Lord Wigley
To ask Her Majesty’s Government what their proposals are for replacing the European Structural Funds currently administered by the Welsh Government.
Lord Wigley (PC)
My Lords, in speaking to the Question I have on the Order Paper, I am grateful to be afforded this short debate at a most opportune time, coming as it does in the first week after Britain’s departure from the European Union. I thank other noble Lords who have put their names down to speak; I look forward to hearing from them. I am particularly delighted to see the noble Lord, Lord Thomas of Gresford, back on his Bench and ready to participate. I will not repeat the arguments we have had over the past four years concerning our membership of the European Union, other than to relate their significance for today’s debate. While I will focus on Wales, parallel issues clearly arise in other parts of these islands.
I welcome the fact that the noble Baroness, Lady Bloomfield, as a Wales Office Minister, is answering this debate. She is personally aware of the economic difficulties facing Wales, particularly in the west of the country—an area which has benefited since 2000 from European structural funds at their highest possible levels. In my home area, projects such as the performing arts centre Galeri in Caernarfon and the Management Centre and Pontio project at Bangor University would not have been possible without European finance. My home county of Gwynedd has benefited from £169 million of EU structural funding since the original Objective 1 funding became available 20 years ago. The big question today is what should take over such important structural funding now that we are outside the EU. I invite the Minister to consider three aspects of the matter: funding principles, the level of funding and associated administrative issues.
The area designated West Wales and the Valleys has been in receipt of the highest level of EU structural funding because the average GDP per head of these 15 counties has been consistently under 75% of the EU average. It is one of the poorest areas in Europe, and it is a damning indictment of successive Governments at Westminster that the disparity between the richer and poorer areas here in Britain is starker than anywhere in Europe. Net disposable income per head of population in west London is four times the level in Anglesey or the Gwent valleys. That speaks volumes about the failure of Governments over four decades to address this issue. The eastern part of Wales also faces economic and social challenges, albeit not as stark as those of West Wales and the Valleys.
The purpose of the European Regional Development Fund is to redress the main regional imbalances within the union. A key element of the ERDF is additionality: such funding coming from the European Union must not displace existing public funding available to the qualifying region but be additional to it. This was a bitter point of dispute between the National Assembly and the UK Government in 1999-2000, the Assembly’s first year of existence. The then Labour Government in London initially refused to pass over the European structural funds for which Wales qualified; only after the intervention of Michel Barnier—Europe’s then regional commissioner—did Gordon Brown make a statement in July 2000 that the Treasury was passing £442 million over to Wales. Subsequently, successive Governments have been obliged to abide by the additionality principle.
The provision of this funding explains why Wales has been a net beneficiary of EU funding over two decades and why this element featured largely in the referendum debate on Britain’s membership of the EU. Understandably, during 2016 much attention was given to this feature of Welsh public finances; so much so that commitments were repeatedly made by those supporting Brexit that Wales would not lose a penny by virtue of the UK departing from the EU. I have little doubt that this pledge largely explained the vote in Wales—albeit a narrow one—to leave the EU. Voters were assured that we would not lose such vital funding and that the UK Treasury would bridge the gap. We have been required to abide by the outcome of the referendum vote, so it is not unreasonable that we also abide by the commitments that delivered that vote.
My party, Plaid Cymru, has long called for rebalancing the economy through the allocation of resources on the basis of need, rather than population—the system used in the Barnett formula much criticised by committees of this House. It is our belief that a regional development fund for Wales—as Wales’s needs-based share of the UK prosperity fund—should be administered on a separate basis from the Welsh Government’s core funding. It should be a multiannual funding programme to facilitate both long-term planning and funding security, and not be sullied by short-term electoral cycle considerations.
The current Welsh European Funding Office should have its guidelines reviewed so that they deliver the new funds as effectively as possible and have the maximum strategic impact; that has not always been apparent in the use of EU strategic funds by successive Welsh Governments over the period during which we have been their beneficiary. The programme funding in Wales should maintain the objectives of the European structural funds, including streams relating to employability and regional economic development, while maintaining a synergy with Welsh government policy.
May I therefore ask the Minister five questions about the funding principles? First, will the Government make it a statutory requirement that the fundamental aim of the shared prosperity fund is to redress the main regional imbalances within the UK? Secondly, will they commit to allocating funds on the basis of need, related to people’s living standards? Thirdly, will they ensure that the principle of additionality applies to the shared prosperity fund? Fourthly, what role will devolved Governments have in methodology and funding determination? Fifthly, will the fund prioritise employability and regional economic development?
I will now say a word about funding levels. The UK was allocated just over €10 billion in European structural and investment funds for the funding cycle 2014-2020. Wales was allocated about a quarter of this sum, just over £2 billion—equivalent to £140 per person. The withdrawal agreement provides for maintaining the current structural funding arrangements only until the end of the transition period—that is, until the end of this year. My party contends—I strongly support this—that Wales should not receive a penny less under these new arrangements than we would have received under the EU arrangements for 2014-2020, uprated for inflation. This would provide some £2.5 billion for the period 2021-2027. Will the Government give cast-iron guarantees that current funding levels will be maintained, and will she give a pledge that no region will be worse off than it is under the current programme?
On the administration of such funding, the current administration of the European structural and investment funds is undertaken jointly between the EU and the nominated managing authority of the member state. Jointly, they put together an operational programme laying out their strategy and priorities, which has to be agreed with the European Commission before funding is made available to the managing authority. For Wales, that authority is WEFO, which is responsible for the social fund and the regional development fund in both West Wales and the Valleys, and in east Wales. My party contends that, on similar principles, Wales’s portion of the shared prosperity fund should be managed in Wales, not at a UK level for Wales. That would be in line with the Government’s pledge not to centralise devolved competences. We do not want to see another power grab by Whitehall and Westminster. Furthermore, the funds made available as Wales’s element of the UK shared prosperity fund should be re-allocated to Wales, rather than using a competitive bidding process run from London.
I have two final questions for the Minister. Will the Government make a commitment that responsibility for the administration of the shared prosperity fund in Wales will be fully devolved to the Welsh Government? What forum will be used for the co-ordination, where necessary, of schemes in Wales, Scotland, Northern Ireland and England, where some overlap may potentially occur? Will that be through Joint Ministerial Committees, as the Government propose for other functions?
Getting this right—and doing so now, well ahead of the end of the transition period—is necessary not only to fulfil the pledge given that Wales will not lose out on such funding as a result of Brexit, but to enable the co-ordination of public sector investment in Wales in a manner which delivers the maximum possible impact on the Welsh economy and on the living standards of our people.
A broad consensus on these matters exists in Wales, across party-political demarcations. I am sure that the Minister will concur with those objectives, so I now await to hear from her exactly how they will be achieved.
Lord Bourne of Aberystwyth (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Wigley, on this issue. I extend a great welcome to the noble Lord, Lord Thomas of Gresford; it is good to see him in his place. I also welcome my noble friend Lady Bloomfield to the first debate on Wales to which she is responding. I know how committed she is to ensuring that Wales gets a fair deal—as is my right honourable friend the Secretary of State for Wales, who understands these issues very clearly and has a personal interest, as a Member for west Wales, in ensuring that Wales gets a fair deal.
The noble Lord, Lord Wigley, recalled—quite rightly—our cross-party fight in the early years of the National Assembly to ensure that Wales got a fair deal. The noble Baroness, Lady Humphreys, will no doubt recall that, as will her colleagues, the noble Lord, Lord German, and the noble Baroness, Lady Randerson. They are not in their places at the moment but they were also key players in those early days in ensuring that we got a fair deal for Wales.
Working together then to ensure that the Objective 1 areas, as they were, got some of this spending, there were heady days when we thought that this funding would be transformational. It was transformational in the sense that it made a difference, but not as great a difference as we had hoped. All of us hoped that this would be a one-off application for European funding because this money was not a badge of honour; it was needed to bring these areas up to the level of the rest of Europe. Sadly, six or seven years later, there was a further round of funding, then another round of funding, which is now coming to a close. This is not something that we in Wales repeatedly want; we want the Welsh economy to benefit from this. I too have some of the concerns that were laid out by the noble Lord, Lord Wigley, but we need this to transform Wales. I am not sorry to leave behind some factors of the European programmes. There are factors that can be used to improve the performance of Wales, but we are probably best left without some of the stultifications and restrictions of the programme.
Let me echo some of the points that were made and set out the things I want to hear from the Minister. First, what is the timetable for when this will get moving and when we will consult on the shared prosperity fund? This is important because businesses, organisations and people in the areas of Wales that traditionally benefit from assistance will need to know when this help will be announced. Some indication of that would be welcome; I hope that we will get it today.
The Government have provided some reassuring guidelines, saying that they will respect the devolution settlement—that is welcome—and that we will not lose out after the removal of EU funding. Putting some flesh on the bones of that manifesto statement would also be welcome. We need to start on this programme. We need the consultation as soon as possible.
We also need to know what method will be used, in terms of Welsh assistance, to help with the funding. I suggest that we need something a bit more nuanced and sophisticated than the Barnett formula, which cannot really be used for these purposes. It is too much of a blunt instrument when we are looking at assistance for the most deprived areas of the United Kingdom. We are thinking in terms of the poorest parts of our union—not just of Wales, although that is the subject of this evening’s debate; indeed, this applies to Cornwall and other areas. It would be good to know the thinking on how this assistance will be assessed.
Further to that, there is broad agreement that there needs to be a partnership in carrying this forward. This cannot be decided solely from Westminster or the National Assembly in Cardiff Bay. How will that partnership work to make sure that the union is working effectively for the whole of the country? In parenthesis it is worth noting that, as time has gone on, with successive Governments that relationship is working better. I think that that is mostly down to what can loosely be called growing pains, since I do not think that it has anything to do with party politics. It is something to do with understanding how these things are best achieved. I would welcome some guidance from the Minister on how that will be achieved.
The next point I would like to make is how this could be used properly to advantage the United Kingdom and Wales and the parts that need assistance by using some flexibility that we did not have under the programme from Europe, which could be too restrictive. In particular, as someone who represented Powys, I mention that it was designated as a richer part of Wales. In some ways of course it was in relative terms, but that was not true of all of Powys. The southern parts of Powys such as Ystradgynlais and Abercraf, which many noble Lords will be familiar with, are former mining areas. They could not be designated as wealthier areas but they could not benefit from the funding for west Wales and the valleys because they were in east Wales. We can be more fleet of foot and innovative on things like that to ensure that we benefit. Looked at from that angle, I would also welcome some thoughts from the Minister on how we will carry that forward, because those boundaries could act as straitjackets. There are wealthier parts of west Wales and the valleys which were certainly wealthier than the former mining communities of south Powys, and that is something that needs to be brought into the equation. There are also poorer parts of north-east Wales, which I know the noble Lord, Lord Jones, will be familiar with. They ought to be taken into account as well.
These funds need to be used for projects to help with training for skills and entrepreneurship, to build in lasting prosperity for the areas that have been left behind for far too long. All of us who care about Wales will have a unity of purpose on how that can be achieved. I congratulate the noble Lord, Lord Wigley, on leaving behind the Brexit debate and looking at how we can now move forward for Wales. That has to be what the game is and it is what people are going to be interested in. It is not about how we revisit the past; it is about how we go towards the future and ensure that we build something that is genuinely in the interests of all of Wales. I look forward to hearing from the Minister on these key points.
Lord Murphy of Torfaen (Lab)
My Lords, as always, it is a great pleasure to follow the noble Lord, Lord Bourne, with all his experience as a Minister and as leader of the Conservative group in the Assembly for many years. I also welcome the noble Lord, Lord Wigley, whom we congratulate on raising here in the Chamber an extremely important issue.
Some £2 billion will be owed to Wales over the next number of years. It is by far the biggest percentage of the British amount of structural funding, and that is what we are due to receive. Some 25% of the whole of the European Union budget goes on structural funding through the European Regional Development Fund and the European Social Fund. It has been of enormous benefit to the people of Wales in our lifetime, as politicians representing Wales or in their places here will know. My own former constituency of Torfaen, a Gwent valley constituency, and many other valley constituencies have benefited enormously. It is something of an irony that if you look at the constituencies that voted to leave the European Union, they are those which received the most money from it. That was something of which I tried to persuade my former constituents, but they did not listen to me.
It is important for us to focus on what happens next, except for one thing. Both noble Lords have raised the point about additionality. Some 20 years ago I became the Secretary of State for Wales, and the first thing that I had to deal with was additionality. It was a great battle with the Treasury, helped by the National Assembly and by the European Union itself. For an unbiased account of what happened you can do no worse than look at page 113 of my autobiography, where you will see how it developed as a huge issue in Wales. But it was important to ensure that the money was truly additional to the Welsh budget and did not come out of the block grant.
The questions that we have to ask the Minister have been enumerated by both noble Lords, but I shall repeat them because they are so important. First, will the money in its entirety come to Wales? In other words, will what we were going to have from the European Union by way of structural funding come to us in the shape of the new prosperity fund? Apparently it is yet to be decided how the mechanics of it will work, but will it come to us? Will it be additional—not taken out of the block grant for Wales, or indeed for Scotland or Northern Ireland? What about the match funding? As everybody knows, structural funding is always matched by local government, other government departments or private funding. The match funding for it is therefore a hugely significant issue that the Government have to look into.
The other hugely important issue touched on is whether the Welsh Government will now be responsible for it. It was always the case that the European Regional Development Fund and the Social Fund would be for the devolved Administrations to administer. When I was the Northern Ireland Secretary, even after the Assembly and the Executive had fallen, it still came to the Northern Ireland Office to decide what to do with Objective 1 funding. As an aside, I hope the Government are looking at what to do with the peace funding from Europe with regard to the Northern Ireland situation. We are here today to talk about Wales, but the principles are the same. The Northern Ireland Executive, the Welsh Government and the Scottish Government are the appropriate bodies to administer the successor to the European structural funding.
At the same time, there is an issue about not just the European funding but the new post-Brexit relationship between the United Kingdom Government and the devolved Administrations. We now have three, after the restoration of the Assembly and Executive in Belfast. Now is the time to ensure that we set the parameters and establish confidence. Not all these Governments are of my political party. There is an SNP Government in Scotland, and in Northern Ireland there is of course a coalition between the parties; in Wales it is Labour. None, of course, is Conservative. The real test of what is likely to happen on the European funding—a test of the Joint Ministerial Committee—is how a Conservative Government of the United Kingdom, based here in London, deal with these three devolved Administrations.
Nearly 11 million people live under devolved Governments, and these Governments—particularly in Wales—administer the parts of our country where people are poorest. That is why we got the money in the first place. So it is vital that the Government get it right at this stage. It is about not just the funding but relationships between the devolved Administrations and the Government in Westminster.
People’s lives in Wales over the last 20-odd years have been transformed because of European funding. Sometimes the administration has been difficult—the bureaucracy can sometimes be a bit stifling—but it is a lot of money. It is well over £2 billion for a country of 3 million people; that is a great deal of money. It was always the idea, of course, that the money would not simply be there to build a bypass around a town or village but to transform how our economy worked in Wales. The Social Fund and the European Regional Development Fund were there for the long-term future of our country. That is why there is unanimity here in this Chamber, right across the political divides, to ensure that what we get in Wales is our just deserts—what we deserve—because we have already made the case and Europe has given us the green light in the past. We do not want to lose the opportunities and challenges that the structural funding gives us.
Baroness Humphreys (LD)
My Lords, it is a pleasure to take part in this important debate and I thank the noble Lord, Lord Wigley, for securing it at such an appropriate time. I also add to the voices who welcomed my noble friend Lord Thomas of Gresford back to his place on these Benches. It is good to have him back. It is also a pleasure to follow the vastly experienced voices of the three noble Lords who have already spoken.
I suppose I can say at the outset that I and the community in which I live have a vested interest in this debate. That is certainly true. Since 2001, Conwy County has qualified for European structural funding and benefited from the investment of £82.8 million over the ensuing years. This has funded 113 projects and resulted in job creation and improvements to the economy and the environment of both the rural and coastal areas of the county.
Throughout the county, capital projects have created new business units, regeneration projects linked to coastal defence work, and conservation, biodiversity and access projects in the rural area. We have also seen projects delivering improvements to the county’s tourism attractions and heritage-based projects, as well as a major events centre that has become a centre of excellence for sport. Conwy County has also initiated an EU-funded project designed to support young people in danger of disengaging with education, a project to support those identified as not in education, employment or training to overcome barriers and engage in skills and employment opportunities, and a project to increase take-up and attainment in STEM subjects among 11 to 19 year-olds in north-west Wales. Over the years, the county has been a partner in wider European projects with other countries: the Ireland Wales programme, the Youth in Action programme, Erasmus and the Leonardo programme.
Lists such as this are impressive: they show that EU funding has supported investment in infrastructure, research and innovation, and skills, and targeted those individuals furthest from the labour market. They are representative of work being carried out in councils throughout the west Wales and the valleys area. They reflect the commitment of the councils involved to improving their local economy, and the foresight of the European Union in targeting funds to help the Welsh economy and labour market recover from decades of industrial decline.
The success of European structural and investment funds in Wales can be measured by the fact that they have helped to more than halve the gap in economic inactivity rates between Wales and the UK since 2001. The investment we have seen through successive EU programmes has created some 51,000 new jobs and 14,000 new businesses in Wales since 2007, while also helping some 92,000 people into employment. EU funds in Wales have repeatedly demonstrated value for money. The Wales Audit Office’s report Managing the Impact of Brexit on EU Structural Funds also recognised that the Welsh European Funding Office is doing well in managing the risks and opportunities in light of the implications of Brexit.
But all this is in the present or the past. This debate encourages us to look to the future and consider the issue of replacing all these funds as the UK leaves the EU, presumably on 31 December this year. This, of course, is where the questions begin. The Commons Library has noted that many considerations are required for the shared prosperity fund, which is to replace EU funding, including priorities, objectives, amounts of money, allocation, method of model, length of planning and who administers the funds, none of which has yet been itemised.
For those of us who live in Wales, the last matter is probably the most important. European funding has been administered in Wales by the Welsh Government under the devolution settlement. One would assume that the status quo will continue, but the situation lacks clarity, with changes in emphasis in statements made by government Ministers. For the Minister for the Northern Powerhouse and Local Growth, the answer was “absolutely yes” to a question about whether the devolution settlement would still apply.
Contrast this with the view of the Prime Minister, who said:
“I think there may be some question about how exactly that money is dispensed or by whom. I would want to make sure that there was a strong Conservative influence on the expenditure.”
If we can have no certainty about the Government’s commitment to the devolution settlement, how much faith can we have in their promise that the fund’s budget must be no less in real terms than the EU and UK funding stream it replaces?
Politicians and those tasked with delivering projects have myriad questions. On their behalf, I would be grateful for the Minister’s guidance on the following points. First, will the shared prosperity fund’s moneys be allocated on a targeted, needs-based approach to regions and nations, or will competitive bidding be used? The Institute for Public Policy Research argues:
“Regional inequality is a persistent challenge for the UK and … a targeted and needs based approach will need to continue to invest into regions and nations to avoid this worsening.”
I hope that the Government will heed this advice.
Secondly, how will the shared prosperity fund work in practice to deliver desired outcomes across Wales? Thirdly, what roles will local and regional bodies play in the fund? Fourthly, how might administrative arrangements be simplified from those of existing EU funds? With 11 months to go before the end of the current schemes, these are all questions that those who work in the sector need clarity on, to enable them to plan ahead and prepare for new schemes. Finally, as has been mentioned, the Government have promised a consultation on the shared prosperity fund. When will this begin?
Lord Anderson of Swansea (Lab)
My Lords, I welcome to the Front Bench the noble Baroness, Lady Bloomfield, and I warmly congratulate the noble Lord, Lord Wigley, my noble friend, on his initiative. He is well aware that there is a danger of the Government replying that the debate is premature, that the details of the new fund will be announced later, and that in any event, finance will be part of the comprehensive spending review next month, so we should wait for that, and that they have sought all necessary assurances on quantum, consultation, liaison with the Welsh Government and so on. Equally, the Minister should be aware that there is a truthfulness problem—a question of trust. The recent past is littered with the abandoned promises of a Prime Minister who has so often proved himself to be a stranger to the truth. I am reminded of the adage about Lloyd George:
“Count not his broken promises as a crime. He meant them, oh he meant them at the time.”
This debate, which has been very consensual so far, surely is to raise legitimate concerns in Wales on a matter that is fundamentally important to our interests, partly because of the amount involved, a point well made by my noble friend Lord Murphy. In this current cycle of 2014-20, soon to end, we receive an allocation of £1.2 billion from the regional development fund and £800 million from the social fund. Therefore, we rely heavily on EU funds.
The second point is surely the context of our need. Wales is at the bottom of all the relevant indices of deprivation in the UK. On national income per head, Wales had a lower GDP per head in 2018 according to the Office for National Statistics than any other country or region in the UK. Three of the 10 UK areas with the lowest GDP per head are in Wales. Most recently, the ONS data suggested that Wales had the lowest growth rate of any UK region in the first quarter of 2019, at -0.5%, although they did caveat this. On tax bands, HM Revenue and Customs data showed that Wales had the joint lowest proportion of taxpayers in the UK on the additional and higher rates, and the joint highest proportion on the basic rate for countries and regions in the UK in the year 2019-20.
The ONS figures on household disposable income are clear that for countries and regions of the UK, on a per-head-of-population basis in 2017—the latest date available—again Wales was the poorest region. Households Below Average Income, a government publication, examined the percentage of individuals living in low-income households by region and county in 2015-16 to 2017-18. On one measure Wales has the joint highest proportion of such households and, only because of the higher costs of housing in London, the second highest after London on another. Whatever indices of deprivation we take, Wales is at the bottom of the table. That is the context about which we should be ashamed and which we should trumpet as representatives of Wales in this Chamber.
There is therefore deep concern in Wales about the effect of the move from structural funds to the proposed prosperity fund. I commend to the Government two recent publications on this issue. The first is the initial report from the APPG on Post-Brexit Funding for Regions, Nations and Local Areas on the UK shared prosperity fund and the Industrial Communities Alliance on the UK shared prosperity fund. The concerns raised have already been mentioned in a very consensual debate. On the assessment of the criteria, like the EU fund that was based on the additionality principle, which has already been raised by other noble Lords, including my noble friend Lord Murphy, the new fund needs to be outside the Barnett formula, which disadvantaged Wales. The annual budget of the fund should be no less in real terms than the EU and UK funding streams that it replaces and fundamentally should operate on the basis of multiannual allocations of the longest practical duration to give a degree of confidence in long-term planning.
Other questions are related to the management of the framework and partnership, which was a point made by the noble Lord, Lord Bourne. The devolution settlement should be respected and the opportunity taken to change it within the spirit of the Government’s recent pronouncements on the importance of the regions and nations. The Government should transfer responsibility for the detailed design and delivery on the agreed guidelines to the Welsh Government, and local authorities should be engaged. It will be interesting to learn from the Minister how he sees the Welsh local authorities fitting into the structure.
My conclusion is clear: there is clearly now a fork in the road—either we proceed to greater centralisation of funds or greater devolution. This is surely a golden opportunity for the Government to show greater flexibility—certainly flexibility beyond the Barnett formula—greater initiative and a greater faith in the governance of Wales by the Welsh Government.
Lord Davies of Gower (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Anderson of Swansea, who has a long and distinguished career as a politician. Indeed, as a teenager growing up in Gower, I followed him with great respect and interest. As a new Member of your Lordships’ House, it is a real privilege to follow such experienced voices from Wales. I congratulate the noble Lord, Lord Wigley, on securing this important debate.
It is clear that some replacement must be created to fill the gap left in the Welsh infrastructure budget by the withdrawal of the UK from the European Union; indeed, it is essential. It is key to define what current structural funds are intended for when we think about what form their replacement will take. There are two strands of funding: the European Regional Development Fund and the European Social Fund, which were designed to strengthen economic and social cohesion between the regions of the EU and to support workers across Europe. I see no reason why the principle of these funds should change. I therefore support the Government’s plans to move towards a shared prosperity fund, funded to similar levels by the money we would otherwise have sent to Europe. Wales still has important and unfinished infrastructure projects, so this funding is still vital to local communities there. However, instead of integration with the EU, the purpose of new funds should be to connect Wales more efficiently with the rest of the United Kingdom.
There has been some question—indeed, debate—over the method which will be used fairly to distribute the shared prosperity fund across the country. Wales will no doubt be following the outcome of those deliberations with great interest, as we currently receive the largest share of infrastructure funds. However, to my mind, speaking from my perspective as a humble citizen of Wales, it does not really matter if the Government use the Barnett formula or any other formula; all that simply matters is that levels of funding are maintained and that Wales receives its fair share of UK prosperity.
Turning to the real crux of the debate, the main question being posed here is about who will inherit the responsibility for administering this funding. Will it be a UK Government matter or will be up to the Welsh Government to prioritise? Currently, the allocation of funds is decided by the European Commission, while member states and their regions implement and manage the programmes. The Commission is then involved in overall programme monitoring, pays out approved expenditure and verifies the national control systems.
After Brexit, I see the UK Government and the Westminster Parliament fulfilling this role in relation to Welsh funds, with the Government replacing the Commission and the devolved Assemblies taking on the role of member state Governments in the current structural funding system. The Welsh Government would propose projects to receive shared prosperity funding and collaborate with the UK Government on the administrative details. The Welsh Government would then implement these projects in conjunction with the national Government.
Having been a Member of the Welsh Assembly for quite a few years, I know first hand its importance. It is entirely right that as a devolved institution, it should have the power to access and administer infrastructure funding. However, being in Welsh politics for some time now has given me real insight into the limitations of the current Government in Cardiff Bay. I cannot allow this debate to pass without mentioning that in recent years, funding rightfully allocated to Wales has in a number of cases been squandered through inefficient practices. Yes, there have been many successes, which the noble Baroness, Lady Humphreys, spoke of, but I can think of many examples of EU structural funds being mismanaged, leading to delays, overspend and misery for residents. The A465 Heads of the Valleys road scheme proudly displays signage indicating that the project received funding from the European Union. Poor oversight has meant that the project is now facing embarrassing delays and an overspend of £51 million. I could mention many more things, but I do not think there is sufficient time this evening. I could talk about the £221 million spent on uncompetitive enterprise zones, the £50 million propping up Cardiff Airport and other issues associated with mismanagement. In all, Welsh Conservatives estimate that the Labour Welsh Government have wasted more than £900 million on various infrastructure project overspends over the past 10 years.
Despite all this, the Welsh Minister for Economy and Transport, Ken Skates, said only last week that his Government want more powers over rail infrastructure. This clearly shows that they have ambitions for greater autonomy over funding of the infrastructure projects, which would be bankrolled by a replacement for EU structural funds. I raise this simply to caution the Government on the manner in which they administer responsibility. I am keen to discover from the Minister how this can be safeguarded against. It is vital that structural funding carries on in some form post Brexit. It is also important that the Welsh Government have a say in where this funding is allocated. However, Westminster and Cardiff must work together in partnership to deliver projects that deliver for communities. After all, the most important thing is to deliver for needy communities in Wales, for whom this funding is crucial.
Lord Jones (Lab)
My Lords, it is good to follow the committed speech of the noble Lord, Lord Davies of Gower. He knows Wales well; his voice will be strong. I thank the noble Lord, Lord Wigley, for obtaining this timely debate, and support the general thrust of his remarks. I also welcome the Minister, with her Welsh root, and it is nice to see the noble Lord, Lord Thomas of Gresford, in his place.
Wise and caring words have been spoken in this debate. Some £2.6 billion of European money came to Wales in the six-year cycle from 2014 to 2020, as the noble Lord, Lord Murphy, intimated. Wales needed that money, and will need it in future years; one hopes it will come from the shared prosperity fund. The miners and steelworkers of Wales made huge contributions to the defeat of the Kaiser and Mr Hitler in the two world wars of the 20th century. Now, our coal industry has gone and, shrunken but still mighty, only Port Talbot remains of our steel production. In the 1980s, the bedrock manufacturing industry of Wales took one big beating. Over the years, structural funds have helped to reorder the Wales economy. The Welsh Assembly has, I think, deployed the funds well. In Kenneth Skates we have a good and careful Minister—a positive force—giving a strong lead on the economy and transport. Wales has helped herself with quite some pride.
In the age of austerity in Wales, European Union funds were often transferred to the depleted and declining core funding budget. What is the future of the Welsh small business? Will the tourist budget cope? Structural funds have helped the Welsh agricultural budget but now we need to ask: what is the future of the heroic hill farmer—those gritty shepherds, her and him, in the lovely landscape of Wales, who always battle climate and contour? Will Wales get a fair deal when she bids to Her Majesty’s Government? That is the crucial question. My worry is that Whitehall’s approach to the regions differs from the Welsh Assembly’s approach to its own regions. Will Her Majesty’s Government bypass the Government in Wales? One hopes not, and we make our claim to the Minister tonight.
Her Majesty’s Government need to acknowledge the Welsh way. It is a special case. I note that Manchester University’s National Graphene Institute received structural funds to the tune of £23 million. The north-east Wales aerospace plant at Broughton Airbus employs 6,000 skilled workers who use graphene in their wing production. There we have an instance, and there are many such instances in north-east Wales and Merseyside, of a cross-border economy. We need major funding for connectivity, for youth employment and attainment, for urban development and for energy efficiency, so we look to an equitable share of the shared prosperity fund. The Mersey/Dee Alliance is the local government voice for Britain’s unique cross-border economy. A better infrastructure is the objective of the Mersey/Dee Alliance. I refer to the register of interests as I am its president.
Surely we could ask the ubiquitous and conscientious Northern Powerhouse Minister, Mr Jake Berry, to be Wales’s ally in its rightful claim for this new money. I know that Mr Berry has often met the Welsh principals in these matters. Will Her Majesty’s Government help to push forward the north Wales growth bid? The prosperity fund might respond in that respect.
I am moving to my conclusion. I would say that London is the greatest city in the world; it is well governed, rich and powerful. But has it put the UK economy out of balance? Losing structural funding will add to that debilitating national imbalance. On our exit from the EU, will Wales get the fair deal that it has earned? The Welsh Assembly has a good track record since its vesting day. It has proved an Assembly of safe hands. The transfer of power from Whitehall to Cardiff was seamless and went well. The advent of austerity, post the 2008 crash, hit Wales very hard. My conclusion is that the end of structural funding should not lead to the impoverishment of Wales.
Lord Thomas of Gresford (LD)
My Lords, it was a particular pleasure to read in the Sunday Times last weekend a tribute to the noble Lord, Lord Jones, which was much deserved. It is a real pleasure to follow him in this debate, and I congratulate the noble Lord, Lord Wigley, on obtaining it. I thank noble Lords for the good wishes that have been expressed towards me. I am sorry that I am still in a sedentary position but it will not be for long.
The “shared prosperity fund” has a comforting sound. It is a good choice of title; it assumes prosperity. However, as the devastating analysis of the noble Lord, Lord Anderson, has made clear, it is not a familiar concept in west Wales and the valleys or in other parts of Wales. Perhaps it is better than, for example, “the pork barrel fund” or the “red wall repainting project”, which we might have expected. If there are objections to my capricious titles, I point out that the only thing that we really know about the shared prosperity fund, which in 11 months’ time is to take over the vital support that Wales receives from European structures, is its title. Its design and proposed functions remain cloaked in mystery.
On 30 January 2019 Mr Jake Berry told the Commons that
“The Government recognises the importance of … providing clarity on UKSPF. Therefore we intend to publish the public consultation shortly.”
“Clarity” is the word that my noble friend Lady Humphreys used a moment ago. The concept of the shared prosperity fund is squarely down to Mrs Theresa May; for once we cannot blame Dominic Cummings. She put it in her very personal 2017 manifesto:
“We will use the structural fund money that comes back to the UK following Brexit to create a United Kingdom Shared Prosperity Fund … We will consult widely on the design of the fund, including with the devolved administrations, local authorities, businesses and public bodies. The UK Shared Prosperity Fund will be cheap to administer, low in bureaucracy and targeted where it is needed most.”
Mrs May came to Gresford Memorial Hall, of all places, to launch the 2017 Welsh Conservative campaign, in the wake of her sharp change of direction on the dementia tax. There it was that she coined the famous phrase “Nothing has changed. Nothing has changed.” My wife—my noble friend Lady Walmsley—and I found ourselves under close scrutiny in an all-blue audience when we chanted “Oh yes it has” in reply. We had heard of the Prime Minister’s visit with only half an hour to go and muscled in past the young men in blue suits. Indeed, the local press termed the PM’s visit the “stealth visit”, since it had had no advance notice of her descent upon Gresford—although it was later reported that the police had warned our local Spar that very morning not to sell eggs or flour.
Curiously, all references to the shared prosperity fund have disappeared from Mr Johnson’s 2019 manifesto. Not surprisingly, the promise of wide consultation on the design of the fund has not been fulfilled. We have not seen the consultation document. In his speech, the noble Lord, Lord Bourne, commented that we need consultation soonest and I agree. The issues have been well aired in this debate. First, how much of British taxpayers’ money is involved?
The APPG on Post-Brexit Funding for Nations, Regions and Local Areas published a note of its calculations last June. It pointed out that EU funding will cease as from 1 January 2021, deal or no deal. Over 2021-27—a period of seven years equivalent to an EU funding period, and taking into account expected inflation over that period of 12.5%—it calculated that to replace European structural funds would require a shared prosperity fund of £1.79 billion. That figure includes £215 million for extra funding which would have come from the EU because of additional sub-regions in England being involved.
Once the Government have decided the size of the fund, the second question is: how will it be shared out? The Barnett formula, described very correctly by the noble Lord, Lord Bourne, as a blunt instrument, has rightly been criticised by the Institute for Fiscal Studies in its report prepared for Preparations for Replacing EU Funding for Wales, a report by the Finance Committee of the Welsh Assembly. It said that
“the formula has design flaws which mean its use in the allocation of funding to replace current EU schemes should be avoided. In particular it takes no account of differences in population growth, or differences in the initial levels of funding.”
For that reason, the noble Lord, Lord Wigley, called for a separate system from the Barnett formula. I promise to read page 113 of the autobiography of the noble Lord, Lord Murphy, to fully grasp the additionality principle about which he spoke.
The issue which rightly concerns the Welsh Government is that decisions in devolved matters as to how the shared prosperity fund is spread should be determined in Wales, a point made by my noble friend Lady Humphreys. It would not be acceptable that Whitehall should control the purse strings. As Mark Drakeford, the First Minister, put it:
“We explicitly and vigorously reject any notion of a UK centralisation of regional economic development policy. A UK Government ‘shared prosperity fund’ approach would be a direct attack on devolution and would risk depriving some of our most disadvantaged communities of the funds they need to develop economically. This would be contrary to the UK commitment that leaving the EU would not leave Wales worse off.”
I agree: European structural fund money has been allocated to Wales on the basis of a recognised needs-based allocation formula. Whitehall did not get involved, save perhaps to pass the money on. Applications for the funding of projects have been made accordingly to the Welsh Government, who have had the flexibility and organisation to define the type of project to be supported: in other words, to determine where the money can best be spent.
In the future, the UK Government should do no more than draw up very broad guidelines, with the consent of the Welsh Parliament, but they should avoid rules which would restrict the Welsh Government from carrying out their devolved responsibilities. On 15 January the Secretary of State, Mr Simon Hart, said that the SPF was
“a joint UK Government-Welsh Government initiative”—[Official Report, Commons, 15/1/20; col. 1007.]
and that they would be, as he put it, resetting the meter of their relationship. Will the Minister, who I too welcome to the Front Bench for this debate, kindly tell us what he means? I join my noble friend Lady Humphreys in also asking: when can we expect to see the consultation document promised over a year ago? We have less than 11 months left to sort it out and, as the noble Lord, Lord Anderson, said, it is a question of trust.
Lord Griffiths of Burry Port (Lab)
My Lords, let me open by offering a word of gratitude, along with others, to the noble Lord, Lord Wigley, for giving us this opportunity, and a word of delight at seeing the noble Lord, Lord Thomas, in both his places. I also offer a word of genuine welcome to the noble Baroness, Lady Bloomfield, who is in her place. I look forward to our perhaps seeing each other in this trysting way several times in the future.
Perhaps I may also express a word of disappointment that when it comes to discussing Welsh affairs, it is all of us boyos and girls together. We could all do it with a good Welsh accent. There are one or two lovely strangers, and they are very welcome, but it is a bit of a shame because devolved government means that we are discussing part of the United Kingdom in a special relationship with the rest, yet here we all are—oh, and the noble Lord, Lord Bethell, is here as well.
The inglorious thing about speaking at this moment in a debate is that every single well thought-out and beautifully phrased point that I wanted to make has already been made. All the figures I wanted to quote have been quoted; all the trends to be discussed have already been traced. I am left with a choice. Either I give my speech, willy-nilly, or I just point to the headlines—noble Lords will have to guess when I have finished which choice I have taken.
The poverty of Wales has been well alluded to, and the decades of difficulty experienced in recent times have been well spoken of. So, too, has the social and regional development funding, and the need for us now to look to the future as to how those in government will handle the successor moment. The poverty of Wales, especially in the west and in the valleys, has led to our receiving levels of funding which, as the noble Lord, Lord Bourne, said, we should not be shouting about from the rooftops; it is a shame that we have to qualify for it. At the same time, and with due recognition to what the noble Lord, Lord Davies, said, not all of it has been handled well; some of it has been handled badly. From these Benches I recognise, too, that the notion of additionality had to be quarrelled about within our own party when we were in government. So nobody is here to boast. We are all here to see how best to handle what lies ahead of us.
We have heard about the £2 billion and what it ought to become in the 2021 to 2027 period. Undoubtedly, we look forward to hearing more about that.
Wales has benefited from all this funding, despite the difficulties referred to by the noble Lord, Lord Davies. This is the first time that I have heard the noble Lord speak, and I must mention that because one can see Penclawdd, Port Eynon and Swansea from Burry Port—yes, we can keep you in view from where I live.
We must recognise the good that has been done, and we must therefore seek a really committed word from the Government that it will continue, as has been promised. Oh, how I wish we could have had one of those election campaign battle buses going around the valleys with a figure on the side saying “£2 billion” instead of what was said at a certain moment on a different battle bus, to which I merely allude.
We need to know about the value of the shared prosperity fund, because from 1 January we will be beyond European funding altogether. Business leaders cannot make decisions beyond 2020 until they have a bit more certainty, and indeed no planning of any significant kind can come to pass.
“Not a penny less, not a power lost”: that has been the Government’s pledge and the promise made by many leave campaigners in the run-up to the 2016 referendum who now hold integral roles in the Boris Johnson Government—although whether they will after tomorrow is anybody’s guess. We will just have to wait for that one.
It is vital that the Government should keep that pledge, and I hope that the noble Baroness will give us some indication that they have grasped this point. Promises have been made. As my dear mother of beloved memory taught me: “Promises,” she used to say, “are promises.” I would modernise her wise advice: “Promises are promises, even when they are made on the campaign trail.”
The spirit and the legal basis of the devolution settlement must be respected. Devolution is real, but to become an integral part of a United Kingdom-wide thriving, it has to be respected. In debate after debate, I have suspected that there has simply been less than proper regard for the devolution settlement. It is not taken nearly seriously enough. That worries me greatly, because it is like being palmed off and told to be polite and seen and not heard, and it is much too precious for that.
The new Secretary of State for Wales, Simon Hart, has said that
“a substantial sum of money is going to be distributed in Wales by Welsh politicians who are directly accountable to Welsh voters”.—[Official Report, Commons, 15/1/20; col. 1006.]
Those were his words. Yet, when asked, he seemed unable to clarify how, or even whether, the Welsh Government will have a chance to do this. At the risk of boring noble Lords, I repeat that promises are promises, even when they are made by an incoming Secretary of State who has not yet learned his job.
We have a needs-based formula. It is on the basis of needs that the current funding is given. It must not be politicised. There must be no patronage. The blunt instruments must be sharpened. There must be additionality, as well as the matched funding that my noble friend referred to.
Here we stand at a cross-roads: Brussels is yesterday, and our relationship with Westminster becomes the substitute for it. We must seek this from the Government, and we must put the noble Baroness on the spot—even though this is her very first appearance here—and ask that she be a vehicle for the views expressed in this debate to be carried back to the Government, and that the passion with which these views are held be conveyed to them, too. They must be taken to the Welsh Office and through the Welsh Office to the Government.
We have much to fear, and I hope that those fears do not come to anything. Promises are promises—sorry to repeat it, but repeat it I must—and we all now look forward to the Minister’s reply.
Baroness Bloomfield of Hinton Waldrist (Con)
Hoffwn i ddiolch i’r Arglwydd Wigley am ei ddadl heddiw. My Lords, let me begin by thanking the noble Lord, Lord Wigley, for tabling and so ably introducing this debate, and all noble Lords for their contributions and their warm welcome. As with all debates to do with Wales, the contributions have been of the highest quality and the arguments beautifully crafted, as the noble Lord, Lord Griffiths of Burry Port, observed. I believe we all agree that the question of future funding for Wales following our withdrawal from the European Union is critical to the people, businesses and institutions of Wales.
Last week, the UK left the European Union and in doing so the democratic decision of the British people was respected. It is important to remember that in Wales the 2016 referendum vote was clear. Our departure from the EU brings to an end far too many years of argument and division. We have the opportunity to concentrate on what the people want now that Brexit has been achieved. The UK shared prosperity fund is one such initiative that will benefit the whole United Kingdom, including Wales.
Earlier this week, the Prime Minister outlined how the Government want a relationship with the EU based on friendly co-operation between sovereign equals and centred on free trade. We will be making our own way in the world with the vast potential that that offers. Of course, Wales, as part of the greatest union in the world, the United Kingdom, will benefit.
Wales is a great place to do business, and our strengths will put us in a good place to benefit from the free trade deals that we will strike across the globe. The UK shared prosperity fund will help to build further on the natural strengths that Wales has economically—the noble Lord, Lord Jones, mentioned the excellence of Broughton. It gives us a great opportunity to design a fund that works for the whole UK and levels up the most deprived areas. Notwithstanding the potential strengths and opportunities of Wales, the noble Lord, Lord Anderson, was right to set things in context: Wales has the lowest GDP per head in the UK and the lowest growth rate, which is why it has always qualified for European support. Indeed, Wales has received more than £4 billion in European structural fund support since 2000, half of which has accrued in the current spending round. There is no part of Wales that does not currently receive financial support from these funds, and it is therefore imperative that a replacement for them becomes available once the support provided by EU structural funds has drawn to a close.
The Government recognise the vital role that European structural funds have played in Wales over the past two decades. Leaving the EU provides us with an opportunity, for the first time in more than 40 years, to determine how we invest our own money and tackle the inequalities that exist between our nations and regions. We shall now be able to target funding to where it is most needed and to the economies that are the furthest behind.
Since European funding was introduced, spending and delivery of current EU structural funds in Wales have been in the hands of the Welsh Government. The creation of the UK shared prosperity fund is an opportunity to level up the whole United Kingdom and tackle deprivation across our four nations. I know that a number of those present, including the noble Baroness, Lady Humphreys, are concerned either that the UK Government are looking to circumvent Welsh devolution or that the priorities of the shared prosperity fund will not accurately reflect the interests of the people of Wales. To those who share those concerns, I shall endeavour to provide some reassurance.
The Government are committed to the relationship between the UK Government and the Welsh Government, and fully respect devolution and the devolved institutions. The Secretary of State for Wales has expressed a sincere desire to collaborate closely with colleagues in the Welsh Government to ensure that the UK shared prosperity fund can deliver for the people of Wales. He has already had productive discussions with the First Minister, Mark Drakeford, and Welsh Government Brexit Minister, Jeremy Miles, on how the UK and Welsh Governments can work together to make a success of the fund. He has also been clear that the Government have no intention of using the fund to, in his words, drive a coach and horses through the devolved settlements. Government officials also have regular discussions with counterparts in the devolved Administrations about how the prosperity fund should operate, and these discussions will continue.
I should also remind noble Lords that it was a Conservative Government who brought forward the Wales Act 2017 to expand and clarify the powers of the devolved institutions in Wales. These are not the actions of a Government seeking to wrest power back from the Welsh Government or to undermine Welsh devolution.
Collaboration has proved positive and productive: witness the city and growth deals. We have already seen the UK Government, devolved Administrations and local authorities working together over the years to agree such deals. These deals support growth across the United Kingdom and are an example of what we can achieve when we work together towards a common goal. This shows how the different Administrations in the UK can put aside political differences to power up local economies. It demonstrates the strength of collaborative working. I mention this here because the UK shared prosperity fund gives us a great opportunity to continue this type of co-operation and deliver for the people of Wales.
I can assure noble Lords that the needs and views of stakeholders in Wales will have a pivotal role in determining the priorities and objectives of the shared prosperity fund. Leaving the EU is our chance to ensure that the way we spend our money aligns with our priorities, our aims and our visions to level up all parts of the UK. Local people are at the heart of this vision, and the UK shared prosperity fund is a key instrument that we will use to achieve it.
The noble Baroness, Lady Humphreys, and the noble Lord, Lord Thomas of Gresford, asked when the consultation will begin. It is important to recognise that some engagement has already taken place with Welsh stakeholders including businesses, all local authorities, universities and the third sector; 25 engagement events have already taken place. These stakeholders are already playing a huge part in shaping the policy for the fund. The Government recognise, however, that many people are concerned that there has been a lack of engagement. I would simply say in response that this should not be misunderstood as the Government not being fully committed to the UK shared prosperity fund, because they are.
Turning to the allocation of funding in Wales, I emphasise the commitment that was made in the 2019 Conservative manifesto on the UK shared prosperity fund. It committed to, at a minimum, matching the size of European structural funds in each nation of the UK. The Government are determined that Wales will not be out of pocket now that we have left the EU. Indeed, during the 2016 referendum, the people of Wales were promised that they would not be one penny worse off as a result of leaving the EU; the UK shared prosperity fund will be instrumental in making good on that promise. The 2019 Conservative manifesto also committed to, at a minimum, matching the current allocation of structural funds in each of the four nations. It also committed to ensuring that £500 million of the UK shared prosperity fund is used to give disadvantaged people the skills they need to make a success of their lives.
The noble Lords, Lord Wigley and Lord Griffiths of Burry Port, and the noble Baroness, Lady Humphreys, all raised the question of the allocation of funds. The Government are very well aware of the need to reassure the people of Wales that the UK shared prosperity fund will be delivered on the basis of need, not simply on population metrics. The great advantage of replacing EU structural funds domestically is that we can not only cut down on bureaucracy, but decide how we want to spend our money and ensure that funding is delivered to the places where is stands to effect the greatest change and truly tackle deprivation in that area. It is perhaps important to remind the House that this is British taxpayer cash, top-sliced and recycled back to us with strings attached. There is no such thing as European Union money.
I have been made aware of arguments both within and beyond this House in relation to the various formulae that could be used to distribute the shared prosperity fund across the United Kingdom, including, most notably, the Barnett formula. I acknowledge the fears of many noble Lords, including the noble Lord, Lord Thomas of Gresford. The Government recognise the potential implications of distributing funds based purely on population but, given the manifesto commitment to protect the level of funding in the devolved nations, this should not be a worry for Wales—it will get the fair deal that the noble Lord, Lord Jones, rightly demands.
I cannot speculate publicly on future spending, but what I can say, in answer to the question on timing from my noble friend Lord Bourne and the noble Baroness, Lady Humphreys, is that final decisions on the overall quantum and allocation of the UK shared prosperity fund will be taken by the Treasury during a cross-government spending review, the timetable for which is due to be announced by the Chancellor in his Budget speech on 11 March.
The noble Lords, Lord Murphy of Torfaen and Lord Davies of Gower, my noble friend Lord Bourne and others voiced criticism of the restrictions on current EU funding. My noble friend Lord Bourne mentioned how Ystradgynlais could not benefit from the funds that west Wales and the valleys received. The noble Lord, Lord Davies, mentioned the limitations of overspend and oversight on infrastructure projects.
It is worth asking why many of the places in Wales that have received a significant amount of European structural funding voted to leave the EU. I get the sense that the people of Wales may have started to lose faith. They know that they are receiving substantial sums of money but feel that funding has not always reached the places it should have done. With the UK shared prosperity fund we are not interested in financing pet projects or building dragons in town squares. We want to see real improvements that will truly help tackle deprivation. The shared prosperity fund will be designed to address exactly these issues.
I thank all noble Lords who have contributed to today’s debate, in particular the noble Lord, Lord Wigley, for tabling it. As I stated at the beginning of my speech, the UK’s departure from the EU has provided us with a considerable opportunity to reconsider how we invest our money in a way that helps to reduce inequality across our four nations and strengthen the whole of the United Kingdom.
Through the UK shared prosperity fund, the Government look forward to seeing an economically prosperous Wales within an economically prosperous United Kingdom. It is this Government who are determined to preserve and strengthen our union. The UK shared prosperity fund is a key plank to this, as it provides a great opportunity to level up all corners of our country. For Wales, it will be through close and collaborative working between the UK and Welsh Governments that this commitment will become a reality and promises will be honoured. Diolch yn fawr.