Scottish Parliament
European Committee
Official Report
Meeting 2, 1999

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Col 32 Westminster means the Parliament rather than the Cabinet Office.

The Convener: A range of options will be open to us. We will be able to pass our opinions to the European Scrutiny Committee but we will also be able to use the offices of the Secretary of State for Scotland.

We should not duck the issue, but we should come back to it at a later date. If we want a discussion on where items go from this committee and on what our relationship is with Westminster, we can put that on a later agenda.

Bruce Crawford: That would be fine.

Ms MacDonald: We would like that to be on the next agenda.

Dr Sylvia Jackson (Stirling) (Lab): I want to make two brief points. When we refer the Scottish explanatory memorandum to the Scottish Executive, we need to put forward clearly the points that Bruce and Irene made about the environment and equal opportunities and stress that those are important matters.

I do not know whether we will discuss the date of our meetings at some other time, but our briefing paper says that we will meet in the afternoon. Are we agreed on that?

The Convener: As opposed to in the morning?

Dr Jackson: I think that morning meetings were originally suggested.

The Convener: We might have to refer that to the Parliamentary Bureau because other committees have to meet as well. There is a suggestion that, because of the volume of work and the way in which the process works, we should try to meet on a Tuesday. However, that might clash with other business, so we need to be flexible. For example, some of us on this committee are also on the Health and Community Care Committee and are unable to attend some of that committee's business because we are here. It is a bit of a nightmare. We will return to the timing of meetings at another time.

Structural Funds

The Convener: I would have thought that the next item of business, a presentation by Jim Millard of the Development Department of the Scottish Executive, would have been worthy of a long and detailed discussion, but I am looking at the time and I am beginning to wonder when we will finish. Jim will outline some of the issues and try to brief us on where they stand.

Before we start, I stress that this is not the only debate that we will have on those matters but the first of many detailed discussions that we will have 

Col 33 in the next few weeks. As more information comes out and the decision-making process develops, we will have to make our views known, but today's presentation is about some of the broader matters.

Ms MacDonald: I have an urgent matter to raise that I believe is relevant to the subject of Jim's presentation. Will we have an opportunity to talk after the presentation, if not at great length?

The Convener: There will be questions and a discussion afterwards.

Mr Jim Millard (Development Department, Scottish Executive): But please do not ask any hard questions.

I am grateful for the opportunity to offer an informal briefing—the first of many, I am sure.

On my way in to work this morning, a traffic report warned of standing water on the M8. I believe that the report simply meant puddles. European issues, structural funds in particular, sometimes get caught up in unhelpful, misleading or less than clear language, but I will try to avoid that trap.

One of the interesting facets of the process in which we are involved is that European affairs are a reserved matter. However, the Scottish Executive is the implementing authority for structural funds in Scotland. That responsibility will be of key interest to the committee. This morning, I will speak about the structural funds arrangements, the reform of the structural funds, which we are in the middle of, and the way forward for Scotland under the structural funds, in so far as it is clear at this stage.

European structural funds are split into individual funds. The European regional development fund is fairly well known—signs around Scotland show that stretches of motorway, buildings or some kinds of business activity have been supported by the regional development fund. Similarly, the European social fund is readily identified with support for training and learning. The other two funds are less obviously part of the structural funds. The easiest way to put the European agriculture guidance and guarantee fund in context is to say that the guidance section is not the guarantee side and the guarantee side is about price support, intervention and so on. The financial instrument for fisheries guidance, the fourth fund, is fairly self-explanatory.

Structural funds, in a generic sense, are about support for projects to encourage economic and social cohesion across the European Union.

Structural funds are delivered by two means. The first is geographically, through objectives 1, 2 and 5b. In Scotland, objective 1 covers the Highlands and Islands, which are identified as areas lagging behind the rest of Europe; objective 

Col 34 2 covers much of the central belt, which is experiencing industrial decline; and objective 5b covers much of rural Scotland.

Objectives 3 and 4—the horizontal objectives—deliver support for training across Scotland and are not geographically targeted.

Those programmes will run until the end of 1999, when project approvals under them will finish. Project sponsors have up to two years after that to complete their work and claim grants.

Structural funds reform has been on the agenda for a couple of years, first the threat and then the substance. Commission proposals were debated at length in working groups by officials from member states and were signed up to at the Berlin summit at the end of March.

Reform had to recognise that the European Union will get larger, although we are not sure by how much it will do so or how soon. Preparations had to be made for a larger European Union that would embrace countries that are not as economically and socially advanced as us. Leg-room had to be provided through budgetary discipline, and the costs of structural funds, which account for one third of European Union expenditure, had to be constrained.

Reform was also needed to simplify things. Some people say that structural funds are complicated, but they are wrong: structural funds are much more difficult than that. Simplification ought to stretch from the European Commission, through member states and implementing authorities, to the people who deliver projects. I am not quite sure that that is the case, but there is an opportunity for the Scottish Executive to make life as straightforward as possible for project sponsors. I may live to rue these words, but there is an onus on us to absorb the technicalities and to deal in-house with complexities between Scotland and Brussels.

11:30

The other key principle is concentration, to which there are two aspects, the first of which is that the seven objectives under structural funds—I mentioned the five that apply to Scotland—have been condensed into three. Objective 1 remains much as we currently recognise it; it deals with areas that are suffering from economic difficulties or are lagging behind economically and where gross domestic product is 75 per cent or less of the European average. However, that status applies at regional level rather than, in our case, at local authority level.

Objective 2 picks up the need to address both economic development in areas suffering from industrial decline and urban issues. Although a 

Col 35 separate objective—objective 5b—had been established for rural development, objective 2 now contains a rural strand. It also contains a fisheries strand, which is a recognition that fisheries areas are suffering economically, either because fish are less easily caught or because of effort limitations or quotas. In either case, the economics of fishing have become that bit more fragile.

Objective 3 deals with learning and training objectives that had been delivered under objectives 3 and 4. Interestingly, it is expected that although the majority of training support will come through objective 3, it will still be delivered through objective 1 and accounted for in objective 1 programmes. It is currently possible to support training through objectives 2 and 5b and, indeed, there is almost an expectation that that should happen. Next time round—after January 2000—training support will mostly come through objective 3, although the various programme partnerships will still have the option to use some of their objective 2 resources to support ESF activities.

The second—perhaps more obvious—aspect of concentration was to reduce the percentage of the EU population covered by structural funds. The intention was to reduce the current figure of about 51 per cent to 40 per cent—when rounded down, that figure is still about 40 per cent but, in practice, perhaps 41 or 42 per cent of the EU's population will still be covered by structural funds.

For Scotland, that means that the Highlands and Islands will no longer have objective 1 status because its GDP exceeds—although only just— the 75 per cent threshold. However, to replace objective 1 status, the Prime Minister has secured a special programme worth Euro300 million for the Highlands and Islands from 2000 to 2006. We can pursue eligibility for objective 2 status under its four strands: industrial, rural, urban and fisheries. Although we face reductions in population coverage, the Berlin summit confirmed that there will be a safety net for the UK so that the new round of structural funds will cover no less than two thirds of the population that is currently covered by objective 2 and 5b. That means that, at a UK level, we will experience a reduction of no more than a third.

The safety net is a recognition that the criteria proposed in the regulations—and favoured by the majority of member states—acted unfairly and disproportionately on UK areas. As very few UK areas meet the qualifying criteria, the net ensures a reasonable degree of continuity and coverage for the coming period.

For areas not designated for any objective status, there are arrangements for transitional support over six years, which is one year less than the length of the next programming round. For the first time, we have very welcome recognition—not 

Col 36 just from the EC but from member states—that it is not a sensible idea to turn the structural funds tap off abruptly. Transitional support offers an opportunity for affected areas to develop exit strategies to wean them off structural funds support.

Objective 2 status is still up for grabs. Early next month, UK ministers will consider how the objective 2 map for the UK might look, which means that, despite what some newspaper reports have said, no decisions have yet been made. UK proposals to the European Commission for objective 2 coverage have to be submitted by the end of September. It is hoped that the Commission will confirm UK objective 2 areas around the end of October or at the end of November.

Objective 3 and the rural development regulation are unaffected by that process and will apply across the piece. Therefore, even areas not designated for objective 2 status will still have access to the regional fund through transitional status, to the social fund through objective 3 and—if those areas are rural—to measures pursued under the rural development regulation.

The Convener: Jim, I will have to cut you short. The next part of your presentation deals with the preparation for the next phase and the plan teams. We can return to those issues at some point. We have limited time, so perhaps we should concentrate on the issue of structural funds and the immediate decisions that need to be made.

That was a very good background presentation on where we have come from and our current position. As a committee working on behalf of the Parliament, we need to influence the process from this time on. I am aware that some critical decisions are to be made soon. I was alarmed at the departmental paper that was circulated, which suggested that there would be a significant detrimental impact on Scotland.

I am glad that the Secretary of State for Scotland has been fighting vigorously to present Scotland's case. I think that we urgently need Jack McConnell to come before this committee to talk about the case that will be presented for Scotland, because issues such as the safety net raise questions about whether the net is protecting Scotland as we would expect. I do not think that the committee accepts that Scotland suffers disproportionately in the population coverage provided by the net when compared with the rest of the UK.

We will have a discussion on Jim's presentation, but is the committee agreed that we should ensure that we get the minister into our next meeting? Furthermore, I also want to suggest writing on behalf of the committee to the Secretary of State 

Col 37 for Scotland to express both our concern and what we expect to happen in the next round of the process. Perhaps we could include some of our more relevant comments and questions in that letter. If we agree on that, we can return to the discussion.

That is agreed.

Bruce Crawford: I think you are right. I certainly need to understand what is meant by

"pressure in Scotland because of the general and relative wealth compared with areas in England"

which is on page 6 of the briefing paper on European structural funds. How are such judgments made? What sort of monitoring figures are used to compare wealth in Scotland and different areas of England? If the minister is coming, will he come armed with answers to those questions?

Ms MacDonald: I ask the indulgence of the chair. I do not mean to make facetious use of this committee. Although I appreciate much of what Jim Millard said, I hope that we will be able to act on his points. If I may draw on what he said in his presentation, there is a desire for simplification following the Berlin summit. We, too, are trying to simplify the whole mechanism.

It is unfortunate that we cannot invite the minister now, because the closure of the Continental Tyres plant in Newbridge, which has been announced today, will have as much of a dramatic effect on east central Scotland as the problems of Kvaerner have had on west central Scotland. I am interested in whether it is possible to use some of the mechanisms that are open to the Parliament—presumably, as this is holiday time, through this committee—to administer the moneys that may be available.

In Jim's presentation, we heard that there is still an opportunity to use some objective 2 funds for training. I am raising the matter now because, at the Continental Tyres plant in Portugal, the company was recently able to ensure that staff were not laid off—saving the attendant costs in welfare benefits—by working with the Portuguese Government to retrain factory workers in situ until the market picked up again. I am reliably informed from all sorts of sources that it is a perfectly valid and viable operation—I accept that, as those sources worked in the factory, management may have another point of view. The problem is the market, which is the same argument that was used about Kvaerner.

I said that I would be looking for your indulgence, Mr Henry, but is it possible to find out from the Deputy Minister for Enterprise and Lifelong Learning whether we can access available funds? If the money is available, I want 

Col 38 to use it in a relevant way to show people that we are doing some good and that there is some point to this committee, to the Scottish Parliament and to the European Parliament.

The Convener: It would be wrong to give the impression that this committee can look at every potential closure and suggest that we can bring to it a European dimension and interest. However, as the issue has been raised, we could ask the minister whether any European funds are available to keep the factory open.

11:45

This issue is complex and it would be wrong of us to suggest that simply accessing European funds will alleviate the problem. If European funds are available, this committee should ask Mr McConnell to give the matter due consideration. I am sure that that will happen—and that it has already happened—but it is not the direct business of this committee.

Ms Oldfather: I am sympathetic to the point that Margo raised. My constituency of Cunninghame South—where 500 Volvo jobs are at risk—has exactly the same problem. If money is available and if we are going down that route I would want to make a case for that fact to be taken into consideration. In my area—which has the fourth highest unemployment in Scotland—those 500 jobs are tantamount to what is happening at Kvaerner.

The Convener: I think that it is valid that such areas of concern are raised, but we will not do justice to this committee if we ask what the minister is doing in terms of European funds every time something like that happens. There are other committees that have greater relevance to that pursuit. We must consider whether European funding is generally being properly and effectively used in areas of deprivation and industrial development. If we set a precedent of looking at every industrial closure, every voluntary group that gets European funding will ask us to become involved. We have enough on our agenda without assuming that responsibility.

David Mundell: I accept what you say, Mr Henry, but I would like you to set out in your correspondence that the particular process of dealing with objective 2 applications has not been satisfactory. Areas that have submitted applications—I cite Dumfries and Galloway as an example—have not been clear about the time scales. They have put much effort into lobbying for their cases only to find that the time scales have changed constantly. As Margo said, that has led to negative speculation and double spin that says the situation is worse than it was originally and that we will get less than was expected but more than the 

Col 39 spin said we were going to get.

The process of dealing with the current round of objective 2 funding has been thoroughly unsatisfactory. We should make that point because many organisations throughout the country have lobbied hard and have produced detailed and complicated documents. They obviously cannot take account of changing circumstances but they have to know what the rules of the game are—and I do not think that that has been the case.

The Convener: We can certainly comment now, and later when we have analysed how this process has worked. We can talk about inadequacies and the things that need to be improved, but for the moment I would prefer to concentrate on making the arguments that allow the Government to give Scotland what we regard as fair in that process.

I do not want a tome discussing what has not happened in the past few months to go to the minister, which would allow him to overlook the fact that we are discussing critical issues such as population coverage and the safety net and what areas will be critically affected.

It is probably too late to influence the process now, but we should discuss the issues and, perhaps, invite some partner organisations in Scotland to give evidence on some of the difficulties that they have faced. If we do not get this right, we will always suffer from it in the future. We should therefore deal separately with the issue of taking evidence from organisations such as those that have been mentioned that are unhappy about the process, and concentrate on the issues that are to be decided in the next five or six weeks.

Ms MacDonald: I apologise and I appreciate that this is not the correct committee at which to discuss these issues, but it is the only forum we have as the Executive is on holiday.

David Mundell: I am quite happy to agree with you, Mr Henry, but I am not clear whether the decision is still open. Are you confident that the decision on objective 2 is still absolutely open?

The Convener: Yes. No decision has yet been made on issues such as the safety net. We must get in and ensure that Jack McConnell appreciates the issues and that the Secretary of State for Scotland is aware of this committee's view of what the issues are.

I am asking that today we agree to invite Mr McConnell to this committee, and that we write a holding letter that gives our overall views to the Secretary of State for Scotland. We will have the opportunity to go into that in more detail at the next meeting.

Dr Winnie Ewing: I have two questions, the first 

Col 40 of which concerns structural operations in the fisheries sector and the fact that only draft regulations exist. Might we have any indication as to when we will get sight of those? We would certainly want to see the draft regulations before they harden.

My second question relates to transitional funding for objective 1 for the Highlands and Islands. In what respect is the approximately 210 million different from what the Commission offered? It was clear that there was always to be transitional funding if we lost objective 1 funding. Mr Millard said that that was achieved at Berlin. I wonder what the achievement was. What is the difference between what had already been offered and what was obtained at Berlin?

Mr Millard: I will answer the easy question first. We understand that fisheries regulation will be approved later this year. The intention had been that fisheries regulation and regulation of other structural funds would be agreed at around the same time but for some reason or another there has been delay. It should happen later this year and, in fact, it almost has to happen later this year if the regulations are to be effective from January 2000.

The special deal for the Highlands and Islands is that the Euro300 million gives levels of funding equivalent to those of the existing objective 1 programme. Had the Highlands and Islands gone straight on to objective 1 transition funding, the transition arrangements would have been worth less. It is, in short, enhanced transition funding.

Dr Ewing: The mystery that I am trying to solve is whether we know by how much it was enhanced?

Mr Millard: No.

Dennis Canavan: Could Mr Millard explain to us the difference—if there is any—between development area status and objective 2 status? Last month the British Government forwarded our development area map for the whole UK to the European Commission. The EC can presumably either agree or not agree to that map. What opportunities are there for amending that map at this stage? Will the map that eventually emerges be a map of the UK that will simply be for what used to be called development area status, but will also be used for objective 2? Are the maps exactly the same or are we talking about the possibility of two different maps?

Mr Millard: We are definitely talking about two maps—the development area map and the assisted areas map. The assisted areas map represents areas where the member state's Government can provide support for business development and business expansion. Assisted area status allows higher levels of grants and 

Col 41 support to go to individual companies, to the extent to which an enterprise company or the Scottish Executive through its enterprise and lifelong learning department can support businesses.

The objective 2 structural funds map establishes the areas to which European funds can be brought to bear to enhance, augment and support the efforts that are made by local authorities and local enterprise companies.

There may be an overlap and a coincidence of coverage, but the maps are quite discrete and separate and are for quite different purposes.

Dennis Canavan: Does not the development area map influence the objective 2 map? Is it possible for an area to have development area status, but not have objective 2 status, or, indeed, the other way about?

Mr Millard: All things are possible.

Cathy Jamieson: I am particularly concerned with the situation in Ayrshire, particularly South Ayrshire, part of which is in my constituency. Areas in South Ayrshire have recently lost part of their assisted area help and I am worried about the speculation that South Ayrshire will no longer qualify for objective 2 status.

I have already written to Jack McConnell and a number of pieces of correspondence have gone back and forward. This is relevant not only to South Ayrshire, but to the whole of Ayrshire and its structure plan, and to how we take things forward. I welcome Mr Henry's suggestion that we get Jack McConnell along to this committee, but I also hope that we will do all we can in considering all the areas that are in a situation similar to that in South Ayrshire. There is a real danger that people assume—as Dennis pointed out—that the two maps are interchangeable or that the objective 2 map should follow logically on from what happens in regard to assisted areas.

It would seem to me that under the new categorisation for objective 2—which takes in issues such as industrial decline, rural areas and so on—an area such as South Ayrshire would qualify for more rather than for less.

Ms MacDonald: She would say that, wouldn't she.

Cathy Jamieson: Absolutely—and I will continue to say it.

The Convener: I am aware of some of the problems in South Ayrshire that you have identified, but I do not want this committee to become simply a lobbying voice for the areas that we represent.

Cathy Jamieson: I appreciate that.

Col 42 The Convener: My area in Renfrewshire is similarly affected. We must, as a committee, keep a wider perspective while continuing to lobby for our areas as individuals.

Cathy Jamieson: I just wanted to ensure that we consider all the areas that are affected.

Allan Wilson: You have made the point, Hugh, that I was going to make about some of the special pleading that may be taking place. There are important issues here and we all welcome the suggestion that we meet Jack McConnell at the earliest opportunity. That way we can clarify some of what has happened behind the scenes in relation to the drawing up of maps and the relationship between them. We could also answer Dennis's question about the correlation between assisted area status and objective 2 funding.

This question might better be directed at the Scottish Executive, given what has been said about the Executive's role in the implementation of structural funds, but I am interested in the method of delivery of those funds and the relationship with the Barnett formula and the block grant. I am also interested in the correlation—if there is any—between increase in population coverage and the sums of money available, given the existence of the safety net. Those are, I am sure, areas that we will want to develop further with the Scottish Executive, but does Mr Millard have any information on those issues?

Mr Millard: No, not at this stage. Much depends on how the map turns out and the relative shares of funding that Scotland, England and Wales secure.

Ben Wallace: I missed, or did not quite understand, your answer to Dennis Canavan's question. You are saying that we are expecting a decision from Europe on objective 2 by about October. How far has the UK presented its case, and are we now in a position to influence it? If the case has been presented, can we see it? The sooner we see it, the better will be our position to address any problems or impacts it may have.

Mr Millard: The UK case on objective 2 will go to the Commission around the end of September. At the moment the most that exists is a range of scenarios using different methodologies and different selection criteria that produce a range of options. Ministers will need to consider those options early next month.

Ben Wallace: So are we in a position to influence it?

The Convener: Absolutely. There are critical things—particularly the safety net—that we need to be involved in just now.

Col 43 12:00

Ben Wallace: I have a second point. The briefing paper, "European Structural Funds, their reform and their application in Scotland," refers on page 4 to the loss of Community initiatives such as RECHAR II, which helps the coal industry, and PESCA for fishing, and their replacement by single programming. Will Mr Millard expand on what single programming is? Initiatives such as RECHAR II and PESCA have been very good targeted initiatives. Will single programming be more under Executive control? Will the Executive draw up the programme? How much influence will we have on that programme?

Mr Millard: There are currently 12 or 13 Community initiatives. Next time round there will be three Community initiatives, one encouraging interregional co-operation, one similar to the LEADER rural development initiative and one on training. The expectation is that the activities that have been successfully pursued under the other initiatives will be mainstreamed within objectives 1, 2 or 3. The programme partnerships that are responsible for the mainstream programmes will take responsibility for those areas. Indeed, most areas that enjoy support from Community initiatives at present are already eligible for further objective 1, 2 or 5b support.

Ms MacDonald: I apologise if I have not picked this up correctly but, to make it absolutely clear, will Mr Millard confirm that the map has not yet been decided?

Mr Millard: There is no map.

Ms MacDonald: The map has not yet been decided. The function of this committee, as the convener suggested, is to feed in to the secretary of state, but I have three or four sheets of paper somewhere in which the secretary of state is patting himself on the back and saying, "You did well, John; you got us a terrific deal." At what point can we influence the secretary of state by suggesting that although he got a great deal, there might be a better one if we just changed the map a wee bit?

The Convener: When the minister attends, we can go into some of the detail on the map, population and so on. However, at the moment, there should be a holding letter from the committee to the secretary of state to make some of our concerns clear.

Ms MacDonald: Exactly. We might have ideas to add to those of the secretary of state. Brilliant.

The Convener: We will hear from Irene and then I will draw this item to a conclusion.

Ms Oldfather: I have just a few points. It is important to acknowledge the progress that has been made. The UK has won a round at the Berlin 


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Scottish Parliament 1999
Prepared 18 August 1999