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

3. Proposed Objectives of the Fund

Scottish Ministers want to take this opportunity to design a flexible source of additional funding that drives inclusive economic growth and makes a measurable and significant difference to the lives of people, businesses and communities across Scotland.

Section 3 covers three questions from the online consultation related to proposed objectives of the successor fund.

Question 1: What are the main aims that this funding should seek to achieve?

Question 2: How could funding be used most effectively to address spatial inequalities between areas and communities in Scotland?

Question 3: Geographically, at what level would the priorities for funding be best set?

Summary of Main Points

Core principles, aims and objectives should be broadly similar to previous programmes, but with a broader remit particularly in relation to inclusive growth and wellbeing economy.^[14]

Objectives to encompass social and environmental as well as economic outcomes.

Spatial inequalities would be best addressed through a place-based approach and regional/local priority setting.

Priorities set within a national framework but priorities will vary at regional and local levels. No consistent view on how regional or local should be defined in a geographic sense.

Consistent view that Gross Domestic Product (GDP) is too narrow a measure of regional inequalities/disparities, and that a more sophisticated approach would be required

New approach should be mindful of impact on areas that currently benefit, and support transition.

Question 1: What are the main aims that this funding should seek to achieve?

Overview

While inclusive economic growth was considered important to the vast majority of respondents, the overall consensus was that the successor fund should have a broader remit, including addressing major societal issues (e.g. population decline in the rural and remote communities, tackling the climate emergency) and supporting a wellbeing economy.

There was some support for an approach that sought to "build on the strengths of European Cohesion Policy", that the aims of existing ESF and ERDF programmes could "provide a useful starting point for identifying the areas that the replacement fund should focus on", and that the "broad areas of intervention should continue to be the main areas of focus" for any new fund.

There was therefore strong support for the new fund to continue to focus on "reducing disparities between different regions of Europe through job creation, as well as building a sustainable economy and environment"; for the funding to "continue to fill the gap that will be left with the cessation of ESIF while tackling some of the long-term issues acting as a constraint on sustainable and inclusive economic growth within Scotland"; and to be "complemented by a greater emphasis on digital technologies" and digitisation.

"Replacing EU structural funds provides an opportunity to improve aspects of process and delivery mechanisms, but we believe that the core principles should remain in a place-based approach, building on previous successes of regional development support, aiming to improve economic growth and social cohesion. The main aims should be to tackle permanent geographic and demographic challenges, increase productivity and ensure that communities and individuals benefit from economic prosperity".
University of the Highlands and Islands

Fewer respondents highlighted "an opportunity here to do something different" in terms of aims and priorities. However, there was broad support not to be constrained in scope to the activities supported by current ESIF programmes.

"There is scope to expand and improve upon existing objectives and priorities……This could be broadened to include other infrastructure projects, if not covered by other funding streams. The 2007-13 ESIF programme period had a rural and an urban priority, and the re-instatement of this would be welcome to help to bring geographical focus and to recognise the differing needs and opportunities between urban and rural areas. Other activities such as promotion and sectoral support have not been possible in recent programmes either".
Dundee City Council

There was also broad support for identifying aims that would lead to "transformational" change, and for the new fund to be designed in such a way as to be more specific to Scotland's diverse regions.

Main Aims

The vast majority of respondents identified multiple aims that any replacement funding should seek to achieve. The most frequently mentioned were:

• Sustainable and inclusive economic growth, including tackling regional economic imbalances and disparities (i.e. spatial economic convergence between the best and worst performing regions, reducing disparities between Scotland and other UK regions, reducing economic and social disparities between different parts of Scotland).
• Tackling poverty and reducing inequalities that exist across Scotland's communities and regions. It was suggested that this could include:
  • Investment in support, services and opportunities for those living in, or at risk of living in, deprivation and disadvantage.
  • Supporting marginalised people.
  • Advancing equality of opportunity.
  • Reducing child poverty.
  • Providing affordable childcare.
  • Maximising household income.
  • Improving access to services.
  • Addressing fuel poverty.
  • Creating resilient, sustainable, attractive and vibrant communities.
  • Promoting social inclusion.
  • Community capacity building and active citizenship.
• Tackling the impacts of climate change. There was much wider feedback that highlighted the importance of:
  • Meeting the challenges of the climate crisis, supporting the United Nations (UN) sustainable development aims, and delivering on the Paris Agreement goals.
  • Investment in projects, programmes, innovations and technologies to reduce carbon emissions, enhance sustainability and support net-zero by 2045, while delivering a Just Transition.
  • Development and expansion of the circular economy.
  • Support to combat climate change and biodiversity loss.
  • Addressing behaviour change.
  • Eco-efficiency.
  • Sustainable procurement.
  • Low carbon travel and transport.
• Skills and employability.^[15] A diverse range of points were raised:
  • Improving skills levels and employability prospects.
  • Developing and expanding the Apprenticeship Family.
  • Improving access to skills, training and employment opportunities.
  • Addressing labour market inequalities.
  • Addressing under-employment and in-work poverty.
  • Development of a skilled workforce through investment in skills, training and education.
  • Reskilling and upskilling the existing workforce to meet skills needs now and the skills needed for the future.
  • Education and training linked to emerging and growth sectors.
  • Support for those who face multiple barriers to employment.^[16]
  • Support for those who are more job-ready.
  • All age careers advice.
  • Micro-credentialing (i.e. bite-sized chunks of education).
  • Opportunities for lifelong learning.
  • Data and digital inclusion.
  • Building skills and enterprise in the green economy.
  • Vocational qualifications in key industries and growth sectors.

Wider priorities identified, but to a lesser extent include:

• Business development and growth, including:
  • Activities to increase productivity and competitiveness of SMEs.
  • Fostering a culture of research and innovation.
  • Data and technological development.
  • Fostering a culture of enterprise and entrepreneurship.
  • Support for businesses and social enterprises to innovate, diversify, grow, create jobs, access new markets and internationalise.
  • Traditional and growth sector support.
  • Infrastructure support linked to economic opportunities.
  • Industry 4.0^[17] (meta skills for the future).
  • Support to attract inward investment.
• Creating a Wellbeing Economy, including reference to:
  • Creating an economy in which prosperity is shared (e.g. Fair Work, Circularity and Sustainability).
• Improving health and wellbeing, including reference to:
  • Reducing health inequalities.
  • Promoting wellbeing.
  • Improving life expectancy.
  • Substance misuse.
  • Behaviour change projects and programmes.
• Infrastructure, for example:
  • Investment in transport and digital infrastructure to tackle the challenges of peripherality, insularity and complex geography faced by people and places in rural, isolated and island areas.
  • Digital participation and connectivity.
  • Improving mobility and connectivity.
  • Affordable housing (e.g. so that young people do not need to move away from rural areas to access learning and employment opportunities).
  • Infrastructure projects such as bridges, causeways and roads.
  • Town centre regeneration.

Question 2: How could funding be used most effectively to address spatial inequalities between areas and communities in Scotland?

Introduction

The question of geography was a consistent theme throughout the consultation responses. While there was general agreement that some form of national framework would be needed, and that this should align to Scottish policy priorities and the National Performance Framework, there were mixed views on the geographic level at which a fund should intervene. Among other things, there was no consistent view on how "regional", "sub-regional" or "local" should be defined in a geographic sense.

Needs-Based Approaches

A strong theme that emerged was that funding should be targeted towards those regions and localities with greatest comparative need. The main rationale for adopting a "needs-based approach" was phrased in terms of:

• Assisting disadvantaged regions to develop more competitive advantage (e.g. through improved connectivity, innovation and research, business support, employability and skills).
• Tackling structural challenges (e.g. rurality, population imbalance, low wealth creation, health inequalities).
• Creating the conditions that enable all areas to have the opportunity to contribute to, and benefit from, economic success.
• Supporting opportunities for inclusive growth.
• Raising the socio-economic performance of communities and regions with the weakest levels of social and economic prosperity.

Indeed, there was broad acknowledgement of the "persistent and growing" disparities that exist between and within regions in the UK and Scotland, and between urban and rural areas (e.g. lagging productivity, social marginalisation were mentioned in various submissions).

A further point raised was the importance of not leaving anyone behind - be that people or communities - ensuring that the benefits of inclusive growth and increased wealth and prosperity are distributed fairly, and that everyone can access the support and services they need.

Flexibility and Place-Based Models

Flexibility was considered critical to achieving the most effective use of funding. There was strong support for the funding to be "long-term and designed in such a way that resources can be applied flexibly to respond to the particular needs of the region". Greater flexibility would allow organisations to "tailor approaches", "react quickly to changing circumstances", and ensure a "bottom-up" approach.

There was a strong call for the fund to recognise the differences and diversity in and between regions across Scotland (e.g. different or unique circumstances, challenges, barriers, needs and opportunities). There was some recognition of Scotland-wide challenges within the submissions,^[18] but the majority of the feedback focused on the need for the new fund to be responsive to distinctive regional and sub-regional challenges and opportunities.

This included broad support for high level priorities to be set at a national level (i.e. a national framework), but for there to be sufficient flexibility and scope for regional and local determination of priorities based on their distinctive characteristics, needs, and ambitions. And "with delegated authority and decision making as close to communities as possible".

"It is therefore important that the national framework for the fund includes substantial scope for regional and local determination of priorities with a focus on strong regional partnerships in a place-based model. This should account for the differing needs of the Highlands & Islands, particularly in terms of understanding the complex geography of remote, rural, peninsular and island areas".
Highlands & Islands European Partnership

"The fund should therefore be applied in terms of the European principle of subsidiarity, whereby the most local possible form of decision-making and delivery is adopted, and support offered to communities in their wish to transform".
Clyde Gateway

There was very strong support for a focus on improving "places", and for joined-up, holistic and collaborative approaches in order to improve outcomes for people and communities. There was wider reference to the "Place Principle" endorsed by Scottish Government and COSLA.

"…taking a holistic and joined-up approach to place. Good quality, successful places provide employment, support communities, increase the wellbeing of their residents and have a healthy, efficient and well-maintained built environment. Places therefore provide the necessary elements for inclusive economic growth to flourish and our view is that creating and maintaining good quality and successful places should be a main aim of this fund".
Historic Environment Scotland

A point raised, mainly by those based in remote and/or rural areas was on the distribution of funding. It was argued that there was a need to tackle regional economic imbalances and problems in some regions at NUTS2 level that are les developed, in order to recognise the economic problems and structural challenges of Southern Scotland and the South of Scotland (e.g. geography, population imbalance, and low wealth creation).

There was consistent feedback that recent EU programmes have been "very prescriptive", "centralised" and top-down" in their design and management. An issue identified was that the mix of "supply and demand side" measures and activities vary from place to place, and there was strong support for greater flexibility, including activities eligible for funding. Adopting a place-based strategy and place-making principles as drivers for change were considered essential.

"…taking a holistic approach to 'place' and focusing investment around it, should work towards addressing spatial inequalities between areas and communities. It should ensure that funding is allocated where it is needed and transcend some of the barriers felt by the current structural fund set up and their regional classification. Given its local nature, place has a greater emphasis on community and is reflective of how places can differ within the same region or city".
Historic Environment Scotland

There was also support for setting priorities at a more "local" level, but more generally there was very strong support for adopting a Community Led Local Development (CLLD) approach similar to that applied through the LEADER programme.

"It should also be sufficiently devolved to allow local authorities and communities greater autonomy and decision making, as opposed to the current top down, centralised model".
Comhairle nan Eilean Siar

"The funds should be allocated to the areas most in need. There should be maximum local control over the funds, potentially at Local Authority level. This could be managed through existing local partnerships such as Community Planning to ensure integration and alignment with strategic priorities".
West Dunbartonshire Council

"The Community Led Local Development approach is particularly relevant to addressing spatial inequalities. Recognising that regions and areas can face very different challenges, this approach allows the bespoke needs of different communities to be addressed. A community-led approach enables priorities to be set by those on the ground who best understand the development needs of their local areas. The partnership approach of LEADER Local Action Groups brings together the different expertise, skills and perspectives of public, private and community sectors, enabling joined-up working to identify and address local challenges and opportunities".
NFU Scotland

In further support of a place-based approach, there was wider reference to the importance of: partnership working and collaboration; community and stakeholder engagement to identify priorities and actions; working with people with "lived experience" of poverty and exclusion to help design local solutions; and community capacity building.

Exploiting Opportunities

In addition to a needs-based approach, a number of respondents suggested that "opportunity" should also be a factor in allocating funding, as illustrated by the respondent quotes below.

"The programming priorities of ESIF funds, and the financial allocations which follow from that, have experienced a long-standing tension between 'opportunity' and 'need' (or, to put it another way, whether funds should be targeted at the poorest areas only, or the ones where most jobs can be created). Economic disadvantage occurs at a micro-regional level; that is, economic disparities can be seen within districts, within cities and even within neighbourhoods. A twin-track approach, with a focus on creating jobs in areas of opportunity, whilst focussing programmes of small business growth, entrepreneurship and access to opportunity for disadvantaged communities, can connect need an opportunity".
University of St Andrews

"…the diversity of Scotland's cities requires future funding to be flexible to allow cities to respond to need and opportunity at the city/city region level. Ensuring that future funding enables cities and their regions to capitalise on existing investment in their city region and growth deals and regional economic strategies will assist them to address inequalities between areas and communities in Scotland….there is a strong argument for ring fencing a greater proportion of future funding to cities in recognition of their role as drivers of the economy and of the mutual benefit to towns in their wider area".
Scottish Cities

Methodology for Funding Allocations

Several respondents made reference to the current methodology for calculating funding allocations - Gross Domestic Product (GDP) as a percentage of the EU average.

The main feedback was that GDP was a broad, blunt measurement, was potentially misleading, did not tell the whole story, and/or did not take account of the issue of rurality. Others said that while GDP provided an indication of regional economic output, it did not provide insight into wealth, poverty or quality of life.

The general view provided was that criteria on which future funding allocations could be based to most effectively address spatial inequalities would need to go beyond the current measure of GDP. Several respondents proposed that a wider range of measures could be used to give a more nuanced view of regional poverty and inequality.

These points are reflected in the respondent quotes below.

"The Highlands & Islands has long benefited from being eligible for enhanced levels funding because of its classification as a transition region where GDP per capita is between 75% and 90% of the EU average. EU Cohesion Policy has helped to transform the region and improve its economy. This ring-fenced funding should not be lost. However, other similarly disadvantaged regions in other parts of the country (e.g. Ayrshire, Dumfries & Galloway, Scottish Borders) have been classified as more developed regions due to being subsumed within South Western Scotland, Eastern Scotland or North Eastern Scotland alongside more populous, less disadvantaged areas. Distinct needs and priorities exist within these larger regions. The UK and Scotland need to determine eligibility for enhanced funding, which is based on smaller, more appropriate and more recognised geographical regions to better capture levels of need and target funding more effectively".
Scottish Council for Development and Industry (SCDI)

"The current methodology for calculating ESIF allocations….. means that the East of Scotland and the North East of Scotland are classified as 'well-developed' regions and are therefore subject to less-favourable conditions in funding, such as more-restricted thematic areas or lower co-finance rates. However, relying solely on GDP creates a misleading picture and is inadequate at addressing inequalities between communities. Taking into consideration other measurements such as the Scottish Index of Multiple Deprivation (SIMD) makes the case for a more targeted and effective level of financial intervention".
Perth and Kinross Council

"Funding allocations should not be based solely on GDP which is a broad, blunt measurement. It does not take account of rurality and factors associated with the higher on-costs of living and delivering services in islands and remote areas, and the difficulties in achieving economies of scale. With the development of a new funding framework, there is the opportunity to consider more sophisticated selection criteria beyond GDP per capita, for example: population sparsity, fuel poverty, distance from markets, "remoteness", "fragility", and inequalities which result from the higher costs of living and doing business on islands."
Comhairle nan Eilean Siar

Any changes in the balance of funding allocated to regions raised wider points about the importance of a carefully managed transition between ESIF and a successor fund. This point is reflected in the respondent quote below.

"…..some areas in Scotland, such as the Highlands, have received significantly higher levels of investment from structural funds than others. If this balance were to change under a new successor fund, any transition arrangements and potential funding gaps will need to be carefully managed. If funding levels were to drop significantly without any additional support being put in place it could have large, negative repercussions for the individuals, communities and organisations living and working there".
The Robertson Trust

Several submissions reported that there was a case for NUTS2 regions to receive additional support (as highlighted earlier in Question 1).

"The focus of this funding should be NUTS2 regions such as Southern Scotland that require additional support for the purpose of tackling structural challenges arising from geography, population imbalance, and low wealth creation. That means supporting strategic and holistic regional economic programmes at scale rather than supporting individual elements".
Dumfries and Galloway Council

There was some support expressed for using the SIMD to identify and target funding more effectively. However, others noted that the SIMD did not adequately capture deprivation within rural and remote geographies, or that using the SIMD on its own as a means of targeting funding might result in greater disadvantage for some individuals.

"Although we have welcomed the recent updates to the Scottish Government's SIMD data, we advise against using SIMD as the sole measure for identifying where to target funding as it's a poor proxy for poverty and need. A more sophisticated tool (or more likely, tools) should be used which can provide further information about bigger areas, not just postcodes".
The Robertson Trust

"The Commission in Scotland has for some time made the case that work based on deprivation in terms of area which does not take account of deprivation arising from other characteristics is likely to exclude many of Scotland's most disadvantaged people. It is therefore essential to ensure that a place based deprivation approach doesn't create greater disadvantage for people who share certain protected characteristics, and the public sector equality duty provides a structure to support planning, inquiry, assessment and monitoring to ensure that spatial policies to address inequality can be successful".
Equality and Human Rights Commission Scotland

The general view was that there "is no single indicator that can be used to assess spatial inequalities".

There was some reference to the importance of developing a greater understanding of the nature of inequality in Scotland, and that the targeting of resources should be "evidence-led". Here, it was suggested that an approach could include making the best use of existing "local intelligence", including drawing on wider information, indicators and/or tools that could be used to identify the nature of spatial inequalities, including:

• Local Outcome Improvement Plans (LOIPS) and Locality Plans.
• Scotland's Centre for Regional Inclusive Growth (SCRIG) dashboard.
• Inclusive Growth Diagnostics.
• City Region and Growth Deals and Regional Economic Partnerships data.
• Regional Human Poverty Index (RHPI).
• Disposable income.
• Scotland's Towns Partnership - Understanding Scottish Places.
• Scottish Government Rural and Environment Science and Analytical Services (RESAS) - Brexit Vulnerability Index.
• Indicators that take account of rurality and factors associated with the higher on-costs of living and delivering services in islands and remote areas.

And that "the blend of methods in allocating funding will necessarily vary if the new fund is to genuinely address inequalities between areas and communities in Scotland".

"In order to ensure that inequalities are addressed in all areas and communities, it will be important to ensure that all of Scotland is eligible going forward. It is often those areas and communities within pockets of deprivation within larger areas which struggle to receive the support they need. This is particularly the case for rural areas due to lower population density and overlap with travel to work areas for cities. It is therefore important that a transparent and fair methodology which takes account of the needs of rural areas as well as Cities and City Regions is used to determine funding allocations".
Perth and Kinross Council

Question 3: Geographically, at what level would the priorities for funding be best set?

Many submissions expressed support that the priorities for funding should be set at a Scotland level (i.e. creating a broad and overarching national framework, Scotland-level programming), in order to:

• Reflect the different structure of the Scottish economy, including Scotland's rural economy.
• Reflect the social and economic challenges and opportunities at a Scotland-wide level.
• Ensure a coordinated and consistent use of the funds (e.g. minimise the potential risk of fragmentation).
• Ensure appropriate strategic oversight of the fund (i.e. should the devolution settlement be respected).

Within these submissions, there was reference to high-level alignment with the National Performance Framework, Scottish Economic Strategy, Scottish Programme for Government, and the new Enterprise and Skills Strategic Board approach. A few respondents felt that priorities should also be aligned as far as possible with the UK Government and/or European Commission aims and objectives to ensure consistency and continuity of approach.

There was broad support that nationally set priorities should "not be taken unilaterally by either the UK and/or the Scottish Government". Rather, most submissions commented that priorities for funding should be developed and agreed in partnership with national, regional and local stakeholders and with communities - a "co-production/co-planning approach" was supported.

"To get best value from available funding, particularly where the country faces significant investment challenges e.g. digital connectivity and climate change, there should be a coherent national framework, supported by local delivery".
Scottish Fire and Rescue Service

"SCVO members believe that the priorities for the fund should be set at a devolved level within the Scottish Government. These priorities should be broad and all-encompassing in order to capture the full length and breadth of activity which is currently being delivered by voluntary sector organisations. Furthermore, the setting of funding priorities at this level ensures that there is proper understanding of the challenges faced in Scotland".
Scottish Council for Voluntary Organisations (SCVO)

"…representatives from local authorities should be involved as co-designers and creators of the new fund, and not involved in the process merely as consultees".
East of Scotland European Consortium (ESEC)

As highlighted earlier, most also expressed strong support for regional and local determination of priorities. A place-based approach was considered essential to:

• Overcome challenges arising from the perceived "centralised" approach to fund management within the current programme.
• Create a more flexible, tailored and responsive approach. There was wide-spread recognition that a "one-size-fits-all" approach would not be effective in tackling regional or sub-regional issues.
• Better meet the needs, opportunities and context of different regions and geographies. There was recognition that there would require to be a clear "golden thread" to any national framework and to regional/local strategies and plans.
• Align with the growing move towards regional working and approaches (e.g. Regional Economic Partnerships, City Region and Growth Deals).
• Support the community empowerment agenda, and that all stakeholders were given "equal opportunity" to shape the development of the new fund to ensure regional challenges were addressed and opportunities maximised.
• Ensure Scottish authorities take a wider view and leverage economies of scale and potential synergies across regions (e.g. pan-regional interventions), while ensuring that spending decisions are aligned with local needs.

"The diversity of Scotland's cities….provides a strong case for future funding to support local discretion. Current funding has become much less geographically targeted over time and in the 2014-2020 period was largely controlled centrally by the Scottish Government. This approach fails to take account of regional variations in terms of priority and opportunity and provide local flexibility to respond to local, national and global issues as they arise. Cities should be able to utilise future funding to boost and extend regional economic strategies, notably the city region/growth deals already agreed with the Scottish Cities and their regional partners and the cities' priorities for inclusive growth. There is no need to add another layer of strategy to agreed local plans".
Scottish Cities

"Funds should be devolved to a Scottish level but to best reflect and respond to the needs and wishes of communities, priorities would be best set at a local/regional level. This follows the community empowerment agenda of decision making close to communities".
South Aberdeenshire Local Action Group

There was some support for priorities to be set at the "lowest possible level".

"A flexible approach should to be taken in terms of the most appropriate geographical level of intervention - this could either be at local, regional or Scottish levels but the default position should be that it should be at the lowest possible level".
Fife LEADER

"The priorities for funding the Just Transition have to be set at the Scottish level…….Within that framework, decisions about priorities for target localities are best set at the lowest possible level to ensure the greatest opportunity for consultation and engagement with those likely to be impacted".
Friends of the Earth Scotland

"It is not enough that partnerships of agencies consult with communities about how funding should be used to improve local outcomes. As participatory budgeting (PB) across Scotland has shown, a range of positive outcomes are achieved when communities have a direct say over how resources are used".
Scottish Community Development Centre

"While it is recognised that the scope of this consultation does not extend to work on Community Led Local Development and the replacement of the achievements of the EU LEADER Programme, there may be merit in considering the value of the community-led Local Action Groups (LAGs) in place in developing direction of prioritisation for rural investment for at least some element of funding".
Cairngorms Local Action Group Trust

"We therefore favour NUTS3 since NUTS2 areas are too large and include significant variations".
Joint Response from SENSCOT, Social Firms Scotland and Scottish Community Alliance