Ministers have set aside £1.4bn plus in the spending review for a cross-departmental fund to soak up the costs of scrapping the regional development agencies with the communities department set to foot the biggest bill.
As first revealed in LGC, the total cost of the RDA’s liabilities, including legal contractual commitments and redundancy payments is set to hit £1.4bn and could yet rise as high as £2.5bn. The figure must be absorbed by RDAs sponsoring departments, under the terms of the legislation that created the agencies, and was a key stumbling block in the finalisation of the spending settlements of the Department for Business Innovation and Skills (DBIS) and the Department for Communities & Local Government (DCLG).
A spokeswoman for DBIS said that the department would provide a total of £398m over the next four years in order to meet the RDAs’ legal commitments, as well as to fund the cost of closing the agencies - including redundancies.
She said the department would pay £297m in 2011/12, then £69m in 2012/13, £37m in 2013/14 and £32m in 2014/15.
But she said this figure, which matches the department’s proportion of the RDA’s single funding pot, represented only 30% of the total package of the RDA legacy and transition programme.
Other contributors to the single pot - including DCLG - have yet to announce their contributions towards the funding package, she said. Over 2010-11 DCLG contributed £1.1bn to the RDA’s £1.8bn budget, prior to in-year cuts, which was around 62% of the single pot total.
Based on this contribution, DCLG could be forced to contribute £800m of its budget to the RDAs over the next four years, a figure the department has yet to confirm.
The BIS spokeswoman said decisions on the allocations of the wind-up fund to each RDA would be decided in the coming weeks and “will take into account all transition needs”.
She added that there would not be “an absolute ban” on new RDA spending commitments over the wind up period, but RDAs would “have to stay within their existing envelopes, so new investment will have to be offset by savings elsewhere”.