Coalition’s regional growth fund sweetener leaves a bitter taste

by Kevin Meagher

The government yesterday announced the winners from the first round of bidding for its new Regional Growth Fund (RGF) – the funding designed to stimulate private sector jobs growth in the English regions.

A pot of £450 million of government cash will support 50 regional growth projects, which the government hopes will lever-in an additional £2.5 billion of private sector investment, creating 27,000 jobs directly and an additional 100,000 through the supply chain.

Announcing the successful first round applicants, deputy prime minister, Nick Clegg said:

“Today is a step towards rebalancing our economy away from an unhealthy over-reliance on a small number of industries and a few areas. We need to spread opportunity across the whole country, drawing on our many talents.”

Successful projects include a road widening scheme to the A45 in Birmingham, transformation of Manchester’s former Royal Eye Hospital into a biotech centre, while sweet maker Haribo will be supported in extending its West Yorkshire plant, creating 286 new jobs. On average, two thirds of the bids were for project funding of up to £5m.

There is nothing wrong with any of the successful bids in and of themselves. As one source from a regional development agency put it to LFF:

“12 months ago, these were exactly the same kinds of projects we were criticised for spending money on. Now the coalition thinks they are the bees knees.”

However the flaw in Labour’s RDA model was that it was too equitable, with each English region having its own agency, regardless of actual need. The focus on regional growth should have been more narrowly focused on closing the national prosperity gap through aggressively diversifying the economies of the northern regions, which underwent savage deindustrialisation and jobs-shedding in the 1980s.

In that respect, the government deserves some credit for focusing its attention today. Half the successful projects cover the north of England,with London and the south east missing out altogether. The key issue remains one of generating private sector activity in those parts of the country heavily reliant on public sector jobs and therefore hardest hit with government spending cuts.

Today’s announcement is a welcome contribution, but pales besides the resources the regional development agencies had at their disposal over the previous decade. This first round of RGF funding allocates £450m to 50 regional growth projects, however more than 464 bids, totalling £2.8bn were originally submitted, exposing the scale of demand across the country as the government’s spending cuts continue to decimate regeneration projects.

Despite today’s announcement, the RGF actually masks a catastrophic cut to funding for regional economic growth. The fund amounts to just £1.4bn, spread over three years – equivalent to the eight regional development agencies’ annual budget. Also, the coalition’s ideological decision to scrap RDAs (which had delivered a return, on average, of £4.50 for every £1 of public money spent) has wasted much of the last year with an unneeded shuffling of the bureaucratic pack as ministers struggled to develop their successor delivery vehicle, the local economic partnerships.

Also, the selection of projects by the panel chaired by Lord Heseltine lacks any real transparency and represents a centralisation of decision-making, with the department of business cherry-picking the RDAs higher-value functions to pad out Vince Cable’s Whitehall empire.

By fronting today’s announcement himself, Nick Clegg will seek to show the Lib Dems are influencing the coalition’s wider economic agenda, providing a riposte to his internal critics like Warren Bradley, the leader of the Lib Dems in Liverpool, who last night called for the Lib Dems to quit the coalition saying he is tired of “defending the indefensible”.

However, the gaping holes in the government’s approach to regional economic growth remain; with too little money, a lack of long-term commitment, messy and unneeded changes in delivery and a lack of transparency and accountability hampering their efforts.

Haribo’s sweet factory may have benefited from today’s announcement, but with growth faltering, there is simply not enough money in the regional growth fund to sweeten the pill of the coalition’s bitter spending cuts.