European Globalisation Adjustment Fund
The Committee consisted of the following Members:
Alison Groves, Mark Oxborough, Committee Clerk s
† attended the Committee
European Globalisation Adjustment Fund
Penny Mordaunt (Portsmouth North) (Con): It might be helpful to the Committee if I take a few minutes to explain the background to the documents and the reasons why the European Scrutiny Committee recommended them for this debate.
Regulation (EC) No. 1927/2006 established a European globalisation adjustment fund—the EGF—for the duration of the financial programming period 2007 to 2013 that was designed to counterbalance the negative impacts of globalisation. Calls on the fund by member states can be made where major structural changes in world trade patterns lead to serious economic disruption, notably a substantial increase of imports into the EU, a rapid decline in EU market share in a given sector or a delocalisation to third countries. The regulation provided both for annual reports on EGF activity and for a mid-term evaluation of the fund by the Commission. In October 2011, with the draft regulation—the first referred document—the Commission proposed that the EGF be renewed for the duration of the next multiannual financial framework: 2014 to 2020.
Although the EGF was not originally foreseen as a long-term measure, the Commission did not put a substantive argument for continuing the fund into the next MFF. It did, however, make a link to its proposals for the next MFF by placing a focus on active labour market measures aimed at reintegrating dismissed workers rapidly into stable employment and tackling challenges that constitute a serious threat to social cohesion and competitiveness.
The second referred document is the Commission report on EGF activity for 2011. It contains information on applications submitted, decisions adopted or requests refused and actions funded, including the winding-up of financial contributions made. It also gives an internet link to the Commission’s mid-term evaluation of the EGF. Although not intended for this purpose, the information in the report will be used in negotiations on the proposal for the new EGF in the next MFF.
The European Scrutiny Committee shares the Government’s doubts about the value of the EGF and the case for its continuation. Accordingly, we recommended that the draft regulation be debated in this Committee, and we suggested that hon. Members might examine particularly the lack of a proper case in support of extending the EGF into the next MFF period, without a thorough evaluation of the utility of the present fund, and the idea that the next fund should be outside the MFF ceilings. Our doubts about renewal of the EGF
The Minister of State, Department for Work and Pensions (Mr Mark Hoban): It is a pleasure to serve under your chairmanship this afternoon, Ms McIntosh, and also to follow the opening statement given by my hon. Friend—and constituency neighbour—the Member for Portsmouth North.
The EGF was not originally foreseen as being a long-term measure and the Government do not believe that the Commission has made a substantive argument for continuing the fund into the next multiannual financial framework. Indeed, we are part of a blocking minority opposed to it. The Commission has tried to make links back to the goal of growth under Europe 2020 by emphasising that the fund can be used to finance the reintegration of dismissed workers rapidly into stable employment and to tackle challenges that constitute a serious threat to social cohesion and competitiveness. However, the EGF is by nature about one-off solutions and not long-term sustainability, whereas the more significant problem for the EU on the employment front is the large stock of long-term unemployed with more young people at risk.
The Government have been open in our opposition to the EGF’s extension, primarily because it is an inefficient way to help those at risk of unemployment or those made unemployed as a result of large redundancies. Only one in 10 cases of redundancy are caused by globalisation; the rest are caused by corporate and commercial decisions, and there are adverse consequences to using EU funds to compensate for restructuring more broadly. The Government believe that other instruments, such as the European social fund, are more suitable for improving the capacity of national institutions and programmes to manage labour market shocks.
Moreover, the Government have been clear that we want real policy results and budgetary restraint in the EU to avoid unaffordable costs to the UK. To deliver that goal, the Government are committed to reducing waste and inefficiency and to ensuring that EU funds deliver the best possible value for money for taxpayers. As part of that, EU expenditure must be closely scrutinised. The Commission’s annual report on EGF cases raises a number of concerns, including the poor return on EGF investments, the lack of proof that EGF interventions lead to greater employment in the medium to long term, the low number of applications from, and subsequent grants to, the newer member states and the significant variation in the amount of funding requested per worker across applications.
The EGF is funded not through its own budget line, but through transfers from other budgets. In 2011, the amount transferred to the EGF was double the original budget. That indicates poor financial forecasting and that the original budget allocations failed to provide adequate constraint on in-year spending. In the EGF
The Government’s position is clear. We do not believe that the scheme represents an effective use of resources; it did not in this financial framework, and it should not be included in the next financial framework.
The Chair: We now have until 5.30 pm for questions to the Minister. I remind hon. Members that questions should be brief. It is open for hon. Members, subject to my discretion, to ask related supplementary questions.
First, will the Minister tell us more about what the EGF was used for in 2012? We have quite a lot of information in front of us about what was happening in 2011—people were made redundant from a motorcycle factory in Emilia-Romagna and by a shoe manufacturer in Valencia and others—but will he tell us a little more about what has happened in 2012? I think I saw somewhere that the EGF was oversubscribed, and the Minister mentioned an increase in the number of applications.
Secondly, will the Minister say a little more about why the UK has never applied to the fund? That is not a partisan question; the previous Government did not apply either. Is there something in the conditions for funding under the EGF or some other aspect that makes it either inaccessible or unattractive to successive UK Governments? Can the Minister cast any light on that?
Mr Hoban: I am in a happy position, because I dealt with the individual applications when I was a Treasury Minister and now lead on this policy in the Department for Work and Pensions. Let me point the right hon. Gentleman to various explanatory memorandums that I signed this year, and let me give some examples of bids made to the fund by different member states. For example, I know of one connected to Ireland and the TalkTalk pull-out and of one in Spain, where an application for €2 million, of which some 65% was to come from the European Union, was made to the Commission on 28 December 2011 for construction in Aragon. Several applications have been made.
The right hon. Gentleman also asked why the UK has not been involved. The reality is that a bid for EGF money must be in addition to the resources that the member state devotes to tackling large-scale redundancies. As he will be aware, in the early part of the last decade, a rapid reaction service was set up involving the DWP and the Department for Business, Innovation and Skills. That is deployed where large-scale redundancies take place; it is, sadly, a well practised procedure. Because those resources are in place, it has never been felt that a persuasive argument could be made for a UK application to the EGF, notwithstanding our broader concerns about whether it is an appropriate use of money.
Stephen Timms: I am grateful to the Minister for that explanation. Will he explain whether to apply to the EGF is a decision for the Government or the enterprise concerned? For example, I am interested in the case of the Redcar blast furnace, where the possibility of an application to the EGF was certainly discussed. In that instance, it appears that it was the company that decided not to proceed.
Another example that has been raised with me is the recent announcement about the closure of the Ford plant in Southampton. That seems to be the kind of thing that the EGF has been used for in the past. Is it a decision for the Government or the individual company concerned?
Mr Hoban: Certainly, we hope that where large-scale redundancies take place the employer will play a part in trying to mitigate the impact. That is certainly the case with Ford in Southampton, which is in the constituency adjacent to mine. Ultimately, it is a decision for Government to make these applications, not the employer who is launching a significant redundancy programme.
Stephen Timms: In the case of the Redcar blast furnace, I think that I am right in saying that the previous Government offered a significant sum—about £60 million—to help there. The new Government, on election, reduced that substantially. I wonder whether the funding could have been increased by applying to the EGF.
I would like to ask about a second issue. There is a suggestion in the documentation that if, as the Government would like, the EGF is absorbed into the European social fund, the process could be speeded up. I am puzzled by that. It has never been my impression that the ESF is a particularly speedy mechanism. Will the Minister comment on whether that is right and all this could happen faster if only it were part of the ESF?
Mr Hoban: Just to go back to the Redcar point, as I am sure the hon. Member for Middlesbrough South and East Cleveland will be aware, the Redcar plant was sold and is now under new ownership. That has been a tremendous boost to the economy on Teesside.
The social fund has been a mechanism for delivering employment support across the EU. There are fairly sound mechanisms in place to ensure that the bids are dealt with reasonably smoothly. It would be better for that route to be followed. The point that ought to be made is that countries already have ESF programmes available to them. We have one in the UK that we are using. In a way, the money is already there. Separate applications must be made to the Commission for funds. In a sense, there is a facility on stand-by in-country. That makes it easier to access those funds, as long as the application is in line with the rules set out for the use of the social fund.
Stephen Timms: I am grateful for that. It is surely the case that ESF programmes are committed to specified purposes set out before the funding is provided. It is difficult to see how, in the event of the closure of a Ford plant or a blast furnace, the European social fund could step in to provide the kind of support that EGF appears to be doing, not in the UK but elsewhere.
Mr Hoban: I disagree with that point. My experience in the Department over recent months is that while there is an overall allocation towards the European social fund, it is not committed for the full period of a multi-annual financial framework. There are opportunities to use it to fund different projects; in fact, in the next few days we will launch a project in London that is partly funded by ESF money. There is some flexibility, which is why it is an appropriate alternative channel to the EGF.
Mr Hoban: As long as it is in line with the ESF, I think that it is possible. Of course, the EGF is, in effect, funded from unspent ESF money. That indicates that what we are doing with the EGF puts in an extra step for access to that funding. The EGF is there to access unspent funds and, as I said in my opening remarks, the fact that last year the Commission had to double the amount of money going into EGF in comparison to regional allocation demonstrates that the flexibility is there for unspent ESF funds.
Stephen Timms: I asked earlier about what the fund had done in 2012. I think the one or two examples the Minister gave were from 2011, but I want to ask about one of the 2011 cases. We are told that one use of the fund—indeed, the one where the highest amount per person was disbursed—was the case of social workers in Austria. I wonder how redundancies of social workers in Austria can be regarded as a consequence of globalisation. Could the Minister shed any light on that?
Mr Hoban: No, the example speaks for itself as to why there are so many concerns about this and why we were able to establish a blocking minority on it as part of the 2014-2020 EGF discussions. There was significant concern, and as the right hon. Gentleman will be aware, decisions on budgetary matters are made by qualified majority voting, not unanimity, so if member states have to support such a decision, they will.
Stephen Timms: Can the Minister list which other countries in the list of 10—I think—oppose the Commission’s proposal? In his opening remarks he said that the blocking minority is holding, but how confident is he that that will continue to be the case throughout the ongoing discussions on this part of the budget?
Mr Hoban: When we discussed the EGF in the General Affairs Council, the minute that we signed was co-signed by the Czech Republic, Estonia, Germany, Latvia, the Netherlands, Slovakia and Sweden. That demonstrates quite a good blocking minority and an interesting collection of member states. Some states, such as ourselves, the Dutch, the Swedes and the Germans are those who took a responsible fiscal position on the EU budget financial framework. People may be surprised that the Czech Republic, Latvia, Slovakia and Estonia signed, but the design of the EGF benefits large member states to the detriment of smaller member states who see ESF
Stephen Timms: I have one more question. In the impact assessment, annex 6 sets out various evaluation studies that have been carried out. It struck me that while there are quite a lot of studies on the European social fund, there did not appear to be any, or at least none listed in the annex, specifically on the EGF. It is on page 147 of the bundle. I wonder whether the programme has not been carefully evaluated in the four years or so that it has been running, or whether there has been evaluation, but it is not listed in the document.
Mr Hoban: The right hon. Gentleman makes an important point, and he is right to identify the rather sparse nature of evaluations of the EGF. In December 2011, a mid-term evaluation was published by GHK, a private consultancy, not by the Commission. That mid-term review looked at 15 cases between January 2007 and April 2009, and the findings were unsurprising. I know that the right hon. Gentleman takes a close interest in evaluations and statistics, but the sample of 15 cases was too small to draw any conclusions from, and GHK said in a report that tried to be positive and upbeat about the EGF that the application process was too slow to be effective, that more needed to be done to raise the EGF’s profile, that the EGF had a hard-to-help-beneficiary profile, but that two thirds of the cases failed to reach the re-employment rate of 50%.
Rory Stewart (Penrith and The Border) (Con): Will the Minister provide clarification? The problem with the fund seems to be not the principle of transition funding, but that the fund has poorly defined criteria, and that the whole notion of globalisation is not properly worked out, and is perversely applied, as in the Austrian 2011 example. The real reason why we should focus more on the European social fund than on domestic sources of funding is that the best part of the fund’s objectives—transitional support for workers in industries that are facing challenges—can be better achieved through the latter methods, and that keeping the fund in operation is both logically implausible and practically noxious.
Mr Hoban: The challenge is that the fund has not proved effective. From our perspective, and the reason why the UK has not made any applications is that a well organised public employment service should have arrangements in place to ensure that when a large number of employees are affected by a redundancy programme there is adequate retraining, and support to ensure that relevant vacancies are found locally; there should be well constructed mechanisms to enable a rapid response to those situations.
The broader point about transition, which is part of the whole Europe 2020 process, is that there is a range of policy levers out there, some of which are in labour markets and some are in other areas, that should encourage Europe to move to a much higher growth trajectory where the relevant support interventions are in place. The European social fund—the structural fund—may be part of that, but national Governments, as well as the Commission, can make policy changes to reduce the
The EGF was initially designed to provide support when companies or employers had suffered as a result of globalisation, however that is determined. It was then extended to support workers made redundant as a direct consequence of the financial and economic crisis, which is a much bigger ask, going from micro to macro. Is that not a substantial policy change? I may have misunderstood, but is it not a big policy change to go from supporting a small number of enterprises affected by globalisation to dealing with the financial and economic crisis?
Mr Hoban: There was confusion in the minds of the Commission and others as to the cause of the economic crisis in Europe in 2007, 2008 and 2009. Initially, some member states claimed it was a consequence of globalisation. To go back to the point I made to my hon. Friend the Member for Penrith and The Border, the reality is that Europe has to face more significant challenges to respond to that crisis. That involves a reform agenda, such as the liberalisation of markets and the completion of trade agreements with countries outside the EU, plus a whole host of steps that could be taken, which are cost-free in terms of public spending, but which would amount to significant reforms. That is far and away the better track, and it is the course of action we propose to follow not only domestically, but in Europe.
Kelvin Hopkins: The financial and economic crisis in the European Union—specifically, within the eurozone—is largely home-grown, through decisions to impose a currency on countries that could not sustain membership of it and then, when they are not sustaining it, to impose on them austerity that makes the situation even worse. Is the EGF meant to compensate for that? It seems to be kicking in a goal at their own end and trying to score another at the other end to compensate. Is it not daft?
Mr Hoban: The hon. Gentleman and I have debated the eurozone crisis in previous European Committees, but I do not want to stray too far away from the EGF. He is right that the crisis is partly a consequence of the eurozone, but in particular it is because of a failure to reform. Rather than reforming, economies simply borrowed more money, but at some point the bills have to be paid.
The challenge now in the eurozone, and domestically as well, is that such countries have to tackle not only their deficit, but rigidities in their labour market, in how their economy functions and in how they collect tax revenues. The packages that have been introduced in such places as Greece, Ireland and Portugal should rightly be combined with measures to tackle the deficit
It seems that the EGF will be an add-on to the next MFF, rather than part of it. Is that not a way of saying that as they cannot get it through in the budget, they will call it something else and have a separate fund? Is it a way of escaping budget constraints?
Mr Hoban: The hon. Gentleman raises an important point. One challenge we face is to ensure that as much as possible of EU spending is in the budget, so that we can have a proper measure of the Commission’s proposals. The Commission has sought to keep several budget lines outside the MFF to massage the figures, and we have been clear that we oppose that. We should have a more holistic view of how much the European Commission wishes to spend, rather than the partial view that is its original standpoint.
The reason why there is a blocking minority—I have referred to its rather diverse make-up—is a recognition that money spent on the EGF is diverted from money spent elsewhere. Some member states are not only budget disciplinarians, as we are, but want to ensure that where the EU spends money, it should focus on raising standards in economies in the newer member states, but that is clearly not how the EGF has been used during the MFF period.
Kelvin Hopkins: I may be cynical, but I often think that structural fund spending is a kind of public relations exercise, designed to boost support for the EU by putting little blue and yellow flags where money has been spent, even though the net contribution is actually much greater than any of the receipts. Is this not the same sort of effort, and would it not be better to focus on getting the macroeconomics right, rather than trying to win people over to the concept of the European Union by putting little flags everywhere?
Mr Hoban: I take that as a plea not to have any money spent in the hon. Gentleman’s constituency for the remainder of this Parliament, as he would say that it was a cynical effort by the Government to curry favour with voters in his constituency. If we want to close the gap, particularly for member states with poorer economic performance than the UK, France or Germany, the reality is that some infrastructure investment is important, as long as the money is spent in a targeted way to generate economic gains. That is why the UK has been very clear in its contribution to negotiations with Brussels that things such as the structural fund should be focused much more heavily on poorer member states than richer member states. The hon. Gentleman is right to be cautious. Frankly, the EU has done far better in marketing its investment in projects than we have, but there is a genuine economic purpose to some, if not all, of that investment.
Mr Hoban: The hon. Gentleman makes an important point, because a pound spent on the EGF in the UK comes at a cost, through the abatement mechanism. We should never see it as free money, because we are a net contributor to the EU. Clearly, the Government want to see the rebate remain in place.
That the Committee takes note of European Union Documents No. 15440/11 and Addenda 1 to 3, relating to a draft Regulation of the European Parliament and the Council on the European Globalisation Adjustment Fund (2014-2020), and No. 13483/12, a Report from the Commission to the European Parliament on the activities of the European Globalisation Adjustment Fund in 2011; agrees with the activities of the European Globalisation Adjustment Fund in 2011; agrees with the Government that there is no evidence to support an extension of the European Globalisation Fund into the next Multiannual Financial Framework; and supports the Government’s view that, if a new European Globalisation Fund is to be included in the 2014-2020 Budget, it should not be financed through appropriations but should operate under a separately agreed budget, and should be thoroughly evaluated on a more frequent basis.—(Mr Hoban.)
Stephen Timms: I am grateful to the Minister for his well-informed comments. We are all familiar with the reality of globalisation. Our economy is increasingly interlinked, not just across Europe, but across continents. The effects of that can be very severe in Redcar and Southampton, as well as in the countries and locations where the fund has been applied in the past. The scale of industrial restructuring that is continuously under way is very large; consequential job losses are sometimes also very large, and the transition to new jobs can be difficult for many, and for some individuals it proves impossible.
That is the background to our consideration of this provision at EU level for funding that can be called upon in severe but not unusual instances when people lose their jobs as a result of restructuring brought about by globalisation. It enables retraining and the possibility of reintegration with the labour market. Provision of that kind will probably be even more important in the future than it has been in the past. The question is whether it is the appropriate way to provide such support.
As my hon. Friend the Member for Luton North pointed out, the scheme was amended from its original purpose also to be available to assist workers losing their job as a result of the global financial crisis, although it is hard to see how the Austrian social workers would have got in under that criterion, let alone the original one. I must say to the Minister that according to the documents provided to us, the record of the scheme’s effectiveness has actually not been bad. We are told that 45% of those made redundant who were supported in 2010-11 had found a new job or entered self-employment by the time support ceased. Forty-five per cent is about
The motion is absolutely right to ask us to consider how effective and cost-effective the instrument is. We certainly should be looking for ways to make it more cost-effective, to review its potential to help workers in difficult circumstances and to consider whether there is a way of addressing these issues at European level in the future so that workers and local communities are better able to access the support they need by other means. It has certainly been the case in the UK that these issues have had to be addressed by other means.
The Minister gave some helpful information in answering my question about why UK has never applied before. Will he tell us a little more about whether there was consideration in the case of the blast furnace at Redcar, or more recently the closure of the Ford plant in Southampton, or indeed the closure of the Ford Dagenham stamping plant and tool room operation, close to my constituency? Those all appear to be the kind of instances where support might have been called upon, and probably would have been called upon if it had happened in a different country.
I take the Minister’s point that the Jobcentre Plus rapid reaction facility would have been available in each of those cases, but I do not think that provides for retraining or the kind of more costly provision that the fund appears to provide. Will he say a little more about whether it was considered in those cases? If an application had been made, should it have come from his Department or from a different Department? He indicated that it would have had to come from central Government, but I wonder which part of Government that would be.
The Government, as the Minister explained, are sympathetic to the view that the EGF might be merged with the European social fund. It strikes me that the EGF is quite different from the way the ESF usually operates; certainly, the ESF never seems to move quickly. He told me that there is a possibility that the decision-making process can be shortened. I imagine that might be the case.
The Government have made it clear that they want greater fiscal discipline within the European Union budget in the years ahead. My right hon. Friend the Leader of the Opposition also called for a position that entails taking a hard-headed view of what Europe does well and what it does badly. I could not help but note that the proposal from the Commission envisages extending the fund to farmers for the first time, and to workers with fixed-term contracts, temporary workers and owner-managers. It could be difficult to define circumstances in which owner-managers, for example, become redundant. I had a look to see how that would be worked out, but the mechanism was not clear to me.
The EGF is a sticking plaster to deal with a major loss of lifeblood to the economy. Until we look at a way of stemming that flow, we will not get very far. To sustain demand, an economy needs to choose an appropriate parity for its currency, so it gets at least some competitive edge to start with, with domestic reflation behind that initial barrier. Greece is not going to survive until it can get out of the eurozone, re-create its national currency and substantially devalue, so that it cannot afford to buy BMWs and Mercedes from Germany. All the demand should be directed to its domestic economy, and holidays in Greece should become cheap so we all go there and the Greek economy recovers. That is true for any country in such a situation.
Reflation is vital if we are to recover from where we are now. I would go further and say that countries, if necessary, should have direct trade controls if they want to protect their economies—a bit of protectionism. Most countries that become successful started off with pretty fierce protectionism; once they become successful, they can afford to be more liberal. Globalisation over the past 30 or 40 years has seen economic instability and recurrent crises; considerably higher unemployment; wages as a proportion of economies substantially reduced; more poverty in developed countries; and overall growth on a slower path than it was before, when we had the post-war Bretton Woods settlement. We are not going in the right direction. As far as Britain was concerned, and indeed other countries, once exchange controls and banking regulation were lifted we started to see the disaster—the vast, uncontrolled flows of finance across national exchanges around the world, causing the instability and the irresponsibility of those who deal in money. The measures we are discussing are puny in comparison with what we need, but at least they touch on the real problem, which is globalisation.
Mr Hoban: This has been a useful debate. I wonder at the contrasting views held by the hon. Member for Luton North and the Opposition Front Benchers. The right hon. Member for East Ham recognised some of the challenges of globalisation, but I do not think he was pulling down the shutters against it, whereas the hon. Member for Luton North was pulling down shutters rather quickly. The reality is that we face a changing global economy, which presents us with threats and opportunities.
There are huge untapped markets for us to become engaged in. Someone pointed out to me last month, when the President of Indonesia came on a state visit, that the Indonesian population was greater than that of the European Union. A toehold in such markets provides opportunity, and that comes from globalisation. That is the opportunity, while the threat lies in what we do to counter the challenge posed by newly emerging economies that seek to compete with us. We are in a global race, and if we want to be competitive in that race, the challenge is not, as the hon. Member for Luton North suggested, to pull down the shutters, but to adjust. That is quite a big challenge for us. In some industries, we do very well in globalised markets—financial services, despite what has happened over the past three or four years, is still a good example—and the Lloyd’s insurance market has capitalised on emerging economies, but things are more challenging in other areas, and Redcar steelworks is a good example.
The question then is, what is the right response? We believe we will meet the challenge through reform and by ensuring we have flexible labour markets, the right labour costs and a competitive tax system. The challenge for the European globalisation fund is in determining what role it plays. The right hon. Member for East Ham suggested that it was very effective, but the Commission’s annual report for 2011 was a bit thin on detail, and he will be the first to accept that there was not a strong quantitative base for its assertions. I am pleased to see that it said that it was early days for the programme.
Paragraph 4.4.2 contains lots of caveats about the programme’s effectiveness and the extent to which reabsorption rates were determined by economic conditions elsewhere; it was clearly difficult to separate out the effect each year from other factors. The 2011 report does not, therefore, draw a comprehensive or compelling picture. The third paragraph on the same page—it is a longish paragraph—says:
I am pleased that the Leader of the Opposition has a hard-headed view of what Europe does well, although I am not sure that I have entirely seen it myself. However, the Prime Minister has, despite the Leader of the Opposition’s opinions, successfully constructed an alliance in support of fiscal restraint. We see that in the blocking minority on the EGF, and that is a tribute to the way in which we can get allies together to support our approach of tackling wasteful spending. I am pleased the Committee is of the view that this is wasteful spending. On Thursday, when we go back to the European Employment, Social Policy, Health and Consumer Affairs Council, where there will be a progress report, I will be able to say that on this matter—if only on this matter—the House of Commons is united and that its view is that this form of spending should not go forward to the next financial framework.