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Students Zone - Answers to Case Study Questions

CASE STUDY 11.1: POORER EU AREAS LOSE FUNDING

1. What reasons are given for the decline in UK regional funding from the European Union?

One of the main reasons for the decline in UK regional funding is the issue of EU enlargement. Some of the more recent countries to enter the EU are relatively poor compared with the EU15. Given the tight budgetary constraints faced by the EU almost the same amount of regional funding for the EU15 is now available for the EU25 and therefore some poor regions in the EU15 now have been classified as relatively well off compared with the regions in the new EU states. For those regions in the EU15 that will lose their regional funding status there will be transition arrangements but in the long term their regional funding will cease. An alternative approach would have been to increase the regional funding budget but this could have only been undertaken by either reducing other areas of budgetary support e.g. agriculture or by increasing the amount of revenue all of the EU25 paid to the EU. Both of these possibilities are unlikely to happen.

2. What might be the implications of this reduced funding for the United Kingdom?

Not only will the UK see its regional funding reduced as its regions are reclassified but Regional Selective Assistance (RSA) that could be used in those regions designated for regional support will now not be available. The case study suggests that this is in the order of £300-£500m per annum. The government has argued that this type of funding was particularly important in attracting Nissan to the North West of England and that without this type of funding some of the UK’s regions will not be able to attract high quality foreign direct investment (FDI). Nonetheless, critics argue that RSA has been made available to some firms such as LG from South Korea, but this was not sufficient to stop them going elsewhere. In other words RSA is of only marginal importance to FDI. Furthermore how many organisations who have now operated in the UK for many years might have come to the UK without RSA ? We don’t know. However, the case study also raises a further interesting fact; in many prosperous regions there may be pockets of lower income areas which may now find it difficult to access regional funding from the UK government. Finally if the UK government cannot spend their matched part of regional funding maybe this can be put to other forms of productive use?

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