Structural funds are a set of EU funding pots designed to support economic development and reduce inequality between and within countries across Europe.
As a member state of the EU, the UK was eligible for financial support from the European Regional Development Fund (ERDF) and the European Social Fund (ESF), jointly referred to by the UK government as EU structural funds.
The EU operates a third structural fund – the Cohesion Fund (CF) – that invests in infrastructure and environmental projects in lower-income member states. The UK has never qualified for CF support due to its above average economic output per person.
The EU also runs separate funds that support rural development (the European Agriculture Fund for Rural Development, EAFRD) and fishing communities (the European Maritime and Fisheries Fund, EMFF). The EU categorises these along with the ERDF, ESF and CF as part of a suite of European Structural and Investment (ESI) Funds. However, within the UK the EAFRD and EMFF are not typically included in the government’s use of the term ‘structural funds’
EU structural funds – the ERDF and ESF – are part of the EU’s cohesion policy, a set of EU-wide initiatives to support sustainable economic development and reduce regional economic disparities both between and within member states.
The two funds have slightly different profiles:
- The ERDF supports investment in innovation and research, information technology, small- and medium-sized enterprises, and the promotion of a low-carbon economy. Spending under the ERDF in the UK was split roughly equally between capital (investment) and resource (programme) expenditure.
- The ESF supports employment-related projects and vocational skills training. It includes the Youth Employment Initiative (YEI), which supports young people who are not in education, employment or training, and is available to regions with over 25% youth unemployment. ESF spending was categorised almost entirely as resource spending.
Structural funds are allocated to member states on a seven-year basis as part of the EU’s Multi-annual Financial Framework (MFF).
In the 2014–20 MFF, the UK as a whole was allocated €11 billion (£9.4bn at current exchange rates) in structural funds: €5.8bn (£5.0bn) through the ERDF and €5.1bn (£4.4bn) through the ESF. This was supplemented by an additional €8.4bn (£7.2bn) in ‘match funding’ provided domestically.
Match funding comes from a mix of central and local government and private sector investment. Whitehall departments are the main source of match-funding investment. The main Co-Funding Organisations for ESF investment, for example, are the Big Lottery Fund, the Department for Work and Pensions and the Skills Funding Agency.
Under the terms of the UK–EU Withdrawal Agreement, the UK is eligible for its full allocation of structural and other EU funds from the 2014–20 budget cycle, but it cannot apply for any further funds in future years. Projects supported by the EU 2014–20 MFF did not have to be completed by the end of 2020 and funding claims for projects supported by the EU can be submitted until the end of 2023. Transfers from the EU for existing projects will continue to be made to recipient organisations in the UK for several years.
All EU regions receive structural funds investment. However, EU regions are divided into three categories, with poorer regions receiving far greater investment, per capita, than richer ones. The three categories are defined as ‘less developed’, which are regions below 75% of the average EU per capita GDP; ‘transition regions’, which are between 75% and 90%; and finally, ‘more developed’, which are regions above 90%. In the 2014–20 funding cycle, the UK had two ‘less developed’ regions: West Wales, and Cornwall and the Isles of Scilly.
The total amount each EU member state receives is determined by the level of economic development of its constituent regions. However, once the initial country-level allocations have been determined, member state governments have discretionary powers to reallocate some funds between regions. After the EU had made its initial allocations under the 2014–20 MFF, the UK government reassigned some EU structural funds from England to Scotland, Wales and Northern Ireland.
The per-capita distribution of funds between different regions of the UK was very uneven, reflecting large disparities in income levels across the country. The region of Cornwall and the Isles of Scilly was allocated €1,011 per person and the West of Wales €943 per person. At the other end of the scale, the region of Berkshire, Buckinghamshire and Oxfordshire was allocated just €31 per person (in 2011 prices).
Because the levels of income, employment, and population density of the UK’s four nations vary, the per-capita distribution of the funds between the four nations of the UK has been uneven. Though Cornwall received the highest individual regional allocation in the UK, overall the devolved nations received a higher share of funding per person than England.
From the ERDF and ESF combined in 2014–20, England was allocated €7.1bn, or €130 per person; Scotland €940 million, or €180 per person; Northern Ireland €510m, or €280 per person; and Wales €2.4bn, or €780 per person. Compared with England, allocations of EU structural funds per person were a little over a third higher in Scotland, more than twice as high in Northern Ireland, and six times as high in Wales.
EU structural funds were administered on a devolved basis. This meant the governments in Edinburgh, Cardiff and Belfast took the lead in setting the funding priorities for structural funds within their territories as part of a ‘UK partnership agreement’ jointly signed by the UK government and the EU. Each then acted as the managing authorities for disbursing those funds. The UK government was only responsible for delivering structural funds within England, working within the overarching framework agreed with the EU.
The UK government plans to replace EU structural funds with a new UK Shared Prosperity Fund (UKSPF), due to launch in April 2022.
The November 2020 spending review described the overall purpose of the UKSPF as “to level up and create opportunity across the UK for people and places”. The spending review also said that UKSPF spending will ramp up to around £1.5bn a year and “at least match current receipts from EU structural funds.” It will also “operate over multiple years” to provide certainty and enable long-term planning. Investments should be aligned with the government’s clean growth and net-zero objectives.
The fund will consist of two main portions. The first will “target places most in need” such as post-industrial towns and deprived rural and coastal communities, in which it will be focused on:
- supporting local skills and vocational training tailored to local needs, such as work-based training
- investment in transport improvements, digital connectivity, neighbour and housing improvements, and civic, cultural and sporting facilities
- investment for local business, including to support innovation, adoption of new technologies, and a low-carbon transition.
The second part of the UKSPF will be targeted at people rather than places and will deliver employment and skills programmes to improve outcomes for “specific cohorts of people who face labour market barriers.”
The UK government is expected to publish a UKSPF investment framework by autumn 2021, followed by further detail on financial allocations in a full spending review.
The UK government intends to operate the UKSPF through a single UK-wide framework, using new powers under the UK Internal Market Act 2020 to disburse money directly to local partners across the UK.
This means the devolved governments are expected to play a marginal role in allocation decisions within their own territories, even though the fund will spend money on matters that lie primarily within the responsibility of the devolved governments, such as transport, skills and economic development.
The UK government has stated that “the devolved administrations will have a place within the governance structures” for the UKSPF. But it has not provided further detail – either publicly or to the devolved governments themselves – about what these structures will be or what role the devolved bodies will play in them.
The devolved administrations have argued that they should retain autonomy over how the replacement for EU structural funds is allocated and delivered within their territories. They have objected to the plans for the UKSPF because they regard UK government spending on these devolved functions as an incursion into competencies for which they are democratically accountable under the devolution settlements.
- Department for Exiting the European Union, New Withdrawal Agreement and Political Declaration, Policy Paper, The Stationery Office, 2019.
- Department for Business, Innovation and Skills, ‘Allocations of EU structural funding across the UK’, press release, 26 March 2013, retrieved 8 July 2021, www.gov.uk/government/news/allocation-of-eu-structural-funding-across-the-uk
- Department for Business, Innovation and Skills, Equality impact assessment: EU structural funds allocations in the UK for the period 2014–2020, The Stationery Office, 2014.
- UK government response to Welsh Affairs Committee report, Wales and the Shared Prosperity Fund, December 2020, retrieved 8 July 2021, https://publications.parliament.uk/pa/cm5801/cmselect/cmwelaf/1083/108302.htm
- HM Treasury, Spending Review 2020, CP 330, The Stationery Office, November 2020, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/938052/SR20_Web_Accessible.pdf