5 December 2018

Brexit gives Britain the chance to better help its poorest regions

By Lucky Dube

Much was made of the amount the UK contributes to the EU budget during the EU referendum campaign and much is still being made of it, with talk of a “Brexit dividend” and a “divorce bill”, as we approach Britain’s exit. With negotiations of the nature of the UK-EU relationship post withdrawal still to take place, one thing we know for certain is that the UK will no longer have access to EU structural funding. And so the question is what Britain will do to fill that gap.

These funds consist of the European Regional Development Fund and the European Social Fund, which aim to rebalance social and economic disparities between regions in the EU. They are allocated to member states on a seven-year basis as part of the EU’s Multi-annual Financial Framework, from which the UK has been allocated €10.6b (£9.4b) of structural funding for the 2014-2020 funding cycle. The funding is delivered through a principle of match funding: the EU’s funding makes up for 60 per cent of investment, with the other 40 per cent being sourced from the public and private sectors. This results in a total of €19.7b (£17.5b) of funding over the 2014 — 2020 period.

At present, structural funds are allocated to all EU regions, with less developed regions (defined as having a GDP that is less than or equal to 75 per cent of the EU average) getting the greatest share of funding. West Wales and the Isles of Scilly are the only two regions in the UK that fall under the EU’s definition of a less developed region. Other regions are defined as in transition – GDP between 75 per cent and 90 per cent of the EU average – and more developed – GDP greater or equal to 90 per cent of the EU average.

The programme has rightly received criticisms for being poorly targeted, with measures like Gross Value Added being used to determine need. Such measures distort the prosperity of areas with extremes of wealth and poverty and as a result areas such as Tower Hamlets in London (one of the UKs most deprived areas) has received less funding due to its proximity to the City of London.

A reimagined regional funding programme, which the government is planning for, should use other measures like the Indices of Multiple Deprivation (IMD) to allocate funding to the areas with the greatest need.

In July, the government announced a guarantee to fund all projects that would have been funded by the EU during the 2014-2020 period. Later that month James Brokenshire (Secretary of State for Housing, Communities, and Local Government) released a statement to Parliament announcing the designing of a UK Shared Prosperity Fund (UKSPF) that would be established once the UK leaves the EU and the EU structural funding programme.

The objective of the fund will be to “strengthen the foundations of productivity as set out in the Industrial Strategy to support people to benefit from economic prosperity”. The government is undertaking a consultation exercise on the UKSPF and as such has not indicated how funding will be allocated, and how progress will be measured, beyond how productive an area or region is.

The benefit of using IMD is that they measure relative deprivation by neighbourhood, which in turn will allow funding to go exactly where it’s needed. Progress can be measured through monitoring how much less deprived a neighbourhood has become relative to other neighbourhoods as a result of investment.

Moreover, using IMD will have the effect of broadening the criteria set out in Mr Brokenshire’s statement. Namely, some of the measures used to calculate IMD are in accord with the government’s aspiration for the fund to strengthen the foundations of productivity – such as income, employment, education, skills and training deprivation – and the others measure different kinds of deprivation – health, crime, living environment.

Government’s aspiration to improve the prosperity of those in less developed regions is a noble one but other factors that contribute to a better quality of life – like air quality, good physical and mental health, risk of personal and material victimisation — should also be taken into account.

Some have interpreted the vote to leave as indicating a split between the winners and losers of recent economic history. Research by the Centre for Social Investigation at Nuffield College, Oxford found that when leave voters were asked to rank four reasons in order of how important they were when deciding which way to vote in the referendum, the lowest ranked reason was “teaching politicians a lesson”. The highest ranked reason was to “regain control over EU migration” followed by “not wanting the EU to have any role in UK law making,” and the third being “not wanting the UK to send any more money to the EU”.

This contradicts the interpretation of the leave vote as the 52 per cent venting grievances about inequality, and, as such, a proposal to improve regional development funding shouldn’t be viewed through the lens of delivering the result of the referendum.

Indeed there is no relationship between a local authority’s support for leaving the EU in 2016 and the level of deprivation in that area. Particularly, there is no correlation between local authority’s proportions of neighbourhoods in the lowest decile of the government’s measure for relative deprivation (IMD) with support for a leave vote in the referendum.

Nevertheless, when the UK leaves in the EU, irrespective of the kind of deal it negotiates, it will cease to contribute to EU structural funds and the regions in the UK supported by that fund will cease to be beneficiaries of it.

Even though there is no link between a leave vote in an area and how deprived it is, the result of the referendum has brought more attention to the fact that there are communities that are, in comparison to prosperous metropolitan areas, lagging behind. Our leaving the EU should therefore be seen as an opportunity to improve the targeting and increase the effectiveness of regional development funding and improve the quality of life of those in the most deprived neighbourhoods in the country.

Lucky Dube is an intern at the Centre for Policy Studies.