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Julia Goldsworthy: Brexit means we must rethink funding formula

Julia Goldsworthy
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When the news that the UK may have to pay up to £50bn as part of an EU divorce deal dominated the headlines this week, there was much surprise and even outrage that UK public purse would have to take such a significant hit, with debate focusing on whether it will deliver the necessary progress for negotiations to move onto trade.

Important as these trade negotiations are, so are the details on what any settlement will deliver, both in terms of the resource available to the UK, and what choices we may have in future on how they are spent. While the details of the divorce deal are yet to be agreed, rather than focusing in on speculation, we must concentrate on preparing for what we do know.

The Brexit Advisory Commission for Public Services has released a new paper that analyses the different flows of EU funding schemes to track how EU money moves around the UK system. It estimates that, between 2014 and 2020, UK public services will receive €20.6bn in investment, research and structural funding from the EU. This equates to approximately €3.4bn each year: by no means an insignificant figure.

The Brexit Commission believes there is great opportunity, outside of the EU, to replace and reformulate this resource, reducing bureaucracy, targeting clearer outcomes and refocusing priorities. This cannot be done by simply cutting and pasting the existing regime into UK administration. To make this kind of meaningful change, the Brexit Commission believes the government should take the bold and ambitious step of devising a new formula for the allocation of the Shared Prosperity Fund, which will replace EU Structural Funds from 2019.

As well as rethinking EU allocation methods, so should the government consider the suitability of its own. This should include directly facing up to the limitations of applying the Barnett Formula in this case. The formula, which was introduced in the 1970s as a short-term measure, allocates funding based on population size and not need. This means that the UK would not be able to direct funding to high-need areas and towards achieving specific outcomes.

The EU’s method for allocating structural funding would also prevent the UK from targeting funds in this way. Currently based on GDP relative to other EU member states, Wales receives €111.1 in structural funding per person per year, Northern Ireland €40.7, Scotland €25.4 and England €18.7. Because new funding formula may result in a change to the amount countries receive, it is vital that transition is managed very carefully, any decisions are signalled on the overall quantum of funding and its distribution are signalled clearly in advance and that transition to a new regime is managed very carefully.

A new focus on need and outcomes rather than GDP and population size should be accompanied with a bolstered role in the process for our localities and regions who best understand their local economies and demands on their public services. The opportunity to increase the scale and pace of devolution must be seized, with locally enhanced roles for regions in decision making and administration. This will improve accountability as well as effectiveness, and combined with streamlining the amount of national funding schemes, it would create new incentives for local partners to come together and pool funding to invest in areas such as research funding, employment development and infrastructure projects. Combined with other measures, such as the strong role for place in the Industrial strategy, there are real opportunities for our regions and communities to become more co-ordinated, collaborative and inclusive.

If the government is truly committed to creating a more inclusive and empowered UK, they must turn their attention to the issue, recognising the Brexit divorce deal is about more than the price tag of a move to trade talks.

Julia Goldsworthy, director of strategy, West Midlands Combined Authority and chair, Brexit Advisory Commission for Public Services

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