But risk of Wales losing some funding in a no-deal scenario now reduced after change in Treasury policy announced just days before Auditor General report publication
The Welsh European Funding Office (WEFO) faced a major challenge to commit all EU structural funds before Brexit. However, shortly before today’s publication of the Auditor General’s report - ‘Managing the impact of Brexit on EU Structural Funds’ - the UK Government extended its guarantee to cover Wales’ (and the UK’s) allocation for Structural Funds under this EU budget period to 2020.
The UK is set to leave the EU on 29 March 2019. If the UK leaves the EU with a Withdrawal Agreement, Wales will continue to receive Structural Funds until the current round ends. However, if the UK leaves the EU without an agreement, Wales would, until recently, have been reliant on a UK Government guarantee to fund projects that have been signed at the point of Brexit.
In light of Brexit and the previous terms of the UK Government guarantee, WEFO was aiming to commit all of the £2.1 billion EU Structural Funds by March 2019. But, it recognised that doing so was challenging. There is a significant risk that some projects in WEFO’s pipeline will not get through the approval stages. Other factors affecting WEFO’s ability to commit funding include uncertainty about Brexit, exchange rate volatility and changes in the economic environment. Under the previous terms of the guarantee, for every 1% of EU Structural Funds that are not committed before Brexit, Wales stood to lose around £21 million.
The UK Government’s decision to extend the guarantee to cover Wales’ allocation for Structural Funding under this budget period to 2020 means it is now less important that WEFO commits all of Wales’ funding by March 2019. The precise impact of the extended guarantee is being discussed and the UK Government intends to issue new guidance shortly. Nonetheless, it is clear that the extended guarantee significantly reduces the risk that Wales will lose funding in a no deal scenario. Our report needs to be considered in that context. It is not yet clear how this announcement will impact on WEFO’s previous plans for committing funding by March 2019.
Our report found that WEFO has maintained robust checks and balances, despite the intention to increase the pace of project approvals and spending ahead of Brexit. It has strengthened its approach to approving projects and only commits to those which meet strict criteria and match its strategic priorities.
It is not yet clear what will replace structural funds post-Brexit, but WEFO and the Welsh Government more widely, are trying to shape debate. The UK Government intends to introduce a Shared Prosperity Fund but it has not set out key details about the value of the fund or how it will operate. The Welsh Government has set out its vision for the future of regional investment and wants full control and funding to be devolved.
The report identifies 7 key issues for the Welsh European Funding Office and the Welsh Government to manage. These include the need to consider how to retain WEFO’s skills and experiences in light of any post-Brexit replacement for EU structural funds.
Assistant Auditor General, Anthony Barrett said:
“While there are still matters of detail to resolve, the risk of Wales losing out on EU funding in a no deal scenario has been reduced with the UK Government deciding recently to extend its guarantee. Nevertheless, with Brexit on the horizon, there is naturally uncertainty around future funding for Wales and this report identifies a number of issues that WEFO and Welsh Government need to focus on during this time.”