Rules governing the closure of the regional development agencies have led to hundreds of thousands of pounds of the North West Development Agency's remaining budget being unspent and returned to central government.
The NWDA underspend was £300,000 in 2010/11 and this will be exceeded this year as the agency winds down towards its March 2012 closure.
Duncan Gray, executive director of resources at the NWDA, said: "This situation is not because of actions the agency has taken. The agency is quite happy to pay out funding to our approved service providers who make a legitimate claim for payment."
Gray said the NWDA's annual budget has fallen from around £400m in 2009/10 to £230m in 2010/11 and will be around £105m this year.
Gray explained the knock-on impact on spend: "When the closure of RDAs was announced in the middle of last year there was a big reduction in our budgets at the time. The NWDA reached an agreement with providers that could ensure the orderly rundown on the various programmes we've got. Suppliers need to have a critical mass of work to make it viable and if it falls below that critical mass they take the view programme is finished. They also need to be sure they can fulfil a contract when offering a service; this requires a 12 to 18 month view."
Many suppliers such as for start-up business advice are paid per 'intervention' ie for each person or business that receives advice. A cabinet office edict to RDA bosses banned promotion through advertising and marketing, as well as consultancy advice, when it announced the closure of RDAs in May 2010. This meant programmes could not be marketed and numbers of applicants fell. Suppliers began laying off staff and ceasing work funded by the NWDA, and have left unspent cash in various pots from urban renewal to job creation initiatives.
The surplus cash could not be reallocated to other programmes with a better chance of delivery as new agreements were also banned at the same time as the cuts.
Under government rules for RDA finance, any underspend is lost from the region and returned to the sponsor department, the department for business, innovation and skills.
The NWDA, a major source of development finance for more than ten years, will cease to exist on 31 March 2012. Many of the programmes that will continue into April 2012 have been handed over to government departments already; European Regional Development Fund to the Department for Communities and Local Government; asset stewardship to the Homes & Communities Agency.