Replacement for the European Structural and Investment Funds (ESIF) Post-EU Exit in Scotland: consultation report

9. Regional and Thematic Events

As noted in the Introduction, eight regional consultation events were held across Scotland, attracting almost 200 participants. Three-quarters of event attendees worked in the public sector (over half of which were local government representatives), and around one-quarter were from the third sector. There was limited attendance at events from the private sector.

In addition, a number of thematic consultation events were also held, including two thematic roundtables hosted by the RSE on skills and innovation, and one with lead partners from the current ESIF programme. EKOS was provided with the written outputs from each of these events.

Section 9 provides a summary of the regional and thematic events.

Regional Events

Introduction

The regional events all followed the same format, and focused on two main areas of discussion:

• The aims and objectives for future replacement funding.
• How success should be measured - priority outcomes.

Although the events explicitly did not seek views on the management and governance of future funding,^[29] there was some limited discussion of these issues.

Aims and Objectives of Future Funding

The consultation events identified a broadly consistent set of aims and objectives for future funding, and there was a general view that replacement funds should be more broadly specified than the current ERDF and ESF programmes.

In particular, the following priority aims were identified in all eight events:

• Addressing social and economic inequalities both within and between regions (aligned to the inclusive growth agenda).
• Supporting employment and wage growth.
• Addressing climate change.
• Promoting wellbeing, albeit from an economic perspective.

Addresing inequalities is strongly aligned both with the prevailing economic policy guidance in Scotland, and with the broadly stated aim of the UKSPF (to address regional disparities).

There was also frequent discussion of a need to connect economic and social policy objectives, recognising that many of the interventions needed to address inequality will be as much social as economic. Mental health, for example, was a common theme, with many noting that mental health issues can be a significant barrier to employment and thus a drag on growth.

It should be noted here that there was no appetite for future funding to target areas already addressed by mainstream health budgets, but rather the emphasis was on health and wellbeing issues as drivers of economic progress - means to achieve economic development aims.

It is also worth noting a lack of consensus around what is meant by, and how to define, regional.

Employment growth was also a consistent theme, but with a particular focus on growth in jobs and earnings as a means of addressing poverty and inequality. There was less discussion of higher value jobs and the enterprise and innovation agenda although this did feature to some extent in five of the eight events. This is in contrast to the strong emphasis on this in previous ERDF programmes, and may reflect both the make up of the audiences at the events, and also shifts in policy emphasis toward inclusive growth and the wellbeing economy.

Climate change/emergency was a very consistent if less strong theme (and identified as a potential cross-cutting theme). Participants clearly felt that climate change was a critical priroity, but also recognised both that other funds target these objectives and that the future replacement for ESIF is likely to be limited in terms of the scale of available funding.

Other priorities that emerged in most, but not all events included:

• Local infrastructure.
• Skills.
• Rural development.
• Population and demographics.

The scope of future funding to invest in major infrastructure was recognised as being limited. Nonetheless, infrastructure development is still identified as a requirement, particularly in relation to physical and digital connectivity. This was often balanced by a concern that infrastructure projects could command a large share of the available funds, potentially crowding out smaller but important projects.

Skills was curiously underplayed in the events, not least in light of the focus of ESF for many years. It was, however, frequently mentioned if not as well developed or as popular as other priorities. In some cases it was "assumed" to be present - a kind of cross-cutting issue.

Almost all of the events touched on the need to ensure that rural issues and priorities were considered in designing future funding. There was clear evidence of concern that rural issues could be superseded or crowded out by a strong urban focus, and also that the kinds of approches required would be different in rural parts of the country. For example, the role of any future replacement for LEADER funding was frequently brought up in this context, and many participants were keen to discuss LEADER even though it was clearly stated that this was not the focus of the current consultation. Indeed, the issue of designing one aspect of the replacement for future funding in the absence of others (e.g. LEADER, EMFF, etc) was considered problematic, and that there was case to be made to consider them all together to develop a more integrated approach.

Population attraction, retention and return was also a theme in many of the events, but particularly those in more rural and island locations where this remains an urgent and present challenge.

Overall, the feedback on the aims and objectives for future funding strongly suggest a broader approach than has been the case, arguably, in previous ESIF programmes. While economic development goals remain paramount, the discussions point to a broader conception of economic development that encompasses social and community issues, and prioritises recent policy direction around inclusion, equality and fair work.

However, as noted above, this may also reflect the characteristics of the audiences at each of the events (there was, for example, a strong local government presence).

Principles of Future Funding

The discussions around aims and objectives also typically produced what would be better termed a set of broad principles to be considered in designing future funding programmes. These are worth briefly reflecting.

There was considerable debate about the appropriate geographic level at which priorities should be set, and a strong feeling in favour of local determination, albeit within a national framework. What was less clear is what is meant by local, and how this might then relate to regional disparities (identified in the aims and objectives). Many felt it important, however, that local communities be properly engaged throughout. There was also strong support for an evidence-based approach to identifying priorities and targeting resources.

Given the breadth of the identified aims and objectives, participants at the regional events were unsurprisingly keen that any future fund should be as flexible as possible. This would apply to the scale and nature of projects that could be supported as well as the allocation and administration of funds. This suggests an appetite for some broad brush strategic themes with interpretation and delivery left to more local or regional actors.

Additionality was another consistent theme. As noted earlier, there was no appetite for funding to duplicate existing health budgets, but this was also considered to apply more widely to other economic and social development funding.

Again, consistent with the previous discussion, there was also clear demand for a fund that recognises the differences between urban and rural development needs. This is particularly an issue in allocating funding as it is clear that large and higly populated urban areas will be more likely to be able to generate higher impacts although perhaps not in a proportionate sense.

Two other broad principles also come through the regional events. The first, again consistent with the broad set of aims of objectives, was for an integrated and holistic approach that recognises the interconnectedness of economic, social and environmental issues. Indeed, there was a suggestion that any future fund should only support projects and activities that can make a demonstrable impact on all three areas.

The second was a call for an approach that encourages innovation and risk taking.

Priority Outcomes

In broad terms, the outcomes identified at the regional events tended to follow the aims and objectives, but some general points are worth noting.

In line with the previous discussion, participants identified social and environmental as well as economic outcomes, and there was a consistent feeling that economic measures alone will not be sufficient. There was also a call for an approach that includes more qualitative measures of success and that considers intermediate measures as well as outcomes.

It was also generally agreed that the outcomes of any future funding programme(s) should align to the National Performance Framework and the Sustainable Development Goals.

There were some concerns expressed that any outcome targets should also reflect the diferences in economic potential in rural compared to urban areas, particularly where relatively small outputs can have a large but local impact.

Finally, participants were also clear that success should be judged over a longer timeframe than is often the case - from 7 to 10 years was mentioned - to allow for meaningful change to be achieved.

In terms of specific measures of success, these tended to group around the following broad headings:

• Economic measures: including GVA, employment, GVA per head (as a proxy for productivity), number of (new) businesses; new products; processes/services; average wages; and GDP;
• Inclusion/equality measures: including child poverty; economic activity rates; wage growth; average household incomes; fuel poverty; workforce diversity; in-work poverty; reductions in regional disparities (against these and the economic measures); and employment/(quality) job creation;
• Low carbon measures: carbon emmissions; sustainable travel (e.g number of public transport journeys); low carbon projects; use of renewable energy; and carbon reduction/footprint per head;
• Wellbeing measures: including rates of mental health; stress-related illness; reduced NHS spending; and happiness;
• Community measures: including community capacity and ambition; community health; and civic/community participation;
• Rural measures: in addition to the above - access to services, transport connectivity and rural broadband;
• Skills measures: skills attainment; number of reskilled/upskilled employees; increase in qualifications; and enterprise skills;
• Connectivity measures: transport connectivity measures; broadband access; and reduction in car journeys; and
• Demographic measures: growth in working age population; repopulation in remote areas (e.g. islands); school rolls in remote island commnuities; population growth; and increase in economically active population.

A number of further points arose in the discussions around outcomes and measures of success.

Despite the interest in qualitative meaures, there was also a general recognition that work was needed to specify more effective ways of measuring some of the outcomes, particularly around wellbeing and around climate change, perhaps using "distance travelled" approaches. There was also frequent debate about the appropriate geographic level at which outcomes and measures should be defined and again a preference for local detemination, although also near universal support for alignment to the National Performance Framework, as noted earlier.

It was also noted that many of the economic measures that are typically used (e.g. GVA, employment) are measured at national, regional or even local levels, but attributing change (attribution) to the activities supported by a future funding programme was more challenging.

Throughout, there was a plea for a manageable approach to measuring success, resisting the tendency to develop complex monitoring systems that add to the administrative burden of funding programmes.

Indeed, there was support for aligning to exisiting systems and measures to reduce reporting burden. There was also some nervousness about an approach that was overly target driven, particularly as it was felt that this could disadvantage smaller projects, more local or rural projects and those addressing social rather than economic outcomes.

Other Issues

Throughout the regional events, discussions returned frequently to issues of geography in relation both to the level at which priorities and outcomes should be defined and the appropriate structures for the administration of any funding. Local was generally considered preferable, and in relation to the latter there was some support for structures similar to those developed for the LEADER Programmes to have a role in any future funding programme.

The advantages of this were considerd to be the close links to communities and local issues, but there was also some acknowledgement that structures for delivery need to be proportionate (in terms of costs) to the overall scale of the funding.

In a similar vein, there was also discussion of what is meant by regional in the context of reducing regional disparities. This extended also to consideration of various regional structures as possible vehicles for managing a future programme.

The nationally managed structure of the current programme was widely seen as sub-optimal, and participants expressed a clear wish for a more devoled arrangement. However, issues with variable capacity in councils was noted as an issue for devloution to local government and also too local an approach would likely add significant adminstrative cost.

Regional Economic Partnerships were identified as one possible option, and there was also some support for the previous European Partnership areas.

In a more general sense and unsurprisingly, there was a clear demand for a less bureacratic model, and for a reduction in the audit requirements for projects.

Thematic Events

The Royal Society of Edinburgh (RSE), Scotland's National Academy, hosted two thematic roundtable events on skills and innovation to contribute to the consultation.

Among others, the events brought together representatives from Scottish Government, skills and enterprise bodies, universities and colleges, business and industry, and knowledge exchange organisations. The purpose was to discuss how successor ESIF programmes could be designed and used to support innovation and skills development in Scotland.

A discussion report was produced by RSE which provides a summary of the roundtable events and presented the key findings.^[30] The key themes which emerged related to:

• Principles for successor funding.
• Added value.
• Evaluation.
• Design and administration of replacement funding

In terms of the principles of successor funding, it was considered important that the development and administration of successor funding should respect the devolution settlement with strategic guidelines agreed between the UK Government and the Devolved Administrations; that responsibility for the detailed design and delivery be transferred to the Devolved Administrations and their partners; that the funding allocated to Scotland should be no less in value than the EU Regional Funding it replaces; and that allocation of overall funding initially reflects the present distribution (share and level) of EU expenditure between the four nations of the UK and should evolve according to need.

The report states that successor funding should continue to be used to complement and add value to core public spending and should not be used as a replacement for core funding in any way. Successor funding can add value by reducing regional inequalities and supporting inclusive economic growth. Specifically in terms of skills, the fund should focus on investing in people and areas furthest from the labour market and helping people to upskill to meet new and future skills needs. This could be achieved by increasing support for lifelong learning opportunities in Scotland in a context where reducing youth unemployment has been prioritised. Given the additionality of the funding, it was suggested that it should be used in more original ways, which could include, as examples, supporting social innovation in public health and climate change, or supporting Randomised Control Trials (RCTs) to gauge the effectiveness of different interventions aimed at skills development.

While evaluation is an essential tool to develop an informed understanding of the impact of the funding and assess the extent to which interventions have been successful or how they can be improved, there was an acknowledgement during the roundtable events that there has been limited data and information available thus far to properly evaluate the impact of ESIF in Scotland. Another challenge has been to disaggregate the impact of structural funds from other activities and funding streams.

However, while it can be difficult to ascertain the full impact of ESIF, in the absence of such funding, the likelihood is that few, if any, of the funded projects would have proceeded on the same scale, if at all. There was also recognition that as well as economic productivity, future funding should be assessed more broadly, including the impact that it has on health and wellbeing and the environment.

The report references the recommendations from Audit Scotland's recent report into Scotland's City Region and Growth Deals which states that the Scottish Government needs to develop arrangements for measuring the impact of the overall deals' programme and whether it has achieved value for money. It was felt that lessons could be learned from the deals programme to help inform the role of evaluation for successor funding.

In terms of design and administration, the discussion report notes that the distribution of successor funding in Scotland should be under the control of the Scottish Government. Given its importance, the distribution and evaluation of funding should closely align to Scotland's National Performance Framework with further consideration needed for the extent to which successor funding in Scotland links to the UK Industrial Strategy and its Challenge Fund and/or is aligned with European objectives.

The report notes the differences in which England and Scotland has allocated and used the previous funding. Whereas levy paying employers in England can access the fund for training of apprentices through an apprenticeship service account, the Scottish Government has invested its share of the levy to support skills, training and employment for all and in the Flexible Workforce Development Fund. This example emphasises the importance of maintaining constructive relationships between the UK Government and the Devolved Administrations in developing the successor fund and when introducing new policy levers to ensure that the needs of all parts of the UK are considered, and to avoid the potential for unintended consequences.

Where possible, the successor funds in Scotland should be administered via existing structures, agencies and bodies, and avoid the creation of new and potentially costly administration infrastructure. National bodies, including the skills and enterprise agencies should work closely with local delivery partners to ensure that localised needs and priorities are met.

Further, the report notes that ESIF have been put to best effect where they have supported partnership working with shared objectives coupled with flexibility in deployment to take account of very different localised needs.

The current requirement for match funding can constrain the ability of local authorities to bid for ESIF, particularly given the level of cost savings that local government has had to make. Connected to this, local authorities and other parts of the public sector do not have access to previous levels of staff resource, leadership capacity and specialist expertise, particularly that which is required to support Scotland's small and medium-sized enterprises (SMEs) to innovate. There was also acknowledgement among those who have received ESIF that they can be bureaucratic and complex to access, administer and monitor compared to domestic programmes.

Therefore the replacement of ESIF provides an opportunity to look at these aspects afresh, including de-risking investment to encourage local government and SME involvement, exploring the potential to leverage increased financial support from employers, and keeping the administrative arrangements for future funding as light touch as possible while ensuring appropriate oversight and evaluative functions. Consideration will also need to be given to the design of the application process for funding and whether it can be equalised to ensure that the best ideas and concepts rather than the best applications are funded.

In terms of skills, successor funding could be used to help the Scottish labour market (both employers and individuals) respond to changing skills' demands, including that expected as a result of increasing automation. ESIF have enabled Skills Development Scotland to deliver its Graduate Apprenticeships programme to support economic growth which should be continued under successor funding.

The establishment of successor funding could help highlight the need for more coordinated and well-defined regional development plans in the UK and Scotland. However, it was emphasised that successor funding to support skills in Scotland will need to look beyond cities since that is where many of the areas at risk of being left behind lie. This suggests the need for area strategies at different spatial levels.

In terms of innovation, the successor funds must develop a strategy to support SME engagement in the innovation landscape, including with innovation centres, universities, colleges, larger private companies and public sector organisations. For example, the funds could support the development of a business innovation and leadership hub.

The report concludes with a number of possible aims and areas in which the fund could support innovation:

• Development of a business innovation and leadership hub to better connect Scotland's substantial strengths in business schools with Scotland's SME base.
• Capitalise and sustain a Scottish Innovation Fund of sufficient scale to transform Scotland's SME innovation landscape.
• With capacity and resource issues making the public sector increasingly less able to support bids for funding, the development of successor funding provides an opportunity to streamline the application process and compliance requirements.
• In terms of social innovation, successor funding could be used to facilitate collaborative cross-sector partnership, bringing together businesses, universities, colleges, social enterprises and the public sector. This approach could help expand partnerships and encourage input from groups and organisations who otherwise would not have the capacity or experience to bid for funding.