Conclusions and recommendations
Surviving the downturn
1. 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. (Paragraph
24)
Banks and their approach to lending
2. 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. (Paragraph 30)
Enterprise Finance Guarantee Scheme
3. Lending
under the 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. (Paragraph 34)
Advantage Transition Bridge Fund
4. 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. (Paragraph
41)
Community Development Finance Institutions
5. Advantage
West Midlands and Local Authorities have provided additional funding
to Community Development Finance Institutions to support small
businesses and social enterprise in the current downturn. Advantage
West Midlands should review the cost of finance under CDFIs to
confirm that small businesses are not put at a disadvantage by
the minimum lending value of the Advantage Transition Bridge Fund
of £50,000. (Paragraph 46)
Credit Insurance
6. 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. (Paragraph 52)
Business Rates
7. Improving
the take up of small business rate relief is an important method
of improving the cash flow for small businesses. Local authority
partners should examine ways of improving the take up of the relief
in the region such as by printing details of the relief on business
rate bills that may qualify and through increased publicity of
the relief to business. The Regional Task Force could help disseminate
best practice. (Paragraph 55)
8. We also recommend
that the Government reviews the £15,000 rateable value threshold
for small business rate relief on empty properties. (Paragraph
56)
Train to Gain
9. 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 works to ensure the delivery of the scheme
in the region is not hampered by the break up of the Learning
and Skills Council. (Paragraph 59)
Support for automotive manufacturing
10. 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. (Paragraph 64)
HMRC
11. The
relationship between HMRC and the taskforce demonstrates once
again the benefits of the experience of MG Rover and the importance
of retaining knowledge of how to deal with economic shocks. We
welcome the positive contribution of the HMRC Business Payment
Scheme, and the effect it has had on helping businesses in the
region manage their cash flow during the downturn. We note that
these are payments deferred and recognise that AWM is working
with businesses and the banks to anticipate any future problems.
(Paragraph 68)
Regeneration
12. 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 are not in the list of twenty, and secondly, because they
will not attract further investment around the development that
they otherwise would have. (Paragraph 85)
13. AWM has had to
take difficult decisions about how best to use its limited, and
recently reduced, resources. As Mr Laverty said, if the twenty
are revisited, momentum will be lost. 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. (Paragraph 86)
14. 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 initiatives 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. (Paragraph 87)
The role of local authorities
15. Without
input from AWM, and other regional bodies, there is a limit to
what local authorities can do. In the absence of funds, the task
force has to work with local authorities and other local stakeholders
to explore other ways of stimulating the local economy. (Paragraph
90)
Stimulating the upturn
16. 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. (Paragraph 97)
17. 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.
(Paragraph 99)
Wage subsidy
18. 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.
(Paragraph 108)
Preparing for the upturn
Mick Laverty of AWM set out the issues facing the
region very clearly in his evidence. He told us:
"This region is not innovative enough. We have
not got enough product and service innovation. This region is
not entrepreneurial enough. This region has a problem at both
ends of the skills spectrum. We have less people with high-level
skills and more people with no skills or low-level skills than
most other regions. We have not had the investment in infrastructure
that we need. We have got too many people who are workless. We
know the issues … We know what we need to do. It is just
trying to get momentum behind enough businesses. It mainly is
the private sector. Yes, it is great to have the public sector
efficient. Yes, it is great to have the public sector innovative,
but the public sector is not the wealth-creation sector. We have
to get a groundswell of businesses systematically innovating their
products and their services, systematically investing in their
work force … We do know what to do; we just need to all pull
behind the [Regional Economic Strategy], because it sets it all
out there … We just need to get behind it and deliver it."
19. We
agree with this very succinct analysis of where the region stands
economically. The challenge now is to implement the necessary
change. (Paragraph 112)
Making it happen
20. 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 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.
(Paragraph 117)
West Midlands Taskforce
21. 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. (Paragraph 118)
Regional Minister
22. 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 taskforce 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. (Paragraph 121)
23. 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. (Paragraph 122)
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