Examination of Witnesses (Questions 80-99)
Mr Neil O'Brian and Mr Mats Persson
15 JANUARY 2008
Q80 Chairman: Can we perhaps ask
you to write about that as to where it came from?
Mr Persson: I can forward you the name and the
title and the status of the person that reported that number.
That is no problem at all.
Q81 Lord Steinberg: As you are dispensing
this, can you tell us how much of the allocation has been spent?
Mr Persson: In Northern Ireland and Scotland?
Q82 Lord Steinberg: Yes?
Mr Persson: I am not sure. I know the overall
number for the UK for 2000-2006 period is something like 83 per
cent.
Chairman: We would be very grateful for a bit of
writing on that too. I would now like to move on and ask Lord
Haskins.
Q83 Lord Haskins: You give, as always
happens in these cases, a number of examples of some exotic investments,
up Vesuvius and such like, implying that this is the responsibility
of the Commission in the EU for this waste of money. If there
is waste of money there, and obviously there is to an extent,
is that not more a reflection of national Member States and their
attitude towards it? If you pursued the mood of subsidiarity,
then you must, by the nature of things, give people at local level
discretion over how that money is spent and to what might look
to be—and obviously from a point of view in Vesuvius—quite
meaningful to the people who live around Vesuvius. It is a problem
for Member States rather than for the Commission.
Mr O'Brian: I expect Mats probably wants to
answer that.
Mr Persson: First of all, the one does not necessarily
have to exclude the other; that the projects are poorly targeted
or that there is poor project selection can mean a number of things.
As we have pointed out in the report, there are some fundamental
flaws in the system that facilitate poor project selection. One
would be that the funds are allocated at a level that is very
far away from the recipients who are actually affected by the
funds. A second point is the N+2 rule, which means that there
is enormous pressure on spending fast rather than spending wisely;
you have to get the money out of the door. That could negatively
impact the kind of projects that are being funded. Thirdly, we
argue that there are complex EU regulations involved here that
are specific to the EU level, which could deter particularly smaller
projects; those projects that are in most need of the funds, that
are struggling, that do not have the resources to absorb the cost
involved in applying, these are the projects that could be neglected
in the process. There are also regulations that limit the capacity
of national, regional and local actors to apply for the funds.
There are a number of issues here not specific to the EU level
that, we argue, lead, in the extension, to poor project selection.
Mr O'Brian: One way of expressing that is to
say that it manages to combine the worst effects of the top-down
and bottom-up system because effectively you have large sums of
money that have been allocated to a region burning a hole in the
pocket of the people in charge of getting the money out of the
door, so there is pressure to spend, which is a problem with top-down
systems, and yet at the same time it is not a command and control
system, so you need to find local people who will bid for the
money. You have the kinds of problems you sometimes have with
bottom-up systems.
Q84 Lord Haskins: That happens in
national government here too.
Mr O'Brian: Absolutely, I agree with you that
it is quite possible for national governments and local governments
to make mistakes too. The question I pose is: is it more likely
to make mistakes with the system we have at the moment which does
clearly create pressure to spend the money? I think it is more
likely that you will make mistakes and select bad projects, given
that you have these problems with N+2 and so on.
Mr Persson: This is not particularly an odd
point to say that there is pressure to spend money fast. That
has been pointed out in several different Member States. The Court
of Auditors made that point very strongly, that this is a major
flaw in the structure.
Q85 Lord Haskins: They may deplore
all public expenditure right across the Commission; that happens
in every Member State as far as I know?
Mr O'Brian: I think there is a particular problem
here that you recognise.
Q86 Chairman: Can I ask you to comment
on this? There is a recent report to the DTI from ODPM which found
that over 80 per cent of the sample of stakeholders found structural
fund programmes offered additional benefits compared to domestic
ones, which rather goes against your point. Over half also thought
they brought additional costs, which also follows your point,
but that on balance the positive views seem to outweigh negative
ones. They thought the structural funds did different things depending
on your own national region.
Mr O'Brian: I think I would want to have a look
at that report. What you are saying about there being additional
costs and additional benefits sounded rather confusing. We do
cite some polling data of recipients in our report as well, which
found that by a margin of I think something like 60 per cent to
5 per cent people found the structural funds more difficult to
deal with and more burdensome administratively than national policies.
I think that kind of fair question is probably more reflective
of the opinions of the recipients.
Q87 Chairman: Could we turn smartly
to the future? To what extent do you consider the simplification
in the 2007-2013 programme of the administrative processes together
with the principle of proportionality would make some difference
to the problems you identify?
Mr Persson: It would be interesting to know
exactly what reforms you had in mind there. You mention the proportionality
principle. What other reforms?
Mr O'Brian: There was a slew of different things
that the UK and other Member States were trying to achieve in
2003. There were many different attempts to change the system
slightly. I do not know if there is anything that you want us
to focus on particularly.
Q88 Chairman: It is the self-certification
on small projects and the minor but no doubt useful administrative
reforms that we are after.
Mr Persson: On self-certification of projects,
it is quite puzzling to try to find out exactly what type of reforms
and what kind of practical difference they will make. If you talk
to the people involved in the process, particularly the civil
servants, they are not quite confident in talking about exactly
what kind of practical difference this will make on the ground.
In terms of simplification of the whole programme, I understand
that the number of programme steps have been reduced. What that
simply means is that, according to our understanding, the Government
Office used to have to produce this report called a programme
complement, and that has now been taken away. That document was
intended, ahead of the last financial period, as a simplification,
because in the mind of the Commission this would give the Government
Offices, the regional actors, more ownership of the process. Obviously,
as is the case with most of these types of EU reforms, it only
led to more paperwork and additional administrative burdens. So
they took that away. That is failed simplification. If you want
to call it simplification, that is fair enough but it is not really
going to do anything because it was just a failed reform to start
with.
Mr O'Brian: I might also put it into the context
that we do present rather a long table in our report of all the
different steps involved in administering the SCF and it is a
fiendishly complicated process. Whether the overall level of complexity
has been significantly impacted by the reforms between the last
period and this one, I do not really know. There were certainly
some clear and good ideas. I think the UK Government did attempt
to get a relaxation for small projects of the rules about holding
accounting records for 12 years but I do not think they succeeded
in getting that agreed or certainly if it was agreed, it was then
reversed. There are things we can do to make the system slightly
better but I am not sure whether this tinkering with reforms is
really fundamentally going to change the problems with the administrative
complexity and costs that we are identifying.
Mr Persson: In terms of the proportionality
principle, I am not sure it applies. I think what you have in
mind here is Article 74 of the Structural Funds Regulations.
Q89 Chairman: The administrative
costs should be brought into line with the value of the project?
Mr Persson: Yes. Does that apply to the ESF
for example? Does it apply to ERDF in England or the UK? I am
not sure. I have been in touch with DWP, CLG and BERR and no-one
has said that is going to have any effect in the UK in terms of
programmes being able to opt out. This is not about projects;
this is about the programmes. Our suggestion is that the opt-outs
should be project-based and that there should be more focus on
projects; they should be able to opt out if they are small enough.
But the reforms have to do with programmes. They do not make any
difference and they do not apply to the ESF. To my knowledge,
they do not apply to the European Regional Development Fund either.
Again, no-one knows, so we are not sure, but I am not confident
that this will make any difference.
Chairman: I do not think we can take that any further.
We are running out of time. I will ask Lord Watson to ask his
question.
Q90 Lord Watson of Richmond: My question
follows from Lord Haskins's question quite closely. You have highlighted
the concerns of the European Court of Auditors over the substantial
errors in reimbursement of structural fund projects, but as the
day-to-day controls over these are actually the responsibility
of the Member States and not of the Commission, could this failing
really point far more directly into the procedures of the Member
States than those of the Commission? Does it follow therefore,
if that is the case, that repatriation of regional policy will
not necessarily reduce the problem at all because the problems
are at the Member State level rather than at the EU level? I think
that is a relevant question.
Mr O'Brian: I thought the operative word in
what you said, and basically I agree with what you are saying,
is "necessarily". It is certainly true that if you were
to continue to run the funds in exactly the same way by having
to renationalise them, you would have many of the same problems.
One of the interesting things is that if you are going to return
overall regional policy to the UK or Member State level, you have
the opportunity to do things in a fundamentally different way.
For example, if you have, say, a targeted tax cut for a particularly
deprived region, you do not have any of these problems with spending
money; you do not have levels of administrative complexity. You
sweep away all the problems.
Q91 Lord Watson of Richmond: I think,
Mr O'Brian, what has become clear during your evidence is that
really the main thrust of your attack is against regional policy
per se.
Mr O'Brian: I would not agree with you on that.
Q92 Lord Watson of Richmond: Let
me finish. Really the only regional policy in which you would
be interested is regional policy which uses as its main mechanism
tax relief and has as its main target relatively isolated bits
of poverty. That is a totally legitimate position.
Mr O'Brian: Again, I think you are putting words
in my mouth.
Q93 Lord Watson of Richmond: It seems
a bit odd in terms of the criticism of what exists now.
Mr O'Brian: I do not agree with the way you
are characterising my position. I think politically we will inevitably
continue to spend money anyway with some kind of spending programmes,
even if we did renationalise it. I think there may well even be
a case for doing that. You will continue to spend money on project-based
regeneration. I am not completely against that. I am saying that
perhaps the balance between these things should change. I do not
believe in no regional spending. Let us be fairly clear about
that. I think the attraction of returning control of these things
to Member States is that it allows you to explore these other
options and, even if we do continue to have essentially project-based
regional spending, I believe we could run it in a better way if
we got rid of some of the problems that we have inherent in the
SCF system.
Q94 Lord Watson of Richmond: Do you
accept, because it is quite important to your argument, that repatriation
is not in itself going to solve the major problems that you are
concerned with?
Mr O'Brian: It gives you the opportunity to
solve those problems. It does not necessarily solve them.
Q95 Lord Moser: So much of what we
have been talking about ultimately depends on how you measure
regional prosperity. I was rather struck and slightly surprised
by how severely critical you are of the current measures which,
as I understand it, is basically GDP per head. Your criticism
seemed to be that GDP depends largely on GVA plus taxes and subsidies,
et cetera. Supposing those are the poor measures. The measures
that ONS, which I used to run, recommend as substitutes do not
seem all that fundamentally different to me. You end up almost
saying that the data are so poor that there is really no way of
doing this thing properly on the ground, which is rather negative.
Mr Persson: Yes, it is rather negative but when
you have a situation with a region, Lüneburg, outside Hamburg
getting €900 million, although it is one of the wealthiest
regions in Germany, then something is fundamentally flawed. If
you mess a little bit with the measures and the last two regions
end up in very different positions in terms of prosperity, then
something is wrong and something needs to happen. It seems to
us, without necessarily having the expertise in the area of statistics
at that detailed level, that it would be more appropriate to have
something that would measure, for example, the prosperity of the
residents, so that wealth statistics would count towards the people
who actually live there, rather than the workplace. That is a
fundamental point. You do not have to be particularly involved
in order to figure out that there is something flawed with these
measures.
Mr O'Brian: I do not think it is one of the
most negative things in the report really. Broadly speaking, looking
at the academic literature, I think there is a fairly broad consensus
that the measure could be improved on in a relatively simple way
that would give you better targeting. Even if we did very little
else in the way of reform, that is one area that we could pick
off as relatively straightforward.
Q96 Lord Moser: I am all in favour
of trying to improve the basis, but the way it reads, it almost
ends up as if the thing is so unmeasurable, and you cannot end
up like that unless you say "drop regional policy".
What at the moment is your best recommendation for how to judge
on the ground what should be used?
Mr O'Brian: I thought that the ONS proposal
seems like the reasonable one. I think they make a good case.
Q97 Lord Moser: That still depends
on GVA.
Mr O'Brian: But also you are bringing together
a number of different measures rather than simply having one club,
if you see what I mean.
Mr Persson: You have regional GVA per full-time
employee, for example. That makes a difference. You can also bring
in regional gross household disposable income, which is appropriate
because, as you say and as has been pointed out, obviously one
of the main things about the structural funds is that they are
supposed to add value to public policies, and to us disposable
income seems most appropriate for measuring if they in fact do.
There is a main concern with measures because they have to be
internationally comparatively and also internationally meaningful.
As I understand it, household disposable income on the regional
level is only available in nine Member States. So it would be
very hard to change this while the structural funds are at the
EU level. In extension, this would obviously be an argument for
repatriation of the structural funds. I do not know if you have
noticed, that is our main point.
Q98 Chairman: We need to stop, having
exhausted both witnesses and ourselves. If I have managed not
to let one of my colleagues ask a burning question, please do
feel free. If we have not let you say anything which you are absolutely
burning to say, please say it.
Mr Persson: I just want to make a general point,
and we have pointed to this many times. And it is about the availability
of data in terms of the structural funds, which is not the way
it is supposed to be. I come from a culture of political transparency
and this lack of availability is something that needs to be addressed
immediately. In terms of value for taxpayers' money and in terms
of transparency, this is not acceptable. You have to be able to
know where the funds are going. That is a fundamental criticism.
You cannot spend half the year trying to figure out basic issues
such as how much money goes to this particular area. One region
in the UK holds detailed data on where the money is going in terms
of postcodes. That is the South East Region and they have been
the most accommodating. Even the central government is very unwilling
to provide the information. This is something that I would challenge
you to really pick up on and do something about.
Q99 Lord Kerr of Kinlochard: I think
that is a very interesting admission of defeat. There are a number
of statements in the evidence and in the press releases about
the evidence which are, I think we have established, guesstimates;
they are speculative. The list of horror stories is sourced to
newspapers. I think one needs to be told facts rather than reports
like I very much fear one will read perhaps in The Mail
on Sunday, that £670 million must be the UK cost of running
the structural funds because it is in "evidence" given
to a House of Lords committee. I think this is very dangerous.
Mr O'Brian: Would you like a final statement
from me? It will be very brief. I do not think for a second this
is an admission of defeat. It is a challenge to you to go and
find better data on all these different issues. I think the case
we are making is a strong one, which is also the case which the
UK Government makes and accepts. These issues will return, I am
sure, when the next financial framework is negotiated. I think
a good report from this Committee finding more data and challenging
these points would be very welcome.
Chairman: Thank you very much.
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