From the TUC

FT is right about 41,000 jobs from Regional Growth Fund

15 May 2012, by in Economic Reports, Economics, Environment, Uncategorized

Lord Heseltine thunders at the FT today for an “extremely misleading” report that the Regional Growth Fund will create just 41,000 jobs, costing up to £200,000 to create a single post. Not so, says Lord Heseltine, who chairs the RGF advisory panel. The fund “will create 328,000 jobs … As I made clear to your reporter, I do not accept the figure of 41,000 jobs, which gives a misleading impression of the impact of the fund.” So who is right? The FT headlined a review last Friday by the National Audit Office of the government’s flagship to create private sector jobs where public sector job losses would cut deepest.  The NAO found that the 219 successful projects would create 117,000 full time equivalent jobs. Of these, 41,000 are additional full-time equivalent private sector jobs. The average cost if £33,000 per job, with a tenth of projects exceeding £106,000 per job.

The NAO queried the cost-effectiveness of a tenth of the 219 projects endorsed by Ministers. However, the £33K average was in line with similar government schemes, and the RGF awards were appropriately targeted at vulnerable regions.

1,000 firms applied for funds, promising 328,000 jobs. A fifth succeeded. It’s worth looking at the NAO report, released on 11 May and buried under the day’s anti-austerity headlines in France, Greece and elsewhere.

The Coalition set up the £2.4bn Regional Growth Fund to encourage private sector enterprise focussing on “those areas and communities that are currently dependent on the public sector make the transition to sustainable private sector led growth and prosperity.”  The RGF was intended to help the private sector fill the gap left by public sector job cuts. The Office for Budget responsibility forecast that 710,000 jobs in the public sector could be lost between 2011 and 2017.

  RGF bids RGF allocations % successful
No. bids Worth Total No. projects
Round 1 464 £2.8bn £450m 50
Round 2 492 £3.3bn £950m 169 23%
Total 956 £6.1bn £1.4bn 219  

The Fund’s initial £1.4bn pot was allocated in two funding rounds (see table). A further £1bn was provided for in the 2011 Autumn Statement, with a third bidding round closing in June 2012. The £2.4bn budget is split between DCLG (80%) and BIS.

Bids Jobs created Direct jobs Indirect jobs % direct jobs
Round 1 127,000 27,000 100,000 21%
Round 2 201,000 37,000 164,000 18%
Total 328,000 64,000 264,000 20%

Bidders estimated that 64,000 of the jobs, around 20%, would be created or safeguarded directly, with the remaining 264,000, or 80 per cent, being indirect.

The government expects to agree final offer letters securing about 117,000 full
time equivalent jobs (providing work for at least 30 hours a week). However, the NAO says not all the jobs created or safeguarded, whether direct or indirect, will be ‘additional’. “Some would probably have been created or safeguarded anyway, because there is always a possibility that firms might have made the investment without public support, or would have found alternative support. Also, assisting one firm could generate a competitive advantage over its rivals, decreasing competition in the wider market.”

Taking these factors into account, the NAO concludes that the first £1.4bn of the RGF could “create, safeguard or support” the equivalent of 41,000 additional full time private sector jobs in the economy for seven years, including 13,000 direct jobs from
supported projects and 28,000 “indirect” jobs through supply chains and “knock-on effects in the wider economy”.

The Fund supports a wide range of projects, from automotive and business support and finance initiatives to ports, waste and energy infrastructure. Overall, the projects were more likely to be located in vulnerable areas of high unemployment and
“vulnerable to public sector job losses”, principally the North and Midlands.

£33K average cost per job. The average cost of each of the expected 41,000 net jobs created or safeguarded is £33,000 (range £4,000 to over £200,000). This is significantly higher than the £28,000 cost per job achieved by the Regional Development Agencies. The NAO is critical of the poor value for money of about a tenth of the approved schemes. The 27 least cost effective projects will average £106,000 per additional job. No Ministerial limit was placed on the cost per job.  “Making a significant number of less cost-effective awards reduced the cost-effectiveness of the Fund overall.”

Leverage. The ratio of private-to-public investment averaged around £6 of private investment expected for every £1 of public investment from the Fund. This ‘leverage’ ranged from similarly varies between individual projects and programmes, from less than £1 of private investment expected per £1 from the Fund, to over £19.

It’s too soon to say what the Fund’s overall contribution will be to rebalancing the economy in any particular region. If Minister’s heed the NAO advice on value for money, the combined £2.4bn RGF, including round 3, could eventually support 70,000 jobs. This assumes the Ministers sustain an average cost of £33K per job. The Fund could also leverage say six times that amount or around £14bn.

Green Investment Bank. It’s worth comparing the RGF’s achievements with the Green Investment Bank. The GIB has an initial £3bn capitalisation which, according to Budget 2011, will leverage an extra £15bn of private sector investment over the course of the parliament. This 5:1 ratio seems consistent with the leverage achieved by the RGF. However, the GIB is likely to lean towards capital intensive investments; for example, the first £100m tranche of its funds will be available to support bids for low carbon technologies from the energy intensive industries.

Welcome though the GIB’s £3bn contribution will be for the green economy, it is unlikely to match the RGF for jobs created.