A post-Brexit fund to benefit Wales?
THE new post-Brexit fund introduced to replace European aid could give Wales a significant economic advantage over deprived parts of England, according to a think tank report published today.
But that depends on the Conservative government in Westminster keeping its General Election promise to maintain existing funding levels.
In its report on the UK Government’s Shared Prosperity Fund, about which few details have yet been announced, the Institute For Fiscal Studies (IFS) highlights the key questions that need to be addressed in putting the new programme together.
A region called West Wales and the Valleys, which covers around two thirds of the country, is currently benefitting from the third successive seven-year round of top-level aid from the European Commission.
It qualifies for funding at this level because its relative prosperity, measured in GDP per head, is less than 75% of the equivalent figure for the European Union as a whole.
Since the turn of the century the region has received billions of pounds from the European Commission’s regional aid budget.
If Wales continues to be funded at the same level, it could have much more to spend on job-creation and training projects than regions with similar levels of deprivation in England.
The report says: “A pledge that Scotland, Wales and Northern Ireland will receive at least as much funding as now could perpetuate differences in funding for comparable regions in the different UK nations.
“Welsh regions, in particular, could
receive much more funding than comparable regions of England.”
Pointing out how the 75% rule penalises regions whose prosperity measure slightly exceeds it, the IFS report states: [The] two less-developed regions – Cornwall and the Isles of Scilly, and West Wales and the Valleys – have been allocated much greater funding than any other region: €1,011 and €943 per person, respectively, for the period 2014–20 as a whole.
“This contrasts with the allocations for Lincolnshire (€137) and South Yorkshire (€123), whose GDP per capita of 76% and 77% of the EU average, respectively, puts them just above the cut-off for being transition regions as opposed to less-developed regions.
“The sharp drop off in funding …is much less apparent between the transition and more-developed regions around the 90% GDP cut-off. Indeed, with the exceptions of the Highlands and Islands and East Wales, no other regions are receiving more than 30% of the funding per person allocated to the less-developed regions.”
However, the report also shows that among the categories of transition and more-developed regions, there is almost no correlation between funding allocations and GDP per person: “For example, East Wales and the Highlands and Islands of Scotland, which have the highest allocations after the two less-developed regions, are roughly in the middle of the league when it comes to their GDP per person,” it states.
Referring to the mechanism by which projects aimed at increasing regional prosperity are selected, the report says: “Compared with the English approach, the Welsh approach involves less explicit competition between project proposals, which may make it harder to ensure that the best proposals aimed at particular issues are being selected.
“Involvement of regional or local bodies in decision-making is also less explicit.
“However, the avoidance of specific calls gives more discretion to project applicants in the types of projects and their geographical focus than in England. Also, applicants are provided with more support to navigate the system in Wales than England, with WEFO [the Welsh Government’s Welsh European Funding Office] staff and regional advisers supporting applicants through the application process.”
There has been speculation that the UK Government may want to take over control of regional development spending from the Welsh Government, and this is alluded to as a possibility in the report: “Responsibility for designing and managing schemes in Northern Ireland, Scotland and Wales is delegated to the devolved governments of these nations ... In designing the [Shared Prosperity Fund], a decision needs to be taken on whether to retain or reform these arrangements.
“... The powers of the Northern Irish, Scottish and Welsh governments, and in particular, the degree of autonomy they will have to allocate funding between regions and projects, need to be clarified.
“A role for the UK Government in allocating funding between locales and projects within these countries would represent a reduction in autonomy compared with the current EU schemes.
“At the other end of the spectrum, an option suggested by the Welsh Government and Welsh Assembly’s Finance Committee is to add [Shared Prosperity Fund] allocations to the block grant funding provided to the devolved governments, allowing them to spend this funding as they see fit, as they can for other devolved responsibilities such as health, education, transport, etc.”
David Phillips, an associate director at the IFS and an author of the report, said: “With less than six months until it will have to be in place, it is disconcerting that detailed proposals have yet to be consulted on, let alone finalised and approved.
“With limited time left, one option the government could consider would be to continue with existing EU funding allocations for one more year.
“This is similar to what it has done for council funding [in England], where big reforms planned for next April have been pushed back until at least 2022.”
WITH little more than five and a half months until the EU aid programme that has provided billions of pounds to Wales comes to an end, there is a desperate need for clarity about what will replace it.
The UK Government intends to establish a so-called Shared Prosperity Fund, but there are few details about how it will operate.
A report published today by the Institute For Fiscal Studies suggests that Wales could do very well out of the new fund - certainly in comparison with less prosperous regions of England.
But that will depend on Boris Johnson’s government keeping the manifesto promise it made to maintain funding for the devolved nations at existing levels.
Such a pledge cannot be counted on, especially in light of the implications of Covid-19, which could be used as an excuse to cut funding.
The IFS report is right to draw attention to the existing funding disparity that exists between regions because of the European Commission rule that reserves toplevel aid to those whose prosperity levels are less than 75% of the EU as a whole. This means that regions whose prosperity figure is just over 75% will suffer a “cliff edge” drop in funding.
Similar rules have affected individuals claiming welfare benefits in the UK for many years - but that doesn’t make the outcome any more palatable for those on the wrong side of the divide.
We need to be aware that the discrepancy noted by the IFS may be used as a stick with which to beat Wales by those in England who have resented the amounts of aid money we have received from the EU.
Our answer to that should be that there is a need to reform wholesale the way funds are distributed in the UK.
It’s true that some English regions have been treated poorly and it’s time that was redressed. The Barnett formula - which determines how much money is allocated by the Treasury to the devolved nations, but isn’t adjusted for social need - outlived its usefulness decades ago.
A new formula should be devised that funds the nations and regions according to their respective needs. This is the way regions in Germany have been funded since shortly after the Second World War, thanks ironically to arrangements put in place by British constitutional lawyers.
There is no justification for keeping the status quo and things must change.