Documents considered by the Committee on 10 October 2018 Contents

7European Globalisation Adjustment Fund

Committee’s assessment

Politically important

Committee’s decision

(a) Not cleared from scrutiny; further information requested; drawn to the attention of the Business, Energy & Industrial Strategy and Work & Pensions Committees; (b) Cleared from scrutiny

Document details

(a) Proposal for a Regulation on the European Globalisation Adjustment Fund (EGF); (b) Report from the Commission on the mid-term evaluation of the European Globalisation Adjustment Fund (EGF)

Legal base

(a) Article 175 TFEU; ordinary legislative procedure; QMV; (b)—

Department

Treasury

Document Numbers

(a) (39851), 9701/18 + ADDs 1–2, COM(18) 380; (b) (39852), 9695/18 + ADD 1, COM(18) 297

Summary and Committee’s conclusions

7.1Since 2007, the EU has funded a European Globalisation Adjustment Fund (EGF) which co-finances support measures for workers in its Member States who have lost their jobs “as a result of major structural changes in world trade patterns caused by globalisation and whose redundancies have a significant adverse impact on the regional or local economy”. The aim is to get people made recently redundant back into stable employment without delay. The current iteration of the Fund was approved in 2013—with the UK voting against31—and runs until the end of 2020. The EGF complements the European Social Fund, which invests in preventative measures to safeguard employment opportunities in the long-term.

7.2The European Pillar of Social Rights, adopted in November 2017, sets the EU and its Member States the objective of ensuring workers have “the right to receive support for job search, training and re-qualification”. As the EU’s contribution to that aim, as part of the negotiations for the 2021–2027 Multiannual Financial Framework (MFF), the European Commission in May 2018 proposed to renew the existence of the EGF indefinitely beyond its current expiry in December 2020. Under the proposal, the Fund would have an annual maximum budget of €225 million per year, a substantial increase compared to €150 million yearly limit the Fund has currently.32 Its proposal was accompanied by an interim evaluation of the current EGF.

7.3The Commission proposal for the Fund after 2020 would make significant changes compared to the current iteration. Notably, it would substantially widen the intervention criteria that determine whether a Member State can apply for assistance from the Fund. Under the draft legal framework, an EU country would no longer have to prove that large-scale redundancies were caused by changing patterns in world trade or by a “global financial and economic crisis” in order to be eligible for EGF support. Instead, the Fund would be available for any “large restructuring event”.33 Moreover, the minimum number of redundancies that would need to occur as part of a single event to qualify for assistance from the Fund would be decreased from 500 to 250. The Commission argues that, “even though a higher uptake of the fund is expected and intended by removing obstacles to its use, there does not seem to be a risk of an excessive use of the fund by Member States”.34 It does not quantify what level of EGF funding it expects to be used annually under the proposed new framework.

7.4We have described the history of the Globalisation Adjustment Fund, and the substance of this latest Commission proposal, in more detail in “Background” below.

7.5The Chief Secretary to the Treasury (Elizabeth Truss) submitted an Explanatory Memorandum on the Commission proposal on 11 September 2018, over three months after the proposed Regulation was deposited for scrutiny.35 While noting that the UK “has an interest in participating in future EU programmes and collaboration where it is in the UK’s and the EU’s mutual interest”, she added that there are no provisions for ‘third country’ participation in the EGF that would allow for UK involvement in the Fund when it is no longer an EU Member State. That said, the Government is still analysing the suggested changes in the scope of the EGF—possibly in the context of the possibility that the post-Brexit transitional period could be extended into the next Multiannual Financial Framework—even though the UK’s assessment to date has been that “the EGF represents neither good value for money, nor a genuine case for investment at an EU rather than national level”.

Our assessment

7.6We have taken note of the proposal for the European Globalisation Adjustment Fund 2021–2027, as well as the Government’s reiteration of its view that neither the current or proposed iterations of the Fund represent good value for money or an efficient use of the EU budget. We note in particular that the Commission is effectively proposing to remove the Fund’s link to redundancies caused by globalisation or a global economic crisis, by making it applicable for any unexpected ‘restructuring event’ that meets the relevant intervention criteria. While the Commission acknowledges this is likely to lead to a substantial increase in applications to the Fund—hence necessitating the increase in its maximum endowment from €150 to €225 million per year—it is unclear by what proportion successful requests for funding might grow in practice.

7.7Had the UK remained a Member State, we consider it likely that the Government would be actively opposing the much wider scope of the Fund, and the proposed lowering of the eligibility threshold to 250 redundancies. Given the UK’s exit from the EU, whether the Commission proposal will be changed substantially will depend primarily on the remaining Member States.

7.8Any financial implications of the proposed post-2020 EGF for the UK are currently hypothetical. Under the terms of the financial settlement in the UK’s draft Agreement on its withdrawal from the EU, the Treasury would only make contributions to the EU budget as if it were a Member State until 31 December 2020 (and contribute towards outstanding expenditure commitments entered into by the EU before that date), including spending from the current Fund. As the new EGF Regulation would take effect in January 2021, after the scheduled end of the post-Brexit transitional period,36 the Treasury would not be part-financing the post-2020 iteration of the Fund. By the same token, UK regions would no longer be legally eligible for support (which is a theoretical rather than a practical change, since the Government as a matter of principle does not apply for assistance from the EGF even while the UK remains a Member State).

7.9However, the Committee may revisit its assessment with respect to the (lack of) financial implications of this proposal for the UK, should there be any indications that the post-Brexit transitional period might be extended into 2021. We note in this respect that the Government is analysing the proposed changes to the scope of the Fund, despite its scheduled launch after the end of the post-Brexit transitional period. If the transition were to be extended, we consider it likely that the EU might ask for further UK contributions to EU spending programmes under the next Multiannual Financial Framework (and therefore including the new Globalisation Adjustment Fund).

7.10Given the uncertainty about the exact scope of its participation in EU programmes under the next MFF, and the nature of the UK’s future partnership with the EU on economic and employment policy matters, we have decided to retain the proposed EGF Regulation under scrutiny for the time being. We are content to clear the Commission’s mid-term evaluation of the current Fund from scrutiny. We ask the Minister to keep us informed of developments in the legislative process, especially in relation to the proposed widening of the Fund’s intervention criteria.

7.11We also draw the proposal to the attention of the Business, Energy & Industrial Strategy and Work & Pensions Committees, who may wish to consider it further in the context of the implications of Brexit for UK workers and the future domestic replacement of the European Social Fund.

Full details of the documents

(a) Proposal for a Regulation on the European Globalisation Adjustment Fund (EGF): (39851), 9701/18 + ADDs 1–2, COM(18) 380; (b) Report from the Commission on the mid-term evaluation of the European Globalisation Adjustment Fund (EGF): (39852), 9695/18 + ADD 1, COM(18) 297.

Background

7.12Since 2006, the EU has funded support measures for workers in one of its Member States who have lost their jobs “as a result of major structural changes in world trade patterns caused by globalisation and whose redundancies have a significant adverse impact on the regional or local economy”. This European Globalisation Adjustment Fund (EGF) follows the EU’s long-term budgetary cycles, and the current iteration was established in 2014 and runs until the end of 2020.37 It complements the European Social Fund, which invests in measures to safeguard employment opportunities in the long-term.

7.13Currently, to qualify for support from the current EGF, redundancies in a Member State must number at least 500 in either a single company, or in the same economic sector in one or two (adjacent) regions. Money from the Fund co-funds38 support to redundant workers, to enable them to re-enter the labour market as soon as possible. Funding can be used only for active labour market policies, including training or education. It cannot be diverted to activities ordinarily carried out by public employment services, or programmes in receipt of other types of EU funding (such as the European Social Fund). The EGF can also not be used to finance the restructuring of companies or sectors themselves, which would take it into State Aid territory.39

7.14A decision to mobilise the EGF is taken by the European Parliament and the Member States in the Council, on a proposal from the European Commission. Since the EGF’s inception, the number of cases has been highly cyclical, responding to economic developments with an evident delay. In 2007–2013, 112 successful applications provided €479 million of support for 105,000 beneficiaries. Between January 2014 and May 2018, there were 43 funding decisions (targeting 42,000 beneficiaries, providing total support amounting to €132 million). As such, the Fund is heavily underutilised given it has a maximum annual budget of €150 million.

7.15The Fund has been subject to several evaluations and studies, including a European Court of Auditors’ special report in 2013, an ex-post evaluation of the EGF 2007–2013 in August 2015, and most recently the Commission’s own mid-term evaluation of the EGF 2014–2020. These have generally found that support from the EGF offered “personalised and well-coordinated support”, but the overall impact on employment prospects were impossible to measure. The UK Government has consistently argued that the EGF “represents neither good value for money, nor a genuine case for investment at an EU rather than national level”.40 Accordingly, the UK (alongside Germany)41 voted against the Regulation establishing the current Fund in December 2013,42 even after securing a substantial reduction in the Fund’s financial endowment for 2014–2020 compared to its endowment between 2007 to 2013.43 The UK has never applied for funding from the EGF.44

The proposal for the EGF 2021–2027

7.16On 30 May 2018, the Commission tabled a legislative proposal to extend the Globalisation Adjustment Fund beyond the current budgetary period, until the end of 2027. The proposed EGF Regulation is part of the wider discussions on the EU’s next Multiannual Financial Framework (MFF), which will establish the Union’s expenditure limits and spending priorities for the seven-year period from 2021 to 2027.

7.17The EGF 2021–2027 would have a budget of €1.575 billion (£1.42 billion)45 for that period, compared to €1.05 billion for the current budgetary period. It is one of the EU’s special financial instruments, which—because of its reactive nature, without planned spending—is not included in the overall expenditure ceilings of the Multiannual Financial Framework. Instead, it will have a maximum endowment of €225 million per year above and beyond those spending limits. It is also linked explicitly to the implementation of the European Pillar of Social Rights, a non-binding declaration issued by the Member States, European Parliament and European Commission in November 2017 which sets out the EU’s ambitions and objectives in the field of social and employment policy.

7.18As is the case currently, Member States making an application for support from the EGF would also have to contribute financially to the resulting efforts to help workers re-enter the labour market. The co-financing rate—the proportion of the total cost of an application that would be funded by the EU—would vary per country: the Commission proposes it could range from 70 per cent for the least-developed regions in the EU to 40 per cent for the richest parts, reflecting the approach taken under the proposed European Social Fund 2021–2027. The Commission argues that aligning the co-financing rates between the two Funds would avoid any unintended ‘competition’ between them.46

7.19Based on its evaluation of the 2014–2020 Fund, the Commission has also proposed a number of substantive changes to the operation of the EGF, the most important of which are listed below:47

7.20In parallel to the Globalisation Adjustment Fund, the Commission has also proposed a new European Social Fund (ESF+) for the same period. This will fund projects to address social and labour market challenges before they lead to job losses, as well incorporating the current Fund for Aid to the Most Deprived and the EU Health Programme; we set out our first consideration of the ESF proposal separately in our Report of 5 September 2018.

Previous Committee Reports

None. For our predecessors’ last Report on the 2014–2020 EGF, see: Tenth Report HC 86–x (2012–13), chapter 1 (17 July 2012).


31 See paragraph 0.15 for more information on the UK Government’s historic position on the EGF.

32 The current maximum budget for the EGF is set out in article 12 of the Regulation establishing the 2014–2020 Multiannual Financial Framework.

33 The expansion of the Fund’s scope of application to ‘restructuring events’ generally was asked for by France during the negotiations on the existing Fund in 2012–2013. See Council document 7383/13, p. 3: “FR [France] restated its earlier proposal to extend the fund to include restructuring, but this did not find sufficient support”.

34 Explanatory Memorandum accompanying the Commission proposal for a Regulation establishing the EGF for the 2021–2027 period.

35 We wrote to the Chief Secretary separately on 12 September to request an explanation for this unacceptable delay in the submission of the Explanatory Memorandum, and to seek reassurance that it will not reoccur for other EU documents in the future.

36 As we have set out in our recent Reports of 4 July and 5 September 2018 on the overall Multiannual Financial Framework 2021–2027, there are likely to still be UK contributions to the EU budget after the end of the transition for UK participation in specific EU programmes.

38 Applications by Member States for support from the EGF also require a financial contribution from the Member State involved.

39 A small proportion—0.5 per cent—of the Fund can also be used by the Commission to provide technical assistance, which can be used for the “preparation, monitoring, data gathering and creation of a knowledge base relevant to the implementation” of the EGF in Member States.

40 See for example the Treasury’s Explanatory Memorandum of 26 April 2018 on the proposed mobilisation of the EGF.

41 Germany had proposed limiting applications to the EGF to redundancies among young workers in regions of the EU with a high unemployment rate of 25 per cent or more (Council document 7927/13).

42 See Council document 9033/14, summarising the outcome of the Council vote on 16 December 2017. Other Member States—including the Netherlands, Denmark Sweden, and the Czech Republic—had previously opposed extending the EGF but eventually voted in favour (after the Heads of State and Government in the European Council, on 8 February 2013, instructed the Council to support a continuation of the Fund). Ireland, France, Spain and Greece were among the most supportive Member States.

43 The 2007–2013 European Globalisation Adjustment Fund had a maximum budget of €3.5 billion over that period (2006 prices). The 2014–2020 Fund has a maximum budget of €1.05 billion (2011 prices).

44 As of December 2016, the UK was joined by Cyprus, Croatia, Hungary, Luxembourg, Latvia and Slovakia as the other Member States never to have applied for EGF support.

45 This maximum amount is in 2018 prices.

46 Commission Impact Assessment (SWD(2018) 289), p. 17.

47 Among the smaller changes are the fact that new Regulation would also allow Member States to use funding received from the EGF within two years of receipt of the money, rather than (as currently) from the date the application is received by the Commission. A new provision has been added to clarify that the Fund cannot be used if public sector redundancies are the direct consequence of public budgetary cuts.

48 See article 2 of the current EGF legal framework (Regulation 1309/2013).

49 See article 5 of the proposed Regulation for more information on the applicable reference period for different types of large-scale redundancies.

50 Commission Impact Assessment (SWD(2018) 289), p. 21.

51 The 2014–2020 EGF had already reduced the redundancy threshold from 1,000 to 500 compared to the original EGF, which operated from 2007–2013.




Published: 16 October 2018