The UK Shared Prosperity Fund: competing claims

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On 13 April 2022, the UK government published the prospectus for the UK Shared Prosperity Fund (UKSPF) along with a range of accompanying documents.  The prospectus came after a long wait – the UKSPF was first announced in 2017, but limited details have been available until now. 

The UKSPF is one of the funds that will replace the previous EU funding streams.  A previous SPICe blog looked at the background to the UKSPF and the funds it was replacing.  A future SPICe blog will outline the various other funding streams that are being introduced to replace EU funding.  This blog looks at the different claims made in relation to the UKSPF by the UK and Scottish governments.

What had been promised?

In its manifesto for the 2019 General Election, the Conservative Party promised that the UKSPF would “replace the overly bureaucratic EU Structural Funds – and not only be better targeted at the UK’s specific needs, but at a minimum match the size of those funds in each nation.”

By the time of the 2020 Spending Review, the language had softened somewhat, with the UK government claiming that:

“Funding for the UKSPF will ramp up so that total domestic UK-wide funding will at least match receipts from EU structural funds, on average reaching around £1.5 billion per year.” 

This softer claim seemed to suggest that the intention was to reach the same level as previous EU funding, but not immediately.  And it was still not clear exactly which EU funds were being included in this commitment.

The launch in April 2022 was accompanied by much criticism UK-wide that the commitment was not being met, with most referring back to the Conservative manifesto commitment rather than the softer language of the Spending Review. 

The IPPR claimed that the funding announcement represents a 43 per cent cut.  Here in Scotland, the Scottish Government claimed that the allocation for 2022-23 is £151 million short of what would have been expected if EU funds were fully replaced.  Meanwhile, the UK government claimed that the Scottish Government allocation means that “funding will match what was previously spent in Scotland”.

So, what is the basis for these competing claims? 

First, how much is Scotland getting?

In total, over the three year period 2022-23 to 2024-25, Scotland is set to receive £212 million.  However, funding is not evenly spread over the period, with an allocation of £32 million in 2022-2023, £55 million in 2023-24 and £124 million in 2024-25, as set out in the UK government’s methodology note.

The Scottish Government’s position

The Scottish Government claims there is a £151 million shortfall in 2022-23 and a £337 million shortfall over the three year period.  How do they reach that conclusion?

The Scottish Government published analysis at the end of 2020 which calculated the amount that would be expected from the new funding schemes if the EU funding was to be matched in Scotland.  On this basis, the Scottish Government calculated that an annual amount of £183 million would be required (or £549 million over three years).  Annex C of the report shows the methodology. 

The calculation is based on the following assumptions:

  • The UKSPF matches average level of annual funding for Scotland from four EU programmes (ERDF, ESF, European Territorial Co-operation Programmes (ETC) and LEADER) over the period 2014-2020
  • The amounts received by Scotland for the period 2014-2020 are uprated to 2018 prices and converted from euros to £ sterling using average forecast exchange rates.

This approach gives a figure of £183 million for the annual amount required in order to match previous EU funding.  The Scottish Government has compared this amount with the planned UKSPF funding of £32 million in 2022-23, to get the ‘shortfall’ figure of £151 million.

The shortfall in 2023-24 is calculated at £128 million and the shortfall in 2024-25 is calculated to be £59 million.  Over the three year period, the total shortfall is estimated to be £337 million.

The UK government’s position

In contrast, the UK government claims that EU funding is being matched.  The UK government published a methodology note alongside the UKSPF prospectus. According to this methodology, Scotland would need £124 million to replace the previous EU funds.  Their approach to calculating the amount required to provide equivalent levels of funding is as follows:

  • Calculate the amount received through two previous EU funds (ERDF and ESF) in the period 2014-2020.  For Scotland, this equates to £106 million per year in cash terms according to the UK government calculations
  • Uprate this amount to 2024-25 prices to determine final year allocation (£124 million in 2024-25 for Scotland) – this is the amount considered by the UK government to provide an equivalent level of funding to the previous EU funding from ERDF/ESF
  • Adjust earlier year allocations to reflect profile of UKSPF spending determined at UK level (for Scotland, this implies £32 million in 2022-23 and £55 million in 2023-24) – these lower amounts are considered by the UK government to provide the amount needed to ensure the overall level of spending (from UKSPF plus ongoing funding from the predecessor EU programmes) is maintained.  The UK government does not make clear their assumptions about levels of ongoing funding from existing EU programmes.

So what explains the different conclusions?

Aside from differences in the approach to uprating for inflation, and differences in the exchange rates used, there are two fundamental differences in the approaches of the two governments.

  1. The UK government considers the UKSPF to be replacing ERDF and ESF, while the Scottish Government included European Territorial Co-operation Programmes (ETC) and LEADER in its calculations.  For the Scottish Government, the inclusion of ETC and LEADER implies an additional £21 million in the funding level ‘required’ in each year.  However, even if ETC and LEADER were excluded from the Scottish Government calculations, this would still leave an overall shortfall of £274 million over the three year period, according to the Scottish Government’s methodology.
  2. More significantly, the UK government takes the view that, because the UK is still able to claim funds from the last EU funding programme (2014-20), the amount required to provide ‘equivalent’ funding is lower in 2022 and 2023 and the full amount is not required until 2024-25.  It is therefore providing a lower level of funding in the first two years of the UKSPF.

It is this final point that represents a major divergence of approach between the two governments and is a fundamentally different conceptual approach.  The UK government stance has been widely criticised as “double counting” because the EU funds that will be received in 2022 and 2023 are part of an earlier EU allocation, some of which remains to be spent, so will be claimed this year and next.  This is entirely within the rules for EU funding.  Critics argue that, if the UK had remained part of the EU, it would have received a new allocation for the period 2021-27 that would not have been adjusted downwards in any way to reflect these ongoing claims from the previous EU funding round.  The Director of the Northern Powerhouse Partnership said:

“It’s a bit like saying that a child doesn’t get any birthday money because they haven’t spent their Christmas money yet.”

According to the Local Government Information Unit (LGIU),

“…the [UK] government’s assertion that no area will get less than they received under ESIF [ERDF and ESF] only applies to the financial year 2024-25… In 2023-24 they will get 27% of what they might have got from ERDF/ESF and this year 15% of what they might have got. This vague assertion is explained away because areas are still in receipt of [ERDF/ESF] monies – but this is neither evidenced for individual areas nor does it make any sense conceptually.”

And the LGIU goes on to conclude:

“The bottom line is that the government is not even close to delivering its commitment that all areas would receive at least the amount they would have got from [ERDF/ESF].”  

But what about 2024-25?

The UK government does seem to acknowledge that it is only by 2024-25 that it would consider UKSPF funding to match the predecessor EU funds.  In its press release accompanying the launch of the UKSPF on 13 April 2022, the UK government said (emphasis added):

            “Previous EU programmes ramped up and down, and areas will continue to receive EU funding until the end of 2024. Similarly, UK Shared Prosperity Fund will be increased from £400 million in 2022/23 to £1.5 billion in 2024/25, at which point it will match the EU funds it has replaced.”

In their briefing on the UKSPF, the House of Commons Library stated that:

“The Library has replicated the analysis described in the UKSPF methodology note, and has obtained very similar figures, suggesting that the UKSPF totals for 2024/25 do indeed match the average real-terms amounts received from the EU in 2014-20.” (p15)

However, the Scottish Government argue that, according to its analysis, even by 2024-25, funding falls short of the amount previously received in EU funding, even if LEADER and ETC funding is excluded from the calculations.  This is a more challenging point to prove conclusively and conclusions will largely depend on the exact exchange rate and inflation adjustments that are used in the calculations. 

Nicola Hudson, Senior Analyst, Financial Scrutiny Unit