Westminster Hall Sitting of 17 June 2004

Preamble
[SIR NICHOLAS WINTERTON in the Chair]

European Social Fund
[Relevant documents: Sixth Report from the Work and Pensions Committee, Session 2002–03, HC 680, and the Government's response thereto, First Special Report, Session 2003–04, HC 228.]
Motion made and Question proposed, That the sitting be now adjourned.—[Paul Clark.]
Mr. Deputy Speaker: I call the distinguished Chairman, long serving of this House of the Work and Pensions Committee to introduce this important debate.
2.30 pm
Sir Archy Kirkwood: It is a signal privilege to introduce this important debate. The House has, understandably, spent a lot of time this week considering matters European at different levels. The political celebrities upstairs have been knocking spots off one another and getting a lot of publicity, whereas we are here in the engine room of the House of Commons dealing with the nitty-gritty of some of those schemes, which have signal and significant effects on our constituents.
The Select Committee on Work and Pensions undertook its inquiry for a variety of reasons. Members of the Committee felt that there had been an increase in complaints from European social fund project managers in our constituencies who were concerned that their applications for ESF funding were, in some locations, unfairly rejected. There was also an evident and mounting feeling of unease about the administrative burden on project and service providers at all stages of the ESF process, from application to delivery. The Committee was also curious to know why the Department for Work and Pensions was in structural fund territory, as that is a slightly arcane, esoteric piece of public policy, which one would think has nothing to do with work and pensions—although I am old enough to know never to be surprised by anything in this place.
The report shed light on all those issues. While gathering evidence for the inquiry, we uncovered deep, but understandable, nervousness about the future and what will happen when the current programme ends. This debate provides us with a valuable, but brief, opportunity to delve further into those matters.
The Committee's recommendations were an attempt to address the issues raised in the evidence, and the Government's response was characteristically constructive and helpful. I wall to record my customary, but nevertheless heartfelt, thanks to the Department's professional team, who provided active support, assistance and even encouragement—that might get them into trouble—throughout the inquiry.
Hon. Members now have an opportunity to add to the recent, numerous attempts at mid-term evaluation of the ESF programme. We are in the latter stages of the
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six-year time frame, so the timing of this debate is apposite. I hope that bureaucracy, which we identified as a problem issue, will be considered. It would also be worth reflecting for a moment or two on the relative merits of direct bidding versus co-financing as a mechanism for applying for ESF projects, because that was a feature of the evidence that we took. Last, but certainly not least, it would be useful to learn all we can at this stage about the situation post-2006.
A basic objective of the European Union is the elimination of economic and social disparities across all 25 of its member states. In March 2000, the European Council in Lisbon set a new 10-year objective:
"to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion."
It would be hard for anyone in the House to contradict those ambitious thoughts and plans, towards which some progress has been made.
One of the principal mechanisms by which the European Commission seeks to achieve those goals is through the deployment of all four structural funds, of which the European social fund is one. Briefly stated, the aim of the ESF is to develop market and human resources in a number of areas, such as lifelong learning, equal opportunities and entrepreneurship.
The focus of the ESF programme to date has rightly been on preventing and combating unemployment, promoting training and integrating hard-to-help groups into the labour market. In short, the ESF seeks to improve the employability of individuals by providing financial support to people and projects throughout the European Union. It is worth noting in passing that the ESF is unique in that regard; it actually helps individual citizens, and I am aware of no other programme run by the European Union that does that.
The programme is also cast over a seven-year period. That gives the programme stability over a longer period than most national Governments can promise because of political cycles and member states' parliamentary schedules. In addition, the ESF provides assistance throughout the newly expanded continent outside objective 1 regions.
For all those reasons, I think that the ESF is a unique, important programme, worthy of careful study. For the 2002 to 2006 programme period, £4.467 billion—a significant sum of money—is available for the ESF in the United Kingdom. The average annual support from the ESF for the UK is about 8.5 per cent. of the EU total, which makes it the sixth largest EU project funded scheme in the current period.
We need to pay careful attention to the remainder of the period through to 2006 and beyond, into the new period of financial planning for the European Union between 2007 and 2013. We should start by spending some time looking at the ways in which we can endeavour to reduce the bureaucracy on organisations. During the inquiry—the Minister, who has read the report, will have noticed this—we heard a number of complaints and criticisms about excessive bureaucracy.
Bureaucracy was considered to exist at every level throughout the system. It starts at EU level with the Commission. The Commission has its own financial audit requirements, which are enshrined in the treaties, and pursues them rigorously. Responsibility for the

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implementation and operation of such schemes are then devolved to national Governments. Departments, such as the DWP and the other Whitehall Departments involved, all have their own robust and sometimes gold-plated schemes to make sure that the money that they take charge of is properly accounted for. At a lower level, the devolved and delegated bodies and various intermediary bodies all have their own audit controls and requirements to ensure that public money is properly spent.
Of course, public money needs to be properly accounted for, but the poor people at the bottom of the pile, who run the projects as service providers and beneficiaries, are the ones who seem to carry the can and the weight—disproportionately—of the administrative paper chase and trail. In purely financial terms, some of the costs of supporting the ESF are met from the budget for technical assistance, and that is understood. Some of the other costs are absorbed by organisations such as the co-financing organisations.
At the end of the day, the amount of accounting and record keeping is an issue. The famous example is the need to keep records for 12 years. Of course, if a motorway is being built under objective 2 of the European regional development fund, such a requirement might well be necessary to protect public money. However, if someone is running a little café as an intermediate labour market opportunity for the mentally ill in Aberdeen, as was the case with a project that the Committee visited, the requirement to keep records for 12 years seems bizarre, overdone and unnecessary. I should not like to think that anybody is suggesting that we are slipshod or casual about the way in which we check how the money is spent. We have debated in the Chamber how to eliminate fraud in the European Union, and EU auditors are struggling to certify the accounts as proper. I recognise the need for accountability, but call for a little proportionality in the incidence of the burden.
Within the Government, we heard from Ms Henderson from the Government office for the southwest about the administrative cost of the ESF. She reminded us that £10 million of Department for Work and Pensions and Government offices' running costs were involved in administering ESF in England. That amounts to nearly 2 per cent. of the total yearly value of the programme of £460 million. In addition to those direct costs, there is a substantial indirect opportunity cost involved in staff in front-line service providers and those in positions of authority in local authorities and other organisations spending an inordinate amount of time, much of it wasted because the project applications fail and because of the bureaucratic demands of the system, in making applications for ESF.
We were slightly concerned that we were in danger of smothering some of the best advantages and benefits of an important and valuable scheme in a disproportionate level of administrative control and audit. That raised questions in our minds as to whether that was the best use of resources. We would like to feel that the Department and Ministers are constantly vigilant to ensure that the balance is properly struck.
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Some examples of the problem were acknowledged. Ms Minett of the Learning and Skills Council said that there was scope for improving the way in which some of the co-financing organisations were monitored, although she conceded that the DWP needed to do that directly with the European Commission. I am prepared to accept that the Department might have to operate within rules that have been adopted by the European Union.
We heard some interesting ideas on the other side of the argument. They were not exhaustive, but two or three have been proposed to ease the administrative burden on service providers. Mr. Pascoe of the Learning and Skills Council told us that under co-financing, the application form in his area has been reduced from 69 pages and six page: of annexes to a 10-page form. That is very welcome and was greeted with relief by the applicants in his area. When the Committee undertook its inquiry in Scotland, we were told—I do not know whether it has been brought to a successful conclusion—that a new IT project costing upwards of £1 million was expected to reduce significantly the time and effort spent in processing claims for ESF and other structural funds. That was very positive too. Finally, we heard about a telephone hotline that was being made available to provide technical advice and guidance to service providers.
There is evidence that people are aware of the difficulties and are trying to find creative solutions, but they need as much encouragement as Ministers can provide at DWP level. Some things will, I am sure, need to be argued at EU level as well, but I should like that to be taken into account in Ministers' work. Our recommendations reflected that. Our view was that, in the long run, streamlining the bureaucratic demands that are placed on service providers is the best way forward. To that end, we requested an assessment of the total administrative costs, both direct and indirect, that organisations face when dealing with the ESF.
We also recommended that the Department undertake a value for-money study into the use of technical assistance in the delivery of ESF. To be fair, the recommendation elicited a quite positive response. The Government promised to ensure that the evaluation strategy for the second half of the objective 3 programme in England would include an assessment of organisations' total administrative costs, both direct and indirect. Perhaps the Minister will have a chance to say whether they are on course to deliver that recommendation. We also made recommendations that call on the Government to quantify the potential administrative savings for service providers that could be generated by co financing, and to identify ways in which those savings could be realised. Perhaps the Minister will say a word about that also.
Two distinct systems of allocating ESF funding are emerging: direct bidding, which is the original historical process of people making bids; and the system of co-financing, which the Government introduced in England in 2001. Under direct bidding, applicants apply directly to Government offices for ESF funding. Those offices manage the process of appraising and selecting the best applications. Selection panels comprising Government office staff and regional partners score applications and recommend lists of projects for

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approval by regional committees. Those approved projects are required to find match funding while also bidding for an ESF grant.
The new system of co-financing was introduced in England in September 2001. Under co-financing, the ESF grant and match funding are provided jointly from the co-financing organisations. Such organisations can have several distinguishing features, such as being public bodies—Jobcentre Plus, for example—with their own budgets that can be used for the purpose of match funding. They have a remit to support ESF-funded activities and enter into contracts with third parties.
Co-financing emerged as one of the biggest, most controversial issues of our inquiry. During the inquiry, several witnesses, especially from the community and voluntary sectors, were critical of co-financing. They identified various disadvantages that they contrasted with the reported strengths of direct bidding—although it must be said that some witnesses identified several strong arguments in favour of co-financing, so the argument was not all one way.
We considered the evidence as dispassionately as we could. Co-financing has several obvious advantages, including removing the need for service providers to undertake the onerous task of producing match funding. It also simplifies the application procedure, encourages organisations to take a big-picture view—the strategic approach is important—and means that funds can be apportioned to meet need, rather than being driven by projects and administrative expediency. Under co-financing, a single funding stream means that service providers account to a single funding body. All those things are positives and are welcome improvements over the direct bidding system.
Sustained and substantial criticisms of co-financing came mostly from the voluntary and community sector groups. They felt that consultation on the introduction of the policy was politically driven, hurried and incomplete. That attacked their confidence in the system. They felt that the tendering process, favoured by CFOs, was a move towards competitive tendering, which they were unhappy about. They believed that co-financing was symptomatic of a system that was driven by a top-down approach, rather than a project-driven bottom-up approach—they obviously supported the latter. They thought that co-financing tended to favour large high-impact projects, whereas direct bidding favoured small-scale projects. Finally, they believed that co-financing had increased centralisation and delivery by Government bodies.
All the evidence from the community and voluntary groups was in that direction. I came to the conclusion that there was an issue of scale. Although the evaluation of the ESF programme so far suggests a big proportion of funding is going to the voluntary, community and charity sectors, I suspect that a lot of that percentage spend is going to the bigger national charities—Age Concern and the like—rather than to the individual little community projects that are one-offs designed to help people with mental illness or leaning disabilities. I anticipate that the Minister will say that the evaluation process demonstrates that the community and voluntary sectors have not missed out through co-financing, and I accept that the evaluation evidence shows that, but I exhort him to look beyond that and
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study carefully what exactly is going on. There are residual complaints that the co-financing system tends to centralise, and we need to look into that.
The first evaluation report into co-financing was published in July 2002. I do not know whether the Minister has read all of it; I am on page 6 myself. However, there is an important point to be made. If ever one needed a demonstration of the fact that there is overkill in the programme's bureaucracy, it is in this part of the evaluation process. As I say, I am on page 6, and am working through the report slowly. Some assurances from the Minister on that point would be useful.
On mid-term evaluation, the official documents reviewing the success were substantially more positive than the evidence that we found on the ground. All the projects that we visited had something negative to say, although they were committed to what they were doing. They felt that they were struggling uphill against a tide of administrative difficulties, although that was not for want of individual personal help through co-financers or direct bidders. Our evidence was slightly at odds with the evaluations that have been published.
To be perfectly realistic, there may be an element of fear of being critical, and we need to take that into account. In a situation in which there is a project with a six-year span, and there are applications to be made for a couple of two or three-year projects, people think that if they go out of their way to be rigorously honest in evaluating their experience, their name might go to the bottom of the list. I do not think that that is necessarily the case, but that is how people perceive such things. I do not lodge it as a complaint of which Ministers need to take account, but it is a psychological perception that is real for some people. That perception may well be one of the reasons why the evaluation information coming through the formal channels is more positive than that coming through from our experience on the ground.
There are two and a half or three years left of the programme to run. Obviously, economic and social circumstances have changed since the Lisbon agenda was cast in 2000. The labour market in our sister European countries has certainly taken a turn for the worse since then, and circumstances have changed in the UK, too. I encourage the Minister to refocus attention on the programme, and that is what the mid-term evaluation gives us the opportunity to do. I hope that, for the rest of the programme, he will look into a couple of things to do with labour market issues—they go with the grain of the Government's policy on labour market reform, anyway. Helping economically inactive people into work is a substantial problem and always has been. There are still economic inactivity rates of nearly 20 per cent. in some parts of our communities up and down the country. The social fund provisions can be better focused to try to help those hard-to-help groups into work.
Obviously, improving the skills of unemployed and employed people is already a mainstream part of the Government's agenda, but more needs to be done, as Ministers never tire of telling us. We should address the needs of European social fund beneficiaries, such as people with caring responsibilities for children or elderly relatives, people with disabilities and people from ethnic minority communities. Good practice in equal

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development partnerships can also be encouraged and given more focus for the rest of the period up to 2006, as well as beyond.
A couple of implementation issues drawn from the report need to be given increased emphasis. They include simplification, as I have said. Working in partnerships has been hugely successful, certainly in my area. People have been drawn together by the need to get together and lodge focused applications of a strategic kind. That has been entirely positive and constructive, but more could be done. We might usefully start looking for even more new providers, such as people in the social enterprise and community sectors and social firms in Scotland. We visited projects north of the border that were doing very impressive work.
On the need to spend more time monitoring soft outcomes, some of the evidence that we took from the projects suggested that it is easier to record an output success if someone gains employment as a result of training or support from the ESF scheme than it is to show that people have moved nearer to the labour market, but are not yet in it, and to include that in outcome statistics to demonstrate the success of a project. In future, soft outcomes need to be carefully borne in mind when outputs are measured.
Complementarity between objective 2 and objective 3 schemes can and should be improved for the remainder of the scheme. Increased flexibility and innovation in the use of ESF funds are also outcomes that we should redouble our efforts to achieve during the remainder of the programme.
The Minister cannot be certain about what will happen after 2006, as he does not have a crystal ball, so I realise that it is difficult for him to predict what will happen. However, for all the reasons that I have set out, I hope that hon. Members agree that the ESF is crucial. There will be some very important debates and decisions in the next year or so. Some of them will start to flow from decisions that will come from Brussels this weekend. I have no doubt that the Government will arrange a proper consultation on whatever draft regulations on structural funds eventually emerge from the EU. There will be vigorous debates about the volumes of public resources to be spent, which is essentially a Treasury matter, and about what mechanism, if any, is to be used to allocate the ESF. The question about repatriation after 2006 is essentially a Department of Trade and Industry matter.
What is the DWP's view on future funding? What role does it play in the developing arguments? What is its estimate of the timetable to put the new programme in place? Whatever happens, it is in everyone's interests to put the changes in place in good time so that, unlike the last time when this programme started, in 2000, service providers know where they stand.
Before undertaking the inquiry, I was a little sceptical about the effectiveness of the ESF throughout the United Kingdom. In spite of my own very positive constituency experience, I was under the impression that in some areas the social fund was nothing more than a job creation scheme for bureaucrats. I no longer believe that to be the case. There are still difficulties, and improvements need to be made, but I cannot but be
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impressed by the enthusiasm of the service providers that we saw on the ;round when we took evidence. They were dedicated and enthusiastic people, and they were doing everything that they could to improve the lives of their clients in all sorts of circumstances where labour market opportunities were being improved.
At its best, the ESF adds significant value to the lives of the individuals that it seeks to serve. I sincerely hope that the Select Committee report will act as a catalyst for change. Bureaucracy should be reduced, and access to schemes should be increased, not just for the rest of this programme period to 2006, but for the foreseeable future thereafter.
Mr. Deputy Speaker: I now call Mr. David Drew, the first speaker from a very long list.
2.59 pm
Mr. David Drew: I am grateful for the opportunity to take part in this debate. If the Select Committee Is the engine room of Parliament, perhaps I can play the role of stoker, if for no other reason than to stoke up the debate to ensure that it does not pass without certain comments being made. I thank the hon. Member for Roxburgh and Berwickshire (Sir Archy Kirkwood) for leading the debate so positively.
Anyone would h we positive things to say about the ESF, because—I am not sure whether the Committee looked into this—I do not think that there is a constituency in thy, country that has not had some relationship with the fund, so widespread has been its influence. That is something for which the EU as a whole is to be congratulated on, even though most of the decisions are taken nationally. I want to refer to two constituency-based attachments to the ESF, because that is what I know best. I was going merely to intervene on the hon. Gentle man on the subject, but I can say more now that I have the opportunity to make a speech.
First, there is what we in Gloucestershire call the neighbourhood network, which is a series of neighbourhood projects. There is one such project in my constituency in Stonehouse, where I live, and others throughout Gloucestershire, including in Gloucester, Cheltenham and Tewkesbury. We are immensely grateful for ESF funding, because it enabled those projects to take off. That is one of the tributes that we could pay across the board to the ESF, because it can take the germ of an idea, where a community has seen where it wants to go but is hamstrung by lack of funding. If the money is of plied appropriately, the fund can really make projects take off and we can learn a lot, because there is no point in a project working in one part of the country if it is lot replicated elsewhere. I hope that the success of the neighbourhood project has influenced not just the Department for Work and Pensions but other Ministries such as the Office of the Deputy Prime Minister and the Department for Environment, Food and Rural Affairs. It has shown that communities are crying out for regeneration, but not necessarily purely for economic regeneration. Social regeneration is as important.
Secondly, there is the Painswick Inn, which is a foyer. It is important that we consider the role that ESF money has played in ensuring that the foyer movement has been able to transcend some of the traditional urban

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heartlands, where people would expect problems such as homelessness among the young to be dealt with through a movement. ESF funding has alloyed us to go much further; it brings together social deprivation, lack of housing and the need for retraining so that there is a good level of provision where often it either did not exist or was so limited that most people never got access to it.
Let me take over where the hon. Gentleman left off. In considering the report I should like to amplify some of the points that have been made—making not criticisms but observations. In particular, I shall consider some of the areas that we need increasingly to take into account as we move towards whatever comes out post 2006, which, with the best will in the world, given the changes in the EU, is hardly likely to be more generous. It will be different and mist take account of changes in our society.
Any constituency MP who has been involved in this process will be able to recall in gnat depth that the biggest frustration is the speed with which the process gets under way. The bidding process is fairly blunt, the sharing out of the spoils is sometimes opaque, and it takes time to build the capacity to ensure that the project becomes meaningful as soon as possible. However, I do not want to concentrate on that, because it is well known. I should like to mention instead something that is pertinent to our neighbourhood project.
By chance, a month ago I attended the neighbourhood network's presentation on the evaluation of the ESF money. Now that the funding has come to an end, the network had, as part of the commitment that it gave, to account for how the money was spent. That raises a huge issue. The trouble is that, once we have put in the social capital, raised people's estimation of what they are capable of doing and got people retraining and considering different ways to rebuild their lives, like all such funding, it comes to an end.
I do not cast aspersions on what we are learning in Gloucestershire, but increasingly I say to anyone looking for funding—not necessarily from the ESF, but across the board—that nowadays the exit strategy is probably more important than the enthusiasm and commitment needed to set the thing up. I am not yet able to substantiate my point—we are in the early days of the aftermath of the ESF funding for the neighbourhood network—but I am a little worried I raise the issue of how the end of that funding should be managed, and what will replace it. That is a real-lire concern.
I have concerns even about calling it a project. If there is a perceivable need, which has been met, it seems counter-productive to withdraw that funding in any way. We must be very aware that the organisation that has proved its worth will have to find other means of funding, and that the last thing that we want to do is to raise too many hurdles, which would damage the effectiveness of what is being delivered.
We are talking about a quite well funded project, involving hundreds of thousands of pounds; the situation is somewhat different with smaller-scale projects, and I will say more about that. However, I wonder whether, for the larger projects, we need to include a process on how the money is spent, so that there is a proper brokerage and we can see whether it is
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worth while and necessary to keep things going—in the case of the neighbourhood projects, it certainly is—and how we can enter into new funding streams.
The issue of complexity has been well described by the hon. Member for Roxburgh and Berwickshire. I urge caution about the idea of co-financing, match funding or additionality—whatever we may call it. All my experience of projects is that once there is the initial financial commitment, match funding comes that much more quickly. However, requiring the securing of match funding as one of the hurdles to be climbed over to start with makes it very difficult for small groups especially. I like the idea—supported by the Government and recommended by the Committee—for greater discretion if the sum is less than £50,000. That would be greatly beneficial. However, we need to understand that, although it may not be the intention, such a requirement is seen by those seeking the money as a way to make their job more difficult.
The name of the game is how, when trying to put together community-based initiatives, we can seek out diversified funding sources, of which—if one is able to access it—the ESF is the largest. I like the fact that the report says that we are talking largely about the voluntary and community sector, although not entirely; it is possible to access the money through local authorities or other organisations.
It is important to consider the key issue of capacity. I hate the term capacity building; it sounds as if a certain amount of something can be ladled into an area, everything gels, and, like osmosis, the whole thing works and somehow we all feel satisfied. The difficulty is that every area and every organisation is different. In a sense, capacity building is about people holding one's hand to ensure that the right bid has been submitted to the right people, lots of time has not been wasted, and one knows what to do with the money if and when one gets it. That is a time-consuming exercise.
My biggest concern is that, inevitably, there are areas that are disadvantaged. That goes back to the point about having slightly fewer hurdles when smaller sums of money are involved. Obviously, as I represent a semi-rural area, I always think that rural areas tend to lose out because they have not got the same level of capacity. They are not able to enjoy economies of scale and either do not have the knowledge or are sometimes seen to be well-off. That means that they do not fit any of the normal objectives, and that can be galling when there are definite social needs and certainly an employment responsibility.
The way around that is to ensure that the funding streams are allocated as fairly as possible and that they are transparent. There needs to be honesty and openness with areas and organisations. They should be told early on that they are not likely to be preferred when it comes to funding streams, so that they do not waste a lot of time and may instead consider the lottery or trusts. The main criticism concerns people who have tried to access such moneys when they were never likely to be able to do so, even if, technically, they were eligible.
Those are my main points, but I will make one last one, which, again, is something that I feel strongly about. It concerns the relationship with the other funders in the statutory sectors, particularly the business aid organisations, such as Business Link and, in my

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county, Gloucestershire First. They are usually very helpful; they are bound to be, because they see the process as a way to get partners to provide social regeneration in the areas in which they are seeking to provide business regeneration. There is a pretty haphazard relationship between the business aid organisations and the ESF. Attention must be paid to that, not least because if and when the ESF comes to an end, those organisations will have to pick up some of the individuals involved—not necessarily those who have been in the scheme when it was the ESF. If the scheme continues to run, somebody, somewhere will have to pick it up, and business aid organisations are likely to be one of the vehicles for that.
Two things need to be borne in mind. People in those organisations should be completely au fait with what is happening with the ESF. That will enable them to be sympathetic to and understanding of what is being done, so that, if and when they are brought in, they have the necessary knowledge. More particularly, because of the changing nature of business and the increasing call for social enterprise—community-driven businesses—there is a real opportunity for those organisations to dovetail or partner the ESF to ensure that we are innovative and turn over every stone to give people the maximum number of opportunities, rather than limit their possibilities. That is what is happening in employment and training nowadays.
The future holds some alarm for some of us, because we know that such funding probably cannot get any better, but we can learn from our experiences and share them. I have not heard bad things about the ESF itself. I have heard bad things about some aspects of it, but no one has ever said to me, "I wish that we had not had that funding. I wish we had gone along a different route. The ESF really constrained us." There are lots of problems when ESF funding is lost, but the money is often a Godsend and has enabled very important things to happen that otherwise would not have been done. I welcome the report and I hope that the Minister has some positive things to say about it and about where he sees things going in future. This debate has therefore been worth while.
Mr. Deputy Speaker: I am sure that the hon. Gentleman has spoken for many hon. Members.
3.15 pm
Paul Holmes: I welcome the excellent and succinct report and congratulate my hon. Friend the Member for Roxburgh and Berwickshire (Sir Archy Kirkwood) on the outstanding work carried out by his Committee, as usual, in producing it. I agree with many of the points made by the hon. Member for Stroud (Mr. Drew), on which I shall elaborate and embellish.
The main points of the report, as summarised by my hon. Friend the Member for Roxburgh and Berwickshire, cover two matters, one of which is the problem of bureaucracy when administering the fund and the second is the big open-ended matter of what will happen after 2006. Evidence in the report touches on a subtext, which people to whom I have talked separately have also raised. I refer to groups that are hard to reach and those from excluded groups, whom the money is designed to help.
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Some of the projects funded under the scheme have been successful in reaching people in a way in which the general new deal programmes and their approach have not, partly because; the general new deal approach has been a target-led culture—a tick-box culture—and, in some ways, has gone for the easy fixes. Many of the harder-to-reach groups tended to be ignored in the first few years of the programme. However, in recent years, some of the schemes funded by the European social fund have allowed local community-based projects and some Government initiatives to reach those groups in a way that has not happened before. We do not want to lose sight of that and of what might happen to those groups after 2006.
The bureaucracy issue has several aspects. In its summary and conclusion, the report refers to
"the sheer cumulative weight of the bureaucracy … that organisations are expected to shoulder"
in the process of applying for the funding. It points out the
"significant burden on local authorities, Government Offices and other public and voluntary organisations"
and summarises the process as a bureaucratic quagmire.
Many parallels can be made. We hear about such matters all the time in different aspects of the Government's delivery. Smaller community-based and volunteer groups have often lost out from lottery funding because they do not have full-time expert and professional staff who can put together professional bids and wade through the bureaucracy to access the money. On the lottery, it is well known that local schemes in my area of Chesterfield and north Derbyshire lose out massively in terms of the cash that is drawn in from lottery funding compared with large well funded professional bodies, such as opera houses in London. The same process takes place in some aspects of the ESF, too.
I am sure than the Minister will tell us that improvements have been made and that the Government have embarked on a bureaucracy-busting programme. For example, the Learning and Skills Council, which is responsible for many of the co-financing deals, has embarked on a bureaucracy-busting drive under its newt xecutive. So all is well—but perhaps not quite.
Six months ago, in December 2003, Wiltshire college appeared in the national press in a story on how the college principal had to go to the local learning and skills council with information on 2,000 learners to access ESF money under the new streamlined system. However, only 10 per cent. of those learners were in the scheme funded by the ESF, which was designed to provide money to give opportunities in rural areas that might otherwise be missing out—something to which the hon. Member for Stroud referred—so only 200 people benefited from the scheme at the college. The principal said that the time spent on the data collection was simply not worth the income obtained and that he did not think that he would apply again.
Have things got any better? I understand that colleges made their calculations and argued that things had not got better, saying that this was a nationwide problem and that more than one area of the country was affected. This year, colleges with a total of 70,000 people on ESF-funded programmes must provide the various learning

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and skills councils throughout the country with data on 1 million adults. That means that 70,000 people are being funded from this source of money, but that data must be provided on 1 million rather than on only 70,000 adult learners. Some 10 million separate pieces of information must therefore be collected as opposed to 5 million under the previous system.
To add insult to injury, in 2000 the colleges were promised £200 million from the funding scheme to help their adult education programmes. In the financial year 2002–03, however, they received only £117 million. They are providing more data and dealing with more bureaucracy but getting less money than they received in the early stage of the scheme when they bid directly. Bureaucracy busting clearly has some way to go; in fact, it appears to be going in the wrong direction.
There is also the bureaucracy of different requirements and different sets of paperwork to access the money, depending on which co-financing organisation an applicant is working through. One local organisation in Derbyshire told me this week about an organisation making bids to two organisations—the local Jobcentre Plus and the local learning and skills council. It was bidding for money for the same purpose and used the same funding manager to fill in the forms, so the two bids were absolutely comparative.
The learning and skills council rejected all the bids out of hand at stage 1 through its different bureaucratic paperwork stream, yet the identical bids made to Jobcentre Plus were accepted and wont straight through to stage 2. So identical bids prepared for the same purpose by the same funding manager were rejected out of hand by one stream, but accepted immediately to go through to the next stage by another organisation working in a different way. That sort of duplication of application processes can only add to the problems of organisations, especially the smaller community-based ones, which, when faced with a bewildering array of paperwork to fill in, often give up early in the application process and never get through in the end.
Other issues were raised in evidence given to the Committee and by groups to which I have talked. There is, for example, an argument that a favoured status system operates under the co-financing system, which was introduced to overcome the problems of regional direct bidding. It seems that the co-financing system is dominated by the learning and skills councils and Jobcentre Plus. Smaller organisation is argue that there is a clear trend towards money being awarded in-house to learning and skills councils, colleges, Jobcentres and official schemes rather than to them.
The European Structural Funds Voluntary Organisations Northern submitted evidence to the Committee that there was also a move towards competitive tendering instead of bidding against set criteria. So rather than saying, "This is what we want to achieve. Can we have the money?", people have to compete against several other organisations that are also bidding. Like the old-fashioned compulsory competitive tendering that I remember only too well from my time as a councillor in t he ears gone by, people have to go for the cheapest bid rather than the one that is the best value. The Government have made changes in local government tendering to allow for best value bids
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rather than the cheapest bids. It would appear from the organisations on the ground that there is a similar need for that to inform the bidding for the ESF.
Other organisations have asked why no account is taken of the track record of a bidding organisation. They face other organisations that claim that they can do something more cheaply, but are unable to examine their track records. If an organisation has a 76 per cent. success rate in getting hard-to-place people into sustained employment after 12 months as opposed to the new deal target of 13 weeks, why is that not taken into account when awarding new contracts in the next bidding round? Instead, everyone is treated as equals, including brand new groups that have no track record on which they can be judged. That needs to be looked at.
Some specific issues have arisen on costs and accounting. As there has been a big move towards outcome or completion funding, many of the small organisations cannot obtain 100 per cent. of their costs, so when they bid for a programme they do so in the knowledge that they might obtain only 90 to 95 per cent. of their funding and will have to put in some of their own money to make the programme work. HM Treasury's cross-cutting review on the issue said that overhead and core costs of organisations were a legitimate item to include in such bids, but that appears to be ignored. Smaller organisations either carry the cash can themselves to top up the bid or do not bid at all because they do not have the resources. Larger organisations, such as colleges, may be able to absorb some of those costs into their much wider overheads, but smaller organisations may be completely put off. One of the points of ESF funding is to encourage localised, small-scale community initiatives that are bottom up rather than top down. Those are all different issues that relate to the bureaucratic process.
The second major issue highlighted by the report is what happens after 2006. The short-term approach to funding that many people experience is reflected perfectly in other funding schemes, such as the lottery. The hon. Member for Stroud gave examples of that, and no doubt all hon. Members could give similar examples.
I shall give three examples that relate to the short-termism of lottery funding in Chesterfield, which I have mentioned in other debates in years gone by. Shopmobility is thinking about a major retrenchment of the service that it offers in the wider area of Derbyshire because its three-year funding is coming to an end. Fair Play, which works with disabled children and tries to get them involved in mainstream activities, youth clubs, outward bound activities and so on, is about to hit a brick wall because its three-year funding is coming to an end. The Rother community garden in a deprived area of Chesterfield is also struggling with some of the same issues. All those problems are reflected in other Government programmes, and the ESF is in danger of being in the same position.
Many of the organisations that gave evidence documented in the report raised that problem, although at the time the deadline was still three years away and not in the forefront of some people's thinking, although it is becoming increasingly important as the deadline approaches. The report said that there was a great deal of uncertainty about future funding, especially after EU enlargement, which of course has now taken place.

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The Government's response was to say that they would wait and see what negotiations with the rest of Europe brought, but, as has been said, we know to a degree what those negotiations will bring. Inevitably, with a larger European Union, which has more underdeveloped areas to the east, some of the money that went into the ESF and single regeneration budgets will be diverted to those less developed areas that need the money.
We know what is going to happen. It will not be enough for the Minister simply to say that we will wait and see what comes out of negotiations. I hope that he will be more reassuring than that. The comprehensive spending review is taking place and will be announced shortly. It is being negotiated and argued throughout various Departments and will cover the period 2006–08—the two years immediately after we assume that the European funding will be considerably reduced. We cannot just accept a reassurance that the Government will wait and see what happens. We need to know within a few weeks or a couple of months at most what is going to happen and whether the comprehensive spending review will meet the large funding gap that is going to appear on the horizon in the fairly near future.
The report says that many service providers that currently work in employment, training and social inclusion will be in a difficult position by 2006. It recommends that the spending review remove that uncertainty. I hope that the Minister will be able to reassure us on that.
I close with a couple of examples, one from the report. Mencap told the Committee that its education and employment services, which work on social inclusion for disabled people—that huge, untapped and deprived group of people who would like to get into work—rely heavily on ESF money. What will happen in two years' time? Will Mencap have to close that operation, or will it have to find large sums from its limited charitable resources or elsewhere?
The Government's progress2work scheme has been piloted in Chesterfield and Derbyshire. I have visited it, and it is an excellent innovation. A group of people—in this case, former drug addicts—are trying to rebuild their lives and get back into work. They are in the hardto-place category, which was largely ignored by the new deal in its early years. It is a great innovation and receives a large chunk of funding from the ESF. What will happen to that?
Phoenix, a company from Rotherham that now runs many schemes in Chesterfield and north Derbyshire, delivers the progress2work scheme on behalf of Jobcentre Plus. It is an excellent scheme, and it is very successful. It does intensive work with those who are trying to rebuild their lives. What will happen in 2006? We assume that the Government will roll such a mainstream programme out across the country—but will they? Where will the funding come from? That group of people was ignored for many years. Essentially, they were told, "It's your fault. You became addicted. You sort it out." To their credit, the Government have been doing something about that over the past year or two, but what will happen after 2006?
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The people who work in that sector—volunteer groups as well as Government agencies—remember only too well that not many years ago, especially before 1997, little was clone to help such people. What reassurance can the Minister offer to groups such as Mencap, Phoenix, progress2work and dozens of other similar groups, whose existence in two years' time will very much depend on his answer?
3.32 pm
Mr. Paul Goodman: It is a pleasure, Mr. Deputy Speaker, to see you in the Chair. I begin with an apology. I have to leave at approximately 4.15 pm to go to an important constituency engagement, so I apologise to you, to the Minister and to the many Members present.
I declare a kind of interest in that, once again, I am uncomfortably wearing two hats. Not only am I an Opposition spokesman, but I am a member of the Select Committee. I did not labour as intensely as the Committee Chairman, the hon. Member for Roxburgh and Berwickshire (Sir Archy Kirkwood), but I did labour with him on he report and we travelled together to Spain and Portugal, where we looked at the operation of the social fund abroad. We both observed that circumstances in Lisbon appeared to be rather more deprived than in the parts of southern Spain through which we travelled.
You will be aware. Mr. Deputy Speaker, as a distinguished former Select Committee Chairman, that some Select Committee reports receive more publicity than others. The recent Health Committee report into obesity was the sort of report that makes spectacular headlines, but the hon. Member for Roxburgh and Berwickshire will agree that our report, which is substantial and serious, was never likely to stimulate the same kind of dramatic headlines. That, however, may not be to its disadvantage.
In the light of the European elections, and of what the hon. Member for Roxburgh and Berwickshire said about some people believing that the social fund might be, as he put it, a job creation scheme for bureaucrats—a view that he might have held before undertaking the inquiry—it is worth pointing something out. A large number of voters—not only UKIP or Conservative voters, but voters from the Minister's party, and some Liberal Democrats—might be inclined to think that although we will have received more than £4.5 million from the fund between 2000 and 2006, and although we are the sixth largest beneficiary of the social fund—the hon. Member for Stroud (Mr. Drew) was correct to say that many projects in our constituencies have benefited from the social fund, and that no one could guarantee that they would hay( been funded if the social fund had not existed—those figures are dwarfed by our contribution to the EU in 2001. The figure, which I checked this morning, was £988 billion, which throws the amounts from the social fund into some relief. It is also a reminder of the fact that the Government's commitment to the fund arises out of our commitments as a member of the EU.
At the start of his speech, the hon. Member for Roxburgh and Berwickshire rightly focused on what the fund actually does. A deputy director general at the

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European Commision, Mr. Lõnnroth—I hope that I am not mispronouncing his name—said that the fund was the only one
"which focuses on the individual. The ultimate beneficiary—if I can use the word because it is a complex term—is the individual."
As the report notes, the fund's aim is to eliminate economic and social disparities across the EU. That is an ambitious aim, given the difficulties that all Governments have in reducing those disparities even in individual nation states.
The report also notes that the fund is set in the context of the EU's 10-year strategic objective, which was set out at the European Council in Lisbon four years ago. The EU aims—the hon. Member for Roxburgh and Berwickshire referred to this—to become
"the most competitive and dynamic knowledge-based economy in the world."
In the light of current events, that aim, too, can be unambiguously described as ambitious.
There are several main themes in the report. First—the hon. Member for Roxburgh and Berwickshire went into this in some detail, and everyone who has spoken has referred to it"there was considerable debate about the merits of co-financing as oppose d to direct bidding. The summary at the end of the report says:
"The picture that emerges is that the former group"—
those who favour co-financing—
"are wedded to a top-down, competitive, hard-output, contract-driven provision that supports Government programmes".
The report then says that "the second group"—those who favour direct bidding—
"seems to be associated with a bottom-up, self-motivating and more co-operative approach."
A crucial sentence in the report reads:
"It was argued that although the opportunity of not having to secure match-funding has its attractions, this advantage was reduced if the chance of securing that match-funding was correspondingly reduced."
On the whole, the report tilted a little towards those favouring direct bidding, from whom the Committee heard a good deal of evidence. We recommended that direct bidding be retained as a safely net.
Secondly—this has been a common theme in the debate—there was concern about excessive bureaucracy. As one instance of that, the hon. Member for Roxburgh and Berwickshire referred to records having to be kept for 12 years. In one apposite comment, the report states:
"For example, one training organisation told us that in a project of only 12 trainers, it needed to employ five support staff simply to fulfil the administrative demands required by various funding streams, including the ESF."
Thirdly—this has not been alluded to so much—there was a somewhat esoteric debate about the principle of additionality, which is governed by the structural funding regulation, and which declares:
"In order to achieve a genuine economic impact, the appropriations of the Funds"—
we are not talking about matched funding, but about the funds themselves—
"may not replace public or other equivalent structural expenditure by the Member State".
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I remain to be convinced that circumstances exist that make it impossible for Governments not to put in place programmes that they believe the social fund and the other three structural programmes may fund. Perhaps that is impossible to prove.
Finally, there was great concern about what will happen after 2006, when we will be on a completely new footing. The report states:
"the few references to ESF in the Government's consultation paper and the total omission of any reference to the social inclusion agenda do not suggest that the Government fully recognises the importance that ESF plays in countering social exclusion and helping vulnerable people gain access to the labour market."
For a report from the Work and Pensions Committee, as opposed, perhaps, to the Health Committee, that is the most inflammatory language. In context, the criticism seems fairly strong. In the light of that I want to ask the Minister some brief questions based on the Government response to the report. If he runs out of time—although perhaps he plans to stay later than hon. Members on the Floor of the House—perhaps he will undertake to write to me to deal with my questions.
The Committee recommended that the Department for Work and Pensions should compare the implementation of ESF in areas where there are a few co-financing organisations, such as London. It was not altogether clear to me from the Government's answer whether an actual comparison would be made, although the Department said that it wanted good practice in coordination between co-financing organisations to be identified, disseminated and adopted across England.
A Committee recommendation about direct funding stated bluntly:
"We therefore recommend that some direct funding be retained in all regions and re-introduced in London."
The Government did not really go along with that recommendation:
"In view of the positive conclusions and recommendations of the 2003 evaluation, it does not propose to recommend reintroducing direct funding."
The Department then said:
"Should any gaps in provision arise subsequently that cannot be met by CFOs, it will recommend to the Regional Committee that direct funding be re-introduced to enable these gaps to be filled."
Perhaps the Minister would care to say something about how many such gaps will be identified and how the Government propose to make such an assessment.
The Committee recommended that a detailed statistical analysis of the award of grants would be needed, and commented:
"We suggest that that study also investigates whether there are any marked differences under the two systems with respect to the types of projects supported and rejected."
The Government provided a lengthy answer, but I do not think that that said anything about how they might investigate whether there were differences relating to projects that were supported or rejected. Perhaps the Minister would comment.
The Committee recommended drastic improvement and streamlining of the design of the claim form and the speeding up of the process for settling claims, including making greater use of claiming over the internet. The Department dealt with the internet point. I do not think

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it specified that it would study the design of the claim form again. Perhaps the Minister will say something about that.
After the Committee recommended that the DWP press the European Commission for greater clarification of how intense the monitoring regime should be, the Minister replied:
"The Government intends to introduce an annual operational meeting between the ESF programme authorities in the four nations of the UK to discuss their administrative procedures and management issues, with a view to establishing transferable useful practice."
Perhaps the Minister could tell us how plans for that annual operational meeting are going, or, indeed, whether it has happened.
Finally, I return to the subject of 2006. It would be extremely useful if the Minister could, in the light of this debate, say as much as possible about the Government's plans for 2006. I understand that negotiations and discussions are continuing but, even so, I am sure he will acknowledge the danger that after 2006 a useful series of projects, of the kind to which the hon. Member for Stroud referred, will suddenly be left high and dry. Any information that the Minister could share about that would therefore be welcome.
This has been a good debate, in which we have had a thorough opportunity to explore what was undoubtedly a painstaking report. I look forward to the Minister's reply.
3.45 pm
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. Chris Pond): You began our proceedings, Mr. Deputy Speaker, by emphasising the importance of this debate. That importance was underlined by the hon. Member for Roxburgh and Berwickshire (Sir Archy Kirkwood)—I always wish that I could refer to him as my hon. Friend. He described the issue as arcane and esoteric. That was my impression about a year ago, when, only days into my current job, I was called before the Work and Pensions Committee to give evidence on the inquiry that we are debating. I am therefore pleased to be in the same post, perhaps knowing a little more now than I did then.
I congratulate the hon. Gentleman, under whom I served for several years as a member of the Committee, on his presentation of the report. I thank the Committee for a constructive and useful report, which the Government welcomed on its publication last November. In our response we accepted many of the recommendations. The report coincided with two important developments: the mid-term review of the current ESF programmes, which run from 2000 to 2006, and the start of discussions on what should replace them after 2006. In responding to the debate, I should like to update hon. Members on those developments.
The Committee's report welcomed our approach of using the ESF to add value to our mainstream programmes. I assure the hon. Member for Wycombe (Mr. Goodman) that that is a guiding principle of the ESF, which is not a substitute for what the Government would be doing anyway. The ESF adds value to those policies and projects. The Committee was encouraged
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by the good performance of our ESF programmes. I am pleased to report that the mid-term evaluation of the ESF, which was completed at the end of 2003, confirms the Committee's findings. The evaluation shows that the ESF supports our national policies of promoting employment opportunities for all to combat poverty and social exclusion. The ESF is adding value to the new deal and other policies, which, with stable economic growth, have helped almost 2 million people into permanent jobs.
I was pleased to see the latest labour market figures that my right hon. Friend the Minister for Work released yesterday. They show that claimant unemployment has fallen by more than two fifths to its lowest level for nearly 30 years. There are now more than 28 million people in work, which is one of the highest figures on record. With the measures that the Government have implemented since 1997, I am happy to say that employment has increased in every region of the UK. It is pleasing, too, that the claimant unemployment rate has fallen most in the areas that previously had the highest unemployment. The ESF has made an important contribution to those developments.
So far, the ESF has helped more than 1 million people in England through employability training and guidance projects. It is reaching some of the most vulnerable people in our society. Some 34 per cent. of participants are long-term unemployed people, 23 per cent. have no prior qualifications and 12 per cent. have disabilities. The ESF is achieving excellent results. Three quarters of participants were in jobs or had started further learning when they left their ESF courses.
My hon. Friend the Member for Stroud (Mr. Drew) gave examples of projects in his constituency that the ESF has made possible. I am grateful for his comments about the ESF and foyers. Homeless people are a key target group for the use of the ESF to make the transition into work. In my visits to ESF projects over the past year, I have seen for myself the difference that they make to people's lives. For example, at the end of last year I visited the Somerset "Computers for Charity" scheme in Taunton—a project giving disadvantaged people training and work experience in recycling, upgrading and repairing IT equipment. With ESF funding, it is helping some 140 people, including ex-offenders, homeless people, drug and alcohol misusers, lone parents and women returners. Some 40 per cent. of participants find a long-term job.
There is also the issue of maximising the impact of EU funds. During its inquiry, the Committee suggested—a suggestion that has been echoed by some hon. Members today—that we should maximise the take-up of ESF funds. I am pleased to confirm that our ESF programmes achieved their spending targets in 2003, so we have not had to return any money to Brussels. Last year's evaluation confirmed that our ESF programmes had achieved their interim performance targets, which has resulted in the Commission awarding £128 million of performance funding for objective 3 in Great Britain—£111 million of which is for objective 3 in England.
The hon. Member for Roxburgh and Berwickshire made the important point that we need to focus on economic inactivity. That, of course, is one of the biggest challenges that we face. Although we have achieved a considerable amount in getting the

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unemployment figures down and people into permanent jobs, there is nevertheless the continuing problem of those who remain economically inactive. In the second half of the programme, we will continue to target the ESF on people who, despite our record employment levels, remain economically inactive. Key target groups will include people with disabilities and people from ethnic minority groups. As caring responsibilities can be a major barrier to work, all projects will be encouraged to provide child care for those who need it—one of the issues that was raised in the Committee's report.
I should say something about the word "equal", because, in addition, up to £150 million of ESF funding is available from this year for the second round of equal partnerships. Those projects will develop innovative approaches to combating exclusion from the labour market, and will exchange good practice with European partners.
The hon. Members for Roxburgh and Berwickshire and for Chesterfield (Paul Holmes) raised in particular the issue of bureaucracy. I shall say something about that because it is clearly a concern for the Select Committee and for Members who have spoken in this debate. Like the Committee, the Government want to ensure that it is as simple as possible for providers to access and manage ESF funds. I reassure the hon. Member for Roxburgh and Berwickshire that this is an issue over which we are, in his words, constantly vigilant.
Since 2000, we have introduced two major reforms to the administration of the ESF in England. First, there is co-financing, which I will say a little more about later and which has eased many of the burdens on providers by bringing together the ESF and domestic match funding into a single funding stream. Secondly, we have introduced the global grants programme, which allows community groups to access small amounts of the ESF through streamlined procedures. Very often, the application process takes no more than one or two months, and in some cases as little as two or three weeks.
The Committee made the proposal, which we were not able to accept and which was mentioned by my hon. Friend the Member for Stroud, to have a fast-track procedure for projects of less than £50,000. We considered that, but we came to the conclusion that it would not comply with the Commission's rules on open and competitive tendering. However, we hope that the global grants—fast-track grants of up to £10,000 for small community groups—will fill part of that vacuum.
The hon. Member for Chesterfield used the example of the difficulty that Wiltshire college had in accessing the ESF. It had to provide information on 2,000 learners, but there were only 200 ESF beneficiaries. That information is required under EU funding laws to demonstrate that match funding in place. We agree that the rules need to be simplified That is why one of our post-2006 objectives is simpler administration with greater reliance on national systems and rules. We believe that funding rules are best established at the national level.
The hon. Gentleman also complained that ESF does not fund core activity. That is true. It must add value to core and mainstream activities by funding those additional activities that would not otherwise take place or by enhancing the quality of existing provision.
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We are trying to deal with the legitimate concerns about bureaucracy. There is much more to do, and we are continuously seeking to improve our ESF systems. The Committee recommended a number of areas for improvement, which were also reflected in the mid-term evaluation, and we are implementing them.
We have improved co-ordination between the co-financing organisations; that point was made by the hon. Member for Chesterfield. For example, the five learning and skills councils in London are holding a single application round across the city this year. As the hon. Member for Wycombe mentioned, we have revised the forms that projects use to claim payments to reduce errors and speed up processing. We are now making those forms interactive. We have issued guidance to ensure that all regions in England use risk-based sampling when they select projects for monitoring and audit, and we have improved co-ordination with programmes managed in Scotland. Wales and Northern Ireland and have introduced an annual UK ESF operational meeting to share good practice across the UK. The hon. Member for Wycombe mentioned that, too. Jobcentre Plus is one of the co-financing organisations and it has improved the quality of its feedback and support to unsuccessful applicants so that it now offers detailed comments on request, rather than using a tick-box form.
I must say something about the importance of EU regulations in this context. We will continue to improve access to ESF and ease administrative burdens, but there are limitations to what we can do under current EU regulations. I am afraid that that includes the requirement—described as "bizarre" by the hon. Member for Roxburgh and Berwickshire—to keep records for 12 years. It is one reason why our objectives in negotiations on the next set of regulations will include making ESF administration simpler and more flexible.
The hon. Member for Roxburgh and Berwickshire, along with other Members, made important comments about the process of co-financing. The hon. Gentleman knows that the introduction of co-financing occurred on a gradual and managed basis from the end of 2001. We had substantial consultation with the voluntary sector, which was represented on the national committee, regional committees, the evaluation steering groups and the co-financing implementation board. Indeed, co-financing organisations are required to consult on their plans.
The Committee found no convincing evidence that the role of the voluntary and community sector was being lost under co-financing—although I want to come back to the hon. Gentleman's question and anxiety about whether a distinction has been drawn in the voluntary and community sector and the larger organisations benefit while the smaller organisations lose out.
The Committee's finding on the overall impact is supported by the second evaluation of co-financing, which found that the co-financing organisations were contracting with significant numbers of voluntary organisations that were new to ESF. Indeed, about 32 per cent. of co-financing providers are voluntary organisations. The evaluation also found that most ESF providers think that co-financing has improved the quality and availability of provision for hard-to-help groups. Some 60 per cent. of the organisations

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considered that co-financing had improved the process, but 25 per cent. felt that it had made matters worse. On the question of whether there is a distinction between the small organisations and the larger ones, the second evaluation found that co-financing was drawing into ESF significant numbers of new small and specialised voluntary organisations. Indeed, it is fair to say that it was the larger organisations that often found that they were not successful in the process. It is important to recognise that one purpose of co-financing is to establish a level playing field and to allow some of the smaller organisations that might otherwise not be able to access match funding to become involved in the process. I reassure the hon. Gentleman that we will keep a close eye on that. If his anxieties are well founded, we will need to see what we can do about the matter, as that outcome is not our intention.
The hon. Member for Wycombe made some points about co-financing versus direct bidding, which he suggested was top down versus bottom up. The report suggested that overall the ESF was adding value to mainstream programmes and that co-financing represented a good balance between centralised contracts and ESF systems. He will be aware that some direct bidding is retained in eight of the nine regions. He said that direct bidding should be retained as a safety net. That is true everywhere, except in London, where there is a wider range of co-financing organisations and it is less likely that people will fall through the net. We are keeping that under review.
The hon. Member for Roxburgh and Berwickshire asked us to keep an eye on the soft outcomes—the extent to which organisations had made improvements in capacity—as well as some of the harder outcomes. The key outputs on which performance is measured are jobs and qualifications, but we also encourage projects to measure the distance that they have travelled, especially where they are seeking to help people with multiple disadvantages move towards the labour market. We recognise the challenges that many of those projects face, and that sometimes soft outcomes are difficult to measure. The DWP has issued guidance to projects on measuring soft outcomes and the distance travelled.
My hon. Friend the Member for Stroud and the hon. Member for Chesterfield raised concerns about organisations in rural areas, social enterprise, capacity building, and so on. The recent evaluation report on local development, which was published on 11 June, found that ESF was helping to build capacity-providers in rural areas to meet the needs of the people there. That activity, including supporting social enterprises, will continue during the remainder of the current programme.
Finally, before we lose the hon. Member for Wycombe to his important constituency engagement, I should like to say a few words about the situation post-2006. We must think about what will happen to provision that is funded by ESF when current programmes finish. Understandably, hon. Members have raised that issue during this afternoon's debate. Those who attended Tuesday's European scrutiny debate in the House will understand that the future of ESF funding is inevitably wrapped up with negotiations on the future of structural funds as a whole and the
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wider issue of the EU"s overall budget after 2006. That will disappoint the hon. Member for Chesterfield, who would like me to give a clearer commitment this afternoon on what will happen to funding. I am afraid that I will have to disappoint him. However, it may be helpful if I give the Chamber an indication of the timetable that we are working on.
We are still at an early stage in the negotiations. In February, the European Commission published its initial proposals for 2007 to 2013 in its cohesion report. The Commission has suggested that it will publish draft legislation in July. Formal negotiations will then begin, and are likely to continue into 2005, and perhaps even into the UK presidency. It is likely that the early stage of negotiations will focus on delivery systems, and that budgetary issues will be taken later on, as they will depend on the settlement of the overall budget for 2007 to 2013. If legislation is agreed in 2005, new programmes would be developed in the following year, in time to start in 2007.
In Tuesday's debate, my right hon. Friends the Paymaster General and the Minister for Industry and the Regions set out the Government's approach to the negotiations. As hon. Members will know, we believe that fundamental review and reform of the structural funds is required if we are to respond to the unprecedented enlargement of the EU and to meet the challenge posed by the Lisbon agenda. At the Lisbon Council in 2000, member states agreed the objective of raising employment rates to a level that will deliver the most dynamic and prosperous economy in the world, setting the target of an employment rate of 70 per cent. by 2010. That has seen mentioned at least twice this afternoon, and I agree that it is ambitious, but it is realistic.
Although the UK and a few other countries have already achieved the target, the EU as a whole has some way to go, as the Wim Kok taskforce pointed out. It urges EU member states to take swift action if we are to achieve that target. The Government's proposals for reforming the structural funds aim to address the challenge faced by the Lisbon Council now that there is an enlarged Union In our view, all member states should continue to work towards the Lisbon employment targets but as of now their policies need not be EU-financed EU resources including the ESF should be concentrated where they can add most value to the poorest member states. For example, the ESF in new member states should be invested in labour market reform and human resources, so as to help them to take forward the recommendations of the employment taskforce.
Focusing EU resources on the poorest countries is consistent with our commitment, which is shared with five other member states—Germany, France, Netherlands, Austria and Sweden—to maintaining an overall EU budget of no more than 1 per cent. of EU gross national income. Under that approach, richer member states would finance and deliver their own policies to meet the Lisbon goals, ending the inefficient recycling of funds between the net contributors.
Sir Archy Kirkwood: The Minister is doing his best to be helpful. I attended the structural funds debate, and one question that I left the debate puzzled by was how

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the Government can possibly hope to repatriate structural funds. I understand that these are regional fund arguments, rather than work and pensions arguments. How can the Government possibly stay on the right side of European Union competition rules? It is hard for us to make a decision about the relative merits of the Commission scheme. Hon. Members can find the scheme in the third cohesion report.
The Government scheme was "a guarantee", but it was not a guarantee that we would get a programme equivalent to the ESF. It is hard to make comparisons and judgments. It may be early days, but it would be helpful if the Minister could say a little more about what would replace the structural funds, and whether they will be whisked away after 2006.
Mr. Pond: I noted the hon. Gentleman's contribution to Tuesday's debate, which was helpful and constructive, as always. To respond to his question—to which I think my right hon. Friend the Paymaster General would have responded—it is early days in the negotiations, and it is therefore difficult to give any clear commitments on what will happen to the overall structural funds post-2006. We have given that guarantee, and I shall later say a few words about what that actually means.
Both the hon. Gentleman and my hon. Friend the Member for Stroud asked for reassurances about the continuation of projects after the current ESF round ends. Of course, the challenges facing UK nations and regions will not disappear when the current structural funds programme ends; we recognise that. We have given the guarantee to which the hon. Gentleman just referred: if our reform proposals are successful—there is an "if", because we are at the early stages of negotiation—we will increase domestic spending so that UK nations and regions do not lose out in comparison with the EU funding that they would have received in 2007 had the existing structural funds arrangements been applied across the enlarged EU.
The hon. Gentleman is displaying—
Sir Archy Kirkwood: A wry smile.
Mr. Pond: The hon. Gentleman may be displaying a wry smile, but that is as far as we can go in giving a
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guarantee at the moment. He will understand that we are seeking to make sure that we can continue the good work already done, particularly under the ESF, after the current arrangements come to an end. However, we cannot give commitments on actual levels of funding at this moment. First, we do not know the outcome of the negotiations, and secondly, we do not know what will happen to overall prosperity in the United Kingdom and the rest of the European Union over that period. Of course, we expect the UK to continue to grow in prosperity, but the issues have to be carefully considered.
We are making the transitional arrangements that people have rightly asked for. We are actively planning to ease the transition of current ESF providers to the post-2006 arrangements. I am pleased to confirm today that we have agreed with the Commission that project activity in England under the current ESF programmes can continue until at least December 2007. That will ensure that ESF funding will not be cut off suddenly at midnight on 31 December 2006.
In conclusion, I confirm that we will continue to use the current ESF programmes to support our policies to promote economic prosperity and social justice, and we will work for a reform of structural funds so that, in an enlarged EU, spending is targeted where it can add most value. That way, our nations and regions can have the resources that they need to promote their productivity and employment.
As you said at the outset, Mr. Deputy Speaker, today's debate has been important, timely and appropriate. I thank the Work and Pensions Committee again for its hard work in preparing a constructive report, which has helped us move forward in our thinking about the ESF. It will inform those discussions into the future.
Mr. Deputy Speaker: The Chamber thanks the Minister for his reply. The Opposition spokesman, the hon. Member for Wycombe, can leave for his next engagement with an entirely clear conscience.
Question put and agreed to.
Adjourned accordingly at thirteen minutes past Four o'clock.