Brexit, Devolution and Constitution, Economy and Trade

Cardiff’s Shared Prosperity Fund Conference

Last week Cardiff University hosted a conference to debate the forthcoming Shared Prosperity Fund (SPF), the UK’s post-Brexit replacement for EU Structural Funds.

It was the fastest registration process I’d ever known as a conference convenor, with attendees from across Wales, Northern Ireland, Scotland and some of the English city-regions. Why the strong interest? The short answer is the near total absence of any information on the SPF from Her Majesty’s Government (HMG) in Whitehall.

Everyone involved in place-based policy had been under the impression that HMG would hold a consultation on the SPF before the end of 2018, as promised by the Minister for Housing, Communities and Local Government, James Brokenshire on 24 July of that year. One year later however, Parliamentary Under-Secretary of State for Exiting the EU Kwasi Kwarteng indicated details “will be introduced next year [2020]”.

The most recent reference to the SPF came in the febrile atmosphere of the Tory leadership contest, when Boris Johnson said he “would want to make sure that there was a strong Conservative influence on the expenditure of that £350m [per year], or whatever the sum is, to ensure that it delivered taxpayer value”.

Johnson’s comment contrasts sharply with Brokenshire’s, with the latter explicitly stating the “Government will of course respect the devolution settlements in Scotland, Wales and Northern Ireland”. Now Prime Minister, Johnson may find that any attempt to exert “a strong Conservative influence” over the way the SPF budget is spent in Wales and Scotland will be seen for what it is – an unwarranted intrusion into an area of devolved competence. It would likely trigger a renewed bout of inter-governmental conflict within the UK, underlining the fact that Brexit has inflamed internal as well as external territorial relations. The SPF, in other words, could provide the first test of the new government’s capacity to preserve the territorial integrity of the UK. 

If that was the political background to the conference, what were the main messages from the speakers?

The Welsh Minister for Finance, Rebecca Evans AM, reiterated the two key messages that the Welsh Government has consistently been making since the EU referendum result: Wales should receive not a penny less than what it was receiving from the EU Structural Funds (one of the promises of the Leave campaigners) and; HMG should respect the devolution settlement, in which economic development was a devolved competence.

The Minister also outlined the plans that the Welsh Government had put in place to prepare for the post-Brexit era, including the Regional Investment in Wales Steering Group and commissioning the OECD to thoroughly review multi-level governance in Wales to ensure it is sufficiently robust for a new era of place-based policy.

Dr Ed Poole from the Wales Governance Centre at Cardiff University followed with a highly stimulating (if sobering) analysis of what he called the “double whammy” threat to the Welsh economy from the interplay of Brexit and devolution. He argued Wales has most to lose from the loss of EU Structural Funds because it is the largest beneficiary in the current (2014-2020) programme, receiving £83 per capita per annum compared to £30 in Northern Ireland, £18 in Scotland and £13 in England. While this direct threat is clear to all, what is less apparent is the indirect threat from “the new frontier of tax devolution” in Wales.

For the first time there is a significant and direct link between the Welsh budget and tax revenues collected in Wales. HM Treasury has deducted these forgone tax revenues from the Welsh Block Grant and this Block Grant Adjustment will change from year to year, depending on rates of growth in equivalent UK government revenues in England and Northern Ireland. This means that tax devolution cannot be divorced from the dynamics of regional economic inequalities. The “double whammy” would be if:

  • EU Structural Funds are not fully replaced by the SPF budget and;
  • the Welsh economy stalls relative to England, Welsh tax revenues would be outpaced by HM Treasury cuts to the Welsh Block Grant.

The Director of the Cardiff Capital Region (CCR), Kellie Beirne, outlined the thinking that informs the CCR’s investment strategy and said that a radically new mindset was needed by all partners if the strategy was to make a difference and meet its key targets: a 5% GVA uplift in the regional economy, the creation of 25,000 new jobs and £4 billion in private sector leverage.

A new mindset was urgently needed to overcome the traditional binaries that had bedevilled the quest for inclusive development in Wales, especially the perennial binaries between economic and social priorities, local and foreign investment, and knowledge economy and foundational economy. A new mindset was also needed to jettison the traditional grant mentality in the region, which needed to be replaced by an evergreen fund mentality, whereby funds could be recycled for multiple investment cycles. This would help the CCR to make the most of new UK schemes like the Strength in Places Fund, as well as the SPF when it eventually sees the light of day.

The most high-profile speaker of the day was former Conservative Minister Lord Michael Heseltine, whose commitment to place-based regeneration is second to none in British politics. As he will be blogging about the event in a separate post, I will simply summarise the key lesson that he had learned from his days as a minister heavily engaged in regeneration.

In the aftermath of the Toxteth Riots of July 1981 he secured Mrs Thatcher’s agreement to “walk the streets” of Liverpool to look for the real sources of the discontent. After three days of local discussions, he concluded one of the main problems—if not the main problem—was the absence of robust local leadership in the city to drive urban regeneration. This diagnosis fuelled his belief that of all the components of place-making, the most important is to have local political leadership that can be held accountable for its performance.

One of the most important (but least understood) topics of the post-Brexit era concerns inter-governmental relations within the UK and the need for new Common Frameworks to govern the UK’s internal market. Professor Jo Hunt of the Wales Governance Centre brought this seemingly dry legal topic to life by demonstrating its political significance to the territorial integrity of the UK. Professor Hunt argued Brexit had exposed gaps in the devolution settlements about how, when and why shared governance takes place—gaps previously filled by EU membership. The dilemma will be to strike a judicious balance between the need for Common Frameworks for the UK internal market —for such things as state aid, public procurement, animal welfare, hazardous substances for example—and the need to respect the diversity associated with devolution.  Striking a balance would not be easy because inter-governmental trust between the administrations in London, Cardiff and Edinburgh had plummeted to such a low level—as seen with the recently announced Dunlop Review. Ostensibly designed to consider if UK government structures are working to sustain the union, the review was announced unilaterally without any consultation with the devolved administrations.

The final presentation of the conference was a tour de force by Professor John Tomaney of the UCL’s Bartlett School of Planning. Professor Tomaney challenged the conventional (narrow) framing of the regional problem in terms of pure productivity and labour market inequalities and he queried the conventional (narrow) policy prescriptions in terms of metro-mayors and devolution deals. He said that territorial inequalities needed to be framed in more capacious terms, to include housing and health inequalities, and he argued that far more attention needed to be devoted to the foundational economy (of basic services) because it raises the quality of life of poor people and places in a direct fashion.

He concluded with 2 compelling messages: ending austerity was central to building viable alternatives, especially for left behind/left out” places and; one of the key challenges for all places in the post-Brexit era was how to enable communities to shape the economy rather than the economy shaping communities.

As the conference convenor I was asked to reflect on the day’s discussion and distil some of the key issues facing Wales. I suggested that three challenges deserved to be addressed as a matter of urgency.

The first was to attend to the immediate threat of Brexit-induced damage to the Welsh economy. My reading of the economic evidence—the serious economic evidence as opposed to the dangerous claims of free-market ideologues like Economists for Brexit—persuades me the real question is whether the economic impact of Brexit will be bad or very bad. From small scale sheep farmers to large scale corporates like Airbus, leaving the EU (especially with a No Deal) will have noxious economic consequences. This will create powerful headwinds for the Welsh economy whatever the form of Brexit.

The second challenge concerns the next phase of devolution. If the first 20 years of devolution were largely about devolution to Wales, the next 20 years ought to be about devolution in Wales. The interplay of national and sub-national levels of governance in Wales is part of the current OECD review of Welsh governance and this will assess how well Welsh Government structures and strategies are aligned with the emerging regions of Wales as well as with local government and other parts of the public sector.

A third challenge is whether the Welsh Government is able and willing to work in concert with its partners in business and civil society in a more equal partnership of co-production as opposed to the command and control style of governance that has characterised the first 20 years of devolution (a style that the Drakeford government seems genuinely determined to tackle). That command and control style has bequeathed a legacy of low trust between national and local government in Wales and we urgently need to shed that legacy and build more effective and accountable partnerships that are robust enough to craft joint solutions to common problems. Quite apart from it being a more accountable and democratic mode of working, co-production also makes a virtue of necessity by recognising place-based development for what it really is—a collective social endeavour.

Professor Kevin Morgan is Professor of Governance and Development in the School of Geography and Planning at Cardiff University, where he is also the Dean of Engagement.

This post represents the views of the author and neither those of the Politics & Governance blog nor Cardiff University.


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