supported by all three Funds, and accounting for 96.52% of the available resources (€324 billion); and
  • European territorial cooperation, to be supported exclusively by the ERDF, and accounting for 3.48% of the available resources (€11.7 billion).

1.19 All Member States and regions would qualify for support from the ERDF and ESF, but the levels of support would vary according to GDP levels. The draft Regulation identifies three categories of regions:

  • Less developed regions with a GDP per capita of less than 75% of the average EU-27 GDP — these regions would receive the bulk of EU funds (just over 50%, or €162.6 billion);
  • Transition regions with a GDP per capita between 75-90% of the average EU-27 GDP — these regions would receive around 12% of EU funds (€38.9 billion); and
  • More developed regions with a GDP per capita above 90% of the average EU-27 GDP — these regions would receive just over 16% of EU funds (€53.1 billion).

1.20 A safety net provision seeks to ensure that regions which are eligible for assistance under the Convergence objective in the current period (2007-13), but whose GDP per capita exceeds 75% of the GDP average across 27 Member States, would receive a Structural Funds allocation for 2014-20 equal to at least two-thirds of their 2007-13 allocation.

1.21 The draft Regulation proposes ring-fencing a proportion of Structural Fund resources for allocation to the ESF, with the proportion rising from 25% for less developed regions to 52% for the more developed regions to help tackle "social polarisation" resulting from the economic downturn.[7] This is intended to ensure that at least 25% of the EU's cohesion policy budget — or €84 billion — is allocated to the ESF. This figure would include €2.5 billion for the EU's "food for deprived people" programme which is currently funded under the EU's Common Agricultural Policy.

1.22 The Cohesion Fund would account for 21.19% (or €68.7 billion) of available resources and would continue to support Member States whose gross national income (GNI) per capita is less than 90% of the EU-27 average. The draft Regulation proposes ring-fencing €10 billion of this sum to help fund transport infrastructure projects under a new Connecting Europe Facility.

1.23 The draft Regulation maintains the principle of co-financing, with better-off Member States expected to make a higher contribution (50%) than poorer Member States (15%). The Commission also intends to cap Structural and Cohesion Fund receipts at 2.5% of a Member State's GNI, not least to make it easier for Member States to absorb structural funding and raise the necessary co-financing.[8]

1.24 The draft Regulation includes detailed provisions on the content and adoption of operational programmes which implement the Funds at a regional level and which should be based on a model to be developed by the Commission. There is flexibility to combine the Funds in multi-funded programmes in order to harness resources to Europe 2020 objectives and national and regional growth plans.

1.25 The Commission proposes two new instruments — joint action plans and integrated territorial investments — which seek to gear funding towards the achievement of specific outputs and results and to provide integrated funding for challenges affecting particular functional economic areas, such as cities. The draft Regulation also seeks to simplify and streamline rules on eligibility for funding and to ensure that financial management and control provisions are proportionate.

The Government's view

1.26 The Minister of State for Business and Enterprise (Mr Mark Prisk) notes that the draft Regulation establishes common provisions for all of the CSF Funds, which include the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund, and says that the Government will raise with the Commission the need to include additional legal bases to cover the specific objectives of these two funds.

1.27 The Minister explains that the budgetary aspects of the draft Regulation will be considered as part of a much broader negotiation on the EU's overall budget for the period 2014-20. He continues:

    "At a time of major fiscal consolidation for Member States, we need to see similar budget discipline at the EU-level. The maximum acceptable expenditure increase through the next Multiannual Financial Framework overall is a real freeze in payments. Significant reductions are required to the overall SCF [Structural and Cohesion Fund] envelope proposed by the Commission to achieve this."[9]

1.28 The Government's longer term goal is for richer Member States to fund their own regional policy but the Minister recognises the need for transitional arrangements and accepts that all regions should receive funding for the period 2014-20. He adds, however, that the focus of funding should be on poorer Member States and the burden of reductions should fall on richer ones.

1.29 The Government supports the inclusion of provisions on proportionality, sound financial management and the lessening of administrative burdens, but believes that there is scope to do more. The Government also welcomes the emphasis placed on the principle of partnership, provided that it is sufficiently flexible to reflect national rules and practices and differing institutional and constitutional arrangements across Member States, but questions the need for a Commission code of conduct on the grounds that it might impose excessive requirements on Member States.

1.30 The Government broadly welcomes the Commission's attempts to create a framework providing "a clear line of sight from strategic priorities in the EU 2020 Agenda to the national and regional level" while emphasising the need to ensure that the development of a Common Strategic Framework and individual Partnership Contracts with each Member State does not generate excessive bureaucracy or burdens.[10] The Minister notes that "the separate processes and timeframes for developing the Common Strategic Framework, Partnership Contract and Operational Programmes will need to run concurrently" if programmes are to start promptly in 2014, and that too much over-specification of detail "at the top of the strategic tree" may result in delays.[11]

1.31 Turning to the development of operational programmes to implement CSF Funds within the UK, the Minister explains that arrangements will need to be consistent with "the new economic development landscapes in England, Scotland, Wales and Northern Ireland." He continues:

    "Economic development and the management of European structural funds are devolved functions for Scotland, Wales and Northern Ireland; all of which have separate programmes for Government and economic development approaches. England's new approach features the introduction of bottom-up Local Enterprise Partnerships and greater roles for cities, and national programmes for employment and skills. The Regulations, including provisions for the Partnership Contract, will need to contain sufficient flexibility to reflect these considerations. The UK believes the Partnership Contract has to be at Member State level to reflect properly the connection to National Reform Programmes, the Country specific recommendations and the integrated guidelines for Employment."[12]

1.32 The Minister says that the Government will examine closely the Commission's proposals for macroeconomic conditionality, but is clear that any conditionality related to the Excessive Debt Procedure cannot apply to the UK as Protocol No. 15 (which sets out the UK's opt out from the single currency) disapplies the Treaty provision authorising the Council to sanction a Member State which has failed to take effective action to reduce its deficit.

1.33 More generally, the Government will seek to ensure that conditionality provisions respect the principles of subsidiarity and proportionality, especially in areas such as education and employment in which competence rests primarily with Member States. The Government will also consider whether provisions conferring powers on the Commission to adopt delegated or implementing acts are appropriate.

1.34 The Government questions the feasibility of redistributing the 5% performance reserve to the best performing programmes at a relatively late stage in the programming cycle (after a review in 2019). The Minister suggests that the proposal to ring-fence part of each Member States' Structural Fund allocation to fund ESF programmes may make it harder to base investment decisions on a thorough assessment of the needs of Member States and regions. He sees little added value in the Food for Deprived Persons Programme, doubts whether it fits with ESF objectives, and believes that the aims of the Programme can be better achieved by Member States.

1.35 The Minister notes that the proposed new Joint Action Plans are optional and supports the focus on payment by results but suggests that the process for developing the plans may be too complex and bureaucratic. He considers that the proposed integrated territorial investment instruments offer interesting opportunities for more strategic programming, but adds that their use should also be optional.

1.36 Finally, the Minister says that the Government will launch a further consultation on the draft Regulation and the various sectoral Regulations accompanying it. The Minister expects negotiations to continue during 2012 and indicates that final agreement is only likely to be reached once the EU's Multiannual Financial Framework for 2014-20 has been settled.

1.37 The Minister's Explanatory Memorandum is accompanied by a check list which provides a preliminary assessment of the draft Regulation's implications for the UK. This suggests (on the basis of the latest GDP figures for 2006-08) that only one UK region — West Wales and the Valleys — will be categorised as a less developed region for the period 2014-20 as its GDP per capita is less than 75% of the EU average. Nine UK regions have a per capita GDP between 75% and 90% of the EU average and may therefore be categorised as transition regions. These are Cumbria (90%), Devon (90%), South Yorkshire (89%), Shropshire and Staffordshire (89%), the Highlands and Islands (88%), Merseyside (83%), Lincolnshire (83%), Tees Valley and Durham (82%), and Cornwall and the Isles of Scilly (76%). Those with a lower GDP per capita would receive proportionally more of the budget for this category of regions. All the remaining UK regions would be categorised as more developed regions.

1.38 In determining the final categorisation of regions for the 2014-20 period, the Commission is likely to use more up-to-date GDP figures which could mean that some UK regions — especially those close to the boundaries for transition regions — could move to a different category. The check list notes that, in comparison with structural funding for 2007-13, per capita funding is likely to increase from €187.9 to €193.9 for less developed regions (West Wales and the Valleys) during 2014-20 but to decrease from €105.6 to €70.4 for transition regions. Per capita funding for more developed regions is likely to increase from €21.4 to €25.5.

1.39 The check list indicates that the UK is likely to remain a net contributor to EU cohesion policy during the period 2014-20. EU Structural Funds will contribute a maximum of 50% of eligible expenditure in more developed UK regions, 60% in transition regions and 75-85% in less developed regions, with the remaining funds to be provided from other public or private sources. Whilst evidence to date indicates that Structural Funds have been very successful in raising match funding, the current economic climate may constrain the ability of Member States and private sector bodies to continue to do so.


1.40 Under the Commission's proposals for the next Multiannual Financial Framework, EU expenditure to support the objective of economic, social and territorial cohesion would continue to account for approximately one third of the EU's total budget for the period 2014-20. It is, therefore, not surprising that the Government believes that significant reductions will be needed in the level of expenditure proposed for EU Structural and Cohesion Funds in the draft Regulation if the objective of an overall real freeze in payments is to be achieved.

1.41 Whilst the Government welcomes efforts to concentrate funding on the strategic priorities identified in the Europe 2020 Strategy, to simplify the operation of the Funds and to reduce administrative burdens, it clearly has reservations about the Commission's proposals to apply increased conditionalities to the receipt and use of Structural and Cohesion Funds and highlights the risk that too much top-down control may reduce the flexibility available to Member States and regions to make investment decisions based on an assessment of need.

1.42 We welcome the fact that the Government intends to consult fully on the draft Regulation and accompanying measures and look forward to receiving further information on the outcome of that consultation. However, we think that a debate in European Committee is merited at this stage in order to consider the size of the budget proposed in light of the current economic climate, as well as the concerns highlighted in the Minister's Explanatory Memorandum.

1   See Article 3(3) of the Treaty on the European Union.  Back

2   The current conversion rate is €1 = £0.8731.  Back

3   Council Regulation (EC) No 1083/2006, OJ No. L 210, 31.07.2006, pp. 25-78. Back

4   (32199): see HC 428-xi (2010-11), chapter 6 (15 December 2010) and HC 428-xviii (2010-11), chapter 6 (2 March 2011). Back

5   See p. 6, para 4 of the Commission's explanatory memorandum.  Back

6   Article 5 of the draft Regulation identifies the following partners: regional, local, urban and other public authorities; economic and social partners; and representatives of civil society, including environmental and non-governmental organisations, as well as bodies responsible for promoting equality and non-discrimination.  Back

7   See p. 11 of the Commission's explanatory memorandum.  Back

8   See (32994), HC 428-xxxv (2010-12), chapter 1 (7 September 2011)-Commission Communication, A Budget for Europe 2020-Part II, Policy Fiches, p. 24.  Back

9   See para 24 of the Minister's Explanatory Memorandum.  Back

10   See para 28 of the Minister's Explanatory Memorandum.  Back

11   See para 29 of the Minister's Explanatory Memorandum. Back

12   See para 30 of the Minister's Explanatory Memorandum. Back

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Prepared 18 November 2011