Examination of Witnesses (Questions 1-19)
Mr Donald MacInnes, Mr Phil McVey and Mr Roger Head
8 JANUARY 2008
Q1Chairman: Good morning and welcome to the
Committee. Could I say that we do record everything that is said
here but you will get a transcript of it so that you can make
corrections of things which might have been better put, if that
happens. I know you have had a list of the topics but I would
like you all to start out by saying what it is that your organisation
does because this is a new subject for us and not all of us are
absolutely familiar with what these various groups do. We very
much wanted to talk to people who were, as it were, at the sharp
end, at the end where the money got to. The first question, which
I am going to ask, really applies only to Mr MacInnes and Mr McVey,
and Mr Read gets his chance in a few moments. Against the background
would Mr MacInnes and Mr McVey start out by telling us, roughly
speaking, about their organisations and what they do?
Mr MacInnes: I am Donald MacInnes, I am the
Chief Executive of an organisation called Scotland Europa. We
are a membership organisation. Approximately 60 members pay our
fee to represent them in Brussels. In Scotland we also represent
Scottish Enterprise and provide the EU funding service for Scottish
Enterprise. They get around £30 million a year in EU funds
for around 300 live projects we have just now.
Mr McVey: Good morning. My name is Phil McVey,
I am Director of European Programmes in the South West of England
Regional Development Agency. We are a non-departmental public
body—there is one agency in each of England's regions, including
London—responsible for leading sustainable economic development
within the region. We receive funding each year from central government,
in addition to which from this year we receive approximately £50
million each year of European funding, which we are administering
on behalf of the UK government in the region working with partners.
Q2 Chairman: That is quite a familiar structure.
If I may start by asking both of you, answering in turn or as
you like, what are your guiding principles as you distribute funds
received from the EU? To what extent are you allowed to use your
own discretion in setting the parameters for distribution? Do
you believe the devolution in the United Kingdom of decision-making
to the devolved administrations and the RDAs has been successful?
Mr MacInnes: Our guiding principles are that
we like to use the funds to support our economic strategy in Scotland.
We have a clear economic strategy which was called Smart Successful
Scotland, it has now been renewed in the autumn, and our aim is
to support business innovation, research and development, workforce
development and also regeneration of deprived areas. To what extent
do we have discretion: yes, we do have a large degree of discretion
within these parameters, especially in the new programme where
we are taking a much more strategic approach to funding. Rather
than having to apply on individual projects, we are free to apply
on a strategic basis; to do that we apply to support our priority
industries. We have six priority industries that we particularly
want to support because by supporting them from a public point
of view we think they make a disproportionate impact on the economy.
Whether devolution and decision-making to devolved administrations
has been advantageous, we have not noticed a big difference in
that. When it comes specifically to Structural Funds we have not
noticed a big difference on whether that has been advantageous.
In a whole lot of other areas, of course, there are comments on
that. The area we like to support more in terms of going forward
is innovation and research and development, and particularly tying
some of the issues we have to do with regeneration with the bigger
issues across Europe in climate change and so on. We find it very
difficult to square that circle, particularly using Structural
Funds. I think it is easier to do that using the bigger funds
like the Framework Programmes in research and development.
Mr McVey: Our guiding principles are along similar
lines, in that we take as the starting point for how we use the
funds in the region our regional economic strategy, which sets
out on behalf of partners what we hope to achieve in the economy
in the South West. Underpinning that is very much the environment
as being an economic driver, so that we do not see issues such
as climate change as a disadvantage, but we should see them as
an opportunity within the economy. As well as that regional principle
in terms of how we would use the funds within the region, we also
keep very much to the top of our mind two other things: one, that
these are European funds, so we work within the framework set
up by the European Commission and all the Member States for the
use of the funds. There is something called the National Strategic
Reference Framework that sets out how the UK will distribute the
funds and we work very closely with that. Then critically (and
I would say this as someone who lives in the far South West of
England) we align the funds with local economic strategies. I
think about Cornwall and the Isles of Scilly which will receive
a considerable injection of European funds over the next seven
years. That area has its own economic strategy as we have. As
well as taking account of the top-down national regional strategies,
we have built the use of the funding around that local economic
strategy as well so that, for example, in Cornwall and the Isles
of Scilly partners are very keen to see the further development
of the renewable energy sector in Cornwall and the Isles of Scilly.
We have worked with them to ensure that the European programmes
will help to deliver that aspiration. In terms of the second part
of the question about the development of decision-making—and
I should make it clear that this is the first time that Regional
Development Agencies have actually been responsible for the funds,
so it might be a little early to say what the outcome will be—even
in the planning of the programmes in the South West of England
with the RDA in the lead we have seen a much greater emphasis
on ensuring that the activities in the European programmes, and
the sort of outcomes we are going to achieve, are much more aligned
with existing strategies in the region. At the outset of the programme
we have got a set of things we want to achieve that are much more,
as I say, closely aligned with overall aspirations.
Q3 Lord Steinberg: May I ask a question
particularly of Mr MacInnes but maybe you can come in as well.
You said there were six principal industries that you were supporting
and working on. Could you tell us what those are, please? I am
particularly interested to know whether tourism forms any part
of that, and would ask Mr McVey the same thing.
Mr MacInnes: From a Scottish Enterprise point
of view the six priority industries are: life sciences; energy;
financial services; tourism; creative industries and there is
another one as well.
Q4 Lord Steinberg: Obviously not an important
one!
Mr MacInnes: I cannot remember the other one.
These are basic industries.
Q5 Lord Steinberg: Are the monies allocated
on a fairly even basis, or do some take a particular priority?
Mr MacInnes: No, not evenly. Some of these industries
are much more advanced than others. For instance, the work we
do in financial services is about workforce development skills,
to have skills coming through for the big financial services industry
that we have. In energy it is the combination of supporting the
oil and gas in Aberdeen, for instance, plus also supporting new
projects in renewables. In creative industries it is to support
a young industry across Scotland, particularly in Dundee.
Q6 Lord Watson of Richmond: You particularly
mentioned innovation several times. To what extent are you in
the business of picking winners, and what is the process which
led you down that path? Secondly, if you could just clear up something
which has slightly puzzled me. I may have misunderstood what you
were saying, Mr MacInnes, but I thought you said that your organisation
was a membership organisation? Presumably you have to be very
careful about this so there is no relationship between a company
becoming a member and paying a fee presumably and having any kind
of access to these funds?
Mr MacInnes: No, there is no relationship. On
innovation we believe that by supporting young companies which
have a capacity to grow faster than others we can make a disproportionate
impact on the economy.
Q7 Lord Watson of Richmond: I am sorry,
my question is: how do you judge which have the greater potential
to develop, because that is picking winners?
Mr MacInnes: We have two particular programmes
that we work on. One is called the Proof of Concept Fund where
we have achieved about £10 million of ERDF funding for that,
and that is for people who are working on research at universities
and have not yet got a commercial idea but by supporting them
we think that the idea might become commercial and it would lead
to a substantial company being set up. We work closely with the
universities on that one so it is very specific. The other fund
we have is what we call the Scottish Co- investment Fund, and
again we want to attract people who want to grow businesses of
scale. We do not make the choices ourselves; we allow either universities
or companies to come to us. On the question of our members, it
is not individual companies who are members of Scotland Europa,
it is people like the universities, local authorities and so on.
Q8 Lord Maclennan of Rogart: I am sorry,
I am still trying to get a little more clarity in my mind about
how you operate. Are you in a negotiating position with the funders
in the European Union about the objectives, or is this discussion
about prioritisation in a sense entirely internal to Scotland?
Mr MacInnes: We have an office in Brussels where
we work to promote our members' interests and that ranges from
helping them to understand what legislative issues might be coming
up, to helping them with funding for individual projects. The
large part of what we do with Scottish Enterprise, which is one
of our members, is on Structural Funds and helping them to obtain
funding for their individual projects.
Q9 Lord Maclennan of Rogart: What proportion
of the funds allocated to Scotland is administrated by your organisation?
Mr MacInnes: On business development funds it
is round about 70 per cent.
Q10 Chairman: Mr McVey, would you like to
comment inasmuch as these questions apply to your area?
Mr McVey: I would like to comment, if I might,
on the question related to sectors. The South West of England
in the recent economic strategy has priority sectors, and tourism
is one of those priority sectors. In relation to how we might
make use of the European Structural Funds within the region we
are taking a slightly different approach, which is we recognise
the value of certain sectors to the economy but the programmes
themselves are much more about ensuring that we invest in companies
that are going to deliver high quality, high value jobs in the
future regardless of sector; and that is a slightly different
approach to what might have been taken in the past through European
Structural Fund Programmes. There is no allocation to a sector
of funding, but what there is is a definite concentration of funding
upon businesses that we believe might bring those better jobs
in the future, and that is very important in the South West of
England where the average wage rate is below the national average
in many parts of the region. It does relate to the subsequent
question about picking winners which is always a difficult issue.
I do not know if anybody has got the answer to that one in particular.
Similar to Scotland, we have a proof of concept programme whereby
we can reward inventors, if you like, to ensure that those ideas
get transferred to the market, get transferred to businesses as
quickly as possible, and that is something Structural Funds are
going to do as well. If I may in relation to the third point about
the relationship with Brussels, certainly in terms of the Structural
Fund, the South West RDA is responsible for 100 per cent of the
main Structural Fund Programmes coming into the South West region.
It has been a very open dialogue with Brussels about the prioritisation
of the funding and how we might use it within the region. The
sectoral issue is a particular one, where Brussels started from
the standpoint of wanting to see clear sectoral prioritisation
and money allocated to sectors on the basis of their importance
in the region. We persuaded them that actually a different approach,
a sectoral aligned approach, might be one that in the longer run
would bring greater benefits because, as I say, we invest on the
basis of outputs and impacts we are getting in terms of jobs and
growth, rather than on a particular sector's historical performance.
Chairman: Thank you very much. The guns will turn
on Mr Read shortly. Lord Trimble, I think your question probably
applies more to this point than to Mr Read's operation, if you
would like to ask it.
Q11 Lord Trimble: Just reflecting on the
involvement of devolved administrations, I was quite surprised
in our early days when a senior official in the Department of
Finance told me that European Structural Funds were quite often
more trouble than they were worth; that they led to a distortion
of public expenditure priorities because the money was not additional
to devolved administration, the money went to HMT; and consequently
the Treasury put pressure on the administration to pursue public
expenditure which would draw down money from Brussels rather than
very often pursuing public expenditure priorities the administration
would have pursued, were it not that. You referred to the dialogue
with Brussels; do you have any sort of dialogue with the Treasury?
Mr McVey: Not directly, is the straight answer
to that. As a Regional Development Agency we do not because we
deal through the Department for Business Enterprise and Regulatory
Reform and Communities and Local Government, so that is our route
for dialogue. The issue as to whether Structural Funds distort
public expenditure within the region is one that is discussed
quite a lot. If I refer to Cornwall and the Isles of Scilly—where
it has been put to us that, because there is a concentration of
Structural Funds in Cornwall and the Isles of Scilly, other parts
of the South West Region do not receive as much domestic funding
as they might through the Regional Development Agency—in
fact, all the evidence is that the Regional Development Agency
would have, and indeed has spent the domestic money in Cornwall
and the Isles of Scilly anyway because of the economic conditions
in that part of the far South West. The distortion is not at the
level that people might be arguing.
Mr MacInnes: The situation with us is very similar.
In fact, maybe to put it in an historical context, our principal
relationship was with the Scottish Office previously, then the
Scottish Executive and the Scottish Government. We do not have
a direct relationship with the Treasury as such.
Q12 Lord Trimble: Do you come under any
pressure from the Scottish administration?
Mr MacInnes: No, we agree the programme with
them and we have done that for the programme for 2007-2017.
Q13 Lord Trimble: If there was any Treasury
influence it would be on the Scottish administration and then
fed through indirectly to yourselves?
Mr MacInnes: Yes.
Q14 Lord Woolmer of Leeds: Mr Read, in this
country the idea of city regions being very important drivers
of development and so on is now well established—500,000-plus
population and so on, as you say in your notes. You say in your
written evidence that Structural Funds need to recognise the importance
of the metropolitan dimension (city regions, I assume) to the
various agendas for sustainable economic and environmental development.
Does that imply that the Structural Funds do not currently do
that? What is it that you are critical of; and what is it that
needs to be put right in your view?
Mr Read: Would you like me to say something
about METREX and myself?
Q15 Chairman: Yes, please. If you could
introduce the organisation.
Mr Read: METREX is a network of city regions,
city regions and their area of influence. We use the term "metropolitan"
to describe that. As I have said, there are about 100, with a
population over half a million. It was founded in 1996. It is
a self-help network for practitioners. By "practitioners"
we mean politicians, officials and their advisers; so everybody
who is involved in strategic decision-making at that level to
just exchange knowledge and information, and also to contribute
what we term the "metropolitan dimension" to European
affairs. So those are the two objectives. It is self-funding;
it is a club. In our view there are two ways in which the funds
might be approached. It is possible to point directions, as the
EU has done with climate change, to say we have an objective of
an 80 per cent reduction over 1990 by 2050. METREX has responded
to that through the INTERREG programme with a submission where
all our members will try and reduce their levels of emission;
so it is a responsive approach. The other approach which is really
the main thrust of our evidence to you is that in 1999 the European
Spatial Development Perspective was produced. It took about ten
years to produce and nothing has happened since 1999. We have
now got the situation where the EU has social, economic and territorial
cohesion as its objective. One of the issues is: what is "territorial
cohesion"? There was a view on this which said that the overall
balance in Europe leads to problems in terms of cohesion and competitiveness,
so much being in the core and so little being round the periphery.
The work of ESPON, which is the advisory research organisation
to DG Regio, suggests that perhaps 20-30 of Europe's metropolitan
regions are strong. The vast number of them have a range of interrelating
problems of all kinds. If better balance is an objective, better
territorial balance, in our view it can only be achieved by co-operation
between a lot of the metropolitan areas around the periphery.
What we would like to see in a word (and it is something we have
tried to produce ourselves) is a framework for Europe; so that
in allocating the funds it will be possible for Europe to say,
"We have a vision, framework, perspective, whatever you like,
of the medium to longer-term; we would invite you to contribute
to its realisation"; so positive leadership rather than pointing
the direction with objectives and criteria. "This is where
we would like you to go; please go there; make proposals to us".
This document has been produced under the INTERREG programme by
METREX and METREX members really in order to provide it with a
context, with a plan in effect. Our response really to the question
is that we would like to see a clear view of the long-term future
of Europe, a clear vision for that; and an invitation for metropolitan
areas which we regard as the building blocks to realise that vision,
to participate and contribute. That is what is happening at the
moment in the absence of this. This has been produced because
of the vacuum above. I know you have a concern about subsidiarity.
Our view of subsidiarity is that every level of decision-making
has an obligation to say, "These are the issues which we
have to address, because they cannot be addressed effectively
anywhere else"; and to then say how they are going to do
that. At the moment there does not seem that direction from the
European level of "This is where we want to go. This is how
we intend to get there. We invite you to join us on the journey".
I think in essence that is the position we have on the funds.
Q16 Lord Woolmer of Leeds: In England (and
I do not know the situation in Scotland terribly well, Mr MacInnes,
so you may later put me right) the idea of city region issues
is embedded in the way in which a number of policies are developed.
Certainly in the, North East, North West and Yorkshire, the northern
regions, this is central to the work of the Regional Development
Agencies. Is not all this adding another layer of bureaucracy
if you start saying the metropolitan regions have got to have
a separate route into Brussels and so on? In England at least
is this not the job of the Regional Development Agencies; because
at the end of the day policies have to be coherent and city regions
have to fit into a wider policy and so on? I hear what you say,
and people all talking is very interesting and very helpful, but
in terms of the Structural Funds what is it you think needs to
be put right that is not being put right at the moment? I am trying
to get to something concrete as opposed to lots of discussion
producing documents?
Mr Read: If one accepts that the city region
level is a key level for strategic decision-making, there are
all sorts of mechanisms we are aware of across Europe for doing
that—just a voluntary coming together of existing organisations
at one level, what you might term the "voluntary approach".
Recognising that there are decisions that have to be taken at
that level, let us take all the stakeholders together to try and
take that on a voluntary basis; and there are mechanisms which
are that model. There are other models which you might term the
"statutory approach" where an authority is set up with
competences and powers to address big issues if there is economic
restructuring going on in a crisis situation. It is a pity that
our President from Stuttgart is not here because, as you know,
Germany has set up 11 metropolitan regions; and they have set
them up because they are concerned about the competitiveness of
Germany, and recognition that there are key decisions which have
to be taken at that level. The Stuttgart Metropolitan area, which
was the first one to be set up, is half of Baden-Wurttemberg,
and it was set up by Baden-Wurttemberg. It was set up because
they recognised there was a decision-making level there that had
to be established. I think there are a number of models you can
use for strategic decision-making at that level. It does not necessarily
have to lead to a further level of bureaucracy. For example, in
Scotland in the Glasgow area, where there are eight authorities,
they are both the local planning authority and the strategic planning
authority. They can only exercise their strategic powers collectively
together so there is nothing extra. So they do both those things
in different sorts of ways. I do not think it follows that there
has to be a further level of bureaucracy. The key thing is that
the area that is appropriate ought to be covered, and the decision-making
mechanism is there. It is an informed decision-making because
we want informed decision-making and it does require some sort
of back-up.
Q17 Lord Maclennan of Rogart: You are not
seeking, are you, for a nexus of metropolitan regions decision-making
authority which has to be recognised in the decision-making process
in Brussels?
Mr Read: No. In order to achieve the territorial
cohesion if that is an objective, and it would appear to be, then
our view is that that will be brought about effectively by metropolitan
areas co-operating particularly around the periphery. If there
is no mechanism at the metropolitan level then it is difficult
to organise that co-operation. Examples like the Oresund arrangement
or the Eurocity Basque of Biarritz and San Sebastian combining,
those sorts of mechanisms are required for collective strength
around the periphery in order to get some sort of balance with
the core. It is difficult to achieve that collective strength
around the periphery unless the mechanisms are there to co-operate
with one another.
Q18 Lord Maclennan of Rogart: Is that organisation
a matter for the member governments, the Member States, in our
view, to make sure that these concerns are reflected in national
policy and national agencies; or are you actually trying to change
the practice of the European Commission in considering the implementation
of effective Structural Fund distribution?
Mr Read: I think Europe city regions make good
partners with the EU and good mechanisms through which they can
achieve their objectives.
Q19 Lord Maclennan of Rogart: Mr Read, I
understand the point but I am trying to see if you are looking
for a constitutional or institutional change. Are you actually
saying that the mechanisms do not work to achieve your goals;
or are you saying you would just like your roles to be rather
better understood at national levels?
Mr Read: If the city region is regarded as a
basic building block across Europe for decision-taking then I
think METREX would advocate that mechanisms are set up to take
decisions that are needed at that level, and the mechanisms can
vary completely. In some cases they are set up by government nationally,
as it has been with Germany, and in other cases it is completely
a bottom-up arrangement where all of the authorities in the city
region area decide to come together for their own good reasons
to co-operate and be stronger. There is nothing dictatorial about
this—it is simply saying that a decision-making mechanism
at the city region level across Europe enables Europe to interact
with that. There are lots of models for it; but crucially it enables
those mechanisms to co-operate around the periphery. If they are
not there then organising that co-operation is that much more
difficult.
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