The political row over unspent EU millions

The charge is a serious one: that hundreds of millions of pounds allocated to Scotland by the European Commission are going unclaimed.

It surfaced in the Sunday Times, and then at Holyrood, it has been put to Kate Forbes, the deputy first minister, as she stood in for John Swinney at First Minister's Questions.

Labour's deputy leader, Dame Jackie Baillie, said it was money that "should've been spent on crucial economic and anti-poverty projects across Scotland.

"That is simply a scandal and it happened when Kate Forbes was finance secretary."

The Scottish Tories' Liz Smith had raised the same issue with Ms Forbes on Wednesday.

The SNP minister's reply? The deadline for claiming is still some months away, the unspent total will not be as big as the £450m reported, and it will not be much worse than the unspent funds going unclaimed in the rest of the UK.

You may have thought a row about European funding was hardly likely to feature in the first Westminster election after Brexit.

But even this long after leaving the European Union, the wash-up of European accounts is not yet complete.

This is not without risk for the Scottish National Party.

Every time the party's MPs and MSPs claim the Scottish government is underfunded to do what the party or voters want, they invite the response that it failed to spend a large source of funds that it had.

So, to try to explain...

What was this money for?

The European Commission allocated funds to member states and devolved administrations to match other funds necessary to achieve the Commission's objectives.

One objective was to improve transport connections within Europe. For many years, it helped pay for better roads, bridges and causeways in the Highlands and Islands.

EU money helped to fund regeneration of industrial areas after major plant closures. It paid for training programmes to help poorer areas adjust to economic change and to help reduce inequalities.

There was less money after expansion of the European Union to the east. The UK was a net donor to the Commission - it paid more money in than it received in such economic support programmes.

The funds it received, in addition to farm subsidies, included hundreds of millions of euros still flowing to Scotland during the 2014 to 2020 European multi-year budget period. But they did not flow as intended.

How much has gone unspent?

The Sunday Times claimed that the unused funds could go as high as £450m. It reported that would represent 28% of allocated funds.

Other parts of the UK have also underspent their allocations, said the article, but with very much lower percentage of unspent funds, at less than 10%. It is not clear where those figures came from.

Kate Forbes says the headline figure is "inaccurate". She did not say what a more accurate figure would be.

However, the Scottish Parliament Information Centre, SPICe, has newly published figures it has received from the Scottish government. These indicate:

• Of the initial allocation to Scotland of £801m (e941m), £135m (e158m) is not being used, so the allocation has already been reduced to £667m (e783m). A Scottish government source says that unspent money results from the pandemic, when it was impossible to spend funds on some social and training projects. The pandemic began in the final year of the budget period.

• Of the £667m (e783m) now in the allocation, nearly two-thirds has been claimed as of this week, and £238m (e280m) has not yet been claimed.

• Can that all be claimed in the months remaining for the payments and accounts to be wrapped up? It seems not. Some £116m (e136m) was not allocated by the end of 2023, which was the deadline for doing so.

A blog by a Parliament official states: "The Scottish government has told SPICe that it is continuing to work with the European Commission to explore ways to ensure it is able to use as much of the funding allocated to Scotland as possible."

But unless the Commission bends its rules on auditing or its deadlines, the amount already underspent totals £250m (e294m euros, adding e158m to e136m). The remaining unclaimed allocation could take that total as high as £373m (e438m).

However, the Scottish government source highlights a figure showing 82% of the reduced total allocation of £667m has been committed, and there is a high level of confidence in St Andrew's House that it will conform to European Commission audit rules.

That, it is claimed, is a good outturn percentage by international standards.

What went wrong?

After being allocated European funds, member states, working with their local government and agencies, spend that money at their own risk and then claim it back from the European Commission.

After multiple scandals about European funding and auditing across the continent, it reached a crunch point in 1999, when the Commission members were forced by the European Parliament to resign. Their successors then tightened up the rules on spending.

This required a more rigorous audit trail of spending, to show claims were not fraudulent, and also to demonstrate they were achieving the outcomes to which the Commission had signed up.

The Scottish government, local councils and public agencies in Scotland, such as Scottish Enterprise, did not adapt fast enough to meet the new, stringent requirements.

Scots admitted as much, so the European Commission suspended payment of money claimed until it was satisfied that better auditing was taking place. For a period, it interrupted payments, which was a lesser penalty for non-compliance.

The suspensions began in the 2018-19 financial year, and the final one was lifted in 2022.

Why was Scotland in the auditing sin bin?

"We played by the rules, and put our hands up," says a government source, implying that other countries did not.

An independent expert, speaking anonymously, told BBC Scotland that there was a "perfect storm" of factors.

The bureaucratic structures in Scotland for distributing these funds changed several times, between councils, regional bodies, non-government bodies and government in Edinburgh.

This was to address the audit failings. Yet each time structures changed, expertise was lost.

After the Brexit referendum in 2016, when it became clear these funds would be wound down, and when money was becoming increasingly tight for councils, they cut back the departments handling European funds, so more expertise was lost.

The sudden influx of work for council staff to distribute business support during the pandemic added to the reduction in staff working on European funded projects.

A further explanation is that other member states of the EU have over-commissioned projects, knowing that they cannot claim on all of them.

But if some do not work out as planned, or do not fit European Union rules and schedules, then others will do so up to the full amount.

As this has become political, there will be pressure on officials at the Scottish government, councils and public agencies to push for more claims to be made, and to minimise the amount that goes unspent.

Under European rules, that will have to happen this financial year.

So by the next Holyrood election, there should be a final reckoning on European funds, and the rebuttals this week from Kate Forbes can be revisited.