Brexit and replacement for EU funding

Once the UK leaves the EU, it will no longer get most, if not all, of the EU funding it currently receives. The funding is only small in the grand scheme of things – it was less than 1% of government spending in 2016 – but there is likely to be significant scrutiny of the choices the UK Government makes about replicating, replacing or ending the financial support provided to different sectors.

What funding does the UK receive from the EU?

The UK receives around £6 billion of funding from the EU each year, £4.5 billion of which is allocated to the UK Government to manage within the EU’s rules. The majority of this funding is for agriculture. Many UK farmers rely on the £3 billion of direct payments – often referred to as subsidies – and the £0.5 billion of support for rural development to keep their businesses viable. The direct payments aim to stabilise farmers’ incomes, and the support makes up around 50-60% of farm incomes in the UK.

Much of the rest of the funding managed by the UK is for developing regional economies and improving employment opportunities. Known collectively as structural funds, they support job creation, business competitiveness, economic growth and sustainable development. Famous beneficiaries include the Eden Project in Cornwall and the Lowry Centre in Salford.

The European Commission also provides around £1 billion to £1.5 billion of funding directly to UK organisations, often following a competitive bidding process. The UK’s main source of competitive funding is Horizon 2020, which is the Commission’s programme for research and innovation. Horizon 2020 aims to coordinate and pool research efforts across the EU, and the UK’s universities are amongst the biggest recipients.

Of course, none of this money is free: as most readers will be aware, the UK pays more into the EU budget that it receives in funding from it.
 

What will happen before Brexit?

In theory, little should change. The UK will continue to receive funding while it remains a member of the EU, and its people and organisations can apply for more. The May Government provided further assurances by guaranteeing funding at least up to the point of Brexit.

Could the UK take part in some EU funding programmes after Brexit?

The previous Government said that the UK may want to participate in some of the Commission’s competitive funding programmes after Brexit, and would pay to do so. Non-EU members already participate in some of these programmes. Turkey participates in Horizon 2020, for instance. Negotiations over the UK’s future relationship with the EU will determine the UK’s participation in the Commission’s programmes.

What will the Government do about the other funds? What issues do they face?

Participation in agricultural support and structural funds is unlikely to be possible (or wanted, by some at least). These EU funds will therefore end, and ministers will need to design policies that suit the UK’s situation and needs. There are some common complaints across the funds – such as administrative burden, bureaucracy and complexity – but each fund is different and brings its own unique set of challenges to be tackled and questions to be addressed. There are big questions like:

• Should farmers continue to receive direct payments? They provide stability for farmers’ incomes, but it has been suggested that they also stifle innovation and keep unproductive farmers in business.
• Should funding for economic development focus on regions? The EU allocates this funding to regions. The UK Government has, since 2010, moved away from delivering regional economic development.

But the issues quickly grow more complex, for example:

• What should the objectives be for financial support to farmers?
• What role does devolution have in the new policies? Agriculture and economic development are devolved. In agriculture, some commentators argue for the greatest possible flexibility to address local needs and priorities, while others warn against divergence and the complications of trade.
• How do international rules on trade impact on the design of support for farmers?
• Should economic development focus on the least developed areas such as Cornwall and the Isles of Scilly?
• Should match funding be required? EU funds, except farmers’ direct payments, require co-financing.
• What should happen to funding for other areas, such as fisheries, coast communities and rural economies?

That seems like a lot to think about. Is there anything else?

Yes. This article gives a broad overview of the issues facing the larger funds, but there will be plenty more devil in the detail.

In addition to the funding provided from the EU budget, the UK receives repayable loans from the European Investment Bank (EIB) and is a shareholder in the Bank. The EIB has played a role in various high-profile infrastructure projects including the Channel Tunnel and the second Severn crossing. The UK may not have the same access to EIB loans in future, depending on the outcome of the Brexit negotiations.

The financial implications of Brexit are not all about what the EU costs the UK, because we receive funding from the EU Budget too. As this article highlights, the choices for how the Government decides to replace this funding (or not) are complex, but will be something this Parliament has to consider.