Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 380-399)

ARLENE MCCARTHY, Member of the European Parliament, examined.


  380. Are you really saying that in quite a lot of the other countries they have one person who is responsible for this area who is therefore able to challenge more effectively?
  (Ms McCarthy) No, I do not think that is a case because I know for a fact in my dealings with Germany that quite often they have split competence between both the finance ministry and the economic ministry and that has created some problems for them in terms of, for example, the reform of structural funds where it was not clear who the lead department was in the German Government. I think it is clear to me in terms of the fact that there is a view in the Commission that we have a fairly unique approach to regeneration, that we have a unique approach on how we use private sector leverage and private sector funding and therefore there is a case for us obviously to work that much harder to make sure that we get an acknowledgement or recognition of the fact that this should not therefore fall foul or be in contravention of State Aid policy.

Christine Russell

  381. Is not part of the problem that in most other European countries there is not a clear recognition that there is a difference between urban regeneration and regional aid?
  (Ms McCarthy) No, I do not think that is the case because I think there is a very strong thrust for urban regeneration in France, Germany and the Netherlands, for example. I think that the problem perhaps arises, as I have said, in that we have a longer tradition of actually involving the private sector in regeneration and I think that is where the difference culturally and traditionally is with other European Member States. They have more of a tradition of direct development and public sector involvement or public sector taking over. If you are looking at the whole issue of land and buildings regeneration, then that infrastructure quite often is in public hands, it is not in private hands. That also is different in terms of the state of affairs that we have in the UK. I think there is where our difficulty has been in terms of trying to get an understanding from the Commission that it is possible to have public/private sector partnerships in this area without actually being in breach of State Aid rules.

Sir Paul Beresford

  382. You are looking at urban regeneration only; do you think that we really ought to be looking at regeneration—this affects my constituency—including rural or do you think it should be set up in a different way?
  (Ms McCarthy) As I have said in my evidence, I think one of the reasons why it is important that we pursue this agenda with the Commission and try and get a change of approach and get a regeneration framework that accepts and understands that there is a need for more private sector involvement particularly where we have market failure is that it will be the case longer term that we will not have a high availability of European subsidies for regional regeneration policy and that goes for both urban industrial and rural areas. With enlargement and with the fact that most of those enlargement countries will not be net contributors to the EU budget, I think it is very important that we find different approaches to regeneration across the board and that means looking at venture capital, equity funds and loan funds, all of which can be applied in rural areas as they can in urban or industrial areas.

  383. So your role will be regeneration not just urban?
  (Ms McCarthy) Yes. I will be arguing the case now during the reform of the structural funds generally to look at a regional regeneration perspective that takes into account the needs of the different parts of the region.

Christine Russell

  384. Do you see the prospect of enlargement in 2006 as a barrier at the moment to the development of the new arrangement, the development of the new framework?
  (Ms McCarthy) No. I think that actually it should be positive for a new framework because I think that the history of particularly Central Eastern European countries in the last ten years is that they have tended more to take the model of private development rather than public development; they have used much more private sector funding and therefore I think they will be more amenable to trying to find a better mix of public/private sector funding for regeneration. I think that we should be under no illusion that there will be tremendous challenges in regeneration for a lot of these areas. We have a lot of towns that have had severe under-investment, we have rural areas with problems, we have cities in Central Eastern Europe that will actually need to have additional support and I think that the view must be within the Commission that assistance cannot be provided alone through a simple subsidy procedure. The money will not be there to afford to do that and therefore we have to find, as I said, new approaches to regeneration which actually involve both the private sector as well as the public sector.

Mrs Ellman

  385. Have the UK Government learned any lessons? Would you say that there is a more focused approach now or are things just the same?
  (Ms McCarthy) I think that there is a much more focused approach and I think that that focused approach is certainly be followed through in the sense that I feel, as a Member of the European Parliament, that there is a strategy now for change whereas I do feel that in the two years that we were trying to challenge this decision, perhaps that was not so well co-ordinated and so focused. There is now a clear strategy. I say that because, in discussions that I have had, I am very clear about what I need to do. I will, for example, be tabling an oral question to the full Parliamentary Plenary to the Commission about the need for a new regeneration framework. I have also had meetings with Commission desk officers and as I have said that we have now achieved a result in the sense that the Regional Directorate has understood that they need now to produce new ideas and new thinking and, as I said, a new paper which will of course go into inter-service consultation within the Commission, which means that every department of the Commission from the SME and the Enterprise and the DG rural unit will all have a say on that particular paper. I think that there is now a sense of progress. What I feel is still an element of frustration that it seems to take a long time to get change in thinking and I think that one of the problems we have had is that there is an informal attitude, it is not something that is publicly on the record but it is a veiw that I have heard, that the Commission feels that there is not a need to deal with this. It should not be a priority because it is only a UK problem.

  386. If I can take you back to your relationship with the UK Government, whom do you liaise with or with which department do you talk?
  (Ms McCarthy) I liaise with DTLR, I liaise with DTI; I also liaise with the UK representation in Brussels in terms of the two desks who liaise with departments on regeneration and state aid.

  387. How are those things linked or are you describing fragmentation because there are different departments trying to deal with the one issue and not working together?
  (Ms McCarthy) I think that while it might have been fragmented in the past, there is much more consultation and working together in partnership to try and achieve the goal of the change of policy in terms of State Aid and regeneration. I will have briefings with the State Aid people who have a very clear instruction that they have now to continue to make the case for reform in this area and of course I also have meetings with the regional regeneration people who are very well appraised of the policies that are being pursued in the State Aid area. So there is now, if you like, a much more integrated approach by Government on this issue.

  388. What about the way the Commission works? There seems to be a clear division between the way the Regional Policy Directorate works and the way the Competition Directorate works. What is happening within the Commission to try and have a coherent policy or indeed is there any attempt?
  (Ms McCarthy) This is the issue that we have picked up and again it has been an element of frustration for us. We have continually said that we feel that the Regional Directorate and the Competition Directorate are not working together on this issue and that we felt that the Competition Directorate, as it is often said, is a law unto itself and it is hermetically sealed, that it does not feel the need to talk to other Directorate Generals particularly about State Aid policy because State Aid policy is the sole competence of the Commission and it is the sole competence in the sense that they do not have to refer to the European Parliament; we have no scrutiny role or consultation role in State Aid policy; and again they do not have to refer to Member States because again there is a sole competence for the Commission to pursue its own agenda on State Aid. We have now, as I have said, persuaded the Regional Policy Directorate that if this situation continues, it actually undermines the Treaty objectives of economic and social cohesion and it undermines sustainable development, both of which are Treaty obligations in the EU Treaty. This has now been taken up, as I said, by the Regional Commissioner in a more active way and what we are really trying to say is that all Commission Directorates must buy into or must support the objectives of the Treaty and if there is a policy or policy decisions which undermine that, then they must be reviewed and they need to be brought into line with the general approach in the Treaty.

  389. It seems that that is a very long and convoluted process. What efforts are being made by British Members of the European Parliament to try and bring some coherence to Commission policy on the State Aid issue?
  (Ms McCarthy) First of all, I think it is important to say, as I have said in my memorandum, that I support the twin-track approach because we do not want to lose time in waiting for a change and that we feel it is necessary to build up a portfolio of schemes that have been given State Aid clearance. By building up a portfolio, we can then have precedence and case law which means that if the Commission then challenges the scheme, we already have a precedent or a case law of a scheme that has gone through. We think that is an important approach in terms of challenging the sole competence of the Commission's Directorate for Competition Policy to reject schemes their tendency stop rather than enabling or facilitating process. As Parliamentarians, as I said, we are supporting the Regional Commission Directorate in challenging this internally because, at the end of the day, there has to be an internal debate on this issue within the Commission, there has to be an internal discussion and an internal debate around a paper that will be produced on a new approach to State Aid and regeneration policy. We are taking the approach of button-holing Commissioners when they come to our Select Committees and asking them what progress has been made in this area. We took the opportunity, for example, during a debate recently on the future of economic and social cohesion post-2006 to actually throw in some questions relating to why we are not seeing more progress in this area and why we are not seeing a change and again we have had a positive response from the Commissioner for Regional Policy and I think that they have now understood that this is not an issue that we are going to let go of, that we are going to continue to pursue it until we get the right outcome.

  390. When do you expect to see the new regeneration framework in place?
  (Ms McCarthy) I think there are three key ongoing debates that will influence that. One is, as I say, a State Aid reform process which has a deadline of 2004 in which there will be a new framework for State Aid. For the European Union. I think it is very important that we include within that new framework a recognition that we actually have to challenge the fact that we can get efficiency and competition within the single market by furthering wider community objectives and looking at, for example, enhanced economic and employment opportunities in the most deprived areas, improving efficiency, for example, greater use of brownfield rather than greenfield land, improvement in infrastructure of regenerated land. So we need to get that included within that review and perhaps that means looking at a review of Article 87(3)(c) which would actually permit the payment of State Aid —

  391. Is the UK Government doing enough to make this a reality? You talk about maybe 2004.
  (Ms McCarthy) I have not finished yet. If I could just finish —

  392. In all these things that you want to do, I want to know how the UK Government are doing to deal with this.
  (Ms McCarthy) It was the UK Government that put this issue on the agenda.

  393. When are they doing to bring it to a satisfactory end?
  (Ms McCarthy) It was Gordon Brown, the Chancellor, who asked (a) for a debate with the economic and finance ministers and (b) that we would have a special seminar in the Belgian presidency on urban regeneration, specifically public/private partnerships. So, we have been leading on it but we do need support from our Member States to actually get the agenda through and that is why it is important to look at State Aid report 2004, to look at the possibility of the mid-term review of structural funds in 2003. Of course, the regeneration framework for structural funds for regional policy will not be reviewed until 2006, but we do have a mid-term review in 2003 which we are working towards in trying to see that we can get a change of policy for that particular time which is a year from now. So that, for me, is an important objective. Then we have a longer term objective of the next round of structural fund programmes 2006, for the period 2006-10. I would wish to see a fundamental change in the approach to State Aid and regeneration policy that would be reflected in the new regulation that governs the use of structural funds and reflects the new regulations on State Aid.

Sir Paul Beresford

  394. Listening to you, there is a lot of talk about people talking on the ground but nothing much seems to be happening. When can we expect something to happen in the UK regeneration through your policy? You seem to be incredibly slow.
  (Ms McCarthy) I think that we can expect to get some support when we have persuaded other Member States of the need for change in this area and, as I said in my evidence, there is not a 100 per cent view by other member states that we need to have reform in this area. It is important for us now to use the time to get other Member States to come on board to agree that there is a need to actually have a review of State Aid policy specifically regards regeneration. Many other Member States agree that there is a need to have a State Aid review policy to stop distortion of competition but they do not necessarily all understand the arguments for the need for a change in regeneration, which is why the initiative taken by the Government to have a conference involving all of the European Union experts in this area has been fundamentally important, but —

  395. We are half way through 2002. What are we looking at, 2004, 2010, 2012, 2015?
  (Ms McCarthy) All I can say to you is that I will continue my work as an MEP to push this agenda as fast as I can but, as I said, it will depend on the Government being able to get support from other Member States to push this agenda through both the Commission and through the Council of Ministers.

Mrs Ellman

  396. Are the Government doing anything at that level? Is there enough priority given to this?
  (Ms McCarthy) Yes. As I said, there has been a change of approach and the fact that the Chancellor himself, Gordon Brown, put this on the agenda for the Finance Ministers to deal means it is at the highest level because there is a view that meetings of informal urban ministers are not the same level as finance ministers. It has been taken up to the highest level in terms of finance ministers dealing with it and it has been finance ministers and the Belgian Finance Minister who has taken this forward. I think there is a change in the level at which it has been dealt with. I can understand your frustration at the fact that you need to have a timetable for this. What I am saying is that I would hope that the timetable would be faster, that is my own personal preference, but I understand that decisions quite often take longer within the European Commission. They particularly take longer if there is only one Member State asking for change because it reflects its own traditional and cultural approaches to regeneration.

  Chairman: On that note, can I thank you very much for your evidence; it was very helpful.


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