House of Commons - European Regional Development Fund - Communities and Local Government Committee

European Regional Development Fund - Communities and Local Government Committee Contents

2 The purpose and impact of ERDF

Regional policy context

6. Article 3 of the Treaty on European Union states that the EU should "work for the sustainable development of Europe based on balanced economic growth and [...] promote economic, social and territorial cohesion, and solidarity among Member States".[3] This is the essence of the EU's regional policy. It seeks to generate growth and employment in all the regions of the EU, but particularly aims to achieve a more balanced distribution of prosperity between the regions. Table 1, below, sets out the EU's three objectives for regional policy, as agreed by the EU Council and European Parliament in 2006, with expected expenditure against each:

Table 1: EU regional policy objectives, 2007-13[4]

Objective Value Purpose

Convergence €283 billion Improving the conditions for growth in the least-developed regions, where GDP per capita is less than 75% of the EU average. It applies to 100 regions representing approximately 35% of the EU population, primarily in Eastern and Southern Europe.

Regional Competitiveness and Employment €55 billion Increasing competitiveness and employment in the 168 regions not covered by the Convergence objective.

European Territorial Cooperation €9 billion Strengthening cross-border co-operation by supporting joint programmes, projects and networks involving different Member States.

Total €347 billion

7. As the table shows, over 80% of the EU's regional policy budget is focused on the Convergence objective, and is therefore allocated to the EU's least developed regions. Map 1 shows how the EU's regions are classified as either falling under the Convergence objective or the Regional Competitiveness and Employment objective. The relatively small amount of funding available for the European Territorial Cooperation objective is shared between regions, and is not shown on this map.

Map 1: Structural Funds 2007-13 Convergence and Regional Competitiveness Objectives

Source: House of Lords, The Future of EU Regional Policy, Nineteenth Report of the Select Committee on European Union, Session 2007-08, Paper HL 141

8. As table 2 shows, ERDF is the largest of the three Structural and Cohesion funds used to achieve these objectives:

Table 2: EU Structural and Cohesion Funds, 2007-13[5]

Fund Value Purpose

ERDF €201 billion Investment in companies (particularly small and medium-sized enterprises), infrastructure, financial instruments and technical assistance measures. Allocated on a regional basis.

European Social Fund (ESF) €76 billion Supports projects to provide training, improve skills, and open up access to employment opportunities. Allocated on a regional basis.

Cohesion Fund €70 billion Finances trans-European transport networks and environmental projects. Allocated to Member States whose Gross National Income per inhabitant is less than 90% of the EU average.

Total €347 billion

9. The purpose of ERDF is set out in the Treaty on the Functioning of the European Union (TFEU):

The European Regional Development Fund is intended to help to redress the main regional imbalances in the Union through participation in the development and structural adjustment of regions whose development is lagging behind and in the conversion of declining industrial regions.[6]

10. ERDF is mainly used to provide a financial contribution to projects that are promoted by the public sector, such as government departments, local authorities, and further and higher education establishments, when other sources of funding are not available.[7] It can also be accessed by voluntary sector organisations, and, to a lesser extent, used to help develop small and medium-sized enterprises. The proportion of project costs that ERDF money can make up varies according to the circumstances of the region in question. In the least developed regions this can be up to 85% of the project value. In England ERDF can generally make up 50% of a project costs, rising to 75% in the Convergence objective area of Cornwall and the Isles of Scilly.[8]

11. Financing from ERDF may not be used to replace public spending by a member country under a principle known as "additionality". The European Commission agrees in advance the level of eligible public spending to be maintained throughout the programming period for each country. In general this amount should be at least the same in real terms as was spent in the previous period. The Commission then checks for compliance with the additionality rule with each country during and after the programming period.[9]

ERDF 2007-13 in England

12. Following the accession of ten new Member States in 2004, and to reflect the new priorities for the EU's regional policy, the UK and other wealthier states received far smaller settlements in 2007-13 than they had done in 2000-2006. England's ERDF funding was set at €3.3 billion (approximately £2.8 billion) for the 2007-13 period.[10]

13. Only one part of England—Cornwall and the Isles of Scilly—has Convergence objective status for 2007-13, with the highest level of funding ring-fenced at EU level and set at £395 million. Merseyside and South Yorkshire receive transitional "phasing-in" funding worth £268 million and £234 million respectively; these settlements are also ring-fenced at EU level.[11] These areas are treated in this way because they had previously qualified for the highest level of funding in the 2000-06 ERDF round (then called "Objective 1" funding), but did not qualify for Convergence funding in the 2007-13 round because their economies had improved relative to the EU average. However, this improvement was largely caused by the accession of the ten new Member States in 2004 which lowered the EU average by 12.5%. Transition funding was granted to give those areas a more gradual adjustment to the less generous funding level under the Competitiveness objective.

14. Member States were free to choose how to allocate their Regional Competitiveness and Employment objective funding between their other regions. In England the Government took into account the regional population sizes, GDP and levels of innovation, enterprise and skills when allocating this funding. The Government also applied a safety-net mechanism to protect individual regions from disproportionately large funding cuts.[12] Professor Steve Fothergill, from the Centre for Regional Economic and Social Research at Sheffield Hallam University, told us that the UK's ERDF funding in 2007-13 has been targeted towards its poorest regions:

Across the EU as a whole, the vast majority of funding does go to the poorest regions, and even within the UK the funding is heavily skewed to the poorest regions. That is surely absolutely correct, because it is those regions that you are trying to bring on.[13]

Table 3 shows the 2007-13 ERDF funding allocations for the English regions:

Table 3: ERDF 2007-13 funding allocations in England (£ millions)[14]

Regional Competitiveness and Employment
North West [1]	659
Yorkshire and Humber [2]	505
West Midlands	345
North East	326
East Midlands	232
London	158
South West	107
East of England	96
South East	20
	2,448
Convergence
South West (Cornwall and Isles of Scilly)	395

Total	2,843

Notes:

[1] includes £268 million of phasing-in funding for Merseyside

[2] includes £234 million of phasing-in funding for South Yorkshire

15. The Commission, in consultation with the Member States, published the Community Strategic Guidelines on Cohesion in October 2006 which set out the principles and priorities of EU regional policy. This was the basis for each Member State to draft its own National Strategic Reference Framework (NSRF) in which it set out its high level priorities for Structural and Cohesion funds spending. The UK Government set the strategy for the English regions, and the Scottish Executive, the Welsh Assembly Government and the Northern Ireland Administration developed their own strategies, which were all contained within the NSRF for the UK.[15] According to the UK's NSRF, England has four priorities for its ERDF programmes:

to promote innovation and knowledge transfer;
to stimulate enterprise;
to ensure sustainable development, production and consumption; and
to build sustainable communities.[16]

16. ERDF in Cornwall and the Isles of Scilly has slightly different priorities, reflecting the challenges and problems specific to that region as the sole recipient of Convergence objective funding in England:

to promote innovation and knowledge transfer;
to stimulate enterprise and business development; and
to improve accessibility and connectivity.[17]

Impact and value for money

17. The current ERDF round, which started in 2007, has contributed to hundreds of projects across England, from the WorkSpace business incubation centre in Berwick-upon-Tweed to the Porthcressa regeneration project on the Isles of Scilly. We received a great deal of evidence in support of ERDF, particularly from funding recipients.[18] Projects supported during the 2007-13 period include:

An environmental programme for small businesses in the North West
The ecoSMARTER scheme provides small businesses with a free green makeover worth more than £1,000, helping to cut bills and carbon emissions. Businesses that sign up to the scheme have a free electricity monitor installed as well as receiving environmental support from a sustainability expert. ERDF is contributing half of the project's £1 million cost.[19]
A programme to promote enterprise in West Yorkshire
£5 million of ERDF funding is being used in Bradford to support the growth of new enterprise in deprived communities and helping third sector organisations to identify opportunities for growth. In Halifax the project links established companies to emerging community businesses and social enterprises in a mentoring programme.[20]
A fund to support for small businesses in Shropshire and Herefordshire
The Shropshire and Herefordshire Business Fund provides capital grants to start-up and existing small and medium sized businesses. So far 176 businesses have been supported, assisting the creation of 105 full-time jobs and 60 new businesses. This scheme has secured £1 million of ERDF funding.[21]

18. We asked ourselves whether these projects would have gone ahead in the absence of financial support from ERDF. It is, of course, difficult to know what would have happened, but in view of the value of the funding available (up to 50% or 75% of the project value) it is likely that such projects would have struggled to obtain funding. According to Professor Fothergill, the ERDF programme for 2000-06 made a vital contribution to at least two projects of national importance:

If you are looking for truly transformational examples around the country, go to, for example, the Newcastle Gateshead quayside area, which has been absolutely transformed over the last 10 or 15 years. The two big iconic developments there—the Sage concert hall and the Baltic art gallery—are both substantially ERDF funded. I doubt whether you would have got that development without the contribution of Europe. Again, there is the question whether can we always establish a reliable counterfactual, but intuitively I do not think it would have got it. Go down to Cornwall and look at the Eden centre—a major asset now for the development of the Cornish tourism industry. It was substantially funded in part by the ERDF, and it probably would not have happened in that form and on that scale without the ERDF money.[22]

19. The European Regional Development Fund (ERDF) is highly valued by local authorities and other recipients. It has made vital contributions to a variety of projects across the country, many of which would not have gone ahead without ERDF money.

20. The next question we asked was whether the projects that have been funded by ERDF in England provide good value for money. According to figures provided by DCLG, by October 2011 the 2007-13 ERDF programmes in England had delivered:

8,700 gross jobs created and an additional 16,462 gross jobs safeguarded;
support to enable 2,813 businesses, 4,945 Small and Medium Enterprises and 374 Social enterprises to start up or expand;
gross increase in the value of goods or services provided by each area, or Gross Value Added [of] £124.2 million; and
net increase in Gross Value Added [of] £0.9 million.[23]

21. In a statement to the House on 23 January 2012 Rt Hon Grant Shapps MP, Minister for Housing and Local Government, noted that £984 million had been paid out to projects through ERDF by the end of November 2011,[24] meaning that each job created had required more than £113,000 of ERDF funding. It may be too soon, however, to assess the value for money of the current ERDF round. The funding allocations do not have to be spent until the end of 2015, meaning that new benefits will continue to be generated for many years to come. Furthermore, the nature of the programme means that ERDF projects will deliver most of their benefits over the longer term, particularly in light of the focus on larger strategic projects in this funding period. Professor Fothergill explained that:

If you are putting in infrastructure, it may not feed through for five, 10, 15 years, to much higher economic activity in that location, because you are creating the basic conditions under which economic growth can happen.[25]

22. Assessing the value for money of ERDF is inherently problematic, partly because it is so difficult to separate out the impact of ERDF funding from all the other factors affecting regional economies. Professor Fothergill said that:

It is certainly true that the academic evidence on the effectiveness of the EU Structural Funds is patchy and at times even contradictory. But this does not mean that the funding is ineffective. A very great complication is disentangling exactly what would have happened in the absence of EU spending: it is the difference between what would have happened and what actually happened that is the proper measure of the policy effect. In the EU context the problem is that a great many other things are happening simultaneously - national economic policy, members states' own regional policies, and underlying regional and locational trends for example. This renders the accurate identification of a policy effect nigh on impossible.[26]

23. Not only is it difficult to isolate the impact of ERDF from other factors, it is also not possible to say what could have been achieved if the same money had been spent in a different way. Mats Persson, from the think-tank Open Europe, said that:

For every pound invested in a certain area of the economy, we have to take into account that the same pound could have been invested somewhere else and perhaps generated greater benefit. That is the opportunity cost and it is extremely difficult to quantify.[27]

24. A number of organisations commented that ERDF offers good value for money because it is used to provide projects with just part of their funding, bringing in additional funding sources and allowing the ERDF budget to support more projects than might otherwise be the case.[28] The Greater Manchester Combined Authority said that value for money on individual projects was taken into consideration at the application stage, and projects were checked during their lifetimes to ensure that milestones and outcomes were being met, and costs per outputs were benchmarked against similar projects.[29] These measures give some assurance that the funding is being used to good effect. One common complaint, however, is that the administration for project approval and monitoring is too costly and burdensome, and has an adverse effect on value for money.[30]

25. We recognise that it is difficult to isolate the impact of ERDF from other factors, but in these economic times the taxpayer must be reassured that public money is being spent efficiently and effectively. We are concerned that it has been so difficult to assess the value for money of ERDF; we recommend that the Government should evaluate this and report to us by the summer of 2013 on what has been achieved in each region. It should also ensure that monitoring and evaluation is improved and streamlined for the 2014-20 ERDF round.

26. The EU's Structural and Cohesion Funds were set up to try and address some of the fundamental economic and social weaknesses of the least-developed regions of the EU. Although there have been some individual local successes it is difficult to prove that the funds have had a significant impact at a regional level. We looked at Cornwall and the Isles of Scilly, which is England's only region eligible for Convergence objective funding, and has obtained the highest level of ERDF funding since 1994. This region faces particular problems which partly stem from its geographic position; EU funding will not resolve these issues. It can, however, still play a part in mitigating their effects - for instance through a Superfast Broadband project aimed at boosting productivity by connecting 10,000 businesses by 2014.[31] However, as Professor Fothergill told us, "many of the problems we are dealing with in some of the less prosperous regions are deep-seated, and will take decades to turn round".[32]

27. Although the majority of benefits are realised in later years, the evidence available to us suggests that ERDF 2007-13 has not yet made a significant impact. It is not even possible to conclude that the 2000-06 ERDF round has done so, because of the lack of robust evidence. The challenges facing regions such as Cornwall and the Isles of Scilly are profound, and ERDF can only provide part of any solution.

3 Treaty on European Union, Article 3 Back

4 "Available budget" at http://ec.europa.eu/regional_policy at 2007 prices Back

5 "Available budget" at http://ec.europa.eu/regional_policy at 2007 prices Back

6 Treaty on the Functioning of the European Union, Article 176 Back

7 DCLG, The National ERDF Handbook For the English Convergence and Competitiveness Programmes 2007-2013, p 14 Back

8 Council Regulation (EC) No 1083/2006 of 11 July 2006 lays down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repeals Regulation (EC) No 1260/1999, Annex 3. Back

9 Council Regulation (EC) No 1083/2006, Article 15 Back

10 Ev 42, para 2; all Sterling figures are approximate because of fluctuations in the exchange rate. Back

11 These areas fall within the Yorkshire & Humber and North West regions; figures provided by DCLG. Back

12 HC Deb, 23 October 2006, cols 72WS-74WS Back

13 Q 43 Back

14 Adapted from Ev 46 Back