Enterprise and Culture Committee, 08 Sep 2005

Meeting date: Thursday, September 8, 2005

Official Report 247KB pdf

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European Union State Aid Inquiry

Item 3 is our inquiry into European Union state aid. Members will recall that, before the recess, we considered a paper resulting from the visit to Brussels by me, Christine May and Mike Watson, along with Seán Wixted, to examine the EU review of state aid. Colin Imrie was also there, but gives his apologies: he is overseas today, and is unable to be with us. In light of the comments that have been made, we now have before us a revised draft of our proposed submission to the European Commission on its review of state aid. It is consistent with much of the input from the Scottish Executive, which has expressed to the Commission similar concerns to ours.

We spoke about this matter prior to the start of the meeting. I was not party to the earlier stages of the process behind the paper that we now see before us, as I was on a remote island called the Justice 1 Committee for a period of time. I am, however, duty bound to raise an issue with you, convener. I seek your and the clerks' advice on a matter that is red-hot in the Highlands and Islands: the fact that, some years ago, when we applied for a renewal of objective 1 funding, we lost it. The reason was that our gross domestic product—our wealth—was deemed to be above the line where the funding would have kicked in.

The reason why we were above that line was that the city of Inverness, as it now is, was included in the bid to the EU. The tragedy was that parts of my constituency and other parts of the Highlands and Islands and of George Lyon's constituency fell well below the line. There was a deeply felt need to draw those lines in different ways. Wales has done things differently, yet there has been a refusal to do likewise here. That is a running sore. There are places in the Highlands and Islands that are desperately poor. Because of the Inverness effect, the situation is skewed.

You nod in agreement, convener, and I am grateful for that. I seek your advice. The matter before us under this agenda item is not quite what I am talking about, but it is a parallel issue. Given the importance of the matter, I wonder if the committee would consider including in its submission a short paragraph on the subject. We talk about new money and targeting that money more accurately—that is precisely what I am on about. If the committee agreed, would you consider writing to the new Minister for Enterprise and Lifelong Learning, Nicol Stephen, asking where the Executive stands on the issue? It is as simple as this: if the problem is not tackled, it means that some of the least well-off people in the most remote parts of Scotland are being disadvantaged quite unfairly.

Jamie Stone makes a fair point. When we were in Brussels, we received some information about the parallel review of the structural funds. That is being done in parallel with, but separately from, the review of state aid. For us to include a reference to the structural funds in our report would be largely redundant, as the process relating to state aid will not touch the people in Brussels who are dealing with structural funds. I suggest that it would suit our purposes in trying to ensure that the Highlands and Islands get a fair deal if we keep the two issues separate, as they are dealt with separately in Brussels. I am personally sympathetic to the idea of writing to Nicol Stephen initially to establish the Executive's position, so that the committee can consider its reply. We can then decide—perhaps with the aid of a background paper from the clerks on the structural funds review—whether we wish to pursue that matter any further.

I agree with the point about the structural funds and the argument with respect to the objective 1 transition in the Highlands and Islands, which is the same as the argument with respect to the objective 2 transition in central and lowland Scotland. The unit of measurement that was used for that took no account of the deprivation that might occur in areas adjacent to areas of significantly high incomes, so the picture was skewed. That is what happened in the case of the Highlands, on a much larger scale.

What we should ensure is that nothing in the submission means that state aid regulations exclude any area from consideration for structural funds. Although state aid and structural funds are two separate matters that are considered by two separate departments, or directorates, they are linked in that eligibility for the one may mean eligibility for the other. Or it may mean—as I think was explained to us in Brussels—that if you are in an area that is eligible for state aid, additional funding could be attracted to an application via structural funds or other funds. I am an anorak on the subject and I know quite a lot about it, but I am not entirely sure that the wording in our submission meets those criteria. I seek guidance from the clerks as to whether we can get some urgent advice on that.

I also have issues about the Highlands and Islands Enterprise submission in respect of state aid, but I will come back to those.

We retain the services of Colin Imrie, who is the specialist adviser on the matter until the exercise is complete. I suggest that as a matter of urgency we contact him. Perhaps Christine May can brief the clerk on the precise points that she wants to raise. Is that agreed?

Members indicated agreement.

The second point about building into the submission a cross-reference on the structural funds is fair enough and relevant. I take it that we are agreed on that.

Members indicated agreement.

Are we also agreed that we take up Jamie Stone's suggestion of initially writing to Nicol Stephen and in the meantime getting a briefing from the Scottish Parliament information centre and the clerks on the background to the structural funds review, which is about not only objective 1 but objective 2 funding, and that we consider Nicol Stephen's reply along with the background paper before we decide what further action we want to take?

I have one caveat. The European Committee is looking at the structural funds issue, so we might want to let its convener know that we are doing this.

Yes.

So you will let the new convener of the European Committee, Linda Fabiani, know.

That will be done through the clerk.

I am very grateful. I must express that, because a lot of people are feeling the wind unfairly and they will be deeply appreciative of that move.

Is everyone happy with that? That seems a fair point to raise.

Members indicated agreement.

Christine May has other points on the submission.

I apologise for not raising these issues when the paper was initially circulated, but family issues meant that I could not do so.

We are asked, on page 3 of the proposed submission paper, to take a view on a number of points that HIE has raised. Paragraph 8 says that HIE is concerned about the differential aid rates between rich and poor regions and suggests that that proportionate element should be sustained. I want to be sure that that is compatible with the objectives of encouraging innovation and the other horizontal themes that—I believe—the committee wants its submission to concentrate on. The committee wants funding to be available where need is greatest, regardless of where in Scotland that is. I have some difficulty in saying whether I agree with HIE. I would not blame the rest of the committee for looking at the suggestion and thinking, "I haven't got a clue."

I will give a specific example. I know of a biotech company outside Edinburgh, in the Midlothian area, just outside a regional selective assistance area. Because it is outside that area it does not qualify for regional selective assistance. I know that in that instance—I am talking about a fairly substantial company—the lack of availability of regional selective assistance could make the difference between its staying in Scotland or moving to Ireland.

The key point is that we need a balance. There is a difference between the so-called vertical and horizontal funds. If funds were horizontal, every part of Scotland would get access to assistance. The question is whether we want differential assistance for companies in particularly deprived areas. Generally speaking, the kind of companies that look for research and development funding tend to be concentrated in the more prosperous areas around universities and the like. The fundamental issue is whether we want a differential to be applied or whether, no matter where companies are in Scotland, they should get the same level of assistance. That is a catch-22 situation.

My instinct is to say that I do not agree that all areas should receive the same assistance, because that is not compatible with the objectives, although I would be grateful for some advice on the matter if anyone has any.

I suggest that we go through the issues and then seek Colin Imrie's advice. As we are not up against a particularly tight timetable, we have time to revisit the paper, with Colin's advice, before we have to submit it. We will try to get external advice before we make a decision.

Let us move on to the next point, which is paragraph 10.

Yes. HIE wants aid to be allocated

"at the level of the larger NUTS 2 statistical areas",

which makes sense. Again, we should seek Colin Imrie's advice on whether that would be compatible with the objectives of encouraging innovation, equality and environmental sustainability. If it is, I have no problem with including the suggestion in our submission; if not, I suggest that we do not include it.

To cut a long story short, I suggest that, where the draft submission asks whether the committee agrees, we will take Colin Imrie's advice before we complete the final version. Is that okay?

I think so.

I am told that we have only one week before we submit the paper. The papers for next Tuesday's meeting have been sent out and we have a full agenda for the following week's meeting. Given that Christine May, Mike Watson and I went to Brussels would members be happy—perhaps you are desperate—to remit the final draft to Christine, me and the clerks?

Members indicated agreement.

That is very kind of you.

I am grateful that Christine May is here as an anorak to keep us on the right track, but I have a comment about paragraph 11, which states:

"HIE therefore suggest that the correct policy is to argue for and challenge all such subsidy through the World Trade agreements."

As members will appreciate, whenever the World Trade Organisation is mentioned, the Greens start jumping up and down, but from a practical point of view, is that a feasible course of action and would it be beneficial? My feeling about the WTO is that it has its own agenda, which is generally pretty negative in relation to deprivation—the WTO does not exist to help disadvantaged areas. Should we be concerned about that, or will you consider the issue when you draw up the final version?

I hope that we will consider that—I would be reluctant to include anything about the WTO unless somebody twisted my arm behind my back and made me do it.

We will consider that before we submit the final draft.

Great. Thanks.