Regional Slow Growth Fund?
The coalition government's £1.4 billion Regional growth Fund has been severely criticised in a damning report (read here) by the National Audit Office (NAO). The report states that the RGF has failed to achieve value for money, spending as much as £200,000 generating a single job. And of particular concern the NAO notes that the RGF could have created thousands more jobs if the government had applied tighter controls.
Deputy PM Nick Clegg had previously claimed the fund could generate up to half a million jobs. I'd still like to see the calculations behind his claim as that figure is wildly out-of-line with the NAO's estimates. While the RGF may create 328,000 jobs in total, these are of various durations and the NAO estimates that only 41,000 extra full-time equivalent jobs could be created over the next seven years as a result of the RGF, at an average cost of £33,000 per net additional job (which is "broadly similar" to past programmes with comparable objectives).
But the cost per job varies between projects, ranging from under £4,000 to more than £200,000 in the case of a small number expected to create 380 jobs. The NAO found that the least cost-effective 27 awards made from the fund, totalling some £160 million, would cost an average £106,000 per net additional job.
Labour has not surprisingly jumped on the report, pointing to figures in the NAO report putting the average cost of creating an additional job under Labour's Regional Development Agencies (RDAs - abolishing in haste by the coalition) at £28,000, some £5000 less per job than under the RGF.
On a positive note, the NAO found that the projects selected for investment by the RGF offer more jobs for taxpayers' money than those that were rejected and do fulfill the overall mission to support private sector growth in areas that relied more on the public sector.
However, the NAO found that taxpayers would have received much better value for money if RGF bids had been more closely scrutinised, noting that "over 90% of the net additional jobs could have been delivered for 75% of the cost, with the cost of each job then being £26,000".
It added that "value for money was not optimised because a significant proportion of the fund was allocated to projects that offered relatively few jobs for the public money invested... Applying tighter controls over the value for money offered by individual bids would improve the fund's overall cost-effectiveness.
The report suggests civil servants should be allowed to step away from assessing less profitable projects to concentrate on getting new projects under way. This would tally with some key criticisms made by commentators on the inertia of the scheme and the length of time taken to get due diligence done.
As the NAO notes, "officials' time freed up from post-appraisal checks on projects where public money is providing fewer jobs could be spent on getting other projects up and running more quickly. Despite the government's desire to get projects up and running quickly, only about one third have received final offers of funding, the NAO said.
None of this is to deny that some good projects are being backed by the RGF. And firms that have benefitted so far in the West Midlands include Alstom Grid, Bosch Thermotechnology Ltd, Jaguar Land Rover and Aston Martin, with the fund expected to create more than 10,000 jobs in the West Midlands directly, and to safeguard or indirectly create another 64,000 in the region.
But the NAO report is nevertheless damning in terms of the inefficiency of the RGF process.
Such failings in policy should come as no surprise to readers of my blogs and columns here at the Birmingham Post, as I have repeatedly pointed out weaknesses in the new policy regime.
Firstly, I've stressed that the fund is small, representing a big cut in funding for economic development as compared with what went through the RDAs. As a result a large number of worthwhile projects have anyway been turned away.
Secondly, the RGF it is doled out in a top down, centrist way from London in stark contrast to the old RDA spending where decisions were made near the ground in the regions. This is despite much talk of 'localism'; in fact the opposite has been the case with the RGF where decision making has been centralised. It would make sense to devolve the decision making process to LEPs given that the RGF is meant to be 'regional' (i.e. sub-national). But of course that would show how little money there is available for each LEP.
Recentralising policy to London away from the old RDAs took away a great deal of regional knowledge and intelligence about key firms, clusters and technologies that could and should be supported, and instead handed decisions over to a small London elite.
Thirdly, as noted above, the RGF has been painfully slow in getting due diligence done on projects once approved (in part because so few civil servants have been assigned to do this work) which means that the money takes ages to actually get out into the real economy. So much so that the NAO notes that only a third of successful bidders have received final offers of funding. So much for any urgency in the government's 'growth strategy'.
Business groups have been highly critical - and rightly so - of how long it takes between the initial RGF decision and the confirmation after due diligence has been completed. One wonders whether there are enough civil servants processing the RGF bids, or whether the original decision-making process was robust.
Fourthly, on the latter point, there is very little in the way of transparency or clarity regarding the whole process of how decisions are made. In particular, questions focus on how applications have been appraised and approved (what criteria have been used?). There has also been little assurance on how the jobs created or safeguarded and private sector leverage figures have been calculated. In addition, any conditionality relating to the awards (factors such as job numbers or leverage changing over the life of the project) hasn't been announced.
Given that bidding for the next round of RGF money (worth as much as £1billion) was announced recently, and runs until June, it is still pertinent to ask whether lessons have been learned. In particular, will ministers finally put in place greater transparency and accountability in how they make decisions on what projects get RGF funding? And will they make sure that the money gets spent quickly?
Whilst some of the RGF awards - particularly here in the West Midlands - are welcome, sadly so far at least the RGF has been a case of too little, delivered too late, and with too little clarity.
And it seems, according to the NAO, it has been delivered inefficiently as well.
Professor David Bailey works at Coventry University Business School.