Hundreds of millions of pounds of public money is set to bypass the Scottish Government and be handed directly to local authorities by London under proposals to “put a Union flag” on regional development funds after Brexit, Scotland on Sunday has learned.
The replacement for EU Structural and Investment Funds handed out by Edinburgh on Brussels’ behalf will be used to support the Union and end the perception that Theresa May’s UK government is distant from ordinary Scots’ lives.
Plans for a UK Shared Prosperity Fund, which will be consulted on this year, promise to open up a new front in the deepening row between Edinburgh and London over Brexit and the constitution.
But the Scottish Government today issued a warning the Shared Prosperity Fund “must respect devolution”. Constitutional experts said shifting responsibility for nearly €1 billion in investment would be seen as a “hostile action” with “political consequences”.
Currently, the UK government determines Scotland’s share of EU structural funds, but the Scottish Government acts as “managing authority”, spending the money itself or handing it to public bodies and local councils.
Using EU eligibility criteria, the money is given to schemes which tackle poverty, boost employment opportunities and protect the environment. Projects supported in recent years include £204,000 to train locals on Uist in wool-working skills and £241,000 to restore paths across the West Highlands.
This funding round runs until 2020 and will see £800 million invested in Scotland, with the UK government guaranteeing projects will receive their money even under a no-deal Brexit.
However, the Shared Prosperity Fund that will take over after Brexit is expected to see at least some development money handed out directly by London to projects working in devolved areas of responsibility.
Scottish Conservatives at Westminster have commissioned research from the House of Commons Library to underpin the new approach to public spending in Scotland, which marks a departure from the way governments in London have treated investment north of the Border since the start of devolution.
The advice states the parliamentary research body is “not aware of any reason why this would not be possible” under the constitutional settlement – although it warns of possible “political consequences” from being seen to circumvent devolution.
The advice forms part of an unprecedented lobbying campaign by the 12 backbench Scottish Tory MPs elected last year.
Conservatives believe they are “winning the war” against UK civil servants, who have previously been reluctant to spend directly in devolved areas in Scotland.
UK government sources believe the EU’s eligibility criteria are too prescriptive and there is also frustration at the way projects that receive funding in devolved nations are labelled with EU and Scottish or Welsh flags, even though they are effectively paid for by UK public money via the contribution to the EU budget.
A cabinet source told Scotland on Sunday: “There’s an understanding that we need to do more to remind people in Scotland that they have two governments and that the UK government is still a big part of their lives.”
The Department for Housing, Communities and Local Government, which has no role in Scotland, will oversee the Shared Prosperity Fund.
James Brokenshire, the secretary of state at the department, has said the fund “will respect the devolution settlements”.
However, the Scottish Government has not been told it will have a direct role in shaping the Shared Prosperity Fund. It is understood the consultation will keep open the possibility of direct payments to local councils across the UK.
Luke Graham, the Conservative MP for Ochil and South Perthshire, said handing development cash directly to local authorities would “normalise devolution and take the constitutional battle out of it”.
“I would very much like to see that direct application,” he told Scotland on Sunday. “It is a UK prosperity fund, it’s not an English one or a Scottish one. It’s for the whole United Kingdom and one of the strengths of that is any part of the UK, whether it’s a larger part or a smaller part, it can connect to the greater whole.
“Now that people will be closer to the fund, close to the power and the money through Westminster, that will encourage a broader set of people to apply… they’ll be able to call up their MP and get some direct advice and representation.”
Graham added: “The way devolution has been working over the past few years hasn’t been good or bad, but it’s been dysfunctional.
“It’s been very much pitched as Edinburgh versus the rest of the UK. It’s all about jealously trying to pull powers away from Westminster and put them in Edinburgh and then not devolve further.
“We’ve gotten to a place of SNP political state-building, when actually devolution is supposed to be about bringing power closer to local people and delivering the best result and that certainly hasn’t been happening.”
Akash Paun, a senior fellow at the Institute for Government think tank specialising in the constitution, said the move would be seen as a “hostile act” by devolved administrations.
“This money is for economic development, skills funding and so on,” he said. “Those are functions that are for the most part already devolved to Scotland and many people’s expectation is that this money will come more fully under devolved control after Brexit.
“Anything that involves taking away powers or levers that the Scottish Government currently holds would be seen as quite a hostile action.
“It’s not a uniform, national [UK-wide] system at the moment, so attempts to create a new UK-run scheme that makes disbursements to localities based on conditions set in Whitehall rather than in Edinburgh or Cardiff would be regarded as a centralising move.”
A Scottish Government spokeswoman said: “Decisions about how European Structural Funds are spent in Scotland are made by the Scottish Government and Scottish Parliament. Any proposed arrangements for future funding must respect the devolution settlement.”