Wales and the Shared Prosperity Fund: Priorities for the replacement of EU structural funding Contents

Summary

Wales has faced some deep-seated economic challenges for a number of decades, predominantly caused by a legacy of industrial decline, and GDP being consistently lower than the European average. In particular, due to sub-regional deprivation with average GDP per head below 75% of the EU average in West Wales and the valleys, it has qualified for European Structural and Investment (ESI) Funds, currently worth around £375m per year, four times the UK average per person, to support businesses, infrastructure, employment and skills. Most recently, as agreed by the EU, ESI funding has been re-purposed by the Welsh Government as part of its response to the challenges of the coronavirus pandemic, in addition to the funding received from the UK Government via Barnett consequentials.

However, after the end of the transition phase of the UK’s exit from the European Union, the UK will no longer qualify for ESI funds. The UK Government announced as far back as 2017 that it intended to replace EU funding with a Shared Prosperity Fund (SPF), yet details remain scant on key aspects, including how much Wales will receive under the new arrangements, how it will be administered and to whom it will be targeted. With this in mind, we inquired into the effectiveness of European Structural Funds in Wales and priorities for the Shared Prosperity Fund, considering the impact of COVID-19 on the Welsh economic landscape.

We are disappointed that the UK Government appears to have made negligible progress in developing its replacement for ESI funding and that its repeated promises of a consultation have failed to materialise, demonstrating a lack of priority. The UK Government should urgently offer reassurance and provide a firm date for when substantive information about the shape of the Shared Prosperity Fund will be made available, including what it will look like, how it will be funded and how it will be administered. There should be consultation with all relevant stakeholders about their priorities for the fund in light of COVID-19 and a guarantee that there will be no cliff edge ending to current EU funding from January 2021. As ESI funds have been re-purposed to help the Welsh Government respond to the coronavirus, it is important that this work can continue beyond January and during the pandemic.

It is clear that while certain sectors in West Wales and the Valleys have benefitted from ESI funding, these fund have not been able, and were not expected on their own, to deliver a transformative change for the Welsh economy. Wales continues to qualify for EU Structural Funding and lags significantly behind other regions of the UK and EU.

The switch to the Shared Prosperity Fund is an opportunity to reset and re-evaluate Wales’ economic priorities post-Brexit and post-COVID-19 and to develop a Shared Prosperity Fund that tackles the root causes of Wales’ economic underperformance. Addressing the root causes of Wales’ economic challenges, including productivity and skills, must be a core objective of the Shared Prosperity Fund. The funding pot should be needs-based and maintain at least the current size of funding in real terms. While funding should be based on a multi-annual basis, it should be reactive to the health of the economy as Wales, and the rest of the UK, seeks to recover from the COVID-19 pandemic.

Despite the positive feedback we have received about the performance of the Welsh European Funding Office in administering ESI funds, it is clear that for many respondents the current system of structural funding has been too centralised and overly bureaucratic. The development of the Shared Prosperity Fund represents an opportunity to implement a simpler administrative system.

There are considerable ambiguities about where power will lie in relation to the Shared Prosperity Fund, despite repeated assurances from UK Government that it would respect the devolution settlements of Wales, Scotland and Northern Ireland. It is unclear whether, as a result of the provisions in the Internal Market Bill, Whitehall plans to oversee the administration of the Fund directly, or if the financial assistance powers contained within the Bill are intended to operate separately to the Fund.

We acknowledge the differences of opinion on where power and responsibility should lie, however the UK Government would be ill-advised to lose or ignore the expertise that has been built up in Wales. We call for the UK Government to develop a memorandum of understanding with the devolved administrations and local government that will underpin the operation of the Shared Prosperity Fund. This should guarantee the principles of genuine joint working and partnership between all stakeholders, including the UK and Welsh Governments, local government and the third sector.

The UK’s withdrawal from the European Union and the impact of the COVID-19 pandemic makes this an exceptional time, and opportunity, for the governments of the UK to design a more responsive and adaptable system of structural and regional funding.





Published: 2 October 2020