Bungling deprives poor of European aid

Funds earmarked for Britain's needy diverted into government's favoured projects and utilities

Large amounts of Britain's pounds 1.5bn share of EU regional-aid money have been directed by the Government towards its favoured projects, while failing to ensure that funds reach the needy in Britain's poorest areas, according to European Parliament figures.

Delays and bungles by government administrators in distributing funds caused debt and even bankruptcy among bodies such as colleges and voluntary groups as they waited for their cash.

The report also discloses that Britain's public utilities have been fattened up with pounds 450m of regional-aid money, before and after privatisation. The report confirms suspicions that the Government has tried to obscure the importance to Britain of EU structural funds, which are to help the the poorest regions. In many cases where successful job-creation projects have been launched with EU money, the Government claimed the credit for itself.

The parliament, which adopted the report yesterday, levels its strongest criticism at the way public utilities became major recipients of the structural funds in the 1980s and early 1990s, even after privatisation.

Europe's structural funds are specifically intended to promote job creation, but these same utilities have been engaged in massive job reduction and downsizing, says the report, which cites 300,000 job losses in five privatised companies.

The report's author is Arlene McCarthy, Labour MEP for the Peak District, who based her studies on 25 hours of evidence from parties across Britain, and 2,000 questionnaires. British Conservative members of the parliament yesterday voted against the report.

Miss McCarthy questioned the morality of the way money was directed to utilities which then produced huge profits for shareholders after privatisation. Yorkshire Water received pounds 30m of regional-development money before it was privatised and pounds 11m after. British gas, electricity, telecoms and ports benefited the same way.

It could be argued, says the report, "that the financial position of state utilities was enhanced ahead of privatisation with the use of EU taxpayers funds.

"The European Commission, which has already inquired into the way aid funds have been used during the British privatisation process, has found nothing illegal. However, the Commission points out that no other country has directed funds to privatised utilities, and says that new rules will be drawn up in future, as privatisation speeds up in other member-states." The parliament's research shed light on benefits Britain has reaped from aid funds, particularly in areas of industrial decline, known as "objective two" areas, which include the East and West Midlands, Yorkshire, Humberside, the North-east, east Scotland and west Cumbria. Britain has the highest allocation of EU funds for "objective two" areas in the Union.

However, money, distributed largely by government-appointed committees, often fails to reach recipients as a result of low staffing, over-centralisation and lack of planning.

Many groups in the voluntary sector, as well as training colleges and small businesses, are deterred from applying for funds because of fears about delays and debt, says the report.

In one case a college in Humberside ran up pounds 200,000 in debt because funding agreed for a training scheme arrived two years too late.