Communities and Local Government - Minutes of EvidenceHC 81

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HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

COMMUNITIES AND LOCAL GOVERNMENT COMMITTEE

EUROPEAN REGIONAL DEVELOPMENT FUND

MONDAY 30 APRIL 2012

DR JOSÉ PALMA ANDRÉS, PETER BOX CBE, LINDA EDWORTHY

Evidence heard in Public

Questions 1 – 37

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 30 April 2012

Members present:

Mr Clive Betts (Chair)

Bob Blackman

Simon Danczuk

Stephen Gilbert

George Hollingbery

James Morris

Mark Pawsey

Heather Wheeler

________________

Examination of Witnesses

Witnesses: Dr José Palma Andrés, Director in Regional Policy, responsible for Belgium, France, Ireland, Luxembourg, United Kingdom and Territorial co-operation, Councillor Peter Box CBE, Local Government Association, and Linda Edworthy, CEDOS/ADEPT, gave evidence.

Q1 Chair: Good afternoon and welcome to our first evidence session for the inquiry into the European Regional Development Fund. For the sake of our records, could you introduce yourselves and state the organisation that you represent?

Linda Edworthy: I am Linda Edworthy from the Chief Economic Development Officers’ Society.

Dr Palma Andrés: I am Dr Palma Andrés, and I am a Director in the European Commission.

Peter Box: I am Peter Box, representing the LGA today.

Q2 Chair: Thank you for coming and for your evidence so far, and apologies for keeping you waiting. I think you have been watching at the back to see how we do things, so I hope that you at least recognise that we try to do things thoroughly in taking evidence. That took a little longer to do that than we had initially anticipated.

Clearly, the ERDF is quite a considerable sum of money. How important do you think it is in terms of promoting regional economic growth and trying to do something to reduce regional disparities? Who would like to start?

Peter Box: I’ll start; obviously, nobody else wants to. It is probably a myth that there has ever been a golden age when there was unlimited capital funding available for local authorities, so it has played a huge part right across the country in making a big difference. If you look at what happened in Birmingham in the 1990s, in your own city from 2000 onwards, Chair, and in Liverpool fairly recently, it has made a huge difference that otherwise would not have happened. If you look at my own authority of Wakefield, where I have been leader now for longer than I care to remember-that’s the truth-we estimate that, over 20 years, over 10,000 jobs have been created with £120 million-worth of structural funds, and that has levered in about £1 billion of private sector investment. We believe that that has given real value for money, and it has made a difference that would not have happened without that funding.

Dr Palma Andrés: From the European Commission point of view, I suppose that this policy is creating conditions for everyone to have the opportunity to participate and benefit from the internal market. In fact, we believe that in many regions, as was said, aid has already been regenerating the coal industry with a lot of first investments being done, and today these regions are still being helped with structural funds. In particular, this is an investment policy-a pure investment policy. There is no revenue to our service. It is in coherence with national policies and with European policies as well. From our point of view, it improves the opportunity for trade, for cohesion and for local and regional growth. I suppose that the ERDF is just a tool for this particular priority.

Linda Edworthy: I would echo my colleagues’ comments. The value for money element of the European funds, in terms of the current programmes, can only be assessed once they are completed, but the value of previous programmes has been significant.

Sitting suspended for a Division in the House.

On resuming-

Q3 Chair: Linda Edworthy, you were just about to give us a response.

Linda Edworthy: Yes. Obviously, to start on the current programmes, a full evaluation can’t be undertaken until the programmes have ended. I understand that there is significant evidence suggesting that the impact of previous programmes has been extremely positive. One example I would give the Committee is the area of Consett in north-west Durham, which suffered the closure of its steelworks. Significant European funds were invested into the area to provide enabling infrastructure, road infrastructure, business accommodation and business support. Without that funding, the area would still be experiencing significant difficulties. That area now has reached full employment. The funding makes an extremely important contribution to regenerating areas.

Q4 Chair: There are two issues I want to pursue. One is value for money. The figures given to us by CLGC show that during the last ERDF round, by 2011 some £1 billion had been spent and some 9,000 jobs created, which works out at around £113,000 a job. It does seem a little expensive. Is that good value for money? Specifically, Dr Palma Andrés, if you could pick this up, how does this compare with other European countries? Are we doing better or worse than what is happening elsewhere?

Dr Palma Andrés: I suppose that the UK is doing well. For instance, in the 2000 to 2006 period, more than 400,000 jobs were created in the whole of the UK. In 2007 to 2013, the programmes are going at this speed and in this direction, and already 36,000 jobs have been created. I suppose that the UK is average, or even a little bit above the average, and I suppose that with this cruise speed we will be in a kind of trend that is similar to 2000 to 2006.

We think that jobs have been created in the areas that are needed, in particular in reconversion areas. Some examples have been given, and there are others. There are good examples in Yorkshire, in Cornwall and in areas of the north-west, in particular in financial engineering; there are very good success stories there. In the north-east as well, there is a very good combination between public and private sector. We believe that one of the reasons why the private sector is very much involved, for instance, in the financial engineering aspects is that they believe in the security of the funding for a multi-annual period when we create hedge fund or seed fund capital-venture capital, risk capital-so this is a very important aspect. We have very good examples. If you want, we can show you many of them in different constituencies and different areas of England where there are success stories.

Q5 Chair: You have just given figures that are completely different from those that the Government have given here. Is it possible for you to give us some more detailed briefing about those figures on jobs, both for the last period and for the current period, because they do not square up with the Government’s figure of 9,000 jobs created? Rather than doing that today, perhaps you can just drop us a note about that.

Dr Palma Andrés: We can send you a note afterwards?

Chair: Yes. That would be helpful, just to give us the details.

Dr Palma Andrés: No problem-with pleasure.

Peter Box: The figures I quoted from my own authority were over a 20-year period, so I think you have to look at the long term. Secondly, I also mentioned the amount of private sector investment. That should not be forgotten. I know that many Committee members have been involved in local government. If you get investment of that magnitude into a local authority, it can help create business confidence and stability. There are spin-offs, as well, for a particular area or local authority. I am sure that those figures may well be correct in themselves, but you have to look at the broader picture.

Q6 Chair: Finally from me, the areas that get help are the ones that get help again next time, aren’t they? This money may be doing some good, but is it really doing anything to reduce the growth differentials in capital income in these areas? Is it really lifting, relatively, the performance of the poorest areas? They seem to be the areas that get the money again the next time around.

Linda Edworthy: Obviously, we are in a very challenging economic climate at the moment, but for example, in my area, Tees Valley, we have not suffered the decline over the last two or three years that you might have expected us to suffer. In part, that is because of the support that has gone into the area to help businesses, help individuals set up in business and provide accommodation and activity around innovation projects.

Peter Box: The real issue is what the situation would be in particular areas if that funding had not been available. I know that my authority would have been a lot worse off without it.

Q7 George Hollingbery: I apologise to the panel; I have to run away fairly quickly after this. I am intrigued by what looks like a roundabout to me. I do not think that anybody would deny for a moment that the funds being used in the difficult areas of the UK are extremely valuable and are used very creatively in many ways, but we have had evidence submitted to us that the way money is taken and given back to wealthier regions is incredibly inefficient. First, vast amounts of the money coming back into the UK came from the UK. Secondly, more money comes out of the regions receiving money than they get back in again net, in terms of the grants. One estimate says that 70% of the money that comes from the UK goes to other member states, 5% is redistributed across regions and 25% is redistributed back to the same regions.

Let us imagine an ideal world where we could guarantee that central Government would spend the same amount of money currently being spent by the European regional development funds, and could perhaps even ring-fence the amount that they might save by the scheme suggested to us, which involves a 90% limit-any country at 90% of the average GDP per capita would receive help, but nobody else would. Contributions to the UK would then come from the UK to those regions. Do you think there is a case that this money could be used much more efficiently by keeping money at home and spending it at home in the way that the EU currently does?

Dr Palma Andrés: We have the impression that that is a leverage effect. We have many examples given by the regions that without this structural funds contribution, an important part of projects would never have been done. That is the first evidence. The second is that the fact that they have a multi-annual programme allows them to have a socio-economic analysis and a strategic plan, which did not exist before. At the same time, there was a process of evaluation which allowed an idea of outputs and results such as we can show you today, because you are making an evaluation.

Q8 George Hollingbery: Let me stop you there, if I may. Let us assume, only for the sake of argument, that the same mechanisms for distribution and the same bidding process were in place, but that it was administered by, say, a body in London that accorded the same principles currently used to distribute that money. Is there an advantage to be gained by causing wealthier nations to keep a good deal of the funds that they contribute within their own borders, rather than sending them into the EU and back out again? At the moment, it seems to me that a huge amount of money is being shuffled around and coming back exactly where it started. That does not seem terribly efficient.

Peter Box: One of the problems, I think, is that if it was repatriated to the UK Government, there would be a not unnatural temptation for any Government to keep it. What concerns us at local level-the LGA’s position is that it should be devolved down to sub-national areas. All the evidence shows that we have got huge disparities between local economies. The Centre for Cities produced a report in January that illustrated that very well. If I can give you one example, the number of NEETs in York is less than 10%; the number in Barnsley is something like 28%. We have got huge disparities between local economies. So it has to be devolved down to the local level.

Q9 George Hollingbery: Again, with due respect, I don’t think you’re addressing the question that I posed to you. I absolutely accept that there is a temptation on Government to use this money in different ways; I completely accept that. There are political temptations; there are party political temptations. But if we can just work in the ideal world, in the stratosphere up there where everything is wonderful and everyone is an angel, and we redistributed the money in the same way as it is currently done by the EU, with the same metrics, would it be cheaper and more efficient to do it that way?

Peter Box: I am here representing the LGA. The LGA’s position is that it should be devolved down to sub-national areas.

Q10 George Hollingbery: Let’s just leave it with the EU.

Dr Palma Andrés: I am not sure, for a simple reason. First, the cohesion policy at the moment that you are talking about is just a small part of the public expenditure in terms of investment for England and the other nations. What we believe is that the fact that we have a multi-annual budget is allowing, in many regions, people to make important projects with security. If the people, even the private investors, when they are confronted with an annual budget, which is the decision of the UK for every year, most of this big investment-let us say that-should be more cautious. The other point is probably important too. Of course, the UK is in Europe and there are European policies. In some ways, this cohesion policy and this ERDF money is allowing better coherence between the national priorities and the European policies. When you look at the EU 2020 strategy, which exists clearly in the main objectives of, for instance, the UK, the UK objectives are also growth, jobs, sustainable development and inclusion.

Q11 George Hollingbery: Do you not accept that it is an odd system that takes £3.55 from the part of the country that has the lowest income per capita and pays back £1 into the same region? That seems to me to be an odd way of going about things.

Peter Box: Can I respond, perhaps in a slightly different way, in saying that the general point about being efficient and saving cash is well made. There is far too much bureaucracy; there is no doubt about that in terms of the funding. The EU talks about being better co-ordinated. The truth is that a lot of that, I’m afraid, is rhetoric.

I can give you one example of how local authorities are trying to work more efficiently. Lincolnshire county council had an ERDF officer, an EU officer and someone who dealt with rural development funding. Those three people were in offices next to each other, to try and make sure there was far greater efficiency, but because of the systems in Europe it was very difficult. There are different regulations for different funding streams. So I accept the point about greater savings being available through less bureaucracy.

Q12 George Hollingbery: Is there any way in which member states can opt out of this commitment, or mechanism?

Peter Box: My understanding is that the UK Government have agreed with the next round, 2014-20, that there won’t be repatriation. That is my understanding.

Dr Palma Andrés: Concerning simplification, in the sense of value for money of course, for instance we had in the last couple of years a difficult time with the financial crisis. And this ERDF funding was very useful in different circumstances, because we could very quickly reprogramme and make the delivery of funding in a very simplified way, even increasing rates of assistance. These ERDF mechanisms adapt very quickly to the demands. So probably you have a point. It is something that we have to look at. The bureaucracy is sometimes not only eurocrat bureaucracy; it is national as well, and local. It sometimes complicates things, because we have to take the median or the average of the 27 bureaucracies and cultures, which are different from country to country. We believe that we can improve, and the proposals on the table at the moment in the Council go in that direction. The UK was very active in the Committees on simplification and reducing bureaucracy, and the proposals on proportionality-a better way of delivering the system and creating better conditions for the delivery of money for the final beneficiaries-are in that direction. I suppose that things can improve very well.

Q13 George Hollingbery: Would the two of you from local government leave it the same as it is now, or would you change it? Let me qualify that question slightly. If it could be delivered in such a way that it would also increase the budget, would you leave it the same, or would you go for the new system?

Peter Box: The bureaucracy must decrease, and make it easier for local government to work more easily in accessing the funding. At the moment, that is not the case, but the LGA supports-and certainly the individual local authorities that I spoke to support-ERDF, because it can play a big part not just in delivering specific projects, but we have learned to work in partnership very effectively with the private sector over the past few years, and that will be accelerated through local enterprise partnerships. I know that there are authorities other than the big cities that are keen to get involved through partnership working with the private sector to deliver a better outcome. So, yes, the LGA supports the ERDF.

Q14 George Hollingbery: Can I ask you whether the Local Government Association is supportive of the funds it receives through the ERDF, or whether it is per se in favour of the ERDF? I think you will see what I mean by the difference. If the money could be produced elsewhere, is it the money that you are in favour of, or is it the particular mechanism by which it is distributed?

Peter Box: Local government is always interested in cash, and if you have any influence you can bring to bear on making sure we get more, that would be very helpful. Clearly, if someone gives a guarantee that that amount of funding would be available, but it seems to us that we must comment on what is before us, and what is before us we are supportive of.

Linda Edworthy: Likewise, the Chief Economic Development Officers’ Society is supportive of the ERDF from the perspective of a potential source of funding that can make a significant difference. There is a number of significant bureaucracies, and we can provide a whole host of examples where there is a need to change the way that it currently works to make it more efficient and more effective. In particular, local government has a lot of experience in explaining how that can be achieved. There are some areas where some local authorities, universities and particularly the private sector currently are not interested in pursuing European funds because of those bureaucracies.

Q15 James Morris: Talking of bureaucracy, the current Government abolished the regional development agencies quite early on in their term, and transferred responsibility to CLG for the distribution of funds and decision-making on funds. We have conflicting evidence about the impact of that decision. What do you think the impact has been? Has that decision improved the way in which ERDF money is allocated, or has it hampered it?

Linda Edworthy: I think the problem is that it varies across the country. When talking to our colleagues in some areas, such as Norfolk, East Riding and Derby, there has been a significant reduction in the level of staffing from the transfer from the RDAs across to CLG. There have been time delays in organising the changeover from the programme monitoring committees to the local management committees, which have delayed some decisions. Some areas feel that it has had a negative impact, whereas in other areas-for example, in the north-east of England-there has been no real change. Thirty-one staff transferred from the RDA to CLG, and in terms of the processes there has been no real change.

Q16 James Morris: There have been no delays as a result of this?

Linda Edworthy: There have not been delays. What I would say is that the processes that were previously in place were significantly onerous in terms of an emphasis that existed previously, and an emphasis that continues and is increasing in terms of an over-emphasis on compliance as opposed to bringing forward pipeline projects and getting the projects through the process.

Peter Box: We were genuinely supportive of transferring the day to day administration to DCLG when the RDAs were scrapped, but the transition did mean that some of the money that was supplied by the RDA through the single-pot funding was affected. We wrote round to our member authorities and something like 50% of them said that projects had been affected-either delayed, or they hadn’t taken place. One programme worth £1.5 million-in Preston, I believe-could not go ahead because match funding was not available. So it seems to us that Government need to look at this and ensure that there is devolution down to local government as quickly as possible.

Q17 James Morris: Sorry, when you say, "devolution down to local government", do you mean we should be looking at a new way of devolving through local enterprise partnerships, which you mentioned earlier?

Peter Box: Yes. I mentioned before about local economies being different. I think it is now accepted that a one-size-fits-all solution is not the way forward in terms of trying to make sure that local government plays its part in delivering growth. There have to be tailor-made schemes. We believe that that is best dealt with at the sub-national level.

Q18 James Morris: We had some evidence from west midlands councils-part of which I represent-saying that they felt some innovative projects had been not funded, or that there had been difficulties with them, as a result of the lack of flexibility in the new system. Is that something with which you would agree?

Peter Box: We are bothered about the future to make sure there is flexibility. We want to work in partnership, through the LEPs, with the private sector, so there is an opportunity for local government to help in the overall strategy of creating growth.

Linda Edworthy: To add to that, we have asked our members this question as well. Some areas think that it is perhaps not a very fair question to ask at this point in the programme, because obviously the reduction in single programme funds from RDAs means that inevitably there will be less innovative projects coming forward for consideration. Also, it depends on the definition of innovative. Innovative in one area may not be innovative nationally. Coming towards the end of the programme, there will inevitably be a focus on the delivering of outputs, which again tends to lead to projects that can be delivered quickly, and, maybe, perhaps less innovative schemes. But we have had some comments from Lincolnshire and Torbay. They have experienced the change having an impact in terms of less consideration of innovative schemes.

Dr Palma Andrés: From Brussels, we had in the very beginning a concern because of the match funding when the RDAs were dismissed. Then came an acute moment when the payments for a lot of programmes in England were interrupted because of irregularities in some cases. What I have to say today is that the CLG has managed this period quite appropriately, overcoming the difficulties of interruption of payments. So, with no difficulty, there are no more payments interrupted, because of the mechanism when there are irregularities-

Peter Box: There were transitional problems.

Dr Palma Andrés: In our point of view, the view from Brussels, in terms of macro, we think that the transition at Brussels was well managed by the CLG, besides the problem that exists with the RDAs. The figures for commitments and contracts compare with the other parts of the UK. For instance, for England you had a contract for 63%. In others, such as Wales and Scotland, it will be higher. Even the committed part of the problems are very high in England at the moment-93%. That means that there is a compromise in monitoring committees for such problems. We have the impression that there was no break-

Peter Box: May I comment? There was a problem with transition which, in our experience, was mainly to do with match funding. The Government need to keep an eye on the 2014-20 programme to ensure that we do not lose any ERDF funding, which I do not think anybody would want.

Q19 Stephen Gilbert: Perhaps I can focus on how the money is spent, allocated and drawn down. I represent a Cornish constituency and, as you know, Cornwall has been on European life support for 12 years. It seems that every time we qualify for a new tranche of this European life support, a grand vision is given to people in Cornwall about how it will transform structural inequalities in the economy. There is then a huge delay, because the only tangible benefit from the programme-no, that is unfair, but one of the clear beneficiaries of the programme is a kind of officer class of project managers who take an inordinate amount of time to select the criteria for programmes to come forward. The scheme then runs into criticism because the public are frustrated with the delay in delivery, and there is a rush to get all the money out of the door at the end in an ill-considered way.

In fact, in terms of draw-down, Cornwall does quite well in comparison with the rest of the country. Does that typify what happens in other regions in the country? I am looking at the east midlands, which has contracted only 56% of its funding at the moment. What has it been doing for the last period of time? Why is it only halfway through its spend programme and yet very close to the deadline?

Peter Box: The LGA committee that I chair has been to Cornwall, so I know at first hand some of the particular problems that colleagues there are facing. The point about inefficiency and delay is well made. The LGA’s position is that we should be as efficient and transparent as possible, and I agree with the general premise that it should be our wish to cut out any undue bureaucracy or delay. In my experience, local government has built up a real body of knowledge and expertise over the years-it would perhaps be surprising if we had not. In many cases, local government officers working with the private sector have been the reason that projects have happened, rather than the other way round.

We can give you examples from authorities up and down the country where we have worked closely with the private sector, not only to deal with the ERDF, but to draw down private sector investment that might not otherwise have been available.

Dr Palma Andrés: I have the impression that that is the reason for the Commission’s future proposals. The idea could be called e-cohesion. What does it mean? It means that everybody on the ground who is a potential beneficiary can register and make an application for a project. Then, by computer, they can follow all the steps and instructions in the dossier, and everyone can see because there is more transparency. Of course, it is up to the managing authorities to select, according to criteria that must be decided by the publisher-that is a very good thing. Our idea is to speed up the problem that we are talking about, and the delay that is caused by the dossier coming in paper form that everybody needs to look at.

We in the Commission think that if you go in that direction and put everything on a computer that is open to everybody, people will be able to look at it and the process will speed up. Everybody is more responsible for it and you can follow. If you are a private owner of a company, we have an application for a grant or whatever. You can follow it and make pressure. We believe that it is too much if a private project takes more than two or three months to make a decision. That is our opinion. Of course, sometimes there are difficulties for one reason or another, such as the dossier not being well prepared and so on, but that is not good for business. From our point of view, it has to be very quick.

Linda Edworthy: I think that Cornwall is in a very fortunate position, because the county council has been able to make a commitment in terms of officer support and match funding. I think it has made in the order of £29 million of capital funding available to replace the loss of RDA funds. Obviously, not every area is in a position to do that. I am not familiar with the details for the west midlands as to whether it is a lack of match funding that has caused its problems, but most of the local management committees are looking at ensuring that they get the funds committed and spent. Cornwall is already ahead of its N Plus 2 targets. In the north-east, there is an open call for projects, but there are concerns that the timing of certain funds do not necessarily fit easily. What we do not want to do is just push all the money out the door now when some other match-funding opportunities might enable some creative projects to come along.

Q20 Stephen Gilbert: But doesn’t it suggest that in the seven regions of the country where contracted spend is still less than two thirds of available funds there is not the vision or joined-up governance in relation to how to deliver the kind of transformative projects that are necessary? We are a year away from the period ending and the north-west is just over two thirds, but the east midlands, the north-east, the south-east, the west midlands, the south-west, and Yorkshire and Humber are below two thirds of contracted spend. Of course, you then end up with this inevitable rush-we have seen it time and time again-of projects that do not do what they are intended to do coming forward and being pushed out the door.

Linda Edworthy: Some of the figures that you may have at the moment do not reflect the actual up-to-date situation in terms of real spend on the ground. Because of some of the changes in the transfer from the RDA to CLG, there was a delay in some of the payments in the systems being put in place, so there are local authorities across the country that are behind on their claims. Once those are paid out, you will see much better levels of spend.

Q21 Stephen Gilbert: In which case, it would be helpful if we could get some updated figures, either from the Government or from other colleagues.

I have two final questions. Despite more than £1 billion-worth of European aid over the past 12 years, Cornwall still falls as the only region going into convergence in the next period. Why is it failing? Why is it not delivering for Cornwall what it set out to do 12 years ago, and yet there will be another seven years of it?

Dr Palma Andrés: Before, there was an overall region, but there was a split, which is why Cornwall has become a convergence region. I have the impression that they are converging anyway. According to the most recent figures, all the regions in Europe suffer from the crisis. Look at Spain. Nobody believed that Spain would have a crisis like this. They thought that the GDP per capita of some of the regions would just increase. Even in Germany or France, there was one region where it was up 75% of GDP per capita average, and now it is below-in just one year. We have the impression that there will be convergence in the longer term. In the UK, you have Cornwall on one side and Wales and the valleys on the other. You have a lot of transitional regions under the terminology of the Commission’s proposals. We have 11 transitional regions, some of which were lagging behind before. There is probably the problem of extremity. If you want, we can give our evaluation in writing.

Q22Stephen Gilbert: I would certainly welcome that. Don’t get me wrong; I don’t wish to suggest that no good work has happened. There have been plenty of projects that have helped to change the nature of the Cornish economy, but my concern is that in lots of these places-I think you said it yourself José, when you talked about the number of transitional regions-we are not talking about resuscitating economies and letting them catch up, we are talking about an emerging dependence among regions in the UK on structural funding from outside the UK just to keep them where they are. I think that is a significant issue.

I have one final question, if I may. Let us say that by the end of the period the east midlands, which is one of the lowest performers here in terms of contracted spend, has not spent all its money. Is it technically possible to transfer that to regions that have projects that are oven ready, in the terminology?

Dr Palma Andrés: Before the end of this project?

Stephen Gilbert: Yes.

Dr Palma Andrés: You are running out for the moment, because we are in 2012 and the programming period is 2013. I am not sure that the other regions would be pleased.

Q23 Stephen Gilbert: Would it be technically possible, I guess is my precise question?

Dr Palma Andrés: This is a decision of the Governments. I can ask, but the problem is that we have to reorganise completely the other programmes, so it is a formal decision of the Commission and it is quite complicated.

Q24 Mark Pawsey: We have already heard references to match funding, and perhaps I could ask a few questions about that. Could I also apologise for needing to leave immediately once the questions are answered? The LGA did some work which shows that more than half of regions cannot spend all of their money because of the difficulty in getting hold of match funding: the 50% set by the EU going down to 25% in convergence regions. What is the future? We are not getting out as much as we are putting in and that which we are allocated we are not able to spend because we have the match funding problem. How do we solve that?

Peter Box: We have to understand that the sub-national landscape is changing. The point was made by a Committee member. RDAs have gone. We now have LEPs. Local government is working with LEPs right across the country both at city level and in areas like Cambridge, for example. I was talking to a colleague from Cambridge today who is anxious to work with other authorities and the private sector through LEPs. So we need to be positive about the new landscape and to make sure that we do things differently, because it means that local authorities are interacting with the private sector in a different way. We need to use that different way to make sure that as far as possible the funding is available. It will mean doing things differently, I guess, but I know from the work we have been doing since last October, as the LGA, the amount of work that local government is doing in terms of simply doing things-we have had a growth campaign. All the evidence shows that local authorities are up for the challenge of helping deliver growth. So we will do that through the new mechanisms that we have.

Q25 Mark Pawsey: Would the regional growth funds help here? Why have we have been unsuccessful so far in using regional growth fund money to make up the match-funding element?

Linda Edworthy: Principally because it has not been a fund that has been aligned to the same activities. I think the principal aim of the regional growth fund has been to push money out directly to individual businesses for them to improve and grow their own individual business. That is not what the objectives of the European regional development fund are generally about.

Q26 Mark Pawsey: So how would you deal with this problem because there is European money going begging here? We are going to miss out if we are not careful.

Linda Edworthy: There are other funds that need to be aligned. One of the things that was said initially was that RGF should have been top-sliced and allocated as a match fund towards the European funds. There are other funds that can be looked at: the growing places fund-LEPs are now looking at that-and several areas will be matching up European funds with it. There is also the councils’ own funds in their discretionary budgets and I think we need to have a more constructive discussion/dialogue with CLG about the ability for local authority discretionary funding to be used as match.

Peter Box: I accept the point about regional growth. Two things, though: first, it’s new, so it’s only just got off the ground. The second point is that it’s called a regional growth fund, but decisions are taken nationally, so we need to make sure that the decisions with the regional growth fund are taken at the most appropriate level, whether that be at LEPs or city regions, to make sure that there is far greater alignment between ERDF spend and the regional growth fund. So that is one of the ways in which additional funding can be found. But I come back to the point that what local government has to do, and will do, is look at different ways of attracting that match funding.

Q27 Mark Pawsey: Dr Palma Andrés, is the UK unique in having this difficulty in finding the match funding and, if it isn’t, and if it is common across Europe, why is the match-funding element need to be so strict? Could there not, in the present climate, be some concessions granted to enable the UK to benefit from the funds that are allocated.

Dr Palma Andrés: UK is not unique, because you have to leave for every year’s budget the allocations. There are difficulties of spending of different sorts, in particular with the new member states: some of them have difficulty spending the money and for different reasons, not only for match-funding problems. But you are absolutely right that, probably, things should things should be looked at close to the ground.

One of the reasons that the Commission proposed now, in this package-and apparently UK is not in favour-I do not understand yet why. We have proposed the ring-fencing of 5% for integrated actions for sustainable urban areas. We suppose that we are living in a moment where there is a concentration of populations in urban areas, more and more. In UK, there are lots of important cities and important areas. One of the aims of the policy is inclusion. Of course, going by the economic aspects of inclusion, then we think that more involvement of integrated urban plans should be one of the solutions, and we have asked that at least 5% of the ERDF for the future should be allocated to these kinds of activities.

We have had different conversations with some mayors-in particular, the Mayor of London, who was happy to listen to our proposals. Of course, it is not only London. There are other conurbations. There are five metropolities in France, for instance. There are others in Spain. The people are enthusiastic to use these, not for financing housing, but for financing everything which is connected with the life of the people, and, of course, with the economic growth of these towns in a sustainable way. So we say that UK is not different like others, but there are difficulties, as my colleagues say.

Q28 Simon Danczuk: Doctor, I liked your idea earlier of using computers to speed processes up. It seems like a logical thing to do, but I am astonished that it has not been done before. Why did the Commission interrupt the ERDF payments in 2010 and 2011? You made brief mention of it earlier, but could you just explain to us why you did that?

Dr Palma Andrés: The reasons were related to audit of our services and the Court of Auditors, which had detected irregularities. Most of the irregularities are, let’s say, formal irregularities-non-application of some eligibility rules-so there is no fraud in these issues, just irregularities. By the rules, we are obliged to withhold payments unless things are clear and clarified. Until things were clarified, there was an action plan for the different programmes that were interrupted-the payments were just delayed-and then it was lifted, because everything was going fine.

Q29 Simon Danczuk: Okay. And you are satisfied that everything is in place and controls are working, and everything like that.

Dr Palma Andrés: Yes.

Q30 Simon Danczuk: Peter, in terms of the Commission’s suspension of payments in 2010 and 2011, did that have any impact on projects at all that were funded through ERDF, that you are aware of?

Peter Box: I don’t have that information, but I can certainly find out. I can do a trawl from member authorities to find out the extent to which that was a problem-unless Linda knows.

Linda Edworthy: Some of our members have given us feedback. Some of the larger county councils have experienced minimal impact, because they are able to bankroll projects, but they have identified that the suspension is a particular issue for small organisations, particularly those in the voluntary and community sector. Even without the interruptions, they are looking at a year for the funds to come back into them, so the interruption adds to that period of delay in funding.

Lincolnshire has also fed back that the suspension has had a political impact, in that some of the elected members feel that it was giving a false impression that schemes would end up costing the authority more. It has caused some cash-flow problems and, obviously, loss of interest to the authority. Some authorities have had to use their reserves to fund activity as an interim measure, but overall, there has been minimal impact.

Q31 Simon Danczuk: My final question follows on from some of what Stephen has been saying. Does the surge in attempts to spend ERDF before the end of the process increase a risk of error, fraud or poor value for money? Is there a worry around that?

Dr Palma Andrés: Just to explain, the commitments at a European level are until 2013. At a national level, we can commit spending until, let’s say, two weeks before the end of 2015, theoretically, if you can spend them in 15 days. We have still until the end of 2015 to spend. This is the mechanism.

May I come back to the other point? In relation to the impact of the interruption of the ERDF payments, we are in a co-financing system. For each programme, we give a cash advance. When there is demand for reimbursement, we pay everything that is claimed. We remake the funding-the advance payment. To avoid the problems of cash, in terms of European money, we have to give them much funding.

Linda Edworthy: Certainly in the north-east, claims were suspended during the period, so even if the money was there, it was not coming out.

Peter Box: I think the word you used was "surge". From my experience, that has been an issue for both national Government and local government generally, if the truth be told. You tend to make sure that you have sufficient at the end, so there is a potential for schemes that are not as good as others to get through. That is why the LGA is arguing that we should have a greater role in appraisal. We need to be involved in making sure that what goes through is fit for purpose and will make a difference. We are quite happy to take on that role.

Q32 Chair: Final question to Linda Edworthy and Peter Box. Would you like the Commission to change ERDF in any way for the next round? Do you generally support the idea of the transitional regions-the middle category? Is that a good proposal?

Linda Edworthy: We support the proposal for transition regions. The bulk of our members’ views on changes would be around the processes, the regulations and the removal of bureaucracies in the process. I have a long list of activities in bureaucracies where our members would like to see changes, with evidence from particular areas of the country. I should be more than happy to put that in writing to the Committee, because it is probably too lengthy to go through today.

Q33 Chair: Yes, okay. Presumably, you will come back to the Commission as well, will you?

Linda Edworthy: Yes.

Chair: Okay. We will be happy to have a copy of that. Thank you.

Peter Box: I agree with Linda’s point about transition. What we need is less, not more, bureaucracy, to make things simpler, so that we can make a difference. I am slightly nervous when I hear that there are proposals to put some kind of performance management systems in place in the EU that will actually make things more bureaucratic and not less.

Q34 Chair: Finally, Dr Palma Andrés, thank you very much for coming to see us. To make sure that we get our money’s worth after your trip from Brussels, I’d like to go through just one or two issues.

One of the concerns raised earlier was about different authorities in the UK having to have different offices to deal with different strands of EU funding. Is there any chance we will be able to get those streams of EU funding brought more effectively together?

Dr Palma Andrés: In the UK?

Chair: Yes. So the EU can make them more compatible with each other, so they can be joined up.

Peter Box: I think you are talking about the EU, to be fair.

Q35 Chair: Yes. The different strands of funding from the EU-is there a way we can get them to be more joined up, rather than having completely different and separate approaches? That is one of the criticisms of the bureaucracy, I think.

Dr Palma Andrés: I don’t understand what you are saying. At the moment, we have lots of problems in England. I don’t quite understand your question. You seem to say that the funding should be mutualised.

Q36 Chair: More integrated-currently, you have several different projects often getting different bits of funding from Europe. Could we not get the funding to come in so that the councils, the city regions and the local enterprise partnerships at the local level can manage these different streams in a way that brings them together more effectively?

Dr Palma Andrés: In fact, it is up to the British Government to propose to the Commission how to do it.

Peter Box: With respect, it really is something that the Commission should be doing of its own volition. It should not need to be told to do it, because the message is constantly being made that there are difficulties with different funding streams. It is an issue that is causing delay. It actually means what you, Chair, were saying: that we cannot be as efficient as we could be if there was a greater synergy between different funding streams.

Dr Palma Andrés: You mean ERDF, social funds and so on?

Peter Box: There are different regulations in different systems.

Dr Palma Andrés: For the moment we have only two structural funds: the social fund, which is mostly for training and things like that; and the ERDF. The agri-fund and the fishing fund are not structural funds; they are not a big part of our policy for the moment, from 2007 to 2013.

For the future, what we are proposing in a partnership agreement, which we intend to make with the Government, is that all these funds will be together in the same strategy. The idea is to put more together. This is the Commission’s proposal. As far as I understood it, this approach was "approved" in the last General Affairs Council on 24 April in Luxembourg. The first round of negotiation on this particular aspect has been agreed by member states.

The whole problem is how to put it into practice. That is the problem. A possibility for the future is that the Government propose integrated problems. From 2007 to 2013, that was not possible. Now, there is a proposal on the table to do it, but a condition of that is that it is up to the member state to decide whether it wishes to or not. That is the point.

I believe that Mr Box is right. For instance, when a company comes to an office and wants to make an investment and to train and re-qualify people, it should apply for just one time. We have to save the time of the final beneficiaries, in particular the business men. This is our opinion. We have to make all the efforts to do it.

Linda Edworthy: Unfortunately I am old enough to go back to when there was the very first Durham-Cleveland integrated development operations programme, which had integrated ERDF and ESF to sit alongside each other. Where there was a capital investment-say, in business infrastructure-you could then bring in the appropriate training to ensure that it met the needs of local residents and businesses that were going to locate in them. It was the UK Government who chose to separate the funds, not the European Commission. We would very much urge greater integration of European programmes, which should very much be delivered at a local economic area.

Q37 Chair: I should say that we are not getting just at the EU; we have exactly the same problem with funding streams from our own Government Departments, which do not always join up, and we have certainly concentrated on that in the past. Do we know yet what the likely value of the ERDF will be for 2014-20? Will the euro crisis and the problems in the EU economies have any impact on it?

Dr Palma Andrés: As you know, we are proposing a budget that is restricted. We are going to have as much funding as we have. We are proposing that the rates of assistance increase here and there, particularly in transitional regions, and that the eligibility criteria are larger. We are proposing thematic concentrations so funding is more generous in the transitional regions than in the competitive regions. With a stronger partnership at the local level, things can be better organised and better implemented-this is our opinion.

Chair: Thank you all for coming to give evidence to us and for the time you have spent here.

Prepared 13th July 2012