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Local economic growth spending targets face signficant challenge

The Public Accounts Committee publishes its report into promoting economic growth locally. 

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"Despite the large sums available for promoting economic growth locally, little money has actually reached businesses. Of the £3.9 billion that has been allocated in total to these initiatives, only nearly £400 million had made it to local projects by the end of 2012-13.

The two Departments responsible now face a significant challenge in meeting their spending targets by the end of this financial year. Under the Regional Growth Fund, the largest of the schemes, the Departments will need to spend £1.4 billion this year, compared to the £1.2 billion spent over the previous three years.

Some £1 billion of the remaining £3.5 billion allocated to initiatives is currently parked with intermediary bodies such as local authorities, Local Enterprise Partnerships and banks – and the rest with the Departments.

One Regional Growth Fund programme, run by Santander UK, has distributed only £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 should introduce binding milestones for distributing funds and move quickly to claw back money not being spent – or spent disproportionately on administration – and redistribute it to better performers.

Progress in creating jobs is falling well short of the Departments’ initial expectations. The Regional Growth Fund is expected to create 550,000 jobs throughout England between 2011 and the mid-2020s, and it had created or safeguarded over 65,000 jobs at the point of our hearing. However, The Departments’ estimate of the cost per job created has risen from £30,400 in Round One to £52,300 in Round Four – a 72% increase.

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 Departments also agreed that there is a risk of double-counting, with the same jobs scored more than once to different initiatives.

The Departments have not managed the local growth initiatives as a coordinated programme with a common strategy, objectives or plan. 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 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.

Looking to the future, the new Local Growth Fund from 2015 is an opportunity to improve the strategic oversight of funding to support local economic growth. 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."

Margaret Hodge was speaking as the Committee published its 60th Report of this Session which, on the basis of evidence from Martin Donnelly (Permanent Secretary, Department for Business, Innovation and Skills), Debbie Gillatt, (Senior Responsible Officer, Regional Growth Fund programme) and Sir Bob Kerslake (Permanent Secretary, Department for Communities and Local Government), examined the subject Promoting Economic Growth Locally.

After the abolition of the Regional Development Agencies, the Department for Communities and Local Government and the Department for Business, Innovation and Skills (the Departments) set up a range of new initiatives for promoting local economic growth, including Local Enterprise Partnerships, the Regional Growth Fund, Enterprise Zones, the Growing Places Fund and City Deals. Initially the programme lacked clarity and coordination between the initiatives, and progress in creating jobs has so far fallen below the Departments’ initial expectations.

The Departments have not spent the money available as quickly as expected and they now face a challenge in spending the funds available by the end of 2014-15; for example, under the Regional Growth Fund, the largest of the schemes, the Departments now plan to spend £1.4 billion in 2014-15, compared to the £1.2 billion spent in the first three years. The Departments also need to address the problem of some intermediaries having been too slow to distribute funds to front-line projects.

The Departments should also improve their monitoring systems so that they can distinguish the impact of individual schemes, improve data on which to base future investment decisions, and prepare the ground for well-informed evaluation. In 2015 the Local Growth Fund will replace much of the existing funding for local economic growth and this will be an opportunity to apply lessons learned from the current range of initiatives.

The Departments must, from the outset, set out clearly how the new fund will be monitored and evaluated, and what action they will take if performance falls short. 

Conclusions and recommendations

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.

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.

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.

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.

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.

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.

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.

Recommendations: 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.

Channel website: https://www.icaew.com

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