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I should like to comment on the article in the Financial Times to which the noble Lord, Lord Trimble, referred. It states that some £670 million will have been underspent in the English regions in the 2000-06 programmes, which actually ended at the end of last year for the spillover period. The Government have decided not to ask for an extension period for English regions, although they have supported an extension period for Wales, Northern Ireland and Scotland. It would be extremely interesting to know what the difference is—that is, why the Government have decided not to press for an extension in the English regions but have supported an extension elsewhere in the United Kingdom. What is the Government’s view of the apparent underspend of some £600 million or £700 million in English regions over that period, which I work out to be about 12 per cent of available European Union funding programmes? Secondly, it seems that something is awry when there is no apparent capacity problem, although there is an absorption problem, in England. Why has there been such an underspend in English regions?

I turn to two other matters. One is the greater use of loans. I endorse all that the noble Lord, Lord Teverson, said on this; it is an important issue. When Graham Meadows, the former director-general referred to by the noble Lord, Lord Teverson, met the committee, he remarked that in 1989, when he was overseeing German regional development programmes in the European Union, he found that Marshall aid programmes were still going in revolving loan schemes. He was struck by the fact that targeted loan schemes can provide an ongoing contribution to economic development and so on long after the initial grants have emerged on the scene. That was a powerful reminder of the value of loan schemes. In their response to our report, the Government told us that they are actively promoting the use of loans as an alternative to grants. I hope that the Minister will be able to tell us more. They said that several UK European regional development fund programmes in the next period, 2007-13, will set aside some of the allocation to loan funds. It would be helpful to have additional detail on that.

I turn to the question of the cost of administration. Some critics of European regional policies have alleged that they involve huge administrative costs. One witness to the committee, Open Europe, suggested in written evidence that the cost of administering European regional funds in the UK totals some £670 million a year, which is more than 4 per cent of the funds available. As noble Lords would expect, the committee looked at that with care, because it would obviously be a substantial apparent waste of taxpayers’ money. The Government’s estimate of the cost to central government of administering these programmes is £28 million a year out of the total UK allocation of European funds of £1.5 billion. The regional development agencies told us in written evidence that the annual cost to English RDAs is around £11 million. Therefore, including the figures for the

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Welsh and Scottish RDAs and so on, the official data indicate that the total administrative costs to the public sector are no more than £40 million to £50 million, as opposed to the very much larger figure of £670 million suggested to us by Open Europe. The official data indicate a cost of about one-third of 1 per cent.

The committee accepted that administration in the UK is not a significant cost or burden when compared with total funds. However, that is not to say that there are no issues. Administration, bureaucracy and delays impact on private sector applicants for funds. In my experience, there are bureaucracies and unnecessary delays. Again, I endorse what the noble Lord, Lord Teverson, said about the need for a much clearer decision-making process and the need to be much firmer and to say no earlier. I would also suggest that too many small schemes are encouraged, whereas it would be better to concentrate on significant schemes that make a real difference.

Finally, there is tension between the need for audit control and the burdensome administration that it can produce. A number of our witnesses, including the director-general, commented that the audit requirements on UK regional programmes involving European funds are much more onerous than our internal public expenditure audits. There is something awry here, and the Commission issued a general invitation to applicants from the private sector as well as the public sector to give evidence on where there is unnecessary bureaucracy and administrative costs. I hope that that challenge will be taken up as a result of this debate and the report. There are unnecessary costs and bureaucracy. They are not significant in proportional terms, but if you are caught up in them, they are terribly frustrating and put people off applying. It would be a great shame if good projects were put off for that reason.

6.26 pm

Lord Steinberg: My Lords, in this important debate, it is very difficult to try and encompass all aspects of EU regional policy. The noble Baroness, Lady Cohen, gave a very fine speech covering the main points, and it is appropriate to compliment her on the running of European Sub-Committee A, of which she is the chairman and I am a lowly committee member. I also compliment the noble Lord, Lord Woolmer, who is also on the committee, and my noble friend Lord Trimble. I was also enthused by what the noble Lord, Lord Teverson, said from an earlier date. I look forward to the maiden speech by the noble Lord, Lord Davies, and hope that he will answer the wide-ranging questions asked by earlier speakers. He will be relieved that I will not ask him any questions.

The European economic recovery plan takes account of the recent financial market turmoil and tries to take in the structural and cohesion funds with a view to supporting the real economy. They are anchored in the stability and growth pact and the Lisbon strategy for growth and jobs. Sub-Committee A scrutinised that document at its meeting on 13 January 2009. In its communication entitled Cohesion Policy Investing in the Real Economy, the Commission proposed a set of legislative and non-legislative measures to strengthen

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the cohesion policy's contribution to the economy. This is in the light of the current situation with the ultimate objective of accelerating payments to member states and facilitating access to the structural funds and other cohesion policy instruments.

The EU cohesion policy is the largest source of investment in the real economy and provides a stable and targeted source of financing that can be used to stimulate recovery in the present climate. One thing about speaking fifth in a debate is that previous speakers have already mentioned that the cohesion policy represents about a third of the EU budget. It amounts to—I do not think I heard this figure correctly and will be corrected if I am wrong—€347 billion for the period 2007 to 2013.

More than 65 per cent—or €230 billion, if my arithmetic is correct—of those funds are earmarked for investment in the four priority areas in the EU's renewed Lisbon strategy. Number one is people; number two is business; number three is infrastructure and energy; and number four is research and innovation. Under those headings, the communication structures specific recommendations on how to make a preferred use of cohesion policy instruments under the current economic circumstances.

Some of the ways in which those funds can be disbursed and allocated have been considered, and the acceleration of payments of fund allocations have already been earmarked for specific regions. That will not lead to any overall increase in the budget, but it is intended to lead to an injection of cash into the economy. It also provides for broader use of flat rates and lump-sum costs to enable most authorities to implement projects at a faster rate. It will also extend certain funds to allow greater eligibility for rich member states to use them to fund energy efficiency and housing. The richer countries include France and Germany, and the poorer countries include Romania, Bulgaria and Greece. The United Kingdom fits in somewhere between, but opinions vary as to our position in the league table.

The overwhelming objective is to accelerate payments to member states and to facilitate action through the structural funds and other cohesion policy instruments. Amendments to the European regional development funds to support investments in energy efficiency and renewable energy in housing in favour of low-income households in all member states is within the framework of all state aid schemes.

The noble Lord, Lord Teverson, will be pleased to hear another acronym. He mentioned several, but I have a couple more. It is a common complaint about the European Union that its regulatory provisions are overly complicated. Part of the plans are to simplify the financial engineering instruments, such as—wait for it—the Joint European Support for Sustainable Investment in City Areas, known by the lovely women's name of JESSICA. From 2009, an increase of 25 per cent is proposed for the technical assistance capacity of—here is another—the Joint Assistance in Supporting Projects in European Regions, JASPERs, which sounds more like the name of a nightclub. That initiative will help new member states to develop infrastructure projects. There is a case to be made that only poor countries

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should benefit, but there is always an argument that money should be distributed fairly and reasonably, helping as many countries as possible.

The British Government are anxious to retain the focus on the Lisbon strategy for jobs and growth, although one must say that this objective, worthy though it is, will not produce much in the current climate while the future is so uncertain. I hope that those few comments, complicated as they may seem, show a desire by the EU to improve the economic plight of weak countries, now and in future. Only time will tell whether those objectives will be achieved. Thank you for listening to me and I just hope that you do not meet JESSICA very soon and do not take her to JASPERs nightclub.

6.35 pm

Lord Watson of Richmond: My Lords, we will do neither.

I associate myself with the compliment of the noble Lord, Lord Steinberg, to the noble Baroness, Lady Cohen, on her chairmanship of Sub-Committee A. She has brought firmness and clarity to the chairing of that sub-committee and Tuesday mornings are a rare pleasure as a consequence.

When the Economic and Financial Affairs, and International Trade Sub-Committee, to give it its full title, took evidence for this report in the early months of 2008, of course the economy of the European Union—its finances and trade—was very different from now. I agree with the noble Baroness, who pointed out at the start of her speech how the context for regional policy has dramatically altered during the period of this report and the Government’s response. As we all know, the truth today is that the European Union is in the grip of recession and, indeed, some people would say, I am afraid, that it is teetering on the brink of depression. Industrial production in the biggest economy of the European Union, Germany, has fallen quite significantly in the last quarter; central and eastern European countries are all under growing pressure, and they are, of course, the principal recipients of much of the regional aid; the euro currency has fallen from its all time high against the dollar; and, of course, as you might expect, in Paris and in London , President Sarkozy and the Prime Minister are both claiming that their solutions are better than the other’s, while a somewhat sceptical public on both sides of the Channel brace themselves for something worse. It is a rather unedifying picture. The future looks bleaker than 12 months ago when our sub-committee put together this report.

I have two questions. First, how relevant a future does the European Union regional policy have in the context of this recession, which we must expect will last at least for the remainder of this year and possibly for all of next year as well? Secondly, how do our recommendations and the Government’s response hold up in the light of these developments?

Some very important statistics have been given in the debate and I want to return to a few of them. In absolute terms, structural funds—which is the name that links the Social Fund, the European Regional Development Fund and the European Cohesion Fund,

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the so called triumvirate—equal 36 per cent of the European budget. That is an interesting figure because it has risen while the percentage on the common agricultural policy has fallen. The Government clearly see a balance—to which I shall come later—between the future of the agricultural policy and the future of the regional policy and, in response to our sub-committee’s recommendation, they have made that concept explicit. That is quite important.

Article 1.58 is the original article behind European Union regional funding and it is worth reminding ourselves of the objective specified in that article. It is:

The Lisbon treaty speaks of a slightly more elaborate objective of,

I want to share with the House a recollection of the meaning of the word “solidarity” in European Union parlance; it is rather specific. Some years ago, at the behest of the late Lord Jenkins, I participated in a committee chaired by Jacques Delors to identify a motto for Europe and possibly even a motto for the currency. One proposal much favoured by Jacques Delors was quite snappy: “Europe, the future: science, development, progress and solidarity”—the kind of thing that trips off the tongue easily and would look very good on the coinage. It was thrown out mainly as a result of an intervention by a German MEP who said, “Solidarity? We Germans know what solidarity means; it means what you want and what we pay for”. “Solidarity” fell, I am afraid, and we ended up with “Unity and diversity”, which has at least the benefit of ambiguity, I suppose.

The truth is that, faced with recession, too much diversity in the European Union is not going to be very helpful. On the test of solidarity, against the stated aims of EU regional policy that I have quoted, there is indeed some evidence of progress but not very much. In recent years, I remind the House, EU enlargement has involved Latvia, Poland, Lithuania, Slovakia, Estonia, Hungary, the Czech Republic, Malta, Slovenia and Cyprus. That enlargement took place in 2004, Bulgaria and Romania in 2007. The point has already been made in this debate that the poorest regions of all are indeed in the east of Romania. They make for a rather shocking figure: below one-third of the average GDP per head in the European Union.

The point is this: during the period 2004-07, the dates of enlargement, the policy that has as its main objective the reduction of disparity has risen by only two percentage points within the EU budget. By 2013, the end of the phasing of the present policies, the figure will be 38.1 per cent, compared with 43 per cent on the common agricultural policy, which, incidentally, will have come down from 47 per cent. But, as has already been pointed out, the total EU budget is, and will be in 2013, less than one per cent—so we are talking about one-third of 1 per cent. The figure is not insignificant. In certain areas—we have heard of some of them tonight—it can be relatively dramatic and

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indeed visually evident. The truth, though, is that in overall budgetary terms these are relatively small figures and we cannot expect too much from them.

The European Union, the Council of Ministers and indeed Her Majesty’s Government have placed their trust for the achievement of the diminution of disparity between rich and poor in the future of Lisbon. In their Government’s response to the committee’s report they say they believe that the economic and social disparities across the European Union can best be tackled by focusing on the drivers of growth set out in the Lisbon integrated guidelines. Let us remind ourselves what they are. As relaunched in 2005, the guidelines are to increase European Union public and private investment in research and development to 3 per cent of GDP, and to secure 70 per cent employment rates by 2010. Given this recessionary context, the likelihood of either of those objectives being achieved in Lisbon is marginal and to rest our hope on that is, frankly, a cop-out—that is really what it boils down to. We have to be realistic about this.

I come back to my first question: how relevant a future has European Union regional policy got, given this recession? As that policy is constituted at present, and given its dependence for its achievement on Lisbon, the answer is: not very much. That does not mean it is not important, but it is not very much.

What about our proposals and the Government’s response? Again, the answers are rather uncertain. I have already referred to the uncertainty about Lisbon, but there are some positive things. I thought the clarity of the Government’s response on the move from grants and loans is absolutely right; it is clearly on the record and it is where we should all be going. Most controversially, the Government picked up our proposal, or suggestion, that the distribution of EU funds within net contributing states, which includes the United Kingdom, should give way in favour of focusing on the European Union’s poorest regions—in other words, solidarity. That is clearly right and fair and, dare I say, even somewhat noble.

I remember in our committee the noble Lord, Lord Kerr, pointing out that one would have to be very careful about how this is expressed if one does not wish to invite a headline in the Mail on Sundayaccusing Her Majesty’s Government of allowing this country to be robbed. Earlier, the Minister was asked why we are forgoing the £700 million for England—I think that was the question. I look forward to the answer as I look forward, very warmly indeed, to his maiden speech. The noble Lord, Lord Davies of Abersoch, has demonstrated alacrity in his career in the House of Lords, which must be the envy of everyone.

If we and the other net contributors are to forgo, in effect, the moneys which might otherwise be distributed as a result of these policies, the way in which that is expressed and explained will have to be very clear; otherwise it will invite a knee-jerk response: why are we not getting more out of it? One will have to deal with that. The answer is not simple; the answer is in the future tense about a concession made in the present tense; namely, we hope that the funding of the CAP will be further reduced and we hope that the balance

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of spending within the European Union will be refocused. I totally agree with that, but how it is expressed will be important.

As we took evidence in the first half of last year, members of the committee had the strong feeling that this was an extremely important area and that the objective which the European Union had set itself, which is not overtly a redistributionist objective but, nevertheless, is one which has a commitment to fairness as regards the attack on disparities of wealth, growth and economic development, was very important. However, the actual scale of the budgets concerned was such that the real balance of impact was always going to be, first, with national policies for regional development and, secondly, that the enlargement of the European Union—the most dramatic development of the European Union of recent decades—is not really reflected in the commitments of regional policy. So the time will come, particularly if the recession severely damages or distorts growth prospects in the new member states, when that will have to be revisited.

6.49 pm

Lord De Mauley: My Lords, I join other noble Lords in thanking the noble Baroness, Lady Cohen of Pimlico, for initiating this debate. I congratulate her on her sub-committee’s report, which is well researched and full of interesting and very important information. Before I talk further about this and EU regional policy, I hope that your Lordships and the noble Baroness, Lady Cohen, in particular, will forgive me if I devote a few words to welcoming the Minister. Fortunately, I have a sound basis for doing so, as I worked for him for several years in the 1990s when I ran Standard Chartered’s merchant bank in south-east Asia and got to know him very well.

The Minister’s reputation is widely known. Suffice it to say that when he joined Standard Chartered in 1993, it was emerging from one of several damaging crises—this time, I think, in India. Long before he left it, he had taken it, by dint of his rare combination of energy, enthusiasm, leadership, inspiration, intellectual horsepower, decisiveness and sheer hard work, to the position of one of the leading emerging-markets banking organisations in the world. A champion of charitable work, especially in sight restoration and breast cancer, he is a fundamentally good person. He is indeed a very big man in a small package.

With considerable foresight, the Minister seems to have kept Standard Chartered away from the businesses and products that have so deeply damaged so many other banks. In my view few people are as well qualified to give a Government of this country, of whatever political hue, the benefit of their advice. That he has chosen to join the Benches of a Labour Government is a matter of passing regret for me personally, but I will get over it, because I know that he has taken this step in the sincere hope that he will be able to help our country.

There was a rumour, around the end of last year, that the Government were trying to persuade him to take the chair at the Royal Bank of Scotland. He will not have accepted a ministerial post in your Lordships’ House in the expectation that it will be an easier ride,

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and we will not disappoint him. He is a keen supporter of Spurs, a club which is consistent with the Prime Minister in its plans to spend its way out of the recession, reportedly spending £45 million in the transfer window, including on buying back Robbie Keane. We look forward to the Minister’s speech and indeed to many future speeches.

I turn now to the future of EU regional policy. Matters relating to the EU are well known for their complexity—several noble Lords have already referred to that. It is therefore to the sub-committee’s credit that it has produced a report of such clarity on the subject. I thank all noble Lords who served on the sub-committee for their hard work. There is a great deal in the report with which we would agree, and I hope that the Minister will be able to reassure your Lordships that the Government will study and study again the sub-committee’s recommendations. The support for the report this evening will perhaps go some way towards encouraging the Government to press unrelentingly in Europe for its important recommendations to be implemented.

Both the sub-committee and the Government appear to recognise that, in the words of my noble friend Lord Trimble, it is irrational for the more developed EU countries to receive funds intended to redress economic inequalities across the EU. The circular system of sending money to Brussels only to see a portion of the sum returned is neither sensible nor effective. It involves wasting resources on administrative bureaucracy, as several noble Lords—my noble friend Lord Steinberg and the noble Lords, Lord Woolmer and Lord Teverson, among others—said. Although the report says that such spending might not be hugely significant for a richer country such as ours, I am sure that noble Lords will agree that any waste of taxpayers’ money on bureaucracy is particularly unacceptable in the current economic climate.

The sub-committee noted that a reduction in contributions from these funds would be unpopular in some circles. However, the sub-committee was also quite right to note, as the noble Baroness, Lady Cohen, said, that a reform of the CAP—I must declare an interest as a beneficiary of various of its schemes—would more than offset any displeasure felt. I hope the Minister will ensure that the Government do everything in their power to secure a sensible result from the imminent review of the EU budget.

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