Brexit could close gap between rich and poor
WHILST most of us are contemplating our summer holidays, the UK Government continues its tentative discussions over the nation’s withdrawal from the European Union (EU).
However, there have already been criticisms that it is not engaging more widely in putting together its strategy and many believe it should consult as widely as possible with key organisations both in the private and public sector that are working hard to develop potential solutions to some of the issues that could arise from Brexit.
One of these is the Industrial Communities Alliance, which is the local authority association campaigning on behalf of councils in the industrial areas of England, Scotland and Wales.
Its recent review into Post-Brexit Regional Policy is a document that all politicians and policymakers should read in detail, especially those who represent our most deprived communities given that those areas continue to grow at a slower rate than other parts of the UK such as London and the South East of England.
The work of the Alliance focuses on the fact that for over two decades the older industrial areas within the UK (including West Wales and the Valleys) have benefited not only from the tens of billions of pounds of EU Structural Funds but from the highest level of support under EU State Aid rules. This essentially defined the extent to which the UK was allowed to provide financial support, usually in the form of grants, to companies to help promote growth and jobs.
Both of these have been important factors in the development of a specific regional approach to economic development within many parts of the UK.
Whilst EU structural funding will come to an end once Brexit is agreed, it has been suggested that there will be a major challenge in ensuring that some of the promises made by the Leave camp – such as the guarantee that the same level of funding would be maintained by the UK Government – are kept after we depart from Europe.
In terms of state aid rules, their continuation will depend whether we sign up to a soft or hard Brexit. If it is the former, then it is likely that continued access to the single market will require that the EU rules remain largely in place. In contrast, a “harder” Brexit could mean greater freedom from EU rules and the opportunity to make a fresh start.
Indeed, many believe that in supporting enterprise and employment creation within less prosperous areas, the EU rules on aid to businesses have become restrictive. Therefore, a harder Brexit may offer the chance to deliver a very different framework that actually gives a competitive advantage to firms within our poorest regions.
Instead of reflecting the differences between UK and EU regions, there could be a focus on closing the economic gaps between regions within the UK. For example, the UK Assisted Area map should be drawn flexibly to reflect realities on the ground (that there are poorer areas even within prosperous regions) and not just forced into artificial units of 100,000 population by EU rules.
The level and types of interventions allowed should also be changed to enable proper support to be given to firms.
For example, large companies in most areas of the UK can only currently get 10% support for any investment they wish to make and are restricted from getting support for re-investment in existing plants, thus limiting the impact in improving productivity. For smaller firms, many can only get up to €200,000 (or £180,000) over a three-year period and whilst this may be acceptable for the majority of firms, it can stop those businesses wishing to grow.
Therefore, whilst many see Brexit as a threat to the competitiveness of the economy, it could also present the chance to utilise regional policy as a tool to close the gaps between the poorer and richer parts of the UK if it is well funded by Government, strongly targeted and driven by objective evidence of need and opportunity. It also needs to be managed locally and democratically, tailored to the local tasks in hand and flexible in delivery.
Certainly, the proposals put forward by the Industrial Communities Alliance are worthy of consideration and hopefully the UK Government will use this opportunity to put in a system that supports British firms in an increasingly uncertain economic environment.