The authoritative source for independent research on UK-EU relations

14 Sep 2021

Economy

Policies

Brought into sharper focus by the pandemic, over recent years significant attention has been paid to regional inequality in one of the most unequal countries in Europe – the United Kingdom. Under the auspices of ‘levelling up’, the government has introduced a number of initiatives to tackle inequality. Its Plan for Growth has set out the broad tenets of the agenda and includes the £2.5 billion National Skills Fund, £3.6 billion Towns Fund and £4.8 billion UK-wide Levelling Up Fund. Among these is also the Shared Prosperity Fund, intended to dole out around £1.5 billion a year to replace the financing previously received under the EU’s Structural Funds.

Complications and flaws abound, however. £300 million of the Towns Fund has already been diverted to the Levelling Up Fund, in what can be described as musical chairs style funding.

Few of the issues facing the government today are new, either: regional economic policy over the past half-century has attempted to fix lagging regional inequality and labour market shortages and upskill our comparatively unskilled workforce. Much of it has been met with mixed success.

One familiar challenge is that the scale of ambition is often dwarfed by level of need. Lord Kerslake, formerly Head of the Civil Service, described recent attempts to tackle regional inequality as under-powered ‘pea-shooters’ and ‘sticking plaster policies’, which are ‘too little and too short-lived’.

According to Kerslake shifting the dial on inequality requires a £250 billion commitment over the next 25 years.

With the fine print of the UK Shared Prosperity Fund yet to be published, there is still an opportunity for the government to match rhetoric with action, unlocking potential across and between our regions, tackling lagging productivity and up-skilling and re-building the social fabric of our communities.

In order to deliver lasting change in ‘the places that don’t matter’, the government must ensure that it gets right the design and funding mechanisms of regional economic policy.

That means turning on the spending taps, especially given support for increased spending on public services remains high. As is stands, the government’s Shared Prosperity Fund commitment to ‘at a minimum, match current levels of funding’, equivalent to £1.5 billion, short-changes the British public for at least four reasons.

First, the government has promised that the funding envelope of the Shared Prosperity Fund would be in line with regional allocations under the preceding financial framework, 2014-20 – meaning when the Shared Prosperity Fund is introduced in 2022-23 investment will already lag behind what our regions would have received should the UK have remained in the EU.

Though the EU has not published an official assessment, the Conference of Peripheral and Maritime Regions estimates that the UK would have benefitted from an additional €2.4 billion over the course of the 2021-27 programme.

Tees Valley and Durham, South Yorkshire, Lincolnshire, Cornwall, West Wales and Southern Scotland would likely have received more regional development funding inside the EU than outside it, with €4.4 billion in ear-marked funding expected for the least developed regions.

The length of the Shared Prosperity Fund funding cycle is also unlikely to match the seven-year EU programme. Shorter funding cycles give regions less certainty and offer fewer opportunities for long-term economic development.

There are already concerns that the government will fail to learn the right lessons, and instead UK regional economic policy will be marred by higher levels of bureaucracy, underinvestment and political short-termism.

This has already been exposed by the government’s failure to consult on the design of the Shared Prosperity Fund, despite promising to do so in 2017.

Without consultation, the government has instead introduced the year-long £220 million Community Renewal pilot. Doing so has held up the roll-out of the Shared Prosperity Fund and deprived regions of hundreds of millions of pounds.

Known as the N+3 rule, once organisations are allocated funding they have three years to spend it, but with remaining EU funding now tapering off the government has not yet matched it with new funding.

Third, the allocations process remains unclear, both in terms of the mechanism governing the allocation of funding – with the government’s more favoured approach being competitive bidding – and how funding will be distributed between the devolved administrations.

Competitive funding is resource intensive, costly, rewards authorities with the resources to submit the best bids (as opposed to the authorities that need funding the most) and creates perverse incentives by encouraging authorities – regardless of need or industrial strategy – to bid for funding simply because it is on offer.

Allocations for European Structural and Investment Funding, on the other hand, are based on regional development relative to the EU average. Should the government deviate from this approach, there is a risk that the devolved administrations – which receive more funding than England – will get the short straw. Wales and Scotland have both been critical of the government’s approach to date.

Fourth, the role of co-financing is not as developed in the UK as it is in the EU. The government has revealed scant detail on whether co-financing with public and private sector partners will feature in the Shared Prosperity Fund.

Under EU rules, co-financing unlocked €10 billion more for our regions between 2014 and 2020. In many cases, co-financing accounted for half of a project’s total spend, as it did with the Solent Jobs Programme which supported people with health conditions and disabilities into work.

Above all, there is a growing body of evidence that the government’s approach to regional economic policy lacks coherence. The risk is that the Shared Prosperity Fund is the latest manifestation of that incoherence.

If the government is committed to tackling regional inequality, it must start from first principles and ensure that it doesn’t repeat past mistakes of well-intentioned but poorly designed regional economic policies.

Given the Prime Minister’s plea for levelling-up plans to be submitted to the government, the Treasury and Ministry of Housing, Communities and Local Government should start by listening to local authorities, who have set out eight ‘design principles’ which provide a blueprint the Shared Prosperity Fund could follow.

By Jack Shaw, local government researcher. He has also worked for the Local Government Association, which represents local authorities across England.

MORE FROM THIS THEME

Levelling up: the (surprisingly long) history

Party financing in the UK: nice slogan – shame about the solution

The European Central Bank’s revised monetary policy strategy

Migration and wages after Covid and Brexit

Economic recovery: exit stage left…or right?

Recent Articles