Fears that UK regional aid money for Wales could drop from 2026

Martin Shipton

A UK Government Minister has failed to allay fears that regional aid funding for Wales will decline when a new system is introduced in 2026.

Plaid Cymru peer Baroness Carmen Smith raised the issue during a House of Lords debate on the future of the Shared Prosperity Fund.

The fund was set up by the previous Tory UK Government as a post-Brexit replacement for EU regional aid.

When the UK was an EU member state, the Welsh Government was responsible for allocating EU aid money to projects intended to increase prosperity.

After Brexit, however, the UK Government decided to bypass the Welsh Government and allow local authorities to bid for grants.

There has been speculation that the Labour UK Government will revamp the distribution of regional aid from 2026, giving money directly to local authorities in England. Such a mechanism could trigger “Barnett consequential” payments to Wales, Scotland and Northern Ireland, with the amount of money for each country determined by a population-based formula.

Funding cut

If that happened, Wales could face a huge funding cut. Before Brexit most of Wales qualified for the top level of EU aid because of its relative poverty. Since leaving the EU, Wales has continued to receive a higher allocation because of its greater social need.

As a result of the speculation, Baroness Smith raised the issue with Levelling Up Minister Lord Khan of Burnley. Addressing him in the House of Lords, she said: “At present, Wales gets 23% of the Shared Prosperity Fund. If the SPF is included in local government funding in England, this risks money being redirected through the Barnett formula. Will the Minister agree that a needs-based formula is better than a population-based formula for funding?

Lord Khan responded: “I understand the noble Baroness’s point. However, we have to recognise that there were no plans from the previous government for the funding going to the devolved governments. We have brought in a transitional year to prepare for post March 2026. All these conversations are yet to be had. I cannot make any particular comment on them, but I will come back to the noble Baroness once we finalise our proposals for after March 2026.”

Welsh Government

Lord Khan did, however, confirm that the Welsh Government would again have a role in allocating aid money to projects in Wales.

A Tory peer, Baroness Bloomfield, raised the matter with Lord Khan, saying: “The Shared Prosperity Fund was a central part of the Conservatives’ levelling-up agenda, which involved the allocation of funds to elected local authorities, which know their communities best.

“Given that the Shared Prosperity Fund already works with local authorities throughout Wales, what benefit will be achieved by extending decision- making powers to Senedd Members, who are not always known for their sensible financial decision-making?”

Lord Khan responded: “I politely disagree with the noble Baroness. The previous government funded many local growth programmes, including the UK Shared Prosperity Fund. However, they did not make adequate provision in the Budget to do so.

“This Government have been clear that they will take the difficult but responsible decisions to ensure we fix the foundations of our country’s finances and, more importantly, meet the commitment in our manifesto. From March 2026, we will work with our Welsh Government counterparts to ensure that the allocation of that money is decided by people in Wales.”

Firm commitment

Responding to Labour peer Baroness Wilcox, who wanted a firm commitment that decision-making would be returned to the Welsh Government, Lord Khan said: “This government are committed to restoring relationships with devolved governments and showing the utmost respect to the devolution settlement.

“We are working closely with the Welsh Government to discuss our commitment to restore decision-making on structural funding to representatives of Wales. My noble friend will be pleased to hear that my colleague, Minister Alex Norris, will meet his ministerial counterpart in the Welsh Government this week to discuss this very important issue.”

Later Baroness Carmen Smith and former Labour Secretary of State for Wales Lord Peter Hain both raised the increasing inability of people to afford to buy homes in Wales, and suggested possible solutions to the crisis.

Baroness Smith said: “Most young people I know who have been able to move into rented accommodation cannot afford to save for a deposit to get on the housing ladder. The idea of owning a home is becoming increasingly unrealistic. According to analysis from the ONS, a full-time employee in Wales can expect to spend 6.1 times their earnings on purchasing a home in the local authority area in which they work. This is the reality of many young people across the UK, and it is not good enough.

“Plaid Cymru believes that everybody has the right to a safe and affordable home in their community and that this should be the purpose of the housing system. We believe that introducing a right to adequate housing will underpin this. This right should be more than aspirational; it should be enforceable, providing citizens with a legally backed guarantee that their homes will meet acceptable standards for health and safety. Such a transformative approach is needed to truly address the needs of low-income households and struggling communities. This would reinforce the belief that housing is a fundamental human right.

“To address the issue of soaring rents in the private rental sector, His Majesty’s Government could introduce rent controls, which could safeguard against unjustified rent increases and housing insecurity. Rent controls should be progressive and based on the residual income measure, ensuring that no rent leaves tenants unable to meet essential needs. This measure should apply to the cheapest 30% of rental properties, capping rents at local housing allowance rates; for the remaining 70% of rental properties, rent controls could be linked to housing quality, encouraging landlords to improve property standards.”

Waiting lists

Lord Hain said: “For far too long, Governments have left it to the market to tackle Britain’s housing crisis, and it has not worked, leaving a chronic housing shortage which has been pushing up house prices and making private rents unaffordable, creating mammoth waiting lists for social housing and driving up the annual housing benefit bill.The 2010-15 Conservative-Lib Dem coalition government committed to spend only £10 on building new homes for every £100 on housing benefit—virtually a reversal of 40 years ago, when, of every £100 we spent on housing, £80 was invested in bricks and mortar and £20 was spent on housing benefit.

“Even Labour’s ambitious and admirable commitment to raise housebuilding to 300,000 homes a year during this Parliament still leaves a gap, with millions of families on council waiting lists and millions more adult children staying with their parents because they cannot find or afford a home of their own. The average home cost 3.5 times average earnings in 1997. By 2023, it cost more than eight times. How can young couples be expected to climb the housing ladder when it is impossibly expensive for them to find a place on its lowest rung?

“Oxford University Professor John Muellbauer has found that in the UK, on average over 70% of the value of homes is in the value of the land on which they are built. He urges central government and local authorities to work together in using public funds to buy development plots, in effect to establish a national land bank, for subsequent sale with planning permission to private developers at a profit to the community. He argues that such a radical move could transform housing supply and that similar initiatives have succeeded in South Korea, Singapore, Taiwan and Hong Kong in accelerating urban development and in making housing more affordable.

“Official statistics showed that the proportion of homes lived in by owner occupiers in the year 2023–24, last year, had dropped to 65%, down from 71% under Labour in 2003 and its lowest level for 35 years. New social housebuilding has also plummeted, leaving calamitous shortages of affordable housing for rent or sale.

“The neoliberal mantra has not worked. As a mechanism for delivering adequate housing, the free market has failed abysmally, which is why public investment is now more vital than ever before to clear up this appalling housing mess.”