Growth by numbers

A report by Ernst & Young, sponsor of the 'Competition in a New Society, Cities and Regions' supplem

Chris Lewis looks back at the first two rounds of the Regional Growth Fund to understand what more can be done to stimulate job creation.

The £1.4bn Regional Growth Fund (RGF), launched in June 2010, has the ambitious goal of rebalancing the UK economy by helping the private sector create sustainable employment in areas previously reliant on the public sector for employment.

A competitive tendering process was intended to ensure that the funds would be deployed to have maximum and immediate impact on job creation and growth. Round one was completed in spring 2011 and round two winners were announced early November 2011.

Media coverage has tended to focus on thereduced level of funding, the slowness of the bid process, the speed with which funds have been distributed, and a focus on the disapp-ointed bidders.

However, successful bids for funds from the second tranche should lead to 201,000 jobs being created or protected, with 37,000 being directly created and more than 164,000 "in the supply chain". The government claims that the grants are unlocking significant amounts of private sector investment - with at least £5 put in for every £1 of public money.

The RGF really does have potential to be a more efficient mechanism for supporting private-sector-led growth than the system it has supplanted. It gets money directly to those organisations that can make best use of it to create sustainable private-sector employment.

However, projects that have been successful in receiving funding are those that could be perceived to be safe bets and "ready to go" and are not necessarily the most ambitious projects with the most transformational potential, likely to have the greatest economic impact. Rather than prioritising against a clear strategic growth framework, the approach seems to be to let a "thousand flowers bloom".

There is also a surprising amount of successful bids from the public sector which could be a result of the fact that public sector organisations know their way around bidding for government money much better; they are used to applying for funding. Business often needs more help in navigating the machinery of government.

Business is also put off by uncertainty. It has not been confirmed whether further rounds of finance will be made available. If government is serious about improving consumer confidence and supporting private sector growth in an efficient way that business understands and supports, there needs to be a clear commitment to more RGF money over the next two years.

After two over-subscribed bidding rounds, itis proving to be a pragmatic way of getting support to commercial organisations, quickly and efficiently.
The market needs to be given unequivocal assurance that the coalition government's commitment to supporting private sector growth through the RGF will continue. We need to maintain and increase momentum. Businesses now understand better how the system works and how to apply.

The over-subscription seen in the first round has remained but at a lower rate in round two as businesses learn which of their investment opportunities have the best chance of support. The RGF process took time to create and get up and running, but has increased in efficiency as each bidding round has been completed. Having built it, it would be a waste to scrap it in favour of a new initiative.

The application process needs to be refreshed and the government needs to give the market much clearer direction on what it wants, where and why. The system also needs to speed up, with due diligence on projects accelerated so that confidence is built. The RGF has the potential to deliver a rapid impact on job and wealth creation. We need more active, considered government intervention, we need greater pace and urgency and we need a commitment to further funding rounds.

Chris Lewis
Director, Ernst & Young
+44 (0) 20 7951 8310

The 'Competition in a New Society: Cities and Regions' supplment was sponsored by Ernst & Young. Chris Lewis, Director of Ernst & Young, offered the above report.

This article first appeared in the 28 November 2011 issue of the New Statesman, The rise of the muslim brotherhood