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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