Select Committee on European Scrutiny Second Report


INTEREST RATE SUBSIDIES


(a)
(22190)
6431/01
COM(01) 86

(b)
(21250)
8309/00



(c)
(21320)
9824/00
COM(00) 376


Commission Report concerning interest rate subsidies.




Special Report No. 6/2000 of the Court of Auditors concerning the grant of interest rate subsidies on loans by the European Investment Bank to small and medium­sized enterprises, through its temporary lending facility.


Fifth Report from the Commission on the implementation of the Decision on the provision of Community interest rate subsidies on loans for small and medium­sized enterprises extended by the European Investment Bank under its temporary lending facility (the SME facility).


Legal base:
Department: HM Treasury
Basis of consideration: Minister's letter of 9 May 2001
Previous Committee Reports: (a) HC 28-xi (2000-01), paragraph 6 (4 April 2001)
(b) HC 23­xxi (1999-2000), paragraph 2 (14 June 2000) (c) HC 23­xxvi (1999-2000), paragraph 5 (26 July 2000)
Discussed in Council: (a) May 2001
Committee's assessment: Politically important
Committee's decision: (All) cleared



Background

20.1 Interest rate subsidies are provided under a variety of Community programmes, such as the MEDA Programme, run by the Commission and the European Development Fund (EDF).[47]

20.2 The previous Committee left document (a) uncleared on 4 April 2001, pending publication of the report being considered by a Council Working Group that would make recommendations to ECOFIN. The previous Committee also left documents (b) and (c) uncleared on 14 June and 26 July 2000 respectively, on the grounds that it wished to consider these documents in conjunction with the Council Working Group's report.

The documents

20.3 In her letter of 9 May 2001, the then Economic Secretary to the Treasury (Miss Melanie Johnson) informed the previous Committee that the Council Working Group had submitted its recommendations to ECOFIN. The Minister provided the draft Council conclusions on the Commission's report on interest rate subsidies[48] together with the draft Council Conclusions on the Court of Auditors Special Report 6/2000,[49] which relate to documents (b) and (c).

20.4 The draft Council Conclusions on the Commission's report on interest rate subsidies recite the general observations from the earlier report, identifying weaknesses of interest-rate subsidies. The main conclusions are:

    "In the future, programmes of interest-rate subsidy should be examined on a case by case basis evaluating the advantages and disadvantages of this instrument compared to others like loan guarantees, equity related schemes or grants. As outlined in the Commission report, the following conditions should be met if interest-rate subsidies are to remain fully effective:
  • strict compliance with state aid legislation;

  • wide competition between financial intermediaries in the case of global loans in order to reduce administrative costs and avoid market distortions;

  • effective targeting of objectives/beneficiaries;

  • there should be cost-effective public controls in order to ensure as much as possible that aid is actually reaching the intended beneficiary;

  • the eligibility criteria and programme rules should be simple, clear and broadly diffused;

  • programme implementation must generate value added for national measures (subsidiarity); and

  • the adequate monitoring and assessment aspects must be ensured. Programmes should be subject to an ex-ante evaluation, a mid-term evaluation and an ex-post evaluation."

The Government's view

20.5 In her letter of 9 May 2001, the former Economic Secretary to the Treasury (Miss Melanie Johnson) says:

    "The draft conclusions on the Commission report acknowledge the positive and negative aspects of interest rate subsidies as discussed in the report itself. However, the conclusions note, in paragraph 3, that 'the Council considers that, in general, the justification for interest rate subsidies has diminished, but the use of the instrument may still be justified in specific policy areas and for specific purposes.'

    "The final paragraph of the draft conclusions makes clear that future programmes of interest rate subsidies should be examined in comparison with other available instruments and that certain conditions should be met if interest rate subsidies are to be effective. I consider these conditions to be very important and believe that the conclusions as a whole should help to ensure that any future programmes of interest rate subsidies are properly evaluated and implemented."

Conclusion

20.6 We had hoped that the recommendations from the Council Working Group to ECOFIN would have been in the form of detailed operational guidelines, against which the use of interest rate subsidies could be assessed strictly. In the event, the recommendations are less rigorous than this and in places seem little more than a recital of the main observations from the Commission's report. Having said that, the draft conclusions and recommendations contain a list of conditions Member States, including the United Kingdom, could use to object to applications for Community interest-rate subsidies in the future. Although the documents do not relate specifically to the use of interest rate subsidies in the European Union by Member States, the arguments in the documents are likely to discourage the use of such interest rate subsidies. We have no further questions and clear all three documents.


47   MEDA is the main financial instrument of the Euro­Mediterranean Partnership. It provides development assistance to those 12 neighbouring countries in the Mediterranean which agreed to form the Partnership, enshrined in the 1995 Barcelona Declaration. Back

48  Document 8061/1/01. Back

49  Document 8060/01. Back


 
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