Regional Growth Fund scheme criticised after only a fraction of £1.4 billion reaches businesses

Published on 11/09/2012 14:24

THE PERFORMANCE of a £1.4 billion scheme to boost growth was branded “scandalous” by a powerful Commons committee today after it found just £60 million had so far reached businesses.

• £1.4 billion growth scheme criticised after businesses only receive £60 million

• Results of scheme, aimed at helping private sector firms in England, are ‘highly disappointing’

Around £470 million of funding awarded has been “parked” in organisations like banks and local authorities that ministers have little control over, according to the public accounts committee.

The PAC said it was “highly disappointed” that so few schemes under the Regional Growth Fund, aimed mainly at bolstering the private sector in struggling English areas, had been signed off and just a small number of the 36,000 jobs expected to be created over the lifetime of the projects had emerged.

Its report found of the 236 offers of funding made in the first two rounds only 88 had been finalised, delivering 2,442 new jobs and safeguarding another 2,762.

The PAC criticised the Government for failing to put in place enough staff to process bids and contracts speedily and raised concerns over the ability of the Department for Communities and Local Government and the Department for Business, Innovation and Skills to monitor how successful the fund is overall.

Margaret Hodge, who chairs the committee, said: “Given the dire state of the economy, it is nothing short of scandalous that so few projects funded by the Regional Growth Fund have actually got off the ground.

“Some two years into the programme, of the £1.4 billion allocated only £60 million had reached front-line projects.

“The rest of the £470 million spent so far had been parked in intermediary bodies, over which the departments have limited control. It is unclear what is being done to make sure that money is not wasted but spent on creating real jobs.

“At the time of our hearing, the departments could not tell us how many jobs had actually been created. They then wrote to us admitting that only 2,442 new jobs had been delivered in projects with final offers of funding in place, while another 2,762 existing jobs had been protected.

“That is against a target of 36,800 over the lifetime of these projects.

“For projects to count as value for money under the rules of the Fund, the economic benefits simply had to outweigh the public cost.

“This low threshold allowed projects to be selected that offered at best marginal benefits for the taxpayer. While the cost per job was £60,000 or less in three-quarters of the projects, in some cases it reached over £200,000.

“It is unacceptable that the departments involved, despite decades of experience with similar programmes, still do not know how they will evaluate the success or otherwise of the Fund in producing jobs and growth.

“We want to know in detail by the end of the year how they intend to do so.”

Private sector firms and public-private partnerships were invited to bid for a share of the £1.4 billion fund during two bidding rounds during 2011.

A third bidding round offering an additional £1 billion closed to application earlier this summer.

Funding offers have made businesses more attractive to investors, allowing many projects to get off the ground before growth fund money has been drawn down, according to the Government.

Business minister Michael Fallon insisted “significant progress” has been made since the committee held the evidence sessions it based the report on.

He said: “The Regional Growth Fund (RGF) is already creating jobs in parts of the country that need them most.

“Just under 200,000 jobs have been unlocked so far and over two thirds of projects have started.

“The RGF is delivering at the pace that companies can expand and create new jobs. To rush companies into expanding before they are ready would be unsustainable and would put public money at risk.

“The PAC report is based on the hearing back in May and fails to recognise the significant progress that has been made over the last four months.

“It is my job to continue to speed up the signing of final contracts while ensuring proper due diligence to protect public money.

“The use of intermediary bodies is critical to reach out to local firms and small to medium enterprises.

“Money is not parked idly but is being used to support growth priorities through local expertise and the grass roots of business.”

Prime Minister David Cameron’s official spokesman said: “The report is a few months out of date and I don’t think it necessarily provides the full picture.

“We have had a couple of rounds now and £1.4 billion has been allocated.

“It is true that we have to go through the process of due diligence, we have to make sure that we get value for the money we are spending.

“But actually, the figures show that over half of bidders have been through the process and are now able to draw down funding.

“It may be the case that that money hasn’t gone out of the door but the companies themselves are actually able to draw down that funding and it is available to them when they need it.”