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 EnglandCornwall and the Isles
of Scillyhas 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 therethe Sage
concert hall and the Baltic art galleryare 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 centrea 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
15
Department for Trade and Industry, United Kingdom National
Strategic Reference Framework: EU Structural Funds Programmes
2007-13, October 2006, p 7 Back
16
Department for Trade and Industry, United Kingdom National
Strategic Reference Framework: EU Structural Funds Programmes
2007-13, October 2006, pp 44-46 Back
17
Department for Trade and Industry, United Kingdom National
Strategic Reference Framework: EU Structural Funds Programmes
2007-13, October 2006, pp 41-42 Back
18
For example, Ev w6 [Leicester City Council], Ev w40 [Cornwall
Council], Ev w55 [Greater Manchester Combined Authority] Back
19
Ev w56 [Greater Manchester Combined Authority] Back
20
Ev 43 Back
21
Ev 32, para 6 Back
22
Q 40 Back
23
Ev 43, para 8; Gross Value Added plus taxes on products
less subsidies on products equals Gross Domestic
Product. Back
24
HC Deb, 23 January 2012, col 50W Back
25
Q 63 Back
26
Ev 34 Back
27
Q 38 Back
28
For example, Ev w11-12 [Nottingham City Council], paras 2.1-2.2 Back
29
Ev w56 Back
30
Ev w7-8 [Leicester City Council], paras 2.9-2.10 and Ev w94 [Centre
for Process Innovation], para 3.2.2.1 Back
31
Ev w41 [Cornwall Council] Back
32
Q 53 Back
|