Local economic growth spending targets face signficant challenge
16 May 2014 03:28 PM
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.