Wales and the Shared Prosperity Fund

Despite announcing the Shared Prosperity Fund more than three years ago, the Government appears to have made negligible progress in developing its replacement for European Structural and Investment funding. Its repeated promises of a consultation and of imminent announcements have failed to materialise, demonstrating a lack of priority. Although we acknowledge that the COVID-19 pandemic has forced Ministers to reprioritise and refocus their attention, this does not excuse the lack of progress as a significant amount of time had passed before the COVID outbreak became a factor.

The UK Government must urgently work with the devolved governments of Wales, Scotland and Northern Ireland to agree priorities for the Shared Prosperity Fund and to co-create the details regarding how the Fund will work. It must provide evidence of progress being made in October ahead of finalising arrangements during November. At that point, the plans the UK Government has co-created with the devolved administrations must give full details of what the Fund will look like, how it will be funded and how it will be administered. The UK Government must guarantee that there will be no cliff edge ending to funding arrangements after the transition phase ends in January 2021, particularly as ESI funds have been used to assist the Welsh Government in responding to the economic challenges of coronavirus. It is important that this work can continue beyond January and throughout the pandemic. (Paragraph 17) EU Structural Funding in Wales

We acknowledge the difficulties in assessing the impact of ESI funds in Wales, particularly in the absence of the counterfactual question of what would have happened without them. However, it is clear that while certain sectors, particularly higher education, the arts and charities have benefitted substantially, these fund have not been able, and were not expected on their own, to deliver a transformative change for the Welsh economy, as the policies of both the UK and the Welsh Government would also have played a pivotal role in determining the benefits to Wales, particularly those of the Welsh Government. Wales continues to qualify for EU Structural Funding and lags significantly behind other regions of the UK and EU. (Paragraph 36) Priorities for the Shared Prosperity Fund

The development of the Shared Prosperity Fund represents a unique opportunity to re-evaluate Wales’ economic priorities in light of the economic fallout from the pandemic, to develop a funding system that better reflects Welsh needs, and which includes a broader set of tools to measure the impact of the Fund such as the impact on quality of life and well-being, as well as the effect on GVA. Addressing the root causes of Wales’ economic challenges, including productivity and skills, must be a core objective of the Shared Prosperity Fund. (Paragraph 45) 28 Wales and the Shared Prosperity Fund: Priorities for the replacement of EU structural funding

We recommend that the UK and Welsh Governments use the development of the Shared Prosperity Fund as an opportunity to jointly reassess their economic development priorities, particularly in light of the economic damage caused by COVID-19. In designing the Shared Prosperity Fund, more thought should be given to how the Fund can bolster skills, productivity and wages, all of which will be essential if Wales is to narrow the GDP gap with the rest of the UK.

The UK Government has repeatedly committed to ensuring Wales does not lose out as a result of the switch from European Structural Funds to the Shared Prosperity Fund and the evidence overwhelmingly states that Wales should not end up worse off, particularly in light of COVID-19. A needs-based formula is required over a multi-year financial framework to allow a fair allocation and effective planning and delivery.

In the current changing economic circumstances, we are unable to recommend a headline figure for Wales’ allocation of the Shared Prosperity Fund. However, we call on the Government to honour its commitment to maintain at least the current levels of real-term funding and to carefully consider the arguments for increased spending. Given that the full effects of COVID-19 could be unknown for some time, it should monitor the current economic situation in Wales and adjust its allocation accordingly. Ministers should provide reassurance that multi-year funding will continue and work with the Welsh Government to give serious thought to the potential methods of calculating Wales’ funding requirements. They should update us with their thinking on the size of the Fund and means of allocation as soon as possible.

Despite the positive feedback we have received about the performance of the Welsh European Funding Office in administering ESI funds, it is clear that for many respondents the current system of structural funding has been too centralised and overly bureaucratic. The development of the Shared Prosperity Fund represents an opportunity to address these problems and establish a system of funding which is less administratively burdensome.

If the Shared Prosperity Fund is to offer a more open and responsive system of funding, the UK Government and Welsh Governments should learn the lessons from how EU funds have been administered under the ESI schemes, including the criticisms we have heard about the current system’s levels of accessibility and bureaucracy. In their plans for the Fund, the UK Government should explain how they intend to overcome these problems and detail the work they have undertaken to review the existing system of ESI funding.

Despite repeated assurances from UK Government that it would respect the devolution settlements of Wales, Scotland and Northern Ireland, there are considerable ambiguities about where power will lie in relation to the Shared Prosperity Fund. It is unclear whether, as a result of the provisions in the Internal Market Bill, Whitehall plans to oversee the administration of the Fund directly, or if the financial assistance powers contained within the Bill are intended to operate separately to the Fund. In either event, we believe the UK Government would be ill-advised to lose or ignore the expertise that has been built up in the devolved administration’s European Funding Offices. (Paragraph 73) Wales and the Shared Prosperity Fund: Priorities for the replacement of EU structural funding 29

There are differences of opinion as to where the precise balance of power and responsibility should lie for the oversight and administration of the Shared Prosperity Fund. However, whether the UK Government takes on a commissioning role for, or fully devolves the administration of, the Fund, the Shared Prosperity Fund should be built upon the principle of cooperation and partnership between the UK Government, the devolved administrations and local government.

The UK Government should work with the devolved administrations and local government to develop a memorandum of understanding that will underpin the operation of the Shared Prosperity Fund, this memorandum should be built around a partnership approach and provide a guarantee of genuine joint working and engagement for all stakeholders, including the third sector.

Local authorities have played an important role in the delivery of ESI funding with their on-the-ground knowledge and expertise and the UK and Welsh Governments should seek to ensure that the Shared Prosperity Fund utilises their experience. While the full economic benefits of City and Growth Deals are yet to be seen, they offer a blueprint for collaborative working between the UK and devolved governments and local authorities from which lessons should be learned. We note that the Welsh Government has brought forward proposals which would enable local authorities to establish Corporate Joint Committees to facilitate joint working, including in areas covered by City and Growth deals. It would seem sensible for the Shared Prosperity Fund to be designed so that it could, in future, work with City and Growth deals.

As part of the Memorandum of Understanding that should underpin the Shared Prosperity Fund, the UK and Welsh Governments ought to give serious consideration to the role that local government in the delivery of the Fund. Both the UK and devolved administrations should seek to learn the lessons of how joint working has been facilitated by and through the City and Growth Deals, and how those lessons could be applied to the Shared Prosperity Fund. In designing the fund, Ministers should consider the opportunities for how these Deals might complement the new funding arrangements. (Paragraph 82) Concluding remarks

For the past twenty years, Wales has received more European Structural Funds than any other part of the UK in an attempt to bring the Welsh economy up to the EU average. This funding which is worth hundreds of millions of pounds each year is all the more important at a time when the COVID-19 pandemic has inflicted major economic damage.

However, with that funding due to taper off in less than three months’ time, communication from Ministers, and substantive proposals for the Shared Prosperity Fund, have been conspicuous in their absence. For more than three years, we have witnessed a failure to properly engage with stakeholders, or Parliament. As a result, there is no clarity as to what the Shared Prosperity Fund will look like, how it will be administered, nor how it will be funded. This is unacceptable, and the UK Government must, as a priority, publish detailed proposals for how the Fund will operate. (Paragraph 84) 30 Wales and the Shared Prosperity Fund: Priorities for the replacement of EU structural funding

The impact of EU funding is hard to measure, and it is quite possible that Wales would have been significantly worse off without it. However, this funding has not been a catalyst for a transformation in the fortunes of the Welsh economy.

The switch to the Shared Prosperity Fund is an opportunity to reset and re-evaluate Wales’ economic priorities post-Brexit and post-COVID-19 and to develop a Shared Prosperity Fund that tackles the root causes of Wales’ economic underperformance. The funding pot should be needs based and maintain at least the current size of funding in real terms. While funding should be based on a multi-annual basis, it should be reactive to the health of the economy as Wales, and the rest of the UK, seeks to recover from the COVID-19 pandemic.

Given the publication of the UK Government’s Internal Market Bill, it is all the more urgent that clarity and detail is provided about the Shared Prosperity Fund. However designed, the expertise gained in administering structural funds should not be lost, and Ministers must embrace a partnership approach that draws upon the expertise and resources of the devolved administrations, local government and the third sector.

The UK’s withdrawal from the European Union and the impact of the COVID-19 pandemic makes this an exceptional time, and opportunity, for the governments of the UK to design a more responsive and adaptable system of structural and regional funding. After three years of delay and lack of detail, it is not too late. (Paragraph 88) Wales and the Shared Prosperity Fund: Priorities for the replacement of EU structural funding 31