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Regional growth in danger of entering economic doldrums

Last week’s revelation that 119 bidders had won cash from the second round of the government’s Regional Growth Funding (RGF) may have given them cause to celebrate but for others it served as a stark reminder that there will be little of the same forthcoming from central government.

The ambition of the funding is stated as aiming to stimulate private sector investment to achieve growth where currently government feels there is too much dependence on the public sector. In more explicit terms, the government hopes the money will create jobs in deprived regions that are at risk of suff ering from publicsector cuts.

So what it takes with one hand it gives back in much smaller change with the other. The numbers back up this ambition to spend less — this regional funding equates to £1.4bn operating over three years to 2014. It was announced in April that 50 winners of the funding would share £450M, while this latest round plans to share the remaining £950M between the 119 winners.

In total, 21 transport schemes, or schemes with a transport element, will get funding from the RGF. Bolstering this slightly, this week the government announced a further £500M for transport schemes, to be shared between the newly created Local Enterprise Partnerships (LEPs) via a Growing Places fund. However, the total funding is still less than what went before and comes amid a general cut in central government spending.

Regional funding of £1.4bn was administered in 2010/11 alone through the soon to be abolished Regional Development Agencies (RDAs). These nine organisations will cease to exist in March next year if the Localism Bill goes through as planned. In their place, along with the RGF, 38 LEPs have now been agreed by the government across England.

But is it the right time for the government to allow economic development in the regions to stand on its own two feet? It’s a big risk to take and the question arises of how easy it will be to measure the returns on the risk. Accountant PricewaterhouseCoopers has evaluated RDA investment, and found that for every £1 in investment, they generated £4.50 in return. This figure rises to £6.40 when future returns are included.

Perhaps an indication of the desperate need for investment is the amount of interest shown in the RGF — together the first and second round bidding process saw 956 proposals requesting a total £6.08bn.

Is the government missing a trick for growth by limiting the winnings to just £1.4bn? It seems a little conservative if its claims that the first round of £450M funding
will leverage more than £2.5bn of private investment.

Whereby it is normal practice for a new government to stamp its identity on policies, and in some cases it’s the same old concept dressed up in new branding, the
lack of money and its set up has triggered concerns from the infrastructure world with regard to both the effectiveness and the accountability of the RGF money, and of the LEPs.

For starters, only four of the 38 LEPs — Leeds City Region, Greater Manchester, Solent and Cornwall and Isles of Scilly - have successfully got their schemes through to the 119 that will now go through due diligence to get the RGF.

While the government says the LEPs are able to access funds from other sources, it is not yet obvious what this will be.

Fans of RDAs say they were able to leverage private sector money and spend on the right projects because they were set up independently from local authorities.

Their concerns are that, as well as being ineffectual at attracting RGF, the new LEPs are dominated far too much by local council involvement. Such a set up leaves the doubters wondering exactly what an LEP’s function is.

At a time when the UK and global economies teeter on the edge of a cliff, it remains to be seen whether the government expects too much certainty from the private sector when it seems to be making what can be viewed as an extremely cautious approach.

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