Meeting of the Parliament [Draft]

Meeting date: Wednesday, June 26, 2024

Official Report 1258KB pdf

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European Structural and Investment Funds

The next item of business is a statement by Kate Forbes, the Deputy First Minister, 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.

15:12  

On Thursday 13 June, I made a statement in the chamber on the Scottish Government’s current position with regard to European structural and investment funds. That statement addressed the inaccurate reports in the media, and I made it clear that I would make a further statement once both the programmes—the European social fund and the European regional development fund—had formally closed.

I did not expect the next statement to be quite so soon; at that point, I was clear that it was unlikely to be before the second half of 2025. As I said less than a fortnight ago, I would confirm the final outturn figures and outcomes achieved at that point. Until then, estimates of the use of the funding allocations, the final eligible expenditure and the reimbursements from the European Commission are all speculative.

Opposition parties have requested another statement less than a fortnight after my first statement. In the intervening time, nothing has changed, there has been no new information and further reports in the press have not changed the original points that I made. However, I am never one to shy away from stating the facts once again, so I thank the Presiding Officer for the opportunity to repeat and confirm all the points that I made a fortnight ago.

As I explained in my statement less than a fortnight ago, the system for administering and paying out European structural funds is retrospective. Allocations of potential funding are notified to member states at the start of each seven-year programme. Projects are then set up by partner organisations and they incur costs. Those costs are incurred initially and entirely by the organisations themselves. For example, in the third sector, that might be a charity. In the public sector, that might be local government or NatureScot. Those costs are then claimed back from the Scottish Government at our risk. Once we have paid the costs that our partners have incurred, we focus on submitting reimbursement claims to the European Commission, which reimburses us only after all the evidence has been checked and verified.

Furthermore, the funds cannot be used for core public services, so they cannot be used—as some have suggested—to mitigate the impact of austerity on our national health service, on local government or on core infrastructure. The funds are not a replacement for public sector funding.

The projects that are under discussion all completed their delivery by December 2023. We are currently continuing to check and to pay out on our partners’ final claims for the costs of delivering those projects. We will submit substantial reimbursement claims to the European Commission in July—next month—and a final one will be submitted in October this year. Those will include reimbursement claims for all structural fund projects delivered by partners and for eligible funding towards the costs of accommodation and support services for Ukrainian migrants to Scotland. The date of the final reimbursement payments from the European Commission to us will not be until 2025.

As I said in my statement on 13 June, and as is detailed in the Scottish Parliament information centre’s briefing, our original allocation of potential funding at the start of the programme was marginally reduced by the European Commission because some of our partners did not meet their annual spending targets. Let me be crystal clear about why that was.

Some partners had overestimated the costs that they would incur and the pace at which they would incur them, others were unable to meet the very strict criteria for projects and some partners struggled to prove eligibility for all their costs. For all those reasons, some potential funding was foregone—as a European Commission official pointed out as a statement of fact back in 2019. Changes to funding allocations have happened in other parts of the United Kingdom and, indeed, across Europe over the past 40 years of the programmes.

However, no money was handed back. It is simply the case that the ceiling of total funding allocations to Scotland was lowered. That did not impact on the delivery of any projects that were under way or on the ability of any partners to extend projects or to claim funding back from the Scottish Government. Those points are important, because the contrary has been claimed publicly.

As I said previously, Scottish Government officials repeatedly encourage our partners, including via the Convention of Scottish Local Authorities, to spend their allocations, to put forward any new projects or to expand existing ones to maximise the use of the funds. However, as I explained before, many projects and types of spending are simply not eligible. European structural funds cannot be used for anything whose funding could or should be met from regular domestic budgets; it must be additional.

In previous years, Scotland was involved in each of the funding cycles, which meant that projects that did not secure funding in one cycle—perhaps because of timescale constraints—could always consider the subsequent cycle. The difference here is that the cycle that is under consideration is the final cycle. There is a definitive end point entirely, because we are no longer in the European Union and are not benefiting from the current cycle of funding that is being distributed. That is not a decision that the Scottish people supported by a majority. In fact, we are in that situation entirely because the current UK Government removed Scotland from the European Union and, by extension, from eligibility for the next cycle.

Although all parties are entitled to scrutinise the decisions that the Government takes—questions on which I look forward to answering—there is a great irony in the fact that the current situation has become of interest only because Scottish projects will not benefit from any future funding cycles of European structural funds. That decision is formally supported by the Labour Party and the Conservative Party, which have both stated publicly that they do not support a return to the European Union for Scotland.

A full and up-to-date list of Scotland’s European structural fund projects and the partners that delivered them is available on the Scottish Government website. Members can see the huge range of projects and programmes that have been supported through European funding. Many local authorities have provided debt management, fuel poverty, housing and education advice programmes in their areas, such as Perth and Kinross Council’s positive futures project, which have been part funded by the European social fund.

The supporting new Scots in Stirling project provided a holistic service, including money management, benefits advice, social inclusion activities and courses in English for speakers of other languages to the growing number of refugees who are settling in the Stirling Council area. That ESF-supported project offered eligible participants access to specialist money support and training, often from the very first day of their arrival in Stirling.

On a bigger scale, employability pipeline projects that were delivered by councils across Scotland supported people with multiple barriers to give them a better chance of securing employment. The youth employment initiative in the west of Scotland helped young people aged 16 to 24 years old to access the labour market. That support also came through the European social fund.

The European regional development fund has supported the Medical Device Manufacturing Centre to the tune of £1.6 million. The MDMC project is made up of a team of engineers, scientists and clinicians from four universities, who provide medical device developers with advice, access to manufacturing facilities, engineering and technical expertise, and regulatory advice, which is for companies that are seeking to translate device concepts into commercial products. The team has a comprehensive suite of manufacturing equipment that is installed in dedicated labs at Heriot-Watt University, which ranges from laser-based manufacturing equipment to medical device packaging and environmental testing equipment.

ERDF funding also contributed £10.6 million to connecting communities across the Highlands and Islands. The Scottish Government’s £21 million 4G infill programme is improving Scotland’s rural mobile phone coverage in selected not-spots—areas where no commercial coverage has been rolled out. Without intervention, those rural areas would miss out on improved connectivity and the benefits that that brings to home life, working life and the wider local economy. Thanks to ERDF support, police, ambulance and mountain rescue emergency services can provide a rapid response to local and national crises, with better resilience offered as a result of improved communication between people in control rooms and those who are out in the field.

For local communities, improved 4G coverage potentially makes their areas more attractive to tourists and offers social benefits, such as improved access to services and the ability to keep in touch during Covid-19. It certainly makes my life a lot easier when I am working as I travel across the Highlands and Islands.

All those projects are testament to the immense benefits that European funding has delivered over the years. They represent just a snapshot of the benefits that European structural funds have brought to Scotland’s businesses and communities. Those projects are all from the current programming period, which will, sadly, be our last as we enter the lengthy process to formally bring them to a close.

As I said less than a fortnight ago, every pound or euro that can be claimed back will be claimed back. I will report on that when the final position is confirmed. I hope that my next statement will not be in another two weeks.

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

I thank the Deputy First Minister for prior sight of her statement.

I made the request for a second statement because of the total lack of clarity on the part of the Scottish Government in explaining the facts about what has happened to large sums of EU taxpayers’ money. Today’s statement still leaves questions unanswered, so I seek complete clarity on the following issues.

First, the minutes of a meeting on 14 November 2019 that was chaired by the Scottish Government and attended by representatives of lead partners and European Commission officials show that the Scottish Government advised the meeting that the managing authority—the Scottish Government—was

“unable to pay claims until the suspension is lifted.”

That was backed up in the statement in the Scottish Government’s consolidated accounts for 2018-19. However, just a few days ago, in a comment to The Times, the Scottish Government said:

“In practice, no payments were affected.”

That cannot be correct, and I ask the Deputy First Minister to comment on that.

Secondly, for complete clarity once and for all, exactly how much EU money has been left on the table unspent because the relevant deadlines for claims have passed?

Thirdly, how many times did the structures between the Scottish Government and local authorities for distributing the funds in Scotland change between 2014 and December 2023 in order to address audit failings?

I thank the member for her clear questions, which I will go through one by one, because they are quite simple to answer.

On the first question, in relation to the minutes that she quotes, I say directly to her that at no point did the Scottish Government pause the payment to our partners of the funding that they had incurred. She is right to quote directly from the minutes, but I say unequivocally that the Scottish Government paid out the funding at our own risk. We recognised the costs that had been incurred, and the Scottish Government ensured that we paid out the funds to the partners. There was no, as it were, lost opportunity from our partners’ perspective when they incurred the costs.

Secondly, the member asked a very direct question about EU funding. Presiding Officer, I realise that, like the last time I did this, my answers might be lengthy, but it is a complex issue and I want to be clear. On EU funding, I can give the member these figures in euros. The current allocation that we have in terms of the upper ceiling is €783.4 million. The current amount committed to projects to date is €647 million. Two elements will determine how much higher that figure is. The first is that we are currently going through meeting the July deadline and then the October deadline for securing reimbursement. The second is the funding that we will be able to reclaim for settling Ukrainian migrants.

I am not in a position to give the member that figure right now, because the deadlines are still ahead of us. We intend to claim back every penny that we can. The final deadline is late 2025, and I will be delighted to return to the chamber in 2025 with an update on the outturn figures. Until that point, all that I can give is a snapshot in advance of the deadline.

Thirdly, the structure has remained pretty much the same over the past 40 years in relation to reimbursement to the Scottish Government and the Scottish Government being responsible for reclaiming from the European Commission.

Thank you for the additional time, Presiding Officer. I hope that that is clear.

I begin by pointing out that, in 2019, zero pounds was handed to partners by the Scottish Government. That fact was provided to me in an answer to a parliamentary question that I received just this week. Any further clarity on that in writing would be appreciated.

I take issue with the Deputy First Minister saying:

“no money was handed back. It is simply the case that the ceiling of total funding allocations to Scotland was lowered.”

It is clear that there were “lost opportunities”, and European Commission officials expressed that to the Scottish Government according to the minutes of meetings that were held in June 2019. The European Commission was absolutely clear that there were lost opportunities. The same minutes say that the projects were “haemorrhaging money”. It is absolutely clear that there were significant problems. The initial reduction amounted to €157.6 million of lost opportunity to Scotland, and the Scottish Parliament information centre believes that the entire exposure—the minimum loss—is €294 million.

On 4 June, the Deputy First Minister said in the chamber:

“There has been no conclusion to the scheme. It will continue, and we will endeavour to spend as much of it as possible.”—[Official Report, 4 June 2024; c 3.]

However, on 20 June, a Government official was quoted in The Times as saying,

“all projects supported by European Structural Funds were completed by December 2023”,

and the Deputy First Minister has confirmed that position today. The two statements are entirely contradictory. It is confirmed that that is absolutely the case.

As a result of that December deadline, the Deputy First Minister’s officials must now have a number. They will seek to maximise the reclaims, but what is the exposure of the Scottish Government right now? What is that figure, which must have been set in December?

I will endeavour to answer those questions as well. I will start with the minutes that were quoted in relation to the engagement with European Commission officials. That speaks to the fact that we have engaged extensively and frequently with European Commission officials. The fact that that was five years ago speaks to constant monitoring of the situation. We also received an extension, which we were encouraged to use—and which we are using—to claim back the funding. I have already set out the deadlines of July and October, which is an extension. We do not expect to be an outlier in any way compared with previous schemes or compared with the rest of the UK.

On the point that the member distinguishes about 2019, we absolutely did pay out to partners in 2019. That relates to Liz Smith’s question. I appreciate that it is complex, and this answer is not intended to be patronising, but there are two elements. There is the money that the Scottish Government reclaims from the European Commission and there is the money that our partners get. From our partners’ perspective, they know that they have incurred costs, and they just want those costs to be covered. Their costs were covered; at no point did partners not receive the funds that they needed to cover their costs. Those were covered by the Scottish Government at our risk, and I have made that clear.

The second element is what we reclaimed from the European Commission. It has been well documented that there was a suspension in 2019 from the European Commission to the Scottish Government. We worked with the European Commission and that was resolved, but from our partners’ perspective—from a charities perspective and a local government perspective—there was never any pause. There was no lost opportunity in that regard. If more information is required, I am happy to deliver it.

On what the member perceives to be a distinction between what was said earlier and what was said today, there is no distinction. I have said clearly that we are engaged in a reimbursement process right now and we will not know the final outturn figures until 2025. I have given the figures that we are privy to now, but we will not know the final figures until 2025. I do not intend to mislead Parliament by giving figures that are only a snapshot in time, when we need to reclaim the full reimbursement and the funding to cover the resettling of Ukrainian migrants.

A number of members are seeking to ask questions. I appreciate the complexity of the subject, but perhaps we could have a wee bit of brevity.

I welcome the cabinet secretary’s statement. How do the EU structural and investment expenditure funds that have already been spent or will be spent by the end of this financial tranche compare with the resources that will be allocated by the UK Government once that resource is no longer available? Does the cabinet secretary agree that the Tory position on the matter is astonishing given its complete inability to deliver levelling-up funds that were allegedly committed years ago, including £23.7 million for my constituency?

It will not surprise the member to hear that there has been no comparable replacement funding from the UK Government. The closest that we have is the shared prosperity fund, but if we compare EU funding with the UK Government’s replacement funding, we can see that the new regime is short term, that decision making is opaque and that we do not have the same level of autonomy that we used to enjoy when we were in the European Union.

I imagine that we all represent communities and constituents who know the benefit of the funding that came from the European Union and are extremely exercised to know that they cannot apply for that same EU funding and frustrated by the complete lack of transparency about how to apply for comparable funding such as the shared prosperity fund.

I will go back to the second question that my colleague Liz Smith asked, in response to which the Deputy First Minister quoted two figures: the sum that was allocated by the EU, which was €783.4 million, and the sum that was committed, which was €647 million. That leaves a balance of €136 million not committed by the end of the 2023 deadline, which has now passed. Can any of that €136 million now be recovered?

With respect, that is precisely why, when Michael Marra and others ask me to give figures, they struggle to appreciate the distinction between giving a snapshot in time—where we stand right now—and where we expect to be when the outturn figures are published in 2025.

My point is that we expect the reimbursement process to take place during the next few months. It is an on-going discussion with the European Commission. I am not able to predict precisely where we will land in October, because it is a two-way discussion. Layered on top of that, we have the on-going discussions about reimbursement for Ukrainian refugees.

We are engaged in that programme and the projects that were concluded by December 2023 are what I cited in my statement, but I look forward to coming back in 2025 and being able to give final figures.

There is much chest beating and there are claims of lost money here, yet the position remains the same. The replacement UK structural fund first round, granted by the UK Government, was £212 million over three years to Scotland. If we were still in the EU, Scotland would have got £549 million over three years. Surely that is a shortfall of £337 million that was lost as a result of Tory Brexit madness and Labour-handmaiden-enabled Brexit madness.

I have already given my comments on the shared prosperity fund, which is opaque to constituents, centralised and difficult to engage with. In sharp contrast, the seven-year structural fund and, before that, the cohesion programmes enabled truly long-term and valuable projects to be delivered.

I repeat a point that I made in my statement: previously, being part of each cycle as it developed meant that an organisation that missed out on one cycle always knew that there was another cycle to come, which meant that it was not constrained by the timescales that we are currently constrained by. It meant that, in one sense, money could be carried over into future cycles—it was not expressly like that, but that was certainly the experience of our partners. The difference here is that there is a definitive end point and we intend to claim back every penny that can be claimed.

I call Paul Sweeney, who is joining us remotely.

Two weeks ago, when I asked about the Citizens Theatre redevelopment project, which has a capital funding gap of between £7 million and £15 million, the cabinet secretary told me that the Citizens Theatre project would need to meet strict criteria set out by the European Commission in order to be able to access vital funding to ensure that the project does not collapse. That is despite the fact that £11.7 million of Government and council capital grant funding has already been committed and sunk into the project.

It seems to me that the cabinet secretary is now suggesting that the remaining European structural funds are not available to the overrunning Citizens Theatre project, despite it being the sort of cultural heritage project that would typically be funded by European structural funds. Is this not now simply an example of Government mismanagement that has squandered available funding that could have been used to reinforce that critical project in Glasgow?

No. The point that I made in my previous answer was that the criteria that are set by the European Commission are extremely strict and quite rigid. That is one of the reasons why not many organisations are eligible to claim back that funding, and that has been the feedback from some of our partners as well.

We are keen to engage with Paul Sweeney on the substantive issue of the Citizens Theatre and to ensure that we support the project to be as successful as possible. I know that conversations are on-going with the relevant minister in that regard.

To follow on from Michelle Thomson’s question, the Deputy First Minister said in her statement that, in previous years, Scotland was involved in each of the funding cycles, which meant that projects that did not secure funding in one cycle could always consider the subsequent cycle. Is the effect of all this that, if we had still been in the EU, we could still be looking at continuing funding but, because we have been forced out of the EU, we have in effect had to jump off a moving bus and that is why we have hit this hard deadline?

That is right. When I addressed Parliament earlier this month, I stated that Scotland stands to lose access to significant funding that was theoretically replaced by EU structural funds. However, the member is right to talk about the cycles. At the end of every funding period, any leftover funding would usually count towards the next funding period. Because of Brexit, there are no future funds and that means that Scotland will lose out on significant funding of euros that could be received by projects across the country.

I share the frustration at those members who are happy that we are out of the European Union but pretend to be sad that we have lost European funding. However, I am still unclear about some of the DFM’s answers in response to media reports. Has she seen the report claiming that a paper was presented to the Scottish Government’s programme monitoring committee in June 2019 that referred to

“serious deficiencies in the [managing authority’s]”—

that is, the Scottish Government’s—

“management and control system for the [structural funds].”

Is that report accurate? What deficiencies were being referred to? Was anything done to correct them?

I have seen the report that Patrick Harvie refers to. I have briefly answered some of the comments about the fact that the Scottish Government took on board the points that were relayed to it by the European Commission. The important point to make is that our partners did not see a loss of funding. In 2019, the European Commission suspended its reimbursement payments for both the ESF and the ERDF programmes due to changes and improvements that needed to be made in the management and control of the programmes that had been identified by auditors in 2016-17. A wholesale improvement programme was put in place in order to ensure that there was absolute compliance with the regulations. The reimbursements restarted in 2020 and 2022 respectively. Importantly, that did not interrupt the payments of partners’ claims by the Scottish Government. All parts of the UK and many other member states have gone through a similar scenario during which their programmes have been suspended at one time or another in order to allow for improvements to be made.

It is my understanding that the allocation of the EU structural and investment funding is done on a multi-annual basis. I am conscious that the funding period that was referred to in the statement has included a Brexit referendum, subsequent negotiations and a worldwide pandemic. Therefore, does the Deputy First Minister think that we need to be mindful of the particular context that was faced during that funding period and how that impacted partners and their projects?

The member is right. I was finance secretary during Covid and we know the impact that that had on many of the initiatives and projects across the country. Most of the projects that are being funded by European funding are delivered by third sector organisations, local government and organisations such as NatureScot. Clearly, their activities and work were disrupted. We have sought to support them to ensure that they can maximise their claims from the European Commission, but in some cases the entire remit of their projects changed. As I said in my statement, they concluded that the work that they had planned would no longer be done and that the costs that they had intended to incur would no longer be incurred.

I will try again to get an answer to the question that was posed by my colleagues and has been avoided by the Deputy First Minister. I will put it really simply: how much of the €136 million that was not committed at the end of 2023 is still eligible to be reclaimed?

We will try to reclaim all of it.

The democratic will of Scotland was to remain in the EU, and Westminster has ignored that at every opportunity since. Does the Deputy First Minister agree that the best funding arrangement between Scotland and the EU would be one in which an independent Scotland is once again part of the EU, as opposed to Scotland being forced to sit on the benches by Westminster?

There is a complete irony in the questions that have been asked about my statement. The bulk of the scrutiny and the opposition has come from two parties that believe in never again allowing Scotland to be eligible for European funding. That speaks to the situation in which we find ourselves as a country—there is much empty opposition that completely defeats the purpose, when it should be about maximising the support that is available for communities and constituents around the country. The SNP Government would much rather we were benefiting from all the funding rounds, rather than just fixating on the ones that we can no longer claim from.

That concludes the statement on European structural and investment funds. There will be a short pause before we move on to the next item of business in order to allow front-bench teams to change position should they wish.