East Midlands Development Agency and the Regional Economic Strategy - East Midlands Regional Committee Contents


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
RevenueCapital TotalRevenue CapitalTotal

Revenue

Capital

Total

Total Funds£,000 £,000£,000 £,000£,000 £,000£,000 £,000£,000


Single Programme
Allocation
82,97176,738159,709 82,79974,869157,668 80,92673,046153,972
Estimated receipts2,000 7,0009,0002,000 5,0007,0002,000 5,0007,000
Funding84,97183,738 168,70984,79979,869 164,66882,92678,046 160,972
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 funds62,625 83,338145,96362,700 79,469142,16960,827 77,646138,473



  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
RevenueCapital TotalRevenue CapitalTotal

Revenue

Capital

Total

Total Funds£,000 £,000£,000 £,000£,000 £,000£,000 £,000£,000


Single Programme
Allocation
82,97176,738159,709 83,13574,192157,327 81,29853,495134,793
Estimated receipts2,000 7,0009,0001,000 3,4004,4001,000 3,0004,000
Funding84,97183,738 168,70984,13577,592 161,72782,29856,495 138,793
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 funds62,625 83,338145,96360,817 77,192138,00958,980 56,095115,075



  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.

    — Innovation.

    — 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
CurrentCapital TotalCurrent CapitalTotal


Available Programme Funding
60,81780,192141,009 58,98053,095 112,075
Sub Regional Funding12,605 34,60947,21413,959 24,48638,445
Regional Funding48,212 45,58393,79545,021 28,60973,630



  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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