EU structural funds and the cohesion fund are financial tools deployed by the European Commission to carry out the regional policy of the European Union. Their overall aim is to reduce regional disparities in income, wealth and opportunities. The structural funds are made up of the European Regional Development Fund (ERDF) and the European Social Fund (ESF), as well as smaller pots of funding (the European Maritime and Fisheries Fund, LEADER programme for rural development, the European Agricultural Fund for Rural Development and the Youth Employment Initiative). Together with the common agricultural policy, the structural funds and cohesion policy make up the overwhelming majority of EU funding and total EU spending.
The ESF broadly focuses on employability, skills and training, seeking to help those furthest from the workplace. With unemployment threatening to rise to record levels, replacing it is paramount. ERDF, meanwhile, funds infrastructure, business support, research and development, small firms and environmental measures. With such a focus, the importance and relevance of these funds to the work of charities and civil society organisations in the UK is clear, particularly in areas of greater need.
The European Social Fund
The most significant component of EU funding for disadvantaged communities that the UKSPF will replace is the European Social Fund. The ESF offers crucial investment for the UK in education, training and employment support, specifically targeting some of the most vulnerable groups through a broad range of programmes and initiatives. This includes young people – particularly those who are not in education, employment or training (NEET) – long-term unemployed, people with disabilities and health conditions, people facing multiple complex barriers to employment, and prisoners, prison leavers and ex-offenders.
These funds have been incredibly important in generating positive employment and skills outcomes, particularly for the most deprived communities. Between 2014–2020, the UK received €4.76bn of ESF funding, which when matched by national co-funding, brought the total spend on ESF projects to €8.7bn.
In the period September 2016 to May 2020, elements of the programme operated by the Department of Work and Pensions (DWP) as a co-financing organisation provided 67,230 job starts.
- 29% of starts up to May 2019 achieved a short job outcome, spending at least 13 weeks in work during a 26-week consecutive period.
- 24% of starts up to May 2019 achieved a sustained job outcome, spending at least 26 weeks in work in a 52-week consecutive period.
The funding round 2014-2020 earmarked a total of £500m per year and focussed on access to work and support for vulnerable cohorts including:
- young people (particularly those who are NEET)
- long-term unemployed
- people with disabilities and health conditions
- people with multiple complex barriers
- prisoners, prison leavers and ex-offenders.
Furthermore, of the £9.15bn allocated to the UK through ESF and Investment Funds over the 2014–2020 period, more than half (approximately £5.5bn) was linked to objectives that focus on issues of equality.
The European Regional Development Fund
ERDF is the next most significant component of EU funding that the UKSPF will replace and is particularly important to addressing environmental degradation. ERDF aims to strengthen economic cohesion by addressing economic inequality between the regions of the EU, focusing on innovation and research, the digital agenda, support for SMEs and the low-carbon economy. It is aimed at regions where the gross national income per inhabitant is less than 90% of the EU average. Regional gross domestic product (GDP) is therefore the most significant criteria in the allocation of funding. In the multiannual financial framework (MFF) 2014-20, England received €3.6bn (£3.4bn at February 2020 exchange rate) in ERDF.
The allocation of ERDF is based on regional categorisation into three bands: ‘less developed’ (where regional GDP is less than 75% of the EU average), ‘transition regions’ (where regional GDP is 75%-100% of the EU average) and ‘more developed regions’ whose regional GDP is above the EU average. During the period 2014-20, two UK regions were classified as ‘less developed’: West Wales and the Valleys and Cornwall and the Isles of Scilly. A further 11 regions were classified as ‘transitional’. The UK government’s allocation for ERDF in 2014-20 was as follows:
- Strengthening research, technological development and innovation: 21.6% of total ERDF spend (€777.6m)
- Enhancing access to, and use and quality of, information communication and technology: 3.8% of total ERDF spend (€136.8m)
- Enhancing the competitiveness of SMEs: 40.4% of total ERDF spend (€1.45bn)
- Supporting the shift towards a low-carbon economy in all sectors: 17.3% of total ERDF spend (€622.8m)
- Promoting climate change adaption, risk prevention and management: 1.9% of total ERDF spend (€68.4m)
- Preserving and protecting the environment and promoting resource efficiency: 3% of total ERDF spend (€108m)
- Sustainable transport in Cornwall and the Isles of Scilly: 1.6% of total ERDF spend (€57.6m)
- Promoting social inclusion, combatting poverty and any discrimination: 1.4% of total ERDF spend (€50.4m)
- Technical assistance: 4% of total ERDF spend (€144m)
Many areas in the UK are falling behind the EU average, and inequality between the most affluent and poorest regions is stark. With the UK suffering the worst economic downturn of any G7 country to have reported by August 2020, these inequalities could yet grow starker. The GDP of the UK’s wealthiest region, Inner London, is 614% of the EU average. West Wales and the Valleys, the UK’s poorest region, has a GDP 68% of the EU average. The illustration below demonstrates wealth inequality across the EU; the UK’s disparity is exponentially greater than in any of the EU27. Since the start of ERDF in 1975, the UK has received around €65bn.
The potential financial impact of not replacing EU structural funds
The withdrawal of EU funding without a replacement programme in place would have a serious impact on the vital support some of the most disadvantaged communities receive and would compound the economic devastation caused by the pandemic which is likely to hit those in greatest need the hardest. For example, based only on the 21% of the total ESF for 2014–2020 allocated by April 2016, figures from Policy in Practice show that under ESF:
- Local authorities in West Wales and The Valleys receive an average of £101.53 per person.
- Several local authorities in the West Midlands, Cornwall and Hull receive at least £50 per person.
- Several boroughs in North East greater London receive at least £50 per person.
Given this represents just over 21% of the total ESF for 2014–20, the per capita allocation of ESF for the whole period would be much higher.
Furthermore, in providing underpinning funding, ESF often helps attract money from other sources such as independent Foundations and the Big Lottery Fund.
The EU Commission has never stated the amount of structural funding the UK would have received for the MFF 2021–27. However, according to analysis by the Conference of Peripheral Maritime Regions (CPMR), if the UK stayed in the EU it would be entitled to €13bn of EU Structural Funds for the MFF 2021–27. This would constitute a 22% increase on the period 2014–20. This estimate is based on the projection that due to the UK falling behind the EU average in regional prosperity and worsening regional inequality, three more areas would become classified as ‘less developed’ regions: South Yorkshire, Tees Valley and Durham and Lincolnshire. Along with West Wales and the Valleys and Cornwall and the Isles of Scilly, these regions would receive at least of €500 per capita in funding from the EU, an increase of £950m or £135m per year. Furthermore, the CPMR projects that 24 UK regions would be classified as ‘transitional’. These regions are East Anglia, East Wales, Greater Manchester, Leicestershire, Rutland and Northampton, Outer London South, North Yorkshire and South Western Scotland. Extra funding in these regions as €50 per head would equate to an extra £80m per year.
This research was undertaken before the onset of the covid-19 pandemic. With the economy in a significant worse state than it was only a few months ago, it is a matter of increasing urgency that the government ensures these funds do not disappear.
Recent work undertaken by a number of organisations has provided an idea of what the UK stands to lose if ERDF and ESF are not successfully replaced by the UK government. A report released by the Directory for Social Change calculates that in 2015, around 295 charities benefited from a total of £210.9m of EU funding under direct management (funds administered directly by the European Commission), while 113 charities received approximately £47.5m from structural funds under shared management (where the Commission is responsible for the finance but allocation is the remit of national governments). Shared management finance was also received via the Common Agricultural Policy which focusses on the development of rural areas. While these figures are approximate due to the difficulties in the reporting of EU funding, they give an idea of the scale at which charities have benefited from EU Structural Funds. The table below outlines the DSC’s estimate by funding area, totalling £258m in 2015. Of this money, £229,760,028 went to charities in England.