ESIF Programme Monitoring Committee meeting: December 2020

Attendees and apologies

 

Items and actions

Agenda

• welcome and apologies
• minutes of previous PMC meeting – (paper)
• 2020 de-commitment – (paper)
• intervention rate follow-up – (paper)
• ESF and ERDF programme suspension – (paper)
• 2014-20 programme closure – (verbal)
• future funding update – (verbal)
• AOB

Date of next meeting = TBC

2020 de-commitment (paper)

Purpose of paper

This paper provide members with an update on the projected automatic de-commitment totals for the ESF and ERDF programmes. These figures reflect the challenges that all Lead Partners have faced and continue to face in the delivery of services, projects and activities across Scotland. 

These challenges have been exacerbated by the prolonged period of restrictions imposed by the COVID-19 pandemic which continued to have a significant social and economic impact on all activities supported through the ESF and ERDF programmes in addition to the suspension of the programmes.

Decision required

Members are invited to:

• note the estimated projected automatic de-commitment of the ESF and ERDF programmes
• approve the MA proposal to utilise savings from the Lead Partner reconciliation exercise to support the continued delivery of services, projects and activities across Scotland

Annexes

Three Annexes are attached to the covering paper. These provide additional information to the narrative detailed within the paper. Details are as follows:

1. Annex A – Update and summary on current claims
2. Annex B – ESF and ERDF current financial performance – listed by Priority Axis and Thematic Objective
3. Annex C – ESF and ERDF Finance Overview

Background

To encourage sound and robust financial management of the programmes, the European Commission (EC), in adhering to the Common Provisions Regulations and Articles (article 80) that govern the programmes, can automatically de-commit funds that have not been fully utilised. 

There are numbers of reasons for the de-commitment of funds, including poor financial performance i.e. the submission of claims to the EC and delays to the implementation and delivery of services and projects funded through the programmes. The challenges presented by COVID-19 and the suspension of the programmes have brought additional complexity to historic performance issues that continue to impact on the programmes.

The EC has now notified the MA of the current level of de-commitment, as of 30 September 2020, should no further claims be submitted for reimbursement and its intention to implement the de-commitment procedure. If implemented, this will result in a fourth year of de-commitment from the programme.

De-commitment (N+3)

The table below details the current projected automatic de-commitment of the ESF and ERDF Programmes as of 30 September 2020. It also details the ESF and ERDF declarations submitted by the MA in December. Based on the exchange rate of £1:€1.17, the de-commitment for the programmes would be as follows:

• ERDF - £20,448,302
• ESF - £18,456,828

Programme	Region	De-commitment €	De-commitment £	Declaration €
ERDF	More Developed	39,195,623.00	35,368,437.59
ERDF	Transition	12,572,891.59	11,345,234.34
	Total	51,768,514.80	46,713,671.93	27,844,000
ESF	More Developed	28,790,593.49	25,979,388.07
ESF	Transition	9,060,891.46	8,176,157.10
	Total	37,851,489.95	34,155,545.17	16,257,000
Combined	Total	89,602,004.75	80,869,217.10	44,101,000

The MA is unable to provide detail on outstanding claims due to be submitted by LP’s at present but will endeavour to provide this detail to members in due course. For ease the current total figures for the pending claims are as follows:These figures do not take into account claims that are currently pending on the system. Full details of the claims, including the Lead Partner, the title of the Strategic Intervention, grant requested and summary are listed at Annex A for members to digest.

• ESF - £28,730,044
• ERDF - £5,638,786

Risk

In minimising the financial impact of the 2019 de-commitment, the MA was able to remove a consistent percentage of de-commitment across all Priority Axis (PA) for both regions. In utilising this methodology, the MA was able to mitigate the risk of insufficient funds and ensured sufficient funding was available to support all committed project and programme activity through the approved SI’s and Operations within each PA. 

This methodology also took into consideration movement of the Performance Reserve to those PA that achieved their milestones e.g. ERDF Priority 3, Transition and Priority 5, Transition and More Developed.

To mitigate and minimise the impact of the current de-commitment, the MA proposes to utilise the savings identified by Lead Partners through the reconciliation exercise to support those PA that may lose vital funding as a result of the de-commitment. 

In order to confirm those savings, the MA will soon write to all Lead Partners requesting they submit all change requests for approval by the MA Approval Panel by 25 January 2021. 

Next steps

The MA will write to all Lead Partners to formalise the savings identified through the reconciliation exercise. This information will then be used to prepare the next iteration of the Operational Programme which is scheduled to be submitted to the EC for final approval in May 2021.

The MA will provide members with regular updates on progress to utilise the savings and support the continued delivery of services, projects and activities across Scotland

Recommendation

The MA recommends that members: 

• note the estimated projected automatic de-commitment of the ESF and ERDF programmes
• approve the MA proposal to utilise savings from the Lead Partner reconciliation exercise to support the continued delivery of services, projects and activities across Scotland

PMC Secretariat

December 2020

Annex A

Lead Partner	Strategic Intervention	Days Since Submissions	Status	Gross Cost	Grant Requested	Summary
Scottish Government – Digital	World Class Digital Connectivity Programme	39	Awaiting Verification Check	2,728,087.80	1,364,043.90
Falkirk Council	Competitiveness, Innovation and Jobs: Business Competitiveness	39	Claim Submitted	964,163.46	385,665.39	Initial delay establishing if a stage 2 visit was required. Samples now being sent to LP for verification.
Renfrewshire Council	Competitiveness, Innovation and Jobs: Business Competitiveness	56	Awaiting Verification Check	238,615.94	95,446.37	Number of issues and checks impacting on the claim. Designated letter from LP returned unsigned. Figures on EUMIS not matching claim record, milestone issues which had to be raised with MA colleagues.
Scottish Enterprise	Innovation Challenge Funds	84	Awaiting Verification Check	578,896.00	295,486.77	Claim with MA for verification.
Comhairle nan Eilean Siar	Business Gateway Local Growth Accelerator Programme - Outer Hebrides	91	Awaiting Verification Check	42,172.75	21,086.38	Samples issued and evidence received. Verification checks in progress. Article 127 with Audit Authority has also caused delays.
Aberdeenshire Council	Aberdeen City and Shire Business Gateway +	146	Awaiting Verification Check	387,910.88	155,164.35	Claim progressing through MA verification checks.
Lead Partner	Strategic Intervention	Days Since Submissions	Status	Gross Cost	Grant Requested	Summary
North Ayrshire Council	Competitiveness, Innovation and Jobs: Business Competitiveness	153	Awaiting Verification Check	601,460.62	240,584.25	COVID-19 restrictions are preventing the LP getting access to their offices. MA in dialogue with LP with advice on submission of evidence in one batch – not following due process hinders and delays the verification process.
Scottish Natural Heritage	Green Infrastructure	199	Awaiting Verification Check	3,027,662.71	1,134,525.53	Currently being verified, difficulties obtaining additional supporting evidence for pricing schedules Meeting scheduled for 15 December to discuss claim.
Fife Council	Competitiveness, Innovation and Jobs: Business Competitiveness	91	Awaiting Verification Check	251,794.05	114,070.20	Currently with MA for checking. Some delays in the verification checking process due to a change in staff.
Zero Waste Scotland	Resource Efficient Circular Economy Accelerator Programme 2014 - 2020	301	Awaiting Verification Check	2,740,983.74	1,383,959.91	Pre-payment Team are currently carrying out pre-payment checks before payment is made. Verification complete.
Transport Scotland	Low Carbon Travel and Transport Programme	326	Awaiting Verification Check	1,082,700.10	451,718.97	Claim currently being verified, delays being encountered in receiving evidence due to COVID-19 restrictions.

Lead Partner	Strategic Intervention	Days Since Submissions	Status	Gross Cost	Grant Requested	Summary
Scottish Government – Technical Assistance	Technical Assistance	5	Claim verified	3,865,670.19	1,932,835.11	Paid 8 December 2020
East Renfrewshire Council	East Renfrewshire CPP Employability Pipeline	25	Awaiting Verification Check	265,526.94	122,110.00	Sample issued. LP has advised that, due to COVID-19 restrictions, they cannot get access to the office to obtain source documentation required to verify the claim. Unlikely to get access before end of January 2021
Aberdeen City Council	Aberdeen City Pipeline – Progress through Positive Partnerships	28	Awaiting Verification Check	35,945.27	14,378.11	Claim to be rejected. LP has submitted a management only claim. LP must resubmit a claim with delivery and management costs.
Comhairle nan Eilean Siar	Western Isles Poverty and Social Inclusion	67	Awaiting Verification Check	303,690.86	186,800.25	Evidence recently submitted, claim now being verified, however gaps in evidence with delay payment of the claim.
Stirling Council	Tackling Poverty and Social Exclusion in Stirling	76	Awaiting Final Check	64,784.26	29,865.54	At pre-payment stage
Stirling Council	Stirling Skills and Employability Pipeline	77	Awaiting Final Check	197,017.49	93,150.61	At pre-payment stage
Lead Partner	Strategic Intervention	Days Since Submissions	Status	Gross Cost	Grant Requested	Summary
Scottish Borders Council	Employability Pipeline – Scottish Borders	77	Awaiting Verification Check	406,917.48	184,008.08	Now being verified. LP had access issues with SFTP. Also technical difficulties with eRDM connect. Evidence missing from claim, including – part time staff costs and file check. MA working with LP to resolve the issues and finalise the claim.
South Ayrshire Council	South Ayrshire Targeted Family Support and Employment Programme	82	Awaiting Verification Check	57,304.87	28,652.44	MA working with LP to resolve issues with the claim.
Skills Development Scotland	National Third Sector Employability Fund (NTSF)	82	Awaiting Verification Check	18,285,546.71	8,235,223.13	Being verified. Half of the achievements have been verified. Costs (in excess of 500) are being verified. MA working with LP to resolve any issues.
South Ayrshire Council	Employability Pipeline - Ambition for Employment South Ayrshire	83	Awaiting Verification Check	1,089,556.80	504,796.33	At pre-payment stage
Renfrewshire Council	Addressing Poverty and Promoting Social Inclusion - Renfrewshire	102	Awaiting Verification Check	163,376.92	65,350.77	Further evidence due back from LP then once verified will move to pre-payment stage.
Scottish Funding Council	Developing Scotland’s Workforce - Youth Employment Initiative	110	Awaiting Verification Check	13,545,876.93	9,031,036.15	LP has now just uploaded evidence. MA has now started the verification check process.
Lead Partner	Strategic Intervention	Days Since Submissions	Status	Gross Cost	Grant Requested	Summary
North Lanarkshire Council	North Lanarkshire's Working Employability Pipeline (NLWEP)	118	Awaiting Verification Check	5,031,928.63	2,320,177.09	Currently verifying information received. However, information and detail missing from the claim including: full-time staff costs, part time costs and wage subsidies. Large claim so will take time to verify.
Aberdeenshire Council	Inclusive Aberdeenshire	123	Awaiting Verification Check	334,034.15	120,808.66	Verification issues identified in the claim. MA working with LP to resolve the issues.
Renfrewshire Council	Invest in Renfrewshire Employability Pipelines	157	Awaiting Verification Check	2,044,834.83	953,378.45	At pre-payment stage
Glasgow City Council	Employability Pipeline Glasgow City Council	180	Awaiting Verification Check	2,536,745.05	1,014,698.02	At pre-payment stage
Scottish Funding Council	Developing Scotland’s Workforce	201	Awaiting Verification Check	6,110,243.58	2,619,789.22	Claim with MA for final verification.
Shetland Islands Council	Addressing Poverty and Social Inclusion in Shetland	203	Awaiting Verification Check	99,676.76	68,527.77	LP needs information from delivery agent – CAB. Access issues due to COVID-19 also impacting the time to verify the claim.
Big Lottery Fund	Delivering Financial Inclusion	214	Awaiting Verification Check	1,530,628.49	612,251.40	At pre-payment stage
North Ayrshire Council	Youth Employment Initiative	242	Awaiting Verification Check	503,792.12	330,437.25	Claim submitted in May. Delays due to staff pressures and implementation of Unit Cost exercise. Additional evidence requested from LP. Claim is now being signed off by going through final MA pre-payment checks.
Lead Partner	Strategic Intervention	Days Since Submissions	Status	Gross Cost	Grant Requested	Summary
Clackmannanshire Council	Clackmannanshire Employability Pipeline	277	Awaiting Verification Check	226,030.35	100,088.40	At pre-payment stage
City of Edinburgh Council	Edinburgh Employability Pipeline	0	Awaiting Claim and Supporting Evidence	3,995,846.00	1,598,338.40
Dumfries and Galloway Council	YEI - Dumfries and Galloway	326	Awaiting Verification Check	648,444.50	434,457.82	LP unable to submit all required evidence due to COVID-19 restrictions e.g. access to building These restrictions are causing significant delays to the verification of the claim.
Midlothian Council	Midlothian Employability Pipelines	774	Awaiting Verification Check	230,906.74	92,362.70	Working through issues with lead partner. There has been a number of changes in personnel at the LP and there are significant gaps in the evidence.

Annex B

European Regional Development Fund (at November 2020)

	Programme value (€)	Committed (€)	% of Programme Committed	Paid Claims (€)	% of Programme Claimed
H and I	105,380,764.00	87,969,833.52	83%	15,889,806.95	15%
PA1 (TO 1)	16,854,682.00	15,683,291.59	93%	992,178.19	6%
PA2 (TO 2)	15,560,636.00	11,737,089.20	75%	3,325,392.07	21%
PA3 (TO 3)	32,166,501.00	22,619,427.49	70%	7,895,136.43	25%
PA4 (TO 4)	22,706,476.00	18,012,250.43	79%	1,522,182.73	7%
PA5 (TO 6)	15,854,648.00	17,587,789.98	111%	1,246,855.71	8%
PA6 (TO 12)	2,237,821.00	2,329,984.82	104%	908,061.82	41%
LUPS	331,586,312.00	286,719,921.90	86%	52,647,265.17	16%
PA1 (TO 1)	78,237,877.00	61,659,602.28	79%	12,195,881.27	16%
PA3 (TO 3)	105,795,156.00	110,992,396.41	105%	17,603,044.01	17%
PA4 (TO 4)	83,904,354.00	73,525,522.10	88%	14,928,940.74	18%
PA5 (TO 6)	57,148,912.00	33,361,871.65	58%	5,127,898.83	9%
PA6 (TO 12)	6,500,013.00	7,180,529.46	110%	2,791,500.32	43%
ERDF	436,967,076.00	374,689,755.42	86%	68,537,072.12	16%

(Priority Axis - PA)

• PA 01 - Strengthening research, technological development and innovation
• PA 02 - Enhancing access to, and use and quality of, information and communication technologies
• PA 03 - Enhancing the competitiveness of small and medium sized enterprises
• PA 04 - Supporting the shift towards a low carbon economy in all sectors
• PA 06 - Preserving and protecting the environment and promoting resource efficiency

European Social Fund (at November 2020)

	Programme value (€)	Committed (€)	% of Programme Committed	Paid Claims (€)	% of Programme Claimed
H and I	64,749,601.00	63,841,632.66	99%	7,181,322.54	11%
PA1 (TO 8)	20,139,441.00	19,142,202.89	95%	3,260,642.69	16%
PA2 (TO 9)	13,808,154.00	12,463,651.37	90%	952,341.50	7%
PA3 (TO 10)	28,870,388.00	30,081,244.98	104%	2,131,794.35	7%
PA5 (TO 12)	1,931,618.00	2,154,533.43	112%	836,544.00	43%
LUPS	318,719,421.00	334,894,856.70	105%	66,083,740.45	21%
PA1 (TO 8)	119,289,824.00	134,210,457.80	113%	22,299,985.20	19%
PA08a (YEI)	51,014,110.00	50,741,730.37	99%	29,310,915.20	57%
PA2 (TO 9)	50,850,684.00	30,239,038.29	59%	3,032,942.65	6%
PA3 (TO 10)	91,248,725.00	113,416,508.10	124%	9,000,252.60	10%
PA5 (TO 12)	6,316,078.00	6,287,122.15	100%	2,439,644.80	39%
ESF	383,469,022.00	398,736,489.36	104%	73,265,062.99	19%

(Priority Axis – PA)

• 08 - Promoting sustainable and quality employment and supporting labour mobility
• 09 - Promoting social inclusion, combating poverty and any discrimination
• 10 - Investing in education, training and vocational training for skills and lifelong learning
• 08a - Promoting Sustainable and quality employment and supporting labour market mobility (YEI)

(Thematic Objective - TO)

• TO1 - Strengthening research, technological development and innovation
• TO2 - Enhancing access to, and use and quality of information and communication technologies (ICT)
• TO3 - Enhancing the competitiveness of small and medium-sized enterprises (SMEs)
• TO4 - Supporting the shift towards a low-carbon economy in all sectors
• TO5 - Promoting climate change adaptation, risk prevention and management
• TO6 - Preserving and protecting the environment and promoting resource efficiency
• TO7 - Promoting sustainable transport and removing bottlenecks in key network infrastructures
• TO8 - Promoting sustainable and quality employment and supporting labour mobility
• TO9 - Promoting social inclusion, combating poverty and any discrimination
• TO10 - Investing in education, training and vocational training for skills and lifelong learning
• TO11 - Enhancing institutional capacity of public authorities and stakeholders and efficient public administration

Annex C

Finance overview

£ only, all figures grant	ESF (£) –	ESF (£) –	ERDF (£) –	ERDF (£) –	Total (£) –	Total (£) –	Comments
	30-Nov	07-Dec	30-Nov	07-Dec	30-Nov	07-Dec
Programme Value	331,347,715	331,347,715	369,879,717	369,879,717	701,227,432	701,227,432	Current Position, following 2019 de-commitment. Programme value is fixed in Euros and converted to sterling at the exchange rate of £1:€1:17
N+3 target (2020)	90,184,239	90,184,239	111,698,628	111,698,628	201,882,867	201,882,867	No change, N+3 target for 2020 will remain the same.
Spend to date	63,890,127	63,890,127	76,687,605	76,687,605	140,577,732	140,577,732	No change, report that provides this information updated monthly.
De-commitment	26,294,112	26,294,112	35,011,023	35,011,023	61,305,135	61,305,135	Any shortfall in expenditure against N+3 target is lost at year end.
Total grant Claims Paid by SG to Lead Partners	64,464,679	64,464,679	60,603,119	60,603,119	125,067,798	125,067,798	ESF: No change. ERDF: No change.
Claims Pending to Lead Partners	28,730,044	29,614,129	5,638,768	6,663,120	34,368,812	36,277,249	ESF: Increase of £884,085 due to new claim from Scottish Government - Techincal Assistance and changes to South Ayrshire - Employability Pipeline (£523,404 to £504,792) and Renfrewshire Council - Invest in Renfrewshire (£956,114 to £950,423). ERDF: Increase of £1,024,352 due to new claim from Scottish Government - Technical Assistance.
Claims Submitted by SG to EC	52,113,400	52,113,400	67,468,358	67,468,358	119,581,758	119,581,758	No change from previous report. Shows the value of claims submitted from Scottish Government to European Commission for reimbursement .
Strategic Interventions approved to date	345,996,172	345,996,172	352,145,060	343,475,746	698,141,231	689,471,918	Strategic Interventions (SI’s) is an indicative commitment. Figures reflect the position up to, and including, MAAP on 25 November pending Ministerial approval.
Operations approved to date	336,429,422	336,429,422	316,510,026	316,510,026	652,939,447	652,939,447	Shows the progress towards full commitment in which the aim is 105%. Operations committed is a formal commitment. Figures reflect the position up to, and including, MAAP on 25 November pending Ministerial approval.
Operations yet to be approved	9,566,750	9,566,750	35,635,034	26,965,720	45,201,784	36,532,471	Shows the difference between SI’s approved and Operations approved to date. ESF: Highland, Aberdeen city and shire. ERDF: COVID, LCITP and others where SI approved - Op should be submitted.

Intervention rate follow-up (paper)

COVID-19 Response – new operations and use of 100% intervention rate

Purpose of paper

This paper follows on from previous updates to members (written Procedure of 7 October and email of 13 October refer) on the revision of the ESF and ERDF programmes, taking advantage of flexibilities to the current regulations under the Coronavirus Response Investment Initiative (CRII and CRII +) announced by the European Commission. 

As members are aware, the CRII initiative allows Managing Authorities (MA) to address any of three key priorities in the fight against COVID-19 and its economic consequences: i) spending on healthcare, ii) support to short time work schemes, and iii) support to the SMEs working capital. 

In addressing these priorities, the initiative also allows Managing Authorities to apply a 100% intervention rate for both the ESF and ERDF programmes for the accounting year 2020-2021. The intervention rate of 100% may be applied across any/all Priority Axis (PA) within the ESF and ERDF programmes. Managing Authorities may apply the intervention rate (with the exception of YEI) to expenditure declared to the EC only during the accounting year 1 July 2020 to 30 June 2021.

The Managing Authority for Scotland is proposing to utilise the 100% intervention rate for claims to the EC for pre-existing expenditure incurred on COVID-19 related health supplies and support SME’s through the pandemic period and beyond. The advantages of this approach are that:

a) we know that this spend is eligible under the CRII criteria, and

b) we know that there are robust and easily accessible audit trails to evidence the spend

Decision required

Members are invited to:

• note the intention of the MA to apply the 100% intervention rate to all ESF and ERDF Priority Axis and to utilise it for existing COVID-19 health related spend and SME support
• note the intention of the MA to revise the narrative within the ERDF Operational Programme to reflect the expansion of eligible activities permitted by CRII/CRII

Background

The Managing Authority has undertaken extensive discussions with European Commission Desk Officers on the parameters for these flexibilities and what may, or may not be permissible. The MA has also undertaken exploratory discussions with Scottish Enterprise on potential activities to meet the cost of manufacturing sector workplace adaptations required as a result of COVID-19, however it was ultimately agreed that this route for funding was not viable.

The European Commission specifically requires that eligible spend under CRII flexibilities are for activities that are directly related to COVID-19 and additional to current pre-existing activities. Therefore whilst re-focusing of existing operations to respond to COVID 19 is possible these activities are not likely to meet the EC criteria for eligibility for the 100% intervention rate. The audit requirements are of course as strict as ever and the MA must be particularly certain that claims do not contain any errors that could jeopardise our requests to exit suspension.

The MA circulated a written procedure (on 13 October 2020) summarising the process to implement the 100% intervention rate. The proposal at that stage was a technical one that, once approved by members, would allow the MA to take forward the next steps of preparing and revising the Operational Programme to reflect the 100% intervention rate. 

Whilst there will be no financial changes within the revised Operational Programme, the narrative in the PA’s will be revised to reflect the additional barriers presented by COVID-19. This will ensure that the MA is able to measure and assess the outputs associated with the revised PA. The text at ANNEX A, details the revisions to ERDF Priority Axis 3. 

The MA believes there is no fair way to make available the 100% rate available to all lead partners. The only claims that would qualify would be those that happen to have been/or will be made by lead partners between July 2020 and June 2021 – thus excluding all other claims falling out-with this period

Proposal

The Managing Authority’s proposal is to utilise as much as possible of the uncommitted ERDF and ESF funding remaining within the programmes (£84m and £13m respectively) on pre-existing healthcare spend incurred from April to August 2020 by SG Health including: masks, visors, sterile gowns, sanitiser, gloves and other personal protective equipment. The claims will be prioritised by the quality of evidence.

This approach also has the benefits of:

• protecting the position of phase 2 applications and operations by ensuring that there are sufficient funds to support approved SI’s, Operations and intervention rates without the programmes being seriously overcommitted
• this will also ensure that adequate resources are available for operations yet to be submitted for approval, pending the outcome of current Brexit negotiations. It will also ensure fairness to all Lead Partners and mitigates the risk of capacity constraints as the work to submit these claims can be undertaken internally

• negating any impact on EUMIS, there will be no requirement to adjust intervention rates for Lead Partners. This will allow the claims process to continue as it currently does

Next steps

In complying with the guidance from the EC, the MA has now completed all of the procedural processes in applying the 100% intervention rate across all PA’s. The MA will apply this rate when we are in a position to resume the submission of claims to the EC.

Recommendation

The MA recommends that members: 

• note the intention of the MA to apply the 100% intervention rate to all ESF and ERDF Priority Axis and to utilise it for existing COVID-19 health related spend and SME support
• note the intention of the MA to revise the narrative within the ERDF Operational Programme to reflect the expansion of eligible activities permitted by CRII/CRII

PMC Secretariat

December 2020

Annex A

ERDF priority axis 3

A.2 Justification for the establishment of a priority axis covering more than one category of region, thematic objective or fund (where applicable) Scotland’s economy is dominated by SMEs, with more than 90% of the business base having fewer than 10 employees. The focus of ERDF in Scotland under this thematic objective and priority axis is to get a greater number of these SMEs to grow by accessing wider markets, thereby broadening the economic base; and providing increased employment opportunities. There are particular opportunities for international and regional growth around the sectors identified through Smart Specialisation, with global possibilities for low carbon, life sciences, creative industries and food and drink in all regions. To gain maximum results for growth and jobs, this priority axis will focus on those sectors identified in Smart Specialisation, thus complementing the approach to innovation and skills development; and on one additional sector highlighted in the government Economic Strategy, which is vital for rural areas in particular: tourism and heritage. Business support services in Scotland are currently aimed at either those who have already demonstrated a capacity to grow (and might do so again unaided), or at generic advice around starting up and business planning. If Scottish businesses are to be ‘born global’, with export and internationalisation as recognised routes to growth, these regionalised and localised services need to join up and create a ‘pipeline’ approach which enables a business to access support repeatedly as it develops and grows. As this priority axis will focus on identifying and supporting SMEs with regional, national or international growth potential, this includes a joining up of how such companies are identified.

The justification for and choice of thematic objective and investment priority are therefore the same across Scotland; but the selection of operations and the delivery structure will need to ensure that relevant local projects can be tailored to different regional needs, and to the specific sub-sectors which present most strongly in each region (e.g. for a Smart Specialisation sector such as low carbon, product development, manufacture and install, testing and engineering are likely to be strongest in different areas of Scotland). In addition to regional Smart Specialisation tailoring, some additional activity will be permitted in the transition region as set out in the Strategy section on territorial needs. This is because the Highlands and Islands economy is dependent on SMEs, with a higher proportion of very small and micro firms, and with the growth potential for both existing businesses and new sectors constrained by geography and distance. The impact of supporting the establishment of new knowledge-intensive sectors and SMEs with the potential to become even relatively modest sized employers of 20-50 employees is correspondingly greater in such areas. The objective in the region remains the same, to get businesses to grow and internationalise, but to assist initial phases of business or sectoral development, ERDF in Scotland will permit investment support for limited infrastructure investment to overcome specific market failures. The specific cases where this will be permitted are outlined in section 2.A.6.1.

2020 update

The COVID-19 pandemic has severely impacted the economy and as a result many businesses, particularly SMEs are struggling to survive. Therefore the current focus of this Priority on only targeting businesses with growth potential is no longer relevant and there is a need to widen the scope to also include those SMEs that require support in order to survive and increase their business resilience. Please note that this widening of support is only eligible from 1 February 2020.

A.6.1 Description of the type and examples of actions to be supported and their expected contribution to the specific objectives including, where appropriate, the identification of main target groups, specific territories targeted and types of beneficiaries

Investment priority 3d - Supporting the capacity of SMEs to grow in regional, national and international markets, and to engage in innovation processes

Actions this Investment Priority will include:

1. Early identification and one-to-one mentoring and grant and loan support for companies with growth potential within the Smart Specialisation sectors, or within regionally important sectors identified in the government Economic Strategy such as tourism and heritage. ‘Growth potential’ will be identified for example through recent employment growth rate, turn-over growth rate, registration of patents, and/or indications of investment offers (in which case development support but not investment might be offered).

2. Training and mentoring for SME management teams and individuals (one-to-one and one-to-many events) on growth strategies and techniques, including introductions to business advice on innovation and innovation funding

3. business advisory and grant support on key growth issues, including entrepreneurial development, leadership and strategy support, business efficiency/productivity, market analysis and financial planning

4. Sector-specific actions, reflecting Scotland’s Smart Specialisation priorities, to enhance business collaboration and supply-chain development, and facilitate clustering opportunities at the regional level. This could include both advice and funding through grants or loans

5. Individual and group business support for Digital Exploitation, such as voucher schemes, training or specialist advice for SMEs on advanced utilisation of digital media, connectivity and business models

6. Support for internationalisation through providing tailored knowledge of new markets, improving how SMEs target/engage international clients (including collaboratively), and supporting participation in international trade fairs and expositions (this activity supports promotional support only, no export subsidies are permitted)

7. Support to SMEs through financial instruments

8. As of 1 February 2020 all of the above activities (1 -7) will also be available to SMEs requiring support for business survival/resilience to mitigate the economic impact of the COVID-19 pandemic. This may also include the provision of working capital as per the amended Article 3(1) of the ERDF Regulation.

In the transition region, additional specific activity will be permitted in recognition of the greater dominance of micro and small enterprises and the difficulty in securing new sectoral investments:

9. Enabling infrastructure for Smart Specialisation sectoral development, and regionally important sectoral development

• infrastructure investment in regionally significant business infrastructure which will be catalytic in the development of Smart Specialisation sectors and subsectors including energy (particularly offshore wind, wave and tidal), life sciences (marine bio sciences, medical devices and digital healthcare), food and drink, and creative industries (media, publishing, music and fashion). In each and every case, investments will address clearly defined infrastructure gaps and may include, for example, specialised business space or product testing capacity and equipment
• enabling infrastructure investment in the regionally important tourism and cultural sector, particularly linked to growth areas such as adventure tourism and archaeology. This will only be permitted where such investment forms a key component of a regional economic development plan and is assessed to lead directly to SME growth and employment
• these investments will only be supported where there is clear evidence of market failure, i.e. the private sector is not seeking to provide this infrastructure and SMEs cannot attract the investment to provide it; and where the investment supports SME growth and leads to creation of high value jobs
• the Transition region is expected to see 3-5 of such developments over the programming period. Although modest, evidence from previous programming rounds suggests this can be expected to deliver 450 jobs and benefit 50 SMEs in fragile economic areas

10. Supporting infrastructure for Businesses of scale

• support for capital investment where this is a component part of enhancing a business competitiveness, securing new markets and creating additional employment for an identified business of scale in the region
• businesses of scale will be defined as an SME, either currently or with the potential to employ 20-50 or more full-time equivalents, providing skilled and high-paid jobs, in one of the Smart Specialisation sectors or a sector that is economically significant in its locality
• to qualify for support, the business in question must have a growth plan in place and the proposed investment must be a fundamental component of realising that plan
• each investment case will be subject to an economic impact assessment, identifying the scale and nature of the market failure and the rationale for public investment (EU and other). This assessment will cover growth capacity, improved productivity, new products and/or processes; as well as wider regional benefits such as the creation of high-value jobs, diversification of a narrow local economic base, wide productivity gains and spill-over into local and regional supply chains. This assessment will also consider possible sources of support for such investments.
• the transition region is expected to make 12 of such investments over the programming period, at a cost of €3.6m of the relevant allocation for the region

These actions will contribute to the specific objective in two ways. Firstly, they will support a higher number of SMEs with growth potential to achieve that potential from the early and more risky stages, by recognising that the factors affecting growth such as innovation, leadership and funding are interlinked. Secondly, the actions will place the Scottish economy on a firmer footing on the international stage by helping more businesses to engage in export activity, in turn ensuring Scotland becomes a more open and attractive place to do business.

ESF and ERDF programme suspension – (paper)

Summary of progress: PMC - 15 December 2020

The EC auditors agreed that they would accept evidence to be submitted to support the lifting of the suspensions in two batches. The first batch would contain evidence relating to the introduction and implementation of Unit Costs and the second batch to contain evidence that the audit issues around the Commissions key requirements have been addressed.

Unit Cost Claims (Key change to support the lifting of ESF suspension only)

Claim 1: submitted to the EC - awaiting formal response

Claim 2: the first two tranches of 7 completed claims have been passed to the AA. Delays with further batches have been caused by COVID-19 restrictions. Claim 2 may need to be reduced accordingly. A further 9 operations have been completed and finalised these will be ready to send to the AA by 18/12/20. 

Claim 3: eligibility Checks are in progress. Meetings are being held with the Lead Partners involved in Claim 3 to assist with the collection of additional evidence (Edinburgh, Fife, Highland and South Lanarkshire Councils) – these are some of the largest operations in the exercise and the MA is working closely with these Lead Partners to provide additional support as required.

Claim 4: all Operational Staff Lists have been issued to Lead Partner and the 12 Third Sector Delivery Agents – existence checks have been finalised for 8 of the 14 eligible sub-operations (these are being added to claim 2). Existence Checks have been initiated for the remaining 6 sub-operations. 

Batch 1 to EC

The submission of unit cost claim 1 to the EC has allowed the first batch of supporting evidence along with letters from the Audit Authority to be sent to the Commission for their review on 23 September 2020.

System audit A125 (a) Pre Payment Verification Check - (key requirement to be met to support the lifting of ESF/ERDF suspension)

MA paid and passed 16 claims to the AA and a Management Letter was issued detailing initial findings. A decision was made to increase the sample size and a further 6 claims were identified through a retrospective exercise*. These claims have now been checked and the AA review was completed on 4 November 2020.

To provide the EC with further assurance we shall be continuing with this retrospective claims exercise. There is a further 25 claims to be checked and we have split this into batches. This means that we may have to contact Lead Partners and ask for more information on claims we have already paid. We intend to write to Lead Partners selected for this exercise in advance of evidence being requested. We will commence work on the second batch in the new year.

System audit A125 (b) phase 6 (on the spot visits) - (key requirement to be met to support the lifting of ESF/ERDF suspension)

This exercise started in January with visits commencing in February and completing in March prior to lockdown. Of the 18 operations 14 have been fully completed and reviewed by the AA.

Other system audit reports

There have been 23 system audits conducted between 2016 and 2020. There is 1 category 1 outcome and 21 category 2 outcomes (category 1 and 2 meet the EC’s key requirement). The final reports and categorisation of the A 125(a) and A 125(b) achieved the required category 2 outcomes. Reports issued to EC on 10 November following formal AA letters to EC (ESF and ERDF) submitted on 6 November 2020.

A final report category 3 outcome has been issued for Irregularities and Withdrawals. Actions required to have this raised to a cat 2 are underway and this work will be reviewed in January 2021.

Batch 2 to EC

The completion and achievement of satisfactory outcomes of system audits A125 (a) and (b) along with the outcomes of the other 17 system audits have enabled the submission of the second batch evidence to be sent to the Commission on the 6 November 2020.

Feedback from the EC

There has been some positive feedback from the Commission. We have been advised that a meeting is being held on Friday to discuss the suspension position. We would hope to hear more from them in the coming weeks.