RGF oddities: some interesting facts about the fund

In the current issue of Planning, we analyse the cost to the public purse of each (direct) job the government expects to be created through the £1.4 billion Regional Growth Fund (RGF).

The key findings are interesting in themselves: according to government figures the cost per job in the second round is forecast to be almost twice as expensive as the jobs created through the first round of the fund, and almost four times as expensive in three regions – the North West, Yorkshire and the Humber and the East Midlands – prompting commentators to challenge the government’s claims that it intends the fund to be as cheap as possible for the taxpayer.

But while researching the story, I noticed a few other noteworthy points about the fund – some of which call for further clarity from ministers as to how they are allocating the money.

1) A further 10 second-round bids are still being assessed by ministers and could still receive RGF funding.
A tot-up of the total amount each region received through both rounds of the RGF suggests that around £300 million has not yet been allocated. A spokeswoman for the Department for Business, Innovation and Skills (BIS) said that most of this has been distributed to national projects. But she also admitted that the definitive list of provisionally successful second-round bids is incomplete, with the government still examining 10 applications.

2) Information on who is behind some of the successful bids is scant and in some cases it is unclear how they are going to create jobs – fuelling criticism that the RGF selection process has been unhelpfully opaque.
For example, a company called the Listen Media Company was listed by BIS as one of the successful bids in the North West region. However, it has no website and the only company with that name registered at Companies House is a dormant business with a Cambridge address and an ex-directory telephone number.

Also, £5 million was notionally awarded to a national project run by an agency called Creative England. But Creative England did not start operating as a company until 1 October, and the competitive bidding process for RGF funding closed at the end of July. BIS did explain this by stating that the RGF “is open to new businesses and organisations starting up as well as those already established”, but nonetheless is must have had a particularly strong case to have secured funding when it hadn’t yet launched – especially when you consider that a bid from Manchester Airport City enterprise zone [a zone that an independent report has estimated will generate £500 million for the North West economy] was rejected.

Another bid that raises question marks is that of developer Keepmoat. It won £8 million of RGF funding in the first round, announcing that its project for a private sector-led regeneration of one of Hull’s housing market renewal (HMR) areas would create around 800 direct and indirect jobs. The developer also won £6.5 million of funding through the second round, but the wording it has used in its announcement is much looser – it states that the funding “could pave the way” for new jobs, not actually create them.

It would be helpful if, when the government is able to provide more information about individual bids once due diligence has been completed, it can provide some sort of explanation for the choices it has made with regard approving, or rejecting, particular bids.

3) One of the successful bids was from Sheffield Forgemasters, a firm for which the coalition controversially cancelled funding when it first came to power.
An £80 million government loan for the steel engineering firm to build parts for nuclear power stations was among 12 schemes – contractually promised funding under the previous Labour administration – to be cancelled by the coalition in June 2010. The decision sparked controversy at the time and MPs announced a special inquiry into the decision to veto the Sheffield Forgemasters after business secretary Vince Cable admitted that advice to the previous government had shown the advantages of the loan were likely to trump the costs.
It is therefore interesting that the firm received a reported £36 million from the second round of the RGF.

4) There were a higher proportion of provisionally successful public sector bids in round two than in round one. At least 95 per cent of bids were from private sector firms in round one but, in round two as many as 30 per cent of bids were from some sort of public sector body (two bids were from national quangos, two from further education colleges, 10 from public sector regeneration or economic development bodies such as Regenerate Pennine Lancashire, four from universities and four directly from local enterprise partnerships).

The government has always been quite specific in its communications about the RGF – that the funding is intended to go primarily to the private sector, to create private sector jobs, and that the money is not intended to be a substitute for public sector regeneration funding. The shift in the character of bids (ie the proportional increase in bids from the public sector) is not to be criticised, but it does raise further questions about what exactly the government is looking for in applications.

5) Finally, it is worth noting that the government is relying heavily on its forecasts for how many indirect jobs the fund will create to support its arguments that the fund will be highly successful and help rebalance the economy. But numbers of ‘indirect’ jobs are going to very hard to measure and clearly won’t necessarily be created in the regions in which the money is distributed – many firms use overseas supply chains, for example, and those international jobs certainly won’t be boosting local economies. Think tank the Centre for Cities pointed out that the number of directly created jobs for round two stands at just 18.6 per cent of the total jobs figure quoted by the government, with the rest being created indirectly.

It is therefore a bit misleading for ministers to claim that a certain number of jobs will be created through the fund, when less than a fifth of these will be directly created by the firms the money is going to.

Picture by [F]oxymoron