Back-to-work schemes across England previously paid for by the EU are being forced to close and lay off staff, despite a last-minute rule change by the government aimed at allowing councils to fund them. Michael Gove’s Department for Levelling Up, Housing and Communities (DLUHC) wrote to local authorities last week giving them the green light to spend their shared prosperity fund (SPF) allocations on job schemes, from April. The SPF is the government’s £2.6bn replacement for the EU structural funds that went to some of the UK’s poorest areas. Previously, government rules for England had specified that grants from the fund could not be spent on “people and skills” until April 2024, the third year of the fund. This temporary restriction – which did not apply in Scotland or Wales – baffled councils and charities and led to warnings of a “funding gap” in the provision of back-to-work support. In a message sent to councils on 23 March and seen by the Guardian, DLUHC officials said: “The prime minister recently set out a clear direction to focus on building the skills capability of people across the UK, so that they can realise their potential and increase workforce participation rates and our prosperity and productivity as a country … to maximise the impact of the [shared prosperity] fund in this area, we will remove the restriction on people and skills spending from April 2023 in England.” Providers of back-to-work schemes, which include charities and private sector firms, welcomed the change of heart, which followed intensive lobbying. But several the Guardian spoke to are already winding down schemes and making staff redundant. Stephen Evans, the chief executive of thinktank the Learning and Work Institute, said: “It’s great the government is now saying local areas can invest in what they’d like, but they’ve already made plans based on the previous rules. So this is a positive step, but it’s so late that some projects have already closed and there’ll be an inevitable gap in support.” He added that many of the schemes previously funded by the European social fund (ESF) in the UK were aimed at helping exactly the groups highlighted by Jeremy Hunt in his recent “back to work” budget – the over-50s, the economically inactive, and disabled people. The shadow work and pensions secretary, Jon Ashworth, said: “This U-turn is just typical of this government. By changing their minds at the 11th hour, ministers have thrown local areas’ plans into disarray with just days to go until the new financial year. “Local areas having access to funding for employment support is welcome, but this is too little, too late.” Liz Tapner, the chief executive of the Lancashire social enterprise network Selnet, said: “I’m serving redundancy notices to 12 members of my team today, it’s so sad.” Selnet has been delivering an employability scheme for people with complex needs since 2016, funded by the ESF and matched by the national lottery. “It might be somebody who’s homeless, a woman who’s escaping domestic violence, somebody that is just so exasperated by the debt, they’ve got themselves into they can’t see the wood for the trees,” she said. “Yes, the government’s made this decision, but how quickly will we be able to pick up with individuals in Lancashire in real poverty?” Peter Tomlinson, the director of operations at Social Enterprise Kent, which has been part of a consortium running an employability scheme across south-east England, said he was also having to lay off staff. “Some of them have naturally gone because they knew the project was ending, but there’s two going next week, and then we’ll have another round of people being laid off probably in June if we don’t have any other projects coming in,” he said. “They’ve said the shared prosperity fund will replace EU funding. It’s a drop in the ocean compared to what the EU were funding on these types of projects.” Ian Ross, the managing director of Whitehead Ross Education and Consulting, said one project his company had been running closed before Christmas, with the loss of “six excellent staff”, and another, in Dorset, aimed at boosting skills for young people, is ending this month. With five more ESF-funded schemes due to finish in December, he hoped the government’s change of heart could help to bridge the funding gap to next April, but added: “This is one of the consequences of Brexit and the piecemeal shared prosperity fund: it’s been shambolic.” Kevin Bentley, the chair of the Local Government Association’s (LGA) people and places board, welcomed the government’s decision but warned: “Given this announcement comes so close to the new April 2023 date within which provision can be delivered, and many areas will have committed most of their funds for this year already, it may be a challenge to maximise the impact of this new flexibility.” The LGA is calling for longer-term, sustainable funding for tackling economic inactivity. Elizabeth Taylor, the chief executive of the Employment Related Services Association, which had pressed ministers for the rule change, called for a new funding round for 2023-24, instead of relying on councils to tear up their plans. “There cannot be a reliance on local authorities to bring this money forward without a national initiative,” she said. A DLUHC spokesperson said: “We are levelling up and spreading opportunity across the UK through our £2.6bn shared prosperity fund. Our decision to relax spending across the fund from year two will give councils even greater flexibility to deliver what their areas need.”