Liz Truss must work with the devolved governments to solve the crises facing the UK – not ignore them

Andrew Potts

In 2017 the UK Government committed to setting up the UK Shared Prosperity Fund (UKSPF) as a post-Brexit replacement to the European Regional Development Fund, and European Social Fund, with funding for the four nations at least the same level in real terms as that previously received from the EU.

However, it wasn’t until earlier this year that the funding formula was announced. Despite being an opportunity to ‘take back control’ and update the formula, it only perpetuates the inequities of the EU system.

The Institute for Fiscal Studies (IFS) points out that the system does not account for varying population changes across the regions and counties, such that some areas will have many times more funding per head than others that are only slightly less deprived.

The situation is worsened in that the funding formula varies for each of the four nations, with the Welsh formula penalising those local authorities with larger populations. Whether or not you think the funding level for Wales is fair (£585m over three years), the formula’s flaws mean that funding within Wales is inequitable.

The Welsh formula consists of three elements:

1. 40% of funding is allocated according to the population of different council areas.
2. 30% of funding is according to a composite index of economic ‘need’, also accounting for differences in population between council areas.
3. 30% of funding is according to the levels of deprivation measured by the Welsh Indices of Multiple Deprivation (WIMD), not accounting for differences in population between council areas.

What this means in practice is that the area with the lowest need/deprivation receives no funding via elements b) and c) while other areas’ funding depends on how their level of need/deprivation compares to the councils with lowest and highest levels, and the Welsh national average.

The result is that without taking account of different population sizes, two local authority areas with similar deprivation levels will receive the same total deprivation funding, as opposed to receiving the same funding per head of population.

The IFS cites examples whereby Rhondda Cynon Taff, only slightly less deprived than Merthyr Tydfil, would receive about one-fifth of the amount per head from the deprivation element of the formula as Merthyr Tydfil, simply because RCT’s population is four times that of Merthyr.

By taking account of population differences, Cardiff, Rhondda Cynon Taff and Swansea would receive £15.5m, £7.9m and £5.8m more funding respectively over the next three years. By contrast, Merthyr Tydfil, Blaenau Gwent and Torfaen would respectively receive £9.1m, £8.5m and £4.2m less funding than they are due to receive over the same period. It means that millions of pounds move from Welsh council areas with large populations to those with small populations.

Limited dialogue

Unfortunately, there is no right or wrong formula, but ignoring differing population sizes means that there is at least a better formula than the one being applied. We have seen that mathematical modelling can only take you so far, sometimes you also need to apply some common sense.

The UK Government’s methodology note sets out the rationale for the funding approach:

1. “that Welsh councils vary in population by less than English and Scottish councils”
2. “a commitment to co-produce and co-design with the Welsh Government, who advocated for an approach that incorporated the WIMD”
3. “the acknowledgement that stakeholders in Wales have a much better picture of the local situation than is known in Whitehall – therefore this approach is recommended as it aligns with local feedback”

Whilst point one is technically accurate, Cardiff having six times the population as Merthyr Tydfil is not insignificant. For the latter two points the IFS researchers now understand that consultation with Welsh Government was “not the case”.

This was underlined in a letter from Economy Minister Vaughan Gething stating “disappointment that the Welsh Government had only two weeks of genuine discussion on the matter” and a methodology for allocating finances “which distributes money away from those areas where poverty is most concentrated.”

It is therefore “unclear” how the decision to use the formula was reached and, unfortunately, provides another example of limited dialogue between the UK and devolved administrations.

Further evidence of asymmetric support relates to ‘Multiply’ funding allocation. Multiply is a numeracy programme to be funded by ring-fenced monies from the UKSPF to help improve numeracy (with the aim of enhancing job opportunities and increasing productivity). Under the guidelines, Wales will receive seven times the funding per head for Multiply than England.

Great, you might think. True, numeracy skills in Wales need to be improved, but ring-fencing means the monies can only be used to improve numeracy. Capping the ring-fenced amount at a more proportionate level while being able to use the difference on other means of economic development would have made more sense.

Crises

So where do we go from here? Devolved nations’ administrations have often complained of a lack of engagement by Westminster, and the above provides an example of how the devil is so often in the detail.

It is highly likely that Liz Truss will next month become Prime Minister, First Lord of the Treasury, and Minister for the Union.

In a leadership hustings Ms Truss called Nicola Sturgeon an “attention seeker” who should be “ignored”. Whilst I have some sympathy in that Ms Sturgeon is one of the people for whom I regularly reach for the TV’s mute button I am not, luckily for all of us, the Prime Minister.

I might disagree with her politics, but Sturgeon remains the elected leader of about five million Scots. Likewise Mark Drakeford (“a low energy version of Jeremy Corbyn”) and three million Welsh. Politics is about shaping ideas, not ignoring them.

There are numerous crises facing the United Kingdom which can only be met in a united way. That is why the third of the above epithets, Minister for the Union, must be given the gravity it deserves.

Restoration of No.10’s ‘Union Unit’ is essential so that the likes of the UKSPF are not unilaterally imposed, but supposedly innocuous details such as the implications of funding formulas can be thrashed out. In the case of UKSPF, genuinely accounting for population and deprivation differences, as well as incorporating local knowledge would be a start.

If Brexit was about taking back control, perhaps post-Brexit should be about sharing some of it.