Ministers have been forced into a rethink over their approach to economic development amid fears that hundreds of millions of pounds of European regional funding could go unspent as a result of cuts in government investment.
LGC understands that the Department for Communities & Local Government (DCLG) is putting in place a focus group to explore how match-funding can be found to unlock spending through the European Regional Development Fund (ERDF).
A report to the Local Government Association’s economy and transport board said junior local government minister Baroness Hanham (Con) “shares the concerns” around the lack of match-funding, and has been tasked with putting in place a focus group with DCLG and Local Government Association officials to find solutions.
These could include enabling local enterprise partnerships (LEPs) to bring together different government funding streams to match that from the ERDF, along with closer engagement with the private sector at a local level, the report said.
However, a source close to the situation said it was “unlikely” these approaches would unlock the level of match-funding necessary.
He said: “At some point there will need to be a plan B. They will need to make more match-funding available or else there will be hundreds of millions of pounds unspent.
“That simply won’t be acceptable to the regions.”
A DCLG spokesman confirmed the department was considering setting up a forum but denied that it had been prompted to do so by fears around the lack of match-funding.
The 2007-13 ERDF programme, worth £2.97bn across England, is focused on the poorest areas and provides funding for projects aimed at boosting economic renewal and regeneration.
But in January exclusive LGC research showed that following the abolition of regional development agencies, some £2.3bn - or 77% of the programme - had not been spent.
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 with the scrapping of the RDAs and their replacement by the regional growth fund (RGF), which at £1.4bn over the next three years is just a third of the size of the RDAs’ budget, senior figures in the regions have warned that match-funding for ERDF is now scarce.
Ministers have said that ERDF could be matched through the RGF, but in the first round of the growth fund just one of the 50 successful bids was aimed at matching ERDF spend, with experts warning that the funds are too “radically different” to be compatible.
Shadow business minister Gordon Marsden told LGC that there was real concern that the government’s approach would see the ERDF cash lost to the regions.
He said the government had not given LEPs the powers necessary to utilise ERDF cash and a lack of skills and “know-how” in the regions as a result of the abolition of the RDAs meant bids to the RGF were not being aligned with ERDF.
“What they’ve effectively done in cutting the RDAs is de-skillI the regions. All the expertise has gone. So if ministers are serious about unlocking match-funding then they are going to have to put a hell of a lot more effort into supporting and advising local authorities and LEPs through the process,” he said.
“The principle should have been keep the ERDF and the know-how in the regions, but that’s been lost.”
For more on the concerns around the lack of match-funding see Allister Hayman’s blog here.