I do. Thanks very much for the invitation to come and speak to the committee this morning. I provided the committee with an update on structural funds in advance, which I hope you found useful. I will be happy to respond to questions on that. I will start with a few remarks to put the update that I provided in context—not least because the committee has received substantial submissions on structural funds from three important and experienced stakeholders.
As the committee knows, we are in the second year of the new EU seven-year funding cycle and we have a new Commission with new priorities and new programmes. It is fair to say, from previous experience, that this is always the most difficult point in the funding cycle. The new programmes have been approved by the Commission, but the old programmes are still winding down. The old funds have been used up, the closure process is commencing and we have significant issues with the audit weaknesses that have been exposed in that process.
Organisations that previously secured structural funds are hoping that the Commission’s priorities have not changed and that they will secure funds again. They often hope to sustain and evolve projects from one programme period to the next and try hard to sustain capacity until the new programmes are operational and they can secure structural funds.
Linda Stewart’s submission for the University of the Highlands and Islands captures much of the complexity of this point in the cycle. Similarly, the submission from the Scottish Council for Voluntary Organisations captures the frustrations and anxieties of smaller organisations.
We have tried, wherever we can, to mitigate the impact of this transition period. We have tried to stretch funding from the old programmes as far forward as we can by recycling underspent funds and putting alternative gap funding in place, particularly for the national third sector bodies but also for local authorities that use structural funds to support third sector bodies in their localities.
What was different in this funding cycle was the economic crisis in 2008, which drove the Commission’s and member states’ expectations of the 2014 to 2020 structural funds. The priority for the funds has become economic growth and youth unemployment. For that reason, there is a significant funding allocation for youth unemployment in south-west Scotland. Hence, too, the expectation that the new Scottish programmes will concentrate the funds on innovation, business competitiveness and higher-level skills, and not as much as previously on tourism and physical regeneration. We recognise that those are extremely important areas, but they are not considered to be as high a priority as innovation, business competitiveness and higher-level skills when it comes to fostering economic growth across Europe and making Europe more competitive with China and the US.
What is not different in the new funding cycle is the Commission’s focus on sound financial management of structural funds. It cannot avoid that. You will know as well as I do the pressures that are on the Commission to ensure that its accounts are in order and that it can account for the public expenditure that it is involved in. It is, quite correctly, closely and constantly monitored by the European Parliament and the European Court of Auditors.
The 2007 to 2013 Scottish programmes were regularly criticised by Commission auditors for having too many projects, and the interruptions to those programmes prove their point. We have therefore been determined to avoid, where we can, the same kind of audit difficulties in the new programmes.
Interruptions are triggered when organisations that are receiving funds are found to have not complied with EU regulations, the rules of the programmes, procurement regulations or state aid law, or when they cannot, after several years, trace receipts, invoices or staff time sheets. Although it is absolutely correct to expect sound management of structural funds, the disruption and difficulties for smaller organisations that have to repay funds or that have their grants cancelled after several years’ work can be severe.
We have taken advantage of the requirement that we concentrate structural funds on a limited number of key themes to focus funds through the Scottish Government’s policy directorates and agencies and through local authorities, on the basis that those organisations should have match funding and the capacity to cope with regulatory compliance—which has increased in recent years—and the considerable EU audit burden that is always associated with structural funds. Those organisations also have the capacity to run procurement and challenge fund processes into which the smaller organisations that would previously have bid directly for structural funds can now bid without having to carry the audit burden and risk directly.
Our approach is yielding fewer projects but much wider use of procurement and simplified costing methods. It means, for instance, that structural funds are being used to expand a Big Lottery Fund poverty and social inclusion programme, which means that third sector bodies do not now have to apply separately for Big Lottery funding and structural funds. It means that local authorities can procure local third sector organisations to deliver employability programmes without those organisations having to be accountable to the European auditors. It also means that the business gateway can be expanded to support local growth companies in partnership with Scottish Enterprise and Highlands and Islands Enterprise.
I could go on, but I think that I have illustrated our approach and demonstrated our concern not to put smaller organisations at risk, our concern to make best use of delivery capacity and available match funding, and our concern—this is our overriding concern, and I know that it is the committee’s concern—to achieve the best possible impact from the structural funds.