Digital Region becomes £50 million liability for taxpayers

August 22, 2012 5:39 PM

A publicly-owned internet project in South Yorkshire has reported heavy losses for the second year running, forcing councils in Sheffield, Doncaster, Rotherham and Barnsley to inject tens of millions of pounds of taxpayers’ money into the company and putting its financial future at risk. Digital Region, a Government-backed scheme unveiled with great fanfare in 2009, aims to make ‘superfast’ fibre-optic broadband available to homes and businesses across South Yorkshire.

However the project has not been able to attract a single major Internet Service Provider (ISP) to sell the service to residential customers because so few people have signed up for it. Its disastrous £22 million losses last year were more than double those in 2010- 11. The scheme was expected to run a profit to pay off its multi-million pound start-up loans, but instead local councils have been forced to write them off. Doncaster, Rotherham and Barnsley councils last year allocated over £8 million each for Digital Region, with Sheffield’s liability estimated to be around £16 million. If the scheme requires a full bail-out, this means that the councils would have spent £41 million on a project designed to break even.

To make matters worse, an EU grant of £27 million made to Digital Region may end up having to be repaid due to its strict conditions. European Union money is only granted under the assumption that a project is a success and eventually becomes self-funding, to avoid it being misused. The now-defunct regional development agency Yorkshire Forward reportedly set aside a contingency fund should the grant need to be repaid, with almost half the money - £11.5 million - coming from the four councils.

Spokesmen for the local authorities and Digital Region have insisted that the scheme will be a success and that a company will eventually come and market the network. Instead of wasting taxpayers’ money on a white elephant project, it would have been better if the councils had bothered to ask local people and businesses if they were interested, suggesting that councillors were chasing EU money instead of paying attention to the needs of their constituents. A registry of interest would have shown whether or not South Yorkshire residents were willing to pay for superfast broadband and would have allowed the market to lead the way, rather than relying upon a failing scheme that is costing taxpayers tens of millions of pounds.A publicly-owned internet project in South Yorkshire has reported heavy losses for the second year running, forcing councils in Sheffield, Doncaster, Rotherham and Barnsley to inject tens of millions of pounds of taxpayers’ money into the company and putting its financial future at risk. Digital Region, a Government-backed scheme unveiled with great fanfare in 2009, aims to make ‘superfast’ fibre-optic broadband available to homes and businesses across South Yorkshire.

However the project has not been able to attract a single major Internet Service Provider (ISP) to sell the service to residential customers because so few people have signed up for it. Its disastrous £22 million losses last year were more than double those in 2010- 11. The scheme was expected to run a profit to pay off its multi-million pound start-up loans, but instead local councils have been forced to write them off. Doncaster, Rotherham and Barnsley councils last year allocated over £8 million each for Digital Region, with Sheffield’s liability estimated to be around £16 million. If the scheme requires a full bail-out, this means that the councils would have spent £41 million on a project designed to break even.

To make matters worse, an EU grant of £27 million made to Digital Region may end up having to be repaid due to its strict conditions. European Union money is only granted under the assumption that a project is a success and eventually becomes self-funding, to avoid it being misused. The now-defunct regional development agency Yorkshire Forward reportedly set aside a contingency fund should the grant need to be repaid, with almost half the money - £11.5 million - coming from the four councils.

Spokesmen for the local authorities and Digital Region have insisted that the scheme will be a success and that a company will eventually come and market the network. Instead of wasting taxpayers’ money on a white elephant project, it would have been better if the councils had bothered to ask local people and businesses if they were interested, suggesting that councillors were chasing EU money instead of paying attention to the needs of their constituents. A registry of interest would have shown whether or not South Yorkshire residents were willing to pay for superfast broadband and would have allowed the market to lead the way, rather than relying upon a failing scheme that is costing taxpayers tens of millions of pounds.

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