The UK Shared Prosperity Fund (UKSPF), the replacement for EU structural funds, has been long in its development. It initially featured in the 2017 Conservative General Election manifesto, and the scheme is now being developed, and expected to launch in 2022 (with further details expected in the second half of 2021).
A farewell to EU Structural funds
EU Structural funds have been a significant contributor to local and regional economic development in Scotland for the last 40 years. Now the UK has left the EU, it will receive no funding under the European Union’s new financial framework (running from 2021 to 2027), although under the terms of the Withdrawal Agreement, it can continue to receive some funding until December 2023 if it was committed under the 2014-2020 programme.
This SPICe briefing on the Structural funds and subsequent SPICe blog provide more detail on how they have worked in Scotland. Under the EU’s 2014-2020 budget framework, Scotland was allocated €872m (or around £782m in January 2014 exchange rates), at the outset of the programme, and as at 24 March 2021 the Scottish Government has allocated £624m (with the final figure expected to be higher).
What will the Shared Prosperity Fund look like in Scotland?
In Session 5 the Scottish Parliament’s Economy, Energy and Fair Work Committee carried out an inquiry into European Structural Funds and made a number of recommendations about what the future Shared Prosperity Fund should look like. In summary, these included a continued focus on people and places, timeframes running beyond electoral cycles, and an ethos of partnership working. Funding should not be reduced from the level of the structural funds, Scotland should decide how to distribute these funds internally, and there should be a seamless transition to the new regime.
The Scottish Government produced its own proposals for a Scottish replacement for the EU structural funds (November 2020), and how these might be managed. This followed a public consultation, and work of an expert steering group, chaired by Professors John Bachtler and David Bell. Four key areas were considered: Funding and Allocation; Governance and Delivery; Policy Alignment; and Monitoring and Evaluation
The proposal would involve (at least) a five-year programme, led by the Scottish Government, with regional partnerships “free to allocate money as they wish in their regions, guided by principles…”. Funding would be distributed using a “transparent, needs-based regional allocation model”. The areas would “align with the Highlands and Islands and South of Scotland Enterprise areas and with emerging Regional Economic Partnership Areas in the rest of the country”, which are set out here.
However, it’s still not clear exactly what form the UK government wish the new fund to take. In November 2020, the UK Spending Review 2020 did say that:
The fund will “operate UK-wide” using powers in the UK Internal Market Bill, and that investments and programmes will display common branding.
The UK government also identified two strands of funding, perhaps not dissimilar to the split between European Regional Development funding (ERDF) and European Social Fund funding (ESF) that came through the EU structural funds, with emphasis added:
A portion of the UKSPF will target places most in need across the UK, such as ex-industrial areas, deprived towns and rural and coastal communities….
A second portion of the UKSPF will be targeted differently: to people most in need through bespoke employment and skills programmes that are tailored to local need. This will support improved employment outcomes for those in and out of work in specific cohorts of people who face labour market barriers.
How much funding will be provided?
The Scottish Government (November 2020) has called for “the full amount of funding due to Scotland” which they calculate as being at least £183 million per year (to replace the EU Structural Funds, and the European Territorial Cooperation and LEADER programmes), equating to a 7-year replacement programme of £1.283 billion
The UK government Spending Review 2020 (Box 3.1) (November 2020), said they will “ramp up funding”, to “at least match current EU receipts”, which they calculate will mean, on average reaching around of £1.5 billion a year across the UK.
It is currently not clear how this will be apportioned across the UK or how much of this will be allocated to Scotland.
How will the devolved administrations be involved?
The UK government has said that it will:
… engage the Devolved Administrations and local partners as we develop the UK Shared Prosperity Fund’s Investment Framework…
and that they have
demonstrated this commitment by confirming that the Devolved Administrations will have a place within the governance structures.
However, Ivan McKee, Minister for Trade, Innovation and Public Finance in the previous Scottish Government has said that the quality of engagement with the UK government at official and Ministerial level has so far, been “hugely disappointing” (giving evidence at the House of Commons Scottish Affairs Committee March 2021).
For one year only: the Community Renewal Fund (CRF)
The UKSPF is due to launch in 2022, and in the meantime a new fund, the Community Renewal Fund (CRF), is intended to support “a smooth transition”. The operation of the CRF will also provide some clues as to how the UKSPF will work. Its prospectus (March 2021) sets out how “an additional £220m of investment” for the UK in 2021-22 (and only available in 2021-22) can be accessed and what it can be spent on.
The fund will also “help inform the design of the UK Shared Prosperity Fund through funding of one-year pilots” and enable the UK government to “work directly with local partners in each nation across the UK”.
The prospectus flags up what it says are some opportunities for improvements compared to EU structural funds including:
- quicker release of funding
- better targeting for places in need
- closer alignment with domestic policies
- reduced bureaucracy.
How will the CRF be allocated?
The CRF will involve a competitive process. Although there is “no pre-set eligibility”, 100 priority places have been identified in Great Britain “based on an index of economic resilience”, 13 of which are in Scotland.
Northern Ireland and Gibraltar are however not part of this competitive process and will receive a fixed allocation of £11 million and up to £0.5 million respectively. For Northern Ireland the UK government will oversee a project competition directly, whilst the UK government will work with the Government of Gibraltar to agree the delivery arrangements for Gibraltar
How was the index to generate the 100 priority places created?
The methodology note explains how an index score has been used, based on five criteria, with different weightings
- Productivity (30%)
- Skills (20%)
- Unemployment Rate (20%)
- Population Density (20%)
- Household Income (10%)
There has been some surprise at the exclusion of some places from the priority list. For example, Ivan McKee MSP (March 2021) pointed to a lower priority given to a number of areas for CRF (as well as for the Levelling Up Fund), including Dundee, and the Highlands . The methodology note indicates that the index does indeed create “a diverse typology of places by targeting rural areas with low population density”.
What is the bidding process?
This is a UK wide competitive bidding programme for local authorities. Local authorities are required to invite proposals from within their area, appraise them and produce a shortlist for the UK government’s Ministry of Housing, Communities and Local Government by 18 June 2021. Lead local authorities in priority areas will receive some funding for “capacity building” to support the bidding process (drawn from the £220m CRF fund).
The UK government will appraise the bids, on the basis of the selection criteria, such as strategic fit, and deliverability. Where no distinction can be made between projects on the basis of selection criteria, then UK “Ministers can make decisions between projects based on what they consider the best value for money”. Successful projects are due to be announced from late July 2021 onwards.
The Scottish Government told SPICe (May 2021) that it is not clear at the moment what role it will play in the assessment of bids, other than assuring UK Government that there is no duplication of funding.
What type of projects is the fund is designed to support?
The prospectus identifies four investment priorities – skills/ local business/ communities and place/ and employment, with no ring-fencing across these priorities. Ninety per cent of funding (for this one-year scheme) is revenue funding. Bids should be no more than £3 million per place.
Some questions and issues about the Shared Prosperity Fund
The UK government has said that further details about the Shared Prosperity Fund will be set out in the UK wide Investment Framework “later in 2021”, and the profile of spending will be set out in the next UK Spending Review (expected in Autumn 2021). In the meantime, there are a few issues which could be considered:
- The purpose, or purposes, of the Shared Prosperity Fund, and how it should fit within the new landscape of support for regional economic development, including other new schemes such as the Levelling Up Fund and the Community Ownership Fund
- The appropriate amount for the total level of Shared Prosperity funding for Scotland, and other parts of the UK.
- The process by which funds are allocated to local areas, including the methodology for identifying those areas of highest priority, and the subsequent process for the selection of projects and programmes for funding, and how these processes can be fair and transparent.
- Opportunities for building on experience (for example with the EU Structural funds and other programmes), and creating a more efficient and effective funding framework.
- The appropriate roles for different levels of government (particularly UK, Scottish and local authority), the scope for effective and collaborative partnership working, and the wider implications of Shared Prosperity funding for devolution.