2 Investment plan for Europe
| Committee's assessment
| Politically important |
| Committee's decision | Not cleared from scrutiny; for debate in European Committee B (decision reported on 4 February 2015); permission given under paragraph (3) (b) of the Scrutiny Reserve Resolution for the Government to agree a General Approach prior to the debate.
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| Document details | Draft Regulation on an EU investment fund
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| Legal base | Articles 172, 173, 175(3) and 182(1) TFEU; co-decision; QMV
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| Department
Document numbers
| HM Treasury
(36605), 5112/15 + ADD 1, COM(15) 10
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Summary and Committee's conclusions
2.1 The Commission has proposed a draft Regulation
to create a European Fund for Strategic Investments and a European
Investment Advisory Hub, as part of the implementation of an Investment
Plan for Europe. The Fund would mobilise €315 billion (£245
billion) for investment, supported by a guarantee fund, providing
a maximum EU guarantee of €16 billion (£12.5 billion).
The draft Regulation was accompanied by a Draft Amending Budget
for the 2015 EU budget to provide finance for the new bodies this
year.
2.2 The Government has told us previously that it
is supportive of both the draft Regulation and the Draft Amending
Budget, particularly noting that the draft Regulation would be
fully financed within the Multiannual Financial Framework for
the period 2014-2020 and the Draft Amending Budget would have
a budget neutral impact.
2.3 In February we recommended the draft Regulation,
together with the Commission's Communication, which proposed the
Investment Plan for Europe, and the Draft Amending Budget, for
debate in European Committee B. This debate has not yet taken
place and the documents remain under scrutiny.
2.4 The Government tells us now that there has been
rapid progress in Council consideration of the draft Regulation
and that it has achieved significant improvements to the text
of the proposal, which enhance the Fund's likely benefit for the
UK. The Government recognises there is an outstanding debate recommendation
on the proposal. However, the Government says that, in order to
be able to influence securing these improvements during Presidency
negotiations with the European Parliament, it would like to support
a General Approach at the ECOFIN Council on 10 March. Nevertheless,
it tells us that it "stands ready to abstain … on the
grounds that the proposal remains under scrutiny".
2.5 It is highly regrettable that the Government
has not scheduled the debate we have recommended previously in
time for the ECOFIN Council of 10 March. Nevertheless, we recognise
the significant improvements to the text of the draft Regulation
the Government has achieved, but note that it is ready to abstain
from a vote on a General Approach, on scrutiny grounds. We agree
in this very exceptional case, under the terms of paragraph (3)(b)
of the Scrutiny Reserve Resolution, that the Government may give
agreement to the General Approach pending consideration in European
Committee B. We still expect this debate to take place before
dissolution.
Full details of the document:
Draft Regulation on the European Fund for Strategic Investments
and amending Regulations (EU) No. 1291/2013 and (EU) No. 1316/2013:
(36605), 5112/15 + ADD 1, COM(15) 10.
Background
2.6 In November 2014 the Commission published a Communication
suggesting a plan to promote investment in the EU economy. The
plan would have three strands:
· a European Fund for Strategic Investments
(EFSI), to mobilise €315 billion (£245 billion) for
investment;
· a pipeline of investment projects and
investment advisory hub (to be known as the European Investment
Advisory Hub or EIAH); and
· a wider package of reforms to improve
the investment climate, including action to remove barriers in
the single market and improve regulation.[4]
2.7 In January the Commission published this draft
Regulation to create the legal framework for the first two strands
of the investment plan, that is, the EFSI and the EIAH, so enabling
the Commission to implement and deliver the plan jointly with
the European Investment Bank (EIB). (As for the third strand,
a wider package of reforms to improve the investment climate,
the Commission has published a set of actions in its 2015 Work
Programme.[5]) The draft
Regulation was accompanied by a consequential Draft Amending Budget
for the 2015 EU General Budget.[6]
The draft Regulation would establish the EFSI, supported
by an EU guarantee fund, providing a maximum EU guarantee of €16
billion (£12.5 billion) for EIB financing and investment
operations to support the development of infrastructure and investment
in the EU as well as for small and medium size enterprises. It
would also provide for establishing, by building on existing EIB
and Commission advisory services, an EIAH to provide advisory
support for investment project identification, preparation and
development.
2.8 In February we recommended the draft Regulation,
together with the Commission Communication and the Draft Amending
Budget, for debate in European Committee B. This debate has not
yet taken place and the documents remain under scrutiny.
The Minister's letter of 3 March 2015
2.9 The Financial Secretary to the Treasury (Mr David
Gauke), recalling that the EFSI is a key part of the wider Investment
Plan for Europe, says that negotiations on the draft Regulation
are moving quickly and writes to keep us updated on developments
in the areas of greatest importance to the UK. He says that:
· the Government has made significant progress
in positively shaping the draft Regulation on core issues for
the UK;
· it has achieved its key priorities; and
· the outcome is that he is now confident
that the Government will secure a Regulation which has the potential
to bring significant benefits to the UK.
2.10 Reminding us that the draft Regulation would
establish a €21 billion (£16.4 billion) first loss guarantee,
€16 billion (£12.5 billion) of which would come from
the EU budget (€8 billion of which would be paid in and €8
billion of which would be callable),[7]
the Minister tells us that:
· the Government has secured language in
the recital of the Presidency's proposal for the Council position
that the €16 billion is a hard limit on payments from the
EU budget for the guarantee, and, crucially, would be found from
within the Multiannual Financial Framework (MFF) ceilings secured
by the Prime Minister; and
· all payments to the Guarantee Fund and
budget decisions otherwise associated with the operation of the
EFSI would be fully consistent with the terms of the MFF and would
be authorised by the Council and European Parliament through the
normal budgetary processes.
2.11 Turning to the credit rating of the EIB the
Minister says that:
· the Government agrees that it is important
that the EIB maintains its AAA rating and it would expect EIB
management to be attentive to the maintenance of the AAA rating;
· the financial robustness of the EIB is
a high priority for the UK, as it is at the very core of the EIB's
business model and is the fundamental basis of its ability to
lend at favourable conditions;
· in order to provide sufficient assurance
that EIB management can protect the EIB's financial soundness,
the Government has ensured that the governance structure for the
EFSI would fully respect the EIB decision making process —
all projects would be approved by the EIB Board in the usual way;
and
· this will ensure that EIB management would
be able to safeguard the EIB's AAA rating.
2.12 As for the pipeline of investment projects to
make use of the EFSI and the likelihood of delivering the 1:15
leveraging target, the Minister tells us that:
· the Government has, importantly, worked
to deliver a decision making process for applying the EFSI guarantee
that is as free from politics as possible;
· it is absolutely critical that the guarantee
is credible to private investors, including from outside the EU,
in order to achieve the envisaged leverage, and that means ensuring
that projects are selected solely on merit;
· as a result, the Government has shaped
the draft Regulation to emphasise the importance of economic viability
in project selection;
· this would put the EIB in the best position
to repeat its success in delivering the 1:18 capital to investment
leverage ratio committed to as part of the 2012 capital increase
and which the EIB is well on target to achieve this year;
· the Government has successfully maintained
a broad definition of the areas of potential investment, and the
instruments which could benefit from the guarantee;
· it has prevented the Council constraining
the areas that could benefit from the EFSI, and has ensured therefore
that priority areas for the UK have not been ruled out from seeking
support from the EFSI; and
· the focus on economic viability, which
the Government has emphasised in the drafting of the Regulation,
should also benefit the robust UK project pipeline.
2.13 The Minister comments that:
· he is positive that the draft Regulation
represents a good opportunity to the UK;
· figures released in the week beginning
23 February show the UK received a record level of EIB funding
in 2014 — an estimated €7 billion, that is 11% of total
EIB lending, and an increase of 20% from the previous year's share;
· the EFSI activity would be delivered through
the EIB, and the European Investment Fund, where the UK received
a higher share of activity than any other Member State in 2014;
· the EFSI would therefore give the UK an
opportunity to build on this success;
· the UK is well-placed to benefit from
the EFSI, thanks to its stable system of economic regulation which
attracts investors, and has been judged one of the best in the
world by Moody's; and
· the Government is prepared to be on the
front-foot in approaching the EFSI, and it is aided in this by
its commitment to showcasing opportunities to domestic and foreign
investors through the work it has done to put together a clear
pipeline of projects covering both the public and private sectors
(£460 billion) as part of a National Infrastructure Plan.
2.14 Reminding us that this proposal is a key priority
of the Latvian Presidency, the Minister tells us that, as a consequence,
negotiations have been moving very quickly and it is now almost
certain that the Council will be asked to agree a General Approach
at the ECOFIN Council on 10 March, on the basis of a draft Regulation
that he believes is beneficial to the UK and meets the UK's key
priorities. He continues that:
"I would therefore like to be in a position
to be as supportive as possible at ECOFIN, and to avoid damaging
the UK's ability to influence the Presidency in their negotiations
with the European Parliament and Commission.
"However, I recognise that you have referred
this proposal for debate in European Committee B, that this debate
has not yet been held, and that as a consequence it would be very
difficult for the Committee to grant a waiver at this stage.
"The Government of course stands ready to
abstain at ECOFIN next week on the grounds that the proposal remains
under scrutiny. However, I would be grateful if the Committee
could consider whether there is any means by which it could enable
the Government to take a more positive approach at ECOFIN, to
ensure the UK is well placed to benefit from the potential additional
investment."
Previous Committee Reports
Twenty-seventh Report HC 219-xxvi (2014-15), chapter
7 (17 December 2014), Thirtieth Report HC 219-xxix (2014-15),
chapter 5 (21 January 2015) and Thirty-second Report HC 219-xxxi
(2014-15), chapter 1 (4 February 2015).
4 (36540), 16115/14: see Twenty-seventh Report HC
219-xxvi (2014-15), chapter 7 (17 December 2014), Thirtieth Report
HC 219-xxix (2014-15), chapter 5 (21 January 2015) and Thirty-second
Report HC 219-xxxi (2014-15), chapter 1 (4 February 2015). Back
5
(36589), 5080/15 + ADDs 1-4: see Thirty-first Report HC 219-xxx
(2014-15), chapter 1 (28 January 2015). Back
6
(36607) 5317/15: see Thirty-second Report HC 219-xxxi (2014-15),
chapter 1 (4 February 2015). Back
7
The remaining €5 billion (£3.9 billion) would be contributed
by the EIB. Back
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