When the UK was an EU member it received funds from various EU funding sources and development programmes. Now the UK has left the EU, those funds have ceased. In population terms, Wales received a disproportionate share of the UK’s regional development funding from the EU. Administration of that funding was devolved. The UK Government has committed to match the value of EU funding, but it has also been criticised for delays in setting out how the new funding systems will work.

On 3 March 2021, Lord German (Liberal Democrat) is due to ask the Government “how the money replacing funding previously provided by the European Union in Wales will be administered”.

What were the sources of EU funding?

There were broadly two sources of EU funding when the UK was an EU member: structural and development funding; and discretionary funding, often awarded on a competitive basis.

Most EU funding provided to the UK was from the European Structural and Investment (ESI) funds. The ESI comprised five funds, which included:

  • the European Regional Development Fund, which was an instrument for reducing disparities in levels of development in regions of the EU. Different areas of the UK were allocated different levels of funding, based on criteria such as regional GDP per capita;
  • the European Agricultural Guarantee Fund, which provided farm subsidies under the EU’s common agricultural policy;
  • the European Social Fund, which supported employment- and skills-based projects.

Organisations and individuals in the EU could also apply for funding on a competitive basis, such as for the Erasmus+ cultural exchange programme or Horizon 2020 research and innovation funding. The UK was one of the most successful EU member states in securing research funding.

How much funding did Wales receive when the UK was an EU member?

Over the 2014–2020 EU budget period, the UK as a whole received £15 billion of EU structural and investment funding, or approximately £2.1 billion a year.

Parts of Wales—such as west Wales and the Valleys—were defined as less developed regions for the purposes of receiving EU development funding, as GDP per person was less than 75% of the EU average. The table below shows that on average Wales received approximately £400 million a year of ESI funds between 2014 and 2020. This was around four times the UK average on a per person basis.

(Source: House of Commons Library, The UK Shared Prosperity Fund, 29 January 2021, p 6)

A list of the EU structural fund projects approved in Wales from 2014–2020 can be found on the Welsh Government website.

A report on the replacement of EU structural funds in Wales by the House of Commons Welsh Affairs Committee said that previous studies on the impact of the funding had been “inconclusive”. However, the committee also reported evidence it had received of positive impacts of the funding. The report stated that individual sectors in Wales “have benefitted substantially” from EU funding.

The Welsh Government has said EU funds have supported the creation of “48,000 new jobs and 13,000 new businesses” and have “improved broadband coverage, built research capacity, invested in renewable energy, and developed vital infrastructure”.

What EU funding will the UK Government replace?

At the March 2020 budget, the Government committed to “match current levels of funding for each [UK] nation from EU structural funds”. The budget stated that a new UK Shared Prosperity Fund (UKSPF) would replace the “overly bureaucratic” EU structural funds, with funding “realigned to match domestic priorities, not the EU’s”.

In addition to the shared prosperity fund, the Government has made separate commitments to replace EU farm subsidies and fisheries funding after Brexit.

On Erasmus+ funding, the Government did not agree to continued participation in the Erasmus+ programme as part of the UK-EU Trade and Cooperation Agreement. The Government has announced that a £100 million Turing scheme will replace Erasmus+. Full details of the scheme have not been published. However, the Government has said that it “worked closely with the Welsh Government as well as the other devolved administrations” on designing the Turing scheme and that it will be a “UK‑wide” scheme (ie non-devolved).

The Government did agree to continued participation in the EU’s Horizon Europe research and innovation funding programme from 2021. At the time of writing, details of how the funding programme will be administered have not been published.

The UK Shared Prosperity Fund

A UKSPF was first referred to in the Conservative Party’s 2017 general election manifesto. It said the Government would “use the structural fund money that comes back to the UK following Brexit to create a United Kingdom Shared Prosperity Fund, specifically designed to reduce inequalities

between communities across our four nations”.

Theresa May’s Government set out its intentions for the fund in 2018, but did not make specific funding commitments.

In October 2020, the House of Commons Welsh Affairs Committee report criticised the current Government for delays in providing information on the UKSPF. The committee said the Government “appears to have made negligible progress” in developing the fund. The report recommended that the Government “must urgently work” with the devolved governments to “co-create the details regarding how the fund will work”.

The November 2020 spending review set out further details on the UKSPF. On the overall funding commitment, it said:

The Government will ramp up funding, so that total domestic UK-wide funding will at least match current EU receipts, on average reaching around of £1.5 billion a year.

The spending review said that the UKSPF would “target places most in need across the UK, such as ex‑industrial areas, deprived towns and rural and coastal communities”. A “second portion” of the fund would be targeted at “people most in need, through bespoke employment and skills programmes”. On the timetable for the fund’s implementation, it said the Government would set out further details “in a UK-wide investment framework published in the spring [2021]”.

How will the Shared Prosperity Fund be administered?

The administration of EU structural funds had been devolved to the UK nations since 1999. The Welsh Government and Senedd have expressed concerns about potential centralisation of the replacement funding, now that the UK has left the EU.

In a 2017 report on post-Brexit funding, the then Welsh Cabinet Secretary for Finance, Mark Drakeford, stated:

We will work constructively with the UK Government on aspects of economic delivery, but we will firmly oppose any attempt to centralise regional development policy in London. The UK Government’s “Shared Prosperity Fund” approach, if applied on a UK basis and directed from London, would be an attack on devolution, and would risk reducing needs-based funding to our poorest communities.

During the 2019 Conservative leadership campaign, it was reported that Boris Johnson had told a hustings event in Cardiff that he wanted to see a “strong Conservative influence” over how EU replacement funds are allocated.

In November 2020, the Welsh and Scottish Governments issued a joint statement which said the UK Government must “respect devolution and honour its commitment to replacing EU funds in full”.

The Welsh Government has published a framework which set out its proposals for how the replacement EU funding should be administered. The framework proposed that the UK Government would allocate funding “in full to the Welsh Government from [the] Shared Prosperity Fund (SPF) on a multi-annual basis”, with the Welsh Government having “full autonomy over its SPF share”.

In a letter to the Scottish Finance Minister in January 2021, the UK Treasury minister, Steve Barclay, stated that the shared prosperity fund would be a “UK-wide” fund, using “the new financial assistance powers in the UK Internal Market Act [2020]”. The BBC claimed that the implication of this statement was that the Government intended “to bypass the devolved administrations and replace European structural funds with a centrally-controlled fund”.

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Cover image from GOV.Wales.