MPs fear disaster as red tape holds up regional fund cash

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MINISTERS risk losing hundreds of millions of pounds earmarked for the regional economy due to the slow pace of a flagship funding scheme, MPs have warned.

Margaret Hodge, chairman of the powerful Commons public accounts committee (PAC), said yesterday it was “completely unrealistic” and “unachievable” for the Government to spend all £2.6bn of its regional growth fund before the end of the current financial year.

The fund was launched in 2011 as the Government’s primary way of supporting economic growth in the regions.

Firms which are seeking to expand can apply for huge grants from Whitehall, with the money handed out on condition that a set number of new jobs are created.

But a report by independent auditors recently revealed that only £490m of the £2.6bn fund has so far actually made it through to companies on the ground – a figure Mrs Hodge described as “disappointing”.

Large sums are being held by intermediaries such as banks and local enterprise partnerships, who have promised to hand the funds out to small local projects on the Government’s behalf.

But £1.4bn remains unspent and must be handed out before next April – or the money will be returned to the Treasury.

“You’ve got to get the money into projects by the end of the financial year 2014/15, or you lose it,” Mrs Hodge told Whitehall officials appearing before her committee last night.

“That just seems to me completely unrealistic and unachievable. Given your record to date, there is nothing there that provides the confidence that you can do it.”

The regional growth fund has been repeatedly criticised by auditors and Opposition MPs for the slow pace at which money has been spent.

Ministers accept there was a problem in the first year of the scheme, but insist its administration has now markedly improved.

Debbie Gillatt, the Whitehall official who administers the fund, said agreements have been signed with around 400 companies, and that she is confident the money will be handed out in time.

“We recognise the next year is a challenge – but we don’t think it’s insurmountable,” she said.

Under questioning from the committee, Ms Gillatt revealed 30 of the 400 projects have been given ‘red lights’ by her department – meaning there is a real danger the firms involved may pull out. A further 110 have been classed as amber, meaning they are potential problems.

Tory MP Stewart Jackson told the officials he fears the fund “looks like a recipe for disaster”.

“I think Ministers need to get a grip of this,” he said.