Press Release - The Department for Trade and Industry: Regional
Grants in England
17 June 2003
Head of the National Audit Office Sir John Bourn reported to
Parliament today that the Department of Trade and Industry’s use of
regional grants had a measurable effect in reducing unemployment in
defined ‘Assisted Areas’. The net effects of the schemes, however,
depended on such factors as the extent to which jobs would have
been created or safeguarded without support, displaced jobs in
other parts of the Assisted Areas and multiplied jobs in the supply
chain. These factors act overall to reduce the impact of grants,
compared with the assessments that are able to be made when
appraising applications.
The DTI provides two grant schemes, Regional Selective
Assistance and Enterprise Grant, to support investment and jobs in
the Assisted Areas in England – traditionally characterised as
areas of relatively low Gross Domestic Product per head, relatively
high levels of unemployment and in the process of industrial
restructuring. Enterprise Grant, introduced in 2000, is more widely
available, introduced greater flexibility and adopted a streamlined
appraisal process for smaller value applications. In the three
years from 1999-00 to 2001-02, total expenditure for England
amounted to over £300 million for Regional Selective Assistance and
£14 million for Enterprise Grants. Based on the initial project
appraisals, the Department expected that this expenditure would
support the creation or safeguarding of some 100,000 jobs.
The full net effects and the true cost to Government can only be
assessed several years after the offers have been made and the
projects implemented, taking into account such factors as the need
for grant, job displacement, the timing and duration of jobs,
multiplier effects and net exchequer costs. The Department,
together with the Scottish and Welsh administrations who are
responsible for the operation of the scheme in their territories,
have commissioned three studies from independent contractors for
Regional Selective Assistance (Enterprise Grant is too new to have
been evaluated) to quantify these effects and estimate scheme
impacts. Analysis of the latest evaluation of Regional Selective
Assistance, published in 2000 and covering offers made between 1991
and 1995, indicated that some 110,000 jobs had been created or
safeguarded in England and that, of these, an estimated 21,000
could be regarded as permanent, discounted, additional and net of
jobs displaced, at a net exchequer cost of £21,000 (2002
prices).
The methods used by the evaluations compared favourably with
those applied to other schemes here and overseas. But the National
Audit Office review identified a number of areas where refinements
to the evaluation methods, or their application, could have
significant effects on estimates of net jobs created or
safeguarded, and the costs as follows:
- assuming there was more bias in questionnaire responses from
companies which received grant than the evaluations found, and
applying the findings of research on the lifespan of jobs created
or safeguarded in the late 1970s – the only empirical research
available - could result in estimates of additional jobs created by
grant lower than the assessment in the latest evaluation;
- recognising the impact of additional jobs on local labour
markets could increase estimates of the number of jobs displaced by
those created or safeguarded in England; and
- departmental evaluations did not take into account the
administrative costs to both applicants and the Department. There
are no hard figures for these costs, but we estimate them as around
10 per cent of grant values.
Coming to a firm estimate of the effects such factors might have
on the evaluation estimates would require further research and data
collection at the local and regional levels. The Department does
not accept that research results on job lives that date back to the
late 1970s apply to Regional Selective Assistance in the 1990s, or
that economic modelling exists that could be reliably applied
across all Assisted Areas and Regions. We agree that these
uncertainties preclude advancing a firm alternative estimate. But
we conclude that it is probable that fewer additional jobs have
been created or safeguarded than the evaluation estimated, and at
higher cost.
Regional Selective Assistance has been amended gradually since
its introduction in the 1970s to reflect the changing needs of
policy. From 2000, for example, more emphasis has been given to
upgrading skills and technology. While the scheme aims to combat
the effects of multiple market weaknesses in Assisted Areas, those
weaknesses have not been clearly identified, making it hard to
assess whether the scheme represents a cost-effective choice of
policy instrument. Clear, if unquantified, objectives have been
set, however, and detailed scheme guidelines translate the
objectives into criteria against which assistance applications are
judged.
The DTI is currently reviewing all its business support schemes,
including Regional Selective Assistance and Enterprise Grants, to
increase their contribution to improving United Kingdom
productivity and competitiveness.
The Department expects to create a new capital investment
support instrument to replace the existing schemes. The NAO report
makes recommendations on the design, administration and evaluation
of this type of support to help focus support more closely on
objectives, reduce administrative burdens on both applicants and
officials, and give clearer information on whether support was
having the intended effects.
Sir John Bourn said today:
"The regional grants from the DTI to industry in areas
of significant unemployment in England have resulted in a number of
additional jobs but, according to the Department’s evaluations,
there is a substantial difference between the number of jobs
initially supported and the number which are truly extra. It is
important that the DTI takes steps to ensure the grant assistance
is effectively meeting its objectives and to reduce further the
administrative burdens involved."
Notes for Editors
- Press notices and reports are available from the date of
publication on the NAO website at www.nao.org.uk.
Hard copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 46/03
All enquiries to Barry Lester, NAO Press Office:
Tel: 020 7798 7937
Pager: 07699 735560