35/03
6 March 2003
A MODERN REGIONAL POLICY FOR THE UNITED KINGDOM
The Government today outlined its contribution to thinking on reform of European regional policy, prioritising the flexible and local delivery of regional policy and reinforcing EU Member States’ shared commitments to economic and social development.
The proposals, which will contribute to the EU debate on the future of Structural Funds:
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respond to European enlargement and the need for growth in all EU nations and regions;
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offer new freedoms and flexibilities to localities and regions, empowering them to build local economic strength;
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promise that if the Government’s proposals are accepted we will provide additional UK government funds for regional policy in the next spending review in place of EU receipts;
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modernise state aid rules to reflect real economic and market effect.
Announcing the proposals at a breakfast meeting with the TUC and CBI the Chancellor Gordon Brown said:
“With our plans to increase UK funding for regional policy, devolve decision-making power to the regions and return key regional policy responsibilities from the European Union back to Britain, the future control of regional economic policy is moving from Brussels to London and then from Westminster to the nations and regions themselves. Creating a new framework which, by enshrining the principle of subsidiarity, provides the flexibility for Member States to pursue the right regional policies to meet their differing needs.”
The Deputy Prime Minister John Prescott commented:
"This approach will support our commitment to a strong, domestic regional policy. Devolved and decentralised decision-making are at the heart of the Government's policies. This is true for economic development, as it is for sustainable communities. The EU framework for Devolved Regional Policy is a further step toward the vision for devolution to the English regions that we set out in 'Your Region, Your Choice'."
Trade and Industry Secretary, Patricia Hewitt, said:
"By maintaining a strong European dimension to regional policy, the EU Framework offers benefits to all Member States, old and new. Targeting resources on the poorest countries, rather than spreading it thinly over rich and poor alike, will strengthen the single market and provide more trade opportunities for all UK companies."
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Notes to editors
1. The full text of the Chancellor’s remarks at the TUC and CBI business breakfast, held at No 11 Downing Street this morning, is attached at Annexe A.
2. Copies of the consultation document A Modern Regional Policy for the EU can be found on-line at this site and DTI site. The consultation period runs until 4 July 2003.
3. The 10 countries set to join the EU on 1 May 2004 are Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. All the candidate countries have a per capita GDP below the EU average, with the lowest four below 40 percent. Romania and Bulgaria are already in accession talks with the European Union, and aim to join by 2007.
4. Structural Funds, which together with the Cohesion Fund (applicable only to Ireland, Spain, Portugal and Greece) are the main instruments of the EU’s Cohesion Policy, are used to enhance regions’ competitiveness. They provide grants, for example, towards projects to assist businesses and infrastructure projects, vocational training, adaptation of industrial and measures to help regions dependent on declining industries. Current funding runs from 2000 to end 2006.
5. The overall 2000-2006 EU Structural and Cohesion Fund budget is 213 billion euros (at 1999 prices), of which 195 billion euros are Structural Funds. There is also an additional allocation for new Member States from 2004 to 2006 of 21.7 billion euros, agreed at the Copenhagen European Council in December 2002. Structural Funds money is mainly allocated via four Structural funds in order to achieve three objectives:
- Objective 1 - promoting the development and adjustment of regions whose development is lagging behind. Targeted regions are where GDP/head is less than 75% of EU average.
- Objective 2 - supporting the economic and social conversion of areas facing structural difficulties.
- Objective 3 - supporting the adaptation and modernisation of policies and systems of education, training and employment.
6. Of the total Structural Funds budget, 136 billion euros or 70% is allocated to Objective 1 and covers 22% of the EU population. Objective 2 is 23 billion euros or 12% of the budget and covers 18% of the EU population.
7. The UK (including Gibraltar) will receive approximately £10 billion of European Structural Funds for the period 2000-2006. This includes transitional funding for Objective 1 & 2 areas, where funding from the previous round has come to an end, and a unique PEACE programme in Northern Ireland.
8. Objective 1 accounts for 31% of our allocation covering 9% of the UK population. Our allocation is lower than the EU average as our Objective 1 regions had a GDP per head towards the top of the scale for Objective 1 regions i.e. in the range 70-75% of the average. EU GDP per head. There are four Objective 1 areas in the UK: Merseyside, South Yorkshire, Cornwall & the isles of Scilly and West Wales & the Valleys. Two areas get Objective 1 transitional funding: Northern Ireland, and the Highlands & Islands of Scotland.
9. Objective 2 accounts for 26% of our allocation and covers 24% of the UK population. Thirteen areas in the UK get Objective 2 or transitional Objective 2 funding. Gibraltar also gets Objective 2 funding.
10. Implementation at programme level is carried out by secretariats - in England these are based in Government Offices; in Scotland, Wales and Northern Ireland, the devolved administrations are responsible. Applicants are often public sector bodies though there is no restriction on who can apply for funding. The voluntary and private sectors make wide use of the Structural Funds.
11. If the current arrangements, including existing eligibility criteria were maintained in an enlarged EU, the UK would stand to lose much of its current Structural Fund support due both to the effect of enlargement and the strong performance of the UK economy. Current Objective 1 regions (with the possible exception of Cornwall) and many Objective 2 regions would disappear, although we would expect to get transitional support. The UK would retain Objective 3 and Community Initiative receipts, although not at their current level.
12. The Lisbon Agenda - European leaders, meeting at Lisbon in March 2000, committed themselves to a 10-year strategy to reform Europe’s product, capital and labour markets. The aim was to create a Europe, which would be ‘the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion’.
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Annex A
Extract from remarks made by the Chancellor of the Exchequer at the CBI/TUC breakfast
Today John Prescott, Patricia Hewitt and I are proposing major changes in UK regional economic policy - to equip every part of the United Kingdom for the challenges of the global economy.
Our proposals - which we are submitting to the EU debate on structural funds:
- respond to European enlargement and the need for growth in all EU nations and regions;
- offer new freedoms and flexibilities to localities and regions, empowering them to build local economic strength;
- promise that if the Government’s proposals are accepted we will provide additional UK funds for regional policy in the next spending review in place of EU receipts;
- and sweep aside old fashioned state aid rules in favour of a more rational approach.
And with our plans to increase UK funding for regional policy, devolve decision-making powers to the regions and return key regional policy responsibilities from the European Union to the United Kingdom, our proposals envisage the decision-making and funding for regional economic policy currently provided through the Structural Funds moving from Brussels to London and then from Westminster to the nations and regions themselves. This new framework, by enshrining the principle of subsidiarity, provides the flexibility for member states to pursue the right regional policies to meet their differing needs.
The context for implementing a new approach to regional policy is the enlargement of the European Union.
European regional policy has to change as Eastern European regions, with GDP per head at just 30 to 50 per cent of Europe’s, take over from some of our poorest regions with 70 to 90 per cent of GDP as top candidates for structural funds after 2006.
And as we help enlargement countries catch up with and play their part in the European Union, we have a new opportunity to sweep aside the old barriers that have held back regional growth for too long.
For the case for tackling regional imbalances in the stronger economies of the European Union remains as pressing as ever.
Some favour expanding the European Structural Fund budget. In our view the better way forward is agreeing both a sensible ceiling on European funding focused on the poorest member states and, at the same time, offering far more freedom and flexibility for other member nations to tackle market failures in their own localities and regions.
The debate about regional policy goes to the heart of a modern economic policy for the whole of the United Kingdom – and indeed for the whole of the EU.
In the UK, pursuing policies for stability and employment since 1997 has brought nearly 1.5m more people into work, added nearly 700,000 more homeowners and 45,000 new small businesses. But we still have a long way to go. And it makes no sense to have unemployment, emigration and the under utilisation of potential and resources in the poorest regions while there is congestion, overcrowding and as a result inflationary pressures in others. So regional policy matters to all regions and nations and the way we tackle regional imbalances has to modernise and change.
The first generation of regional policy from the 1930s onwards was central government dispensing first aid to regions. ln the second generation which started in the 1960s it was Whitehall and then Brussels which offered centrally administered incentives for incoming Investors.
Today, in the third generation of regional policy, the focus is on indigenous sources of regional economic strength - local skills, innovation, investment and infrastructure. And instead of Westminster or Europe accumulating power, we propose greater local decision-making powers through the devolved legislatures and Regional Development Agencies.
Indeed, our case in Europe is that local decision makers need not just greater freedom to invest but greater flexibility for fast and effective responses to global economic restructuring. And if we were inside a single currency such a regional policy becomes ever more important as areas need the flexibility to adjust quickly to economic shocks
But that much needed flexibility for British regional policy has too often in the past been undermined by inflexible state aid rules - rightly introduced to prevent unfair competition but too often applied too rigidly even when there was market failure. It took Britain a year to secure permission to create regional venture capital funds for localities and regions desperately in need of new investment and of local capital markets that work for small businesses. And it has taken us months for permission to abandon stamp duty in areas urgently in need of new businesses and jobs and of local property markets that work.
That is why, while we continue to lead the way in demanding the removal of unfair state aids which distort the single market, we are also calling for further state aid reform so that member states can tackle local property and capital market failures, address regional imbalances and respond more flexibly to the global economic restructuring now taking place.
One proposal – to simply increase structural funds all round – would mean that Britain would pay in far more but would not get more out. But our case is not made out of self-interest. The best regional policy is now the most decentralised. That is why we have created and funded, with £2 billion a year, Regional Development Agencies and encouraged legislative devolution in Scotland, Wales and Northern Ireland. And why we are, this year, devolving more responsibility for skills, small business development, housing and transport.
Now it is time to decentralise in Europe - and reverse decades of centralisation. Our regional policy reforms not only reinforce the basic view that we need an intergovernmental, outward looking and flexible Europe but also puts new mechanisms in place to advance the principle of subsidiarity and help regions respond more flexibly to the challenges of global economic change.
In our document we state clearly that spending by the UK Government on regional policy will increase after 2006 if our reform proposals are accepted.
That we will take into account the costs of transition for those regions and nations that benefit from current structural funds.
And that we are ready to consider for the English regions further decentralisation and devolution to enable regions to have more control over the decisions that affect their economic well being.