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The West Midlands Regional Committee was appointed in March. From our first meeting, it was clear that our first inquiry should be the effect of the economic downturn on businesses in the region. The evidence that we received confirmed that the West Midlands region has been severely affected by the economic downturn. Evidence also suggests that the downturn is affecting different areas in different ways and at different speeds, and that this necessitates a need to achieve a better balance between regional and sub-regional initiatives.
Advantage West Midlands and its public sector partners have been able to draw on their experience of the mechanisms established at the time of the closure of MG Rover as they have sought to respond to the impact of the economic downturn on the region. However, some of the problems caused by that closure had still not been overcome when the recession hit, helping to explain why its severity was greater in the West Midlands than in other regions, with the manufacturing and automotive sectors particularly hard hit. This has fed through in the current downturn into higher levels of unemployment than elsewhere in the country, for example.
Access to finance
The question of businesses' ability to access adequate finance is one of the most significant issues that has been raised with us during the inquiry. At times it has seemed as if banks and businesses are living in parallel worlds, as the quantitative data on bank lending showing levels of lending being maintained does not match the evidence provided by businesses that there has been a squeeze on lending. In evidence, the banks were adamant that they had not changed their lending practices to make it more difficult for businesses to access finance. The evidence from business in the region is that the credit crunch is still a reality. This is putting viable businesses at risk. The banks' regional managers must work more closely with the region's business groups and ensure that their lending levels and charges are appropriate for supporting West Midlands businesses through the downturn.
There are some alternatives to straightforward bank lending. The Enterprise Finance Guarantee Scheme was introduced in January 2009 and is available up to 31 March 2010. The £1.3 billion scheme supports bank loans of between £1,000 and £1 million and 3 months to 10 years maturity, to UK businesses with a turnover of up to £25 million who are currently not easily able to access the finance they need. Lending under Enterprise Finance Guarantee Scheme has taken time to build up momentum because some bank staff were not aware of the scheme when it was first introduced and could not provide information to interested businesses. That slow start means that the proposed March 2010 cut off date is no longer appropriate. We recommend that the Regional Minister makes representations now that the scheme should be extended beyond March 2010.
The Advantage Transition Bridge Fund (ATBF) was established by Advantage West Midlands and the Regional Taskforce in late 2008. It provides loans of between £50,000 and £250,000 for SME businesses based in the West Midlands with a viable business plan, that are unable to secure finance to progress that plan from normal commercial sources.
Demand for funding from the Advantage Transition Bridge Fund suggests that regional businesses are still having difficulty accessing commercial sources of credit. The Committee welcomes the recent announcement of a further £2 million, taking the total amount available to lend to regional businesses to £11 million. We recommend that Advantage West Midlands and the Regional Minister continue to lobby HM Treasury for the ability to extend the fund further should demand from regional businesses persist.
The use of credit insurance varies by sector and size of company. There is conflicting evidence on whether credit insurance has become more difficult to obtain in the current economic climate. The withdrawal of credit insurance is of significant concern to the West Midlands particularly for those sectors such as the construction and automotive supply chain where the availability of insurance has disappeared altogether. The Government should investigate, as a matter of urgency, why take up of its credit insurance provision has been low and if necessary reassess eligibility criteria in order to achieve its intended objective. Decisive action is needed by the Government on export credit guarantees if it hopes to achieve an export-led economic recovery.
Government initiatives
We note the popularity of the Train to Gain scheme and recognise the commitment amongst employers in the region to training. We also recognise the contribution of such schemes to companies that might be forced into reducing the hours they are operating on through the downturn, and to the general level of skills in the workforce throughout the region that will benefit the region in the future. We think this is something that the Government should encourage at all levels. We recommend that funding for the Train to Gain scheme is continued as long as there is demand, and that the Regional Minister work to ensure the delivery of the scheme in the region is not hampered by the break up the Learning and Skills Council.
The Government announced the launch of an Automotive Assistance Programme of £2.7 billion in January 2009. The programme provides loans and Government Guarantees to business in the automotive sector, including the supply chain, with sales in excess of £25m with planned project investment in excess of £5m. We welcome the support provided in the Automotive Assistance Scheme, but are dismayed to find that none of the funding has reached business in the West Midlands. We recognise that the programme is for long term investment but the process of applying and receiving funds should be as swift as practicable. We recommend that the Regional Minister does all that he can to accelerate the AAP application process, and to provide support to those firms that have submitted an application or an expression of interest.
Regeneration
Advantage West Midlands are involved in regeneration projects throughout the region, but the reduction in their budget and the effect of the recession has meant they cannot continue with every project that they would like to. They told us that they will continue to be involved in every project that they are contractually obliged to, but the reduction in their income meant they had decided to limit their focus to twenty particular locations. We have concerns that there are areas in the region that, because they are not included in the list of twenty, are unlikely to be able to attract investment in the near future. As such they are being penalised twice: first by not getting immediate help because they not in the list of twenty, and secondly, because they will not attract further investment around the development that would have otherwise have.
AWM has had to take difficult decisions about how best to use its limited, and recently reduced, resources. If the twenty do go ahead as presently planned, however, it does not mean that other schemes which had to be excluded are not important and that other parts of the region should be forgotten. We recommend that the task force compiles a reserve list of projects which failed to make the list of twenty priorities and seeks to find alternative ways of making progress with them.
We are concerned about the implications of reductions in the budget available to Advantage West Midlands for regeneration even though the resources are being redirected towards important initiative such as alleviating fuel poverty, Homebuy Direct scheme, Enterprise Finance Grants and the National Equity Fund. We recommend that the Government review the impact of its decisions to ensure that regeneration initiatives that are important to regional recovery are not being compromised and that areas of significant deprivation are given their appropriate priority.
Stimulating the upturn
Evidence submitted to the Committee has highlighted a number of ways that Government could stimulate the economy and meet its wider environmental objectives. The Government has heeded calls for a vehicle scrappage scheme, but other sectors need help too. Stimulating the housing and construction sectors by bringing forward plans to add environmentally friendly features to the existing housing stock, is one potential example . The Regional Minister and his colleagues on the Task Force should look at what role they might be able to play in encouraging such an approach in the West Midlands. The Minister should also urge central government to encourage initiatives such as these to help improve economic conditions generally.
It is clear that not all investment decisions (especially those relating to new and green technologies) can be left to the market. If there is a consensus that it is desirable for the regional economy to develop in a particular way, the Government and its agencies must seek to intervene to help achieve those ends. The Task Force and AWM should be doing everything possible to guide some of those investment decisions, but ultimately whether or not such approaches are successful will also depend on central government policy and expenditure. We therefore welcome the Government's announcement of its renewable energy strategy as part of its drive to achieve a low carbon economy.
There is pressure both from business and from unions for the introduction of a short time working wage subsidy. The Government has so far resisted those calls, but it has not yet in our view put forward convincing arguments about why such a subsidy would not be appropriate, and so the demands for the introduction of a subsidy continue. In order to make a proper assessment of the usefulness of a short time working wage subsidy we need to have some hard evidence. As we mentioned earlier, the TUC and Federation of Small Businesses estimated that a wage subsidy of the kind we are discussing would cost £1.2 billion a year and prevent 600,000 redundancies across the UK. We recommend that the Government undertakes and publishes as a matter of urgency a cost benefit analysis of such a scheme compared to, for example, supporting 600, 000 workers through the benefits or tax credits systems. This could also include an assessment of the effectiveness of the Welsh ProAct initiative.
Preparing for the upturn
One of the most striking features of the current round of economic and financial problems is the speed with which the situation deteriorated. In planning for the future when the economy is once again prospering, we were told that it was important to make the West Midlands economy broader based and more sustainable in order to make it robust and help to withstand future problems. Mick Laverty of AWM told us that the region:
- needs to be more innovative
- needs to be more entrepreneurial
- needs to improve skills across the board
- requires increased investment in infrastructure
- has too many people who are workless
and that the answers lay mainly with the private sector, getting a groundswell of businesses systematically innovating their products and their services. The solutions to these problems are set out in the Regional Economic Strategy. The challenge now is to implement the necessary change.
Making it happen
Despite the problems that it has faced over funding and the priorities set for it by Department for Business, Innovation and Skills, it is clear that Advantage West Midlands is the key regional player. It has money, a regional remit and is able to develop plans on its own initiative. However, budget restrictions, even before the recent DBIS policy changes, mean that it does not have enough money available to it to fund all the projects it would like to fund at present. Therefore, using its funding as seed corn and bringing in investment from elsewhere is vital.
As we mention earlier, the other bodies in the region which have autonomy and access to funding, even though any money available is likely to be both limited and preciously guarded, are local authorities. They are obviously local bodies rather than regional bodies, but they are close to their local communities and are able to develop their own agenda. Local authorities are about to be given more duties and capabilities connected with economic regeneration.
It is important that official bodies within the region take as much responsibility as they can for developing genuinely regional economic solutions. Within the region, it is the more autonomous bodies which are likely to be able to react most flexibly to respond to difficulties. AWM and local authorities are the well placed to do this, and we look to them to establish themselves as local driving forces for economic regeneration in partnership with other statutory bodies in the region and the private and third sectors.
In order to ensure that the partnership working is as good as it can be, we recommend that the West Midlands Taskforce becomes a permanent body. Co-ordination to help address economic uncertainties will continue to be of the utmost importance, and its ability to bring together partners will remain vital when the economy begins to grow again.
We welcome the introduction of Regional Ministers. In the West Midlands, the current Regional Minister and his predecessor have played important and valuable roles, for example in pressing the case for important projects such as the redevelopment of New Street Station and in establishing the task force to co-ordinate responses to the economic downturn. However, if the post of Regional Minister is to achieve its full potential in the development of regional approaches, there needs to be greater clarity about the role. A key issue to be resolved is how they can openly advocate regional interests whilst simultaneously being bound to defend Government policies in the region through a conventional application of collective responsibility. Regional Ministers have been given a different role to Ministers elsewhere in Government, and this difference needs to be reflected in accountability arrangements if they are successfully to represent the interests of their region to the rest of Government. We would therefore welcome clarification from the Government on how Regional Ministers are going to be enabled to fulfil their dual role.
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