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Growth fund cash being held by councils

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Councils are currently holding more than £200m of payments from the regional growth fund, all of which has not been spent despite the fund’s intention to boost private-sector growth, MPs have revealed.

However, no management fees have yet been charged by councils for the handling of that money despite fees of up to £4m being liable.

A report published on Tuesday by the public accounts committee revealed that government departments responsible for the £1.4bn fund have passed on some £470m to ‘intermediary’ bodies, such as local authorities, banks or others, mostly in the form of endowments to prevent the Treasury clawing back the cash.

Committee chair Margaret Hodge (Lab) said it was “nothing short of scandalous” that just £60m from the fund had reached front-line projects and said it was “unclear” what was being done to make sure that money “parked in intermediary bodies” was being spent on “creating real jobs”.

While the fund’s budget is some £475m in the first year of operation, at the end of 2011 the Departments of Communities & Local Government and Business, Innovation & Skills were facing a potential underspend of £366m. To avoid the underspend being clawed back by the Treasury, the departments agreed with the Treasury that some of the programmes run by intermediary bodies could be funded by endowments – one-off grants that enable recipients to create a fund that can be drawn down from over several years. Almost the entire underspend – some £364m – was passed on to intermediaries in this way.

Written evidence supplied by the departments and published in today’s report gives a breakdown of how that underspend was passed on. In total, £218.9m was paid to seven councils through endowments. None of this funding has yet been spent.

The largest amount went to Birmingham City Council to hold for the Advanced Engineering Supply Chain investment fund. While a maximum management fee of £2.86m – plus 2% p.a. in inflation – can be charged, nothing has been charged yet.

In total, some £871k has been charged in management fees have been incurred by intermediaries holding the underspend: £306k by the national Angels Co-Fund set up to provide equity and debt-finance for SMEs and £565k by the bank Santander UK which is supposed to be providing mezzanine-type debt for SMEs. The latter has not yet been charged to the regional growth fund.

The MPs also criticised the fund for not matching up with other public funding projects focused on growth such as the Growing Places Fund where spending decisions are taken by local enterprise partnerships.

“We asked whether a national panel in Whitehall was well positioned to make the right decisions on which localities should receive funding,” Ms Hodge said. “We believe departments could do much more to engage with local bodies such as LEPs.”

 

CouncilProgrammeAmount received (£k)Max. manage. fee (£k)Manage. fees paid (£k)
Birmingham City CouncilEndowment – Advanced Engineering Supply Chain investment fund70,0002,860 – plus up to 2% paNone
Cornwall CouncilEndowment – Grants for business investment in superfast broadband and capital investment in business premises and equipment13,000150None
East Riding of Yorkshire CouncilEndowment – Support for local projects to develop the Offshore Wind Renewable Energy supply chain25,700NoneN/A
Liverpool City CouncilEndowment – Development of low carbon enterprise hub as part of Stanley Docks regeneration25,335NoneN/A
Kent CCEndowment – Grants to support local job creation and infrastructure development35,000NoneN/A
North Lincolnshire CouncilEndowment – Grant funds for projects to support job creation and deliver critical infrastructure10,000190None
Bath & North East Somerset CouncilEndowment – Revolving Infrastructure Fund39,831530None
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