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Shortage of match funding for ERDF projects risks stifling regional economic growth, warn MPs

13 July 2012

The Government must deliver on a promise to make it easier for development projects to secure match funding through the Regional Growth Fund (RGF), says the Communities and Local Government Committee in a report of its recent inquiry into the European Regional Development Fund (ERDF). Ministers must recognise the problems that ERDF projects face and set aside RGF money specifically for this purpose

The UK should also press for reform so that after 2020 it can retain that portion of UK monies currently paid into the ERDF but recycled back for projects in England, and use these funds to deliver its own regional policy

Launching the report, Clive Betts, Chair of the Communities and Local Government Committee said,

"ERDF is a highly valued source of money for large regeneration and small business development schemes alike, but it can only be used to part-fund projects. The abolition of the Regional Development Agencies removed the main source of match funding for ERDF sponsored projects, and the economic downturn has curbed alternative options for match funding even further.

There is a pressing need to spend each region's ERDF allocation before 2015, but unless ministers take urgent steps to deliver on the Government’s promise to make it easier for projects to secure match funding through the Regional Growth Fund, there is a significant risk that value for money will suffer and ERDF will not make the impact it could to help rebalance the UK's economy.

Longer term the ERDF allocation system also has to change so that the UK can retain direct control over EU regional development money destined to be spent England while continuing to provide funds for use via ERDF in poorer parts of the EU."

The Committee endorses a number of sensible changes to the size, shape and application rules that will govern the next ERDF round (2014–20) currently proposed by the European Commission. It also welcomes related proposals to give Member States the power to tailor the size of their Operational Programme areas - which could permit Local Economic Partnerships in England to take responsibility for managing EU funds.

Commenting on these points Clive Betts adds,

"We agree with the Commission that funds should be allocated to Member States that can use them properly, but share the Government's concerns over how this is implemented. However, any attempt to make the UK's funding conditional on meeting certain macroeconomic conditions is not acceptable, and we support the Government’s intention to resist this."

MPs also challenge the current allocation system where even the wealthiest Member States receive some ERDF funding when a portion of what they pay in originally gets recycled back to them.  The cross party group of MPs calls for this 'circular money flow' to end, and for England to retain this portion of funding to deliver its own regional policy. The Government would have to guarantee the same level of funding across the EU's 7 year funding cycle. This change would not affect the Government’s contribution to ERDF for the poorer Member States

"Members from all political parties on this committee agree this repatriation of funding for regional development would permit the EU to focus on the needs of the poorest Member States, and allow England to regain control over the precise application of regional policy. We recognise this shift will not happen for the 2014–20 round but we encourage the Government to press for this change to made in subsequent rounds,"
adds Clive Betts.

Lastly, MPs challenge the Government to evaluate the value for money of ERDF funded projects and to report the progress made within each region over recent years to the Committee by the summer of 2013. Likewise, the Committee urges ministers to ensure that monitoring and evaluation is improved and streamlined for the 2014–20 ERDF round.

Background

The European Regional Development Fund (ERDF) is the EU's main tool to reduce economic disparities between regions. Worth €201 billion between 2007–13, most of the funding goes (together with monies from the European Social Fund and the Cohesion Fund) to the poorer regions in eastern and southern Europe.

England's allocation during this period was €3.3 billion (approximately £2.8 billion), with the largest share of the funds going to Cornwall and the Isles of Scilly, Merseyside and South Yorkshire, all of which face significant and long-standing challenges to economic growth.

ERDF is a highly valued source of public funding which has supported many modest projects to boost enterprise or support small businesses as well a major schemes including the Eden Project in Cornwall, the Kings Dock redevelopment in Liverpool and the Sage concert hall and Baltic art gallery in Gateshead.

Further Information

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