Much was made of the amount the UK contributes to the EU budget during the EU referendum campaign and much is still being made of it, with talk of a “Brexit dividend” and a “divorce bill”, as we approach Britain’s exit. With negotiations of the nature of the UK-EU relationship post withdrawal still to take place, one thing we know for certain is that the UK will no longer have access to EU structural funding. And so the question is what Britain will do to fill that gap.
These funds consist of the European Regional Development Fund and the European Social Fund, which aim to rebalance social and economic disparities between regions in the EU. They are allocated to member states on a seven-year basis as part of the EU’s Multi-annual Financial Framework, from which the UK has been allocated €10.6b (£9.4b) of structural funding for the 2014-2020 funding cycle. The funding is delivered through a principle of match funding: the EU’s funding makes up for 60% of investment, with the other 40% being sourced from the public and private sectors. This results in a total of €19.7b (£17.5b) of funding over the 2014 to 2020 period.
At present, structural funds are allocated to all EU regions, with less developed regions (defined as having a GDP that is less than or equal to 75% of the EU average) getting the greatest share of funding. West Wales and the Isles of Scilly are the only two regions in the UK that fall under the EU’s definition of a less developed region. Other regions are defined as in transition – GDP between 75% and 90% of the EU average – and more developed – GDP greater or equal to 90% of the EU average.
The programme has rightly received criticisms for being poorly targeted, with measures like Gross Value Added being used to determine need. Such measures distort the prosperity of areas with extremes of wealth and poverty and as a result areas such as Tower Hamlets in London (one of the UKs most deprived areas) has received less funding due to its proximity to the City of London.
A reimagined regional funding programme, which the government is planning for, should use other measures like the Indices of Multiple Deprivation (IMD) to allocate funding to the areas with the greatest need.
In July, the government announced a guarantee to fund all projects that would have been funded by the EU during the 2014 to 2020 period. Later that month James Brokenshire (Secretary of State for Housing, Communities, and Local Government) released a statement to Parliament announcing the designing of a UK Shared Prosperity Fund (UKSPF) that would be established once the UK leaves the EU and the EU structural funding programme.
The objective of the fund will be to “strengthen the foundations of productivity as set out in the Industrial Strategy to support people to benefit from economic prosperity”. The government is undertaking a consultation exercise on the UKSPF and as such has not indicated how funding will be allocated, and how progress will be measured, beyond how productive an area or region is.
The benefit of using IMD is that they measure relative deprivation by neighbourhood, which in turn will allow funding to go exactly where it’s needed. Progress can be measured through monitoring how much less deprived a neighbourhood has become relative to other neighbourhoods as a result of investment.
Moreover, using IMD will have the effect of broadening the criteria set out in Mr Brokenshire’s statement. Namely, some of the measures used to calculate IMD are in accord with the government’s aspiration for the fund to strengthen the foundations of productivity – such as income, employment, education, skills and training deprivation – and the others measure different kinds of deprivation – health, crime, living environment.
Government’s aspiration to improve the prosperity of those in less developed regions is a noble one but other factors that contribute to a better quality of life – like air quality, good physical and mental health, risk of personal and material victimisation – should also be taken into account.