The Scottish Parliament - European and External Relations Committee Report

1. The remit of the European and External Relations Committee is to consider and report on-

2. The Committee may refer matters to the Parliamentary Bureau or other committees where it considers it appropriate to do so.

3. The convener of the Committee shall not be the convener of any other committee whose remit is, in the opinion of the Parliamentary Bureau, relevant to that of the Committee.

4. The Parliamentary Bureau shall normally propose a person to be a member of the Committee only if he or she is a member of another committee whose remit is, in the opinion of the Parliamentary Bureau, relevant to that of the Committee.

Linda Fabiani (Convener)
Dennis Canavan
Bruce Crawford
Phil Gallie
Mr Charlie Gordon
John Home Robertson
Gordon Jackson
Irene Oldfather (Deputy Convener)
Mr Jim Wallace

Report on an inquiry into the Scottish Executive’s plans for future structural funds programmes 2007-13

1. The European and External Relations Committee agreed to conduct an inquiry into the Scottish Executive’s plans for future Structural Funds programmes 2007-13¹ at its meeting of 25 April 2006. At that meeting the Committee also agreed to respond to the UK Government’s Draft National Strategic Reference Framework (NSRF) on Structural Funds and a copy of the Committee’s response which was sent to the Department of Trade and Industry can be found at Annex A.

2. The Committee took oral evidence from a wide variety of organisations and details are available at Annex B. Details of the written evidence submitted to the inquiry can be found at Annex C. The Committee thanks all who contributed to this important inquiry.

3. Scotland has received Structural Funds from the EU since 1975 and since 1989 these have been distributed on a programme basis. The funds currently deliver three European Commission Objectives: Objective 1 seeks to support poorer areas which are struggling economically; Objective 2 seeks to tackle specific industrial decline and Objective 3 aims to support the Lisbon Strategy for growth and jobs² and the European Employment Strategy³. There are also Community Initiatives within the Structural Funds budget such as INTERREG, URBAN, LEADER+ and EQUAL.

4. The current round of Structural Funds programmes in Scotland runs from 2000-06 and is distributed in Scotland by five Programme Management Executives (PMEs). One for each of the Highlands and Islands, East, South and West of Scotland to distribute Objective 1 and 2 funds and one to distribute European Social Fund (ESF) Objective 3 funds across Scotland.

5. The enlargement of the EU in 2004, when 10 new Member States joined, has placed significant demands on the Union’s budget. As many of the new Member States’ economies are poorer than the EU15 average, the majority of Structural Funds will be re-directed to the new Member States.

6. The Committee recognise that Structural Funds make up a relatively small, and decreasing, amount of the total funds available for regional and economic development in Scotland. The Committee is also mindful of the fact that the funds are likely to continue to reduce in future programming periods. However, it remains vitally important that best use is made of the money which is available. In addition, the Committee believes that the Scottish Executive should closely examine the opportunities presented by other EU funding options available to Scotland, such as the Seventh Framework Programme for Research and Development 2007-13⁴, to investigate other EU funding options which could benefit Scotland. The Globalisation Adjustment Fund⁵ and European Solidarity Fund⁶, albeit designed for specific policy purposes, may also be available to Scotland as the need arises.

7. A Scottish Parliament Information Centre (SPICe) briefing was published on 19 May 2006 entitled “Future Structural Fund Programmes in Scotland 2007-13”⁷ which details the proposed changes in Structural Funding. The European Commission’s proposals for Structural Funds programmes 2007-13 involve replacing the current objectives and initiatives with three funding strands: Convergence (replacing Objective 1), Regional Competitiveness and Employment (replacing Objectives 2 and 3) and Territorial Cooperation (replacing INTERREG).

8. These three priorities will be funded by two funding streams, the European Regional Development Fund (ERDF) and the ESF. As the SPICe briefing details, the regulations state that:

9. An important part of the new Structural Funds Regulations is a newly emphasised strategic focus which includes the Community Strategic Guidelines (CSG)⁸. The CSG sets out how the EU's Regional Policy, including the Lisbon and Gothenburg agendas, is to be delivered via Structural and Cohesion Funds. In brief, the European Council has agreed that there should be a Structural and Cohesion Fund budget of €308 billion (£209 billion). Of this overall figure, €251 billion (£171.6 billion) has been allocated to the Convergence strand, €49 billion (£33.5 billion) has been allocated to the Competitiveness strand and €7.75 billion (£5.29 billion) has been allocated to the Territorial Cooperation strand⁹. In addition, the European Council in December 2005 agreed that a minimum of 60% of Convergence spending and 75% of Competitiveness spending in each Member State must be spent on activities which support the Lisbon Strategy.

10. The Scottish Executive has proposed changes to the methods used to deliver Structural Funds in Scotland to respond to the reduced amount of funds available. These changes include replacing the current five PMEs with two, one for the Highlands and Islands, and one for Lowlands and Uplands Scotland, and opening up the current direct bidding system to include single stream co-financing. Direct bidding involves organisations developing projects and bidding to a PME for the funding to operate the project. It is the responsibility of the organisation to source the appropriate match funding. Co-financing involves the Executive placing money with an organisation which will then deliver those funds to a project, matched with funds from their own budget.

11. The Scottish Executive has begun its planning for future programmes in Scotland and has outlined its current thinking for how those programmes should operate¹⁰.

12. In addition to this inquiry, Dennis Canavan MSP undertook a Reporter led inquiry on behalf of the Committee into possible cooperation between Scotland and Ireland. One aspect that this inquiry focussed on was the Territorial Cooperation Objective funding which has replaced INTERREG funding and the changes in the rules governing the cross-border strand of those monies. Due to a change in the eligibility criteria which allows for cooperation between Member States where they are separated by a maritime border of no more than 150 kilometres, Scotland now qualifies for cross-border funding. The Reporter’s report was published on 22 June 2006¹¹ and made a number of recommendations calling on the Scottish Executive and organisations across Scotland to further explore the possibility of accessing this funding.

13. Scotland has taken part in a number of transnational INTERREG projects in the 2000-06 programmes and the future Territorial Cooperation funding will continue to run transnational programmes. These programmes involve cooperation between regions from at least three Member States. The Committee hopes that many organisations in Scotland continue to access these funds to assist projects between multiple regions of Member States that could bring many benefits to Scotland.

14. The Committee launched this inquiry to assist the Scottish Executive in the final decisions on how to deliver Structural Funds 2007-13 that have yet to be taken. The inquiry has also provided stakeholders with a valuable opportunity to present their views.

15. The Committee agreed on eight questions which focussed on the key issues surrounding the Scottish Executive’s plans for the delivery of Structural Funds in Scotland 2007-13. Those questions are:

16. This report deals with each of the questions outlined in the background above in turn before drawing conclusions and making recommendations.

Has the current structure of Structural Funds programme delivery in Scotland been successful? What are the advantages and disadvantages of changing this structure?

17. The Committee recognises the bureaucratic nature of the Structural Fund system and understands that this is largely due to the complex EU regulations that govern the funds¹². The current structure of having five PMEs in Scotland was designed to ensure a bottom up approach providing the local accountability it was felt was necessary to maximise the funds effectively. The Committee believes that this structure has been largely successful in delivering the funds for the 2000-06 programmes and that this structure has been widely recognised in many parts of Europe as being a best practice model. In its evidence to the Committee the East of Scotland European Consortium said:

18. However, the Committee is at the same time mindful of the fact that the delivery methods for Structural Funds in Scotland have changed in the past to adapt to the particular circumstances and wishes to retain this flexible and pragmatic approach.

19. The Committee recognises that the collective administration costs between these five organisations, estimated at a total of £30.89 million (including £14.5 million of technical assistance from the European Commission)¹⁴, will be harder to accommodate in an environment of an estimated 35-40% reduction of Structural Funds in the Highlands and Islands, and a reduction of 55-60% in the rest of Scotland, referred to by the Scottish Executive as Lowlands and Uplands Scotland. During evidence to the Committee, a Scottish Executive official told the Committee on 6 June 2006 that the current cost of the PMEs to the public purse was approximately £4.5 million per year and that these costs could fall to between £750,000 - £1.5 million if the system was restructured and streamlined¹⁵. The Committee believes that this is a significant and welcome saving in administration costs which will free up more money for actual projects. The Committee agrees with the Scottish Executive that some restructuring is therefore required to maximise the reduced funds that Scotland will receive in 2007-13.

20. The Committee believes that the Highlands and Islands should not face significant changes in structure. The area qualifies as a ‘statistical effect’ region as it has a GDP higher than 75% of the EU 25 but lower than 75% of the EU 15. It will therefore receive transitional convergence funding. As a result of this the Scottish Executive has indicated that they will retain one programme area for the Highlands and Islands, albeit with separate ERDF and ESF programmes as required by the European Commission regulations. The Committee welcomes this approach.

21. The Committee is mindful of the potential pitfalls in changing to a new structure, such as the added burden any transition would place on resources, particularly given that this could well be the last round of Structural Funds allocated to Scotland. The Committee is also aware that this may have a greater impact for smaller organisations which do not have the ability to absorb such changes as easily. Adequate support must be provided by the Scottish Executive to ensure that any transition to a new system is smoothly managed and organisations do not feel unduly burdened.

22. Further to this, the Committee is concerned about a potential loss of local accountability which the many successful existing partnerships have established across the regions of Scotland to date. If the current PMEs are to be replaced by a much wider programme area in the rest of Scotland outside of the Highlands and Islands (Lowlands and Uplands Scotland), it is essential that a degree of geographical targeting within that broad area is retained along with a flexibility to enable local actors to lead on local issues. It is also essential that the vast amount of expertise on delivering Structural Funds that exists in Scotland is harnessed effectively in any new structure that is put in place.

23. The Committee believes that there are advantages in changing the current structure other than a potential reduction in administrative costs. A change in the structure could also help to improve the coordination of policy and activities across Scotland, providing greater coordination across funding streams. The Committee also believes there is scope for the PMEs to become more transparent and accountable.

24. The Committee also understands that, in accordance with the N+2 rule¹⁶, the current PMEs will need to continue to operate until the end of 2009 to fully complete their obligations to the 2000-06 programming period. It is therefore important that this operation works smoothly and does not adversely affect any new structures which have been put in place to manage the 2007-13 programmes.

25. The Scottish Executive has told the Committee that it ‘remains optimistic’¹⁷ that new programmes for 2007-13 will begin on time on 1 January 2007. However, there have been significant concerns expressed to the Committee regarding this and the Executive did also indicate that the timescale was not entirely within its own control, but relied on both the EU and the UK Government. The Committee understands from the Scottish Executive that a tendering process within Scotland for the role of managing the suggested two PME areas is already underway.

To what extent should the delivery of Structural Funds in Scotland link with Scottish Executive priorities?

26. The European Commission has set out guidelines on how Structural Funds should be targeted in Member States which places significant emphasis on the Lisbon Strategy targets. The eligible areas, particularly in the ERDF stream of funding, are therefore narrower than previous programmes.

27. The Committee agrees with the Scottish Executive that it is important for the sake of complementarity and to avoid duplication of resources that the delivery of Structural Funds is closely linked with Executive priorities. However, within this there should be enough flexibility for EU, regional and local priorities to be pursued. In its evidence submitted to the Committee, Fife Council said:

28. It is also essential that the funds are used for the appropriate Scottish Executive priorities, such as promoting sustainable growth, tackling regeneration and deprivation issues. There are a wide number of Scottish Executive strategies, which are highlighted in the Scottish Executive’s contribution to the UK Government’s draft National Strategic Reference Framework¹⁹ and some contributors have expressed concerns that these set a very broad framework of priorities. It is important to focus the Structural Funds within these priorities and also not to exclude small projects and innovation. There is also less scope for supporting infrastructure and tourism projects under the Competitiveness Objective in this round of Structural Funds which may impact on how the Scottish Executive targets monies within its own priorities.

29. The Committee would also like to add a caveat that linking Structural Funds to domestic priorities should not involve using Structural Funds in place of committed Scottish Executive budget and established projects outwith Structural Funds programmes. Structural Funds should always provide added value and be additional to committed domestic spend.

30. The UK Government will decide how the Structural Funds for the Competitiveness Objective allocated to the United Kingdom should be distributed. The Scottish Executive has responsibility for the implementation and management of Structural Funds programmes in Scotland. The Committee asks that the Scottish Executive work closely with the UK Government to ensure that Scotland receives its fair share of Structural Funds.

31. The Committee believes that it is essential that funding is not wasted on administration costs. The Committee is concerned that a transition to a new structure, coupled with the transition into a new programming period, could lead to funds being initially channelled into the establishment of the structures rather than the projects themselves.

32. In an environment of greatly reduced funding it is essential that money reaches the areas of Scotland most in need, and where the funds will have maximum impact, i.e. those city regions, urban and rural areas most in need of economic and social development. The Committee believes that it is also essential that funds reach those who can deliver the most effective and efficient economic and social benefits for local communities, rather than those who are expert in applying for funding. In its evidence submitted to the Committee, Highlands and Islands Enterprise said:

33. Reducing the number of PMEs should help reduce the administrative burden of the funds, thus maximising the smaller amounts of funds available for actual projects. The Committee believes that using the established expertise in Structural Funds will help towards maximising the funds available.

34. The Committee believes that to achieve the maximum results from a smaller amount of money it is essential that clear outputs are agreed to measure the successes and failures of projects. These should go beyond economic indicators to include outputs in social and voluntary sectors.

What do you think the main priority areas should be for the new Structural Funds programmes from 2007-13?

35. Eligibility criteria, particularly with regard to ERDF funds, have been narrowed by the European Commission to focus predominantly on Lisbon Strategy targets. The Committee understands that the Convergence Objective split between ERDF and ESF funds is determined by the Scottish Executive. The Committee supports a weighting in favour of ERDF. The Committee further understands that, in terms of the Competitiveness Objective, the split between ERDF and ESF is determined by the UK Government, rather than the Scottish Executive. The Committee urges the Scottish Executive to lobby the UK Government for a weighting in favour of ERDF in Scotland to deliver both economic and social development programmes.

36. Responses to this question from those who gave oral and submitted written evidence very much reflected the key interests of each respondent depending on sector. For example, the city councils said that funding should be targeted on the city regions, rural areas said that it would be important to ensure that some funding was specifically targeted at rural areas, whilst environmental stakeholders said that it would be important that future priorities respected environmental interests.

37. Many felt that there are distinct rural and urban dimensions which should be planned for. Some have concerns that too much focus on innovation and entrepreneurship and a reliance on research and development (R&D) where the infrastructure base is not in place could mean that urban areas in need of regeneration and rural areas may lose out. Some have concerns that environmental priority monies could go to urban development in terms of waste and energy rather than regional economic development. Most agree that economic growth is vital. Many also agree that tackling deprivation, the economically inactive and social exclusion issues should be a high priority. Some think that current programmes should be assessed for successes and failures and the results of this should be used when planning new priorities to see where the ‘wins’ are. Other issues highlighted are regeneration, environmental sustainability, improving the skills base, and improving access to labour markets for all.

38. Regarding ERDF, the Committee agrees with the Scottish Executive that the broad priorities for the Highlands and Islands should focus on economic, social and environmental sustainability. However, when translating these to more specific goals, accessibility and connectivity issues must be addressed along with improving infrastructure where possible. Although the Committee recognises that there is limited opportunity for infrastructure projects because of the European Commission stipulations, the Committee understands that there is more flexibility on this in the Highlands and Islands. The Committee believes that such issues contribute fundamentally to the Lisbon Strategy goals in the longer term. Similarly, the Committee supports the Executive’s broad priorities for Lowlands and Uplands Scotland as being support for innovation and entrepreneurship, promoting community regeneration and environmental sustainability and rural development, with the same caveats as those expressed above for the Highlands and Islands.

39. Regarding ESF, the Committee agrees with the Scottish Executive that the broad priorities for the Highlands and Islands should focus on helping people in to sustained and sustainable employment and investment in lifelong learning and support. In Lowlands and Uplands Scotland, the Committee agrees with the Scottish Executive that broad priorities should focus on helping people into sustained employment and creating better-quality and better paid jobs and, again, investment in the lifelong learning agenda. In their evidence submitted to the Committee, Intowork said:

What are your views on the Scottish Executive establishing one European Regional Development Fund programme for Lowlands and Uplands Scotland?

40. The Committee notes the strong concerns expressed in the evidence received on this issue. The Committee is aware that there is a danger that a move from the current East, West and South of Scotland PMEs, along with the pan-Scotland Objective 3 ESF PME, to one Lowlands and Uplands Scotland programme area could result in a loss of local accountability, a move away from the partnership approach which many that gave evidence to the Committee thought as being highly successful and a decline in the spatial targeting that ensures the funds go to the areas most in need. In its evidence submitted to the Committee, the West of Scotland European Consortium said:

And in its evidence submitted to the Committee, the South of Scotland Alliance said:

41. However, the Committee is aware that the current Objective 3 ESF PME does operate pan-Scotland and its experience is that this has had many advantages and has worked successfully. Working on this basis has allowed it flexibility in targeting funds where they are needed. The Committee believes that it could also be advantageous to be able to redirect funds to areas of need within a single Lowlands and Uplands Scotland programme, something that would have been prevented within separate East, South and West programmes. It is therefore possible that an ERDF programme could also work successfully on a Lowlands and Uplands Scotland basis.

42. If one Lowlands and Uplands Scotland programme is established, albeit with separate ERDF and ESF programmes, it is essential that the concerns expressed by those that gave evidence to the Committee’s inquiry are addressed by the Scottish Executive. Reassurances will need to be made regarding local accountability and partnerships. Also, on one hand, some were of the view that establishing one Lowlands and Uplands Scotland programme would favour city regions and more populated urban areas, whilst on the other hand, some believed that rural areas would be unfairly favoured. The Committee believes that there should be a complementarity with National programmes which address rural concerns.

If there is one Lowlands and Uplands Scotland programme, how would you ensure a balance between urban and rural areas?

43. The Committee is mindful of the fact that much of Scotland is neither wholly urban nor rural but has elements of both. Therefore, whilst wishing to acknowledge some different needs of urban and rural areas, it is not helpful to think only in these terms when planning programmes.

44. In establishing ‘balance’, this does not necessarily mean a 50-50 split of funding but the targeting of funds to where they can have maximum impact, whether they be urban or rural.

45. The Committee noted that there are other funding streams available to more rural areas such as the European Agriculture Fund for Rural Development (EAFRD) and the European Fisheries Fund (EFF).

46. The Committee believes that city regions have a vital role to play in maximising Structural Funds in Scotland. In its evidence submitted to the Committee the West of Scotland European Consortium said:

47. It is also important to acknowledge that the Scottish Executive has proposed specific priorities within ERDF funding to deal with rural and environmental concerns which should help ensure that a reasonable balance can be achieved. The Scottish Executive also informed the Committee that it intends to retain flexibility within the management of the funds so that resources can be re-directed to a specific area of need over the course of the programme.

48. The Committee understands the concerns in more rural areas that they may be excluded from access to Structural Funds if there is one programme for Lowlands and Uplands Scotland. Many in the South of Scotland, for example, feel that they face similar issues regarding population density and transport to those experienced in the Highlands and Islands and therefore have concerns about being part of a wider programme area. That is why the Committee has indicated that it is essential that a Lowlands and Uplands programme area takes account of the spatial needs within it and also includes expertise from rural and urban areas.

What are the advantages and disadvantages of introducing a system of co-financing for the distribution of Structural Funds?

49. The Committee notes the evidence received which states that the Scottish Executive has not given stakeholders enough information on how they would implement a single stream funding system of co-financing within Scotland. This has led to a great deal of concern amongst stakeholders as they cannot assess the potential strengths and weaknesses of a system which is unknown to them. Much of the evidence submitted to the Committee expresses this view. In its evidence submitted to the Committee, the City of Edinburgh Council said:

50. The Committee understands that a system of co-financing was used in England (for ESF funds only) for the current programme round with mixed results. The Hall Aitken report, ‘Making Every Euro Count’²⁵, which was produced for the Scottish Executive, stated that:

51. There is certainly not enough evidence to suggest that it was wholly successful and the Committee cannot therefore recommend that a system of co-financing is used as the only delivery method within Scotland.

52. The Committee is grateful for the information given to the Committee on 6 June 2006 by Allan Wilson MSP, Deputy Minister for Enterprise and Lifelong Learning, which suggested that the Executive is still considering an element of co-financing for Scotland²⁶. Mr Wilson suggested that CFOs would be chosen according to the needs of the sectors involved, therefore enterprise agencies would deliver enterprise funds, Community Planning Partnerships could deliver community based social funds etc.

53. The Committee notes that the Scottish Co-investment Fund (SCF)²⁷ and the Proof of Concept Programme²⁸, both operated by Scottish Enterprise, are considered to be successful and involve elements of co-financing. At its meeting of 6 June 2006, Alan Wilson MSP told the Committee:

54. The Committee asks the Scottish Executive to provide further detail on the system of co-financing that it intends to use in Scotland to all relevant stakeholder groups as a matter of urgency. When doing this, the Committee asks the Scottish Executive to produce the relevant supporting evidence to demonstrate how the suggested system would benefit Scotland.

55. The Committee understands that possible advantages of co-financing are a reduction of bureaucracy compared to the current match-funding model. Some organisations find that having to source match-funding, often from a wide number of other organisations, places a heavy burden on them and complicates the required auditing and accounting procedures. Receiving funds through one co-financing organisation could prevent this and help to streamline administration procedures and thus help maximise the funds available for projects. Co-financing would also give the Scottish Executive a greater ability to tie the funds to Scottish Executive priorities.

56. However, assessing the advantages and disadvantages of co-financing in Scotland very much depends on who the co-financing organisations are. There is concern that co-financing organisations could use the funds for their own priorities, diminishing the potential impact of the funds. There is also significant concern that a system of co-financing would favour larger scale organisations and projects and that funds would gravitate to cities and urban areas as a result. In its evidence submitted to the Committee, the Action Group said:

Many voluntary organisations in England experienced difficulty in accessing funds via co-financing and there is a concern amongst the voluntary sector in Scotland that this experience would be repeated.

57. The Committee recognises that Community Planning Partnerships (CPPs) could be used as possible CFOs, although it is acknowledged that CPPs across Scotland are at different stages of development and that this may not be suitable in all cases. Phillip Raines, team leader of cohesion, co-ordination, monitoring and evaluation policy in the European Structural Funds division of the Scottish Executive, told the Committee on the 6 June 2006:

The Committee believes it is important to evaluate properly which CPPs would be involved and then to closely monitor progress.

58. The Committee would also point the Scottish Executive to the ‘key learning points’ listed in the Hall Aitken report and suggest that close attention is paid to these when establishing any system of co-financing in Scotland:

“We suggest that the most important lessons for any future approach in Scotland from the co-financing structure in England are:

Do you think that the introduction of co-financing will give current stakeholders access to Structural Funds?

59. The Committee recognises that it is a fact that some organisations across Scotland will receive a reduced amount or lose out completely on Structural Funds in 2007-13. This is due to the significantly reduced amount of money available. The Committee also recognises that the parameters for eligibility have been set by the European Commission, and that these criteria are more narrowly focussed compared to the 2000-06 programmes.

60. The Committee believes that those who are eligible to receive Structural Funds should have a level playing field on which to apply for money, regardless of which sector these organisations are from and whether they had previous access to funds. In their evidence submitted to the Committee, The Wise Group said:

The Committee hopes that successful projects will be those that meet the necessary criteria and can demonstrate genuine outputs, both economic and social.

61. The Committee notes the concerns, particularly in the social and voluntary sectors, that they could be excluded from access to Structural Funds by the nature of the processes that are put in place rather than simply by the reduced funds and changes in eligibility criteria. The Committee understands that exclusion from access to funds could have a very real effect on jobs and the ability to deliver a high quality service to people in need and, in some cases, the future of organisations as a whole.

62. The Committee therefore welcomes the indications from the Scottish Executive that it is considering using sectoral experts to deliver the funds in specific areas and also that, when tendering for the right to deliver the funds, organisations must demonstrate a commitment to all of the spatial and sectoral needs within Scotland.

63. The Committee welcomes the Scottish Executive’s statement that no final decisions have been taken on the future delivery of Structural Funds in Scotland³³. The Committee’s inquiry and this report therefore come at an opportune time to help the Scottish Executive make those final decisions.

64. The Committee recommends that the Scottish Executive should closely examine other EU funding options and opportunities available to Scotland, such as the Seventh Framework Programme 2007-13, Globalisation Adjustment Fund and European Solidarity Fund, which could benefit Scotland. (see paragraph 6)

65. The Committee reiterates the conclusions and recommendations of the ‘Possible Cooperation between Scotland and Ireland’ report, which was led by Dennis Canavan MSP, which relate to accessing cross-border Territorial Cooperation funds. (see paragraph 12)

66. The Committee hopes that many organisations in Scotland continue to access transnational funds under the Territorial Cooperation strand to assist projects between multiple regions of Member States that could bring many benefits to Scotland. (see paragraph 13)

67. The PME structure which managed Structural Funds programmes from 2000-06 has done a very good job in establishing a bottom up partnership approach which has been admired as a best practice model by many. The Committee acknowledges that there is an open tender for the new PMEs for 2007-13 and recommends that the experience and expertise that exists in Scotland be utilised effectively in the future. (see paragraph 17)

68. It appears that the Scottish budget could make a saving of between £3-3.75 million per year by restructuring the current 5 PMEs. (see paragraph 19)

69. It is clear that a greatly reduced amount of Structural Funds will be available to Scotland in the period 2007-13. Even though Structural Funds make up a small total percentage of regional development monies in Scotland, it is vital that the money available is spent wisely to achieve the best results. It is clear that as a result of this changes need to be made to the current structures that are in place to deliver the funds. (see paragraph 19). The Committee supports the retention of one Highlands and Islands programming area managing ERDF and ESF programmes. (see paragraph 20)

70. This has understandably led to a great deal of concern amongst stakeholders who are facing the potential of significantly reduced funding for projects along with a significant change in the structures and methods of delivery. The Committee believes that there is a danger that the transition from the 2000-06 programmes to the 2007-13 programmes could lead to a great deal of instability and uncertainty and that this could have serious economic impacts on both current and future projects. It is important that steps are taken to address all of these concerns and provide transitional support where necessary. The Committee recommends that, as a matter of urgency, the Scottish Executive put appropriate transitional planning in place that both meets the requirements stipulated by the European Commission and the needs of those planning and delivering projects in Scotland. (see paragraphs 21 and 22)

71. The Committee believes it is very important that the current structures are able to operate until 2009 to fulfil requirements on current projects and that any new systems must be complementary to this. (see paragraph 24)

72. The Committee is concerned that the delay in consultation may prevent the 2007-13 programmes from starting on time, on the 1 January 2007. The Committee acknowledges that some elements of the slip in timescale have not been within the control of the Scottish Executive. The Committee recommends that every possible effort is made to enable new programmes to begin on time on 1 January 2007. Where this is not possible the Committee recommends that there are no financial or staff costs to projects as a result. (see paragraph 25)

73. Structural Funds should be linked with Scottish Executive priorities but also with EU, regional and local priorities where appropriate. Funds should also be additional to funds already committed for existing domestic policy and projects and provide added value. The Committee recommends that the principle of additionality is upheld by the Executive at all times when planning and approving programmes. (see paragraphs 27-29)

74. The Committee understands that the European Commission has set specific targets for a large percentage of the funds to be spent on projects which support the Lisbon Strategy, particularly under the Competitiveness Objective, but it is important that the allocation of Funds need to address issues of social exclusion, the economically inactive and infrastructure where possible as well as dealing with economic growth and development. The Committee recommends that the Scottish Executive make an assessment of the impact which a reduction of Competitiveness Objective funds available for infrastructure and tourism projects will have and to indicate whether it intends to re-prioritise other budgets as a result. (see paragraphs 27-29)

75. The Committee recommends that the Scottish Executive continues to work very closely with the UK Government to ensure that Scotland receives the maximum amount of Structural Funds possible. (see paragraph 30)

76. Structural Funds should be targeted at those projects that can deliver the most effective and efficient economic and social benefits. (see paragraphs 31-33)

77. The Committee recommends that clearly identified outputs, both economic and social, should be established to measure the effectiveness of projects. (see paragraph 34)

78. The Committee recommends that there should be two programmes in Scotland to deliver Structure Funds from 2007-13, one for the Highlands and Islands and one for Lowlands and Uplands Scotland. Both of these should have separate ERDF and ESF programmes within them. The Committee recommends that the two programmes that cover Lowlands and Uplands Scotland should include geographical targeting where necessary and appropriate. (see paragraphs 40-42)

79. With the move to two programme areas, a Highlands and Islands area and a Lowlands and Upland Scotland area, the Scottish Executive must ensure that local accountability, partnerships and expertise are not lost and that a degree of geographical targeting is retained. It is also essential that money is not spread too thinly. (see paragraphs 40-42)

80. The Committee believes that urban and rural areas must have their own needs addressed as necessary, whilst taking account of the other EU funding streams available. (see paragraphs 43-48)

81. Not enough information regarding possible co-financing models has been given by the Scottish Executive and it is therefore not possible to give an informed view on the possible advantages and disadvantages of this within Scotland. All views are therefore informed by the experience of using a variety of co-financing models in other Member States, as examined in the Hall Aitken report. (see paragraphs 49-51)

82. The Committee recognises that there is a difference in opinion regarding the effectiveness of the Scottish Executive consultation on their plans for future Structural Funds programmes. Many Stakeholders feel that they have not been given sufficient opportunities to feed in to the process and that it has not been detailed enough, whilst the Scottish Executive indicated to the Committee that they have conducted extensive consultation with all stakeholders. The Committee recommends that the Scottish Executive ensures that a comprehensive consultation has taken place and remains fully engaged with all stakeholders before any final decisions are taken. (see paragraphs 49-54)

83. The Committee believes that there is not enough evidence to determine how successful co-financing could be in Scotland. (see paragraphs 50 and 51)

84. If co-financing is to be implemented in some areas then the Committee believes that the ‘key learning points’ outlined in the Hall Aitken report should be used as a framework. The Committee recommends that where co-financing and single stream funding is used that the Executive seeks to ensure that no sector is excluded from the assessment process. (see paragraphs 56 and 58)

85. The Committee believes that Community Planning Partnerships and the enterprise network could play a key role in delivering a proportion of the Funds as the Scottish Executive has suggested. The Committee recommends that the possibility of using Community Planning Partnerships and the enterprise network to deliver those funds appropriate to them is fully explored by the Scottish Executive. (see paragraph 57)

86. Due to the reduced amount of funding available, it is unfortunately a fact that some organisations will not receive the same level of funding compared to previous rounds of Structural Funds programmes. (see paragraph 59)

87. A level playing field must be established for all applying for funding, regardless of which sector they are from (enterprise, local authority, environmental or voluntary) and whether they have had previous access to funds. (see paragraph 60)

88. The organisation which successfully tenders for the operation of the PMEs must be able to represent all the necessary spatial and sectoral concerns within either the Highlands and Islands or Lowlands and Uplands Scotland area. (see paragraph 62)

¹ http://www.scottish.parliament.uk/business/committees/europe/inquiries/structFunds/eur-structFunds-home.htm

² http://ec.europa.eu/growthandjobs/index_en.htm

³ http://ec.europa.eu/comm/employment_social/employment_strategy/index_en.htm

⁴ http://cordis.europa.eu/fp7/

⁵ http://europa.eu/rapid/pressReleasesAction.do?reference=IP/06/245&format=HTML&aged=0&language=EN&guiLanguage=en

⁶ http://ec.europa.eu/regional_policy/funds/solidar/solid_en.htm

⁷ http://www.scottish.parliament.uk/business/research/SB06-45.pdf

⁸ http://ec.europa.eu/regional_policy/sources/docoffic/2007/osc/050706osc_en.pdf

⁹ http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/89436.pdf

¹⁰ http://www.scottish.parliament.uk/business/research/SB06-45.pdf

¹¹ http://www.scottish.parliament.uk/business/committees/europe/reports-06/eur06-03.htm

¹² http://ec.europa.eu/regional_policy/sources/docoffic/official/regulation/newregl0713_en.htm