Money, respect and other elephants?

Ahead of giving evidence to the Senedd’s Economy, Trade and Rural Affairs Committee, the IWA’s Policy and External Affairs Manager Joe Rossiter breaks down why current mechanisms to replace EU funds aren’t going to deliver transformative change for Wales.

How the UK Government replaces funds from the European Union, post-Britain’s exit from the EU, remains a contentious and politically explosive issue. Whilst there is wrangling on whether the overall level of funding given to Wales matches UK Government’s manifesto commitment that it would receive ‘not a penny less’ than it did under EU funding arrangements, the issues go far beyond this alone.

As we start to transition to post-Brexit funding realities, and approved projects are beginning to be delivered in Wales and across the UK, we can begin to answer the many questions regarding what the impact of this transition will be and what will be the direction of travel going forward.

Firstly, there is an elephant in the room, and it’s a big one. Welsh Government undoubtedly lose out in this transition. EU funds were delivered and administered in Wales by Welsh Government, with projects aligned to joint EU and Welsh goals. UK Government’s EU replacement funds, the Levelling Up Fund (LUF) and the Shared Prosperity Fund (SPF), repatriate control to Westminster. The funds deliver money directly from Westminster to local authorities in Wales.

This distinction has huge implications.

It means that Welsh Government no longer has oversight of projects, and local authorities in Wales bid into the funds directly to UK Government. The UK Government’s Department of Levelling Up, Housing and Communities, decide which bids get approved, which areas are prioritised and the degree of funding provided.

There are two issues with this. Firstly the competitive nature of funding bids puts local authorities in a dog-eat-dog tussle for resources. This takes us a step back from regional decision making in Wales and sets local governments up to reflect UK Government aims and objectives for communities in Wales. Secondly, Welsh Government is looking to make more local economic decisions at a regional level, through new entities like Corporate Joint Committees and City Growth Deals. But LUF and SPF pull prioritisation and decision making back down to local authority level. This further complicates regional growth plans and investment decisions which, evidence suggests, are best made at larger, regional level. It also severely muddies the scrutiny and democratic accountability of decision making and local planning as projects receiving LUF are within devolved competency.

Welsh Government has few levers to pull to transform its economy, and the loss of European investment further weakens Wales’ ability to ‘level up’ the country.

After suffering a decade of funding cuts under UK Government’s austerity agenda, coupled with current inflationary pressures, it’s clear that local authorities are in desperate need of funding. It’s hardly surprising that they seek to align their project bids to UK Government aims, rather than Welsh Government in order to have the best chance of receiving much-needed funding. It’s also important to acknowledge that not all local authorities are equally able to produce high-quality LUF and SPF bids. Many lack the resources, capacity or expertise. The competition for UK funding is thus not a level playing field.

A further complication is the shrinking of project timetables. EU funds had a life-cycle of seven years. LUF and SPF are annual. This shortens not only the planning time, and opportunities for consultation on projects, but also their delivery. Practically it means that ‘shovel ready’ projects may be prioritised over more strategically important, longer term projects. This could have significant consequences for Wales’ transition to a net zero economy amongst other things, as difficult decisions and longer term investment need to be made to encourage and give confidence to accompanying private sector investment alongside wider community consultation.

Will these competitive, UK-held and managed funds deliver real change for communities across Wales? We think this is not the best way to deliver funds to transform regions and communities. 

But did EU funds transform Wales’ economy?

The Senedd Economy consultation asks us, did EU funding transform Wales’ economy? Well yes and no. But what it undoubtedly did do, was fill some of the gaping gaps in Welsh Government’s budget.

The IWA has outlined, in our paper: Fiscal Firepower how, despite having fairly strong powers and a budget in the tens of billions, Welsh Government has only limited economic ability to kickstart major projects to improve people’s lives. With prudential borrowing powers capped at £150 million per year, EU funding of £1.5 billion per Senedd term represented ten times this figure.

Welsh Government has few levers to pull to transform its economy, and the loss of European investment further weakens Wales’ ability to ‘level up’ the country. Furthermore, while the Welsh Government has been elected with responsibility for regional development, how can Ministers act to fill this democratic mandate when UK Government has taken back control of one of the key pots of money?

A shared path forward?

Wales’ economy faces long-standing economic challenges. Despite improving growth rates, Wales has had difficulty catching up with UK average levels of economic prosperity, wellbeing and productivity. Indeed, it languishes at the bottom of economic league tables of the nations and regions of the UK. That Wales received so much funding from the EU is not a badge of honour. It shows that Wales’ economy and certain communities within Wales (West Wales and the Valleys) are among the most economically deprived in Europe. We want Wales to develop, to perform better, to deliver living standards improvements for low-to-middle income households, so that people to live where and how they want, with their economic, social and environmental well-being maximised. Funding must be spent that makes us less reliant on external funding in the future, making our economy more sustainable, robust and self-sufficient.

To truly ‘level up’ Wales’ ailing and underperforming economy requires a fundamental transformation. LUF and SPF, as they are currently being administered and delivered, do not offer transformative change, but just a sticking plaster.

To deliver transformative change and to revive Wales’ ailing economy, we need to build on the strengths and weaknesses inherent in both EU funds and the SPF and LUF to date. We need an economic strategy for Wales that details the different journeys for different parts of Wales. We need long-term funding models with mutually agreed principles and roles for the public, private and third sector, where everyone knows their role in contributing to achieving the national economic mission. We need funding to be collaborative, not competitive between local authorities: regional collaboration has to be underpinned by funding processes, not hindered by them.

To truly ‘level up’ Wales’ ailing and underperforming economy requires a fundamental transformation.

There are glimmers of hope, nonetheless. We have seen with Wales’ two successful freeports bids (leaving aside whether or not you think these can deliver the economic opportunities attributed to them) how Welsh Government and UK Government can work together to achieve joint ambitions when they choose to. This included recognition of Welsh Government’s ambitions on fair work for example. Shouldn’t a collaborative, mutually respectful relationship be the way forward? There is no excuse for anything else, given the multiple challenges our citizens face.

Importantly, any aims to ‘level up’ need to be co-directed and co-delivered with devolved governments across the UK. Not doing so makes for poorer projects and poorer outcomes for the people of Wales. There has to be a formal role for the devolved governments in the allocation of funding and the economic development of how Wales’ regions plan their priorities. That, alongside longer funding cycles, a collaborative rather than competitive structure and a greater recognition of Wales as a distinct economic entity with its own plans would go a long way. The elephant in the room remains, we must address it and eat it, one bite at a time, to move forward together.

You can see Joe give evidence to the Senedd on this subject on Senedd TV, this Thursday at 09:30. You can read the IWA’s full consultation response here.