East Midlands Development Agency and the Regional Economic Strategy - East Midlands Regional Contents

5  Funding

emda's Budget

73.  Regional Development Agencies are funded by the Departments for BIS, CLG, DEFRA, DCMS, DECC and UKTI. These funds from the contributing department are pooled together into a 'single pot'. The Single Programme allows the Agency to effectively influence regional economic priorities and gives greater flexibility to manage the available resources. The Single Programme replaced the many different funding schemes previously received from Government departments, which were allocated for specific legacy and inherited programmes. The Single Programme funding is also supplemented by European Funding, funding from English Partnerships under the Coalfield Programme, and capital receipts from the disposal of assets.[91]

74.  In its written evidence, the East Midlands Regional Assembly commented that:

emda has benefited from single pot funding and using influence to bring strategic coherence between diverse economic development functions such as skills, business support, regeneration and foreign and direct investment. This flexibility and strategic coherence is a strength of the current approach.[92]

75.  emda receives its budget allocation from the Department for Business, Skills and Innovation (BIS) once BIS has approved the Corporate Plan.[93] When emda receives its budget from BIS, it receives a set amount of:

  • Programme Funding—which is to be spent on the core operations of the business; and
  • Administrative Funding—which is to be spent on overheads and administrative costs.


76.  emda's budget will decrease over the forthcoming years; £159 million in 2008-09, £158 million in 2009-10. £154 million in 2010-11. The tighter budget allocation is a result of the Comprehensive Spending Review 2007. This called for a 5% real reduction in overall RDA funding and a ceiling on administrative costs. For emda, the CSR 2007 will mean that it will receive £20 million less cash over 3 years in Single Programme Grant in Aid, and a £1.2 million reduction in administration costs over the 3 years.

77.  RDA budgets have also suffered further cuts. £300 million was diverted from the Department for Communities and Local Government's funding stream to the single pot to establish HomeBuy Direct in September 2008: the Winter Supplementary Estimate 2008-09 made further reductions, and DEFRA's contribution to the single pot was reduced by £17.088 due to DEFRA's need to set a balanced budget for 2008-09.[94]

78.  Jeff Moore, Chief Executive, emda, commented on the frustration caused by the Departmental withdrawal of funds and spoke of the short notice that emda sometimes received:

The bigger the cut, the shorter the notice, the harder it is to cope […] Inevitably, that will mean prioritisation and difficult decisions being made.[95]

79.  In its written evidence, emda highlighted the challenges it faced in accommodating the significant funding reduction taking place in 2010-11:

… the majority of this reduction is to capital expenditure and so clearly those projects at risk are inevitably the large scale regeneration projects […] the areas affected will primarily be Land & Development (supporting large regeneration schemes across the Region), Innovation and Business Support (grant aid to businesses).[96]

Jeff Moore underlined the difficulties this caused to capital projects , which were:

Complex, long-term projects involving issues with state aid, partner funding contributions and all sorts of planning issues as well […] You can be so far down the line with lots of expectation from partners, and lots of moral obligations, and then you lose money and have to cut schemes. It has a political, economic and moral impact.[97]


80.  emda stressed the problems that arose due to the withdrawal of end-year flexibility to carry over unspent monies, which "was taken away two years ago."[98] Glenn Harris, Executive Director of Corporate Services, emda, illustrated the problems that this caused the organisation;

Without end-year flexibility, the problem is twofold: first, you need to use the funds that cannot be spent on that project in the year, so you have to have additional projects that can come forward to spend the money in the right way; secondly, because the project has slipped but is still contracted and something you would like to do, you then have to find money out of the following year's programme, which itself already has commitments from previous years. You effectively have two problems: one, how you use the funds this year; and, secondly, finding the money again for the scheme next year. That is the main issue.

81.  Jeff Moore highlighted the "tough job" of ensuring that money did not return to the Treasury at the end of the financial year, and stressed that in 10 years no money had been returned to the centre. As he commented, "That is not easy, because if you cannot carry forward and you cannot have opening and closing balances, it is quite a piece of fine-tuned choreography to do that."

82.  He stated that direct monitoring of projects ensured that no money was underspent. However he commented on the mechanism which, as a last resort, ensured that money was not returned to the centre. This involved an internal market which had been created with other RDAs:

So, if we are going to underspend—and we have not, but let us use your example—by £2 million and let us say, for the protection of the innocent, the LDA is struggling because it needs another £2 million for the Olympic park, we could lend them that on 31 March and get that back at 8 o'clock on 1 April the next day.[99]

83.  We welcome the Single Programme Grant in Aid which allows emda to effectively influence regional economic priorities and gives greater flexibility to manage the available resources. However, its effectiveness is harmed by the reduction in its budget. These reductions can be at short notice which affects expenditure already allocated. It has also been affected by the removal of the ability to carry-forward its budget. We recommend that emda has no further reductions in its budget in order to enable it to take strategy decisions for the good of the region on a stable and agreed budget. We also recommend that emda's ability to carry-forward its budget is reinstated.

Project Appraisal

84.  Witnesses from the higher education sector expressed concerns over the project appraisal system.[100] The University of Nottingham commented that:

Timelines from initial submissions to project start are often long and unpredictable. Processes do not seem to be able to provide either a robust "no" at early stages of the appraisal process nor a "conditional yes" to substantive strategic projects. Certain funding schemes are, by design, highly inefficient in terms of the relative cost to administer the scheme and are difficult to access. This can lead to projects that are small but considered to be significant not being presented to emda for appraisal.'[101]

The East Midlands Regional Assembly also highlighted the need for emda to speed up decisions, "to ensure that decisive and timely investments are made in the economy."[102]

85.  Mr Martin Traynor, Chair, East Midlands Regional Assembly's Regional Scrutiny Board, commented that the problems were not of emda's making, but that of the system devised by the Government and the interpretation of state aid rules:

The processes that emda has to undertake to make sure that it is compliant with state aid rules are making the whole process laborious […] This is not a criticism of emda, it is the way the system has worked. You have a situation now in which the SPPs have an application form of something in the region of 65 pages—whether for £500 or £5 million, which is of course ridiculous.[103]

86.  Jeff Moore stated that emda applied the rules of the Treasury Green Book and wanted "to get that right."[104] He considered that the criticisms regarding the length of the appraisal process in fact stemmed from the time taken to work up projects that could be hugely complex:

What you will find is that in most projects, the original idea becomes something completely different by the time it gets to the appraisal level, and then that goes through in 15 days. But it is working up major projects. We do not think it is a criticism that is legitimate … [105]

87.  It is vital that projects receive funding in a timely manner and that emda is able to respond to changing economic circumstances. We have received assurances from emda that they process requests as quickly as possible. However, they are hampered by state aid rules which ensure that the system is inefficient. We urge the Government to re-examine the Treasury Green Book and recommend that the process regarding state aid rules are streamlined.

91   emda: Annual report and Accounts 2007-08 Back

92   Ev 93 Back

93   The Corporate Plan is a three year strategy that sets the corporate priorities for emda to focus on and allocates the total budget to these priorities for each of the three years Back

94   Business and Enterprise Committee, Fourth Report of Session 2008--9, Regional development agencies and the Local Democracy, Economic Development and Construction Bill (HC 89-I) Back

95   Q 19 Back

96   Ev 153 Back

97   Q 240 Back

98   Q 7 Back

99   Q 11 Back

100   The process of assessing and questioning proposals before resources are committed. Back

101   Ev 131 Back

102   Ev 93 Back

103   Q 59 Back

104   Q 255 Back

105   Ibid. Back

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Prepared 29 July 2009