Scotland’s European Structural Funds – following the money – SPICe Spotlight

Reading Time: 7 minutes

Recent media reports have suggested that some of the European structural funds allocated to Scotland during the 2014-2020 programme period may not ultimately be received by the Scottish Government because of a failure to spend the full value of the programme. Although we are unable to replicate the exact figures quoted in the media, this is likely to reflect the many different ways in which the figures could be calculated at different points in time. This blog sets out the various figures available, including new data provided to SPICe by the Scottish Government.  For context, it also explains what Structural Funds are and why we are still talking about them given Scotland left the EU in 2020. 

What are structural funds?

Structural Funds are used by the European Union to attempt to reduce economic inequalities between its regions. This is often known as cohesion policy or regional policy.  SPICe has previously published a briefing on EU Structural Funds in Scotland.

There are two structural fund programmes still operational in Scotland, as a result of funding agreed as part of the 2014-2020 programme.  These are the European Social Fund, and the European Regional Development Fund.  On its website, the Scottish Government publishes details of the operations and funding approved for the European Social Fund and European Regional Development Fund programmes in Scotland from 2014 to 2020.

Although the Scottish Rural Development programme was recognised as one of the European Structural and Investment Funds, this blog focuses solely on the European structural fund programmes. This could be part of the explanation for the different figures quoted in the media compared to this blog.

How are European structural funds distributed?

At the start of the 2014-2020 structural fund programme, Scotland was allocated a total of €941 million split between €476 million for the European Regional Development Fund and €465 million for the European Social Fund. This funding was split across the duration of the seven year programme.

Structural funds are allocated to Member States in advance of the programme period according to an EU-wide formula linked to the economic performance of regions within Member States. In Scotland, the Scottish Government has a number of roles in relation to the management of the Scottish 2014-2020 structural fund programmes:

• Managing Authority (MA) – responsible for the efficient management and implementation of the operational programme
• Certifying Authority – responsible for submitting certified statements of expenditure and applications for payment to the European Commission
• Audit Authority – responsible for audit of the management and control systems
• Lead Partner (LP) – responsible for supporting the delivery of programme activities

In essence, the Scottish Government is responsible for ensuring the smooth running of the Scottish structural fund programmes, in relation to programme funding agreed prior to the UK’s departure from the EU. This means that once projects have spent the money provided by the Scottish Government, the Scottish Government as the managing authority for the Scottish programmes must submit certified statements of expenditure to the European Commission.  When the European Commission receives these statements of expenditure it pays the money to the Scottish Government. 

Spending of European structural funds must be co-financed with match funding.  During the 2014-2020 programmes in Scotland, this match funding was often provided by lead partners responsible for commissioning the delivery of projects which meet the policy objectives of the structural fund programmes.  Examples of lead partners include the Scottish Government, Scottish Enterprise, the Scottish Funding Council and Scotland’s local authorities.

Scotland has left the EU, why is this an issue?

Scotland’s exit from the EU’s legal order at the end of December 2020 coincided with the end of the 2014-2020 structural fund programme period.  However, the EU rules which govern the operation of the structural fund programmes allocates annual funding to each programme which must be spent by the end of the third year after their allocation.  This is known as the n+3 rule. Therefore, although Scotland is no longer part of the EU, funding allocated for the calendar year 2020 could still be allocated and spent up until the end of December 2023. 

The annual spending targets set by the European Commission must be met otherwise the amount of funding allocated to the Scottish programmes is reduced.

Did Scotland achieve all its spending targets?

The European Commission’s Cohesion Open Data Platform provides information on all the structural fund programmes across the EU, including those in Scotland.  According to the European Commission’s data, the Scottish programmes for 2014-2020 are now worth a total of €783.4 million (€415.7 million European Regional Development Fund and €367.7 million European Social Fund).  The Scottish Government has confirmed to SPICe that the reduction in the overall value of the programme of €157.6 million (€783.4 million compared with the €941 million allocated at the beginning of the programme period) is as a result of expenditure targets not being met.

Where are we now – how much of Scotland’s allocated European structural funds have been spent?

With the programme now worth €783.4 million, according to the European Commission data, it is possible to illustrate how much of the programme has been receipted by the Scottish Government and paid by the European Commission to date.  The figures provided below are based on information provided in the European Commission’s Cohesion Open Data Platform on 4 June 2024.

The figures above show that, as at 4 June 2024, €503 million has been paid by the European Commission with a further €280.4 million still potentially remaining to be claimed from the Commission by the Scottish Government, based on the revised programme total of €783.4 million, if eligible expenditure can be demonstrated.

The Scottish Government has confirmed to SPICe that on 7 May 2024 a claim for payment of €34.8m was submitted and is pending. As a result, it is yet to appear in the Commission figures provided in the table above.

The Scottish Government perspective

Lead Partners (LPs) who are responsible for supporting the delivery of the programme were required to ensure all eligible spending was incurred by 31 December 2023 under the European Commission’s N+3 rules.  Following this, Lead Partners had to submit claims for any remaining funds from the Scottish Government by the end of January 2024.  The Scottish Government as the programme management authority of the Scottish programmes is required to make final payments to Lead Partners by 30 June 2024. 

Following this date, the Scottish Government will make claims to the European Commission for reimbursement of any outstanding receipts and thereby obtain more of the available funding for Scotland from the European Commission.

In response to an urgent parliamentary question in the Scottish Parliament on 4 June 2024, the Deputy First Minister and Cabinet Secretary for Economy and Gaelic, Kate Forbes said:

“The programme is not yet complete. By the end of the programme, most of the funding will be spent. The claims that other parts of the United Kingdom will achieve specific levels of spend are also wrong, because their schemes have not closed either. We do not expect Scotland to be markedly different from the level that was achieved in previous schemes.”

The Deputy First Minister added:

“There has been no conclusion to the scheme. It will continue, and we will endeavour to spend as much of it as possible. Sixty per cent of the allocations are being made to local government. The rest is allocated largely to non-departmental public bodies such as NatureScot and Skills Development Scotland. There are close relationships in that. We will continue to provide that money to partners at our own risk then claim reimbursement from the European Commission, which is the way that those schemes have operated for years…

…It is being spent. We have until 2025 in which to continue to spend it. It is being spent currently, it will continue to be spent and there has been no point at which it has not been being spent. We will continue to maximise the funding that is available.”

In correspondence with SPICe, the Scottish Government has set out that just over €647 million (82.64%) of the revised total of €783.4 million has been committed to Lead Partners.  This means that funding has been allocated to Lead Partners for specific projects and that the delivery of the project and the rate of expenditure is the responsibility of Lead Partners.

The commitment of €647 million leaves around €136 million from the funds allocated by the EU which cannot be committed to Scottish projects as all spend had to cease at the end of 2023.

Scottish structural fund programmes – funds committed to Lead Partners

The Scottish Government also confirmed that by early July 2024, it will have significantly increased the percentage of the funds it has paid to Lead Partners.  Following this, those payments will be re-claimed from the European Commission.  The Scottish Government plans to make this claim in late July 2024 and will make a final claim later this year or early next year to ensure as much of the allocation is paid as possible.

The Scottish Government has also highlighted to SPICe that the total sum reimbursed by the European Commission cannot be calculated until final accounts are submitted to the Commission and they have been verified and audited. This forms part of the European Commission’s regulatory process with the earliest date for the Scottish Government to confirm the final value of the programme likely to be mid-way through 2025.

Summary

The rules and regulations governing the operation of the EU’s structural fund programmes are notoriously complex and the timing of payments make it difficult to establish a clear position at a given point in time. 

The main points highlighted in this blog are:

• The figures on the European Commission Cohesion Open Data Platform show that the value of the Scottish structural fund programme is now €783.4 million compared to an initial value of €941 million.  The Scottish Government has confirmed the reduction of €157.6 million is because of Scotland failing to meet the annual expenditure targets set by the European Commission.

• As at 4 June 2024, around two-thirds (64%) of the revised €783.4 million had been paid out to the Scottish Government, with €280 million (36%) of the revised total remaining to be claimed.

• The Scottish Government has confirmed to SPICe it will make a further two claims to the European Commission for payment of the structural fund programmes with the first claim likely to be submitted in late July.

• However, even after these further claims are taken into account, figures provided to SPICe by the Scottish Government show that around €136 million of the updated value of the programme has not been committed to lead partners with the end of 2023 deadline now passed. The Scottish Government has told SPICe that it is continuing to work with the European Commission to explore ways to ensure it is able to use as much of the funding allocated to Scotland as possible. 

Iain McIver, SPICe Research