EUROPEAN COMMISSION Brussels,30.5.2018 SWD(2018) 289 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and the Council on the European Social Fund Plus (ESF+)



Proposal for a Regulation of the European Parliament and the Council on the European Globalisation Adjustment Fund (EGF)

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Table of contents 1. Introduction: political and legal context 1.1 Scope and context 1.2 Lessons learned from previous programmes and related mid-term evaluations 2. THE OBJECTIVES 2.1 Challenges for the programmes of the next MFF 2.2 Objectives of the programmes under the next MFF 3. Programme structure and priorities 4. Delivery mechanisms of the intended funding 5. How will performance be monitored and evaluated? Annex 1: Procedural information 1.Lead DG(s), Decide Planning/CWP references 2.Organisation and timing 3.Consultation of the RSB 4.Evidence, sources and quality

Annex 2: Stakeholder consultation Annex 3: Evaluation results Annex 4: Synergies and coherence between the ESF+ and other Funds investing in human capital development Annex 5 Programme specific annex on the Health programme Glossary Term or acronym Meaning or definition ESF European Social Fund YEI Youth Employment Initiative FEAD Fund for European Aid to the most Deprived EGF European Globalisation Adjustment Fund EaSI Employment and Social Innovation programme EIF European Investment Fund EIB European Investment Bank EURES European Employment Services ESI Funds European structural and investment funds CSR country specific recommendation OP operational programme SCO simplified cost options FI financial instruments ALMP active labour market policies MA managing authorities Rhomolo regional holistic model (JRC dynamic spatial computable general equilibrium model for EU regions and sectors) JAP joint action plans CLLD community-led local development QFR EU quality framework for anticipation of change and restructuring OPC open public consultation



1. Introduction: political and legal context On 2 May 2018, the European Commission adopted its proposals for a new Multiannual Financial Framework (MFF) for 2021-2027. The Commission proposed that over this period, the European Social Fund Plus (ESF+) will have a budget of EUR 101.2 billion (in current prices), while the European Globalisation Adjustment Fund will remain outside of the MFF with a ceiling of EUR 1.578 billion (in current prices). This impact assessment report reflects the decisions of the MFF proposals and focuses on the changes and policy choices which are specific to the two funds. 1.1 Scope and context Europe's relevance and success in the next decades will be determined by its ability to remain competitive in the global economy and ensure high levels of employment, education and training, health, social inclusion and active participation in society. Making Europe competitive, cohesive and resilient in the future means investing in its people now: in their education and training, in their skills, in their creativity, their potential to create businesses and to innovate, and in their health. It means ensuring that everyone in the EU has opportunities to prosper, play an active role in society and shape the future of a Europe of democracy, solidarity and inclusion. The EU’s capacity to respond to current and future challenges, including those stemming from technological development, will depend on the quality and the scale of intervention strategies that invest in people. In March 2017, leaders from 27 EU Member States and EU institutions signed up to the Rome Agenda pledging to work towards a social Europe: ‘a Union which, based on sustainable growth, promotes economic and social progress as well as cohesion and convergence […] a Union which fights unemployment, discrimination, social exclusion and poverty; a Union where young people receive the best education and training and can study and find jobs across the continent.’ As underlined in the white paper on The future of Europe and its five accompanying ‘reflection papers’, the EU’s ability to provide solutions to the challenges faced by European economies and societies has been called into question. At the Gothenburg Social Summit (November 2017), EU Member States and institutions adopted the European Pillar of Social Rights as a key policy response to this concern. The Pillar strives to reaffirm and further strengthen relevant rights and principles in support of equal opportunities and access to the labour market, fair working conditions, social protection and greater social inclusion. It underlines people’s right to quality and inclusive education, training and life-long learning so they can maintain and acquire skills that enable them to participate fully in society and to successfully manage transitions in the labour market, also in line with the United Nations sustainable development goals. Policy efforts of this magnitude require meaningful investment at EU level. The Commission’s April 2017 Communication on the Pillar underlined that it ‘will [...] be a reference for the design of the post-2020 EU financial programming period’.

In addition, the Skills Agenda for Europe highlights the importance of investing in upskilling and re-skilling as, in a fast-changing global economy, skills are a key driver for competitiveness and innovation. The December 2017 European Council conclusions further highlighted the importance of the social and educational dimension of EU policies ‘in bringing Europeans together and building a common future’. In its June 2017 Resolution on building blocks for the EU’s cohesion policy post-2020, the European Parliament notes that cohesion policy is very effective and calls on the Commission to present a comprehensive legislative proposal for a strong and effective cohesion policy post-2020 with an adequate budget for combating unemployment, caring for the vulnerable and marginalised, addressing growing inequalities and building solidarity through co-investments in education and training. In its Opinion For a strong and effective European cohesion policy beyond 2020, the European Committee of the Regions points out that ‘the policy for strengthening economic, social and territorial cohesion is one of the most important and comprehensive EU policies, making a significant contribution in terms of solidarity to strengthening the EU as a whole, and considerably strengthens the European added value that is tangible for each EU citizen’. It calls for cohesion policy to be made more flexible in the next funding period. In its Opinion on The effectiveness of ESF and FEAD funding as part of civil society efforts to tackle poverty and social exclusion under the Europe 2020 strategy, the European Economic and Social Committee calls for ‘the creation in the next financial perspective of an integrated European fund to combat poverty and social exclusion, based on experience to date of the implementation of the FEAD and the ESF'. This impact assessment, which is part of the proposals for the next multi-annual financial framework (MFF) builds on the above policy framework. It covers the following funds: -the European Social Fund (ESF – one of the European structural and investment funds (ESI funds)) and Youth Employment Initiative (YEI); -the Fund for European Aid to the Most Deprived (FEAD); -the European Globalisation Adjustment Fund (EGF); -the EU Health Programme, and -the Employment and Social Innovation (EaSI) programme These funds are key in delivering on the European Pillar of Social Rights and the social and employment priorities endorsed by the European economic governance process. This impact assessment covers them all, as they complement each other in contributing to the same policy objective, and presents them jointly or according to their specific properties, as appropriate. This impact assessment concerns the following initiative: ·merging the ESF, YEI, FEAD, EaSI and EU Health programme into one fund (ESF+) with a single Regulation, but two separate management strands: oshared management (covering the former ESF, YEI and FEAD); and o(in)/direct management (covering the former EaSI and EU Health programme and part of the ESF); and ·keeping the EGF as a separate fund. The reasoning behind this initiative is set out in the following sections. The impact assessment also examines synergies and complementarities with the following other funds under preparation in the context of the next MFF: ·other ESI Funds, including: the European Regional and Development Fund (ERDF), the Cohesion Fund (CF), the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF);

·Erasmus; ·the Asylum, Migration and Integration Fund (AMIF); ·the Framework Programme for Research and Innovation (Horizon Europe); ·the European Fund for Structural Investments (EFSI), the Reform Delivery Tool (RDT) and the Structural Reform Support Programme (SRSP). The impact assessment fulfils the requirements for ex-ante evaluation of the Financial Regulation and Better Regulation package. 1.2 Lessons learned from previous programmes and related mid-term evaluations 1.2.1 Key findings from evaluations Evaluations of current and previous programming periods and related studies all confirm the effectiveness, efficiency, relevance, EU added value and coherence of the funds covered by this impact assessment. Member States have invested in policy areas, target groups and reforms in a way that would not have been possible with national funding only. In particular: ·the 2000-2006 and 2007-2013 ESF ex-post evaluations recognise ESF investments as relevant, efficient and effective. The ESF's alignment with EU policies and priorities under the Lisbon Strategy and the Europe 2020 strategy for smart, sustainable and inclusive growth was strengthened over time. At the same time, being one of the structural funds, the ESF contributes to the Treaty's goals of economic, social and territorial cohesion through increased concentration of resources. For example, the ESF (with the associated national funding) accounts for 70 % of active measures in 11 Member States. ·through its support for young people not in employment, education or training (NEETs) in specific EU regions, the YEI raised the visibility of youth employment policies, but also brought about a shift in policy-making in a number of Member States by supporting the setting-up and implementation of youth guarantee schemes; ·preliminary results of the FEAD mid-term evaluation , including feedback from stakeholders, indicate that the food, material aid and social inclusion operations that it has supported make a difference to the most deprived, including those who might otherwise be left out of mainstream social assistance or who need immediate support; ·the results of the mid-term evaluation of the EGF shows that it offers dismissed workers a unique combination of tailored measures that lead to more sustainable results, increase the self-esteem of beneficiaries, who finally have a more proactive approach to job seeking, and improve their employability; and ·the mid-term evaluation of the EaSI shows that its objectives are still relevant, in particular in a challenging socio-economic context characterised by the aftermath of the financial and economic crisis and that it was effective in reaching the relevant stakeholders, generating outcomes and achieving its objectives. However, evaluations and studies also provide evidence of a number of challenges, mostly regarding the need for greater coherence and synergy, flexibility and policy alignment, performance and results orientation, and simplification. In particular the funding landscape and, to a greater or lesser degree, the implementation of the funds, need to be simplified. The areas to be addressed are summarised in section 2.1.2 and described in more detail in Annexes 2 and 3. 1.2.2 Key messages from stakeholders The messages from stakeholders (consulted mainly through the open public consultation (OPC), conferences, focus groups, interviews and questionnaires in the framework of preparations for arrangements post-2020) broadly confirm the findings from the evaluations. Stakeholder consultation results demonstrate the perceived high added-value of the concerned EU Funds. Around 76% of the OPC respondents supported the view that the current programmes/funds add value to a large or fairly large extent compared to what Member States could achieve at national, regional and/or local levels. Continued European action through investment in a ‘social Europe’ is key to the effective implementation of EU social and employment policy (the key policy challenges identified in the OPC), in particular the European Pillar of Social Rights and the Skills Agenda.

In terms of priorities for investment, it is essential to anticipate skills needs in a fast-evolving world of work, including digital skills. Moreover, measures should continue to support young people and target the most disadvantaged in the labour market and society at large, in particular migrants, people with disabilities, low-skilled and long-term unemployed people: to this end it is key to continue and reinforce investment in social inclusion. The links between policy and funding can and should be strengthened (through ex-ante conditionalities, the link with European Semester process, allocation method including social indicators in addition to GDP); and results-based approaches are welcomed, although they should be developed mindfully of potential risks. It was also stressed that respect for fundamental rights should be ensured in the funds’ implementation. Concerning the Funds’ management, future proposals and rules should represent ‘an evolution and not a revolution’ and should simplify management at all levels (in particular, through simplified cost options, simplifying audit and control and monitoring requirements). In addition to simplification efforts, technical assistance and capacity-building is important for the funds’ effective implementation. In relation to this, the partnership principle needs to be strengthened, ensuring a more meaningful involvement of civil society and according to some, the Commission. Furthermore, the synergies and complementarities between funds should be enhanced, while preserving and increasing the funds’ flexibility. 2. THE OBJECTIVES 2.1 Challenges for the programmes of the next MFF 2.1.1. Key features of ongoing programmes In setting out the challenges for the programming period 2021-2027 a baseline scenario will have to reflect a decrease of the future MFF allocations following the UK’s withdrawal with an unchanged policy. For the funds under consideration the consequences of Brexit would mean that we would still cater for all Member States and all objectives, but Member States might have to set priorities to the detriment of some groups or objectives. Overall the results and impact of the funds would therefore be reduced in terms of financial volume but also number of projects and persons supported. However the lower level of budget and the risks it entails can be mitigated both by higher national co-financing rates and by limiting the scope of ESF support in the field of general public administration reform (see section 2.2). 2.1.1.1 ESF and YEI The ESF is the EU’s main instrument for investing in people since the Treaty of Rome. It finances actions contributing to employment, social inclusion, education, training and administrative capacity reforms. Together with the YEI, it supports NEETs in regions with high youth unemployment. The ESF and YEI are implemented under shared management. Funding envelopes are established per Member State and category of region for the whole programming period based on criteria mainly reflecting regional GDP. Different co-financing rates apply depending on the category of region. The YEI is implemented according to the ESF rules and supported both through ESF allocations and a separate budget line. It is subject to some specific programming, financial management, monitoring and reporting requirements. The total ESF budget for 2014-2020 is EUR 121 billion, of which EUR 84 billion is EU funded and the rest is co-financed from national budgets. The additional YEI budget is around EUR 10 billion, of which EUR 8.8 billion is EU funded. The ESF and the YEI are expected to benefit 56 million participants in the current period. Impacts The 2007-2013 ESF ex-post evaluation allowed calculating minimum success rates of ESF interventions (share of participations with recorded positive results such as qualification or employment I ) by theme: they reached 46% for education and training, 38% for access to employment, and 52% for social inclusion. These ratios include employment and qualification gained and soft outcomes (such as increased chances in the labour market) and show the significant impact of the ESF on participants’ long term prospects and careers.

ESF and YEI investments are the main EU level support to structural reforms in Member States especially in areas related to reform of public employment services, activation measures, the development of individualised integrated pathways for employment, the set-up and implementation of dual vocational education and training, apprenticeship measures or investment in (child)care aimed at increasing women participation in the labour market. ESF and YEI support to structural reforms In Spain the implementation of the ‘active inclusion strategy and individualised integration pathways’ is supported in line with the CSR. The aim is to mainstream the implementation of individualised integration pathways. Several structural reforms have been adopted in this line, bearing in mind the distribution of competences between regions and central government. In the context of the economic and financial crisis, ESF investment in this area was instrumental to continue the undertaken reform effort with a EUR 1.2 billion effort across 2014-2020, targeting a wide variety of vulnerable groups. Similarly, the ESF is currently investing resources in the support of the ‘apprenticeship contract’ both in training programmes and alleviating companies’ social security contributions. The apprenticeship contract is also one of the offers under the Spanish youth guarantee, especially aimed to young people without previous qualification or with very low overall qualification. In the Czech Republic, in line with the 2014 CSR recommending to concentrate adequate resources to measures that considerably increase the availability of affordable and quality childcare facilities and services (with a focus on children up to the age of three), the ESF (together with the ERDF) provided a considerable boost to the allocation for childcare facilities (approximately EUR 220 million across all Czech ESF and ERDF programmes, i.e. almost tripling). The demand for services on the ground has since been confirmed by a significant interest of applicants. Legislative changes were introduced to enlarge the requirements for opening a pre-school education entity and enable employers to establish kindergartens. So far, more than 9000 kindergarten places have been created. In Italy, the national programme ‘inclusione sociale’ (with a total budget of EUR 1.32 billion) is entirely dedicated to supporting the reform of social policies in the country, with the aim of an effective fight against poverty. In fact, the legislative framework on social policies, defined in 2000, was never fully implemented because of lacks of funds and governance issues. The allocation of ESF funding to the fight against poverty through this programme was crucial in revamping the governance of social policies and it acted as a catalyser for the introduction of the so-far absent minimum income scheme (reddito di inclusione). This was fully in line with the European Semester recommendations to Italy. The macro-economic effects of current investments under the 2014-2020 ESF, as estimated using the Joint Research Centre's Rhomolo model, suggests a permanent positive effect on aggregate EU 28 GDP. It is estimated that this will reach 0.1 % (roughly EUR 13 billion) in 2024 and 0.15 % (roughly EUR 25 billion) by 2030. The GDP effect of ESF investments is much greater in regions that are lagging behind economically (see map below). By 2023, the model estimate annual GDP increases of up to about 0.4 % in these regions, 0.14 % in transition regions and 0.07 % in more developed regions. Finally, among the main themes covered by the ESF, the thematic objective on promoting sustainable and quality employment contributes most to total GDP increases, followed by the objective on investing in education and training. Figure 1: GDP effect of ESF investments at regional level, Rhomolo simulations, JRC Rhomolo simulations indicate that the current programming period will see a gradual annual employment increase of up to 0.05 % (in 2020) relative to the baseline year. The model is not accounting for the non-tangible effects of the support, such as reducing the social exclusion of disadvantaged groups. Finally, the model's estimations indicate that no long-run trade-off exists between social-oriented ESF investments and general economic benefits. Indeed, they confirm the important role that human capital investments have as a key growth factor for the European economy. The direct and indirect effects of ESF investment generate positive economic outcome via a combination of long-lasting effects on labour productivity / skill enhancement and short-term positive demand side effects (e.g. by promoting entrepreneurship and boosting business creation). Figure 2: Impact on GDP of ESF investments per thematic objective, Rhomolo simulations, JRC The Commission’s Seventh report on economic, social and territorial cohesion concludes that cohesion interventions generate spill-over effects in Member States and regions other than those in which it is implemented. Programmes in non-cohesion countries tend to increase exports to cohesion countries. The resource allocation for the next programming period should reflect the higher political expectations for the future of social Europe and the future extension of the ESF’s scope to underpin the implementation of the European Pillar of Social Rights (including in the fields of migrant integration and basic digital skills). 2.1.1.2 FEAD The FEAD aims to alleviate the worst forms of poverty in the EU, such as food deprivation, homelessness and child poverty. It is implemented under shared management, with simplified rules and reduced administrative requirements as compared with the ESF. The FEAD allocation for 2014-2020 amounts to almost EUR 3.8 billion. The programme statement indicates that FEAD aid is expected to reach 15 million people a year. With 15.92 million persons benefiting in 2016, this target has already been reached. FEAD is a relatively small fund and is delivered through two different types of operational programmes (type I on food/ material assistance and type II on social inclusion measures). It is difficult to draw conclusive comparisons as regards the fund's impact due to the different contexts and types of support. However, there are notable direct benefits of FEAD in view of its size (1% of the EU budget for cohesion policy addressed 15 million people in 2016). There are also significant indirect benefits that cannot be expressed in monetary terms (improved cohesion, solidarity, prevention of humanitarian crises, leverage effects of volunteering and commitment by and capacity building of civil society organisations). Respondents to the public consultation conducted in the framework of the mid-term evaluation overwhelmingly agree that FEAD makes a difference for the lives of the most deprived (93%), reaching the intended target groups, especially children at risk of poverty (79%). The EU added value was assessed and confirmed notably through the open public consultation and the focus groups and case studies, for instance the Fund’s leverage effect and increase in partners’ capacity (please see Annex 2 and 3).

2.1.1.3 EGF The EGF expresses the European Union solidarity by supporting people made redundant in the course of very large scale restructuring events (more than 500 displaced workers) with the aim of helping those workers reintegrate into the job market as quickly as possible. The Fund currently only offers assistance in the aftermath of restructuring events which have been caused by major structural changes in world trade patterns due to globalisation or the financial and economic crisis. The EGF has been designed to tackle the employment and social challenges of structural change, helping displaced workers which are the beneficiaries of EGF assistance. Given its purpose, which is to provide quick support in situations of urgency and unexpected circumstances, the EGF is one of the flexible and special instruments outside the budgetary ceilings of the MFF. The EGF thus does not have an annual budget that it is expected to spend, but additional funding up to a pre-defined maximum annual ceiling that may be mobilised if needed. The maximum annual amount during 2014-2020 is set at EUR 150 million (in 2011 prices). EGF assistance is provided through shared management. Since the EGF’s start, the number of cases has been highly cyclical, responding with an evident delay to economic developments. In 2007-2013, 112 EGF cases targeted 105.000 beneficiaries with a total amount of EUR 479 million. Since 2014 until today 43 cases have been approved targeting 42.000 beneficiaries with a total amount of EUR 132 million. In addition to the current average re-employment rate of 65% there is empirical evidence of positive indirect effects of the EGF, as each additional job created influences positively other sectors. The dimension of these indirect impacts varies across case studies, ranging from a minimum of 20% up to 50% of the total jobs generated. If the EGF invested comparable amounts in the post-2020 period, it would be expected to deliver broadly similar results and have similar direct and indirect impacts. It should be noted, however, that the incidence of very large-scale restructuring cases (involving more than 500 redundancies) has been considerably less over the past decade. Nowadays' globalised world is characterised by an ever increasing interconnectedness and interdependence of world markets. Paradoxically, due to these most recent trends in globalisation, an unchanged EGF would probably see fewer applications and uptake. 2.1.1.4 EaSI The EaSI is a funding instrument designed to promote a high level of quality and sustainable employment, guaranteeing adequate and decent social protection, combating social exclusion and poverty, and improving working conditions. Its activities are mainly implemented under direct management through calls for proposals and calls for tenders. The EaSI actions related to microfinance and social entrepreneurship (including inter alia the EaSI Guarantee Instrument and the EaSI Capacity Building Investments Window) are implemented by the Commission indirectly by entrusting budget implementation tasks to European Investment Fund (EIF). The EaSI financial envelope 2014-2020 amounts to EUR 919 million. The EaSI Regulation specifies an indicative budget allocation per axis and indicative breakdowns of allocations between the sections within each axis. 2.1.2. Main challenges and problems 2.1.2.1 Employment, education, skills and social challenges The EU is now on a growth path after an economic and social crisis that has left deep scars on the economic and social fabric. To ensure the sustainability of growth and to remain competitive, European societies need to anticipate labour market changes and people have to gain the right skills for today’s and tomorrow’s job market. Constantly evolving technology, productivity and globalisation paradigms require constant upskilling and reskilling of the workforce to face the new digital and automation challenges and the changes in skills requirements due to the low-carbon and climate resilient transition. This will trigger fundamental transformation across the entire economy and a wide range of sectors. For example, the number of jobs in the environmental goods and services sector in the EU increased by around 50% between 2000 and 2014.

The current and future trends related to demography, migration, technological change, work organisation and labour market will have a tremendous impact on education and training systems and skills needs. The number of entrants in initial education and training is already on the decrease. This decrease could be balanced, at least in the short to mid- term, by more investments into retaining children in school and up- and re-skilling of adult working population in order to respond to the rapidly evolving skills requirements, also linked to new technologies. For instance, it is considered that across the OECD countries almost 14 % of existing jobs are highly automatable (i.e., probability of automation of over 70 %) and 60 % of jobs face a moderate level of automation. In addition, the education and training systems face a challenge of ensuring inclusion of an increasingly heterogeneous group of learners into society and the labour market, including low-skilled adults (also in the context of increased migration flows). However, access to quality education, training and life-long learning opportunities across the EU is still unequal. Today, 70 million Europeans lack adequate reading and writing skills, and even more have poor numeracy and digital skills, which puts them at risk of unemployment, poverty and social exclusion and also severely limits the competitiveness of the EU economy as a whole. Less developed areas require specific attention with regard to human capital and skills development. The latest employment and social trends are encouraging: a record number of people (236 million) are now in employment, about 10 million jobs have been created since 2013 and labour market participation has been increasing steadily, reaching 73% in 2016. However, disparities and divergence across Member States remain significant with unemployment rates and indicators pointing to substantial slack in some labour markets while tightening is evident in others. Unemployment (18 million people in January 2018) and long-term unemployment remain among the most important challenges and, despite improvements, too many young people still struggle to find a (quality) job. Although it has decreased – from a peak of 24% in January 2013 to 15.6% in March 2018 – the youth unemployment rate is still high in the EU - more than double the overall unemployment rate (15.6% compared with 7.1% in March 2018). The NEET rate (age group 15-29) is also still very high, at 13.4% in 2017. While the number of people at risk of poverty and social exclusion fell by 4.8 million between 2012 and 2015, the fact that 118 million people were still at risk in 2016 means that social inequalities remain an important concern. Based on latest Eurostat figures nearly half of the unemployed people aged 16-64 were at risk of poverty after social transfers. In other words, the risk of monetary poverty was five times greater for the unemployed than for those in employment. Income inequality started to decline slowly in 2016, having risen in the aftermath of the crisis. This reflects improved economic and labour market conditions. Nonetheless, there are considerable variations across countries: poverty and social exclusion are growing in some areas, such as EU15 cities while in EU13 34% of rural population is at risk of poverty (higher in rural areas than in urban areas). The risk of poverty and social exclusion also affects certain minority groups disproportionately. Migrants are one of the groups disproportionately affected. The larger number of third-country nationals migrating to the EU since 2014, in particular refugees (1.7 million third-country nationals have been granted international or subsidiary protection between 2014 and 2017), and the very unfavourable outcomes of third-country nationals in terms of employment compared with EU citizens means that more investment in migrant integration is needed. In addition, long-term demographic trends (less working-age population, more senior workers and changing family structures) profoundly affect societies and the world of work by limiting the resources available for distribution across generations. This requires tailor made labour market integration policies addressing a diversified workforce, including measures to promote gender equality, equal opportunities and combat discrimination. Health systems also need to adapt to be more accessible for all, more effective and resilient in time of demographical challenge. High quality and inclusive health systems are important to reduce socio-economic gaps between Member States, to lead to upward economic convergence and to ensure a healthy workforce in an ageing Europe. Territorial specificities are also a key challenge for the future.The Seventh Cohesion report underlines the challenges faced by certain territories, such as rural areas. As an example GDP per head in rural areas in EU15 is 72 % of urban ones and only 42 % in case of EU13. The outermost regions also face a number of issues: GDP per capita is much lower than the EU average, unemployment is critically high, particularly in the young population (with a rate above 40% in all outermost regions). There is also a high dependence on sectors such as public administration or social services. In its strategy for the outermost regions (October 2017), the Commission committed to support people from these regions to foster their employability and to adapt their skills to new production systems and technologies through the ESI Funds. This also shows that the quality of governance varies substantially in Europe, resulting in unbalanced efforts to reform employment, education and training and social systems. 2.1.2.2 Cross-cutting MFF and fund-specific challenges Despite their proven EU added value (see section 3), evaluations and stakeholder consultations have identified a number of challenges faced by EU funds investing in people. These challenges can mostly be grouped along the cross-cutting objectives of the new MFF (coherence and synergies, flexibility, focus on performance, and simplification), as presented below. 2.1.2.2.1 Limited interaction and alignment between funds Studies highlight a diversity of rules and limited synergies between EU funds investing in human capital development, weakening their potential impact, visibility and accessibility to beneficiaries and citizens. While the funds are designed to complement each other, their substantial diversity leads to inefficiencies. The divergent rules and requirements explain this limited coherence and lack of coordination between similar interventions supported by different funds (national authorities designing and managing programmes and projects under the various funds often operate in silos). Also, overlaps have been identified as regards target groups and specific actions. In theory, the FEAD and ESF complement each other. Programmes under FEAD provide support for the most vulnerable with material aid (e.g. food, clothing). Action under the ESF focuses on more complex social support and professional activation, and can represent the next step into bringing a sustainable end to poverty. However, in the current regulatory context FEAD and ESF projects are often managed separately and based on different project requirements (while in theory they could be managed by the same authority). As a result, interventions for each fund are also planned separately, sometimes in the absence of a strategic policy approach. According to FEAD project managers, this sometimes stands in the way of a seamless transition by vulnerable participants from FEAD to ESF projects. The link between material assistance support (supported by FEAD) and comprehensive social support and professional activation (supported by ESF) is under-utilised as a result. This is especially an issue for Member States in which the FEAD programme size is so marginal that it restricts programme coverage. In all network meetings in 2016 FEAD stakeholders underlined the need for better coordination between FEAD and ESF projects, as needs in the FEAD context are not always addressed by relevant programmes (e.g. under the ESF), particularly when different authorities are responsible for managing the funds. The YEI and ESF have a lot in common when it comes to implementation: the same managing authorities (MAs) are responsible, mainstream ESF and YEI projects are often combined in a single programme and overall, despite some additional requirements for the YEI, the same rules apply. Nevertheless, while there are no signs of problematic overlaps, certain specific features of the YEI’s scope and implementation entail a significant administrative burden. As regards scope, MAs and beneficiaries find that limiting YEI support to interventions directly for people (while the ESF can also support structures) is overly restrictive. On implementation, the main issues concern the requirement to programme specific YEI allocations by identifying ESF matching funds (originating from different categories of region) which results in a complex exercise for authorities. The definition of the YEI target group at national level – exclusively NEETs who reside in the eligible regions – has also posed difficulties for the managing authorities. As regards interaction between the ESF and EaSI, although the regulations provide for the upscaling of successfully tested social innovations, there is to date no evidence of this happening in practice. The mid-term evaluation of the EaSI programme indicated that its impact is partially hampered by the lack of specific mechanisms to encourage effective cooperation with the ESF. Moreover, the complexity of the ESF management and delivery system and the lack of a dedicated budget discourage potential candidates from applying to upscale successful ‘social innovations’ under ESF. This results in very limited use of the ESF to apply and upscale the results of the social experimentation carried out under EaSI. In addition, the Microfinance/social entrepreneurship axis shows some limited complementarities with ESF actions.

In case of economic restructuring, it is the EGF’s role to offer reactive assistance to workers displaced in unexpected larger scale restructuring events that have a significant impact on the local economy. This assistance shall complement the more preventive assistance offered by the ESF. Despite design differences between the EGF and the ESF, there is evidence that the latter has been sometimes used for EGF-type measures. This is because of the long procedures for mobilising the EGF, especially in the 2007-2013 funding period, and due to the ESF’s more favourable co-financing rates in less developed regions, which created unintended competition between the funds. There is thus scope for better aligning the EGF and the ESF. Furthermore, it was not possible to observe an integrated approach to the use of the two funds in major restructuring events. In such contexts, Member States do not currently design strategic human capital investment packages into which they could integrate EGF and other types of national or European funding, thus missing out on potential synergy effects. Lastly, despite the provisions for a common strategic framework for 2014-2020 in the Common Provisions Regulation which called for more synergies between ESI Funds and other EU funds (e.g. between the ESF and Erasmus+), these have been very limited to date and practical cooperation between funds investing in people is very sporadic. 2.1.2.2.2 Funding framework not fully aligned with EU policy priorities and/or social policy needs; rigidities in implementation Current programming under the ESF has already shown a high degree of policy alignment, in particular as regards priorities set in the country specific recommendations (CSRs) under the European Semester process, including through the system of ex-ante conditionalities which facilitated efficient investments. It has also proven to be flexible in adjusting to emergency situations such as the economic and financial crisis and the migration crisis. However, the economic governance cycle and new EU level policy initiatives are not always fully aligned with the funding frameworks especially as regards the ESF. While the funds have been closely aligned with policy priorities in the 2014-2020 programming period, a recent study on the mapping of CSRs highlights that there is scope for closer alignment between the Semester process and ESI Funds implementation on the ground. For instance, CSRs are often formulated broadly, without implementation targets and milestones and the contribution of the ESI Funds through the operational programmes (OPs) is not systematically monitored. In addition, while ex-ante conditionalities have proven to be an efficient way of supporting policy reforms at the beginning of the programming period, they have not always been fully taken into account in programme implementation (e.g. in selection criteria and calls for proposals). Various rules applying to the funds’ design limit their ability to respond most effectively to employment, educational and social needs. The allocation of funding envelopes for the ESF is not directly linked to the policies it supports, but based mainly on the regional GDP methodology for structural funds. As a result, the ESF lacks sufficient resources to address specific target groups in higher-income regions and is restricted in the support it can give to metropolitan hubs in order to develop lower income regions. Also, strict territorial rules on implementation limit the funds’ ability to foster mobility, as programmes cannot (as a rule) support intervention beyond the borders of the region in question. As regards flexibility, the structure of the ESF does not allow programmes to adjust swiftly to changing priorities. The long-term nature of funding, and the need to set intervention targets and content in advance mean that it is difficult to revise these subsequently, where necessary. In addition, long and heavy adoption and amendment procedures make programmes relatively rigid. Concerning transnational cooperation under the ESF, its current design is not conducive to the general dissemination and mainstreaming of successful policy interventions or work on common issues. In 2014-2020, Member States have made limited use of the transnational approach option, despite the provision by the Commission of an implementation framework in the form of a transnational platform supported by the EC’s technical assistance budget. This fact has been criticised by stakeholders as a lost opportunity for transferring solutions across borders. Underlying drivers include a lack of coordination in terms of common themes and the time needed to launch coordinated calls for projects. Effective learning requires indeed evidence-based understanding of what works and how, what does not work and why, and of the enabling and impeding conditions and national specificities. This requires professional facilitators and financial resources to validate the transferability potential and adapting the beneficial solution to other regional or sectoral contexts. This role cannot easily be pursued at the national level, as the evidence has largely demonstrated. Despite important improvements in the legislative framework for the 2014-2020 ESI funds as regards the partnership principle, mobilising partners across a broad range of countries and programmes is still a challenge, especially in the implementation phase. The massive changes in society that lie ahead are expected to strengthen the need for partnership in order to build ownership and acceptance of reforms on the ground. In FEAD, restrictions as to the types of intervention that can be financed reduce the sustainability of food aid and material support, in particular due to the lack of resources to support accompanying measures in order to achieve long-term poverty alleviation and social inclusion. The current funding structure for the EaSI - with relatively rigid allocation between and within axes – makes it difficult to adjust swiftly and efficiently to emerging priorities. Although this issue was considered in the context of the ‘Omnibus’ Regulation, greater flexibility would ensure more room for manoeuvre in the transfer of budgets between axes where needed. The EGF eligibility criteria of funding require that it be used in response to redundancies due to globalisation or the financial and economic crisis. As a result the EGF currently does not cover other major economic developments. Workers made redundant for other reasons, e.g. automation or robotisation, face very similar challenges but cannot currently benefit from support. Furthermore, in a globalised world, all these developments go hand in hand and reinforce each other, so that it is increasingly hard and artificial to single out a specific reason that triggered a restructuring event. 2.1.2.2.3 Complex requirements and high costs in management and delivery The conclusions of the high-level group on simplification and relevant studies acknowledge the progress made in terms of simplifying the ESF. Nevertheless ESF management and delivery remain complex for a number of reasons:

·different rules with funds addressing the same policy objectives, making it difficult to establish synergies; ·detailed and complex regulations and guidelines; ·complex programming arrangements – excessively detailed partnership agreements and programmes resulting in burdensome adoption and amendment processes and complex management of multi-fund programmes; ·the application of strict territorial rules to the ESF (e.g. division by categories of NUTS2 regions and the associated funding allocation and implementation rules); ·disproportionate regulatory and audit arrangements (e.g. well-functioning systems are subject to the same management and control systems as other less effective systems and 'double checks'); ·requirements linked to ex-ante conditionalities, including numerous assessment criteria and duplication of their assessment in the partnership agreement and programmes; ·institutional arrangements - cumbersome process for the designation of the authorities in particular due to the required IT structures; ·burdensome monitoring due to complex data-collection requirements and the limited use of administrative registers for the collection of participants' data; and ·the administrative burden of a system that relies mainly on real costs, and the associated documentation and archiving requirements. These views were confirmed also by the public consultation: complex procedures and heavy audit and control requirements were seen as the most important obstacles that prevented the current programmes/funds from successfully achieving their objectives. In some cases, the burden arises from the Member States' own regulations and requirements (gold-plating). In addition, the uptake of simplification measures, such as joint action plans (JAPs) or the many types of voluntary simplified cost option (SCO) has been slower than was hoped for, as Member States prefer stability and legal and financial certainty. In combination with the current ‘n+3’ rule for de-commitment, these factors result in delays to the start of programme implementation at the beginning of the funding cycle. For FEAD, stakeholders at all levels recognise that the requirements in the basic EU Regulation are lighter than those for other shared management funds (especially the ESF). They argue that the administrative burden stems mostly from national regulations and requirements, which relate, inter alia, to: recording data/information on operations and end-recipients for monitoring purposes; bulky documentation for procedures and instructions; and excessive procedures for the certification of end-recipients. For EaSI, stakeholders indicate that administrative requirements under direct and indirect management are much simpler than under shared management. The challenges in direct and indirect management include the need for continuous improvement of the application and project selection and implementation procedures. As regards EGF, the extensive documentation required to apply for support contributes to a long approval process. The most difficult part to document is the reasoned analysis of the cause that triggered the restructuring event (globalisation or crisis). Member States submit applications to the Commission, which makes a proposal to the budgetary authority for the mobilisation of funds. The budgetary authority then takes the actual decision. In 2007-2013, the process took around 300 days on average. Despite substantially shorter timing and stricter deadlines for the Commission and Member States in 2014-2020, which brought the average down to 200 days, this is still regarded as far too long for an emergency response instrument. The Reflection Paper on Harnessing Globalisation argues that consideration should be given to making the instrument more operational, in order to ensure a faster deployment in response to a major restructuring event. 2.1.2.2.4 Performance and results orientation All funds have made considerable steps to improve their focus on (measurable) results. Nevertheless, one has yet to see a full paradigm shift in this respect.

For the ESF, results-orientation improved in 2014-2020 through a clearer programme intervention logic, including specific objectives and quantified targets with baselines. In addition, systematic impact evaluations have been required. Thanks to the continued promotion of counterfactual methods for quantifying net effects, MAs have made more use of such methods, but this could still be increased. Payments are still largely based on financial inputs/costs rather than on results, as uptake of SCOs based on results has been slow. Programme performance is still principally assessed on the basis of absorption of funds, and only secondarily on the basis of contribution to objectives and results achieved. This ‘input orientation’ is the direct consequence of having to meet financial implementation target, which remains a precondition for the release of allocated budgets to the performance reserve. The regulatory framework has led MAs to prioritise absorption and the approval of projects over achieving the best possible results in addressing European priorities. This aspect has also been visible in the context of YEI implementation whereby the frontloading of funding and the political imperative to absorb YEI funding fast has often led to prioritising the easy-to-reach NEETs over groups requiring more tailored policy interventions. The JAP approach was introduced for the 2014-2020 period. JAPs enable Member States to implement parts of one or more programmes using a results-oriented approach with a predefined goal. Focus on results is ensured through a coherent intervention logic and the reimbursement of expenditure through SCOs only when the defined output or result indicators are achieved. However, Member States and regions have in general chosen not to implement JAPs. The reasons for low uptake include: concerns over introducing a new layer of programming; risk aversion; an overly complicated adoption procedure; the difficulty of determining output and results indicators to which to link disbursements based on unit costs or lump sums; and the fact that Member States see the option of using Article 14(1) of the ESF Regulation as more efficient for setting simplified costs linked to a single operation. For FEAD, proportionate monitoring and evaluation have been put in place in line with the requirement to respect the dignity of the most deprived. For the food support / basic material assistance strand this has resulted in the absence of fixed baselines and targets in the programme. For this strand, it seems that some common output indicators, notably on the type of food, are not relevant for the budget authorities. The potential of different types of support to address specific target groups depends on: the thorough identification of the group's needs; the capacity of local delivery organisations; and the cooperation/networking between stakeholders involved in the distribution and delivery of assistance. The intangible results of FEAD (improved cooperation, partnership and networking, empowerment, awareness-raising, capacity building) are also important and highly valued by programme stakeholders. For EaSI, a comprehensive performance framework has been successfully set up at EU level, with regular monitoring of the programme implementation and evaluations. The monitoring system consists of a logical framework explaining how EaSI is expected to achieve results and impacts by laying out in detail the whole process from inputs to outputs, and outcomes. It also involves a set of key performance indicators, a system for gathering and storing information and a methodology for analysing and disseminating information about EaSI-funded projects and organisations. Provisions for the programme mid-term evaluation and ex-post evaluation are also planned in the EaSI Regulation. For the EGF, the current monitoring and evaluation arrangements are basic. In the final report, Member States have to state the type of action and main outcomes, the characteristics of the targeted beneficiaries and their employment status. There are no common indicators to measure output and results. Similarly, no targets are set at the time of the application. Therefore performance cannot be assessed against planned outcomes. 2.2 Objectives of the programmes under the next MFF 2.2.1 Policy / general objective (for all funds) In light of the challenges outlined above, the policy objective of the proposal is to contribute to a more Social Europe, implementing the European Pillar of Social Rights. The initiative therefore makes the link between the missions of the ESF+ and the clusters and principles of the Pillar by contributing to: equal opportunities and access to the labour market (including quality and inclusive education and training systems), fair working conditions and social protection and inclusion. It will also contribute to the employment guidelines and to the overall objective of smart, inclusive and sustainable growth beyond 2020 (UN’s sustainable development goals) and upward convergence. The initiative will thereby contribute to improving employment opportunities, raising the standard of living and increasing labour mobility and economic, social and territorial cohesion as set out in the Treaty on the Functioning of the European Union (TFEU) and the EU Charter of Fundamental Rights. Finally, the initiative aims at enabling actions that are relevant, efficient, effective and coherent and brings maximum added value in delivering the objective of a more Social Europe. 2.2.2 Specific objectives The above policy objective is translated into specific objectives, including by means of structural reforms and administrative capacity building. These objectives are based on the challenges identified in section 2.1.2: 1. investing in education, training and lifelong learning: enhancing equal access to all levels of high quality and inclusive education and training systems, tackling early school leaving, increasing educational attainment and skills levels, facilitating transitions from education and training to work in particular through vocational education and training (VET) and flexible up- and re-skilling opportunities. It also includes increasing the labour market relevance of education, training and lifelong learning through anticipation of skills needs, work-based learning, transparency and recognition of qualifications, formal and non-formal learning and investments in basic skills and in particular basic digital skills. 2. enhancing the effectiveness of labour markets and promoting equal access to quality employment, in line with the employment guidelines of the EU: in particular by improving access to employment and labour mobility and active labour market measures, ensuring fair working conditions, modernising labour market institutions including support for public employment services (PES), introducing new forms of work, improving work-life balance and reducing gender gaps in employment, addressing health risks including those relating to changing forms of work and helping to increase the capacity of social partners to promote social dialogue. 3. fostering social inclusion and tackling poverty: this includes promoting active inclusion and equal opportunities, especially for underrepresented groups, ensuring social protection including through accessible and good quality social, health and care services and systems, addressing health inequalities, promoting the rights of the child, the social integration of people at risk of, or in, poverty and social exclusion and providing basic material assistance (including food) to the most deprived. This also involves supporting the long-term integration of migrants, inter alia through social inclusion measures and basic material assistance. 4. demonstrating solidarity with displaced workers and self-employed persons whose activity has ceased in the course of unexpected major restructuring events with tailor-made support for individuals.

These objectives represent a continuity of the current objectives of the funds under consideration. The ESF+, including its directly managed strands, will address the objectives 1 to 3 which have an anticipatory dimension and a focus on ex ante support. The EGF will address objective 4 (ex post support). All objectives will be addressed in the programme structure and priorities (see section 3). 2.2.3. Cross-cutting MFF and fund-specific objectives The following cross-cutting MFF objectives will be addressed through the delivery mechanisms (see section 4): Øenhancing coherence and synergies between complementary funds - the initiative should develop more shared approaches to programming and implementation so as to pool available resources to support integrated investments in people and to avoid overlaps. This involves a two-fold approach: ·streamlining the rules applying to European funds implemented in similar modes (shared or direct management); and ·increasing synergy, coherence and complementarities between funds investing in people; Øflexibility and policy alignment – this will involve making funds more responsive and strengthening the link to economic governance and EU-level priorities. The funds should be better able to adjust to changing circumstances and policy priorities and to provide greater support to policy and system reforms; Øsimplification of fund programming and management thus reducing the administrative burden for authorities and beneficiaries; and Øperformance- and results-orientation to improve effectiveness and the way programme results and impacts are captured and assessed. 3. Programme structure and priorities Articles 46, 149, 153, 162 to 166 and 174 to 175 of the Treaty on the Functioning of the European Union (TFEU) form the legal framework of the legal acts covered by this impact assessment. Titles IX (employment) and X (social policy) TFEU provide the present and future fund's legal and policy backbone. The ESF is established by Article 162 of the TFEU. The proposal for the ESF part of the Regulation is based on Article 164 TFEU. The legal basis for the EU Health Programme is Article 168 TFEU. Article 168(5) is the basis for the part of the regulation on the EU Health Programme. The legal bases for EaSI are Article 46(d), Article 149, Article 153(2)(a) and the third paragraph of Article 175 TFEU. In the areas of social and employment policy, the EU has either shared competence with Member States (Article 4 TFEU) or competence to lay down arrangements within which they must coordinate their action (Article 5 TFEU). The reflections in this impact assessment will not change the general division of competencies between the EU and the Member States, or between the Member States and sub-national administrative and political entities. Funds under shared management are underpinned by, and have a strong focus on subsidiarity and proportionality, whereby the Commission delegates strategic programming and implementation tasks to the most appropriate level, i.e. Member States and regions. Funding will concentrate on the priorities where Member State action supported by the funds delivers the most EU added value, in particular:

·implementing EU policies and priorities – while the funds cannot work as an automatic stabiliser, evidence shows that they have added value in funding active labour market measures (added value of ESF spending has been close to 1:3 i.e. one euro has triggered close to three euros of social investment at national level). There is ample evidence that EU policies supported by the ESF (e.g. gender equality) would not have been implemented or would have been realised to a significantly lesser extent had it not been for EU investment; ·promoting best practice and cooperation - the ESF and EaSI in particular stimulate the promotion of best practices in all participating countries so that EU citizens benefit from improved policy-making and implementation capacity. Transnational cooperation under the ESF and the mutual learning/peer reviews organised under EaSI allow participating countries to learn from each other and exchange good practice, thus helping them to develop more effective employment and social policies and improve the delivery of reforms in the policy fields in question. The EU Health programme supports the improvement of public health, preventing and managing diseases, mitigating sources of danger to human health, including by harmonising relevant legislation and focuses on improving the health of EU citizens and reducing health inequalities, encouraging innovation in health and increasing the sustainability of health systems and defending the EU against cross-border health threats. These activities will be stepped up in future; ·promoting EU values - EU added value is also about the promotion of EU values and respect of the EU Charter of Fundamental Rights. According to the Commission Communication on the post 2020 MFF, the respect of EU fundamental values is an essential precondition for sound financial management and effective EU funding for all future MFF funding programmes. Results from the open public consultation indicate that funds such as the ESF, FEAD, EGF and EaSI promote equality and social justice as key factors for sustainable peace and democracy. 3.1 The ESF+ The main reason for merging the funds (ESF, YEI, FEAD, EaSI and EU Health programme) is to streamline and simplify the funding landscape, to ensure synergies through integrated funding approaches in line with the policies supported and to demonstrate visibly that the Union invests in its people (a Europe that empowers). Consequently, the merging of the Funds is also expected to reduce the administrative burden linked to the management of different funds. The ESF+ is also largely ensuring continuity of all well performing requirements as Member States have invested significantly in 2014-2020 to set up new systems. The merger is based both on the results of evaluations and on stakeholder consultations. In the view of managing authorities, a broad integration of funds would improve their capacities to streamline their strategic intervention across the social policy scope. This would enhance their flexibility in planning interventions, and facilitate the delivery of the principles of the European Pillar of Social Rights. Beneficiaries also confirm that there is still untapped potential to strengthen synergies between programmes and projects funded. Scope of the ESF+ As highlighted in section 2, employment, social, education and training investment needs can be very broad. Accordingly, and in line with the identified objectives, the thematic scope of the ESF+ requires to – as today - remain broad, since it has to be sufficiently flexible to respond to evolving country-specific challenges (identified in particular under the European Semester). In view of the principle of subsidiarity, the ESF+ will, in line with the relevant principles of the European Pillar of Social Rights, continue: to improve access to and the quality of education, training and lifelong learning; to enhance the effectiveness of labour markets and promote equal access to quality employment; and to further support social inclusion and tackle poverty. The ESF+, by integrating the current FEAD, EaSI, and EU Health programmes will also provide support to the most deprived through food and basic material assistance, including accompanying measures and support social protection, health and healthcare (aggregating the scope of the different funds but not adding new areas). However, in line with the baseline scenario of budgetary reduction following Brexit, the ESF+ will not support broad administrative reforms in the areas that are not of its policy competence (such as for example the judiciary or e-government solutions). As a result, the ESF+ will (only) support the parts of the Pillar which fall under its scope: Art 1. Education, training and life-long learning; Art 2 and 9 Gender equality and work-life balance; Art 3 and 17 Equal opportunities & Inclusion of people with disabilities; Art 4, 5 and 10 Active support to employment; Art 11 childcare and support to children; Art 16, 18, 19 and 20 Health care and Long-term care and access to essential services. Programme structure of the ESF+ As stated in the introduction, the ESF, YEI, FEAD, EaSI and EU Health programme will be merged in a single Fund, the ESF+. Therefore, the ESF+ Regulation will replace the current ESF, FEAD, EaSI and EU Health programme regulations and will have multiple legal bases. Support for the identified objectives will be provided through shared and (in)direct management using various instruments (including grant support, technical assistance and other supporting measures) relating to social innovation, labour mobility, transnationality, capacity building, and microfinance and social entrepreneurship. Figure 3: the structure of the ESF+

Beside general provisions applicable to all components of the ESF+, the regulation will establish: ·common rules for all shared management components (support addressing material deprivation), also providing derogations for ex-FEAD type of operations. This is justified by two main reasons: operations for basic material assistance are simpler and standardised and stakeholders have called for keeping this approach and not imposing more demanding ESF rules (e.g. for reporting of indicators’ data, audit trail). ·rules for (in)direct management (ex-EaSI and EU Health programme and specific ex-ESF parts, e.g. transnationality actions) . Prioritisation The future ESF+ Regulation will ensure that resources are concentrated on the key challenges identified (see section 2): ·European Pillar of Social Rights and European Semester: building on the objectives described in section 2, much of the ESF+ should be focused on the priorities and actions set out in the European Pillar of Social Rights, as well as the employment guidelines. As the Pillar will be the main compass in the formulating of country specific recommendations and key challenges identified within the European Semester, Member States are expected to concentrate an adequate amount of shared management funds under the ESF+ for their implementation. Programming arrangements for the ESF+ would also be designed with a view to clearly identifiable financial allocations to the key reforms and challenges as set out in country-specific recommendations and more broadly in the context of the European Semester. ·Youth employment: to ensure that sufficient efforts are made in the post-2020 programming period (as is currently the case with the YEI), Member States with a NEET rate above a given threshold will be required to dedicate a set proportion of their shared management strand of ESF+ allocations to targeted action and structural reforms to support youth employment and school-to-work transition, giving priority to long-term unemployed and inactive young people. This would ensure that Member States facing challenges in this policy area programme an adequate share of ESF resources to support vulnerable young people who need assistance. Stakeholders and the European Parliament are very keen to see a dedicated budget for youth employment being maintained post-2020 and action in this area building on the lessons learned from the YEI. This also reflects the policy direction of the Youth Guarantee schemes that the Commission is working with Member States to promote, and is based on the recommendations of the European Court of Auditors to enhance the focus on outreach measures to the vulnerable young NEETs and improve the quality of services and job offers. ·Social inclusion: at least 25% of the ESF+ will be allocated to fostering social inclusion to ensure that the social dimension of Europe as set out in the Pillar is duly put forward and that a minimum amount of resources is targeting those most in need. This will include promoting the social integration of people at risk of, or in, poverty and social exclusion and tackling material deprivation through food and/or basic material assistance for the most deprived (ex-FEAD). For the latter, Member States should allocate a minimum amount to this priority. Under the (in)direct management strand (ex-EaSI and EU Health programmes and some ex-ESF parts), the ESF+ will include a series of improvements, including a sharper focus on disadvantaged groups and gender equality, greater budgetary flexibility and better integration between the current activities. The complementarities between social experimentation, analytical work, capacity-building, transnational activities and greater upscaling/deployment at national level will become clearer within the simplified ESF+ structure. 3.2 EGF Primarily, the EGF will continue to support the principles of the European Pillar of Social Rights of equal opportunities and access to the labour market by co-financing measures that help improve the employability of workers made redundant in the course of large-scale restructuring events. The programme will be structured so as to address the general objective set out in section 2: to focus on reactive assistance for workers displaced in the course of unexpected major restructuring events that have a significant impact on the labour market (ex post support). The EGF will continue to complement assistance offered by the structural funds, particularly anticipative measures as those offered by the ESF+, or assistance for companies or regions offered by the ERDF. In order to reflect the trend towards fewer very large-scale events (more than 500 displaced workers), and considering that larger scale events (more than 250 displaced workers) also pose a significant burden especially on the labour markets in remote or less densely populated areas, the activation threshold will be lowered from 500 to 250 workers displaced within the reference period. Taking into account the way globalisation is evolving, defining globalisation purely by offshoring or changes in trade flows does not seem to be sufficient anymore. In order to cater for other globalisation-related challenges such as trade disputes, the transition to a low carbon economy, or the technology-driven challenges of digitisation and robotisation, the scope of the EGF will be broadened. Considering the interplay and mutual effects of open trade, technological change or other factors and that it is increasingly difficult to conceptually separate and single out a specific factor that caused job losses, the mobilisation of the EGF shall in the future only be based on the significant impact of a restructuring event, defined by the above mentioned activation threshold of 250 displaced workers. It is acknowledged that the widened scope of the fund and the lower thresholds are likely to lead to more applications. However, experience has shown that Member States only request its mobilisation in true emergency situations. Even though the threshold currently is 500 displaced workers, applications range widely, from 108 to 6120 workers who lost their jobs within the reference period. In order to mitigate the risks of a potentially higher number of EGF applications, the EGF will operate under a higher annual maximum amount of EUR 225 million and the reference period will also be shortened from nine to six months (in the framework of sectoral applications). As an emergency relief fund, the EGF shall remain outside the budgetary ceilings of the MFF. Emergency funds are not expected to absorb a specific budget. Being inside the MFF would therefore mean the contrary, having a specific budget that the fund is supposed to spend, which would turn it into a tool of regular restructuring assistance. However, being outside the MFF currently implies a lengthy mobilisation procedure which counteracts its function as an emergency relief fund. Therefore, the mobilisation procedure will be sped-up and streamlined (see chapter 4.3 below). To reflect the overall challenges, improving the levels of basic skills and in particular digital skills will be a mandatory cross-cutting element of any package of personalised services offered. The level of training should be adapted to the qualifications and needs of the beneficiary. EGF intervention is much more likely to be successful if the package of measures is integrated into a tailor-made reconversion response for the affected region. This will involve closer alignment with the EU Quality framework for anticipating change and restructuring (QFR), especially as regards the employment and social dimensions of structural change.

As in the past, no prioritisation is proposed as regards the geographical scope of the fund. Thematic priorities cannot be set, since by definition the EGF responds to emergencies in the form of unexpected restructuring events. 4. Delivery mechanisms of the intended funding This section will assess the effectiveness of the proposed measures in delivering on the cross-cutting MFF and fund specific objectives (see section 2.2.3) and present possible alternatives. 4.1 Coherence and synergies 4.1.1 Coherence and synergies within the ESF+ As described in section 3.1 the ESF+ Regulation will provide for two strands: ·a shared management strand with common rules with other funds under shared management (Common Provisions Regulation), keeping derogations for simplified rules for ex-FEAD-type activities; and ·a direct and indirect management strand (outside the Common Provisions Regulation). The ESF+ Regulation will complement the future Common Provisions Regulation and bring the programming, management and implementation mechanisms of the ESF, YEI and FEAD closer while responding better to the needs and objectives of the policies it supports. Merging the ESF, YEI, FEAD, EaSI and EU Health programme is expected to have a large positive impact on the coherence and synergies between interventions supported under the different funds as the ESF+ will: ·fully integrate the measures dedicated to supporting NEETs (ex-YEI) - the ESF+ will continue to support the implementation of the Council Recommendation on the youth guarantee in the Member States. However, whereas the scope of the YEI was seen as limiting, as it did not allow for support for the structural measures and reforms required to implement youth policies properly, it will be possible to invest ESF+ resources in reforms and structures. YEI operations will also be better integrated under the ESF+ thanks to the simplification of the currently complex programming and reporting approach; ·provide more ways of linking basic material assistance (ex-FEAD) with additional support for social inclusion - by incorporating the former FEAD, the ESF+ will allow ensuring the transition from social inclusion activities supported though the ex-FEAD to active measures aiming at supporting the integration in the labour market (while maintaining simpler provisions, in particular as regards monitoring, reporting, audit and control for food and basic material assistance interventions). It will provide a more effective response to poverty given that a job is one of the key means to get people out of poverty; ·provide direct links for the testing and upscaling of innovative solutions to social challenges: -as a cross-cutting principle in the shared management strand, the ESF+ will support social innovation aimed at re-designing and re-engineering delivery mechanisms for employment, education, social inclusion and support to the most deprived. This will also be ensured through a strengthened bottom-up approach based on partnerships involving public authorities, the private sector and civil society (such as community-led local development);

-the direct management strand for social experimentation (small-scale testing of new policy approaches) will continue and serve as a basis for social innovation/upscaling activities under shared management. The transfer or upscaling in the same country and across borders of successful innovations will be promoted through support for transnational partnerships, mutual learning, methodological/technical support for stakeholders and the creation of an appropriate information management system; -the currently underperforming set-up for transnational cooperation under shared management will be replaced by an EU level framework for transnational initiatives including: support for transnational partnerships, validation of the transferability of solutions, mutual learning and capacity-building for stakeholders, under direct/indirect management. -the future ESF+ Health component will further support Member States' efforts to collaborate in order to foster joint cooperation and to implement best practices. Investment in human capital and skills development should also raise the innovation and employment potential of the whole EU, building on Member States’ and regions’ competitive advantages in line with their smart specialisation strategies. The merger of the funds is expected to have positive implications as regards the other cross-cutting and fund-specific MFF objectives, i.e. flexibility, simplification and performance- and results-orientation. Having a single fund will give Member States and the Commission more flexibility in spending EU funding across thematic areas and shifting budgets where needed, which in turn will help them address changing social needs and improve alignment with EU policy priorities. Integrating the funds should also reduce the administrative costs of managing the programmes with: ·fewer programming documents, e.g. support for basic and material assistance (ex-FEAD) will be integrated in the programmes under a dedicated priority axis, with simpler rules; ·no need for separate managing authorities and monitoring committees; and ·while the ESF Committee will remain but with extended tasks to cover new areas of the ESF+ Regulation, the current comitology committee under FEAD will be taken up by the common comitology committee set up by the future Common Provisions Regulation. Only for the ex-EaSI and EU Health programme parts a separate comitology committee might have to be set up. By introducing streamlined programming and implementation rules, the ESF+ is also expected to reduce the administrative costs of beneficiaries who are currently tapping into different funds. For example, the specific rules on matching funds from the former YEI budget line and the ESF will be dropped, thereby alleviating administrative burden. Lastly, the merger of the funds is expected to reinforce results-orientation logic, in particular by making financing subject to compliance with conditions (see sections 4.3 and 4.4). Risks and mitigating measures Merging the funds bears risks in terms of administrative burden for some of the current funds. The risk of applying the more complex ESI funds rules to ex-FEAD-type interventions, in particular under programmes for food and basic material assistance, will be mitigated by programming within a specific priority axis and keeping specific simplified requirements in the ESF+ Regulation, e.g. simpler programming, monitoring and reporting, audit and control (see section 4.4). Stakeholders noted that integrating EaSI in the ESF+ could be risky in terms of effectiveness (e.g. less room for experimentation) and efficiency (risk that the heavy administrative procedures of ESF would be imposed on EaSI). In mitigation, a specific strand in the ESF+ Regulation will provide support inter alia experimentation through directly and indirectly managed activities complementing the shared management strand. Other options have been considered, but have been discarded for the reasons outlined below: ·merging the ESF, YEI, FEAD, EaSI, EU Health programme and EGF - this would only result in an artificial reduction in the number of funds. The EGF's very specific objectives, high political visibility and budgetary flexibility would be lost if it were to be merged with the ESF+. This has been confirmed by stakeholders in the framework of the consultation process; ·merging the funds under shared management (i.e. excluding the EaSI and the EU Health programme, but including the EGF) – again, this would mean sacrificing the EGF's high visibility as an EU-level emergency instrument to cushion the adverse side effects of globalisation. The potential flexibility and synergies to be gained from merging EaSI within the ESF+ would also be lost; ·keeping the FEAD as a separate fund, but merging the two types of FEAD programmes (material assistance and social inclusion) - this would allow for more synergies between the basic material assistance types of support and social inclusion measures while keeping the current implementation rules. However, it would not ensure adequate demarcation vis-à-vis ESF-type social inclusion measures; ·merging all ESI funds - this would impair policy delivery, as it would not be possible to adapt implementation rules to the specific requirements of the policies supported. Also it would not increase synergies and coherence with other human capital funds; and 4.1.2 Coherence and synergies between the ESF+ and other funds

Coordination should continue on the ground, with all funds investing in human capital development. Evidence shows that an important factor in effective integration is assembling the right territorial actors at project level. ESF+ and EGF The ESF+ and EGF will continue to complement each other, as the former will continue to function as a preventive and anticipatory fund, while the latter will remain a reactive emergency Fund outside the MFF. The ESF+ will for example complement the EGF by proactively supporting adequate measures in areas that are at risk due to foreseeable economic challenges. To increase coherence and synergies with the ESF+, a clear demarcation line will be established by removing the NEETs as a specific target group for the EGF. In addition, because more favourable co-financing rates have sometimes led Member States to use the ESF for EGF-type of measures, the EGF co-financing rate will be aligned with the ESF+ rate in the Member State concerned. The initiative also aims at improving synergies and coherence between ESF+ and other funds investing in human capital development. For example, one stop shops in Member States should be considered to ensure coordination of funds on the ground and offer a unique access information point for potential beneficiaries on which Member States would be required to publish all their calls (e.g. via a single digital portal). ESF+ and ERDF (and other ESI funds) The ESF+ will continue to be part of cohesion policy and be mainly regulated by the Common Provisions Regulation with other shared management funds. As such same rules of management, programming, monitoring, auditing, etc. will apply. Programmes in Member States can continue to integrate ERDF and ESF funding (multi-fund programmes). Also, the same allocation methodology will apply to ERDF and the ESF. This will ensure that ESF+ and ESI funds, in particular the ERDF, continue to be implemented in a complementary manner. ESF+ and Erasmus The ESF and Erasmus+ are active in similar fields, notably as regards the support to skills, upskilling, digital competences, etc. In the current period, some Member States use the two instruments in a complementary manner in order to reinforce actions where relevant, for instance by scaling up Erasmus+ measures through the ESF. However, such examples are rather exceptional. A specific element of Erasmus+ where demand for exchanges tends to be unsatisfied is VET mobility, including for apprenticeships/dual learning programmes. For the future, the respective legal bases could include further provisions to this purpose, to be set out in detail in work programmes and programme guides (e.g. through better articulated mechanisms to promote upscaling of Erasmus actions and policy experimentation through the ESF+ and vice versa, and enhance participation of Erasmus national agencies in the design of relevant ESF+ actions). More details of complementarities and synergies between the ESF+ and specific funds are presented in Annex 4. 4.2 Flexibility and alignment with policy priorities 4.2.1. ESF+ Strengthening the link between funding and the economic governance cycle (a great achievement in the 2014-2020 period) is expected to improve alignment with policy priorities and flexibility to respond to emerging challenges. Some legislative changes to the economic governance framework would be required, e.g. adapting the calendar and changing the legal status of the country reports and national reform programmes. In light of the above, two alternative scenarios are considered: 1. A baseline scenario: with the Semester process in its current form, ESF+ investments could still be aligned, as at present, with annual CSRs but with the limitation that CSRs would be very general and not well fitted to programming purposes. We can expect the ESF+ contribution to remain significant in countries and for policy areas combining a stronger linkage between CSRs and programme objectives and more intensive ESI funds funding. In this scenario, the legal framework for ESF+ programming would not be fundamentally modified with regard to the traceability of CSR related allocations, as the CSRs would continue to be adopted annually and therefore be reflected in ad hoc programme amendments, where relevant, adding significantly to the administrative burden. 2. A strengthened alignment between the European Semester process and the funds' investment cycles would simplify programming and reporting. Before the programming cycle starts, challenges falling within the scope of the ESF+ identified in CSRs adopted in accordance with Article 121(2) and Article 148(4) TFEU and in the European Semester, and accompanied by a set of investment-related guidance issued for each Member State, would trigger programming. The investment-related guidance would be linked with specific funding for the initial years of implementation (only part of the national allocation would be programmed). Following a mid-way review of challenges identified in the context of the European Semester, accompanied by a second round of investment-related guidance, the programmes would be adjusted (and the remainder of the budget allocated) for the second phase of the programming period. This measure would ensure that emerging new needs could be more easily taken into account by the Fund without distorting the long-term nature of structural funds. In order to mitigate the additional administrative burden relating to the review, this would replace the current FEAD mid-term evaluation and ESF progress report. Further elements expected to increase policy alignment and flexibility of the ESF+ include: ·‘enabling conditions’ (ex-ante conditionalities): based on the positive assessment for 2014-2020 period, these will be maintained but compliance will be ensured throughout the programming period and if new objectives are introduced during the programming period, the relevant enabling condition will apply (continuous conditionality). In order to mitigate the potential additional administrative burden, the Commission's assessment of fulfilment will have to be reflected in the country reports and CSRs (one combined assessment exercise, instead of two in parallel);

·allocation methodology: more attention will be given to policy-relevant indicators in the financial allocation methodology, which will be common to the ERDF and ESF+ (the latter will continue to benefit from a pre-determined minimum share). Per capita GDP will remain a key factor in the allocation formula, but additional criteria based on a number of social indicators will be given greater weight. In addition, to strengthen ownership and improve the quality of investment, it is proposed that national co-financing be increased (while keeping the possibility for 100 % EU funding in some exceptional cases). Given the nature of ESF+ projects, a reasonable co-financing threshold should be ensured; ·more flexible territorial rules: over the current period, the plethora of programmes at levels of governance that are not necessarily responsible for employment and social policies has led to a mismatch between resource allocation and potential for relevant policy support. While the ESF+ will share common rules with the ESI funds and contribute equally to cohesion, it will be subject to more flexible application of the territorial rules. This should ensure better targeting on populations with higher needs, no matter where they live, being it in cities or rural areas. It will also allow for funding to be more closely aligned with policy, while giving Member States some flexibility in the way they allocate and implement it (national or regional level). In addition, the partnership principle will be stressed by ensuring the balanced representation of all stakeholders in the monitoring committees, meaningful consultation with them on all aspects of ESF+ implementation and more resources to support their capacity-building. Technical assistance from the Commission and the Member States should be used for this purpose, together with relevant ex-EaSI resources that are available (e.g. grants supporting EU-level NGOs involved in the implementation of social policies). The following scenarios were discarded: ·devoting all ESF+ allocations to following up the CSRs – while this would result in strong alignment, it would not allow for support to be given to additional key policy priorities and recommendations potentially not covered under the European Semester. Given the limited scope of the CSRs, there is no guarantee that they will take full account of employment and social issues; and ·an annual re-programming cycle – while this would allow for an annual alignment of funding with the relevant CSRs, the uncertainty about funding priorities and the administrative burden linked to programming and implementation would prevent adequate support being given to mediumterm policy action and reforms 4.3 Simplification This section builds on the recommendations of the high-level group on the simplification of post-2020 ESI funds, the new ‘Omnibus’ Regulation, the MFF mid-term review, relevant studies and stakeholders' positions and calls for continuity. Given the objectives and activities to be financed and the need to reflect country-specific needs and challenges, shared management is considered still to be the most appropriate management mode for most actions (in line with the principle of subsidiarity and shared competences) except those where EU-level coordination is necessary and/or implementation requires specific/technical expertise and for which direct or indirect management is relevant. For the EGF in particular, shared management allows for the management of personalised packages of assistance for displaced workers which would be impossible under direct management. 4.3.1 ESF+ Shared management strand Different forms of simplification have been explored for post-2020 to address the key sources of complexity identified in section 2.1. Some measures fall beyond the scope of the fund-specific regulations covered in this impact assessment and will therefore be reflected in the future Financial Regulation and Common Provisions Regulation. The combination of all these simplification measures and a gradual shift to a possible 'n+2' rule for de-commitment is expected to contribute to a swifter implementation of the funds. The simplification measures include: ·streamlined common rules for funds under shared management and closer alignment of fund-specific rules for the ESF, YEI and FEAD (still allowing for simpler provisions for ex-FEAD-type interventions such as monitoring, in particular in the context of food and basic material assistance); ·dropping unnecessary and unjustified provisions from the regulations and seeking to cut the number of guidelines; ·simplified programming arrangements - simplified and concise strategic documents (ex-partnership agreements) and programmes and limited derogations to establish multi-fund programmes;

·more flexible application of territorial rules for the ESF+ in the allocation and implementation mechanisms ; ·streamlining the ex-ante conditionalities (future ‘enabling conditions’) - keeping the system but reducing their number, clarifying the criteria for assessing fulfilment and restricting assessment to the relevant policy level; ·continuation of the existing system of authorities, IT structures and management and control systems; ·streamlined programme reporting and monitoring: e.g. using administrative registers for data collection where possible, no specific requirements for reporting on ex-YEI-type operations; ·increased use of SCOs and payments based on conditions, e.g. by: oproviding additional off-the-shelf SCOs for Member States, thus reducing the need to develop own methodologies; omaking SCOs the default form of reimbursement; and ocontinuous training and support for MAs; ·proportionate audit and control requirements, in particular through the single audit rule introduced in the new Financial Regulation. The use of SCOs will be further strengthened in the ESF+ as they are considered to have a number of advantages: they are expected to reduce the administrative burden for national authorities and beneficiaries, are less error-prone than real costs (i.e. they reduce the ‘error rate’) and can ensure a focus on outputs and results rather than inputs and processes. The use of real costs should be possible only on a case-by-case where justified. Administrative (control and audit) burden can effectively be reduced by moving away from a system of reimbursement based on actual incurred expenditure towards one system based on SCOs; this would have a significant impact on the assurance provided and could be among the criteria to apply when deciding upon single audit. In particular, using pre-defined unit costs or lump sums (off-the-shelf SCOs) would further maximise the benefits of SCOs. In line with the new form of financing based on the fulfilment of conditions, as provided for in the ‘Omnibus’ Regulation, the ESF + will seek to simplify whole programmes or funding areas (so called ‘priority axes’) of programmes by linking reimbursement for the funding area to achievement of the targets set in it. This would mean moving away from reimbursement for individual measures to a performance-orientated approach with reimbursement dependent on achieving the objectives of the entire funding area (see also section 4.4). It would extend the approach taken with the 2014-2020 JAPs further while tackling existing weaknesses and ensuring a more consistent mechanism for reimbursement of costs at the level of programmes. The approach of reimbursing costs based on the achievement of pre-defined results would be optional and would likely be more suited to the context of some programmes than others, for example, programmes consisting of typified and easily measurable activities. In the field of audit and control, proportionality will be a cross-cutting principle at each level, without neglecting the focus on the assurance derived from the systems (i.e. proportionality cannot be at the expense of assurance). Full use should be made of the possibility of distinguishing between beneficiaries as regards the need for in-depth administrative verifications. Other criteria may be used to limit the administrative burden, in particular aligning management and control systems with the national systems in cases where the national co-financing rate is at least 50%. Another simplification measure would be to set out the criteria qualifying a programme and its authorities for application of a genuine single audit system. These need to be reasonable and achievable by every programme authority, they could include: the historical performance of the programme; the implementation of SCOs; strong ethical culture and integrity in the administration; and stable staffing and organisational arrangements for management and control. The benefit would be a reduced audit burden for programme authorities and beneficiaries, as audit activities would not be duplicated. With more demanding social challenges and, at the same time, pressure on public budgets, there is a growing need for more efficient and effective public policies. Financial Instruments (FIs) represent a resource-efficient way to scale up the delivery of the funds and therefore could boost the potential of implementing employment and social policies. However, FIs cannot be regarded as a panacea or as an alternative to ESF grants, due to the specific nature of ESF activities (small projects, difficult target groups, limited or no direct financial return on investment, etc. – all of which limit the use of FIs). Since FIs are by definition suitable for financially viable projects, i.e. those which are expected to generate enough income or savings to pay back the support received, they must complement grants, rather than simply replacing them. To preserve the involvement from employers and industry attention should be paid to the funding level for supported activities. The ESF+ will continue to do this by providing support for investments in various forms: loans, guarantees, equity and other risk-bearing mechanisms, possibly combined with interest-rate subsidies or guarantee-fee subsidies within the same operation. In order to allow for flexibility, a new possibility is foreseen for the implementation of financial instruments under the future regulation, i.e. the contribution to the InvestEU initiative. However, the managing authorities will keep the option of implementing financial instruments on their own as previously. Targeted stakeholder consultations give evidence of important potential of the simplification measures to reduce administrative cos