Regional Growth Fund

Lord Wharton of Yarm Excerpts

Tuesday 1st November 2011 Westminster Hall

[Phil Wilson (Sedgefield) (Lab)]

It is a pleasure to serve under your chairmanship today, Mr Gray, and I congratulate my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) on securing this debate.

I will be brief because other Members wish to speak and we obviously want to hear contributions from the Front-Bench spokesmen. First, I would like to congratulate those firms in my constituency that have received money from the regional growth fund—Kromek Ltd, Permoid Industries Ltd, Carlton & Co., Hydram Engineering Ltd and ThyssenKrupp Tallent Ltd. Those highly-skilled organisations will produce jobs in the future. As I pointed out, however, although the regional growth fund will create around 8,500 jobs in the north-east of England, that is about the same as the number of jobs that have been lost in the north-east over the past three months.

[James Wharton (Stockton South) (Con)]

The hon. Gentleman is right to mention estimates that suggest that the current round of regional growth fund funding for the north-east will create 8,500 direct jobs. In addition, however, there will be 17,000 indirect jobs. The previous round of funding, in which our region did exceptionally well, is estimated to have created a further 5,200 direct jobs, and 8,400 indirect jobs. The figures are higher than one might believe if we listened only to the comments made by Opposition Members.

[Phil Wilson]

Those jobs will come on stream over the next few years. North-east England now has the highest unemployment in the country, and we are grateful for everything that we receive from the regional growth fund. We should not forget, however, that the fund for regional development is only one third of what it was under the previous Government. The problem with the regional growth fund is that it does not provide a strategy for the regions. A company applies for a grant, and if they get it that is fine, but if they do not, they do not. The fund is led not from the regions but from Whitehall; it should be renamed the Whitehall growth fund.

I have one or two questions for the Minister to which I hope he will reply. They concern the delay experienced by companies in receiving the money for which they applied in the first round—hopefully, they will not have the same problems this time round. The issue seems to concern the need for due diligence. Under the previous Administration, except in complex cases, the regional development agencies would be responsible for due diligence and absorb the cost. I have asked the Library to look into the matter, but as I understand it, under the present regime, due diligence has to be secured and paid for by the applicant out of the grant. Is that a reason for the delay in companies receiving their funding? Why are we asking applicants to find someone to look into issues of due diligence, and why does money for that come out of the grant? Under the old system, that was not the case.

In conclusion, one of my concerns as a north-east MP is that although the Scottish Development Agency exists north of the border, there is no similar body in the north-east. People say that regional development agencies are a waste of money and so on, but I would defend One North East, which has been very good. If something ain’t broke, don’t fix it—it was a major mistake of the Government to abolish that RDA in the north-east, especially when one exists north of the border. In the south of England, the number of companies in distress or facing bankruptcy are in decline, while in the north-east, they have increased by 20%. There are concerns in the north about the strategy. The second round of applications to the regional growth fund has finished. What will happen between now and the next election as far as regional development and regional grants are concerned? It seems that there is no strategy on that. I am especially concerned about the issue of due diligence because that may explain why delays are occurring, and I hope that the Minister will respond on that issue.

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[Eric Ollerenshaw]

Yet again, because of the circumstance that we were left with by the previous Government. It seems we must go on repeating those figures. I think everyone understands—and that the hon. Gentleman knows it. I was not going to go into this—other hon. Members have mentioned it—but it is not just the regional growth fund that is relevant. There is also the national insurance contribution holiday for new start-ups, and the Localism Bill. Many Government Members believe that the Bill will equip local authorities to do a great deal more for themselves, and get through the sub-regional bureaucracy, which we have abolished, and do something for their areas. They are far more in the picture as to what is successful.

[James Wharton]

Opposition Members seem to think that the only money is Government money. Is not it the case that, because of careful targeting, funding through the regional growth fund is leveraging almost six times its own value in private investment, which is delivering the growth and investment that we need in our regional economies?

[Eric Ollerenshaw]

My hon. Friend makes the point about what we hope to get from the measures far better than me. All that I wanted to say to Opposition Members was what we have learned from the regional development agencies’ mistakes, their excessive bureaucracy and, in their last years, their failure to deal straightforwardly with business as business deals with things. Instead—

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[James Wharton]

Earlier in this informative debate, the right hon. Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) said that two and a half years of due diligence were conducted on the Sheffield Forgemasters loan, yet no money was given at that point. It is important that due diligence is conducted when Government money is given out. Regional growth fund money is often tied up with private investment, which can come first to allow projects to go ahead. Does the hon. Member for Blackpool South (Mr Marsden) acknowledge that?

[Mr Marsden]

It is important that there is due diligence. I will come on to explain why that is, and why the Government do not seem to have done it well.

As I was saying, nearly 90% of first-round bidders had not received their money. It is not only the Opposition saying that. In yesterday’s “Today” programme, the chief executive of the North East chamber of commerce, James Ramsbotham, was asked whether the money will help. Referring to the second round, he said:

“It’s…difficult to say, because of…the first tranche of the RGF…not a penny has been paid”.

I assume that he was referring to the north-east. He also said that

“the businesses that it’s going to are…already doing incredibly well…I do believe that it’s worth investing in success…although there is clearly a lot of debate about whether there should be more investment in jobs and in infrastructure”.

He said that the delay was serious and needed to be addressed. When asked about whether the Government should have scrapped the regional development agencies, he said that One North East had worked rather well to promote the area for tourism and business, that nobody would be doing that now, and that it would be a loss.

That brings us on to a broader point about the way in which the Government got rid of the RDAs and the impact on the regional growth fund. One of our criticisms is that the process of filtering the bids has had little regional input. The RDAs had good expert advisers, who could have been used either directly in the regional growth fund bids or in local enterprise partnerships. However, because the process has been driven by two of the horses of the apocalypse, in the shape of the Chancellor of the Exchequer and the Secretary of State for Communities and Local Government, who wanted the mention of anything regional blotted out, those people have been lost. That is a great loss.

The Government have tried to hide behind excuses for the delays. Lord Heseltine stated last month that RGF money was never expected to come first, and that businesses would proceed with other sources of cash first. Yet the guidance on the RGF’s bidding criteria, as Opposition Members have already said, states that bidders would usually expect to receive the cash in line with other payments.

In the article in The Times that has already been referred to, the Minister made precisely that point. He talked about the problems that there had been with certain bidders not being able to draw down private sector funds, which was holding up the Government’s release of cash. The Government cannot have it both ways—they cannot on the one hand say that it is perfectly all right for the money to come at the end of the process, and on the other concede to The Times that the fact that the money has not been forthcoming is a serious part of the problem. That is part and parcel of the blurred and confusing way in which the Government have proceeded.

The Minister said in the article that due diligence should take about six weeks on average, but clearly that has not been the case; 40 bidders were still waiting six months later. Sometimes the Department for Business, Innovation and Skills seems to resemble the Spanish empire of Philip II, where the bureaucracy was so labyrinthine and took so long that a famous quote said, “If death came from Madrid, I would be immortal”. We all know what happened to the Spanish armada, and I hope that its fate will not befall the Minister, the Department or its officials. There is a serious point about how the Government have handled the process. I would like to hear from the Minister what will happen to the money that he says may not be distributed under due diligence.

It is also important to ask what input there is into the process within BIS. How many people are working on it? The Minister needs to answer the questions raised by the Opposition about external factors and costs, but I know from his answer to a question of mine on 8 September that only 11 full-time officials in the Department were working on the regional growth fund at that time. I leave Members to consider whether that is reasonable. Given that it has taken the Department a long time to deal with only five bids from round 1, how long do Members think it will take to deal with 119?

Although the scheme is called a regional growth fund, there appears to have been little or no regional input in the process, with decisions taken in Whitehall. Taking the panel as an example, we know who is on it, but 15 months after the process was launched, we still do not know clearly what the panel does and how it does it. It would be helpful if the Minister could explain precisely the link between the panel’s advice and the decisions made. That is extremely important, particularly in light of two articles in The Times and the Financial Times today. The FT article dealt with an issue that the Opposition have already raised—the interests of one of the members on the panel. The article in The Times drew some conclusions on how there seemed to be a relationship between the distribution of bids, political areas in the country, and companies that are significant backers of the Conservative party. That is for The Times to say; it is not for me to comment on. I prefer to take up what is said at the end of the article. The Minister has to listen to this. The article states that the process is getting a lukewarm welcome from the CBI and from the director general of the British Chambers of Commerce, who said:

“The speed at which this funding is delivered will be fundamental to the success of the Regional Growth Fund.”

The Government must move faster. The deputy director general of the CBI said:

“Despite its size, this fund does not have the capacity to plug the finance gap. The Government needs to look at other funding options to help these firms grow.”

Those are exactly the points that the Opposition have made throughout the process. We believe in the principle that money that is meant for the regions should stay in the regions.

There are three key criteria regarding regional growth policy on which the Government should be judged: the conduct of the RGF and how adequate it is as a replacement for RDA funding; how adequate LEPs are to take over the RDA structures—I have already referred to the failings in the system—and mechanisms for releasing European funding to the regions. The Minister needs to address all those issues, particularly the role of investment in transport infrastructure.

The Minister and the Secretary of State preside over a fund into which they do not put any money—the money comes from the Department for Communities and Local Government, the Department for Environment, Food and Rural Affairs and the Department for Transport. That showed in the first few months, when, as I said, those Departments steamrollered the Department for Business, Innovation and Skills and pushed it out of the way. It is now trying to claw back the role, but too much time has been lost in that process, and too much time is still being lost because of the incompetence of the process of due diligence.