Regional Funding after Brexit

Published: 17 February 2020
Author: David Bell

The Shared Prosperity Fund (SPF) is intended to replace the EU structural funds, worth around £2.1 billion per year. David Bell, University of Stirling, discusses whether the UK Government will see this as a mechanism for highlighting their role in supporting regional policy across the UK, or will it lead to further disagreements between the devolved institutions.

The 2019 Conservative majority owed much to Brexit-supporting voters in the North of England. The Conservatives now believe that to retain power, they will have to deliver significant economic benefits to “left behind” communities in the North.

One immediate action has been to consider overhauling the Treasury’s “Green Book” - the rule book for appraising public sector projects – which has been seen as favouring infrastructure investment in London over the North of England. Changes to the Green Book will not cause an immediate surge in infrastructure spending in the North. For some projects, the gap between appraisal and construction can be measured in decades (e.g. the third runway at Heathrow).

So what is available in the short term? One possibility is the Shared Prosperity Fund (SPF). This is intended to replace EU structural funds, which are worth about £2.1 billion per year. The main components of the Structural Funds are the European Regional Development Fund (which currently focuses on innovation and research, the digital agenda, support for SMEs and the low carbon economy) and the European Social Fund (which currently focuses on promoting employment, social inclusion, investing in education and skills and enhancing institutional capacity).

The SPF is due to come on stream in early 2021, but details remain sparse. The 2019 Conservative manifesto committed to ensuring that “£500 million of the UK Shared Prosperity Fund is used to give disadvantaged people the skills they need to make a success of life”. This looks like a replacement for the European Social Fund, but no other information was available. And with time running short, the UK government has not yet carried out its promised consultation on the SPF. So, although first mooted almost three years ago, there is still no clarity on the design of the SPF.

For those “left behind” communities in the North of England, the SPF is unlikely to be transformative. If the fund is set at the same level as the existing European Structural Funds (£2.1 billion per annum) the spending will comprise 0.2 per cent of total managed expenditure by the UK government in 2019-20. While this is only part of a series of other relatively small initiatives (such as the City Deals) directed towards the North, this level of SPF funding hardly amounts to a significant commitment to helping “left behind” communities to catch up.

In the absence of proposals at UK level, the Scottish and Welsh governments have been consulting on the SPF, even though there is no clarity on the extent to which the devolved governments can influence its design. Both Scotland and Wales have had considerable autonomy over the direction of the structural funds in previous EU spending rounds – dealing directly with the EU over how the funds were to be applied. For all the devolved institutions, the key element will be the extent to which they have autonomy over the use of new regional funds like the SPF.

The SPF is particularly important for the Welsh Government, since it has been receiving around £370 million a year from the structural funds. The Welsh Government has argued that there should be no reduction in spending in Wales after EU exit and that this should come through the Welsh baseline budget. This would mean that the Welsh Government, with the consent of the National Assembly, could direct the additional funding as it saw fit.

The Scottish Government is currently consulting on the design of the SPF, involving a wide range of stakeholders with both geographical and thematic (skills and innovation) interests. A report from this exercise is due in March 2020. As in Wales, many of the issues raised in the Scottish consultation will be relevant to the design of the SPF in England. But, as in Wales, the Scottish Government is likely to argue that control of the fund in Scotland should reside in Scotland.

On the other hand, the UK Government may see the SPF as a mechanism for highlighting its role in supporting regional policy across the UK. In that case, we can expect further disagreements between the governments.

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