Select committee inquiry
Local economic growth and the Regional Growth Fund
Closed
What the inquiry looked at
“Background The government set out its overarching policy on local economic growth in the 2010 White Paper Local Growth: realising every place’s potential. This inquiry covers progress made by government in providing focused investment and supporting a shift in responsibility for local economic growth from central government to the local level. We will look at whether departments are implementing policies to deliver local economic growth in a way which is likely to achieve the government’s objectives and deliver value for money, focusing on Local Enterprise Partnerships, City Deals, Enterprise Zones, Growing Places Fund and the Regional Growth Fund. The government established the Regional Growth Fund in 2010 with the aim of stimulating private sector employment and growth, particularly in areas that depended more on the public sector. Since the Committee last reported on the Fund in September 2012, a third and fourth bidding round have been completed and two more have been announced. The Fund is also now a major spending and delivery programme in its own right. Funding has increased to some £3.2 billion, and around 300 projects and programmes are now operational and the associated financial and operational management is a major challenge for the Departments involved. The Fund is the largest single component of the government’s local economic growth programme. Related information: National Audit Office report: Funding and structures for economic growth National Audit Office report: Progress report on the Regional Growth Fund”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of 60th Report - 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.
What the government said
The government responded on 15 December 2014.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 28 February 2014 to 15 December 2014.
- Oral evidence 10 Mar 2014
- Report 16 May 2014
- Government response 15 Dec 2014
What it recommended 1 recommendation · 13 conclusions
1In 2010, the government announced its new approach to local economic growth in the White...
Concluded (the committee's words)
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.
2Departments face a significant challenge in spending the funds available by the end of 2014–15.
Concluded (the committee's words)
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.
3Too much money is still parked with intermediary bodies over which the Departments are not...
Concluded (the committee's words)
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 6 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.
4Progress in creating jobs is falling well short of the Departments’ initial expectations.
Concluded (the committee's words)
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.
5The Departments were too slow to put in place management arrangements to develop and coordinate...
Recommended (the committee's words)
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.
6The Departments have been slow to develop plans for evaluating local growth schemes and their...
Concluded (the committee's words)
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 7 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.
7The local growth fund is an opportunity to improve the strategic oversight of funding to...
Concluded (the committee's words)
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. Recommendation: 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. 9 1 Progress in distributing funding and creating jobs and growth
8The schemes’ progress in creating jobs, and other outputs, has fallen well short of the...
Concluded (the committee's words)
The schemes’ progress in creating jobs, and other outputs, has fallen well short of the Departments’ expectations (Figure 2). To the end of 2013, Enterprise Zones created 4,649 14 jobs, whilst the Growing Places Fund has secured 419 jobs. The Department for Communities and Local Government has also reduced the estimate of jobs to be created in Enterprise Zones by 2015 from 54,000 to between 6,000 and 18,000. The Department acknowledged that the initial estimate was wildly over-optimistic. The Department told us that the original estimate of 54,000 jobs came from information reported by Local Enterprise Partnerships, and that the Department should have challenged the numbers before they were published. The Department was “pretty confident” that Enterprise Zones would deliver numbers of jobs in line with the original estimate, but over a longer time 15 period. 11 HC Committee of Public Accounts, The Regional Growth Fund, Fifth Report of Session 2012–13, HC 104, September 2012 12 Qq33–34, Q37; C&AG’s report, Progress report on the Regional Growth Fund, para’s 7.4–7.11 13 Q38, Q41, Qq50–52; C&AG’s report, Progress report on the Regional Growth Fund, figure 4 14 Appendix, page 15 (NAO Update Report, Funding and structures for local economic growth) 15 Q111 12 Figure 2: Comparison of outputs expected from initiatives and progress April 2012 to December 2013.16 Progress to December Initiative Initial output expected Current Output expected 2013 Between 6,000 and 18,000 54,000 additional jobs by Enterprise Zones additional jobs expected 4,649 jobs
9We asked the Departments about how this performance had affected value for money.
Concluded (the committee's words)
We asked the Departments about how this performance had affected value for money. We reported in September 2012 that the Departments had set far too low a threshold for acceptable value for money in their selection of projects and programmes through the 17 Regional Growth Fund. The value for money offered through this fund has declined since we reported in September 2012. The Departments estimated that the cost per net additional job created by the Regional Growth Fund has risen by 72% since the Fund started. In Round One, the cost per net additional job was £30,400. By Round Four this had risen to £52,300. The Departments told us this was because they had improved their understanding of the jobs which are likely to be created, compared to the estimates which 18 bidders had set out in their original bids. This suggests, however, that figures from earlier rounds may not be accurate and were over-optimistic. The Department told us that it focuses on a different measure, the benefit-cost ratio, because this measure takes on board a wider range of benefits, such as the nature, quality and longevity of the jobs created and also the wider impact on the economy through factors such as research and development. 19 The main purpose of this Fund, however, is to create private sector jobs. 2 The oversight and coordination of local growth initiatives
10The Departments have not managed the local growth initiatives as a coordinated programme with a...
Concluded (the committee's words)
The Departments have not managed the local growth initiatives as a coordinated programme with a common strategy, objectives or plan. New structures and funds have been introduced in piecemeal fashion, with each initiative introduced with its own separate objectives, and then being monitored and managed separately. The Departments told us 16 C&AG’s report, Progress report on the Regional Growth Fund, figure 4; Appendix, page 15 (NAO Update Report, Funding and structures for local economic growth); Written evidence from the Departments 17 HC Committee of Public Accounts, The Regional Growth Fund, Fifth Report of Session 2012–13, HC 104, September 2012 18 Q56; C&AG’s report, Progress report on the Regional Growth Fund, figure 1 19 Q55 13 that there is a range of other government expenditure to support growth. It was not clear how this activity had been coordinated across government. The Departments told us that they have moved to a single local growth team that represents Departments across government, and have a programme board overseeing progress across all the local economic growth initiatives. While this is a welcome development, it has taken far too long—four years—to get to this point. Although a programme board has been in place since 2012, it had no formal programme management responsibilities, and has only 20 recently started overseeing the development of the local growth fund.
11It is also unclear who in central government is responsible and accountable for the success...
Concluded (the committee's words)
It is also unclear who in central government is responsible and accountable for the success of local growth policies. For example, the Accounting Officer for the Department for Communities and Local Government told us that he is now accountable for all local economic growth funding with the exception of £600 million from 2015–16, allocated to rounds five and six of the Regional Growth Fund. He explained that the £600 million is specifically focused on national support for businesses for which the Accounting Officer at 21 the Department for Business, Innovation and Skills is accountable.
12The Departments told us that they are monitoring each of the initiatives separately.
Concluded (the committee's words)
The Departments told us that they are monitoring each of the initiatives separately. The Departments considered that the initiatives are very distinct, and as such not immediately comparable. The Departments agreed that there is a risk of double-counting, with the same jobs scored more than once to different initiatives. For example, the same jobs may be counted in an Enterprise Zone application, a Growing Places Fund application and a local council initiative. With respect to the Growing Places Fund we asked the Departments why they had not been providing data on transport and homes built until recently. The Departments told us that their intention was to keep monitoring to the minimum necessary, but that they have increased the amount of information requested from Local 22 Enterprise Partnerships.
13The Departments stated that they will carry out individual longer-term evaluations for each of the...
Concluded (the committee's words)
The Departments stated that they will carry out individual longer-term evaluations for each of the local economic growth structures and funding arrangements. However they have only taken action to schedule an evaluation of one of the schemes, the Regional Growth Fund. The Departments told us that a scoping study is reporting on the best techniques to use in an evaluation of the Fund in March 2014. It will therefore have taken nine months to complete the scoping study, in contrast to the very large and complex evaluation of the Sure Start programme which was completed in around six months. The Departments went on to explain the scoping study will be used to set up an evaluation contract in summer 2014, which will produce an interim report in 2017, and a full report in 23
15We asked the Departments about Local Enterprise Partnership’s accountability arrangements.
Concluded (the committee's words)
We asked the Departments about Local Enterprise Partnership’s accountability arrangements. The Departments rely on local authorities to provide assurance over the funding that Local Enterprise Partnerships control. Specifically, one or more local authorities may be nominated as being accountable for a Local Enterprise Partnership’s funding. The Departments gain assurance as local authorities are subject to the same transparency and accountability rules as other public bodies. The Departments do not, however, have any evidence to suggest that this system is working. For example, they could not tell us if a local authority has ever stopped a Local Enterprise Partnership from spending. We expressed concern about the lack of transparency of Local Enterprise Partnerships and the reliance on self-reported information. The Departments told us that they are putting together information from local Enterprise Partnerships setting out how they have performed, for example on the numbers of jobs created, in relation to the 25 Regional Growth Fund, Enterprise Fund and Growing Places Fund. 24 Q2, Q4, Q7, Q53, Q108; C&AG’s report, Funding and structures for local economic growth, para 3.26 25 Qq85–86, Q88, Q109; C&AG’s report, Funding and structures for local economic growth, para 4.9 15
Evidence
Oral evidence sessions 1
- 10 Mar 2014No witnesses recordedparliament.uk ↗