Regional Development Funding Inquiry
I welcome everyone to the seventh meeting in 2004 of the European and External Relations Committee. No apologies have been received, although a number of members will be a little late; I hope that they arrive in the not-too-distant future.
The first item on the agenda is the last evidence-taking session in our inquiry into the repatriation of European regional development funds, the United Kingdom Government's proposals and the impact on Scotland. I am delighted that we have with us Graham Meadows, the acting director general of the directorate-general for regional policy in the European Commission, and his colleague, Dr Manfred Beschel, who is the head of the unit for regional development in the UK. They are here to give us their views on the future of regional funding and the impact on Scotland. We are keen to find out what the benefits will be for Scotland of the third cohesion report, which was published a wee while ago. I have no doubt that there will be lots of questions on the report.
Mr Meadows has offered to make a quick opening statement for about five or 10 minutes to put his attendance into context, after which members will have the opportunity to ask questions. Without further ado, I hand over to Mr Meadows.
Graham Meadows (Directorate-General for Regional Policy, European Commission):
Thank you, convener. It is a great pleasure for Manfred Beschel and me to be at the committee today. We view it as a day's holiday. Perhaps I should not have said that publicly, but it is very nice for both of us to be let out of prison for the day to talk to the committee; we have to be back before sundown.
Rather than gallop through an opening statement that ought to fill about four and a half hours in something like five minutes, perhaps I may refer to a couple of points. If members want to do so, we can go into more detail in questions or in our later discussions.
My first point concerns the calendar within which the committee will produce its report. Now that the third cohesion report and the Commission's financial perspectives have been placed on the table, the European Council of Ministers is beginning to talk about life between 2007 and 2013, which includes cohesion policy. Its intention is to produce some conclusions—albeit that they will be introductory or very outline—by mid-June at the European Council meeting in Dublin.
To that effect, a series of weekly discussions has started in Brussels in the Committee of Permanent Representatives, which has also had its first exchange on cohesion policy. The committee's report will fall into that active and evolving—although I would not like to say that it will be rapid—European debate. That discussion is now beginning to move forward between the member states. If members want to do so, we could go into more detail on that subject. The positions of the different member states are already becoming clear in Brussels.
Perhaps I should clarify that Manfred Beschel and I divide our labour in the following way: Manfred answers all the difficult questions and I answer the easy ones. As we were travelling to the meeting, we talked about what might be of interest to the committee. As the convener said, one of the questions that the committee is asking in its inquiry is, "What is the benefit to Scotland of a Europe-wide cohesion policy of the sort that the Commission proposes?" A number of member states oppose the policy, in the sense that they feel that it is driven by a view of what should be a right-sized European Union budget. They feel that the benefits of the policy should be confined either to the 10 new member states or to regions that are similar to those in the 10 new member states.
We could go wider and talk about what the benefit would be to Scotland of keeping the policy Europe-wide, so that all member states would benefit under the policy just as member states contribute under the policy. There are a number of points that we could make in that regard without making the somewhat obvious point, which I find difficult to make and to sustain in courteous political discussion. That point is that European policy offers medium-term stability to 2013 in which regions like the regions in Scotland can plan their development. The reason for my saying that it is difficult to make that point in courteous discussion is that emphasising medium-term stability as a major selling point of European policy is equivalent to saying that national policy could not in some way provide such stability. From experience, that may be true, but it need not necessarily be so.
What are the benefits to Scotland of having a Europe-wide policy? One such benefit is that a policy with European funds that helps regions that are growing slowly to grow more quickly buttresses the single market, which is one of the achievements of recent years; according to some views, it might even buttress the idea of the single currency. The single market helps Scotland to earn its way as a trader. Without a European Union cohesion policy with EU funding, we think that that achievement would be made somewhat more fragile. The single market is viewed as important for the United Kingdom.
A European regional policy compels Scotland to compare its regions with the fastest-growing regions in Europe. It puts Scotland in a thoroughly European context, in which the benchmarks for progress are more ambitious than would be possible with a purely UK policy. A third factor for Scotland is that a European regional policy ensures that regions in similar positions are treated similarly. That means transparent criteria and the use of comparable data and so on. The loss of a European policy might lead to some sort of regional policy race, which could work against Scotland's interests.
As far as we are concerned, a Europe-wide policy brings added value to the EU—although we care about that, the committee might care about it to a slightly lesser extent. Such a policy improves the EU's visibility, encourages a form of economic governance that is well fitted to the way in which affairs proceed in Scotland and fosters the idea of working with regions through partnership. It also encourages contact between regions in Scotland and regions in different member states.
A big reason for our preferring a policy that operates equally in all member states is that such a policy is politically sustainable. To us, the idea of a policy through which only the 10 new members draw down resources that the other members have contributed does not seem to be politically durable. Experience shows that such a set of circumstances would not resist for long the pressures that would grow among all the 15 members—not just among the net payers, who form a clearly defined group—who would be paying for the 10 new members. Those members would argue for the contraction of such a policy, because they would draw no benefit from it.
Those are just some of the reasons why we argue that Scotland and its regions are better placed with a genuinely European policy that operates in all member states than they would be if they were subject to a national policy that drew some of its inspiration from Brussels but drew its funding only from the UK and which would try to draw a distinction between the old and the new member states in the EU, in the belief that the task of the old members was to pay for the new ones. That distinction between the old and the new is totally foreign to our thinking in Brussels. The proposals that are on the table draw no distinction at all between treatment for the old member states and treatment for the new member states—all will be treated equally.
Thank you very much.
We have taken a lot of evidence from the agencies in Scotland—especially the local authorities—that have expressed concern over the UK Government's proposals to repatriate the policy and funds in the UK context. Can you say a few words about how the final decisions will be made in Europe, what influence the UK will have over those decisions, what the latest feedback is from the UK, and how the cards stack up among all the member states at the present time?
Okay. It is easier for me to tell you what is happening in Europe than it is for me to tell you what is happening in the UK. Perhaps the two things become more or less similar.
I mentioned the fact that the European Council meeting in Dublin in mid-June will talk about the Commission's proposals for the evolution of the budget between 2007 and 2013; cohesion policies will be part of that discussion. We hope that the European Council's conclusions will contain some broad negotiating guidelines or broad guidelines for the future of cohesion policy. To prepare for those discussions in June, each week in Brussels COREPER discusses some aspect of the financial perspectives. The week before last, the committee discussed cohesion policy and, during those discussions, we were able to see unveiled in a formal context for the first time the positions of the different member states, of which the United Kingdom is one.
You will remember that, last November, a group of six member states wrote in a letter that they felt that the size of the European Union budget should be constrained to 1 per cent of Community gross domestic product. The six signatories to that letter—they are known as the group of six—were the Federal Republic of Germany, the United Kingdom, the Netherlands, Sweden, France and Austria. It was interesting to see whether their positions had evolved between November and the week before last.
We discovered that Austria's position has become much more softened. I do not know why that is, although it may have something to do with the fact that Austria is close to the new member states and, under the sort of policy that is envisaged, its businesspeople, its regions and its workers would be hard against the 10 new member states where there would be a high level of intensity of financial and national support under state aid rules in neighbouring economies. It is clear that a number of Austrian regions are afraid that they would lose jobs and businesses across the borders into the new member states. So, it looks as if the Austrians have left the group of six already, although we have only just begun.
The federal Government in Germany is under the same kind of pressure, as it has regions that will be hard up against the east. It is noticeable that the new Länder are taking a rather tough line with the federal Government in saying that they are opposed to an approach whereby policy would be repatriated, in effect, to 15 states and a genuinely Community policy would continue only in the 10 new member states. I may be optimistic—and why not?—in saying that, before the discussions are at an end, the Federal Republic may begin to be more affected by Austria's example.
Sweden, which is another of the six signatories, has its own highlands and islands problem. It has sparsely populated regions in which it is determined to maintain a level of economic activity. Already we hear from Sweden that it would prefer a European Union policy that was restricted to the 10 new states, as long as the policy was also present in its sparsely populated areas. It is clear that Sweden has already departed from the idea of a policy operating in the 10 new states and not in the 15 existing states.
France has had regional elections this weekend that might affect its view. At the moment, the view that we get depends on whom we speak to in Paris. If we talk to the regional policy lobby we hear support for the European Commission's proposals, but if we talk to the finance ministry we get a view that sounds like the view from the Exchequer in the United Kingdom.
I will not comment on the Netherlands. I can comment only on the discussions that have taken place so far in COREPER. The United Kingdom intervened late in the discussion, so it did not take the first position; it did not expose its alternative vision, but contented itself with asking about value added and the leverage effect of existing policy. We can read into that all sorts of different things. The United Kingdom came into the discussion late, so perhaps because time was wearing on, its representative felt that it would not be appropriate to sketch out its alternative vision of repatriated policy. The United Kingdom might have been concerned to see which way the wind was blowing.
I should not say this on the record, even in Brussels, but what struck us in the discussion in Brussels was that only the six signatory states have ever said that the Commission's position would not be a basis for the discussions. Of the six, Austria has probably crossed the wire already and Sweden appears to be equivocating, which leaves a group of four. In the discussion, we did not get outlined an alternative vision—other than that from the Federal Republic of Germany—to the vision in the Commission's proposals. I have said a lot and I do not think that my answer was necessarily the one that you wanted to hear, but it was probably about as near as I could get.
It was an interesting answer.
You said in your opening remarks that you were reluctant to have a regional policy race. Surely the term "regional policy race" could be replaced by the word "competition", which is what the EU was based on originally. What is your interpretation of who the competition is between?
Two things come to mind. One is an attempt to answer the question and the other is a thought that was provoked by the question. Given the way in which competition policy and state-aid policy—which is, in a sense, an instrument of regional policy—work, we find that even now the better-off member states spend more money on state aids than do the worst-off member states. The short answer to the question who would be the leaders in the competition for more intense regional policy is that it would be the better-off member states.
Indeed, the policy exists partly to offset the self-service view of regional policy. It is also one of the reasons why Mario Monti, the commissioner in charge of competition policy, is constantly trying to reduce the scope of such policy—and why that is difficult to do. He is not arguing with the poorer member states; instead, he is always arguing with the richer member states, which have the means to favour their own companies.
Your question provoked the thought that examining the workings of competition policy might also give us some idea of how an unfunded European regional policy from Brussels would work. In other words, we might be able to think about how national regional policies for the 15 states might operate inside some sort of European framework. After all, competition policy itself is not funded.
However, member states are always trying to steal a march on each other and are constrained only by the threat of court action. That happens even with the non-budget competition policy that is wanted by the most economically powerful member states and which is seen as an important part of the European achievement—in other words, it happens with a policy that has the best possible pedigree. If we set beside the current proposals for a European regional policy, which will operate in all 25 states in a transparent and co-ordinated way, the vision of a policy that will operate not in large parts of the EU but in the 10 new member states, or in those 10 states plus similar regions in some existing member states, we will find that that vision will be much more fragile. After all, member states have already shown that if they find themselves faced with a non-budget policy, they will not stop using their economic muscle to steal an advantage.
My idea of competition differs slightly from yours. I believe that the countries in the east will use their social fabric to compete strongly with western European countries. However, I also think that, in line with the objectives of the Lisbon agreement, our main competitors are on the world stage. It seems to me that you are not looking outside Europe at major areas of competition; instead, everything that you have said has referred to competition within Europe.
No. It is true that everything that I have said has been about competition within Europe; however, it is not true to say that the vision that is set out in the Commission's financial perspectives and third cohesion report looks solely at Europe. A fundamental reform that has been proposed is to tie the policy closely to the achievements of the Lisbon and Gothenburg agendas. In fact, the policy itself places renewed emphasis on the pursuit of competitiveness as the only antidote to the globalisation of markets and to the maintenance of the European Union's relative economic position. We are now trying to make the policy an integral part of the pursuit of competitiveness in a world context.
From reading some of the submissions that the committee has received, I notice that when it has asked which sort of policy people would like, they have said that they preferred the devil that they knew to the devil that they did not know. However, the truth is that they do not know one devil or the other. A fundamental reform of European cohesion policy is being proposed, so one is faced with a reformed devil that one feels one knows and a brand new devil that no one knows, because it is perceptible only in some rather misty context.
After 2007, cohesion policy will be firmly anchored to the Lisbon and Gothenburg agendas. Progress in the regions towards achievement of that competitiveness agenda will be discussed annually in the Council of Ministers. The regions will report to the Council and will be privy to conclusions that flow from it about what, in global terms, is becoming important for the maintenance of our competitiveness. A genuine attempt is being made to fit the policy to the pursuit of that much wider target.
I see from the overall cohesion report that the recommendations of the out going Commission for 2007-13 include the installation across Europe of a common tax policy with respect to corporation tax, energy and VAT. Is that essential to the success of the cohesion report?
No.
Thank goodness for that.
I note from Mr Meadows's opening comments his feeling that it is not politically durable for only 10 member states to draw down moneys and his view that a commitment to a Europe-wide regional policy is very important in the whole debate.
Last week, we took evidence from the minister with the relevant responsibility in the Scottish Executive. You will not be surprised to hear that his views were quite different. He said:
"it is both logical and fair that future structural funds be concentrated largely in the new member states."—[Official Report, European and External Relations Committee, 16 March 2004; c 493.]
As a committee, we are trying to reconcile two noticeably different approaches and to consider how Scotland fits into the whole picture. I think that I am right in saying that the Commission's view is that about 50 per cent of funding should go to existing member states. Will you comment on the two approaches and tell me whether 50 per cent is the right level at which we should be pitching funding for the existing member states?
My understanding is that the UK's position is that it aims to contribute about 1 per cent of its gross national product, whereas the Commission favours a figure of about 1.2 per cent. Would meeting somewhere in the middle assist in any way, or would that not allow the Commission to achieve what it wants to achieve over the 2007 to 2013 programming period? Academics have put to the committee the fact that there is already an underspend in the EU budget. Will you comment on that in relation to the 1 per cent and 1.2 per cent figures? Do you think that the accession countries have the capacity to absorb any shortfall? It would be helpful if you could put on record the Commission's view on that.
Finally, in relation to the common agricultural policy agenda, should we be considering spending more efficiently rather than spending more? Perhaps we could redirect moneys to the accession countries from somewhere within the CAP.
I am trying not to hog the whole meeting, but I think that, as you are here, it would be helpful to have answers to my questions put on the record, because they deal with many of the issues that have been coming to the committee over a significant period.
Feel free to keep your answers relatively brief.
Unfortunately, I suffer from Alzheimer's so I can remember only the last question, but I will try to answer them all.
I said a few minutes ago that we do not distinguish between old members and new members. That is important, because we are already hearing in the Council the view that cohesion policy is for the new members and research and innovation policy and other traditional policies are for the old members. There is the idea that the different groups ought to pursue their economic agenda in slightly different ways, but we do not make the distinction.
The second question was whether 50 per cent or more of the money should go to the new member states. We do not say anything about that. As a result of what we have proposed, more than 50 per cent of the money will go to the new member states, but we have not said, "We think that 52 per cent must go to the new member states and so we must now try to construct a policy that ensures that." I will return to that point in a minute.
I turn to the point about the apparent difference between what I am saying and what the Deputy First Minister said last week. You quoted him saying:
"it is both logical and fair that future structural funds be concentrated largely in the new member states."—[Official Report, European and External Relations Committee, 16 March 2004; c 493.]
The important word there is "largely". Under the Commission's present proposals, something like 78 per cent of the funding will go to the convergence regions, which include the new member states; 18 per cent will go to all the other regions, under a priority called competitiveness and employment; and 4 per cent will go to regional and national co-operation—I hope that those figures add up to 100 per cent. The funding will be concentrated largely in the convergence regions—the worst-off areas—of which the new member states form a large part. There is no difference between the Commission's proposals and the view that money should be concentrated largely in the worst-off regions—of course, a lot of it will find its way to the new member states.
If, in the course of the discussions, the budget devoted to European cohesion policy shrinks, what happens will depend on how the shrinkage occurs. If the architecture of the policy keeps its present form, with the same relative share going to each of the three priorities that I mentioned, everybody will feel the pain. If an economic position is achieved by lopping off a part of the policy, that part would obviously feel the pain. Some of the rhetoric about shrinking is that it is wrong to put money into the regions of the richer member states that are able to pay themselves. If that rhetoric were to prevail, the shrinkage of the policy would cut off European Union funding to those regions, which would clearly affect the United Kingdom.
As a result of the rule for automatic de-commitment—which is known as the N+2 rule and which says that if money that has been allocated has not been spent within two years it must be handed back—we have managed to reduce considerably any underspend in the EU budget for cohesion policy. Whereas underspend was a constant theme of our lives until 2000, when the new rule came into force, since 2000, the rule of automatic de-commitment has led people to manage their programmes in a much more proactive and vigorous manner.
In the two years for which the rule has been applied—it did not really apply until the end of 2002—we have seen automatic de-commitments from the regional development fund of something less than €20 million, although the total amount allocated from the fund in that time will have been in the thousands of millions. The rule has put an end to underspending in policy. There have been some underspends for the European social fund, but they have been much tinier than they were in the past. The idea that there is an underspend inside cohesion policy is now not accurate.
If you examine the European Union budget in any year, you will always find that there is an underspend, because money that is committed in a specific year might be spent a number of years afterwards. Before the automatic de-commitment rule for European regional policy, money could have been spent any number of years after it had been committed. Throughout those years, while we were waiting for the spending to take place, it looked as if funds were being underspent. If €100 million were committed for the building of a railway and it was paid out as the work proceeded, the budget would obviously look underspent until the railway was completed. However, inside our policy, the new rule on automatic de-commitment to a large extent has eliminated any underspend—certainly from the regional development fund.
As you know, the payments to the new member states are limited to 4 per cent of their GDP as a way of trying to tackle the danger that they will not be able to absorb the resources that are allocated to them. In the Council discussions that have taken place, there have been some signs that some of the 10 states are beginning to say that the operation of the 4 per cent capping rule should somehow be modulated. You may say that anything that expresses absorption as a percentage of GDP bites more severely on the poorer member states, which have a need for the resources, than it does on the richer member states, for which the need is lesser, although the capacity to spend might well be a function of the size of the income and of the public sector.
At the moment, as officials, we see a certain challenge in ensuring that the resources are drawn down—certainly, in the period from 2004 to 2006. We feel that, because the money is committed, because the European Union is committed to making a success of its enlargement and because this policy is part of that effort, we must do everything that we can to ensure that the new members are able to absorb the money that is placed at their disposal. We will use funds for technical assistance, education and all sorts of things to try to ensure that they have professional administrations that can do that. Often, capacity to absorb is more closely linked to the modernity of the administration than to the investment power in the state concerned. Therefore, the degree of modernisation in the administration or the quality of the administration is something that we can try to influence.
There was one more question, but I am prepared not to answer it if the convener does not want me to do so.
If it was the question on the common agricultural policy, I accept your preparedness not to answer it. We will move on, as there are still a few members who want to ask questions. If there is a specific point that the member wants to pursue on CAP, you could always write to the committee.
Right.
I encourage members to be brief with their questions. I encourage the same spirit in the answers. All of the questions up until now must have been far too easy. Mr Meadows has answered all of them and yet he said at the outset that he would answer only the easy questions.
I am glad that you feel that you have been "let out" for the day, Mr Meadows. In the interests of brevity, I will play my part in ensuring that both of you are home by sundown.
I want to tease out something that you said in your first response to the convener on the subject of the cohesion fund. You said that the Commission's views would not be the basis for future discussion and that only Germany out of the group of six—I do not want to say "gang of six"—offered alternatives. You also said that guidelines on many of the issues would emerge at the European Council meeting in Dublin. However, if only one country has offered alternatives, what will the basis for discussion in Dublin be? What is the exact legal status of the rejection of the Commission's views as the basis of discussion? Is it written down somewhere? Has legal advice been given or are we talking about something along the lines of people saying that they are just going to ignore the Commission's views and put them in the wastepaper bin? I would like to know where the Commission is going on the issue and whether Westminster or the Scottish Executive has expressed an opinion on it.
Let me be clear that, out of the 25 member states that are to be represented in the Council, all but six say that the Commission's proposals are to be the basis for the discussions. In my view, it is possible to talk about six minus one, as Austria is crossing the floor, so to speak, and the same might be said at some point about Sweden. The Commission's proposals will be the basis for the discussion in Dublin. What must the six do if they want to prevail in the discussion? They will simply have to try to prevail.
It would be unwise to expect the European Council meeting in Dublin to come out with any detailed views about how the policy should develop. For example, the conclusions could contain a sentence like, "European cohesion policy between 2007 and 2013 should pursue three priorities: convergence; competitiveness and employment; and co-operation," which are the three priorities that I mentioned a few minutes ago. If the conclusions contained only that sentence, it would mean that the 25 accept that the policy will operate in all of the member states and not only in the 10 states. What it would be helpful to have in Dublin is not necessarily detailed conclusions about how all of that will operate, what the budget will be and so on. You can imagine that, if an agreement is reached on some general principles such as the ones I mentioned, that would close down the options that are available at the moment. However, you will also be able to imagine that, if the 19—the 25 minus the six—tried to put that sentence into the conclusions, some of the six would say that they did not agree and that they think convergence should be the only priority in the future. If that happened, the sentence would not make it into the discussions. Those are the kinds of arguments that might go on.
The inspirational force for the guidelines that will come out of the Dublin meeting will be the Commission's proposals. They are the only proposals that are on the table at the moment.
It is interesting to compare your earlier answer to Irene Oldfather with the minister's comments, because it shows that the issue is not so much what you say but how you say it. Indeed, your two positions are quite close.
Obviously, it is hard to pin down things at the moment because basically we are looking at a snapshot in a movie. The situation is progressing and changing all the time; as I said last week, it is in a state of flux.
I want to ask about the difference between the Commission and the group of six over whether the expenditure ceiling should be set at 1 per cent or 1.24 per cent of the EU's gross national income. I do not know what that difference comes to in billions of euros; indeed, it might make a significant impact if it was set out for us in such a way. Mr Meadows said that if the ceiling was set at 1 per cent, part of the policy might have to be lopped off. You then talked about those who would suffer the most pain. Castrate is perhaps a strong word, but if the Commission does not get its way on setting the ceiling at 1.24 per cent, that will have a devastating impact on regional policy. By the way, with reference to a comment that you made earlier, I hope that some of us are as European as you are: I certainly am.
You are probably more European than I am.
Strangely enough, I do not like talking too much about the figures. That is not because I am afraid of them, but they are calculated on a number of different bases, and unless you are absolutely clear with people about the basis on which you are talking, all the figures tend to get distorted. However, in the Commission, we argued the policy through by pointing out the difference between 1.24 per cent of Community GDP, which is the figure for the level of commitments, and 1 per cent, which is what a number of people want as the alternative figure. That is why I did not reply when I was invited earlier to say whether it was okay to have a ceiling of 1.1 per cent of GDP as a compromise figure between 1.2 per cent and 1 per cent. It was not because I had not written it down or had forgotten it. In that context, a ceiling of 1.1 per cent of GDP might sound okay, but when you are talking about commitments, a 1.1 per cent ceiling comes between 1.0 per cent and 1.24 per cent, which is obviously a fairly big cut.
The important question is whether, if we decide instead to have a smaller impact on the budget than the Commission proposes, we can achieve that by ensuring that the policy is present only in the new member states and regions that are in a similar economic position. In other words, only the convergence objective would be taken into account, which would mean that Scotland would fall out of the system. On the other hand, could we achieve a smaller budget impact by retaining the same architecture and shrinking the whole thing, which would mean that some of Scotland would always be present?
As far as the figures are concerned, I prefer to stick to 1 per cent and the highest figure of 1.24 per cent. Dr Manfred Beschel is more versatile than I am and can translate the different sets of figures. The other figures come in lower, but I measure things in terms of commitments and Community GDP. The Commission has proposed that cohesion policy accounts for 1.24 per cent—[Interruption.]
Dr Manfred Beschel (Directorate-General for Regional Policy, European Commission):
The figures are 1.22 per cent of GDP for commitments and 1.12 per cent of GDP for payments. In other words, if we are talking about payments, we are already in a position of compromise compared to the 1.24 per cent threshold that is fixed by the financial regulations. In that sense, the Commission's proposal is not that far off.
Right.
Manfred Beschel is right. However, unless someone knows the difference between payments and commitments and the difference that that will make in Scotland, it is extremely difficult to move confidently between sets of figures. What Manfred Beschel said is quite right, but I still feel that it is best to sort out a standard set of figures and ensure that everyone works to it.
Fine.
I do not think that we have talked enough about Scotland. Although I am a European, we have a responsibility towards Scotland. Given that we have enlarged the Community and have added 20 per cent to its population, but only 5 per cent to its GDP, some of the 19 existing regions that are below the threshold of 75 per cent of average income in the EU 15 will rise above it. However, nothing will change, because that will happen because of the dilution from the addition of the new members, and we will still have specific problems that are, arguably, as bad as the problems in parts of the accession states.
Obviously, peripherality is a particular problem, and we must consider the amount of money that is spent on transport infrastructure in the accession states. However, there are also pockets of acute deprivation in the region that I represent. Such pockets are less widespread here than they are in the accession countries, but the deprivation is nonetheless acute. There is also the question of our progress against the Lisbon targets. GDP per head is more than 4 per cent below the target. Our gross domestic expenditure on research and development is low, at 1.6 per cent of GDP compared with Sweden's 4.3 per cent, and private investment is towards the lower end of the European average.
Obviously, we are concerned about all those issues. If we accept that the policy as you have outlined it goes ahead, the question is what the individual state can do and what we can do within the arrangements that we have with Westminster—the so-called block grant—to ensure that we do not lose out on money. I understand your hesitance to talk about ball-park figures, but as one distinguished left-wing Tory chancellor once said, money is the root of all progress, so money counts. We need money to target areas of acute deprivation and the particular transport infrastructure problems that we have. I hope that you have got my point. It is a question of how much the state will be allowed to do within the confines of the new policy.
I am not going to hog the floor, convener. We limit the discussion unnecessarily if we see it only in budget terms. I am not denying that the budget is important, but laying it to one side for a moment, the question that you can ask yourself is: if the amount of budget resource that you can get from the United Kingdom and the amount that you can get from Europe are equal, which way do you prefer to have the policy operate? Do we prefer to have a national policy or a European policy? In my opening remarks I suggested some of the reasons why the answer might be that we prefer to have a European policy. I had another point to make, so when it comes back to me I will weave it into another answer.
Are you aware of a specifically Scottish view on the future of regional funding and policy? If so, to what extent has that view been communicated to you, and through which channel did that communication come? Did it come directly from the Scottish Executive or through the UK Government in London?
It has been communicated to us directly in a number of ways. Scotland's First Minister was at an informal meeting of ministers in Rome where he made it absolutely clear to the entire Council of Ministers what Scotland's view was. It was a view that could be distinguished from the view that the minister from London had just expressed for the United Kingdom. Those of us in the room picked up a clear difference between the view from London, which was the view that I have mentioned several times already, and the view from here, which was that there was a certain advantage to be gained from the operation in Scotland of European Union regional policy.
The other ways in which the Scottish view comes to us are through Manfred Beschel and his work in partnerships in Scotland; through the submissions that are made directly to us from organisations in Scotland; and through the debate that Michel Barnier has been holding for the past two or three years. That debate began with a huge cohesion forum, which I think was held in 2001. It will reach a crescendo on 10 and 11 May this year when another cohesion forum is held in Brussels, which about 1,500 delegates will attend.
We have been apprised of the Scottish position—or positions—ever since those discussions started in 2001. Obviously, the position of the Scottish Parliament, which is the position that will be taken in the committee's report, is awaited with some interest.
That is very interesting—the Deputy First Minister was at our previous meeting, and we tried to get a view out of him at that time.
I have a final question about the Highlands and Islands, which is a region that takes a close interest in the future of regional funding. I understand that, under the proposed cohesion policy, the Highlands and Islands will benefit from 85 per cent of the cash that it would have received if objective 1 funding had continued. Is that your reading of the proposal? If so, why did you reach that view?
I am sorry if I appear to be hiding something. Obviously, we have not taken a view yet about what the Highlands and Islands will get as a region. It all depends on which group of regions the Highlands and Islands falls into at the critical moment.
What are the possibilities? At the moment, we measure the level of income per head in the Highlands and Islands as a percentage of the Community average of income per head. If, at the critical moment—which we have not yet reached—the Highlands and Islands is below 75 per cent of the new Community average, it would be eligible for aid under the convergence objective. We do not expect that to be the case, however. All of us would have to examine our consciences if, when Community average income falls by 12 percentage points, the Highlands and Islands were to find itself below 75 per cent of that lower figure.
The next group of regions into which the Highlands and Islands might fall is the group of regions that, without Community enlargement, would have found themselves below 75 per cent of the present level of Community GDP. No one yet knows the exact number of regions in that group of statistically affected regions—there are 18, 19 or 20—because we are still tracking the situation and will not know the number until we get to the end of that process.
If there had been no Community enlargement and if the policy had stayed as we proposed, that group of regions would have been eligible for objective 1 funding, if you like, the next time round. Those regions will not be eligible, however, as Community average income will have fallen by 12 points. As Mr Raffan said, they are no better off in real terms; they are only better off statistically.
The Commission proposal is that regions in that group will receive special treatment. They will not get as much as if they were full convergence regions—I think that is what the convener alluded to in the point that he raised about percentages—but they will get considerably more than if they were priority 2 or competitiveness and employment objective regions. Under the Commission's proposal, even at the end of the seven-year period, such regions would not have phased down to the same level as those in the competitiveness and employment group, so throughout the next period, they would receive better treatment.
The Highlands and Islands would fall into the third group if it was not in the intermediate group but was simply a competitiveness and employment region. It is worth underlining the fact that, like all other regions, the Highlands and Islands would then be eligible for the successor to objectives 2 and 3, which will not have restrictive eligibility. The Highlands and Islands would benefit from that, because at the moment, the policy is only temporary. I do not mean that it will disappear, but that regions must qualify for it, and not all regions in the Union qualify for help under the existing policy. Even the Highlands and Islands is a transitional region that will receive no benefit from the policy from 2006.
Under the Commission's proposals, that will change and the Highlands and Islands will receive support. It will be easier to compensate the Highlands and Islands for its structural problems such as sparse population and difficult topography under the new policy as the region will have a permanent place in the policy at one level or another, than it is under the existing policy, for which a region qualifies only if it is undergoing an economic downturn. A region might remain relatively less well-off but not benefit under the current policy.
On the constancy of the policy, the reforms that the Commission proposes have important benefits for a region such as the Highlands and Islands that are not present in the policy's current operation, and that is independent of the intensity of aid.
I understand why the policy must be based on regions. The policy is complex enough and I understand that it is hoped that the new policy will simplify matters. However, in relatively prosperous regions in Scotland—I am sure that the situation is the same throughout Europe—we have pockets of acute deprivation, which is a phrase that I used earlier. I do not know how well you know Scotland, but my region—Mid Scotland and Fife—includes Raploch in Stirling, which is very deprived, as are parts of Clackmannanshire. Some regions are relatively prosperous as a whole and do not fall into the categories that have been described. Will the new policy address pockets of acute deprivation, social exclusion, major drug problems and major unemployment in areas where people are trapped and have no jobs and no hope?
The convener likes pithy answers, and Manfred Beschel just said to me that we will be able to deal with those issues better than in the past.
Michel Barnier would like to mainstream the Urban initiative that we have operated and are operating in less favoured parts of some cities. He would like that to be more widespread. The detailed draft legal texts that we will probably produce after the European Council in June will show a broadening of the availability of special treatment for pockets of deprivation in towns and cities. That is what Manfred Beschel refers to when he says that the situation will be better than in the past.
Some rural areas have pockets of deprivation and it is unclear whether solving those problems is the job of the agricultural policy or of regional development policy. That has dogged the operation of cohesion policy. The proposals that are on the table now make it clear that tackling rural deprivation is a problem for regional development policy, not agricultural policy. That clarification should be of considerable importance to national Administrations because, often, they have not known which policy they should deploy. Our tackling of rural deprivation has suffered from the fact that although people might have been well motivated in trying to deal with that phenomenon through agricultural policy, they were able to do so only through the agricultural sector, which might not have been the most efficient approach.
As the policy is conceived at the moment, after 2007 wider use will be made of special measures to help pockets of acute deprivation in towns and cities and there will be a clarification of the way in which the policy works in conjunction with agricultural policy, which will make it easier to tackle acute deprivation in rural areas.
That is something that we would all welcome.
I am glad that Graham Meadows has been able to put his views on the record.
I understand from a statement that Commissioner Barnier made in Brussels to the Committee of the Regions that he was keen to recognise what one might call areas of natural handicaps, such as mountainous regions, and depopulation. At the time, I made the point that it was important that we do not just take a snapshot on one day but that we examine depopulation trends. That would be important for us in Scotland, particularly in relation to our island communities.
On the permanency of the process within the new policy objectives, I think that you are saying that it would not be just a case of taking a snapshot at one point in time but that we would be willing to examine depopulation trends. If I understood him correctly, that is certainly what Commissioner Barnier indicated to me was his understanding of the situation as well.
Please make your response very brief.
One of the features of the policy after 2007 will be that, in working out the financial allocation to member states under the policy and in indicating the share-out of that allocation among the different regions, the Commission will take account of statistical indicators that express natural handicaps or difficult topography and will use an indicator that is based on population. When the regulations come out in July, we can expect flesh to be put on the bone that you have outlined—in other words, there will be explanation of exactly how the policy can take account of the permanent handicaps that arise as a result of natural or population factors.
The view of Michel Barnier is that, although the pursuit of a competitiveness agenda is more costly and more difficult in such regions, they should not be excluded from the modernisation, or the general advance, of the economy. He views the price of that non-exclusion as being a more generous financial allocation.
I must bring the session to a close, although it has been most informative. I thank the two witnesses for coming from Brussels and for their frank comments, which were most welcome.
That is the end of the evidence-taking part of our inquiry. All that remains is our proposed visit to London to speak to the UK ministers, which is in hand—the parliamentary authorities have given us the go-ahead to undertake that visit. My understanding is that the Treasury has refused to meet the committee, but that the Department of Trade and Industry is showing a slightly more open mind. We are hoping to exploit that by arranging a meeting in the near future.
We will have a two-minute comfort break while we change witnesses.
Meeting suspended.
On resuming—