Another Brexit nightmare: Regions facing a 30% cut from ‘prosperity’ fund

Now, it seems there may be another broken pledge to add to the list and this time it concerns the UK Shared Prosperity Fund (UKSPF), the homegrown replacement for EU structural funds that used to flow into the most neglected parts of the UK to promote economic growth, create jobs, and improve skills and training. 

In their 2019 manifesto, the Tories vowed that the UKSPF would “at a minimum” match the size of those funds in each nation and be targeted more precisely than “the overly bureaucratic” European Social Fund (ESF) and European Regional Development Fund (ERDF).

But since details of the £2.6bn UKSPF were released in April, there has been a chorus of criticism saying that the opposite is true – the fund is worth less, there are more strings attached to the money and there is less time to spend it.

The devolved administrations are particularly unhappy with Wales’ first minister Mark Drakeford slamming the UKSPF for leaving Wales with less say over less money.

“We’ll lose over £1bn that could have been used to grow the economy and support our most disadvantaged communities,” he tweeted after details of the fund were released. “This is not levelling up, it’s levelling down.”

A spokesperson for the Department for Levelling Up, Housing and Communities (DLUHC) disputed these criticisms, saying that some calculations were skewed by the inclusion of other EU funds, beyond the ESF and ERDF, and that these other funds are to be replaced separately. The spokesperson also insisted the UKSPF gave local councils more control over the money, removed unnecessary bureaucracy and allowed local communities to invest in what they considered to be priorities. 

When it unveiled the fund’s prospectus, the DLUHC said the money would help level up opportunity, prosperity and “people’s pride in the places they love”. It said funding would be predictable and long-term and that local leaders would be free to use as they see fit “unshackled by previous EU restrictions”.

The government says it is matching the EU’s spending because the UKSPF reaches £1.5bn in 2024/25. But in 2022, the fund will only disburse £400m, rising to £700m in 2023, before finally hitting the target of £1.5bn the next year. 

“The government keeps saying this money is the same and it just isn’t,” says Henri Murison, director of the Northern Powerhouse Partnership (NPP), a body of civic leaders and businesses set up to promote economic growth and job creation.

Definitive calculations of how much funding has been lost can vary slightly, depending on whether one uses cash terms or real terms, but the overall result is that the UKSPF represents a cut of between 30-45% from EU levels of funding, according to the NPP.

“What the government has been desperate to do is to get the funding to look the same in year three so they can claim it’s continuity, but in reality that means there is a gap for the next two years in terms of the amount available compared to what would have been the case,” Murison tells The New European. 

The NPP has calculated that the north of England alone is losing £331m – a real blow to the levelling up agenda in crucial Red Wall constituencies where voters turned to the Tories in 2019. It says Liverpool City Region is losing around £27.5m over three years, Tees Valley £26.9m, Greater Manchester £52.1m, Cumbria £11.8m, Lancashire £34.1m and the North East £71.3m.

The UKSPF also differs from previous EU funding in its duration – it will run on three-year funding cycles – to match the Spending Reviews – rather than the seven years’ duration of the EU money. 

Nick Gray, a research fellow at IPPR North, calculated that the UKSPF represents a 43% cut compared to previous EU spending.  

“Today we’ve seen a 43% annual cut in regional development funding, guaranteed for less than half as long, delivered in a way which encourages short-termism. Today is not a recipe for success. It’s a serious blow for levelling up,” he wrote in a joint article with IPPR colleague Marley Morris, published on the same day as the UKSPF prospectus.

Gray says the UKSPF represents a missed opportunity.

“The UK government had the opportunity to keep the best parts of EU structural funds, such as their long-term focus and transparency, and scrap the bureaucratic and unpopular elements, which would have been straightforward to do given the UK’s smaller size,” he tells The New European. “Instead, the government designed a centralised and opaque system that fails to empower local leaders or provide for the long term. They have missed a real opportunity to design something that would help to level up the country.” 

The Labour Party says the new fund will cost English regions more than £1 billion by 2025, with the North West losing £206m, the West Midlands £158m and the North East £136m. Alex Norris, the shadow minister for levelling up, notes that these reductions come on top of cuts of around £15bn to council budgets since 2010.

“That means the rail link your village desperately needs or the apprenticeship scheme that got young people from your hometown into good jobs is now at risk because the government has broken its promise to match the EU funding,” he said.

The UKSPF will invest in three priority areas: community and place, support for local businesses and people and skills. But funding for the people and skills basket will only kick in from April 2024, while the EU money, from the European Social Fund, will only cover until the end of 2023.

“The cliff edge in skills funding is a massive problem – SPF funding for skills and employment initiatives will not be available until 2024. This will leave really important support programmes facing the prospect of having to close or cut back on what they do. The least well-off areas will lose out the most from this,” said Labour’s Norris. 

In its prospectus, the DLUHC outlined a series of lofty ambitions for the new fund, which it describes as a “central pillar” of its levelling up agenda, but Murison worries the focus is  on style rather than substance, with an emphasis on delivering something called “pride in place”.

“What we don’t need in the north is more hanging baskets,” he says. “What we need is more jobs. You can spend a lot of public money on beautification of high streets but when people say their high street or local town centre is dilapidated, they don’t mean that the public realm isn’t very good,” he said.

“Our argument is that we need to give the north of England economic purpose. We don’t need to simply think about dealing with disbenefits. Tarting up a town centre is no different to paying unemployment benefits. It’s dealing with the consequences of economic failure. lt’s not actually dealing with the causes,” he said, noting, for example, how the presence of McLaren and Boeing in Sheffield has given people a new sense of pride in their city, just as the steel factories used to do. 

Murison says the UKSPF should be used to bring people back to the labour market and improve productivity. 

“That’s the ball game and a huge issue for UK Plc. Particularly now we don’t have access to free movement of labour. Central government is cutting the funding that does that and trying to pretend they are not for political reasons because they’ve got a manifesto commitment but they are. They simply are,” Murison said. 

Devolved governments are also dissatisfied with the new funding regime and say much of the decision-making power on allocating funds is being taken from them. 

Rebecca Evans, the Welsh government minister for finance, said the changes represented “an assault on devolution in Wales” while Liz Saville Roberts, Plaid Cymru’s leader in Westminster, said funding allocated to Wales should be spent by the government of Wales, not by “out-of-touch Tory ministers”.

The Scottish government said the allocation for 2022-23 is around £150mn short of what would have been expected if EU funds were fully replaced, with a shortfall of £337m over the three-year period.

“EU funding has supported infrastructure projects and community initiatives across the country since the 1970s, with Scotland receiving and delivering over £6bn of EU structural funds. Transformational projects, such as the University of the Highlands and Islands and the European Marine Energy Centre in Orkney, have brought significant benefits to businesses and communities. It is hugely disappointing that future projects with as much potential may lose out,” said Business Minister Ivan McKee.

For Murison, what he sees as a failure to design an effective replacement for the EU funds speaks to a bigger problem – the government’s ineffective attempts to deliver on its levelling up agenda, despite the ambitions laid out in a white paper, published in February. Murison would like to see much more radical devolution of powers to the regions. 

“The government currently holds all the cards and until you have a much more decentralised UK, they can screw this up or they can get it right. What they need to do is follow through on the ambitions of the white paper,” he said.

Labour’s Norris said the government’s approach was superficial.

“If we want true levelling up, we need proper regional investment and power given to communities to decide how to spend it. So far we’ve had a rolling series of beauty parades by the government: the Levelling-up Fund, the Towns Fund, the High Streets Fund, and many others,” he said. 

“It is just plain wrong to ask struggling areas to come down to Whitehall, cap in hand and fight it out amongst each other for funding they desperately need. The truth is the government is just not serious enough or bold enough to deliver money and power back to local communities.”