How can a Shared Prosperity Fund best support Wales
post-Brexit?

Wales has faced some deep-seated economic challenges for a number of decades, predominantly caused by a legacy of industrial decline, and GDP being consistently lower than the European average.

Therefore it is vital that the proposed Shared Prosperity Fund is allocated and administered in a way that will be beneficial to Wales post-Brexit.

Wales qualifies for European Structural and Investment (ESI) Funds, currently worth around £375m per year. These funds support businesses, infrastructure, employment and skills.

According to the Welsh Government, since 2007, ESI investment has led to the creation of:

• over 53,300 new jobs;
• 14,560 new businesses;
• funding or support for 28,800 businesses;
• 94,800 people helped into work and;
• the achievement of over 320,400 new qualifications.

We found that, while individual sectors of the Welsh economy have benefitted substantially as a result of ESI funds, these funds have not delivered a transformative change for the Welsh economy.

After 20 years of Objective One funding, West Wales and the Valleys continues to lag significantly behind other regions of the UK and EU.

The UK Government has announced that it intends to replace EU funding with a Shared Prosperity Fund.

The aims of the Shared Prosperity Fund are to:

• reduce inequalities between communities across the four nations,
• help deliver sustainable, inclusive growth based on modern industrial strategy

The Fund's design was also promised to be consulted on widely, "including with the devolved administrations, local authorities, businesses and public bodies."

Since then, progress on developing and consulting on the Fund has been minimal. Substantive information from Ministers has also not been forthcoming.

Details remain inadequate on key aspects including:

• how much Wales will receive under the new arrangements,
• how funding will be administered and
• who funding will be targeted towards.

We call upon the UK Government to urgently work with the devolved governments of Wales, Scotland and Northern Ireland to agree priorities for the Shared Prosperity Fund and to co-create the details regarding how the Fund will work.

It must provide evidence of progress being made in October, ahead of finalising arrangements during November. At that point, the plans the UK Government has co-created with the devolved administrations must give full details of what it will look like, how it will be funded and how it will be administered.

In designing the Shared Prosperity Fund, more thought should be given to how the Fund can bolster skills, productivity and wages, all of which will be essential if Wales is to narrow the GDP gap with the rest of the UK.

The switch to the Shared Prosperity Fund is an opportunity to reset and revaluate Wales' economic priorities post-Brexit and post-COVID-19.

1. The size of the funding pot

The funding pot should be needs-based and maintain at least the current size of funding in real terms. While funding should be based on a multi-annual basis, it should be reactive to the health of the economy as Wales, and the rest of the UK, seeks to recover from the COVID-19 pandemic.

2. The length of the funding period

At present, there is a seven-year financial framework system used by the EU which means that areas have certainty over the amount of funding that they have at their disposal.

Our report concludes that the SPF should be funded via a needs-based formula over a multi-year financial framework to allow a fair allocation and effective planning and delivery.

We call on the UK Government to provide reassurance that multi-year funding will continue and work with the Welsh Government to give serious thought to the potential methods of calculating Wales' funding requirements.

3. The administration of funding

We conclude that, whatever role the UK Government plays in the administration of the Shared Prosperity Fund, the Fund should be built upon the principle of cooperation and partnership between the UK Government, the devolved administrations and local government.

We recommend that the UK Government should work with the devolved administrations and local government to develop a 'memorandum of understanding' that will underpin the operation of the Shared Prosperity Fund.

This memorandum should be built around a partnership approach and provide a guarantee of genuine joint working and engagement for all stakeholders, including the third sector.

4. The role of local government and City and Growth Deals

The UK and Welsh Governments should give serious consideration to the role that local government plays in the delivery of the Fund.

Both the UK and devolved administrations should seek to learn the lessons of how joint working has been facilitated by and through the City and Growth Deals, and how those lessons could be applied to the Shared Prosperity Fund.

In designing the fund, Ministers should consider the opportunities for how these Deals might complement the new funding arrangements.

The Government must now respond to our report

Our report, 'Wales and the Shared Prosperity Fund: Priorities for the replacement of EU structural funding', was published on 2 October 2020.

Detailed information from our inquiry can be found on our website.

If you’re interested in our work, you can find out more on the House of Commons Welsh Affairs Select Committee website. You can also follow our work on Twitter.

The Welsh Affairs Committee is responsible for scrutinising the expenditure, administration and policies of the Wales Office, and the policies of the UK Government as whole that have an impact in Wales.