Can Brussels’s money close Merseyside’s economic productivity gap? Business editor Bill Gleeson reports

MANY people react ambivalently to the periodic news that Merseyside is to continue receiving economic assistance from the European Union.

On the one hand, the investment is welcomed because it can be used to improve the sub-region’s productivity. Europe’s money has been used to build the Arena and Convention Centre, the Museum of Liverpool, Queen Square, new thriving business parks, developments at Liverpool John Lennon Airport and much else besides.

On the other hand, the fact the region continues to need Europe’s money is an unmistakable sign that the area’s economic performance remains weak and that we have yet to be weaned off development aid and learned to stand on our own two feet.

Merseyside first received EU structural funds in 1994. While Merseyside’s economic performance has improved sufficiently since then to be taken out of the top priority category, it was revealed just last week that a reduced level of assistance, known as transition funds, will remain available to the area until at least 2020. Transition funds are designed to complete the economic restructuring of Europe’s poorest regions and are available to places where economic output per head is between 75% and 90% of the EU average, the category Merseyside currently finds itself in.

Last week’s announcement followed the completion of a proposed EU spending plan for the period 2014 to 2020. It is by no means certain that the spending proposals will be adopted by Europe’s Council of Ministers.

Flo Clucas, a Liberal Democrat councillor in Liverpool who is a member of the EU’s Committee of the Regions, said: “It will be a big fight to get the budget through the Council of Ministers. It is not a given. But to date there has been huge support for Merseyside.”

It could turn out that, in this era of austerity, the national heads of government who make up the Council of Ministers may decide not to support the economic development plan, but, should it choose to do so, Merseyside would be allotted 450m euros. That comes on top of 210m euros granted for the period 2008 to 2013, and would bring the total amount of Brussels’s cash invested in Merseyside since 1994 through a variety of economic and social programmes to 2.5bn euros, a sum that doubles when matched funding from the British government and the private sector is included.

Cllr Clucas believes that some of the new cash should be spent on business growth. She said: “If you’re going to get jobs created at the local level, somebody sitting in Whitehall or the Élysée Palace isn’t going to be able to do it.

“It’s people working locally, in small businesses, for example, who can do that.

“We need to make sure the small companies get the venture capital they need.”

Cllr Clucas said that investment works better than other types of spending.

She explained: “If we are to compete with other areas, we have got to be better connected to the outside world. That means we need superfast broadband as well as good rail, port and airport connections.”

As an example, she points to a 40bn euro plan being discussed in Brussels at the moment to improve transport links to Europe’s regions, including a high-speed rail link that would connect Brussels directly to the “Irish Sea” region. That rail link would come to Liverpool, which in turn would be connected to Irish Sea ports such as Dublin, the Isle of Man and Belfast by high-speed ferries.

Cllr Clucas added: “We are also looking at developing energy efficiency projects. We are looking at wind power and sustainable development of fish stocks.

“Then there is R&D and the development of science businesses.”

Liverpool Chamber of Commerce chief executive Jack Stopforth is a firm believer in the benefits to Merseyside of Brussels’s interventions over the past two decades.

He said: “People underestimate the benefit of past European funding.

“Some people at the time it first came to Merseyside said it would be better to give the money directly to companies, rather than spending it on infrastructure. But what the infrastructure spending did was to create the groundwork for today’s economy.

“The Merseyside of ten years ago would have been more damaged by the recession, but it hasn’t been because of that European investment.”

Europe’s draft budget foresees a large part of its money being spent on small business growth and encouraging business star-ups. Mr Stopforth said: “Recognition of the importance of enterprise and business support is welcome, as is skills support, because, if there is one bit of the economy that worries me right now, it is youth unemployment. It’s a big problem round the UK generally, but even more so here.

“We are a major apprenticeships provider. We have no problem finding great young people to take part in our apprenticeship schemes, but increasingly we are finding it hard to recruit companies to take them on. Anything that solves this problem is to be embraced.

“Europe’s money has made Liverpool investable again.

“We wouldn’t have seen Liverpool One or the Arena and Convention Centre or the debate about the cruise line terminal, had we not had the past decade of investment in the public realm.”

Economist Peter Stoney, of the Liverpool Research Group in Macroeconomics, remains sceptical about the benefit of Europe’s investment in its regional development programmes.

Mr Stoney said: “There is still this massive productivity gap. There is the North-South divide and it’s more pronounced in Merseyside.

“Any new money should be aimed at trying to improve that performance.

“Whatever we spend it on should also have a natural consequence of an uplift in employment. That has to be the key to the strategy.

“You can pour it down a bottomless pit on social schemes, but it should be spent on supporting projects that are going to enhance the private sector’s performance.

“Infrastructure projects would make business more viable here, for example, by reducing transport costs with projects such as the second Mersey crossing or improved road access.

“But you can’t say it’s been very effective to date, otherwise there wouldn’t be this productivity difference still, after getting on for 20 years of investment. It’s about time we saw something for it, but it doesn’t seem to have happened.

“The problem with these visions is they are pie in the sky. There is a limit to what government can actually do. They want to fund social projects, but that’s not the way market forces work. We need to get free of public sector dependency.

“On the face of it, what has been spent so far has not been spent very well.”