Exclusive: ‘Funding fix’ as Yorkshire loses £2m to the South

The money, which could have funded transport projects or flood defences to allow developers to go ahead with housebuilding schemes or business parks, will instead be used to boost construction mainly in the South.

Communities Secretary Eric Pickles has now been urged to explain why he chose to use an unusual formula to decide how the money should be distributed, amid concern the move will hamper the region’s economy and exacerbate the North-South divide.

John Healey, the Wentworth MP and a former Minister in the Department for Communities and Local Government, said: “This funding fix results in more money being given to more affluent areas.

“Our area is being cheated of funding for new jobs while the big winners will be the Tory Home Counties like Berkshire, Hertfordshire and Buckinghamshire.”

The controversy surrounds the Government’s Growing Places Fund, a £500m pot unveiled by Chief Secretary to the Treasury Danny Alexander at the Liberal Democrat conference in September and which is designed to kick-start stalled construction projects.

The money is being divided up between council and business-led Local Enterprise Partnerships across the country to fund infrastructure work which needs to be carried out before private developers will move in. When the project is complete, the money will have to be repaid by the developer, so the cash can be re-used to start another scheme.

Ministers announced earlier this month how the money would be handed out, with £24m earmarked for Leeds City Region, £12.3m for Sheffield City Region, £6.2m for York and North Yorkshire and £5.8m for the Humber.

The money has been welcomed by all areas, who are now identifying which schemes to spend it on, but Mr Healey claims the region would have got nearly £2m extra if the Government had not used a strange formula to distribute it.

As well as using an area’s population, Ministers also took into consideration “employed earnings” – a measure of wage levels which are unsurprisingly higher in the South.

He claims there is no sign this has been used by Ministers before, and experts in the House of Commons library have calculated that had the Government used employment levels – a more common economic indicator – instead, it would have meant an extra £570,000 for Leeds City Region, £480,000 for Sheffield City Region, £380,000 for the Humber and £390,000 for York and North Yorkshire.

The big winners from the Government’s decision are the pan London Local Enterprise Partnership, which benefits by £6.8m, and Thames Valley and Berkshire, which benefits by £1.5m.

In a letter to Mr Pickles, Mr Healey said: “You appear to have invented this measure which benefits areas with higher earnings; and reinforces rather than reduces existing economic disparities between areas.

“No justification or precedent for using this special statistical method is provided in the prospectus. This funding formula is a fix which results in more of the funding being given to more affluent areas.”

But a Department for Communities and Local Government spokesperson said: “It is nonsense to suggest a regional bias in our formula.

“Employed earnings gives a more accurate measure of the level of relative prosperity in each local enterprise partnership area, ensuring the £500m Growing Places Fund is allocated to where it is most needed.

“Provisional allocations have been made according to the relative size of each local enterprise partnership.

“While each local enterprise partnership will receive its own allocation, we would encourage them to work together to boost the impact that the funding could have. So if all Yorkshire’s local enterprise partnerships worked together, the wider area could benefit from as much as £42m.”

The Government’s funding policies are already under fire after accusations that Regional Growth Fund money is being taxed twice.

Last week, the Yorkshire Post revealed a slice of the £1.4bn funding pot would be treated as taxable income. This means corporates face paying 26 per cent tax on money awarded from the fund, although the Department for Business said where the fund is supporting businesses through loans or to a public body for infrastructure projects, no tax will be paid.

Margaret Wood, regional chairwoman of the Institute of Directors, compared the Government with the Sherriff of Nottingham and said treating the monies as income was a “double whammy for taxpayers”.

So far Yorkshire won seven bids worth £46m in the first round of funding and 24 bids worth £143m in the second.