Cornwall could be the biggest loser under UK Shared Prosperity Fund

Cornwall is likely to lose many millions of pounds of funding per year when regional regeneration funding is rationalised after Brexit, according to a new study.

The study by the Institute for Fiscal Studies (IFS) warns that Cornwall currently receives over seven times as much per person per year (€144) as Lincolnshire (€20) and South Yorkshire (€18), under the current regeneration funding arrangements.

According to the IFS, this is because arbitrary EU rules mean much more funding is given to areas with economic output per person just below 75% of the EU average than to areas just above this threshold.

A more rational scheme would see Cornwall lose in the long term unless overall regional development funding is very substantially increased.

The UK Shared Prosperity Fund is due to replace various EU regeneration funding streams after Brexit.

The fund was first announced by the Conservatives in their 2017 general election manifesto, but details remain scant about how the fund will work or how much money will be allocated to it.

The report notes there is scope to make the UK Shared Prosperity Fund more flexible and tailored to local priorities.

The IFS also argues that former industrial areas of the Midlands and North could receive above-average levels of funding, under the new UK Shared Prosperity Fund, because they perform relatively poorly across a wide range of indicators including deprivation, employment, pay, productivity and qualifications.

The Black Country, for example, is one of the three most disadvantaged areas for each of these indicators. And the Tees Valley is in the bottom four for all except productivity. 

But it adds how more rural areas such as Devon and Somerset and the (Welsh) Marches will fare is less clear.

Levels of pay and productivity are some of the lowest in the country, so they would do relatively well under a formula based on these indicators. But rural areas perform better in terms of deprivation, employment and qualifications and would do less well if these indicators are more highly weighted.

‘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,’ said research economist and report author, Alex Davenport.

‘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.’

In February, an independent commission called on the government to ‘go big or go home’ and set the UK Shared Prosperity Fund at £15bn for 20 years.

In its final report, the UK2070 Commission warned the UK is one of the most ‘spatially unequal’ economies in the developed world and calls on the government to take action to rebalance spending and investment.

And in January, a report by the Industrial Communities Alliance warned the fund needs to be set at £4bn a year if – as widely predicted – it is to be merged with the British government’s Local Growth Fund.

David Phillips, an associate director at the IFS and another author of the report added: ‘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.’

Photo Credit – Diego_Torres (Pixabay)