03 October Thank you for your letter of 9 August listing a number of issues raised by LEPs and inviting me to the September LEP Network meeting.

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1 Dr Catherine Blair Deputy Director Head of European Social Fund Division Department for Work and Pensions Caxton House 6-12 Tothill Street London SW1H 9NA Tel: +44 (0) October 2017 Dear Warren RE: LEP Network Meeting 18 September 2017 Thank you for your letter of 9 August listing a number of issues raised by LEPs and inviting me to the September LEP Network meeting. It was good to meet you all and talk through the issues constructively. As agreed I am responding to the points raised. I will address them in the order listed on the meeting agenda. Management Information (MI) Following consultation with stakeholders (including LEP representatives), the ESF Managing Authority (MA) has produced a new suite of MI to support ESIF subcommittee discussions. This MI is being shared with ESIF sub-committees through meetings in September and the following months. The MI provides a more detailed view of ESF performance in LEP areas, however individual project level performance is not reported, as management at this level is the responsibility of the MA. The new MI does provide details of performance at both Investment Priority and Priority Axis levels. The MA considers the MI suite to be an iterative product and continues to welcome feedback from stakeholders as to how it could be improved. As we discussed, I will be asking LEP leads to also report back at meetings on any relevant and appropriate aggregated qualitative information. I remain grateful for the local knowledge that LEP representatives bring to ESIF committees that supports discussions on ESIF funding. 1

2 Co-financing organisations I can confirm that the MA has been working with the four co-financing organisations (CFOs) (and parent Whitehall departments) for a number of months to establish their individual positions regarding commitment for the remainder of the programme. We expect to be able to communicate information on this in due course. I mentioned at our meeting that we have been reviewing our processes with the cofinancing organisations, learning lessons from the first round of contracting. We are currently reviewing options that would involve using potential ESF underspends through co-financing organisations but without individual LEP opt-in agreements. This would potentially be acceptable where organisations can demonstrate adequate local engagement in the design of provision. By relying on forecast inherent underspending risks, we would not envisage this to impact LEP allocations. We understand that DWP may be considering such an approach for a small part of their potential ESF funding in order to achieve better outcomes, better value for money and more economies of scale. We agreed that it would be sensible for DWP to discuss this idea in more detail with the LEP Network and in particular how local specificities would be taken into account. Guidance and advice on sources of eligible match for open calls There is guidance available on Gov.Uk which sets out the requirements for match funding. The guidance is clear and consistent about the requirements match funding has to meet. The guidance does not provide a list of sources of match funding and its eligibility. The source of match funding is more flexible than in the previous ESF Programme in that we allow match to come from either public or private sources where previously it was restricted to public match. The match can be cash or programme or staff time. As you can appreciate, it would be very difficult and resource intensive to compile and maintain a list of all eligible match funding and its source so we have purposely made the guidance as broad as possible by simply saying the match can come from either public or private sources. Also, any list could potentially exclude other sources of eligible match because it would potentially not be exhaustive. It may be helpful to say at this point that there are three essential criteria match funding must meet before it can be considered to be eligible. These are; Is it (the match) related to the project; Does it (the match) contain any EU funding if so it cannot be used; Is it auditable that is can the expenditure be traced If the answer is yes to the above then it can be assumed that it is eligible but it cannot be guaranteed that an auditor would not take a different view. 2

3 At our meeting we also discussed that it would be helpful to understand from a LEP perspective what the barriers to alternative match funding currently are and how these might be overcome without imposing an insurmountable resourcing burden on the Managing Authority. I would very much welcome views on this from the Network. Planning for calls As I mentioned at the meeting, the ESF Programme has a rolling basis for the calls we issue, and not fixed call windows. This is to allow us to work more flexibly with ESIFs and to allow us to manage the flow of applications into the Programme more effectively. We have also recently restructured, to provide a dedicated appraisal team, moving away from the previous, small, geographic teams. We are continuing to work with ESIFs on their future call aspirations, and are actively prioritising those calls that fill known gaps in the Programme provision (such as calls focussing on basic skills, or for participants who are over 50, or have disabilities, etc). We are also prioritising calls for those LEP areas that are still some way from meeting their targets with regard to the N+3 and Performance Framework targets, although it is anticipated that the needs of ESIFs in this area are likely to be filled by the end of the year. We would therefore encourage your network to continue to be proactive in identifying the gaps in their areas, especially against their Performance Framework targets, and work with their LEP lead to develop calls. The LEP leads are involved in the planning of future calls, and will be able to work with the ESIF accordingly. Value for Money assessments and criteria As you are aware, last October the Chancellor confirmed that the government will guarantee EU funding for structural and investment fund projects signed after the 2016 Autumn Statement and which continue after we have left the EU. Funding for projects will be honoured by the government, if they meet the following conditions: they are good value for money they are in line with domestic strategic priorities Delivering value for money and ensuring projects support domestic priorities have always been key criteria in appraising applications for funding. Both these elements are robustly assessed through criteria agreed with the Growth Programme Board. The MA has strengthened its process and its robustness by requiring applicants to provide more detailed value for money evidence and increased the focus of the assessment on the results and outputs a project will achieve. I wrote to the Growth Programme Board on 4 January and again on 17 March setting out the MA s position in relation to the VfM assessment. The later letter was also shared with LEP ESIF Committees to disseminate to their members. The ESIF Selection Criteria, published on Gov.UK, include the following criteria for Value for Money:- 3

4 2.1. Applications must demonstrate a clear case that the investment will deliver relevant activities, outputs and results that would not otherwise take place The operation must represent value for money. In assessing value for money, the Managing Authority will take account of: Efficiency: the rate/unit costs at which the operation converts inputs to the Fund outputs Economy: the extent to which the operation will ensure that inputs to the operation are at the minimum costs commensurate with the required quality Effectiveness: the extent to which the operation contributes to programme output targets, results and/or significant strategic impact at the local level. Criteria and forms of acceptable auditable evidence for unemployed or inactive status Output and Result Indicator definitions guidance for the European Social Fund is available on Gov.UK. The guidance lists the source of the definitions which comply with European Regulations. The guidance applies to CFOs and direct bid applicants and explains the different way in which labour market status has to be treated under DWP CFO provision because of the benefits system. There is a difference of approach for the DWP CFO (but not for the other CFOs). This has been agreed with the Managing Authority, due to constraints within DWP systems which are set up to implement UK benefits systems and employment programmes. This means that people can be categorised as unemployed whilst having a limited level of employment. It should be noted though that whilst this may provide a looser definition for starts on the programme, it also provides a tighter definition for results, as leavers need to achieve a certain level of employment above that which applies for other providers in order for the provider/cfo to claim a result. With regards to gathering evidence for audit purposes, guidance on data evidence requirements for eligibility and results linked to payments is also provided on Gov.UK. This guidance sets out a framework and methodology for gathering evidence to support eligibility and results. To help Grant Recipients and potential applicants further, we are currently developing an exemplar form to use as a guide alongside the published guidance. The form has a section of hints and tips for grant recipients and an explanation of why the information is required. We will publish the form on Gov.UK once we have received feedback from EC Audit team. 4

5 Colleagues should note that this is an exemplar form and should be used as a guide for Grant Recipients when establishing a participant s eligibility. It is not meant to be a prescriptive document but is designed to act as a checklist which projects can use to assess their own forms / systems Delays in preparing open calls and appraising applications There was a hiatus in publication of calls whilst negotiations took place with Treasury around Value for Money/Domestic Priority expectations once factors were understood, we published a number of calls which had been waiting. Whilst this was positive it resulted in a significant number of applications arriving concurrently. In parallel to the hiatus a conscious decision was taken by the MA in March/April to focus on clearing outstanding claims from existing projects this was necessary but had an effect on existing assessments/appraisals in train at the time and new applications which arrived during that period. Allied to the above, an additional factor that impacted the MA s business was the purdah period prior to the general and local elections, again leading to a significant number of applications arriving at the same time. The MA has restructured and reorganised to improve efficiency and service. The team are currently working hard to clear both the backlog but also address new applications as quickly as possible. As part of this reorganisation we have also recently introduced new ways of planning our calls, to try and mitigate against having a large number of calls closing at the same time whilst also addressing key priorities for the ESF Programme. I am confident the re-structure will help build expertise and allow teams to focus on their key specialism. Whilst we continue to have a greater flow of work than resources available, to address this, we are seeking to recruit additional staff. Clarity on the timescales and scope of the Performance Review The ESF MA reports performance on delivery which includes progress against the performance framework and N+3 targets to the Growth Programme Board. It is worth noting that we are now providing details on the Performance Framework to LEPs in the redesigned ESIF Committee MI Reports which I mentioned earlier in my reply. I also mentioned the Operational Programme Review and how we are taking it forward. At the Annual Examination Review with the Commission in December 2016, the Managing Authority agreed to undertake a mid term Operational Programme (OP) Review during summer We anticipate publishing the revised OP in the autumn. 5

6 The review included: A review and mechanical tidy up of the current OP text to correct contradictions, consider assumptions made, adjust any allocations, and assess impact on targets; A review of policy approaches to ensure the Programme going forward reflects current and potential future strategic positions; A reflection/consideration of the assumptions the current OP is based and analysing evidence to challenge, keep or change any assumptions going forward. The first stage in this process is to develop proposals at a national level using current programme position and anticipated demand for the remainder of the programme. All proposals are subject to negotiation and approval by the European Commission. Following negotiations, and once EC approval is given to any reallocation approach, we will look to further engage with LEPs to ensure where possible best use of remaining funds can be made (working within any boundaries set by the EC). We anticipate this process to be managed through our existing LEP Lead arrangements to ensure where possible local strategies are considered. I hope you find the above helpful. Yours sincerely Catherine Blair Head of European Social Fund Division 6