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

7. Allocation and Funding Duration

Whilst funding allocations will largely be determined by our objectives, we must make sure that our approach is developed in an appropriate manner which is sensitive to differing needs across Scotland. We also need to be clear about the timeframes over which any funding programme would operate.

Section 7 covers the final five questions from the online consultation:

Question 10: What approach should be used to allocate the funding at programme level - including the most effective duration of the programme that would better support the identified priorities?

Question 11: What would be the most appropriate partnership and governance structure to achieve the strategic objectives of the future funding?

Question 12: What would be the most effective delivery model to ensure maximum leverage of funds from public and private sectors to regional investments?

Question 13: What capacity-building or other support is needed to ensure the ability of local partners and communities to participate in the programme?

Question 14: What can be learned from the design and delivery of the current and previous European Structural Fund Programmes in Scotland?

Summary of Main Points

Strong support for devolved responsibility, and for funding to be allocated using a fair, flexible and transparent methodology, and clear and objective criteria.

A methodology that was responsive and sensitive to regional and sub-regional needs was considered essential.

Near universal support for longer-term funding to enable sustainable change to be planned, programmed, achieved and evaluated.

Flexible and long-term funding were also considered essential.

Support for partnership and governance structures for the successor programme to be prioritised as an early task.

Partnership working on all levels was considered key to the successful delivery of the future funding programme.

Very strong support for governance arrangements to be based on a principle of subsidiarity, and using existing partnership structures operating at a regional and local level where possible.

Also strong support for regional/local accountability and management of funding and local priority setting within a broad national framework.

A delivery model and structure that is flexible, simple and straightforward in terms of its funding streams, processes, systems and administrative arrangements would work best.

Previous ESIF programmes achieved good leverage by requiring match-funding for projects. But recognition that this can constrain the ability of organisations to bid for ESIF.

The new fund should be significantly less bureaucratic and burdensome, and more proportionate to the level of investment sought.

Accessibility, addressing barriers to participation, and capacity building support were considered essential.

Question 10: What approach should be used to allocate the funding at programme level - including the most effective duration of the programme that would better support the identified priorities?

There was strong support for funding to be allocated using a fair, flexible and transparent methodology, and clear and objective criteria.

In line with feedback reported earlier, there was strong support for the UKSPF funding to be devolved to Scotland, and then allocated based on "regional need" or allocated on a "place-based analysis of need".

There was limited reference to the Barnett formula, but where it was, the point made was that replacement funding should be managed outside the Barnett formula to ensure that allocations are based on need rather than population, and recognise the specific needs of peripheral areas.

Some organisations reported that "the level of funding including intervention rate should be set by need at a regional level using NUTS 2 and other statistical data".

A methodology that was responsive and sensitive to regional/local needs was therefore considered essential.

Most felt that regional and sub-regional stakeholders and communities should be "genuinely" engaged throughout, and have the opportunity to participate in any decision-making processes to secure "buy-in" to what the successor programme seeks to achieve.

There was some reference to giving consideration to using existing partnership mechanisms to allocate funding at a regional/local level.

It was also considered important that the successor fund, including decisions on how funding was allocated, recognised the differences between urban and rural development needs. For example, distribution and allocation of funding should be based on appropriate and recognised geographical regions to capture levels of need and target funding effectively (e.g. a rural weighting to ensure that the needs of small rural communities are not overlooked).

In a similar vein, some organisations emphasised the importance of GDP or GVA or SIMD not being the sole statistical measurement used to allocate funding (as raised earlier in the document). It was reported that regions/communities should be able to provide evidence of need using measures they considered to be most appropriate and meaningful.

In addition to comments around a needs-based or place-based methodology for allocating funding, there was some reference to giving consideration to using a mix of approaches, including "novel or trial" methods, to distribute funding and therefore using different criteria to do so.

There was mention of the following:

• Strategic Interventions.
• Competitive fund.
• Challenge fund.
• Sectoral priorities.
• Recognition that smaller scale interventions can have significant impact (e.g. should not set minimum thresholds in terms of funding or size or coverage of projects which excludes smaller areas of need).

Where mentioned, there was slightly more support for "avoiding competitive bidding processes wherever possible, although it is accepted that this will be a requirement at some stages". And recognition that it can be resource intensive for applicants, and that assessment is "based on the perceived merit of an individual project rather than on general needs of areas, potentially leading to less developed areas losing out on funding".

The vast majority of respondents made an appeal for longer-term funding to enable sustainable change to be planned, programmed, achieved and evaluated. A two to 15 year programming period was mentioned, although many felt that the current seven-year period worked well, rather than shorter term ad hoc or one-off funding allocations. It was suggested that this would provide an opportunity to "learn and build on experience and deliver strong results and structural change".

Within the approach for longer-term funding, some respondents highlighted the importance of building in opportunities to undertake a review and refresh of priorities and to reshape delivery (e.g. flexibility to respond to changing needs, priorities or policy context, unexpected economic shocks, emerging opportunities, evaluation evidence).

"Programmes should be of a reasonable duration, operating over more than one financial year to enable development, delivery, and benefits realisation over a longer timeframe. Funding should be ring-fenced to provide certainty of budgets, allowing effective long term planning. The current system of fixed term programmes can result in a loss of capacity and expertise, as well as gaps in delivery as new programmes are developed. An evolutionary approach whereby programmes are reviewed, rather than completely new programmes introduced, could be beneficial to provide greater continuity".
South Aberdeenshire Local Action Group

"Within the allocated budget, flexibility in moving funds between priorities or projects as local conditions change".
The National trust for Scotland

Flexible and long-term funding were also considered essential in order to:

• Provide certainty, continuity and sustainability.
• Encourage applicants to try new things, "break new ground", or provide a more appropriate timeline for "proof of concept" projects.
• Be open to risk and innovation.
• Be able to make an impact on inclusive growth.
• Address and respond to changes in economic circumstances

Wider points made in support of longer-term funding included the following:

• Some respondents commented that the multi-annual framework of ESIF, which extends beyond parliamentary terms, remains crucial, and enabled organisations to design, develop and deliver high-quality projects for the benefit of people and business.
• Longer-term activities were generally considered the best way to deliver inclusive growth, combat poverty and tackle inequalities.
• It can also attract investment from other sources, and can encourage innovation.
• It supports "longer-term thinking", and provides stability, continuity and security for organisations and beneficiaries. An example provided was that short-term funding creates a cycle for third sector organisations where a large amount of internal resources are diverted away from direct service delivery towards seeking and accessing additional funding.
• To support pilot project activity and provide sufficient time to recruit staff, build capacity, enable partnerships, and/or to embed activities.

Question 11: What would be the most appropriate partnership and governance structure to achieve the strategic objectives of the future funding?

There was support for partnership and governance structures to be prioritised as an early task. It was reported that this could help "minimise any delays" and allow "timely and effective delivery" of the new funding programme.

The feedback suggests strong support for governance arrangements to be based on a "principle of subsidiarity". In this regard, there was reference to the Scottish Government having an oversight and coordination role at a national level, retaining responsibility for setting the strategic direction and policy framework for any future funding, and ensuring a consistent approach to monitoring and evaluation.

Partnership working on all levels was frequently mentioned and considered key to the successful delivery of the future funding programme - it could help "maintain transparency in project management, administration and delivery". A collaborative approach between the Scottish Government and stakeholders (public sector, industry, third sector, civil society) from "initial design of the new framework through to… evaluation" was actively encouraged. As was building on existing strong and effective partnership working between the Scottish Government and partners at a national, regional and local level.

The importance of strong regional and local partnerships was also emphasised. It was suggested that these could help ensure that regional challenges are addressed, opportunities are maximised, and that greater impact achieved as a result of making best use of embedded expertise and knowledge. There was also support for encouraging wider collaborative and joint working, including with City Region and Growth Deal partnerships and between areas across the UK where appropriate.

There were various comments raised regarding recent EU funding programmes. The main view was that this had become "much more centralised" within the Scottish Government, and had resulted in insufficient involvement from regional and local stakeholders.

There was strong support for a "system in line with how the Structural Funds were delivered prior to the 2014 to 2020 programmes". The advantages of returning to this model of delivery were articulated as follows by SCVO members:

• "The presence of an independent body that provides direct advice and guidance to applicants through all stages of the process from original application to final claims.
• A standard application process throughout Scotland with known deadlines.
• A range of local experts from local authorities, economic boards, education and the voluntary sector are able to contribute to both the design of the programme at national level and the application of the programme at local level.
• A knowledge of the local area providing the ability to recognise changes required and implement them.
• In any case of a dispute the Scottish Government would be the point of arbitration…

Members stated that the methodology used to deliver the current programme of funding has failed due to each lead partner setting their own application process, sets of outcomes and results which are subject to both Scottish Government rules and the EU's rules. In the current system, Scottish Government acts as both rule-maker and arbiter, with no separation of duties when it comes to application assessment and the hearing of appeals etc. Currently the process does not have an independent voice or adjudicator".

There were strong calls for:

• Greater delegated authority to an appropriate level (e.g. "as local as is practical").
• Further devolution of any national funding.
• A more decentralised approach at a regional level.

As highlighted earlier, there was strong support for regional/local accountability and management of funding and local priority setting within a broad national framework. It was reported that such an approach could ensure a "territorial perspective", alongside greater flexibility to respond to changing circumstances and increased transparency and accountability in decision-making processes.

Ensuring a "bottom-up" and "community-led" approach were again emphasised. There was also some reference to the "systemic integration of equality expertise", and ensuring governance arrangements were "appropriate to the level of funding available" and "relative to the scale of other comparable Government funded programmes". There were also calls for a partnership and governance structure that is "more nimble and proportionate in its administration".

There was particularly strong support for using existing partnership structures operating at a regional and local level where possible. It was suggested that this could minimise costs, maximise efficiency, and avoid creating new, parallel mechanisms. There was reference to Regional Economic Partnerships, Community Planning Partnerships, and at a more local level to the perceived success of LEADER and Fisheries Local Action Groups.^[23] It was suggested that representation on structures would need to reflect the level at which priorities are established.

"…if you want to make a measurable and significant difference to the lives of people, businesses and communities across Scotland then the ability to make decisions and set priorities should be as close to the communities in question as possible. There are already various levels of management and accountability in place across Scotland, e.g. Community Planning Partnerships, Health and Social Care Partnerships, Integration Authorities, local authorities etc. Given the complexity of the current landscape, we should avoid adding in another layer and instead recommend that existing structures are used for setting priorities and administering the funding. That said, we do have some concerns that if priorities were only being set at, for example the level of local authorities, some of the funding might be used to support core services rather than providing additionality".
The Robertson Trust

A key element of governance mentioned was audit and compliance. The main feedback was the importance of reducing multiple layers of bureaucracy, making the process less onerous, and ensuring that a proportionate approach is adopted (e.g. appropriate to the type of investment and level of risk, broadly comparable to other sources of national funding, use of existing systems of public sector bodies).

A related point made in a few cases was that an Independent Administrative Body would be critical for the fund - it was reported that the Managing Authority cannot also be the auditing/verification body and the assessing body. It was reported that this would create a separation between the decision making body and the operational administrative body. This separation of duties was considered important to ensure transparency and avoid conflict of interest.

Question 12: What would be the most effective delivery model to ensure maximum leverage of funds from public and private sectors to regional investments?

A number of common themes emerged from the consultation responses, regarding the most effective delivery model to ensure maximum leverage of funds from public and private sectors to regional investments.

The most frequently mentioned points can be summarised as follows:

• A delivery model and structure that is flexible, simple and straightforward in terms of its funding streams, processes, systems and administrative arrangements would work best. This could include drawing on the experience of what worked well and what worked less well in previous ESIF programmes.
• A delivery model that makes use of, learns the lessons from, and/or builds on existing regional and local partnership structures.^[24] Existing partnerships, in particular those at a regional level and involve public, private and third sector representation were generally considered key to ensuring the maximum leverage of funds. Wider points raised were the importance of all stakeholder groups being involved throughout the process, and that the delivery model should not add further complexity to the operating landscape.
• Strategic alignment between Scottish Government policy and delivery of funds could make it easier to ensure alignment with the priorities of other funding sources and to support wider integration with other funding. Further, UKSPF investment in projects or programmes which aim to address multiple priorities or outcomes could be more successful in attracting funding from other sources.
• It was generally reported that previous ESIF programmes achieved good leverage by requiring match-funding for projects.^[25] There was strong support for a match-funding requirement to continue (e.g. it shows commitment of the delivery organisation, greater consideration of value for money), albeit related points included that consideration could be given to 100% funding, or reducing the need for match funding (e.g. variable ratios), in some circumstances.
  There was wider recognition of the constraints organisations have experienced in securing match-funding in the current programme, and that the requirement for match-funding often acts as a barrier for some organisations from applying for ESIF investment or that it can increase competition for funding (e.g. there was specific reference made to challenges faced by the third sector and organisations in rural areas). There were also some calls for leveraged funds to be "genuine additional investment".
• Funding applications should encourage partnership and collaborative working (and new ways of working) to ensure maximum leverage of funds. This could include cooperation across regions. Access to longer-term and multi-annual funding from the UKSPF could also help attract investment from other sources.
• There were some comments made that the delivery model could "recognise the value of co-investment and partnership with the private sector". Commercial borrowing/investment from the private sector was not eligible in the more recent round of EU funding programmes, and it was felt that this could be considered as a way of gaining vital funding and engagement of the private sector in the development and delivery of interventions. There was some acknowledgement of issues that might have been "off-putting" to the private sector, and that the new programme could look to use simplified cost models, financial management and accounting procedures; and clear and non-restrictive state aid rules, with exemptions for activities which are of wider economic benefit.
• Alignment of application timescales with other main funders could help to leverage additional funds. There were some comments that current deadlines for ESIF applications were restrictive, and that application processes could be streamlined. Some suggestions included: rolling deadlines for applications; clear criteria for investment publicised and application deadlines set well in advance (e.g. to fit with applicants' own delivery timescales, to enable partnerships, including cross-border partnerships to be developed); streamlined application and assessment process; a fair and open application process; quicker timescales for assessing applications and decision-making processes to ensure appropriate lead-in times and alignment with local opportunities.

Question 13: What capacity-building or other support is needed to ensure the ability of local partners and communities to participate in the programme?

There were many comments that highlighted the complexity of previous ESIF programmes. This included specific feedback related to the administrative burden placed on applicants in terms of applying for, managing and reporting on, EU funds.^[26] There were strong calls for comprehensive, clear and consistent guidance from the Scottish Government on the new programme, and that rules, processes and systems should be significantly less bureaucratic and burdensome, and more proportionate to the level of investment sought. Arrangements should be clear from the outset and before the launch of any new programme.

The importance of ensuring regular communication and maintaining productive relationships between the Scottish Government (as the Managing Authority) and key partners and communities was also emphasised.

Accessibility and addressing barriers to participation were considered crucial.

As organisations and communities have varying levels of skill, expertise and capacity, it was noted that this had put some groups and organisations off applying for ESIF investment.

It was suggested that smaller organisations in particular might benefit from greater levels of support to work up funding applications, and that it would be vital that the new funding programme was open and accessible to a wider range of organisations (e.g. third sector, smaller organisations, those based in deprived communities). Less bureaucracy could "open the doors" for smaller organisations to participate. The ability to use replacement funding to cover staffing costs was considered another way in which to support local partners and communities to participate in the programme.

There were calls for dedicated staffing resources to provide the necessary advice, support and guidance for partners and communities to participate in the programme and to deliver effective projects. For example, SCVO members stated that, "should the programme revert to the post-2014 system of governance, it would provide applicants with support from an independent regional organisation, staffed with local experts, who could provide guidance and assistance through the application and claims process. Thus reducing administrative burden".

Wider reference was made to the:

• Central teams within Esmee Fairbairn Foundation and National Lottery Heritage Fund that help publicise funding and support organisations to apply.
• National contact point model used by Innovate UK in Horizon 2020, and also used in the Interreg programmes, that ensured the availability of development support available for partners.

It was generally reported that "animation" and access to external support and guidance would be helpful and could "drive uptake of the fund". A single point of contact for applicants was also considered a useful approach, as was access to telephone and online support (e.g. dedicated inbox for guidance queries).

A related point was around the claims process for drawing down funds. It was suggested that it might be more appropriate to consider payment in advance rather than in arrears. It was reported that payment in arrears acts as a barrier for smaller organisations (including the third sector) applying for funding. A different approach could also help organisations manage their cash flow. The requirement for match-funding was also identified as a barrier for some organisations. A more flexible financing model was therefore encouraged.

There was some reference to training, workshops, advice and guidance provided in the past by the Scottish Government. These were valued and there was support for this type of support to continue. It was considered vital that the Scottish Government helped to facilitate a timely and smooth transition from the current to new arrangements.

Wider suggestions included:

• Hosting local information sessions, seminars, roadshows and training sessions (e.g. on strategic programme development, fund aims and priorities, an outcomes-approach, management and delivery arrangements, roles and responsibilities, enabling partnerships, expectations of the application process, monitoring and evaluation, audit requirements, supporting continuous improvement).
• Linking with, and working through existing organisations, networks and mechanisms (e.g. Local Authorities, Community Planning Partnerships, LEADER and Local Action Groups, Third Sector Interfaces) to raise awareness of, and disseminate information on, the funding programme. Presentation slide packs and materials, including good practice examples, could be produced for organisations to share with their partners and communities - "this would increase their knowledge about the programme and increase their confidence in participating".
• Training and ongoing technical support on the MIS.
• Regular one-to-one meetings with portfolio managers to support management staff and update on any changes.
• Bi-annual stakeholder events or conferences at a national level to share best practice and learning and to provide networking opportunities.
• Scope for partners to internationalise their experiences and access knowledge from abroad - particularly elsewhere in the EU - through the provision of opportunities for the exchange of experience (such as that financed by the European territorial cooperation programmes).

In addition to support provided directly by the Scottish Government, some respondents highlighted the importance of sign-posting potential applicants to wider sources of existing support at a national, regional or local level. A related point was the importance of the Scottish Government working in partnership with others to develop a "package of support" in order to avoid duplication of effort, and to best meet the needs of organisations.

There was wider reference to "Technical Assistance" - funding received by the Managing Authority to support programme delivery - "given the likely range and volume of activity in any new programmes, some continuation of this approach will be required". As an example, the joint response submitted by SENSCOT, Social Firms Scotland and Scottish Community Alliance mentioned they had previously accessed Technical Assistance to run a series of EU Funding Masterclasses across Scotland to raise awareness among the third sector of opportunities to access EU funding. Others mentioned access to funding for feasibility/preparatory support to allow capacity building for project development or seed-corn funding for applicants to undertake stakeholder engagement and develop a business case.

Some respondents noted that Lead Partners would incur management and administration costs, and proposed that these costs should be integral to overall programme costs - "the replacement of EU fund must contain an inbuilt provision to boost the capacity of all the managing and delivery bodies that is proportionate with their actual involvement in the design, delivery and financial management and reporting of such funds".

Question 14: What can be learned from the design and delivery of the current and previous ESIF programmes in Scotland?

Most of the lessons learned identified from the design and delivery of the current and previous ESIF programmes in Scotland have been reflected across earlier sections of the report.

It was considered important that the legacy and added value from the ESIF approach were not lost in the design and development of the successor fund. And recognition that there were opportunities to improve upon current arrangements to better meet the needs of people, businesses and communities across Scotland.

Across the feedback, the most common lessons around what worked well in previous programmes included:

• Meaningful and maximum involvement of regional and local partners and communities from an early stage. Embedding a collaborative partnership approach to the programme's design and allocation of funds helps ensure a more joined-up approach.
• The EU principles of subsidiarity and additionality were considered to have served previous programmes well. Reverting back to a regional or territorial focus/regional led-delivery could help secure greater buy-in and ownership, as well as a more responsive and tailored delivery model if funding and decision-making was devolved to this level. An approach that recognised the specific needs, opportunities and strengths of regions within Scotland was encouraged.
• Multi-year funding (e.g. seven years) that supports strategic planning, enables spatial inequalities to be addressed over the long-term, and accommodates sufficient lead-in time for projects.
• Encouraging strong horizontal alignment at the regional level (i.e. to maximise synergy between economic, environmental, social and place-based outcomes). And complemented by vertical alignment with objectives at the national, regional and local level.
• A focus on capacity building.
• Good publicity and available information to raise awareness of opportunities to participate in projects and programmes.

The main lessons learned in terms of what worked less well in previous programmes were identified as follows:

• Levels of bureaucracy and the administrative burden placed on applicants in terms of applying for, managing and reporting on, EU funds.^[27] It has taken both time and resource away from delivery and acted as a barrier to participation. A leaner, simplified and streamlined approach at all stages was emphasised, and for the Scottish Government to draw on the experience and knowledge of key partners to support this process. Programme rules and regulations should be clear and not open to interpretation. There needs to be clear guidance for all stages of delivery and IT systems should be robust and fit for purpose before launch.
• High levels of centralised management of funding within the Scottish Government. It was reported that programme management has not been as transparent as it could have been. A change of approach which enables more buy in to the programme and what it seeks to achieve would be welcome at all stages of the process (e.g. from initial programme design through decision making to monitoring and evaluation). A more flexible and less rigid or prescriptive approach could enable regional variances to be taken into account, encourage more innovative ideas to come forward, and allow delivery to adapt to changing circumstances.
• The design period for the current and previous EU programmes has been long, leading to substantial delays in programme delivery. Aligned to this were calls for there to be no gaps in the replacement funding as this could lead to delayed starts to projects and in some cases the loss of vital support services.
• There could be greater transparency in funding mechanisms to ensure there is sufficient visibility on how decisions are made when agreeing spending priorities. Linked to this were points around a lack of clarity regarding whether national project expenditure has disproportionally been allocated to urban areas.
• The Strategic Intervention model, delivered through lead partners, was perceived by some to be "exclusive" at times, and created a lack of clarity over eligibility and how to access the funds. Wider feedback was that Strategic Interventions were delivered by numerous different bodies and that this caused confusion (e.g. different bidding rounds, timescales, criteria for funding, assessment processes). A related point was difficulties in running projects which cut-across cross more than one Strategic Intervention theme.

There was some feedback that national challenge funds have not always been effective at targeting resources at those areas (either spatial or thematic) where they are most needed.

• There could be a greater focus on showcasing successes and opportunities for shared learning - understanding critical success factors and transferrable actions.