Promoting economic growth locally - Public Accounts Committee Contents


1  Progress in distributing funding and creating jobs and growth

1. In 2010, the Government set out its plan for achieving local economic growth in the White Paper, Local growth: realising every place's potential.[1] In it, the Government set out its objective "to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries". The White Paper also introduced Local Enterprise Partnerships and the Regional Growth Fund, to which the Department for Communities and Local Government and the Department for Business, Innovation and Skills (the Departments) have since added further structures and funding arrangements (Figure 1). On the basis of two Reports by the Comptroller and Auditor General, we took evidence from the Departments on the setup, performance and management of the four largest new local growth programmes and Local Enterprise Partnerships, the key new strategic body.[2]

Figure 1: Summary of initiatives within the scope of this report[3]

InitiativeNature of initiative Funding available 2011-12 to 2014-15
Local Enterprise Partnerships Created by local business and civic leaders, chaired by a business leader, to set the strategy and vision and take the decisions that will drive growth locally. £54 million
Enterprise ZonesSites where businesses receive incentives to start up or expand; including simplified planning, business rates discount, and tax allowances. All business rate growth within the zone is retained in the local area for at least 25 years. £300 million
Growing Places Fund Investment funds, overseen by Local Enterprise Partnerships, for small infrastructure projects. Funding to local projects is mostly through loans with the repayments reinvested in new projects. £730 million
Regional Growth Fund A competitive fund across bidding rounds that provides funding to encourage private sector enterprise, lever in private investment and to support, in particular, those areas that are currently dependent on the public sector to make the transition to sustainable private sector­led growth. £2,547 million
City DealsAgreements negotiated between central government and cities which give local decision-makers new powers, freedoms and funding channels. £223 million
Total £3,854 million

2. The Departments are spending £3.9 billion through these arrangements over the four years from 2011-12 to 2014-15.[4] A further £600 million will be available through rounds five and six of the Regional Growth Fund from 2015-16 and, in that year, the majority of local growth funding will be through a new Local Growth Fund totalling £2 billion.[5]

3. Despite the large sums available, little money has actually reached businesses. It is disappointing that this situation has persisted since our September 2012 report on the Regional Growth Fund.[6] Of the £3.9 billion currently available to all the schemes we examined, £3.5 billion remains to be paid to local projects. Some £1 billion of the £3.9 billion to be spent by 2014-15 is currently parked with intermediary bodies such as local authorities, Local Enterprise Partnerships and banks.[7]

4. We asked the Departments about progress with the top ten largest programmes within the Regional Growth Fund. Of these, the Royal Bank of Scotland is the only programme to have distributed more than a small proportion of the funding available: £69.8 million of the £70 million paid from the Fund. The other nine programmes have distributed only £34.7 million of the £350.6 million the Departments have paid to them. In particular, Santander UK has only distributed £2.3 million of the £53.3 million the Departments provided.[8] The Departments explained that this programme is two years into a nine-year scheme but admitted that it had underperformed against expectations, and that the Departments have had experts working with Santander. The Departments informed us that they are tracking closely the programmes run by intermediaries and that they have the ability to claw back funds from intermediaries that do not distribute the funding quickly enough. To date, the Departments have not clawed back any funding from programmes, including the ten highest-value programmes. As this funding needs to be spent by the end of 2014-15, there is a risk that it is already too late for the Departments to claw back and re-distribute funding, in time for it to be spent in a manner that would create the private sector jobs intended and achieve value for money.[9]

5. A consequence of the slower than expected spending is that the overall budget for the schemes has now backed up into later years. We are concerned particularly about the significant increase in spend needed through the Regional Growth Fund in 2014-15. We asked the Departments how they are going to manage spending £1.4 billion from the Regional Growth Fund in 2014-15 alone, as this is more than the £1.2 billion they spent in total over the previous three years. The Departments explained that they now have signed agreements in place with recipients. They recognised that it would be a challenge to spend the money by the end of 2014-15, but did not consider it to be insurmountable. We also heard that the Departments are reviewing the risk status of every project and programme in receipt of money from the Regional Growth Fund. Of approximately 400 projects, around 30 (8%) are rated red, 110 (28%) are rated amber and 260 (65%) are rated green.[10]

6. We concluded in September 2012 that the Treasury's decision to allow the Departments to use endowments to avoid surrendering unspent monies from the Regional Growth Fund at the end of the year risked value for money.[11] Since then, HM Treasury has issued a revised version of Managing Public Money and the Department told us that endowments will not be used in the future. However, the Departments have continued to find ways to meet their budget targets, including using Section 31 grants to local authorities, moving budgets into later years, and making exceptional awards. We asked the Departments how they were going to avoid shovelling money out at speed to meet the budget target, as they have done in the past. The Departments told us that the test of success is not spending to the penny, but that they run an effective process; that they capture and properly evaluate the schemes and that they get to a signed final agreement as quickly as they can, and then support projects that are ready to take the money.[12]

7. The Departments have also allocated around £18 million of the Regional Growth Fund for intermediary bodies running the programmes to spend on administration. The Departments have paid out £10 million for administration costs to date. The amount allowed varies considerably across the ten largest programmes. The Royal Bank of Scotland has distributed £69.8 million of the £70 million allocated, and charged nothing for administration. In contrast, of the £53.5 million allocated by the Departments to Santander UK, some £5 million (9%), is allowed for administration but Santander has paid out only £2.3 million to businesses.[13]

8. The schemes' progress in creating jobs, and other outputs, has fallen well short of the Departments' expectations (Figure 2). To the end of 2013, Enterprise Zones created 4,649 jobs, whilst the Growing Places Fund has secured 419 jobs.[14] The Department for Communities and Local Government has also reduced the estimate of jobs to be created in Enterprise Zones by 2015 from 54,000 to between 6,000 and 18,000. The Department acknowledged that the initial estimate was wildly over-optimistic. The Department told us that the original estimate of 54,000 jobs came from information reported by Local Enterprise Partnerships, and that the Department should have challenged the numbers before they were published. The Department was "pretty confident" that Enterprise Zones would deliver numbers of jobs in line with the original estimate, but over a longer time period.[15]






Figure 2: Comparison of outputs expected from initiatives and progress April 2012 to December 2013.[16]
InitiativeInitial output expected Current Output expected Progress to December 2013
Enterprise Zones54,000 additional jobs by 2015. Between 6,000 and 18,000 additional jobs expected by 2015. 4,649 jobs
Growing Places Fund 217,000 jobs, 5,300 businesses and 77,000 houses will be created through the fund. 142,300 jobs, 1,400 businesses and 61,100 houses will be created through the fund. 419 jobs, 3 businesses and 155 houses.
Regional Growth Fund 328,000 jobs throughout England between 2011 and the mid-2020s, of which 41,000 will be additional. Cost per job averaged £30,400 in Round One. 550,000 jobs throughout England between 2011 and the mid-2020s, of which 77,700 will be additional. Cost per job averaged £52,300 in Round Four. 65,749 monitored jobs

  1. We asked the Departments about how this performance had affected value for money. We reported in September 2012 that the Departments had set far too low a threshold for acceptable value for money in their selection of projects and programmes through the Regional Growth Fund.[17] The value for money offered through this fund has declined since we reported in September 2012. The Departments estimated that the cost per net additional job created by the Regional Growth Fund has risen by 72% since the Fund started. In Round One, the cost per net additional job was £30,400. By Round Four this had risen to £52,300. The Departments told us this was because they had improved their understanding of the jobs which are likely to be created, compared to the estimates which bidders had set out in their original bids.[18] This suggests, however, that figures from earlier rounds may not be accurate and were over-optimistic. The Department told us that it focuses on a different measure, the benefit-cost ratio, because this measure takes on board a wider range of benefits, such as the nature, quality and longevity of the jobs created and also the wider impact on the economy through factors such as research and development. The main purpose of this Fund, however, is to create private sector jobs.[19]



1   HM Government, Local growth: realising every place's potential, Cm 7961, October 2010 Back

2   C&AG's report, Funding and structures for local economic growth, HC 542 Session 2013-14, December 2013; C&AG's report, Progress report on the Regional Growth Fund, HC 1097 Session 2013-14, February 2014 Back

3   C&AG's report, Funding and structures for local economic growth; Appendix, page 15 (NAO Update Report, Funding and structures for local economic growth, March 2014) Back

4   C&AG's report, Funding and structures for local economic growth, key facts Back

5   Qq4-8; C&AG's report, Funding and structures for local economic growth, para 3.26 Back

6   HC Committee of Public Accounts, The Regional Growth Fund, Fifth Report of Session 2012-13, HC 104, September 2012 Back

7   Q84; C&AG's report, Funding and structures for local economic growth, para 2.8 and appendix 3 Back

8   Qq37-38, Qq47-48; C&AG's report, Progress report on the Regional Growth Fund, figure 4 Back

9   Q37, Qq39-41, Q45, Q48 Back

10   Qq11-16, 16-29, Q32, Q39; C&AG's report, Progress report on the Regional Growth Fund, figure 5 Back

11   HC Committee of Public Accounts, The Regional Growth Fund, Fifth Report of Session 2012-13, HC 104, September 2012 Back

12   Qq33-34, Q37; C&AG's report, Progress report on the Regional Growth Fund, para's 7.4-7.11 Back

13   Q38, Q41, Qq50-52; C&AG's report, Progress report on the Regional Growth Fund, figure 4 Back

14   Appendix, page 15 (NAO Update Report, Funding and structures for local economic growth) Back

15   Q111 Back

16   C&AG's report, Progress report on the Regional Growth Fund, figure 4; Appendix, page 15 (NAO Update Report, Funding and structures for local economic growth); Written evidence from the Departments Back

17   HC Committee of Public Accounts, The Regional Growth Fund, Fifth Report of Session 2012-13, HC 104, September 2012 Back

18   Q56; C&AG's report, Progress report on the Regional Growth Fund, figure 1 Back

19   Q55 Back


 
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Prepared 16 May 2014