Documents considered by the Committee on 21 July 2015 - European Scrutiny Contents


73 Investment Plan for Europe

Committee's assessment Politically important
Committee's decision(a) Cleared from scrutiny (by Resolution of the House on 24 March 2015) (b) Cleared from scrutiny
Document details(a) Proposal for a Regulation on an EU investment fund (b) European Court of Auditors Opinion of a proposal for a Regulation on an EU investment fund
Legal base(a) Articles 172, 173, 175(3) and 182(1) TFEU; co-decision; QMV (b) —
Department

Document numbers

HM Treasury

(a) (36605), 5112/15 + ADD 1, COM(15) 10

(b) (36768), 6541/15, —

Summary and Committee's conclusions

73.1 In November 2014 the Commission published a Communication suggesting a three part plan to promote investment in the EU economy, an "Investment Plan for Europe". In January the Commission published this proposal for a Regulation to create a European Fund for Strategic Investments and a European Investment Advisory Hub, so enabling the Commission to implement and deliver its Investment Plan for Europe jointly with the European Investment Bank. The Commission also published a Draft Amending Budget for the 2015 EU budget to provide finance for the new bodies this year. These documents were cleared from scrutiny in the previous Parliament after debate in European Committee B in March.[ 505]

73.2 The Government has now given us a full account of the adoption of the proposed Regulation and the next steps for the European Fund for Strategic Investments

73.3 In March the European Court of Auditors presented this Opinion of the proposed Regulation creating the legal framework for the Commission's investment plan. On the basis of its views it suggested specific changes to the Commission's proposed Regulation.

73.4 The Government, whilst noting that many of the Court's concerns were addressed in negotiations, has told us that in the interests of good policy making it welcomed the input by the Court and looked to ensure its opinions were taken into account by the Commission, Council and European Parliament.

73.5 We are grateful for the Government's account of where matters now stand in relation to the European Fund for Strategic Investments.

73.6 As for the European Court of Auditors' Opinion, while noting its utility, we clear the document from scrutiny.

Full details of the documents: (a) Proposal for a 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; (b) European Court of Auditors Opinion No. 4/2015 (pursuant to Article 287(4) of the Treaty on the Functioning of the European Union (TFEU)) concerning the proposal for a Regulation on the European Fund for Strategic Investments and amending Regulations (EU) No. 1291/2013 and (EU) No. 1316/2013: (36768), 6541/15, —.

Background

73.7 In November 2014 the Commission published a Communication suggesting a three part plan to promote investment in the EU economy:

·  a European Fund for Strategic Investments (EFSI), to mobilise €315 billion (£226 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.

73.8 In January the Commission published a proposal for a draft Regulation, document (a), to create the legal framework for the first two strands of its investment plan, that is, a EFSI and a European Investment Advisory Hub, so enabling the Commission to implement and deliver the investment plan jointly with the European Investment Bank (EIB). The EFSI would be supported by an EU guarantee fund, providing a maximum EU guarantee of €16 billion (£11.5 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. The Commission also published a Draft Amending Budget for the 2015 EU budget to provide finance for the new bodies this year. Our predecessor Committee recommended that these three documents be debated in European Committee B and that debate took place on 24 March.[ 506]

The new document

73.9 In March the European Court of Auditors (ECA) presented its Opinion of the proposal for a Regulation creating the legal framework for the Commission's investment plan, document (b). It outlined general comments about the Commission's proposal before suggesting specific changes to the text.

73.10 The ECA examined the proposed governance arrangements of the EFSI:

·  recalling that these reflect a dual scheme, with the Commission directly responsible for the management of the funds of the EU guarantee only, while the EIB governing bodies would be responsible for the actual investment of the funds;

·  saying that this choice should not undermine the Commission's full responsibility in implementing the EU budget; and

·  suggesting that, for transparency, all agreements between the Commission and EIB should be published.

73.11 The ECA discussed the proposal to leave to an agreement between the Commission and the EIB a number of matters it viewed as essential aspects, including establishing the EFSI as a separate guarantee facility within EIB accounts, its governance and internal audit arrangements and assessment of its performance. The ECA said that the terms of the agreement would have significant implications concerning the provision and use of the guarantee.

73.12 The ECA examined the interaction between the proposed Regulation and the Financial Regulation, which governs management of the EU's finances:

·  noting that the specific provisions of the Financial Regulation would not apply to the EU guarantee or fund;

·  noting that there was no clear explanation for this;

·  saying that it was unclear to what extent the EIB's own rules would enforce fundamental principles set by the Financial Regulation; and

·  suggesting that any derogations to the Financial Regulation provisions should be fully justified.

73.13 The ECA said that:

·  to avoid legislative loopholes, essential elements of the proposed Regulation should remain in the hands of the Council and the European Parliament and be covered in the Regulation itself; and

·  if a delegation of power was necessary, it should be limited to non-essential elements.

73.14 The ECA expressed some concern around the measurement of performance of the new instruments against the intended objectives:

·  saying that accountability seems focussed on outputs rather than outcomes and impacts;

·  asking whether the Commission and EIB reports would be complementary;

·  asking whether the Commission would include the EFSI in its annual evaluation report on the EU's finances, in particular whether it had met the objectives of job creation and private finance leveraged;

·  saying that due dates for all stipulated reporting should be set; and

·  noting that there was no accountability for the EFSI's Steering Board and EIB governing bodies before the budgetary authorities.

73.15 In relation to provision of an EU guarantee, the ECA suggested that:

·  there should be limits to the extent of potential liabilities on the EU budget, with in particular a ceiling for EIB expenses and explicit immunity for the Commission against legal claims by EFSI beneficiaries; and

·  the legal form and functioning of the guarantee fund should be clarified.

73.16 Noting that creation of the EFSI was deemed to respond to urgent need and that therefore it had not been validated by an ex-ante evaluation, the ECA suggested that the Commission should use the upcoming mid-term review of the Multiannual Financial Framework to assess the progress achieved by the EFSI and should take any corrective measures needed.

73.17 The ECA requested changes to its audit mandate included in the draft Regulation. It said that:

·  the wording put forward by the Commission could be restrictive; and

·  the Regulation should fully take into account the ECA's role to audit the legality, regularity, and sound financial management of all revenue and expenditure of the EU, including all aspects of the EFSI.

73.18 On the basis of these preceding comments the ECA then suggested specific changes to the Commission's proposed Regulation. It said that it remained available to provide further input in the legislative process if necessary.

The Government's view of the new document

73.19 In his Explanatory Memorandum of 27 May 2015 the Financial Secretary to the Treasury (Mr David Gauke), noting that the Opinion related to the Commission's original proposed Regulation, told us that many of the ECA's concerns were addressed in subsequent negotiations. He continued that in the interests of good policy making the Government welcomed the input by the ECA and had looked to ensure its opinions are taken into account by the Commission, Council and European Parliament.

The Minister's letter of 25 June 2015

73.20 The Minister writes to update the Committee on the outcome of negotiations on the EFSI Regulation, which was formally adopted by the European Parliament on 24 June and by Council on 25 June.

73.21 The Minister first recalls that the Government priorities in the negotiations were to establish the EFSI within the existing EU Budget, to ensure the EFSI's credibility to private sector investors and to ensure the mechanism is flexible and able to respond to the diverse range of investment needs across Member States. He then comments that:

·  overall the Government believes the final text delivers its objectives, and this is a view shared by Member States, who unanimously supported the Regulation in COREPER;

·  some compromises were necessary, however, to secure the European Parliament's agreement; and

·  notably these included facilitating a role for the European Parliament in vetting the candidate for the EFSI's Managing Director and agreement to use €1 billion (£719 million) from the margin within the Multiannual Financial Framework to reduce the reallocations from high value added areas of Heading 1 of the Budget.

73.22 The Minister comments further that:

·  the Government ensured that the EIB remains at the centre of the plan, with governance arrangements and decision making processes that are free from political interference;

·  crucially, it ensured the recruitment of the Investment Committee (the experts who will decide on the application of the guarantee) will be independent of politics, with no role for the European Parliament — this ensures that projects will be selected on merit which is crucial to securing credibility with investors;

·  on financing, the maximum liability on the EU budget from the guarantee to the EIB remains unchanged at €16 billion (£11.5 billion);

·  however, the European Parliament wanted all €8 billion (£5.75 billion) of the paid-in Guarantee Fund to be financed from the margin;

·  in negotiations, the Council secured agreement that the financing of the guarantee fund will still be primarily from reallocations;

·  however, it was agreed to utilise an additional €1 billion (£719 million) of the margin to reduce the amount of reallocation required from high value added programmes in Heading 1a;

·  in particular, it was agreed to completely protect the European Research Council (ERC), Marie Sklodowska-Curie actions and 'Spreading Excellence' programmes; and

·  this is a good outcome, as UK Universities and other research institutions have historically benefitted from a substantial share of these research programmes — for example the UK received 22.3% of the budget available for ERC grants in the last Multiannual Financial Framework.

73.23 The Minister continues that:

·  the final deal respects the need to maintain flexibility, while providing transparency on the eligibility criteria;

·  the Regulation itself now specifies more detail on the sectors eligible to benefit from the EFSI and the available instruments, while retaining a broad scope;

·  the European Parliament asked for specific Member State and sectoral concentration quotas — the Government believed this was inappropriate as it could suggest projects were being selected to meet a quota, not on the basis of merit;

·  the agreed compromise was to avoid "excessive concentration" of investment, with the Steering Board setting "indicative" limits — the government thinks this allows for the necessary flexibility, and does not undermine the principle that projects are selected on merit. Further, it ensures that smaller research projects are not crowded out by larger infrastructure projects;

·  to ensure transparency and consistency in the assessment of projects, the compromise deal also introduces a 'Scoreboard', which the Investment Committee will use to assess projects against the objectives of the Regulation and which will be adopted by delegated act;

·  the European Parliament wanted the EFSI to be permanent from the outset; and

·  in the final compromise, the investment period is time-limited to four years, with a fundamental evaluation of the performance of the EFSI against its objectives after three years — if the venture proves successful, a decision may be taken to extend the provision of guarantees.

73.24 The Minister says that:

·  the focus now is to promote the EFSI in the UK and ensure that both private and public sector projects have access to the necessary information to make the most of the opportunities on offer;

·  at the same time, it is crucial that the UK continues to build on its increasingly successful record in accessing more traditional EIB and European Investment Fund (EIF) financing — for example, the EIB lent a record €7 billion (£5 billion) in the UK in 2014, an increase of 20% compared to 2013, which itself was a 56% increase over 2012, and in 2014 the UK's SMEs received 20% of EIF activity, more than all other Member States;

·  the Government has adopted a more strategic approach to EIB engagement, including by stepping up coordination both within Government, and between the UK authorities and the EIB;

·  this includes ensuring that projects across the UK are well placed to take advantage of the EFSI, and that the EIB has a clearer picture of potential investment opportunities within the UK; and

·  the Government looks forward to welcoming Commissioner Katainen's 'roadshow' to the UK on 16 July and sees it as another opportunity to raise awareness of what the EFSI has to offer.

Previous Committee Reports

Thirty-fifth Report HC 219-xxxiv (2014-15), chapter 2 (4 March 2015), Thirty-second Report HC 219-xxxi (2014-15), chapter 1 (4 February 2015), and Thirtieth Report HC 219-xxix (2014-15), chapter 5 (21 January 2015).


505   (36540) 16115/14, (36605) 5112/15 + ADD 1, (36607) 5317/15: 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), Thirty-second Report HC 219-xxxi (2014-15), chapter 1 (4 February 2015), Thirty-fifth Report HC 219-xxxiv (2014-15), chapter 2 (4 March 2015) and Gen Co Debs, European Committee B, 24 March 2015, cols 3-18. Back

506   Ibid. Back


 
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