NEGOTIATIONS ON THE FUTURE OF THE EU STRUCTURAL AND COHESION FUNDS BRIEFING NOTE FOR UK STAKEHOLDERS
Introduction In July 2004, the European Commission published draft Regulations for the EU Structural and Cohesion Funds for the 2007-2013 financial perspective. The Regulations will be the subject of negotiations between EU Member States during 2004 and late 2005 / early 2006. Once agreed, they will establish the framework for the operation of the Funds for the new financial perspective. The negotiations are likely to begin by looking at management and implementation issues, as political decisions on the size of budgets and distribution of spending remain open and will probably be agreed towards the end of the negotiations. The following note sets out briefly the UK’s and Commission’s respective proposals for reform of the Funds. It also outlines the timetable for the first phase of the negotiations under the Dutch Presidency from September to December 2004. The UK’s Reform Proposals The Government held a consultation exercise on the reform of EU regional policy in March 2003. The consultation document advocated the development of an “EU Framework for Devolved Regional Policy”, according to which Member States would agree to broad objectives for regional policy, but with richer Member States taking responsibility for funding their regional development programmes from national resources, and a disciplined Structural Funds budget being focused on the poorest Member States. Following the consultation and correspondence with EP colleagues, the Secretary of State for Trade and Industry made written statements to Parliament on 17 September and 11 December 2003. The statement of 17 September set out the Government’s objectives for reform:
We want an EU regional policy that fully supports, and adds value to, the ambitious devolution, decentralisation and regional development agenda already being pursued domestically; We want significantly simpler and more flexible implementation and monitoring arrangements, which are proportionate to the amount of funding available and which allow integration with other policies;
We want EU regional policy actively to support the EU's agenda set at Lisbon and elsewhere for higher productivity and employment and for developing human resources; While being in no doubt about the continued need for strong regional policy in all Member States, we believe that it is both fair, and the most effective use of funds, to concentrate the EU's limited financial and administrative resources on the poorest Member States, where they will add most value; And we must also ensure that expenditure on EU regional policy, as with other elements of the EU budget, achieves a fair budgetary deal for the UK taxpayer.
The statement of 11 December set out in more detail the Government’s proposals for an EU Framework. The Government’s proposals would extend the open method of coordination to EU regional policy as follows: The European Council would establish high-level objectives for regional policy in line with the Lisbon and Gothenburg agendas; Member States would then devise Devolved Strategies for Regional Policy in support of the Framework objectives; The Devolved Strategies would be subject to a peer review process, which would allow for the sharing of best practice between all Member States.
The Commission’s Reform Proposals The Commission put forward its own ideas for reform of the Funds in its Third Cohesion Report of February 2004 and then set out formal proposals in draft Structural Funds Regulations, published in July 2004. It advocates: A major, 30% increase in the Structural Funds budget from €257 billion in the current cycle to €336.3 billion (or €374 billion including the European Agricultural Guidance and Guarantee Fund and the Financial Instrument for Fisheries Guidance) A focus on three objectives: Convergence, Regional Competitiveness and Employment, and European Territorial Co-operation. The Convergence objective would receive around 78% of funding and would be allocated (like the present objective 1) to regions with a GDP per head below 75% of the EU average. There would be transitional support for regions that lose Objective 1 eligibility, with more generous support for regions that lose out as a result of the so-called “statistical effect” i.e. the fall in the average EU GDP as a result of enlargement.
The Competitiveness objective would receive around 18% of funding and would be used (like the present objectives 2 and 3) to address problems relating to economic restructuring and to fund labour market programmes. It would be available for all regions other than beneficiaries of objective 1 funding and would be allocated on the basis of population, with some modulation for other factors such as unemployment. The Co-operation objective would receive around 4% of funding and would be used (along the lines of the current Interreg initiative) to finance crossborder, trans-national and interregional co-operation. The proposal would lead to a 50:50 split in funding between the old and new Member States, with the poorer regions of the richer Member States continuing to receive EU support.
The draft Structural and Cohesion Funds General Regulation also establishes a new framework for the delivery of Structural Funds programmes. Key features of the Commission’s proposals include: A three-stage process for setting strategic orientations and programming whereby the European Council would first, establish Community strategic guidelines, and Member States would then devise National Strategic Reference Frameworks before finally developing operational programmes; Requirements for Member States and the Commission to produce annual reports; Introduction of the principles of subsidiarity and proportionality, and a mechanism whereby Member States can rely on their own financial control rules in cases where EU funding constitutes less than 33% of total public sector funding for a programme. Some modifications to the institutional arrangements and financial control provisions for implementing programmes; A requirement for Member States to establish a national contingency reserve and to establish an operational programme for contingencies.
Initial Reactions to the Commission’s Proposals The Government has welcomed aspects of the Commission’s ref orm proposals, such as its desire to ensure a greater strategic focus for EU regional policy, its commitment to simplify current implementation arrangements, and its promise to ensure greater flexibility so that Member States can deliver projects that genuinely reflect local needs. We will work with the Commission and other Member States to develop these aspects of the Commission’s approach.
However, the UK has serious reservations about key aspects of the proposals, in particular those relating to the size of the budget and the distribution of funds across richer and poorer Member States. The proposals are based on an unrealistic and unaffordable expansion in EC budget. Moreover, they would provide for a 50:50 split of resources between old and new Member States. This fails to ensure a sufficient focus on the poorest Members and fails to address the EU’s most pressing priorities. The Commission’s proposals might look attractive to some UK regions. However, it is important to remember that they are based on an unrealistic estimation of the budgetary resources available and, as such, will not be accepted by the Member States. As the Secretary of State for Trade and Industry has said, the Commission is offering jam to everyone from a pot that does not exist. It is also important to remember that the Commission’s proposals would entail a significant increase in UK contributions to the EC budget and that any continued EU funding for UK regions would inevitably reduce the availability of national resources for regional spending. We are also concerned that, while the Commission has expressed a commitment to simplification, subsidiarity and proportionality, its actual proposals to do not do enough to implement these principles in practice. In certain respects, the Commission’s proposals appear to be more complicated than the current procedures for implementing programmes. They increase the number of stages in the approval process for programmes and the number of reporting requirements. Although the Commission has included the principles of subsidiarity and proportionality in the draft General Regulation, there are few concrete proposals for putting these principles in practice. We will therefore be looking carefully at the scope to lighten administrative procedures and to extend the principles of subsidiarity and proportionality. Negotiations under the Dutch Presidency In line with the multi-annual strategic programme agreed by the European Council in December 2003, the Dutch Presidency is aiming to reach agreement by December 2004 on principles and guidelines for the next financial perspective. It proposes to handle the negotiations on the Structural and Cohesion Funds on two parallel tracks. First, it plans to discuss financial issues relating to the Funds within the Adhoc Working Group on the Financial Perspective as a whole, in which officials from HM Treasury, the Foreign and Commonwealth Office and the UK Representation to the EU will represent the UK. For this Group, the Dutch Presidency has asked Member States to contribute views and proposals on each main category of Community expenditure, with a view to creating a number of “building blocks” or alternative policy options for consideration at the December Council. The report to the December Council will then set the parameters for the substantive negotiations on the overall Financial Perspective that will begin in early 2005.
Secondly, the Dutch Presidency plans to discuss non-financial issues within the Structural Actions Working Group, in which officials from DTI and the UK Representation to the EU will represent the UK, in consultation with other Government Departments and the devolved administrations. The Group will discuss the distribution of the Funds between different priorities and the detailed rules for devising and implementing programmes. The Dutch Presidency has invited Member States to raise broad questions or issues regarding the main chapters of the draft Structural and Cohesion Funds Regulations during September and is then expected to focus on the rules governing the approval and implementation of programmes. The more sensitive issues relating to the allocation of the Funds are likely to be left until 2005. The Group will report on progress to the General Affairs and External Relations Council in December. 7 September 2004