Thursday, November 3, 2011


This week, the government announced that it would be looking to give out £950 million to boost the economy further through the second round of its Regional Growth Fund.

Based in England only, this is a £1.4 billion fund that operates over three years (2011 to 2014) with the aim of stimulating private sector investment by providing support for projects that offer significant potential for long term economic growth and the creation of additional sustainable private sector jobs. 

In particular, the fund aims particularly to help support those areas and communities that are currently dependent on the public sector to make the transition to private sector led growth and prosperity.

To qualify for support from the Regional Growth Fund, projects should demonstrate that they:
  • create additional sustainable private sector growth;
  • rebalance the economy in those areas currently dependent on the public sector;
  • would not otherwise go ahead without support from the Regional Growth Fund;
  • offer value for money
  • be state aid compliant.

Similar to the Enterprise Zones in England, the Regional Growth Fund is competitive and only those bids that best lever private sector investment, meet the fund objectives and criteria and offer the best value for money will be supported.

On Monday, the UK Government announced the 119 successful bids in the second round of the Regional Growth Fund. But it is also worth noting the expected impact of the first round of funding, as shown in the diagram below.

According to the UK Government, 

  • there were 464 bids for a total of £2.78 billion of funding with two thirds of the funding requests was for finance of between £1m and £5m. 
  • Half of the bids came from three regions, namely the West Midlands, the North West and the North East and only 4 per cent from London
  • There were 50 successful projects in Round 1 for £450m which were expected to create 27,549 direct jobs and a further 96,654 indirect jobs in the English economy. 
According to Regeneris Consulting, the real winners were the West Midlands - capturing 25 per cent of R1 funding including a £70m grant to Jaguar Land Rover and the North East of England, which had 14 successful bids across the region, capturing around 13 per cent of the funding.  

In contrast, the perceived losers were London and South East England – which submitted 52 applications and got 1 approved. The North West of England also lost out, only capturing around 6 per cent of round 1 funding with no projects in either Cumbria or Lancashire.

The jobs to be created are merely projections by the companies, as we used to have with the old Regional Selective Assistance grants in Wales. The cost per direct job is slightly higher for Round 1 (at £16,334 per job) but this would be expected given that a significant number of the projects are supporting R&D and innovation. However, it is far lower than the estimated cost per job for the European Convergence Programme for West Wales and the Valleys of around £44,000 per job.

The UK Government also seems to be focusing on using large companies to leverage further investment into these regional economies. Indeed, as Regeneris Consulting point out, SMEs did poorly out of the first round of funding, with the majority going to investments in larger firms to expand facilities, increase R&D and increase employment. Only time will tell whether this will work, given that studies have consistently shown that SMEs are more effective at using such grants.

One final issue, which is more to do with the transparency of policymaking. In Wales, the Economic Renewal Programme is the closest equivalent of the Regional Growth Fund and yet it would seem that it is not performing as well, with the Welsh Conservatives claiming that only 16 firms have been helped in the first six months of 2011. In contrast to the detailed data presented by the UK Government, the biggest problem in assessing the effectiveness of Welsh Government policy is the reluctance to publish regular data on its economic programmes, something it used to do regularly to the old Economic Development Committee in the first and second Assemblies. 

Perhaps this is something that Nick Ramsay, the new chair of the Enterprise and Business Committee within the National Assembly for Wales, should restore so that at least the Welsh Government is held accountable for its policies in business and economic development.