Watchdog warning over failure to spend Regional Growth Fund monies

The Whitehall departments with responsibility for the governance of the Regional Growth Fund face a significant challenge to spend the money as quickly as originally expected, the National Audit Office has warned.

The watchdog said the problem faced by the Department for Communities and Local Government and the Department for Business, Innovation & Skills was particularly acute in 2014/15, when the budget is £1.4bn.

“There is still a significant amount of public money to allocate through the Fund,” the NAO said, suggesting that the task of spending the budget would be made more difficult if remaining risks to the quality of management information were not addressed.

According to the watchdog, a total of £492m has reached projects but most of the Fund remains unspent. It said £917m of the £2.6bn funding allocated in the first four bidding rounds had been paid by the end of December 2013 but, of this amount, £425m was being held by intermediaries.

The Government established the Fund in June 2010 with two objectives:

• to encourage private-sector enterprise by providing support for projects with the significant potential for economic growth and additional sustainable private-sector employment; and
• to support in particular those areas and communities that currently depend on the public sector to make the transition to sustainable private-sector-led growth and prosperity.

In a progress report the watchdog acknowledged that the DCLG and DBIS had improved the governance of the Fund and taken on more staff with the levels of skill needed.

A programme board established in January 2012 had, in particular, provided a much more effective and accountable tier of management.

“The two departments have also sped up the process of making final offers to bidders and made progress in commissioning a formal evaluation of the Fund’s impact,” it added.

But the NAO report warned that value for money would depend “on the departments’ further tightening controls on the jobs and other benefits that bids offer, relative to their cost”.

Since a Public Accounts Committee warning that the cost benefit threshold for projects had been set at too low a level, the DCLG and DBIS have introduced a revised expectation that the ratio of benefits to costs should be at least 2:1 before final offer letters are signed.

The NAO meanwhile found that the cross-government secretariat, which provides administrative support, could have done more to reduce the risk that bidders with poor past performance receive further funding.

Five of the bids selected in the fourth bidding round – worth £34m between them – were made by organisations that were already accountable for an existing project or programme that the secretariat’s review highlighted in particular as being behind its targets, at the time.

The secretariat had also been slow to introduce a robust management information system to monitor the Fund’s performance. However, it had made progress with its plans to evaluate the Fund’s impact.

The NAO report found that the number of jobs created or safeguarded through the Fund had almost doubled since September 2012 to 44,400. But just under half of the jobs to date were created or safeguarded by only five schemes.