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Baroness Williams of Crosby: My Lords, does the noble Lord accept that the country whose name he had difficulty recollecting leapt from 60 per cent. of the per capita GNP of the European Community in 1975,

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when it entered it, to 94 per cent. last year, by any standards as remarkable an achievement as those of the outstanding little Asian tigers?

Lord Bruce of Donington: My Lords, I can only refer to the report itself in order to illustrate the point. By and large, the results have not been impressive. I refer to paragraph 59 of the report at pages 18 and 19, where it is stated:

    "Across the EU as a whole disparities between the best-off regions and the worst-off regions were little changed: the 25 best-off increased their level of average GDP per capita from 140 per cent. of the EU15 average to 142 per cent. while the 25 worst-off regions moved from 53 per cent. to 55 per cent".

I do not believe that that can be regarded as particularly impressive. I am not denouncing the European Community for that but merely reciting a fact which is already well known: that endeavours to reduce disparities within the fortunes of member states by the application of regional funds and similar measures have not been particularly successful. Year after year this happens and is underlined in budget speeches.

We need to realise why that is so. Whatever administrative and government arrangements are made about the levying of funds from member states in order to perform what is in effect a redistributive function, the macroeconomic policies pursued by member states of the European Union are the most important factor. One cannot run against the tide. The deflationary policies carried out in Europe as a whole over the last few years and more particularly now--and we shall not ultimately escape the effect--are likely to make endeavours to redistribute income or resources by the injection of quite trivial sums unsuccessful.

Instead of action by governments within member states to redress disparities within localities, even that small and basic function has now been spread to European institutions. That is what we have to face. At the moment, for example, structural funds involve in the United Kingdom the Department of Trade and Industry, the Treasury, the Foreign and Commonwealth Office, the Department for Education and Employment, the Department of the Environment, Transport and the Regions, the Department of National Heritage, the Scottish Office, the Northern Ireland Office and in some respects the Ministry of Agriculture, Fisheries and Food. There are not tens but hundreds of civil servants involved.

Lord Elis-Thomas: My Lords, the noble Lord has forgotten another country, this time one inside the United Kingdom. I refer to Wales.

Lord Bruce of Donington: My Lords, that I should forget Wales? That is impossible. My noble friend adds Wales and I willingly accept it.

In the EC itself similar departments are involved in the process. There is Directorate-General XVI, regional policy; Directorate-General V, social affairs; Directorate-General VI, agricultural affairs; Directorate-General XIV, fisheries; Directorate-General II, economic and financial affairs; Directorate-General XIX, budgets; and so on. In addition, large numbers

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of civil servants are involved in the European Commission itself. We are not talking of tens but of hundreds, and yet the report complains--though not over-vociferously--of matters becoming lost in bureaucracy. You can say that again! I have had experience of it. Once civil servants, whether international or national, are involved on such a scale, the system is bound to become over-bureaucratised.

Moreover, looked at from the report's standpoint, it seems to be automatically assumed that the funds are there. It is assumed that the funds are subject not to the caprice of individual ministers in different countries but subject to decisions made in monitoring committees, various planning committees and throughout the directorates and directorates-general. Rational decisions cannot be made on that basis. Also it is assumed that the funds are there. It is said that funds are being made available to projects in the United Kingdom. But it is not always realised, particularly in the United Kingdom--although the Commission always insists, as a matter of principle, that due acknowledgment is made by boards shoved on site to the effect that this project is undertaken through the courtesy and assistance of the European Community--that it is being made available out of funds provided by the British taxpayer. Little attention gets paid to that.

Yet that is indeed exactly the case. The contribution from Britain in these matters is not exactly to be sneezed at. The report itself says that the net contribution made by the United Kingdom to the structural and cohesion funds--to all the funds, whichever country benefits--involves the net payment by British taxpayers of £500 million. So it is not as though all these projects are provided by the generosity of the European Community. In fact, we pay for them. There is a net cost to us of £500 million. The Treasury is in a position to correct the figures, if it so wishes.

I do not necessarily object to it. It may be for reasons of high policy, our relations with other countries, our defence position, or for a whole series of other reasons that the British taxpayer should contribute to all those things that are alleged to be provided by the European Commission. But the public ought to know. I do not think they do, and I think that they should do so.

One thing is certain. If we are to become involved or even further involved in an enterprise of that kind, we should be quite frank and open about it. We should not attempt concealment or say, in effect--as does the report by not mentioning it in the conclusions--that there is no cost to us. There is.

Surely, also, it is best--the report brings it out on occasion after occasion--that all those decisions made by committees that shuttle across the Channel or across Europe in order to appraise certain items are decided at national level; not to have individual appraisals made of them, possibly aided by expensive consultants in order to talk about them once again in Brussels and argue whether or not they should be modified and if so who should pay and how much should be paid. Indeed, the report itself makes a note of that, even though it does not feature prominently at all in its conclusions.

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Therefore, let us have some honesty about these matters. Let us admit that there is a cost. Without being carried away by too much jargon one way or the other, one can view the whole question of disparities between regions and disparities between localities and one's own country. These matters are far better reviewed not on the basis of ancient dogmas that come to be perpetuated in the wretched Commission rituals with which we are afflicted, but by the ordinary common sense of Parliament itself, including, I hope, your Lordships' House.

4.25 p.m.

Lord St. John of Bletso: My Lords, as a member of the sub-committee, I also thank the noble Lord, Lord Barnett, for his leadership and skill--a word used by several noble Lords--in co-ordinating this inquiry. I should also like to extend my thanks to our Clerk, John Goddard, and to our special adviser, Professor Iain Begg, for all their support in the extremely interesting inquiry. I join too in congratulating the noble Lord, Lord Renton of Mount Harry, on his maiden speech. Certainly his interest in European matters will greatly enhance debates in your Lordships' House. I look forward to hearing much more from him in the years to come--if, that is, I am still here in years to come after any reform of your Lordships' House.

One of my concerns about the work of Sub-Committee A has been the apparent lack of distribution and exposure of its reports. I am by far the most junior member of the sub-committee. Perhaps the smart cover of the report may increase its penetration and exposure. I was saddened by the fact that the noble Lord, Lord Bruce of Donington, felt that the quality of the cover does not match the quality of the contents. Certainly the report represents value for money.

I wholeheartedly support the commitment of the structural funds and the cohesion fund to reducing regional disparities. But it was crucial in the inquiry to establish whether the funds were correctly targeted and whether they have been effective. It is surely the delivery of results that is one of the key objectives of the funds. I agree with Commissioner Wulf-Mathies's view that one of the greatest challenges in Europe will be to reduce the levels of unemployment, particularly for those under the age of 25.

The report has comprehensively covered the key issues behind the strategy of the funds and the possible reform of the funds. Therefore, I shall keep my comments brief, but would like simply to highlight what I believe are a number of the points that are of special concern.

Central to the rationale and objective behind the structural funds is that the investments should be made to strengthen the economic base of the recipient regions, but not as income transfers. Their objective is to achieve greater equality in economic and social opportunities. Paragraph 35 of the report encapsulated the point that the inquiry was:

    "not whether Community policies by themselves are achieving economic and social cohesion but whether they are operated so that they add value to and complement national cohesion policies so as to achieve results which would not otherwise be obtained".

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What became clear certainly from visits to Athens, Dublin, Strathclyde and Cornwall was that a good relationship between member states and the European Commission is vital to maximise the use of the structural funds. That was particularly apparent, as mentioned by the noble Baroness Lady O'Cathain, from the strong relationship between the Irish officials and the European Commission. There is no doubt that the structural funds and the cohesion fund have made a major contribution to the recent success of the Irish economy. I am pleased that the noble Baroness, Lady Williams of Crosby, highlighted that point. Those of the committee who visited Dublin were enormously impressed by the high standard of strategic co-ordination and effective delivery in Ireland. I emphasise "effective delivery" as this appeared lacking from the submissions of several of our key witnesses talking about the efficacy of structural funds in England.

A common complaint by many of the witnesses was that the structural funds, and, more specifically, the location for structural funds was over-bureaucratic, and that there were unnecessary resultant delays which affected approval decisions and the payment of funds.

While there have been many regional success stories--here I refer to the recent report by the European Regional Policy and Cohesion Committee on success stories--with profiles of 36 projects in Europe, there is no doubt that there is enormous scope for improvement. The words "scope for improvement" remind me of the comment always made by my headmaster. As I have already said, the emphasis for the structural funds must be on efficiency, adding value, and complementing national cohesion policies.

While I agree with the four principles of concentration, programming, additionality and partnership which underlie the structural funds, there appears to be a variation in the interpretation of those principles. For example, in the submissions from the British chambers of commerce, it was pointed out that one of the difficulties with the principle of additionality is that it is extremely difficult to access match funding for both the public and private sectors.

Unlike cases in Scotland, where there appears to be a good relationship between the Scottish Office and local organisations, there appeared to be far less of a partnership, as I have said, in England between Whitehall and the local authorities. That led to many calls for the administration of the structural funds to be simplified. It was felt that--I say this despite the reservations of the noble Lord, Lord Renton--with government offices for regions that should produce a better relationship between central government and local partners. My understanding of the legislative programme for the coming years is that government for the regions should be more effective.

I strongly support the recommendation in paragraph 46 that government should further improve the analysis of economic and social needs based on local area statistics. Paragraph 48 states,

    "we are convinced that devolution to regional level of decisions about structural policies and their funding will need to be carried further if the potential benefits of the Structural Funds are to be maximised".

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Further, paragraph 86 states:

    "Programmes must be the result of partnership between national and sub-national bodies, down to local communities, at the planning stage as well as the implementation stage".

The point has already been made by my friend Lord Elis-Thomas. I was delighted to hear that the Minister for Trade and Industry gave her commitment to achieving those objectives in her letter responding to our report.

As for the reforms mentioned in the report, I concur that future funding should be targeted more closely on the most needy countries, regions and smaller pockets of deprivation, and central government and the European Commission should work as partners, not adversaries, to steer, but not to dominate, the planning of regional strategies and programmes. Those programmes should be seen to be regional needs assessed on the basis of reliable economic and social statistics, and the administration must be simplified. A great deal more should be done to encourage and entice more private sector involvement with the funds.

The pace and conditions of enlargement, as the noble Lord, Lord Grenfell, said, will have major financial consequences for the future of European policies, including those for cohesion.

Finally, there is no doubt that to assess the efficiency of the funds, it is vital to have effective financial controls, and, here I refer to monitoring and evaluation of existing and past projects. There appears to be scope for more reform of the monitoring committees. With almost a third of the EC budget devoted to the structural funds and the cohesion fund, it has become all the more essential that the funds are targeted correctly, managed properly, and that lessons are learnt from past experience. I warmly recommend the report.

4.35 p.m.

Lord Desai: My Lords, as the last speaker in the debate, let me start by saying, "You may have read the report, but did you see the film? Little did you know that the chairman is not just the many things that speakers have said, he has missed a career in the movies". Anyone seeing him coming down that lovely staircase in the Greek Embassy, would have thought, "Ah, there is style". I congratulate the noble Lord, Lord Renton, on a notable maiden speech. I remember how nervous I was when I made my maiden speech. I had great feelings of trepidation. He had the most relaxed manner of any maiden speaker I have seen recently. I am sure that that comes from his long experience in another place. I am sure we look forward to hearing many more contributions from him.

I shall confine myself to the future of the funds and not so much on what has already happened. I shall say one thing in response to my noble friend Lord Bruce of Donington. It is correct to say that on the one hand we have had the cohesion countries--Ireland, Spain and Portugal but not Greece--considerably improve their relative status in terms of average income over the past 15 to 20 years. That is a welcome result.

It is also true as the report points out in Paragraph 59, which my noble friend quoted, that indices of inequality have not moved all that much. The problem is--it is

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a well-known problem in economics and politics--that inequalities, especially across regions within a country, are hard to correct in the short term. Some noble Lords may be aware of the brilliant work of Professor Putnam, who pointed out when analysing the Italian case that Italian inequalities across north and south can be traced back to forces and factors which go back 600 or 700 years with the building up of the culture of hard work, enterprise, and so on.

Those things are important. Even within the UK, I would bet that if we looked at industries as between the north east and the south east, inequalities persist for a long time. We are looking for funds such as these to arrest the growth of inequalities so far as possible. We must be sure that they do not worsen as a result of, say, a single market or joining a larger union, but that they stay the same or improve.

I am worried about enlargement. I am untypical in your Lordships' House. When the noble Lord, Lord Wallace of Saltaire, initiated a debate on enlargement, I was the only speaker to say that I did not like any of it. I am worried that we shall add six countries in the first instance--in a year we shall go from 15 to 21--which will add a third to the population and about 5 per cent. to total GDP. Therefore, the entry of the six and perhaps later on of another four will require a more fundamental rethinking of the EU structures than any of us has so far realised. We may even have to ask ourselves whether any of the old 15 receive any of the funds that are designed for redistribution.

That would be unfortunate. One of the lessons of the cohesion fund and of the report is that one must not go too much into aggregates within a country. There are widespread regional differences. A country may be quite rich on average but within that country there may be serious pockets of poverty. One must not neglect that, especially if one sees that internal policies are not adequately dealing with the problem. There should be some mechanism for the EU process to look at the deep pockets of poverty which persist even in rich countries.

In this respect the use in the cohesion fund of average per capita income is far too crude. We shall have to revise the threshold level from 75 per cent. to a figure much below 75 per cent. to make people eligible for cohesion funds. However, by itself, income does not convey enough information. If we rely only on income at a national level to give aid to countries, and then rely on those countries to distribute them to where they are needed, we may miss the target. What is important is not that Greece, Spain or Portugal are that much below average or that Poland and Hungary will be much lower; what is important is to pinpoint the areas of those countries which are well off and able to manage by themselves and those areas which need help. In that respect one of the matters the Commission and perhaps even the DTI should look at is the construction of additional variables or indices which might help better to pinpoint regional inequalities.

Some noble Lords may be aware that I have made a contribution to the Human Development Index which looks at poverty across countries. The Human Development Index has been constructed for provinces,

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and even for districts, of some countries in eastern Europe. The Hungarian human development report looked at how different districts compare in terms of their human development. That might help better to pinpoint where aid should go rather than relying on broad categories such as average income or how to help industry adapt to change. Those may be noble objectives but they are fuzzy. They are not good enough guides for operationalising the construction of a policy which is designed to tackle regional inequalities.

We should look at how we can find better measures for identifying where inequalities are. What is the nature of an inequality? Is it a poor region that has been poor for a long time or is it a region that has been impoverished recently because of industrial change? Those two things may require very different policies. The instruments that are currently being used are far too crude.

We should all think about how we can improve the detection of inequalities, how we can define the nature of those inequalities and how we should tackle them. Different problems may need different instruments. In this respect I agree that it is not so much that the number of funds is large but that they have a disparate set of criteria for giving money for different procedures. If it is made clear that our objective is reducing inequality, that inequality may have a different nature in different areas and may therefore require different instruments. Having thought like that, it would be better for the Commission to think about how it can simplify the criteria it uses and while simplifying them, make them much more precise than they are right now.

As the trends show, no doubt the total amount of money will shrink. However, as the noble Baroness, Lady O'Cathain, said, it is remarkable that we do not know whether the money has done the job it was supposed to do. We have broad indications, as the noble Baroness, Lady Williams, pointed out, that Ireland is a success story, but we do not know how much of that success is due to the cohesion fund. I hate to add another expenditure on to the Commission, but I think by now it should have made a much better study of the results of the various funds it has given and that we should have had a much better account of whether the funds were effective; and, if they were effective, what measures for judging effectiveness were employed.

4.45 p.m.

Lord Pearson of Rannoch: My Lords, I have enjoyed the whole of the debate, especially the maiden speech of my noble friend Lord Renton of Mount Harry. I particularly enjoyed that part of his speech when I thought he sailed a little near to the wind of our convention that maiden speeches should not be too controversial when he said that he regarded EMU as the inevitable outcome of a single market. In order to assist my noble friend, I would agree that this was not controversial, but I would have to put it to him that it was perhaps just wrong.

I wonder whether I might ask the House, in order to reach two questions which I should like to put to the Minister, to accompany me into the engine room of

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the European Communities. I want to ask him two questions about how he envisages that the Treaty of Rome will actually work in the areas that we are discussing. In order to do this I shall quote briefly from two paragraphs, paragraphs 4 and 5, on page 8 of your Lordships' excellent report.

The first quotation reads as follows:

    "the CAP takes about one half of the Budget's resources while the structural policies are taking a gradually increasing share which is planned to rise to about one third of those resources by 1999".

Other noble Lords have quoted that and indeed have referred to the following passage from paragraph 5 on the same page:

    "The regime for the future financing of the EU, with or without enlargement, also calls for decision before 1999 when the current financial perspective arrangements expire. Negotiations and expectations on the overall size of the Budget, the enlargement of the EU and the impact of EMU, particularly on peripheral or poorer regions, will form the political context in which decisions on the future of EU aid for regional development--its structural policies--will be taken".

Quite so, my Lords. But your Lordships will have heard me before say that some decisions in the European Communities are taken by unanimity and some by the qualified majority voting system.

Under that system, I hesitate to remind your Lordships again, there are 87 votes among 15 nation states; 62 are required to pass a motion and 26 to block one. I imagine it is true--the noble Lord the Minister will correct me if I am wrong--that the votes necessary to block reform of the CAP, which is so vital for enlargement, as your Lordships have agreed on many occasions, including this afternoon, are in the hands of recipient countries. Likewise, I think it may be true that a similar blocking minority may be in the hands of recipients who could block any change to the funds we are debating; or, I have to put it to the Minister, are any of these decisions to be taken by unanimity? In which case they become even more difficult to achieve.

So I merely want to ask the Minister whether the new Government have given any thought to these possible negotiating difficulties; and, if so, to what conclusion they have come.

4.49 p.m.

Lord Dahrendorf: My Lords, those of your Lordships who have had the pleasure of listening to the entire debate will realise by now that it was rather fun to serve on the committee which has produced this report. It was fun because we had a chairman whose firmness was always coupled with good humour. It was fun because it was an interesting committee. Indeed, I shall for ever find it difficult not to refer to other Members of the committee as "my noble friends".

For me, it now emerges that the committee had a special significance in that it has given me what I have long sought, and that is a small element of immortality, if only in the form of a bandstand financed by the European Union to the tune of £18,000 and located in the harbour of Padstow. That is what the noble Lord, Lord Grenfell, and the noble Baroness, Lady O'Cathain, referred to. For me, it was one of the examples of how

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perhaps not to spend European Community money, although I am sure that there are those who enjoy the effects of the bandstand, as I do now. I am now in a much weaker position in that respect than I was.

If we strip the whole European exercise of the rhetoric of union, we are left with three major policy areas. The first is what I would call the management of trade. I deliberately call it that both within the single market and outside. Second is the protection of declining industries, notably of agriculture in the countries which still had a major agricultural sector at the time of the foundation of the European Community. Third is the support for disadvantaged regions and groups, the area of the structural and cohesion funds. There are other activities. There are the remainders of EURATOM, which is the research area. There is of course a degree of privilege for former colonial countries associated in one way or another with present members of the European Union. But it is the three major areas which one is looking at if one identifies the reality of the European communities.

The first of these, the management of trade, does not cost any public money. It costs a lot of people a lot of money, but it does not cost any public funds to speak of. The second and the third between them consume about 80 per cent. of the total budget of the European communities. That is a fact that we should bear in mind as we discuss this issue in order to give it its proper, important place in the European scheme of things. As we have heard, and as noble Lords have seen from the report, about one-third of the total budget of the European Union now goes into the various funds which we have lumped together as the structural and cohesion funds designed to reduce disparities.

That is important. What is more, my conclusion, not least from the inquiries of the committee on which I had the privilege to serve, is that of the major activities of the European communities, the structural and cohesion funds are easily the most effective and important. I say that despite the comments made by the noble Lord, Lord Bruce of Donington, and others. In that regard averages, and even measures of disparity as such, are not necessarily the most informative.

It is a pity that the noble Lord, Lord Bruce of Donington, was carried away by the beauty of the cover of the report, because apart from being beautiful it is quite informative. It is an important fact that all the great success regions of Europe are not included in the areas to which the funds are applied and which we are discussing here. I refer to the south-east of England, the Low Countries, apart from Wallonia, Denmark and southern Sweden, the Ile de France, south-east France, north-west and south Germany and northern Italy. They are not included. It is characteristic of the funds that we are discussing that they apply to countries on the periphery of the European Union and to peripheral regions within the major countries of the European Union.

That is rather an important fact because it probably tells us that on the periphery there is often a sense of insufficient recognition of needs even by national capitals. That is one of the discoveries that we made in

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our travels. Therefore, recognition is an element of the success story of these European funds. I want to use a word which I am surprised has not been used before in the debate and which is in part a response to my noble friend Lord Desai. The word is "catalytic". In peripheral areas in particular even limited sums of support can have a catalytic effect in that they trigger developments which might otherwise not have happened. In other words, it is not simply redistribution; it is not simply pouring large sums of money into particular regions; but encouraging forces which in principle are already there but which need that bit of encouragement which can sometimes be given by outside funding. Incidentally, that is quite often the best conceivable effect of international action to support developments in regions which are particularly in need of such support.

In this regard Ireland is an extreme example. No one in his senses would argue that it was simply the funding that came from Europe which, as funding, turned things around. But one can argue that by having special attention paid to Ireland, those forces in Ireland which in any case were prepared to move forward to quite a different story of development from the history of the country were encouraged. That was done partly by their being recognised as important. That is only one aspect and there must have been other elements of motivation.

All this leads me to conclude--as one who was quite sceptical, as my initial comments showed noble Lords, about the effect of many of the policies of the European Union--that it is highly desirable that the structural and cohesion funds should be continued after 1999, and even if we (and I hope we will) promote the enlargement process emphatically. That has simple conditions which are in the report. I am glad that the President of the Board of Trade seems to accept them. I hope the Minister will confirm that they are very much in line with government thinking. Where the funds have been particularly successful, it has to be possible to discontinue them. I encourage the Government to take a very strong position. Since Ireland has virtually reached the average level of per capita income, the moment has come when Ireland can no longer be a recipient of funds which were designed to encourage; they were not designed to transfer resources indefinitely.

There must be a concentration of purposes, as has already been discussed. I very much hope that the sort of statements which Commissioner Wulf-Mathies made in her evidence to the committee will become policy. There must be greater integration of the different aspects of the funds and policies, including--here I strongly support what the noble Lord, Lord Elis-Thomas, said--the environmental aspect in so far as it is relevant in both rural and urban areas; an integration of policies; and something which we do not have the time to discuss in great detail this afternoon but which relates to what was said by the noble Lord, Lord Desai. I refer to the fact that there must be quite a shrewd sense of whether, at the receiving end, there is sufficient preparedness to make the catalytic effect real. That is a complicated combination. It has something to do with regional or local organisation, including incidentally an item which the committee found important and on which I am eager to hear the Minister comment. I refer to the

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representation of elected members of local communities and regions on the bodies which advise and which to some extent take the decisions.

Without any doubt, there must also be absorptive capacity for the funds. That is why enlargement is not quite so much of a worry as some people seem to think. It is evident that Poland--the country which, above all, I think should become a member--cannot absorb even 4 per cent. of its GNP by way of European structural money. It will have to be less than that. Absorptive capacity is itself a condition of catalytic success. There are a number of other factors which we might wish to consider before making available more concentrated European funding.

Having said all that, the structural and cohesion funds naturally remain of limited importance. I should like to underline strongly what the noble Lord, Lord Grenfell, said: the funds have nothing to do with the sort of transfers that would be necessary among the members of a monetary union if such a monetary union emerged in Europe. They have nothing to do with that and it is important that we do not confuse the two. One of the great problems of monetary union is that those who are in it will be left with a transfer of resources and with the free movement of labour as their only adjustment mechanisms. These funds are not the answer to that question. They are independent of it. They belong to the European communities as we have them today. They can be improved in many respects, but of the key policies of the European Union they are, in my view, the most successful.

5.3 p.m.

Lord Shaw of Northstead: My Lords, my first and very pleasant duty must be to congratulate my noble friend Lord Renton of Mount Harry on his maiden speech. We are, he says, beyond the temptations of normal man--and he arrives here in the hope that he will share that situation. I am bound to say that as my former Chief Whip--I hope that I was a loyal follower--I had always thought that he, as Chief Whip, was already beyond the normal temptations. I certainly treated him with the respect due to someone in that position.

My second duty must be to congratulate the noble Lord, Lord Barnett, on his chairmanship of the committee. Long ago when I was a Member of the European Parliament we met from time to time--he in an exalted position as a member of the Government and myself as a humble Rapporteur in the European Parliament. Later he was chairman of the Public Accounts Committee and I was a humble follower and member of that committee for several years. The circle has now come full circle and I am glad to be again a member of a committee chaired by the noble Lord. I welcome that fact because the noble Lord led us with skill and, as the noble Lord, Lord Dahrendorf, said, with some fun as well. I have always believed that work is carried out all the better for a little humour in the right place. I believe that all members of the committee entered our work with some considerable enthusiasm, but not always understanding fully what it was that we had undertaken.

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The structural funds are intended, through investment, to strengthen the economic base of the recipient regions and the cohesion fund, set up especially to deal with the cases of the special four countries, was intended to try to bring them to a position where they could eventually be admitted to EMU. Although the need for regularity and the avoidance of fraud must be maintained, our main concerns were not so much in that direction, but were based on trying to see whether the projects were really carrying out the tasks which they had been set and whether they were being run as efficiently as possible. Here we have to remember the words of the commissioner and to accept, as we state in paragraph 27 of the report, that roughly one-third of the EC budget is devoted to structural funds and the cohesion fund. That point has already been made. Indeed, I believe that we made that point in our conclusion on the annual report of the Court of Auditors. I mention this because it is important to note that we also are making inquiries.

I must admit that no one is more surprised than I am at the fact that I am standing at this Dispatch Box this afternoon. I greatly welcome the kindness that has been shown to me by the noble Lord, Lord Bruce of Donington, with whom I have shared many committees in the past. I speak both as a member of the committee and as a spokesman from this Front Bench and, putting on my other hat and speaking momentarily from this Front Bench, perhaps I may say that I believe that the committee did a splendid job in presenting the report in this form. The form adopted is easier and more sympathetic for those who are interested in reading the report. I hope that our example will be followed by other committees in due course.

The Court of Auditors has been going along the same lines as our committee. That is encouraging. When I was a Member of the European Parliament I took great notice of what was said in the House of Lords and by its committees. Such reports were helpful and were widely considered in the European Parliament. I find it a happy coincidence, having left the European Parliament and having given evidence to House of Lords committees nearly 20 years ago--I believe that the noble Lord, Lord Bruce, also gave evidence at that time although I cannot remember the occasion--now to find myself serving on a House of Lords committee. It is much the happiest position to be in.

At paragraph 538 of its 1995 annual report, the Court of Auditors stated:

    "If the various criteria to be taken into consideration for determining the eligible areas are applied, this results in more than 50 per cent. of the Community population being affected by one or other objective. As a consequence, Community aid measures are to a certain extent sprinkled over a large number of eligible areas. Indeed, it is proving difficult to reconcile the many factors involved ... particularly bearing in mind the quality of the statistics available".

That shows very clearly that there is still much to be done. That was in large part the reasoning behind the efforts of the committee in producing the report. The committee found as a fact that there was a need for change. Commissioner Wulf-Mathies in her evidence to the committee repeated that which had been said by the Court of Auditors, namely, that 51 per cent. of

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Community regions were themselves eligible for regional fund assistance. She claimed that that figure should be reduced.

It is absolutely essential that the help should be given efficiently to assist those areas that are clearly defined. It is also true--I believe that the report brings it out very clearly, particularly the evidence of Sir Alan Cockshaw--that the areas must be very carefully defined if the use of the moneys poured into those areas is to be of maximum benefit. The money is not just needed to help individual cases; it is needed through those particular cases to help the region as a whole so that it can kickstart further enterprises in its wake.

One should look again at the words of the Court of Auditors who have something to say on this matter. On page 9 of its last report it said:

    "Moreover, a number of questions regarding the eligibility of projects for Structural Fund support are being discussed by representatives of the Commission and of Member State administrations within the SEM 2000 framework, together with an examination of other possible ways of inciting national authorities to ensure both the effectiveness of Community structural aid and proper accounting for it at national level".

That brings out a point that the committee has made in many other reports and I have spoken about in earlier debates in this Chamber. The court goes on to say:

    "Finally the Court would again like to emphasise that prevention of fraud and waste is much more cost-effective than detection followed by, often problematical, punishment and recovery".

That must be borne in mind in organising structural and cohesion aid, although from what we saw the same problem does not exist with regard to other funding within the Community. The money may have been irregularly or inefficiently used but the same degree of fraud is not evident, according to the evidence taken by the committee.

As far as concerns structural funds, there is a great problem in defining regions. There is a need to create good organisations consisting of local interests, local authorities (one hopes) and local businesses and a close identification (one hopes) with government. As to that, I should like to put a question to the Minister who is to respond. On 3rd December 1996 a Statement was made in the other place by Mr. David Curry:

    "We intend to revise radically the present administrative arrangements and to delegate to local partnerships considerable responsibility for project selection within an agreed action plan ... We will be notifying the new arrangements to the European Commission and will be discussing the detailed implementation with the monitoring committees and others".--[Official Report, Commons, 3/12/96; col. WA 578.]

Both I and I am sure your Lordships will be interested to know what progress has been made in regard to the making of those new arrangements. Together with that there must be emphasis in those future arrangements on continued additionality. I believe that that is very important. I was very glad to see that Commissioner Wulf-Mathies came to the same conclusion on page 126 of the evidence:

    "In general I would say that Structural Fund policies have been positive and successful ... policies are made with Member States ... what the Union can do is to add to those strategies but it cannot replace Member States' policies and it does not want to do so".

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I believe that she is absolutely right.

The success of future policies--and the great value of reports such as this--depends on finding what is best for the future certainly by analysis of what has gone on in the past. But we must be interested in the future. The past is there to show the direction in which we should be moving forward. It is quite clear that national governments must play a great part in the use of these strategies; namely, through the structural and cohesion funds. Whatever tasks are given to the regions when set up, they must as far as possible feel that the projects are theirs, not those of the particular nation. The whole region must be identified with the developments that are taking place. That emerged clearly from the evidence.

I turn to the cohesion funds. Mention has been made of the success of those funds in Ireland. There is no denying that the funds have been of help to Ireland, but it is quite clear that those funds would not have been as effective, or not effective at all, had the organisation and administration of the Government of Ireland not been first-class. That lesson must be learnt by other countries which receive cohesion funds. Its success owes much to its sound economy. But there is a danger, to which the noble Lord, Lord Dahrendorf, has already referred, that every effort will be made to keep the funds coming in. I hope that in the planned expenditure of the money until 1999, which is the end of the present schedule of funds, it will be remembered that those who have succeeded in carrying out the objectives of the cohesion fund must prepare for an easing off or early termination of the funds so that they can stand once more on their own feet. Funding should not be expected to continue indefinitely, although benefits already achieved must not be endangered by sudden cessation or reduction of funding. There is a great need for good management at both local and national levels.

I believe that cohesion funds are valuable if they are handled correctly. I also believe that in the cases we have seen the second tranche of the cohesion funds up until 1999 has been handled much better than in the first instance. Ireland has already been cited. I should like to cite the Athens-Corinth motorway which the committee was able to look at in its journey through Greece. Incidentally, a number of people have mentioned that there has been a television programme on this topic. Our visit to Greece was not a feast of gastronomy; it was a feast of hard work. We had to eat. The fact that pictures were taken of Members eating had nothing to do with the work that we carried out. On that motorway we saw instances of new businesses that would not have been set up but for the ease of transport that it created. We saw a packing station which was built with Community aid and developed to such a state that regular contracts had been made with Marks & Spencer. The establishment of such a contract demanded a strong measure of confidence on the part of Marks & Spencer. In order to succeed, the packing station had not only to pack the goods successfully but it had to obtain them at the right time and at the right quality. It had to employ the pickers on the farms, for example, put them under contract, ensure that they worked regularly and that the goods came in the right condition and at the right time.

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Therefore, there was a spreading effect of the aid that had been given. Such use of structural aid is of real benefit.

As was said by the noble Lord, Lord Dahrendorf, the structural fund provides the best example of the help that can be given. However, I believe that there is a danger of over-bureaucratisation--a ghastly word--and of over-organising the help. We are talking about organisations in the regions, organisations in government, departments in the Commission and the necessity to have professional advisers to advise on various matters, to advise people on how to make their claim and so forth.

All that costs money. We have said that we need to make the organisation simpler. At the same time, I have seen the difficulties which bureaucracies have in making themselves shrink. I hope that, whatever the simplification, there will be a record of how it has led to less cost within the bureaucratic administration of the funds. I hope that the funds can be controlled, that they will prove useful, and that they will fulfil the object for which they were set up; namely, to try to help the assisted regions to stand on their own feet and to be successful without the need for additional funds from government. I hope that governments will monitor the use of the funds. I congratulate the committee on another successful report.

5.23 p.m.

Lord Simon of Highbury: My Lords, as a young Member--if that is the appropriate word--my first task is to welcome to the House the noble Lord, Lord Renton of Mount Harry. I had the pleasure of appreciating that extremely robust defence of the great adventure that is Europe, with particular regard to the points on monetary union. This is not the time to debate them, but I am glad to see and hear a new friend on the other side of the House. I hope that we shall have the opportunity of listening to him regularly.

It is also a pleasure to greet the noble Lord, Lord Shaw, to the Front Bench and to have the opportunity of exchanging views on what we are both agreed is a most excellent report. Furthermore, I thank my noble friend Lord Barnett. I am grateful to him and to the Sub-Committee which he chaired for producing the report. I like the cover, I like the inside and I certainly like the fact pack at the back, which is useful for incoming Ministers.

Perhaps in business fashion, I may respond to two or three of the points which I shall not cover in dealing with the body of the report. The first is the Barnett formula. That was a tricky one, due to my relative youth; but I understand that the noble Lord introduced it because it deals with general Scottish public expenditure allocation. We heard much of Wales from my noble friend and we heard something of Ireland from nearly everyone. The reason for introducing the Barnett formula must have been to cover Scotland. The only information that I have to add is that it does not apply to structural funds. It was interesting to hear about the formula, but it was not currently on the table for this debate.

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I turn to additionality. As the noble Lord, Lord Dahrendorf, observed when he was taking evidence from the President of the Board of Trade, this is an extremely tricky intellectual area. I was delighted to read the committee's first line of paragraph 23, because it is a wonderful sentence. It reads:

    "additionality is a concept easily grasped but elusive when verification of its application is required".

I liked that sentence. I am all for additionality. The Government support it and, as the report states:

    "in the required sense, it cannot be assessed by considering whether an individual project would have gone ahead without structural fund support".

It is conceptually complex. I believe that we shall reach a position where it will apply to the structural funds but not to the cohesion fund. The principle is understood, but I liked the idea that it would be elusive when verification of its application would be required. That is a timely warning.

In general, the timing of the debate is fortuitous. The day after tomorrow, the Commission will produce its opinions on the central and eastern European countries which have applied to join the European Union. Importantly, it will also produce initial proposals for the future financing of the EU for the period 2000 to 2006, as mentioned by the noble Lords, Lord Pearson and Lord Grenfell.

Part of the proposal will include the structural and cohesion funds, which currently take up one-third of the EU budget. I have no doubt that the Commission has taken account of the points made in the committee's report as I noted that two commissioners came to London to give evidence to the inquiry.

The Government are committed to promoting economic and social cohesion throughout the United Kingdom. Indeed, that was one of the objectives of the Chancellor's Budget. We are also committed to seeing it across Europe both within the existing European Union and extended to those countries which will eventually join. Clearly, we are supporters of the enlargement process.

However, such cohesion depends on a multitude of actions principally at national, regional and, if possible, local levels. But we must support the European effort and the European level of co-ordinating what is a very complex organisational exercise. Much of the report was about that process and, as I was invited to do so by many noble Lords, I intend to speak a little about it.

The structural and cohesion funds are the principle European-wide financial instruments for strengthening cohesion. The question to the Government is not one of whether the funds will continue but how best they achieve their objectives. A major part of the answer is by contributing to improved competitiveness.

As the noble Lord, Lord Grenfell, commented, those funds should be used to increase competitiveness in the regions. That is a wide subject and I know that it does not depend solely on spending money. It is about the capacity to add value. I believe that that is a question at the heart of this excellent report: are those funds, and the way in which they are distributed, adding value;

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and are the systems up to scratch? I believe that that question stood very much behind the contributions of the noble Baroness, Lady O'Cathain, and the noble Lord, Lord Shaw. In reality, are the action plans delivering the "bacon" from that system?

As the report makes clear, the funds cover a wide range of subjects and a number of different structures. In the United Kingdom they are aimed principally at the original elements. Over the six years from 1994 to 1999, the UK's structural fund allocation is about £9 billion, covering such subjects as the productive environment, improving human resources--the training side--land improvement and regeneration and environmental improvement. Therefore, in recent years there has been a very wide range of targets. Now that we are beginning to fund business support and innovation in a very large number of small companies, control becomes much more important from a distributive point of view.

With regional programmes comes regional administration and decision making. That is a significant part of the Government's approach to competitiveness within the different parts of the United Kingdom. The proposed Scottish executive and Welsh assembly will take over the decision making which is currently the responsibility of the Scottish and Welsh Offices. No doubt those bodies and in particular the latter--I say this for the noble Lord, Lord Elis-Thomas--will ensure that fair shares are maintained in Wales. The proposed regional development agencies will create economic forces within the English regions. The structural funds are based already on regional partnerships and we shall look to reinforce those. The regionalisation of Objective 3 is an example of the steps under way.

The then government announced on 4th March that structural funds monitoring committees--the bodies which look after the expenditure, for those who do not know the jargon--should decide whether to include locally elected councillors among their members. That happened after the sub-committee stopped taking evidence but before the publication of the report which called for councillors themselves to decide. That is now happening across England and Wales, although I should make clear that in the larger programmes, it is not individual councils which are represented but the local authorities collectively.

Therefore, the Government's approach is to ensure that local partnerships are represented properly and that the monitoring committees work effectively. As the noble Lord, Lord Grenfell, said, it is extremely important that the precise composition of the committees should not be decided in the centre; each region and programme can best decide for itself. For example, the Objective 2 programme in the north east of England has just shrunk its monitoring committee, which is an unusual organisational event. That is precisely because it wishes to see even greater efficiency.

The Government also see the advantages of a wider social partnership, bringing employers' and trade union representatives into the local partnerships. We shall expect the social partners to make a real contribution to the programmes, as existing partners do. In Scotland,

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parallel consultation arrangements already exist both for locally elected members and for social partners. As the report emphasised, those seem to work effectively and will continue.

Much of the Select Committee's report concentrates on improving the efficiency with which the structural funds are administered within the United Kingdom. Part of this results from complications introduced by the regulations themselves and the way in which they are applied. There is general agreement across Europe that substantial simplification is needed, though it is unlikely to take place before the current programmes end in 1999. We will be looking for significant proposals from the Commission and we will press further for streamlining during later negotiations within the Council of Ministers. After all, that is part of the drive for the completion of the internal market.

One example of how some of the delays occur was shown in the process of adopting Objective 2 programmes for the three years 1997 to 1999 in the UK. None was agreed on the start date of 1st January of this year and the last one has only just been agreed six months too late. That is not a good track record for the Commission. It must shape its act more effectively and we shall be asking it to do so, certainly before the year 2000. But it is fair to say also--and I echo the comments made by the committee--we must all look to improve. That includes our own structures inside the UK. The noble Lord, Lord Grenfell, made that point clear. I believe that by restructuring the monitoring committees and in driving for a better action plan structure, as the noble Lord, Lord Shaw, said, we can come to terms with that. It is a question of delegation and focus. In England, the new arrangements for local action plans under the structural funds will enable simplified administration and greater responsibility at local sub-regional levels.

The Single Vote for the English elements of the European Regional Development Fund, which started in April of this year, is speeding up payment. It is replacing a decision-making process which, as we were reminded by the noble Lord, Lord Bruce, used to involve six separate government departments. Therefore, the recommendations have been well taken.

The Commission frequently produces reports on aspects of the structural and cohesion funds. They are produced usually for information rather than containing legislative proposals. I shall mention two reports produced last year: first, the 7th Report on the structural funds, which was published last year and which looked at the last major changes in relation to the regulations governing funds which occurred in 1993. Therefore, updating is needed in that regard. It is quite clear that in that period there have been improvements in appraisal, monitoring and the evaluation of projects. I believe also that there has been greater transparency as part of the impact of the 7th annual report.

It is an extremely unwieldy document, like many produced, and it is not nearly as good as the sub-committee's report. However, it provides a great deal of useful information and it highlights some interesting matters from the UK's point of view: first,

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that the implementation of the single programming documents for our Objective 1 regions, which, for the cognoscenti, are Northern Ireland, the Highlands and Islands and Merseyside, has progressed as planned. Therefore, we are on target for the Objective 1 regions. In general, we are not losing out on any Objective 2 programmes.

As regards how we are meeting our targets, which really is the test of the efficiency of the decision-making system, over the whole programming period, the UK led in the percentage of total funding committed in the first two years. We have achieved 41 per cent. of our funding against an EU average of 31 per cent. For payments the figure is 25 per cent. against the average of 19 per cent. Of course we can do better, but in relative terms, we are still ahead of the field.

The cohesion report was the first report on the progress made towards achieving economic and social cohesion in the EU. It is a useful summary of past actions and their impact.

Along with noble Lords to whom I have listened carefully today, the Government welcome the conclusion that disparities in the income between member states are narrowed significantly. I do not wish to become involved in the debate whether the comparisons should be regional or national. There was some debate about that. The national improvement is very clear: as has been noted, for the past decade, income per head in the four poorest countries of the Community has increased from 66 per cent. to 74 per cent. of the Community average. If we start playing about with sub-regions I am sure that we shall be able to prove that that very important point can be obscured.

However, the report recognises that member state policies are the primary instruments for cohesion and that low inflation, sound public finance and sustained growth are the key elements. Therefore, we should not believe that cohesion funds can replace sound economic management; they cannot do so. But both of them should be doing good for all of us if we are true Europeans. The cohesion report shows that the UK is one of the few countries where regional differences in unemployment have decreased. Although there has been a small widening of per capita GDP differences in the UK regions, that is relatively insignificant.

So much for where we have come from to date. I have tried to give the House a brief resume of organisational change, covering the monitoring committees, the action plans, the widening out of the process of decision between the social partners--all matters which I believe were signalled in the report and which, as my noble friend Lord Barnett said, the President of the Board of Trade has welcomed and put into our policy.

My last section is on looking to the future and the proposals which are due to come from the Commission the day after tomorrow. Of course, I would not want to make a speculative response to a press report in the Financial Times, would I? Therefore, I shall just describe the Government's aims as seeking a regime which is simpler, more efficient, affordable and durable

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and, indeed, fair to all present and future member states. Each of those tests is important. Their future balance will require some reform of the policies, that is for sure.

The amount of space in the Select Committee's report devoted to the administration of the funds is just one indication of the need for simplification. We must get over the bureaucracy and get more focus for the money that we are going to spend. Referring to our test, parts of the process do add value--notably the partnership, the programming and the drawing on local priorities. However, in terms of its efficiency as a process, I have to say that that still contrasts with the cohesion fund. I should just like to point out that the cohesion funds typically commits 99.99 per cent. of its appropriations each year, which cannot be said for the structural funds. I hope that that is specific enough for noble Lords--two places of decimals.

We must look at good, focused expenditure. I believe that the next key question for the period ahead is affordability. That will mean keeping the overall cost of the structural and cohesion funds below the 0.46 per cent. of the European Union's GDP, both before and after enlargement, to include countries from central and eastern Europe. As I said, that is an enlargement which we support. As Commissioner Wulf-Mathies pointed out, and as the noble Lord, Lord Renton, said, that will still give us a large injection of funds into eastern Europe, even if we maintain that cap.

As my noble friend Lord Bruce of Donington pointed out, the UK is a significant net contributor to the funds. We have no interest in seeing our contribution increased because, with tightening budgets across Europe, no member state has an interest in seeing overall costs rise. As the new member states will be much poorer than average, it means that all existing member states should expect cuts in their receipts if costs are to be contained. That will not be easy for some to accept, especially those who are currently net recipients or who have particularly acute regional differences, but they will need to do so. As my noble friend Lord Desai pointed out, we must focus on the neediest areas.

However, it is not just in the next few years that the funds have to be affordable. Indeed, we shall have difficult negotiations in agreeing this reform for the period up to 2006; but we shall need to pursue that aim if the outcome is to be a durable one and if the system is not to be disrupted when more new member states enter the Union. So there will be difficult negotiations ahead.

We believe that fairness is the key to durability, both for new member states and for existing member states. There are also other issues such as the capacity for very poor countries to absorb large flows of support, as the noble Lord, Lord Dahrendorf, pointed out. The Select Committee suggested that inflows should be limited to 4 per cent. of the country's GDP. It is highly likely that some such rule will apply. We need to recognise the unsatisfactory nature of relying on such a cap to deliver an affordable regime beyond 1999. Some countries will, as a result, automatically receive less money per capita than other richer countries, which is ironic, but it also

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means that as the poorest countries grow relative to the European average they will receive more, thereby putting very much greater pressure on total cost.

Even among existing member states, fairness will be an important test. We know that the UK is not the poorest EU member state, but neither is it the richest. We receive lower receipts per capita than a number of member states that are richer than we are. We recognise that the UK is likely to receive less in the next period, especially after any transitional periods; but we believe that the overall burden and benefits should be fairly distributed across all member states.

Perhaps I may respond briefly to the point made by the noble Lord, Lord Grenfell, on the structure and restructuring of the funds. I do not believe that it will be possible to reduce the number of funds; indeed, that chance was missed in Amsterdam. Nevertheless, we could perhaps reduce the number of objectives from seven to three. I should like to stress that the Government will provide an explanatory memorandum on the Agenda 2000 proposals that we expect to receive on Wednesday in the usual manner. However, I should point out that detailed proposals may not be published until next year when our presidency is in place.

The noble Lord, Lord Pearson, asked me whether we had given any thought to the restructuring of the structural funds, and indeed of the CAP, which is not on today's agenda. I can tell him that we have certainly given thought to it. I should remind the noble Lord that under Article 130D, the framework decision article, that will require unanimity. I also remind him that, on many of these great decisions which have required unanimity, we still expect a consensus to be found because that is how partnership works. I hope that we shall see that achieved in 1998. I further remind the noble Lord that the next budgetary period is for 2000 and 2006, so we have a little time. I give way to the noble Lord.

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