European Structural Funds
For agenda item 2, I welcome Dr Sara Davies, senior research fellow, and Professor John Bachtler, director, of the European policies research centre at the University of Strathclyde, which was commissioned to undertake the work that the committee had previously agreed to. I hand over to the witnesses to give us their presentation, after which we will ask questions.
Professor John Bachtler (University of Strathclyde):
Thank you and good afternoon. We are pleased to be here. We cannot quite compete with the glamour of the previous discussion on sport, but we will do our best.
Dr Sara Davies, who is senior research fellow at the European policies research centre, has led the study. I am a director of the EPRC. Some of you might be familiar with the centre's research from previous work that we have done for the Parliament. The institute at the University of Strathclyde has been in existence for more than 25 years and works on European policy issues. Our raison d'être is to compare the design and implementation of policy throughout countries and regions of the European Union and to draw out interesting lessons and good practice.
We are involved in providing policy advice—we have worked with most EU Governments over the past five years—and promoting the exchange of experience. We have a particular interest in regional policy. We are especially interested in the cohesion policy of the EU, but are also interested in the regional policies of individual European countries.
Sara Davies will provide an overview of the report and its main findings and I will talk about some of the legacy issues for the committee.
Dr Sara Davies (University of Strathclyde):
I will outline the research questions that the committee asked us to consider before talking briefly about the methodology and looking at an overview of the structural funds programme in Scotland in 1994 to 2006. I will then focus on the research findings on the implementation structures, the programmes and the case study projects that we looked at. As John Bachtler said, he will then look at some issues for the future.
The main focus of the study was the impact of the structural funds programmes from 1994 to 2006. We were asked to consider several questions under that heading. First, how appropriate were the delivery and implementation frameworks for delivering the funding? Secondly, how well had the programmes performed? Finally, what were the effects of four major projects that showed evidence of good practice?
Our methods were conditioned in part by the fact that the study lasted for two months, which included Christmas and new year. A lot of the work was desk research on existing evaluation studies and reviewing information on the Scottish programmes and the international perspective. Therefore, we looked at evidence on other EU programmes at EU level and for specific countries. We took that approach to the delivery structures and the programmes themselves.
For the case study project, we looked in detail at five different projects—one for each set of programmes. That work was based on interviews, monitoring data and various documents and discussions. The methods were affected by some weaknesses in the monitoring data and evaluations; we might want to come back to that later.
I will give the committee an overview of the structural funds in Scotland between 1994 and 2006. Slide 6 lists all the programmes during that time, of which there were quite a few. A feature of the structural funds is that they are rather complicated—not only are there several different programmes, but different areas come under the different objectives of EU funding. In addition, EU resources are channelled through different EU funds such as the regional development fund or the social fund. There are various complexities in the structure of this type of funding.
When funding is allocated for a period of years at a time, each programme is divided into a series of thematic priorities, which are then subdivided into measures. Within each of those measures, people can apply for funding for projects. The programmes therefore fund hundreds, if not a couple of thousand, of projects each. They are very large and complex entities.
Slide 7 shows a picture of the Scotland structural funds areas between 2000 and 2006. Obviously, the areas were slightly different between 1994 and 1999 and they will be different again between 2007 and 2013. Again, some of the complexities can be seen. For example, if different partners are involved in a project, one of them could be located in a different area, which could lead to all kinds of complexities in setting up a project and getting it running.
On the research findings, I will talk first about implementation and delivery frameworks. Our general conclusion was that the delivery systems in Scotland worked well from 1994 to 2006. That is not to say that there were no problems; clearly various administrative issues arose during that period. However, we found that the systems worked well overall and the problems that arose were not unusual from an EU perspective. It is fair to say that all member states and regional authorities have some problems with EU rules and procedures, and linking EU rules with domestic rules is a challenge. However, we found that the delivery systems worked well.
It is interesting to consider features of the Scottish system that are, to an extent, similar to those of the systems in other parts of the UK but distinctive from a European perspective. One issue is the challenge fund approach to resource allocation, which simply means that funding is allocated on a competitive basis. In many EU member states, funding has basically been channelled straight into the existing budget lines or programmes of public entities, which is very different from what has happened here. In Scotland, most administrative tasks have been undertaken by the programme management executives, which are separate administrative entities that were set up specifically for the structural funds. However, not all member states have taken that approach.
I will not go through every feature, but a particularly interesting one is the number and type of beneficiaries. Scotland's structural funds programmes have had a strong emphasis on community development and the participation of voluntary and community groups, but that approach has not always been taken in other countries and regions. A lot of funding elsewhere has been channelled into infrastructure and support for medium-sized or even large businesses. Although there has been business and infrastructure support in Scotland, there has also been a lot of funding for community development, which involves a different type of organisation.
The next component of the research findings relates to the programme level. The research on the programmes' quantitative effect is based on existing evaluations and studies of the programmes. We have provided data on matters such as the number of jobs that have been created and firms that have been assisted. There is a lot of information in the report, but I do not want to bore you with lots of figures. The annex to the study contains one-page overviews of each programme, which give a list of indicators and outputs and results that the programmes generated.
One issue is that, during the 1994-99 period, problems arose with data monitoring. For example, different programmes used different indicators, so it is difficult to bring together all the information, even at programme level, but certainly for all Scotland. The issue seems to have been addressed for the 2000-06 programmes, for which the Executive set a relatively limited number of indicators that were to be used for monitoring all the Scottish programmes. It is therefore possible to draw out better information for the 2000-06 programmes. On the other hand, the 2000-06 programmes are not yet completed—they will continue to spend resources until the end of 2008. Various other monitoring and evaluation issues arise, which we could discuss further if members are interested.
The qualitative evaluations of the structural funds programmes found several benefits. There is clear evidence that the programmes targeted and ring fenced funding for certain areas, social groups and categories of spending that might not otherwise have received funding under purely domestic programmes. One feature of the programmes is that funding has been guaranteed for a period of years, which gives a certain protection from the pressures of annual budget setting. Another feature is that funding has been levered in from other external sources, such as lottery funding. Some money was given by the EU and money was then drawn in from other sources.
One effect seems to have been the stimulation of new project ideas and, to an extent, an improvement in project quality. That has happened partly through the work of the programme management executives, which have put a lot of effort into generating projects and bringing together people with similar project ideas. Evidence also exists of a more strategic approach and of efficiency gains as a result of matters such as improved project selection. However, there have also been efficiency losses, because the EU rules add an additional layer of administrative cost that is, to an extent, unavoidable. There is always a bit of a trade-off—more money is available, but more effort must be put into administering the programmes. The kind of evidence that we have for Scottish programmes is not unusual—we would expect such evidence for similar programmes in other parts of Europe.
Slide 11 deals with our case study projects. There was one for the Highlands and Islands, one for the east of Scotland, one for the west of Scotland, one for the south of Scotland and one for objective 3, which relates to labour market interventions. All the projects were relatively large, because that was the remit of the study, and all showed evidence of good practice—that is what we looked for when selecting the projects. We found that most of the projects would not have gone ahead without structural funds. Some might have gone ahead, but probably at a later date. It is also likely that they would have been of poorer quality or less developed.
We found some longer-term impacts on development. The projects provided the basis for further development and investment by public and private actors. In some cases, they changed the attitudes of individuals and groups, so that they were more open to new labour market opportunities or opportunities for private investment. The projects improved the quality of life for individuals in communities and provided longer-term resources for development of infrastructure and funding for business or more trained workers. It is difficult to say whether the projects that we examined were representative of all the projects that are funded, given that we looked at only five projects, in which there was evidence of good practice. However, other studies have provided evidence of other projects with good practice.
I will highlight a few issues that the case study projects suggested, which are the main lessons that we drew from them. First, many projects seemed to depend not just on partnership, but on leadership and a strong commitment by project holders to their local communities and areas. That came through strongly in a number of cases. Another issue is effective planning, identification of real problems and creation of solutions. It was interesting that some projects came up with complicated and interesting solutions to complex problems. The quest for employment project in west Fife, which offers employability support to young unemployed people with specific problems, provides targeted, tailored support to individuals, and works with local businesses to get them to provide work experience and a means of getting into work to the young people who are being trained. In other words, the project works with businesses to change their views of young people from disadvantaged communities, as well as with those young people to improve their skills and their motivation to look for work.
Other issues that we identified were the need to look at longer-term effects and the potential for follow-up projects, and the possibility of encouraging a greater willingness to take risks, in a managed way. That is a slightly difficult issue, because we do not want to encourage massive risk taking using public money, but there were cases in which the profitability of a project was perceived to be too low for it to be undertaken by private sector actors. Structural funds have encouraged projects that have ultimately proved successful to go ahead.
Another issue is the links between different types of interventions and funding sources. A lot of the projects found ways of complementing domestic policy frameworks. There is a need not to reinvent the wheel or copy the domestic programmes but, instead, to link the structural funds projects with the domestic interventions.
John Bachtler will talk about some of the issues for the future of the structural funds.
We were asked to identify a few issues for the committee's consideration that might form part of its legacy paper, although they do not form part of the report. We believe that two sets of issues could be of interest to a future committee. The first concerns the effectiveness and efficiency of the new generation of programmes that are going to operate in the period 2007 to 2013. As we said in our report, the objectives of cohesion policy have changed for the next period, which has implications for who is going to get EU funding in Scotland and how it is going to be used. There is likely to be more of a focus on the Lisbon agenda—in other words, promoting economic growth and entrepreneurship and encouraging innovation—than on regional and local development, although that will still be part of the programmes. The programmes will operate on a Scotland-wide basis rather than in defined areas, as was the case in the past. In some respects, that is a significant shift from a regional-policy philosophy to an enterprise-policy approach. The Scottish Executive has still to finalise its operational programmes. We understand that it will do so by the end of this month.
Another aspect of the changes is that the Scottish Executive has proposed a new approach to administering the funds, moving away from the PME-based approach that we have seen up to now. That is likely to involve a mix of a commissioning approach—in other words, allocating tranches of funding to organisations, such as the development agencies or community planning partnerships—and the retention of a challenge fund approach for some of the funding, which will involve some of the funding being delivered through a competitive bidding system, but with fewer organisations being involved than are involved at present. There will be a programme for the Highlands and Islands and a programme for the rest of Scotland.
The arguments that have been used to justify those shifts relate to added value, value for money, effectiveness and efficiency. A successor committee might like to consider various questions in that regard. Will the new approach provide added value for Scotland? To what extent will the funding be used to promote innovation, in terms of not only research and development but experimental approaches to economic development, which is something that the European Commission has been pushing? Will the new system be more efficient and, therefore, provide value for money? Further, what will be the consequences for regional and local development efforts of the fact that some of the existing beneficiaries will lose out in the new system?
The other set of issues that could be of interest to a successor committee is medium and long-term issues that concern the future of the EU's European cohesion policy in Scotland. It was only last year that the EU agreed a reform of its finances and policies, including cohesion policy. However, as you might recall, the budgetary debate was strongly contested and the agreement that was achieved was only a temporary compromise. Part of the budget deal contained an important provision relating to a major review of all areas of EU policy expenditure as well as its income. That budget review will take place in 2008-09 and will be carried out by the European Commission. Member states and others are already starting to think about how they can influence the outcome, as it could define the shape of EU policy areas and spending areas until 2020.
Some key questions will arise. What is the balance among spending on agricultural policy, cohesion policy, policies to promote competitiveness and the other areas that are rising up the policy agenda in Europe—energy, environment, security and so on? That debate clearly matters to Scotland, and it may be appropriate for this committee—perhaps working with other committees—to make a timely contribution to it.
That was helpful, and thank you for the report. I invite comments and questions.
I am getting the blame for the research—I use the word "blame" advisedly. I am sorry if I am an anorak, but I found the report and presentation extremely interesting. The key points that were pulled out—such as on the numbers of jobs created and sustained, on the fact that things happened that would not necessarily have happened in that way or at that time, and on the amount of leverage—were good and welcome.
I have some specific questions. Dr Davies talked about the difference in approach between us and many of the larger mainland European states. I was always struck by the extent to which politicians, particularly in France and Germany, took ownership of European structural funds. Ministers in various provincial and regional Governments used the funds for the benefit of key industries in their areas and also to generate a political platform for themselves. That gave European funding a level of recognition that it never seemed to achieve here. Will the new approach do more to highlight the impact, value and legacy of European funds?
My other question also refers to one of your findings and the idea of following the domestic policy agenda rather than reinventing the wheel. That brings me to the age-old question: is the domestic policy agenda the chicken or the egg? Does the domestic agenda involve examining what might be available for match funding and tailoring policy towards it, or does the system work the other way round? Which do you think that it should be?
We are a wee bit tight for time, so it would be helpful if you could keep your answers reasonably tight.
Those are good questions. As was said, we have taken a different approach in Scotland. In part, that reflects the fact that the system in Scotland was created in a pre-devolution era, when we did not have the politicians to take ownership in quite the same way as we have post-devolution. It is true that politicians in some countries are more involved than here, but it is not always clear that that leads to optimal outcomes. It is fair to say that in some countries there is perhaps more of a carve-up behind closed doors within the relevant committees, and also that structural funds have had less visibility than in Scotland—here, to a certain extent, there has been a more objective approach to allocating the funding. However, we are in a new era with the changes being introduced by the Scottish Executive.
The question whether or not structural funds are better and what political impact they have depends on how they are used. What we have seen from countries that use the system that we are moving towards is that structural funds almost disappear from the public eye because they are subsumed in the domestic policy agenda. The Commission is pushing quite strongly for at least part of the funding in the new period—not only in Scotland but elsewhere—to be used innovatively, not just to add to the budgets of domestic policy organisations but to try new things. That is important for the Commission because, in the budget review, it wants to be able to say that structural funds have added value and that they are important for richer countries as well as poorer countries. Whether that happens here depends on how the commissioning bodies, such as Scottish Enterprise and Highlands and Islands Enterprise, allocate funding and on the challenge fund approach.
One interesting aspect of the new period, which runs from this year to 2013, is that EU rules are becoming more stringent on themes—on the categories of spending to which money is allocated—such as innovation. However, the rules will be less stringent on the areas to which funding is allocated. For people such as us who take a regional policy perspective, that is a bit concerning, because the feeling is that funding will be channelled into sectoral spending that favours more dynamic areas, whereas the funding has traditionally been used to support the development of weaker areas. If Scotland did not want to go along with that approach entirely, some spending would have to be targeted on innovation and so on.
To an extent, it is up to Scottish authorities to determine whether to undertake geographical earmarking. Some authorities in the EU are deciding to move away from area designation, because it is too complicated and more bureaucratic. However, if it is thought that more EU funding should go to poorer parts of Scotland, perhaps such designation could be considered.
My personal view is that it is important that Scottish authorities and domestic authorities have a clear view of how they want to use structural funds resources rather than simply wait to be told that EU rules say do this, that or the other, because they will tell people to do too many things. People might as well have a good view of what to do themselves.
The Executive recently announced that the minimum size of projects will increase to achieve more bang for the buck in the next six years, but small local projects and charities have complained about that. On the basis of your research, do you have a view on that?
The European Commission has looked back at previous years' allocations, particularly in the Highlands and Islands, and has a claim against the Executive for £20 million to be repaid on the ground that money was not spent properly. Have you reached a view on that claim's validity?
As Sara Davies said in her presentation, like other parts of the UK, Scotland has allocated structural funds to a much larger number and more diverse range of beneficiaries, particularly at community level, than most other countries have. The shift partly reflects manageability—quite a lot of problems have related to managing structural funds over such a diverse range of projects—and the thematic shifts that Sara Davies talked about to focus more on matters such as innovation and entrepreneurship.
At a Scotland level, an argument exists in favour of the shift that you mentioned, if the aim is to follow the EU agenda of promoting a higher economic growth rate. However, the shift could be disadvantageous for smaller organisations, some of whose existence has been predicated on receiving structural funds. If vital projects are going to lose out, a domestic policy response must be made.
Your second question was on audit and clawback. That is a problematic area. We did not consider it in our research, but we know that it arose partly because the European Commission now employs a much more stringent approach to audit. In some cases, the Commission was not happy with the way in which structural funds were implemented, even though the delivery system was set up with the Commission's support and previous auditors approved it.
Many of the European commissioners' concerns were about small-scale systemic failures, such as a failure to keep the right paperwork. In many cases, there were concerns about the traceability of paperwork. The commissioners were concerned not that monitoring was not done or was not effective but that the paperwork was not always available to demonstrate that it had been done. That does not mean that there is a fundamental problem with corruption or the improper use of funding. My understanding is that there was a combination of systemic problems.
I was part of a local authority that had a clawback from the first round of funding towards the end of the second round. That happened because papers were missing due to the change in local authority structures and because one contract was let—legally—before the go-ahead was given. That should not have happened, but it did. Some of the tightening up happened as a result of concerns about the use of structural funds in other countries. In some cases, the UK fell foul of that. Nevertheless, such technical breaches have to be dealt with.
I am much more concerned about the changes in the structure for the new round and the local impact that they will have. There is concern about the amount of dialogue that has taken place with voluntary organisations, and there is concern that we will lose a lot of the expertise that has built up in the system in areas such as project development, project management, evaluation techniques and monitoring. A lot of small organisations are likely to go out of existence. Will you comment on that area of significant concern?
One reason for the strong focus on community development and voluntary organisations in Scotland and elsewhere in the UK is that, in the early 1990s, no one else was funding those areas. They have risen up the political agenda in Scotland, particularly since the creation of the Scottish Parliament, and there is now a strong focus on them. If one was starting from scratch, one might not use structural funds for such projects, but there is a great deal of expertise, and it would be a shame if it were lost. Perhaps local authorities in Scotland should consider whether projects should be funded domestically from other sources. If some projects cannot be funded in that way but are still valuable, structural funds could be a good way of funding them.
I am conscious that Christine May was rather apologetic about raising the matter, so I stress that it is helpful that she did so. There are many issues that need to be addressed and we have touched on some of them today, but we are conscious that today's meeting of the committee is almost its last gasp in the current session of Parliament, so our capacity to address the issues is limited. Nonetheless, I would welcome comments on a couple of themes.
The complexity of the system was mentioned several times in the presentation. We live in a complex world, but, in my experience, structural funds programmes are particularly difficult to get a handle on. When organisations or constituents approach one to intervene on their behalf in the area, it is more difficult to work out how to do so than it is in many other funding areas.
You have talked a lot about the forthcoming changes at the policy level. How confident are you that the system's complexity will be reduced in some way? What efforts are being made to reduce that complexity? Many of the improvements that you have talked about cannot be made unless people can navigate their way around the issues and unless they know how to engage in the discussion.
A related issue is how we can encourage the human behaviour that will ensure that good practices or the characteristics of successful projects are adopted and that different tiers of Government speak to one another to make the best use of resources. I cannot remember what the heading of your slide on that matter was—I apologise. Many of the things that I am talking about are not rocket science. How can the right behaviour be encouraged? Does the Executive have any plans to encourage the best people practices, as opposed to tackling the policy and process issues that have been mentioned?
I echo Christine May's concerns about what the changes might mean and how they have been handled. Such issues should be considered in the future.
I have spoken about my local experience, but I am conscious that I cannot do much about things in the next three weeks.
I stress that we are taking the research seriously and that our findings will be passed to our successor committee and to the European and External Relations Committee and its successor committee. A lot of helpful research has been done in the exercise, which has been useful.
In addition, the repercussions of changes will be around for a while, not only in managing the changes but in picking up on issues afterwards.
I worry that we will lose some elements of innovation. In my experience, it is often the smaller, more localised groups that come up with the most imaginative solutions and the most creative ways of using funds.
Professor Bachtler, do you want the last word?
I do not know whether it will be the last word, but I will try to respond briefly to a couple of the points that have been raised.
On complexity, Christine May and others will recall the agenda 2000 document of 1997 and the heading on the simplification of structural funds. There was a big push on that in 2001, but programme managers who will be responsible for the next period do not talk about simplification. The EU regulations are quite small—only about 30 pages long—but European strategic objectives are associated with these issues and the translation of those objectives into practice inevitably brings with it a whole series of requirements.
Over time, more and more concern has been expressed at European level about spending money on European policies, which has led to increasing attention being paid to monitoring, evaluation, financial control and audit. Much of the bureaucracy comes from the monitoring and financial control. There is a clash between the desire for something simple and the criticisms of the way in which European money is being spent. I am not hopeful that things will be less complex in future.
However, I am more hopeful about the retention of good practice. Structural funds have been in Scotland as programmes since 1986 and as projects since 1975. Looking at what happened during the 1990s, one sees that a fair amount of what one could call the good practice associated with structural funds became part of the domestic policy agenda. Partnership in Scotland pre-dated structural funds, but it was given a powerful push by structural funds. Ditto community development, equal opportunities and the whole integration agenda, to which much importance has been accorded.
A fair amount of added value from structural funds has become embedded, so the question is, where do we go from here? Can structural funds continue to play an innovative role in future?
Thank you—that was very helpful. I am sure that we will take these issues forward; as Christine May said, loads of issues will be around for the next six years.
I remind members that we will have one more meeting next Thursday, at one o'clock, to deal with 11 statutory instruments. You will have noticed that the Subordinate Legislation Committee had 68 statutory instruments to deal with in one meeting today, which is ridiculous. But there you go; we have to do our job.
I ask members to wait behind after I close the meeting.
Meeting closed at 16:41.