Scottish Replacement For EU Structural Funds

Annex C Finance

1. This annex contains more information on how we arrived at the estimate of £1.283 billion for a replacement 7 year programme for 2021 – 2027.

Calculations for ESIF and ETC

Uprating the Current Programme

• Multiannual Financial Framework (MFF) 7 year timeframe: £1,130 million
• Average Annual amount: £162 million

Method

• We have used the initial programme value based on the 2014-2020 EU Cohesion policy rules and does not take account of de-commitments which have taken place over the course of the programme.
• To arrive at the Multi-Annual Financial Framework (MFF) 7 year figure, we took the total amount allocated in Euros to Scotland for the 14-20 programme following the 2017 adjustment (€944 million or 8.4% of UK total), uprated it for inflation^[7], and used a standard exchange rate of £1: €1.10 to give a figure of £1,130 million for the ESF and ERDF programmes.
• The exchange rate is the taken from Table 3.10 of the OBR Economic and Fiscal Forecast paper of March 2019^[8] and is the average of the forecast rates from 20/21 onwards. For comparison the current exchange rate is £1: €1.10583.
• We have calculated the likely ceiling based on the EU capping rule^[9] however, it is not entirely clear from the draft regulation how this would be calculated.

Adding Assumption for European Territorial Cooperation Programmes (ETC)

• MFF 7 year timeframe: £98.0 million
• Average Annual amount: £14.0 million
• The ETC is not allocated in the same way as other cohesion funds – it is determined by Scotland's success in bidding for projects under the various operations. We have therefore calculated Scotland's possible share using the current benefit to Scotland, as at February 2020, uprated for the same inflationary forecast and exchange rate estimates as those in the calculation of cohesion funding.

Calculations for LEADER

• MFF 7 year timeframe: £50.8 million
• Average Annual amount: £7.263 million

Assumptions and Caveats

• The consultation responses recommended a multiannual programme of at least 5 years if not longer. As the European funding operates in 7 year cycles, we have assumed that allocations will be for a 7 year replacement programme.
• We used a standard exchange rate of £1: €1.10. This is the taken from Table 3.10 of the OBR Economic and Fiscal Forecast paper of March 2019^[10] and is the average of the forecast rates from 20/21 onwards. For comparison the current exchange rate is £1: €1.10583.
• The EU Cohesion rules (Article 11) notes that a cap of 108% applies to allocations - i.e. Member States can only receive a maximum of 108% of their 14-20 allocation.

Points to note

• As European Policy Research Centre research^[11] states: "Importantly, there is not necessarily a direct link between the regional amounts generated through the formulae and the final allocation to Operational Programmes. Accordingly, the allocation of funding within the UK would not necessarily follow the Commission's methodology; in the past it has been based on a political agreement between the UK Government and the devolved administrations".
• There are other ways in which we could calculate a baseline figure. However, looking to similar and previous programmes, such as allocations across Local Enterprise Partnerships for the existing ESIF programme in England^[12] or how city and growth deal settlements were arrived at, there is little transparency about this how these decisions were made.
• As noted in a judgement regarding allocations of structural funds in England^[13], "There is no "right" answer prescribed by the EU Treaty or the 2013 Regulation to the question how EU Structural Funds should be distributed within a Member State. There is not even any clear principle on which this should be done. Instead, the Secretary of State was required to make a complex evaluation of a wide range of overlapping criteria, all of which involved difficult and sometimes technical judgments about matters of social and economic policy". Whilst we are now in a post structural funds world, this comment remains apposite.
• European Structural Funds and State Aid Division take cognisance of the potential implications associated with multi-year funding of a Shared Prosperity Fund and would advocate that in all cases funding should be given sufficient flexibility to allow acceleration and deceleration of programmes across multiple years without impact to overall funding levels. Further consideration is required as to how the ultimate funding methodology impacts on the current fiscal framework and the Scottish Government's reserve capabilities.