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EU schemes threatened by RDA cuts

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England’s poorest areas could lose out on hundreds of millions of pounds of regeneration cash as a result of the coalition government’s cuts to economic development funding.

Exclusive LGC research has revealed the scale of the challenge England’s regions face to maximise their European Regional Development Fund (ERDF) programmes in the wake of the abolition of regional development agencies (RDAs), with £2.3bn - or 77% of the programme - yet to be spent.

The 2007-13 ERDF programme, worth £2.97bn across England, is focused on the country’s poorest areas and provides funding for projects aimed at boosting economic renewal and regeneration.

For ERDF cash to be claimed, bidders must secure match-funding through other public or private sector sources which, until recently, has largely been secured through the RDAs’ single programme budget, worth £1.7bn in 2010-11.

But ministers’ decision to scrap RDAs and replace them with council and business-led local enterprise partnerships - which will not receive dedicated funding - has left ERDF programmes across England facing “serious difficulties” in securing match-funding over the remainder of the programme, RDA sources told LGC.

Challenge

The scale of the challenge is illustrated by LGC’s exclusive research, which shows that at the end of 2010 £2.3bn remained unspent, with the south-east having spent only 12% of its allocation and the west Midlands 14%.

All of a sudden it’s going to become clear that actual spend is much less than commitment

ERDF source

The amount of money actually spent through the programme contrasts with the amount committed to projects in each region. The figures show that across the country RDAs had committed £1.48bn at the end of 2010 - around half the programme’s value. This represents the total allocated to projects but not yet spent, as projects have yet to begin or are in the early stages.

The commitment figures show that every region is well ahead of targets set by Brussels, which sets out how much each region must commit in each year of the ERDF programme’s lifetime.

However, Simon Hooton, director of economic development consultancy Regeneris and an expert on the ERDF, said that while a lag between programme commitment and actual spend was usual, the lag had now been “hugely compounded” with the government scrapping the RDAs’ single programme budget.

Commitments

He said that with the spending commitments undertaken when the single programme was in place - and in some cases prior to the onset of the recession, which heavily circumscribed the amount of private sector match-funding available - it would be “very difficult” for some of the ERDF programmes “to turn those commitments into actual spend”.

“By taking away single programme projects, match-funding is being cut off mid-flow - this is having a multiplying effect on the ability to draw down ERDF, and pipeline projects will get nothing from the single programme.”

He said the difficulties would be further compounded by a loss of RDA expertise as the agencies are closed, with only the rump of each region’s ERDF team remaining in place to administer the programme following the RDAs’ closure.

Any cash that is not spent at the end of the ERDF programme is lost to the regions. But with the unspent cash coming off future UK contributions to the European Commission, that loss represents a gain to the Treasury.

Deficit

Some in the regions now fear that the decision to cut the RDA single programme budget heralds a wider move by the Treasury to mop up the ERDF billions as part of the government’s deficit reduction programme.

In 2009, the then Labour government turned down an offer from Brussels to extend the spending deadline for the previous ERDF programme that would have enabled around £671m in unspent cash to be used.

At the time, ministers said the offer had been rejected as there would not have been match-funding available to draw down the unspent cash, but the northern regions protested, arguing that the move represented a “money grab” by the Treasury.

With even less match-funding available now and economic recovery still fragile, sources in the RDAs told LGC that they feared that in 2015, the final spending deadline for the current ERDF programme, the situation could be “much worse”.

Some RDAs are already revising down their level of spending commitment as the reality of cuts to budgets hits home. Last October, One North East reduced its stated level of ERDF commitment by £10m after match-funding dried up.

A senior source in one ERDF programme said that eventually “hundreds of millions” would likely remain unspent due to the lack of match-funding.

“The problems will come a bit further down the track - all of a sudden it’s going to become clear that actual spend is much less than commitment. People will say: ‘But you were telling us you were committed up to the eyeballs’. The reality will be very different and the unspent money will be lost.”

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