Committee publishes findings on the Regional Growth Fund

• Report: The Regional Growth Fund
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today 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."

Margaret Hodge was speaking as the Committee published its 5th Report of this Session which, on the basis of evidence from evidence from the Department for Communities and Local Government and the Department for Business Innovation and Skills, examined the Regional Growth Fund.

The Government established the Regional Growth Fund (the Fund) in June 2010 to support projects with the potential to deliver economic growth and additional, sustainable private-sector jobs, particularly in areas that rely more on the public sector for employment. £1.4 billion was allocated for competing projects and programmes in two bidding rounds during 2011.

Ministers decided which projects and programmes to support based on advice from a panel chaired by Lord Heseltine and analysis from officials. The Permanent Secretary for the Department for Communities and Local Government (CLG) has overall accountability for ensuring delivery of value for money from the Fund. The Secretary of State for Business Innovation and Skills has ministerial accountability. A further £1 billion has been made available for future rounds, for which accountability is likely to be shared between the Accounting Officers of the CLG and the Department for Business, Innovation and Skills (BIS).

Given the importance and urgency of the Programme the Committee was highly disappointed to find that so few final approvals had been given and so few projects had actually started. The Committee was particularly concerned that with £1.4 billion set aside for the Regional Growth Fund, of the £470 million so far paid out by Government, £364 million has been parked with intermediary bodies via endowments and a further £57 million paid to other intermediaries. Only £60 million has been spent on front-line projects. As a result only 5,200 jobs can be claimed as having been created or safeguarded in projects where the offer of funding has been finalised, against targets of 36,800 over the lifetime of these projects.

Ministers took into account a range of factors when choosing projects which meant value for money in creating jobs was only one of a number of considerations. Some projects were chosen for other reasons, such as their location, or assumptions about wider benefits. But the way these broader judgements were applied was not sufficiently clear or transparent. The Fund's threshold for acceptable value for money was far too low. Nor was it clear that the departments took sufficient account of local expertise in deciding which projects would most benefit particular areas.

Despite decades of experience in delivering similar programmes, BIS and CLG still do not know what works best in fostering private sector growth. Witnesses had not prepared plans on how they will evaluate whether the Fund actually delivers the jobs and growth predicted.