European Regional Development Fund

Written evidence submitted by Barnsley MBC, Doncaster MBC, Rotherham MBC and Sheffield CC

Introduction

The four South Yorkshire local authorities welcome the opportunity to comment on the functioning of the current ERDF programme. We are presenting a combined response for the committee’s consideration, which takes into account South Yorkshire’s commonalities, including its special status as a ‘Phasing In’ region.

Our approach to and assessment of the ERDF programme, as with all regeneration funding regimes, is underpinned by the following basic principles:

§ All funding streams with an economic purpose should be at least aligned and ideally conjoined

§ Funding should be focused strategically, on outcomes rather than outputs

§ Commissioning secures strategic objectives better than open bidding

§ Funding streams with an economic purpose should be deployed at the level of functional economic spaces

§ Localities know their own needs best

§ There should be a presumption in favour of local delivery

§ Bureaucracy should be reduced to the minimum compatible with accountability for public funds

§ The wiring should be hidden – funders should integrate their objectives (and different funds) at source

Our response to the Inquiry – in summary

§ ERDF provides vital support to regeneration in the UK and in particular in South Yorkshire, whose post-industrial legacy is structural economic weakness – precisely the problem ERDF was designed to overcome

§ ERDF is particularly welcomed as a regeneration fund for the following characteristics:

o the seven year time frame encourages strategic and long-term planning, offers continuity across changing national funding regimes, and provides security which builds confidence

o the partnership principle, which is deeply embedded and has become endemic to our ways of working across the board

o the dominant role played by local partners in shaping the programme

§ Having said that, ERDF fails against the principles set out above on several fronts, mostly due to the nature of the EU’s regulations rather than the way it is operated in the UK. In particular:

o it is almost impossible to align it with ESF or other European funding streams, and alignment is extremely difficult with many national funding streams, most notably RGF

o we have been severely restricted in our ability to operate a commissioned approach

o we have not been able to bridge the regional boundary, denying us the ability to act at a Sheffield City Region geography

o EU funds are deemed by many public and private sector partners as a byword for bureaucracy with far too much of the burden imposed on applicants and beneficiaries, which is a strong disincentive to both private and third sector participation.

§ One final general comment. The audit regime is a major problem. Nobody condones fraud, but:

o auditors’ decisions on the eligibility of activity are unpredictable, often apparently arbitrary

o the financial penalties for genuine and marginal errors on what is eligible can be draconian, as they can be for minor infractions of missing evidence

o this makes project operators enormously risk averse, so that potentially good projects, especially innovative ones, are stillborn.

We would like to see a system where audit teams are asked to provide a pre-project opinion on any aspects of planned activity that have the potential to raise eligibility concerns.

For innovative or doubtful schemes, the ideal scenario would be to obtain a binding pre-project opinion from an EU auditor.

In addition, we would like to see the introduction of a risk assessed approach, where partners who are deemed low risk (based on track record etc.) receive fewer article 13 and 16 visits. Often, project sponsors receive 4 to 6 audit verification visits. In terms of value for money, this is excessive.

Responses to specific questions posed by the committee

Value for money

§ As indicated within this response, the ERDF programme is not perfect, so it could be improved in this regard, but that would be equally true of every programme we are involved in.

§ All the evaluations of ERDF, both specific programmes and across the EU generally, show that they are effective in generating growth and supporting renewal.

§ Our own experience and anecdotal evidence locally both support this view

§ Notwithstanding this, the current programme has shown the danger of being driven, to too great an extent, by the need to meet spending targets (N+2), rather than focusing on impact and results, with many key targets (e.g. jobs created, increased GVA) currently underperforming significantly, at least in Yorkshire and the Humber.

§ Linked to this, is the issue of match funding. The abolition of the RDAs and the consequent loss of Single Pot funding, coupled with the general squeeze on public finances, has made securing match funding for ERDF-supported projects much more difficult.  As a result, the availability of match has become a much larger factor than is desirable, in both the development and selection of projects. With bureaucracy acting as a deterrent to private sector Investment, local authorities seek greater support from the government on the availability of match if we are to meet challenging N+2 targets for 2012.

§ More consideration could have been given to reallocating money between priorities. Priority 4 (South Yorkshire specific priority), for example, was oversubscribed early in the programme, but no changes were made.

Repatriation

§ The question is only valid if a repatriated programme were to be guaranteed for seven years, reserved for economic regeneration, based firmly within local partnership arrangements and control, and had a strong regional and rebalancing focus. Otherwise it is not comparing like with like.

§ Under the conditions above, repatriation could reduce inefficiencies contingent on the transfers to and from Europe.

§ However, there might still be a danger of the additionality principle being compromised, with ERDF used to substitute for other funding streams, thus reducing the overall quantum available for regeneration.

§ And regions would lose the benefits which accrue from combining EU perspectives and strategic objectives, with those of national government and local partners.

Effect of the transfer of the administration to CLG

§ In general we have found that the processes are now simpler, but we believe that this is primarily because Yorkshire Forward in effect operated double processes, one through its European team and one through its "normal" business teams. It is still rare to see any project secure approval within one year of starting development. This is a very long timeframe and is off-putting to many potential project sponsors (including private sector). It is difficult to identify and commit match funding so far in advance, especially on revenue projects.

§ For Yorkshire and the Humber, the transfer has seen a very significant reduction in the size of the team (almost halving it) and this is causing problems for both DCLG and partners. In particular, functions previously carried out by the Yorkshire Forward team have disappeared, or the burden transferred to project operators (or in some cases the local authority teams part-funded through Technical Assistance). Advice in relation to state aid has been particularly poor, with too much onus on applicants, though this was also the case under Yorkshire Forward. Overall, we do not accept that the scale of reduction of functions is justified, especially given the substantial underspend in the programme’s Technical Assistance budget.

§ A particular problem is the outline business plan (OBP) stage, where minimal support is now available. Project sponsors can spend several months developing a project outline application before getting appraiser feedback. This significantly increases the risk to any proposer. Previously, a brief expression of interest was considered at the outset of the process. We feel that the requirements to get an OBP endorsed by CLG / performance management boards are too stringent and that some of the details requested at outline stage would be more appropriate for the full business plan. This slows down the whole process. A simplified OBP and/or provision of additional support and advice at an earlier stage, would help speed up the overall approval process and avoid redundant effort on behalf of project sponsors in particular.

§ The slow progress on processing project amendments, caused by the ERDF team’s reduced capacity, is another problem, as it impacts on projects’ ability to react to the changing economic environment.

§ As identified earlier in the response, the audit regime is another issue, and the situation has worsened post transfer. Article 13/16 audits appear stricter and there have been several instances of clawback, whilst interpretation of eligibility remains inconsistent and CLG staff are reluctant to advise projects at the development stage for fear of being contradicted at audit. As highlighted above, penalties are often disproportionate to the infraction, and auditors seem reluctant to work collaboratively with sponsors to find a solution. Coupled with the requirement for monthly monitoring returns, the audit regime puts a considerable strain on project staff and can distract from on the ground delivery. The overall impression is of an increased burden of risk on project sponsors.

§ New processes have been and are being introduced (e.g. the new web-based claim system). We believe that stakeholders in general, and local authorities in particular, should have been involved much more in developing new processes, or at the very least consulted on their user-friendliness.

§ There is currently an issue over what is the appropriate level of programme commitment. As some projects will always under-perform, a level of over-commitment is essential to ensure that funds do not remain unspent and are subsequently returned to Brussels. CLG is understandably concerned, however, that too high an over-commitment will leave them responsible for unfunded commitments. Under the previous arrangements the RDA would have been able to have a robust conversation with CLG on this issue. The current delivery team, being made up of CLG civil servants, is of course unable to do this.

Barnsley MBC, Doncaster MBC, Rotherham MBC, Sheffield CC

April 2012