HC Deb 26 March 1998 vol 309 cc788-94

Motion made, and Question proposed, That this House do now adjourn. —[Mr. Jon Owen Jones.]

10 pm

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

I am pleased to have the opportunity to move from the Principality of Wales to important matters north of the border.

The Minister will be aware that, on 18 March, some important draft regulations were produced in Brussels. That is only a week ago, so I understand that the Government may not have had time to look at the fine print, but they are important draft regulations and I think that the Minister will agree that it is important that we spend some time trying to discover what, having had a first look at the proposals, is in the Government's mind, and what will unfold during the remaining months of the negotiations.

The draft proposals contain a series of things, some of which were expected and so are no surprise, and others that were perhaps less expected. We know that the Commission is trying to concentrate resources, to restrict expenditure in anticipation of enlargement, and that is the background to the Commission's draft proposals. According to those proposals, the budget is to be held at 0.46 per cent. of European Union gross domestic product. The current seven structural objective areas are to be reduced to three under the new programme.

Eligibility for objective 1 is to be set at 75 per cent. of EU GDP. The criterion for objective 2 is based substantially on unemployment figures. Some transitional arrangements are welcome. They are proposed to be set at six years for objective 1 areas and four years for objective 2 areas in the new regime, and a safety net is included in the draft proposals, to which I shall return in a moment.

I want to concentrate for a moment on the changes to some of the proposed objective 2 categories of funds. As the Minister will know, the current objective 2 and objective 5b population coverage amounts to a total of 25 per cent. of EU population. The draft proposals reduce the population coverage in objective 2 categories to 18 per cent. of the EU population. One does not have to be a great rocket scientist to work out that we are contemplating a reduction of some 7 per cent. in population covered by objective 2. A 7 per cent. cut in 25 per cent. population coverage is a 28 per cent. cut, which is a cause for some concern to which I hope the Government are alive.

In addition to the reduction in the numbers of population that are covered, the types of sectors to be covered by objective 2 funding will at the same time be expanded to cover new categories for the first time—for example, service industries and some other areas. That seems a bit perverse against the background of the objective of concentrating funds a bit more carefully. They seem to be concentrated on the one hand and expanded on the other. That will cause some difficulties.

At the same time, rural areas, which can currently claim up to 8 per cent. of the objective 2 category funds, will find that figure reduced to some 5 per cent. That is a 3 per cent. reduction of an 8 per cent. Base—a 37.5 per cent. cut. One can play with the statistics and make them sound dramatic, but those are big sums of money which have a profound and direct impact in the communities that have been able to take advantage of them in the past.

The Commission's draft regulations for the structural funds programmes, which, as the Minister knows, will come in between 2000 and 2006, also contain an agenda for reform of the common agricultural policy and, on a wider basis, the future financing of the EU beyond the year 2000. We are therefore looking at the possibility of quite big structural fund cuts at the same time as the farming industry may face reductions in support under the CAP. The farming industry is already facing the continuing effects of the BSE crisis, and suffering from high exchange rates and dramatically lower farm gate prices. To contemplate reducing CAP support at the same time as reducing eligibility for EU structural funds compounds an already financially unsustainable situation in some rural areas of Scotland. The Minister should be aware of that.

All hon. Members who represent constituencies north of the border will agree that it is crucial that Scotland continues to enjoy maximum access to its fair share of European structural funds under the new proposals. The draft regulations were published only last Wednesday. Although they are better than expected in some respects, they still cause great concern in areas of Scotland that are currently eligible for European Union funds, especially objective 1 and objective 5b funds.

I need not remind the Minister that the United Kingdom is the fifth largest contributor to the European Union budget but the fourth poorest country in the EU, according to the EU' s own statistics. Our membership provides some £29 per head in regional and social fund grants compared with the EU average of £56 per head. Ireland receives eight times as much per head in structural funds, yet its GDP per head is much higher than that of the United Kingdom. That is perverse. It is difficult to understand why the Commission is not being a little more responsive to Scotland's needs.

I acknowledge that we are at the beginning of the negotiations, which could be long, and that we need to talk to our sister European states. Some of the negotiations will take place to the Minister's advantage because he and his colleagues have the EU presidency for the next few months. Will he confirm that Scottish Office Ministers will dedicate themselves to improving the draft regulations in every possible respect to secure a fairer outcome for Scotland? If he can give that assurance, I, for one, will sleep a little more securely.

The safety net proposals were surprising. I expected some concessions to the original Commission plans, but the safety net proposals are certainly welcome. Can the Minister tell us a little more about the detail and the precise effect that the safety net proposals are likely to have in Scotland? I appreciate that that may be difficult because they are only seven or eight days old, but the proposals appear to guarantee that no member state can now lose more than a third of the population coverage that it already enjoys under objective 2 and objective 5b combined. If the Minister can confirm that, we can bank it as an improvement and move on.

Leaks about the draft proposals led us to believe that the Commission would set a ceiling for each member state under new objective 2, and that the criteria would be extremely disadvantageous to the United Kingdom, which would suffer a big reduction in access to the structural funds. We were afraid that the situation would be dire. It now transpires that there will be a safety net, so some of our worst fears may be mitigated.

I hope that the Minister agrees that we must press for further changes. The draft proposals will now go before the Council of Ministers and a consultation process will be carried out with the European Parliament. Although things would have been worse without the safety net, they could be made better.

I want to concentrate the Minister's mind on achieving two improvements. When such decisions were last taken—in 1993–94—the highlands and islands and the Western Isles, an area with which the Minister is familiar, did not technically qualify for objective 1 status, but a political decision was taken to allow them to become eligible because of their population densities, which, even according to European Union statistics, are eight and nine persons per square kilometre respectively. Such tiny population densities suggest communities at the extremes of disparity, which makes it impossible not to consider them for objective 1 status under special consideration. It is impossible to accept that Merseyside and South Yorkshire should be the only areas in the United Kingdom to qualify for objective 1 help under current plans.

Sixty-six per cent. of European Union structural funds are spent in objective 1 areas, so it is essential for Scotland that the highlands and islands and the Western Isles are granted objective 1 status. The word in Brussels is that that might be difficult to achieve—there are all sorts of excuses and ways round it, and objective 2 might be expanded to provide help—and that north Finland and Sweden are to be granted objective 1 status because, believe it or not, of disparity of population. It is unacceptable for Scottish Office or, indeed, United Kingdom Ministers to agree to a proposal that accepts north Finland and Sweden as areas of special disparity of population and not to argue robustly for the highlands and islands. That is the first target that I set for the Minister, and his heart will be in the fight.

The second issue is how criteria for the new structural funds under objective 2 are to be set. My reading of the draft regulations suggests that member states will have wider discretion for disposing of structural funds within their own boundaries, albeit within the EU set ceiling. The Minister understands that more flexible and sensitive criteria for distribution of new objective 2 funds within Scotland must be developed. Core criteria such as gross domestic product per head must be given more weight to achieve fair distribution in Scotland. Unemployment figures prejudice the United Kingdom against other member states, but they are not reliable indicators of established local need. He must consider that matter if he is to achieve fair distribution of funds.

The local economy of my constituency in the borders is extremely fragile. The textile industry is declining, with job losses being announced weekly in towns such as Hawick. There is evidence of depopulation and the people who remain are aging. The area suffers from geographical isolation, transport costs are inevitably spiralling after the Budget and the fanning industry is under the kind of pressure that I have not witnessed since being elected to the House in 1983.

Background economic conditions are not auspicious, and supplementary criteria—the economic factors—must be given more weight in determining eligibility for structural funds, which must continue to be directed to areas of Scotland such as the highlands and islands and south-west as well as the borders. I am more confident that, under the plans, the central belt will be able to look after itself, but I am deeply concerned that the draft regulations will cause difficulties for the highlands and islands, the Western Isles, south-east Scotland and south-west Scotland.

The House will be looking to the Government for support. We shall need robust ministerial support over the next 12 months to guarantee that we have fair access to these funds. I look forward to hearing how the Minister intends to achieve that end.

10.14 pm
The Parliamentary Under-Secretary of State for Scotland (Mr. Calum Macdonald)

I congratulate the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on securing this debate on an extremely important if complex topic, and on the way in which he dealt with the issues. I thank him for providing notice of some of the matters that he intended to raise.

As a Minister and as the Member for a rural constituency, I share the hon. Gentleman's interest in the future of the European structural funds. Those funds have made an important contribution to economic development in Scotland in general, and to rural areas in particular. The forthcoming review is of vital interest to regions across Scotland. I agreed with many of the points that the hon. Gentleman made.

The reform of the structural funds has come about partly because the current financial framework expires at the end of 1999, and partly because any future funding must take into account the proposed enlargement of the European Union. The reform process started with the publication of the European Commission's broad proposals for reform in July 1997. More detailed proposals were published last week, which were broadly as had been expected. The draft regulations form the basis of the detailed and complex negotiations that will start next week between officials of all the member states. Final decisions will be taken by the 15 member states in the Council of Ministers. The Commission has made proposals, but the long process of negotiation is yet to come.

Doubts have been expressed, but it is hoped that negotiations will be completed and the new regulations will be in place by mid-1999. I emphasise again that the negotiations will be long and drawn out, so the proposals are simply the opening of the debate. The final result is likely to be different from the proposals that we start with, and the House can be assured that the Government will work very hard to ensure that the final regulations are more appropriate to UK needs.

The Government's response has been to set out broad principles rather than to give specific negotiating positions on how we want the reform process to develop. Detailed scrutiny begins in the Council of Ministers' working groups.

I can affirm much of what the hon. Gentleman said about the contents of the Commission's proposals for reform of the funds. It proposes maintaining the existing budget limits during the next programme period, while reducing the proportion of the population covered by the funds. As a net contributor, the UK Government welcome that approach, but the concentration of funds must be fair to both established and acceding member states.

The Commission proposes reducing the current seven objectives to three, and the 10 Community initiatives to three. That is welcome from a UK perspective, because it would reduce the burden on those who are involved in delivering the funds. It is proposed that the new objective 1 will adhere strictly to the criterion of 75 per cent. or less of the European Union average per capita gross domestic product. The new objective 2 will be formed by merging the current objectives 2 and 5b. The objective would encourage measures to support economic development in rural areas that are in serious decline, urban areas in difficulty and changes in industrial or fisheries sectors.

The proposed objective 3 would concentrate on human resource development and training in order to combat unemployment. It would focus on areas that are ineligible under the other objectives. The Commission proposes transitional arrangements to compensate areas that lose eligibility. It proposes six years for objective 1 and four years for objectives 2 and 5b. We shall arguing that transition funding should be six years for all.

The proposals aim to simplify the funding process and provide greater responsibility at local level. The Commission would also like the funds to be used more effectively. Officials at the Scottish Office are discussing with others involved in the current partnerships in Scotland new ways of using funding such as loan guarantees, revolving funds and access to capital to make the funds more efficient. I am keen to see a greater emphasis in the reformed funds on promoting competitiveness, employability and job creation in order to achieve sustainable economic development and social cohesion in our rural communities.

Let me pick up a couple of specific points raised by the hon. Member. He mentioned the safety net which, as I have said, will guarantee losses of no more than 30 per cent. in objective 2 and objective 5b entitlement. That is most welcome, but it represents an admission by the Commission that the formula for distribution is faulty. If the formula was distributing the funding fairly, there would be no need for such a safety net. Although it is a welcome move, it is inadequate and we shall press the Commission strongly to think again so that the formula should include the criterion of gross domestic product rather than being based only on employment statistics.

In respect of the highlands and islands, the Commission proposes that northern Finland and northern Sweden will be eligible for objective 1 status on the ground of sparsity of population. We believe that that should apply equally to the highlands and islands because the difference in sparsity is so small. The case has been pressed at the highest level by officials in the Scottish Office and others within the United Kingdom Government.

During our presidency, the Government will have the task of making progress in obtaining agreement in negotiations across all member states, rather than concentrating solely on the UK position. We hope to use the informal ministerial meeting on regional policy to be held in Glasgow in June to progress the Commission's proposals and to reach firm conclusions on the principles of the new funds. Although, the structural fund negotiations will not be concluded under the UK presidency, we wish to make significant progress in discussions on the effectiveness of the funds and the simplification of administration. 1 hope that the Heads of Government meeting at Cardiff in June will reach conclusions that provide a strong basis for further negotiations under the Austrian presidency.

The Commission proposals are but a starting point. Together, we aim to produce regulations that will provide a clearer, simpler basis for the effective administration of the funds. It is essential that we make good headway before the end of June and set a critical path to avoid the dislocation between programmes that has been experienced in the past. We will all be disappointed if the hard work and achievement under the current programmes in the hon. Gentleman's constituency and elsewhere in Scotland are compromised by a lack of continuity.

Having set out our position as the presidency, let me turn to what we hope to see from the reform process as a member state. The Government's top priority is the successful enlargement of the Union. If that is to be successful, there must first be agreement on a budget that is affordable and on spending plans that are fair and durable. By necessity, that means that the current funding structure must be reformed in such a way that it is fair and equitable to all states.

Acceding nations must receive a funding package that is acceptable to existing member states. However, we recognise the depth of economic need of the acceding states; the established member states must be prepared to accept lower receipts as a consequence. I am sure that we would all agree that a poorer member state should receive more from the funds per capita than a richer one, but that does not always happen at the moment. For future funding to be fair and durable, and for enlargement to succeed, that profound change is needed—it must be accepted by the current EU Fifteen.

The Government will work hard to secure such reform. The main argument that we will deploy will be fairness. Although we want to ensure enlargement and policy reform, we will not allow that to occur at the cost of an unfair settlement on structural funds to the United Kingdom. We must receive a distribution of the funds that is comparable with that of other richer states. Fairness extends beyond the fair share of resources; it embraces fairness and consistency of treatment. That is why we will continue to argue strongly for equivalent treatment of the highlands and islands in the context of the current objective 6 areas of northern Sweden and Finland.

The Commission's proposals include two welcome points of detail towards establishing which areas will be eligible in the next round. We have long argued that the broad distribution of population coverage and funding between member states should be proposed by the Commission, but that the detailed definition of areas and allocation of resources should be the responsibility of member states, as the hon. Member suggested.

We will work hard to ensure that the practical effect of that principle gives the Government sufficient scope and flexibility to target funds, consistent with the relative needs and priorities of other areas in Scotland and the rest of the United Kingdom. We want both to ensure fair distribution between areas and to concentrate on particular needs within areas. We will continue to argue that gross domestic product is a better indicator of economic weakness than unemployment, especially in rural areas where average wages are low.

The proposed safety net and transitional arrangements will ensure that there is sufficient room for manoeuvre, but they are only the starting point in a long process of negotiation. We will work hard to secure a good outcome for the UK generally, and for Scotland in particular.

Rural Scotland has benefited substantially over recent years—it has had substantial support from European structural fund programmes. The current round of rural funding programmes, which became operational in 1994–95, will deliver about £325 million of additional funding to stimulate economic development in rural Scotland. The highlands and islands, formerly an objective 5b area, obtained objective 1 status in 1994, and about £222 million of direct EC support was made available for a six-year period towards paying the cost of providing a wide range of projects.

As the hon. Member knows, the nomenclature of units of territorial statistics classification is used by the Commission's statistical service, Eurostat, to establish reasonably consistent units across all member states from which to make comparisons of economic and other data. Following local government reform, the UK Government and Eurostat have been engaged in detailed discussions to take account of the changes. No formal agreement has yet been reached, so it is difficult to anticipate how the proposed selection criteria will affect the revised areas. Scottish Office officials are exploring a range a scenarios to establish what the implications might be, but it is not possible at this stage to speculate on how particular areas will be affected in practice.

As we approach the lengthy period of negotiations, I am optimistic that Scotland is in a strong position. Not only are our programmes performing well in terms of commitment and spend, but our partnership arrangements for delivery of the funds are frequently held up across Europe as examples of good practice. The Scottish Office is also working closely with the Convention of Scottish Local Authorities, the Enterprise Network and other partners to develop a unified approach to the reform debate.

I know that there is much concern about the implications of reform for Scotland. The Hon Member has expressed particular concern about the prospects for rural Scotland. Of course, we cannot give categorical assurances at this stage, but I can assure the house that ministers and Officials will work hard to achieve the best possible outcome for the UK and for Scotland.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Ten O'clock