They will go the way of Anne Boleyn communities secretary Eric Pickles was fond of saying of England’s regional development agencies, when in opposition. It was no surprise then that in taking the helm at the Department for Communities & Local Government he pushed hard for the abolition of the economic development quangos, which he said were wasteful, costly, top-down impositions on local areas.
RDAs would be replaced, Mr Pickles said, by new Local Enterprise Partnerships - council and business-led bodies that would drive economic development over smaller sub-regional areas. It would be a new dawn for local areas, Mr Pickles claimed, with councils finally given the reins to drive growth in their local economies.
So far so good: but as the cliché notes, the devil, Mr Pickles, is in the detail. LGC has been told that the question of how RDAs would be abolished - beyond a triumphant flourish of the secretary of state’s pen - little occupied Mr Pickles. Details of the transition were for officials to work through - what was important was that the loathed regional structures were gone.
Hence when business secretary Vince Cable and business minister Mark Prisk made the case to Mr Pickles that the transition would not be all that easy to manage and that perhaps the government might be wise to either keep some RDAs in place - particularly those in the north - or at least slow the down their abolition, Mr Pickles was unimpressed. Go they must and so the Department for Communities & Local Government (DCLG) won a rare victory over the Department for Business, Innovation & Skills (DBIS) over the future of the agencies, which now sit on death row.
Footing the bill
But as LGC reveals today Mr Pickles’ haste to rid England of its RDAs has now come back to bite him, leaving his department with a whopping great bill to pick up the rising cost of abolishing the agencies. As LGC reveals, that bill - largely comprising the RDA networks liabilities, which must sit on the government’s books - has reached £1.5bn and could yet rise higher, as auditors go through the agencies accounts and the full cost of closing the quangos is taken into account. Indeed, it could yet rise to £2.5bn, LGC has been told.
Now officials in BIS and DCLG are scrambling to find money in their already greatly strained budgets to meet this escalating cost. LGC understands that DCLG is expected to pick up the greater share of the tab, as it is the RDAs’ main funding department. This will have serious implications not only for the funding of the bodies Mr Pickles wants to replace the RDAs with, but other funding streams within the department focused on vulnerable people and deprived communities.
To put the £1.5bn into context, DCLG’s entire spend over 2010/11 on “creating economically strong communities which enhance national prosperity and provide opportunities for everyone” amounted to £1.48bn - the RDAs’ liabilities soaks up that work stream - surely a key coalition priority - in its entirety.
Worse still, as a Whitehall source told LGC, Mr Pickles has gone into bat for the chancellor in the Comprehensive Spending Review, wanting to make DCLG an exemplar of the coalition’s new lean Whitehall. LGC understands that the department has made an offer of an across the board cut of around 33-35%, but this may yet be reduced, possibly down to 30% due in part to the soaring cost of the RDAs liabilities.
When one puts a 30-35% cut alongside a budget black hole of £1.5bn (or more) plus a commitment to find part of the £1bn for the Regional Growth Fund, it is easy to see that Mr Pickles now faces some very grim choices about how his department might fund Local Enterprise Partnerships, let alone other programmes focused on vulnerable and deprived communities. Indeed, as one Whitehall wag said, on regeneration, economic development and community renewal, Mr Pickles faces a Hobson’s choice.
For instance, as LGC revealed this month, if Mr Pickles is hit with a cut across the board of 35%, that could lead to a reduction of around 80% for specific grants within the local government settlement. That would include the area-based grant, which largely consists of funding targeted at deprived communities and vulnerable people, such as the Supporting People programme. In August, the National Housing Federation warned that a cut of 40% to Supporting People would leave 438,000 vulnerable people without support, with hostels and women’s refuges closed and counselling services shut down. What would an 80% cut do?
Where might the axe fall?
To soften the cuts Mr Pickles will of course take an axe to the department itself. LGC understands around a third of DCLG’s work programmes and staff are to go: these will include New Deal for Communities; the Place Survey team; the Performance Management team; as well as other teams focused on ring-fencing and data analysis. Will that be enough? Hardly. DCLG’s central administration costs were £180m over 2010/11 - a fraction of the savings needed to be found. The regional Government Offices, which Mr Pickles bravely scrapped, cost £103m this year.
So Mr Pickles will also have to look to the communities side of DCLG’s budget. He could take huge chunks out of the housing budget (2010-11 £5.1bn), which has already suffered £450m in cuts this year or slash back funding for fire departments (2010-11 £544m) - both politically unpalatable choices. He will also look to the department’s funding for charities - £45.7m in 2009/10. Could that all go? Where ever one looks Mr Pickles has tough choices to make - or no choice at all - as there simply isn’t the money.
But there is a further sting in the detail for regeneration and economic development, as the cost of abolishing the RDAs will also have a big impact on the European Regional Development Fund programme. As revealed in LGC in July, £1.9bn of England’s ERDF pot is still to be spent but, in order to be drawn down, ERDF cash must be matched by other public or private sector funding, which in the most part is sourced through the RDAs’ budgets.
An axe for European cash?
The Treasury has placed a freeze on RDA spending beyond March 2011, which includes match funding for ERDF and with DBIS and DCLG scrambling to fill the £1.5bn (or more) black hole, it is unclear whether there will be any public spending left to match the remaining ERDF cash.
Indeed, a senior source at a council in the north of England said ministers are considering scrapping the ERDF programme altogether - quite simply, handing £1.9bn or so back to Brussels as there isn’t the match funding to draw it down. That would be hugely controversial, given that the ERDF is meant for England’s poorest areas and ought to be a key component in the government’s strategy to tackle the north south divide.
An alternative would be to bring the ERDF programme into Whitehall and roll it into the Regional Growth Fund, with match funding coming from the private sector or the RGF - if it all. But that still wouldn’t solve the problem of what money, if any, will go to LEPs. For as Sir Ian Wrigglesworth, deputy chair of the panel set up to approve bids to the RGF made clear this week, he does not expect much, if any, of the RGF to go to LEPs. For impact, he added it would be a “miracle” if the RGF alone rebalanced the economy.
So where does that leave Mr Pickles? With a very expensive bill to scrap the ‘costly and wasteful’ RDAs he so loathed and no money to fund the activities they undertook. LEPs may not be top down, but they may also not be much else. But that, it would seem, is what Mr Pickles means by localism.