European Regional Development Fund

FEDERATION OF SMALL BUSINESSES IN YORKSHIRE

PROVISIONAL SUBMISSION TO

THE COMMUNITIES AND LOCAL GOVERNMENT SELECT COMMITTEE OF THE HOUSE OF COMMONS IN REGARD TO

THE OPERATION OF THE EUROPEAN REGIONAL DEVELOPMENT FUND 2007-2013 (ERDF)

SUBMISSION DATE 12 APRIL 2012

PREPARED BY

CHRIS LONGLEY MBE, MEMBER OF

THE ERDF LOCAL MANAGEMENT COMMITTEE YORKSHIRE AND HUMBER

MEMBER OF THE WAKEFIELD BRANCH OF THE FEDERATION OF SMALL BUSINESSES, YORKSHIRE

SUMMARY

Ÿ The Federation hopes the Select Committee will resist the temptation to look at the current UK ERDF programme in isolation, but will also look at the complete fabric of governance across the nation into which it should fit and the other streams of UK public sector resource with which it could be "matched"

Ÿ This Submission is provisional because the time available to prepare it was extremely short and full internal consultation within the Federation in Yorkshire was not possible within the time made available. It may be revised.

Ÿ The "Continuous Review" process built into the current ERDF programme has made it possible to have an evidence base to judge that the priorities for ERDF spending can be kept in line with the changing state of Yorkshire

Ÿ Scarcity of UK "public match" funding is a very serious and documented risk to the completion of the current Yorkshire ERDF programme.

Ÿ Spending by the current Yorkshire ERDF programme broadly meets the criteria set for it when the programme was established, and "Continuous Review" means that the robustness of the targeting of spending can be maintained. So "Yes, it is good value".

Ÿ Repatriating the ERDF programme to the UK Government for it to be run from Whitehall could only work if the necessary governance architecture existed across the country, and it does not.

Ÿ Abolishing Yorkshire Forward (the now defunct Regional Development Agency for Yorkshire and Humber) and Government Office for Yorkshire and Humber caused the loss of many staff experienced and knowledgeable in the direction and management of ERDF in Yorkshire; the loss of "Single Pot" as UK "match funding" and the consequent addition of even greater financial pressures on the local authorities in Yorkshire in times of huge and growing austerity

Ÿ Changing ERDF IT systems half of the way through the current ERDF programme simply defies understanding

Ÿ The sum of these DCLG and BIS changes and challenges is a Yorkshire ERDF Risk Register covered in red, even when the mitigating actions are accommodated.

Ÿ Lest we forget, meeting the European Commissions’ "N+2" financial targets for ERDF is still the over arching aim of the Yorkshire ERDF programme and the instabilities addressed in this paper have done little to help it to be achieved

1 The stance of the Federation of Small Businesses in Yorkshire

The Federation of Small Businesses (FSB) in Yorkshire must make clear that any opinions expressed directly or implicitly by any of the content of this submission are apolitical and may not be associated in any way directly or indirectly with the views of any political entity.

The FSB in Yorkshire represents many thousands of small businesses whose success is affected considerably by the plethora of actions of the different agencies of the state across Yorkshire. ERDF is but one of these agencies and the FSB hopes that the Select Committee will resist the temptation to look at ERDF as a "stand alone". We hope the Select Committee will look at how ERDF’s activities are linked into the actions of the complete fabric of governance across Yorkshire. ERDF is not a "silo".

2 A welcome consultation …. within limits

The FSB in Yorkshire must therefore welcome any interest shown by the Communities and Local Government Select Committee into the workings of the current 2007-2013 ERDF programme.

This response on behalf of the FSB in Yorkshire is necessarily provisional because the time allowed by the Select Committee - less than three weeks including the days lost to the Easter Bank Holiday - has not allowed a full consultation within the FSB in Yorkshire. The FSB may therefore alter its views after such consultations and reserves the right so to do. In the meanwhile, the FSB in Yorkshire’s response is as follows.

3 The features of the current ERDF about which views are being sought by the Select Committee

The Select Committee has chosen to focus its requests for views on four features of the current ERDF Programme and this FSB provisional response will cover these features. It will also cover other matters that the FSB in Yorkshire believes will be of interest to the Select Committee.

The select Committee asked for views about:

· How, and on what, is ERDF spent?

· Is the taxpayer in England obtaining value for money from the ERDF?

· Could the funds contributed to, and paid out on, regeneration through ERDF be spent more effectively by repatriating ERDF to the Government in London?

· With the abolition of the Regional Development Agencies responsibility for ERDF in England passes to DCLG. What effects are these changes having on the administration, assessment and payment of ERDF?

3.1 How and on what is ERDF spent?

As the Select Committee will be aware, ERDF spending priorities throughout Europe are set out broadly by the Treaty of Lisbon. The current ERDF programme in Yorkshire is spent on five "Priorities":

P1 Innovation, and especially the transfer of technology into new businesses

P2 Business Support, and especially for start-ups and financial instruments that fill market failures in the supply of credit

P3 Community Economic Development,

P4 Transitional Investments (rightly) in South Yorkshire

P5 Technical assistance (largely the costs of running the programme)

There were extensive consultations in the run-up to the start of the current programme and a substantial degree of agreement across Yorkshire that in 2007 these were the right issues on which expenditure should focus in Yorkshire.

Previous ERDF programmes have recognised that the world changes during their lengthy delivery term by having "Mid Term Reviews" at the half way stage in their life. This was always seen as relatively inflexible, and the current ERDF programme has a process far more akin to continuous review which is a welcome flexibility.

This has been helpful, because the Yorkshire of 2012 is a far different place to the Yorkshire of 2006/2007. Regional GVA has fallen in successive years as both public and private sector activity has fallen, and unemployment has risen sharply as structural changes in Yorkshire’s economy take place. The credit crunch has restricted the availability of working capital and overdrafts to small businesses, and therefore their flexibility to respond to opportunities.

So the ERDF continuous review process has helped to make sure that in it’s choices of expenditure the current Yorkshire ERDF Programme has been able to choose projects to fund that address these pressing business and community needs across the whole of Yorkshire as well as continuing to support the transfer of innovative thinking into the business sector.

There are of course problems with the environment within which the current ERDF programme must work:

The austerity drive has restricted severely the availability of public "match" funding that ERDF requires. Without doubt some very good projects have been unable to proceed because of the termination of streams of public funding that would have been available in times past. "Single Pot" as administered by the now defunct Regional Development Agency is but one such stream of funding.

The UK "gold plating" of output and outcome measurement, often retrospectively, is a problem. The FSB in Yorkshire would never condone the spending of ERDF (or any other public funds) on activities that were non-qualifying. But it does seem to be the case that the retro-active and retrospective disqualification of ERDF project expenditure is pursued with a zeal within the UK not displayed in other European countries. This reputation for over zealous ERDF review does not attract potential project sponsors, who rightly fear they might incur liabilities which they had previously received assurances they would not so incur.

The small size of the Technical Assistance budget has also limited the publicity and awareness campaigns ERDF has been able to mount. Some of the campaigns have been really excellent in quality and content, but scale of exposure has been the problem. Reaching potential clients - especially for some of the loan programmes - has been difficult and despite the FSB’s efforts awareness remains limited.

3.2 Is the taxpayer in England obtaining value for money from the ERDF?

The Select Committee will be mindful that the main purposes agreed by Treaty of Lisbon for ERDF are to attempt to deal with market failures in Europe’s regions and to attempt to raise standards (in terms) to a common level across the regions of Europe.

Against this Treaty background the first issue is whether ERDF in Yorkshire is contributing towards these aims. Continuous Review information suggests that it is succeeding at the half way point, but that the outputs and outcomes still need to be pursued in this second half of the current programme to make sure the overall Yorkshire ERDF programme aims are achieved.

Different but specific value for money criteria are imposed in each of the four main ERDF spending priorities: £XX,000 for creating a job, £YY,000 for rejuvenating an area of brown field land etc, and these are held to closely in the project approvals processes and in the post contract monitoring of activities.

These values were set to be "good value for money", are adhered to, and are reviewed. Within the context of the ERDF programme, the answer must be that the expenditures are indeed "good value for money".

3.3 Could the funds contributed to, and paid out on, regeneration through ERDF be spent more effectively by repatriating ERDF to the Government in London?

The apolitical stance of the FSB in Yorkshire must be repeated here for the avoidance of doubt.

In theory it is possible, with a regional or local governance architecture in place that was fit for purpose, that ERDF might be spent more effectively if it were repatriated to the Government in London. But such architectures do not exist.

Without local bodies that have dedicated resources, the authority, the powers, the duties and the accountabilities to design and deliver ERDF programmes, such an ERDF repatriation could not work effectively. Delivering an ERDF programme for the whole of England centrally from Whitehall would fail because of the built in absence of the ability to match changing local and regional needs with the delivery of mitigating activities.

It also follows that Ministers would be directly responsible for the highly visible spending of billions of Euros without the benefit of local or regional advice and guidance. Indeed, there would also be the question of how Ministers could gain agreement to any altered ERDF priorities within the current ERDF programme delivery obligations and delivery timetable. The FSB has no comment at this time on the range of possible reactions of the European Commission charged with oversight of ERDF across the whole of Europe or of the European Union with whom the UK signed the Treaty of Lisbon.

There would also be issues of compliance with the aims and objectives set out in that same Treaty of Lisbon if Ministers took a view that the priorities of ERDF expenditure were for UK national decision, and that those UK priorities were different to those agreed in the Treaty.

It is also worth restating here that not only were the priorities of ERDF established in negotiations across the entire European Union, but also that ERDF programmes across Europe now represent a stable source of public funding in many areas of European countries in times of instability for other funding sources for those same hard hit areas.

3.4 With the abolition of the Regional Development Agencies responsibility for ERDF in England passes to DCLG. What effects are these changes having on the administration, assessment and payment of ERDF?

The apolitical stance of the FSB in Yorkshire must be again repeated here for the avoidance of doubt.

It is very clear that Yorkshire and Humber, in combination with the North East, share a team of officials dedicated to the delivery of the current ERDF programme. Nothing the FSB in Yorkshire will say here may be interpreted as anything other than unlimited respect for their efforts.

It is for Governments to act as they see fit on their entry into office. The present Government acted swiftly.

The abolition of Yorkshire Forward (the now defunct Regional Development Agency for Yorkshire) and Government Office for Yorkshire and Humber had two major effects:

First it removed at a stroke the "Single Pot" stream of UK "public "match" funding so necessary for ERDF and transferred the obligations largely to Universities and local authorities who had no additional replacement resources available.

Second, it also removed a cadre of dedicated and experienced people with detailed knowledge (and the skills to use that knowledge) of the needs of all the areas of Yorkshire where ERDF can be spent

For those of us with a governance role in this current ERDF Programme (now "Local") Monitoring Committee, the transition from Yorkshire Forward to DCLG and BIS in combination was clearly difficult. Yorkshire Forward had filtered some of the inter-departmental issues, but that cover was now denied.

As DCLG looked for further rationalisations, the combination of the Yorkshire ERDF team with the North East ERDF team was announced and implemented. The role of BIS in these matters was less clear, and there is now a single accountability to DCLG.

The current governance arrangements include a Local Management Committee (LMC) representing a very wide variety of interests across Yorkshire for programme strategy and overall monitoring. The LMC operates in combination with two Local Management Boards that take grant approval decisions and monitor individual projects (as well as the detailed progress of their parts of the overall ERDF programme). This combination seems fit for purpose.

There are however serious concerns about the adequacy of the scale of resources (in material and staffing) made available by DCLG to the team of officials who support the ERDF programme within Yorkshire. Clearly it is for the Government of the day to decide on questions of adequacy of resource, but it is clear from the Risk Register for the ERDF programme that staff shortage remains an unmitigated threat.

Staff shortage inevitably means less programme management capacity. The programme management system results are immediate: changes (mainly simplification) in ERDF project submission processes and changes in ERDF payment arrangements to a wholly computerised system. No information is yet available about the effects on project sponsors of these new ERDF payment arrangements. We do not yet know if there will be any effects on project submissions of the new application processes.

It is also clear that the DCLG decision to standardise all ERDF IT systems across the eight or nine English ERDF programmes, with less that three years of the ERDF programme to run, is a strange use of resources. It is an even stranger use of the scarce staff time of the members of the ERDF teams as they need retraining to try to meet ERDF programme targets (and especially the ever present "N+2") that are inexorable.

Doubtless the individual programmes had individual IT systems born of their own organisation histories and that were less than perfect, but it is difficult at this time to see any practical ERDF delivery gains in Yorkshire from this centrally ordained DCLG action when N+2 failure is an ever present risk.

4 Other ERDF Issues in Yorkshire

4.1 Lost links with the European Social fund

It is a sadness and a missed opportunity that the current ERDF programme in Yorkshire is not linked in any meaningful way with the current European Social Fund (ESF) programme in Yorkshire.

In past times, they were linked at both programme "Board" and project level. The Objective One and the Objective Two programmes in Yorkshire and Humber (they preceded the current "stand alone" ERDF and ESF programmes) were governed in tandem by joint Programme Monitoring Committees, and their grant making committees could agree both ERDF and ESF grants to individual projects.

Broadly this means that the "people" training and employment costs could come from ESF and the equipment/buildings/fabric costs could come from ERDF. It is a great shame that this ERDF/ESF combination was lost because there was considerable evidence - ignored in setting up the current separate programmes - that their combination was very effective. The combination also brought with it a much wider range of potential UK "match" funding sources, some now sadly lost.

4.2 A "cross roads" for ERDF in 2012

The FSB wishes ERDF in Yorkshire complete success on all the measures agreed back in 2006/2007 and altered since in the light of "continuous review".

But it is hard to look at the problems that face the programme (and the dedicated team running it) and not have serious concerns that the cumulative effect of the multiplicity of changes wrought upon the programme will not cause damage of some kind.

Whether it is in sponsors showing reluctance to bring projects forward in this second half of the programme, the UK "match funding" shortage biting, the resource provision by DCLG making programme operation and monitoring even more difficult: all remain to be seen.

The FSB hopes that through all these changes the European Commission continue to exercise flexibility in accepting this scale of "in programme" change.

ENDS

Note None of the above is confidential, to the knowledge of the Federation of Small Businesses in Yorkshire