Structural and Cohesion Funds: ECC Report

HL Deb 14 July 1997 vol 581 cc824-63

3.8 p.m.

Lord Barnett

rose to move, That this House take note of the Report of the European Communities Committee on Reducing Disparities within the European Union: the Effectiveness of the Structural and Cohesion Funds (11th Report, Session 1996–97, HL Paper 64).

The noble Lord said: My Lords, I begin by thanking the Members of the committee for the tremendous job that they have done in the preparation of this report. I have been very fortunate in having such an excellent committee. I also thank the clerk to the committee, John Goddard, together with our special adviser, Professor fain Begg, who have helped the committee tremendously. I also mention the witnesses, who provided excellent evidence which is in one of the volumes of the report. I hope that this report will be recognised as a most useful document both here and abroad.

I also take this opportunity of welcoming the noble Lord, Lord Renton of Mount Harry, our maiden speaker this afternoon. To listen to him again will take me back to old days. I am sure that the House will also be glad to hear him. I also take the opportunity to welcome my noble friend Lord Simon, who is to reply to this debate. He has an unusual dual capacity in the sense that he gave evidence to the committee in relation to a previous report, not this one, and now he speaks as a Minister. I hope that he will give evidence to us of a character that equals the excellent evidence that he provided previously.

Finally by way of introduction, let me say that we received a letter from the President of the Board of Trade to which I shall refer on a number of occasions during my remarks.

The Motion on the Order Paper, which it is as well to read, refers to a report of the European Communities Committee on Reducing Disparities within the European Union: the Effectiveness of the Structural and Cohesion Funds. That may seem a dull and lengthy title, but the issue is anything but dull. We are debating a very important issue.

The committee tried to make the report a little livelier in the sense that we gave it an unusual cover for the House of Lords; that is, red with technicolour photographs. I notice that even the Chancellor of the Exchequer has changed this year's Red Book; only the back cover is red, the front being in a different colour, with photographs. I am glad to see that someone is taking note of what we have done with our report!

The structural funds were reformed in 1988 when their amount was doubled following the adoption of the Single European Act in 1987. The reforms followed four principles: concentration, programming, additionality and partnership. They are explained in our report and I shall touch on them briefly. The funds under discussion are very important because they cover some one-third of the European Union budget. I emphasise, and I hope that everyone understands, that we are not talking simply about regional disparities between countries but about the richest and poorest regions within all countries.

Apart from Holland, sadly, the disparities between and within member states have not improved a great deal. We saw something of what has and has not been done. We visited two countries, Greece and Ireland, with widely different success stories. We also visited Glasgow and Cornwall and saw the benefits that have occurred.

I welcome to the debate my noble friend Lord Elis-Thomas, who no doubt will speak about Wales. I apologise in advance for the fact that the committee did not visit Wales. I can assure my noble friend that that was due only to the shortage of time. We would have loved to have visited Wales, too. However, I am pleased to note that between 1994 and 1999 Wales will have received about £0.5 billion from the structural funds, which I am sure he will tell us is nothing like sufficient. Indeed, I see that he agrees.

In addition, the report calls for radical reform to reduce bureaucracy and delay and perhaps the nonsense of some of the small grants that are made. I am sure that the recipients of those small grants were pleased to receive them. But it is important that the grants are made not because, as was said by the noble Baroness, Lady Thatcher, "We want some of our money back"—that is precisely the wrong reason to make structural grants—but because they are effective and economically sensible. They should not be made because of political expediency—and I do not mean "political" in the party political sense.

I recognise that that is a generalisation of the kind that departments like; and I know that the Department of Trade and Industry loves generalisations. Therefore, I shall be specific in my remarks. In the time available I can refer to only a few of our many recommendations, but I shall seek clarification from the Minister on some of the general views expressed by my right honourable and old friend the President of the Board of Trade.

The central point in my right honourable friend's letter was that the "debate" on the future of the funds is at an "early stage"—and that is only the debate! No doubt that is factually correct, but it is somewhat depressing. I assume that it means that it will be a long time before anything happens. Perhaps my noble friend the Minister can reassure us that we shall not have to wait a long time before something sensible is done about the structural and cohesion funds.

My right honourable friend concentrated on our recommendations affecting the funds within the UK and therefore I shall do the same. However, any reading of our report will show that we covered many other areas, too. The first recommendation to which I shall refer is contained in paragraph 116 relating to devolution to regional level. That should be carried further to maximise the potential benefits of structural funds. That must be right. Indeed, it almost certainly is right because my right honourable friend stated in her letter that it was in line with government policy. That statement was unqualified, so naturally I assume that the recommendation is right. No doubt the Minister will confirm that.

In paragraphs 115 and 125 we recommend that programmes should not be imposed but should be the result of partnership between national and sub-national bodies, down to local communities. Indeed, we saw examples of that in Scotland, where the partnership between the Scottish Office and some of the local community bodies was excellent and very much appreciated locally.

Again, the letter from the President of the Board of Trade informs us that not only is that in line with government policy but it is welcomed. I am delighted to hear that and assume that the department agrees. I hope that that is not a rash assumption. However, there is a reference in her letter to "strategies". That is a good word because it can mean much and it can mean nothing. She says that the department's policies are drawn up by English, Scottish, Welsh and Northern Ireland offices.

Perhaps I may ask my noble friend the Minister a simple question. As regards Scotland, will he confirm that the Barnett formula is sacrosanct? Of course, everyone will know what the Barnett formula is. I devised it some 20 years ago and I know that the Minister will be aware of it. I understand that there has been some little dispute in government about it, but I have no doubt that he will be able to confirm that the formula is sacrosanct. He may wish to use another form of words, but I hope that his confirmation will be unqualified.

The next recommendation to which I wish to refer is contained in paragraphs 135 and 136. It is also referred to in paragraphs 51 and 52. We believe that the funds are spread far too thinly. Approximately 51 per cent. of the EU population (which the committee gathered from the noble Lord, Lord Marsh, is about 400 million)— I am mistaken; perhaps it is a little more—live in areas which are eligible for assistance. Commissioner Wulf-Mathies told us that it would be better geographically for the spread to cover no more than 35 per cent. of the population, which is big enough. However, my right honourable friend's letter tells of the difficulties. It seems that we can identify areas of particular need but other countries cannot. My right honourable friend must have overlooked the question that we posed. I assume that she overlooked it only because she did not tell us whether she agreed with the Commission that the figure should be reduced to something like 35 per cent. I look forward to my noble friend the Minister telling us that he and the department agree that the figure should be nearer 35 per cent. than 51 per cent.

In paragraph 117 we recommend an important role for local authority elected members. I am glad to see in my right honourable friend's letter that that policy is "being implemented". It is marvellous to read that comment about a recommendation. It does not always happen and I shall believe it when I see it.

In paragraph 119 and 120, we strongly support the concept of additionality. I am glad to see again from the letter that the Government support that policy, but they add, "as a general principle". I hope it is not just my old suspicious mind—

Lord Bruce of Donington

Hear, hear!

Lord Barnett

My Lords, I am sorry to hear my noble friend say "Hear, hear"! When I hear the words "in principle", I worry and my natural suspicions are aroused. When the Minister replies, perhaps he will remove any fears or suspicions which I might remotely have.

But, all in all, the report makes clear that there is urgent need for reform of the funds. In particular, there is a need for a radical reform of the administration not least in relation to delays of payment—something we met on our visit. The letter from the President of the Board of Trade refers not to reviews, which we have heard a great deal about, but to a new formulation: it will be continually reviewed. I hope that the Minister will be able to tell us that that means something. I hope that it means that the review will be in the direction that we as a committee have strongly recommended.

As regards the delays, the letter explains how the Commission makes payment. We are aware of that. Indeed, anybody reading our report will be aware of it. I see that my noble friend Lord Bruce smiles and that he is aware of it. The letter tells us that once a claim is properly made out, payment is made "as soon as possible". It goes on to say: as a general rule, within three months … [they] seek to minimise delay wherever possible". I see the noble Baroness smiling. She may have drafted it while she was in government. I hope that the delay will be kept to the minimum because we met a number of small firms which were hit very hard by the delay. I hope that the Minister will be able to tell us that there has already been evidence of improvement in the speed at which payments are made, because delay hurts companies large and small but it hurts small companies in particular.

But there is one major issue which will arise in a few days' time; that is, about the way ahead for the Community. President Santer is to publish the Commission's Agenda 2000 on 16th July, which is in two days' time, and it will eventually be debated fully in Luxembourg in December and no doubt beyond that, when we have the Presidency in the first half of next year. Perhaps the Minister will tell us when we can expect to see the Government's response to that. I suppose that it is asking too much to expect the Minister to tell us what will be in that response, but he may be able to tell us when we may hope to see the response to what is likely to be one of the most important documents to come out of the Commission for a long time.

One does not have to take a pro- or anti-European Union line on matters of regional policy. I am sure that my noble friend Lord Bruce of Donington will understand that. My noble friend is not even smiling. The European Union policy rightly seeks to strengthen the economy and social cohesion—

Lord Bruce of Donington

My Lords, I am most anxious to have articulated clearly the question which the noble Lord wishes me to answer in due course. If he wishes me to answer something, then I can give it my most serious attention.

Lord Barnett

My Lords, I am sorry that I said anything at all because the last thing in the world that I want is to lengthen my noble friend's speech, which I hope may be briefer than usual.

As I was saying, one does not have to be either pro-or anti-European Union to want to see regional policies succeed. I see that my noble friend almost agrees with me—or the noble Lord, Lord Marsh, does in any event. But European Union policy, rightly in the view of the committee and certainly in my view, seeks to strengthen economic and social cohesion within the Community in view of the significant regional disparities of which I have already spoken. These policies are a key instrument to assist the less prosperous regions to adapt to the single market. The main aim is to create jobs and to ensure balance and sustainable development. I hope that our report will make a small contribution to that objective. I beg to move.

Moved, That this House take note of the Report of the European Communities Committee on Reducing Disparities within the European Union: the Effectiveness of the Structural and Cohesion Funds (11th Report, Session 1996–97, HL Paper 64).—(Lord Barnett.)

3.25 p.m.

Lord Renton of Mount Harry

My Lords, I am delighted to follow the mover of the Motion concerning European Union disparities, the noble Lord, Lord Barnett, whom I remember well and whom I admired in his previous incarnation, even though we sometimes disagreed.

As this is my maiden speech, your Lordships will forgive me for quoting very briefly an extract from a book written by David Cannadine, the well-known social historian, which a friend of mine sent to me recently. David Cannadine wrote that earlier this century, there existed a widespread feeling that Peers were raised above the scrimmage of public life [and] beyond the reach of the temptations that beset the ordinary man". I look forward to learning more about the continuing truth of those comments in the years ahead.

I thought that the report written by the Committee chaired by the noble Lord, Lord Barnett, was extremely clear and easy to read. There was a pleasant simplicity of language in it. As an avid follower of matters European, I believe that this is the very first report that I have read outside those produced by the European Commission on the subject of the effectiveness of the structural and cohesion funds. We hear a great deal about the common agricultural policy and fishing quotas, but I have never read anything of this standard on that subject.

As the noble Lord, Lord Barnett, said, it is an extraordinarily important issue. Europe gets bigger all the time. That may be geographically correct but in terms of the European Union and its significance, it certainly is correct. The question of the enlargement of the European Union looms ahead. It was not settled at all at the Amsterdam Summit but we face the prospect that within five years, we may have a European Union with 20 or 21 members and five or 10 years later, a European Union with 25 or 26 members. All the newcomers are likely to have a gross domestic product per capita significantly below the average of the current 15. Therefore— and I think that this is the underlying message of the report— the question of the funds needed to diminish the disparity between the newcomers and the Cohesion Four and the other members looms very large indeed in people's worries about the future of the European Union.

I remember visiting the Mani at the southern end of the Peloponnese some years ago about whom Paddy Leigh-Fermor wrote in a brilliant book. How could that part of Greece, which still appears totally medieval, be at the same economic level as Frankfurt, Bonn or Brussels?

One of the main concerns, therefore, about joining economic and monetary union is whether the funds required for coherent and stable development throughout the democratic countries of Europe, as the important treaties pledge, are simply too great and whether the flow of funds to achieve that objective from north to south could cause disturbance, leading in the end even to social insecurity.

I add in parenthesis that I am not nearly as worried about economic and monetary union as are other noble Lords. I regard it as an inevitable outcome of the completion of the single market. It is a necessary means for Europe to stay competitive with Japan, China, India and Brazil in the next century. Furthermore, there will be significant competitive advantages for Europe and for the United Kingdom as a result of moving to a single currency. I suspect that five years after moving to a single currency we might look back and wonder what all the fuss was about. But that, of course, is a matter for another debate. I fully understand the concern that after economic and monetary union, the long-term adherence to the Maastricht criteria could cause an unacceptable flow of EU funds, particularly to the central and east European countries.

Therefore, I find it very satisfactory that this report shows how well, by and large and up until now, the problem has been dealt with in relation to the Cohesion Four—that is, Portugal, Spain, Greece and Ireland. There are of course problems involved. It would be impossible for there to be no problems and the noble Lord, Lord Barnett, touched on some of them; for example, delays in payment, insufficient involvement at the lower levels of the Community, local councils, and insufficient involvement in decision making. However, in the main, the result has been extremely good.

I note from paragraph 58 of the report that: In the last ten years the four poorest countries of the EU, the Cohesion Four, have raised their GDP per capita from 66 per cent. to 74 per cent. of the EU15 average". The commissioner responsible, Commissioner Wulf-Mathies, said that, the performance of the Union's four poorest countries was 'truly remarkable by any international or historic standards'". I do not believe that any of us would actually disagree with that remark. The figures are indeed very remarkable. The commissioner then went to say that about 40 per cent. of the benefit of the purchasing power which flowed back from the Cohesion Four returned to the, other richer Member States in the form of purchase of know-how and capital equipment". That is almost the creation of a virtuous circle: dare one say, quoting the phrase from Dodo in Alice in Wonderland (which is quoted elsewhere in the report), "All must have prizes". As we all know, life is not like that. From that, at this early stage, it seems that to date the cohesion and structural funds are working extremely well.

However, there is one small point upon which I disagree with the noble Lord and his committee; namely, the statement in paragraph 95 that, in stressing the "devolution of real autonomy" down to a lower level in the United Kingdom, the government offices of the region should be used. From my previous experience as a Member of Parliament, I have to say that I found the government office for the south-east region to be absolutely useless. I do not know why it was formed. Indeed, when it was formed I wrote to the Minister involved, a good friend of mine, and asked him why. I saw that in its powers it was not only involved in planning applications but also that it was to be involved in tree preservation orders.

That seemed to be an extraordinary addition of yet another layer of bureaucracy and one which would be more likely to get in the way between the Department of the Environment, Transport and the Regions and local authorities than to achieve any real objective. I have to tell your Lordships that if this is to be the vehicle for creating greater local autonomy in such an important area, much will have to be done to improve the powers, the competence and the knowledge of the government offices for the region before they are used any more.

In conclusion, I should point out that in paragraph 100 of the report, Commissioner Wulf-Mathies, refers to the hope that in the next programme period the figure for national GDP going to the European Community budget would remain constant at 1.2 per cent. of GDP; but that, nonetheless, there would be a 30 per cent. increase in the funds available for structural and cohesion policies and, of that, there would be a sevenfold increase in European Union support for the central and east European countries. I would be very grateful if the Minister would confirm whether or not those figures are correct. If they are correct, they are remarkably encouraging. Moreover, if they work out, I believe that the Phare programme which is responsible will truly be acting as a lighthouse for raising standards in former Communist countries.

3.35 p.m.

Lord Elis-Thomas

My Lords, it very happily falls to me on behalf of the whole House warmly to congratulate the noble Lord on his maiden speech. It is a particularly pleasant duty to be able to welcome another member of the class of '74—indeed, a member of the class of February 1974—into this House. The noble Lord comes here as someone who has had substantial experience in another place as a Minister for a number of departments. For example, he served in the Foreign and Commonwealth Office, in the Whips' Office and, more particularly, as Minister for the Arts. That fact came out very clearly in the noble Lord's speech.

There may not be all that many Members of another place who find time to read or write books, but we have here an acquisition to this House of a noble Lord who is also a writer and that is to be welcomed. Indeed, the noble Lord's literary references in his speech today were very well received, as I am sure such references will be in the future. The noble Lord made one controversial point on devolution, but I shall not argue with him today. I believe he said that perhaps the government offices of the region are not strong enough as yet to deliver the liberation of the English regions. If that is the case, I wholeheartedly agree with the noble Lord.

I have just two themes to pursue today. I am grateful for the opportunity to do so provided by this most excellently produced and excellently designed report by my noble friend's committee. The fact is that we have here a report which enables us to debate the issues, so to speak, beforehand—that is, before we have the announcements from the Commission which, as my noble friend said, are due to be published on Wednesday. We cannot anticipate what is in Agenda 2000, but I assume that the Minister who is to respond to the debate is aware of what is likely to be said on Wednesday in all his capacities; that is, both his previous and his present capacity.

It is essential that we in this House play our part in this debate on regional policy. I should like to do so briefly by underlining two themes, one of which has already been dealt with quite extensively, and one which has not perhaps had enough emphasis placed upon it as yet. I have in mind the regionalisation of regional policy and the greening of the regional policy of structural funds. It may seem rather strange to emphasise the regionalisation of regional policy, but my noble friend did so very effectively—as, indeed, does the report—in referring to the need not to have just a "top down" approach or just a "bottom up" approach—I refer particularly to paragraph 86 of the report—but also that it was essential for the programmes to be, the result of partnership between national and sub-national bodies, down to local communities, at the planning stage as well as at the implementation stage". The endorsement that we have from the President of the Board of Trade of that line is warmly to be welcomed—an endorsement which we are not quite used to having from government, but it is a pleasure to have it now.

That theme was present in the report and in the minutes of evidence which, as always with such committees, was a very valuable resource. I hope that I pronounce the following name properly, Signor Arias Cañete—indeed, I understand from my noble friend that I have; I always like to get these linguistic matters right, and I am always pleased to receive advice. He was the chair of the Regional Policy Committee of the European Parliament and emphasised the importance of concentrating on the geographical issue involved in regional policy and the fact that, as he said in evidence: It should be a general principle that the thematic and geographical concentration policy should be totally applied to all countries, and all regions, whether they are rich or poor". I know that my noble friend Lord Desai will pursue the matter further, because that was his major line of questioning. However, that is of particular relevance to the United Kingdom and to the Welsh economy. I shall not dwell at length on the Welsh economy as I shall have plenty of opportunity to do so.

Structural changes have taken place very successfully in the restructuring of the former coal and steel communities and the existing very competitive steel industry located in Wales. It is important to recognise the contribution made by the restructuring of old industrial areas emerging from Objective 2 and the need for that to continue for all similarly placed regions within the Community, especially as we look to the extension of the Community eastwards through enlargement. It is essential that we have that urban old industrial dimension of policy, but it is equally important that the regions designated should be sufficiently specific so that where we use targets such as 75 per cent. of GDP in Objective I, that aid should be available even when there are sub-regions within more successful regions where the level of performance has not risen to the level of the region as a whole. That issue is important as we look to inward investment in south-east Wales and in north-east Wales and the position of the western seaboard which is benefiting from the INTERREG programmes and other Community initiatives.

It is important that we are able to have a sub-regional structure within regions that is able to deliver the benefits of the structural funds directly to the areas which need them. I am certain that the Minister will be able to comment on that because this is not just a matter for the European Union but also for member state governments. We shall want assurances that this Government, in their dealings with the European Union in the debate on the future of regional policy, will ensure that those areas within regions, such as the western seaboard of Wales—where I live and which I have represented in another place—continue to have recognition. If possible, they should be given further recognition because, as the Minister is aware, the lack of Objective 1 status under the present system in Wales has been a cause of great concern. That needs to be looked at most carefully as regards the new structure.

We have already heard about the emphasis on the decentralisation of partnerships and the concept that local communities are able to respond much more effectively to support through structural funds when they have an impact on planning. Robert Moreland, the chairman of the section for regional development and town and country planning in the Economic and Social Committee has written an excellent memorandum in which he emphasises, A sense of enthusiasm from Member States but in particular from the local community as being important to make a programme a success. We cannot over-emphasise that. We should consider recent successful initiatives. One such is the regional technology plan—although that was a Community initiative and therefore signalled from the centre, as it were—which has worked, certainly in the case of the Welsh economy, because it has been taken up by partnership institutions and by public sector bodies such as the Welsh Development Agency, local authorities, the academic sector and so on.

Therefore we cannot over-emphasise the importance of decentralisation in that context. That applies not just to regions or to sub-regions but also to local authorities themselves. I believe Sr Cañete pointed out that even where there are autonomous governments within member states, as in Spain, there is discussion in Spain as to whether local authorities should be associated with that matter. There is an ongoing fight between the different bodies of governing states. The regional policy committee of the Parliament has considered this issue and has attempted, in the context of regional policy, to define the principle of subsidiarity, or at least to ask for a definition. However, I notice that the committee was told in evidence that there had not yet been a decision on whether the whole of the Parliament could agree on a definition of subsidiarity. Clearly they see the importance of applying the principle of subsidiarity to the whole area of regional policy.

It is also essential to apply the principle of sustainable development and the greening of policy. The concerns expressed in evidence by CPRE, I of course endorse as a member of CPRW. I also endorse the detailed evidence put forward by the RSPB itself and on behalf of Birdlife International. I know that the RSPB is a regular contributor of evidence to our Select Committees, but the evidence is perhaps more valuable for that as the organisation is aware of the detailed activities of our committees. That evidence is always welcome. In its emphasis on the need for sustainable development criteria within the structural funds, CPRE has emphasised what has been a serious failure of the operation of policies in the past. It draws attention to the importance of the Cork conference on rural Europe and the need for integration and the role of green tourism in creating employment which is also sustainable in environmental terms.

I warmly welcome the report. I welcome the initial Government response and I look forward to the UK continuing to play a constructive role in the debate on the structural funds. I hope—although this may be a fond hope—that noble Lords on all sides of the House may also play such a constructive role.

3.45 p.m.

Lord Grenfell

My Lords, I add warm words of congratulation to the noble Lord, Lord Renton of Mount Harry, on his maiden speech. When we are treated to the eloquence and wisdom of an "old pro" coming to your Lordships' House from another place it is always a matter for great celebration. We look forward to many interventions from him.

Once again it is a great pleasure to participate in an inquiry under the chairmanship of my noble friend Lord Barnett. As usual, he guided us with his wisdom, wit and well-known skills through a long and complex study. I thank my noble friend for his eloquent and persuasive introduction to this debate.

The committee's recommendations fall into nine main subject areas. I wish to focus mainly on the three that look to the years ahead: the basis for reform; the implications of EMU and of the enlargement of the European Union; and the distribution of funds within the EU after 1999. Before doing so, I record my appreciation of the response of Her Majesty's Government to this report, as set out by my right honourable friend the Secretary of State for Trade and Industry in her letter of 30th June, to which my noble friend Lord Barnett and others have already referred. On the whole, I found it positive. I shall mention three points which struck me as particularly encouraging.

First, I welcome the assurance that in line with our recommendation in the report, and indeed in line with the Government's commitment to lifelong learning, the Government will seek early adoption of an Objective 4 programme for this country. A programme of this kind to help adapt the workforce to industrial change is long overdue. I fully share the hope expressed in our report that this programme can be promptly formulated, agreed with the Commission, and implemented.

Secondly, I am encouraged that in accordance with their manifesto pledge Her Majesty's Government will pursue tough action on unfair state aids which harm enterprises in other EU member states. This accords entirely with the view expressed in our report. I am sure that the Government will use their enhanced influence in the Industry Council and the Commission to achieve that end. We await with great interest the report on this issue which the Industry Council has called on the Commission to produce.

Thirdly, I warmly welcome the Government's pledge to continue reviewing how best structural funds administration can be improved throughout the United Kingdom. I must, however, take issue with the view advanced in the Government's written response that delays in project approvals and payments are largely the consequence of current structural fund regulations, and that our contrary view in the report had resulted from our making comparisons with the Irish experience with the cohesion fund which was not relevant to our own experience with structural funds. With the deepest respect, the views formed by the committee were based on evidence from United Kingdom users of structural funds who found the roots of the problems a lot closer to home than Brussels. And this seems to have been the view also of the European Parliament's report on the use of structural funds in the UK published just three months ago. While that report was in the making, our committee took oral evidence from its rapporteur, Arlene McCarthy, MEP, and she was even then able to hint broadly at what her committee had learnt in the hearings it had held right across the United Kingdom.

In the words of the European Parliament's eventual report, Major problems exist in the UK government's management of the Structural Funds". and it cites, inter alia, Government failures to act once projects have been approved, the delays often caused by inadequate staffing in government offices, and so on. I could go on but that is not the report that your Lordships are discussing this afternoon. Suffice it for me to suggest, with respect to my right honourable friend the Secretary of State, that her response to our report's findings on this matter of delays and our consequent recommendations in paragraph 96 tend to let the previous Government undeservedly off the hook. That is the only real quibble I have with what I otherwise regard as being a very encouraging government response to our report.

I now turn briefly to the reform of the funds, the implications of EMU and EU enlargement, and the distribution of funds within the EU after 1999. I shall touch on only a few aspects which have been of particular interest to me.

In one respect the debate comes two days too soon. It would have been interesting to have known what Commission President Santer had said rather than relying on press accounts today of what he is expected to say when he makes his Agenda 2000 statement this Wednesday—it was referred to by my noble friend Lord Barnett—when he presents the Commission's opinion on the preparedness for membership of the 10 applicant countries as well as the outline financial perspectives for the EU budget covering 1999 to 2004. It appears that the Commission is recommending that negotiations be opened with Poland, the Czech Republic, Hungary, Slovenia and Estonia, with Cyprus already on course.

Agenda 2000 will also set out the Commission's ideas on reforming the CAP and the structural funds. What the Commission tells us this Wednesday is, of course, only the beginning of a long process of discussion and negotiation involving both the Council and the European Parliament. We hope, therefore, that our report's recommendations on these matters will be helpful to the Government in the process.

Noble Lords will note that in paragraph 93 our report urges the swift preparation by the Commission of detailed proposals for reform of the funds if new structures and regulations are to be agreed and in place in time to avoid delay in drawing up the programmes to be implemented post-1999. I trust that the Government share our sense of urgency and that they will use Britain's presidency in the first half of 1998 to push matters along.

As to what those reforms should be, our report puts forward a number of proposals in paragraphs 94 to 97. I shall here touch on only one: the recommendation that the number of structural funds should be reduced with perhaps one fund for human resource development and one for all other structural purposes. I signed up to this consensus in the committee but with some doubts lingering in my mind largely fuelled by a quite telling point made by Commissioner Wulf-Mathies when we discussed this issue with her last January.

The point she seemed to be making was that reducing the number of funds was less important than making sure that the basic rules, conditions and procedures for the different funds were the same. A reduction in the number of funds would not of itself reduce the range and variety of problems to be addressed. I also gained the impression from other oral witnesses that the frustrations felt in recipient countries had less to do with the number of funds and more to do with the irritating diversity of procedures and regulations that distinguished one fund from another. Commissioner Wulf-Mathies' plea for harmonisation would address that problem while safeguarding the specificity of the role of each fund.

Nonetheless, the case for simply reducing the number of funds is attractive to many. I ask only that in considering whatever the Commission's proposals are in this regard, Her Majesty's Government bear in mind that a reduction in the number of funds without any complementary harmonisation of rules, conditions and procedures among the lesser number of funds that will emerge from the reform will provide little added value.

I come now to the implications for the funds of eventual European and monetary union and the enlargement of the membership of the European Union. With respect to EMU, I have two points to make. We are aware that with the advent of EMU, and against a background of strict and sustainable convergence, some member states might want to increase their domestic income transfer payments to adversely affected regions. But our report, quite rightly, argues against this being used as a justification for seeking additional EU funds for investment in structural development, even though EMU may make structural change more urgent. If that sounds half-hearted, it is at least consistent with what the committee wrote in its June 1996 report to your Lordships on an EMU of "ins" and "outs". I think that it is an important point of policy. When it comes to allocating scarce EU funds in the years after 1999, helping new members of an EU enlarged to the east and the south must take priority over relieving fiscal pressures on the older member states of the north and the west.

My second point on the impact of EMU relates to the committee's recommendation that cohesion fund assistance should be tapered off when a beneficiary country joins EMU. I find this logical because the cohesion fund's stated purpose is to assist convergence towards the criteria for entry into the single currency zone. However, I hope that Her Majesty's Government will vigorously encourage the European Investment Bank to help meet the continuing needs of the four existing cohesion countries, whether they are in EMU or waiting, in particular with their infrastructure, as the main focus of the cohesion fund gradually switches to central and eastern Europe.

That brings me to the impact of enlargement. It is sobering to recall that it took nine years to negotiate the entry of Portugal and Spain in 1986—two countries which were relatively more prosperous than today's applicants. No one expects these new negotiations to take as long as that since the Europe agreements have provided a head start. But they will still be long and arduous, and it is important that this is not used as an excuse for delaying the implementation of agreed reforms of the CAP and the structural funds, which urgently need reform irrespective of any enlargement.

My second point on enlargement is this. As the Economist pointed out last week, there is a danger that squabbles among the EU 15 over who gains and who loses from the reforms that must precede enlargement risk turning public opinion against the whole enlargement project. Those squabbles can be largely avoided if, as we point out in the report, the Commission provides convincing evidence to back the theory advanced by Commissioner Wulf-Mathies that the new members can be accommodated with structural funds, and that funds exceeding existing levels will still be available for programmes within the Community of 15, without any additional burden falling on Europe's taxpayers.

As Commissioner Wulf-Mathies stressed in her evidence to us, enlargement will mean a gradual inclusion and a gradual integration of new members into structural funding. The quality of their central and, importantly, regional and local economic administrations, and their capacity for matching funding (a serious problem in countries also coping with the costs of NATO enlargement), are generally not yet of a standard to ensure a high absorptive capacity. In our report we say that we would be surprised if it were to exceed 4 per cent. of GDP for even the best performing economies in central and eastern Europe.

With that in mind, I find that the hypothesis advanced by Commissioner Wulf-Mathies last August to the Bundestag's European Affairs Committee quite compelling. If today's press reports are accurate, what she said a year ago appears to have been broadly confirmed as regards the underlying assumptions in Agenda 2000. If the assumptions and calculations are correct, this should pre-empt a great deal of unnecessary scaremongering about the costs of enlargement and the future of the funds.

I come finally to the question of the distribution of the funds within the EU after 1999. The report before your Lordships makes some important recommendations in paragraphs 105 to 110. They address central issues such as the need for greater geographical concentration and a better spatial definition of eligible regions. We know that there has been deep division in the Commission over how to reconcile the competing claims of declining urban areas and struggling rural communities with Commissioners Wulf-Mathies and Fischler doggedly fighting their respective corners. One can only hope that a fair compromise has been, or soon will be, reached.

The most important of the recommendations on post-1999 distribution in the report is that there should be a vigorous pruning of the themes or objectives that are eligible for funding. I am tempted to call this the "Lord Dahrendorf seaside bandstand test". That reference may seem a little obscure to some noble Lords; however, I believe that the noble Lord, Lord Dahrendorf, knows to what I refer.

As our report urges, the overriding considerations when determining eligibility for projects should be: increasing competitiveness; increasing sustainable employment; and adjusting skills to meet changing labour market needs. In the past too much funding has failed to pass these tests. Now is the time to get it right.

The bottom line of the report is that the funds which have overall made a positive impact have survived rather well the tests of times past but will not in their present form survive the tests of times to come. I believe that Her Majesty's Government, on the basis of the response we have had so far to the report, will use their new-found influence in the European Union's councils, particularly during their presidency next year, to help ensure the kinds of reforms to these funds which historical experience and current realities now demand.

4 p.m.

Baroness O'Cathain

My Lords, I begin by paying tribute to the skill of the noble Lord, Lord Barnett, which was indeed quite remarkable. The 12 members of the committee were almost as individually disparate as the 15 members of the European Union, yet he managed to control, cajole and encourage us in a most effective way. The noble Lord, Lord Grenfell, put it much more elegantly, referring to his wisdom, wit and well-known skills. "Masterly" is the word. As an aside, he would do wonders in Brussels, bringing those self-same attributes to bear on the bureaucracy and making it more effective—the word "effective" is uppermost in our minds today.

However, we should miss the noble Lord's deft chairmanship of this excellent committee. (I can now describe the committee as such being no longer a member of it.)

Today we are taking note of the 11th report of the European Communities Select Committee on reducing disparities within the EU: the effectiveness of the structural and cohesion funds. Certainly the funds have been effective. But two questions remain in my mind: first, how effective; and, secondly, could they be more effective?

It is difficult to assess how effective the funds have been. When taking evidence one always has to discount the fact that by the very nature of the inquiry witnesses in receipt of funds wish to put the best possible case forward. An inquiry conducted by the representatives of a country which is widely regarded as the least enthusiastic member of the European Union, and one which receives little or no funding by comparison with either Greece or Ireland, must have resulted in a determined effort to convert us!

Witnesses from the Commission and witnesses in the member states or regions of this country in receipt of funds were universally supportive of the funds and were pretty reluctant to envisage a situation in which the funds would be diluted to take account of enlargement; withdrawn because criteria for receipt of the funds had been overtaken, as in the case of Ireland; or changed in concept.

We received masses of supporting evidence to suggest that, without the funds, economic progress and job creation would not have been as "relatively" successful. However, I was left with a lingering doubt as to whether the use of the funds was as effective as it either could be or was claimed to be.

That doubt is founded upon the universal inability to specify exactly how many jobs have been created. That should be a relatively easy calculation to make, but it seems to be outwith the competence of the Commission at present. A subsidiary doubt refers to the "quality" of the jobs created. It was exceedingly difficult to assess whether the jobs created were long-term, skill-enhancing jobs or just temporary, part-time jobs. In one notable instance funds were used to transform a hobby into a business for people who were quite happy to continue with their hobbies but saw an opportunity to make "pin money" out of them because they were in a "funds" area. In all conscience, that is surely not the intention of European taxpayers and does not meet the objective of, reducing disparities within the European Union". Reducing disparities is the aim of the funds, and every single one of us would wish to do just that. In the absence of any other bright ideas, I guess that they are certainly better than nothing. However, since they are funded out of taxpayers' money, accountability is a prerequisite. I fear, as in many other cases regarding EU measures, accountability is not necessarily uppermost in the minds of the recipients of the funds—and probably not in the minds of the Commission doling out the funds.

Here I have a difficulty, and it relates to my second question: could they be more effective? If we insist on putting in place yet more administrative arrangements to ensure greater accountability—for example, post-grant audits and the like—more and more of the EU moneys will be spent on bureaucracy and administration. One has only to let one's imagination run a little wild to arrive at the total cost of what has been called the "Lord Dahrendorf Padstow bandstand", which I am sure was well in excess of the £15,000 funding received. I am sure the noble Lord will tell the House what this bandstand is all about.

Everywhere we went we heard of "administrative nightmares" at worst, "hiccups" at best, in dealing with the Commission and with national governments from the petitioners for funds. I turn again to my second question: could the fund be more effective? In Ireland they seem to have the problem substantially licked. Networking by senior civil servants (who to a man—and I say the word advisedly—unfortunately were enthusiastic EU supporters, and most seemed to have "done time" in Brussels) was remarkable in its ability to get funds sanctioned within hours in some cases, while the UK experience was that it usually took many months.

My personal recommendation is for our civil servants to become much more adept at networking in Brussels and with Brussels. I should be most interested to hear whether the Minister has any radical ideas on how to achieve that. Several years ago I raised many hackles by suggesting that spending some time at the Commission should be a pre-condition for promotion to the level of Deputy Secretary in the UK Civil Service. I shall not elaborate on that but at some time, someone, somewhere might consider it.

There is a big requirement to cut red tape. But once more it must be asked: is it possible so to do and still safeguard taxpayers' moneys? We spent much time, officially and unofficially, chewing over this one. I fear that our combined inputs to the discussion did not yield so great a result. Diagnosis is so much easier than effecting a cure.

In our visits to Strathclyde and Cornwall I realised that sometimes the word "effectiveness" does not necessarily mean the effective use of funds to achieve an objective. Effectiveness is not always quantifiable in financial terms. I came to believe that the very existence of the funds has actually, in some cases, energised local groups to do some strategic thinking and local economic planning with the objective of seeing whether they might be able to build up a business case and win funds for it. There have been cases which were not successful in attracting the funds for which they applied yet the people were so energised that they decided to go ahead anyway. Effectiveness of the structural and cohesion funds is not judged by the catalyst effect that they have—perhaps it should be.

Debate on the subject of EU moneys being used to reduce disparities will continue; it will run and run. Future enlargement of the European Union will bring the subject to the fore year after year. One of the real achievements of the committee in undertaking this investigation was to produce a report which states clearly and in simple language the issues, the pitfalls which should be guarded against, while giving the best résumé to date of a complicated concept and an emotional subject.

I am sure that some disparities have been reduced. I am sure that the use of the funds, together with the "share of voice" of strong European Union supporters, have been in part responsible. I also believe that this report is in the category of "required reading" for anyone involved with, or interested in, the future of the European Union.

4.9 p.m.

Lord Bruce of Donington

My Lords, it was a great pleasure to have the opportunity of listening to the maiden speech of the noble Lord, Lord Renton, whose reputation in ministerial office in another place is well known to me. I look forward to his future participation in debates, particularly where they involve finance and even more so where the noble Lord's views may conflict with those of the former Financial Secretary sitting on my right.

It is also a great pleasure for me to see for the first time the noble Lord, Lord Shaw of Northstead, on the Front Bench opposite. He and I had many pleasant encounters in the European Parliament when we were both involved in a number of joint enterprises. I look forward to his participation in the debate.

I now turn to the report. I am glad that my noble friend Lord Barnett took advantage of the occasion to refer to the printing of the document. As one who was responsible for the most rigorous enforcement of the strictest financial disciplines, I am at a loss to understand why we suddenly have a House of Lords Select Committee report with a glossy cover, in colour and printed on expensive glossy paper. I must express some surprise that the report has not been produced at the most economic price. The quality of a Select Committee report lies, as I am sure noble Lords agree, not so much in its adornments, colours and dressing-up but in its contents.

Having read the report, I must confess to some disappointment. We are dealing with an endeavour to redress differences that have either always existed in one form or another or developed between various member states of the European Union. As I understood it, the original regional development funds were initiated for that purpose. The current report deals with cohesion funds, which do not concern us domestically but concern only four countries: Spain, Portugal, Greece and one other whose name escapes me for the moment—Ireland, of course.

As chairman of the European Parliament's Regional Committee, I had some experience of the European Community's endeavours to deal with these imbalances. Those endeavours were not entirely successful, at any rate on the basis on which they were originally undertaken. Year after year in the European Parliament we have been forced to acknowledge that, taken globally, they have not been successful at all.

Baroness Williams of Crosby

My Lords, does the noble Lord accept that the country whose name he had difficulty recollecting leapt from 60 per cent. of the per capita GNP of the European Community in 1975, when it entered it, to 94 per cent. last year, by any standards as remarkable an achievement as those of the outstanding little Asian tigers?

Lord Bruce of Donington

My Lords, I can only refer to the report itself in order to illustrate the point. By and large, the results have not been impressive. I refer to paragraph 59 of the report at pages 18 and 19, where it is stated: Across the EU as a whole disparities between the best-off regions and the worst-off regions were little changed: the 25 best-off increased their level of average GDP per capita from 140 per cent. of the EU15 average to 142 per cent. while the 25 worst-off regions moved from 53 per cent. to 55 per cent".. I do not believe that that can be regarded as particularly impressive. I am not denouncing the European Community for that but merely reciting a fact which is already well known: that endeavours to reduce disparities within the fortunes of member states by the application of regional funds and similar measures have not been particularly successful. Year after year this happens and is underlined in budget speeches.

We need to realise why that is so. Whatever administrative and government arrangements are made about the levying of funds from member states in order to perform what is in effect a redistributive function, the macroeconomic policies pursued by member states of the European Union are the most important factor. One cannot run against the tide. The deflationary policies carried out in Europe as a whole over the last few years and more particularly now—and we shall not ultimately escape the effect—are likely to make endeavours to redistribute income or resources by the injection of quite trivial sums unsuccessful.

Instead of action by governments within member states to redress disparities within localities, even that small and basic function has now been spread to European institutions. That is what we have to face. At the moment, for example, structural funds involve in the United Kingdom the Department of Trade and Industry, the Treasury, the Foreign and Commonwealth Office, the Department for Education and Employment, the Department of the Environment, Transport and the Regions, the Department of National Heritage, the Scottish Office, the Northern Ireland Office and in some respects the Ministry of Agriculture, Fisheries and Food. There are not tens but hundreds of civil servants involved.

Lord Elis-Thomas

My Lords, the noble Lord has forgotten another country, this time one inside the United Kingdom. I refer to Wales.

Lord Bruce of Donington

My Lords, that I should forget Wales? That is impossible. My noble friend adds Wales and I willingly accept it.

In the EC itself similar departments are involved in the process. There is Directorate-General XVI, regional policy; Directorate-General V, social affairs; Directorate-General VI, agricultural affairs; Directorate-General XIV, fisheries; Directorate-General II, economic and financial affairs; Directorate-General XIX, budgets; and so on. In addition, large numbers of civil servants are involved in the European Commission itself. We are not talking of tens but of hundreds, and yet the report complains—though not over-vociferously—of matters becoming lost in bureaucracy. You can say that again! I have had experience of it. Once civil servants, whether international or national, are involved on such a scale, the system is bound to become over-bureaucratised.

Moreover, looked at from the report's standpoint, it seems to be automatically assumed that the funds are there. It is assumed that the funds are subject not to the caprice of individual ministers in different countries but subject to decisions made in monitoring committees, various planning committees and throughout the directorates and directorates-general. Rational decisions cannot be made on that basis. Also it is assumed that the funds are there. It is said that funds are being made available to projects in the United Kingdom. But it is not always realised, particularly in the United Kingdom—although the Commission always insists, as a matter of principle, that due acknowledgment is made by boards shoved on site to the effect that this project is undertaken through the courtesy and assistance of the European Community—that it is being made available out of funds provided by the British taxpayer. Little attention gets paid to that.

Yet that is indeed exactly the case. The contribution from Britain in these matters is not exactly to be sneezed at. The report itself says that the net contribution made by the United Kingdom to the structural and cohesion funds—to all the funds, whichever country benefits—involves the net payment by British taxpayers of £500 million. So it is not as though all these projects are provided by the generosity of the European Community. In fact, we pay for them. There is a net cost to us of £500 million. The Treasury is in a position to correct the figures, if it so wishes.

I do not necessarily object to it. It may be for reasons of high policy, our relations with other countries, our defence position, or for a whole series of other reasons that the British taxpayer should contribute to all those things that are alleged to be provided by the European Commission. But the public ought to know. I do not think they do, and I think that they should do so.

One thing is certain. If we are to become involved or even further involved in an enterprise of that kind, we should be quite frank and open about it. We should not attempt concealment or say, in effect—as does the report by not mentioning it in the conclusions—that there is no cost to us. There is.

Surely, also, it is best—the report brings it out on occasion after occasion—that all those decisions made by committees that shuttle across the Channel or across Europe in order to appraise certain items are decided at national level; not to have individual appraisals made of them, possibly aided by expensive consultants in order to talk about them once again in Brussels and argue whether or not they should be modified and if so who should pay and how much should be paid. Indeed, the report itself makes a note of that, even though it does not feature prominently at all in its conclusions.

Therefore, let us have some honesty about these matters. Let us admit that there is a cost. Without being carried away by too much jargon one way or the other, one can view the whole question of disparities between regions and disparities between localities and one's own country. These matters are far better reviewed not on the basis of ancient dogmas that come to be perpetuated in the wretched Commission rituals with which we are afflicted, but by the ordinary common sense of Parliament itself, including, I hope, your Lordships' House.

4.25 p.m.

Lord St. John of Bletso

My Lords, as a member of the sub-committee, I also thank the noble Lord, Lord Barnett, for his leadership and skill—a word used by several noble Lords—in co-ordinating this inquiry. I should also like to extend my thanks to our Clerk, John Goddard, and to our special adviser, Professor lain Begg, for all their support in the extremely interesting inquiry. I join too in congratulating the noble Lord, Lord Renton of Mount Harry, on his maiden speech. Certainly his interest in European matters will greatly enhance debates in your Lordships' House. I look forward to hearing much more from him in the years to come—if, that is, I am still here in years to come after any reform of your Lordships' House.

One of my concerns about the work of Sub-Committee A has been the apparent lack of distribution and exposure of its reports. I am by far the most junior member of the sub-committee. Perhaps the smart cover of the report may increase its penetration and exposure. I was saddened by the fact that the noble Lord, Lord Bruce of Donington, felt that the quality of the cover does not match the quality of the contents. Certainly the report represents value for money.

I wholeheartedly support the commitment of the structural funds and the cohesion fund to reducing regional disparities. But it was crucial in the inquiry to establish whether the funds were correctly targeted and whether they have been effective. It is surely the delivery of results that is one of the key objectives of the funds. I agree with Commissioner Wulf-Mathies's view that one of the greatest challenges in Europe will be to reduce the levels of unemployment, particularly for those under the age of 25.

The report has comprehensively covered the key issues behind the strategy of the funds and the possible reform of the funds. Therefore, I shall keep my comments brief, but would like simply to highlight what I believe are a number of the points that are of special concern.

Central to the rationale and objective behind the structural funds is that the investments should be made to strengthen the economic base of the recipient regions, but not as income transfers. Their objective is to achieve greater equality in economic and social opportunities. Paragraph 35 of the report encapsulated the point that the inquiry was:

not whether Community policies by themselves are achieving economic and social cohesion but whether they are operated so that they add value to and complement national cohesion policies so as to achieve results which would not otherwise he obtained". What became clear certainly from visits to Athens, Dublin, Strathclyde and Cornwall was that a good relationship between member states and the European Commission is vital to maximise the use of the structural funds. That was particularly apparent, as mentioned by the noble Baroness Lady O'Cathain, from the strong relationship between the Irish officials and the European Commission. There is no doubt that the structural funds and the cohesion fund have made a major contribution to the recent success of the Irish economy. I am pleased that the noble Baroness, Lady Williams of Crosby, highlighted that point. Those of the committee who visited Dublin were enormously impressed by the high standard of strategic co-ordination and effective delivery in Ireland. I emphasise "effective delivery" as this appeared lacking from the submissions of several of our key witnesses talking about the efficacy of structural funds in England.

A common complaint by many of the witnesses was that the structural funds, and, more specifically, the location for structural funds was over-bureaucratic, and that there were unnecessary resultant delays which affected approval decisions and the payment of funds.

While there have been many regional success stories— here I refer to the recent report by the European Regional Policy and Cohesion Committee on success stories—with profiles of 36 projects in Europe, there is no doubt that there is enormous scope for improvement. The words "scope for improvement" remind me of the comment always made by my headmaster. As I have already said, the emphasis for the structural funds must be on efficiency, adding value, and complementing national cohesion policies.

While I agree with the four principles of concentration, programming, additionality and partnership which underlie the structural funds, there appears to be a variation in the interpretation of those principles. For example, in the submissions from the British chambers of commerce, it was pointed out that one of the difficulties with the principle of additionality is that it is extremely difficult to access match funding for both the public and private sectors.

Unlike cases in Scotland, where there appears to be a good relationship between the Scottish Office and local organisations, there appeared to be far less of a partnership, as I have said, in England between Whitehall and the local authorities. That led to many calls for the administration of the structural funds to be simplified. It was felt that—I say this despite the reservations of the noble Lord, Lord Renton—with government offices for regions that should produce a better relationship between central government and local partners. My understanding of the legislative programme for the coming years is that government for the regions should be more effective.

I strongly support the recommendation in paragraph 46 that government should further improve the analysis of economic and social needs based on local area statistics. Paragraph 48 states,

we are convinced that devolution to regional level of decisions about structural policies and their funding will need to be carried further if the potential benefits of the Structural Funds are to be maximised". Further, paragraph 86 states: Programmes must be the result of partnership between national and sub-national bodies, down to local communities, at the planning stage as well as the implementation stage". The point has already been made by my friend Lord Elis-Thomas. I was delighted to hear that the Minister for Trade and Industry gave her commitment to achieving those objectives in her letter responding to our report.

As for the reforms mentioned in the report, I concur that future funding should be targeted more closely on the most needy countries, regions and smaller pockets of deprivation, and central government and the European Commission should work as partners, not adversaries, to steer, but not to dominate, the planning of regional strategies and programmes. Those programmes should be seen to be regional needs assessed on the basis of reliable economic and social statistics, and the administration must be simplified. A great deal more should be done to encourage and entice more private sector involvement with the funds.

The pace and conditions of enlargement, as the noble Lord, Lord Grenfell, said, will have major financial consequences for the future of European policies, including those for cohesion.

Finally, there is no doubt that to assess the efficiency of the funds, it is vital to have effective financial controls, and, here I refer to monitoring and evaluation of existing and past projects. There appears to be scope for more reform of the monitoring committees. With almost a third of the EC budget devoted to the structural funds and the cohesion fund, it has become all the more essential that the funds are targeted correctly, managed properly, and that lessons are learnt from past experience. I warmly recommend the report.

4.35 p.m.

Lord Desai

My Lords, as the last speaker in the debate, let me start by saying, "You may have read the report, but did you see the film? Little did you know that the chairman is not just the many things that speakers have said, he has missed a career in the movies". Anyone seeing him coming down that lovely staircase in the Greek Embassy, would have thought, "Ah, there is style". I congratulate the noble Lord, Lord Renton, on a notable maiden speech. I remember how nervous I was when I made my maiden speech. I had great feelings of trepidation. He had the most relaxed manner of any maiden speaker I have seen recently. I am sure that that comes from his long experience in another place. I am sure we look forward to hearing many more contributions from him.

I shall confine myself to the future of the funds and not so much on what has already happened. I shall say one thing in response to my noble friend Lord Bruce of Donington. It is correct to say that on the one hand we have had the cohesion countries—Ireland, Spain and Portugal but not Greece—considerably improve their relative status in terms of average income over the past 15 to 20 years. That is a welcome result.

It is also true as the report points out in Paragraph 59, which my noble friend quoted, that indices of inequality have not moved all that much. The problem is—it is a well-known problem in economics and politics—that inequalities, especially across regions within a country, are hard to correct in the short term. Some noble Lords may be aware of the brilliant work of Professor Putnam, who pointed out when analysing the Italian case that Italian inequalities across north and south can be traced back to forces and factors which go back 600 or 700 years with the building up of the culture of hard work, enterprise, and so on.

Those things are important. Even within the UK, I would bet that if we looked at industries as between the north east and the south east, inequalities persist for a long time. We are looking for funds such as these to arrest the growth of inequalities so far as possible. We must be sure that they do not worsen as a result of, say, a single market or joining a larger union, but that they stay the same or improve.

I am worried about enlargement. I am untypical in your Lordships' House. When the noble Lord, Lord Wallace of Saltaire, initiated a debate on enlargement, I was the only speaker to say that I did not like any of it. I am worried that we shall add six countries in the first instance—in a year we shall go from 15 to 21—which will add a third to the population and about 5 per cent. to total GDP. Therefore, the entry of the six and perhaps later on of another four will require a more fundamental rethinking of the EU structures than any of us has so far realised. We may even have to ask ourselves whether any of the old 15 receive any of the funds that are designed for redistribution.

That would be unfortunate. One of the lessons of the cohesion fund and of t he report is that one must not go too much into aggregates within a country. There are widespread regional differences. A country may be quite rich on average but within that country there may be serious pockets of poverty. One must not neglect that, especially if one sees that internal policies are not adequately dealing with the problem. There should be some mechanism for the EU process to look at the deep pockets of poverty which persist even in rich countries.

In this respect the use in the cohesion fund of average per capita income is far too crude. We shall have to revise the threshold level from 75 per cent. to a figure much below 75 per cent. to make people eligible for cohesion funds. However, by itself, income does not convey enough information. If we rely only on income at a national level to give aid to countries, and then rely on those countries to distribute them to where they are needed, we may miss the target. What is important is not that Greece, Spain or Portugal are that much below average or that Poland and Hungary will be much lower; what is important is to pinpoint the areas of those countries which are well off and able to manage by themselves and those areas which need help. In that respect one of the matters the Commission and perhaps even the DTI should look at is the construction of additional variables or indices which might help better to pinpoint regional inequalities.

Some noble Lords may be aware that I have made a contribution to the Human Development Index which looks at poverty across countries. The Human Development Index has been constructed for provinces, and even for districts, of some countries in eastern Europe. The Hungarian human development report looked at how different districts compare in terms of their human development. That might help better to pinpoint where aid should go rather than relying on broad categories such as average income or how to help industry adapt to change. Those may be noble objectives but they are fuzzy. They are not good enough guides for operationalising the construction of a policy which is designed to tackle regional inequalities.

We should look at how we can find better measures for identifying where inequalities are. What is the nature of an inequality? Is it a poor region that has been poor for a long time or is it a region that has been impoverished recently because of industrial change? Those two things may require very different policies. The instruments that are currently being used are far too crude.

We should all think about how we can improve the detection of inequalities, how we can define the nature of those inequalities and how we should tackle them. Different problems may need different instruments. In this respect I agree that it is not so much that the number of funds is large but that they have a disparate set of criteria for giving money for different procedures. If it is made clear that our objective is reducing inequality, that inequality may have a different nature in different areas and may therefore require different instruments. Having thought like that, it would be better for the Commission to think about how it can simplify the criteria it uses and while simplifying them, make them much more precise than they are right now.

As the trends show, no doubt the total amount of money will shrink. However, as the noble Baroness, Lady O'Cathain, said, it is remarkable that we do not know whether the money has done the job it was supposed to do. We have broad indications, as the noble Baroness, Lady Williams, pointed out, that Ireland is a success story, but we do not know how much of that success is due to the cohesion fund. I hate to add another expenditure on to the Commission, but I think by now it should have made a much better study of the results of the various funds it has given and that we should have had a much better account of whether the funds were effective; and, if they were effective, what measures for judging effectiveness were employed.

4.45 p.m.

Lord Pearson of Rannoch

My Lords, I have enjoyed the whole of the debate, especially the maiden speech of my noble friend Lord Renton of Mount Harry. I particularly enjoyed that part of his speech when I thought he sailed a little near to the wind of our convention that maiden speeches should not be too controversial when he said that he regarded EMU as the inevitable outcome of a single market. In order to assist my noble friend, I would agree that this was not controversial, but I would have to put it to him that it was perhaps just wrong.

I wonder whether I might ask the House, in order to reach two questions which I should like to put to the Minister, to accompany me into the engine room of the European Communities. I want to ask him two questions about how he envisages that the Treaty of Rome will actually work in the areas that we are discussing. In order to do this I shall quote briefly from two paragraphs, paragraphs 4 and 5, on page 8 of your Lordships' excellent report.

The first quotation reads as follows:

the CAP takes about one half of the Budget's resources while the structural policies are taking a gradually increasing share which is planned to rise to about one third of those resources by 1999". Other noble Lords have quoted that and indeed have referred to the following passage from paragraph 5 on the same page: The regime for the future financing of the EU, with or without enlargement, also calls for decision before 1999 when the current financial perspective arrangements expire. Negotiations and expectations on the overall size of the Budget, the enlargement of the EU and the impact of EMU, particularly on peripheral or poorer regions, will form the political context in which decisions on the future of EU aid for regional development—its structural policies—will be taken". Quite so, my Lords. But your Lordships will have heard me before say that some decisions in the European Communities are taken by unanimity and some by the qualified majority voting system.

Under that system, I hesitate to remind your Lordships again, there are 87 votes among 15 nation states; 62 are required to pass a motion and 26 to block one. I imagine it is true—the noble Lord the Minister will correct me if I am wrong—that the votes necessary to block reform of the CAP, which is so vital for enlargement, as your Lordships have agreed on many occasions, including this afternoon, are in the hands of recipient countries. Likewise, I think it may be true that a similar blocking minority may be in the hands of recipients who could block any change to the funds we are debating; or, I have to put it to the Minister, are any of these decisions to be taken by unanimity? In which case they become even more difficult to achieve.

So I merely want to ask the Minister whether the new Government have given any thought to these possible negotiating difficulties; and, if so, to what conclusion they have come.

4.49 p.m.

Lord Dahrendorf

My Lords, those of your Lordships who have had the pleasure of listening to the entire debate will realise by now that it was rather fun to serve on the committee which has produced this report. It was fun because we had a chairman whose firmness was always coupled with good humour. It was fun because it was an interesting committee. Indeed, I shall for ever find it difficult not to refer to other Members of the committee as "my noble friends".

For me, it now emerges that the committee had a special significance in that it has given me what I have long sought, and that is a small element of immortality, if only in the form of a bandstand financed by the European Union to the tune of £18,000 and located in the harbour of Padstow. That is what the noble Lord, Lord Grenfell, and the noble Baroness, Lady O'Cathain, referred to. For me, it was one of the examples of how perhaps not to spend European Community money, although I am sure that there are those who enjoy the effects of the bandstand, as I do now. I am now in a much weaker position in that respect than I was.

If we strip the whole European exercise of the rhetoric of union, we are left with three major policy areas. The first is what I would call the management of trade. I deliberately call it that both within the single market and outside. Second is the protection of declining industries, notably of agriculture in the countries which still had a major agricultural sector at the time of the foundation of the European Community. Third is the support for disadvantaged regions and groups, the area of the structural and cohesion funds. There are other activities. There are the remainders of EURATOM, which is the research area. There is of course a degree of privilege for former colonial countries associated in one way or another with present members of the European Union. But it is the three major areas which one is looking at if one identifies the reality of the European communities.

The first of these, the management of trade, does not cost any public money. It costs a lot of people a lot of money, but it does not cost any public funds to speak of. The second and the third between them consume about 80 per cent. of the total budget of the European communities. That is a fact that we should bear in mind as we discuss this issue in order to give it its proper, important place in the European scheme of things. As we have heard, and as noble Lords have seen from the report, about one-third of the total budget of the European Union now goes into the various funds which we have lumped together as the structural and cohesion funds designed to reduce disparities.

That is important. What is more, my conclusion, not least from the inquiries of the committee on which I had the privilege to serve, is that of the major activities of the European communities, the structural and cohesion funds are easily the most effective and important. I say that despite the comments made by the noble Lord, Lord Bruce of Donington, and others. In that regard averages, and even measures of disparity as such, are not necessarily the most informative.

It is a pity that the noble Lord, Lord Bruce of Donington, was carried away by the beauty of the cover of the report, because apart from being beautiful it is quite informative. It is an important fact that all the great success regions of Europe are not included in the areas to which the funds are applied and which we are discussing here. I refer to the south-east of England, the Low Countries, apart from Wallonia, Denmark and southern Sweden, the Île de France, south-east France, north-west and south Germany and northern Italy. They are not included. It is characteristic of the funds that we are discussing that they apply to countries on the periphery of the European Union and to peripheral regions within the major countries of the European Union.

That is rather an important fact because it probably tells us that on the periphery there is often a sense of insufficient recognition of needs even by national capitals. That is one of the discoveries that we made in our travels. Therefore, recognition is an element of the success story of these European funds. I want to use a word which I am surprised has not been used before in the debate and which is in part a response to my noble friend Lord Desai. The word is "catalytic". In peripheral areas in particular even limited sums of support can have a catalytic effect in that they trigger developments which might otherwise not have happened. In other words, it is not simply redistribution; it is not simply pouring large sums of money into particular regions; but encouraging forces which in principle are already there but which need that bit of encouragement which can sometimes be given by outside funding. Incidentally, that is quite often the best conceivable effect of international action to support developments in regions which are particularly in need of such support.

In this regard Ireland is an extreme example. No one in his senses would argue that it was simply the funding that came from Europe which, as funding, turned things around. But one can argue that by having special attention paid to Ireland, those forces in Ireland which in any case were prepared to move forward to quite a different story of development from the history of the country were encouraged. That was done partly by their being recognised as important. That is only one aspect and there must have been other elements of motivation.

All this leads me to conclude—as one who was quite sceptical, as my initial comments showed noble Lords, about the effect of many of the policies of the European Union—that it is highly desirable that the structural and cohesion funds should be continued after 1999, and even if we (and I hope we will) promote the enlargement process emphatically. That has simple conditions which are in the report. I am glad that the President of the Board of Trade seems to accept them. I hope the Minister will confirm that they are very much in line with government thinking. Where the funds have been particularly successful, it has to be possible to discontinue them. I encourage the Government to take a very strong position. Since Ireland has virtually reached the average level of per capita income, the moment has come when Ireland can no longer be a recipient of funds which were designed to encourage; they were not designed to transfer resources indefinitely.

There must be a concentration of purposes, as has already been discussed. I very much hope that the sort of statements which Commissioner Wulf-Mathies made in her evidence to the committee will become policy. There must be greater integration of the different aspects of the funds and policies, including—here I strongly support what the noble Lord, Lord Elis-Thomas, said—the environmental aspect in so far as it is relevant in both rural and urban areas; an integration of policies; and something which we do not have the time to discuss in great detail this afternoon but which relates to what was said by the noble Lord, Lord Desai. I refer to the fact that there must be quite a shrewd sense of whether, at the receiving end, there is sufficient preparedness to make the catalytic effect real. That is a complicated combination. It has something to do with regional or local organisation, including incidentally an item which the committee found important and on which I am eager to hear the Minister comment. I refer to the representation of elected members of local communities and regions on the bodies which advise and which to some extent take the decisions.

Without any doubt, there must also be absorptive capacity for the funds. That is why enlargement is not quite so much of a worry as some people seem to think. It is evident that Poland—the country which, above all, I think should become a member—cannot absorb even 4 per cent. of its GNP by way of European structural money. It will have to be less than that. Absorptive capacity is itself a condition of catalytic success. There are a number of other factors which we might wish to consider before making available more concentrated European funding.

Having said all that, the structural and cohesion funds naturally remain of limited importance. I should like to underline strongly what the noble Lord, Lord Grenfell, said: the funds have nothing to do with the sort of transfers that would be necessary among the members of a monetary union if such a monetary union emerged in Europe. They have nothing to do with that and it is important that we do not confuse the two. One of the great problems of monetary union is that those who are in it will be left with a transfer of resources and with the free movement of labour as their only adjustment mechanisms. These funds are not the answer to that question. They are independent of it. They belong to the European communities as we have them today. They can be improved in many respects, but of the key policies of the European Union they are, in my view, the most successful.

5.3 p.m.

Lord Shaw of Northstead

My Lords, my first and very pleasant duty must be to congratulate my noble friend Lord Renton of Mount Harry on his maiden speech. We are, he says, beyond the temptations of normal man—and he arrives here in the hope that he will share that situation. I am bound to say that as my former Chief Whip—I hope that I was a loyal follower—I had always thought that he, as Chief Whip, was already beyond the normal temptations. I certainly treated him with the respect due to someone in that position.

My second duty must be to congratulate the noble Lord, Lord Barnett, on his chairmanship of the committee. Long ago when I was a Member of the European Parliament we met from time to time—he in an exalted position as a member of the Government and myself as a humble Rapporteur in the European Parliament. Later he was chairman of the Public Accounts Committee and I was a humble follower and member of that committee for several years. The circle has now come full circle and I am glad to be again a member of a committee chaired by the noble Lord. I welcome that fact because the noble Lord led us with skill and, as the noble Lord, Lord Dahrendorf, said, with some fun as well. I have always believed that work is carried out all the better for a little humour in the right place. I believe that all members of the committee entered our work with some considerable enthusiasm, but not always understanding fully what it was that we had undertaken. The structural funds are intended, through investment, to strengthen the economic base of the recipient regions and the cohesion fund, set up especially to deal with the cases of the special four countries, was intended to try to bring them to a position where they could eventually be admitted to EMU. Although the need for regularity and the avoidance of fraud must be maintained, our main concerns were not so much in that direction, but were based on trying to see whether the projects were really carrying out the tasks which they had been set and whether they were being run as efficiently as possible. Here we have to remember the words of the commissioner and to accept, as we state in paragraph 27 of the report, that roughly one-third of the EC budget is devoted to structural funds and the cohesion fund. That point has already been made. Indeed, I believe that we made that point in our conclusion on the annual report of the Court of Auditors. I mention this because it is important to note that we also are making inquiries.

I must admit that no one is more surprised than I am at the fact that I am standing at this Dispatch Box this afternoon. I greatly welcome the kindness that has been shown to me by the noble Lord, Lord Bruce of Donington, with whom I have shared many committees in the past. I speak both as a member of the committee and as a spokesman from this Front Bench and, putting on my other hat and speaking momentarily from this Front Bench, perhaps I may say that I believe that the committee did a splendid job in presenting the report in this form. The form adopted is easier and more sympathetic for those who are interested in reading the report. I hope that our example will be followed by other committees in due course.

The Court of Auditors has been going along the same lines as our committee. That is encouraging. When I was a Member of the European Parliament I took great notice of what was said in the House of Lords and by its committees. Such reports were helpful and were widely considered in the European Parliament. I find it a happy coincidence, having left the European Parliament and having given evidence to House of Lords committees nearly 20 years ago—I believe that the noble Lord, Lord Bruce, also gave evidence at that time although I cannot remember the occasion—now to find myself serving on a House of Lords committee. It is much the happiest position to be in.

At paragraph 538 of its 1995 annual report, the Court of Auditors stated:

If the various criteria to be taken into consideration for determining the eligible areas are applied, this results in more than 50 per cent. of the Community population being affected by one or other objective. As a consequence, Community aid measures are to a certain extent sprinkled over a large number of eligible areas. Indeed, it is proving difficult to reconcile the many factors involved & particularly bearing in mind the quality of the statistics available". That shows very clearly that there is still much to be done. That was in large part the reasoning behind the efforts of the committee in producing the report. The committee found as a fact that there was a need for change. Commissioner Wulf-Mathies in her evidence to the committee repeated that which had been said by the Court of Auditors, namely, that 51 per cent. of Community regions were themselves eligible for regional fund assistance. She claimed that that figure should be reduced.

It is absolutely essential that the help should be given efficiently to assist those areas that are clearly defined. It is also true—I believe that the report brings it out very clearly, particularly the evidence of Sir Alan Cockshaw—that the areas must be very carefully defined if the use of the moneys poured into those areas is to be of maximum benefit. The money is not just needed to help individual cases; it is needed through those particular cases to help the region as a whole so that it can kickstart further enterprises in its wake.

One should look again at the words of the Court of Auditors who have something to say on this matter. On page 9 of its last report it said: Moreover, a number of questions regarding the eligibility of projects for Structural Fund support are being discussed by representatives of the Commission and of Member State administrations within the SEM 2000 framework, together with an examination of other possible ways of inciting national authorities to ensure both the effectiveness of Community structural aid and proper accounting for it at national level". That brings out a point that the committee has made in many other reports and I have spoken about in earlier debates in this Chamber. The court goes on to say: Finally the Court would again like to emphasise that prevention of fraud and waste is much more cost-effective than detection followed by, often problematical, punishment and recovery". That must be borne in mind in organising structural and cohesion aid, although from what we saw the same problem does not exist with regard to other funding within the Community. The money may have been irregularly or inefficiently used but the same degree of fraud is not evident, according to the evidence taken by the committee.

As far as concerns structural funds, there is a great problem in defining regions. There is a need to create good organisations consisting of local interests, local authorities (one hopes) and local businesses and a close identification (one hopes) with government. As to that, I should like to put a question to the Minister who is to respond. On 3rd December 1996 a Statement was made in the other place by Mr. David Curry: We intend to revise radically the present administrative arrangements and to delegate to local partnerships considerable responsibility for project selection within an agreed action plan & We will be notifying the new arrangements to the European Commission and will be discussing the detailed implementation with the monitoring committees and others".—[Official Report. Commons, 3/12/96: col. WA 578.] Both I and I am sure your Lordships will be interested to know what progress has been made in regard to the making of those new arrangements. Together with that there must be emphasis in those future arrangements on continued additionality. I believe that that is very important. I was very glad to see that Commissioner Wulf-Mathies came to the same conclusion on page 126 of the evidence: In general I would say that Structural Fund policies have been positive and successful & policies are made with Member States & what the Union can do is to add to those strategies but it cannot replace Member States' policies and it does not want to do so". I believe that she is absolutely right.

The success of future policies—and the great value of reports such as this—depends on finding what is best for the future certainly by analysis of what has gone on in the past. But we must be interested in the future. The past is there to show the direction in which we should be moving forward. It is quite clear that national governments must play a great part in the use of these strategies; namely, through the structural and cohesion funds. Whatever tasks are given to the regions when set up, they must as far as possible feel that the projects are theirs, not those of the particular nation. The whole region must be identified with the developments that are taking place. That emerged clearly from the evidence.

I turn to the cohesion funds. Mention has been made of the success of those funds in Ireland. There is no denying that the funds have been of help to Ireland, but it is quite clear that those funds would not have been as effective, or not effective at all, had the organisation and administration of the Government of Ireland not been first-class. That lesson must be learnt by other countries which receive cohesion funds. Its success owes much to its sound economy. But there is a danger, to which the noble Lord, Lord Dahrendorf, has already referred, that every effort will be made to keep the funds coming in. I hope that in the planned expenditure of the money until 1999, which is the end of the present schedule of funds, it will be remembered that those who have succeeded in carrying out the objectives of the cohesion fund must prepare for an easing off or early termination of the funds so that they can stand once more on their own feet. Funding should not be expected to continue indefinitely, although benefits already achieved must not be endangered by sudden cessation or reduction of funding. There is a great need for good management at both local and national levels.

I believe that cohesion funds are valuable if they are handled correctly. I also believe that in the cases we have seen the second tranche of the cohesion funds up until 1999 has been handled much better than in the first instance. Ireland has already been cited. I should like to cite the Athens-Corinth motorway which the committee was able to look at in its journey through Greece. Incidentally, a number of people have mentioned that there has been a television programme on this topic. Our visit to Greece was not a feast of gastronomy; it was a feast of hard work. We had to eat. The fact that pictures were taken of Members eating had nothing to do with the work that we carried out. On that motorway we saw instances of new businesses that would not have been set up but for the ease of transport that it created. We saw a packing station which was built with Community aid and developed to such a state that regular contracts had been made with Marks & Spencer. The establishment of such a contract demanded a strong measure of confidence on the part of Marks & Spencer. In order to succeed, the packing station had not only to pack the goods successfully but it had to obtain them at the right time and at the right quality. It had to employ the pickers on the farms, for example, put them under contract, ensure that they worked regularly and that the goods came in the right condition and at the right time. Therefore, there was a spreading effect of the aid that had been given. Such use of structural aid is of real benefit.

As was said by the noble Lord, Lord Dahrendorf, the structural fund provides the best example of the help that can be given. However, I believe that there is a danger of over-bureaucratisation—a ghastly word—and of over-organising the help. We are talking about organisations in the regions, organisations in government, departments in the Commission and the necessity to have professional advisers to advise on various matters, to advise people on how to make their claim and so forth.

All that costs money. We have said that we need to make the organisation simpler. At the same time, I have seen the difficulties which bureaucracies have in making themselves shrink. I hope that, whatever the simplification, there will be a record of how it has led to less cost within the bureaucratic administration of the funds. I hope that the funds can be controlled, that they will prove useful, and that they will fulfil the object for which they were set up; namely, to try to help the assisted regions to stand on their own feet and to be successful without the need for additional funds from government. I hope that governments will monitor the use of the funds. I congratulate the committee on another successful report.

5.23 p.m.

Lord Simon of Highbury

My Lords, as a young Member—if that is the appropriate word—my first task is to welcome to the House the noble Lord, Lord Renton of Mount Harry. I had the pleasure of appreciating that extremely robust defence of the great adventure that is Europe, with particular regard to the points on monetary union. This is not the time to debate them, but I am glad to see and hear a new friend on the other side of the House. I hope that we shall have the opportunity of listening to him regularly.

It is also a pleasure to greet the noble Lord, Lord Shaw, to the Front Bench and to have the opportunity of exchanging views on what we are both agreed is a most excellent report. Furthermore, I thank my noble friend Lord Barnett. I am grateful to him and to the Sub-Committee which he chaired for producing the report. I like the cover, I like the inside and I certainly like the fact pack at the back, which is useful for incoming Ministers.

Perhaps in business fashion, I may respond to two or three of the points which I shall not cover in dealing with the body of the report. The first is the Barnett formula. That was a tricky one, due to my relative youth; but I understand that the noble Lord introduced it because it deals with general Scottish public expenditure allocation. We heard much of Wales from my noble friend and we heard something of Ireland from nearly everyone. The reason for introducing the Barnett formula must have been to cover Scotland. The only information that I have to add is that it does not apply to structural funds. It was interesting to hear about the formula, but it was not currently on the table for this debate. I turn to additionality. As the noble Lord, Lord Dahrendorf, observed when he was taking evidence from the President of the Board of Trade, this is an extremely tricky intellectual area. I was delighted to read the committee's first line of paragraph 23, because it is a wonderful sentence. It reads: additionality is a concept easily grasped but elusive when verification of its application is required". I liked that sentence. I am all for additionality. The Government support it and, as the report states: in the required sense, it cannot be assessed by considering whether an individual project would have gone ahead without structural fund support". It is conceptually complex. I believe that we shall reach a position where it will apply to the structural funds but not to the cohesion fund. The principle is understood, but I liked the idea that it would be elusive when verification of its application would be required. That is a timely warning.

In general, the timing of the debate is fortuitous. The day after tomorrow, the Commission will produce its opinions on the central and eastern European countries which have applied to join the European Union. Importantly, it will also produce initial proposals for the future financing of the EU for the period 2000 to 2006, as mentioned by the noble Lords, Lord Pearson and Lord Grenfell.

Part of the proposal will include the structural and cohesion funds, which currently take up one-third of the EU budget. I have no doubt that the Commission has taken account of the points made in the committee's report as I noted that two commissioners came to London to give evidence to the inquiry.

The Government are committed to promoting economic and social cohesion throughout the United Kingdom. Indeed, that was one of the objectives of the Chancellor's Budget. We are also committed to seeing it across Europe both within the existing European Union and extended to those countries which will eventually join. Clearly, we are supporters of the enlargement process.

However, such cohesion depends on a multitude of actions principally at national, regional and, if possible, local levels. But we must support the European effort and the European level of co-ordinating what is a very complex organisational exercise. Much of the report was about that process and, as I was invited to do so by many noble Lords, I intend to speak a little about it.

The structural and cohesion funds are the principle European-wide financial instruments for strengthening cohesion. The question to the Government is not one of whether the funds will continue but how best they achieve their objectives. A major part of the answer is by contributing to improved competitiveness.

As the noble Lord, Lord Grenfell, commented, those funds should be used to increase competitiveness in the regions. That is a wide subject and I know that it does not depend solely on spending money. It is about the capacity to add value. I believe that that is a question at the heart of this excellent report: are those funds, and the way in which they are distributed, adding value; and are the systems up to scratch? I believe that that question stood very much behind the contributions of the noble Baroness, Lady O'Cathain, and the noble Lord, Lord Shaw. In reality, are the action plans delivering the "bacon" from that system?

As the report makes clear, the funds cover a wide range of subjects and a number of different structures. In the United Kingdom they are aimed principally at the original elements. Over the six years from 1994 to 1999, the UK's structural fund allocation is about £9 billion, covering such subjects as the productive environment, improving human resources—the training side—land improvement and regeneration and environmental improvement. Therefore, in recent years there has been a very wide range of targets. Now that we are beginning to fund business support and innovation in a very large number of small companies, control becomes much more important from a distributive point of view.

With regional programmes comes regional administration and decision making. That is a significant part of the Government's approach to competitiveness within the different parts of the United Kingdom. The proposed Scottish executive and Welsh assembly will take over the decision making which is currently the responsibility of the Scottish and Welsh Offices. No doubt those bodies and in particular the latter—I say this for the noble Lord, Lord Elis-Thomas—will ensure that fair shares are maintained in Wales. The proposed regional development agencies will create economic forces within the English regions. The structural funds are based already on regional partnerships and we shall look to reinforce those. The regionalisation of Objective 3 is an example of the steps under way.

The then government announced on 4th March that structural funds monitoring committees—the bodies which look after the expenditure, for those who do not know the jargon—should decide whether to include locally elected councillors among their members. That happened after the sub-committee stopped taking evidence but before the publication of the report which called for councillors themselves to decide. That is now happening across England and Wales, although I should make clear that in the larger programmes, it is not individual councils which are represented but the local authorities collectively.

Therefore, the Government's approach is to ensure that local partnerships are represented properly and that the monitoring committees work effectively. As the noble Lord, Lord Grenfell, said, it is extremely important that the precise composition of the committees should not be decided in the centre; each region and programme can best decide for itself. For example, the Objective 2 programme in the north east of England has just shrunk its monitoring committee, which is an unusual organisational event. That is precisely because it wishes to see even greater efficiency.

The Government also see the advantages of a wider social partnership, bringing employers' and trade union representatives into the local partnerships. We shall expect the social partners to make a real contribution to the programmes, as existing partners do. In Scotland, parallel consultation arrangements already exist both for locally elected members and for social partners. As the report emphasised, those seem to work effectively and will continue.

Much of the Select Committee's report concentrates on improving the efficiency with which the structural funds are administered within the United Kingdom. Part of this results from complications introduced by the regulations themselves and the way in which they are applied. There is general agreement across Europe that substantial simplification is needed, though it is unlikely to take place before the current programmes end in 1999. We will be looking for significant proposals from the Commission and we will press further for streamlining during later negotiations within the Council of Ministers. After all, that is part of the drive for the completion of the internal market.

One example of how some of the delays occur was shown in the process of adopting Objective 2 programmes for the three years 1997 to 1999 in the UK. None was agreed on the start date of 1st January of this year and the last one has only just been agreed six months too late. That is not a good track record for the Commission. It must shape its act more effectively and we shall be asking it to do so, certainly before the year 2000. But it is fair to say also—and I echo the comments made by the committee—we must all look to improve. That includes our own structures inside the UK. The noble Lord, Lord Grenfell, made that point clear. I believe that by restructuring the monitoring committees and in driving for a better action plan structure, as the noble Lord, Lord Shaw, said, we can come to terms with that. It is a question of delegation and focus. In England, the new arrangements for local action plans under the structural funds will enable simplified administration and greater responsibility at local sub-regional levels.

The Single Vote for the English elements of the European Regional Development Fund, which started in April of this year, is speeding up payment. It is replacing a decision-making process which, as we were reminded by the noble Lord, Lord Bruce, used to involve six separate government departments. Therefore, the recommendations have been well taken.

The Commission frequently produces reports on aspects of the structural and cohesion funds. They are produced usually for information rather than containing legislative proposals. I shall mention two reports produced last year: first, the 7th Report on the structural funds, which was published last year and which looked at the last major changes in relation to the regulations governing funds which occurred in 1993. Therefore, updating is needed in that regard. It is quite clear that in that period there have been improvements in appraisal, monitoring and the evaluation of projects. I believe also that there has been greater transparency as part of the impact of the 7th annual report.

It is an extremely unwieldy document, like many produced, and it is not nearly as good as the sub-committee's report. However, it provides a great deal of useful information and it highlights some interesting matters from the UK's point of view: first, that the implementation of the single programming documents for our Objective 1 regions, which, for the cognoscenti, are Northern Ireland, the Highlands and Islands and Merseyside, has progressed as planned. Therefore, we are on target for the Objective 1 regions. In general, we are not losing out on any Objective 2 programmes.

As regards how we are meeting our targets, which really is the test of the efficiency of the decision-making system, over the whole programming period, the UK led in the percentage of total funding committed in the first two years. We have achieved 41 per cent. of our funding against an EU average of 31 per cent. For payments the figure is 25 per cent. against the average of 19 per cent. Of course we can do better, but in relative terms, we are still ahead of the field.

The cohesion report was the first report on the progress made towards achieving economic and social cohesion in the EU. It is a useful summary of past actions and their impact.

Along with noble Lords to whom I have listened carefully today, the Government welcome the conclusion that disparities in the income between member states are narrowed significantly. I do not wish to become involved in the debate whether the comparisons should be regional or national. There was some debate about that. The national improvement is very clear: as has been noted, for the past decade, income per head in the four poorest countries of the Community has increased from 66 per cent. to 74 per cent. of the Community average. If we start playing about with sub-regions I am sure that we shall be able to prove that that very important point can be obscured.

However, the report recognises that member state policies are the primary instruments for cohesion and that low inflation, sound public finance and sustained growth are the key elements. Therefore, we should not believe that cohesion funds can replace sound economic management; they cannot do so. But both of them should be doing good for all of us if we are true Europeans. The cohesion report shows that the UK is one of the few countries where regional differences in unemployment have decreased. Although there has been a small widening of per capita GDP differences in the UK regions, that is relatively insignificant.

So much for where we have come from to date. I have tried to give the House a brief réméf organisational change, covering the monitoring committees, the action plans, the widening out of the process of decision between the social partners—all matters which I believe were signalled in the report and which, as my noble friend Lord Barnett said, the President of the Board of Trade has welcomed and put into our policy.

My last section is on looking to the future and the proposals which are due to come from the Commission the day after tomorrow. Of course, I would not want to make a speculative response to a press report in the Financial Times, would I? Therefore, I shall just describe the Government's aims as seeking a regime which is simpler, more efficient, affordable and durable and, indeed, fair to all present and future member states. Each of those tests is important. Their future balance will require some reform of the policies, that is for sure.

The amount of space in the Select Committee's report devoted to the administration of the funds is just one indication of the need for simplification. We must get over the bureaucracy and get more focus for the money that we are going to spend. Referring to our test, parts of the process do add value—notably the partnership, the programming and the drawing on local priorities. However, in terms of its efficiency as a process, I have to say that that still contrasts with the cohesion fund. I should just like to point out that the cohesion funds typically commits 99.99 per cent. of its appropriations each year, which cannot be said for the structural funds. I hope that that is specific enough for noble Lords—two places of decimals.

We must look at good, focused expenditure. I believe that the next key question for the period ahead is affordability. That will mean keeping the overall cost of the structural and cohesion funds below the 0.46 per cent. of the European Union's GDP, both before and after enlargement, to include countries from central and eastern Europe. As I said, that is an enlargement which we support. As Commissioner Wulf-Mathies pointed out, and as the noble Lord, Lord Renton, said, that will still give us a large injection of funds into eastern Europe, even if we maintain that cap.

As my noble friend Lord Bruce of Donington pointed out, the UK is a significant net contributor to the funds. We have no interest in seeing our contribution increased because, with tightening budgets across Europe, no member state has an interest in seeing overall costs rise. As the new member states will be much poorer than average, it means that all existing member states should expect cuts in their receipts if costs are to be contained. That will not be easy for some to accept, especially those who are currently net recipients or who have particularly acute regional differences, but they will need to do so. As my noble friend Lord Desai pointed out, we must focus on the neediest areas.

However, it is not just in the next few years that the funds have to be affordable. Indeed, we shall have difficult negotiations in agreeing this reform for the period up to 2006; but we shall need to pursue that aim if the outcome is to be a durable one and if the system is not to be disrupted when more new member states enter the Union. So there will be difficult negotiations ahead.

We believe that fairness is the key to durability, both for new member states and for existing member states. There are also other issues such as the capacity for very poor countries to absorb large flows of support, as the noble Lord, Lord Dahrendorf, pointed out. The Select Committee suggested that inflows should be limited to 4 per cent. of the country's GDP. It is highly likely that some such rule will apply. We need to recognise the unsatisfactory nature of relying on such a cap to deliver an affordable regime beyond 1999. Some countries will, as a result, automatically receive less money per capita than other richer countries, which is ironic, but it also means that as the poorest countries grow relative to the European average they will receive more, thereby putting very much greater pressure on total cost.

Even among existing member states, fairness will be an important test. We know that the UK is not the poorest EU member state, but neither is it the richest. We receive lower receipts per capita than a number of member states that are richer than we are. We recognise that the UK is likely to receive less in the next period, especially after any transitional periods; but we believe that the overall burden and benefits should be fairly distributed across all member states.

Perhaps I may respond briefly to the point made by the noble Lord, Lord Grenfell, on the structure and restructuring of the funds. I do not believe that it will be possible to reduce the number of funds; indeed, that chance was missed in Amsterdam. Nevertheless, we could perhaps reduce the number of objectives from seven to three. I should like to stress that the Government will provide an explanatory memorandum on the Agenda 2000 proposals that we expect to receive on Wednesday in the usual manner. However, I should point out that detailed proposals may not be published until next year when our presidency is in place.

The noble Lord, Lord Pearson, asked me whether we had given any thought to the restructuring of the structural funds, and indeed of the CAP, which is not on today's agenda. I can tell him that we have certainly given thought to it. I should remind the noble Lord that under Article 130D, the framework decision article, that will require unanimity. I also remind him that, on many of these great decisions which have required unanimity, we still expect a consensus to be found because that is how partnership works. I hope that we shall see that achieved in 1998. I further remind the noble Lord that the next budgetary period is for 2000 and 2006, so we have a little time. I give way to the noble Lord.

Lord Pearson of Rannoch

My Lords, the Minister was kind enough to refer to the questions that I asked and admit that the solution would be very difficult. He also answered his noble friend Lord Bruce of Donington by saying that we are indeed net contributors to the whole exercise. Can he say whether the United Kingdom might not have been able to spend all the sums of money that have been spent in this country without the extraordinarily expensive and wasteful filter of the EU and its various bureaucracies and committees? Indeed, could we not simply have spent that money and made a donation, which no doubt would have added another £1 billion or so to our costs, to the European Communities to enable them to do it themselves?

Lord Simon of Highbury

My Lords, I thank the noble Lord for that observation. We have heard that this system works extremely well in Ireland. When challenged earlier about why the Irish system works, the answer showed that it was because the Irish networked so well, talked to their opposite numbers in Brussels and tried to form a partnership. I cannot help commenting that if that had not worked in the past under previous regimes, it is possible that they did not understand what networking was about. Had they tackled Brussels in the appropriate way, perhaps we would have spent the funds more effectively.

My summary has done justice neither to the excellent detailed report nor, if I may say so, to the breadth of vision that the noble Lord, Lord Dahrendorf, so strikingly encapsulated in his contribution as to the importance of such funds. The importance is to build a strong and committed Europe and one where we would find a partnership to the advantage of our electorate.

5.50 p.m.

Lord Barnett

My Lords, I shall be brief but, as everyone else has done, I must congratulate the noble Lord, Lord Renton of Mount Harry, on a quite excellent maiden speech. I have a feeling that I shall agree with him more than I shall with others on matters such as economic and monetary union, but we are not debating that today. I also thank members of my committee for their kind and over-generous remarks about my chairmanship; they are much appreciated.

I thank my noble friend Lord Simon for his reply to the debate. On another occasion I shall take up some of the points that he made and did not make. He did not even reply to my direct question about the Barnett formula. I should have loved to have an answer to that. Indeed, he did not answer any of the specific questions I put. However, I was not too surprised at that as he is obviously learning fast! He even managed to use a fair number of DTI clichés. I shall read those again later. I appreciated the contributions of all those who spoke in the debate. I look forward to discussing various matters relating to the European Union on many other occasions.

On Question, Motion agreed to.