Committee of Public Accounts

Press Notice No. 6 of Session 2003-04, dated 29 January 2004


Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today he was very concerned at just how little real impact £100 million annually in regional grants is having, and that the DTI needs to think harder about how these schemes fit in with wider work and make sure that more grants are available to the services sector.

Mr Leigh was speaking as the Committee published its 6th Report of this Session, which examined continuing significant disparities in the economic performance of different regions within England, including levels of unemployment, and the role that regional grants should play in reducing those disparities. The Committee questioned the design, operation and performance of regional grant schemes. Regional grants in England consist of Regional Selective Assistance and Enterprise Grants. Annual expenditure across the two schemes is some £100 million, with grants made to support investment by companies designed to create or safeguard jobs in disadvantaged areas.

The Committee found that thirty years of regional grants to the Assisted Areas have failed to close gaps between the relative economic performances of the English regions. For example, when this Committee last took evidence on regional grants in 1988, unemployment in the least advantaged region was over three times the level of the most advantaged region. Fourteen years and £1.4 billion of regional grants later, that ratio remained unchanged.

Regional grants have done little to reduce unemployment in Assisted Areas. An evaluation report estimated that these grants may have contributed only around half a percentage point to the reduction of Assisted Area unemployment over a four year period. To get the best from grant expenditure such as Regional Selective Assistance, the Department needs to match the grant instrument to the needs of particular disadvantaged areas, which can vary widely. The net employment effect of Regional Selective Assistance is disappointingly low, at only some 40% of the gross number of jobs supported. The Department needs to improve this. They should review such factors as the relevance of scheme criteria, success of scheme marketing, viability, displacement of other jobs and comparison of administration experience between regions and headquarters, to engender continuous improvement in scheme performance.

The main growth in the economy as a whole recently has been in the service sector but 90% of grants by value currently go to manufacturing. The Department should revise the criteria for Regional Selective Assistance to facilitate grants for the services sector, and for firms that make investments in Research and Development, product development and skills training. The Department should also market regional grants more actively to elicit a higher level of proposals than it receives at present. The number of applications for Regional Selective Assistance has fallen from 1,832 in 1995-96 to just 960 in 2001-02. A high level of relevant applications should enable the Department to select the best.

It is not clear how regional grants fit in with other instruments the Department employs, such as infrastructure grants and the promotion of economic clusters, and with the work of other Departments running, for example, skills and education initiatives. Nor has the Department specified the market weaknesses that Regional Selective Assistance is designed to mitigate. As a result, it is difficult to judge whether the scheme fit for purpose, or where its strengths and weaknesses lie in relation to other instruments, such as infrastructure and skills development.

The Department needs to define measures against which scheme performance can be tracked. The measures should cover all the scheme objectives and facilitate comparison with other regional development instruments. The three evaluations of Regional Selective Assistance have led to improvements in scheme specification. Future evaluations need to develop further, for example, to reflect administrative costs, to arrive at better-supported assumptions on matters such as assisted job life, and to consider effects of assisted jobs on local labour markets.

Mr Leigh said today:

"I am very concerned just how little real impact £100 million annually in regional grants is having. Thirty years of taxpayers' funding has failed to close gaps between the relative economic performances of the English regions. It has taken four years of Regional Selective Assistance to achieve a miserly half percent reduction in unemployment in Assisted Areas. And grants are paying for two and a half times the jobs that are genuinely created under the scheme. The DTI needs to think harder about how these schemes fit in with wider work providing infrastructure grants and supporting economic clusters, and revise criteria to make sure that more grants are available to the services sector."

Note for Editors

Enterprise Grants are for a maximum of 15% (£75,000) of projects costing up to £500,000. From 1 April 2002, responsibility for Enterprise Grants was transferred to the Small Business Service. Regional Selective Assistance of up to 35% of capital expenditure is available for projects which will cost over £500,000. From 1 April 2002, responsibility for Regional Selective Assistance grants of up to £2 million was transferred to the nine Regional Development Agencies, with applications over £2 million remaining with the Department of Trade and Industry.

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