UK Shared Prosperity Fund and the Levelling Up agenda: letter from the Just Transition, Employment and Fair Work Minister

Luke Hall MP, Minister of State for Housing, Communities and Local Government

2 July 2021

Dear Luke

The UK Shared Prosperity Fund (UKSPF) and the Levelling Up agenda

Thank you for your letter dated 13 April 2021 to my colleague Ivan McKee, regarding the development of the UKSPF and the wider Levelling Up agenda. Following the Scottish Parliamentary elections I have been appointed as lead Minister for this policy area.

I would like to take this opportunity to introduce myself and set out my hopes for a fruitful working relationship in the coming months.

However, I would emphasise that we remain beyond disappointed by the continued refusal of the UK Government to engage the Scottish Government in any meaningful way in the development of both the UK Shared Prosperity Fund and the other funds announced in the March budget, namely the Community Renewal Fund, the Levelling Up Fund and the Community Ownership Fund. The level of engagement stands in sharp contrast to the close working relationship that the Scottish Government had with the European Commission on the development of the Structural Fund Programmes: these negotiations were always predicated on Scottish national and regional priorities, subject to discussion between Scottish Government and the European Commission on equal terms and based on a 7 year commitment from both sides in policy/priority and funding terms.

It is unfortunate that Scotland once again finds itself at a disadvantage thanks to a Brexit decision that we unequivocally rejected.

The devolution settlement put in place by the Scotland Act sets out the responsibility of the Scottish Government for matters within devolved competence. This includes responsibility for policy development and delivery in these areas in Scotland, and for making spending decisions in support of its policy choices, accountable to the Scottish Parliament and the people of Scotland. UK Government Ministers have had no role in these matters since 1999, and the Scotland Act makes clear that their powers in devolved areas have transferred to Scottish Ministers.

The recent UK Internal Market Act has given UK Government Ministers the powers and authority to spend in areas of devolved competence, mirroring the purposes of previous EU funding streams. However, spending powers cannot be sensibly exercised in isolation from the policy development and delivery that the spending supports. It is not possible for UK Ministers to make well informed and sound decisions about spending in devolved areas in Scotland without consultation and agreement with Scottish Ministers, to ensure coherence with existing spending plans, value for money and respect for responsibility and democratic accountability of Scottish Ministers and the Scottish Parliament.

This principle was recognised in the report by Lord Dunlop published by the UK Government on 24 March 2021. It is also set out in Statement of Funding Policy published by the UK Government with the November 2020 Spending Review which sets out how funding should be allocated in line with devolved and reserved responsibilities. As you will be aware, this document also notes that MHCLG’s spending programmes have 100% comparability factors, which in effect means that the Department has no responsibilities in Scotland.

Increased public funding for Scotland and Scottish stakeholders is always welcomed, however, increasing the number of funds available and making spending decisions based on a UK Government, rather than a Scottish, agenda, only adds to the complexity of the funding landscape, and creates a confused, incoherent policy framework and financial inefficiencies This funding would be better routed directly through the Scottish Government in line with devolved competence and the Statement on Funding Policy, to ensure appropriate democratic accountability, effective decision making, and good government. If this is not the case, Scotland’s communities risk being let down by badly informed UK Government spending decisions.

Future Engagement with the Scottish Government

I am aware, as you will be, that my disappointment regarding engagement on these matters is shared by my Devolved colleagues. In respect to engaging the Scottish Government specifically, I understand that your officials shared a draft Terms of Reference (ToR) for engagement with mine a few weeks ago and that my officials replied, rejecting these and proposing amendments. I am also of the view that the engagement outlined in the draft ToR falls short of what could be considered as a meaningful partnership of equals. Therefore, in addition to the points that have been sent to your officials regarding how future meetings should be conducted, I would like to add some further comments on the principles of future engagement.

Shared Prosperity Funding for investment in devolved policy areas should be routed through the Scottish Government, in line with existing well established arrangements for funding matters within devolved competence, to ensure appropriate democratic accountability and effective decision making; and to avoid policy and funding duplication or incoherence.

If the UK Government does not intend to follow existing practice, then the Scottish Government must be treated as a full and equal partner in the development and delivery of the UKSPF and any other related programmes both now and in the future to ensure policy coherence, respect for devolved responsibilities and proper decision making on public spending.

Specifically, this means that my officials should have a clear role in the development, delivery and decision making across all aspects of policy planning for the UKSPF. This will include current work on the UKSPF national investment framework which is due to publish later this summer, any subsequent policy development in advance of the Autumn spending review, as well as any other policy work which may arise before or during the roll out of the Programme.

In addition, agreement of Scottish Ministers should be obtained for the UKSPF before it is launched and both Scottish Ministers and officials must have a meaningful role in the governance of the Programme in both Scotland and at UK level.

A formal framework should set out how the UK Government arrives at decisions, in agreement with the devolved administrations, about funding which it proposes to allocate on a UK-wide basis. The present ad-hoc approach taken by the UK Government does not respect the current well established approaches set out in Statement on Funding Policy on the role of the devolved administrations, and undermines effective financial planning and policy development with our delivery partners.

To this end, I am aware my officials have been asked by UK Government colleagues to review bids to the Community Renewal Fund and the Levelling Up Fund. In the interests of responsible government, I am content for them to provide factual evidence to you on these bids but would stress that this should not be taken as indicating Scottish Government support for your approach with these funds.

Questions on the UKSPF

As you are aware, the Scottish Steering Group led by Professor David Bell set out a clear and fully evidenced plan for how Scotland would use our share of the UK Shared Prosperity Fund. I hope very much that the views expressed in this have been considered as part of your policy making process. However, myself and my officials are currently unsighted on whether or not this is the case, so I would like to ask some specific questions:

Geographies

What are the geographies that the UKSPF will be aligned to? In our report we considered that the Regional Economic Partnership areas across most of Scotland would be the most appropriate grouping, whilst the geographies covered by Highlands and Islands Enterprise and South of Scotland Enterprise, were the best fit for the north and south of the country. I am aware that the precursor to the UKSPF, the Community Renewal Fund, as well as the Levelling Up Fund, are both using individual local authority areas as their geographical framework, but I think it would be unhelpful in terms of our own policy priorities if this approach was to be taken again. Regional governance structures are already in place across most of the country, and they have proven themselves to be effective through the development of City Region and Regional Growth Deals that are co-funded by the Scottish and UK Governments.

Funding and Allocations

The Scottish report was clear that we would use a needs based approach to allocations. Are you planning to use a needs based approach in your allocation of funding for the UKSPF and if so what are the criteria for this? Or will you retain the competitive approach used for the Community Renewal Fund and the Levelling Up Fund, which we believe has been sub optimal? If a needs based approach is used, how will you ensure that Scotland does not lose out on funding in comparison with our current Structural Fund allocations?

Multi Annual Approach

Can you confirm that the UKSPF will be committed on a multi annual basis and explain how stakeholders will be able to draw down funding?

Funding Quantum

Can you confirm the basis on which you are ensuring that “no part of the UK will lose out on funding”? I am particularly interested in how you will use the current Structural Fund allocations as a guide to this. I assume you are looking at allocations, rather than receipts given the considerable time lag between the two? What years and exchange rates are you taking as your base? Which funds are you taking into account for replacement – will you include LEADER and the European Territorial Cooperation Programmes, for example?

Governance

Can you outline who will be involved in the governance and assurance of the funding and what that hierarchy will be for this? Can you say what your current thinking is on where and how the Scottish Government fits in? Can you also comment on how much decentralisation of control will take place and how you will ensure that all places and communities, especially those with limited resources or capacity, will be supported to participate and contribute?

Evaluation and Appraisal

I am interested in both how individual projects and programmes will be evaluated for funding and also how the programme overall will be monitored, evaluated and audited. In our report, we were clear that we envisaged a negotiation between Scottish Government and each regional lead to develop a programme of work that met the needs of that specific area. Is this the approach you are planning? How will you then determine if projects and programmes have succeeded? What are your criteria and how will you apply these?

Policy Fit

Our plan was clearly aligned to our existing overarching National Performance Framework, and sought to complement rather than duplicate or edge out existing policies in key areas such as skills, employability and business support. This provided a helpful framework to support the development of regional plans as well as a reference point for us to evaluate progress. How will Scottish devolved policy frameworks be respected in the UKSPF or will UK Government strategies, such as the Levelling Up agenda, predominate?

National Bodies and Programmes

It remains very unclear how our national bodies – such as the enterprise agencies and our skills agency, Skills Development Scotland, will be engaged in the programme. Similarly our employability programmes have been built for the Scottish environment and have made good use of Structural Funds over the course of many years. It would be helpful to hear what considerations have been given to these matters and how the “People” strand of the UKSPF, which I understand is to be led across the UK by DWP, will fit with the unique Scottish landscape.

Other Devolved Nations

Can you confirm if the UKSPF will operate on exactly the same basis across all the other nations or if you will be using the work which my Welsh and Northern Ireland colleagues have already undertaken to shape bespoke programmes across the four nations of the UK?

Levelling Up Fund

The UK Government’s approach to the disbursement of monies from its Levelling Up Fund risks not only undermining the devolved settlement in Scotland, but also the priorities of the devolved agency with responsibility for transport, Transport Scotland. It is imperative that any projects align with the priorities and outcomes of Scotland’s National Transport Strategy and do not undermine the work on the second Strategic Transport Projects Review. Additionally, there is a risk that funds awarded via the Levelling Up Fund potentially bypass Transport Scotland’s requirement for any new government funded transport infrastructure projects to have a completed appraisal in accordance with Scottish Transport Appraisal Guidance (STAG), Scotland’s interpretation of HM Treasury Green Book. Any scheme which impacts on Scottish Ministers’ assets or which has funding implications for the Scottish Government has to be supported by an appraisal in line with STAG.

Transport Scotland is the statutory roads authority for the motorway and trunk road network (MTRN) in Scotland. Therefore should any of the proposals being submitted to the Levelling Up fund impact upon the MTRN, the promotor of the proposal should undertake an assessment of the impact of the proposal on the MRTN to be reviewed and approved by Transport Scotland on behalf of Scottish Ministers. This is in line with

Transport Scotland’s standard procedures – noting this is from the perspective of the continued safe and efficient operation of the trunk road network for our users. We would therefore also expect the promotor to include details on the safety, feasibility, technical and deliverability perspective and any resultant additional on-going operational or maintenance costs arising from the proposal which may be borne by our operators and ultimately the Scottish Government. As a result any proposal which impacts on the MTRN requires the consent of Scottish Ministers.

And in Rail, despite proposals not requiring funding from Scottish Government, any proposed changes to the rail network would have to be carefully considered due to the impact it could have on the rail network and rail services. Therefore, any proposals would have to be supported by a transport appraisal undertaken in accordance with STAG.

I appreciate that this is a lengthy and detailed letter. However it only reiterates the questions and issues that my officials have been raising with yours for almost two years with no clear response.

Throughout this process, all of my officials have acted in good faith, sharing our policy thinking and ensuring that UK Government officials are fully up to speed with Scottish policy and the different institutional landscape. I remain hopeful that this level of open engagement will now be returned and that we can work together as partners in the development of the UKSPF.

I would welcome the opportunity to meet with you as soon as possible to address these concerns and ensure the UKSPF is developed in a manner that meets Scotland’s interests. Finally, I hope that we are able to work collaboratively to deliver a programme that provides positive impacts for us all.

I am copying this letter to the following UK Government and DA Ministers:

• Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office, the Rt Hon Michael Gove MP
• Secretary of State for Housing, Communities and Local Government, the Rt Hon Robert Jenrick MP
• Secretary of State for Scotland, the Rt Hon Alister Jack MP
• Parliamentary Under Secretary of State for Scotland, Iain Stewart MP
• Secretary of State for Transport, the Rt Hon Grant Shapps MP (in respect to the Levelling Up Fund
• Chief Secretary to the Treasury, the Rt Hon Steven Barclay MP
• Secretary of State for Work and Pensions, the Rt Hon Thérèse Coffey MP
• Minister for the Economy, Vaughan Gething MS, Welsh Government
• Minister for Finance, Conor Murphy MLA, Northern Ireland Executive
• Minster for Economy, Paul Frew MLA, Northern Ireland Executive

I have also copied this to my Scottish Ministerial colleagues with an interest.

I look forward to your response.

 

Richard Lochhead