House of Commons - European Regional Development Fund - Communities and Local Government Committee

European Regional Development Fund - Communities and Local Government Committee Contents

4 Improvements for the 2014-20 round

57. ERDF forms a key strand of the EU's regional policy. In chapters 2 and 3 we considered the ERDF round for 2007-13; in this chapter we look ahead to the next round covering 2014-20, plans for which have been under development for several years. The key dates of this development, and the next steps, are set out in table 5 below:

Table 5: Key milestones towards 2014-20

December 2008	Commission published The Regions 2020 report, setting out the challenges for EU regions.
March 2010	Commission published Europe 2020, a new economic and social strategy.
November 2010	Commission published its 5th Cohesion Report, which set out its initial proposals for European funding during 2014-20.
January 2011	UK government responded to the Cohesion Report, including calls for greater flexibility for Member States, a reduction in the administrative burdens, a concentration of funds on poorer Member States, a smaller Structural Funds budget and greater use of loans and financial engineering instruments.
October 2011	Commission published the draft ERDF regulations for 2014-2020; negotiations are in progress.
March 2012	Commission published the Common Strategic Framework which established the strategy for all programmes across the EU in 2014-2020 and defines the key activities that each fund (including ERDF) will be able to support. Consultation on this document is ongoing.
March 2012	BIS launched an informal consultation on the draft Partnership Contract for Structural Funds in England for 2014-20. Each Member State must produce a Partnership Contract which sets out the strategy and rationale for how the Funds are to be deployed, drawing on the Common Strategic Framework for the whole EU. The consultation lasted for one month and the Government will respond in July 2012.
September 2012	Process begins to agree the Partnership Contract with the Commission.
Early 2013	Formal consultation, run jointly with the devolved administrations, on the Partnership Contract.
June 2013	Approval for the Partnership Contract expected from the Commission.
January 2014	Beginning of 2014-20 programmes.

58. The monetary value of ERDF for the 2014-20 period will be determined as part of negotiations over the EU's overall budget for that period, known as the Multiannual Financial Framework (MFF). The initial proposal set a limit of €183 billion for ERDF.[68] Discussions are ongoing, and the MFF should be agreed before the end of 2012.

Proposals for ERDF 2014-20

59. The Commission published its Common Strategic Framework in March 2012, in which it outlined key changes to the EU's regional policy for 2014-20:

concentration of resources on the objectives of Europe 2020 through a common set of thematic objectives to which the funds will contribute;
simplification through more coherent planning and implementation arrangements;
a reinforced focus on results through a performance framework and reserve; and
harmonisation of eligibility rules and an extension of simplified cost options to reduce the administrative burden for beneficiaries and managing authorities.[69]

60. Difficulties in making use of more than one of the EU's funding streams has been a source of frustration for organisations.[70] Cornwall's Superfast Broadband project will receive £53.5 million of ERDF during 2007-13, making it England's largest single ERDF beneficiary. Match funding is coming from BT, who will invest £78.5 million.[71] Cornwall Council, however, was unable to combine this ERDF funding with the European Agricultural Fund for Rural Development (EAFRD):

There have been missed opportunities to link funds together where programme restrictions have not allowed this. A key example is the integration of ERDF and EAFRD funding for rural broadband. At the time of developing the Operational Programme for the ERDF, in order to ensure demarcation between ERDF and EAFRD activity it was agreed that EAFRD would not be used to support broadband investments in the Convergence area.[72]

SIMPLIFICATION OF APPLICATIONS

61. The Commission has proposed a Common Provisions Regulation to replace the separate guidelines and rules issued for each of the funds to make them more integrated and cheaper to administer.[73] Bidders could make a single online application for funding, and also benefit from a more streamlined compliance and audit regime. Moreover, under the Commission's proposals, Member States could choose to combine ERDF, ESF and the Cohesion Fund in a single programme, simplifying things further.[74]

62. We welcome the Commission's proposed Common Provisions Regulation, which is a move towards simplification as a way of reducing the costs of the EU's regional funds for both taxpayers and organisations bidding for funding. We encourage the Government to take advantage of the opportunity this offers to streamline the system in England.

LOCAL NEEDS

63. A number of organisations have told us that it would be helpful if the ERDF Operational Programme areas could be tailored more to local needs, rather than determined by fixed regional boundaries.[75] One option would be to allow Local Economic Partnerships (LEPs) to take on responsibility for directing and administering ERDF. In a joint submission, the Chief Economic Development Officers Society (CEDOS) and the Association of Directors of Environment, Economy, Planning and Transportation (ADEPT) told us:

Local Enterprise Partnership areas, as functional economic areas, present an obvious geographical starting point for a devolved approach. Whilst LEP areas vary in size, overlap in some areas and do not necessarily cover the same areas as the regions used by the EU in determining ERDF funding eligibility, these ought not to be insurmountable problems, providing LEPs have the ability to work jointly on cross-boundary issues and come together in larger groupings to achieve critical mass and address broader regional issues where it is appropriate to do so.[76]

64. The Commission's proposals also include measures such as Integrated Territorial Investments and Joint Action Plans which would help bring elements of planning, decision-making and management to a local level.[77] Although these proposals would appear to us to fit into the Government's localism agenda, Baroness Hanham, when asked if the Government was in favour of handing control over ERDF budgets to cities and city regions, told us:

I don't think we have made any decisions on it yet, because nothing has come forward that would deal with that [...] I am reserving my position on that because, as I say, we have had no applications, and no real thoughts about it, but [...] I think we would consider it.[78]

CONCLUSIONS

65. We welcome the Commission's proposals to harmonise its regional policy funds. It is vital that the available money is used effectively and efficiently; aligning the funding streams more closely should make it simpler and cheaper to administer, and easier for projects to access the funds. We also welcome the move towards a more flexible geographic basis to the Operational Programmes which should devolve management responsibility to groups such as Local Economic Partnerships. This will bring the decision-making process closer to the communities seeking funding, and should also make it easier to fund projects that span artificial regional boundaries.

Funding conditionality

66. The Commission proposes to introduce a range of conditionalities to place restrictions on funding allocations from 2014, which will be based on:

meeting regulatory and institutional conditions before funding is released ("ex ante conditionality");
linking funding to performance through a small performance reserve which would be allocated to regions that meet their targets ("ex post conditionality"); and
macroeconomic indicators, such as adherence to the EU Stability and Growth Pact.[79]

67. The Government agrees with the principle of attaching conditions to the receipt of Structural and Cohesion Funds, but has a number of concerns.[80] The Government supports ex ante conditionalities, provided they are necessary, proportionate, respect subsidiarity and are clearly set out in the regulations. The Government also supports ex post conditionality in terms of a strong performance framework that ensures the effective use of funds, but it opposes the Commission's proposal to set up a performance reserve, worth 5% of all funds, to reward Member States for meeting certain milestones by 2018. Under the current proposal, Member States would receive funding from the reserve in 2019, and have to spend that money by 2022. The Government argues that this is too late in the process, and will cause unnecessary uncertainty.[81]

68. The Government's concerns over macroeconomic conditionality relate to its application to the UK, which it strongly opposes. When HM Treasury gave evidence to the House of Lords European Union Committee for its inquiry into the EU's Multiannual Financial Framework for 2014-20, it stated that:

The UK is in a different position from other Member States; first, as a result of our protocol to the treaty, which means that, under the stability and growth pact, we do not have the same obligations as others; and, secondly, because the Van Rompuy report on economic governance is very clear that wider macroeconomic conditionality should be applied to euro area Member States only, and that was supported by euro area Member States.[82]

69. We support the general principle of funding conditionality as a way of ensuring ERDF and other funds are directed towards Member States that can use the money most effectively. We agree with the Government that, on the basis of previous commitments made in the EU, macroeconomic conditionality should not apply to the UK, and we support the Government in taking a firm negotiating position on this.

Allocating the ERDF budget across the EU

70. The overall budget for ERDF for 2014-20 is to be allocated to individual regions based on a relative measure of prosperity, in terms of Gross Domestic Product per person expressed as a percentage of the EU average.[83] For 2007-13 regions received funding either under the Convergence objective (where its GDP per person was less than 75% of the EU average) or the Regional Competitiveness and Employment objective (75% and over).[84] Under the proposals for the 2014-20 round three categories would be used, rather than two:

More Developed (regions > 90% of EU average GDP per capita - most of UK);
Transition Regions (regions 75%-90%); and
Less Developed (regions < 75%).[85]

71. The EU average has, in the past, been calculated on a three-year basis, known as the "reference period". For the 2007-13 funds this period covered 2000-02 because of the time lag in data collection and analysis. It is not clear what the reference period will be for 2014-20, but, in light of the volatile economic conditions in the EU, the selection of reference period will be crucial in determining which funding category the English regions will fall into. Using the latest GDP statistics released in March 2012 (the average for 2007-09) most English regions would be classified as More Developed, and receive the lowest level of funding of the three categories. Cornwall and the Isles of Scilly would be the only region classed as Less Developed, and continue to receive the highest level of funding (although if a 2006-08 reference period was chosen it would fall into the Transition category). The following regions would receive the intermediate level of Transition funding:

Cumbria (89.5% of EU average GDP per capita)
Devon (88.1%)
East Yorkshire & Northern Lincolnshire (85.8%)
Lancashire (84.9%)
Lincolnshire (79.8%)
Merseyside (80.2%)
Shropshire & Staffordshire (83.9%)
South Yorkshire (84.5%)
Tees Valley & Durham (78.5%).[86]

72. Professor Fothergill supported the introduction of the Transition category, noting that the previous arrangement had created a steep cliff-edge effect between the two funding levels:

I think that is a positive step forward, and I know that, out in the regions of England, it is also viewed as a positive step forward. The problem is that in the present spending round there has been little formal differentiation between regions that are just above the magic threshold of 75% of the EU average GDP: those at 78% have been treated the same as those at 135%.[87]

73. The Government explained in supplementary written evidence that it was opposed to the introduction of the Transition category:

A key priority for the UK is EU budget restraint and as such to keep our contributions to the EU budget as low as possible. In addition the UK believes that Structural Funds should focus on stimulating economic development in the less wealthy Member States. The introduction of a category for Transition regions, as proposed by the Commission, goes against this principle.[88]

74. Creating a third category does not, however, automatically preclude the EU from directing Structural Funds towards the poorest regions. In our view, the key factor will be how the total available funds are shared between the three funding categories, but it is not yet clear whether this has been finalised. The Commission has published indicative budgets for ERDF and ESF combined, which show that the least developed regions will indeed receive by far the largest share of Structural Funds on a per capita basis:

Table 6: EU Structural Funds 2014-20, indicative allocations[89]

Billion € Million people € per person

Less developed regions 162.6 119.2 1,364

Transition regions 38.9 72.4 537

More developed regions 53.1 307.1 173

Total / average 254.6 498.7 511

75. Under the proposals, and in line with the EU's principle of concentrating the available Structural Funds resources to best effect, ERDF must be mainly spent on three EU priorities: energy efficiency and renewables, innovation and SME support. In the Lesser Developed regions 50% of funding must be spent on these priorities, and 80% of funding in Transition and More Developed regions.[90]

76. The UK Government argued that, in principle, the EU's wealthier states should not receive Structural Funds for regional development, but has acknowledged that this is not a practical option in the short term:

Substantial savings could be made if all wealthier Member States, including the UK did not receive Structural Funds. However this would require agreement by all Member States during the negotiations on the 2014-2020 budget. The argument was not successful in the negotiations for the previous period 2007-13.

Given the required time for adjustment—particularly in this difficult financial climate—wealthier states should continue to receive funding during the 2014-2020 period, but allocations in richer areas, particularly in the richer Member States, should fall significantly.

The UK position is that after 2020, wealthier Member States, including the UK, should not receive Structural Funds.[91]

77. Open Europe—a UK think tank—wants wealthier states to stop receiving Structural Funds more quickly than this, and argues that only countries with GDP per capita below 90% of the EU average should receive funding, the same threshold used by the EU Cohesion Fund. Open Europe calculated that this threshold could have saved €4.6 billion from the UK's gross contribution of €36 billion if it had applied for the 2007-13 period.[92] Because this proposal applies a threshold on a Member State, rather than a regional basis, poor regions within otherwise wealthy countries would lose EU funding. Open Europe suggested that wealthy states would be able to direct the savings they would make under this proposal towards their own regions and according to their own priorities.[93]

78. As with any proposed change, moving to a 90% threshold would generate losers as well as winners, and some kind of compensating funding arrangement would be required to gain their acceptance. According to Open Europe, the three worst affected Member States (in terms of net loss per capita) would have been Greece, Spain and Italy:

Table 7: Estimated impact of 90% EU Structural and Cohesion Funds threshold on selected Member States[94]

Member State GDP per capita

(% of EU average) Estimated net gain / loss (€ billion) Estimated net gain / loss per capita (€)

France 108 12.1 186

Poland 59 4.5 118

Romania 46 1.6 75

United Kingdom 113 4.6 74

Germany 117 2.6 32

Italy 103 - 8.5 - 140

Spain 103 - 21.4 - 464

Greece 92 - 17.0 - 1,503

79. We consider that ERDF resources should be targeted at the poorest EU regions, and it would appear that the Commission's proposals for 2014-20 weight the funding towards those regions appropriately. The introduction of the Transition category of regions will reduce the cliff-edge effect that exists under the current arrangement and is a sensible development. It is clear that withdrawing funding entirely from wealthier Member States is not supported for the 2014-20 ERDF round and we agree with the Government's decision not to pursue it in negotiations. The Government should, however, continue to put forward its arguments with the aim of securing enough support from other Member States for subsequent ERDF rounds.

80. In the next chapter we examine in more detail how ERDF funding and regional policy could be repatriated.

68 European Scrutiny Committee, 63^rd Report of Session 2010-12, HC 428-lvii, para 8.3; figure is at 2011 prices. Back

69 European Commission Staff Working Document, Elements for a Common Strategic Framework 2014 to 2020, March 2012, p 3 Back

70 For example, Ev w51 [Barnsley MBC, Doncaster MBC, Rotherham MBC and Sheffield CC] Back

71 "Next generation broadband infrastructure for Cornwall and the Isles of Scilly", September 2010, at www.convergencecornwall.com/convergence-investments Back

72 Ev w45 Back

73 European Commission Staff Working Document, Elements for a Common Strategic Framework 2014 to 2020, March 2012, p 3; the Common Provisions Regulation will cover ERDF, ESF, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund. Back

74 European Commission Staff Working Document, Elements for a Common Strategic Framework 2014 to 2020, March 2012, p 7 Back

75 For example, Ev w83 [Birmingham City Council] Back

76 Ev 33, para 11 Back

77 An Integrated Territorial Investment is an instrument which allows different EU funds to be bundled into an integrated investment strategy for a certain territory or functional area and for implementation to be delegated to one body (a local authority) to ensure that investments are undertaken in a complementary manner. A Joint Action Plan is an integrated operation in order to achieve specific objectives jointly agreed between the Member State and the Commission. It comprises a group of projects which are carried out under the responsibility of a designated beneficiary (European Commission Staff Working Document, Elements for a Common Strategic Framework 2014 to 2020, March 2012, pp 9-10). Back

78 Qq 93-94 Back