Examination of Witnesses (Questions 300
- 319)
MONDAY 15 DECEMBER 2008
RT HON
PAT MCFADDEN
MP, MS PHILIPPA
LLOYD AND
MS BERNADETTE
KELLY
Q300 Miss Kirkbride: Given that you
have just said in your remarks that the hugest problem facing
business is securing finance and credit, it seems to me that neither
at the Government level or the RDAs at their level are remotely
responding to that problem. £25 million is peanuts in comparison
to the problem, and the administrative cost of each RDA doing
this must make it worthwhile to the companies that are getting
it, but there is a huge cost in terms of the administrative input
into it. Why not do more or do it better? Why do it this way?
Mr McFadden: Again, the £25
million, of course, is not all the Government is doing on the
credit crunch. We announced other measures in the PBR, such as
a £1 billion addition to loan finance—
Q301 Miss Kirkbride: Can you imagine
how much that is in the global budget for credit?
Mr McFadden:— and that is
on top of the Small Firms Loan Guarantee scheme which had its
potential budget increased by 20% last year. We also announced
a £1 billion package for export credit support in the PBR
and, of course, the measures that we have taken with the banks
have kept the primary source of finance on its feet in a way that
may not otherwise have been the case, so again the transition
funds are one element of a number of steps that we have taken.
In terms of your point about admin costs, not every single region
is going to set this up from scratch. For example, I believe the
East Midlands is going to use the West Midlands structure, because
they have done this before, to help set up and administer this.
Q302 Miss Kirkbride: But there will
be an administrative cost because some regions will set up a new
structure.
Mr McFadden: Some will set up
new structures.
Q303 Miss Kirkbride: Can you supply
the Committee with those costs? Do you know how much of the £25
million has been spent on administering this scheme that might
be available in other forms?
Mr McFadden: No, I do not, but
if we can give you more information on the admin costs, on the
Transition Loan Fund, we will happily do so.
Q304 Chairman: There is a tendency
for RDAs, because they have some responsibilities, to be seen
to be doing something to address any problem, so a series of small
issues builds up which do cost quite a lot, Minister, with government
encouragement, whereas perhaps some simpler things would be more
effective rather than these heavy pot sums of money that probably
rather confuse businesses as well.
Mr McFadden: I believe that the
experience in the past of the Transition Loan Fund was good value
for several million pounds spent in the wake of MG Rover. They
lent that to companies employing in the supply chain, I think,
about 1,400 in total and estimated that they were able to save
over 1,000 of those 1,400 jobs. For loan finance, the vast majority
of which was paid back because the companies survived, that does
not seem to me to be a bad bargain in terms of the effectiveness
of the initiative, so I do not take the view that initiatives
have to be big in order to be effective. Sometimes—and this
is raised with me quite a lot by businesses at the moment—it
is not a huge amount of finance that they need. For example, the
Transition Loan Fund is only, I think I am right in saying, for
loans up to £250,000. Sometimes for a business a loan of
that order or less can make a difference between surviving and
not surviving, but it is still an intervention worth making if
the business is otherwise viable and it is just going through
a short-term problem. There is no point in lending to businesses
which are not going to survive anyway, but if it is something
that is viable and for whatever reason they need that short-term
access to credit, that is worth doing, so I am not sure I would
accept that because it is a relatively small amount of money it
is not worth doing.
Q305 Chairman: I am just checking
one fact on HomeBuy Direct hot-slicing here before I hand over
to Tony Wright. The top slice is 5% over three years. I understand
that it is 1% next year and then 10% in 2010-11, so there is quite
a lot of forward weighting. That 10% in 2010 is quite a big reduction.
5% sounds all right but it is weighted quite heavily.
Mr McFadden: The decision essentially
was to take money mostly earmarked for spending in 2010-11 and
bring it forward to spend this year.
Q306 Chairman: So they are asking
to take a 10% hit the year after next?
Mr McFadden: Perhaps Bernadette
might be able to give you the detail on this.
Q307 Chairman: Is that factually
right? I am not making an accusation. I am just trying to establish
a fact.
Mr McFadden: I think most of the
money does come from 2010, the money allocated in 2010-11.
Q308 Mr Wright: Before I turn to
my question on the economic assessment duty, I just want to plug
my area in terms of the transport factors.
Mr McFadden: Is it a railway station?
Q309 Mr Wright: No, it is not a railway
station; it is much bigger than that. It is a new port where we
got the development agency to help on the infrastructure for the
new port which will make it the success it is going to be in the
future, so it does actually work in terms of development agencies
when they look at the transport. Although it might not work in
some areas for railway stations, it certainly works in releasing
£30 million or £40 million in investment in a new port
in my constituency. What I want to turn to is the decision that
sparked the consultation to institute primary legislation to place
a duty on all local authorities to carry out an assessment of
the economic conditions in their area. Why have you decided to
look at legislation in this?
Mr McFadden: What we are trying
to do through the Sub National Review is to get local authorities
and RDAs working more closely together on economic development.
Some local authorities do that well at the moment but it is patchy
around the country, and so the idea behind the economic assessment
duty is to say to local authorities, "You have a lot to do".
Local authorities are delivering services, they are running libraries,
they are doing all the things that local authorities do. With
this we want, as part of the plan to have local authorities and
RDAs working together on economic development, to ask local authorities
to assess the economic needs of the area because not every authority
does that. That is the thinking behind that. If you asked business,
which I assume the Committee either will do or has done already,
"What is your experience of local authorities' capacities
in this area?", they would probably broadly endorse what
I have said, which is good in some places but a lot less good
in others. That is the idea behind the duty.
Q310 Mr Wright: Was it not perceived
that perhaps, rather than giving them legislation, they should
give an instruction that this should happen as a national process?
Mr McFadden: It would be good
if this always happened without legislation but up until now it
has not.
Q311 Mr Wright: Could you give us
some more detail about how the economic assessment is going to
feed into the regional strategy of each development agency?
Mr McFadden: The regional strategy
will be put together by the local authorities' leaders board and
the RDA together, and so the economic assessment will, I think,
inform in a very valuable and important way the work of the leaders
board in this.
Q312 Mr Wright: So in terms of the
regional strategy, the economic assessment, for instance, in the
eastern region, we have a very wealthy southern part of the region
and a much poorer northern part with a lot of deprivation and
a lot of regeneration required, so how is that going to feed into
the strategy of that particular region as a one-off strategy?
Mr McFadden: Because the local
authorities in these different parts of the region will now have
a duty to assess the economic needs of their area. They, through
the leaders board, which will represent local authorities on this,
will be able to say, "This is our view of the needs in our
area", and they are their partners in drawing up the single
strategy which involves both the planning element and the economic
element in a way that has not happened before. I think you can
see quite a clear line there between the assessment duty and the
formation of the single strategy. In the past what has happened
is that you have had a spatial strategy and an economic strategy
which have not been properly aligned. They have been drawn up
independently and they have not been brought together. The prize
from the regional point of view of the SNR is bringing all these
things together in one strategy. The mechanism is for the local
authorities and the RDAs to work together to do it.
Q313 Mr Wright: What support is going
to be given to local authorities so that they can carry their
duty out?
Mr McFadden: My friends at CLG
have a philosophy that if they give a new duty to local authorities
they should be paid for it, so my understanding is that there
is funding available from CLG to carry out this duty.
Q314 Mr Wright: There has been mention
of the disparity between certain of the regions, and my region,
the eastern region, is one of the lowest per head in terms of
the funding. Would the funding be on a par with all other areas
or is it going to be according to the—
Mr McFadden: I think I will bring
Bernadette in in case I divide up the CLG budget inaccurately.
Ms Kelly: The philosophy here
is that where we place a new duty on local authorities which incurs
some burden or administrative cost then we fund it. Our assessment
is that the duty in relation to the economic assessment duty will
impose a new burden. Our assessment is in the region of £7
million to £8 million and so we would obviously need to find
that sort of money. I think it will probably go through area based
funding to local authorities to support that. It is modest in
the scale of things. Additionally, the money which we currently
use to fund regional planning and regional assemblies will, under
the new arrangements, be directed towards the arrangements which
RDAs and leaders boards put together to develop their single regional
strategy.
Q315 Miss Kirkbride: Can we turn
back to economic prosperity boards?
Mr McFadden: We certainly can.
Q316 Chairman: They were economic
investment boards, were they not?
Mr McFadden: They were. It is
really about governance for cross-local authority working, again,
on issues like transport skills and so on. The best way to think
about this is to think about some of the areas. If you take an
area like Manchester where you have got Manchester City Council
itself which has relatively tight boundaries around the city of
Manchester but there are a lot of urban authorities around it.
This is voluntary, people do not have to do it, but if they choose
to come together and they want to set up a body to co-operate
across some of these issues, there is a mechanism for doing so.
Q317 Miss Kirkbride: If they do that
why can they not do that anyway, if they want to?
Mr McFadden: Because it will give
a proper legal status, if you like, to that issue of cross-boundary
working. They could come together in a meeting at the moment,
they could all have a meeting about it, but somebody might not
take part, somebody might take part for a short time and then
walk away. This would give a governance, a legal status, to doing
that and so the Bill will be permissive in the sense that it will
allow such bodies to be set up.
Q318 Miss Kirkbride: It is local
authority driven, so it is local authorities clubbing together.
If they were to be created by one set of local authorities at
any one particular time, would that transfer any powers to the
new body that would then be lost by the individual local authority?
Mr McFadden: I do not think it
is a zero sum gain. The local authorities taking part in such
a thing could say, "We have got a common skills problem across
this area of five or six local authorities", or whatever
it is. "Let us set something up that seeks to work together
on that". As I say, it is permissive.
Q319 Miss Kirkbride: But what I am
trying to get at is, at any one time, if local authorities decide
to do this, you are saying it will be good that they do it this
way with local government issues. What I am asking is, at that
point does the individual local authority lose powers that are
then invested in the new area that can not be retrieved because
this new entity has been created? The complexity of local councils
might well change and a new local council might come along and
not particularly like what the previous council got itself involved
in.
Mr McFadden: So your question
is, if one of these things was set up and council A decided it
did not like the look of it much, could it walk away?
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