Meeting of the Parliament [Draft]

Meeting date: Thursday, June 13, 2024

Official Report 1148KB pdf

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European Structural and Investment Funds

The next item of business is a statement by Kate Forbes on European structural and investment funds. The Deputy First Minister will take questions at the end of her statement, so there should be no interventions or interruptions.

14:45  

Last week, there were various reports in the media about Scotland’s use of European structural and investment funds. Those were inaccurate and misleading. My statement today will clarify the position as it stands now, and I will make a further statement once the programme has closed and the final calculations have been completed and published.

As I said in the chamber last week, neither I nor the Scottish Parliament information centre recognises the figures that have been quoted. Let me be clear about the latest position. The maximum amount allocated to Scotland by the European Commission for European structural and investment funds projects is €783.4 million, which is about £669 million. It is important to remember that the European Commission allocates and pays funding to member states in euros and we then allocate and spend funding on projects in sterling.

Sixty per cent of the allocations that the Scottish Government has made have been to local government. The rest was largely to public bodies such as NatureScot and Skills Development Scotland, which delivered excellent green infrastructure and skills training programmes respectively. The burden of implementing, delivering and agreeing the projects lies with our partners.

At every turn, we have encouraged our partners to spend their allocations of European Union funding and meet their delivery targets. Unfortunately, in some cases, projects contracted. For example, the number of participants in structural funds apprenticeship programmes was impacted by the pandemic in 2020, which was the final year of the European social fund. We also repeatedly asked all our partners to put forward new projects or to expand existing ones in order to maximise our use of the funds. Some proposed projects did not meet the European Commission’s strict eligibility criteria.

It is important to note three things. First, the European Commission’s requirements are very stringent. Only a limited number of projects fit them, and the funding cannot be used for core services. Secondly, because match funding is required, it has not always been easy—especially for the third sector—to complete projects. Lastly, because partners have to commit the funding and then claim a refund from the Scottish Government, the European funding has not always been the first source of funding that our partners have opted to use.

Any suggestion that the European funding could have been used for any or all public expenditure—as I have heard in the chamber and might well hear shortly—simply is not accurate. The funding cannot relieve the pressure on day-to-day spending that is caused by austerity. It does not work in that way.

Many factors will influence the final outturn position, and it is simply misleading to forecast at this point what the final outturn position will be. I will set out three of the most influential factors when it comes to the final position.

First, as I said last week, the totality of eligible spending by partners and the total reimbursements that we receive back from the European Commission will not be finalised until the second half of 2025, when all the lengthy accounting and auditing procedures have been completed. The same is true for all parts of the United Kingdom. Indicative forecasts are not final figures, and each programme differs in purpose, scale and the way that it is administered. Comparisons with other parts of the UK are therefore spurious.

Secondly, the amount that is currently committed to projects across the country that were led by our partners—mostly local authorities—is £545.7 million. That expenditure was all incurred prior to December 2023. Those valuable projects, some of which I will describe later, have concluded, and the final expenditure claims have been submitted to the Scottish Government. My officials are currently verifying those claims against the European Commission’s extremely stringent eligibility rules before making the final payments to our partners. Only once payments have been made can we claim the reimbursements from the European Commission, as we will do in July and October this year. That process is lengthy, and all payments are retrospective.

Thirdly, and perhaps most importantly, the European Commission has recently extended the final date for submitting reimbursement claims, and we intend to make use of that to ensure that absolutely every pound or euro that can be claimed will be claimed.

Our final reimbursement will now also include a contribution from the European Commission over and above the figures that I have already given. That money has recently been made available by the Commission to all member states, under the new flexible assistance for territories-cohesion’s action for refugees in Europe—FAST-CARE—scheme, and it will be put towards the cost of housing and supporting Ukrainian refugees in Scotland, which the Scottish Government rightly shouldered. Once those figures are finalised, I will be happy to return to the Parliament to set out the details.

It is worth noting that previous funding cycles worked on a rolling basis, so we worked continuously with partners to identify projects. The difficulty is that this cycle is the last one and there is a hard stop. We are missing out on the current cycle, which runs from 2021 to 2027 and which our European partners are benefiting from, to the tune of millions of pounds-worth of euros, because we are no longer part of the European Union. Those millions of euros are very much focused on renewables and on research and development.

There are some other important clarifications. Our programme partners for European structural funds have always had access to the funding that they requested, as long as their projects were eligible. The Scottish Government has always paid out claims to partners that fully met the grant conditions and did so throughout at our own risk, because it was a retrospective programme, so we effectively provided millions of pounds of working capital to partners to deliver projects.

More than 240 projects right across Scotland have been supported through European structural and investment funding. Projects have helped to tackle poverty, including child poverty, and 18 local authorities have used the funds to assist vulnerable people, including parents, with financial and debt management advice, to ensure that they receive the benefits that they are entitled to and to assist them in securing housing.

Zero Waste Scotland has helped businesses up and down the country with much-needed advice and support to embed resource efficiency in their processes. For example, not far from here, Stewart Brewing was able to benefit from Zero Waste Scotland’s advice, thanks to EU funding.

NatureScot’s green infrastructure programme has created and enhanced more than 200 hectares of green space in urban areas, including 32 hectares of vacant land that have been brought back into use. In addition, NatureScot’s natural and cultural heritage fund used European structural funds for 13 projects across the Highlands and Islands to promote the area’s outstanding scenery, wildlife and culture. That included the redevelopment of the award-winning Kilmartin museum, which reopened its doors last September with expanded exhibition and education space.

The smart cities project brought together our eight cities to share data and learning on how to adapt our cities for the future. Whether through solar-powered bins in Stirling, intelligent street lighting in Aberdeen or helping to set up the creative exchange, a new hub for the arts economy in Perth, the funding has helped to modernise the delivery of services to Scotland’s citizens.

As the member for Skye, Lochaber and Badenoch, I know how crucial that funding has been to the Highlands and Islands. The rural and veterinary innovation centre in Inverness, which was opened this March by Her Royal Highness the Princess Royal, is a brand-new £12.5 million facility that is developing new links between science and industry to address planetary health challenges and grow the natural economy.

Following Brexit, the UK Government promised to deliver replacement funding. Its shared prosperity fund is piecemeal and does not compensate for the huge damage that has been inflicted on Scotland.

I am proud of the vast breadth of Scottish projects and programmes that have been supported by European structural funds. Projects have helped thousands of schoolchildren and young people on apprenticeship programmes to achieve their full potential and have provided electric vehicle charging points and active travel schemes to reduce carbon emissions in transport.

I will be delighted to report again to the Parliament in the coming months on the final financial outturn figures and the outcomes achieved, once the programme has formally closed.

The Deputy First Minister will now take questions on the issues raised in her statement. I intend to allow about 20 minutes, after which we will move to the next item of business.

I am grateful to the other political parties for supporting my request for a full statement from the Scottish Government about the allocation of EU funds to Scotland. We are talking about considerable sums of taxpayers’ money, circumstances that have been shrouded in mystery and complexity for quite some time, and a Government whose record on fiscal transparency has attracted regular criticism from independent analysts.

With that in mind, and in relation to the Deputy First Minister’s statement, I seek absolute clarity on the following points. First, she has stated that the maximum amount that is allocated to Scotland is around £669 million. However, SPICe, in its extrapolation of EU data, said that the original amount that was available to Scotland was £801 million. Is the Deputy First Minister 100 per cent confident that her figure of £669 million is correct? If it is, where is the difference between that figure and SPICe’s £801 million?

Secondly, can the Deputy First Minister clarify what sum has already been handed back to the EU because it was not spent by the December 2023 deadline as a result of projects failing to meet EU regulations for the disbursement of those funds? On page 2 of her written statement, the Deputy First Minister says that she will return to the Parliament to provide the final figures. When will that happen, so that we can enhance the scrutiny of that figure?

I will start with the last question. In the light of the formalised deadline being the middle of 2025, if it suits the Parliament, I am more than happy to come back with an interim update, but I imagine that the Parliament would be more interested in the final outturn figures. I propose to do that when the deadline for formal reimbursement of the figures has passed.

On the difference between the figures—this is where it gets slightly complicated, because of the euro and the pound—if it is okay with Liz Smith, I will talk about the euro, because that is probably easier to verify. I talked about the European Commission’s allocation being €783.4 million. We should bear it in mind that that is essentially an upper limit. It is not a pot of funding that we would then seek to spend in full; it is an upper limit of funding that we can get reimbursement from. Liz Smith is right in saying that the original figure was €941 million prior to 2014. The upper limit allocation has incrementally reduced since 2014 for a host of reasons, some of which have to do with projects that have contracted. I mentioned the example of apprenticeship programmes that young people were not able to participate in due to Covid. There are other examples, such as initiatives to deal with poverty for which match funding has not been found. If Liz Smith will forgive the analogy, the total sum must be viewed as a credit card limit that is provided by the European Union, which we cannot go over and above. Our aim is to spend as much of it as possible.

On Liz Smith’s question about what has already been handed back, I have been clear about the two different upper limits and I was trying to be clear in my statement that I cannot give a final outturn figure just now. I listed three points. The first sum, which is what has been incurred up to December 2023, was £545.7 million. However, we are now in the business of working with the European Commission to claim additional funding over and above that for the flexible assistance for territories-cohesion’s action for refugees in Europe—FAST-CARE—scheme for Ukrainian refugees, so it is likely that that figure will be higher.

You will have to have slightly briefer responses, Deputy First Minister.

I appreciate the clarification. As per the statement, it is simply not the case that the maximum amount allocated was €783.4 million. The amount that was allocated in the original budget was €941 million, and, by its own admission, the Scottish National Party Government has lost €157.6 million. It told SPICe that that was due to Scotland

“failing to meet the annual expenditure targets”.

The system to disburse the money is designed by this Government. There is no justification for blaming local government for failing to spend the money when the system was devised by this Government.

Can the Deputy First Minister confirm that, as at 3 June, the unclaimed portion of Scotland’s funds sat at 46.5 per cent? Can she tell us whether any other Government in Europe has managed to get itself in such a state? Can she tell us how many times we have been suspended from the scheme? Finally, will she confirm that the absolute minimum loss to Scotland’s communities, due to our Government’s incompetence, sits today at €294 million?

There were a lot of questions in that—most of which were based on a premise that is not accurate and is not backed up by the facts.

On undercommitment and underutilisation, I mentioned the three reasons why partners have not always been able to spend the money. First, the scheme is retrospective. That is not by our design but by that of the European Commission. Partners must spend, then claim back. That is just a fact. Partners have not always been able to do that.

Secondly, the money must be match funded. There are no two ways about it. Over the past few years, things have been extremely difficult. Match funding has been most acutely difficult for the third sector.

The last reason is the complexity of the regulations and the heavy bureaucracy. At the end of the day, we have spent—often at our own risk—to reimburse partners for what they have spent, but we must then claim reimbursement from the European Commission. We work very hard to ensure that the money that we spend will meet the European Commission’s strict eligibility criteria. However, it is well known that a lot of those projects struggle at times to meet those eligibility criteria, because they must be over and above core services.

Because you are staring at me, Presiding Officer, I will come to a conclusion.

I am glad that that message is getting across.

EU structural funds, which have been eradicated by the travesty that is Brexit, have made a real difference across the country—helping more people into work and delivering new skills through better training and support. Can the Deputy First Minister give any examples of how EU structural funds have benefited Scotland in that way?

We have been part of those funds for more than 40 years, and thousands of people in communities and businesses have benefited. Although, clearly, the Scottish Parliament was not established over that full 40 years, we have a 40-year track record of knowing how to operate those schemes and distribute from them. Many people have benefited from a vast range of projects on skills, employability and training, which have been delivered through a wide variety of Scottish organisations and institutions. Local authorities, the third sector, skills agencies, universities and colleges have all benefited from funding. Stuart McMillan has made an important point: that funding is no longer available, and those institutions can no longer benefit from the current cycle.

The cabinet secretary stated that the European Commission has extended the final dates for claims. It seems to me that the Scottish Government’s ability to seek reimbursement for unallocated funds comes more through luck than by design. Would it not have been much more effective to have prepared and submitted claims within the original timetable?

We have done so.

The complexity that is associated with how EU structural funds are allocated—in particular, the match funding that is delivered through third-party agencies and is often overseen by local authorities—is not commonly understood. There has been complexity through Covid impacts and changed audit processes before final outturn figures could be finalised. We all hope that as much money as possible can be spent, but the real loss is surely that of the EU funds themselves. Can the cabinet secretary confirm that any replacement funds from the UK Government will not match the value of EU structural funds, despite claims that they would do so? Indeed, there is an anticipated shortfall to Scotland of £337 million over the next three years.

Theoretically, EU funding has been replaced by the UK’s structural funds. In the first round, the UK Government allocated £212 million to Scotland over a three-year period, whereas EU funding would have been worth around £549 million over three years. If we are talking about a comparison, the difference between those two figures is clear. That will have an impact on projects that might have benefited.

If I heard the cabinet secretary correctly, there is a float available for allocation, potentially by the end of this month, of €136.4 million; that leaves 18 days to maximise the allocation. An example that might be useful to the cabinet secretary is the Citizens Theatre in Glasgow, which has a current funding gap of between £7 million and £15 million. The very solvency of that theatre company is at risk because the money that it currently has will be expended by the end of this month. If funds are allocated, they could be spent by the end of the year to get the theatre project back on track. Is that an example that we could investigate? The project is already mobilised, so funds could be used immediately, and that could help to maximise the utilisation of the funding.

I acknowledge Paul Sweeney’s efforts to look at initiatives that could be funded. I go back to the three points that I made at the beginning. First, the project would have to meet criteria that are not ours but those of the European Commission.

Secondly, delivery is retrospective, so funding would have to be distributed initially by a third party, which would claim reimbursement from the Scottish Government, which would then claim reimbursement from the European Commission.

The last point is that the funding would have to be matched. We are currently engaging with the European Commission on additional funding for Ukrainian refugees. The Scottish Government has—rightly—paid up front for resettling Ukrainian refugees and is currently engaged with retrospective reimbursement from the European Commission. That is our focus just now, because the deadlines for new projects have probably passed.

In her statement, the Deputy First Minister mentioned the UK replacement funds for European funding, and Michelle Thomson asked about the level of those funds. Has the UK Government been working in partnership with the Scottish Government in that regard, and has it focused the funds on the neediest areas?

Not to my knowledge—the answer on both counts is no.

We have benefited from EU structural funding for 40 years on a rolling basis, and our partners are currently benefiting to the tune of millions of euros for renewables and research and development. We are not seeing the same impact from any UK levelling-up or structural funding.

Building on the same point, amid the complexity, it seems that the one clear and simple thing is the value of the European structural funds in relation to both the amount of money and the amount of control that Scotland had over how to use it.

Does the Deputy First Minister agree that an incoming UK Government next month must be under immediate pressure to ensure that both the level of investment and the level of control for Scotland over its replacement funding is at least as good as it would have been if Scotland had got what we voted for and remained in the EU?

I absolutely agree. When I was looking at the detail behind my statement, it was with some incredulity that I realised that our partners, including local government and the third sector, are missing out on millions of euros of funding, which is not being replaced by the UK Government, and it does not appear that it will be getting replaced under either of the manifestos that are being debated in the run-up to the general election. Patrick Harvie is absolutely right that our partners could be benefiting but they are not. I wonder at the crocodile tears that we see about this initiative when, actually, it is the last in a 40-year cycle of funding, and that merits a lot more grief.

Under the EU’s 2014 to 2020 budget, Scotland was allocated up to €941 million in structural funding. Can the Deputy First Minister illustrate what was achieved in Scotland through that funding before the Westminster parties decided that we should be taken out of Europe?

Strategic skills programmes over the past 17 years include graduate, modern and foundation apprenticeships, which have benefited thousands of Scotland’s young people. Since 2007, European structural funds have helped 320,000 people in Scotland to overcome barriers to employment, and provided extensive funding for research and innovation for Scotland’s universities, including the technology and innovation centre at the University of Strathclyde. Support was provided to 360,000 small businesses to increase their business competitiveness, resulting in the creation of thousands of jobs. The galling thing is that our European partners are still benefiting from those things.

In her statement, the Deputy First Minister mentioned the Ukrainian refugee support scheme—the FAST-CARE scheme. Reports suggest that the European Commission has offered that money and that it has been taken by countries—it has not been accounted for in the way that the Deputy First Minister outlined to Parliament. Will she confirm whether that money was not taken or was paid back? When will that money be accounted for? It is not quite clear from her statement how that will be achieved.

I ask members to please hear what I am saying about this: the funding is allocated on a by-unit basis. For example, the Scottish Government has fully met the costs of resettling Ukrainian refugees. That is a Scottish Government budget line, and rightly so. We then engage with the European Commission, and the European Commission reimburses us on a per-refugee, per-month basis. It feels dreadful to put it like that, because it reduces people, but I hope that members understand what I am trying to say. That is over and above the £545.7 million figure that I already provided. That is why I say that we will spend, to the last pound if we can, the full allocation under the upper limit that has been set for us.

Will the Deputy First Minister say a bit more on the cumulative impact of EU funding on my constituents in Dundee and on communities across Scotland since the UK’s accession in 1973? What is Scotland now missing out on due to the absence of that funding?

In Dundee, and across Scotland, since the 1970s, Scotland has received more than £5.6 billion of economic investment from the EU. That is quite a remarkable figure. If memory serves me, that figure is bigger than our capital programme entirely on an annual basis.

Over the 40 years that Scotland has been part of the European funding programme, thousands of people, communities and businesses in Dundee and elsewhere have benefited from a vast range of projects. We are now missing out on those extensive opportunities for collaboration. This is the first cycle since the 1970s that Scotland has not been part of, which is a matter of sorrow.

That concludes questions on the ministerial statement. There will be a brief pause before we move on to the next item of business, to allow members on the front benches to change over.