European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) (Revocation) Regulations 2020

Considered in Grand Committee

Moved by

That the Grand Committee do consider the European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) (Revocation) Regulations 2020.

My Lords, the EU regulations for structural funds and the cohesion fund are designed to reduce social and economic disparities in the EU and are the main funding tools designed to deliver the EU’s cohesion policy. They come under the wider family of European structural and investment funds. These EU regulations set out the rules governing these funds and give powers to the member state to ensure the operability of eligible projects.

More than half of EU funding is channelled through the European structural and investment funds. They are jointly managed by the European Commission and the EU member states. BEIS sets the policy and co-ordinates the management of four of these funds across the UK: the European Regional Development Fund, ERDF, which includes European Territorial Co-operation funding—ETC; the European Social Fund—ESF; the European Agricultural Fund for Rural Development—EAFRD; and the European Maritime and Fisheries Fund, or EMFF.

The UK has been allocated about £9.5 billion of funding under structural funds for the 2014-20 period. The funds currently support growth, low carbon, transport, research, innovation, small businesses, employment opportunities and social inclusion. Structural fund programmes are managed and delivered by government organisations designated as managing authorities—MAs—which in essence are delivery bodies for the funds in England and the devolved Administrations and are responsible for drawing up operational programmes. These programmes set out the levels of funding available for certain activities and how the programmes will be run within the parameters set by the EU regulations.

The Department for Business, Energy and Industrial Strategy—BEIS—is the co-ordinating body for ESIFs in the UK. In England, the managing authorities for the European Regional Development Fund and the European Social Fund are, respectively, the Ministry of Housing, Communities and Local Government and the Department for Work and Pensions. The devolved Administrations and Her Majesty’s Government of Gibraltar administer ERDF and ESF in their respective areas. The Department for Environment Food and Rural Affairs manages the agricultural funds—EAFRD—in England, and the devolved Administrations in their areas, apart from EMFF which is run across the UK by the Marine Management Organisation, an executive non-departmental public body sponsored by Defra. Gibraltar receives a small allocation of about €10 million —£8.8 million—from the European Regional Development Fund and the European Social Fund for 2014-20 and has agreed operational programmes with the European Commission to implement them. It also takes part in two transnational programmes.

The need for continued regional investment in the event of a no-deal exit and the nature of the projects supported by these funds led to the introduction of legislation so that these funds could operate domestically under a no deal until their planned closure, even though they would cease to be funded by the EU in such circumstances. As the UK subsequently signed the withdrawal agreement, which maintains the EU regulations for European Structural and Investment Funds until programme closure, which could be until 2026, given that programmes run until 2023 and then generally take two to three years to wind up, SI 625 contradicts the intent and purpose of the withdrawal agreement.

My Lords, I welcome the opportunity to speak on these regulations. Particularly as a Scottish Peer—indeed, a former Minister of State for Scotland—I am only too aware of the important role that ESIFs have played in reducing disparities across Scotland over the past four decades. Indeed, under the current 2014-20 programmes, Scotland benefits from more than £780 million of funding through the European Regional Development Fund and the Social Fund, in addition to £1.5 billion through the European Agricultural Fund for Rural Development. Indeed, more than two years ago, I spoke here about the importance of continuing these funds to support communities and regions not just in Scotland but throughout the UK, saying that I was concerned that they would be lost in the Brexit void.

Nevertheless, while I welcome the UK shared prosperity fund as the domestic successor to ESIF for new programmes after 2020, I am concerned that with government cuts, it is in danger of becoming a shared austerity fund rather than a shared prosperity fund. Indeed, we are still no clearer on how the funding will be allocated or when a final decision will be made. The Government have said that they will not confirm the allocation until after the cross-departmental spending review in the coming months. However, these are challenging times and we need to provide both Scotland and the whole of the UK with clarity on the allocations from this scheme, so will the Minister explain why we are having to wait and how soon after the spending review the Government will make the announcement on this? Will it be by the end of 2020, or will they kick the can down the road into 2021?

Finally, the Explanatory Note says that BEIS originally laid an SI in March 2019, as we know: SI 625. That removed the EU regulations for structural funds from UK law in the event of a no-deal exit. However, as the UK signed the withdrawal agreement, which maintained the EU regulations for ESIF until programme closure, as the Minister said, SI 625 contradicts the intent and purpose of the withdrawal agreement, which is why it is now being revoked. However, is it not ironical that the Government are now considering overriding parts of the withdrawal agreement, so will we have another SI in a few weeks’ or months’ time? Perhaps the Minister could tell us. No wonder the noble and learned Lord, Lord Keen, could not stand the heat in the kitchen and has left it—going back, no doubt, to make some money at the Bar. Nevertheless, I support the regulations.

My Lords, I thank the Minister for introducing the instrument. I have no disagreement with the redundancy of the revoked legislation, given that the funding has been agreed and is to be paid out for parts of the programmes that are yet to be completed—at least, that is the agreement, although, given that the UK may go back on the backstop details of the withdrawal agreement, I feel I should point out that one of the Commission’s general retaliations for misbehaviour is the retention of structural funds from an erring member state.

Leaving that aside, we are coming to the end of the EU structural funds and, as the noble Lord, Lord Foulkes, said, there is great anxiety about the replacement fund, the UK shared prosperity fund, and how closely it will replicate not just the EU funding but the matching national funding, and the method of calculation and distribution. It has often been a criticism that structural funds were cumbersome and expensive in their distribution mechanisms. I do not dispute that, but wherever I asked questions about it in the UK—that is the sort of thing that MEPs got up to—the answer I got back from the regions was that they preferred to have the funds allocated by the EU, because otherwise they could not guarantee getting the money from a Government of any stripe. That was probably true, and if getting the maximum bang for your buck is applied, as the Treasury has in the past, it does not favour the less developed areas. But that is potentially not how it is to be in the future. I believe I heard the Chancellor say that the methodology of funding more generally was to be looked at as part of levelling up. If that is the case, can the Minister categorically reassure us that the basis of need will be retained as the key feature?

My other question is: how granularly will the areas be looked at? I am very conscious of conflicting pulls here: when large areas are deprived, there can be cumulative effects, but it is also the case that highly deprived pockets within rich regions also suffer exaggerated effects. Can the Minister shed any light on that?

My Lords, this statutory instrument revokes legislation laid in 2019 that would have guaranteed structural funding in the event of a no-deal exit. Under Article 138 of the withdrawal agreement, the UK will continue to have access to the ERDF, ESF, EAFRD and EMFF until the end of the current multiannual financial framework, the term 2014-20. Funding cycles typically last up to three years, with closure taking up to another three years, so some ESIF projects will continue expenditure through to December 2023.

The UK will not be pursuing participation in future ESIF programmes, including ETC health, in the MFF 2021-27 period. The UK will participate in ETC peace plus for 2021-27. The UK shared prosperity fund, the UKSPF, will succeed the ESIF for new programmes. BEIS originally laid an SI in March 2019, SI 625, which removed the EU regulations for structural funds from UK law in the event of a no-deal exit. Unreplaced, it would now come into force on the last day of the transition period. BEIS is seeking to revoke that no-deal regulation because it is not compatible with the arrangements set out under Article 138 of the WA.

As already pointed out, the no-deal SI 625 disapplies the regulations for ERDF, the ESF and ETC when it comes into force at the end of the TP, while the WA maintains the same regulations until the programme closure. If SI 625 were kept, it would confuse the statute book. It is currently planned that the UK shared prosperity fund will replace the EU structural funds with funding realigned to match domestic priorities. At a minimum, it will match current levels of funding to each nation from the EU structural funds.

I apologise for reading out the abbreviations for the titles of various bodies, but there is not time to read the whole lot in full.

The noble Earl, Lord Clancarty, has withdrawn, so I call the noble Lord, Lord Naseby.

My Lords, my first point has already been made: that the regulations assume that we will not have a no-deal exit. As someone who saw a whole lot of SIs when I was in the other place, as chairman of Ways and Means, I have to say that it was normal with something of the scale of this SI for the Commons to have a look at it first, but the Commons have not considered this SI, so I become as suspicious as my noble colleague opposite about why something different is being done this time. Of course, it may be entirely innocent, but I have my doubts.

On paragraph 2.4 of the Explanatory Memorandum, headed:

“What will it now do?”

and the various funds set out there, is it the UK Government’s policy to apply for new projects in the remaining three and a half months of the period 2014-20? Or have we put in for all our projects and are just running down in this period? Are there to be any new projects in the remaining three and a half months?

Paragraph 3.1

“Matters of special interest to Parliament”

is followed by a paragraph that refers to

“English Votes for English Laws”

and then by a paragraph:

“The territorial application of this instrument includes Scotland and Northern Ireland.”

One asks the question: what happened to Wales, other than that paragraph 3.3 says that the instrument applies to all the UK? Is there something in the Welsh devolution arrangements that precludes it from doing something in relation to this SI?

We then come to what I call the run-off period. With no deal yet agreed and three and a half months left, are we in a position whereby we will not apply for anything else or, if we did, we would be treated rather frostily for doing so?

The noble Lord, Lord Liddle, has withdrawn, so I now call the noble Baroness, Lady Ritchie of Downpatrick.

My Lords, I thank the Minister for his explanation of this SI, which we have to consider against the background of that other disputatious legislation, the internal market Bill. While I obviously welcome that there will be a progression towards the shared prosperity fund, I want to provide some context and then ask the Minister some questions.

Like the noble Lord, Lord Foulkes, I was a Member of the other place, so I want to ascertain why the other place has not considered this legislation. As a former Minister in the Northern Ireland Executive, I am only too aware of the great benefit that the European Regional Development Fund, the European Maritime and Fisheries fund and the European Social Fund provided to our local communities. In fact, the European Union provided a levelling-up process through financial assistance for fisheries, infrastructure and social development projects in areas where funding would not necessarily have been provided by the national Government, notwithstanding that the UK Government were a net contributor to the EU. As a consequence, regional levelling-up was provided which mitigated against disadvantages and regional imbalances and ensured that projects which brought benefit in construction jobs and new facilities could come to realisation.

What resource has been allocated to the new shared prosperity fund? Will it be centrally resourced and then allocated to the devolved Administrations, or will they set up separate funds to deal with that? Will the shared prosperity fund have more resources than the EU to allocate to projects? Will it still address the deficits in marginalised communities, particularly in isolated, rural and coastal communities? Will it deal with and address those regional imbalances to which we have already referred?

What discussions have taken place with devolved institutions regarding the replacement money through the shared prosperity fund? As I asked earlier, will they receive that money over and above their annual block grant allocations to compensate for the loss of these European funds?

My Lords, I recognise, as other noble Lords have done, that this SI is necessary to revoke the previous no-deal planning because the withdrawal agreement continues Regulation 1303/2013 and associated legislation with respect to the European social investment fund. The no-deal funding guarantee therefore appears no longer to be required, but as the noble Baroness, Lady Bowles, and the noble Lord, Lord Foulkes, mentioned, if there is a problem with the withdrawal agreement, could the sums agreed under it be withheld? Is there any view in the department on that and could my noble friend comment on it?

It is clear that the ESIF has aimed to reduce social and economic disparities and support communities and regions and has generated over the years many useful projects: national programmes, local initiatives—including on biodiversity, energy efficiency, micro- generation and brain imaging—and help for rural areas that might not have been prioritised in a UK national policy. While I welcome the new UK shared prosperity fund, can my noble friend answer some of the questions already posed by other noble Lords, such as: when will the cross-department spending review happen and how much will be allocated? Will the amounts that the UK has invested be replicated in addition to the amounts that we have received from other EU nations? Will the shared prosperity fund still have as its driver need around the country rather than other priorities?

I am concerned to make sure that we do not lose some of the valuable initiatives that we had as a member of the EU. I know that the Government are committed to ensuring that Britain supports its own projects as required rather than being directed by the EU, and I respect that, but a little more clarity on how the shared prosperity fund might operate would be gratefully received.