News

NAO report shows bulk of £2.6bn RGF money remains unspent

News by
Business

The government's flagship lending scheme, the Regional Growth Fund (RGF), has been criticised in the latest report from the National Audit Office for its slow progress in awarding the £2.6bn allocated to the first four bidding rounds.

According to the latest NAO report on the RGF, more than 80% of the £2.6bn allocated to the first four bidding rounds remains unspent, partly due to the length of time taken to process the bids.

The report states that £917m of the £2.6bn had been paid to bidders, but that £425m of this was held by intermediary funds (which apply for a block of money to then award in the form of grants, loans or venture capital to local businesses).

This means that just £492m of the £2.6bn allocated to the first four rounds of the RGF has actually reached applicants and by extension the RGF faces a "significant challenge" to distribute all of the funds allocated to it.

In fact, the RGF will have to distribute £1.4bn to businesses in 2014/15 alone - more than it has managed in all three previous years put together - to remain on budget. In spite of this large running surplus, the government had already earmarked a further £600m to support this year's fifth and sixth bidding rounds.

One reason for this is that a large chunk of the 2011/12 budget was awarded as endowments to intermediaries to avoided underspending and having to return that portion of RGF funding to the Treasury.

At the end of December 2013, of the £481.3m funding allocated to the 10 largest intermediaries, £350.6m had been paid out by the government (including £264.8m in endowments) but just £104.5m of that had actually been distributed to businesses.

These intermediaries include Santander UK, which had distributed just £2.3m of the £53.5m it had received from the RGF, Birmingham City Council, which had distributed £7.6m of its £70m allocation, and West of England LEP, which had paid out just £1.3m of the £39.8m it received.

Conversely, the best performer of the top ten intermediaries was the Royal Bank of Scotland (RBS), which received a £70m endowment and distributed £69.8m to businesses.

The report also reveals a massive difference in management fees charged by these intermediaries, ranging from 0% by RBS and the East Kent Employment Task Force, to 9% by Santander UK and Sharing in Growth UK.

Business Finance