Political dispute over unspent millions

The allegations are serious: hundreds of millions of pounds allocated to Scotland by the European Commission are going unclaimed.

The issue was reported in the Sunday Times and was subsequently asked at Holyrood by Deputy First Minister Kate Forbes, who stood at First Minister John Swinney’s doorstep.

Labour’s deputy leader, Jackie Baillie, said the money “should have been spent on vital economic and anti-poverty projects across Scotland”.

“This is simply a scandal and it happened when Kate Forbes was Treasury secretary.”

Scottish Conservative leader Liz Smith raised the same issue with Forbes on Wednesday.

The response from SNP ministers? The deadline for applications is still months away and the total amount unspent is unlikely to be as large as the reported £450 million, and probably not too bad compared with unclaimed unused funds in other parts of the UK.

It might have seemed unlikely that the debate over European Union funding would feature in the first Westminster election since Brexit.

But even now, so long after leaving the European Union, the European accounting process is still not complete.

For the Scottish National Party, this is not without risk.

Every time the party’s MPs or state MPs claim that the Scottish Government lacks the funds to do what the party and its voters want, the counter-argument is that the Government has not used its abundant financial resources.

The Commission allocated funds to Member States and the devolved administrations in line with other funds needed to achieve the Commission’s objectives.

One of its aims was to improve transport links within Europe, and over the years it has funded improvements to roads, bridges and causeways in the Highlands and Islands.

EU funds have helped regenerate industrial areas after major factories closed, and paid for training programs to help poorer areas adapt to economic change and reduce inequality.

Funding fell after the European Union expanded eastward. Britain was a net donor to the European Commission, paying out more than it received in these economic aid programs.

The funds received by Scotland included agricultural subsidies as well as hundreds of millions of euros flowing to Scotland during the 2014-2020 European budget period. But the money has not flowed as intended.

The Sunday Times claimed that the unspent funds could reach £450 million – 28% of the allocated funding.

The article notes that other parts of the UK are also short on cash, but the percentage of unspent funds is much lower – less than 10%. It’s unclear where these figures come from.

Kate Forbes said the headline figure was “inaccurate” and did not say what a more accurate figure was.

However, the Scottish Parliament Information Centre (SPICe) has published new figures it received from the Scottish Government, which show:

“The Scottish Government has told SPICe that it continues to work with the European Commission to explore ways in which the funding allocated to Scotland can be made to work as best as possible,” a parliamentary source blog said.

But unless the Commission bends the rules on audits and deadlines, the amount already underspended totals £250 million (€294 million, plus €136 million plus €158 million). The remaining unclaimed allocations could take that total as high as £373 million (€438 million).

However, Scottish Government sources highlighted figures which show 82% of the total reduced allocation of £667 million has already been allocated, and there is a high level of confidence that St Andrew’s House will comply with European Commission audit rules.

This is claimed to be a good performance rate by international standards.

Member states that receive European funds must use them at their own risk, in cooperation with local governments and relevant institutions, and then request their funds be returned to the European Commission.

The European Commission plunged into crisis in 1999 when members were forced to resign by the European Parliament after a series of scandals over European funding and auditing across the continent, after which successors toughened rules on spending.

This required a more rigorous audit trail of expenditure to show that claims were not fraudulent and to demonstrate that outcomes agreed to by the committee were being achieved.

Scotland’s public sector bodies, including the Scottish Government, local councils and the Scottish Enterprise Agency, did not adapt quickly enough to meet the strict new requirements.

The Scots accepted, and the Commission suspended bill payments until it was satisfied that audits were being carried out more appropriately. Payments were suspended for a period, a lighter penalty for non-compliance.

The suspensions began in the 2018-19 school year, with the final suspension lifted in 2022.

Why has Scotland been put in the audit sin box?

“We followed the rules and put our hand up,” a government source said, suggesting other countries had not done so.

An anonymous independent expert told BBC Scotland that a range of factors had come together in a “perfect combination”.

In Scotland, the bureaucratic machinery for distributing these funds has changed hands many times between councils, community groups, non-governmental organisations and the Edinburgh government.

This was to address audit failures, but with each change in structure expertise was lost.

After the 2016 Brexit referendum, when it became clear that these funds would be reduced and local authorities found themselves increasingly short of cash, they cut departments dealing with European funds, thus losing even more expertise.

A surge in work for council staff distributing business aid during the pandemic has led to further cuts to staff working on European-funded projects.

A further explanation is that other EU member states are over-contracting out projects, knowing that they will not be able to claim for all of them.

But if some parts don’t work as planned or don’t comply with European Union rules and timelines, they’ll have to pay the full cost of others.

As this has become a political issue, there will be pressure on the Scottish Government, local councils and public sector officials to encourage more applications and minimise unspent amounts.

According to European rules, it must be implemented this financial year.

So there will likely be a final clearing of the European Fund before the next Holyrood election, and a reconsideration of Kate Forbes’s rebuttal this week.