IFS - Brexit offers an opportunity to rationalise regional funding schemes. It’s past time government announced what it will do

13 Jul 2020 07:21 PM

With less than six months until the UK leaves European regional development funding schemes, the UK government has yet to confirm details of its proposed replacement: the Shared Prosperity Fund.

A new report from IFS researchers, funded by the Economic and Social Research Council, looks at the issues and options for the design of this scheme, including how different regions would fare if different indicators are used to determine funding levels. 

The way in which a replacement scheme is designed will make a huge difference to which areas will gain and which will lose. Four years after the Brexit vote, it is high time we had some idea of the government’s intentions.

The report finds that Cornwall is likely to lose many millions of pounds of funding per year once any transitional arrangements expire, but other areas in the North and Midlands could gain.

As well as looking at funding allocations, the report also looks at the lessons that can be learned from EU and previous UK regional development programmes:

Finally, the report considers the implications of the COVID-19 crisis for the new Fund:

David Phillips, an associate director at the IFS and an author of the report said:

“EU regional development funding, while tiny in the context of overall UK government spending, is the biggest source of funding explicitly aimed at convergence between the poorer and richer regions of the UK. Its replacement, the Shared Prosperity Fund, will therefore be at the heart of the ‘levelling up’ agenda.

With less than six months until it will have to be in place, it is therefore disconcerting that detailed proposals have yet to be consulted on, let alone finalised and approved. With limited time left, one option the government could consider would be to continue with existing EU funding allocations for one more year.  This is similar to what it has done for council funding, where big reforms planned for next April have been pushed back until at least 2022.”

Alex Davenport, a research economist at the IFS and another author of the report:

“New rules and funding formulas will ultimately be needed. And this will mean winners and losers, at least if we want to avoid the new system being an irrational fudge. Cornwall is almost certainly going to be a loser in the long term, unless the government simply replicates arbitrary cliff edges in existing EU rules, which see this area receive over seven times as much as areas that are only slightly less poor. 

Predicting the winners is more difficult given the literally infinite possibilities with the new formula. However, urban and former industrial areas of the Midlands and North perform relatively poorly on a range of needs indicators and are therefore likely to receive above-average funding under any formula. And research suggests governments tweak funding rules to benefit their politically marginal constituencies – which for the current government includes a new swathe in areas such as the Black Country and Tees Valley.”

Sharing prosperity? Options and issues for the UK Shared Prosperity Fund