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Regional Development: EU Assisted Areas

Volume 684: debated on Monday 10 July 2006

My right honourable friend the Minister of State for Industry and the Regions (Margaret Hodge) has made the following Written Ministerial Statement.

I am today launching a consultation on the draft map of areas in the UK within which it will be possible to pay state aid (economic funding to help to boost competitiveness) during 2007-13. The new map will replace the current one, which expires on 31 December 2006, and will cover the period1 January 2007 to 31 December 2013. The consultation forms stage two of the assisted areas review, and will be open from today until 7 August 2006. It builds on an earlier nine-week consultation launched by my predecessor on 15 February 2006. Copies of the consultation document have been placed in the Library.

Assisted area coverage does not bring with it specific funding. Instead it offers eligibility for certain forms of financial support. It permits the UK to provide large-scale investment to firms in these areas. Under EU guidelines published in December, the UK's overall regional aid population coverage will be 23.9 per cent, down from 30.9 per cent coverage on the current map.

The new regional aid guidelines were published by the European Commission last December. These guidelines define the parameters for assisted areas for 2007-13. They require less and better targeted state aid, in line with conclusions of successive European Councils and agreed by all member states. The UK's coverage is reduced partly because of our strong economic performance over the last period and partly because the enlarged European Union means a redistribution of aid to the newer and poorer EU member states. All other western member states will also see their coverage fall, many of them more sharply than in the UK. For example, coverage in France is being reduced from 36.7 per cent to 18.4 per cent, in Spain from 79.2 per cent to 59.6 per cent, and in Ireland from 100 per cent to 50 per cent.

There are other limitations imposed by the regional aid guidelines, notably a filter. The Commission has identified a series of prosperous and low-unemployment areas, which it prescribes as ineligible for coverage except through very restrictive provisions. In general the UK has supported this approach, as it is consistent with the objective of better targeting our reduced coverage. In March, following stakeholder requests during stage one of the assisted areas review, my department made available on its website the list of those places which fall outside the EU filter.

Working within these limitations, the new map represents a thorough, evidence-based approach to allocating the UK's scarce population coverage on the basis of both need and opportunity. Coverage has been allocated using employment, inactivity and skills indicators and as such it reflects the direction of the Government's agreed regional policy.

The map reflects not only areas of need but also areas of opportunity. A strong principle underpinning both the current and the proposed map is that it is essential to use our coverage to focus on areas that are able to use the flexibility provided. Many deprived parts of the UK do not have the scale of industrial sites necessary to fully exploit assisted area status. This approach received clear support in the public consultation. As a result, we have also used an indicator of opportunity—manufacturing share of employment—to help identify eligibility for assisted area status.

The regional aid guidelines specify that coverage must consist of zones with a minimum population of 100,000. To make full use of our limited coverage we have formed such zones by combining wards into larger units. By doing so, we have maximized the effectiveness of our coverage. This approach is consistent with the views of many consultation respondents.

The reduction in UK coverage makes it even more important that the scarce allocation is given to those areas where it can make the most difference. That means that the Government have decided not to cover the whole of Merseyside and South Yorkshire automatically, but to focus on those parts of the region that would most benefit from coverage. As a result, some parts of Merseyside and South Yorkshire will lose their coverage. However, overall Merseyside and South Yorkshire retain 81 per cent and 76 per cent of their coverage respectively.

It is important to stress that those areas which lose assisted area status will not be losing funding, but only access to some forms of financial support. Many other EU “horizontal aid” instruments are available in all areas, regardless of assisted area status. These can be used, for example, to facilitate competitiveness through research and development spending, to improve access to venture capital for small and medium enterprises (SMEs), to support environmental projects, to help provide access to training, and to encourage cultural development. Regional investment in SMEs is also available. Additionally, all areas of the UK will be eligible to apply for structural funds, through the European Regional Development Fund or the European Social Fund. There are also domestic regeneration and investment programmes that support industrial growth and jobs.