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This is reinforced by a story in today’s Financial Times. It reports that the Treasury has decided not to draw down some £671 million of EU money under regional funding. This applies only to regional funding that would have been for England. The Treasury has decided to take up the option for the devolved regions, so sums of money will go to them, ranging from £60 million for Wales to £25 million for Northern Ireland. However, the £671 million for England is not being drawn down. This may seem as though it is a loss for the Treasury and for England, but the unspent money will instead be recouped by the Treasury, which can deduct it from future contributions to the European Union budget.

It seems that the Treasury has repatriated to itself this aspect of regional funding and regional fund policy. Instead of being spent on projects that come within the definition of the regional fund and are approved by Brussels, that £671 million will now be available to the Treasury to spend as it chooses. It may mean that it is not spent on the sort of developments that the regional fund is promoting, but is spent elsewhere. No doubt people will pursue that matter. It reinforces my earlier point that regional fund money is not always as desirable as one might think.

If the policy change that we have suggested is followed, the cut-off figure of 75 per cent of GDP will become crucial in the operation of the regional fund. Incidentally, we accept the figure of 75 per cent of

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GDP. It could be argued that some other criteria could be used, but a criterion, whatever it is, has to be adopted and that one has been used throughout on this. If it becomes the sole criterion, there will be greater pressure—or, at least, greater focus—on the consequences of coming above or below that 75 per cent figure. We think that there should be greater concern about, or focus on, transitional arrangements.

There are two elements for the regional policy as it operates in the current phase, from 2007 to 2013. One is phasing out and the other is phasing in. Phasing in relates to those regions to which the noble Baroness, Lady Cohen, referred, which are now above 75 per cent of GDP and are no longer entitled to European fund money under the convergence criteria. There is an expenditure on those areas of 3.4 per cent of the total budget. These areas have over 75 per cent of the GDP figure for the 15 member states that were in the Union at the beginning of the period.

If the threshold had remained at 75 per cent of the EU 15 GDP, a further group of regions, the so-called phasing out ones, would have qualified by being below that figure, but, because of the enlargement of the European Union to 25 countries, and those countries being generally poor, the 75 per cent figure has gone down. Therefore, these countries find themselves over the new 75 per cent figure, but they would have been below the old 75 per cent figure. Consequently, they are getting transitional support under the heading of phasing out, and 4.1 per cent of the budget is spent on them.

The point that occurs to us is that there would need to be some arrangement for transitional relief or support, if one prefers that term, for the next financial period, which is 2014 to 2020. I observe, parenthetically, that in the previous period, that between 2000 and 2006, my recollection is that there was transitional relief. My recollection is that Northern Ireland had been below 75 per cent before that period but had gone over 75 per cent and so was no longer entitled to what was then called Objective 1 status, and did receive quite generous transitional relief during the period 2000 to 2006. Currently there is no provision with regard to the financial perspective from 2014 to 2020.

The Government’s response to our report did not really clarify their position with regard to this matter. Consequently, the noble Lord, Lord Grenfell, the chairman of the Select Committee wrote to the Government. They replied in November 2008 by letter from Mr Pat McFadden. As regards the changes that one would like to see in regional policy, he said:

“We also acknowledged that the consequences of significant changes to funding patterns would need to be considered. This would include what the shape of appropriate transitional arrangements would be. However, those arrangements would have to be considered within the context of the available EU Budget resources and priorities that had been agreed”.

One welcomes the fact the Government see that there is a need for transitional arrangements. That would have to be negotiated within the new budgetary arrangements.

Regional policy involves particular areas within member states. The classification of those areas comes from something that rejoices in the name of NUTS—the NUTS regional classification. It stands for the

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nomenclature of territorial units for statistics. Within this classification, there are various levels, NUTS1, NUTS2 and NUTS3. Regional policy is classified as NUTS2. By way of illustration, the United Kingdom has 12 NUTS1 regions, 37 NUTS2 regions and 133 NUTS3 regions.

There are some problems with regard to the operation of these regions. One is that there can be pockets of deprivation within an otherwise wealthy region. For example, Hastings and Thanet were cited as examples of urban deprivation in an otherwise wealthy NUTS2 region. The NUTS2 region is the south-east of England. Both are also relatively poorer than their NUTS3 regions, which are East Sussex County Council and Kent County Council respectively. Consequently, moving from a NUTS2 to a NUTS3 region would not help in that situation.

Another problem drawn to our attention is that the classification can be misleading where people have their homes in one area but work outside that area. This effect becomes quite significant in the environs of wealthy cities. People live in the countryside but work in the city, so the wealth that they produce is attributed to the city and not to the surrounding territory in which they live. Apparently that is particularly marked for the area south of Hamburg, which is in a “phasing-out area”, if I have caught that right. It would be very good if better methods could be developed for measuring the prosperity of a region, so that regions could be defined in such a way that we could have greater targeting of regional development expenditure.

Clearly, regional policy is a major policy in the European Union. Expenditure on it has been growing and is likely to continue to grow as a proportion of the overall budget, particularly in so far as reform takes place elsewhere—I refer, of course, to reform of the CAP. The work of this policy will become more important in the future.

5.55 pm

Lord Teverson: My Lords, I first came into contact with European regional policy in 1994. One of the big challenges is understanding anything about it, what with the nomenclature, the acronyms and the things that you expect to mean one thing that actually mean something completely different.

In 1994, when the 1994-99 programme started, there were Objective 1, Objective 2 and Objective 3, which was in two parts, one national and one regional. There was Objective 4, which I do not think anybody understood and which did not apply to the United Kingdom. There was Objective 5A, which was national, and Objective 5B, which was regional. That was divided into the European Social Fund, the regional development fund ERDF, and EAGGF, which was the regional part of the agricultural programme, but not all the agricultural programme. Once we had got used to that, there were the community initiatives, of which there were about 20 at the time, and for which they invented great names. Pesca covered fishing, but had nothing to do with FIFG, which was the common fisheries policy part of regional development. There were also Leader 1, Leader 2, Urban—which was urban—and 18 others.

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I am pleased to say that, through two more seven-year periods, we have managed to rationalise these down to just the cohesion programme for whole member states, the structural funding that is known as convergence instead of Objective 1, and competition, which was similar to Objective 2. However, it is now difficult to understand where the agricultural part fits. In the statistics, we read that regional funding is something like 36 per cent of the EU budget and agriculture is 47 per cent, but this does not explain where the agricultural part of regional policy lies. I would be interested to have this clarified by the Minister, who I am sure is completely up to speed on these matters.

I congratulate the Committee because, as well as understanding these issues, it called as a witness Mr Graham Meadows. He was a great friend of the United Kingdom in the Commission when he headed up the DG Regio, a particular friend to Cornwall in the south-west and also to various initiatives in Ireland, to which he was very committed.

“Should all of this exist?” is the question in my mind. I strongly favour these funds, but should they be a part of the European programme, or should they be pushed down as part of subsidiarity? That is an important question that the report looked at. The logic is good: there was the Single European Act and the single market, which was expected, through market forces, to make regional differences even more pronounced. The two fit well together; they showed that cohesion funds were important for all member states and for European monetary union.

What sprung out at me from the report were the variations in the GDP levels of different regions. Seeing the figure for Nord-Est in Romania of 24 per cent of EU GDP was staggering. However much you might be committed to total subsidiarity and repatriation as a member state, there is no way that the European Union should not be involved in trying to help that degree of disparity between different regions.

The other particularly important area for me is that regional policy should work. It can be very important; it does not always work, but it gives regions a chance to get it to work. We have seen that regarding cohesion policy in the Republic of Ireland; one of the league tables in the report shows has a GDP per head second only to Luxembourg, yet it was originally one of the poorest member states, certainly under EU12. Regarding Cornwall, where I live, the witness, Graham Meadows, states in the report that there was a point at which the region was able to use an important part of funding, although not a huge part of the county’s GDP, as a hook to start development, new thinking and getting together.

A good thing about regional policy in the European Union is that it produces a reasonably independent view of which regions need assistance and which do not. In the past in the UK there has been a far more political agenda—the noble Lord, Lord Woolmer, will probably disagree—whereby the north has been looked after and some of the poor bits of the south have been forgotten. Not until Cornwall became an Objective 1 region was it recognised within the United Kingdom as requiring help.

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Is the NUTS system completely objective? It is to a degree; there are a lot of question marks regarding the GDP measure, but it is stated in the legislation that regions are in if they are under 75 per cent, but if they are over 75 per cent they are out. That is very objective. Of course, that does not recognise—perhaps it is not mentioned in the report—all the lobbying that goes into changing the boundaries and how a lot of regions in the UK lobbied really hard, not for Objectives 1 or 2 or convergence funding, but to change the NUTS2 boundaries, whereby NUTS3 regions could be reclassified as NUTS2.

The system also provides seven years of certainty; very few national programmes are able to do that in this country or elsewhere. That is a big plus for regional planning, although obviously in non eurozone states, such as the UK, you do not know what the exchange rate will do; therefore your funding increases and decreases. One thing that is particularly impressive in the UK, although it is true of other members states, is that the system forces partnerships, not just between national and regional government, but between private sector organisations and many third-sector organisations, which come together to decide how the programmes will work. That factor was not there previously. The partnerships work around real money and real programmes, and they can be very effective. That is true of co-funding as well.

The system also gives a much broader perspective to European regions which often, perhaps, do not think more broadly. Hence, there is an ability to innovate; certain schemes which have worked in some member states are able to work in others. There is a sharing of experience. One of those schemes, which is mentioned in the report, is the provision of revolving funds, rather than grants, in terms of financial assistance to the private sector. That idea was innovated in Merseyside and has been used as a model right across Europe; it has been imitated particularly by the European Investment Fund. That is important, and I wish to come back to that issue in my questions to the Minister.

Concentration is also good, as is the fact that 82 per cent of these funds go into particular convergence areas. That gives many of those regions a basis for hope that their problems are understood, that a much broader Europe recognises that they have issues and needs to be solved and that there are real resources there to help. It will not be the full solution, but at least if the regions want to make the most of it, there is a set period of seven years in which that will happen.

What are the bad things? I cannot see that the competitive area, at 16 per cent, covering more or less the rest of the European Union, can work. There is still some question about whether additionality happens. That is one of the words that I had to learn when I first got involved in this area—the idea that national governments should not start taking away money when European money comes in. Then there is the area of underspend. Although I understand that the EU put on these very clever capacity caps, I presume that that is a political argument for making sure that new member states did not get a much larger area, so the EU budget overall could take the capacity.

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In the evidence, a Commission witness said that a senior bureaucrat from one region said that he hoped that his campaign for Objective 1 did not succeed because they did not have the capacity for it. He might have thought that but he was wrong. That region took on the challenge and was successful, so even some people who are involved do not always realise that.

Time-consuming bureaucracy, also mentioned in the report, is a real problem. Lots of bureaucracy does not mean that the control is any better. In this area it often means that the control is worse. The biggest problem within the UK programmes is not the bureaucracy of filling in forms but the inability of bureaucrats to make decisions. They would rather not make a decision; they justify that by asking more questions, when really the answer is, or should be, no, but they do not want to say so. The real challenge is to ensure transparent decision-making, honesty, and that decisions are made in reasonable time.

The biggest condemnation, from a practical point of view, is of the funding gaps between these programmes. Because they last for seven years, we know when they are going to end. We know that the 2007-13 programme will end on 31 December 2013. For those regions that are carrying on—we have figures reasonably far ahead for the ones that do not—we expect some continuity and reasonable planning. However, there are large gaps. Much of the convergence programme money and projects are starting to be approved only now, when the money—or certainly the project approval—ended at the end of 2006. Therefore, will there be greater planning by the Commission and the Government for these gaps so that good programmes do not die between one ending and the next one being approved, with the loss of all skilled staff and the things that result in a lack of continuity?

I notice that the Government did not respond to the important question of revolving funds. Are they in favour of continuing revolving funds within the structural funding? They have set up a number of organisations in Objective 1 regions. Yet, interestingly, the money being made available through the EIB or EIF into helping SMEs is not being channelled by the Government through their own organisations. They are putting it through the banks. Will they reconsider that? Will they, as they did the last time, try to renationalise the funds the next time these programmes are considered?

Decision-making bodies have moved from government offices to regional development agencies. In the previous programme, finally, the government offices were pretty good at implementing the programmes, although they were not previously. Then we change bureaucracies and, again, there is a slow-up. I should be interested in the Minister’s view as to whether the RDAs are starting to perform rather better than they did at the beginning of the programme to get these funds moving and into the places that can use them.

My final question is one raised by the noble Lord, Lord Trimble. Will the Government resist the temptation of repatriating the tranches of money and putting them back into the Treasury?

This is an excellent report. It raises a lot of questions but I hope that this round of regional policy, will move from strength to strength.

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6.09 pm

Lord Woolmer of Leeds: My Lords, I congratulate my noble friend Lady Cohen on securing the debate and on chairing the committee so admirably through the inquiry and the production of the report. I also congratulate the noble Lord, Lord Teverson, on the enthusiasm that he brought to acronyms and linking past programmes to present ones. If people view this debate, they will be full of admiration not only for the enthusiasm with which he embraced all that but for the deep experience that he brought to the subject. I, for one, learnt a number of things from his contribution.

Like many Members of the House, I am pleased that, at the start of its report, the committee sets out with clarity what the various funds and objectives are and what they mean for the different countries of Europe, including our own. In the United Kingdom, only Cornwall and the Isles of Scilly, the Welsh valleys and west Wales are full members of the convergence funding programme. The highlands, Merseyside and South Yorkshire are at various stages of phasing in and phasing out. Therefore, we are talking about only a limited number of areas of the United Kingdom where this remains a live issue. However, I agree with the noble Lord, Lord Teverson, that these programmes have been enormously important, not only in Yorkshire, where I live, but in Cornwall and other parts of the country.

In his evidence, the current director-general of regional policy, Mr Ahner, reminded us that convergence policy and regional policy are not just about levelling up and getting rid of great inequalities. In parts of Europe, more than in the UK, people have a deep sense of wishing to avoid the domination of the European Union by a small number of powerful conurbations and centres of influence. That desire to do more than just level up and get rid of the great inequalities and to have policies that strengthen the whole of Europe and not just two or three heartland areas is never captured in any discussion in the UK about how European regional policy is seen elsewhere in Europe.

These objectives are ambitious, but we should keep in mind the fact that the total amount of European funding devoted to all this is around a third of 1 per cent of the gross national product of the European Union. To keep things in proportion when we talk with enthusiasm about these things, we must remember that what can be achieved through these programmes is modest, although not insignificant, compared to what Governments in member states can and should be doing to address the same issues. It is easy to get carried away with what these policies will achieve across the whole of Europe, given that the funds amount to only a third of 1 per cent of gross national product.

I was struck many times by the enormous number—276, I think—of regions and subregions, of which 70 receive assistance through these programmes. There is an enormous amount of detail and almost micromanagement at the European level. There is a question mark over this, on which I shall comment when I speak about Yorkshire. We should also remember that the European Union funds provide match funding. There has to be match funding as well as European

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funding. It is not just a question of money coming out of Europe; the various agencies have to work to get match funding. In general, I would not overestimate what can be achieved across the whole of Europe on these funds, important though they are for some parts of our own country. I do not say that these are insignificant. For example, in South Yorkshire, in the past six-year or seven-year programme, around €1 billion was received from European regional funding programmes. That did have a real effect. In the past seven or eight years, the centre of Sheffield has been transformed, recast and regenerated. Overwhelmingly, that has been sparked off by European funding. Although I express a word of caution about the effect that one third of 1 per cent of national income can achieve across the whole of Europe, where it is concentrated on significant projects, as opposed to spread over too many projects—the point I think the noble Lord, Lord Teverson, was getting at, saying no much more firmly and earlier—then it can make a difference.

In the next seven-year programme, the regional development agency is concentrating on a major project to bring high-speed broadband to the whole of South Yorkshire. That would be truly important and helpful. So I accept that there is a limit to what can be achieved in these programmes but where it is concentrated it can make a substantial difference.

In considering whether these funds should continue throughout the whole of Europe, the committee came to the view that where funds are in support of not levelling up but general competitiveness, as opposed to convergence, richer countries such as the United Kingdom should not receive those funds. The Government, in response, confirmed their position. Not only did they agree with that, but they felt that, in principle, they would be willing not to have any regional funding coming to the United Kingdom and that should apply to all the richer countries. The committee, in a previous inquiry and report, had come to a similar conclusion.

I agree with that but there are one or two provisos. First, what that is really saying is that it should be for those richer countries that can afford it, such as the United Kingdom, Germany and so on, to decide whether they want to have a regional policy. It is for the Government, political parties and the electorate to decide whether a strong regional policy is a priority. If the Government were to withdraw from regional funding from Europe but did not replace those funds by having strong regional policies, there would be a pretty adverse reaction in Yorkshire, Merseyside, Cornwall, the Highlands and so on. I want to hear from the Minister that the policy of being willing to negotiate over the future of regional funding coming into the United Kingdom would not mean a weakening of resolve of regional policy in the United Kingdom.

Secondly, as the noble Lord, Lord Teverson, said, there is a great deal of value in the European approach of seven-year programmes. It provides a certainty and continuity that is lacking in UK government funded programmes. I should be most grateful if the Minister would reflect on that and say whether, in looking ahead, the Government see some merits in longer-term certainty in regional funding programmes and

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acknowledge that this is a merit of the seven-year approach in Europe. Does he see that being replaced in the UK?

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