The Replacement of European Structural Funds In Scotland Post EU-Exit

North Ayrshire Council welcome this consultation and would be happy to discuss any aspects of this submission. The Council has extensive experience of EU funding and delivering programmes to address the diverse needs and opportunities of our communities and businesses across North Ayrshire’s strategic investment sites, towns, rural and island communities. Replacing EU funding with the right type and level of domestic funding via a strong regional policy is critical if we are to achieve an inclusive economy in fragile post-industrial regions like Ayrshire.
Stark levels of regional inequality in the UK have been well-documented, however this is also an issue impacting the Scottish economy and our ambitions for an inclusive wellbeing economy. The Fraser of Allander Institute (2018) have recently highlighted this in their economic commentary: GVA per head in Edinburgh is nearly 2.5 times higher than in East and North Ayrshire. In the past 20 years this gap has widened – GVA per head in Edinburgh has nearly doubled since devolution, with growth in East and North Ayrshire around half that rate.
The failure of current ESIF programmes and approaches to address the different challenges and opportunities faced by Scotland’s regional and local economies was recognised in 2018 by the Scottish Parliament’s Economy, Jobs and Fair Work Committee. Following an inquiry into existing and future programmes, the Committee concluded that this failure should be addressed in successor programmes if inclusive growth is to be delivered in Scotland. Similar conclusions and recommendations have been reached at a UK level by an All Party Parliamentary Group (APPG) investigating post Brexit funding in 2018, and by a House of Commons Committee Inquiry into the role and function of replacement funds in 2019.
There is a need for a new National Regional policy which aims to build on European Cohesion Policy with its focus on tackling regional economic imbalances and problems at NUTS2 level. These aims should be underpinned by the principles of interventions being required to focus on inclusive economies and sustainable development which aligns with the need to combat climate change and increase local wealth.

North Ayrshire Council recognise that in an increasingly challenging economic environment, we have to work in new ways in order to deliver an inclusive economy. As a result, working in partnership with the Scottish Government’s Office of Chief Economic Advisor, the Council piloted the ‘Inclusive Growth Diagnostic’. The main purpose of the Diagnostic was to identify constraints and opportunities for driving inclusive growth in North Ayrshire in order to prioritise actions to address them at a time of constrained public sector resources. Jobs density was one of the key constraints identified by the diagnostic – indeed North Ayrshire has one of the lowest job densities in Scotland – and this highlights that the Council is unable to achieve inclusive growth without a change in national policy and investment, and as such investment should be targeted where there is most need, for example areas of market failure, and where impact will be greatest.
UKSPF resources need to be allocated in fair and transparent ways that give priority to the development needs of less prosperous regions such as the Southern Scotland NUTS2 region, which includes Ayrshire.

Traditionally the EU uses Gross Domestic Product (GDP) per head in NUTS2 regions as the primary indicator for calculating the quantum and nature of assistance needed to support the union’s economic and social cohesion. NUTS2 is the statistical geography agreed with Member States as the base for calculations, with each region classified as less developed, transition or more developed, depending on how its regional GDP per head compared to the EU average. EU programmes use these classifications to target funding and regulatory support, with less developed and transition regions securing higher level, and more flexible, support than more developed regions. This targeted approach extends beyond EU Structural and Cohesion Funds and is a key component of regulatory frameworks, particularly state aid. This ensures that less developed and transition regions operate under more favourable state aid terms than more developed regions. The Council believes this approach should continue for replacement programmes.
The proposal for a fifth NUTS2 region, Southern Scotland, was approved by Scottish Government and finally agreed by UK Government and the European Commission in 2017. Local authorities in the south of Scotland have long argued that the former NUTS2 geographies masked significant intra-regional inequalities in Scotland. Southern Scotland NUTS2 comprises the area covered by the three Ayrshire local authorities, except for the North Ayrshire islands, alongside the areas covered by South Lanarkshire, Dumfries & Galloway and Scottish Borders Councils. Adjustments were made to the NUTS2 boundaries of West Central Scotland and Eastern Scotland, and the revised NUTS2 regions came into force in January 2018.
CPMR (European Conference of Peripheral Maritime Regions), an influential body in EU circles, published a report shortly before the last UK General Election which projected that Southern Scotland, the Highlands & Islands and West Central Scotland NUTS2 regions would have been awarded substantial packages of support from the EU had the UK not taken the decision to withdraw its membership. It projects that UK regions would have secured €13 billion euros in 2021-27. This level of increase would have had a very substantial impact on the overall funding pot the UK would have been able to secure, and had the potential to transform the seven UK NUTS2 regions which CPMR projects would have been classified as less developed, including Southern Scotland. For the combined less developed regions, Cohesion funding allocation in 2021-27 is projected as £3.8 billion.
Reports published in 2018 and 2019 by ONS, the UK’s independent national statistical body, show Southern Scotland to be the NUTS2 region with the lowest GDP per head in the UK, and that it has been in this position for the past twenty years. The domestic policy, funding and regulatory frameworks being developed as we prepare to leave the EU must address this.

The new Fund needs to support projects that are strategically significant at a regional or local level in terms of promoting sustainable inclusive growth. This is likely to include activity which currently benefits from EU support, such as business competitiveness and employability and skills programmes. It should contribute to the wider aims of Community Wealth Building including a fair and resilient local economy and labour market, with diverse business models. Where appropriate, UKSPF could also include support for capital project activity e.g. development of sites and premises for business and industry, tackling climate change and the transition to the low carbon digital economy, development of low carbon transport infrastructure.
Meaningful consultation by the UK Government on the new UKSPF is essential, however time is running out and there has been no formal consultation with local authorities. This is disappointing. To avoid a hiatus in activity, UKSPF needs to be in operation from January 2021 and, as such, key framework and financial decisions are needed soon, particularly to allow for budget and programme planning.

In terms of levels of decision making and autonomy, North Ayrshire Council believe subsidiarity will be critical if the UKSPF is to succeed. The funding should be aligned with Scotland’s economic strategy and the NPF’s focus on inclusive growth and wellbeing, and with its approach to regional economic development with a focus on those regions in need of additional investment to promote an inclusive economy, such as the Southern Scotland NUTS2 area.
Operated in this way, future funding has the potential to align well with UK Industrial Strategy and other place-based UK economic policy interventions, such as the regional growth deals.

The purpose of EU Cohesion Policy is to reduce the significant strategic imbalances which exist between nations and within the regions of those nations. It might therefore be useful to maintain linkages with the next phase of EU Cohesion Policy.
In practical terms this would be of use in facilitating access to the 2021-27 generation of European Territorial Cooperation programmes, though this is dependent on the UK buying in to these programmes. If the funds for these are to come from UKSPF, its budget needs to be increased to accommodate them.
It is in the joint interests of the UK and EU for a long-term economic relationship to be agreed. In mirroring EU regional policy development, a common policy language can be maintained, helping to ensure that the competitive advantage liable to be delivered by cohesion policy in the EU is matched by developments in the UK. The recognition of NUTS2 Less Developed Regions within the UK in alignment with the EU would be an important contribution to this.

The longer term focus of programmes should be on the additionality of economic, social and environmental programmes.
UKSPF programme targets should be set to reflect the contribution they make to narrowing inter and intra-regional disparities and the National Performance Framework and Scottish Government’s inclusive growth outcomes, using key inclusive growth indicators such as GVA and labour market participation but also wider measures.

UKSPF programme targets should be set to reflect the contribution they make to narrowing inter and intra-regional disparities and the National Performance Framework and Scottish Government’s inclusive growth outcomes, using key inclusive growth indicators such as GVA and labour market participation but also wider measures. North Ayrshire Council are keen to share learning from the Inclusive Growth Diagnostic.

A major Structural Funds defect has been the increasingly onerous requirements for verification, compliance and audit. The process should be kept simple and there should be a greater degree of trust in local authority financial management and audit procedures than there has been for previous programmes.

North Ayrshire Council’s experience is that support allocated over a sustained period is more likely to achieve objectives than a series of disconnected, time-limited and small-scale initiatives. The seven-year period currently operated by EU funding should be considered. We believe a multi-annual approach is necessary to address the complex and deep-rooted causes of regional inequality. This approach is further recommended as it would facilitate longer-term strategic planning, attract additional investment and underpin subsidiarity and a multi-level governance approach.

Subsidiarity to regional and local economies is important and allocations should align to NUTS2 areas.
Decisions on the right mix of funding and means to delivery interventions to secure inclusive growth will be much more likely to succeed if further devolved to reflect Scotland’s diverse regional economies.

Programmes need to be structured in ways that deliver support more efficiently, flexibly and with more local control. Decisions on the right mix of funding and means to deliver interventions to secure inclusive growth will be much more likely to succeed if further devolved to reflect Scotland’s diverse regional and local economies.
Subsidiarity to regional and local economies is important and allocations should align to NUTS2 areas.

Local authorities can play strong and effective roles at the heart of decision making and management arrangements for the UKSPF. The drive to support inclusive growth requires flexibility at the regional and local level to determine the right mix of funding to business, communities and investment in economic infrastructure. Intervention works best when developed and delivered at the right spatial scale. The resources required to support this approach should be acknowledged by government and reflected in replacement programmes.

One of the difficulties with the Scottish Government’s current approach to European Structural & Investment Fund programmes has been the desire to implement a central framework. Programmes need to be structured in ways that deliver support more efficiently, flexibly and with more local control. The drive to support inclusive growth requires flexibility at the regional and local level to determine the right mix of funding to business, communities and investment in economic infrastructure. Intervention works best when developed and delivered at the right spatial scale.