Challenges (and opportunities) face Wales in replacing EU funds after Brexit

(Title Image: South East Wales Regional Engagement Team)

Finance Committee
Preparations for replacing EU funding in Wales (pdf)
Published: 25th September 2018

“The UK Government has announced that Structural Funds will be replaced by a UK Shared Prosperity Fund, but very little detail or information has emerged on the Fund. Our report highlights how the Fund might be shared between the four nations, presenting a strong case for Wales not to be a penny worse off as a result of Brexit, and for the Welsh Government to manage and administer Wales’ share.”
– Committee Foreword

1. A long-term replacement for the Barnett Formula is needed

Wales currently received £680million of funding from the EU; £354million of this is agricultural subsidies and direct payments to farmers, the rest is structural funding and other finance. This comes to an end in March 2019.

The Welsh Government’s initial position is in favour of this funding being replaced by an alteration to the Barnett Formula – which determines the budget for Wales, Scotland and Northern Ireland based on spending in England.

There’s no consensus on the way forward or even how this money will be replaced; some organisations, like the Bevan Foundation, warned that altering the Barnett Formula could cause problems further down the line because, currently, Wales receives about 24% of UK structural funding – far more than our population share.

Longer term, the Welsh Government would prefer to see the Barnett Formula replaced with a rules-based system that takes relative need into account.

2. Wales “should not be a penny worse off” under a UK Shared Prosperity Fund

The UK Government currently propose to replace EU structural funding with a UK Shared Prosperity Fund. However, witnesses warned that if current structural funds weren’t properly replaced there would be major economic consequences for Wales, mainly because structural funds currently provide investment that otherwise wouldn’t have happened – particularly in business support, research & development and infrastructure.

There were fears that in the UK introduces a “challenge-based” method of distributing funding (based on bids rather than relative need), Wales would be at a serious disadvantage because we lack the types of regional economic partnerships that routinely do this sort of work – particularly in rural Wales.

Universities were particularly concerned about the loss of Horizon 2020, not just in terms of funding but collaboration.

The Welsh Government opposes a challenge-based approach and demand that the UK Government and Brexit campaigners stick to their promise that Wales wouldn’t be any worse off after leaving the EU.

The Finance Secretary, Mark Drakeford (Lab, Cardiff West), said that if the money were maintained as is, it would be ring-fenced for regional development. There was also a lot of support from witnesses for any future Shared Prosperity Fund functions to be devolved in order to maintain the expertise the Wales European Funding Office (WEFO) has developed.

3. Moving away from structural funds presents opportunities

EU structural funding does come with a long list of terms and conditions attached, and witnesses said that the Shared Prosperity Fund could result in greater flexibility in how these funds are used.

There were three EU structural funding principles witnesses believe should be retained: multi-year funding, partnership working and a focus on cross-cutting themes.

In terms of possible changes, witnesses told the Committee they would like to see greater flexibility in how the funds can be used (including merging capital and revenue funding into a single fund), simplified funding application processes (EU bureaucracy is notorious) and a greater focus on results rather than merit in applications.

As I understand it, a separate inquiry is taking place on replacement of agricultural funds but the Committee heard evidence from farmers unions that instead of a Barnett Formula-style population-based share of funding it has to be maintained on a needs basis. There’s likely to be a UK-wide system in place after Brexit, but there were calls for Wales to be able to develop its own land management system.

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