5 Funding
emda's Budget
73. Regional Development Agencies are funded
by the Departments for BIS, CLG, DEFRA, DCMS, DECC and UKTI. These
funds from the contributing department are pooled together into
a 'single pot'. The Single Programme allows the Agency to effectively
influence regional economic priorities and gives greater flexibility
to manage the available resources. The Single Programme replaced
the many different funding schemes previously received from Government
departments, which were allocated for specific legacy and inherited
programmes. The Single Programme funding is also supplemented
by European Funding, funding from English Partnerships under the
Coalfield Programme, and capital receipts from the disposal of
assets.[91]
74. In its written evidence, the East Midlands
Regional Assembly commented that:
emda has
benefited from single pot funding and using influence to bring
strategic coherence between diverse economic development functions
such as skills, business support, regeneration and foreign and
direct investment. This flexibility and strategic coherence is
a strength of the current approach.[92]
75. emda receives its budget allocation
from the Department for Business, Skills and Innovation (BIS)
once BIS has approved the Corporate Plan.[93]
When emda receives its budget from BIS, it receives a set
amount of:
- Programme Funding—which
is to be spent on the core operations of the business; and
- Administrative Funding—which is to be spent
on overheads and administrative costs.
DECREASING BUDGET
76. emda's budget will decrease over the
forthcoming years; £159 million in 2008-09, £158 million
in 2009-10. £154 million in 2010-11. The tighter budget allocation
is a result of the Comprehensive Spending Review 2007. This called
for a 5% real reduction in overall RDA funding and a ceiling on
administrative costs. For emda, the CSR 2007 will mean
that it will receive £20 million less cash over 3 years in
Single Programme Grant in Aid, and a £1.2 million reduction
in administration costs over the 3 years.
77. RDA budgets have also suffered further cuts.
£300 million was diverted from the Department for Communities
and Local Government's funding stream to the single pot to establish
HomeBuy Direct in September 2008: the Winter Supplementary Estimate
2008-09 made further reductions, and DEFRA's contribution to the
single pot was reduced by £17.088 due to DEFRA's need to
set a balanced budget for 2008-09.[94]
78. Jeff Moore, Chief Executive, emda,
commented on the frustration caused by the Departmental withdrawal
of funds and spoke of the short notice that emda sometimes
received:
The bigger the cut, the shorter the notice, the harder
it is to cope […] Inevitably, that will mean prioritisation
and difficult decisions being made.[95]
79. In its written evidence, emda highlighted
the challenges it faced in accommodating the significant funding
reduction taking place in 2010-11:
… the majority of this reduction is to capital
expenditure and so clearly those projects at risk are inevitably
the large scale regeneration projects […] the areas affected
will primarily be Land & Development (supporting large regeneration
schemes across the Region), Innovation and Business Support (grant
aid to businesses).[96]
Jeff Moore underlined the difficulties this caused
to capital projects , which were:
Complex, long-term projects involving issues with
state aid, partner funding contributions and all sorts of planning
issues as well […] You can be so far down the line with lots
of expectation from partners, and lots of moral obligations, and
then you lose money and have to cut schemes. It has a political,
economic and moral impact.[97]
CARRY-FORWARD
80. emda stressed the problems that arose
due to the withdrawal of end-year flexibility to carry over unspent
monies, which "was taken away two years ago."[98]
Glenn Harris, Executive Director of Corporate Services, emda,
illustrated the problems that this caused the organisation;
Without end-year flexibility, the problem is twofold:
first, you need to use the funds that cannot be spent on that
project in the year, so you have to have additional projects that
can come forward to spend the money in the right way; secondly,
because the project has slipped but is still contracted and something
you would like to do, you then have to find money out of the following
year's programme, which itself already has commitments from previous
years. You effectively have two problems: one, how you use the
funds this year; and, secondly, finding the money again for the
scheme next year. That is the main issue.
81. Jeff Moore highlighted the "tough job"
of ensuring that money did not return to the Treasury at the end
of the financial year, and stressed that in 10 years no money
had been returned to the centre. As he commented, "That is
not easy, because if you cannot carry forward and you cannot have
opening and closing balances, it is quite a piece of fine-tuned
choreography to do that."
82. He stated that direct monitoring of projects
ensured that no money was underspent. However he commented on
the mechanism which, as a last resort, ensured that money was
not returned to the centre. This involved an internal market which
had been created with other RDAs:
So, if we are going to underspend—and we have
not, but let us use your example—by £2 million and
let us say, for the protection of the innocent, the LDA is struggling
because it needs another £2 million for the Olympic park,
we could lend them that on 31 March and get that back at 8 o'clock
on 1 April the next day.[99]
83. We welcome the Single Programme
Grant in Aid which allows emda to effectively influence
regional economic priorities and gives greater flexibility to
manage the available resources. However, its effectiveness is
harmed by the reduction in its budget. These reductions can be
at short notice which affects expenditure already allocated. It
has also been affected by the removal of the ability to carry-forward
its budget. We recommend that emda has no further reductions
in its budget in order to enable it to take strategy decisions
for the good of the region on a stable and agreed budget. We also
recommend that emda's ability to carry-forward its budget
is reinstated.
Project Appraisal
84. Witnesses from the higher education sector
expressed concerns over the project appraisal system.[100]
The University of Nottingham commented that:
Timelines from initial submissions to project start
are often long and unpredictable. Processes do not seem to be
able to provide either a robust "no" at early stages
of the appraisal process nor a "conditional yes" to
substantive strategic projects. Certain funding schemes are, by
design, highly inefficient in terms of the relative cost to administer
the scheme and are difficult to access. This can lead to projects
that are small but considered to be significant not being presented
to emda for appraisal.'[101]
The East Midlands Regional Assembly also highlighted
the need for emda to speed up decisions, "to ensure
that decisive and timely investments are made in the economy."[102]
85. Mr Martin Traynor, Chair, East Midlands Regional
Assembly's Regional Scrutiny Board, commented that the problems
were not of emda's making, but that of the system devised
by the Government and the interpretation of state aid rules:
The processes that emda has to undertake to
make sure that it is compliant with state aid rules are making
the whole process laborious […] This is not a criticism of
emda, it is the way the system has worked. You have a situation
now in which the SPPs have an application form of something in
the region of 65 pages—whether for £500 or £5
million, which is of course ridiculous.[103]
86. Jeff Moore stated that emda applied
the rules of the Treasury Green Book and wanted "to get that
right."[104] He
considered that the criticisms regarding the length of the appraisal
process in fact stemmed from the time taken to work up projects
that could be hugely complex:
What you will find is that in most projects, the
original idea becomes something completely different by the time
it gets to the appraisal level, and then that goes through in
15 days. But it is working up major projects. We do not think
it is a criticism that is legitimate … [105]
87. It is vital that projects
receive funding in a timely manner and that emda is able
to respond to changing economic circumstances. We have received
assurances from emda that they process requests as quickly
as possible. However, they are hampered by state aid rules which
ensure that the system is inefficient. We urge the Government
to re-examine the Treasury Green Book and recommend that the process
regarding state aid rules are streamlined.
91 emda: Annual
report and Accounts 2007-08 Back
92
Ev 93 Back
93
The Corporate Plan is a three year strategy that sets the corporate
priorities for emda to focus on and allocates the total
budget to these priorities for each of the three years Back
94
Business and Enterprise Committee, Fourth Report of Session 2008--9,
Regional development agencies and the Local Democracy, Economic
Development and Construction Bill (HC 89-I) Back
95
Q 19 Back
96
Ev 153 Back
97
Q 240 Back
98
Q 7 Back
99
Q 11 Back
100
The process of assessing and questioning proposals before resources
are committed. Back
101
Ev 131 Back
102
Ev 93 Back
103
Q 59 Back
104
Q 255 Back
105
Ibid. Back
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