Cost per new job likely to soar in fund's second round

The cost of jobs set to be directly created through the second round of a £1.4 billion fund intended to boost the regional economies is forecast to be almost twice as expensive as those created through the first round, it has emerged.

An analysis by Planning of figures from the Department for Business, Innovation and Skills (BIS) shows that the cost of each direct job the government expects to be created across England by the Regional Growth Fund (RGF) is set to increase from £16,000 in the first round to £27,000 in the second round.

The analysis also shows that the cost per expected direct job is forecast to be more expensive in the second round than the first in almost all English regions.

In Yorkshire and the Humber, for example, the cost per job soars from £6,000 in round one to £48,000 in the second round. This means that job creation in the region would be eight times more expensive in the second round than it was in the first.

The other regions with the starkest differences in the cost for each direct job forecast to be created between the rounds are the North West, where the cost per directly created job in round one is £5,000 and for round two is £29,000, and the East Midlands, where it is £11,000 in the first round compared with £48,000 in round two (see map).

The North East is the only region where the cost remains roughly the same in both rounds.

Last month, deputy prime minister Nick Clegg announced 119 bids earmarked to receive a share of the £950 million available through the second round of the fund (Planning, 4 November, p13).

He said that the RGF allocations - along with an estimated £6 billion levered in from the private sector, according to BIS - would create 35,000 direct jobs and 164,000 indirect jobs through supply chains.

The government has already said that it expects the first round of the fund, which awarded a share of £450 million to 45 provisionally successful bids in April, to create 27,000 direct jobs and 100,000 indirect jobs.

All successful bids are subject to a due diligence process to assess their financial and legal compliance before they can receive their money.

So far, seven first-round bids have received their promised RGF allocations, with contracts being signed for a further nine bids (see News Analysis, p5). The government has come under fire over alleged delays in distributing money from the fund.

Planning's analysis of the cost per direct job created raises further questions about whether the RGF will be able to deliver on the coalition's aim of helping England's regions move away from a reliance on the public sector while providing value for money for the taxpayer.

David Marlow, chief executive of economic development consultancy Third Life Economics, described the rise in the expected direct cost per job between the first and second rounds as "very strange".

He said: "This could be because job estimates in first-round bids were grossly overestimated, but it still makes you question the opaque grounds on which the government is selecting these bids."

He also questioned whether some of the successful projects would create the volume of jobs their bids claimed they would or lever in the anticipated level of funding from the private sector.

Henry Overman, director of the Spatial Economics Research Centre at the London School of Economics, said: "It is highly likely that some of the 'leveraged' private sector funds would have been spent anyway. The costs per job seem high and there are striking regional differences."

Joanna Averley, interim chief executive of think-tank the Centre for Cities, pointed out that the number of directly created jobs for the RGF's second round stands at 19 per cent of the total jobs figure quoted by the government, with the rest being created indirectly.

Averley said that a true picture of the public cost per job will only come later. "But if we look at the confirmed projects to date, the picture is highly variable, with the public cost per job ranging from £3,300 to £100,000," she said. "The RGF's priority must be to demonstrate value for money."

A BIS spokeswoman declined to provide an explanation for the increase in cost per job in the fund's second round. Instead, she said: "It's important to remember that the RGF is a competitive fund. The figures we have announced on job creation are taken from the bidders' applications.

"When funding contracts are ready, final jobs numbers will be confirmed and we will monitor the progress each quarter to ensure jobs targets are being met."

£22,600 - Forecast total cost per direct job across all English regions in the first two rounds of the fund.

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