Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 60-79)

Mr Neil O'Brian and Mr Mats Persson

15 JANUARY 2008

  Q60  Lord Woolmer of Leeds: You could apply exactly the same arguments of course to regional policy within that, could you not? Do you believe in regional policy at all anywhere?

  Mr O'Brian: This is a good question. The fundamental question is: what regions we are talking about and how big a unit are we interested in?

  Q61  Lord Woolmer of Leeds: Say the United Kingdom?

  Mr O'Brian: The same question I was asking still applies. Are we trying to target very small pockets of poverty, say the size of a town, or are we trying to bring the average productivity to quite a large region of five million people, say, for the NUTS regions in the UK? Are we trying to make those converge and, if so, why? I would certainly personally be more inclined to the approach which is about targeting pockets of poverty rather than very large regions. One of the problems with the SCF is that we are effectively spraying a lot of money around. When we did a bit of analysis of the small amount of data we were able to get hold of—and there really is very little data in the public domain about all this—we found that only about 10 per cent of the money in one region that we studied was being spent in the poorest one-fifth of areas defined by postcode. That is not really getting to the stubborn pockets of poverty in which we are interested. When we talk about regional policy, what exactly do we mean?

  Q62  Lord Woolmer of Leeds: Finally, on that and taking Mr Persson's point that on balance you acknowledge that policies if anything interfere with work in the marketplace and slow things down rather than helping, you say that if there is anything done, it should be targeted very much more narrowly than the broad concept of the region and should be by way of tax incentives rather than grants. Would that mean in summary as far as European policy is that rich countries like the UK should devolve within the UK and regional policy per se is itself harmful rather than helpful and a re-think is needed entirely? In that case, why should the UK even support any regional assistance within Europe, even on the net basis you are advocating? That is with the UK vigorously opposing any form of regional policy in Europe, whether gross or net contributors.

  Mr O'Brian: I think you could have an interesting debate about what kind of regional policy you would like to see within the UK.

  Q63  Lord Woolmer of Leeds: Within Europe?

  Mr O'Brian: Within Europe as well.

  Q64  Lord Woolmer of Leeds: You do not believe in a net contribution really, do you?

  Mr O'Brian: No, I think you are trying to put words in my mouth here.

  Q65  Lord Woolmer of Leeds: I am not being aggressive because I think your paper is interesting and challenging. This is really pushing to understand where you come from.

  Mr O'Brian: I certainly think the economics are not clear cut at all about regional policy. There are areas where you could argue that it has succeeded but then you have areas where they pretty clearly have not. Look at the divergent of performance of, say, Ireland, Greece and Portugal, all of the large recipients. I do not think it is at all clear which of the kind of effects that you initially identified, the adjustment-stopping effects versus the effects of liberating unrealised resources in backwards regions, dominates the economics. I just do not think that is clear at all. My instinct is that we should have some kind of regional policy and it should be much more targeted on poverty. One thing which I would identify as being unambiguously true is that these things would be better run at a national level without the kinds of constraints that you have from the EU's set rules. Certainly you would then have the freedom to experiment and try these other means of doing things.

  Chairman: I would like now to start asking you about some of the figures in your report.

  Q66  Lord Kerr of Kinlochard: In the press release and your report there is a very striking number of £670 million a year given as the cost to the UK of administring the structural fund. You build this on four elements. Could I take you through these four elements in turn? First, the largest element is £500 million a year, which you say is the cost of the regional tier of the administration of the structural funds. You base that on a table which shows the cost of Regional Development Agencies, and apparently assumes that all these costs arise from the structural funds and without the structural funds would not exist. Second, your table counts overseas spending by regional development agencies; that is export promotion, inward investment attraction, that sort of thing, nothing to do with structural funds. Thirdly, it counts the administrative costs of government policies for the regions, which you assume would not exist but for the structural funds. I do not think that is a widely supported view. Last, grants to Regional Assemblies, which you also insist would not exist but for the structural funds. You top that up to a staggering number and claim that the cost of the regional tier of the administration in the UK of the EU structural funds is £500 million. I do not understand this. I may be misreading your table. I do not support the view that we would not have regional offices and regional assemblies but for the structural funds. You believe that, and you therefore believe that it is fair to charge as a cost to the structural funds in your calculation anything that a regional assembly or regional development agency does. Is that really fair?

  Mr O'Brian: As has been pointed out in the report, and we make this very clear, clearly not all of those costs are to do with the structural funds. We do point out in the report that the problem is that we cannot find any data to disaggregate the cost of running the structural funds from the rest of those costs. On your second point, how this should be charged to them, the point I would make is that you cannot get rid of any of these structures if you continue to be in receipt of structural cohesion funds because you need this tier of regional government and it was indeed originally set up to administer the SCF.

  Q67  Lord Kerr of Kinlochard: In order to come to your estimate of the costs of the structural funds, you need to assume that the British Government and the regions want rid of these things. It would then be perfectly fair to charge their costs as a charge to the structural funds, but there is no evidence that I know of that this British Government or any of these regional assemblies wish to commit suicide.

  Mr O'Brian: Whether they wish to commit suicide is one point. The point is that you cannot get rid of that entire regional tier of government—

  Q68  Lord Kerr of Kinlochard: You say that in your paper and you have repeated that. I am trying to establish whether it is fair to charge all the costs of the regional tier of government in the United Kingdom to the structural funds simply because the regional tier is used as a mechanism for administering the structural funds.

  Mr O'Brian: We make it clear in the paper that you cannot do that. You cannot say that all that money is driven by SCF spending.

  Q69  Chairman: This is a point of particular interest to the committee, the actual costs of administering the funds that come from the EU. I think you have just said that you could not manage to disaggregate them except in particular cases the Scottish Parliament. You have suggested that the structural funds in Scotland cost them £30.9 million.

  Mr O'Brian: There are two pieces of data that it would be wonderful if this committee could find, which we were not able to find in the course of our investigation. The first is the disaggregated administrative costs for the regional agencies in terms of how much they spend running SCF versus other things. The second is of course an important cost which is not included in our figure and would be a very important part of the costs of running the structural funds and we have no data on at all. That is the cost to the recipients, because that is one of the largest costs, in complying with the EU's financial rules: for example holding records for 12 years, even if they are very small projects, and the costs of applying for the money. That is the most striking omission really from our report. When we spoke to participants in SCF spending, they were all very clear that they were spending a lot of their time and a lot of money trying to draw down these funds. We have no data on that amount of money.

  Q70  Lord Kerr of Kinlochard: I noted you were not able to do that. I agree with you that there is a cost and it is not clear, but I am sorry, I think we need to be clear about your evidence. You appear to be saying now that you have used the costs of regional government as a proxy for the costs of the structural funds because you were unable to obtain data for the costs in the regions of administering the structural funds. Is that correct?

  Mr O'Brian: Yes, that is what we say in the report.

  Q71  Lord Kerr of Kinlochard: Can I also ask about the first level, the EU level costs, where you say correctly that there is a line in the EU Budget for administration of everything: the institutions, including the Commission with all its Directorates and so on, and it costs about 5 per cent of the EU Budget. It is a separate line. You then go up the budget until you come to the structural funds and you say let us assume that 5 per cent of structural fund expenditure is spent on the EU administration of the structural funds. Forgive me, that seems to me to be a big jump because there are only a couple of Directorates in the Commission which handle the structural funds; they are by no means the largest. There are a huge number of EU organisations which are funded from the administration line of the Budget. It seems to me that 5 per cent of the overall Budget going on administration does not mean that the costs of the very small number of people in Brussels who have the job of administering the structural funds must amount to 5 per cent of the size of the structural funds. I do not think it is the case: I think the extrapolation is a rather wild one.

  Mr O'Brian: I am sure you are right and I absolutely agree with you that all the data could definitely be improved upon, and I hope that you will be bale to get better numbers than we had available. You say it is a wild one. You may well be correct that it is not right because, as we have made clear in the report, it is a ballpark calculation. We just had to assume that its percentage administrative costs are roughly the same as the rest of the EU spending. You may well be right that that is not correct.

  Q72  Lord Kerr of Kinlochard: You cannot assume it. The structural fund is a tap through which a huge amount of money moves. If you take something like the Competition Directorate of the Commission, its only cost is administration. That is the only thing it does; it administers the competition laws. You are saying that because 5 per cent of the EU Budget as a whole is spent on administration, it is reasonable to assume that of the structural funds money, 5 per cent goes in administration. It is not true. Take the Common Agricultural Policy: huge amounts of money go through but a rather small number of people in Brussels administer it. This is in the same category; a rather small amount of people handle the structural funds. I think the extrapolation does not quite work. Could I also touch on the last layer you mention, which is the cost to central government. You say €100 million a year or just over is your central estimate, which you base on the fact that one department spends €10 million a year, it says according to you, on the European Social Fund administration. I would say, from my Whitehall experience, that you are overestimating it by at least by 100 per cent the costs for central government. The structural funds are not a major concern for central government precisely because the decision-taking has largely been devolved to regional governments and to Scotland and to Northern Ireland. These are the three elements that tot up to your £670 million a year. The first you admit is a proxy. The second is an extrapolation, which you are not really defending. The third I strongly suspect is an exaggeration. Do you really think it is wise to put round numbers as hard as £670 million a year as the UK cost of administering the Structural Funds when they are built on such an inadequate foundation?

  Mr O'Brian: In answer to your first point about the costs of central government, we did ask parliamentary questions to all these departments and unfortunately several of them refused to answer. There is not much we can do about that if they will not provide the data. I hope that you will force them to answer in this committee because I am as keen as you are to find the right number. You say it might be £50 million rather than £100 million. There is only one way of finding out and that is for this committee to get the numbers out of the departments, which we were unable to obtain. On the overall figure, as we make very clear in the report, all we are able to do is give you ballpark estimates, rough magnitudes. As I said before, you are right that there are good arguments for the various points you make, but then again there is a very large, if not the most significant cost, which is the fourth thing, the cost to recipients, which we do not have in there at all. The data is as good as one can get by not being in central government and not being able to get government departments to answer parliamentary questions. I hope that you will be able to improve on that.

  Q73  Lord Watson of Richmond: Mr O'Brian, you have been on the receiving end of the so-called analytical dissection for which Lord Kerr is known and feared throughout the Civil Service.

  Mr O'Brian: I always enjoy it.

  Q74  Lord Watson of Richmond: It has been fascinating. I just want to report that I started to be puzzled by these figures, but I am now really startled that you provide this type of evidence. I really just wondered what your actual motive is. It is quite clear that you are saying that you cannot get disaggregated data. Nevertheless, you offer this enormous eye-catching sum and, as we have just seen, it clearly does not stand up. What is the purpose of this? If you are simply trying to provoke this committee to try and get its own answers, well, I am sure we will do our best, but it is a very strange way of approaching this.

  Mr O'Brian: If our evidence provokes this committee to find its own number, I would be delighted and I think that would be a wonderful and satisfactory outcome to the process.

  Q75  Lord Steinberg: I am afraid I am going to go on to the attack and the detailed figures and percentage points in them. I am referring to paragraph 1.11 in the written evidence which points out that in Northern Ireland £57.1 million or 11 per cent was allocated for the programme and yet Scotland, which has a population three times that of Northern Ireland, has got an allocation of £30.9 million. Those are the sums presumably that are allocated. My first question is: how much of that allocation has actually been spent? Secondly: do you trail it down, bearing in mind that there is now an Assembly again in Northern Ireland, yet the costs for the regional operation of the Northern Ireland Office have increased enormously and within the last year there have been 46 extra premises taken by the Northern Ireland Office? I know this is not directly related to some of the points we are talking about but it concerns me very much. You have accurate figures here. How far does the trail go and where do you stop?

  Mr Persson: In all fairness, we have not looked into the devolved administrations that much in terms of—

  Q76  Lord Steinberg: And yet you have exact figures here for allocations?

  Mr O'Brian: We cite figures from a report that was released in Northern Ireland, so the figures are, I am sure, accurate.

  Mr Persson: The Scottish figures are from the Scottish Parliament.

  Q77  Lord Steinberg: Did you trail them any further than just taking figures from the report?

  Mr Persson: We have not trailed them any further. Basically, we were still trying to get numbers from the English regions, which obviously was quite hard to do.

  Q78  Lord Kerr of Kinlochard: Your source for the number of £57.1 million, from reading the footnote, is "PA, September 10, 2007". What is PA?

  Mr Persson: Press Association.

  Q79  Lord Kerr of Kinlochard: A report of what? The Press Association does not make up a number. They report somebody giving a number.

  Mr Persson: The report came from one of the people involved in the Peace 2 programme.

  Lord Kerr of Kinlochard: I am sorry but it will not do to tell us that this is a Press Association—

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