European Structural Funds after Brexit

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This autumn the Government will publicly consult on their plans to replace EU Structural Funds with a successor arrangement called the UK Shared Prosperity Fund.

What are Structural Funds?

Structural Funds make up over a quarter of the EU Budget and are intended to support economic development across the EU in line with the objectives of the Europe 2020 strategy.

The Funds consist of the European Regional Development Fund (ERDF) and the European Social Fund (ESF) and they aim to rebalance regional social and economic disparities. They cover two different areas:  

  1. The European Regional Development Fund promotes balanced development across the EU.
  2. The European Social Fund invests in employment-related projects and human capital; workers, young people and those seeking a job.

Together they account for 26% of the EU’s total budget and are the second largest EU investment fund, after the Common Agricultural Policy.

Previous examples of their investment within the UK include:

The Funds are seen by many as a valuable part of the UK’s regional development policy. Recent research has shown that between 2007-2013, the Funds helped create 70,000 jobs in the North of England and 80,000 between Scotland and Wales during the same period.

How much does the UK receive and spend on Structural Fund projects?

Structural Funds are allocated to member states on a 7-year basis as part of the EU’s Multi-annual Financial Frameworks (MFF). The current funding cycle is between 2014-2020 and during this cycle the EU allocated the UK €10.6 billion.

However, this is a misleading figure as Structural Funds are delivered through the principle of match funding. This means that the EU investment of €10.6 billion makes up only 60% of the total investment which results from their provision. The other 40% is made up by public sector partners within the UK. The total spending resulting from Structural Funds in the UK over the MFF period will be €19.7 billion.

Match funding is contributed to by a mix of central and local government and private sector investment. Whitehall departments are usually the 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.

How are Structural Funds allocated to regions?

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 amount each region receives is therefore determined by need.

The three categories are defined as ‘less developed’ which are regions below 75% of the average EU GDP; ‘transition regions’ which are between 75% and 90%; and finally, ‘more developed’ which are regions above 90%.

The UK has two ‘less developed’ regions which are West Wales and Cornwall and the Isles of Scilly. Due to this classification, Wales receives per capita over five times more in funding than England.

While the total allocation to each member state is determined by the EU, Whitehall still retains a central role as to how they are distributed within the UK. The UK Government can, for instance, alter the regional allocations with the consent of the European Commission. Whitehall decided to allocate the devolved administrations more money than they had originally been allocated by the EU in this funding cycle.

How are Structural Funds delivered?

In the devolved nations, the Northern Ireland, Scottish and Welsh governments are responsible for allocating Structural Funds to investment projects.

In England, the Funds are jointly administered by the Department for Business, Energy and Industrial Strategy (BEIS) and by the Ministry of Housing, Communities and Local Government (MHCLG). The Funds are allocated to 38 Local Enterprise Partnerships (LEPs). For the 2014-2020 funding cycle the Government required a written proposal from each LEP outlining how they would use the allocated funds.

These proposals became part of the Government’s ‘Partnership Agreement’ with the European Commission for the current funding cycle. The Commission adopted the Agreement on 29 April 2014.

Are Structural Funds value for money?

Although seen as an important part of the UK’s regional development policy for the last 40 years, Structural Funds have also been criticised for weaknesses in how they are allocated and delivered.

The UK Government and partner organisations who receive funds both support cutting what is perceived as the excessive bureaucracy of the current system. The Conservatives have argued that "EU Structural Funds have been difficult to access" and "expensive to administer and poorly targeted."

Figures in local and devolved government have also criticised the current measurements for determining need. The Greater London Assembly has criticised the current Gross Value Added (GVA) measure because it distorts the prosperity of locations with extreme wealth and poverty. For instance, Tower Hamlets, despite being one of the UK’s most deprived areas, receives less funding than it might because of its proximity to the prosperous City of London.

The Institute for Fiscal Studies has suggested that if the Government proceeds with designing an investment fund to replace Structural Funds it should consider identifying other measures of need, like poverty and inequality. Some have suggested using alternative measures like the Index of Multiple Deprivation, which analyses data on deprivation relating to income, employment, education, health and barriers to housing.

What happens if there is no withdrawal agreement?

If there is a withdrawal agreement, UK recipients will receive EU funding for projects agreed in the current funding cycle from the EU Budget.  If the UK leaves without an agreement, the Government has committed to replace outstanding EU funding for the duration of the project.  

What happens after Brexit?

The Conservative manifesto for the 2017 General Election pledged to create a “United Kingdom Shared Prosperity Fund” to replace Structural Funds with a UK funding system. This Fund would be intended to reduce inequality between communities across the four nations and to deliver sustainable, inclusive growth.

So far the Government has released few details on the Shared Prosperity Fund but it is committed to consulting with the public on the design of the policy this autumn.

Will the UK still contribute to Structural Funds after Brexit?

The Government’s White Paper on the future relationship does not envisage any continuing UK contribution to the Structural Funds, as the UK would leave the programme. But EEA member states, like Norway, and Switzerland do contribute to the EU’s cohesion budget as a solidarity payment, so it is not impossible a contribution might form part of a final agreement if the UK had a particularly close relationship with the Single Market. 

Update date: 
Wednesday, September 5, 2018