Want to know how European funding for local economic development projects will be replaced, how this will work, and how you need to prepare over the next 3-6 months? This article will help to inform your approach. It has been written in collaboration between Mike Spicer from PolicyDepartment and Glenn Athey from mylocaleconomy. Mike has been involved in the design and specification of the UK Shared Prosperity Fund over the years. Glenn has witnessed several iterations of local and regeneration funding since the mid 1990s and has been involved in every round of EU Structural Funds since then. Both Mike and Glenn are old colleagues, and work together on advisory projects throughout the UK.
We’re nearing the start line for the Shared Prosperity Fund…
Up until implementing Brexit and until they expire in 2023, the EU Structural Funds (ESIF) have been the largest single source of local economic development funding in the UK for several areas of intervention. These include business support, enterprise promotion and green economy schemes and incentives.
The UK Shared Prosperity Fund (UKSPF) is ESIF’s post-Brexit successor. The journey to its April 2022 launch has been a long, complex and at times, conflicting process. And not least between the UK and devolved nation governments. Some of us will remember how the earliest consultations in 2017 acquired the informal tag of ‘project sunblock’. This shorthand, used by industry lobbyists, started as a tongue-in-cheek reference to the fund’s acronym. But over time it proved fitting as a description of its slippery and invisible qualities. Because until recently, no-one outside of Whitehall circles knew what the final shape, nature and size of the fund would be.
Three schools of thought battled over its design. First – the ‘continuity school’. This preferred a grant scheme like the existing ESIF but with some technical tweaks. It would hold close to what localities and officials already knew. It was about evolution, not revolution. Second – the ‘centralising school’. This saw UKSPF as a successor to the Regional Growth Fund (RGF): a centrally-directed challenge fund run from Whitehall. In this view, it was about maintaining budget controls, short lead times and UK government visibility. It was about reducing the perceived red tape associated with sub-national ‘gatekeeping’. Finally – the ‘radical devo school’. In this view, ESIF would be replaced with block ‘single pot’ grants for flexible use across local areas. The role of Whitehall minimised to upholding financial probity and good practice within a reformed geography of local government.
Although details are sketchy, a lot of preparation will be required to make best use of the UKSPF in 2022…
With the pre-launch guidance published in February, we now know that UKSPF is closest to the continuity school’s vision. It bears a strong family resemblance to ESIF albeit with a much shorter programme timescale (1-3 years vs 5-7). Similar to ESIF, it involves:
- Fixed allocations by geography
- Sub-national gatekeepers with strategic and match-funding responsibilities (in this case local government); And is
- Plan-led, with features analogous to ESIF’s Operational Programmes and Priority Axes.
It may have turned out differently. The Community Renewal Fund of 2021 (CRF) was launched as a dress-rehearsal for UKSPF. This was a centrally-directed challenge fund of the sort favoured by the centralising school. But the short bidding timescales and long judging delays proved to be major obstacles to scaling it up.
Pre-launch guidance for UKSPF leaves most of the technical detail to be published in April 2022. What we don’t know at this stage is:
- Actual funding allocations by geography
- Prescribed use of these allocations – such as the split between capital and revenue
- Match fund requirements
- Pre-qualification requirements – including the need for an investment plan, what that comprises and how it is approved
- State aid requirements and monitoring
- How funds get drawn down – is it funds held by local authorities to be disbursed, or funds reclaimed in arrears?
- Mechanisms for accrual of funds to financial years – vital to know, given the tight timescales
- Any mechanism for reallocation of funds due to surplus and lack of draw-down
The UKSPF development process also shares common features with ESIF design processes. The missed deadlines. Being late with guidance. And being almost a complete mystery in terms of themes, priorities, guidance and permitted use until launch.
The risks ahead – and what you can do about them
To prepare for the UKSPF’s launch in Spring 2022, local government will need to second guess the likely funding type and allocation. It will need to anticipate the capital / revenue split and eligible uses.
Timing is critical. EU funding will dry out completely by Spring 2023. Full allocations are spent in many areas. ESIF won’t fund new activity between now and June 2023, only pay for existing commitments.
A slow start to UKSPF would open up local funding gaps in 2022-23. Think about the type of support that Growth Hubs broker to. Most of this is business support and advice, grants for equipment and low-carbon solutions, and trade and investment promotion. There is a heavy reliance on ERDF to fund this in England. Schemes to address youth unemployment and disengagement in the labour market depend on it too. Much ESIF-funded activity is at risk of halting or being mothballed without bridging or successor funding.
And UKSPF is much smaller than the funds it replaces: roughly £0.9bn vs £2bn per year over 2022-2025. There is also uncertainty over existing initiatives not funded through ESIF – such as LEPs, Growth Hubs, and the Towns Fund.
So, what can local authorities and partnerships do? It would be sensible to audit current ESIF and government funded economic development initiatives, services, grants and programmes for their funding continuity and risks. Draw up a list of essential services and support to protect or find bridging funds for.
The spatial governance of the new fund is very mixed across the UK…
The ‘Managing Authority’ geography based on the concept of ‘strategic regional areas’ is clear for Wales and Northern Ireland. But it is largely undefined in Scotland and fluid in England.
In Scotland the pre-launch guidance references City Deal geographies. This is the existing basis for UK government – sub-national engagement in Scotland. But it leaves big unanswered questions around coverage. The role of the Scottish Government in setting boundaries is unclear.
In England, a parallel programme of devolution complicates things. At first, lower-tier local authorities are to be in the lead where devolution deals don’t exist (along with MCAs and unitaries). But counties may become the strategic unit after deals happen. The pooling of allocations requires complex planning and delivery in the interim. The situation is further complicated by the different options for county-based devolution. Level 1 (as set out in the Levelling Up White Paper) would see districts keep managing authority status for UKSPF compared to the deeper integration of Levels 2 and 3.
What can local authorities and partnerships do? Identify the starting point for preferred strategic and delivery geographies. This can be based on historic progress and performance or a rapid review of capability and capacity. For example, inward investment tends to be done at the MCA, county, and LEP level. Over the short-term, this should perhaps be left in place rather than creating a hiatus in services created by a period of introspection. Or maybe there are services or aspects of economic development which have not worked or had little progress over the past years? If it is a priority for the local economy, then perhaps more consideration should be given to how UKSPF can push this forward?
Some may be unprepared for new funding and delivery opportunities…
UKSPF puts new responsibilities on districts outside Combined Authority areas. They will need to understand their current position and performance, trajectory, ambitions, needs and how to get there. They will need to grasp the merits of past approaches done in collaboration with LEPs and other local authorities.
They must prepare LIPs (Local Investment Plans) to draw down monies and begin convening civic society groups around priorities for funding. This might give some new latitude to districts and unitaries that have had to follow LEP – led funding streams. But there are new challenges and risks, such as:
- Accurately understanding what’s currently funded and what would be beneficial to retain
- The risk that knowledge, relationships and progress built in one spatial configuration (e.g. LEPs) are unwound, and capacity, knowledge and progress in developing services is lost
- Some functions may be more effective, get returns to scale or may only be viable through collaboration amongst districts and upper tier authorities
- ERDF funds were notoriously difficult to mobilise into delivery in the first year of a project. We have lost count of the number of ERDF project evaluations, where project administrators asked to reconfigure spend and outputs due to the lengthy time taken to establish the grant award, the project staff, and recruit beneficiaries. It takes time to set up a project and delivery. This will remain true for UKSPF event if the timeframes are shorter.
What can local authorities and partnerships do? Get a rapid and accurate understanding of what you currently deliver or support through your own organisation, or in partnership. Appreciate that some functions will only be viable through collaboration with other local authorities, but that some may be better done locally. Be open and honest about your current levels of capacity. If you have only a small number of officers dealing with these issues, there are only so many projects, grant applications and services that can be progressed. Prioritisation is key.
Risks of stakeholder relations and support – particularly the private sector
UKSPF presents real risks to stakeholder relations and support. The private sector is a vital partner in economic development and regeneration. Locally, it may view the uncertainty and recasting of new spatial configurations and relationships as time-consuming and counter-productive.
Business representative groups are embedded in local partnerships. They are sensitive to how reconfigurations may affect the balance of their strategic and delivery roles in local growth. If UKSPF offers a more balanced capital / revenue split than existing UK programmes then civic society groups may need help to adjust to new revenue programmes or possibilities.
What can local authorities and partnerships do? Businesses may grow weary at further reorganisations. But they prefer transparency to being kept in the dark about risks and implications. Be open and include them in transition management or oversight groups.
Setting area strategies – make yours a ‘next generation’ strategy
Public funding for local economies is fragmented. This despite integrated local solutions offering more benefits and higher impacts. This is well illustrated by measures to address climate change. Let’s say a locality wants to promote electric or alternative fuel vehicles. There are many aspects to deliver and join up. There’s refuelling infrastructure, battery technologies and recycling. The need to drive consumer demand. Work with and develop industry supply chains and workforce skills. It demands a consistent, area-based package of interventions with the strategy, funding and partnerships to make it happen.
LIPs demand a new focus on the built environment, placemaking and social capital. But delivery will be challenging when based on small and time-limited grant allocations.
For the UKSPF era, strategic areas will need:
- Active knowledge of their local economy, UK and global trends, current and future challenges
- Area economic strategy, action plan, with funding requirements and plan for funding
- Knowledge of what works and how to deliver
- Good stakeholder communication and management
- Ability to make tactical funding bids
In our experience, using a scenario approach is a great way to utilise this data and insight to set delivery priorities when the context is uncertain. By ranking projects according to their relevance and viability under different economic or funding scenarios, places can remain agile while holding true to their longer-term aims.
‘Next generation’ area strategies for the next decade will be broader-based than in 2010s, covering issues such as public health and key workers. The Covid-19 pandemic has also increased policy attention on community benefits and inequalities. Local strategies must aim to raise the prosperity of all residents and communities. They must strive to deliver equality of opportunity and impacts; be environmentally sustainable while delivering economic growth, wealth and prosperity. But they still need to address the long-standing priorities of enterprise, skills, innovation and hard infrastructure.
What can local authorities and partnerships do? We would encourage all to push towards ‘next generation’ strategies, and to develop strategies that can be agile enough to be relevant throughout the changes to local funding, be they UKSPF or the next iteration of local economic development funding. Local strategies must be able to join up disparate funding sources and central government silos. Central government won’t help with this at the moment – it is up to local stakeholders and partnerships.
We’re here to help!
Glenn Athey (at mylocaleconomy) and Mike Spicer (at PolicyDepartment) are experienced economic development professionals and public policy experts who are well-versed in local economic development policy and practice over the past 30 years.
Need help with the UKSPF, or just want to have an initial discussion? Get in touch.
We can support you in several ways:
- Initial scoping and advice. We can help you navigate a way forward in the short and medium-term
- Design, process and delivery of investment frameworks and funding strategies. We have a practical knowledge of policy and delivery areas that previously your district may not have engaged in so much – including working with communities, inclusion, local business, innovation, inward investment, and the low carbon agenda
- Rapid reviews and recommendations. We are well-versed in providing light-touch strategy reviews, gap analysis, options for further development, and templates for LIPs
- Full strategy reviews – more detailed baselining, stakeholder engagement, business case development and drafting of LIPs
We always recommend developing agile local economic strategies and action plans – that can be repurposed and adapted for different, new funding streams and opportunities as they arise. We are experts and advisors that can help you at every step on your journey into the next phase of local economic development and the UK Shared Prosperity Fund.
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