EU Regional Policy (EUC Report) — Motion to Take Note

– in the House of Lords at 5:15 pm on 9 February 2009.

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Moved By Baroness Cohen of Pimlico

That this House takes note of the Report of the European Union Committee on the Future of EU Regional Policy (33rd Report, Session 2007-08, HL Paper 141).

Photo of Baroness Cohen of Pimlico Baroness Cohen of Pimlico Labour 5:29, 9 February 2009

My Lords, I am pleased to have this opportunity to debate the report on the future of EU regional policy, produced in July by Sub-Committee A of the European Union Committee. Thanks are due to my committee, to my special adviser, Dr John McCombie, of Downing College, Cambridge, to my clerk, Simon Blackburn, who has now moved on to greater things than me, and the committee specialist, Petros Fassoulas.

I welcome my noble friend the Minister who may possibly not have thought that his maiden speech would be made on EU regional funding. I am sure that we will all welcome it cordially, even if he makes it in Welsh.

We produced this report in July and the Government responded in October, which is about the average speed. It was the product of our consideration of the EU budget for 2009. In fact, the delay in getting to this debate has worked to advantage. In the current financial and economic crisis, there is huge pressure on EU regional policy and sometimes it seems to me that not a week passes without us being required to scrutinise and pronounce on an EU proposal to extend, increase, widen and generally tweak some part of regional policy.

European regional policy is important to us all. In 2008, 36 per cent of the EU budget was spent on regional policy. The policy has its basis in Article 158 of the European treaty which states that the Community will aim to reduce,

"disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas".

So economic cohesion—that is what it is—the idea that no part of the Community should drag very far behind the other, has been a policy consideration for the European Community for half a century. It has become increasingly important; it has risen from 17 per cent of the European Union budget in 1988 to 36 per cent today. If the Lisbon treaty is ratified, Article 3 will state that the Union,

"shall work for the sustainable development of Europe based on balanced economic growth and ... shall promote economic, social and territorial cohesion, and solidarity among Member States".

The aims are quite clear, but the administrative structures are extremely complex. There are three funds: the European regional development fund, which provides direct finance for companies, infrastructure and financial instruments; the European social fund, which finances projects to improve skills and access to employment; and the cohesion fund, which finances transport, energy and environment infrastructure projects.

Three objectives underlie those policies, which do not match perfectly the way the funds are divided. The first and most important policy is convergence, which takes 81.5 per cent of our spending on regional policy. It aims to speed convergence between regions and is aimed at the poorest regions. The second is regional competitiveness and employment, which takes 16 per cent of the spending, and strengthens competitiveness and the attractiveness of regions not eligible for convergence funds. The third is the European territorial co-operation, which strengthens cross-border co-operation through joint projects, such as railways.

The question of who is eligible for these funds is not wholly straightforward. It is based on a measurement of gross domestic product per head, which has the advantage of being easily understood and widely used in international comparisons of standards of living. There is a very wide range between member states, a range which has widened with the most recent introductions, the poorest regions being found in Romania and Bulgaria, as I think we would expect. For example, the Nord Est region in Romania has an index of 24, as against Hamburg which is 202 or inner London which, when the report was written, was 303, although it may not be quite as high at the moment.

To be eligible for assistance from any of the regional funds, a region has to be below 75 per cent of the average index figure, or below 90 per cent for some. Other considerations also apply, such as relative prosperity, the number of employed and the number of jobs. When you add to these complications the fact that any money distributed is sensibly limited by a formula that takes into account the particular country's or region's ability to absorb the funds, you get the unsurprising result that there is no particularly clear relationship between the value of funds received per head and GDP per head. The result is that regions in some of the wealthier member states receive more funding per inhabitant than eligible regions in the poorer member states. To give an idea of how the indicative financial allocations for 2007 to 2013 work, Poland, as a very large, very poor country, will get around €60 billion, 19.4 per cent of the total funds for those years, and the UK will get 3.1 per cent of the funds, being much richer.

When thinking about all of this, we found ourselves able to agree not only with the previous report of the committee but also with the Government's thinking. We were strongly in agreement with the aims of regional policy; we agreed that it was important to reduce disparities between regions by encouraging economic and knowledge transfer from richer to poorer regions. As economic development is not even, we supported intervention in the market to counter underemployment and the use of resources in the poorer regions. We were also glad to be able to agree that, along with these ideas, the funds had helped to reduce regional disparities across Europe. We were given the examples that of the four countries originally eligible for cohesion funds, Spain, Greece and Ireland had all seen above-average increases in GDP as a result, and with 15 out of 50 regions in the EU having a GDP below 75 per cent of the EU average, by 2004 12 of these regions had moved above 75 per cent. So it actually works. The committee also agreed, perhaps more controversially, that there was no need for an increase in the total size of the EU budget and any extra money for regional policy should be reallocated from other budget headings. We had our eyes very clearly on the budget heading covering the common agricultural policy.

Perhaps one of the most important conclusions is that we should change the way these funds are targeted. At present, about 20 per cent of the total regional policy budget is available to all regions, wherever they are. We concluded that funding should be concentrated in the poorest regions and reflect the principle of subsidiarity. This would result in a substantial loss of funding to richer member states, specifically to the United Kingdom. But the principle of subsidiarity—that action should be taken at European Union level only where it adds value to the reaction—can be used to justify richer member states taking responsibility for their own regional funding. Arguments against this conclusion, mostly deployed by the Commission, focused around the idea that regional policy should enhance member states' co-operation and knowledge-sharing and that it was not acceptable to divide member states into donor and recipient countries. We saw the force of this argument but in the end we discarded it and we were very glad that the Government were able to endorse our conclusion, despite the fact that, on present distribution, an annual loss of £1.6 billion to the UK could be involved. However, in their response the Government said that this view depended rather on a rebalancing of the European budget generally, specifically rebalancing the funds allocated to the common agricultural policy. We were none the less glad that the Government were able to support our conclusion.

There are various other aspects of the report. I am sure everybody is familiar with the fact that, in many cases, member states cannot use their full funding. For this reason, all member states have an absorption cap based on their gross national income which limits the funds available to them by on average around 50 per cent. For example, the region of Lubelskie in Poland, from where we took evidence, was able to use only 80 per cent of its funds between 2004 and 2006. This led many witnesses to argue that increasing regional funding made available to member states, as we recommend, will not necessarily raise their economic performance. We found that much of this problem was caused by inexperienced fund management structures in new member states and that, to help remedy this, the older member states were advising newer member states on fund management, which the committee supports in its report. For instance, the Office for National Statistics has advised eastern European countries on the collection of statistics. This has particular relevance in the current economic downturn, as many are citing regional funding as a way to inject cash into the economy. However, as many member states are currently unable to spend their current allocation, it may be seen as counterproductive. Pumping money into a system that is unable to spend its current allocation will not achieve a proportional benefit in the economy. We hoped that member states would be able to catch up and train their people fairly quickly.

We also welcomed the integration of the funds with the Lisbon strategy for growth and jobs. Under the financial perspective 2007-2013, regional policy spending is linked with the Lisbon agenda, which means that money needs to be spent on competitiveness and employment objective spending. This enables member states to develop a more forward-thinking spending plan, linking spending on infrastructure with the development of employment, rather than just building roads.

The committee welcomes the approach of the Commission that one policy does not fit all. As such, it agrees that regions should continue to draw up their own regional spending plans, rather than policies being decided on a centralised basis.

We also agreed with the Government that spending should not be used other than to reduce regional disparities;for instance, it would be unwise to divert any spending to major issues such as climate change, which should be addressed on its own. This will help prevent projects funded by the funds conflicting with other European Union policies.

Since we wrote the report, there have been several other developments. In September 2007, the European Commission published the Fourth Report on Economic and Social Cohesion, which presented the basic data and key assumptions with a view to debating the future after 2013. As listed in the report, the EU will face new threats and important challenges such as population ageing, rising energy prices and immigration pressure. A concrete presentation of cohesion policy after 2014 is not expected until the fifth report on economic and social cohesion is published around 2010, but the committee will probably take a look at it at that stage.

The debate on the future reform of cohesion policy appears to revolve on two different views: on the one hand, that cohesion policy needs to keep its traditional role of reducing disparities and ensuring convergence for regions; on the other hand, that the priorities of cohesion policy should closely be linked to the Lisbon agenda and that improving competitiveness and innovation must be the main objective for future cohesion policy. The most important debate is coming up in the budget review 2009, which provides the opportunity to recommend an overhaul of the budget and the possibility of reforming the CAP and reducing the funds that richer members receive. We look forward to that debate.

Photo of Lord Trimble Lord Trimble Conservative 5:43, 9 February 2009

My Lords, the noble Baroness, Lady Cohen, said that the most significant recommendation in our committee's report is that regional policy should concentrate on the poorer areas. The implication of that is that the convergence objective alone should be pursued, with the so-called competitiveness objective no longer existing, because, while an objective of competitiveness might seem attractive, it is simply a means of spending some money under regional policy in all the areas of the Union where the GDP is above 75 per cent. I would suggest that "competitiveness" is put there as an attractive label; the real purpose is to have some money going to the areas that are not poor. This is irrational; it would be much better to focus purely on the poorer areas.

I have a little anecdote which I shared with the committee and which I propose to share with the House, relating to my time as First Minister in Northern Ireland. When I was talking about regional policy with a senior official from our finance department, he observed that regional policy was sometimes more trouble than it was worth. That might seem to be a strange comment, but it is not. The money that, notionally, is spent by various agencies and regions in the United Kingdom under regional policy does not go directly to them from the European Union. European Union money goes to the United Kingdom. My interlocutor told me that the Northern Ireland Department of Finance then found that it was under pressure from the Treasury to arrange its capital expenditure in such a way that would draw down the largest amount of regional policy money. This meant that its capital expenditure programmes did not prioritise, and were not based solely on, what the department thought were the key priorities for Northern Ireland. Those priorities were distorted to increase the amount of money that was drawn down. He found that a disadvantage. To this disadvantage is added the fact that money has to be provided to match the money that comes from the regional fund. There is always an element of matching, which varies from around 50 per cent to 85 per cent, depending on the circumstances. Matching money has to come in, which can also be a problem in running regional policy.

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 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 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.

Photo of Lord Teverson Lord Teverson Spokesperson and team leader for Climate Change and Energy 5:55, 9 February 2009

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.

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.

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.

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.

Photo of Lord Woolmer of Leeds Lord Woolmer of Leeds Labour 6:09, 9 February 2009

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

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 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.

Photo of Lord Steinberg Lord Steinberg Conservative 6:26, 9 February 2009

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 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 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.

Photo of Lord Watson of Richmond Lord Watson of Richmond Spokesperson for Innovation, Universities and Skills 6:35, 9 February 2009

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, 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:

"to reduce disparities between the levels of development of the various regions".

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

"promoting economic, social and territorial cohesion and solidarity among member states".

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 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 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.

n

I would like to point out that only the Greek part of Cyprus is in the EU. The Turkish part has never been asked or voted on joining.

Submitted by neil Regan

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister, Children, Schools and Families, Shadow Minister, Innovation, Universities and Skills 6:49, 9 February 2009

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, 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.

The committee's recommendation in paragraph 64, that the 2008-09 budget review should result in reduced spending on agricultural price support, is welcome, and I hope that it is fully shared by the Minister. The committee's recommendation that richer member states should remain responsible for the majority, if not all, of their own regional funding is also one that the Government should pay heed to. Indeed, the Prime Minister himself called a few years ago for the repatriation of regional funding. It is regrettable that he did not pursue it more vigorously. We agree with the conclusion that regional policy will never be the primary vehicle for encouraging economic competitiveness. Many of the poorer EU countries' inefficiencies, especially of those which have recently joined, are the consequence of national problems. Although these EU funds can of course be very useful, they must complement national policies if any real improvement is to be seen.

There needs to be better control of funds at national level. It would be very helpful if the Minister could tell your Lordships, first, what level of auditing and ex post assessment has taken place and does take place; and, secondly, whether any UK local authorities have been censured by the EU Court of Auditors over the handling of EU money, and if so, which ones. I will understand if he cannot answer me today, but if he could able to write to me afterwards it would be appreciated.

Many of the other recommendations in the report are sensible, too. Using loans instead of grants—to which the noble Lord, Lord Watson, referred—as a vehicle for encouraging development would not only ensure that the projects concerned were viable without permanent public funding but would also, over time, allow limited funds to go much further.

Similarly, we would echo the sub-committee's support for co-financing. If a national Government retain a financial interest in the success of a project which they are considering funding with EU money, there is less likely to be any lowering of standards at the end of the year as a result of having to spend the money to avoid returning it.

The committee has made a considerable number of recommendations, of which I have mentioned only a few. I look forward to hearing the Minister's response. I again thank the noble Baroness, Lady Cohen, and her sub-committee for this report, and your Lordships for an interesting debate.

Photo of Lord Davies of Abersoch Lord Davies of Abersoch Minister of State (Foreign and Commonwealth Office) (UK Trade and Investment) (also in the Department for Business, Innovation and Skills), Minister of State (Department for Business, Enterprise and Regulatory Reform) (UK Trade and Investment) (also Foreign and Commonwealth Office) 6:57, 9 February 2009

My Lords, this has been an excellent debate. I thank my noble friend Lady Cohen and her committee for their detailed and very informative report. The Government welcome and support the committee's call for reform of EU regional policy.

Regional policy is of importance to everyone in this country, not least for a newly ennobled Welsh Peer. With your Lordships' permission, I should like to put the EU debate on the future of EU regional policy post 2013 into its wider context to set out the Government's thinking on where we want regional policy in Europe to be, and to inform the House of how the current cohesion policy is reacting to the global financial crisis that we are facing.

However, I should like first to say a few words about myself and my role. I begin by extending my thanks to noble Lords for the warm welcome that I have received from all sides of the House over the past few weeks. I genuinely appreciate the convention and sincerity in the welcoming remarks made this evening—with the exception of the comments on Tottenham Hotspur. I thank particularly my noble friend Lady Cohen for her kind words and welcome. I also thank the noble Lord, Lord Teverson, for his comments about the glossary of terms, which genuinely drove me nuts this weekend, most of which I indeed spent with JESSICA and JASPERS.

As I took my oath, or y llw in Welsh, I reflected on the fact that I did not really speak a foreign language—namely, English—until I was six or seven, so I apologise in advance for my future performances in English in the House. When under pressure, as I struggle to master the latest trade statistics, may I reserve the right to mutter the odd word in Welsh? Indeed, paragraph 4.47 of the Companion to the Standing Orders specifically mentions that languages other than English should not be used in debate, except where necessary. I might also utter one or two words in Cantonese, as I lived in Hong Kong and Singapore for many years. I am also a Minister and, as civil servants now refer to me in that way, I just cannot get the image of the chapel, Sunday school and my mother's Sunday hat out of my mind. That is what a "Minister" meant to me.

Only one or two years ago, being a bank chairman would have seemed an ideal background for somebody joining this House. How times have changed. Bankers now keep a very low profile. The past 12 or 18 months have been extraordinary for the industry that I have worked in for over 30 years. The industry has lost credibility, trust and respect, but we must be balanced in our reaction and our criticism. Not all banks were caught. However, it is critical that lessons are learnt and that banking regains credibility and stability, since it is an industry that is critical to the future of a thriving global economy. It is a complex and international industry, which has allowed me and my wonderful family to live in different places. It has made me realise, simplistically, that the citizens of the world, irrespective of colour, religion and background, get on well together. In my one Kate Winslet Oscar/BAFTA moment, I should also like to thank my wife of 29 years for her support.

Living in Asia changed my view of the world and made me realise the huge potential of China and India. It also made me realise the huge potential that those two large markets and countries offer the UK. Until recently I was the chairman of Standard Chartered, a bank which is proud to be British and yet operates in 70 countries with over 70,000 staff. I was on the board of that bank for 12 years. I notice that several noble Lords were, as has already been mentioned, either board members or worked with me in the bank. I should like to put on record my hope that I did not upset them during my time there. This afternoon, as I had a cup of tea, I spoke to my noble friend Lord Faulkner, and I discovered that his father was the Chartered Bank company secretary in the 1960s. So I am phasing in to the House of Lords and phasing out of another life. That is what "phasing in" and "phasing out" mean to me.

My entry to government clearly has come at an interesting time, to say the least. When the opportunity came to do public service, I felt compelled to do it. The privilege of being a Member of this House, with its huge variety of talent, is indeed just that: a privilege. Recent accusations have undoubtedly affected the standing and image of the House. I will do my very best to uphold the high standards of integrity and tradition in this House, which are evident for all to see. Although I have had to give up my outside interests, with the exception of the Royal Academy and being chair of the council of Bangor University, my passion for sport and the arts will remain undiminished. I hope that I will feel the same about politics in due course. My role as Minister for Trade and Investment is an exciting and challenging one. Britain's industrial position needs talking up, not talking down. I do not agree that we have no manufacturing, no industrial capability and no innovation in the UK. My role is to prove the cynics wrong and assist British business.

I turn now to the EU debate. I am obviously a newcomer to this whole question. However, having studied the committee's report and the evidence, I was struck by how the report has rightly looked at distribution management and the impact of the funds. It is very pleasing that the committee found that the funds are effective and, in general, fit for purpose. It has to be right that, through Article 158 of the treaty, the EU aims to reduce the disparities between levels of prosperity in some of the countries. We have to make sure that we help the least favoured regions. After all, elements of regional policy are designed to counter any negative repercussions of a single market. Clearly, supporting the use of economic and knowledge transfer from rich to poor regions, and interventions to counter both unemployment and underutilisation of resources, is the right way forward. The aim of structural and cohesion funds has to be not just the reduction of income inequality but also sustaining growth rates in the poorer member states.

On reading the report, I was struck by the evidence of Professor Bachtler from the University of Strathclyde that it is difficult to determine effectiveness. We must always strive for efficiency. Finding the balance between strong financial management and avoiding bureaucracy is one of the most difficult and challenging aspects of EU funding.

It is clear that regions need flexibility and strong social institutions to take advantage of these opportunities. It is also clear that the debate will be a long one. We are considering a policy that will not be in place until 2014. All interested parties need to participate actively. As the noble Lord, Lord Trimble, pointed out, transitional arrangements will be key.

The noble Lord, Lord Teverson, spoke about gaps between funding periods. I listened with interest to this issue. The situation is not as stark as presented. The "n+2" rule—another piece of structural fund language that I am getting used to—means that spending is continuing on the 2000 to 2006 programmes. The rule helps ensure that the change from one programme period to another is relatively smooth.

As this is a long-running debate, we do not expect to have an outline of Commission proposals for the future before 2010. It also needs to be seen, as pointed out by my noble friend Lady Cohen, in the wider context of the EU budget and its ongoing review. Some have asked for the debate to be considered free of financial constraints.

However, the European Union's financial instruments for addressing its cohesion policy are the structural and cohesion funds. Any expansion of the cohesion policy is likely to lead to additional demands on the European Union budget. As was pointed out, the debate is also linked to the Lisbon treaty and its introduction of the European Union aim of territorial cohesion. Some see this introduction as a rationale for expanding the scope of cohesion policy.

Recent Commission consultation has been launched on territorial cohesion to try to get a better idea of what that means. The Government will be responding in the next few weeks on that aspect. I will respond to the noble Lord, Lord De Mauley, on the auditing point. I do not have the answer.

The Government have set out their position on the future of regional policy several times over the past year in responses to community consultations as well as at meetings and conferences at both official and ministerial level. I would like to take this opportunity to set out briefly the main points of our position. The primary aim of cohesion policy should be addressing disparities in economic development and, in particular, should be focused on supporting the Lisbon jobs and growth agenda in conjunction with the Gothenburg sustainable development agenda. The UK also wants to see a significant increase in the proportion of the funds allocated to poorer member states as this is seen to bring the highest level of what we consider to be EU added value. I spent my career banning the words "added value" because I never knew quite what they meant in the corporate world, and here I am in my maiden speech talking about EU added value.

Where member states have the institutional structures and financial strength to develop and pursue their own regional policies, they should be enabled to do so within a common EU strategic framework. I was struck by the points made by my noble friend Lady Cohen on the need to help poorer countries that do not have that infrastructure. Consequently, structural funds in the richer member states should be phased out. Given that aim, the priority should be that standard competitiveness and employment funding should no longer be available to richer member states.

The noble Lord, Lord Teverson, raised a number of issues, including that of continuity. I agree that continuity is crucial. However, as I get into the role, I also believe that the role of RDAs has developed in the UK. This morning, I joined the meeting of the executive board of UKTI, and it is clear that the RDAs play a pivotal role. I am very keen to get involved in understanding them and making sure that they play the right role.

I turn to the impact of the current global financial crisis on EU regional policy. The focus of EU debate has moved to how current policy can be adapted to these extraordinary times. As the noble Lord, Lord Watson, mentioned, it is a critical issue. It is important that we do not lose sight of the fact that we are trying to create employment across Europe, particularly in the poorer states. The Government welcome changes to the funds that increase liquidity, and changes that simplify and improve the effective management of the funds. At a time of economic crisis across many countries, it is important that money moves quickly and efficiently. There is now increased activity on simplification of the current funds. The Commission has formed a simplification working group. I always believe that simplification working groups can, on occasion, make life more complicated, so we will have to make sure that, through our active participation, we have high-impact, low-cost and efficiently delivered money. That is the Government's aim and we need to make sure that that happens.

Noble Lords have had the opportunity to see the Government's response to the report. It has been mentioned a few times and I will not use the time to reiterate it. I will mention that the Czech presidency aims to hold an international conference in March on the future of cohesion policy, and an informal ministerial meeting in April. We need to make sure that a number of points raised today are fed in to these meetings, and also through other channels.

At the informal ministerial meeting we are expecting a political debate on the main principles of the future of cohesion policy post-2013. We also expect a presentation from the European Commission on the preliminary findings of the Green Paper on territorial cohesion, and an orientation paper that we believe to be a summary of the debate to date.

There have been a number of questions and, as this is my maiden speech, I am going to take them at the end, rather than insert them into the speech—I hope to become more expert at that in due course. The noble Lord, Lord Trimble, and other noble Lords, mentioned a very important point about NUTS and allocation methodology. The Government will consider these issues; they are important and we need to carry on the debate about whether we have the right methodology and allocation. The only other question I will answer concerns the overall relevance of cohesion policy in the general debate. I believe that EU regional policy and EU aid is more rather than less important at a time of economic crisis.

Noble Lords have raised a number of issues. We will take those points away, feed them into the debate and carry on the discussion.

Photo of Baroness Cohen of Pimlico Baroness Cohen of Pimlico Labour 7:14, 9 February 2009

My Lords, this has indeed been an excellent and timely debate, and I thank everyone who has contributed. In particular, I thank the Minister for his summing up, and I welcome the Government's commitment to the poorer regions of the EU. He made a really excellent speech although I suspect that he might not have chosen to take on in his maiden speech the intricacies of EU financing. However, the speech went very well, I congratulate him and we look forward to many more good speeches. I welcome him again to the House and say how very glad we are to have a man of great distinction, not only in banking and finance, but in the arts, in the ranks of our Ministers.

Motion agreed.

House adjourned at 7.15 pm.