28 July 2006
Regional aid budgets face a shake-up as the EU adapts its funding system to deal with enlargement. This is likely to hit areas with fragile economies unless the government offers councils a safety net
When the European Union took on ten new member states just over two years ago, the impact that enlargement would have on UK local authorities was far from people's minds. The focus was on broad trends: the danger of an EU decision-making paralysis, the wealth gap between old and new members and the lack of a single vision for Europe. Some of these fears have been realised, but it is at the local authority level where the effects of expansion could now bite.
In the next few months, the EU will complete its post-enlargement shake-up of local financing, which could have a profound and wide-ranging impact on UK councils. The €308bn structural funding package covering regional and local initiatives in all EU countries is the most high-profile new budget. Alongside it, often unnoticed, is a crucial set of financial regulations known as the assisted areas regime, which covers the areas where regional aid can be granted. As this enables councils to spend money assisting local businesses and attracting investment, it is crucial for local development.
In both cases, Europe's expansion has imposed tight constraints on the UK. EU-wide, there is a 31% funding increase but the richer countries will now get less. The UK received €15.85bn in the last funding round. This has now fallen to €9.4bn.
It's a similar story with assisted areas. After 2007, 23.9% of the UK population will live in areas that might get regional aid, compared with 30.9% previously. While the cuts in structural funding mean many areas will lose EU support, many might also lose assisted area status. At worst, some could be hit twice.
The fact that we are getting less money isn't in itself a great problem. The whole point of structural funds is to create a level playing field, and the new member states do need to catch up. Besides, most councils wouldn't expect the same level of funding to continue indefinitely.
The problem is how financial arrangements are being implemented nationally. The Department of Trade and Industry, which is running consultations on both regimes, is showing a willingness to listen. Yet serious concerns remain.
Structural funding is arguably the most crucial source of EU support for local projects. It has been responsible for countless initiatives that have transformed communities — from transport links in remote regions to extending rural broadband coverage and urban regeneration.
The DTI proposes to deliver funding primarily through the regional development agencies. EU funding for training and skills will be delivered nationally via a single programme. The government proposes to distribute the bulk of these funds through Jobcentre Plus and the learning and skills councils. Local government's role has been ignored.
The DTI structural funds consultation hardly even refers to the role that local partnerships can play. This is surprising, considering councils' experience and track record in helping to deliver the funds. It is also worrying because councils are best placed to ensure that the funds are used to tackle problems concerning communities.
With assisted areas, the story is mixed. Local government has always been in favour of the EU's aim to lower the level of assistance to local businesses while ensuring that financial aid is targeted towards economic growth and job creation.
One worry is over the lack of a transition period between the current and future arrangements.
It is crucial that local government gets a safety net, whereby a region would not lose more than a certain percentage of its assisted area coverage at once. There needs to be a phased transition between current and future regimes to ensure that progress continues in areas with relatively fragile economies. Unfortunately, the DTI has not yet taken this on board.
The changes will be keenly felt across the UK. In South Yorkshire, for example, after seven years of EU money, local towns are on an upwards curve. But a new split between the EU's development and social funds could create problems. With e-learning schemes, for instance, funding for equipment and training is likely to be separated. Apart from imposing extra bureaucracy, this means that the IT could be in place but there would be no scheme to provide the training.
Investment in the area could also suffer. Under the previous regulations, Sheffield was able to offer assistance to printing businesses, creating around 1,000 jobs. Now there is doubt about whether it would be able to attract such industrial development again.
There's still hope. The DTI is taking stock of councils' concerns over the summer. It is being relatively open and responsive and there is optimism that it will take account of these issues. But time is ticking on: by the end of August, consultations on both regimes will have ended. Let's hope that, by then, local concerns will have been given a fair hearing.
Ruth Coleman is chair of the Local Government International Bureau and a councillor for North Wiltshire District Council
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