The alert came in a submission to the Welsh Assembly’s finance committee, which is looking at post-Brexit funding arrangements for the country.
IFS researchers Nicolo Bird and David Phillips noted that, because of its rural nature and high levels of poverty in West Wales and the Valleys region, Wales received higher levels of EU funding for agriculture and economic development than England – up to 3.5 times more per person.
The Barnett formula is used to adjust public funds allocated to the devolved nations of Wales, Scotland and Northern Ireland, and reflects changes to spending in England. It is based on population rather than need.
However, using the Barnett formula to distribute replacement funding after Brexit would mean increasing funding each year by the same cash amount per person as in England, and would lead to much smaller percentage increases for Wales, the IFS said.
Once inflation is taken into account, Wales would see a real-terms decrease in funding, unless equivalent funding in England were rising very rapidly, Bird and Phillips argued.
Wales’ poorest areas could also lose out unless a quirk of EU allocation rules is replicated in the post-Brexit arrangements.
Currently, the EU gives the poorest areas – those with GDP per capita of less than 75% of the EU average – much more generous funding per head.
While the IFS said there was “no rationale” for this funding cliff edge, removing it would hit poor Welsh regions hard.
“Big choices loom on how much to spend on programmes to replace the EU’s agriculture, regional development and research innovation funding after 2020, and how that spending should be allocated and managed,” said Phillips.
“Wales currently benefits from much higher levels of funding per person than in England, but new arrangements post-Brexit could narrow this gap, pushing down funding, especially in West Wales and the Valleys.”
CIPFA recently urged the Welsh Government to see Brexit as an opportunity to ensure that funding allocated to Wales was allocated more effectively, by adjusting the Barnett formula and linking distribution to outcomes.
