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Wales is heading towards a new era of austerity after losing £375m a year in EU economic aid because of Brexit, the nation’s economy minister has said.
Vaughan Gething told the Financial Times that while much funding from Brussels would end this financial year following the UK’s departure from the EU, the government in London had yet to allocate replacement support as promised.
“The Welsh government has to look at the reduced sum of money and make our budgets balance,” Gething said.
“The chancellor said there won’t be a return to austerity. Actually, if money disappears . . . you could find yourselves having to make choices that look very similar to the choices I was having to make as a minister when austerity was at its height.”
All three UK devolved administrations face significant cuts to their incomes after Brexit last year ended the flow of EU money.
Prime Minister Boris Johnson has promised to match the shortfall in EU funding for Wales, Scotland and Northern Ireland after Brexit. EU structural funds ended in December 2020 but some programmes are continuing with unspent money.
The government plans to replace the EU money with a Shared Prosperity Fund worth £1.5bn annually but has yet to outline how it will work.
A pilot scheme and precursor for the SPF, the Community Renewal Fund, worth £220m and which covers all UK regions, is in place for the current financial year, but Wales expects to receive just £10m. “There is a huge drop in one year,” said Gething.
Previously, European money paid for more than 5,000 apprenticeships a year and almost half of the £181m Wales Business Fund, led by the Development Bank for Wales, which supports small businesses.
In Northern Ireland, finance minister Conor Murphy in March said he had spent £42.5m of the region’s budget to fund economic development programmes formerly paid for by the EU.
While Belfast can claim the money back from Brussels in arrears, the UK’s replacement fund still “falls far short of” its EU predecessor, he told parliament.
Northern Ireland continues to receive some EU money through the €1bn Peace Plus project to “promote peace and prosperity in Ireland”. Multiyear projects approved before 2021 can claim back money from Brussels for another three years.
The Welsh, Scottish and Northern Ireland governments previously had a central role in allocating EU funds, but under legislation passed by Westminster last year the UK government can now bypass regional government’s despite spending in policy areas being devolved since 1999.
The three nations issued a joint rebuke in March, warning that bypassing devolved administrations “harms the effectiveness of these funds, will duplicate resources, and risks value for money and the achievement of better, fairer outcomes which our communities and people deserve”.
Before Brexit, Wales was the biggest recipient of EU funds, receiving twice as much as Scotland and four times as much as Northern Ireland.
The three will jointly receive £800m over four years from the £4.8bn Levelling Up Fund.
Gething said: “We had an agreement on how we wanted to . . . use that [EU] money to support the economy, skills and innovation. What is the strategy and purpose behind the current UK government approach? It is hard to see one.
“Local authorities are bidding against each other but regional working requires collaboration. Wales has less say over less money.”
Richard Lochhead, Scotland’s employment minister, said this month that Edinburgh “urgently” needed clarity from the UK government on how it planned to deliver the replacement funds.
The UK government said: “Our Shared Prosperity Fund will help to level up and create opportunity . . . where it is needed most.”
“We have been engaging with a wide range of key stakeholders in Wales and across all parts of the UK since 2016, and this has helped identify the opportunities for UKSPF policy, learning lessons from EU funding.
“Each nation of the UK will receive as much if not more from our new funds, including the UKSPF, as they would have done had we remained within the European Union.”
The SPF is expected to be launched this year.
Additional reporting by Laura Noonan in Dublin and Mure Dickie in Edinburgh
This article was first published at https://www.ft.com/content/56b8c767-0b79-4221-8c33-a10a4705224e