Supplementary memorandum from East Midlands
Development Agency (EM 31)
EMDA BUDGETS
At the close of our Regional Select Committee
hearing on 27 April, you asked if I could supply you with more
detailed information on changes to emda's budgets since the approval
of our three year Corporate Plan in July of last year.
As you know, we have been asked by the Secretary
of State to provide some narrative on what the changes to our
Corporate Plans have been, both financially and in terms of our
focus.
I enclose a working draft of our financial position
which sets out the detail for how our investment strategy changed
during 2008-09, and sets out the plans for the remaining two years—2009-10
and 2010-11.
The figures show that our biggest challenge
is to accommodate the significant funding reduction that takes
place in 2010-11, when we will receive £26 million less than
anticipated at the outset of the Corporate Plan. The majority
of this reduction is to capital expenditure and so clearly those
projects at risk are inevitably the large scale regeneration projects
that we fund, often in conjunction with both public and private
sector partners. To date, we have managed this process through
talking with partners directly and looking at how we can profile
expenditure in such a way as to maximise the available budgets
to ensure projects go ahead.
Our timeline for finalising the programme for
2010-11 is through our Board by the end of July 2009, and hence
at this stage we cannot confirm the outcome of that process, as
detailed discussions and reviews are ongoing.
emda CORPORATE PLAN 2008-11 UPDATE
OVERVIEW
The Comprehensive Spending Review (CSR07) included
a 5% real reduction in RDA funding over the three years of the
2008-11 Corporate Plan. The table below sets out the total funding
for emda at the time the Corporate Plan was approved (July 2008).
| 2008-09
| | 2009-10
| | 2010-11 |
| Revenue | Capital
| Total | Revenue
| CapitalTotal
Revenue
Capital
Total
|
| Total Funds | £,000
| £,000 | £,000
| £,000 | £,000
| £,000 | £,000
| £,000 | £,000
|
Single Programme
Allocation
| 82,971 | 76,738 | 159,709
| 82,799 | 74,869 | 157,668
| 80,926 | 73,046 | 153,972
|
| Estimated receipts | 2,000 |
7,000 | 9,000 | 2,000
| 5,000 | 7,000 | 2,000
| 5,000 | 7,000 |
| Funding | 84,971 | 83,738
| 168,709 | 84,799 | 79,869
| 164,668 | 82,926 | 78,046
| 160,972 |
| Non-Cash Cost | (5,031) |
| (5,031) | (5,031) |
| (5,031) | (5,031) |
| (5,031) |
| Administration Costs | (17,315)
| (400) | (17,715) | (17,068)
| (400) | (17,468) | (17,068)
| (400) | (17,468) |
| Programme funds | 62,625 |
83,338 | 145,963 | 62,700
| 79,469 | 142,169 | 60,827
| 77,646 | 138,473 |
| |
| | | |
| | | |
Since that date, there have been a number of changes to both
funding and expenditure, which are explained below:
Single Programme Allocation
In September 2008, a £400 million capital reduction
to RDA budgets was announced to fund the Government's Homebuy
Direct scheme. The impact for emda has been to reduce available
capital funding in 2009-10 and 2010-11 by £1,777k and £19,551k
respectively.
In the Pre-Budget Report in November 2008, a further reduction
of capital expenditure in 2009-10 of £700k, along with reductions
to current expenditure of £1,799k in both 2009-0 and 2010-11
was confirmed.
In April 2009, the RDAs took over responsibility for the
Train to Gain brokerage service previously administered by the
LSC; this resulted in a further £1,152k current funding being
provided in both 2009-10 and 2010-11.
Receipts
The Corporate Plan included estimated receipts that emda
would make from previous investments, including the disposal of
assets held for redevelopment.
The downturn in the economy has been very severe in the commercial
property development and construction industry, with land values
falling by as much as 20% during 2008-09. This has impacted upon
emda, with receipts £3.5 million lower than originally expected
in 2008-09, and expectations have been revised for the remaining
two years of the Corporate Plan.
Non Cash Costs
The budget for non cash costs includes depreciation, cost
of capital and any movement against provisions. The budget cannot
be used to fund any cash transactions, and there has been no change
since the Corporate Plan figures were set.
Administration
This includes the costs of all staff directly employed by the
Agency, together with the non pay running costs. emda has been
one of the leanest RDAs, (in terms of staff employed) and during
CSR07 each RDA had a three year fixed administration settlement
that we need to stay within. The calculation of administration
costs was based around total RDA income, which in the case of
emda includes ERDF, RDPE and the Coalfields programme, and not
just single pot which is covered within this Corporate Plan.
There have been a number of changes confirmed by BERR to each
RDA's administration budget which for emda include: ERDF administration
funding of £503k per annum, RDPE administration allowance
of £489k per annum, and also a transfer of £200k from
programme to administration to cover the cost of managing the
Train 2 Gain brokerage service that transferred to RDAs on 1 April
2009.
The result of all the changes highlighted above is a revised
Corporate Plan funding position, set out in the table below:
| 2008-09
| | 2009-10
| | 2010-11 |
| Revenue | Capital
| Total | Revenue
| CapitalTotal
Revenue
Capital
Total
|
| Total Funds | £,000
| £,000 | £,000
| £,000 | £,000
| £,000 | £,000
| £,000 | £,000
|
Single Programme
Allocation
| 82,971 | 76,738 | 159,709
| 83,135 | 74,192 | 157,327
| 81,298 | 53,495 | 134,793
|
| Estimated receipts | 2,000 |
7,000 | 9,000 | 1,000
| 3,400 | 4,400 | 1,000
| 3,000 | 4,000 |
| Funding | 84,971 | 83,738
| 168,709 | 84,135 | 77,592
| 161,727 | 82,298 | 56,495
| 138,793 |
| Non-Cash Cost | (5,031) |
| (5,031) | (5,031) |
| (5,031) | (5,031) |
| (5,031) |
| Administration Costs | (17,315)
| (400) | (17,715) | (18,287)
| (400) | (18,687) | (18,287)
| (400) | (18,687) |
| Programme funds | 62,625 |
83,338 | 145,963 | 60,817
| 77,192 | 138,009 | 58,980
| 56,095 | 115,075 |
| |
| | | |
| | | |
A third of the programme funding is delivered through sub
regional partnership arrangements. For 2009-10 onwards, this has
moved to a contract between emda and seven of the nine Unitary
and County Local Authorities, with Derbyshire County Council and
Nottingham City Council expected to reach a similar agreement
to commence 1 April 2011.
The investment strategy for the 2008-11 Corporate Plan was
largely informed by a two stage consultation process with key
stakeholders and partners during the summer of 2007, followed
by a final review in the first quarter of 2008. The consultation
specifically sought partners' views on the most appropriate priorities
for direct emda investment, and those that should be funded by
other organisations in the region.
The results of this exercise were overlaid with existing
commitments and programmes, and resulted in five areas being highlighted
as the major focus for investment:
— Enterprise & Business Support.
— Employment, Learning & Skills.
— Energy & Resources—specifically addressing
the Energy White paper and Low Carbon issues.
— Land & Development—major regeneration schemes
for the region.
The investment plan for the three year Corporate Plan was
accordingly structured around these areas.
In addition to the funding changes highlighted, there has
been a review and reprioritisation of activity to reflect the
economic downturn, and the need to focus more on short term recovery,
whilst still maintaining the major regeneration activity supported
and required by the region.
The following details how this changed plans during 2008-09
and the focus placed on 2009-10 and 2010-11; this should be viewed
alongside the table at Annex 1.[44]
2008-09 OVERVIEW
The overall level of funding deployed was £1.8 million
less than originally envisaged in the Corporate Plan due to a
"swap" in year with London Development Agency (LDA)
relating to sub-regional partnership projects that were delayed
and would not be able to spend in 2008-09. The money was returned
to emda on 1 April 2009 and made available to sub-regional projects
in 2009-10.
Key Changes
Business Support shows an increase of £8.6 million
compared to the Corporate Plan. This is primarily linked to the
need to refocus activity and provide additional funding to businesses
in the face of the economic downturn. £6 million of this
relates to the Transition Loan Fund (TLF) established in January
2009, a further £1 million was added to the Business Transformation
Grant scheme (BTG) in August 2008 to provide small capital grants
for companies, with the balance of additional expenditure being
spent on Grants for Business Investment (formerly SFIE) and expansion
to the Regional Business Support Information System.
Innovation spent £4.7 million less than originally
planned; £4.5 million related to the National Rail Centre
which has been cancelled as the scheme could not attract any private
sector investors to take forward the project and did not enjoy
any financial support from the rail sector. Alternative proposals
are being considered.
Land & Development spent £2 million more
than planned, with a transfer of £2 million from sub regional
partnerships to support major schemes, contracted and managed
at the regional level. Central amongst these was the Roundhouse
in Derby and expenditure at Steetley was also accelerated during
the year.
OVERVIEW OF
2009-10 AND 2010-11
The overall level of funding available for 2009-10 and 2010-11
has changed in relation to the original allocations set out in
the Corporate Plan (particularly in 2010-11), referred to at the
beginning of this update.
emda has also taken the opportunity to pull forward £3 million
of capital expenditure from 201?-11 into 2009-10 as part of the
"Fiscal Stimulus" package focusing on key regeneration
schemes that could be accelerated for delivery in 2009-10.
Maintaining the previous commitment to one-third of programme
activity delivered via the Local Authorities, through sub regional
partnerships, the revised funding available for the remaining
two years of the Corporate Plan is shown in the table below:
| | 2009-10
| | | 2010-11
| |
| Current | Capital
| Total | Current
| Capital | Total
|
Available Programme Funding |
60,817 | 80,192 | 141,009
| 58,980 | 53,095
| 112,075 |
| Sub Regional Funding | 12,605
| 34,609 | 47,214 | 13,959
| 24,486 | 38,445
|
| Regional Funding | 48,212 |
45,583 | 93,795 | 45,021
| 28,609 | 73,630
|
| |
| | | |
|
With legal and contractual commitments at over 85% of available
funding at the beginning of the year, the scope for wholesale
change to the programme is quite limited; however, all projects
have been reviewed against the ECOTEC evaluation framework and
we are confident in the contribution that they will make to the
regional economy.
A revised business plan for 2009-10 was signed off by the
emda Board in January 2009, and we have commenced work to revise
the investment programme for 2010-11, which is heavily impacted
by budget reductions of 20%. In addition to this, we are looking
to create headroom to accommodate support to large companies in
the region, that would previously have benefited from central
funding over and above that allocated to the RDA; these are now
included in our indicative allocations. We are also working closely
with Local Authority partners to focus the investment programme
that they deliver with the sub regional funding on behalf of emda.
Whilst the sub region determines its own priorities, and determines
what is required, this is appraised and approved by emda before
final contracts are let. Clearly, in the current climate we are
keen to ensure that sub regional investments have the maximum
impact in terms of supporting the recovery of the economy, boosting
jobs and equipping people with the necessary skills.
2009-10 BUDGET CHANGES
AND PLANNED
ACTIVITY
For 2009-10, the high level funding allocations against each
Strategic Priority are not significantly different to the original
business plan approval which only took place in January 2009 and
therefore already reflects the refocusing that has been ongoing
since the summer of 2008.
Key Changes
The ongoing economic downturn (and requirements for focused support
to businesses and investment in regeneration and infrastructure)
continues to influence the investment priorities for 2009-10.
With the majority of emda programmes contracted for between two
and three years, and sometimes longer for large capital schemes,
the majority of funding is already committed. For 2009-10, the
Agency had commitments of 85% against its total allocation, with
further programmes and projects in advanced state of development,
taking this to over 100%. There has, therefore, been a refocusing
of investments within each Strategic Priority to ensure that we
can continue to meet business expectations and provide a much
needed publicly funded stimulus to the economy.
2010-11
As set out previously, the overall level of available funding
for 2010-11 is significantly less than originally envisaged in
the Corporate Plan; this is primarily due to the budget cuts in
relation to CLG's Homebuy Direct scheme (announced in the autumn
of 2008). The main reductions are linked to capital expenditure
and therefore present a major challenge for a number of large
regeneration projects that have already received approval.
All existing commitments are under review to identify those projects
where opportunity exists to scale back or defer expenditure. We
are also using the findings from our evaluation study (and associated
lessons learnt exercise) to assess the impact of different types
of projects and interventions to support our investment prioritisation
moving forward. This will help to ensure that emda's funding is
focused on those activities that will deliver the greatest economic
impact.
As the reduction is nearly all of a capital expenditure nature,
the areas affected will primarily be Land & Development (supporting
large regeneration schemes across the Region), Innovation and
Business Support (grant aid to businesses).
Dialogue is underway with key funding partners to look at
the joint investment priorities before finalising 2010-11 spending
plans with the emda Board in July 2009.
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