Managing the impact of changes in the value of the euro on EU funds: departments managing EU funds

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The Stationery Office, Feb 18, 2011 - Business & Economics - 36 pages
The National Audit Office believes more could be done to manage the risk of a reduction in the value of EU funds to the UK in the event of a depreciation in the euro. The UK Government receives around 5 billion from the European Union each year to fund EU programmes in the UK. However, the relative value of the pound and the euro varies significantly, with the exchange rate fluctuating by up to 14 per cent in a single month. A 14 per cent change can lead to an increase or decrease of 700 million in the sterling value of funds provided by the EU if the exchange rate holds at that level. The use of forward contracts (a form of hedging where the department and a commercial bank agree an exchange rate in advance) has helped reduce the potential funds exposed to a fall in value from 8.5 billion to 2.4 billion in 2009-10. However wider use of hedging could reduce still further the amount of taxpayer funds at risk. Each department managing EU funds works in isolation on developing its policy. Such an arrangement is not cost effective. These departments would benefit from more detailed guidance from HM Treasury in this area, and from developing more pooled expertise to reduce duplication of effort. Government bodies require considerable expertise and support to ensure the most appropriate and cost-effective hedging arrangements are put in place.

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