Will the poorest neighbourhoods get a better deal under Brexit?

Photo by –Sam–

John P. Houghton looks at three policy areas – funding, state aid, and community engagement – as the basis for post-Brexit urban regeneration policy

Amid the claims and counter-claims following last June’s EU referendum result, one fact is undisputed. The poorest areas of England and Wales outside of London voted for Brexit, despite the fact that they receive significant amounts of development funding from the EU.

Academics at the University of Warwick compared referendum voting patterns with data from the Index of Multiple Deprivation and concluded: ‘All across the board, more deprivation is associated with a larger Vote Leave share or, vice versa, less deprivation is associated with a lower Vote Leave share.’

Brendan O’Neill put it more succinctly in the Spectator: ‘The most striking thing about Britain’s break with the EU is this: it’s the poor wot done it…[T]hey rose up, they tramped to the polling station, and they said no to the EU.’

From this starting point, I want to explore how Brexit could lead to a renewed focus on tackling deprivation in the poorest parts of the country.

In the confusion created by the leave result, a lot is up for grabs. Despite the sneering and mockery, the Brexit voters in the poorest neighbourhoods might get themselves a better deal after all.

To explore the contours of that deal, I will look at three distinct but connected policy areas: funding, state aid, and community engagement.

Funding – the ESIF question

With the abolition or merger into general budgets of almost all funding programmes aimed at deprived areas in recent years, the European Structural and Investment Fund (ESIF) became very important to local authorities with significant concentrations of neighbourhood poverty.

ESIF is a consolidated pot of funding streams which supports the overall economic and social development of EU countries. To give a sense of scale, the UK was allocated €10.7bn (about £9.1bn) in the ‘ERDF’ and ‘ESF’ elements of ESIF between 2014 and 2020.

Post-referendum, the government announced that all ESIF deals with written arrangements in place will be fully financed, even beyond Britain’s departure from the union. There was a less specific commitment to ‘considering’ what to do with areas that were developing bids, several of which I was involved with.

The government is yet to address whether some form of post-ESIF financial assistance will be available beyond Brexit and, if so, what it will look like.

It seems likely to me that the government will introduce some form of area-based assistance. Politically, many leave-voting neighbourhoods are up for grabs. The Conservatives sense a once-in-a-generation opportunity to steal a swathe of Labour seats in places where Corbyn is toxic and the Labour party has ossified.

In addition, voters will start to notice when EU funding ends. Plans to expand EU-funded businesses will be scrapped, proposals for new enterprise parks and community centres will be frozen. Expect serious anger if the areas that voted to leave find themselves being ‘punished’ in this way.

If some form of assistance were to be made available, what might it look like?

It would not be a like-for-like replacement for ESIF. Unlike the private-sector led ethos of the homegrown Local Growth Fund, the focus of ESIF is on community-led action and multi-sector partnerships.

For the same reason, it would look very different from the National Strategy for Neighbourhood Renewal of the New Labour years, and bear much closer resemblance to the initiatives of the 1980s and 1990s. This is no retrograde step. The Conservative Party has a better track record in urban regeneration that most people (including many people in the Conservative Party!) give it credit for.

The new fund may well be quasi-competitive and subject to bespoke ‘deals’ (as opposed to being allocated en bloc according for a formula). All of this will take place in the context of devolution, with city  regions expected to come forward with asks and offers as part of a growth-focused business plan.

There will be little if any talk of ‘narrowing the gap’. Rather, the emphasis will be on harnessing the talents of local communities to get into education, training, and jobs now that the government can better control and manage migration.

The question of state aid

The issue of state aid has been a major consideration in regeneration and neighbourhood renewal policy and delivery for as long as any of us can remember.

In short, it is against EU rules for government and its agencies to distort competition and the operation of the free market. By, for example, prescribing who and how a programme should be delivered, instead of putting the opportunity to deliver out to tender.

Historically, difficulties arose because deprived areas are, by and large, places where the market has either failed or has not been able to fully operate (which analysis you choose will depend largely on your overall political leaning). It was possible to seek EU Commission exemption from state aid rules, but the process for achieving this was long and arduous.

Post-Brexit, will we see a more directive approach to supporting business and enterprise in deprived areas?

Prime minister May has signalled that she is more willing than her predecessors to intervene in the economy. She has tasked ministers to develop an industrial strategy and, as The Economist points out, seems far more comfortable than George Osborne with the notion of coordinating parts of the economy for the wider national good.

Freedom from state aid rules, combined with the power to vary VAT on activities that would stimulate activity in deprived areas, and potential reforms to business rates could all give ministers and city regional leaders much greater leverage to direct economic growth in Brexit neighbourhoods. Garry Haywood wrote about the scope for using VAT flexibility to stimulate economic activity a few years back.

Community engagement

Finally, we come to the issue of community engagement. In theory, community engagement has always been “at the heart” of urban regeneration. Plans must not proceed, the guidance always tells us, without the full support and involvement of local people.

In reality, well, a picture can speak a thousand words…

Many of the deprived areas which voted Brexit will have been the focus of regeneration programmes. I suspect the disappointment and anger at broken promises that many residents of deprived areas have experienced with these programmes formed a part of their desire to vent their frustration through the referendum.

Looking ahead, Brexit could and should serve as an opportunity to have a new and more honest conversation with people in these neighbourhoods.

Concluding thoughts

The kaleidoscope is going to turn and twist several more times before we have a sharper sense of the post-Brexit regeneration policy landscape.

Yet it is possible to focus on a few areas and start to follow the trail. In the discussions I have having with places and organisations about life pro-Brexit, a few common themes emerge.

First, it’s important to keep a close eye on high level decisions from the Treasury about whether there will be a programme targeted at deprived areas that will pick up where current EU funds leave off. If there is some form of assistance, individual departments (currently the ‘managing agents’ in EU speak) will then shape the detail, including eligibility.

Second, it’s worth thinking now about how local agencies could use new financial flexibilities to power growth and job creation in particular. This is difficult, given the number of unknowns, but there is value now in developing outline ‘offers’ that could be put on the table as part of a devo-negotiation strategy.

Third, learn from successful devo deals. Edward Clarke at the Centre for Cities offers some useful observations here, including the importance of having a ‘clear and consistent plan’.

Finally, each area needs to have a persuasive account of how proposed changes will make a different to the neighbourhoods voted for Brexit.

Those places might have gotten themselves a better deal after all.

Photo by –Sam–