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UNITED KINGDOM PARTNERSHIPAGREEMENTPart 1 (Sections 1 and 2)Revised 31 January 2020This project is part-financed by the European Union.0 Page

CONTENTSUK CHAPTER. 31 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OFSMART, SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFICMISSIONS PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDINGECONOMIC, SOCIAL AND TERRITORIAL COHESION (ARTICLE 15(1) (A) CPR) . 52 ARRANGEMENTS TO ENSURE THE EFFECTIVE IMPLEMENTATION OF ESIFUNDS (ARTICLE 15 (1) (B) CPR) . 1066ENGLAND CHAPTER . 11991 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OFSMART, SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFICMISSIONS PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDINGECONOMIC, SOCIAL AND TERRITORIAL COHESION (ARTICLE 15(1) (A) CPR) . 123232 ARRANGEMENTS TO ENSURE THE EFFECTIVE IMPLEMENTATION OF ESIFUNDS (ARTICLE 15 (1) (B) CPR) . 1966SCOTLAND CHAPTER . 2101 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OFSMART, SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFICMISSIONS PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDINGECONOMIC, SOCIAL AND TERRITORIAL COHESION (ARTICLE 15(1) (A) CPR) . 2102 ARRANGEMENTS TO ENSURE THE EFFECTIVE IMPLEMENTATION OF ESIFUNDS (ARTICLE 15 (1) (B) CPR) . 250WALES CHAPTER . 2571 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OFSMART, SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFICMISSIONS PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDINGECONOMIC, SOCIAL AND TERRITORIAL COHESION (ARTICLE 15(1) (A) CPR) . 2582 ARRANGEMENTS TO ENSURE THE EFFECTIVE IMPLEMENTATION OF ESIFUNDS (ARTICLE 15 (1) (B) CPR) . 304NORTHERN IRELAND CHAPTER. 3131 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OFSMART, SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFICMISSIONS PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDINGECONOMIC, SOCIAL AND TERRITORIAL COHESION (ARTICLE 15(1) (A) CPR) . 3132 ARRANGEMENTS TO ENSURE THE EFFECTIVE IMPLEMENTATION OF ESIFUNDS (ARTICLE 15 (1) (B) CPR) . 343GIBRALTAR CHAPTER . 3491 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THE UNION STRATEGY OFSMART, SUSTAINABLE AND INCLUSIVE GROWTH AS WELL AS THE FUND SPECIFIC1 Page

MISSIONS PURSUANT TO THEIR TREATY-BASED OBJECTIVES, INCLUDINGECONOMIC, SOCIAL AND TERRITORIAL COHESION (ARTICLE 15(1) (A) CPR) . 3492 ARRANGEMENTS TO ENSURE THE EFFECTIVE IMPLEMENTATION OF ESIFUNDS (ARTICLE 15 (1) (B) CPR) . 3612 Page

UK CHAPTERINTRODUCTION1. The UK Government and the Devolved Administrations’ objective is to equip the UK tosucceed in a global economic market, build a stronger economy and a fairer society.The UK will use the EU Funds collectively known as the European Structural andInvestment (ESI) Funds to help achieve this. A breakdown of the ESI Funds available tothe UK are as follows:ESI FundEuropean Regional Development Fund (ERDF)European Social Fund (ESF) (including YEI)European Agricultural Fund for Rural Development(EAFRD)European Maritime and Fisheries Fund (EMFF)2014-20 Allocation 111 billion 5.2 billion 2 243 millionFigure 1: Breakdown of UK ESI Funds2. In the past these Funds have together delivered important economic and environmentalbenefits for the UK. During 2014-2020 (the new programming period) the UK wants tobuild on these successes as well as improving the design and delivery of the nextprogrammes.3. This Partnership Agreement sets out the UK’s strategy and rationale for how the ESIFunds are to be deployed across the UK to complement the Europe 2020 objectives 3 ofSmart, Sustainable and Inclusive Growth and also the UK’s domestic initiatives forsustainable jobs and growth.DEVOLUTION SETTLEMENTS4. While the UK Government is responsible for key matters such as foreign affairs anddefence the Devolved Administrations (the ‘Administrations’) in Northern Ireland,Scotland and Wales are empowered to take decisions on a wide range of domesticpolicy areas including economic development. As the ESI Funds are primarilyconcerned with economic development, delivery of the ESI Funds is a devolvedresponsibility.5. Different legislation and models of devolution set out the relationships between the UKGovernment and the Northern Ireland Executive, Scottish Government and WelshGovernment. While the devolution settlements are reasonably similar in relation to manymatters connected with ESI Funds, they are not totally symmetric and some differencesexist. In addition the division of responsibilities is not fixed and devolution has evolvedsince the process began with the Scotland Act 1998.6. Although responsibilities are frequently split between them, the UK Government and thedevolved administrations work together on many issues and cooperate to make surethat devolution settlements are well managed. This is facilitated through a range of bothAll figures are in current pricesAfter transfers from Pillar one (“Voluntary Modulation”)3 Further details at: tshell/targets/index en.htm123 Page

formal and informal agreements, including a Memorandum of Understanding agreedbetween the UK Government and the devolved administrations in 2012 4. This sets outthe principles which support relations between these administrations, including goodcommunication, consultation, cooperation and implementation of EU obligations. It alsonotes that while the UK Government remains sovereign and has authority to interveneon any issue, whether devolved or not, these powers are viewed very much as being amatter of last resort.7. Section 1.1. set outs the current division of responsibilities between the UK Governmentand the devolved administrations in relation to each of the specific objectives of the ESIFunds that underpin the overarching objective of economic development. As will beseen, the position is often complex and the devolved administrations have wide powersto act in all of these areas.8. Gibraltar, whilst being a territory for whose external affairs the Member State UK isresponsible in accordance with Article 355(3) TFEU, is self-governing and receives nofinancial support from the UK. Nevertheless, as a territory covered by Article 355(3)TFEU, Gibraltar is entitled to receive EU Structural Funds from the UK’s allocation.9. The Governor of Gibraltar is the representative of the Queen of Gibraltar, QueenElizabeth II. He does not represent the UK Government. Under Gibraltar’s 2006Constitution, the Governor is only responsible for Gibraltar’s external affairs, defenceand internal security. All other matters are the responsibility of the Government ofGibraltar. Gibraltar’s legislature is completely distinct from that of the UK. The GibraltarParliament alone enacts laws for Gibraltar and transposes EU directives into Gibraltarlaws.10. The structure of the Partnership Agreement reflects the fact that responsibility fordelivery of the ESI Funds is devolved. The first chapter sets out the challenges andpriorities for the ESI Funds at high-level across the whole of the UK. Subsequentchapters have been prepared by the respective devolved administrations and set outhow each devolved administration will focus on the UK funding priorities in the context ofthe specific challenges they face. The UK and devolved administrations’ chapters eachfollow the structure of the Partnership Agreement template provided by the EuropeanCommission.EUROPE 202011. It is important to note that the UK is already directing considerable domestic resourcesto address Europe 2020 ambitions, taking account of relevant UK 2014 Country SpecificRecommendations. The details of the relevant actions are set out on an annual basis inthe National Reform Programme 5 the latest version of which was published on 30 April2014. Therefore, the UK wishes to focus ESI Funds on the Europe 2020 challengesupon which they can have greatest impact, rather than spread those funds evenlyacross all of them.12. Furthermore, it is equally important to establish that whilst the UK is committed to thebroad policy objectives contributing towards Europe 2020 goals, the UK Governmentand Administrations have not signed up to any new domestic targets nor several of thenational Europe 2020 targets, including those relating to the employment rate, R&Dexpenditure levels, early school leavers and those engaging in tertiary education as partof the Europe 2020 process.Further details at: greement5 Further details at: 2020-uk-national-reformprogramme-201444 Page

1 ARRANGEMENTS TO ENSURE ALIGNMENT WITH THEUNION STRATEGY OF SMART, SUSTAINABLE ANDINCLUSIVE GROWTH AS WELL AS THE FUND SPECIFICMISSIONS PURSUANT TO THEIR TREATY-BASEDOBJECTIVES, INCLUDING ECONOMIC, SOCIAL ANDTERRITORIAL COHESION (ARTICLE 15(1) (A) CPR)1.1 AN ANALYSIS OF DISPARITIES, DEVELOPMENT NEEDS, ANDGROWTH POTENTIALS WITH REFERENCE TO THE THEMATICOBJECTIVES AND THE TERRITORIAL CHALLENGES AND TAKINGACCOUNT OF THE NATIONAL REFORM PROGRAMME, WHEREAPPROPRIATE, AND RELEVANT COUNTRY-SPECIFICRECOMMENDATIONS ADOPTED IN ACCORDANCE WITH ARTICLE121(2) TFEU AND RELEVANT COUNCIL RECOMMENDATIONSADOPTED IN ACCORDANCE WITH ARTICLE 148(4) TFEU(ARTICLE 15 (1) (A) (I) CPR)THE UK’S MACRO-ECONOMIC CHALLENGES1. The UK economy has been hit by the most damaging financial crisis in generations,which led to one of the deepest recessions of any major economy (see figure 2).Figure 2: Impact on GDP level through 4 recessionsSource: Office for National Statistics and Bank of England5 Page

2. The financial crisis followed a decade of growth built on unsustainable levels of debt(see figure 3).Figure 3: International comparisons of debtSource: Haver Analytics; national central banks; Mckinsey Global Institute3. The UK Government’s plan for addressing this situation was first set out in June Budget2010 and is based on: deficit reduction, returning the public finances to a sustainable position and ensuringthat sound public finances and fiscal credibility underpin low long-term interest rates;monetary activism and credit easing, stimulating demand, maintaining price stabilityand supporting the flow of credit in the economy; anda comprehensive package of structural reforms, including a programme ofinfrastructure investment – rebalancing, strengthening and making the economymore resilient for the future.4. The Devolved Administrations are also taking action to tackle structural reformchallenges in areas of devolved competence. More detail on these plans is set out in theUK National Reform Programme.5. The policy response has seen a planned reduction in Government expenditure to moresustainable levels in public spending, focusing resources on the most productive areasof expenditure. For the ESI Funds this means that investments should: aim to leverage in higher levels of private sector investment; andbe focused on activities which can best address the needs of the areas covered byeach programme.6. The UK economic recovery gained momentum through 2013 and is now wellestablished. Forecasters also expect this growth to continue and strengthen. The latestOffice for Budgetary Responsibility (OBR) economic and fiscal outlook 6 is forecasting6Further details at: -outlook-march-2014/6 Page

growth across the forecast period, with spare capacity eliminated by the end of the2018. The OBR’s expectation is that GDP growth will rise to 2.6% by 2017. Otherinstitutions also support this prospect of future growth (see figure ---1.72.42.2--GDP growth1.10.31.82.82.32.62.6CPI 29.229.529.930.430.630.931.2GDP Growth (OECD Nov2013)GDP Growth (IMF Jan2014)Office forBudgetResponsibilityForecastFigure 4: UK economic forecastsSources: Office for Budget Responsibility, March 2013; OECD; and IMF7. All nations and regions of the UK saw an increase in employment between the firstquarter of 2010 and the third quarter of 2013. However, GDP growth has been unevenacross the UK and economic disparities continue to persist. This is illustrated by the factthat for the 2014-20 programming period the UK has 2 less developedNUTS2 areas and11 transition NUTS2 areas. The growth rates within NUTS2 areas also vary significantly,with higher growth rates in major conurbations and much slower growth in other parts. 78. Productivity is a key driver of growth and is determined by a number of factors which theESI Funds can help address: capital intensity (Smart Growth);education and skills (Inclusive Growth); andR&D (Smart Growth).9. These aspects of productivity will be examined in detail under the headings of Smartand Inclusive Growth below. Such growth needs to be pursued in a sustainable way,ensuring that growth does not erode our natura