HL Deb 31 March 1977 vol 381 cc1072-93

Debate resumed.

4.20 p.m.


My Lords, as we return to the subject of the Regional Development Fund, I wish at the outset to express appreciation of the Select Committee Report, which I found to be a thorough, comprehensive and valuable document. It sets out very clearly the problems surrounding the Fund and its future, and the whole report was presented to us this afternoon most concisely by the noble Lord, Lord Cobbold.

We are coming to the end of the first three years of the Fund and it has now to be reviewed, so this is an appropriate time for us to make our views known and, on looking back, I think we can say that the introduction of the Fund was a significant step in principle. But, as has been pointed out this afternoon, it was a very small step in extent. To realise this we have only to compare the operation of the green pound and the compensatory amounts paid in connection with it with the size of the Development Fund.

We are told that the operation of the green pound system is now causing our food to be subsidised to the extent of about £500 million a year, yet the amount derived by this country per annum from the Development Fund is just about one-tenth of that. The first amount has grown up almost by accident, yet this other planned development is a mere one-tenth of it. And when we bear in mind, too, the effect of inflation on the value of the previously agreed figures, we can understand why the impact of the Fund has been fairly small.

Nevertheless, as has been pointed out, the United Kingdom has been a net gainer. With the enlargement of the Community by the likely introduction of three new members—Greece, Spain and Portugal—this advantage will no doubt disappear and the United Kingdom will cease to be a net gainer. However, I agree with the authors of the report that we should not seek to judge the value of the Fund by whether or not we are net gainers; the gross amount which we receive is a mitigation of what we should otherwise have to pay into the Community budget and it is a mitigation for a specific and useful purpose.

I must say that the position in regard to additionality as described in the report and as expounded by the noble Lord, Lord Elton, is to my mind, very unsatisfactory. I quite understand all the difficulties which are explained in the report, but we must emphasise that the Fund was never intended to be a means of first-aid for the budgets of national Governments. I see, in the course of the evidence which it gave to the Select Committee, that the North of England Development Council said: Unfortunately, the Fund does not appear to us to guarantee that the money so transferred will necessarily result in increased expenditure in the poorer regions of those Member States. If the money does not reach the poorer regions, then the whole object of the exercise will have been frustrated. I read somewhere in the report a phrase about the Community having a Regional Fund "but no coherent, comprehensive regional policy", and I am wondering in this connection exactly what the function of the Regional Policy Committee is, and whether at this time it has an overall responsibility for all aspects of regional policy which may be carried out by the Community, and what is the potential of that Committee.

I welcome the fact that the new Commission has decided, as Lord Cobbold reminded us, that one Commissioner should have overall responsibility in this sphere of regional policy and that Signor Giolitti is to be responsible for both the regional and social funds and, as I understand it, for all the impact on regional policy of the various policies pursued in different fields by the Community; in, for example, the five different funds which there are and which can have a bearing on this matter. I am encouraged by the speech which the Commissioner made to the Committee of the European Parlia ment on Regional Policy, Regional Planning and Transport on 25th January in which he made it clear that he took this overall responsibility very seriously.

Lord Cobbold referred to the possibility at some future date of economic and monetary union. I agree with him that a great deal has to be done before we can hope to see that, but I believe it is a proper objective to have and that we must seek to arrive eventually, however long it may take, at that position. If we do, there will be a greatly expanded role, I have no doubt, for the Regional Development Fund. Once Governments are no longer able to attempt to correct imbalances within the Community by adjusting the parities of currencies, some other means of doing that will have to be found, and the Regional Fund will clearly have to play a very big part in that. When we reach that point I am sure it will mean that much which is now done in the way of regional policy at national level will have to be transferred to the Community.

With a Fund of the size I am contemplating it would be a question of substitution—the central expenditure would be largely a substitution for national expenditure; but at the present time, with a very small Fund, the principle of additionality is extremely important. Thinking for a moment about this future situation when we have economic and monetary union, I wonder whether then a redistribution of resources by means of capital investment would be sufficient to counter imbalances. I wonder whether perhaps we may have to think at that time of some means of redistribution of income—some means of providing a supplement to income for certain industries in certain regions—in other words, establishing within the Community a kind of Stabex arrangement similar to that already set up under the Lomé Agreement.

But all that is for the long-term future and, coming back to the more immediate future, I would agree with what has been said about the need for a larger Fund. Among other things, in addition to the reasons advanced for that, it would help to balance the very large amount of expenditure on agriculture within the present budget; agriculture takes about 70 per cent. of the present budget of the Community. Secondly, ideally, I should like to see the national quota system ended, as indeed the chairman of the Committee of the Parliament on Regional Planning and Transport suggested in his evidence to the Committee. If that is not possible entirely, it may be possible partly, as was foreshadowed in the evidence submitted by Lord Thomson; at least some money could be directly available from the Community and not have to go through the national Government sieve.

I should like to see direct contracts with the regions very much developed, though of course they exist now. Again, I am glad to see that Signor Giolitti lays great stress on the importance of these contracts. But what I am really suggesting is that regional authorities should be able to deal direct. I note that the Highlands Development Board said in the evidence which it submitted: While the Board wholeheartedly accepts the principle that Regional Development Fund assistance should be closely related to national and regional plans, it does not digest uncritically the principle that all regional development funds should be channelled through the central ministries of national government. If the Regional Development Fund is to establish itself as an effective instrument for equalising variations in regional prosperity within the EEC, it will have to assert itself as an independent force, working in close co-operation with national regional policies, but in a distinct and supplementary manner. I would agree with that. It would seem to me that if the regional development plans which are required by the end of this year are submitted to national Governments, with their approval it would be possible for the Community, at any rate in a limited sphere, to deal directly with regional bodies as the Highland Development Board suggests, within the terms of the nationally agreed development plans. The national Government would have some influence and say in order to do that, but would not be the direct channel. To the extent to which we could establish this we would be safeguarding the principle of additionality which we have already mentioned as being vitally important.

The last point I would stress, and I have mentioned it before, is the need for co-ordination and the development of a coherent regional policy. I am suggesting a larger fund and an end, or at least a modification, of the national quota system, some money being directly available from the Community, direct contact with the regions, the regions dealing directly with the Community and greater co-ordination than there is at the present time. If we can achieve these things then, from the small beginnings of the first three years' operation, I think we can develop the Regional Development Fund into a powerful economic instrument in the hands of the Community.

4.32 p.m.


My Lords, Members of your Lordships' House and of its Sub-Committee as well as Members of the Committee in another place are very much indebted to the noble Lord, Lord Cobbold, for his genial but firm chairmanship of the concurrent meetings which produced this report. The report itself is full and thorough and the noble Lord, Lord Cobbold, and other speakers have covered the ground comprehensively and have left little room for original or novel comment. The point which emerged most clearly from our discussions—and the noble Lord, Lord Banks, has touched on this question—was that the Regional Fund has been operating without the benefit of a regional policy. The Fund came into operation quickly, it has been well administered and the money has gone out notwithstanding the fact that the eligibility for assistance has been rigidly defined. All this is creditable: it has been a good start. But, to ensure the success of a second fund—and those who maintain that a Regional Fund is unnecessary must surely be in a large minority—it is certainly necessary to work out some guidelines.

As the noble Lord, Lord Cobbold, said, there are other activities in the Commission which have an impact on regions and regional policy of which the administration of other Community funds—the Coal and Steel Community Fund, the Social Fund and the Agricultural Assistance Fund—provides examples. There is also the European Investment Bank which has funds and stands ready to help, though there are some rather large obstacles in the way of its doing so. Clearly, the first step in formulating a regional policy is to consider the total effect of all these sources of funds together, and as a result of the reorganisation in Brussels which gives one Commissioner the general oversight of these activities, this step can now be taken. There is no proposal to amalgamate these sources of funds but rather to evaluate their combined impact and as far as possible to co-ordinate their application. The receipt of the National Regional Development programmes during this year will offer some concrete foundations on which a policy can be constructed in the Commission.

I refer here to some remarks made by the new Commissioner, Signor Giolitti, to Members of the European Assembly Committee on Regional Policy and Transport. This speech was made on 25th January. It was printed on 24th February, and was received by me this morning, which I think is an example of what might be described as "information drag". This speech by the Commissioner was an encouraging and positive performance. He declared his determination to carry out what he called "the testament of Lord Thomson". He stressed that the Regional Fund was only a tool of policy; he stressed the need for co-ordination of regional policy, avoiding the fragmentation of the past and taking all the sources of help to the regions into account. He laid emphasis on the need for flexibility in both the make-up and the administration of the Fund and he floated the rather interesting idea of a Community reserve in addition to the quotas given to individual Governments which could be used directly to top up various schemes. He also put in a plea for less rigid criteria in applying the Fund, and finally, emphasised the need for closer links with regional authorities. All this seems to me a positive and laudable preliminary approach to the problem and an encouraging one for the future formulation of policy later this year.

It was interesting to hear the suggestions from our witnesses on the form which a Community regional policy might take. The official evidence tended to suggest a step by step approach, but other witnesses, notably Mr. Evans, Chairman of the Regional Policy and Transport Committee of the European Assembly, offered a much more far-reaching scheme. I must say that the gradualist approach seems to me to be the only practicable one. It is clear that the Community will advance towards integrated policies only by building brick by brick, not by trying to make great leaps forward, and the move to the second stage of the Regional Fund cannot be an exception to this.

Incidentally, just as there is a need, which is now accepted, for the co-ordination of regional policy in the Commission, so there seems to he a need for some change in the committee structure of the European Parliament. Mr. Evans told us that his Committee spent half its time discussing transport questions. There is, no doubt, some historical reason why regional policy and transport were brought together under one committee of the Assembly, but it would now surely be more appropriate that at least the operations of the Regional and Social Funds should be brought under the scrutiny of one committee and that transport should move elsewhere.

My Lords, I wish to make one other general point. It is evident that the move towards the enlargement of the Community is gaining momentum, though no doubt it will proceed by deliberate steps, but enlargement will come about in due course. One of its effects will be to accentuate the need and complicate the formulation of regional policy, since the gap between the prosperous and the penurious regions of the Community will widen. I have heard it said that this will reduce the attractions of a Regional Fund because the United Kingdom will stand to get less out of it. This seems extremely short-sighted. I sometimes fear that we in the United Kingdom are falling into the habit of looking at the development and measuring the success of the European Economic Community purely in terms of the short-term pecuniary benefit to ourselves. Perhaps we are not the only ones.

No doubt there are situations in which we are justified in digging our toes in. But to be in an obdurate minority of one in one field is not the best method of getting our way in other important matters where we have a good case, as some events of the last 48 hours have demonstrated. In any case the regional policy and the Regional Fund do not seem to be matters which justify a policy of maximum selfishness. As I have said, the enlargement of the Community will bring many problems of extreme difficulty, including regional policy, but this is not a good reason for blowing cold on a Regional Fund; on the contrary, it makes such a fund, and a well thought-out policy to guide its use, all the more essential.

4.42 p.m.


My Lords, I am very happy to follow a colleague on the Sub-Committee, the noble Lord, Lord Sherfield, in paying tribute to the very able way in which the noble Lord, Lord Cobbold, chaired this committee. It was not a very easy one because it was a novel one, being a Joint Committee of the two Houses. I intervene chiefly because, although I am in complete agreement with my other colleagues on the importance of a regional policy, I have certain reservations on the actual tool of regional policy, as Mr. Giolitti says, the European Regional Fund. I should like to voice that in context, because directly there is a Common Market there is a certain centrifugal effect that tends to draw prosperity to the centre of the Market. In this case the prosperity of the golden triangle in the European Common Market has moved in the following way, as the noble Lord, Lord Thomson of Monifieth, said in his report. In 1970 the gross domestic product per head in Hamburg was live times greater than that in the West of Ireland and Italy. By 1975, presumably at the time when the Regional policy was just beginning to operate, that disparity had grown greater and had become six times greater in Hamburg than in the West of Ireland. Therefore we must look with a rather more critical eye on exactly what has been happening on the development of this regional policy.

My doubt lies in whether the European Regional Development Fund, with its present financial limits and the present principles that guide it, is really the adequate tool for running a European Regional Policy. It is quite true—I realise this and we must all take account of it—that this first report is dealing with the initial period when the Regional Commissioner was finding his feet, and in fact the money was rather slow in coming out of the Commission at the start. But as we say in paragraph 19 of our report, the impact has been very small. The noble Lord, Lord Thomson of Monifieth, with that Scottish restraint, put it I thought even better when he said: The resources allocated to the European Regional Development Fund are more modest than would have been ideal. What has been the impact on the United Kingdom Regional policy? We received a memorandum from the Department of Industry and it said that the receipts had been 3 per cent. of our expenditure in the case of industry. When that was put to the noble Lord, Lord Thomson of Monifieth, he was shocked. He said that it was quite wrong. Such are the persuasive powers of the noble Lord—and I wish that he had been here today to have tried those powers on your Lordships—that he said, "No, no, that is quite wrong. It was 10 per cent. If you compare the commitments during this period with the expenditure, it was 10 per cent.".

The Committee then referred this difference of judgment to the Department of Industry. The Department looked at this matter and, as reported on page 26 of the report, stated: Commitments by the ERDF, like offers of financial assistance under section 7 of the Industry Act, cover expenditures which may be incurred during more than one year. The relationship between commitments and Government expenditure is therefore not a satisfactory measure of the 'significance' of the Fund. Notwithstanding that, despite certain objections by one member of the Sub-Committee, paragraph 19 of the report assesses the impact as 10 per cent. of the Fund. If one looks at the Department of Industry's own figures it worked out. It said that in the case of 1975, the period with which we are dealing, if actual receipts from the Regional Fund are compared with expenditure it comes to 1.1 per cent., not 10 per cent. In 1976 the estimate is that it will come to 4.7 per cent., not 10 per cent., and in 1977 the estimate is 7.3 per cent. I must say that I find that a very disappointing result for— as Mr. Giolitti says—this tool of regional policy. Why is it so disappointing?

The three guidelines, as I understand it, for the European Regional Development Fund are, first, that one must work on the basis of a quota. The noble Lord, Lord Banks, talked about some of the drawbacks of the quota. I was very sympathetic to what he said. I find it very difficult to understand why, under the quota system, Ireland and the poorest countries in Europe, with tremendous regional problems, have a percentage share of the cake of less than that of Western Germany, a country, I should have thought, that had no need to go on any form of international assistance. It is quite true that under a provision this quota system was altered in favour of Ireland, so that the richer countries had to disgorge, and as I worked it out in the three year period Ireland would be getting 85 million units of account as opposed to Germany's 83 million units. Still, I think that is unfair. I do not believe that this quota system is the right way to deal with a regional fund. Nor do I think that Mr. Giolitti has it right when he says, "We will keep the quota, but then we will have a reserve fund that we may be able to distribute more fairly". That is a point of view I should like your Lordships to consider.

The second principle and guideline which is determining the whole of this is that it must be a Government-to-Government payment. We had evidence from many of the regions in Britain saying that they were not really conscious of the fact that the European Regional Fund was helping because the money went into the Government's hands and they did not see anything of it. If it was infrastructure, is is quite true that it did make a difference to them because it reduced the cost of their borrowing, but not if it was industrial. I think we are landing in a difficulty here—and, again, I was very interested in what the noble Lord, Land Banks, had to say on this point. He said that you must break this down and you must do it so that there is contact between the Regional Commission and the public authorities. There, of course, you come up against the difficulty that you have two judgments of a project: the judgment of the national Government and the judgment of the Regional Commission; and, in order to monitor that, to evaluate a particular project, I think it would require rather more staff than is justified for the European Regional Commission with the present amount of money available. That seems to me to be the dilemma into which you get by changing it from Commission to State and from Commission to authority.

Leaving that, we come now to the great joke of the Regional Fund—additionality. What does "additionality" mean? It means that but for the money received from the Commission this project would not go forward. If your Lordships want light reading, I would recommend that you read the written evidence of the North of England Development Council, which appears on page 95 of the report, in which it observes that in the other place the Minister responsible told the House of Commons: The projects so far approved are all Government advance factories. Those to be sited … in the Northern Region are …", and then he gave a list. The evidence goes on to point out that the first one mentioned was a land purchase made in Hartlepool in November 1974". We are talking about money given in November 1975, so I do not know how much additionality you can find in that. The second was, a factory announced in January 1973 at Skelton and completed in July 1974", so there was not very much additionality on that. The third was a factory at Stanley … completed in 1973". The next was a factory at Workington … finished in October 1973"; and then there were three other factories, all announced in 1970, on which there was a little work done in 1975. This seems to me to be a completely unjustified way of dealing with it. It may be inescapable—I am not saying that—but do not have a guideline or principle that cannot possibly work.

I would merely say that I think this means that we really must reconsider this. Mr. Hobbs, of the North of England Development Council, makes a judgment on this, and I think I ought to finish on the subject of additonality by quoting it—it is on page 90 of the report—so that it is on record. This is why I say that I find the Select Committee's Report is rather hiding some of the criticism, is a little too complacent and is a little too kind to the working of the Regional Development Fund. One wants to be polite, and I know from what used to happen in the other place that noble Lords are always, if anything, excessively polite, but I think that probably we are being a little too polite to the European Regional Development Fund in this because the North of England Development Council is a very active body. They said: We consider that a Fund which transfers money from an EEC budget to a national budget without necessarily increasing the amount spent on regional development is, therefore, claiming more than is justifiable when it is called a Regional Development Fund". That really leads me to try to review what is the position. In paragraph 36 of our report we set out what we consider the three alternatives. I could not quite come to the same conclusions as the rest of the Committee because I interpret the European Regional Fund rather differently from the others. I think there is a very strong case for a European regional policy. What is "regional policy"? It is the co-ordination of regional programmes. It is stimulating the member countries to working more and more to try to reduce the disparity between the regions. I think that for once I would disagree with the noble Lord, Lord Sherfield. I think it is not fair to say that there has been no regional policy but only a regional fund, because the noble Lord, Lord Thomson, did a tremendous amount of work on this idea of a European regional policy, and it is not fair to him to say that there is no regional policy.


My Lords, if the noble Lord would forgive my interrupting him, I think it was Lord Thomson himself who made that remark.


My Lords, I have already disagreed with some of the remarks of the noble Lord, Lord Thomson, and I certainly disagree with that one because I think that in himself he provided a wonderful stimulant for regional policy, through the others. But I believe that if you intend to work this system out by quotas then you do not really need a fund with the additionality factor. I would far rather it was done with a strong regional policy and then have the Commission saying what relief from contribution you should get because of the extent of your regional problems. I think that if you did it in that way, by reducing the contribution by regions, it would solve the problem of Germany wanting to have her slice of the regional cake because it would then be quite clear that a very rich country like Germany was not really needing to have the money from the European Regional Fund. I think this matter has to be considered very quickly because, as other noble Lords have said, f we are going to expand the Community by the addition of Greece, Portugal and Spain, it is vitally important that we get the right way of running our regional policy and of financing our regional policy. I think that, with the addition of the other three members, it will be easier to do it by a system of relief from contribution rather than by giving this quota.

The final point I want to make, my Lords, is this—and I hope I will find the majority of your Lordships in agreement with me. There is something terribly wrong, when you have the disparity between prosperity and poverty growing so much all over Europe, to find that we are devoting 72 per cent. of the Community budget to the Common Agricultural Policy and, this year, 5½ per cent. to the European Regional Development Fund.

5 p.m.


My Lords, may I join with other noble Lords in thanking the noble Lord, Lord Cobbold, for giving us the opportunity to hold this debate this afternoon. We are all indebted to him and to the Scrutiny Committee for the work they have put into the consideration of the First Annual Report on the operation of the Fund. With commendable speed they have produced an excellent report on a difficult topic. In rising to intervene at this stage, I do not want to defend the indefensible, and I hope I will not seem to do so. There are many things that have to be changed and noble Lords have drawn attention to them, particularly the noble Lord who has just sat down. We all acknowledge that changes have to be made. Let me look first at the report itself. It pays tribute, as noble Lords did, to the smooth administrative operation of the Fund during its first year. Applications have been selected, submitted and approved within a matter of weeks, as have payments from the Fund. The managers of the Regional Fund have benefited from the experience of the Community with other funds and have avoided some of the pitfalls. This is something upon which we, as a Government, and, I hope, as a House, will join in congratulating the administrators of the Fund.

The Scrutiny Committee referred to the division of the British share, if I may so call it, between assisted regions in the United Kingdom. I want to make this point: in accordance with the Regulation (Article 3) the money must be concentrated on projects in the Special Development Areas, Development Areas and Northern Ireland; but Intermediate Areas are also eligible and have received assistance from the Fund—some 10 per cent. of United Kingdom commitments. I hope that noble Lords will agree that is right.

The Commission's report and the report of the Scrutiny Committee, and noble Lords in their speeches this afternoon, have dealt with the question, the will-o'-the-wisp, if you like, of additionality. This is the concept that the Fund should enable more to be done for the regions than would be done in its absence. It is a principle which the Government and other Governments accept. Nevertheless, there are compelling reasons why the money from the Fund cannot be given in all cases to the promoters of particular projects; and the Regulation itself specifically provides that it is for Governments to decide how the money shall be used.

Turning first to industrial projects, I understand that no member-country of the community pays the Fund receipts on top of (that is, in addition to) national aids. We do not do so for three reasons. The first is that the two subsidies—one from our own regional development programme and aids, and the other from the Fund—might carry the total beyond the ceiling laid down by the Community and agreed by ourselves. In that context, I might mention that the noble Lord, Lord Elton, spoke of the possibility of changing the topping-up Regulation. I think that the aid ceiling derives from the Treaty of Rome itself (Articles 92 to 94) and from the Commission's activities under those articles relating to State aids.

The second reason is that projects selected for submission to the Fund are those which comply with the Community's criteria as contained in the Regulation. They are not necessarily, in terms of our own regional policy, the most meritorious. We cannot readily accept a system in which there is arbitrary discrimination in the treatment given to projects that we see as of equal merit. That would constitute unfair competition and might destroy some of the employment that national aids were creating. Thirdly, the Community system requires that only projects which have already received national aid can qualify for the Fund's assistance. This means that the subsidy already paid or submitted has been enough to encourage investment to take place. In that sense, it will be unnecessary to pay a further subsidy on top.

I might refer to the other matter spoken to by the noble Lord, Lord Elton: his suggestion about changing the procedure for application. That suggestion will be considered (as will everything else that has been mentioned today) but my preliminary reaction is that the investor might be unwilling to face the extra delay likely to result from adopting such a procedure.


My Lords, I think that in fairness to the noble Lord, Lord Thomson, and his men, to reiterate what I have said earlier, the delay is quite an astonishingly short one in bureaucratic terms. I hope that the noble Lord will bear that in mind when weighing that in the balance.


My Lords, I do bear that in mind and I am happy to accept it; but perhaps investors might shy away from any procedure which might make delay less endurable.

My Lords, turning from the industrial projects to infrastructure projects, the Fund's receipts are paid to the sponsoring body, whether a local authority, water authority or other public organisation. These receipts enable those authorities to reduce the cost of their borrowing and thus contribute to the regions' well-being. There is a directness about the application of the Fund's money there. If it were not necessary to limit the resources being devoted to public expenditure, we should be prepared to consider authorising additional projects to match the receipts of the Fund; but at the present time this is impracticable. I think I can properly say that public authorities of various kinds are taking an increased interest in the Fund as they see the possibility of direct benefit; and we welcome this interest.

The Commission have recognised that the ways in which we handle these matters are consistent with the principle of additionality as embodied in the Regulation. I would refer noble Lords to paragraph 53, page 16 of the First Annual Report itself. It says: … the Fund's task is not necessarily to make more aid available to each investment, … but to increase the total amount of new investment undertaken. The difference between these two concepts should be borne in mind …". I recognise however that the Scrutiny Committee have put their finger on an important point when they say that it is difficult to demonstrate what additionality has been achieved. In order to demonstrate that the principle has been complied with there would have to be clear evidence of what would have happened as well as what did happen. I cannot hope to express this problem any more clearly than did the Scrutiny Committee in paragraphs 17 and 18; and I will not attempt to do so. The House was moved by the plight of the noble Viscount whose birthday fell on Boxing Day. Perhaps on another occasion consideration might be given to awarding him an official birthday. We certainly get from that example a clear illustration of the difficulties in dealing with additionality.

We are glad that the Scrutiny Committee's report recognises these problems and acknowledges that the solution adopted by Her Majesty's Government—that is to say, to increase regional expenditure overall; for instance, through the Advance Factory Programme—is reasonable. In this context I would remind the House that the Chancellor of the Exchequer announced in September 1975 that he was taking into account receipts from the Fund in setting the size of the Advance Factory Programme which he then announced.

I turn briefly to regional development programmes. These are intended to have an important role in the administration of the Regional Fund by providing a development context for consideration of individual applications for assistance. An outline of the desired content of these programmes has been prepared by the Community and was published in the Official Journal on 24th March, 1976. Clearly defined plans for the development of particular areas have an important part to play in guiding the progress of areas changing from a heavy dependence on agriculture to a more industrialised economy. The United Kingdom regional problem, on the other hand, is largely the problem of areas which industrialised early. Their long-established industries are now being modernised and demand for labour is falling. In that context, we offer financial incentives, some automatic and others selective, to encourage new industry to provide new jobs. We do not know far in advance what new projects will come forward. Infrastructure in these problem areas needs some renewal and expansion; this is planned and carried out by the different public authorities concerned in response to local requirements. Thus, both for industry and infrastructure these development processes do not lend themselves to comprehensive planning of the same kind which may be possible in primarily agricultural areas.

This is the background to the regional development programme which the Government have sent to the Commission. It is a substantial document, and noble Lords may have seen it published in Trade and Industry last month, when it was published in three instalments. In preparing that programme, Departments consulted the various public authorities concerned. I am pleased to be able to acknowledge the help which they gave, especially in identifying projects which are possible candidates for future Fund applications. Our document sets out the economic background, the general objectives of regional policy, the various measures and the financial resources on a general United Kingdom basis and goes on to deal in some detail with individual regions. The document necessarily deals in broad terms with the types of project which may be put forward for contribution from the Fund; none the less, it provides the context for our selection, and Community consideration, of the applications which will be made. At this stage I am less hopeful than the Committee was (and I refer to paragraphs 26 and 44) about the benefits which may result from the system of regional development programmes.

As we have seen, the year covered by the Annual Report is 1975, and we are all now involved in thoughts regarding the future of the Fund which is due to be reviewed in the course of this year. But in the light of some of the criticisms which have fallen from the noble Lord, Lord Tranmire, I want to emphasise what is said in the first sentence of the Annual Report: It must be stressed that the Fund is not to be confused with Community regional policy. Before we can decide in the future how the resources available can make the best contribution, a Community regional policy must be evolved, otherwise the Fund—and other funds—is operating in a vacuum, with no stated objectives and no way of measuring how far these are achieved by the projects to which it contributes.

As we have also just been reminded, the Annual Report states that regional disparities between the Member States are increasing, rather than decreasing, and it is this problem with which the Community must try to deal. For some of the Member States, as I have already said, the problem is one of converting agricultural areas to industry, but for us it is a question of industrial renewal, and both facets are important to the future prosperity of the Community. This week we have taken the opportunity to bring our problems—their character—to the attention of visiting members of the EEC Regional Policy Committee, who are visiting some of the areas of the United Kingdom which are worst affected by regional problems. This follows a similar visit paid last year to the assisted regions of Italy. We would hope to see the Community take account of the particular problems of the peripheral areas, which in the United Kingdom may even have been aggravated by entry to the Community, as was suggested in evidence to the Committee.

The Commission will be putting forward their own proposals for a future Fund in the near future. The amount of money available for allocation from the Fund will certainly have to be increased from the present 500 million units of account. On that matter, I agree with the noble Lord, Lord Banks, and, indeed, the noble Lord, Lord Tranmire. The noble Lord, Lord Tranmire, expressed disappointment, which largely derived from the small sum available for payment from the Fund under the present dispensation. But we would hope to see the sum increased rather more than by that amount which was simply sufficient to take account of inflation.

May I turn to the quota system. I have sympathy with the criticisms that have been expressed by the noble Lord, Lord Banks, and the Committee about the quota system. Ideally, the Fund should be allocated according to objective criteria which would reflect the intensity of each Member State's regional problems. But it is appreciated—the Committee certainly appreciated—that this would involve a difficult job of selection for the Commission among a wide variety of eligible projects from all the Member States, and it would be very difficult to devise criteria which ensured that the most needy areas were the most successful. The practical problems are such that we think that quotas must, at least for some time, remain the basic instrument for dividing the Fund. The present quotas have the merit of ensuring that the countries with the major problems are those getting a net return. That, I hope noble Lords will agree, is right.

The noble Lord, Lord Tranmire, referred to the fact that Germany receives a substantial amount from the Fund—or in some terms a substantial amount—and compared the amount received by that relatively prosperous country with the amount received by Ireland. There are two points I want to make here. First, the only three countries which get a net receipt from the Fund are Great Britain, Ireland and Italy. Therefore, although Germany receives money from the Fund, the amount received is less than the amount that Germany contributes to it. My other point is that paragraph 50 of the report of the Committee says: It has been suggested that in future the beneficiaries of the Regional Fund would be reduced to three, the UK, Italy and Eire. While this would concentrate limited resources on the countries with the gravest regional problems, the Committee consider that it would have serious disadvantages, for it would be politically divisive …". I think we would accept that.

Finally, on that matter, one has to recognise that, albeit that Germany is a prosperous country compared with Ireland or Italy, none the less it has regional problems as well.


My Lords, would the noble Lord suggest therefore that, for getting some form of assistance, a millionaire could be justified because he was actually making a greater contribution in tax? Surely, Germany ought to be able to look after her own problem areas from her own wealth.


My Lords, I have to turn that round and suggest to the noble Lord that he is losing the European dimension, because the European Regional Development Fund is concerned with European problems. If it identifies any part of Europe as a regional problem, it ought to be able to apply some of the resources of the Fund to the solution of that problem. I agree with the point made by the noble Lord, Lord Tranmire; that is, that regional disparities have widened. They have not narrowed. It is the countries and regions on the periphery of the Community which have the greatest problems, and it is to these that we hope the Community will direct its special attention. Of the ideas which are being discussed both here and Brussels, one of the most interesting is the possibility of using Regional Development Fund money to provide an exchange risk guarantee for loans to private industry from the European Investment Bank. The Committee looked at this problem. At present, the exchange risks are too great for most prospective borrowers in the private sector in this country, unless they have overseas earnings which can be used to service the European Investment Bank loans. We look forward to seeing proposals by the Commission on this matter, but we recognise that, in some forms at least, it would be difficult to reconcile with a rigid scheme of quotas. If a satisfactory formula can be found, it may be a means of diverting substantial funds to the neediest regions.

In conclusion, my Lords, I should like to reiterate the Government's view that the Fund can be a useful instrument of the Community and one to be valued. We should like to see the Fund have a much greater impact, for example in the way I have described. We must however be realistic about the scope for this. Our own national effort, whatever the precise figures may be in support of the assisted regions, is so very much larger than the main impact on regional problems is bound to come from what we do ourselves. Apart from an increase in the size of the Fund, we should also like to see changes in the Regulations which would remove some of the difficulties revealed by experience and identified by the Committee in their report. We should certainly be glad to see the Fund rather more closely co-ordinated with other Com munity instruments, although the scope for this may prove to be relatively limited. It is important to avoid any increase in bureaucratic processes. However, we think that the Committee's suggestion of a regional development certificate is the kind of idea which merits further attention, and I should like to express our gratitude to all those in industry and in the public authorities who have helped so readily in the preparation of applications to the Fund.

We are now thinking of the second stage in the life of the Fund, and this debate is primarily to review the work of the first year of the first stage. I think the debate has shown, as the Select Committee accept, that the Fund is a worthwhile initiative. It has had a good administrative start, but we can hope to make it much better in time. I am happy to have the support of the noble Lord, Lord Sherfield, for the gradualist approach. I would also say that the whole process, starting with the publication of the Annual Report; the critical appraisal of it by the Select Committee; the examination of witnesses and the collection of evidence, especially from bodies with an intimate knowledge of regional problems and a shortage of rose-coloured spectacles (people like the HIDB) and culminating in this debate and the suggestions it has brought forth, has made an essential and invaluable contribution to our thinking about the review of the Fund's working and purposes, a review which is essential if it is to fulfil the hopes engendered by its creation.

5.22 p.m.


My Lords, I shall not detain your Lordships for long, but I should like to thank all those who have taken part in this debate. I should like to start with my two colleagues on the Sub-Committee, the noble Lords, Lord Sherfield and Lord Tranmire. I thought it was very useful that the noble Lord, Lord Tranmire, should make here a point which he made on a number of occasions during our sessions about the lag between actual payment and commitments. That is referred to in the last sentence of paragraph 19. It was also useful that he should emphasise his slightly different view as to the best solution to some of the problems. I was very appreciative of the speeches made by the noble Lords, Lord Elton and Lord Banks. The noble Lord, Lord Elton, made particularly valuable comments on the difficult subject of additionality and topping up, and the noble Lord, Lord Banks, emphasised the value of the co-ordination of regional policy and the enlargement of the Fund.

Finally, I should like to thank the noble and learned Lord, Lord McCluskey, for his interesting and on the whole, I think, hopeful and encouraging comments, together with his very generous references to the work of the Sub-Committee.

On Question, Motion agreed to.