Memorandum by Stephen Timms MP, Minister
of State for Competitiveness, Department for Business, Enterprise
and Regulatory Reform
Further to your Committee's Call for Evidence
from the Department for Business, Enterprise and Regulatory Reform
on the Future of European Structural Funds, please find enclosed
the Department's response.
THE FUTURE
OF EUROPEAN
STRUCTURAL FUNDS—CALL
FOR EVIDENCE
RESPONSE
What should be the objectives of the EU's Structural
Funds? How can the Funds become more effective in supporting public
policies in Member States and regions? What mechanisms of delivery
could make the policy more performance-based and more user-friendly?
1. The European Structural and Cohesion Funds
are instruments to help achieve the objectives of the Union's
Cohesion Policy. Article 158 of the Treaty establishing the European
Community is the basis for this Policy:
2. "In order to promote its overall
harmonious development, the Community shall develop and pursue
its actions leading to the strengthening of its economic and social
cohesion.
3. In particular, the Community shall aim
at reducing disparities between the levels of development of the
various regions and the backwardness of the least favoured regions
or islands, including rural areas".
4. This, in turn, is based on Article 2
of the Treaty which sets outs the Union's overall economic and
social objectives, including a high level of employment, balanced
and sustainable development and the strengthening of economic
and social cohesion.[1]
5. These articles give the Union considerable
scope to determine the priority given to the different objectives,
what should be achieved within each objective, how it should be
achieved (by spending, regulation or coordination), over what
time scale (short or long term) and by whom (the Commission, Member
States or sub-national authorities).
6. The Regulations negotiated for the 2007-13
period formalise Cohesion Policy objectives as being:
— Convergence—to help the least-developed
Member States and regions catch up more quickly with the EU average
by improving conditions for growth and employment.[2]
— Regional Competitiveness and Employment
(RCE)—to strengthen the competitiveness, employment and
attractiveness of regions other than those which are the most
disadvantaged.
— European Territorial Cooperation—to
strengthen cross-border, transnational and inter-regional co-operation.
7. Under existing arrangements all Regions
of the Union will receive funding under either the Convergence
or RCE Objectives and in addition all Regions are eligible to
receive funding under the Co-operation Objective.
8. We believe the principle method of addressing
the aim of EU Cohesion Policy, that all European regions should
fulfil their economic potential, is by focussing on the drivers
of growth as set out in the Lisbon Integrated Guidelines. We need
to consider the best means for achieving this goal. A principled
approach, as set out in our recent publication "Global
Europe: Meeting Economic and Security Challenges"[3]
should guide this:
— The EU should act only where there
are clear additional benefits from collective efforts, or "EU
value added", compared with action solely by individual Member
States.
— Where EU-level action is appropriate,
it should be proportionate and flexible. Expenditure is just one
of a number of policy levers, alongside coordination, sharing
best practice, and legislation or regulation.
— Where spending is appropriate: sound
financial management alongside continuing budget discipline
9. Given the above, the introduction of
the new strategic approach to cohesion policy in 2007-13, including
the Community Strategic Guidelines on Cohesion is welcome. In
particular, during the negotiations we were strong supporters
of the links made to the Integrated Guidelines for Jobs and Growth
and National Reform Programmes.
10. For the future we believe this strategic
approach should be further simplified. The Integrated Guidelines
for Jobs and Growth and National Reform Programmes set out the
key challenges that the EU, Member States and regions face in
relation to their economic development. There is no need for a
separate set of challenges to be identified for cohesion policy.
Instead, the task is to identify how cohesion policy can support
Member States' policies (at national and regional level) to address
the guidelines and recommendations agreed by the European Council.
The guidelines and National Reform Programmes should therefore
drive cohesion policy and its programmes.
11. The objectives of Cohesion policy are
supported in large measure by actions and funding at national,
regional, local and neighbourhood levels. Where money is needed
to achieve Cohesion Policy objectives it should mainly come from
national, regional and local sources. EU funding support for Cohesion
Policy needs to be better focussed on the poorer Member States,
to help them make the investments needed to support their economic
growth; this in turn will help to develop the wider EU economy.
As already stated the best way to achieve the aim of Cohesion
Policy is through the Lisbon Growth and Jobs Agenda, however,
the main focus of this funding should be on activities that help
build the Member States institutional structures and financial
strength providing them with the ability to pursue their own regional
policies in the future and limited by an absorption cap. The full
range of financing options should be considered, for example a
loan from the European Investment Bank may in some instances be
a more appropriate form of financing than a grant from the EU
budget.
12. Cohesion policy should continue to place
emphasis on the performance of Structural Fund programmes in terms
of the shared goals in the Lisbon strategy. The targets and indicators
of programmes should set out their contribution to the relevant
national strategies outlined in National Reform Programmes. These
targets and indicators should be the primary means of monitoring
the performance of programmes. This monitoring should be done
by national or regional authorities (depending on Member States'
arrangements) in partnership with the European Commission. The
European Commission could have a role to play in commissioning
independent research to assess the evidence available of the impact
of Structural and Cohesion Funds spending on regional and national
economic growth, and where possible identify the relative impacts
of SCF spending and actions by Member States/regions.
13. Cooperation activity is an area in which
structural funds could potentially add value. Funding could help
to promote partnership across borders and encourage more balanced
economic development. Cooperative working between Regions across
the Union should be encouraged to identify and spread effective
practice, for instance to identify the interventions that have
the greatest effect on growth and productivity and provide greatest
value for money. This process would exchange and disseminate best
practice across Member States, and provide analysis and evidence
to inform the design of future programmes.
14. It is important that the highest standards
of financial control are applied to EU funds. The recent simplification
of the financial management, control and audit systems is welcome
but the systems remain complex and there are still opportunities
for further improvements. Current systems should be subject to
further review with the aim of identifying further simplification
that maintains a high standard of financial control while minimising
the administrative burden. The Commission should ensure that there
is a uniform approach to quality assuring Member State's audit
arrangements.
Do Structural Funds meet the principle of subsidiarity?
Could the same cohesion objectives be met through repatriation
of the distribution of these funds?
15. In the Treaty the principle of Subsidiarity
states[4],
" . . . the Community shall take action, in accordance with
the principle of subsidiarity, only if and in so far as the objectives
of the proposed action cannot be sufficiently achieved by the
Member States . . ."
16. In a Modern Regional Policy we argued
that "In line with the principle of subsidiarity, those Member
States which have the institutions and financial strength to fully
develop and pursue their own devolved and decentralised regional
policies in support of these objectives should be encouraged and
enabled to do so. Other Member States which have not yet reached
this position will continue, for some time, to benefit from assistance—in
particular, financial and administrative—to promote regional
development with the goal that these Member States would ultimately
no longer need such support".
17. As outlined above, it is our view that
there needs to be a significant increase in the percentage of
Structural and Cohesion Funds spent on poorer Member States. By
separating the means of Cohesion Policy from the aims any repatriated
funds would continue to contribute to these aims.
18. One of the main criticisms of the existing
arrangements is that the administration of the funds is complex
and burdensome. However, supporters of the existing arrangements
would argue that the Structural Funds provide a wider added value
than just the redistribution of money. For example:
— The multi annual planning process
encourages a more strategic approach to regional development.
— Partnership in the SCF has brought
enhanced transparency, cooperation and coordination to the design
and delivery of regional development policy.
— Monitoring and evaluation obligations
have improved the efficiency of programme implementation and led
to more transparency and better policymaking.
19. A Cohesion Policy that separates means
from aims can still achieve these benefits. Through a strategic
framework linked to the Integrated Guidelines and Member States
National Reform Programmes all Member States could receive these
benefits whilst allowing for a significantly increased percentage
of the funds being spent in the poorer Member States.
What impact has enlargement had on Structural
Funds, and are any changes necessary to meet the challenges of
further enlargement?
20. The UK Government strongly supported
enlargement which has strengthened EU Member States economies,
offering businesses and citizens the full benefit of a competitive
market of 450 million people.
21. Enlargement has seen a significant change
in the nature of disparities across the Union. The EU now has
large disparities at national level in terms of GNP per head,
but the main eligibility for Structural and Cohesion Funds continue
to be at the regional level. Each of the ten new Member States
that joined the EU in 2004 had a GNP per head below the average
of the then EU. The same is true for Romania and Bulgaria who
joined on 1 January 2007.[5]
22. In current prices, the SCF budget is
now equal to €347 billion in 2007-13. This includes allocations
to the new Member States, Bulgaria and Romania. The UK has long
stressed that the EU SCF budget needs to be sustainable. This
means that it has to take account of future planned enlargements
as well as respecting budget discipline.
23. Over the period 2007-13, richer Member
States (ie the original EU15 Members excluding Greece and Portugal)
are set to receive a significant proportion of Structural and
Cohesion Funds, with only 64% of budget commitments being allocated
to the poorer Member States.[6]
The pattern of allocations shifts over the period, with the funding
moving progressively to the poorer countries so that in 2013,
the budget commitments allocated to poorer countries should reach
67%. We would like to see this percentage increase significantly.
24. As stated above the best way to achieve
Cohesion Policy aims are through a strategic approach linked to
the Lisbon Agenda, however, the main focus of funding in the poorer
Member States should be on activities that help build their institutional
structures and financial strength providing them with the ability
to pursue their own regional policies in the future and limited
by an absorption cap.
25. The EU is committed to the accession
of Turkey, Croatia and other countries of the Western Balkans,
a commitment which the UK Government strongly supports.
How will the EU's commitments on combating climate
change manifest themselves in the distribution of Structural Funds
for the post-2013 period? How will the response to other challenges
facing the EU economy (eg migration, growth of the service sector)
shape future policies?
26. Current Cohesion Policy already has
a strong focus on climate change issues. Programmes are required
to be assessed for their environmental sustainability and various
activities which support the environment are already supported.
27. The full impacts of climate change on
the economy and workers are not yet fully understood. There are
major challenges, but also opportunities. For example, the transition
to a low carbon economy will also be a significant employment
opportunity.[7]
28. It is not possible at this stage to
predict the outcome of negotiations for the next Financial Perspective
and Structural and Cohesion Funds Regulations. The challenges
facing European regions, for example, globalisation, climate and
demographic change, are not new and are already being considered
and addressed at a European, national, regional and local level.
Cohesion Policy should remain focussed on achieving sustainable
growth and jobs. If the scope of Cohesion Policy were widened
then this could result in a shift in resources away from addressing
disparities in economic development, the primary aim of Cohesion
Policy.
29. Cooperative working between Regions
could also be used to identify and spread effective practice in
addressing these and other challenges. This process would exchange
and disseminate best practice across Member States, and provide
analysis and evidence to inform the design of future programme
activities and also promote closer cooperation between Regions.
30. Wider consideration of the role that
the EC Budget could play in supporting these challenges should
take place as part of the EC Budget Review.
What criteria should guide decisions on the proportion
of the EU budget to be allocated to Structural Funds?
31. It will be important to consider Structural
and Cohesion Funds in the context of the EU Budget as a whole.
The UK Government is considering its approach to the European
Commission's ongoing Budget Review, guided by the three principles
outlined in the answer to Question 1.
32. We have set out in our recent publication
"Global Europe: Meeting Economic and Security Challenges"
that a priority for the UK will be reform of the budget so that
the EU is better equipped to meet the challenges of the 21st Century.
The priority is to ensure that the review of the EU Budget provides
the basis for a more effective and efficient Budget, including,
a significant increase in the percentage of Structural and Cohesion
funds spent on poorer Member States. We acknowledge that consequences
of significant changes to funding patterns arising from future
reforms will need to be considered, for example, whether it would
be appropriate for transitional arrangements to be made, but this
can only be done in the context of the availability of EC budget
resources, and the priorities that are agreed.
Are the current eligibility tests for regions
to receive support under the EU's Structural Funds relevant, fair
and appropriate? Should they remain in place after 2013? Is it
appropriate that they are discussed simultaneously with wider
agreements on allocating EU budget spending?
33. The main aim of Cohesion Policy is to
focus on disparities in development. Therefore it is right that
the focus of eligibility be based on economic indicators. It would
not be appropriate to speculate at this point in the current financial
perspective what would be the best approach to distributing the
Structural Fund budget for 2014-20. We can, however, look at the
impact of existing arrangements on future spending and some of
the issues that arise.
34. As already stated in question 3, over
the period 2007-13, richer Member States (ie the original EU15
Members excluding Greece and Portugal) are set to receive a significant
proportion of Structural and Cohesion Funds, with only 64% of
budget commitments being allocated to the poorer Member States.
The pattern of allocations shifts over the period, with the funding
moving progressively to the poorer countries so that in 2013,
the budget commitments allocated to poorer countries should reach
67%. We would like to see this percentage increase significantly.
35. Under the existing system of allocation
there are currently 19 additional provisions to deal with Member
States individual issues. This indicates that the current system
fails to address many issues Member States would want it to. Any
revision to existing arrangements should focus on simplification.
One possible approach could be the allocation of funding at a
Member State level rather than to regions specifically.
What would be the effect of linking the availability
of Structural Funds with compliance to Broad Economic Policy Guidelines?
36. If Conditionality were to be extended
to the other Funds and its scope widened there would be potential
risks. Any move to extend conditionality would require a system
that was both clear and transparent and with a consistent decision
making processes. By making the compliance with the Broad Economic
Policy Guidelines a prerequisite of funding this may lead to pressure
to use the Structural Funds to specifically meet these guidelines
in too restrictive a fashion. The Broad Economic Policy Guidelines
of course cover areas of policy that are broader than the aims
of the Structural Funds, for example, reinforcement of social
security systems and wage-bargaining.
9 January 2008
1 The Reform Treaty, when ratified, will introduce
the additional concept of Territorial Cohesion. Back
2
The convergence objective covers all NUTS-2 regions across the
EU with a GDP per head below 75% of the EU25 average. In the UK,
Cornwall and West Wales and the Valleys are covered. Convergence
also covers regions that are being phased out of the convergence
objective due to the statistical effect of enlargement. In the
UK this applies to the Highlands and Islands. Back
3
Global Europe: Meeting the Economic and Security Challenges (October
2007), p 23 http://www.fco.gov.uk/Files/kfile/FCO_BEU_DOC_GlobalEurope71022.pdf Back
4
Consolidated Version of the Treaty Establishing the European Community,
Article 5. Back
5
As the Commission Fourth Cohesion Report notes, "This enlargement
added 8.6% to the Union's landmass and 6.3% to its population-a
similar addition to when Austria, Finland and Sweden joined in
the mid-1990s-but only 1% to its GDP measured in purchasing power
standard terms, less than any previous enlargement. GDP per head
is, therefore, only 35% of the EU average in Bulgaria and 38%
in Romania. Accordingly, the accession of the two countries will
lower the EU average level of GDP per head by just over 4%". Back
6
In practice, the proportion of actual payments to the poorer Member
States could be less than 64%, according to absorption levels
and phasing. Back
7
The environmental industries in the UK are already worth more
than £25 billion and employ some 400,000 people. Back
| 
