Conclusions and recommendations
1. In 2010, the government announced its new
approach to local economic growth in the White Paper Local
growth: realising every place's potential. The White Paper
announced the abolition of the Regional Development Agencies and
introduced new structures and funds to promote and coordinate
local economic growth. The first of these were the Local Enterprise
Partnerships and the Regional Growth Fund. The Departments then
introduced Enterprise Zones in 2011 and the Growing Places Fund
and City Deals in 2012. In the four years to 2014-15, the Departments
have allocated £2.6 billion to the Regional Growth Fund in
the first four rounds; £325 million to Enterprise Zones;
£730 million to the Growing Places Fund and £223 million
to City Deals. This brings the total funding for the four year
period to 2014-15 to £3.9 billion. The Department for Communities
and Local Government is responsible for all of these local growth
initiatives, except for later rounds of the Regional Growth Fund.
The Department for Business, Innovation & Skills is responsible
for rounds five and six of the Regional Growth Fund, amounting
to £600 million. In 2015, the government will introduce the
Local Growth Fund, worth £2 billion in 2015-16. This funding
is available to Local Enterprise Partnerships subject to agreeing
'growth deals' with central government.
2. Departments face a significant challenge
in spending the funds available by the end of 2014-15. The
Departments have not spent money under the local growth initiatives
as quickly as expected. Consequently, if they are to meet their
spending targets, they now have to spend more in 2014-15 alone
than they have managed in total in the first three years. Under
the Regional Growth Fund, the largest single scheme, the
Departments plan to spend £1.4 billion in 2014-15 out of
the total £2.6 billion for the Fund's first four rounds,
having only managed to spend £1.2 billion in total in the
first three years to 2013-14. The Departments told us that because
they have agreements in place with recipients, they did not think
it was an insurmountable challenge to spend £1.4 billion
effectively in 2014-15. In doing so, the Departments must guard
against the risk of compromising on quality in favour of projects
that can spend the money quickly.
Recommendation: The
Departments should do more to ensure that beneficiaries are ready
to receive the money and deliver the extra jobs in the timescales
envisaged. They should also develop an early warning system to
identify if local projects are not sufficiently developed to spend
the money as planned and provide support or reallocate funds as
necessary.
3. Too much money is still parked with intermediary
bodies over which the Departments are not exerting enough control.
When we first took evidence on the Regional Growth Fund in
2012, not enough funding had yet reached businesses and too much
was parked with intermediaries including local authorities and
banks. We were disappointed to hear that £1 billion is lodged
with intermediary bodies out of the estimated £3.9 billion
allocated across the various local growth schemes. Of the ten
Regional Growth Fund programmes highlighted in the C&AG's
report, only one has distributed more than a small fraction of
its funding to businesses. One, run by Santander UK, has
only distributed £2.3 million so far out of £53.5 million.
The same scheme will be able to claim up to 9% (£5 million)
administration costs over its lifetime. The Departments told us
they have the ability to claw back funds from intermediaries that
are too slow in distributing funding but also acknowledged that
they have not yet done so.
Recommendation: For
any initiative which distributes money through intermediaries,
the Departments should introduce binding milestones into future
contracts and agreements for distributing funds. The Departments
should also move quickly to claw back money not being spent or
spent disproportionately on administration and redistribute it
to better performers.
4. Progress in creating jobs is falling well
short of the Departments' initial expectations. The Department
for Communities and Local Government reports that the Regional
Growth Fund has created or safeguarded over 65,000 jobs, and told
us it was confident it would achieve a total of 78,000 in 2013-14.
But the Departments' estimate of the cost per net additional job
has risen from £30,400 in Round One to £52,300 in Round
Four. The results claimed for jobs created in Enterprise Zones
and through the Growing Places Fund are particularly underwhelming:
4,649 jobs from Enterprise Zones and 419 from the Growing Places
Fund. The current forecast of jobs to be created through both
these schemes falls significantly short of the Departments' expectations
of what would be achieved through the funding provided. The Departments
acknowledged that the initial projection of 54,000 jobs from Enterprise
Zones was over optimistic and should have been scrutinised properly
before being released. Although these initiatives may have wider
benefits, the creation of jobs is the primary aim of these schemes
and the number and cost of jobs created are key indicators of
value for money.
Recommendation: The
Departments should scrutinise thoroughly any forecasts of the
jobs its schemes will create before presenting them to Parliament
and the public.
5. The Departments were too slow to put in
place management arrangements to develop and coordinate the new
structures and funds for promoting local economic growth.
We welcome the recent creation by the Departments of a single
growth directorate and a programme board which are now overseeing
progress across initiatives. But, the earlier lack of coordination
contributed to different initiatives and bodies bidding for the
same pots of money and the potential for double counting the number
of jobs created. We remain concerned that the Departments are
not yet using the new oversight arrangements effectively to decide
which initiatives to invest in to provide the best value for money.
Recommendation: The
Departments should set out how they will use their new governance
arrangements to take investment decisions across the portfolio
of local growth initiatives and ensure value for money.
6. The Departments have been slow to develop
plans for evaluating local growth schemes and their monitoring
data do not allow them to compare schemes' performance robustly.
The Departments do not understand fully the impact of their schemes,
either individually or as a portfolio. The Departments have commissioned
a scoping study into an evaluation of the Regional Growth Fund,
which may lead to a full independent evaluation in due course.
The Department intends to evaluate each of its schemes but, while
full evaluation will inevitably be long-term, the Departments
lack sufficient good quality monitoring data to assess schemes'
performance and inform investment decisions in the short term.
The Departments are not monitoring the same outputs in the same
way across all the schemes. The Departments need to ensure that
they are only counting jobs once. For example, there is a risk
that jobs created by businesses receiving money from the Regional
Growth Fund could be counted twice.
Recommendation: The
Departments should develop their monitoring systems so that they
can distinguish the impact of individual schemes, make informed
value for money judgements across the portfolio of initiatives
in the short term, and should develop plans to evaluate the portfolio
of initiatives over the longer term.
7. The local growth fund is an opportunity
to improve the strategic oversight of funding to support local
economic growth. In 2015 the local growth fund will replace
much of the existing funding for local economic growth. There
will be around £2 billion a year available to Local Enterprise
Partnerships (LEPs), subject to them agreeing 'growth deals' with
central government, based on multi-year strategies for enhancing
local economic growth. At present, the Department for Communities
and Local Government acknowledges that LEPs are at different stages
of development and that some are more transparent than others.
LEPs work through local authorities, who account for the money
that the partnerships spend. But it seems to us that no one has
a strategic overview of LEPs and comparable performance information
is hard to come by.
Recommendation: The
Departments need to learn lessons from the current programme and
adopt a more coordinated and strategic approach when introducing
the new growth deals next year, including setting out the basis
for how the programme will be monitored and evaluated, and what
action they will take if performance falls short. The Departments
should also set out clearly the information that they expect LEPs
to publish, covering their own funding and structures, as well
as data to enable comparisons of their impact.
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