EU Structural Funds (Wales)

– in Westminster Hall at 2:00 pm on 9th March 2005.

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Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport) 2:00 pm, 9th March 2005

I am delighted to have the opportunity to open this debate and to see the Minister for Trade and Investment in his place. I look forward to his reply. The issue is of great importance to Wales—as well as to one or two other objective 1 areas—and goes to the heart of the Government's regional policy and its future.

I start by referring to the debate and the vote in the House on Monday. The Government proposed that the House note and approve their approach to structural funds at the European level. The motion made it clear that the Government sought to put a ceiling on the EU budget, at 1 per cent. of gross value added—GVA—and bring structural funds from Europe back to the Treasury. That is a perfectly legitimate position—I understand it and I know where the Government are coming from. However, I shall argue against it, because many issues need to be taken account of.

Although I am delighted to see the hon. Members for North-West Norfolk (Mr. Bellingham), for Brecon and Radnorshire (Mr. Williams) and for St. Ives (Andrew George), I was disappointed that neither the Conservatives nor the Liberal Democrats joined us on Monday by supporting our amendment to the Government's motion. I understand that the Conservatives might have particular concerns about the size of the EU budget, but only a week ago the Liberal Democrats put a motion to the National Assembly for Wales proposing that the Assembly

"believes that Wales's best interests would be served by proactive campaigning by the Welsh Assembly Government to ensure support for the European Commission's structural funds post-2006 proposals".

The Liberal Democrats could not have been more unequivocal in the Assembly, but they certainly can be equivocal here in Westminster, where they sat on the fence and did not vote on Monday.

Photo of Roger Williams Roger Williams Opposition Whip (Commons)

The hon. Gentleman will understand that the amendment to the Government's motion also had the effect of putting in jeopardy the British rebate. Because of that, we could not vote for it and abstained.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

That is an interesting position and means that the Liberal Democrats could not think up an amendment to take their policy into account.

The hon. Gentleman's point also underlines a problem that I shall address later. How do we tackle the EU budget without facing up to the British rebate? I hope that when the hon. Gentleman has heard what I have to say about what the rebate and structural funds bring to Wales, it might be clearer to him why he should support our position. Indeed, the hon. Member for St. Ives had a debate in the House a few months ago—it was at the end of the day and he had a lot of time, as I remember—when he said positive things about structural funds. One cannot positively campaign for structural funds to be retained by the EU without addressing the implications of that for Government spending, the rebate and so forth.

We have had our say on that, however, so let us look to the future. Let us consider how we can ensure that opportunities for my constituency and west Wales and the valleys continue to flow from EU structural funds. If the Government get their way in their twin-pronged attack on structural funds—they want to limit the budget and repatriate the funds to the Treasury—what undertaking will they give today and in future to ensure that Wales and the objective 1 areas in England do not lose out? I accept that we have heard warm words from the Government, but we have not yet received any such undertakings.

Perhaps the Minister will say, "Trust the Government—we will deliver." Many of us have difficulty trusting the Government these days, over many issues. Many hon. Members, on both sides of the House, have shown that in recent votes. In particular, the Government are not to be trusted on regional policy and they need to underpin their commitment to regional economic policy for several reasons.

The eligibility of Wales for objective 1 funding is not a badge of pride, but a badge of failure—the failure of UK-wide regional policy over many years and by many Governments. Westminster and Whitehall have got us into that state, so some of us have little faith that future Governments will get us out of it.

UK regional policy is appalling. We have the worst regional inequality in the European Union, with the possible exception of the islands of Greece, which, again, is not a badge of pride. There has been a failure to develop any worthwhile regional economic or fiscal measures, such as the ability to vary corporation tax in objective 1 areas or the ability to levy local business taxes, income tax or variations of that. We have still not dealt with the post-industrial legacy of unemployment, long-term sickness and incapacity benefit claimants, which is particularly serious in the south Wales valleys.

With such a history of failure, we have deep suspicions as to whether the Treasury or the Under-Secretary of State for Wales will be able to deliver an equivalent programme of investment over the forthcoming objective 1 period, which we know the Commission is proposing.

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

I am pleased that the hon. Gentleman has moved on from pre-election froth about the badly worded amendment that was put to the House on Monday. To get to the substance of the issue, would he agree that we are not just talking about suspicions? It is a matter of fact that the Commission would be able to offer objective 1 regions a seven-year programme, plus another two years of funding, which the Government cannot possibly match. That is a fundamental reason why objective 1 regions such as Wales, and Cornwall and the Scilly Isles must campaign for the continuation of the programme.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

The hon. Gentleman is right, although of course I do not accept his description of our amendment, which I thought was perfectly respectable for Wales and Cornwall. He is right about forthcoming regional programmes: the objective 1 programme—or the convergence programme, as it is likely to be called—will be a six-year programme. There will also be transitional funding after that, depending on how well the areas receiving the funding do.

With the best will in the world, Governments now work only on two or three-year cycles. I appreciate that this Government have moved to a three-year fiscal cycle, but any Government can at most give only an outline commitment for three years.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

Indeed—if there is an election, things change again. It is essential that our communities have direct access to those EU structural funds without having to go through Whitehall—or even, to a certain extent, through the Assembly or whatever. That is why the Cornish convention supports Plaid Cymru's position, and I look forward to hearing what the hon. Gentleman has to say about that.

That argument is also why the Wales TUC opposed the Government's proposals in its submission to their consultation at the end of 2003. The Wales TUC said that Wales needed the long-term investment and that it did not have confidence in the proposed investment policy. It is something for the Wales TUC to say that about a Labour Government.

Let us consider the current legacy. We could be asked, "Why are you making all this fuss?". It might be argued that objective 1 has worked—that west Wales and the valleys have come out of their unfortunate position and are perhaps not even eligible for objective 1 any more. Regrettably, however, that is not the case. On 28 January EUROSTAT published new statistics on GVA per head in the EU regions. West Wales and the valleys continue to be listed among those below the 75 per cent. threshold of eligibility for objective 1, with GDP per head currently estimated at 73.82 per cent. of the EU average—Cornwall is at 70 per cent., as the hon. Gentleman might know. The figure for west Wales and the valleys is 67.35 per cent. of the pre-EU enlargement average, but it is still low enough to qualify for objective 1 funding.

We have the opportunity. If the structural funds continue and the Government are part of that, west Wales and the valleys are poised to take further advantage of objective 1. With a figure of 53 per cent. of the EU average, Anglesey is the worst area, so I am pleased that Albert Owen is here for this debate—he was not present on Monday. It is vital for Anglesey and constituencies such as mine that we continue objective 1 funding.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

I thank the hon. Gentleman for raising the issue of GDP in parts of Wales, but does he not accept that the figures that he quoted are for the early stages of the programme up to 2002? The recent figures from the Office for National Statistics reveal a considerable increase, showing that objective 1 and major projects are working in areas such as Ynys Môn.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

Anglesey has been in decline, it must be said. The figures to which I referred are the latest European statistics from the member states, and the hon. Gentleman must bear it in mind that eligibility for further objective 1 funding is based on those figures, not the most recent ONS figures. He surely does not want to deprive west Wales and the valleys of eligibility for objective 1. I hope that he will now support the fact the Commission is prepared to use the figures that show eligibility and that he will not seek to create an artificial situation that would mean that we would not be eligible.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

Has not the hon. Gentleman's party been putting the argument in the media over the past few days that if we do not act by July, the new figures will, by December, prove exactly what I said—that there has been considerable improvement in the GDP of west Wales and the valleys, including in my constituency?

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

The hon. Gentleman cannot say that. [Interruption.] If the hon. Gentleman will allow me to continue. If we do not act by July, the UK will take up the EU presidency and will therefore be in a position to dictate the terms. He has to decide whether he is for or against structural funds for Anglesey. If he is for structural funds for Anglesey, he will support the campaign. If he is against them and believes that the Treasury will deliver a similar sum of money, he can by all means line up with the Treasury. However, people in Anglesey know that the structural funds are delivering to them. [Interruption.] If he wants to know about the money delivered to Anglesey and about the jobs created, I can tell him. Some 2,080 jobs have been created in Anglesey by objective 1. Those are the jobs that he wants to put down the pan, by supporting his Government's position on objective 1.

We have heard enough about the matter from the hon. Gentleman, who finds himself on somewhat weak and shaky ground. The choice that I described is the real choice we face.

The Government are leading a campaign in Europe—and will strengthen it after taking up the EU presidency in June—to cut the budget to 1 per cent. of average EU national income. That would mean a severe cut in all policy areas, including in objective 1 areas.

Let us turn from one end of Wales—it was interesting to have the Labour party's Anglesey policy illuminated—to the other, to the south Wales coalfields. A recent report from Sheffield Hallam university, which many hon. Members have no doubt seen and which was published on the 20th anniversary of the end of the coal dispute, found that south Wales continues to suffer most from the lack of jobs that resulted from the closure of the coal industry. Some 20,000 mining jobs went in that period.

I accept that that was not this Government's responsibility, but we need to ask what has been done since to bring those post-industrial areas up to a state of competitiveness, so that they can take advantage of what the Government say they want to come from the Lisbon agenda, for example, and so that the working population can become trained, fit and active.

The story in south Wales is very sad. Out of all the former coal areas, Wales has made the slowest progress out of depression and unemployment towards a more active and vital work force. Only about 22 per cent. of the old coalfield jobs have been replaced, whereas in some areas, such as Yorkshire, the figure is 100 per cent. The Government might say that means that regional policy has worked for Yorkshire. However, one thing is for certain: UK regional policy following the miners' strike and the closure of the pits has not worked for south Wales.

The Sheffield Hallam report also points to around 100,000 former miners who count as the hidden unemployed. They are the people claiming incapacity benefit who come to our surgeries. We know that the Government also have plans for incapacity benefit.

The interesting thing about the report is that Professor Stephen Fothergill of Sheffield Hallam university estimated that it would take a further 10 to 15 years for full economic recovery. Curiously, 10 to 15 years is exactly the time scale of another objective 1 period and another set of transitional funds. The prescription and the analysis have been made and there is a possible solution: continuing to support objective 1 for south Wales.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

I give way to Mr. David, because I know that he is going to praise the previous Plaid Cymru administration in Caerphilly for the £27 million of objective 1 funding brought into Caerphilly, which he mentioned in The Western Mail this morning.

Photo of Wayne David Wayne David Labour, Caerphilly

I am delighted that the hon. Gentleman has taken the trouble to read my excellent article in The Western Mail.

Photo of Wayne David Wayne David Labour, Caerphilly

I am sure that good sense will be reflected later in his speech.

The hon. Gentleman mentioned Professor Stephen Fothergill. In fairness to the professor, he said that his analysis is unsurprising because it has been difficult to attract inward investment into the south Wales valleys because of issues of topography.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

I accept that point. I have no problem whatever with that analysis, but, even so, how do we attract inward investment and encourage indigenous start-ups in the valleys when there is such poor infrastructure there?

The hon. Gentleman will know that many of the infrastructure improvements in the valleys, including the railway lines to Caerphilly and from Taffs Well up to Pontypridd and on to my home town of Aberdare, have been made with objective 1 money. Does he want such investment to continue for areas such as Caerphilly, or does he trust a UK Government of whatever political colour, as there is a general election coming up, and we could have change—I am sure that the hon. Member for North-West Norfolk will want to make his pitch for that later—maintaining that for 10 or 15 years? I do not think so.

I should hope that the hon. Member for Caerphilly, as a former MEP, recognises the huge strengths that we can gain from being locked into a European-wide regional policy that has some of the best features of dealing with regional disparity, and some of the best socialist features of delivering aid from the richest areas in Europe to the most deprived. I advocate that policy in the UK and the European Union; it can deliver for Caerphilly and Ceredigion, and I hope that the hon. Gentleman will support it, because some of the alternatives rely on Government policies such as state aids.

Let us consider what has happened with state aids from the UK. Unfortunately, they have gone down in the UK by 22.5 per cent. It is sad that the latest figures on state aids that I was able to obtain show that they were higher in the period from 1996 to 1998, which was the transition period from a Conservative to a Labour Administration, than under this Administration. State aid in manufacturing, in particular, is way below in the UK, at half the European average. [Interruption.] As my hon. Friend Adam Price says from a sedentary position, "More Tory than the Tories."

The Government's use of state aid has been extremely slow and has not matched the EU average, which is the equivalent of €534 per person compared to the UK average of €261 per person. We are way behind in regional spending using state aid rules.

What if we follow the Government's policy and it transpires that we are not part of EU structural funds and we renationalise those funds to the Treasury? The new EU Commissioner for Competition, Neelie Kroes, said, when interviewed by the Financial Times on 26 January, that even regions below the 75 per cent. figure, such as Wales and Cornwall, should not be eligible for Government state aid if they are in member states that are not relatively poor.

The Commission seems to be saying, "If structural funds are available, you can make use of them, because you can come straight to us, but if your Government want to stop structural funds being made available, we will carefully scrutinise how state aids are used within your member state." I understand that that is political posturing from the EU Commission, but there is a lesson there for the Government about the price that they may have to pay to get this handbag rebate that they seem to have inherited from Maggie Thatcher and that they seem to think is so crucial.

Let us consider what the EU Commission proposes and what the Government are saying no to. The Commission has a set of proposals for regional cohesion policy from 2007 to 2013, which should start at the beginning of 2007. It proposes to modify objective 1 to highlight its economic convergence aspect in line with the Lisbon agenda, so it may well become known as the convergence objective.

Regions will still be eligible, however, if their GDP per head is less than 75 per cent. of the average for the enlarged EU—I have already pointed out that that still applies to west Wales and the valleys—and is calculated on the figures for the three years prior to adopting the regulation. That brings us back to our earlier point of debate: if we adopt the regulation now, we will have the necessary figures to qualify. I do not want to lose that opportunity because of the Government's delay. Newly published EU statistics show that west Wales and the valleys and Cornwall would be included, but Merseyside and south Yorkshire would not. Those two objective areas would no longer qualify.

Of course, all that is subject to member states' agreement, but the proposals would apply to west Wales and the valleys because the EU proposes that half the cohesion funds should be spent in the EU 15, and half in the new 10 accession countries. Of the half to be spent in EU 15, 78 per cent. would go to the convergence fund. How much that would mean for Wales depends on how many areas in the EU 15 and in the nomenclature of units for territorial statistics—NUTS—proposals come below the 75 per cent. threshold.

There are 1.8 million people in the west Wales and the valleys area, and we should expect a continuation of funding of at least £2 billion. If one considers that many areas in the EU 15 will come above the 75 per cent. average, one sees that there is a little less jam to go around, but it does not have to be spread as thinly because there is less area to cover. The opportunities for Wales will still be considerable. Perhaps the Government can even tell us what those opportunities are. Who knows? The Minister may have the figures to say what the EU structural funds would mean for west Wales and the valleys; I would certainly like to hear that the Government at least know what they are going to throw away, because that reflects what they will then have to commit from the Treasury.

We should also remember that such sums must be additional to current Government spending. That is another problem that both the TUC and I want to raise. How can we be sure about the clarity of additionality? It is one thing for the Treasury to say, "We will spend the same as you would have got under objective 1 for the next two or three years," but another altogether for it to follow that through in the spending round in the public expenditure survey, and to ensure that that happens. We know that it is extremely difficult. It is difficult with all Governments; we have to be clear about that, but there is no doubt that there is more clarity with EU structural funds. Did not we in Wales recently have to use the Freedom of Information Act 2000 in relation to what the National Assembly for Wales identified as an additionality need—£451 million per year—and to establish the fact, as we said all along when the Treasury gave an extra £200-odd million as a Barnett-plus formula, that it was not meeting the full additionality?

This is an important opportunity to obtain significant and continuing investment in west Wales and the valleys, to bring in match funding from the private and public sectors, and to ensure that such funding is in addition to current Government spending. However, we must ensure that those opportunities are not preserved in the Treasury model; to use the word "model" is a little extreme, because there is no clarity about where it adds up from.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

The hon. Gentleman talked about additionality and the differential between what the Assembly asked for and what was given in Barnett-plus. Does he agree that no project has suffered, and that there are no shortfalls in any of the priorities in the spending measures that the Assembly uses for funding in west Wales and the valleys? [Interruption.]

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

My hon. Friend the Member for East Carmarthen and Dinefwr refers to the film fund for Wales—a particular example—but the bigger picture is more important. The hon. Gentleman says that objective 1 projects have not suffered because of the lack of clarity and additionality, and I agree with him in a sense, but that brings us to the question of where the money came from. It came from other parts of the National Assembly budget. Therefore, we must ask not which objective 1 projects—

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

No, no. The answer to the question is that no objective 1 projects suffered, but the Welsh Assembly spending budget suffered, so it was health, education and transport that suffered—[Interruption.] It was not—[Interruption.] The hon. Member for Ynys Môn can have this argument across the Chamber all he likes, but perhaps he should seek to catch your eye to make his points more appropriately, Mr. Olner.

Photo of Bill Olner Bill Olner Labour, Nuneaton

There is a little too much noise coming from sedentary interventions.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

Thank you, Mr. Olner. The point that I was trying to make to the hon. Gentleman, although he does not want to listen to it, is that although objective 1 projects may not have suffered, because that money was taken from the National Assembly budget, other projects did suffer. The waiting lists are testament to the lack of long-term investment in the health service in Wales. The hon. Gentleman can chew the cud over that when he gives his speech.

Photo of Bill Olner Bill Olner Labour, Nuneaton

Order. As far as I am aware, no EU structural funds go to the national health service in Wales, so the hon. Gentleman is straying a fair bit away from the debate.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

Thank you, Mr. Olner. My hon. Friend the Member for East Carmarthen and Dinefwr has pointed out how structural funds could be used for investment in the health service in Wales, but I leave that for another day. My point is that the use of additional match funding from elsewhere in the budget meant that there was an effect on public services.

I move to the final aspect of structural funds. We have talked about objective 1, which is obviously of great importance in my constituency and in those of, not all hon. Members present, but one or two at least. The final aspect is the future of agricultural funding affecting Wales. A European agricultural fund for rural development has been proposed as part of the structural funds project and is being discussed in the European Parliament. Following common agricultural policy reform, that is now the major focus of policy reform for funding. It is certainly of great importance to my constituency.

The fund will determine what European funding is available for rural areas from 2007 onwards, so the next decision is important for how that is shaped in Wales and the shape of the programme throughout the UK. The UK has historically received a low allocation; today the House of Lords has produced a report which shows Ireland's allocation of that particular funding shooting up, and the UK lagging well behind. We are told that we will get money from the rebate, and that that will help us if the Government get their way.

Currently, the rebate is about £3.4 billion. We want a commitment from the Government to spend the equivalent of objective 1 in west Wales and the valleys and elsewhere in Wales on these policies. I admit that if they make that commitment, some of my argument dies. We look forward to receiving a commitment, not to spend money, but a commitment in facts and figures that is put into the Treasury forward planning.

The Government will have to consider both objective 1 and European funding. I am particularly concerned about less favoured area status, which affects all our constituencies. Some 80 per cent. of Wales has less favoured area status. The proposal being made—because of a European audit on the fund, which has found some problems in other countries, not the UK—is that socio-economic factors should be taken out of less favoured area status. That would be disastrous for Wales and its farming and rural areas. Although that is not objective 1, it is part of structural funds, and I hope that the Minister will consider that in detail.

I conclude by asking some questions. Will the Government fight to keep less favoured area status for Wales? Will they fight for socio-economic factors to be taken into account so that we can continue to access rural structural funds from Wales on the basis of the impact and support of our farming based on social and economic factors as well as geographic terrain?

Will the Government fight for objective 1 or convergence funds for west Wales and the valleys? That is almost a rhetorical question, because they have already said that they will not do that, in which case what binding guarantees will they now make for ongoing funding that will be transparent and additional to usual Treasury funding for west Wales and the valleys?

What will the Government do to fight for other structural funds in Wales? There is a plethora of other structural funds that I have not mentioned in any detail, which are available under other objectives. If the Government do not seek to make those structural funds available to Wales and seek instead to do that through the UK Treasury, what binding guarantees of ongoing funding will they give?

We find it difficult to accept promises from a Government who have come before Parliament several times with promises in a manifesto and overturned those promises. We are seeking more than mere words here today. We are seeking real, binding commitments to ensure that the most poor areas in the whole of the United Kingdom from Anglesey to Ceredigion down to the south Wales valleys are kept in line for significant regional assistance and aid. Whether it comes from Europe or the UK Treasury, it must be transparent, available and accessible to those communities. That is the purpose of the debate, and that is what I hope Members will support.

Photo of Wayne David Wayne David Labour, Caerphilly 2:30 pm, 9th March 2005

May I begin by congratulating Mr. Thomas on securing the debate? It is an extremely important issue, which should be considered fairly and honestly, and it is complex, so it must be approached in a reasonable manner. He did so in part, but only in part, I am afraid.

I begin by pointing out where we are at the moment. West Wales and the valleys have objective 1 status, which was secured by the British Government in 1999 at the Berlin summit. West Wales and the valleys receive the largest tranche of European money of any objective 1 area in the United Kingdom: some £1.5 billion. In real terms that is £3.2 billion because there is match funding, partly from central Government through Barnett plus, and also from the voluntary and private sectors.

In contrast to what happened with structural funds under the Conservative Government, it is absolutely clear that all the money available is being drawn down from Brussels and put to good effect. It really is being put to good effect because the latest figures show that some 2,325 projects in west Wales and the valleys are either taking place or about to take place because of that funding.

The hon. Gentleman referred to some EUROSTAT figures that have been submitted and, yes, they are accurate, but the important thing to stress is that they are out of date. They do not illustrate just how well the Welsh economy, and in particular the objective 1 part of it, is doing.

Photo of Wayne David Wayne David Labour, Caerphilly

I do not think that those figures will be used in determination in July because there is a lot of debate still to be had, and I will come on to that in a moment. The hon. Gentleman is just looking at one set of figures dealing with a particular moment of time.

If we look at the most up-to-date situation in Wales, what do we see in the objective 1 area? That part of Wales has the fastest growth rate in the whole of the United Kingdom, and we have seen 84,000 jobs created or safeguarded because of objective 1 funding. If we consider gross value added per head in west Wales and the valleys, we find an increase of 17 per cent. from 1997. What is weird is that there appears to be a determined effort to talk Wales down all the time and say that things are terrible and awful. The reality in Wales is quite different, and the people of Wales know that.

The objective 1 programme is a success, but I would argue that it has been particularly successful since the mid-term review. That review accurately identified a number of weaknesses in the early part of the programme, and I hope that hon. Members accept that. There was too much bureaucracy and partnership in the structural fund programme, to the extent that things were becoming ossified in part. That has been put right by the Welsh Assembly Government, to their credit, and we now have a far more streamlined and effective programme.

The crucial question is, from the financial perspective, what happens during the next funding period. Another crucial question following from that is where continuing support for west Wales and the valleys should come from. Should it come via Brussels or from central Government in London? That is a critical question because the British Government have made a commitment to ensure that that extra funding continues, so that the excellent work of the objective 1 programme will continue whatever happens. The critical question is whether it is better to have money from Brussels or from London.

On the basis of my experience, it is better to have a more streamlined system, with money coming directly from the Treasury and London. I give three reasons for that. First, from a British Government perspective—Wales is part of Britain, let us not forget that—and a UK financial perspective, it makes sense to ensure that we have in place a better system for regional funding. For every extra £1.60 that the British Government would have to give to Brussels under the Commission's proposals, only £1 would come back. In other words, we would be short-changed, and the money would not necessarily go to some of the most disadvantaged parts of the European Union. Under the present Commission proposals, some of that money would go to some of the most prosperous states. The British argument has it, quite sensibly, that it is better for the richer members of the European Union to ensure that they have the correct support in their own nation states to help their less prosperous regions. That makes a great deal of common sense.

There is also the issue of the rebate, and the size of the British Government's contribution to the EU budget. If hon. Members wish to go into the general election arguing for a big increase in the size of the EU budget, a big increase in the size of Britain's contribution and an end to the British rebate, I can tell them that ordinary people in Wales and elsewhere, who will have to pay more into the EU budget, will take a pretty dim view of that argument.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

The hon. Gentleman has to accept that if we were to go into an election with such a policy, we would be supported by the TUC and all the Welsh local authorities, which are Labour-run.

Photo of Wayne David Wayne David Labour, Caerphilly

There are certain qualifications that have to be added to that. It is a very complex issue and everyone is keen to make sure that we get the best possible deal, whether it is from Brussels or the British Government. That is the overriding message from local authorities and trade unions.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

I thank the hon. Gentleman for giving way again. Accepting that it is a complex issue, and accepting that the core issue is the one that both he and I identified—the best way to do it—will he stop reducing the question to a simplistic argument about which treasury pays what and address the important issue of the best way to get the best deal for west Wales and the valleys?

Photo of Wayne David Wayne David Labour, Caerphilly

Absolutely. We are at one on that, and I hope that as the debate continues everyone will accept that we are talking about what is best for Wales. We are trying not to score cheap party political points, but to look at the facts and come to a conclusion about what is best for our country. I hope that the hon. Gentleman will do that, and accept that my party is trying to do it as well.

Much has been said about the European Commission's proposals. I would say that it is very easy for the Commission to make any sort of proposals; it is not talking about its own money, but member states' contribution. The Commission can pluck any figure it wishes from the sky, and at the end of the day the Council of Ministers will make a decision about the size of the EU budget.

The issue of trust has been raised. It is important to recognise the cold, hard facts of historical experience. We have had objective 2 and 3 funding in the past under the Conservative Administration, but prior to 1997 much European money simply stayed in Brussels. It was not drawn down; it was not claimed. That was because there was not match funding. It does not really matter at the end of the day how much money is allocated in Brussels if we do not have a sympathetic Government in London to ensure that match funding is provided. That is why it is absolutely essential that a Labour Government continue in power to ensure that the structural funds work. That is objective fact, and history proves that what I am saying is absolutely correct.

I would like to make a couple of points about why there is much to be said for the Government's case. First, much has been said about the difficulties that have been experienced with the objective 1 programme, especially during its early days. Those were certainly referred to in the debate in the House the other day. What we really require is a programme that complements what the Welsh Assembly Government are doing, not a programme that is tagged on.

One of the difficulties for the Welsh Assembly Government has been prioritising, first under the single programme document, and then under the objective 1 programme. That is because of Brussels rules. One of the great issues in south Wales is improving the transport structure: we need more roads to open up the upper parts of the valleys. Hardly any money under the objective 1 programme is devoted to that. Why? The Welsh Assembly Government want to do it, and the British Government are quite happy for it to happen, but the European Commission at the start of the programme said that transport and roads are not its priority. Therefore, objective 1 areas have suffered in practical terms because of diktats from Brussels. If the European principle of subsidiarity were applied, the Welsh Assembly Government would be able to use extra money coming from London according to their own democratically agreed priorities. That would be a huge step forward.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

How is it that the Republic of Ireland was able to access European funding precisely to invest in light rail, buses and general transport infrastructure, including the building of regional airports?

Photo of Wayne David Wayne David Labour, Caerphilly

The hon. Gentleman makes a very good point, but that money in Ireland came from the cohesion fund, not the objective 1 programme, and the rules of the cohesion fund are fundamentally different. They are specifically designed to help the development of infrastructure; objective 1 funding is not. Looking to the future, we want the greatest flexibility for the Welsh Assembly Government to use money from whatever source in the best possible way. What the Government are proposing would not short-change Wales; it would ensure that it had resources to spend as it knew best, and for that reason there is a lot to commend in the Government's proposals.

In conclusion, the issue is, as we have said, vital and complex. We need to recognise that everyone in Wales is concerned about getting the best possible deal for Wales, but I would appeal to the Plaid Cymru Members not to make cheap party political points on the issue: it is far too serious. Let us have a reasonable, constructive and sensible debate on the best way forward. If we do that, I am quite confident that Members will agree that there is much to be said for the Government's proposals.

Photo of Bill Olner Bill Olner Labour, Nuneaton

Before I call Mr. Llwyd as the Plaid Cymru spokesman, I just point out that I intend to give the Minister 20 minutes to sum up on this very important debate. I take it that the Opposition spokespeople will bear that in mind when making their contributions.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs) 2:42 pm, 9th March 2005

I intend to be very brief, as I believe that my hon. Friend Mr. Thomas has dealt with every cogent point already during the debate. I congratulate him on securing time for this very important debate, which has been rather badly attended by Labour Back Benchers—only two of them are here—which perhaps shows the interest they take in the subject, or perhaps, being loyalists, they do not want to agree with people who are talking a bit of common sense.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

It may be childish, but the hon. Gentleman can make his points in due course. He is no stranger to childishness himself.

On Monday we had a similar debate. We tabled an amendment and my hon. Friend Adam Price spoke very well on these points. The bottom line is this: Labour Members were crowing, unbridled in their delight, when objective 1 was grasped and taken to Wales in 1999. At the Berlin summit, we were told, the Prime Minister spent all night arguing and I have no doubt that he spoke the truth every single time he argued. Labour Members said, "We have the panacea". Yes, a huge amount of money was coming in, and by and large it has done a lot of good work. That is common ground between us all; it has to be. What is not, however, is what will happen if this proposed cut is made. What will happen to Wales? We will lose any cohesion policy, research and development money and objective 1 money.

Photo of Wayne David Wayne David Labour, Caerphilly

No one is talking about cuts. Those are a figment of the hon. Gentleman's imagination. As we will hear from the Minister, we are talking about a continuation of the objective 1 programme, but this time the money will come directly from London rather than Brussels. Who is talking about cuts?

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

With respect, objective 1 is a Brussels programme. It cannot come from the Treasury. That is something else. The Government have been far wide of what we thought objective 1 was. The hon. Gentleman seems to want to laugh about the issue. We have been suffering from under-investment at the rate of about £401 million per year in cover from the public expenditure survey and additional matched funding. That is a fact. We have been saying it for years, and it was eventually confirmed. The late Professor Phil Williams put it on the map in the Assembly.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

Despite what the hon. Member for Caerphilly said, it is a fact that the Commission is proposing a huge increase in spending on EU regional policy and the UK Government are proposing a cut.

Photo of Douglas Alexander Douglas Alexander Minister of State (Foreign and Commonwealth Office) (Trade) (also Department of Trade and Industry), Minister of State (Department of Trade and Industry) (Trade) (also Foreign and Commonwealth Office)

I am happy to take the opportunity to deal with that point. The most significant point that has just been made is the explicit acknowledgment of the huge increase in spending envisaged with the budgetary uplift by the European Commission's proposals. I will address that in my remarks.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

I am sorry to cut across my hon. Friend, but I want to take him back to what Mr. David said. I have no doubt that the hon. Gentleman is absolutely committed to what he said. I think that he is wrong-headed, but I accept his good faith. He cannot say whether there will be a cut, because, unless the Minister gives one today, we do not have a guarantee about the sum that would be available under any Treasury policy. As Treasury policy is not necessarily linked to match funding or additionality, we do not know whether additional resources will be available. Those are questions to which we must have answers before we can give a response to the proposal that the hon. Member for Caerphilly asked us to support. Without the facts, we cannot support that proposal.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

The point, surely, is that funding is guaranteed for six years under EU rules, whereas it cannot be guaranteed for that long under Treasury rules—it can be guaranteed for three years or, possibly, for the length of a Parliament. However sincerely given, the promise is not bankable in European terms, which is another problem.

The other thing that concerns me is that if the scheme is going to be replaced—repatriated—by a Treasury scheme, then, considering past performance, I sincerely believe that there will be cuts. I also believe that the scheme will be at risk of being politicised and subject to the priorities of Government. I have no doubt that areas of Wales will suffer further because of those political priorities. I also have no doubt that it will, in due course, create more social exclusion in Wales, whether in the south Wales valleys or in the more rural areas. I am extremely concerned about that. None of us wants it to happen; we are sounding the alarm. As I said, we sounded the alarm that the PES cover and additional funding were insufficient. Under the Freedom of Information Act 2000, we have been proved right.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

The hon. Gentleman talked about alarms. His party also gave a number of false alarms. It said that we would not secure objective 1 funding and that no additional Barnett money would be forthcoming.

I return to what my hon. Friend Mr. David said about playing politics. In the Official Report, Adam Price said that the

"issue is of . . . importance . . . before the general election."—[Hansard, 7 March 2005; Vol. 431, c. 1327.]

Surely he is raising alarms before an election.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

My hon. Friend is raising alarms because the matter needs to be decided shortly. That is the point. It is the leader of the party of which Albert Owen is a member who is deciding when to hold a general election. The work has been ongoing for months. It has not been brought out of the woodwork because we may be approaching a general election. It is important because of the EU timetable.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

My point, which I think the hon. Member for Ynys Môn will cede, was that there was an opportunity for us to debate this vital matter, which will have a major impact on all our communities, on the Floor of the House before the general election. What is wrong with that point?

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

I came here with a pinched nerve, but, because I have jumped up and down so many times, it seems to have gone. At least some good has come from the debate.

In case anyone gets the impression that we are just whinging or being alarmist, I will make a few points. I for one am not proud that GDP remains what it is in Wales. We have argued about the EUROSTAT figures. The important point is that we accept those figures, and they are the figures that will be used for a decision in the coming months. That is an important point. Mr. David mentioned the thousands of jobs that had been created by objective 1 in west Wales and the valleys. I do not suppose that that takes into account the thousands of jobs being done away with by his Government, who are closing down benefits offices and creating further social exclusion. I do not know the exact areas that we are talking about. If employment were such a priority, there would have been some read-across from those cuts.

We are not prepared to leave matters to the vagaries of any promise that might be forthcoming from the Treasury. I do not impugn the sincerity or honesty of the hon. Gentleman, but Treasury mandarins are people who are faceless and who do not always stick to a given set of rules. They are masters of their universe. We are unhappy about that. At least when we flushed out what was happening under the Conservative Government—money was coming to London and stopping there—our party leader Dafydd Wigley went to Brussels. I have no doubt that the hon. Gentleman would have supported what Dafydd Wigley said. The money was getting stuck in the Treasury in London. That is why I do not trust any bankable agreement from the Treasury. It is not worth the paper that it is written on. That is my concern.

The European Union was given clearly defined objectives. After three years of faltering, due to the Welsh Assembly Government, things in Wales eventually began to move. That did not happen soon enough; hence the position that we are in. Labour was, of course, then in coalition with the Liberal Democrats. We want to press for a further tranche of money to come direct from Europe. That money would not be subject to political interference. It would not be diverted because of spending that should, in any event, have been core spending.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

That has also happened.

My grave concern, and that of my hon. Friends, is that we push the case as hard as we can. With respect to the hon. Member for Caerphilly, I cannot understand why he does not join us in campaigning on the issue. Why has he set his face against doing so? He told us how much Wales has benefited from objective 1. He will undoubtedly wish those benefits to continue, but he seems to be completely happy for the Treasury to promise that those substantial amounts will come through directly in regional policy. Regional policy in Wales has, unfortunately, been lacking for decades. That is why we are in this awful hole.

Earlier, we referred to the loss of coal-mining jobs. I appreciate that that is nothing to do with the Labour party. However, the infrastructure is gone. Many people suddenly found that they were not employable. We are still suffering because of those particular circumstances. We are suffering decades of sickness because of the hangover caused by heavy industries.

Photo of Bill Olner Bill Olner Labour, Nuneaton

Order. I remind the hon. Gentleman that I want to give other spokesmen a chance to contribute to the debate. He wants the Minister to answer some of his questions, so will he be brief?

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence), Shadow Spokesperson (Foreign and Commonwealth Affairs)

I accept that. I will draw my comments to a close.

This debate is timely. I hope that the fact that it has not been well attended by Labour Members is not an indication that they have given up. They should not give up, but should continue to fight, as we shall.

Photo of Roger Williams Roger Williams Opposition Whip (Commons) 2:55 pm, 9th March 2005

I, too, congratulate Mr. Thomas on obtaining the debate. It is vital that we take the opportunity to discuss regional funding and support for Wales and, indeed, other peripheral parts of the United Kingdom in good time, so that we have some influence on the discussions and decisions made about those important issues.

Historically, the more distant parts of the United Kingdom have suffered because the market has not functioned as well in those regions as it has in the south-eastern areas of both the UK and Wales. For a long time, the people who lived there have survived on lower incomes, had a poorer quality of life and have not had the opportunity to take part in the thriving economies that have sometimes occurred in other parts of the UK. It was not until we obtained structural funds from the EU that we had the certainty of a continuation of support for a number of years. That enabled people to put together a considered programme rather than one-off and ad hoc projects that various Governments of various persuasions sometimes dished out for the poorer areas of the United Kingdom.

I return to objective 5b funding for rural areas. That was particularly effective in dealing with our systems. Although objective 1 funding did not come to the area of Wales that I represent, and we were concerned about that, we were happy that west Wales and the valleys benefited from it. Some of us would have said that Powys should have been included in the objective 1 area. If some of the statistical criteria had been considered more closely, I think that Powys would have qualified, on the basis that its GDP was below the 75 per cent. figure. For some peculiar technical reason, the European Union said that there could be only two NUTS areas in Wales. Including Powys would have meant three NUTS areas and that was apparently unacceptable to whoever was setting up the rules. I felt that, in a way, the competition to achieve objective 1 status was slightly belittling to Wales, in the sense that areas had to portray themselves as a poor and unsuccessful part of the United Kingdom. At one time, I compared it to an ugly competition. We had to parade up and down in front of people and say how unsuccessful we had been in the economy and that we were in desperate need of support.

Photo of Roger Williams Roger Williams Opposition Whip (Commons)

I will not take that as a personal comment. I do not know whether the hon. Gentleman and I were in the competition at the same time.

Photo of Roger Williams Roger Williams Opposition Whip (Commons)

Be that as it may, Wales and, certainly, west Wales and the valleys have benefited from objective 1. That is obvious from all the statistics and criteria. Indeed, one can see that structural funding has been very successful in other nations in the EU—for example, in Ireland. Even the Irish would say, however, that it is not just structural funds that have contributed to the success of their economy. They also look to investment in education and in training. Although structural funds can contribute to that, we need to put more money into education and training as well as to looking for regional support via structural funds.

Mr. David said that money from Brussels was no different to money from London. Yes, £1 from Brussels is the same as £1 from London. However, what is important are the conditions that are attached to that flow of money. Everybody involved in the programme committees that were set up for the introduction of objective 1 were very frustrated by the bureaucratic requirements that had to be put in place—there had to be equal men and women, and equal representatives from the public, private and voluntary sectors—and it seemed that setting up the committees was more important than delivering the programmes. Some of that has been addressed, and I know, having talked to people in the private sector, that they feel more involved than at the beginning of the process.

Having said that, the questions are: what are the Government going to do, and what commitments will they make on the issues? Although we can judge what the benefits and disadvantages of money coming from London or Europe will be, we need to know what the level of funding will be, and what commitments the Government can make. The issue that has been mentioned many times by hon. Members speaking for Plaid Cymru is that, whereas the objective and structural funds can be guaranteed over seven years and two years' transition in future, it seems highly unlikely that the Government are going to give any commitment at all above and beyond a three-year period or a Parliament.

There is also the question of match funding. I can go back a long time to when the Conservative party was in power, and some applications for European funding and support were not accompanied by additional funds—the additionality that should be required. The British Government were taken to task a number of times for that. Commissioner Bruce Millan sorted that out, and I am sure that he did a good job in ensuring that European support was never allowed to be given without such additionality.

All in all, Liberal Democrats believe that structural funding would be the best way to address the problems of Wales and other peripheral areas such as Cornwall and the Isles of Scilly. My colleagues in the Welsh Assembly say that not only should local government in Wales support the issue, but the Assembly should too. We see more benefits flowing from support and commitment over a long period of time coming from Europe, rather than the relatively short-term commitments that the Government can make, whatever they may be. For that reason, we support the maintenance of structural funds, either objective 1 or the cohesion fund.

Photo of Henry Bellingham Henry Bellingham Shadow Minister (Business, Innovation and Skills) 3:03 pm, 9th March 2005

I should like to congratulate Mr. Thomas on securing the debate, and on the way in which he proposed it, ably supported by his party leader, Mr. Llwyd. I have always admired Plaid Cymru for their gutsiness in taking on this Government and standing up for rural communities in Wales, and how they have often made common cause with other rural MPs in supporting countryside issues. They have, on a number of occasions, been supportive of some of the campaigns that I have run, and I congratulate them on that. The hon. Member for Ceredigion was quite right when he said that the matter goes to the heart of regional policy.

The Opposition support the Government when they say that they are keen to see a reduction in the maximum size of the EU budget from 1.24 per cent. of gross EU income to 1 per cent. We support that because we agree with the Governments of France, Germany, Sweden, the Netherlands and Austria, who wrote to Romano Prodi in December 2003, making the point that a 1 per cent. limit would still allow for annual increases in the EU budget above the growth rates of national budgets in most member states. That is a key point.

One should also bear it in mind—perhaps the Minister will comment on this—that there has been substantial fraud in the EU budget system. Mrs. Dunwoody recently highlighted the fact that for nine successive years—this will be the 10th year—the European Court of Auditors has refused to sign off the EU accounts. A lot of money is washing around, having gone missing.

We also support what the Government have said about the Lisbon agenda, although we should like a clearer and more focused policy on aid. On structural funds, we understand where the Government are coming from. We are concerned about the amount of bureaucracy and the lack of clear focus in how some of the funds are managed. I shall come to some of the points made by Plaid Cymru and the Liberal Democrats, but we feel that national control over those funds would enable us to target them better, at the areas that need them most.

I repeat what my MEP colleague, Philip Bradbourne, said in the European Parliament recently:

"It is no surprise to me that the funds have yet again not been signed off.

With ten years of dodgy accounts, including €5.3 billion going unused into Commission coffers from the Regional Aid Budget in one year, devolving grant aid back to Member States seems the only viable solution to an ongoing problem.

This would allow British Ministers to properly determine where and how this money is spent."

I sympathise in many ways with the hon. Member for Ceredigion, because our instinct is to support the idea of Her Majesty's Government having more control. I take on board his points, and I hope that the Minister will clarify exactly what the Government's position is, and perhaps give us some comfort that if the funds are repatriated, the same amount of money will be spent. One of the most pertinent and telling points that the hon. Gentleman made was that the Government currently have a much shorter time scale. Normally, we are talking about funding for a three-year fiscal period, possibly one Parliament, and a maximum of four years, as Parliaments tend to develop. If there is a much closer result in six or seven weeks' time, there could be another election two or three years after that. Let us not speculate too far, but the bottom line is that the EU can take a longer-term view and deliver more stability and commitment over a longer period. Can the Minister comment on that? That is the main argument against the Government's position, which is to some extent supported by my party.

I take on board the points that the hon. Gentleman made, supported by his party leader, regarding the problems that Wales faces. The former mining valleys in south Wales have not had the opportunities or the momentum to regenerate and deliver new jobs in the same way as places such as south Yorkshire, Nottinghamshire and Derbyshire have done. Those of us who attend the main Chamber regularly often hear Mr. Skinner boasting about the number of extra jobs being created outside the coal industry and the amount of regeneration that has taken place in his constituency. That has not happened in the Welsh valleys, and there is obviously a good reason for that. If the Minister knows what that reason is, will he comment on it?

I have some sympathy with the hon. Gentleman when he talks about some areas of Wales being left behind. In Norfolk—not far from my constituency, and in that of Mr. Wright—there are some of the poorest wards in the country, where, without EU funding, there would be really serious problems. I must declare an interest because my constituency has received objective 5b status funding that has made a significant difference. The Minister must satisfy the Plaid Cymru Members that the Government can deliver the money and make up any deficit.

I shall make one final point so that the Minister will have 20 minutes in which to wind up. One of the key points that goes to the nub of the subject is the rebate. I listened to what the Chancellor said the other day: he said that the rebate is fully justified. He made that clear in Berlin when the last EU budget was fixed, and that continues to be the British position. There have been worrying reports that the Government have secured a deal with EU leaders to postpone negotiations on the rebate until after the general election. Is that the case? The relationship between the repatriation of structural funds and the debate is absolutely crucial. I hope that the Minister will be able to answer that point, and the other points that have been ably and succinctly put by the hon. Member for Ceredigion and his colleague.

Photo of Douglas Alexander Douglas Alexander Minister of State (Foreign and Commonwealth Office) (Trade) (also Department of Trade and Industry), Minister of State (Department of Trade and Industry) (Trade) (also Foreign and Commonwealth Office) 3:10 pm, 9th March 2005

I congratulate Mr. Thomas on securing the debate. I am genuinely grateful for the opportunity to explain the Government's proposals for future EU structural and cohesion policy after 2006. It has been an interesting and often passionate debate, and I pay tribute to my hon. Friend Mr. David, who added some important perspective to the hon. Gentleman's remarks, both on the strengthening of the Welsh economy in recent years and the reality of the proposals under discussion.

Mr. Llwyd made a characteristically understated speech, if I may say so, some of which I shall endeavour to respond to. I shall be happy to address the points that he raised. Mr. Williams wisely acknowledged, as he put it, that £1 from London is worth as much as £1 from Brussels, and he went on to acknowledge the streamlining of European funds that has taken place in recent years.

I am grateful for the support of Mr. Bellingham for our approach to the Lisbon agenda. On the specific issue of the rebate, with which he concluded, it will be no surprise that I can assure him that the position remains as stated by the Chancellor of the Exchequer, and that work continues on the rebate and the wider issue of the financial perspective. As the hon. Gentleman will appreciate, other parties are privy to those discussions.

I assure the House that the Government are committed to a strong regional policy that is at the heart of our efforts to achieve high and stable levels of growth and employment, ensuring that economic prosperity reaches every part of the United Kingdom. We have significantly increased spending on regional policy across the UK, focusing resources on drivers of productivity such as skills, infrastructure, enterprise and new technology.

As a consequence of devolution in Wales, the Welsh Assembly Government are driving forward their programme for regional development, and are currently driving forward the "Winning Wales" strategy to provide an over-arching framework for Wales's continued regeneration. The Welsh Assembly Government are providing significant match funding for Wales's current structural fund programmes. As we have heard, Wales has benefited from a unique funding arrangement with the UK Government, "Barnett Plus", to support the programmes. In the spending reviews of 2002 and 2004, the Welsh Assembly Government were allocated an extra £106 million for 2005–06, an extra £128 million for 2006–07 and an extra £147 million for 2007–08, in addition to the block grant under the Barnett formula in order to provide match funding for its objective 1 programmes.

I accept that the structural funds have played an important role in supporting valuable initiatives in recent years in Wales and other parts of the United Kingdom. However, domestic spending—national programmes and co-financing for structural funds projects—plays an increasingly important role in regional development. I would add to that a personal perspective from my constituency: there should be recognition that although real expertise has developed, not least within local government, and a capacity to deal with Brussels, that expertise all too often reflects a mindset that developed during the time of the previous Government, when many of us looked to Brussels hoping for regional support when Whitehall and Westminster were providing very little such support.

There is an opportunity now, not least given the significant uplift in regional expenditure being made by this Government, to develop our thinking on regional funding. It is essential to understand that three quarters of public spending on regional development in the UK already comes from domestic sources, and we must recognise that in any scenario that proportion is set to increase in the near future. The enlargement of the European Union and the entry of 10 poorer countries means that EU regional funding will, inevitably and rightly, shift to the new member states, and the richer countries such as the UK will increasingly depend on national resources to fund their regional development. This new situation calls for a fundamental reappraisal of the EU's regional policy. We are determined to push for effective reform of the structural and cohesion funds that delivers a good result for the UK and its nations and regions, as well as for the other member states and the EU as a whole.

On timing, the current regulations governing the structural and cohesion funds will expire at the end of 2006. Negotiations on the future of the structural and cohesion funds began in September 2004 and are continuing under the Luxembourg presidency.

Let me set out the Government's objectives for structural funds reform. The UK has five main objectives for reform of the funds, which were set out by the Secretary of State for Trade and Industry in two statements to Parliament in September and December 2003. First, we want to develop an EU regional policy that fully supports, and adds value to, the ambitious devolution, decentralisation and regional development agenda already being pursued domestically. Secondly, we wish to ensure that the structural funds actively support the EU's agenda, set at Lisbon, Gothenburg and elsewhere, for higher productivity, employment and sustainable development. Thirdly, we wish to concentrate the EU's necessarily limited financial and administrative resources on the poorest member states, which are most in need of assistance. Fourthly, we want to develop simpler and more flexible implementation and monitoring arrangements for structural funds programmes, which are proportionate to the amount of funding available. Finally, we are determined to secure a fair budgetary deal for the UK taxpayer and a total EU budget of no more than 1 per cent. of EU gross national income.

The Government have put forward detailed reform proposals as a means of securing those objectives. We have proposed that richer member states should, in future, fund regional programmes from domestic sources, and that the EU's limited resources should be focused on the poorest member states, where EU intervention is likely to have the greatest impact and value. That would introduce genuine EU solidarity and help to ensure that the enlargement of the EU to 25 members is recognised as a success. However, for clarification, I want to point out that the Government are not advocating that regional policy should be renationalised in the richer member states. On the contrary, we believe that there should continue to be EU-wide co-ordination of regional policy in all member states, so that we continue to work towards shared goals across the Union.

P

No wonder the Welsh can afford to scrap NHS prescription charges, the 20p rise in English NHS prescritions will pay for the Welsh largesse.

Have you no idea what this sort of thing is doing to relations between the constituent countries of the Dis-United Kingdom?

Submitted by Patrick Harris

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

I would be interested to hear the Minister elaborate on that point. He said that one of the Government's objectives was to give support to the poorest European states. We understand the thinking behind that, but that member state-led approach can ignore the real regional disparities that exist even in richer member states. Germany springs to mind as an example. West Wales and the valleys is poorer than Slovenia, yet his proposals would divert funds to Slovenia but not necessarily to west Wales and valleys. He needs to say a little more about what European perspective can be brought to bear to ensure that member states do not get away with not delivering internal regional equality. If he does not do that, people will lose faith in the European ideal.

Photo of Douglas Alexander Douglas Alexander Minister of State (Foreign and Commonwealth Office) (Trade) (also Department of Trade and Industry), Minister of State (Department of Trade and Industry) (Trade) (also Foreign and Commonwealth Office)

I have some sympathy with the hon. Gentleman's analysis, but no sympathy with his prescription. Of course it is a factual reality that there can be regions even in richer member states that continue to suffer deprivation and poverty. That is why, for example, the UK has such an active regional policy, which we have pursued with such vigour over recent years.

On the relationship between the role of member states and the role of the EU, let me offer a few more words by way of clarification. We have put forward proposals for an EU framework for regional policy whereby all member states would agree to a set of high-level, outcome-focused objectives for regional policy, which support the achievement of the Lisbon and Gothenburg agendas. According to our approach, member states would continue to share best practice and monitor progress through a process of peer review.

At the same time, however, we remain fully aware of the challenges faced by regions in the UK, particularly those with current objective 1 status—as we have been discussing—and we are determined to support their continued economic development. It is for that reason that we have made an unprecedented guarantee—if our reform proposals are accepted—to increase domestic funding for regional policy in the UK. If our proposals are accepted, we have undertaken to increase the domestic funding for regional policy by the amount that our regions would have received under a no-reform scenario in an enlarged EU. Of course, such a guarantee would not be possible if there was a major expansion in the structural funds budget. As was pointed out, any expansion would inevitably come at a cost to the UK taxpayer, leaving less money for national spending. That is why it is in all our interests to secure a fair budgetary deal for the UK as a whole.

The Government set out their detailed methodology for applying the guarantee in their written statement to Parliament on 11 December 2003. If our reform proposals were accepted, we would increase the domestic resources available for regional policy by the amount that our regions would have received under the current arrangements for allocating structural funds, were they applied under a no-reform scenario to an EU of 25 member states. In order to calculate the value of the guarantee, it will be necessary to know data such as the gross domestic product and employment statistics for the whole EU for the most recent three years available prior to the start of the next programme period in 2007. It is unlikely that the most recent data will be for 2001 to 2003. That information will not be available until the end of 2005.

The Commission's proposals for reform of the funds have set much of the context for the debate. The proposals were set out in its third cohesion report in February 2004 and in a package of draft structural and cohesion funds regulations for the next European Community financial perspective, published in July 2004. The Commission proposes to focus the expanded budget on three new priorities: a convergence objective, which, like the current objective 1, would be allocated to regions with a GDP below 75 per cent. of the EU average; a regional competitiveness and employment objective, to foster competitiveness and support labour market programmes in richer regions; and a European territorial co-operation objective, which would replace the current Interreg initiative to promote transnational and cross-border co-operation projects.

The Government have welcomed aspects of the Commission's approach, including its proposals, on the Lisbon and Gothenburg agendas, to strengthen the strategic focus of EU regional policy. However, we have serious concerns regarding aspects of the Commission's approach. First, it is dependent on an unaffordable expansion of the EU budget. The Commission is advocating a major—indeed, 33 per cent.—real-terms increase in the structural funds budget from €257 billion in the current cycle to €374 billion for the next EU financial perspective. Its proposals would require a significant increase in the contributions made by member states to the EU budget at a time when Governments are required to demonstrate budget discipline.

Secondly, the Commission's proposals fail to focus the EU's limited resources on its key priority of the economic development of the poorest member states. As was acknowledged, its proposals would lead to a 50:50 split of funding between old and new members and to the continued, wasteful recycling of resources between net contributors to the EU budget. Thirdly, the Commission's proposals do not go far enough to simplify the bureaucratic arrangements for implementing programmes or to give member states, their nations and their regions greater flexibility to deliver programmes that genuinely reflect local needs.

What would be the impact for Wales? It has been suggested today that the Commission's expansionist budgetary proposals may hold some attractions for some Welsh stakeholders. However, as I hope to explain, the Commission's proposals would offer a poor deal for Wales and no security for our poorer Welsh regions. By contrast, the Government's approach offers a genuine guarantee of continued funding for Wales and a fair deal for Welsh taxpayers.

First, it is important to understand that the Commission's proposals in no way constitute a credible offer of funding for the UK's regions. Net contributors to the EU budget, such as France, Germany, Austria, Sweden and the Netherlands, are firmly opposed to the Commission's budgetary proposals and share the Government's determination to maintain a total EU budget of 1 per cent. of EU gross national income. The Commission's proposals simply promise money from a pot that does not exist and which will not be agreed by member states.

Secondly, it is essential to remember that the UK is a net contributor to the EU budget and that all receipts from the EU will come at a cost to the UK taxpayer. This is not free money. We currently contribute about €1.60 for each euro that we receive. In order to continue to receive substantial structural fund receipts following enlargement, the UK will inevitably have to make much greater contributions to the EU budget, leaving less money available for domestic spending on regional policy in Wales and across the whole the UK.

As a result, increased contributions to the EU budget would reduce the amount of money that Wales receives in the form of a block grant under Barnett for regional spending and other domestic spending. In contrast with the Commission's proposals, the Government's guarantee represents a firm commitment, if our approach to reform is adopted, to increase resources for regional policy in the UK for the whole of the next structural funds cycle. We therefore believe that the guarantee offers far more certainty for Welsh regions than the Commission's unrealistic and unsustainable proposals.

The structural funds currently constitute only a small fraction of total expenditure on regional policy in the richer member states. Structural funds account for only one quarter of expenditure on regional policy in the UK and will, under any reform scenario, represent an even smaller fraction of total expenditure in the future. It is therefore far more important for the Welsh regions that the Government should achieve a fair budgetary deal for the UK, based on a disciplined and sustainable EU budget, than that continued structural funds receipts should be secured in the next financial perspective on the basis of a budget that we do not regard as being a credible way forward.

Photo of Mr Simon Thomas Mr Simon Thomas Chief Whip, Spokesperson (Agriculture; Culture; Environment; Heritage; International Development; Sustainable Energy; Transport)

Does the Minister not see that, for many people in Wales, the difficulty with his proposals is that he has set out an approach that does not inform the people in west Wales and the valleys how much money they can expect from the Treasury until at least the end of 2005, if not later? The suspicion must be that the Government are hanging on for favourable statistics before they can make their promise and commitment. In the meantime, there are proposals on the board from the Commission. He has described them as unrealistic, but they are supported by other member states. Can he not see the difficulty that his Government will be in this year in trying to advocate a policy that he cannot put a figure to? Until a figure is available, people will be deeply suspicious of what the Government are setting out to achieve.

Photo of Douglas Alexander Douglas Alexander Minister of State (Foreign and Commonwealth Office) (Trade) (also Department of Trade and Industry), Minister of State (Department of Trade and Industry) (Trade) (also Foreign and Commonwealth Office)

The hon. Gentleman raises a number of points; let me endeavour to answer them. First, on the timing in relation to the Government's position, as I sought to reflect in my remarks, the terms of the guarantee were offered in a written statement to Parliament on 11 December 2003. In that sense, it does not strengthen his argument to suggest that we are doing things on the basis of figures that may emerge in due course. On the substantive point that he raises, I would have more sympathy were the Commission in a position to give the exact cash figure that, under its proposals, would be achieved in Wales, or any other area that presently qualifies for funding, on the basis of the future financial perspective. However, nobody is in a position to give such an undertaking on the basis of negotiations that are presently under way. Simultaneous negotiations are taking place both on structural funds and support for them, and on the wider issue of the financial perspective.

It diminishes rather than enhances the hon. Gentleman's argument to suggest that somehow the British Treasury is at odds with the EU. It raises the question of whether there is a political motive for questioning the commitment of the British Government and at the same time upholding the integrity of the EU. That is a debate that I have had on many occasions with Scottish nationalists. It seems curious to be determined to prove the efficacy and success of a wider political union, but unwilling to accept the important contribution that the British Union makes to the livelihood and well-being of people in Wales.

I conclude by underlining again the Government's commitment to tackle persistent regional disparities in the UK. We accept that poverty still scars Wales, Scotland and other regions and nations in the UK. Perhaps the difference between the Welsh nationalists and the Government is that they still regard the English border as what is scarring Wales, whereas we see the challenge of addressing issues such as child and pensioner poverty. We are convinced that our reform proposals would ensure the best deal for the UK's nations and regions, while setting EU regional policy on a sustainable footing and ensuring genuine solidarity between member states.