Did you know? Britain’s entitled to £11bn regional funding if it remains in the EU...

If the UK remained in the EU, it would be entitled to about £11bn of regional development funding under the EU Cohesion Policy for the 2021-2027 period.

• If the UK remained in the European Union, the Conference of Peripheral Maritime Regions (CPMR) estimates that it would be entitled to about 13 billion euros of regional development funding (under the EU Cohesion Policy) for the 2021-2027 period. [1]
• This would represent a 22% increase compared to the current period covering 2014 to 2020. (The UK allocation for Cohesion Policy for 2014-2020 is 10.6 billion euros).
• Such an increase can largely be explained by the fact that many areas of the UK are falling behind the EU average in terms of regional prosperity. The worsening level of regional disparities in the UK in recent years also plays a large part in explaining the significant differences in aid intensity (e.g funds per capita) from Cohesion Policy from one area to another, as forecast by the CPMR.
• Cornwall and the Isles of Scilly, and West Wales and the Valleys – the two regions in the UK currently classed as ‘less developed regions’ – would still stand to receive a significant share of the UK allocation of Cohesion Policy. Three additional areas (South Yorkshire, Tees Valley & Durham, and Lincolnshire) would become less developed regions for the post-2020 period. All five of these regions would stand to receive EU support in excess of 500 euros per capita.

[1] On the basis of the allocation methodology for European and Structural and Investment Funds (Annex XXII of the CPR) as proposed by the European Commission in June 2018 and provided that there are no changes to the allocation methodology as a result of the UK being a member of the EU again

1. The exercise: working out a Cohesion Policy allocation for the UK

The Conference of Peripheral Maritime Regions (CPMR) General Secretariat carried out a projection of the theoretical share of European Regional Development Fund and European Social Fund funding for the United Kingdom for the 2021-2027 period if it were to remain a member of the European Union.

The CPMR is a European organisation representing the interests of 160 regions from 25 countries from the European Union and beyond. The UK Members of the CPMR include the Welsh Government, several local authorities in Scotland, and Cornwall Council and Southendon-Sea Borough Council in England.

It carried out this exercise in the context of the uncertainty of Brexit, and it forms part of a broader body of work carried out by the CPMR on Cohesion Policy funding mechanisms to understand the impact of the negotiations for the benefits of its Members.

This work is based on the allocation methodology for ERDF and ESF for the post-2020 period published on 29 May 2018 by the European Commission (Annex XXII of the Common Provisions Regulation - CPR).

The exercise was based on the following assumptions:

• The UK remains a member of the European Union and thus the EU budget proposal is calculated on the basis of 28 EU Member States.

• The Commission methodology for distributing regional development funding between EU Member States and regions is unchanged from the current period.

• There is a margin for error of +/- 5% due to the complexity of the allocation methodology of Cohesion Policy. This should not however affect the conclusions reached in this analysis.

2. Cohesion Policy: the basics

2.1 Cohesion policy, ESI funds, and the programming cycle

• Each EU Member State receives a share of Cohesion Policy, the EU’s investment and territorial development policy, which runs on a seven-year basis. These shares are calculated by the European Commission.

• The Commission made a proposal to reform Cohesion Policy on 29 June, 2018. Pending agreement from the European Parliament and the Council, regional development programmes supported by Cohesion Policy should start on 1 January 2021.

• The total proposed budget for Cohesion Policy is about 330 billion euros (from 2021 to 2027 for the next programming period).

• The legislative proposal for Cohesion policy for the post-2020 period is under negotiation at the moment as part of the discussion on the 2021 – 2027 EU budget, known as the Multiannual Financial Framework (MFF). This means that the national Cohesion Policy shares proposed by the European Commission will be arduously negotiated in the months to come and are likely to change as a result.

2.2 The mechanics of Cohesion Policy funds distribution

• Cohesion policy shares are calculated on the basis of a complex methodology which relies on national and regional data from each of the EU Member States (Annex XXII CPR). These shares are calculated by the European Commission.

• Regional Gross Domestic Product (regional GDP) is the most significant criteria when it comes to determining the Member State shares of Cohesion Policy.

• Regional GDP is used to determine eligibility according to three categories: regions with a regional GDP of less than 75% of the EU average are considered as Less Developed Regions; Transition Regions are regions with a regional GDP between 75% and 100% of the EU average; and those regions with an average regional GDP of over 100% are classed as More Developed Regions. The Less Developed Regions receive the highest share of Cohesion Policy funding.

• Regional GDP accounts for about 81% of the distribution formula. A variety of other indicators are also used based on social, economic and - to a lesser extent - territorial characteristics of European regions.

• The distribution formula calculates financial allocations for each region of the European Union [2]. These are added together to work out the total financial envelope due to each EU Member State. The proposed allocations per Member State for the 2021-2027 Cohesion Policy were made public by the European Commission on 29 June 2018 (see Annex).

• Member States are responsible for developing investment strategies in partnership with local/regional bodies and the European Commission that set out how the Cohesion Policy funds will be spent over the 7 years of the budgetary period (these are called Operational Programmes).

• Member States are not obliged to set operational programmes at regional level. However, the allocation of funding should respect the three categories of regions (e.g: areas considered as ‘less developed regions’ will receive more funding per inhabitant than ‘transition’ or ‘more developed regions’).

[2] The European Commission methodology relies on the NUTS 2 level. The financial amounts are regional level calculated by the Commission are never published by the European Commission.

2.3 The situation in the UK

• The European Commission has never communicated the amount of funding the UK would be entitled to as a full member of the European Union for the 2021-2027 from Cohesion policy.

• The UK currently benefits from about 10.6bn euros of Cohesion policy funding (in current prices) for 2014-2020. It is estimated the UK has benefitted from 66 billion pounds of EU funding from Cohesion Policy since the birth of the ERDF in 1975.

• In terms of funding per inhabitant, the areas in the UK considered as Less Developed Regions (Cornwall and the Isles of Scilly, and West Wales and the Valleys) currently receive the largest financial support from the EU.

• The UK Government is currently considering how regional policy in the UK may be addressed when EU policy no longer applies. The UK Government's proposed future policy is called the UK Shared Prosperity Fund. However, for the moment, there is little detail on the mechanism, governance and value of this new fund.

3. Projections from the CPMR

3.1 Regional eligibility for UK regions

The share of the UK allocation for Cohesion policy is largely determined by the levels of regional prosperity of its regions [3] compared to the EU average, as mentioned above.

Map 1 – Comparison of Cohesion Policy regional eligibility in the UK: 2014-2020 vs 2021-2027.

[3] There are 40 NUTS II regions currently in the UK

The map on the left above shows the eligibility of UK regions for the 2014 – 2020 period. There are two Less Developed Regions (Cornwall & Isles of Scilly, West Wales and the Valleys), and 11 Transition Regions, whilst the remainder are considered as More Developed Regions.

The CPMR projection of Cohesion Policy eligibility for 2021 – 2027 in the UK, on the right, reveals that there would be four Less Developed Regions, 24 Transition Regions, and 12 More Developed Regions.

Such a projection confirms two things:
- many areas in the UK are falling behind the EU average [4].
- regional inequalities in the UK remain strikingly high. As shown by the graph below produced by the CPMR based on Eurostat data, the difference between Inner London, the richest NUTS II region in the UK with a regional GDP average of 614% of the EU average, and West Wales and the Valleys, the UK’s poorest region with a regional GDP of 68% of the EU average, is particularly striking and a unique case in Europe.

Graph 1 – Difference between poorest and richest region in each EU Member State.

3.2 The distribution of Cohesion funding across the UK territory

Taking into account the (theoretical) Cohesion Policy eligibility of UK regions for the post-2020 period, and applying the different steps of the allocation methodology as spelt out in Annex XXII of the CPR proposal, the CPMR General Secretariat came up with estimates for theoretical allocations for UK regions (ERDF and ESF+), including a financial amount for the UK’s share of European Territorial Cooperation.

[4] The European Commission proposal for the 2021-2027 period suggests modifying the threshold for transition regions eligibility to include all regions between 75% of the EU average and 100% of the EU average.

The map below shows the results of the CPMR projection, expressed over the whole of the 2021 – 2027 period and as EUR per capita.

Map 2 – Cohesion Policy theoretical regional allocations for the UK for 2021-2027.

ANNEX – Member States allocations for Cohesion Policy for 2021 – 2027 (Commission proposal May 2018)

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(This piece was originally published on the Conference of Peripheral Maritime Regions website. | The author writes in a personal capacity.)

(Cover: Pixabay.)

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Conference of Peripheral Maritime Regions brings together 160 Regions in 25 States from EU & beyond. Representing 200+ million people, it campaigns for more balanced development of European territory.
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