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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.

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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.

"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."

Sir John Bourn


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