UK and Welsh governments ‘must work together on regional aid for the sake of Wales’ economy’

Martin Shipton

Wales’ chance of future economic success will be jeopardised if the UK and Welsh governments don’t work together to deliver post-Brexit regional aid programmes, according to an all-party report by Senedd Members.

For that reason, Westminster should stop shunning the Welsh Government and include it in the running of the Shared Prosperity and Levelling Up funds.

The Economy, Trade and Rural Affairs Committee has carried out an inquiry into how these funds are being distributed and administered across Wales, following the UK’s exit from the EU.

The report outlines teething problems and recommends ways to improve the delivery of funds. It also asks for clarity from the UK Government on whether the funds will continue after 2025.

Members of the committee examined evidence from a wide range of organisations, both UK and Welsh Governments, local councils, leading academics and beneficiaries of funding.

Some witnesses suggested that expectations of what could be achieved through regional aid funding had been unrealistic for many years, including from the EU when the UK was a member state.

The Welsh Local Government Association (WLGA) stated that “EU Structural Funds were not and could not be, in and of themselves, transformative of the Welsh economy.”

Cardiff Metropolitan University argued that Germany spent around £71bn per year from 1990-2014 to close gaps between East and West Germany, and even such huge amounts had only narrowed the productivity gap rather than closing it entirely.

Therefore, as Structural Funds were not available at anywhere near this scale, they couldn’t transform the Welsh economy.

Stunted

On the positive side, however, the WLGA argued that the funds had accelerated the implementation of a range of capital and revenue projects to support economic development, although the delivery structure had “stunted local delivery capacity to varying extents.”

The WLGA gave the example of a Welsh local authority that received over
£200m in EU funds over the 2007-13 and 2014-20 rounds.

Over 2,000 jobs were created under the Convergence Programme, significantly contributing to the local economy. Now, however, “the sustainability of those additional jobs will … be a key issue in that area and across all of Wales”.

A number of organisations set out positive examples of projects within their local area or sector, and also negative aspects associated with EU funding that they felt hindered progress.

Rhondda Cynon Taf council said that the area had benefitted considerably from EU Structural Funds investment, citing the regeneration of town centres; the restoration of Pontypridd Lido; investment in business space at two brownfield sites; and programmes to support employment and skills development as examples of successful projects.

Universities Wales highlighted a selection of research and innovation projects that were successful in accessing support from the 2014-20 round of Structural Funds, including a world-leading brain research centre, innovation campuses and the centre for compound semiconductors.

The Federation of Small Businesses Wales (FSB Wales) said EU funding had played a particularly important role in supporting scale-up firms looking to further their aspirations for growth.

Mixed picture

However, the body also commented that small business engagement and signposting of available EU funding support for access to finance had not always worked as effectively as it should.

The Institute of Welsh Affairs (IWA) said that it was “up for debate” as to whether Structural Funds transformed the Welsh economy. It said there had been a mixed picture: while the funds enabled the Welsh Government to intervene in parts of Wales experiencing economic challenges, Wales still performs less well than other parts of the UK on a number of economic indicators: “Wales’ widespread economic challenges remain,” said the IWA’s submission.

“ESI [European Structural and Investment Funds] did not solve these, nor is it likely that its UK replacement funds will in the short to medium term. The solution requires both fundamental fiscal reform in the short to medium term and constitutional reform in the longer term.”

The Development Bank of Wales noted that Structural Funds were an important source of capital for the bank and provided an opportunity to test the concept of a government-owned development bank.

The returns from loans to businesses provided through Structural Funds will allow the bank to re-invest in Welsh businesses. They said the amount of funding was never going to be enough to transform the economy, but that Structural Funds have “made major inroads into creating the conditions where the Welsh economy can grow”.

The committee concluded: “This was not an inquiry into the success or otherwise of previous EU funding programmes in addressing deep-rooted economic issues. However, those who responded to questions about the impact of EU Structural Funds identified some clear benefits derived from them.

“In developing replacement funding it is vital to listen to the views and experience of the beneficiaries of Structural Funds in Wales, to heed the lessons learnt from previous funding rounds and so avoid repeating any past mistakes.”

Teething problems

Committee chair Paul Davies, the Conservative MS for Preseli Pembrokeshire, said: “Following the UK’s departure from the EU, and since the introduction of the Levelling Up and Shared Prosperity funds, we have identified a number of teething problems. Funding economic development in Wales is a shared responsibility, it is a priority for everyone. For development funding to work for the people of Wales, the UK and Welsh Governments have to work together more effectively.

“This process must also continue to involve local councils who are well-placed to understand their communities, and who have worked hard to submit bids to the Levelling Up Fund, and to get the Shared Prosperity Fund up and running in their local areas.

“Crucially, however, all organisations must have a fair chance of benefitting from the Shared Prosperity Fund. We’ve heard about the challenges faced by some voluntary sector bodies, universities and colleges in accessing funding, and about concerns that some local authorities are prioritising their own projects.

“Organisations also need to know that support is here to stay and people need certainty. We must get assurances from the UK Government that funding will continue beyond 2025, when this current funding round is scheduled to end.

“It is early days, but Wales’ economic success is at risk if governments don’t work together on post-EU funding. That is why we are making a number of recommendations for both the UK and Welsh Governments to evaluate what’s happening and improve the system for the years to come.”

Serious concerns

A spokesperson from the Welsh Government said: “We welcome this report and share the Committee’s serious concerns about these funds.

“The UK Government’s Levelling Up process has left Wales with less say over less money within a chaotic system that is failing to support the jobs, projects and services in the places that need them. The UK approach has also rolled back devolution by centralising all decisions in Whitehall.

“Wales is £1.1bn worse off as a result of the UK Government’s failure to meet its promise to replace previous EU funds in full. The Welsh Government previously used EU funds to help tackle unemployment, deliver apprenticeships and training, create and grow businesses, and build new colleges among other investments.

“Voluntary organisations and universities were also supported to help vulnerable people in our communities and create skilled, quality employment in areas including health sciences and the zero-carbon economy. Under the UK Government’s Levelling Up agenda, around 1,000 high quality jobs in research and innovation are being lost in Wales as universities cannot access these funds.

“The UK Government should stop taking decisions in devolved areas and restore these funds to Wales.”

The report, Post-EU regional development funding sets out a list of recommendations for the UK and Welsh Governments:

• The Welsh Government should be more involved in developing and delivering the funds;
• Account should be taken of the population size of deprived areas in future funding rounds for the Shared Prosperity Fund;
• There should be a review of how the Shared Prosperity Fund is delivered locally, regionally and Wales-wide, based on what works best;
• A Wales-wide body to coordinate funding regionally should be created;
• Longer funding periods should be agreed for the Shared Prosperity Fund to allow better planning and delivery;
• The Shared Prosperity Fund should be evaluated with input from Welsh-based organisations, publishing lessons learned;
• All organisations should have a fair chance of benefitting from the Shared Prosperity Fund;
• Both governments should work together to maximise Wales’ share of research and innovation spending;
• Governments should develop a longer-term plan to safeguard research and innovation in the Welsh higher education sector;
• If the Levelling Up Fund continues beyond 2025 it should not be delivered through competitive bidding – funding should be allocated to those areas in greatest need;
• The Welsh Government should have greater involvement in developing and administering the Levelling Up Fund if it continues beyond 2025;
• The UK Government should clearly set out its intentions for funding after 2025 as soon as possible.