EEC REGIONAL DEVELOPMENT FUND

HL Deb 24 February 1975 vol 357 cc583-612

4.40 p.m.

The EARL of DUDLEY rose to move, That this House takes note of the Fourth Report of the European Communities Committee (Session 1974) and the Twelfth Report (Session 1974–75) on the proposed EEC Regional Development Fund (R/2055/73 and R/2474/73). The noble Earl said: My Lords, I suggest that this afternoon's debate is, so far as this House is concerned, all that passes for a Second Reading and Committee stage of the "Bill" of the Community on the Regional Development Fund. I understand that a Regulation will emerge from the Council of Ministers on the 3rd-4th March establishing the Fund and the rules by which it will take effect. Perhaps the noble Lord, Lord Goronwy-Roberts, will correct me if I am wrong about this. This debate will be the only opportunity that this House will have to consider these matters before the Regulation becomes effective and is binding on us all.

Noble Lords may find it helpful if I quote from the relevant passage of the Maybray-King Report: 56A. Regulations. The most unprecedented method of Community law-making is the Regulation which has general application. It is binding in its entirety and directly applicable in the member-States. Thus, the Regulation is a rule-making instrument, capable of generating rights and obligations for every citizen in the Community. Regulations have supremacy over all domestic law".

I suppose that there is nobody in this House, however undemocratic it may appear to some, who has a good word to say for the legislative process of the Community. Even those who favour the ends must deprecate the means. If the nation endorses our membership, a political corrective mechanism must be sought, but that thought is for another day. Today I move the Motion on behalf of the Sub-Committee of the European Communities Select Committee, the Sub-Committee which covers finance, economics, regional policy and institutions.

I move the Motion, first to draw noble Lords' attention to the Fourth Report of the previous Committee which was published last July (because when the Motion was tabled no other Report was available) for the reasons given in paragraphs 2 and 4 of the Twelth Report— to which additionally I draw the attention of noble Lords—which was prepared following the publication last week of the Government's most recent Explanatory Memorandum. Helpful evidence was heard from the noble Lord, Lord Goronwy-Roberts, and from the Confederation of British Industry, and that evidence will be published. Praiseworthy efforts by the Committee's staff enabled the Report to be prepared in great haste and in time for today's debate.

I hope that the loss of momentum which has kept the Regional Development Fund in cold storage for over 12 months will not continue to be a recurring feature in the development of the Community's institutions and procedures. There are urgent and momentous decisions requiring to be taken in respect of the Community's economy, and especially in respect of closer convergence of economic policies. There are strains arising from the present "halfway house" economic and monetary situation—strains as between creditor and debtor states— which must be urgently examined and methods adopted to reduce them. Import controls, which have been suggested, would, in my opinion, be a most retrogade step and there would be clear advantages over them in alternative recycling methods.

I hope also that such measures as may be required to integrate more closely the member States' economies will not be negotiated in such conditions of secrecy as have surrounded, enveloped and concealed the negotiations over the Regional Development Fund. If noble Lords will turn to the second page of the Explanatory Memorandum they will find these words in paragraph 3: Revised texts of the Draft Fund Regulation representing the situation at the beginning of February 1975 are attached. They are subject to further amendment in Council.

The amended texts as finally negotiated and agreed in the Working Party of the Council are unlikely to be seen or considered by Parliament or by the Select Committee until the agreement of the Council has led to the issue of the Regulation and made it legally binding. At that point it will be outside the Committee's terms of reference and too late for noble Lords to persuade the Minister that sections may be objectionable. The Committee have no information about the Articles remaining to be agreed and are unable to express an opinion about them. As no finally agreed texts are available, it will be for your Lordships to decide whether you are satisfied with the forecasts and the explanations which the noble Lord will give to you. The Committee could only report and express an opinion on the texts as published.

With your Lordships' permission, I should like to describe some of the salient features of the new Regulation. One significant feature of the Fund is that, while it broadly meets national requirements, it is primarily an instrument of Community policy. That policy is described in the first Article as: To correct the principal regional imbalances within the Community, resulting in particular from agricultural preponderance, industrial change and structural under-employment".

To achieve this Community objective, there was originally a draft decision by the Council on the creation of a Committee for Regional Policy, a proposal for a Council Regulation establishing a European Regional Development Fund, and a proposal for a Financial Regulation setting out the criteria and rules for operating the Fund. All these were dated August 1973. None would have required changes in United Kingdom legislation and all would, if agreed, have had the force of law.

Additionally, there was a proposed Regulation, dated November 1973, listing the regions eligible for aid from the Fund. It contained also a map. The eligible areas were established by a formula which took into account such matters as the percentage of population employed in agriculture higher than the Community average, a gross domestic product and a percentage of the working population engaged in industry lower than the Community average. All these proposals have now been withdrawn and replaced or merged in a single draft Regulation. A number of significant changes have been made. The discarded criteria for eligibility took account of regional imbalances, although the formula was so calculated as to give rise to widely drawn areas. I have been told that something like half of the geographical area of the Community was previously eligible for regional aid.

Following the decision of the Heads of State in Paris in November, only three countries are now to be net beneficiaries of the Fund—namely, Italy, Ireland and the United Kingdom—after taking into account all the member States' contributions to the Fund. The new Regulation considerably narrows the eligible areas to those which quality for national regional aid and, although the United Kingdom benefits from about 28 per cent. of the Fund, in cash terms the commitment appropriation is very small, being only about 4 per cent. of the total national regional aid.

Despite this limitation, the Committee regard the establishment of the Fund as a welcome first step; welcome, even if it is only one step on the road towards reaching the Community's objective—to correct those imbalances of wealth, productivity and growth which separate the Mezzo Giorno from metropolitan Paris or Rhondda from the Ruhr; welcome, a1 though it represents only a recycling of about 2½ per cent. of the surpluses which are accumulating as a result of the expenditures by the debtor nations, and at the expense of the debtor nations in the creditor nations' balances. The amendments negotiated by the Government have also brought the Fund broadly into line with national regional policies.

It would be unreasonable to expect complete conformity, since the Commission has to look at the Community as a whole and national regional aid policies, while similar, reflect the differing problems of the individual member States. There are proposals to co-ordinate these at Community level, and I understand that the negotiations are still in progress in the working party of Council. Since the Regional Development Fund established by the Community, and national regional aid policies co-ordinated by the Community are related subjects, although treated separately for the purposes of negotiation and Community legislation, the noble Lord, Lord Goronwy-Roberts, might care to consider whether there is anything he can usefully tell this House, however briefly, on the progress of those further negotiations.

Lord OGMORE

My Lords, while thanking the noble Earl for his interesting Report on this subject, may I ask whether he can give us any indication of the amount that is likely to come to the hill areas of Wales, Scotland and England as a result of the proposals of the Commission?

The Earl of DUDLEY

My Lords, in my opinion, the relevant Article is not very clear and this is one of the matters on which I think the noble Lord, Lord Goronwy-Roberts, might give us a more full explanation. To my recollection, the Article states that these are to be treated in the same way as aid for public authorities for infrastructure investments. But it is not clear how the investment should be allocated between the public authorities and the hill farming areas.

The Committee are in broad agreement with the Articles of the Regulation, as revised, subject to one or two qualifications. There have been three policy areas in which the Committee heard evidence that the Government have found it necessary to hold firm to points of principle in their negotiation with the Community. The first concerns one of the main criteria for satisfying the eligibility of individual applications within a specified regional aid area. The preamble to the proposed Regulation stated: Whereas Regional Development requires on the one hand investment for industrial and service activities, so as to ensure the creation or maintenance of employment. Article 6, 2(a) of the Financial Regulation laid down that requests for aid should include information about the effect of the investment on employment. And Article 5, 1(b) of the Regulation specified that the Fund's assistance shall be decided by the Commission, taking into account the investment's contribution to creating or maintaining jobs.

The Committee was informed that by tradition the effect of national regional aid on jobs has not been one of the criteria by which its applications have been made in the United Kingdom; that the Government have considered it a matter of principle for the criteria for eligibility broadly to conform to national policy in this respect, and that the previous Regulation was too widely drawn. Article 4, l(a) of the new Regulation now reads: The fund may contribute to financing of investments individually exceeding fifty thousand units of account, provided that at least ten new jobs are created or that existing jobs are maintained. Preference shall be given to operations which both maintain existing jobs and create new jobs. Additionally, Article 4, 2(a) makes the important new qualification that contributions from the Fund are limited to that part of the investment which does not exceed one hundred thousand units of account (that is, dollars) per job created, and fifty thousand dollars per job maintained in being. I think it would be helpful if the noble Lord could clarify Government policy towards this aspect of the Fund's operations; and, also, why the qualification has been made regarding maximum levels of investment per job, and the reasons for the choice of those particular levels.

Secondly, it was clearly the original intention of the Commission that the Regional Development Fund should complement national aid. The preamble to the former Regulation stated: Whereas the Fund's assistance should not lead Member States to reduce their own total regional development efforts, but should be complementary". In the revised Regulation the preamble has been dropped and Article 4, 2(a) states: The contribution from the Fund thus defined may, pursuant to a prior decision of the Member State concerned communicated at the same time as the request for this contribution, either supplement aid granted to the relevant investment by Public Authorities or remain credited to those Authorities and considered as partial repayment of such aid". My Lords, this change raises a number of important considerations. I shall mention one only, leaving the rest of the field open to noble Lords. I should like to invite noble Lords to consider how the Commission would assess the interest of an investment applied for by an industrial undertaking as defined in Article 4, l(a) where the aid would be complementary to national aid, as compared with infrastructure finance applied for by a public authority where the member-State had decided to consider the finance as a partial repayment of a national aid previously granted to the authority.

Article 8, (i) lays down that the Government shall provide information to assist the Commission, and Article 8, 3(b) states that it shall express an opinion as to the total which should be granted to either undertaking. In the circumstances described, and especially if there were limitations upon the amount of aid available from the Fund, what information would the Government provide, what opinion would it express? Would there not be a temptation for Her Majesty's Government, prompted by the Treasury, to favour the public authority at the expense of the industrial undertaking? And to what extent would the Commission, which has the last word, take a detached view? I think it not unreasonable in view of these important issues to ask the noble Lord, the Under-Secretary of State, to peer a little into the future and tell noble Lords how he foresees these matters being resolved. Thirdly, it would be helpful to have more information about the national priority areas which arc to be favoured as laid down in Article 3.

Article 6 stresses that the degree of the development of the economic and social situation of these priority regions is to be indicated in the regional development programme, and all useful information about them provided periodically to the Commission. What are those areas? By what criteria are they to be established? As yet we have no information about the policy of the Government in this matter. I should like to ask to what extent the information may as yet be available to the noble Lord. If he is unable to give details of the texts remaining to be agreed, or amendments to the texts which Her Majesty's Government or the Commission propose, I think the House is entitled to ask the noble Lord at least to give a reason for his inability to speak.

My Lords, the main and far more complicated renegotiations involving the corrective mechanism have been successfully concluded, and the Government can take full credit for that. Negotiations over the Regional Development Fund linger on. Information given to me last week at the European Parliament indicated that there was hard bargaining between the Government and the Commission over the provisions of the Regulation. Could the noble Lord tell us what the difficulties are? It is for the House, not for me, to form judgments, although it is within the terms of reference of the Committees to express an opinion on this. We cannot express opinions, and noble Lords cannot form judgments or attempt to influence the Minister unless we are given the facts on which to comment and on which to judge, to influence.

My Lords, the Report also invites noble Lords to consider how far the EEC and national regional aid policies are compatible. The Committee agree that it is advantageous for Her Majesty's Government to administer the United Kingdom's share of the Fund, and that it is inevitable that the Commission will wish to reserve the right of supervision and approval of expenditure, to have the last word on the disbursement of the Fund. Provided that Ministers take the view that the Community aid gives an added dimension to national aid—to coin the expression used by the French Foreign Minister yesterday—there is no reason why the two policies should not complement each other. But I confess to misgivings about reimbursement, and hope the United Kingdom will not find it either appropriate or desirable to exercise that option at any time.

My Lords, the views expressed by the Commissioner to the Maybray-King Committee reveal him as being a strong advocate for increased powers for the European Parliament. Given his views, I recommend those who are Members of the European Parliament to consider whether they are satisfied with the degree of consultation which has been sought from the Parliament by the Council in respect of the revised Regulation. I believe they will find it has been unsatisfactory, and that they will be well advised to examine the procedures whereby discussions can take place in the Working Party of the Council, for months and even years on end, and amendments agreed which fundamentally alter the character of the proposals of the Commission without the European Parliament being consulted at that stage.

There may be some who, for one reason or another, perhaps fearful of interference by the Commission in our affairs, regard the Regional Development Fund as a sow's ear. I regard it as a silk purse which will bring tangible benefits to the underdeveloped or declining regions of this country, and of the Community. I hope the nation will decide to remain in a position to enjoy the benefits. I wish the Government well in these and other negotiations with the Community. I beg to move.

Moved, That this House takes note of the Fourth Report of the European Communities Committee (Session 1974) and the Twelfth Report (Session 1974–75) on the proposed EEC Regional Development Fund (R/2055/73 and R/2474/73).— (The Earl of Dudley.)

5.4 p.m.

Lord CAMPBELL of CROY

My Lords, I am sure we are grateful to my noble friend Lord Dudley for the clarity with which he has presented the 12th Report of the Committee, and also for the speed with which he and the Sub-Committee have had to operate in the last few days, because the Government's Memorandum from the Foreign and Commonwealth Office was produced only on 18th February last, with the draft of the Regulation in its new form, much changed from what had been considered in the past. I look forward to hearing from the noble Lord, Lord Goronwy-Roberts, at the end of the debate, and to his replies to some of the points raised by my noble friend.

In thanking my noble friend Lord Dudley for the speed with which he has operated, may I say that now that the main points have been settled concerning the Regional Development Fund, I welcome the swiftness in preparing the Regulation and having it considered. I also welcome the fact that even though this is now happening so quickly, the Council of Ministers will be considering it on Monday and Tuesday. It is nearly two and a half years since the idea of a Regional Development Fund was adopted in principle at the Paris Summit Meeting in October 1972. The British Government at that time were in favour of a fund, and considered it would be a useful activity for the Community. They also considered that it would be of special interest to the United Kingdom, where we have a need for the injection of new projects in some of our industrial areas. As I understand it, the Government of today have also recognised this need.

Now that the system and the amount for the first three years have been decided in principle, this could be a valuable new Community institution for Britain. A Fund will be a useful new institution but, of course, it is not essential in the EEC. Over the last two years, there have been grants and loans, most of them for the assisted areas in Britain, from the Coal and Steel Community, the Social Fund and the European Investment Bank. I will come back to this later. In future, the Fund can add to this activity by contributing to investment more directly in the special areas where regional development policies are needed.

My Lords, as my noble friend pointed out, the United Kingdom is one of the three countries which stand to benefit most from the Fund. Southern Italy and Ireland are likely to receive high proportions in aid in relation to their populations. Their problems are more related to rural areas than to the industrial problems in Britain to which I have referred. This has been so for other members of the EEC also. Their regional problems have largely been concerned with agricultural areas. There is a major difference in our case in that we have to consider the regeneration of certain old industrial areas, and not simply the problems of agricultural areas where modernisation means unemployment. I am glad to note that both the industrial and the agricultural problems now seem to be recognised in the new Directive.

Before commenting on particular points in the scheme, we should consider it within the Community setting. Some of the main purposes of the Community are being fulfilled, particularly the removing of the barriers to trade within the Nine, including differing regulations, resulting in an immense market for goods within the Community, now responsible for 40 per cent. of world trade. Also, instead of individual, unco-ordinated policies which could have the effect of cancelling out or militating against the policies of neighbours, it is now possible to devise, after full and very often very long discussions, common policies and attitudes which carry much more influence in the world than if there had been several separate policies. And again, in a world where some important industrial and technological projects can only be undertaken on a continental scale, because of the enormous cost of the investment involved, the Community provides the framework needed for such schemes. The objective behind these purposes is higher living standards for everyone living in the Community than would otherwise be the case. To harness all the available resources and carry out the social purposes of the Community, including sharing such higher living standards, a programme is needed to even out imbalances which exist between regions. The Fund can play the main part, I believe, in this.

I mentioned that in the last two years, before this Fund has been set up and while Britain has been a member of the Community, a considerable amount has been done by the three institutions, the Coal and Steel Community, the Social Fund and the European Investment Bank. From the information which has been issued from time to time, I have calculated that such aid has already amounted to about £90 million in grants to Britain and about £200 million in loans. This is excluding the agriculture and food payments. It has not, as I have made clear, been restricted to the assisted areas, but the very large part of it has been in the assisted areas. And these activities are supplementary to the proposed investments by the Fund, which would, of course, all be in the assisted areas.

I think the House will find it helpful to be reminded of what the Community has been doing through these institutions in regional development in Britain. The Social Fund has been largely concerned with training and retraining, and about £50 million in grants has come from the Community for this purpose, a very high proportion of it in Scotland; it has accounted for about half the total public cost of training and retraining. Then the Coal and Steel Community has provided aid where redundancies have been caused, particularly by the need to modernise plant, and through the Investment Bank also, financial assistance has come forward for situations which have been of special concern to us. Considering different fields and looking at coalmining, I find that about £20 million in loans has come forward from the Community for particular projects, seven of them, and £4½ million in grants. I understand that there has been a loan of £18 million for a scheme for powered roof supports for mines in Britain. In the steel industry loans totalling over £80 million have been made, including investments at Ravens-craig in Scotland and Llanwern in Wales. In the electricity industry loans amount to £25 million, including the £10 million loan for the power station being built at Peterhead. In North Sea oil and gas loans have totalled £14 million and grants £3 million. A significant measure of regional development has been loans to the Industrial and Commercial Finance Corporation (the ICFC), which lends money in turn, particularly to small and medium sized businesses in the assisted areas. This has amounted to £13½ million.

To these Community measures, which are the solid work that has been happening in the? last two years, can now be added this new scheme involving the Fund. I am glad that the question of eligible areas has now been simplified with the acceptance of the assisted areas as delineated by the members. I should like to ask: is it left to the individual countries, the members, to decide on any future changes and are there to be any rules about this? In theory, it would be possible for a country to spread its assisted areas over most of its area, whereas the purpose of the Fund is to concentrate help on the special areas which need assistance It could be that it has been left to the members and that the control is to be exercised by the percentages decided upon by the Council of Ministers. If the Minister could reply to this, I should like to hear what the method of control is to be. For example, the United Kingdom is to be allotted 28 per cent.—about £150 million—over the next three years of the amount agreed upon for the first three years. Is that to be the only control, and will it be left to members to decide which are to be the assisted areas?

We then come to the eligibility of projects. Under Article 4 the projects have to be related to employment created or maintained, and this raises two questions which particularly concern Britain. First, does this involve the acceptability of certain methods of regional development? We know that certain methods of assistance to industry, whether in the assisted areas or not, are under consideration as part of the competition policy to be decided by the Community, an area where M. Borschette is the Commissioner responsible, and not Mr. George Thomson who is concerned with regional policy. The creation of this Fund and the formulation of a system to govern it is not, we understand, part of the renegotiation which Britain is carrying out with the Community; we were told this at the Sub-Committee last Thursday.

Certainly, the idea of the proposals of the Regional Development Fund has come forward since Britain joined, but I understand that the acceptance of rules under the competition policy is still under discussion between the United Kingdom and the Community, on questions, for example, of members' discretion to choose their own methods of assistance to industry; and this in turn affects, I believe, the regional employment premium as a method in this country. But I think we should put this in perspective, because this is the kind of matter which has been investigated between countries, whether or not they were members of the Community, in the past. If one country is worried that another country has a hidden export subsidy or is dumping goods on someone else's market, those are matters which are investigated between one country and another.

As a professional diplomat, I can certainly recall cases in the past where we— and I myself have been involved—have had to take up on behalf of British manufatcurers charges, for example, that large tax rebates were being given on certain products which were considerably more than the tax that had ever been paid on them. The subsidy seemed to us to be much more related to the difficulties of the industry concerned and the un-employment in the development area where it was located, rather than to the amount of tax that it had paid. Therefore, this has been a general question of whether aid to industry should be given by what are known as transparent methods, or whether aid should be given in some indirect and hardly recognisable form.

Then we come to the second question which is raised; that is, whether our regional development grants, which are not conditional on the creation or maintenance of jobs, would be eligible under the Fund scheme. The principle which has been adopted in Britain, in the way in which these grants have been given, is that there are some projects which are pump-priming projects in development areas, but which will not themselves provide additional jobs or maintain existing ones. But we also, of course, need to have the major new projects in those areas which will create new jobs and diversify the industry of the area.

This is especially true where, for example, modernisation of the steel industry means investment, resulting very often in an increase in the production of steel but considerably less employment because of the higher productivity. In those cases, it is important that there should also be completely new projects —perhaps the manufacture of goods which have not been manufactured at all in the area—in order to provide jobs for those who have to be trained for the new work, but do not have to leave the area or become unemployed.

It has been fashionable to denigrate our regional development policies in Britain over recent years, by saying that they have not achieved very much. But while not defending them completely, I would say that they have maintained numbers of jobs in our assisted areas; and that unemployment would have been a great deal worse if the regional policies had not existed. But I believe they could have been made more attractive to industry and more successful if there had been fewer changes in the methods every two years or so. This would have enabled firms to make their plans ahead and invest more confidently. I hope the lesson will be learned in the way that the fund is operated in future.

In addition to the points which my noble friend has put, I should like to ask whether it is the Government's intention to concentrate assistance from the Fund —that means the application from Britain to the Commission—to those new projects which I have mentioned bringing additional jobs because of the criteria in Article 4, unless those criteria are changed by agreement at the meeting next week. Was this the reason for the stalling by the British Minister of State, Mr. Hattersley, at the meeting on 11th February? I note that the Foreign and Commonwealth Office have now taken over this subject from the Department of Industry who were until recently providing the memoranda for the Committee. Does this mean that the Foreign and Commonwealth Office are now taking responsibility for this subject as a whole? I note that the noble Lord, Lord Goronwy-Roberts, is himself replying to the debate.

I believe we are fortunate in that the Commissioner for Regional Policy in the Commission is Mr. George Thomson. He is familiar with regional problems and has made it clear that he is in favour of a Fund, and that that Fund can play an important role. Besides having been the Minister engaged in negotiations up till June 1970—I think I am right in saying that he stated in the following year, 1971, that the terms achieved had been as good as he could have expected at that time—I believe that he now knows not only our problems but the problems elsewhere in the Community and is admirably qualified to run this proposed scheme. We now have an opportunity to build a new institution, probably of more importance to us in Britain than to any other member of the Community, with the possible exception of Italy. I hope that the Government, with the other members of the Community, will enable this scheme to be launched on the lines now suggested. I also hope that it will prove after three years to have been a satisfactory scheme, and that it will then be renewed with more ambitious amounts of money then available to the Fund.

5.23 p.m.

Lord BANKS

My Lords, I have listened with very great interest to the speeches of the noble Earl, Lord Dudley, and the noble Lord, Lord Campbell of Croy, and in following them I should like to speak briefly. I welcome very warmly the establishment at last of the Regional Development Fund. I am glad that it has been agreed in principle in Paris in December, and likely to be agreed in detail in Dublin next week. I think the important tiling is that the Fund has actually been established. This is more important and of greater significance at the moment than the actual amount of money involved, so we can take satisfaction from the fact, which has already been referred to, that Britain is a net gainer along with Italy and Ireland.

As I understand it, some £30 million have been allocated to this country in the first year, although it may not all be disbursed in the first year, and some £50 million in the two succeeding years. This is a modest amount when matched against the £500 million which is spent nationally on regional assistance, but it is another positive gain from British membership of the Community. As the noble Lord, Lord Campbell of Croy, pointed out, it has to be seen alongside the other assistance which is received from the Community from the social fund and in other ways. As he pointed out, the total up to date in loans and grants is in the region of something like £290 million, and according to Mr. George Thomson £100 million went to the North of England between January 1973 and September 1974. So the Regional Development Fund is not the total of the EEC regional assistance but it is clearly going to be an important element in the overall strategy which will be supervised by the new Regional Policy Committee of the Community. I hope that in time the Regional Development Fund will become the main instrument of regional policy throughout the Community and gradually supersede national policies.

I should like if I may to raise three points in connection with the draft Regulation. In Article 4, which deals with qualifying projects, we find that the qualifying projects include investments in infrastructure directly linked with the development of industrial handicraft, or services investment. I am worried as to how narrowly that might be interpreted. After all, regional development is not only about jobs, very important though this is. It is about infrastructure, about environment, education, even perhaps about culture, and about the whole quality of life. Therefore I should not like to see too narrow an interpretation of the words "directly linked". Secondly, a national Government in applying for aid have two options. They may seek aid either to supplement existing aid or to reimburse the cost of national aid. I wonder whether there is not the danger, so long as Governments can secure aid to reimburse national aid, that the amount of new investment which occurs as a result of the operation of the Fund will be considerably restricted.

My third point is this: all applications for aid will be selected and forwarded by national Governments. What we require to know is the criteria which the Government intend to adopt for the selection of projects and also what part will Scotland, Wales and the regions of England play in the selection process. What role, if any, will be given to the new Assemblies for Scotland and Wales and to the regional planning councils? The operation of the Fund in each country is to be jointly audited by Community and national representatives. Is it envisaged in this country that specific representatives from Scotland, Wales and the regions of England will be included in this work? We have had the unhappy experience of seeing applications from South Wales for grants from the special fund for research projects blocked at the Ministry of Industry. Finally, a word about the aim of the Fund. Article 1 of the Draft Regulation says that the Fund is intended to correct the principal regional imbalances within the Community resulting in particular from agricultural preponderance, industrial change and structural under-employment. The sum at present involved will not correct these imbalances. It will help to modify them but it will not not correct them. To achieve the aim of correction a much greater shift of resources will be necessary. It seems that a shift of this kind is unlikely until significant progress is made towards economic, monetary and political union. Until there is greater integration, nations required to foot the bill will, not unnaturally, jib at paying out more and the whole exercise will be seen in terms of net gainer or net loser so far as each country is concerned. I think it is fair to say that in this country we have only argued about whether Scotland is a net gainer or a net loser from United Kingdom membership when the possibility of complete Scottish independence has been raised.

In the administration of the Regional Development Fund we want to get to the point where need is the sole criteria. But it seems to me that we are unlikely to do so until we are much nearer in the Community to the kind of economic and monetary union which we have in the United Kingdom. In those circumstances, the Regional Development Fund could become the main instrument of regional policy, but with the regions themselves playing an important role in the operation of the policy.

It may be said that this is a long way off, and I agree, but it is important to have the goal in mind. It is important to see the direction in which we are going. I am glad to see that in Article 6 there is a reference to monetary union which makes it clear that this remains the long-term objective. May I say in conclusion that this modest start with the Regional Development Fund is nevertheless highly significant for the future, and warmly to be welcomed.

5.31 p.m.

The PARLIAMENTARY UNDER-SECRETARY of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord GORONWY-ROBERTS)

My Lords, I am sure that the House will feel indebted to the noble Earl, Lord Dudley, for introducing this debate in such an informed and balanced way. I would hope to try to explain to Members where we have got to with respect to the Regional Development Fund, and attempt to let them know the likely immediate course of events. This debate has been arranged at short notice so that there will be an opportunity for Members of this House—and later this week Members of another place—to make their views known to the Government and to Ministers who will be engaged on 3rd and 4th March with the closing stages of the negotiations for the establishment of this Fund. The Government will certainly take the views of this House, and of another place, very seriously into account in deciding what position to adopt in the forthcoming negotiations in Brussels.

The decision to establish a Regional Development Fund was taken by EEC Heads of Government at their meeting in December. Of course it has a much longer history than that, but the decisive step was taken last December. That was not the beginning of the Fund. The establishment of a Fund has been one of the explicit purposes of the EEC, to ensure the harmonious developments of the economies of member countries by "reducing differences existing between the various regions and the backwardness of the less favoured." This was originally, and for some time, linked with the question of economic and monetary union, as the noble Lord, Lord Banks, reminded us, and the fact that that objective has now been somewhat postponed, for quite sound reasons, should not lead us away from the ultimate objective of harmony not only in regard to developmental programmes of this sort, but necessarily at some time, when it is feasible, of economic and monetary policy within the Community.

Discussion of a Fund was taking place at least as early as 1971. It was one of the objectives of the Summit Meeting of October 1972. But there was disagreement on the size and distribution of the Fund; the discussions came to nothing, and by 1973 there was dead-lock. It was in the summer of 1974 that a renewed series of bilateral discussions between the Commission and various member countries led to agreement to set up a Fund, although on a scale considerably smaller than had been originally proposed. From these discussions last year it emerged that any Fund that would be generally acceptable would have initially to be of limited duration and size—in this case three years and confined to some 1,300 million units of account—and also that it should be concentrated on the areas of greatest need within the Community. In the final run-up to the December Summit the Governments of Ireland and Italy, the two major prospective beneficiaries, were particularly keen to see agreement, and the United Kingdom also was in favour of a Fund.

The total sum, as we know, allocated to the Fund is 1,300 million units of account over three; years. This is not a great deal for the whole Community— about £550 million—of which we are allocated 27.8 per cent., some £150 million, over a period of three years or more because the process of appropriation and payment, as noble Lords will know, may extend beyond the actual period of the duration of the Fund in its implementation. Its consequential payments may continue even if it so happens that it stops as a Fund at the end of three years. That is on a gross basis.

The Fund will get its money through the budget, to which we contribute. Noble Lords will be familiar with the key whereby for the next three, four and five years we have been able to calculate with a fair exactitude what our own contribution to the budget of the Community will be. It is from that budget that the Fund will be funded. It is not possible to give an exact figure for the net receipts to this country from the Fund: that will depend on the rate of payments, which, as I have said, will continue for several years after the money is allocated to projects. But this net figure could be as much as £60 million; not falling in exact proportions in each of the three or four years of payments out, but it helps to think of it in terms of a net receipt to this country of £20 million per annum.

This is not much when one compares it with the £500 million which this country spends each year on assistance to industry, and aid to infrastructure provided by this country from its own resources is additional to that. But, as the noble Earl pointed out, and succeeding speakers agreed, it could be a useful adjunct 1o our regional policy, with a modest transfer of funds to this country from the Community.

It is perhaps only a start. While the Fund has been established, money is allocated to it for only the first three years. But it is likely to continue, and it may grow in size in future years. I put it in that way because that is about the size and prospect of it, and it is well that we should not over-emphasise either in quantity or in prospect what we are discussing today. But I also put it because it provides for continuing scrutiny—if I may use the term as a term of art—even after the decisions, if it is found possible to come to final decisions on the 3rd and 4th March. It is, after all, of limited duration. It is perfectly possible to set up this Fund and then to look at it and see how it should be developed. Should it be changed? Should it be continued? If so, on what basis? If the United Kingdom remains in the Community, the Fund should continue to be of some assistance to this country in solving its regional problems and contributing in a material way to the aims of the Community. The decision taken at the Summit last December was one of principle. It was left to the Council machinery to establish a suitable Regulation for the Fund's activities. There was, however, the clearest will for an early decision on outstanding points. The noble Lord has mentioned the question of momentum. We have seen how momentum was lost between 1971 and late 1974. If we are to make a start on this immensely significant and potentially valuable exercise in international co-operation and mutual help, then we must be careful not to lose this momentum once more.

The Paper which Her Majesty's Government assembled, in their efforts to assist the Scrutiny Committee in the House to consider this question, represents a very far-reaching agreement among the Nine; so that when they go to the meeting on the 3rd and 4th March, there is high expectation that there will be final agreement resolving—one would hope and, indeed, expect—the reservations expressed by noble Lords, which I hope to deal with more specifically before the end of my speech. There was a clear will to recapture momentum, and to set up a Fund, even if limiting the period of operation in the first instance and the amount of money which it would dispense. We shared that determination, making clear that we should need to ensure that our own requirements were met. Some of the most important requirements have been mentioned by the noble Lords who have spoken. The Secretary of State made clear, also, that there would have to be time for a Parliamentary debate before the Regulation was passed.

The hope and intention of the Community is, however, that there will be agreement at the meeting on 3rd and 4th March on the text of a Regulation. The wish for speed is natural. Indeed, the Fund is due to operate from 1st January this year, and payments made after that date are eligible. But even when the Regulation is passed it will take time to collate and process applications and to release money from it. The wish for speedy conclusion to the discussion of a Fund Regulation has meant that we have had to bring new Papers before the House at short notice. The Scrutiny Committees of both Houses have had before them the draft Regulations for the Fund for a long time. I am referring now to the original Papers which, of course, have been radically transformed and amended. As is clear from the remarks in the Committee Report to this House, the Community documents relate to the period before broad agreement on the Fund had been reached.

Obviously there have had to be some changes to meet the new circumstances of a smaller Fund. The number of documents under discussion in the Council has been reduced to a main Fund Regulation and a brief financial annex, plus a separate decision virtually un-changed from that of Document 2055 for a Regional Policy Committee, a point which was not raised today advisedly because we wanted to discuss the question of the Fund. The other documents, while still formally on the table, have been superseded. The changes in the main Fund Regulation are not as extensive as they might be. But, appreciating the problem which the House would have in considering earlier texts, my Department put together for the convenience of Members, and attached to the Explanatory Memorandum which was circulated last week, what I should describe as a representative text. This shows approximately the position just before the Council discussions earlier this month. It is authoritative in that it represents actual draft clauses from which the noble Earl quoted, as did others who followed him in the debate. But I should make clear that the text is issued on our authority rather than that of the Community. As we know from a more exalted plane, a conversion can be depended upon even if it is not actually the authorised version. So, in quoting from the document made available to the Sub-Committee, the noble Earl was quoting from what substantially will be before the Council next month. It is a consolidated version compiled for convenience. This, I must stress, is an unusual procedure on our part, and a precedent which, in view of the confidentiality of Council proceedings, we cannot undertake to follow on other occasions.

But the circumstances of the Fund are exceptional in that the basis of the Fund has changed since the issue of Document 2055, and exceptional circumstances demand exceptional treatment. We were anxious to provide for the Scrutiny Committee and for the House as up-to-date a paper as possible, and I think great credit is due to our officials for their exceptional and successful efforts to achieve this.

If one compares the Regulation, as it now stands, with its predecessor, the noticeable change is the replacement of what is commonly known as the "Thomson Map". This is an improvement from our point of view. Instead of the Fund picking and choosing among the areas which should be assisted, now all the assisted areas in the United Kingdom (development areas, special development areas, and indeed intermediate areas) are eligible for help from the Fund, naturally with priority given for the most needy. In British terms this priority means the development areas, special development areas and Northern Ireland. This is an important point, because it brings the Fund explicitly into line with our own development priorities. It also removes the unjustifiable distinction previously accorded to Barrow-in-Furness of being alone among our assisted areas in not qualifying for assistance under the Fund.

All assisted areas coming within British policy as we have known it for many years now are eligible—with proper priorities, of course—for assistance under this Fund. With the allocation of 27.8 per cent of the Fund to the United Kingdom —which was in itself controversial—one may conclude that the regional problems of the United Kingdom, which are largely industrial rather than agricultural, have been recognised by the rest of the Community. Indeed, I should say that a major change—as between the previous proposals with which we were familiar and the proposals which we have had an opportunity of discussing today—is that, in deference to a specific British need, the emphasis has been broadened so as to include industrial problems which, after all, are perhaps more serious and more widespread in this country than in other countries which are members of the Community.

The Regulation is not yet finalised. There remain points for negotiation and, as is usual, the hardest are left to the last. Frankly, I do not think that there are many points of serious difficulty confronting us at the forthcoming Council meeting. There is, perhaps, one major issue outstanding and the noble Earl referred to it: the aim of the Fund is explicitly to assist investment and, in doing so, to create or maintain jobs. We do not dispute this aim, which is, after all, central to our own regional policy. We do, however, have some difficulty in demonstrating in individual cases—here I take up the point made by the noble Lord, Lord Campbell of Cray—the effect on employment of certain of our aids. This applies particularly to regional development grants which are available for assisting capital investment and which are paid on proof of expenditure with the minimum administrative complication and without test of employment effect. We know that they have an effect on employment, but that is not the first requirement before we extend our own regional aid to an industry in a development area. While we are convinced of the benefit of this aid, we are not in every case, readily able to supply the necessary information to the Fund authorities. Nevertheless, there is now, I believe, a measure of agreement in the Community that regional development grants should be eligible for inclusion in The Fund. There is no question of our agreeing to their exclusion, and that is what I meant when I said that there was perhaps one major point still unresolved which we regarded as of very considerable importance to this country.

The question at issue is the inclusion of regional development grants in the operations of the Fund on the same terms as we include those grants within the ambit of cur own national policy. As we see it, so long as the aid conforms to the general purposes of the Fund, we do not consider that it is part of the Fund's purpose to dictate to member countries the kind of aid that should be eligible; nor do we wish to see elaborate new administrative machinery established to deal with what will be a flow of aid proportionately small in comparison with our existing regional assistance efforts. However, if these points are taken by the rest of the Community, then it is simply a matter of finding a practical means of satisfying the Fund management, in terms of the Article which has been quoted, about what has come to be known as the "job link", and at the same time squaring it with the perfectly practical method by which we extend aid through the regional development grants in our own system. At the end of the day, we do, of course, actually hope for as high a job link as possible.

My Lords, I very much hope and, indeed, expect that a reasonable solution will be found for this difficulty. Among our aids to investment it is only in the case of the regional development grants that any difficulty has arisen. Everything else has proved negotiable—favourable or acceptable to us—and, while there are other matters that we shall need to raise at the Council meeting, we can fairly expect that, given the will already shown by members to set up a Fund and to operate it—granted within certain parameters and criteria, but still with the necessary flexibility—a Fund which is operable and equitable will emerge from next week's meeting.

My Lords, I should perhaps mention one point which may be in the minds of noble Lords. That is the establishment of the Fund as a piece of ongoing Community business. If our points are met, then we shall be glad to see it established and shall welcome the assistance it gives to the solution of our regional problem. If a reasonable administrative solution to the problem of, for instance, the RDGs is found, the fact that the Fund has been established will certainly not diminish our ability to implement our own regional policies. I am sure that this is central in all our minds. Will the establishment of this Fund in these terms in any way militate against or nullify the national regional aid programme with which we are familiar? The answer is, No. This brings me to an important point raised by the noble Earl and, I think, echoed by another noble Lord; that is, what happens to national regional aid programmes when the time comes to compare them from the point of view of competition, and to achieve a correlation and co-ordination of such programmes? That question does not form part of the question we are considering today.

We are concerned simply with the establishment of a Fund which can in no way jeopardise or call into question our existing national regional aid programme. Certainly, in due course, the Nine, who are already discussing the question of co-ordination, will have to take decisions and come to agreements. Indeed, such agreements, as we have heard this afternoon, have to be reached whatever the form of international co-operation for which one opts. Some noble Lords will remember that under EFTA arrangements this country had to co-operate with its EFTA partners in relation to quite substantial development schemes which we wished to see implemented in this country, one of them not very far from my own home.

Similarly, as we have heard tonight, co-ordination and correlation between countries as to what aid they offer—how far they are in opposition to agreed fair practices and how far they are disguised unfair subsidies or disguised protective tariffs—are not simply matters of Community arrangements. There are such things as countervailing duties applied to us by our friends—for example, by the United States—in relation to what we do in this country in certain industries and which they regard from time to time as questionable; and they take upon themselves the right to implement what they call countervailing policies. It would, therefore, be a great mistake to write off the possibility of a Regional Development Fund simply because it may, or will, lead to an agreed system of correlated and co-ordinated national regional aid policies. This is inevitable, I imagine, whatever relationship this country finally decides it should have with whatever group of countries and, indeed, on whatever terms.

The noble Earl, Lord Dudley, referred in this connection to what he called "acute argument" with the Commission over these terms. I hope I have said enough to indicate that the argument has not been about the terms of the Fund. It is an argument which has begun, and which I am sure will continue, as the general question of co-ordination becomes more and more imminent. As regards the Fund, there has been very little argument of the acute kind. Agreement has been reached on the bulk of the proposals governing this Fund, and there are a few issues which we will need to raise next month at the Council. But once the will was established there was no acute argument among countries, in the sense that we may expect quite acute arguments and very hard bargaining to develop in the discussion on co-ordination. I hope we will keep the two things separate, because they are really not related. This has nothing to do with co-ordination. That is a separate question which is already being discussed and one which will continue to be discussed until a coherent set of proposals is available which this House and another place will be able to consider.

The noble Earl asked whether the assisted areas will change. Any changes must reflect national needs and there is nothing to prevent us from adjusting our areas of need. The priorities in so doing will need to be looked at, and certainly by the time we come to the question of co-ordinating national policies within the Community, it will be in everybody's interest that the boundaries of areas of need have not been so drawn as to reduce the impact of whatever monies there may then be flowing annually into the Fund. The procedure for changes must therefore be related to co-ordination of regional aid, and that is for the future.

The noble Lord, Lord Campbell, raised the question of concentrating assistance on new projects in the light of Article 4. This is perfectly possible. He asked whether Her Majesty's Government would concentrate assistance on new projects. As I see it, they could do so; there is no exclusivity here. Old projects which yield new possibilities could figure in the list which the national Government put forward to the Fund management committee, and quite new projects would similarly, in relation to Article 4, figure in that list. It will be for the national Government to assemble applications and put them forward—perhaps the reactivation of old ones plus new projects— indicating whether one of the two options is preferable, and whether the topping up of expenditure is preferable in relation to a given project, or whether the principle of reimbursement is preferable. That will be for us as a country to decide.

The noble Lord, Lord Banks, asked how narrowly the Community—the Fund management committee in this case—will interpret Article 4 as to projects which will qualify, especially, as I understood his question, in relation to the important point of how directly linked infrastructure expenditure would be to what we might call industrial expenditure providing, it is hoped, new jobs. My answer is that I hope and expect it will not be too narrowly interpreted. The will to set up the Fund has bean accompanied by a general readiness to see how it operates, in the first instance over three years, with this amount of money, without being over-rigid about certain of the criteria such as those in Article 4 and, as we hopefully expect, about the interpretation of how regional development grants fit in. Thus, I think I can say in answer to the noble Lord that it will be interpreted not narrowly, but with reasonable flexibility, to see how it works. After all, this is a new thing, deliberately restricted to a fairly short period of three years, with not very much money. The intention is not to operate it so rigidly that no lessons for the future can be learned from it—and this is a point to be made and taken notice of by the Government as they approach the final negotiations.

I have dealt with the question of options. They are options for the national Government to decide in relation to each project as they think fit, after consulting their own nationals, their own organisations, public authorities and others. I was asked whether the Treasury would win the day as to how money will be paid when disbursement has been agreed. The Treasury is always with us. Speaking with some little experience by now of these matters, I think we can fairly put it in this way: the Fund operates; the national Government assemble the applications and, if necessary, accompany these with explanatory memoranda to show how they fit in with the quite legitimate criteria set out in the appropriate Articles. No Government are ever in Office for ever in this country; Governments succeed one another and policy in regard to how the net receipts are disposed of will necessarily vary. Here the views of the Treasury and other Departments and public authorities—in fact, a wide variety of views and, if you like, pressures—will have to be taken into account by the Government of the day.

I found the question about audit very interesting, in that it endeavoured to bring in the regions, and I link it with the point made by one noble Lord about what would be the regional entitlement within the United Kingdom. Of course, no one can say. The notional net benefit to this country is not likely to be more than £20 million a year during the period for which we are providing. Of that I estimate that about 9 per cent. will be FEOGA money—that is, "agricultural money" if you like to call it that. That is not the only component of it which will flow to the hill areas to which the noble Lord, Lord Ogmore, referred, nor indeed is it by any means the proportion that would necessarily flow to the most deprived areas. It is impossible to say to what extent various regions of the United Kingdom would benefit. We may be able to say during the course of the three year period—or possibly by the end of the three years—how it has worked; what impact the priorities have had on regions as well as on areas and districts. All we know is—and it can be stated as an absolute fact of Government policy—that the provision for the needs of our regions will continue regardless of the operation of this Fund. The £500 million will flow. The expectation of the £20 million will not affect that. For the next few years, subject to the necessary discussion among the Nine, or the Co-ordination as it is called, the policy we have been conducting, under successive Governments, of spending a substantial amount every year developing the regions—the most hard-hit regions— will continue. There is nothing here to imperil the future of that policy. That policy may be adjusted. The noble Lord said he hoped that the national policy might be superseded by the Community policy of aid. That may be, but it is only when we get down to that kind of discussion—subject of course to the views of Parliament here—that the present National Regional Aid policy will be within sight of being substantially changed, certainly of being supplanted.

I do not know whether I have answered most of the outstanding points which noble Lords raised, but I think I have dealt with the more important reservations which we all have regarding this rather novel departure in European co-operation. I wish to emphasise two things. First, by agreement, this is a modest provision, for a short period, in the first instance. Secondly, what has been said tonight, and what will be said in another place on the 27th, will be taken into account very fully by Her Majesty's Government when they move to the Council Meeting, where hopefully this very substantial measure of agreement about a Fund may be carried to finality. On that basis I think that this House, and indeed Parliament, might confidently and, I trust, hopefully, give a welcome to the Report of the Sub-Committee, which has, after examining certain difficulties, come out firmly in favour of the proposed Regional Development Fund.

6.16 p.m.

The Earl of DUDLEY

My Lords, I am most grateful to the noble Lords, Lord Campbell of Croy and Lord Banks, for the constructive and informed way in which they spoke to the Motion. Both noble Lords spoke from a wealth of experience and clearly with regional problems very much at heart. It is evident that their arguments impressed themselves forcefully on the noble Lord, Lord Goronwy-Roberts. I am sure they will join with me in saying how grateful we are to the noble Lord for the immense amount of trouble he has taken, and for the arguments and answers which he deployed in the course of his speech. I think it augurs well for the future of Scotland and Wales that the Foreign Office is taking such a close interest in regional aid and regional development. No doubt there is a lesson that we can draw from this development in the handling of regional problems. I was a little disappointed to learn that there were still difficulties in Council and in the negotiations, particularly over Article 4, but I was encouraged by the noble Lord's comment that he hoped, or fully expected, that a viable Fund would emerge from the negotiations.

The noble Lord mentioned that this was a Fund which could continue to be reviewed, even after agreement had been reached in Council. I think that this is sensible and indeed acceptable; but one's hopes are that the initiatives will come from the Commission, and that these reviews will not be conducted within the dungeons of the Council of Ministers, into which it is so difficult to penetrate. Looking to the future, would the noble Lord bear in mind that if these negotiations go on, as I have said, for months and years in Council, it will be very difficult for the Select Committee to do the work and carry out the duties which this House has asked it to perform.

Finally, my Lords, I wish to say that I was sad to hear from the noble Lord that EMU has been, as I think he put it, put back for what he described as sound reasons. I only hope that this does not mean that EMU is as dead as the Dodo. My Lords, I beg leave to withdraw the Motion.

Motion, by leave, withdrawn.