TPA response to new RDA enquiry

April 01, 2009 12:13 PM

As has been discussed a little in earlier posts, back in December 2007 the Department for Business, RDA Map

Enterprise and Regulatory Reform (BERR) employed the consultancy firm PriceWaterhouseCooper's (PwC) to investigate, in depth, the impact of RDAs on England's regions.

Better late than never, the PwC report was finally published yesterday. In an impressively caveatted conclusion, the evaluation states that:

"there is credible evidence that all RDAs have generated regional economic benefits which exceed
their costs. This is especially so if account is taken of the potential
persistence of the benefits and of future potential benefits, although
there are inherent uncertainties in these estimates. Across all
interventions the annual impact on GVA resulting from jobs which have
already been created or safeguarded is broadly equal to the cost, but
if allowance is made for the expected persistence of these benefits,
then every £1 of RDA spend will add £4.50 to regional GVA."

"The
picture, however, is varied. On the one hand, some projects and
programmes have already achieved regional benefits in excess of costs,
notably in the area of business support. On the other hand, some
interventions have not yet achieved regional economic benefits in
excess of their costs, although the majority of them have the potential
to do so if the expected benefits arise. This is especially true of
many physical regeneration projects/programmes where the investments
are expected to deliver longer term benefits."

The TPA's position on RDAs has been made robustly before (see here), but in sum, we believe the evidence does not support the notion that RDAs offer value for money. Although we acknowledge that RDAs have been active in handing out grants, administering support programs and rehabilitating brown field sites, our thesis was that the strategy embodied by - and the spending administered by - the RDAs had not noticeably affected the regional growth patterns established before 1999. Indeed in some areas we posited that growth had actually slowed, despite the massive spending. The argument was that such extensive investment (over £15 billion between 1999 and 2008) should accelerate growth, or at very least maintain it at pre-1999 levels. This, along with 'narrowing the economic gap between regions', was the explicit objective of RDAs at their inception. They are objectives that RDAs have failed to deliver on. A conclusion which - to be bold - the PwC report does not refute.

The PwC conclusions are being presented as: "every £1 spent by RDAs adds £4.50 to regional GVA". (GVA stands for Gross Value Added, a measure of economic output). In other words, RDA spending yields significant returns. But the PwC conclusions (replicated above) do not say this. They say, quite fairly, that the overall benefits of RDAs have, to date, been roughly equal to their costs. For every one £1 spent on job creation or protection, we have got £1 of benefits back.

From what we can establish so far, the assessment is based on studies (organised by the RDAs themselves) designed to substantiate the RDA's performance measures, of the number of jobs safeguarded or created for instance. Taking job creation specifically, these surveys asked businesses how many staff they have employed since 'X', and how many of those they would not have employed if the RDA sponsored programme did not exist. This approach clearly has its limits, with companies making necessarily rough estimates of how many people they might have hired if a programme didn't exist. This method might also be compromised if firms felt that telling researchers working for the RDAs that a scheme created few jobs undermined their chances of receiving future grants.

The particularly interesting part comes from the calculation of 'potential benefits', those that may occur in the future. For instance while RDA's have been essentially subsidising jobs (a grant to a small company encourages them to hire someone new) the 'potential benefit' accrued by that company keeping that employee on after the grants stops could mean as much as £3.50 in additional GVA for those initial pounds spent. So the conclusion is really that RDAs 'might' be worth the investment. After £16 plus billion to date, we all hope so.

The report is necessarily complex, and any simplistic assertion that says it concludes RDAs give almost £4 for £1 spent is as unsubstantiated as one that says the report has found RDAs to have been a huge waste of money. It says neither. The hundreds of programs administered by RDAs, in distinct areas such as job creation, brown field redevelopment and business support, means that the picture differs not only between regions but between programs. However if nothing else, it is ironic that while the RDAs of 2007 are given a cautious thumbs up on the grounds that they might have been worth the investment, the RDAs of 2009 exist in a rather different economic context, and have assumed a rather different role (that of the Government's regional recession co-coordinators). Now every £1 spent is on a job 'saved', rather than created. The focus is now on preventing a regional down-turn, rather than encouraging regional growth. In the current climate, the fact that RDAs (read 'taxpayers') are simply subsidising jobs is less controversial than it would have been a year ago.

But that does not mean that RDAs are a positive addition to our already unfathomable Government architecture. Whatever the pros and cons of taxpayer funded job support schemes in a recession, if they are the chosen policy then why can't local government administer them, or central Government's own regional offices? Moreover, a tax cut for small business is, in many ways, better than a hand-out. Most SME's want to expand, hire new people, keep their existing staff on. A tax cut keeps money in their pocket in the first place, enabling them to hire that new person, or keep the current ones. Instead of taxing the business, filtering the money though dozens of costly bureaucratic layers, only then to give the money back to the business in a subsidy, the tax cut would just leave the business with more money. No-one should believe that RDAs, local or central government help struggling businesses. Taxpayers do. And there are alternative ways to hand outs with which to help.

As has been discussed a little in earlier posts, back in December 2007 the Department for Business, RDA Map

Enterprise and Regulatory Reform (BERR) employed the consultancy firm PriceWaterhouseCooper's (PwC) to investigate, in depth, the impact of RDAs on England's regions.

Better late than never, the PwC report was finally published yesterday. In an impressively caveatted conclusion, the evaluation states that:

"there is credible evidence that all RDAs have generated regional economic benefits which exceed
their costs. This is especially so if account is taken of the potential
persistence of the benefits and of future potential benefits, although
there are inherent uncertainties in these estimates. Across all
interventions the annual impact on GVA resulting from jobs which have
already been created or safeguarded is broadly equal to the cost, but
if allowance is made for the expected persistence of these benefits,
then every £1 of RDA spend will add £4.50 to regional GVA."

"The
picture, however, is varied. On the one hand, some projects and
programmes have already achieved regional benefits in excess of costs,
notably in the area of business support. On the other hand, some
interventions have not yet achieved regional economic benefits in
excess of their costs, although the majority of them have the potential
to do so if the expected benefits arise. This is especially true of
many physical regeneration projects/programmes where the investments
are expected to deliver longer term benefits."

The TPA's position on RDAs has been made robustly before (see here), but in sum, we believe the evidence does not support the notion that RDAs offer value for money. Although we acknowledge that RDAs have been active in handing out grants, administering support programs and rehabilitating brown field sites, our thesis was that the strategy embodied by - and the spending administered by - the RDAs had not noticeably affected the regional growth patterns established before 1999. Indeed in some areas we posited that growth had actually slowed, despite the massive spending. The argument was that such extensive investment (over £15 billion between 1999 and 2008) should accelerate growth, or at very least maintain it at pre-1999 levels. This, along with 'narrowing the economic gap between regions', was the explicit objective of RDAs at their inception. They are objectives that RDAs have failed to deliver on. A conclusion which - to be bold - the PwC report does not refute.

The PwC conclusions are being presented as: "every £1 spent by RDAs adds £4.50 to regional GVA". (GVA stands for Gross Value Added, a measure of economic output). In other words, RDA spending yields significant returns. But the PwC conclusions (replicated above) do not say this. They say, quite fairly, that the overall benefits of RDAs have, to date, been roughly equal to their costs. For every one £1 spent on job creation or protection, we have got £1 of benefits back.

From what we can establish so far, the assessment is based on studies (organised by the RDAs themselves) designed to substantiate the RDA's performance measures, of the number of jobs safeguarded or created for instance. Taking job creation specifically, these surveys asked businesses how many staff they have employed since 'X', and how many of those they would not have employed if the RDA sponsored programme did not exist. This approach clearly has its limits, with companies making necessarily rough estimates of how many people they might have hired if a programme didn't exist. This method might also be compromised if firms felt that telling researchers working for the RDAs that a scheme created few jobs undermined their chances of receiving future grants.

The particularly interesting part comes from the calculation of 'potential benefits', those that may occur in the future. For instance while RDA's have been essentially subsidising jobs (a grant to a small company encourages them to hire someone new) the 'potential benefit' accrued by that company keeping that employee on after the grants stops could mean as much as £3.50 in additional GVA for those initial pounds spent. So the conclusion is really that RDAs 'might' be worth the investment. After £16 plus billion to date, we all hope so.

The report is necessarily complex, and any simplistic assertion that says it concludes RDAs give almost £4 for £1 spent is as unsubstantiated as one that says the report has found RDAs to have been a huge waste of money. It says neither. The hundreds of programs administered by RDAs, in distinct areas such as job creation, brown field redevelopment and business support, means that the picture differs not only between regions but between programs. However if nothing else, it is ironic that while the RDAs of 2007 are given a cautious thumbs up on the grounds that they might have been worth the investment, the RDAs of 2009 exist in a rather different economic context, and have assumed a rather different role (that of the Government's regional recession co-coordinators). Now every £1 spent is on a job 'saved', rather than created. The focus is now on preventing a regional down-turn, rather than encouraging regional growth. In the current climate, the fact that RDAs (read 'taxpayers') are simply subsidising jobs is less controversial than it would have been a year ago.

But that does not mean that RDAs are a positive addition to our already unfathomable Government architecture. Whatever the pros and cons of taxpayer funded job support schemes in a recession, if they are the chosen policy then why can't local government administer them, or central Government's own regional offices? Moreover, a tax cut for small business is, in many ways, better than a hand-out. Most SME's want to expand, hire new people, keep their existing staff on. A tax cut keeps money in their pocket in the first place, enabling them to hire that new person, or keep the current ones. Instead of taxing the business, filtering the money though dozens of costly bureaucratic layers, only then to give the money back to the business in a subsidy, the tax cut would just leave the business with more money. No-one should believe that RDAs, local or central government help struggling businesses. Taxpayers do. And there are alternative ways to hand outs with which to help.

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