Examination of Witnesses (Questions 80-99)
RT HON PAUL MURPHY MP, MRS ROS DUNN, MR ANDREW BAYER, MR JOHN NEVE, RT HON RHODRI MORGAN AM, MR DEREK JONES AND MR JOHN CLARKE
MONDAY 21 JANUARY 2002
80. Turning to issues of management and implementation, how important is performance against targets for the rate of commitment and rate of spend as a measure of the programme's success as a whole? How is Wales performing broadly against these targets?
(Mr Morgan) You have to get a balance between getting your strategy right and spending because if you do not spend and you appear to be holding back and concentrating entirely on strategy, a criticism very frequently levelled (I am told) in South Yorkshire against the South Yorkshire Objective 1 programme, what you fail to do is to excite any interest amongst potential punters or partnerships as to what can be done with Objective 1. You tend to damp it down and it becomes the preserve of those in the know. On the other hand, if you just concentrate on getting the money out of the door there is a danger that you simply do not have a strategy; you just concentrate in an accountancy or audit sense on, "We promise to spend £67.5 million by the third quarter and we have done so", or, "We are a million behind" or a million above. You have to have a balance between keeping to a strategy and spending in order to have the demonstration effect. I am very pleased with the progress that we have made in the sense that you could virtually write off the first six to nine months, if I recall, up until about October 2000 effectively before you could get some real commitments off the ground because you were setting up the partnerships and so forth. Since then we have spent at a level which, if you spent at the 12-month level and you kept spending every 12 months what we have spent over the 12 months from October 2000 to October 2001, would mean that we would be heavily overspent. Clearly we cannot keep up that level of commitment. I believe that we have got the balance between strategy and spend right. It does not however mean that in every single one of the 33 categories, and you can only start effectively switching between categories because of clear lack of demand, you will get all of them to make progress at the same rate. Funnily enough, the underspend in certain categories is not caused by lack of demand; it can be caused by excess demand and therefore the fury of the arguments going on within the partnerships. If you have got ten times as much demand as there is of the total allocation, the savagery of the argument takes over because people realise that if they do not win this argument they are going to be out of it, and therefore it tends to take longer to settle the arguments than if you have a relatively comfortable balance between the supply of money allocated for that particular area and the demand for it. Infrastructure is a classic example of that. It is a small category in which you theoretically can spend ten times as much. As a result there has been a delay because nobody can agree on what to spend it on because of the strength of the arguments on all sides. Of course we can only start switching money into it at a later date should we choose to if there are underspends in other categories. It is much too early to think about doing that yet.
81. With all due respect, I expected you to say that you were pleased with the progress. To some extent that is partly because you have got these two jobs, but also £60 million out of £288 million does not sound like a tremendous achievement to date. I just wonder if this is one of these confusing statistics.
(Mr Morgan) No, except that the £60 million is in a way a meaningless figure relative to the total when in fact you have to add up all 33 categories. You would need to give a performance rating. Of the 33 different categories, in how many of those categories is there a significant underspend? I think it is only in four of those, and infrastructure is the one that everybody has latched on to and I am giving the explanation as to why infrastructure has proved a particular problem. It is not lack of demand, it is excess demand causing furious argument and the arguments not yet being settled. Is that a fair summary?
(Mr Clarke) Yes, indeed, it is, First Minister. It is worth making the point that in terms of spend and the £60 million to which you were referring, we have until the end of 2008 to spend the money. We finish committing the money at the end of 2006 and then there are two years after that. It tends to be with these programmes that because it takes time to get projects up and running on the ground that a lot of the spending tends to be back-ended. Many of the measures are ballooned towards the end. The critical figure here is what we have to draw down from the European Commission. The first major check-point is at the end of 2002 by which time we should have drawn down £175 million. We have already had an advance payment from the Commission of £79 million and we are already 75 per cent of the way to that first trigger point at the end of 2002. That is why the First Minister is happy with the progress on spend at the moment.
82. So could you clarify that? You have spent £60 million but you have actually received £70 million from the Europeans? Is that what you have just said?
(Mr Clarke) That is correct. We are given an advance payment of seven per cent of the total sum of £1.14 billion.
83. Going back to the rate of commitment, I understand that there is a shortfall in terms of the original target for the financial allocation. Could you possible outline those figures?
(Mr Clarke) The indicative allocation figure was £347.92 million for the years 2000 and 2001. What we achieved at the end of December 2001 was £288 million. We fell about 17 per cent short of an indicative allocation. The principal reason for that, as the First Minister said, was that we were unable to start making commitments until September but the system is a curious one wherein the clock starts before the starting gun is fired. That seems to be the way with European funding.
(Mr Morgan) All the discussions we have had, and I have made this point before and it is very important in response to things that Bill and you have been saying, within the Assembly Government machine, including WEFO, are indicating somewhere near a 50-50 chance of being overspent as of being underspent at the end of the financial year.
84. The issue of de-commitment has received some attention in discussions. Perhaps Rhodri or John could explain what happens at the end of 2002 and whether we can give a firm guarantee that there will be no monies de-committed from the Welsh programme.
(Mr Morgan) We would be astonished if there was but John can explain why that is.
(Mr Clarke) The target that we have to make with Objective 1 is to draw from the Commission, having spent the money (because we cannot draw from the Commission until projects have spent the money and claimed it from WEFO) is £175 million by the end of 2002. We are enormously reliant on project applicants spending the money. Rhodri and I cannot go up there and lay the bricks for them as it were. To a degree it is demand-led. Given that the seven per cent advance payment that Europe gives us, which is £79 million, can be added to the actual claims from Europe, we are confident that there is no significant danger of any money going back. One can never say "never" about anything int his life but all the indications are favourable at the moment in respect of the end of 2002. I should add as a point of information that we have to make this £175 million in respect of the component funds within Objective 1, the European Social Fund, the ERDF, the FIFG, which is fisheries, and the Guarantee and Guidance Fund for agriculture. The targets for those various funds add up to £175 million and we have to ring the bell on each of the four. They are all looking quite reasonable at the moment, but obviously the smaller funds like the Fisheries Fund, for example, can be subject to very large projects which can have a disproportionate effect on achieving the target. If one big project slows down it affects the entire thing, whereas the European Social Fund is a myriad projects and if one or two of those slips it does not have the effect that you can have with big projects impacting on smaller funds.
85. Can you explain why the measure with regard to IT infrastructure (Priority 2 Measure 1) has not generated any projects or any spend, especially as the development of IT infrastructure is one of the key Assembly policies for the economy of Wales?
(Mr Jones) The First Minister mentioned earlier on the need to keep the balance between the planning and the strategy building for these projects and the actual spend. The infrastructure priority was the last of the priorities where a partnership was established, but also it is a very varied priority. It covers everything from traditional infrastructure, such as access roads, through to sustainable energy and IT. There was quite a wide range of interests that had to be gathered together and to gell and to start creating their strategy. Also, frankly, there is not as much money in that priority as we had been hoping to see. It is likely therefore to be overstretched and I think it tends to produce more debate about what the priority should be and therefore is a bit slower in coming forward with approved projects. Having said that, there is a lot in the pipeline coming through and we do not anticipate any difficulty in disposing of all the money that is in that priority.
86. John, in your last answer I think you said that you could not claim or draw down any more money unless it has been spent. That was right, was it not?
(Mr Clarke) Yes.
87. But at the same time you have spent about £60 million, you have been given £70 million, so you have drawn down before it has been spent. Is that wrong?
(Mr Jones) It is just an advance and so that is the exception, I suppose, to the rule that generally you have to spend before you can draw down.
88. Are there any more exceptions to the rule that we ought to know about at this stage?
(Mr Jones) I cannot think of one.
89. I understand that different Objective 1 regions have different measures of the level of funds that have been committed. How exactly is the rate of commitment measures in Wales?
(Mr Clarke) As Rhodri has intimated, there are roughly 33 measures in the entire programme spread across seven priorities. We endeavour to manage each measure on an individual basis. I have not got with me the progress across each of the 33 measures. What we tend to do is amalgamate them into the seven priorities and we reported to the Economic Development Committee only the other day, for example, that on Priority 1, which is developing and expanding the small and medium enterprise base, we are over committed. We have achieved 115 per cent of the indicative allocation. On Priority 4, developing people, which is the European Social Fund, we are at 101 per cent of the commitment level. As Derek has just intimated, in Priority 6, which is mainly strategic infrastructure development, there the level of commitment is very low for the reasons that Rhodri has explained. It is not a very big priority with only £129 million to be spent between now and 2008. There is considerable discussion going on at partnership level as to what strategy that should be adopted to deploy that limited amount of money. A strategy is now in place and the applications and expressions of interest are flooding in.
(Mr Morgan) You can see the significance of this is that if you were underspent in a category or a priority and there was no demand for use of that priority you would seriously start thinking about making an adjustment within the priority from one category to another, but where it is oversubscribed and it is merely that there is a lot of in-fighting going on as to who is going to get this very limited pot, then there is every reason to keep the pot the same and simply tell them to sort out their arguments as quickly as possible and get on with commitment and drawing down. There is every reason to say that you have got plenty of confidence that any underspend is going to be made good pretty quickly once the arguments have been resolved.
90. It would perhaps be useful to have a note of this. It became clear in discussion with the three regions that even in England there are different ways in which the Government Office of the Regions decide that funds have been committed at different trigger points in the process, so in drawing together a comparison of rates of commitment it would be useful for us to understand at what point in the process do you decide that funds have now been committed to a particular measure.
(Mr Clarke) We count something as a commitment when we have issued the approval letter to the applicant. It is as simple as that.
(Mr Bayer) You can count commitment in a number of ways but I would agree that you have to count the commitment as when you have issued an offer letter. It has been said in the past that when you approve an action plan you have committed money but that is not true. All you have done in an action plan is give an indicative amount of money to a group of partners to spend. You should really count it when you have issued an offer letter. There is no other way of doing it.
91. Some of the English regions, Merseyside in particular, have been proactive in commissioning projects to meet the under-subscribed priorities rather than waiting for their bids to come in. Has this approach been adopted in Wales?
(Mr Morgan) Not quite in that way but certainly commissioning from the partnerships is something which we do, not necessarily in the context of underspending, but simply that is one of the methods that you employ in order to encourage good practice in high priority objectives.
(Mr Clarke) We have 15 local partnerships based on local authority boundaries and ten regional partnerships examining national themes like small business finance or whatever. One of their prime roles in life is to be proactive and to encourage and commission projects. We have moved away from the old bidding rounds when it was "Roll-up, roll-up" and hundreds of projects appeared on one day to a deadline. We now have what is called a rolling programme and projects are submitted when they are ready and they are encouraged by our local partnerships to do so. In addition you will have seen reference to our strategy partnerships. For example, we have one strategy partnership that covers Priorities 1, 2 and 6, including the infrastructure. They are now receiving information of the type we have been discussing and they are saying, "What are we going to do about this? Let us be proactive." They are in a sense in a position to commission. In addition we have extensively re-written the programme complement to make that more of a prospectus so that people know what we want commissioned and the strategies that underpin the partnerships, both regional and local, are also written in a prospectus vein so that again they are pre-commissioning documents. The whole ethos within Wales now is one of commissioning and a proactive approach.
92. Thank you very much. If this does not work do you think we will be going back to the roll-up, roll-up type of bidding, as you called it? What will happen if it is not successful?
(Mr Jones) I cannot see any signs of that being the case, whereas there is quite a lot of experience of the other approach. The idea of commissioning really does arise from areas where there has been the more passive approach. It is therefore a solution to a problem that we do not have because we have got a different framework altogether.
93. Before we move on I should like to ask Andrew something. In our evidence last week from Mr John Flamson, Chief Executive of Merseyside, he said, "Sometimes when some people say `commitment', some mean that they had approval at a board to a certain amount of money, and they aggregate that up and say, `We have reached a certain commitment'. Some would go through an action plan process . . ." He went on to say that they do not do that but it does seem to mean that he thinks other areas do. Is that a fact or has he just got it wrong?
(Mr Bayer) A number of the programmes in England, when they presented reviews to their Programme Monitoring Committee, confused the issue. My colleague in DTLR is absolutely clear, and they have the managing authority status, that a commitment is made when you issue an offer letter and that any other form of measuring commitment is wrong. It has happened but the word has gone out that that is wrong and that is not the way to do it because it gives a completely false impression that somebody else, for example, has measured expressions of interest, which is completely meaningless. It is some sort of gauge as to the way that the programme is going but you can only look at commitments and spend on the ground. They are the only two figures that count.
94. Last week we met with the English Government Offices for Merseyside, Cornwall and South Yorkshire. We asked them what was the most successful aspect of the management of Objective 1 programme within their regions. Cornwall said that it was the rural development; they felt really on top of that. Other issues were the engagement of the higher education sector and so on. If we were to ask what has been the best aspect of management within Wales what would that be, and perhaps the worst as well?
(Mr Morgan) I think I am right in saying that the easiest to get going was the human resources sector, was it not? It does not necessarily mean it is the best because in a way I suppose the best would be one where you do foresee some difficulties and by some wizardry and co-operation and teamwork you manage to turn it round from a potential problem into a potential success story. The Social Fund type of project has been easier to get off the ground because in a way they are easier to make incremental. There are not the same big decisions that you get on the ERDF side. Would that be fair?
(Mr Jones) It was the first but, given what we were just saying about the importance of getting the strategy right and making hard choices, you could not necessarily generalise that the quickest off the mark was overall the most successful. I do not think it is just cowardice that makes me not want to pick a particular area. The main operational success has been getting that right balance between the strategic approach involving a lot of partnership work and hammering out the consensus which is quite demanding at the beginning of the programme, but also progress on the ground in getting what is actually quite a healthy rate of project approvals through the new mechanism which is the creation of WEFO which brought together one organisation to deal with all of the priorities in all of the areas of business and through the whole of the process from initial soundings to spend.
95. And the least successful?
(Mr Morgan) The key thing is that it is too early to start evaluating successful outcomes. If you wanted to ask,"Is the Objective 1 programme a success?", the answer to that would have to be that the Objective 1 programme or particular actions of the Objective 1 programme are a success because we believe that they have made such-and-such a contribution to transforming the Welsh economy. It is much too early to start saying that in terms of a modicum of success but not great success or finally something edging towards failure.
96. If I could re-phrase it, with the mid term review imminent is there anything at this stage which the Assembly would wish to change with regard to either the management or the priority of the programme?
(Mr Morgan) I do not accept the premise. "Imminent" in our terms we have not arrived at yet. I would think that you are talking much later in the year before it is imminent.
97. What does the UK Government do to disseminate best practice in the management of ESF programmes?
(Mr Murphy) That I will pass over to the officials of DTI whose job it is to do these things.
(Mr Bayer) The European Social Fund is the responsibility of the Department of Work and Pensions and they of course co-ordinate the expenditure under ESF throughout the UK. They have managing responsibility for the Objective 3 CSF and the English operational programme under that and the Welsh operational programme for Objective 3 is dealt with in Wales. If you asked me about the committee that they have, they meet on a regular basis. They have some sort of evaluation committee where they decide how they will treat the ESF in terms of evaluation and monitoring so there is a consistency throughout the UK. There is no real equivalent to the ERDF because ERDF is a much more difficult fund to manage because it can deal with so many different things. I do not deal very often with DWP but that is their role in this co-ordinating role for the ESF.
(Mr Murphy) I think I ought to add there that the thrust of your question, Chris, was absolutely right in principle, that because there are these English regions and ourselves in Wales wanting to do more or less the same thing, that is, to increase the prosperity of those regions and of Wales, that there is everything to be gained by having the closest possible co-operation to look at best practice between Cornwall, Merseyside, South Yorkshire and ourselves. Without wanting to suggest that this may well be one of the final recommendations of this Committee, Martyn, I would have thought that were you to recommend that that is to be practised then nothing but good could come of it.
98. Can I welcome Paul's comments there. There is an all-party back-bench group of MPs on Objective 1 and we have not met for a year now. I have contacted the offices to see if we can re-convene and look at best practice not only from within the four regions of the UK but to look around the whole of Europe and to see what best practice is out there. Does the British Government look around Europe to spot best practice and then disseminate it within the UK?
(Mr Bayer) There are a number of committees that we sit on and we meet colleagues from other Member States. I am the representative of the UK on what I call the Article 48 Committee but it really is the ERDF Committee and I meet my colleagues every month there and we discuss implementation of the regulations and the fund. There is that exchange. It does not go to what you might call the very detailed implementing programmes because each Member State implements its programmes rather differently, but we do exchange views and we have asked the Commission to review the implementation of these regulations just to see how things are going and they have agreed, so there is an ongoing review of implementation of the regulations and the funds through this committee.
Chairman: I am sure I feel a few recommendations coming on, Paul.
99. One of the things that struck was that it must be very useful having the First Minister also acting as the Minister for Economic Development. It must be very much more helpful for this sort of project. Is that true and, if it is, how much longer do you think you will be able to do both these jobs?
(Mr Morgan) I do not know what makes you ask that question.