Select Committee on European Communities Thirtieth Report



  64.    The aim of the Cohesion Fund was to promote convergence between Member States. The establishment of the euro begs the question as to whether this Fund is still necessary, but the new draft regulation provides for the Cohesion Fund to be allocated to Member States which meet certain deficit criteria and remain below 90 per cent of EU GNP. The DTI said that the United Kingdom and Germany had questioned the continuation of the Cohesion Fund, whilst Spain had "made a passionate defence of the Commission's proposal" (Q 72).

  65.    Dr Schönfelder said that "the German Government is of the view that the Cohesion Fund was introduced in Edinburgh in 1992 with the intention of easing the rapprochement of the economically weaker states to EMU without endangering important investments in the areas of transport and the environment in these countries. The assistance from the Cohesion Fund should, therefore, end when a country joins EMU. The Cohesion Fund should not become a permanent, second instrument of assistance in addition to the Structural Funds." (Q 371).

  66.    Sr Miguel Arias Cañete, Chairman of the European Parliament's Regional Policy Committee, emphasised that Parliament's role in connection with the Cohesion Fund under the co-decision procedure (QQ 280-283). He said that for the Parliament, the Cohesion Fund would be the most controversial part of the Commission's Proposals. Whereas in the Council only the Cohesion Countries were wholeheartedly in support of the Cohesion Fund, the European Parliament was much more divided on this issue (QQ 286, 288).

  67.    Mr Marc Vanheukelen said that the eligibility criterion of 90 per cent GNP would be reviewed in 2003. "It is not to be excluded that by that time even with regard to GNP and not GDP[15] Ireland will have crossed the 90 per cent threshold such that Ireland will no longer be eligible for the Cohesion Fund after 2003" (Q 243).


  68.    The Commission's working assumption is that six states—Poland, the Czech Republic, Estonia, Slovenia, Hungary and Cyprus—will join the EU in 2002. Dr Schönfelder said that there was "no alternative to enlargement, for many reasons". In his view it was "the cheapest . . . way of producing stability in Europe and especially in Central and Eastern Europe" (Q 388).

  69.    Mr Pawel Samecki, Deputy Minister of Finance in Poland, said that in principle the level of potential funding available for newly acceding Member States was not the key issue for the countries concerned. The accession countries were interested in getting a fair share from the Structural Funds—"but it is not something which keeps us awake" (Q 203). It was, however, an important argument for public opinion inside the accession countries. Potential funding from the Structural and Cohesion Funds was an important incentive towards making the internal adjustments necessary for fulfilling the accession requirements (Q 194). The Polish Ambassador, Mr Stemplowski, emphasised that Poland was proposing to integrate itself with the European Union, not with a fund. "Funds or not, we would like to join" (Q 212).

  70.    Mr Samecki said that it was likely that the whole of Poland would be eligible for Objective 1 (Q 206). The average GDP in Poland was only 31 per cent of the average level of EU GDP. The total population of Poland was 61 per cent of the total population of the five accession countries, "so if we add up all these criteria which may be used for calculating our fair share of the total amount available for newcomers, then we can say that Poland should be assigned something like 27 billion ecu, which is more or less 60 per cent of total funding available. There is a question whether we should discuss the criteria within which we operate or whether we can discuss these issues on the basis of the principle, "the sky is the limit". If the sky is the limit, then of course we can enter into a different type of discussion" (Q 202). Post-accession, the funds were likely to represent significant potential income for Poland—probably in the range of four per cent of Poland's GDP." (Q 206)[16]

  71.    Ms Edith Kitzmantel, Deputy Director-General of DGXIX of the European Commission, said that "given the small size of the Community budget and the enormous investment needs in candidate countries, budgetary transfers can only play a catalytic role. Still, in terms of recipient GDP, financial aid will have been more generous than the Marshall Plan, before pre-accession aid sets in. Discussion of financial control issues has just begun and will certainly take much attention in the period ahead" (Q 356).

  72.    The DTI said that "from the United Kingdom point of view . . . there must be sufficient amounts for the new acceding Member States, and . . . therefore the existing Member States must be prepared to accept cuts and that includes the United Kingdom. Ministers are prepared for the United Kingdom to take its fair share of the cost of enlargement, but not an unfair share." (Q 41). COSLA agreed, accepting that enlargement would mean that eventually Member States would have to take some reduction in funding, Scotland included (QQ 89-91).

  73.    Whilst arguing that enlargement could be financed from natural growth in GDP, the Alliance for Regional Aid agreed that "one is only poor by comparison and by comparison to Eastern Europe we are all rich and by comparison to Sudan all those in Eastern Europe are rich". It accepted that the European Union should expand to include Eastern European countries, and "if there is only so much to go round, they ought to get the first bite" (Q 176).


  74.    One of the Commission's aims is to improve the financial management of the Funds. Ms Edith Kitzmantel outlined the Commission's new approach in relation to financial management and control. She pointed out, however, that with the Structural Funds the primary control rested with Member States, and 90 per cent of all errors occurred in the Member States (Q 316).

  75.    The DTI said that improved financial management was "something that the United Kingdom is going to support extremely strongly". The Government supported the Commission's proposal to de-commit funds which had not been used within three years, pointing out that it should not, on past form, cause "enormous problems" for the United Kingdom (Q 61). According to the DTI, the proposal itself does not make clear what happens to the money that is de-committed if Member States do not spend it properly (Q 70).

  76.    Mr Laurson, Head of the Structural Funds Unit in DGXIX, said that the Commission's proposal was based on the idea of automatic de-commitments which became a budgetary saving. The only exception proposed was if there was an initial delay in the first year a re-budgeting exercise would mean that allocations to that extent were not lost (QQ 324-325).

  77.    Most witnesses expressed reservations about the Commission's proposal for a "performance reserve", under which 10 per cent of the Funds would be held back and then paid as a reward to good performers. Several Member States are apparently opposed to this proposal (QQ 62, 235).

  78.    Mr Marc Vanheukelen said that the time had come to introduce positive incentives for the good use of the Structural Funds. "Currently we only have sticks, we do not have carrots" (Q 235).

  79.    The DTI said that the performance reserve had "a large qualitative element to it, which is simply not described in the regulations. We have had a further discussion in the official working group . . . and the Commission said that their assessment of good performance would be based on effective management and good financial control and so on, but there were not the specifics there to make you consider that yes, this is a workable system . . . At the moment there is a worry that you are going to have some rather arbitrary, not very transparent system, whereby people's money is withheld. We should not forget that . . . the purpose of the Structural Fund is to meet the EU objectives of promoting economic and social cohesion. You are talking about allocating the money on the basis of need. If you are going to decide to withhold some of it and allocate it on another basis, then the positive benefits have to be there for all to see. At the moment, with this reserve proposal, that is just not obvious" (Q 61).

  80.    The Alliance for Regional Aid thought that the performance reserve would inevitably favour the bigger players in the system, such as the bigger cities, which had more staff to administer the funds. "It will probably go to those who can act quickest and thereby get the 10 per cent for finishing the job. It is not necessarily the long term more thought out schemes which do not need as much but are going to lose out" (Q 172).

  81.    COSLA said that the performance reserve would distort the process of planning for the developments in the programme over a seven year period. "We take the view that if you have robust monitoring and evaluation systems that are working on effectively a quarterly basis so it is not just in the year 2003 and at the end of the programme but is a continual process, you should not need what is effectively going to be a blunt instrument to chivvy the poor performing areas up" (Q 108).

  82.    The Welsh Development Agency was also particularly concerned about the performance reserve proposal "to be awarded mid-way through the programme period to those regions that have made speediest progress in executing their programmes." It feared "that this could provide too much incentive for speed rather than quality and would also run counter to the Commission's commitment to subsidiarity and partnership." (p 135).

  83.    In contrast, the CBI supported the proposed 10 per cent performance reserve. It considered that the principle could be extended to provide further support to projects which emerged during the execution of programmes, but which had not been planned at the outset. The CBI considered that allocation should be made at the national level and if money were not allocated it should be pooled and allocated to other Member States' projects. It warned, however, that success of the performance reserve would depend on better assessment of "good" projects (p 100).

  84.    The CBI thought that the quality of output monitoring and scoring systems was currently poor and there was a lack of uniformity, making it difficult to compare like with like. There was also too much emphasis on monitoring inputs, rather than the outputs of projects. The CBI suggested that better use should be made of technical assistance to help inform monitoring committees of what was working effectively (p 100).

  85.    The Department of Economic Development, Northern Ireland, made the point that it does not matter whether one is spending "well" if one is spending misguidedly. It thought that monitoring had improved under the present Structural Funds Regulation (Q 137). As an indication of improvement, they instanced the set of 300 indicators[17] which had been prepared for the Northern Ireland Single Programme in 1993, which had since been reduced to 50 core indicators (QQ 137-139). The Department had already used external consultants to evaluate its three Programmes (Q 139). It thought that there was probably "quite a low incidence of fraud per se in the mainstream Structural Funds" (Q 142). COSLA expressed a similar view for Scotland (Q 107).

  86.    The Local Government Association said that the simplification of the funds should facilitate clearer monitoring. The increasing complexity of various European funds over the past decade had resulted in local authorities spending a great deal of time, money and effort in helping communities to understand what the funds were for (Q 8). The LGA emphasised the importance of democratic accountability, "so that justice is not only done but seen to be done . . . the fundamental ingredient of effective auditing is public scrutiny. Without that the auditing itself is devalued" (Q 29).

  87.    Highlands and Islands Enterprise strongly supported the view that the use of Structural Funds should be transparently for the purposes for which they were awarded. Monitoring of programmes and individual projects was therefore vital in order to avoid mis-application. It thought, however, that "the current monitoring procedures are bureaucratic and impose a considerable burden on project sponsors, Programme Executives and audit teams. There is scope for placing responsibility for compliance in the use of Structural Funds firmly on to project sponsors, with random (rather than comprehensive) checking, carried out principally by existing internal and external audit functions of partner bodies" (p 113).


  88.    Highlands and Islands Enterprise thought that the re-engineering of processes was potentially the most fruitful route to the future simplification of administration. It also considered it essential that interim evaluation played a central role in helping the review of a programme's past impact and future direction, and that rapid response to an evaluation was possible through efficient and flexible programme revision. "Too often the excessive time taken to agree the implementation of interim evaluation findings has been so disruptive of the scrutinised programme as to virtually neutralise the benefit of the review exercise" (p 113).

  89.    The Trades Union Congress (TUC) warned that "simplification must . . . not be a label for simply shifting burdens." It said that the early United Kingdom experience of Employment Action Plans in Objective 2 programmes had been mixed. Simplification for Monitoring Committees and European Secretariats had in some respects been accompanied by a resulting increase in responsibilities for administration, monitoring and evaluation falling on local partnerships, without any additional resources being available. It thought that experience gained in City Challenge partnerships of programmes being consciously designed to be accessible for small projects were valuable in this context (p 131).

  90.    The Local Government Association (LGA) stressed the difficulties caused by funding delays. "Cash flow problems are extremely prevalent in European funding. Given that it is an important ingredient in a complex cocktail, we do not want a cash flow problem because it can have a knock-on effect on all of the other forms of funding. Increasingly, other funding regimes have deadlines and qualifications to penalise slippage. Local authorities in particular but also others operate on a lot tighter budgets than they used to. Therefore, we do not have the same level of resources to soak up any cash flow problem that may arise from the failure to receive external funding" (Q 35).

  91.    The LGA also emphasised the importance of transnational programmes, and advocated using a greater proportion of European funding in this way in order to build a more coordinated, stronger European Union. "Our experience is that frequently the transnational programmes are the most difficult to get going despite the fact that ultimately they are the most worthwhile" (Q 36).


  92.    The Local Government Association said that the 75 per cent criterion for state aids would reduce the ability of the United Kingdom Government to allocate a sufficient level of resources to some struggling regions, many of which would not qualify on the 75 per cent basis (Q 10).

  93.    Highlands and Islands Enterprise said that it was essential that the Commission interpreted the inter-relationship between EU and Member State regional policy flexibly in recognition that the Structural Funds regime was by definition broad-brush, whereas Member State regional policy could be much more fine-grained in tackling local problems. It recommended, therefore, that while state aids should be generally aligned with the application of Structural Funds, there should remain scope for derogations where these could be justified on regional policy grounds (p 113).


  94.    The Local Government Association said that it was "absolutely paramount that local and central government in the UK has the maximum presence within the European Union and that it punches its full weight." Councillor Sparks thought that some regions were a lot better organised than others, and would have to catch up fast (QQ 17-18). Reassuringly, the Local Government International Bureau thought that over the past 10 years United Kingdom local authorities had become "extremely adept" at lobbying in Brussels, and there were more UK local government representation offices based in Brussels than similar offices representing local authorities in other Member States. "The UK voice is very well heard in Brussels" (Q 31).


  95.    Much of the written evidence which the Committee received relates to environmental issues. This is, perhaps, unsurprising. At the time of the last (1993) major reform of the Structural Funds[18] it was anticipated that environmental authorities would play a major role in connection with the Funds. The Royal Society for the Protection of Birds (RSPB) said that its main concern about the new draft Structural Funds regulation was "the unexpected lack of reference to the environmental authorities as key members of the partnership. All previous drafts and working documents of the Commission included them in what is now Article 8 on "Complementarity and Partnership". What is more, they were introduced in the 1993 reform and have been playing an important role ever since."

  96.    The RSPB called for environmental authorities to be re-introduced into the system as core partners in the Structural Funds at all stages, and for them to be included in the management authorities for Community Support Frameworks, Operational Programmes and Single Programming Documents. It also recommended that the high biodiversity value of some rural areas should be included as an eligibility criterion for receiving Structural Funds support, and that regions which had nature conservation areas forming part of the Natura 2000 network should qualify for funding. The RSPB also suggested a specific linking of environmental protection and improvement activities with employment creation programmes, pointing out that nature conservation is a significant and growing sector of the economy, providing up to 20,000 full time equivalent jobs in the United Kingdom alone (p 121).

  97.    The Institute for European Environmental Policy (IEEP) also called for the draft General Regulation to be amended to make it a requirement to include environmental authorities both in the partnerships[19] and as formal members of Programme Monitoring Committees (PMCs). It also recommended the publication of Commission Guidelines, setting out the criteria Member States should adopt in designating environmental authorities; the role such authorities should play in the development and implementation of regional development plans and Single Programming Documents (SPDs); the required content of ex ante environmental evaluations; and how sustainable development considerations should be reflected in project selection criteria (p 115).

  98.    The Committee's report on the last proposals for reform said that policies designed to strengthen economic and social cohesion in the Community could only be lasting if "environmental considerations are taken into account and seen as an essential part of economic and social development." The Committee warned that "it would clearly be wrong for Community funds to be spent on programmes that conflict with the agreed policies of the Community."[20]

  99.    English Nature was concerned about the damaging effects, actual and potential, that Structural Funds projects and programmes might have on the natural environment. It cited cases in the Marches 5b area where projects had been approved but were actively damaging the natural environment, and were even more concerned about damage which might be occurring under programmes in other areas which was not being monitored. To remedy this, English Nature recommended that:

  (i)  all programmes benefiting from EU Structural Funds should not allow projects which damaged the natural environment to be proposed;

  (ii)  selection/scoring criteria should be amended to ensure that projects which potentially caused damage to the natural environment could be identified and amended so that any projects likely to cause irreversible damage were not funded;

  (iii)  all projects should meet environmental quality standards in their implementation (eg for the protection of water resources); and

  (iv)  projects should report their effect on the natural environment, including any enhancements (p 105).

  100.    The IEEP said that the Cohesion Fund presented considerable opportunities for environmental improvement, but in some cases it had resulted in significant harm to the environment. For example, the majority of transport projects supported by the Cohesion Fund had favoured road infrastructure.[21] Apart from the direct impact on particularly sensitive areas such as those designated under national and international nature conservation legislation, the provision of extra road space was likely to lead to an increase in road traffic, contrary to objectives in the EC's Fifth Environmental Action Programme. The IEEP also said that experience of the Cohesion Fund indicated that inadequate institutional capacity and/or political will within the recipient countries could result in insufficient attention being given to the proper administration of the Fund. This danger had been exacerbated by the failure to require the participation of environmental authorities and non-governmental organisations, particularly within Monitoring Committees.

  101.    The Instrument for Structural Policies for Pre-Accession (ISPA) is designed to provide financial assistance for applicant countries as they prepare to join the EU. The IEEP was concerned that the proposed approach to ISPA in the transport and environment spheres mirrored in most respects the approach applied under the Cohesion Fund and called for the ISPA proposal to be amended to avoid the repetition of many of the "failures associated with the Cohesion Fund" (p 116).

15   Ireland's GNP per head is several percentage points lower than its GDP per head. Back

16   Four per cent is the maximum proposed by the Commission. Back

17   The original database of 300 performance and impact indicators "was actually larger than the Structural Funds programme document for the period" (Q 139). Back

18   The Committee reported on the earlier proposals for reform in its 4th Report of session 1991-92 (HL Paper 20), EEC Regional Development Policy, esp. paragraphs 70-73 and 131-132.  Back

19   English Nature made a similar recommendation (p 106). Back

20   4th Report of session 1991-92 (HL Paper 20), EEC Regional Development Policy, paragraph 131. Back

21   Speaking about Structural Funds expenditure the Alliance for Regional Aid said that "if you travel around some of the old industrial areas of Britain . . . any new link road you see, putting aside the big motorways, will have been built partly with European money" (Q 181). Back

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