The All-Party Parliamentary Group (APPG) on Post-Brexit Funding for Nations, Regions and Local Areas is a newly-established group of Westminster MPs. Its Chair is Stephen Kinnock (Lab) and its Vice-Chairs are Bill Grant (Con), Chris Stephens (SNP), Jo Platt (Lab) and Anna McMorrin (Lab).

The aim of the group is to help shape plans for the UK funding that is planned to replace the EU funding for national, regional and local economic development that will disappear following Brexit.

The Group is initiating an inquiry to assess the views of stakeholders in the parts of the UK that currently benefit substantially from EU funding.  The aim is to produce a report in the autumn that will be fed into Government to try to influence the UK government’s proposals, which are currently expected to be set out in a consultation towards the end of the year.

Background

In recent years the EU has been the biggest single financial contributor to regional and local economic development across the UK.  In the present EU spending round (2014-20) the UK receives £9bn from the EU Structural Funds, or around £1.3bn a year.

The EU funds are predominantly targeted at less prosperous areas.  Most parts of the North, Midlands, Scotland, Wales and Northern Ireland presently benefit massively from the EU funds.  This is at risk.  Local authorities and the devolved administrations are already agitated about the possible outcomes.

Assuming Brexit goes ahead, the UK will eventually stop receiving EU funding to support regional and local economic development.  Under the ‘divorce bill’ deal agreed in December, the UK will continue to draw on EU funds as normal up to the end of 2020, even though Brexit itself is expected in March 2019, but thereafter there will be no new money.

The Conservative manifesto for 2017 promised to set up a new UK Shared Prosperity Fund to replace the EU funds.  The intention is that the new Fund will “reduce inequalities between communities across our four nations” and that the Fund will be “cheap to administer, low in bureaucracy and targeted where it is needed most”.

There is no evidence of a retreat from the commitment to a new Fund but nearly everything about the Fund is still to be worked out leaving huge unresolved issues:

• How much funding will be available?
• How will it be divided up across the country?
• What activities will be eligible for support?
• Who will take the decisions about how the money is spent?

The replacement for the EU funds is entirely a domestic UK matter.  It doesn’t depend on negotiations with Brussels.  Nor does it require ‘new money’.  In theory there is more than enough available to pay for the Shared Prosperity Fund from the funds that will no longer be paid over to the EU, though there are competing claims on this money.

QUESTIONS ON WHICH SUBMISSIONS ARE INVITED

OVERALL BUDGET

What would be an appropriate annual budget for the new UK shared prosperity fund?

At least the value of the current ESIF programme increased to allow for inflation, plus any other funds that are rolled into UKSPF (eg LGF at the average level of the last two rounds) or funds which are not currently planned to be renewed in future CSRs (e.g. LGF). The budget should also include associated bureaucracy costs currently required for working with Brussels to be used for local areas working with UK Government.

For 2014-20, the UK was allocated €17.2bn in total from the current ESI Funds, Rural Development and Fisheries Programme. Equal to about £15.48 billion at current exchange rates, or £2.21 billion p.a. To allow for inflation and a reduction in match funding, the annual budget for the UKSPF should be at least £3 billion per annum. The SPF budget must honour the government’s commitment that “no area will be worse off as a result of Brexit”.

It will be important to ensure that the budget line for UKSPF should not be derived from any top slicing of government departmental budgets with assumed criteria – it should be a clean budget for the set purpose of delivering the UKSPF.

There is also a strong argument for more funding to deal with the regional and local development needs that will arise post-Brexit, as we enter an uncertain period. A move towards a single programme with one budget will not only reduce bureaucracy, but will enable greater flexibility in project design and delivery through one set of broad criteria. This will eliminate some restrictive eligibility criteria that currently applies within and across the four separate programmes.

Should there be a multi-annual financial allocation, and if so why and for how long?

A new SPF has to be built on developing long term objectives for sustainable growth and inclusion.  We therefore argue strongly for a multi-annual allocation, at least matching the current EU budgetary period of seven years, with spend for a further three years for project closure and full capture of the achieved outcomes. This will provide longer-term certainty and flexibility to vire between priorities to respond to changing needs and opportunities.  It is also important that the programme aligns with the investment programme periods set out in Local Industrial Strategies.

This would enables significant capital projects and revenue programmes with medium term outcomes to be included, as has been the case to date. It would allow realistic planning horizons that are greater than CSR and parliamentary term periods.

Would it be appropriate to roll in other budget lines (e.g. the local growth fund in England) into the UK shared prosperity fund?

Yes, but only if done transparently as above. Consideration should also be given to some Local Authority based grant funding could be rolled into the UKSPF which is likely to be controlled by LEPs and should remain under local democratic control.

Current EU intervention rates and minimum project levels can also lead to high levels of ‘match’ funding required from the applicant. These are not always easy to identify / raise, so providing joint financing at source places the focus on effective project design, not shaping the project simply to meet multiple funders’ requirements. However if other budget lines are rolled into UKSPF any potential match funding requirements need to reflect that there may be a reduced/ limited availability of match funding.

Developing a ‘single devolved pot’ of regeneration / economic development / skills and employment support is a reasonable objective if this is done to reduce bureaucracy and confusion between different funding streams – eg. any new SPF has to commit to breaking down both the institutional and operational silos previously and currently witnessed in ESIF programmes. This requires a commitment to developing fully integrated programmes that bring together the people, place and business driven funding.

ALLOCATION ACROSS THE COUNTRY

How should the UK shared prosperity fund be divided up between the four nations of the UK?

This should be according to an acceptable needs-based formula, rather than political negotiation.

Would rolling forward the existing shares going to England, Scotland, Wales and Northern Ireland be a sensible way forward?

Not necessarily. The nations will have achieved different rates of progress since the current programme began so a needs-based formula based on latest reliable data would be preferable and also future-proof, if refreshed before each new programme round begins.

Should the allocations within the devolved nations be an entirely devolved matter?

In the spirit of devolution, yes.

In England, should the funding to local areas be allocated by an appropriate formula, and if so what are the best statistical measures?

This could perhaps be a composite that includes a measure of the prosperity of the local area receiving the allocation relative to the England average and a measure of economic disparities within the local area. This would go some way to ensuring that prosperity is shared at a national level and at local level. There might also be a need to consider schemes that are national or multi-regional e.g. for Portsmouth and the Solent there are important transport corridors to / from London or the Midlands – linking industry to our Ports.

There is also a need for maximum flexibility at a local level for any new funding model to be able to respond holistically to the issues it is addressing. This includes local discretion regarding the balance of capital and revenue interventions.The need to ensure maximum integration across people, business and place interventions and the requirement to avoid sustaining institutional and operational silos cannot be understated. Projects need the flexibility to integrate people-based and place-based interventions into the same project, if they wish as outlined above

Is there any role for competitive bidding between areas for funding?

Only in terms of a quality threshold, with allocations held back where a programme has been submitted that does not reach the quality threshold in terms of impact and VFM. A bidding approach could deal with the multi-regional area issues defined above and so it may be necessary to have a mixed approach.

In England, should sub-regions (e.g. lep areas, combined authorities) be the basis for financial allocations, as with EU funding at present?

Devolving is better than centralising. Certainly no higher than a LEP – if it can be done to MCAs this recognises that lower than LEP geographies can work and so on this basis why not devolve to lower geographies – this will enable a better reflection of local need.

Any new SPF therefore has to respect local democratic and accountability arrangements.Any new governance framework has to respect that the UK will have different arrangements in place across both the devolved administrations and across English regions and provide sufficient flexibility to embrace these. This will acknowledge that there can be variance where in some areas the CA may be most appropriate yet in others it may be the LEP or principal Public Authority

ACTIVITIES TO BE SUPPORTED

As with present-day EU funding, should economic development and convergence remain the primary objectives of the new fund?

Yes, but perhaps expressed as “achieving shared prosperity through a rebalanced economy” to reflect the new purpose. However, shared prosperity should be within regions too and not just e.g. a north / south issue for example.

The UKSPF should move away from the ESIF language of convergence etc. Instead the programme should focus on place-based need and opportunity using the powerful tool of devolved control and appropriate, but light touch, central oversight

Are there activities beyond the scope of present-day EU funding that should be supported?

We believe there should be. The EU eligibility conditions have become too inflexible over time. One of the potential benefits of EU exit would be lost unless the UKSPF programme permitted a wider variety of activities. Any eligibility rules should be led by potential outcomes. What matters is what works.

Further to this, funding should be developed with the aim of delivering within a ‘single pot’ for areas, thus removing unnecessary complexity, bureaucracy and the subsequent plethora of rules and eligibility conditions that emerge from separated and fragmented funding

Should there be guarantees that specific activities supported at present by EU funding (e.g. ESF support for training) will continue to receive funding?

We do not believe this is required. Each activity should make its own case within a locally agreed programme.

MANAGEMENT

As a UK fund, should the UK Government set the broad guidelines for the priorities to be supported by the shared prosperity fund?

It should set the objectives in terms of desired outcomes and keep guidelines to a minimum. There is also the question of what is meant by ‘guidelines’. The guidelines should remain broad, enabling the devolved administrations, regional bodies and local authorities scope to target their funding on identified need. Consultation on the guidelines should be open and responsive to need, avoiding any separate agendas

What role should the devolved administrations play in setting the broad guidelines?

The same influence as is afforded to England and no greater.

How should the impact and desired outcomes of the fund be defined and measured?

As implied above – by the extent to which national disparities and intra-regional disparities in prosperity and opportunity are narrowed. The current EU system of impacts and outcomes is complex. A more simplified system would be easier to comply with and manage. Also needs to pick up impact on GVA and productivity – HMG should be tight on the vision but loose on the strategy.

Lessons must be learnt from the current ESIF programme. Funding should be allocated on an outcome not output basis similar to the Treasury Green Book compliant assurance process. Within a broad national framework (inclusive and sustainable growth, economic development and employment/skills support), local areas should be allowed to set their own priorities based on local industrial strategies (and other relevant local strategies, as appropriate), with frameworks to evaluate programme impacts.

How can the promise that the fund will be “cheap to administer, low in bureaucracy” best be delivered?

Through a focus on outcomes, minimal guidance and devolution of programme management to localities. Reducing the number of required programme outputs and outcomes will help to lower costs as it reduces the level of bureaucracy and administration support needed current for EU funded projects. The approach used by lottery distribution agencies could also be employed to good advantage here.

Taking out some of the audit requirements etc. should improve things but this should not be so slimmed down that it can’t deliver and acts as a blockage – there may be a need to add resources locally to manage and deliver if the funding is devolved.

The opportunity UKSPF affords is to truly simplify, avoid costly bureaucratic systems being re-established and ensure a fully integrated, cost effective, operationally sound programme which allows faster decision making, funds targeted at the best projects, driven by local need and which will allow for good growth.

Where should local authorities fit into the management of the new fund?

As accountable bodies where required and as either programme or sub-programme managers. HMG seem clear this funding is going to LEPs. At the moment Intermediate Bodies have risks and liabilities as well as control – depending where it is devolved to we may wish to make sure that risks and liabilities are removed first.

How should programmes and projects be monitored and evaluated?

Preferably in a simple and transparent manner that is primarily accountable at the local level. This should be done locally, nationally it should be against the outcome objectives and not be against programmes and projects. Project monitoring should follow best practice. All activities should make provision for internal and external, independent evaluation.

Current systems are too onerous, cumbersome and place too much burden on promoters and as highlighted above drive the wrong behaviours in delivery. Any new system therefore will need to have sufficient flexibility to be tailored to the priorities and objectives set locally.  Consequently, a commitment to simplification using existing structures will be key.