CHAPTER 5: INFRASTRUCTURE AND INNOVATION |
118. This chapter considers the Commission's
proposals for cross-border infrastructure, a Common Strategic
Framework in research and innovation, and for providing support
to SMEs, which aim to promote what the Commission has called "smart
119. The Connecting Europe facility (CEF) draws
together energy, transport and telecommunications infrastructure
into a regime that is intended to be coherent and transparent,
and more attractive to investors.
120. The CEF will see a significant increase
in financial provision, resulting in a total budget of 50bn:
10bn from the cohesion budget, and 40bn specifically
set aside in the CEF budget line.
Even excluding the 10bn earmarked for the CEF within cohesion
funding, the Commission's proposals result in a budget four times
that of the current equivalent programmes. The Commission further
proposes to boost the impact of EU spending by attracting private-sector
investment through the use of equity and risk-sharing instruments,
and project bonds.
121. The Government supported the aim to simplify
and rationalise the process surrounding infrastructure development,
and have stated that the proposal can add EAV, but called the
proposed budget "far too ambitious" at a time when they
are calling for a real-terms freeze across the MFF.
Mark Hoban MP, the Financial Secretary to the Treasury, has
stated: "We will work with our allies to cut this programme
down to size, delivering fiscal restraint and value for money".
122. In contrast, Director-General Jouanjean
argued that the EU budget was "crucial in triggering investments
needed for realising modern, cross-border networks at EU level".
123. The CEPS suggested that, compared with the
size of investment the CEF was expected to support, the budget
line "seemed to fall short". The EESC supported the
EU budget investing more in public goods, such as the CEF. BNE
also advocated support for the programme, as EU-level financing
would be most effective for cross-border infrastructure projects,
due to national budget pressures.
124. We appreciate the importance of EU-level
action in these areas; however, the proposed budget will be difficult
to accommodate within the MFF without radical reallocation of
funds away from the CAP. We therefore call for a strategic review
of the Connecting Europe facility, with European Added Value as
the guiding principle, but noting that public investment should
only be deployed where the market has failed to act.
125. We heard from the Department for Culture,
Media and Sport that the current MFF contained no projects or
proposals in relation to telecommunications, in contrast with
transport and energy, and that there was "strong and ever
greater emerging evidence that communications infrastructure underpinned
growth and productivity". The Department for Transport also
told us that the Government could "not see any real justification"
for transport to be singled out to receive the greater proportion
of the CEF.
126. The balance between transport, energy
and telecommunications spending should be a key question within
a strategic review of the Connecting Europe facility. There are
pressing needs across all sectors, and a focus on transport in
the past does not necessarily demand the same today. We urge a
greater focus on energy and telecommunications over the course
of the next MFF, although there should always be a preference
for direct private funding rather than subsidy from the EU budget.
127. The Commission's proposals for the Connecting
Europe facility are intended to combine market-based instruments
and EU direct support. The Commission hopes to see high leverage
effects of innovative financial instruments being used as part
of Connecting Europe,
which they argue will "contribute significantly" to
mitigating risks and facilitating access to capital when coupled
with the successful absorption of direct EU funding.
128. We support the Commission's aim to increase
private-sector involvement to leverage this investment. However,
we would advocate a focus on substituting, rather than supplementing,
EU funding where appropriate. As with all jointly funded projects,
risks and rewards must also be properly apportioned between the
public and private sectors.
129. Both the transport and energy guidelines
of the CEF use the concept of "core corridors": coordinating
mechanisms that seek to facilitate implementation by ensuring
projects with the highest EU added value are given priority. The
Commission's guidelines establish criteria against which to judge
possible projects, and the Commission would thus have a central
role in managing the Connecting Europe facility.
130. The Government conceded that this was necessary
to ensure that European, rather than national, interests were
at the forefront of developments. However, they were keen to ensure
that Member States were fully involved in project choices and
COR emphasised that local and regional authorities needed "significant
involvement" in supervising and managing infrastructure projects,
which had not been accounted for in the proposed management arrangements.
131. We accept the Commission's role regarding
the oversight and coordination of infrastructure development.
However, as the Connecting Europe proposal develops, it will be
essential that national competences are fully respected.
132. Horizon 2020 is the financial instrument
that aims to implement the Innovation Union, one of the seven
Europe 2020 flagship initiatives.
Europe 2020 calls on Member States to spend the equivalent of
3 per cent of their annual GDP on research and development in
order to keep pace with the United States and China. Across the
EU, the private sector continues to provide the biggest proportion
of spending in this area, and over the course of the next MFF,
the Commission aims to foster the conditions that will encourage
further private-sector investment in order to boost economic growth
and the EU's competitiveness.
133. Horizon 2020 will supersede the Seventh
Framework Programmes for Research and Technical Development (FP7)
while incorporating funding currently provided through the Competitiveness
and Innovation Framework Programme (CIP) and the European Institute
of Innovation and Technology (EIT). The proposed budget of 80bn
over the next MFF represents a 46 per cent increase over comparable
funding in the current MFF.
134. We previously noted concerns regarding the
structure of FP7, the bureaucracy surrounding grant arrangements,
and the potential for fragmentation.
Horizon 2020 aims to establish a single set of rules, a single
point of access for participants, and fewer controls and audits.
By integrating elements of the CIP, the programme aims to ensure
that action is directed at efforts throughout the innovation cycle,
from early research through to the marketplace. It would also
give a more prominent role to the European Research Council.
135. We are broadly supportive of the structure
and aims of the Horizon 2020 proposal. If implemented correctly,
Horizon 2020 could significantly reduce bureaucracy in the research
field and help to foster innovation amongst SMEs. Furthermore,
the enhanced role for the European Research Council will keep
the focus on European Added Value and research-led excellence,
which must be at the core of any EU research programme.
136. We previously recommended that funding in
this area should be increased relative to FP7 and the MFF as a
whole. We have
seen general support for increased funding in written evidence
to this current inquiry, and in oral evidence to our Sub-Committee
on Social Policies' inquiry into higher education.
Most witnesses to our previous inquiry also agreed that the budget
for FP7's successor programme should be increased, and the Government
told us that this was desirable provided that the overall envelope
of the MFF did not increase.
However, in relation to the Commission's latest proposals, the
Government have advocated greater focus within Horizon 2020, and
in oral evidence HM Treasury officials suggested that outcomes
could be improved even without an increased budget in this area.
137. The Government noted that the UK had "done
well out of FP7", but that a higher share of its funding
went to higher education over industry, compared with other Member
States. The Minister for Universities and Science, David Willetts MP,
noted that one factor in this was that industry was discouraged
from bidding for funds due to bureaucracy and the complexity of
The EESC called for a more ambitious policy that linked entrepreneurship
and the removal of barriers between national networks.
138. We do not agree with the Government that
the proposed level of spending is "unrealistic"; however,
we agree that Horizon 2020 should receive a larger proportion
of a smaller budget. Spending must be reprioritised to focus on
growth-enhancing areas where EU funding can add most value, and
spending on research clearly meets this description. We call strongly
for increased budgetary provision on innovation and research to
be supported at the expense of other areas, such as the CAP. We
also urge the Government to do more to promote and facilitate
industry's access to Horizon 2020 funds.
139. During our inquiry, we also considered whether
there was a need for greater consolidation in the MFF, specifically
in regard to the 60bn of cohesion funding that is earmarked
for innovation. The COSLA called this a "clear and as yet
unresolved demarcation issue".
The Government have noted that it would be possible for efforts
to achieve greater consolidation and alignment to be over-extended;
for example, they would not support greater consolidation between
Horizon 2020 and structural funds.
While Horizon 2020 aims to fund excellence, cohesion funding aims
to boost capacity that might eventually lead to excellence.
140. The interim review of the Seventh Framework
Programmes for Research and Technical Development noted the relatively
low success rates of some lower-income Member States when bidding
for EU research funds, and highlighted the role of cohesion policy
in raising research and innovation capacity. We therefore support
efforts to achieve greater alignment between Horizon 2020 and
cohesion policy instruments while retaining the important distinction
between the two.
141. The Commission has proposed a new programme
for supporting SMEs: Competitiveness of Enterprises and SMEs (COSME).
The programme sits in Heading 1, with a proposed budget of 2.5bn
for 2014-20. It
will replace the Entrepreneurship and Innovation strand of the
current Competitiveness and Innovation Framework Programme (CIP),
the rest of which will be merged into Horizon 2020 (see paragraph
133 above). The COSME programme will see a more than 60 per cent
increase over the equivalent CIP components.
As with the CIP, COSME will not have Member-State-specific allocations;
the Government estimated that, by the end of 2010, the UK had
received around 10 per cent of the budget for the Entrepreneurship
and Innovation strand of the CIP.
142. SMEs face a number of challenges that limit
their growth and competitiveness, including problems in accessing
finance and exploiting new markets. EU initiatives such as the
Small Business Act and the Europe 2020 strategy aim to support
SMEs in overcoming these obstacles, and COSME will participate
in this endeavour. It will target four key areas: improving framework
conditions for the competitiveness and sustainability of EU enterprises;
promoting entrepreneurship; improving access to finance for SMEs
in the form of both equity and debt, including an EU-level loan
facility; and improving access to markets both inside the EU and
out. The Commission's proposal targets the tourism sector for
"particular attention" because it makes a "significant
to the Union's GDP" and has a high proportion
of SMEs active in the sector.
143. The Government have expressed support for
the proposal's attempt to improve framework conditions and to
reduce fragmentation of the EU venture capital industry in order
to improve SMEs' access to funding. However, they have argued
that any additional funds for such action must be drawn from reprioritised
existing EU funds.
144. We support the COSME programme in principle.
However, we are concerned at both the level of funding proposed,
and the instrument's focus on tourism. In addition to the value
offered by the tourism sector, it is important to recognise the
many other sectors characterised by a high proportion of SMEs
and a high level of growth potential.
145. Regarding the proposed EU-level loan facility,
BNE advocated that additional funding should be provided for the
SME Guarantee Facility and the High Growth and Innovative SME
Facility, in order to improve SMEs' access to finance.
However, the Government expressed scepticism about the EU loan
guarantee facilities, citing the European Court of Auditors' report
of March 2011, which found that the EAV of such a facility was
not conclusive, and the fact that UK banks have not made use of
the loan guarantee facility, "mainly due to the perceived
bureaucracy" and a more attractive national scheme (the Enterprise
146. Like the Government, we remain to be
convinced that COSME's loan guarantee facility offers added value
and does not simply replace national authorities' schemes.
122 Figures expressed in the Commission's proposals
in current prices (COM(2011)676). Back
Explanatory Memorandum 16499/11, Q 33 Back
19 January 2012, HC Deb col. 914 Back
Supplementary written evidence Back
An EU Budget for Long Term Growth, MFF 1, MFF 4 Back
Q 5, Q 20, Q 7 Back
See Chapter 8 for more information on IFIs. Back
Explanatory Memorandum 16499/11, Q 17, Q 23 Back
Opinion of Committee of the Regions Back
See Box 1 above. Back
The Single Market Act in 1986 stipulated that multiannual framework
programmes should be adopted to determine the main objectives
and priorities for R&D. Back
Figures expressed in the Commission's proposals in constant 2011
prices (SEC(2011)1427 final). Back
EU Financial Framework, para. 39 Back
EU Financial Framework, para. 41 Back
Anne Jenson MEP; Business for New Europe; 1994 Group; Russell
Group; Engineering Professors' Council; UK Bologna Experts; UK
Higher Education International Unit; David Willetts MP Q 90 (Sub-Committee
EU Financial Framework, para. 37 Back
Explanatory Memorandum 17932/11, Q 96 Back
Q 89 (Sub-Committee G) Back
MFF 1 Back
MFF 6 Back
Q 95 Back
Figures expressed in the Commission's proposals in current prices
Explanatory Memorandum 17489/11 Back
Explanatory Memorandum 17489/11 Back
MFF 4 Back
Explanatory Memorandum 17489/11 Back