The Treasury has frozen nearly £2bn of European cash allocated to England’s poorest regions for economic development projects pending the outcome of the autumn spending review. The decision will raise fears that £4bn in potential investment could be lost to the regions for good.
In a directive, the Treasury instructed officials in England’s regional development agencies (RDAs) to freeze all spending through the 2007-13 European Regional Development Fund (ERDF) programme.
According to Department for Business Innovation & Skills figures - obtained by LGC through a Freedom of Information request - of England’s total £2.97bn 2007-2013 ERDF pot, only £1bn had been contracted at the end of March 2010, leaving £1.9bn still to be spent.
Because ERDF money must be matched by either public or private cash, that figure could potentially rise to nearly £4bn in investment over the course of the programme.
ERDF funding freeze: regional breakdown
|Region||Total ERDF Allocation|
(*Using £1 =1.104 Euro)
at end of March 2010
|Cornwall & Isle of Scilly||£414.9m||£57.2m||£357.7m|
Source: Department for Business, Innovation & Skills
A Treasury spokesman said the funds had been frozen because ERDF expenditure required match funding from the RDAs’ own budgets. He said that as the RDAs are due to be abolished through the Public Bodies Bill, “they are no longer being allowed to enter into any new public spending commitments beyond March 2011. This includes using their single pot budget to match-fund ERDF money”.
The spokesman added that the Treasury would consider the possibility for regions to drawdown ERDF funding “where it is matched by other sources, including private sector funding”.
A spokesman for the RDA network warned that the move could have a “massive impact” on England’s poorest regions and leave a lot of projects expecting RDA match funding for their ERDF cash “in a very serious situation”.
He said: “If ERDF does not continue, it would have a serious impact on hundreds of businesses across the region and damage growth prospects. The types of projects affected could include next generation broadband, business premises, transport schemes and investment in innovation and science based initiatives”.
With the coalition planning to scrap the RDAs and replace them with Local Enterprise Partnerships - effectively consortia of councils banding together with business over sub-regions to drive forward economic development - it is unclear how ERDF money will be managed in the future.
The communities secretary Eric Pickles said he would review the way ERDF is managed, without suggesting what that might entail. The coalition is also considering scrapping the regional Government Offices, which managed the ERDF funds prior to the RDAS.
With no clear transition for the funding in place, an RDA source warned the freeze could precipitate a move by Treasury to claw back the cash. Last year the previous government allowed Treasury to claw back £671m in unspent ERDF money from the 2000-2006 round despite Brussels giving the regions an extension to enable them to spend the cash.
At the time ministers said the move was made because of a lack of match funding available, but with the unclaimed cash taken off the UK’s future contribution to the EU, it effectively went into Treasury’s coffers rather than to projects in the regions.
To date the coalition has announced that the future LEPs will able to bid into a £1bn regional growth fund over 2011-12 to 2012-13, but this represents significantly less cash than was available through the RDA network, which over 2010-11 had a £1.4bn pot.
With considerably less funding to go around for economic development, it is unclear whether the LEPs will have enough cash to match fund the remaining £1.9bn in ERDF money, an RDA source said.
“Ultimately Treasury may well see that is the cheaper option in the long run to claw the cash back rather than match fund it through public spending. That would be a huge loss to the regions,” the source said.