Statement by the Welsh Government: Shared Prosperity and Levelling-Up

I am providing members with an update on our current understanding of the UK Government’s Shared Prosperity and Levelling-Up Funds, and their impact on the economy and skills in Wales.

For many years Ministerial colleagues and I have warned of the danger to our economy from the UK Government pressing ahead with an approach to these Funds that:

• Short-changes Wales,
• Dismisses the needs of our stakeholders, and
• Disregards an economic landscape shaped by more than 20 years of devolution.

Llywydd, it is with deep regret that the consequences we warned of are now playing out across our economy.

With replacement EU funding, not only does the Shared Prosperity Fund leave us £1.1bn short compared to EU Structural and Rural funds, but the UK Government has pressed ahead with an approach that:

• bypasses the Welsh Government and the Senedd;
• excludes key growth sectors and partners including universities, colleges and the voluntary sector;
• prevents high-impact strategic projects; and
• puts unacceptable demands on our local authorities.

This Fund is smaller, less flexible and narrower in scope than the EU funding it claims to replace. In the existing round of EU programmes, £380m was invested in Research, Development and Innovation which supported expansions of research facilities and major collaborations between business and academia.

The Shared Prosperity Fund does not even have RD&I within its investment priorities. This is resulting in major job losses and the closure of key projects in areas such as decarbonisation, renewable energy and industrial skills. There are around 1,000 imminent job losses across Welsh universities and scaled-back RD&I opportunities for Welsh businesses as a direct result of the UK Governments choices.

On top of this, we are seeing job losses in the third sector and the closure of community employability programmes across Wales that provided real expertise in helping vulnerable people progress into employment and training.

Llywydd, these are the consequences of Wales having less say, over less money.

The Welsh Government has been denied any access to the Shared Prosperity Fund for previously EU-funded national programmes such as Business Wales, Apprenticeships and the Development Bank. That has meant tough decisions given an already pressurised Welsh budget.

Llywydd, all of this would have been avoided if the UK Government had respected devolution and allowed us to manage full replacement funding through our Framework for Regional Investment in Wales. That model was co-produced with stakeholders and the OECD for this very purpose, supported by a public consultation and overseen by a representative steering group, chaired by Huw Irranca-Davies MS.

What the UK Government is doing, by using the powers in the Internal Market Act, isn’t extended devolution as some have claimed. Local authorities had no role or say in the design of this Fund. They have simply been tasked with administering it locally against a backdrop of chaos and impossible planning and spending deadlines.

The funding for the 2022-23 financial year was only received in January this year – and the UK Government withheld £15m of that allocation due to entirely foreseeable delivery problems with their adult numeracy scheme Multiply.

Not only is Multiply poorly designed, but it is another unacceptable assault upon our devolution settlement. It is also too narrow in focus, risks duplicating provision in Wales, and it top slices replacement EU funds to support a UK Government agenda, while denying us funding to support strategic priorities like Business Wales, SMART Cymru and Apprenticeships.

We are particularly concerned that the UK Government has created an incoherent approach for people and businesses wanting to access the Shared Prosperity Fund – some projects and grants are on offer in some parts of Wales, but not others, with no logic to explain why.

This, again, is the result of a botched approach that fragments the funding landscape in Wales. It splinters established ways of regional working and passes responsibility to local authorities to deal with the consequences.

The picture with the competitive Levelling-Up Fund is equally dispiriting. Local authorities, already under strain delivering the Shared Prosperity Fund, have spent huge amounts of time developing project bids – the vast majority of which have been rejected by the UK Government.

Five local authorities – Flintshire, Merthyr Tydfil, Monmouthshire, Newport and the Vale of Glamorgan – have received nothing from the first two rounds of this Fund. And like the Shared Prosperity Fund, this is another scheme that has been beset by delays, and has loaded extra pressure onto local government and driven up costs during a period of soaring inflation.

With just 20% of the Levelling-Up Fund remaining for next year’s final round and all capital projects having to be completed by the end of 2024, the potential for what’s left of this Fund is limited at best.

The Levelling Up and Shared Prosperity Funds are not multi-annual funds, like the EU programmes were. Their annual allocations and short spending timescales risk poor value end-of-year spending – or money not being spent at all.

Instead of the security multi-annual programmes provided, we have the limited assurance and partial funding provided by the Spending Review settlement for three years. Sadly due to delays and mismanagement from the UK Government, only around 18 months of actual delivery will end up taking place.

I am discussing at a regional level the impact these funds are now having on the broader missions our economic regions are pursuing.  Councillors have raised significant frustrations about the lost opportunities these UK choices have presented and I am keen to work with each region to understand the current picture, how we can work together to overcome the damage done and support our shared priorities.

Llywydd, we have now seen what happens when a UK Government muscles into devolved areas without consent or any form of meaningful partnership. Comparisons need to be made to the way we have worked together on establishing two freeports for Wales which can help to serve as a positive example for future intergovernmental work.

We cannot undo the consequences of broken promises and the approach the UK Government has taken to these funds. However, we can set out a vision for the next era of regional development in Wales that repairs the damage and harnesses our ongoing work with the OECD to integrate international best practice within Welsh regional development.

Instead of the small, short-term approach of the UK Government, it is imperative that we create a more prosperous and inclusive economy with better jobs, collaboration with local government, businesses, universities, and local communities, we will prioritise innovation, entrepreneurship, decarbonisation and developing the skills of the future.

Our model looks more like the successful approaches taken in other nations and very different to a UK approach that has drawn consistent criticism from independent voices including select committees and the Institute for Government.  

Llywydd, as these warnings come to fruition and we see the price Wales is paying with lost jobs and projects, we reiterate our call for the UK Government to end this argument. To return funding and decision making powers to the Welsh Government and this Senedd.

Vaughan Gething MS, Minister for Economy