Taxpayer faces bill for digital project failure

South Yorkshire’s £100 million Digital Region network has just 3,000 paying customers across the entire county - a tiny fraction of the 108,000 households which council bosses said it needed when they embarked upon the scheme eight years ago.

Business Minister Michael Fallon attacked those responsible for the “deeply flawed” project as he announced the Government may need to spend a further £45 million of public funds simply to extricate itself from the failing venture, which was unveiled by former Labour Chancellor Alistair Darling in his 2009 Budget.

The future of the entire, sprawling high-speed broadband network now hangs by a thread, with South Yorkshire’s four local councils - which co-owned the project with the Government - left to decide whether to press on alone in their efforts to revitalise the network with help from a private telecoms firm, or close it down altogether.

Either option is likely to see the councils’ total liabilities soar beyond £50 million for a broadband system which hardly anybody has ever used.

In a series of bombshell announcements, Mr Fallon revealed:

• The £100 million broadband network currently has just 3,000 paying customers across the whole of South Yorkshire - meaning the project has effectively cost taxpayers some £33,000 per user.

• After years of annual losses, it is still losing money at the rate of almost £1 million per month - with taxpayers picking up the bill

• The project’s failure to reach sufficient homes and businesses means taxpayers now have to pay back a £27 million grant from Brussels, with South Yorkshire’s councils shouldering nearly half the cost

• The Government’s advisory panel of senior industrial experts advised Ministers in February to close the network down in order to avoid further costs

• Pulling out of the scheme will cost the Treasury up to £45 million - on top of all the public funds already spent

• The councils’ total liabilities are also poised to rise beyond the tens of millions already spent as they ponder whether the scheme should now be shut down for good.

Mr Fallon pointed the finger of blame for the “mess” at the now-defunct regional development agency (RDA) Yorkshire Forward, which embarked upon the project eight years ago in partnership with Sheffield, Rotherham, Doncaster and Barnsley Councils.

Yorkshire Forward drew up Digital Region’s flawed business model and handed over some £40 million in grants and loans towards the scheme, which involved laying hundreds of miles of high-speed data cables beneath the streets of South Yorkshire to create “the fastest broadband network in Europe.”

But the project hit a myriad of problems, including the lack of any significant marketing budget and the stiff competition provided by the launch of BT’s rival ‘Infinity’ broadband service soon after construction work began.

As a result, just a tiny fraction - 2.7 per cent - of the required 108,000 paying customers have actually signed up to use the Digital Region service.

This in turn caused a huge the network’s construction had to be halted part-way through, meaning most rural areas still cannot receive the high-speed service – one reason why the EU is demanding repayment of its £27m support grant.

As a result of what Mr Fallon termed a “hopelessly inadequate” contract signed with Thales – the French firm which built and ran the network in partnership with the public sector bodies – the councils and the Government have now been left to cover every cost.

“We now have to assume all the liabilities of Yorkshire Forward, the regional development agency that signed up to this nonsense,” Mr Fallon said.

“The contract was very poor and extremely badly negotiated,” he continued.

“It has not been managed successfully, and the marketplace has moved on.”

Mr Fallon said he accepted the estimated £45m cost of pulling out of the venture was a substantial sum, but remains the best option as the scheme continues to lose money at an extraordinary rate.

“We have to clear up the mess, but I am determined to limit the exposure of the Government, and indeed of our taxpayers and our constituents, to any further cost,” he said.

“It will now be up to the (four South Yorkshire councils) to decide whether to go on ... or whether they too will be content to close down this rather sad exercise,” added the Minister.

A spokesman for Digital Region Ltd said: “Negotiations are ongoing and the intention remains to bring about the best possible, sustainable outcome for South Yorkshire residents and businesses.

“As this is a commercially sensitive time, further information will be provided as soon as the project reaches its next stage.”

Yorkshire Forward was formally closed in 2012.

The Coalition took the decision to scrap all the regional development agencies soon after it came to power in 2010.