Regional growth fund jobs: Strangled by red tape?

The regional growth fund was aimed at kick-starting private enterprise and rebalancing the economy. But as applicants struggle with bureaucracy and high costs how many jobs will it realise? Sarah Longlands reports.

Communities secretary Eric Pickles famously declared, ‘If you want to rebuild a fragile national economy, you don’t strangle business with red tape and let bloated regional quangos make all the decisions’. But he may live to eat his words as evidence emerges of the difficulties applicants to the Regional Growth Fund (RGF) have faced in securing their final awards from government.

New Start spoke to a sample of successful applicants to find out more about their experience of the fund to date and to get their views on how well the fund is working. The bureaucracy involved in applying for the fund, the time taken from application to contract, and the costs imposed on applicants were raised as key concerns. Some applicants told us of companies who had already threatened to give the money back to BIS because they had become so fed up with the delays they were experiencing in the application process.

While business minister Michael Fallon suggests that the ‘first three rounds are expected to deliver over £13bn of private sector investment and create or safeguard over 500,000 jobs’, it’s not yet clear how many of these jobs will actually be realised.

To date, 369 RGF applications have been approved and, as of 25th March 2013, 200 offer letters to successful applicants from the first three rounds have been finalised, that’s 54% of the total number of applications that have been approved, according to the department for business, innovation and skills (BIS).  Since the announcement of the successful round three applicants to the RGF in October 2012, BIS also explained that ‘we expect all round three bidders to have final contracts by late April’.

The west Midlands and the north west and north east of England have received the highest share of funding to date, with the east of England coming off worst, with only 1.72% share of allocated funds.

Around £2.45bn has been allocated to date with a further £350m to be allocated in round four which closed on the 20th March 2013. However, it’s not yet clear exactly how many of these companies have decided not to proceed with due diligence (which they must as a condition of the grant) or indeed how many have actually passed the due diligence test.

The fund has come in for substantial criticism from the National Audit Office who raised concerns about the cost per job of the scheme, the lack of clear evaluation criteria and the monitoring and administrative support for the projects.  The NAO were particularly concerned about value for money, suggesting that, based on evidence from rounds one and two, if delivery was in line with expectation, the price per job would amount to £33,000.

A House of Commons public accounts committee also raised concerns about the fund, questioning the length of time taken to approve projects and calling into question the estimates for job growth highlighted in figures from the Department for business, innovation and skills (BIS).

The following pages highlight some of the issues faced by applicants and gives us some insights into the scale and the success of the fund to date.

THE VERDICT FROM APPLICANTS
1. RED TAPE: A recurring theme amongst applicants was the sheer bureaucracy of the RGF administration. While generally appreciative of the support provided, there was concern about the length of time that the awards had taken to come through, with the process described as ‘lengthy and costly’.  Some applicants said it had taken more than a year from funding being awarded to actually receiving the contract offer letter, ‘despite us chasing them on weekly basis’.  The requirement to undergo due diligence was highlighted as particularly problematic because of the time and cost implications to the applicant. Costs for due diligence varied between £15 and £25,000. This was a point picked up by the NAO in their report, something they suggested was due to the fact that no administrative budget was identified for the RGF  ‘Despite the scale of the task involved in assessing hundreds of bids and turning conditional offers into formal final offers, no administration budget was identified for the fund at the outset,’ it said.

2. A BIAS TOWARDS BIG BUSINESS: A widespread concern about the RGF has been that it is overly supportive of big business.  This isn’t surprising given that the minimum amount that applicants can apply for is £1m. The main concern with a bias towards bigger business is who misses out.  HM Treasury figures suggest that there are more than 2 million small businesses whose turnover does not exceed £20,000. The Federation of Small Businesses suggest that 99% of all private sector businesses in the UK are small to medium enterprises with a combined turnover of £3.100bn.  However the increase in applications for RGF from intermediary organisations including local enterprise partnerships suggests that there is some recognition of the need to provide business support on a smaller scale.

3. FAILURE TO LEARN FROM THE EXPERIENCE OF THE RDAs: Applicants suggested that BIS and CLG had failed to learn lessons from the experience of the regional development agencies (RDAs) in relation to the administration and appraisal of business support.  RDAs administered a range of business support grants and when processing these claims, undertook the due diligence on behalf of clients. They had a range of expertise in house in relation to business grants and issues like state aid. Now that the RDAs have been abolished, this expertise has been lost and in effect is having to be re-invented to service the RGF.

4. LACK OF LOCAL KNOWLEDGE:  There were a range of views on the advantages/disadvantages of a centrally administered fund with some applicants suggesting that it could potentially be more objective in its outlook as compared with the RDAs.  But there were concerns about the spatial blindness that the centralised nature of the scheme created.  That there was a lack of understanding about the issues and nuances of the local area, a failure to ‘join up’ activity in the regions with a danger of duplicate schemes operating in the same area or schemes supported separately by the fund when there may have been the opportunity for collaboration to maximise impact.  Interestingly in the first two rounds, an increasing number of applications have emerged from intermediary organisations to deliver programmes of RGF funding at both a national and regional level which may help to address some of these issues. As one said: ‘It’s a good way of getting money out of London to create jobs but the mechanism to get the money is putting people off.’

5. STATE AID RULES AND MATCH FUNDING
Rules on state aid are notoriously difficult and contested.  A number of applicants pointed out that BIS didn’t fully understand the position with state aid and ‘made it up as they want along’.  One applicant from the University of Leicester suggested that it would be good if the department could identify an impartial source of support to applicants when they are compiling their application so as to anticipate any future problems well in advance. Issues were also raised in relation to matching RGF with ERDF funding.  Whilst some applicants seemed to have managed to use ERDF as a match, for others ERDF had not been suitable. From the feedback we received, it appeared that a key problem was the lack of expertise and knowledge about how ERDF operated and the differences in the types of outcomes expected by ERDF when compared with RGF, particularly around long term financial sustainability.

6. THE GAP LEFT BY THE RDAS
There was general consensus amongst all the people we spoke to that the abolition of the RDAs had left a ‘massive gap’ in the regions.  Not only had the RDAs provided funding support to a wide range of businesses and social enterprises, but they had an extensive expertise in relation to issues such as state aid and ERDF funding as well as the capacity to undertake due diligence. They also helped to co-ordinate activity in the region, encouraging collaboration between projects and programmes and ensuring that efforts could be maximised in those areas where the need was greatest.

7. FOCUS ON AREAS ALREADY PRIMED FOR GROWTH
There were concerns raised in the west Midlands that support through the RGF and mechanisms such as the Leps was skewed in favour of areas with the greatest potential to grow.  There was widespread scepticism that the fund could help those areas that the government suggested were ‘most dependent on public sector jobs’ with suggestions that in some areas, what the fund was actually doing was supporting those areas that would have grown anyway, without the government’s support.  This question of additionality was also raised by the NAO in their report about the RGF: ‘Our analysis indicates that a significant number of projects in the first two rounds performed relatively poorly on criteria such as the amount of additional employment supported and the ratio of economic benefits to public costs.’

TYPES OF PROJECTS THAT HAVE BEEN FUNDED TO DATE:

• ACCESS TO BUSINESS FINANCE:  The Aston Reinvestment Trust (ART) received £1.6m from the Community Development Finance Association’s national bid to the RGF.  ART  provide businesses and social enterprises with access to finance with loans of between £10,000 and 100,000 when banks have been unable to provide any or all of the funding required.

• ADVANCED MANUFACTURING: The University of Leicester received just over £1m to develop an Advanced Structural Evaluation Centre (ASEC).  Speaking about their experiences of the fund, Anjuu Trevedi, of the University’s enterprise and business development office, suggested that BIS ‘were not geared up for applications from universities’ but argued that without the support of the RGF, their project could not have gone ahead.  This new state of the art facility will provide the UK’s first commercial 3D, vibration scanning measurement and modal analysis centre.  For SMEs including those operating in advanced manufacturing and engineering, the new centre will provide an invaluable resource which will enable them to test their products and have the results analysed. Currently, the ability to test the integrity of complex materials is unavailable in the UK, the nearest testing centre being Germany. The University also hope to use the opportunity to build collaborative relationships with businesses in the region so as to encourage the development of new spin off business and research ideas in the future.  It hopes to create 15 direct jobs and 27 indirect jobs.

• INFRASTRUCTURE: Birmingham Council with the support of the Birmingham, Solihull LEP successfully bid for RGF funding to  divert the A45, thereby enabling the extension of the 350 metre runway at Birmingham Airport.  The total cost of the project is £32m with £15m being provided by the RGF.  There have been criticisms of the type and level of support provided to this project, particularly because councils in the area still own 49% of the airport.  And critics have questioned the degree to which this scheme will really contribute towards unlocking new jobs and investment.  The council argue that the runway extension is important and that the diverted A45 will help to unlock a new economic gateway because, potentially,  a range of additional investment projects could be supported along the diverted course of the A45.

• TOURISM: The Lakeland Arts Trust in Cumbria secured funding to support the development of the Windermere Steamboat Museum, designed to be a world class visitor attraction and centrepiece of the Windermere Water Front Programme.  The RGF has been used as a match for Heritage Lottery Funding and £1m investment from the private sector.  When complete, the Steamboat museum hopes to attract around 100,000 visitors per annum and safeguard 94 local jobs.

• BUSINESS SUPPORT GRANTS: Regenerate Pennine Lancashire is one of more than 30 intermediary programmes who have  received funding to operate a grant fund programme for business.  27 LEPs in round 3 of the RGF have also received funding to support the development of business support grants in their areas. Regenerate Pennine Lancashire are offering applicants a share in their ‘Accelerating Business Growth capital grant which supports projects which plan to grow their business and create sustainable job creation.  Up to 20% of the total project cost is available and if successful, applicants are expected to contribute £750 towards the cost of the ‘due diligence’ requirements.  Regenerate hope that the scheme will support the creation of 645 new jobs and safeguard 465 jobs as well as encouraging investment of £31.4m over the next three years.

• LOW CARBON: Sunderland College received £6.2m to develop more than 1500 apprenticeships in the low carbon vehicle industry.  Because the college is the preferred trainer for vehicle manufacturers including Nissan and Smith Electric vehicles the project signifies an important link between the public and private sector.  The project includes developing skills and qualifications in the low carbon vehicle field to ensure that the people in the region are able to take up existing and new job opportunities and developing new innovation in low carbon vehicles including support for new R & D collaborations between the private sector and universities.

• The rest of this month’s edition on Local Growth and Resilience can be found here.