Taxpayer facing huge bills as digital network remains unused EXCLUSIVE

Newly-published documents reveal Sheffield, Doncaster, Rotherham and Barnsley Councils paid out tens of millions of pounds of taxpayers’ money last year to prop up the ailing Digital Region project, at the very time they were forced to slash spending on front-line services.

The councils have also now been forced to write off the multi-million pound set-up loans made in 2009, after accepting the money will never be repaid.

And the cost of the bail-out could be even more, after it emerged Digital Region’s £27m EU grant may have to be returned amid growing concern the scheme has failed to meet strict regeneration conditions from Brussels.

Digital Region boss David Cowell insisted last night that despite the project’s difficulties, it has given South Yorkshire “the best superfast broadband coverage in the UK”.

But one internet expert described the amount of public money being “sucked up” as “sickening” and warned despite the massive bail-out the project still faces “an increasingly challenging” future.

Digital Region is a flagship Government-backed scheme introduced in 2009 to make “superfast” internet speeds available to almost every home and business in South Yorkshire.

Funded by the EU grant and the taxpayer-funded loans, a vast network of publicly-owned fibre cables has been laid beneath the streets of South Yorkshire over the past three years.

However project managers have so far failed to attract a single major internet firm to sell the service to domestic users – so few people have signed up to use it.

The Yorkshire Post can today reveal that because it has so few customers, Digital Region posted losses totalling more than £22m last year – dwarfing even the £9.2m lost in 2010/11.

Under its original business plan, it was supposed to be generating sizeable profits to repay the loans.

Instead, end-of-year accounts published by Doncaster, Rotherham and Barnsley Councils reveal each was forced to put a further £6.2m into the scheme to prevent it from going under last year, while also writing off loans worth a further £2m each.

Sheffield Council has not yet published its own 2011/12 accounts, but as it owns twice as many shares in Digital Region as the other councils its exposure is likely to be twice as much – so the bail-out could cost Sheffield taxpayers as much as £16.4m so far.

If so, this also means the four councils would have spent £41m on a scheme originally designed to be cost-neutral.

The four authorities have repeatedly refused to answer detailed questions about their financial exposure. However in a joint statement last night they said they had “taken every step possible to protect taxpayers”.

That the bail-out cost could exceed £50m remains a risk.

Separate accounts published by the now-defunct regional development agency Yorkshire Forward – which set up the Digital Region scheme with the four councils in 2009 – reveal it set aside a contingency fund worth £27m in case the EU grant has to be repaid.

EU grants often include strict achievement conditions.

The Yorkshire Forward document states if the grant does have to be returned, almost half the money – more than £11.5m – would be “recovered” from the four councils.

In a statement, the authorities accepted the project had been “not without risk” but insisted Digital Region has a bright future once a company comes in to operate and market the network.

“Each of the four authorities and central Government has always been mindful of the cost and has taken every step possible to protect tax payers,” a spokeswoman said. “However, all stakeholders are confident the project will successfully deliver a market-leading scheme that it vital for South Yorkshire’s future.

“It was a brave decision by the authorities to part-fund this pathfinder scheme geared to alleviating the area’s economic disadvantages. However, the project has become even more relevant and the objectives – to help individuals and businesses gain access to broadband – fit in perfectly with the Government’s agenda to deliver superfast broadband right across the country.”