European Regional Development Fund - Communities and Local Government Committee Contents


3  The role of the Department

Governance arrangements

28.  The Department for Communities and Local Government (DCLG) is the designated Managing Authority for all ERDF programmes in England. Its main role is to ensure that the programmes are delivered and conform to the European Commission's regulations, and it is also responsible for reporting to the Commission. The devolved administrations take responsibility for their own ERDF programmes.

29.  England is divided into ten Operational Programme areas; there are nine Regional Competitiveness and Employment programmes plus the one Convergence programme in Cornwall and the Isles of Scilly.

Map 2: ERDF Operational Programme areas in England, 2007-13

Source: DCLG

30.  Each Operational Programme has its own priorities and funding allocation, and is led by a Local Management Committee. These committees consider applications, award grants, oversee investment, guide the programme, and assess progress. They draw their membership from government departments, local authorities, educational institutions, environmental organisations, the voluntary and private sectors and members of the business community. Day-to-day management is carried out by DCLG staff in local Programme Delivery Teams, except in London where this is performed by the Greater London Authority's European Programmes Management Unit. Until July 2011 Regional Development Agencies were responsible for this management role.[33]

The transfer from Regional Development Agencies to DCLG

31.  The Coalition Government stated its intention to abolish Regional Development Agencies (RDAs) in June 2010, and in February 2011 Baroness Hanham, Parliamentary Under Secretary of State at DCLG, announced the new governance arrangements for ERDF:

The ERDF is currently delivered by teams in the regional development agencies. Following our decision to abolish these agencies and encourage local communities to come together to form economic partnerships that make sense for them I have concluded that, in order to maintain compliance with the regulations and spending momentum, we should transfer the existing ERDF staff and functions into my department by the beginning of July.

We want to encourage local communities to make use of the ERDF. This is more likely to happen if ERDF teams continue to be located close to the places they serve so they are on hand to offer support and advice to projects. So I have decided that we must aim to locate the ERDF teams as far as possible in their existing towns or cities.[34]

32.  We wanted to establish if the transfer of responsibilities from the RDAs to DCLG had been managed well. The picture was mixed, but on the whole the transition appears to have gone relatively smoothly. Dr José Palma Andrés, Director in Regional Policy at the European Commission, said that the transition had been "well managed" by DCLG, and the Local Government Association noted that "generally speaking, the administrative transition has gone well".[35] DCLG's decision to retain staff from the RDAs' local ERDF management teams was widely praised as an important way to preserve local knowledge, and to prevent the programme becoming too London-centric. Birmingham City Council noted that:

The retention of the teams administering ERDF from the RDA and transferring to DCLG has overall worked well and is welcomed. This allowed continuity at a critical time in delivery and any alternative would have lost momentum.[36]

33.   The Greater Manchester Combined Authority commented that:

Having the DCLG team based in the region offers significant added value and understanding to the holistic economic development of the city region, as opposed to having a remote team based in London who does not understand the economic issues of the locality on the ground.[37]

34.  A number of organisations commented, however, that staff numbers had fallen following the transfer, and that this was having a negative impact on delivery. Birmingham City Council noted that, while the transition process itself was handled well:

The remaining DCLG-ERDF teams are quite small; they previously drew support from officers across the RDA which they now don't have and response times to getting projects assessed can be slow which then has knock on impacts on achieving spend and results. We are concerned that there are not enough staff resources in place given their new role in monitoring regional RGF projects.[38]

35.  The impact of the staff reductions appears to vary across England. Linda Edworthy, representing the Chief Economic Development Officers' Society (CEDOS), said that:

When talking to our colleagues in some areas, such as Norfolk, East Riding and Derby, there has been a significant reduction in the level of staffing from the transfer from the RDAs across to CLG [...] Some areas feel that it has had a negative impact, whereas in other areas—for example, in the north-east of England—there has been no real change. Thirty-one staff transferred from the RDA to CLG, and in terms of the processes there has been no real change.[39]

36.  Leicester City Council was one of the organisations that told us they had experienced delays as a result of the transfer from RDAs to DCLG:

The initial disruption of the changes caused significant delays and confusion in the administration of the programme. It particularly caused delays in the appraisal of new project applications and of those already in the pipeline.

Since January 2011, the Local Management Committee (LMC) did not meet until December 2011 and has only met once since then. This has meant no projects have officially been approved for over a year.[40]

37.  The Centre for Process Innovation also noted that the time taken for payments to be processed had increased because of the additional checks required by DCLG over and above what had been needed previously:

While it is acknowledged that DCLG are responsible for ensuring ERDF is spent in accordance with the rules, and some level of checking of claims is prudent, the level of scrutiny each claim is subject to, and the length of time taken to process each claim, is disproportionate to the value of the checks performed. While we did receive some queries from the RDA, the volume of questions and the length of time taken to process claims in order to release payment has increased significantly.[41]

38.  We found support for the manner in which DCLG has managed ERDF in England following the decision to abolish the Regional Development Agencies (RDAs). Significantly, the decision to transfer former RDA staff to DCLG and leave them located in the regions has smoothed the transition. Where there was criticism it was that the transition had, in some areas, caused delays, particularly in approving new projects. We recommend that DCLG review arrangements for approving projects in those areas where delays have been reported.

39.  According to evidence from the West Midlands Councils the culture of the programme has also changed, with the result that more innovative projects might be less likely to be approved for funding:

The major change has been a loss of flexibility. When the programme was the responsibility of the RDA projects that were regarded as risky but had the potential to deliver major benefits were more likely to be funded. With responsibility passing to DCLG the programme has become more conservative.[42]

40.  It is not clear whether this change can be attributed to a more risk-averse culture at DCLG, or is a consequence of the need to spend ERDF budgets more quickly as deadlines approach. Linda Edworthy said that:

Coming towards the end of the programme, there will inevitably be a focus on the delivering of outputs, which again tends to lead to projects that can be delivered quickly, and, maybe, perhaps less innovative schemes. But we have had some comments from Lincolnshire and Torbay. They have experienced the change having an impact in terms of less consideration of innovative schemes.[43]

41.  ERDF is particularly useful for innovative projects which, because of the lack of alternative funding sources, might otherwise be unable to proceed. We urge DCLG to ensure that novel projects are supported, and not put at a disadvantage in a rush to get ERDF money spent on more straightforward, but potentially less beneficial, projects.

Making best use of England's ERDF allocation

42.  The funding allocated to each of the ten Operational Programme areas in England (see Map 2) for the 2007-13 ERDF round must be contracted by the end of 2013 and spent by the end of 2015, otherwise the money will not be available. Baroness Hanham confirmed that it was not possible for unspent ERDF allocations to be transferred from one region to another.[44] Any unspent money will go back to the Commission, although under the terms of the UK's rebate agreement, two-thirds of that money will in fact be returned to HM Treasury.[45] According to figures provided by DCLG, contracts had been signed to spend some 63% of England's total ERDF allocation by January 2012, over 70% of the way through the 2007-13 period. Table 4 shows the regional pattern, with only 54% of funding for Yorkshire and Humber contracted compared to 73% in Cornwall and Isles of Scilly (the only area receiving Convergence funding). If received applications for funding are also included the overall figure for England rises to 93%, but there is no guarantee that these projects will receive approval to proceed.

Table 4: ERDF 2007-13 funding commitments in England[46]

% contracted
% contracted or applied for
Yorkshire and Humber
54
106
South West
55
100
East Midlands
56
87
West Midlands
60
94
North East
62
88
South East
63
88
North West
67
85
London
70
97
East of England
71
88
Cornwall and Isles of Scilly
73
100
Total
63
93

43.  DCLG is confident that all ERDF funding will be spent by the deadline of the end of December 2015. Baroness Hanham assured us that "we do not expect to hand back money to the EU; we expect it to be spent".[47] DCLG explained that it had taken steps to increase the rate of spend after taking over from the RDAs because of the risk that funds would go unspent:

At the time of transfer, the programme was at risk of missing some of its spending targets. However under DCLG's direct management, all individual ERDF programmes achieved their annual 2011 spending targets, ensuring that the money has been spent for the benefit of local communities and not returned to the EC unspent. The Department has managed the programme closely to raise rates of spending where necessary (such as in the Yorkshire and Humber, where programme spend accelerated from around £5 million per month in June to over £20m per month in November and December).[48]

44.  Despite the recent increase in spending, and DCLG's confidence in meeting the spending targets, many organisations who submitted evidence were concerned that funding would indeed go unused. Their main concern was the availability of match funding, without which ERDF projects cannot proceed. We have been concerned about this issue for some time. Last October, in our report on Regeneration, we expressed our concern that match funding was proving difficult to find and we urged the Government to help bidders locate it to allow projects to go ahead and ensure all of England's ERDF allocation would be spent:

We are pleased that the Minister is committed to spending "every single penny" of England's European Regional Development Fund allocation. However, a significant sum remains uncommitted and there are doubts about whether the necessary match funding, much of which has previously been supplied by the Regional Development Agencies, can be found. We recommend that the Government set out proposals for working with local partners to identify sources of match funding, with a view to ensuring that all remaining European Regional Development Fund money is spent.[49]

45.  It would appear that securing match funding remains a key challenge for organisations wishing to make use of ERDF. According to a recent survey carried out by the Local Government Association:

over two-thirds of respondent councils were not confident about the availability of match-funding for the ERDF remaining in their regional programme [and] over half had projects or potential projects which had either fallen through or were at risk of doing so.[50]

46.  In England, ERDF can only provide funding for up to 50% of a project's value (75% in Convergence areas), leaving the remaining 50% to come from other sources. The ongoing economic downturn has meant that match funding (both public and private) has become harder to secure. The main source of match funding had, until July 2011, been the RDAs, who had used their own budgets to support ERDF projects.[51] Once responsibility for ERDF was transferred from the RDAs to DCLG this source of match funding was lost. The Industrial Communities Alliance pointed out that:

The sources of matching finance have all but dried up: the RDAs have been wound up; Local Enterprise Partnerships (LEPs) don't have significant funding streams of their own; local authorities have little cash because their own funding is being cut and other public sector bodies - the university sector for example - are also facing reduced budgets.[52]

47.  We received evidence of projects being delayed or cancelled because of match funding problems.[53] One example came from Leicester City Council:

The loss of the Single Programme funds controlled by the RDAs led to a number of projects closing early or being withdrawn as they lost match funding such as Leicester's Science Park project. This has now been re-submitted but a 12 month delay whilst it sought new match funding has meant that potential job opportunities have been lost.[54]

48.  Baroness Hanham assured us, however, that there was match funding available and that it was up to project backers to find it:

Our experience now is that there are really quite a lot of areas for match funding. There are a number of bodies and the Government have a number of pockets now for match funding. The difficulty with match funding is people going out and finding it [...] Mark Prisk from BIS and I sent out a letter to local authorities a little while ago reminding them of where the various budgets or the various elements that can be used for match funding were.[55]

There is a Growing Places Fund. We have Business Coaching for Growth, broadband, the Coastal Communities Fund, the Technology Strategy Board and the regional growth fund. Then there are the universities and private funding. Where there is a project that has a lot of support behind it and is seen to be something that is really worthwhile, the funding, on the whole, can be found.[56]

49.  While we take some reassurance from Baroness Hanham that the Government is taking steps to address the problem, many organisations are still struggling to find match funding. The shortage of match funding options, together with the urgent need to contract and spend all the ERDF money by the relevant deadlines so as not to lose it, increases the risk that the value for money of projects may not be as high as they could otherwise be. We asked Baroness Hanham whether weaker projects might be approved if stronger projects were unable to secure match funding:

I guess the answer is yes; if you cannot get money, you probably cannot put forward your best projects.[57]

50.  We are concerned that the lack of availability of match funding remains a serious impediment to the success of ERDF in England, almost a year since DCLG assumed responsibility. We are concerned that the Government does not seem to appreciate fully the problems caused by the shortage of match funding. This problem, together with DCLG's sensible desire to see all the ERDF money spent by the end of 2015, increases the risk that value for money will suffer.

REGIONAL GROWTH FUND

51.  Following the closure of the RDAs Ministers frequently recommended that organisations should use the Regional Growth Fund (RGF) for match funding.[58] RGF supports businesses in England through grants and loans, and is worth £2.4 billion between 2011-12 and 2014-15; it is administered by the Department for Business, Innovation and Skills. We heard that access to RGF was problematic. Derbyshire County Council said that:

An initiative to align ERDF to support projects applying to the Regional Growth Fund was launched in 2011 across the 5 former coalfield Priority Axis 2 areas. It was agreed to commit 20% of the ERDF area's allocation to support the delivery of RGF proposals. This commitment equated to £2.8m of funding from the 5 authorities - averaging £560,000 per area.

Although projects seeking both Regional Growth Fund and ERDF were submitted and endorsed, none have been able to proceed due to difficulties in aligning the deadlines and the delays in processing and agreeing the RGF applications.[59]

52.  We also heard that securing match funding from RGF had been difficult because it had different objectives to ERDF. Linda Edworthy explained that:

the principal aim of the Regional Growth Fund has been to push money out directly to individual businesses for them to improve and grow their own individual business. That is not what the objectives of the European Regional Development Fund are generally about.[60]

53.  The decision-making processes of the two funds were dissimilar, making it even harder for projects to make use of both funds.[61] Decisions on RGF bids are made centrally by a group of Ministers, chaired by the Deputy Prime Minister.[62] Decisions on bids for ERDF funding are made locally, usually by Local Management Committees, in a variety of approaches tailored to the priorities of the local area, including the use of open bidding rounds, or non-competitive selection where only one organisation appears suitable to deliver the project.[63]

54.  The Government's Local Growth White Paper, published in October 2010 stated that the Government would "encourage alignment of RGF with ERDF, where the aims of bids are eligible for support from both Funds".[64] However, Baroness Hanham noted that the RGF was still not sufficiently aligned with ERDF:

We have been quite disappointed in the regional growth fund. We had none at all in the first round. I think I am right in saying that 10 projects went forward in the next round, of which three so far have been agreed. I would like to see much more coming out of the regional growth fund because, after all, it is all working in the same direction—to get businesses up and running and to achieve growth. We are looking hard to see how we make sure that they fit the regional growth criteria.[65]

55.  One option we considered would be for the Government to set aside part of RGF budget specifically to provide match funding for ERDF, which Baroness Hanham considered "a lovely suggestion".[66] DCLG did not support it, however, when it provided supplementary written evidence, noting that 93% of the ERDF budget had already been contracted or has been applied for, leaving only £200 million needing match funding:

In view of the range of other central Government and public and private sector sources available, we do not consider that it will be necessary to top slice funding from the Regional Growth Fund to make up the outstanding £200m.

Furthermore, it is already possible for the Regional Growth Fund to be used as match funding for ERDF without the necessity for top-slicing.[67]

While DCLG is correct to state that RGF money is available to act as match funding for ERDF, the evidence we received indicated that, in practice, it was extremely difficult to make use of it.

56.  We recommend that the Government reconsiders its decision not to set aside part of the Regional Growth Fund (RGF) budget to provide match funding for ERDF. We conclude that the Government needs to demonstrate greater strategic oversight in aligning funding streams, both in the short term and from 2014 onwards, to ensure that all the resources available are being used in a coherent way.


33   Ev 41-42 and "Management of the 2007-13 ERDF programmes", www.communities.gov.uk/regeneration Back

34   HL Deb, 3 February 2011, col 86WS Back

35   Q 18 and Ev 29, para 5.2 Back

36   Ev w83 Back

37   Ev w58 Back

38   Ev w83 Back

39   Q 15 Back

40   Ev w8, paras 4.1-4.2 Back

41   Ev w96, para 3.4.2.1 Back

42   Ev w23 Back

43   Q18 Back

44   Q 99 Back

45   Ev w4 Back

46   Adapted from Ev 46 Back

47   Q 96 Back

48   Ev 43, para 12 Back

49   Communities and Local Government Committee, Sixth Report of Session 2010-12, Regeneration, HC 1014, para 111 Back

50   Ev 29, para 5.3 Back

51   Ev w4 Back

52   Ev w4 Back

53   For example, Ev w13 [Nottingham City Council], para 4.5 and Ev w87 [One East Midlands], para 3.3 Back

54   Ev w8, para 4.6 Back

55   Q 101 Back

56   Q 106 Back

57   Q 115 Back

58   For example, HC Deb, 9 May 2011, col 1032W  Back

59   Ev w23 Back

60   Q 25 Back

61   Ev w8 [Leicester City Council], para 4.7 Back

62   "Regional Growth Fund" at www.bis.gov.uk/policies; as well as the Deputy Prime Minister, the group is made up of the Chief Secretary to the Treasury and the Secretaries of State for: Business, Innovation and Skills, Communities and Local Government, Transport and Environment Food and Rural Affairs. Back

63   "Applying for ERDF funding" at www.communities.gov.uk/regeneration Back

64   Department for Business, Innovation and Skills, Local growth: realising every place's potential, Cm 7961, para 2.34. Back

65   Q 102 Back

66   Q 103 Back

67   Ev 47 Back


 
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Prepared 13 July 2012