HL Deb 31 March 1977 vol 381 cc1053-64

3.31 p.m.

Lord COBBOLD rose to move, That this House takes note of the Thirteenth Report of this session of the European Communities Committee (H.L. 75) on the European Regional Development Fund. The noble Lord said: My Lords, I beg leave to introduce the Motion standing in my name on the Order Paper. The Commission published on 23rd June, 1976, a first annual report on the European Regional Development Fund, No. 724/75. It contains a factual account of the way that the Fund was administered in its first year of operation. The report also discusses policy issues which are of great interest to the United Kingdom. A new Commissioner, Signor Giolitti, has, since 6th January, 1977, been in charge of European regional policy. He will be primarily responsible for the preparation of the new proposals about the future of the Fund, which are expected to be considered by the Commission and within the Council of Ministers later this year.

Your Committee considers that this is an opportune moment to review the working of the Regional Fund to date and also to discuss questions about the future of EEC regional policy, in good time before decisions fall to be taken in the Commission and the Council.

Sitting concurrently, Sub-Committee II of the House of Commons Select Committee on European Secondary Legislation, et cetera, and Sub-Committee A of the House of Lords Select Committee on the European Communities received oral evidence from the Departments of Industry and the Environment, Scotland, Wales and Northern Ireland; the European Investment Bank; the Highlands and Islands Development Board; and Mr. Evans, Chairman of the European Parliament Committee on Regional Policy. They also received written evidence from a number of sources, including the CBI and the TUC, and other interested bodies and individuals. Dr. Helen Wallace's intended oral evidence had to be submitted in writing, owing to a train accident and train delays. The evidence, both written and oral, is printed with the report. In addition, the sub-committees have been greatly assisted in their deliberations by Lord Thomson, until recently the EEC Commissioner responsible for regional policy, and by Dr. Rugiero, the then Director-General concerned. I am very sorry that in the end Lord Thomson was unable to speak today. He had hoped to do so but he had other urgent public duties.

This has been the third occasion upon which the sub-committees of the two Houses have met concurrently to consider matters relating to scrutiny of Commission proposals. If I may express a personal view, though I believe that it is generally shared by my colleagues, the experiment of the two sub-committees sitting concurrently has been very rewarding. It saves the time of witnesses and Parliamentary staff; it avoids a great deal of duplication; and we have found the somewhat different approach very helpful. The terms of reference and the practice of the two sub-committees differ and the reports made by the two Select Committees need not be identical, the practice of this House being to go in more depth into detail and recommendations. The fact that the two reports are, on this occasion, not identical, though they are in no way contradictory, does not, in my view, invalidate the usefulness of the "concurrent" exercise.

As chairman of the concurrent sessions, I should like to say how much I and other Members of Sub-Committee A of this House appreciated the contributions made by Members of another place, particularly by the chairmen of their Select Committee and Sub-Committee, Sir John Eden and Mr. John Roper. Without that contribution, the report which we are considering today would have been much less thorough than I hope your Lordships will find it. I should also like to express warm thanks to all who helped in the preparation of the report: members of Sub-Committee A, witnesses, our very well informed specialist adviser, Mr. Rhodes, and the Parliamentary staff of both Houses.

Before turning to the main conclusions of the report, I should like to add that Sir John Eden and I had the pleasure a few weeks ago of an informal meeting with Signor Giolitti, the new Commissioner concerned, and explaining to him the nature of the Scrutiny Committees and also some of our general conclusions. The House will be aware that in the allocation of duties in the new Commission, Signor Giolitti was, unlike his predecessor, entrusted with rather wider responsibilities as regards other related matters, including the Social Fund.

The Regional Development Fund aims to contribute, along with other Community funds and national policies, to a reduction in regional imbalances and disparities. This means promoting a more rapid rate of economic growth in the economically backward regions of the Community and, in so doing, removing regional disparities in unemployment, investment, incomes and migration. With wide economic and social disparities in the regions of the Community, average incomes per capita are five times higher in the richest region than they are in the poorest.

It is laid down that Fund assistance must be co-ordinated with national regional aid programmes. As explained in paragraphs 14 and 15 of the report, assistance can be given, under slightly different arrangements, to both industrial projects and infrastructure projects; that is to say, to such things as road construction, drainage, water supply, et cetera. To be eligible for Fund assistance, projects must fall within the framework of regional development programmes prepared by Member States, and industrial projects must also be in receipt of national regional financial aid. Total assistance to such projects must not exceed the aid limits set by the Commission. Applications for grant may be submitted only by Member States. The Community then makes its choice from a selection of the projects already in receipt of public money.

In 1975, the net benefit to the United Kingdom, after taking account of United Kingdom contributions to the Community budget, could be valued at about 13.5 per cent. of the Fund. This proportion is declining as the United Kingdom contributions to the budget increase through the transitional entry period. By 1978, the net benefit to the United Kingdom is expected to be near 9 per cent. of the value of the Fund if the present quota continues. Detailed figures for the regional distribution of the United Kingdom allocation from the Fund are shown in Table 1 of the Department of Industry's written evidence. The net benefit of the Regional Fund to the United Kingdom could disappear altogether if further enlargement of the Community brought in mainly poorer States with large regional problems and this were to lead to substantial changes in the quotas which would be only partially matched by changes in budget contributions. However, the net benefit received by individual Member States should not necessarily be the overriding consideration.

The Fund is not permitted to lead Member States to reduce their own regional programmes. On the contrary, the resources of the Fund must complement these efforts. This is the so-called "additionality" principle—an instance of Community jargon to which I shall return later. All Member States, including the United Kingdom, accept this principle but, for the reasons given in paragraphs 14 and 15 of the report, they are not in a position to show that it is, in practice, being completely observed.

The Regional Fund's contribution for both infrastructure and industrial projects in the United Kingdom amounts to only about 10 per cent. of domestic expenditure on regional aid to industrial projects alone. This proportion reduces to between 4 and 5 per cent. if net receipts from the Fund are considered rather than gross receipts.

I can briefly summarise as follows the main findings and conclusions set out in the report before your Lordships. In the light of the evidence which the Committee received, we felt that the Regional Fund had made a good start considering its very limited resources. The technical arrangements in Brussels are efficient and speedy. Largely because of limited resources, the Fund has not yet fulfilled the high hopes with which it was launched. The obvious problems include, first, a need for more co-ordination in Community policy in all its aspects on the subject of regional development. The new Commissioner's more general oversight over other funds, to which I have already referred, should be helpful from this point of view. The second point is the desirability of closer contact between the Commission and local authorities in the Member countries, though we felt that the Fund must continue to deal through national Governments and within national programmes.

Thirdly, there is the need to simplify the complicated problem of additionality, which would take too long to describe in this debate but which is discussed in some detail in paragraphs 14 to 17 of the Report. I shall just quote paragraph 17 and a little from paragraph 18. This is in somewhat lighter vein but I found it a convincing explanation of the problem. The problem of additionality was well illustrated by a member of one of the Sub-Committees. His birthday fell on Boxing Day and he often received one present at Christmas time from friends rather than two. He might speculate that had his birthday fallen in June he would have received two presents rather than one. But the value of the two hypothetical presents was not known in relation to the value of the one present actually received, not even by his friends, since the two presents were never actually purchased. The loss, if any, of having a birthday at Christmas could never be known. The situation is exactly the same with the Regional Fund. National governments cannot prove, and may not even know, what they would have spent in the regions had the Regional Fund not existed. With your Lordships' knowledge of his facility for making extremely shrewd remarks in lighter vein you may be able to identify the noble Viscount who has passed quite a number of unhappy Christmases!

My Lords, we felt that, to do any real good and to remove the unreal element in existing arrangements, the Fund should he considerably larger. We saw advantage in a review of the Fund on a one-year basis in 1977 and thereafter at three-yearly intervals. We commended extension of the already close co-operation with the European Investment Bank. Among other ideas mentioned was the possibility, admittedly not without its difficulties, of the European Investment Bank helping to cover exchange risks. We saw an important public relations question: it needs to be better known in the areas concerned that the Regional Development Fund is actually helping to complete a project. We were told of some cases in which a notice was put up saying, "This project is assisted by the Regional Development Fund". It is these problems to which the Committee felt that special attention should be given in the immediate future. The Committee concluded that regional policy was a valuable part of Community activities and that while one could not expect everything to be solved in the early years the Fund had great potential for encouraging Community cohesion.

The future development of the Regional Fund obviously depends to a large extent on the amount of Community budget funds available for the purpose and the proportion of such funds which the various Community bodies apply to the purpose. In this connection the recent debate in this House about the Common Agricultural Policy and green money, showing the heavy and increasing burden of monetary compensation amounts on the budget, is obviously relevant. Relevant, too, is the possibility of further accessions to the Community in the future, and the apparent probability that new Members might be countries with difficult regional problems. We considered any detailed discussion of these matters to be outside the scope of the present report.

If I may close with a personal view, it is this: as a strong supporter of the European Community, I always expected difficulties in the early years, particularly in economic matters. As a one-time practitioner in the monetary field I have never believed in monetary union, as opposed to close co-operation between monetary authorities, until a considerable degree of political and economic union has been achieved. To speak of a common currency or even of a common monetary policy without a large degree of fiscal and general economic harmonisation is a nonsense. But the aim of integration has always been, and remains, a long-term aim and, although some things have gone wrong, nobody should underrate the progress made. In my view, regional development is a concrete instance of where progress can and should be made towards the long-term aims. If a definite regional policy can become a more general part of Community thinking it is one way—and, in my judgment, an effective way—of moving in the direction of economic integration. I very much agree with recent comments by Mr. Jenkins that if the Community does not move steadily forward in that direction it will move backwards. It is with these general long-term and overall aims in mind that I commend this Report to the House. I beg to move.

Moved, That this House takes note of the Thirteenth Report of this session of the European Communities Committee (H.L. 75) on the European Regional Development Fund.—(Lord Cobbold.)

3.48 p.m.

Lord ELTON

My Lords, I must apologise at the outset to your Lordships for not being in the Chamber for the very first moments of this debate. This was due to the fact that my personal early warning system was not airborne as soon as might have been expected. In that perhaps I have something in common with the House.

My Lords, we must look at this in the context of the whole history of Europe and recall that the original motive for the foundation of the Communities was to bind the nations of Europe so closely together that never again could they drag themselves and each other, and with them the rest of mankind, into a world war. A regional policy is a corollary of that. The binding together of the nations makes nationalism impotent. The regional policy in fact dissolves it and makes it benign, and nationalism has fuelled so many wars and wrecked so many lives that if Europe succeeds in nothing else than in taming that, Europe will have been a success.

We should thank the noble Lord, Lord Cobbold, for the opportunity of this debate, and indeed his Committee for the considerable amount of very thorough and lucid work which they have done in making this report. It is in effect a report on a report, since it reviews a report upon which the European Parliaments Committee on regional policy, regional planning and transport in the person of M. Delmotte had already advanced its own report, which was in turn debated in the European Parliament on the 16th December. Therefore this ground has been examined in considerable detail over a fairly long period by a large number of experts.

It has the incidental peculiarity that although it is a review of the first three years of the operation of the Fund, in fact of course the Fund had been operative for only some five months when the report which this report looks at was written. It is a complex operation, if not a big one. The European Regional Development Fund disposes, as the noble Lord, Lord Cobbold, has said, of some 500 million units of account in a full year, which is only about £200 million for the whole region—a modest sum. In fact, Mr.—now, happily, the noble Lord, Lord Thomson—actually referred to it as a fig leaf, and one cannot get much more modest than that!

My Lords, if the subject is complex, I must apologise for my apparent and evident lack of expertise, but I think there are a number of practical considerations about which even a person with my naivety in these matters can make some useful comment. The aim of the Fund is to reduce the wide discrepancies between the wealth of the different regions. The United Kingdom will be, and is, a net beneficiary to the tune of 13.5 per cent. of the whole Fund, though this is not a very large proportion of our own regional policy allocation of funds. The intention of the Fund was that it should be a magnifier. This, I take it, was the intention behind the principle of additionality. Additionality meant, first, that the policy of the European Fund should follow and reinforce the policy of the national Government; secondly, that it should act as a means of increasing it, not only by the amount of the aid from the European Fund itself but also by the attraction of external investment funds in response to it.

The noble Lord, Lord Cobbold, quoted a splendid example of the difficulty of measuring its effect. I can only say that the House is fortunate that the noble Viscount, Lord Amory, did not have his birthday on leap year's day, when the difficulty would have been even more acute. But if the intention is to encourage investment, and hence employment in less developed areas, by adding to investment programmes already undertaken in the knowledge that such additional aid may become available, this does not happen in practice, because, first, Her Majesty's Government can make application only in respect of investment programmes that already exist; secondly, there is then no certainty that such application will be granted and aid given. The investor, therefore, whether in the public or private sector, must make his decision on the assumption that such additional aid may not be forthcoming. All these disincentives are common to all the countries in the Community to one degree or another. But especially in the United Kingdom it is apparent that, despite the really remarkably rapid response in cash to applications—and I think one must congratulate the noble Lord, Lord Thomson, as he now is, and those who helped him in Europe, on the bureaucratic efficiency with which this was done—it appears not to be possible for Her Majesty's Government to do other than make a full grant of the whole of the aid available on any project before recommending it for support from the European Fund. There may be specifically European administrative reasons for this, and I hope the noble Lord opposite will make these clear when he comes to reply.

Under the circumstances two factors then operate. First, the Community's own rules against topping up aid to any particular region above a prescribed limit that may already have been reached inhibit the addition of European aid to the aid programme which has been advanced for consideration for grant from the Fund. Secondly, there is an existing sharp restraint, and a very proper one, on Government expenditure. So the result is that Her Majesty's Government do not pass on specifically the subventions from the Fund to the projects which are to be aided, but merely take them, as a reimbursement of their own original grant, directly back into the Government pocket.

This process then does little to stimulate outside investment; since it cannot be counted on when the investment decision is being taken, it does nothing to make the intended beneficiaries aware of the effects of the Community's regional policy, and I use that phrase ill-advisedly, because, of course, as we shall see, there is no specific regional policy in the Community as yet, but there is an expression of it, among other functions, by the ERDF. This effect is hidden since the cheques never actually reach them in a recognisable European form. And it does very little indeed to stimulate our own Government to a more active stimulation of investment in the development areas, since the relationship between their own aid and European aid is tied to any particular project only by a simple book transaction carried out ex post facto. It does, it is true, result in a small net inflow of cash to our own development budgets, and in the form in which it is used for infrastructure programmes it results in a modest alleviation of the burden of rates borne by local and other authorities. But this is not additionality, and I believe additionality to be important, because it should result in more investment positively directed to where it is most needed.

I believe that two obstructions to this effect can be removed. The first is in the power of the European Commission and Parliament, and that is a change of the topping up regulation. There is to be a review of the ERDF regulation at the end of 1977, and I believe that this should be a first consideration when that is undertaken. Secondly, I think it is fair to note that, whereas there is a necessary very harsh constraint on the Government on expenditure of their funds, which are in fact our own taxes, where the money is available from other sources that constraint can be relaxed.

I believe that the process should be, first an application by an investor to Her Majesty's Government, and I am thinking principally, of course, of the private sector, but not only; secondly, a decision by Her Majesty's Government on their own grant aid; thirdly, an application by Her Majesty's Government to the ERD Committee for aid; fourthly, a decision by the ERD Committee on whether or not to grant aid from the Fund. Then that decision should be passed by Her Majesty's Government to the investor who should then be able to make his decision on whether or not to go ahead, knowing two things; first whether aid of both kinds is available, and, secondly, if European aid is available, then that should be paid to him or made available to him in addition to Her Majesty's Government's aid. This might marginally increase expenditure by Her Majesty's Government, but not from taxation, and it will help to reverse the present damaging trend of investors to keep away deliberately from depressed areas, as they will find better infrastructure elsewhere and cannot count on extra aid if they come to the depressed areas. The effects of this trend were very ably and sharply pointed out by the noble Lord, Lord Cobbold.

I should like, if I may, to direct your Lordships' attention also to the EEC Consultative Document associated with this Report, (the reference is R1611/76) where in Annexe III the first graph is an illustration of the relative changes in GDP per head expressed in units of account. I note only that in 1960, if the average throughout Europe is taken as 100, the United Kingdom index stood at 117 and that of Denmark at about 112. Today the Danish index has risen to 145, and ours has sunk to almost exactly half of that, to 72. In other words, only Italy and Ireland are below us in what you might call the wealth table, and expressed as a graph it is only too clear, if you extrapolate the current figures, we shall be below them before very long.

My Lords, the Fund is small. The policy in consequence must be weak, but its aims are absolutely vital. The report points out that the expansion of the Community now by the inclusion of other countries, other less developed countries, will dilute it even further, and I think that this should be very much in the minds of your Lordships and their representatives when it comes to considering current applications to expand the European Community. Both economically and, if I may so put it, in the realm of ideology we are not in a strong position to add to the size of the Community, since this will, I believe, dilute not merely the economic effects of the regional policy, from which we should be net beneficiaries, but also blow a very cold wind on the little plant which is beginning to grow up of a common and self-conscious European identity.

In paragraph 36 of the report the Committee sum up the choices open to Europe in the region of this policy. The first is to abandon it. The second is to extend it only by a year and keep it on probation. The third is to increase it substantially and to develop new aspects. I think that we must endorse that view, which is the Committee's view, which says that the third is the proper course. I think it is important that this should be done in the light of our own regional policy, which has to be notified to the Community under Article 6 by the end of this year.

I think it is important that when the Articles of Regulation of the Fund are reviewed after the end of this year we should consider two points. The first, as I have already said, is the removal of the limit on topping up at least to allow an increase above existing ceilings equivalent to the amount of the Fund's own subvention in any one region. The other, and more important, is that we should now consider setting up a structure of institutions for making and carrying out a policy which is truly regional throughout Europe. At present we have the ERDF, the European Development Bank, FEOGA and the Social Fund—a large number of not altogether integrated or co-operating funds, which have effects which are not entirely at random. I accept that there is a frequent exchange of information within the structure of Europe, but there must be a formal structure with formal aims carried out flexibly under the direction of Europe.

It would not be generous to conclude without repeating that I believe that the noble Lord, Lord Thomson, has had a significant period of office in the Community, to the extent that M. Delmotte suggested that the Fund should be called the Thomson Fund. I only hope that his successor, Signor Giolitti is equally forthright, active and successful.