European Structural Funds 2014-2020 consultation document

PART 4: DEVELOPING THE PARTNERSHIP AGREEMENT AND OPERATIONAL PROGRAMMES

Partnership Agreement

16. The Partnership Agreement is a formal agreement with the European Commission to direct all ESI Funds at those challenges which might otherwise prevent Scotland achieving EU 2020 targets; or at those opportunities which will have a significant impact on those targets. It therefore has to contain an analysis of the disparities and needs to assist in selecting thematic objectives.

17. Scotland will have its own chapter within the UK Partnership Agreement which will set out our challenges and opportunities To ensure that the Funds remain focused over the lifetime of the programme, the following common strategy will be adopted:

"Scotland embraces the vision of the draft regulations for Regional Policy 2014-20 and its strong focus on achieving growth and jobs. Our ambition is that this Scottish Partnership Agreement directly supports the Scottish Government's wider aspiration to deliver sustainable economic growth for all in Scotland.

In the period from 2014-20 the Scottish approach to getting the greatest impact from the European Structural and Investment Funds is based on 7 key principles. The approach sees the fundamental purpose of the funds as securing structural reforms which will facilitate sustainable economic growth and create a more innovative and inclusive society.

ESIF will be deployed alongside many other, and larger, public and private funds which will also influence structural reforms, therefore the Scottish approach is to identify the " best niche for ESIF" within the wider funding and investment environment. Within the ESIF niche, alignment and strategic concentration of funds and investment will be key to achieving the greatest impact and complementarity between interventions.

The Scottish approach responds to important practical considerations - territorial challenges, simplification of implementation, and the capability of beneficiaries.

Scotland's territories bring diverse challenges whether rural, urban, sparsely populated, remote and peripheral, areas of prosperity, or areas of disadvantage. The Scottish approach recognises these and that where strategic thematic interventions will not address some territorial challenges, tailored interventions will be necessary to ensure balanced programmes of interventions achieve the greatest impact.

Simplifying implementation depends on establishing programmes around strategic interventions which can be match funded and are most likely to achieve ambitious outcomes. It also depends on funding beneficiaries that have the capability and capacity to manage interventions in compliance with audit and implementing regulations."

Evidence Base

The Scottish PA chapter will set out a summary evidence base to underpin the selection of thematic objectives and investment priorities. This will be accompanied by the publication of full baseline analyses for ERDF and ESF. The presentation in the Partnership Agreement is summarised below, and covers all four ESI Funds in Scotland:

Macroeconomic performance - Scotland has seen recent improvements in labour market and GDP statistics, and a less severe recession than many parts of Europe show resilience of workforce. Challenges remain, however, including unemployment (higher than pre-recession, with more longer term and youth unemployment); a fall in living standards; and growth at modest levels.

Smart Growth - Scotland has an excellent university and research sector, but could do more to capitalise on this to engender growth; the business culture historically favours mergers and acquisitions over long-term innovation and investment; the economy is very SME dependent, with a limited number of companies encouraged or wanting to grow or export; and with particular sectors a lack of access to finance. There is significant potential for the Funds to help encourage business demand for innovation and investment, leading to long-term sustainable growth models.

Digital connectivity and usage (business and individual) continues to be an issue, which in the long-term could serve as a disadvantage to competitiveness and social cohesion. Scotland has a high level of graduates, but also a high level of people without qualifications. This gap must be bridged through higher skill levels, more varieties (e.g. vocational) of skills, and broader participation in both if it is to increase its productivity and competitiveness.

Sustainable Growth - Scotland has set itself very challenging emissions and renewable energy targets, and is already exceeding the EU 2020 targets. This remains a strong potential area of growth across the country, but finding the right niche is important as there are significantly bigger investors than the Funds. Transport remains a key sector of emissions to address through behavioural change, but the Funds must be realistic about what can be achieved within budgets.

Scotland also has an opportunity to build on its high value land and marine nature as part of 'brand Scotland'. That will require significant investment in protecting and improving that important environment in terms of biodiversity, water and soil quality, and marine environments, and this will continue to be a focus for the rural fund. This could in turn lead to opportunities for sectors such as food and drink which rely on natural quality. Scotland also needs to address resource efficiency, but in the right niche as significant funding is already directed at domestic efficiency. This could lead to an opportunity for new waste management industries.

Inclusive Growth - Scotland continues to see areas of concentrated joblessness and workless households, often allied to other social and economic issues. In addition, the recession has pushed up unemployment, and in particular extended long-term and youth unemployment. There are many potential barriers to entering sustainable employment, and an integrated approach to addressing these is likely to be required. Evidence suggests the current pipeline approach is effective, but may need adjustment in terms of scope or targeting; such as the inclusion of health inequalities or child care provision, and to be responsive to regional issues such as ageing demographics.

Beyond employability, there are an increasing number of people at risk of poverty or social exclusion, or already facing it. These issues are not always individual, but may be family-based or community based, and include financial awareness and inclusion, basic skills and life skills, access to services (including digital ability), all of which can be intertwined.

Territorial challenges - For a relatively small country, Scotland's social and actual geography is diverse. Cities offer both significant concentrations of entrepreneurialism, innovation and talent; and in some cases concentrations of deprivation. However, deprivation is not limited to cities, and can extend through scarcity of services or through under-reporting of income deprivation to many rural communities too.

Many rural and coastal communities in Scotland are sparsely populated and remote, and present issues in terms of availability of services, fuel costs (and fuel poverty), transport time, and additional business costs. There is also a gradual fall in employment in primary industries, and a rise in opportunities in high-skills fields like advanced food and drink, marine and eco-tourism, life sciences and low carbon technologies, both areas which are likely to affect rural areas more than urban, where the wider economic bases can better absorb change.

Choice of thematic objectives

Based on this analysis, the thematic objectives which will be included in the Partnership Agreement chapter for Scotland, and the specific activities which are likely to form the focus for the Structural Funds, are:

• R&TD&I - in particular focusing on commercialisation and collaboration between business and academia. Linked to sectors picked out as part of Smart Specialisation, and in support of identified regional strengths.
• ICT - only in relation to remote broadband roll-out (other aspects covered under SME competitiveness, skills, and labour market mobility).
• SME Competitiveness - in particular identifying the next generation of potential growth companies, helping business exploit digital technology, innovation and developing leadership capacity; and making Scotland's cities more investment-attractive and competitive. This will be delivered through a growth pipeline, with increased numbers of companies moving through the various stages of growth to the next - all the while generating the kind of sustained, higher growth that generates the biggest economic impact.

• Low Carbon Economy - a clear focus in getting a wide range of projects investment-ready (renewable heat, CHP, hydrogen fuel, renewable/marine energy…); and a focus on promoting a behavioural shift towards low-carbon transport options.
• Protecting the environment and promoting resource efficiency - in particular in relation to business waste and efficiency, and promoting and up-scaling circular economies.
• Labour market mobility - a localised approach to addressing barriers to work, e.g. older workers, childcare, health inequalities, skills and employability. This should link closely to SME development to ensure that jobs are created alongside preparing people to take up sustainable employment.
• Social inclusion and combating poverty - intensive and targeted support at areas of multiple and complex need aimed at financial inclusion, household/family wellbeing and resilience and basic life skills (including digital literacy).
• Education, skills and lifelong learning - to complement Labour Market Mobility, aimed at increasing skills levels (vocational, academic and business-ready) linked to Smart Specialisation or regionally significant sectors - matching skills supply and demand - and extending and improving vocational education pathways

Operational Programmes

18. The proposal continues to be to have one Operational Programme ( OP) per ESI fund in Scotland, to allow for a sense of scale and consistency in interventions which are required across Scotland.

19. However, within that, the Structural Fund OP's would recognise that the Highlands and Islands is classed as a transition region. We are working with Highlands and Islands stakeholders on identifying specific needs, in addition to and outside of the national interventions, which should be addressed in the region. This may take the shape of an Integrated Territorial Investment within the single OP structure.

20. The OP's themselves will be constructed using the evidence base of needs and opportunities, and the strategic interventions developed through the Strategic Delivery partnerships over summer. These interventions have outlined possible budgets, allowing us to match spend to thematic objectives; areas of focus, allowing us to select investment priorities and construct the Programme priority axes; and outputs and outcomes, helping to define the performance framework for the Funds.

21. The tables in Part 5 provide an overview of the proposals under each of the EU 2020 headings - Smart, Sustainable and Inclusive - matched against the relevant thematic objective and investment priorities. It is important to note that this list is not definitive. The ERDF and ESF budgets are significantly 'over-bid' at this stage, and so the proposals remain subject to comment, change, refinement and ultimately Ministerial decision. We welcome stakeholder comments on whether the investment priorities are the most appropriate ones for the activity suggested.