Post-Brexit regional economic development policy in the UK? Some enduring lessons from European Union Cohesion Policy

Introduction

The European Union’s (EU’s) Cohesion Policy, initially developed in the late 1970s and then enhanced in the 1980s, aimed to mitigate the impact of the completion of the Single Market on less developed regions and Member States (McCann, 2015; Official Journal of the European Communities, 1987). The UK has been a recipient of EU Cohesion Policy since its inception, and it has played a key role ever since in local and regional economic development across the UK (Bachtler and Begg, 2017). Interestingly, however, in the run up to the Brexit referendum in 2016, discussions about the significance of EU Cohesion Policy funding to the UK’s cities and regions, which have benefitted from this support for decades, was not a major topic of discussion. Paradoxically, the demise of EU Cohesion Policy in the UK post-Brexit comes precisely at a time when spatial inequalities are rising (The Economist, 2020). As a recent UK Industrial Strategy Council Research Paper noted:

Tackling regional and spatial disparities across the UK has risen to the very top of the public policy priority list. For the new Government, this is the so-called “levelling up” agenda. It is not difficult to see why. Regional and spatial disparities are larger in the UK than in most other Western European Countries. And they have risen to their highest levels in more than a century. (Zymek and Jones, 2020: 3)

Furthermore, as this Commentary argues, the ending of the UK’s involvement in EU Cohesion Policy is likely to have much more of an impact on spatial inequalities in the short, medium and long term. This is not only because of the direct loss in financial support transferred from Brussels to the UK’s (poorest) cities and regions. Its demise is much more significant than that. As discussed further here, it represents the effective dismantling of a well-developed governance system of regional policy, built upon several key elements, including strategic partnership working, multi-level governance relations and transparent, long-term budget allocations (Bachtler and Begg, 2017; McCann, 2015). The demise of EU Cohesion Policy is also significant because real questions remain about the UK government’s commitment to tackling regional economic development in the coming years, post-Brexit. The notion of “levelling up” (Cavendish, 2020) is the current UK government’s policy mantra in terms of tackling spatial and social disparities. However, to replace EU Cohesion Policy in the coming years, it is still not precisely clear how “levelling up” is translated into domestic regional policy and funding. Having said that, as the rest of the Commentary discusses, several decades of EU Cohesion Policy implementation in the UK do provide a number of significant policy lessons that should be used to inform the contours of (any) future UK regional economic development policy.

European Union Cohesion Policy

For over 40 years, EU Cohesion Policy has been one of the European Commission’s (EC’s) main policy pillars, alongside the Common Agricultural Policy (CAP); combined these constitute the majority of the overall EC budget (Bachtler and Begg, 2017). EU Cohesion Policy objectives, which are encapsulated in Articles 174–178 of the Treaty on the Functioning of the EU, are essentially the main policy instrument to tackle socio-economic disparities both within and between Member States (Bachtler and Begg, 2017; Giordano and Dubois, 2019; McCann, 2015). It is composed of several funding instruments, including the European Social Fund (ESF), European Territorial Cooperation (ETC) and the European Regional Development Fund (ERDF) (European Commission, 2010). The latter, which is the particular focus of this Commentary, aims to strengthen economic and social cohesion in the EU by correcting imbalances between its regions (Molle, 2008). Its investments focus on several thematic priorities, including research and innovation, the digital agenda, support for small and medium sized businesses (SMEs) and the low carbon economy. ¹

Since its inception, the ERDF has gone through several different programming periods in which the particular priorities, governance and level of resources have changed and evolved (Bachtler and Begg, 2017; Giordano and Dubois, 2019). The original “paradigm” for the ERDF, which lasted until the 2000–2006 programming period, was as a “redistributive” mechanism supporting the least favoured regions of the EU (Giordano and Dubois, 2019; Official Journal of the European Communities, 1987). The “redistributive” interventions were focused on improving basic infrastructure, including roads and airports; wastewater and other environmental assets; regenerating the urban realm, including the conversion of “brownfield” sites as well as investing in new developments; supporting SMEs, including the creation of incubator spaces and entrepreneurial leadership development (Bachtler and Begg, 2017; Giordano and Dubois, 2019).

Significantly, the 2007–2013 ERDF programming period heralded the beginning of a “new” paradigm for the EU Regional Policy (Giordano and Dubois, 2019). The focus of the interventions shifted away from redistributing resources to poorer regions towards encouraging “place-based” growth-oriented objectives to increase the competitiveness of all regions across the EU (Barca, 2009; European Commission, 2010; McCann and Varga, 2015). This shift in ERDF policy priorities meant that funding interventions were aligned to delivering the Europe 2020 strategy (Official Journal of the European Union, 2013). Moreover, there was an increased focus from the Directorate-General (DG) Regional Policy on encouraging “results rather than receipts” from the ERDF funding. Overall, this shift in policy priorities between the 2000–2006 and 2007–2013 programming periods, which continued into 2014–2020, did encourage a shift away from the so-called “ERDF infrastructure fixation” (Giordano and Dubois, 2019). Less funding was allocated to improving basic infrastructure in favour of investment in innovation, entrepreneurship and encouraging information and communications technology (ICT), in line with trying to achieve the Europe 2020 targets (European Commission, 2013). This shift represented an important trend for the ERDF, which is likely to continue in future programming periods (McCann, 2015).

Whilst ERDF priorities have evolved in respective programming periods, the main pillars upon which the policy is built have remained broadly the same (Bachtler et al., 2016; Spilanis et al., 2016). These include several key elements. Firstly, the funding is agreed as part of the EU’s overall budget and managed on a seven-year multi-annual funding cycle. Secondly, the so-called additionality principle is important because Member States are required to provide domestic co-funding to “match” the ERDF public investments made (Chardas, 2012). This ensures that European and national funding is used in combination to maximise the socio-economic impact of the investments made. Thirdly, the ERDF is distributed via a process of strategic programming, which tailors the types of investments to the particular Member State and/or region through so-called Regional Operational Programmes (ROPs). These include robust local and regional socio-economic analysis and detail the main strategic priorities on which the ERDF investment will focus during the seven-year funding cycle (Spilanis et al., 2016). Lastly, this strategic programming process is built upon the so-called “partnership principle” whereby key stakeholders, including the EC, national government Ministries and non-state actors, as well as local and regional partners, work closely together (Bache, 2010; Danson et al., 1999). The ERDF policy framework, often referred to as a system of multi-level governance, arguably provides sub-national authorities with increased opportunities to influence economic development policy at the European and national levels (Hooghe, 1996; Jeffrey, 2000).

For several decades, the extent to which the ERDF has impacted upon trajectories of regional and national socio-economic convergence across the EU has been the focus of much academic research (Dall’erba and Le Gallo, 2008; McCann, 2015; Molle, 2008; Rodrigues-Pose and Fratesi, 2004). Overall, a mixed picture emerges about the effectiveness of the ERDF from the research carried out. On the one hand, some quantitative studies have questioned the efficiency of the ERDF in helping to close the gap between rich and poor regions as economic and territorial disparities across the EU have endured (Dall’erba and Le Gallo, 2008; Rodrigues-Pose and Fratesi, 2004). On the other hand, other studies illustrated that in the 1990s disparities reduced between southern Europe and the rest of the EU to a certain extent, partly because of the financial contribution of the ERDF (Leonardi, 2006; Todl, 2000). A significant body of research emphasises that a number of factors have influenced the impact that the ERDF has had on social and economic convergence across the EU (Molle, 2008; Shutt et al., 2002). Moreover, other studies have focused upon the qualitative impact that the ERDF has had on shaping domestic governance structures and the strategic implementation of local and regional economic development across the EU. This is less about the funding per se but rather more about the way in which the ERDF has helped to usher in a modus operandi for the governance of strategic economic development policy (Adshead, 2014; Armstrong et al., 2015; Dąbrowski, 2012). Arguably, this illustrates the ways in which there has been a “deeper” Europeanisation of policy and practice in the context of the ERDF and economic development policy. This includes formal and informal activities, sharing knowledge and information, policy learning and partnership working (Adshead, 2014; Armstrong et al., 2015). It is precisely to this point we turn in the context of the (enduring) impact of the ERDF in the UK.

What have the European Union Cohesion Policy and the European Regional Development Fund ever done for the UK?

In the UK, EU Cohesion Policy, specifically the ERDF, which is the focus here, has played a key role in government policy to promote local and economic development across the UK, since the late 1970s (Bachtler and Begg, 2017). Firstly, the financial contribution has been significant. Between 1975 and 2020, Brussels allocated the UK around £66 billion, which when combined with domestic public and private “match funding” means that the total package of financial support amounts to over £100 billion (Bachtler and Begg, 2017). Notably, in the 1980s, the UK was a net beneficiary of the EU Cohesion Policy because of the deep industrial restructuring that took place in several sectors, including mining, steel, textiles and port-related activities, which caused high levels of unemployment, particularly in the North of England, Wales, Scotland and Northern Ireland. As Bachtler and Begg (2017: 749) point out, up until 1988, the UK received almost a quarter of the total ERDF budget allocated at that time.

During the 1990s and 2000s, the UK continued to receive substantial financial transfers from EU Cohesion Policy. Following the enlargement of the EU in 2004, with the addition of 10 new Member States, including the former Communist countries of central Europe, the UK’s financial support package reduced. Having said that, from 2007 onwards several areas of the UK were still eligible for support as “Convergence regions”, which had a gross domestic product (GDP) below 75% of the EU 27 average, which received the maximum levels of support. The areas included West Wales and the Valleys, Cornwall and the Scottish Highlands and Islands. Furthermore, other areas, including Merseyside and South Yorkshire, were classified just outside the poorest regions because of “statistical effects” due to the enlargement of the EU with average GDP falling rather than the regions getting wealthier themselves (Giordano, 2006).

For the 2014–2020 programming period, the UK received just over £10 billion from EU Cohesion Policy, of which £5.8 billion was allocated to the ERDF and £4.9 billion to the ESF (Brien, 2018). As before, the highest levels of financial support were allocated to West Wales and the Valleys and Cornwall, which were still classified as “Less Developed regions” with a GDP below 75% of the EU average. There were 10 “Transition regions”, which had a GDP between 75% and 90% of the EU average, including areas in the North West, North East, West Midlands, Scotland and Yorkshire (Brien, 2018).

Secondly, across the UK, the impact of the funding has been marked. As Bachtler and Begg (2017: 750) argue, even though EU Cohesion Policy funding “in the UK equates to only 0.1% of UK GDP and could be regarded as inconsequential, yet it has [had] important achievements and genuine additionality. Projects and localities that have come to rely on the funding would feel its loss”. Moreover, an evaluation of the impact of ERDF funding interventions in the UK during the 2007–2013 programming period concluded that over 152,000 jobs were created, with almost 30,000 of these in SMEs. Since 2015, the same evaluation estimated that the EU Cohesion Policy had increased GDP by 0.1% in the UK, taking into account the national contributions made to Brussels (Applica et al, 2016; Bachtler and Begg, 2017).

Thirdly, at the local level, there are numerous examples across the UK of the ERDF helping to drive local economic development trajectories. For example, in the Liverpool City-Region (LCR), European funding has played a major role in mitigating the significant socio-economic decline that has taken place since the 1960s with the decline of the city’s port function and related activities. Between the 1970s and mid-1990s, Liverpool lost almost 200,000 jobs, which was a 53% decline in total employment (Giordano and Twomey, 1999). This shrinking of the labour market had a profound socio-economic impact upon the LCR, in a number of ways (Parkinson et al., 2016). ERDF funding, since the 1980s, has helped to alleviate this decline. For example, it helped to regenerate and transform the former docks and waterfront to promote “city-centre living” and revitalise local assets to encourage cultural-led tourism. ERDF investments improved basic infrastructure, including the redevelopment of the former Speke airport (now known as Liverpool John Lennon Airport). A significant amount of ERDF investment provided business support to SMEs in the LCR to try to foster growth and close the productivity “gap” with the rest of the UK (Parkinson et al., 2016).

Fourthly, the impact of the ERDF in the UK is not just about financial transfers. Over several decades, the practices of managing the funding became embedded in domestic policy activities and governance structures (Armstrong et al., 2015; Bachtler and Begg, 2017). As a result, particularly at the local and regional levels, the ERDF strategic programming process has been crucial in encouraging key local stakeholders to work closely together to drive trajectories of local economic development (Parkinson et al., 2016). There is also clear evidence, for example in the Scottish Highlands and Islands, that ERDF governance structures endured, especially in terms of strategic partnership working, even after the levels of funding reduced between the 2000–06 and 2007–2013 programming periods (Armstrong et al., 2015). This is significant because it raises the question as to whether, post-Brexit, ERDF governance structures, partnership working, etc., will continue to be integral in any future domestic regional policy interventions. The next section discusses such issues in more detail.

Lessons for UK regional policy, post-Brexit

Several key lessons from ERDF implementation in the UK are pertinent to informing the content and contours of future domestic regional policy, post-Brexit. Firstly, whilst the UK will no longer be a recipient of EU Cohesion Policy, the negotiations are on-going in Brussels about the level of funding, policy priorities and implementation modalities for the forthcoming programming period, 2021–2027. The UK is not involved in these discussions but it is interesting to note (hypothetically) what the EU Cohesion Policy funding allocation would have been, if Brexit were not a reality. Research carried out by the Conference of Peripheral and Maritime Regions (CPMR), a think-tank and lobbying organisation based in Brussels, estimated that the UK would be entitled to around €13 billion for the 2021–2027 programming period. This would represent a 22% increase in the UK’s financial allocation, compared to the 2014–2020 period. ²

Interestingly, the CPMR analysis also suggests that along with Cornwall and West Wales and the Valleys, classified as “less developed regions”, three additional localities (South Yorkshire, Tees Valley and Durham and Lincolnshire) would be eligible for the highest aid intensity of support from 2021 onwards. This is significant because, even though the calculations are hypothetical, it provides a comparative baseline upon which considerations for future domestic funding allocations can be made. It also illustrates the extent to which UK regional disparities are widening (The Economist, 2020). In this regard, the UK government’s proposal for a Shared Prosperity Fund, which is purported to replace EU Cohesion Policy domestically, should consider such funding allocations carefully as well as the need to have effective “place-based” interventions that aim to tackle territorial disparities.

Secondly, one of the key pillars upon which EU Cohesion Policy is built is the seven-year, multi-annual financial framework. This provides clear, transparent financial allocations for the whole programming cycle to each Member State and their respective local and regional authorities (Molle, 2008). This is significant because it allows the development of strategic interventions in particular places in order to encourage local economic development, over a decent length of time. Crucially, the seven-year EU Cohesion Policy programming period is longer than any domestic electoral cycle and so commitments are (largely) free from political influence. The key message, therefore, for UK regional policy is to focus on long-term funding interventions, providing clarity over specific allocations to particular places. The challenge, however, is that the domestic electoral cycle means that strategic policy development is constrained, in a way that EU Cohesion Policy is not.

Thirdly, there is considerable evidence that EU Cohesion Policy in general, and the ERDF in particular, has given sub-national authorities greater involvement in, and influence upon, regional economic policy development at national and European tiers, within a multi-level governance framework (Adshead, 2014; Hooghe, 1996; Jeffrey, 2000). Moreover, this framework has also encouraged a range of non-state actors to be directly involved in tackling economic development issues in a partnership of vertical and horizontal institutional relationships (Danson et al., 1999). Indeed, in the UK, which is one of the most centralised European nation-states, the management and implementation of EU Cohesion Policy has been crucial in devolving both power and influence to local authorities in the economic development field, for several decades. Hence, it is important that any new domestic regional policy should build on this solid foundation and continue to engage and involve key local stakeholders in the conception, implementation and evaluation of economic development.

Conclusion

The aim of this Commentary is not to argue that EU Cohesion Policy is problem-free nor that it is a panacea for regional economic development in the UK or the rest of Europe. As ERDF programme managers often attest, the bureaucracy of implementing the funding is often onerous and sometimes there are delays in receiving payments, amongst other issues (Spilanis et al., 2016). Instead, the aim here is to focus on the issue of the demise of the EU Cohesion Policy in the UK, post-Brexit, and the potential impact that this will have on spatial disparities across the country. Moreover, whilst “levelling up” (Cavendish, 2020) is the latest political mantra of the UK government, it is still unclear how and in what ways this will be translated into domestic regional policy. The onset of the Covid-19 pandemic and the ensuing economic downturn raises further questions about whether the UK government will have adequate resources to commit to its own “levelling up” agenda. Concurrently, spatial inequalities, which were already widening before the pandemic, will continue to intensify. As Bachtler and Begg (2017: 745) argue:

Leaving the European Union (EU) will involve the most extensive upheaval for decades in British economic and social policy. Whether the outcome is liberating or damaging depends at least partly on the societal and territorial distribution of costs and benefits and on the design and implementation of any alternative policy framework. There will be winners and losers, but who will fall into the two groups depends on policy choices.

The decades of ERDF implementation in the UK are coming to an end. However, it is crucial that the main lessons (both good and bad) inform the development of domestic regional policy, moving forward. In the short term, there is an immediate need to support local and regional authorities that are managing the ERDF (and other EU funding programmes) to ensure that they avoid the “cliff edge” with the funding phasing out and limited or no domestic support to replace it (Di Cataldo, 2016). In addition, there is a real risk of “Brexit-plating”, meaning that any new UK regional policy funding could actually create higher levels of bureaucracy compared to the ERDF. Stakeholders will have limited knowledge of how to access the funding and it will take time for them to adjust to the new rules. Paradoxically, it is likely that some of the localities that have depended most on the ERDF for decades, but also voted for Brexit, are the ones that will lose out compared to other areas.

In the longer term, as spatial disparities intensify, the UK needs a regional development policy that builds upon the legacy of EU Cohesion Policy as well as the expertise of practitioners and stakeholders at all levels of government. The danger is that the key lessons from the ERDF will not be capitalised upon; even worse, the domestic governance system through which the funding is implemented will be effectively dismantled. There is also a real risk that any new domestic regional policy will suffer from a lack of adequate funding compared to what the UK would have been allocated via EU Cohesion Policy, if Brexit had not happened. Fundamentally, it is vital that political short-termism does not undermine the design and delivery of a strategically focused economic development policy in order to reduce the widening disparities both within and between the nations and regions of the UK.