European Regional Development Fund

Written evidence from the Local Management Committee for the West Midlands ERDF Programme (2007-2013)

Summary

· ERDF funding is spent on a wide variety of priority investment, with short and long term benefits.

· It is generally meeting the targets which were set and generating value for public money in the short term, using established independent criteria, with also positive indicators of long term benefit.

· The repatriation of funds to London for future programmes would likely limit the local impact and would run contrary to the rolling out of localism. It is unlikely to save money in overall management and administration.

· The effect of the abolition of the RDAs has been to make the whole programme and its impact more difficult to achieve but the routine administration has to date been successful.

How, and on what, is ERDF spent?

Partner Organisations developed the current programme based on local knowledge and expertise of the needs and opportunities for investment in innovation and enterprise support. Therefore projects are developed against priorities which have local buy-in.

The West Midlands has a total ERDF budget of £344.8 million to spend on the following priorities:

1. Promoting Innovation and Research & Development (£125 million)

2. Stimulating Enterprise Development (£122.6 million)

3. Achieving Sustainable Urban Development (£86 million)

4. Developing Inter-Regional Activity (£0.9 million)

5. Technical Assistance (£10.3 million)

By March 2012 the following monies had been spent or committed:

· £89.5 million or 26% of the budget had been spent

· £239 million or 69% of the budget had been contractually committed

· £94.9 million or 27% of the budget had been committed to projects in the outline or endorsed stage

By March 2012 the ERDF programme was supporting 129 projects and had achieved the following impact:

· 5,366 jobs had been created; the end of programmed target is 11,550

· 1,972 jobs had been safeguarded; the end of programme target is 9,700

· 328 businesses had been created; the end of programme target is 2590

· 5,478 SMEs had been assisted; the end of programme target is 21,322

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

Projects funded through the ERDF Programme in the West Midlands are judged against robust value for money benchmarks, using a framework established through independent research to offer the tax payer an average return of £8 for every £1 of public sector investment. A more detailed impact evaluation of the Programme is scheduled this year.

With the advent of the recession and the squeeze on public spending the value for money of the programme has inevitably become stronger from economic considerations.

· The lower general level of economic activity means that any extra that can be generated implies less displacement in such as employment so many interventions are genuinely worth more.

· The lack of competition from other sources of public funds means that the ones Ito be satisfied by the remaining money from such as EU programmes are likely to be stronger.

In addition major expenditure is being generated in long term investment where there is acknowledged weaknesses, such as R&D and innovation. The short term benefits are difficult to quantify but there are lots of spin offs outside the direct benefits to the partners explicitly involved. In a recent meeting the Pro Vice- Chancellor of a leading university said that the Birmingham Science City programme which involved substantial ERDF funding enabled them to progress in ways they could not have considered by focussing on new and user orientated explicit areas of research, using equipment they could not have afforded and recruiting new international staff who would not have been attracted.

Additionally, beyond many UK government driven R&D initiatives, ERDF linked targets are specified for impact measures, so short term benefits tend to be greater than nationally UK driven investment e.g. Contact with SMEs for R&D funded programmes.

The presence of ERDF has proved very useful at times of crisis for local partners to deploy quickly to alleviate the impact of economic shocks, such as the MG Rover demise. Following the collapse of MG Rover, ERDF was targeted through locally designed initiatives in business support and loan funds, combined with locally driven ESF investment in programmes for individuals affected by the crisis. This enabled quick action in a process which is recognised world wide as an exemplar. Similarly, ERDF was mobilised quickly through a suite of initiatives designed by the local taskforce to help get the West Midlands through the recession triggered by the 2008 banking crisis. ERDF helped business resilience through increasing lending and the provision of specialist expertise, for instance through the Automotive Response Programme which provided tailored support to car component makers at a crucial time, safeguarding substantial parts of the automotive supply chain.

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

There are concerns within the West Midlands that if funds are repatriated to London then the ability of the ERDF money to really meet needs at a local level will be lost. There is real benefit to having decisions made close to where funding is spent. This allows local expertise and insight to be brought to bear when identifying priorities and needs and then selecting those projects that best meet those needs and priorities. Similar benefits are also accrued if project monitoring and review is delivered locally. It is difficult to see how the benefits of local decision making and the impact that the ERDF programme delivers at local level could be achieved from London. This view is supported by the issues that have faced the ESF programme since it was repatriated in 2010; the programme is no longer tuned to local needs or priorities and consequently its impact has been substantially reduced.

It should also be noted that the difficult issue of identifying match funding for any future ERDF project will not be made easier if the programme is repatriated. It is far more likely that match will be secured for projects if the programme is delivered at a local level; commitment will be stronger from organisations if they have a sense that the programme is representing their local needs, rather than the needs of the national government. There will probably continue to be UK national programmes which are particularly relevant to local objectives which can be matched and enhanced at the local level by ERDF with appropriate local influence on commitment, volume, distribution and design as well as assessment and control.

The repatriation of the ERDF programme would also seem to contradict the government's emphasis on localism and the creation of the LEPs. It is clear that the 6 LEPs covering the West Midlands have an appetite for being involved in the management and delivery of the ERDF programme. This is demonstrated by their support for the creation of a West Midlands socioeconomic framework to help West Midlands' organisations secure the most from future ERDF funding, and their active participation in the Local Management Committee for the current Programme.

Finally, it is also worth considering what is being proposed under the future ERDF programme; there is a strong emphasis on localism and cities in the draft programme with the following elements being trumpeted by the European Commission:

· Joint Action Plans: The development and delivery of a group of projects with a minimum public contribution of €10 million, to defined targets and outputs.

· Integrated Territorial Investment: Where an urban development strategy or other territorial strategy requires an integrated approach involving investment under more than one priority axis of one or more operational programme; essentially combining ESF, EAFRD and ERDF.

· Community Led Local Development: led by local action groups composed of representatives of civil society (voluntary and community), public and private representatives, with no single interest group of public sector organisation having more than 49 % of the voting rights.

· Smart Specialisation: A bottom up approach where businesses, universities, research centres, local authorities identify what is the unique selling point of their region/sub-region in terms of research and innovation.

There are real opportunities, particularly under the future ERDF programme, to implement and deliver activities that will bring real benefits at a local level. However, it is likely that if the ERDF programme is delivered from London these opportunities will be limited or lost. Consequently, any move to repatriate the ERDF programme would be counter-productive.

There tend to be assum ptions that programmes driven from London have economies of scale compared with those from any locality. We believe that this is not only overstated but this theory can be contrary to reality. Its takes no account of

· Direct delivery cost which tends to be less in local directed activity as there is no expensive national layer but national programmes certainly need local monitoring and control.

· The inevitable local activity is often more economic to combine with local policy assessment where there can be overlap of functions of the different aspects of administration and management creating real economies.

· Local costs tend to be lower than national ones which often involve expensive general consultants rather than much cheaper local specialists, and expensive visits rather than local presence.

· The direct local responsibility, concern about and knowledge of minimisation of costs is much more likely to produce economies compared with the separation of costs mainly into a national expensive overhead with little monitoring.

· Local initiatives driven by the local demand tend to generate a market for new ideas some of which can become successful on a wider canvas contributing strongly to a localisation agenda rather than a top down nationalistic approach. There are examples of such successes in the West Midlands such as Innovation vouchers and some MAS products.

Evidence is available that national programmes replaced by local ones in such as Business Links provided substantial saving in overhead for many of the reasons identified above.

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 most significant current effects of abolition of RDAs are

· Shortage of Public match for ERDF activities which in turn has meant a struggle to achieve the programme in general but in particular for administration

o Some natural continuation of desirable activities has been curtailed which then require more initiation of new projects involving more administration

o More small projects with very localised cover only, have been necessary, involving more administration.

· Not only were RDAs providing match but they were also able to provide some financial risk cover and political power cover in the interpretation of the very complex rules. As a result of this cover and ever tightening procedures (which may also be related)

o Some established and valuable interventions are not now possible.

o Established assessment practices are being challenged by DCLG centrally at a lower responsibility level.

o There is no effective, powerful, policy overview, although this is seen to be a continuing responsibility of BIS, as the line of command is directly on process only.

o The accepted practice of over programming has been removed by DCLG. This reduces the cover for project withdrawal or failure and/or change in exchange rates. This is likely to be significant in affecting ability to spend the money particularly in the light of less public match being available. The next 2 years could prove to be crucial in this respect and the flexibility should be reintroduced immediately

· As a result of the take over of the existing expert regional teams, which was an extremely sound decision on their part by DCLG there has been little loss of expertise in the administration, assessment and payment of ERDF. This has been crucial in enabling the almost seamless delivery of the existing programme to date.

· The delivery teams were strongly supported by aspects of the RDA organisation which was very active in the higher level policy and strategy in helping such as product and project development and interpretation of the policy and emerging regulations driven either by Europe or nationally. The absolute need for some of these functions to be performed by those who understand, inevitably produces extra load on a tight team which may mean the administrative processes perform less strongly. As new programmes emerge this loss is likely to be felt more.

· Some new procedures are being introduced by DCLG rationalising application processes which have been driven by individual regions for the last 20 years. On balance, these are not likely to have a net adverse effect on the processes in the West Midlands although they will of course involve changes, which, means relearning. There is some merit in this development as it will enable different teams to support each other in times of varying pressure and also a long term consistency of assessment which in turn will enable HMG to be firmer in its approach to EU on regulation.

· Some of the previous processes were designed to enable joint assessment of ERDF and RDA funding sources with reduction in overall administration. Now the overlap is with other sources which in turn will require there own assessment, so the extra administration will appear elsewhere. Some combination with other EU programmes is being considered. These could be linked with ERDF assessment at local level as they

were formerly, in part, but often the policy objectives are different so different specialist teams and distribution are required although the processes can be similar.