Examination of Witnesses (Questions 1-42)
NWDA, ONE NORTH EAST, SEEDA, SWDRA, ADVANTAGE WEST
MIDLANDS
7 SEPTEMBER 2010
Q1 Chair: Good morning
and thank you for attending this first session on RDAs and LEPs.
I will start with a couple of questions. Could I just emphasise
that obviously there has to be an element of time management here?
Please don't every member of the panel feel that they are under
a burning obligation to answer every question. If the points that
you would like to make have already been made by another member
of the panel, don't worry about not repeating them.
Can I just start with a couple of general questions?
First of all, what functions of the RDAs do you think should be
continued? One of the issues that have arisen from our search
for evidence is the comments made by a number of organisations
that RDAs in effect were obliged to take on various Government
objectives which rather hampered their effectiveness in certain
areas. What functions do you think should be continued through
the proposed structure by the Government?
Sir Harry Studholme:
Thank you Chairman. What we have tried to do is to allocate the
questions among us, so hopefully the repetition point will not
occur. In particular about the functions, would Steve like to
answer that?
Mr Steven Broomhead:
Thank you, Chairman. Over the context of the previous Government,
I think there was certainly some mission creep for RDAs and there
was an acquisitive nature to the functions that we had and now
have, but to answer the question directly, I think major functions
will be: business support; business finance; foreign direct investment,
where we already work with UKTI; science and innovation, which
are very important; enterprise; sector development, particularly
the manufacturing industry and some of the new sunrise industries
round the creative industries; and energy and low carbon—making
sure, I think importantly, that we continue to focus on the rural
agenda.
Q2 Chair: Thank you.
Anybody wish to add to that? Could I just ask you maybe a tricky
question? Do you think a local framework could work better than
a regional one—the crux of the whole issue?
Ms Pam Alexander:
Well, if I could address that one, I think it depends what it
is that you are asking localities to do. Clearly there will be
a big advantage in businesses working really closely with their
local authorities, and indeed with social enterprise and their
universities and further education colleges, to focus on economic
growth and indeed on some of the economic underperformance indicators
in areas. I think our concern is that there should be a framework
which bridges the subregions that will be covered by each
of the Local Enterprise Partnerships, particularly if there is
not coverage across the whole of England and there might be some
areas that are not getting the attention that others are getting.
So our concern, I think, would be that there needs
to be operational flexibility of the sort that the Regional Development
Agencies have had. We have taken some time to mature into an organisation
which we believe has a good ability to integrate but also a flexibility
to use our single pot funding as effectively as is needed for
each different function. We believe that Local Enterprise Partnerships,
too, will be on a journey and the way in which they develop from
a focus not just on the fine grain, but also being able to deliver
those national functions, which are crucial for the economic growth
of the UK, is something which I think needs to be addressed very
clearly.
Chair: Thank you. Jack
Dromey?
Q3 Jack Dromey: Thank
you, Chair. I would like to ask you first of all about how RDA
functions can be delivered through smaller bodies and what challenges
LEPs face in delivery. To take a couple of practical examples,
the way on the one hand that the shock to the system in Rover
between 2000 and 2005 was handled—diversifying the supply
chain so that in the event of Rover's collapse in 2005, the supply
chain did not collapse—and on the other hand, strategic
business support for industries like nuclear, aerospace in certain
key regions that you represent, and indeed the automotive cluster
employing 150,000 in the Midlands. How could such functions be
delivered through smaller bodies? What would be the challenges
that LEPs would face in facing up to challenges of that kind?
Ms Pam Alexander:
We don't know what these smaller bodies will look like yet, but
one of the questions will be how well they relate to sectoral
geographies as well as economic and political geographies, because
you have given an example there of a sector, which Sir Roy,
of course, has considerable knowledge of, where there are national
and indeed international issues to be dealt with, as well as the
local issues. I think in relation to supply chains, again, sectors
do not very often focus just on one locality and therefore it
would be really important that there is sufficient integration
across boundaries to enable those issues to be driven forward
and enough evidence and lessons from interventions in the past
to work out what will really help to get supply chains support,
or to identify those international, global competitive advantages
which we can gain if we really drive through the most important
sectors for the future.
Sir Roy McNulty:
I think if one was looking at the West Midlands, where we understand
there may be six LEP proposals, it would be very difficult for
six LEPs separately to address either of those issues. A shock
as big as the Rover collapse which spread right across the West
Midlands. Major industries like automotive and aerospace, which
again spread across the West Midlands, would not wish to deal
six times with different bodies to address the macro issues that
concern them. That point has been made very forcibly to me by
people from the automotive sector and the aerospace sector. I
think all of that points to the need—this is again, I believe,
reflected in the LEP proposals—for some form of co-ordinating
body to address issues that spread wider than the boundaries of
the LEPs themselves.
Q4 Jack Dromey: Can
I just tease that out further, Sir Roy, the case for retaining
regional co-ordination? The CBI has said in its evidence to us
that Government should not throw out the baby with the bathwater—indeed,
a survey of CBI members says 65% would prefer LEPs to operate
at regional level. What is the voice of business in the Midlands
or indeed any of the other regions represented today?
Sir Roy McNulty:
I can only speak about the voice of business in the West Midlands.
They are crystal clear that they want some form of effective co-ordinating
body to address issues such as you have described and a number
of other facets of making and supporting the LEP structure.
Jack Dromey: Can I ask
you one final question, which is—[Interruption.]
My apologies, did you want to say something?
Mr Alan Clarke:
Sorry to interrupt. Yes, it is just that there is a specific proposal
from the North East of England from business organisations and
all 12 local authorities to establish a North East economic partnership
going forward to deal with the very functions that we talked about
earlier, so the CBI, the Chamber of Commerce and the Federation
of Small Businesses all support that. That was submitted yesterday
to the same timetable as the LEP applications, so I think that
is just a realisation in the North East that there is still a
need to do certain types of economic activity at the regional
level, complementary to the five LEP applications that have been
submitted. That happened yesterday. Sorry to interrupt.
Mr Steven Broomhead:
Certainly the businesses of the North West are looking for a degree
of co-ordination and advocacy in Brussels and in other places
for the North West's economy. One of the roles of the RDAs has
been to be a regional referee round inward investment opportunities
and certainly businesses are very clear to us that they would
like to see a degree of co-ordination and advocacy in the North
West.
Q5 Jack Dromey: There
is just one final related question. I think you said that the
voice of business is very clear about the desire for there to
be continuing regional co-ordination. You spoke about inward investment
as one potential function. Other key functions of regional co-ordination?
Sir Roy McNulty:
I think issues such as we have described, which spread across
a number of boundaries: transport infrastructure would be another
good example of that. I think there are a number of functions
which would be most efficiently provided on a shared services
basis. It will make no sense for, say, six LEPs in the West Midlands
each to have their own data collection activity collecting the
same data over and over again and probably ending up with different
results. There are specialist things like that which would make
sense. Then thirdly and lastly, there is the important area of
the various functions which are said to be going to be led nationally.
Maybe that is right or maybe it is otherwise, but the important
thing, I think, is where are those functions delivered? There
needs to be a focal point for delivery of those functions at West
Midlands level.
Q6 Jack Dromey: Indeed,
that's what the CBI have said to us in their evidence to us in
terms of the MAS functions—importance of regional delivery.
Sir Roy McNulty:
Absolutely. To come back to the question I nearly answered earlier:
what is the view of business? Business Voice West Midlands, which
is the umbrella body for all of the business organisations in
the West Midlands, I believe has expressed to Ministers their
desire to see a strong co-ordinating body with a range of functions
such as I have described.
Jack Dromey: Thank you.
Q7 Mr Binley: I just
want to understand what the voice of business is and you have
just touched upon it. My fear is that the CBI is pretty dominant
in all of this and we are going to get the jobs growth in the
main from SMEs, so I want to be sure, because one of the criticisms
of RDAs is they did not go where the real action is, right at
the coal face with SMEs. Are you including those in your review
of the West Midlands view of business?
Sir Roy McNulty:
Absolutely. Business Voice West Midlands encompasses, to the best
of my knowledge, all of the significant business organisations,
including the Federation of Small Businesses and the EEF, and
I would not accept the proposition that the CBI voice is dominant.
The CBI is a very important and capable organisation, but there
is a consensus among that whole range of organisations, including
the chambers.
Q8 Jack Dromey: The
Chambers of Commerce and the IoD?
Sir Roy McNulty:
Yes.
Mr Binley: I'm happy that
you have confirmed that.
Q9 Chair: We have
had various submissions proposing a certain number of LEPs as
being the appropriate number for the UK. Would there be the need
for a regional co-ordinating body if, overall, there was only
a limited number of LEPs, say 15 to 20? Judging by the consensus
emerging from the West Midlands, that is highly unlikely, but
could you construct an argument on the basis of a limited number
of LEPs?
Sir Roy McNulty:
Well clearly at the extreme, if there was only one, then you have
solved the problem, but I think most likely there will be at least
three, maybe more, eventually in the West Midlands. I personally
doubt if six is the optimum number. I think history shows, in
the West Midlands certainly, the difficulty of getting those various
configurations to co-operate. I think that is another reason why,
in our particular case, to deal with the economic challenges we
have, we need a strong co-ordinating body such as Business Voice
West Midlands have proposed.
Mr Alan Clarke:
Can I just add to that from a North East perspective? Sorry to
interrupt. I think obviously from what we know, there are something
like 50 LEP submissions or thereabouts, or there are likely to
be. How you get down to 20, I am not sure, but if you look at
regions like Yorkshire, who are not here today, they have a relatively
small number of LEPs proposed—just four or five—but
interestingly the business organisations have grouped together
in that part of the country and said that they would like four
strategic economic functions of the sort we have talked about
already to continue. So even in a region with a small number of
LEPs for the size of the population, I think there is an acknowledgment
that there is a need for regional-level activity and that is in
Yorkshire, as an illustration of the point.
Q10 Nadhim Zahawi:
Sir Roy, you mentioned that six is not an optimal number.
What would be an optimal number?
Sir Roy McNulty:
I think a view will have to be taken as to what scale you need
to really be effective in this role.
Nadhim Zahawi: I am asking
for your opinion.
Sir Roy McNulty:
I think if you use population as a yardstick, I cannot imagine
that a LEP would really have sufficient clout if you have a population
unit below 1 million. I know at least one of the proposals
which has gone in is for a unit of significantly less population.
I guess, ideally, probably a million-plus. Not more than two million
because then the thing gets so big that it is really difficult
for a grouping like a LEP to have traction.
Q11 Nadhim Zahawi:
So help me with the arithmetic. What does that say
for the West Midlands?
Sir Roy McNulty:
I think three or four may be a better answer than the six which
I believe are being proposed.
Q12 Rachel Reeves:
I will make the point about Yorkshire and the desire there to
have some sort of regional entity. That is certainly what I am
hearing from businesses in my region. In the discussions you are
having with the Department, are they sympathetic to having some
sort of regional structure maintained? If so, how will that be
funded? My understanding is that the funding for the day-to-day
functions would not come from the regional growth fund money,
so how would you propose that these community interest companies,
or whatever they are structured as, would be funded?
Mr Alan Clarke:
Two answers. The civil servants within BIS I think are positive
about the idea of regional proposals, because although, quite
rightly, they have talked about a national leadership of these
big strategic economic interventions in a global market, they
realise they can't all be delivered centrally from Whitehall and
that you need other people to deliver it, and it is very difficult
to deliver these things through 40 or 50 local organisations.
In terms of funding, I can talk only from the North
East perspective. We have a number of assets—property, vehicles
and so on—which bring in income each year which is invested
back into economic development in the North East: on average,
£6 million or £8 million a year. So although local
authorities and business have not quite got to this point yet,
certainly if I am asked the question, I would say that income
from such a property portfolio, which is property in the North
East developed in the North East, could be used to pay for the
salaries of a new group of people. Then, obviously, the products
that they are responsible for managing would depend on whether
BIS have those products in the future and they could be delivered
in a partnership with the national level as well, so that you
have the global view of this competitive economic activity. I
am not sure of the model in Yorkshire.
Rachel Reeves: Thank you,
Alan.
Mr Steven Broomhead:
I will also add, Chairman, that you are going to need some innovatory
approaches to the funding of any regional body, because there
is the wider issue of the uncertainties of the funding of the
Local Enterprise Partnerships themselves around capacity support.
That matter may be dealt with through the White Paper, which we
understand comes out in October, and may be an issue that is contained
within the comprehensive spending review, but certainly, as Alan
said, you can use various funds which are managed at the moment
on a regional basis—be it a JESSICA fund or a JEREMIE fund,
or venture capital loan funds—to generate small amounts
of income to help to fund streamlined regional co-ordination and
advocacy structures.
Chair: David Ward.
Mr David Ward: Good morning
everyone. It is a difficult process, this, because you have already
touched on about 15 of the questions which I keep biting my tongue
and saying that's coming up later on. But the comments that Alan
has just made do make some assumptions about the transfer of ownership
of assets, which is a question that is coming up later on. That's
all.
Sir Harry Studholme:
Do you want us to reply about the ownership of assets?
Mr David Ward: Well it
is coming up later on. Do you want to move onto my question?
Chair: Yes, do.
Q13 Mr David Ward: Well
again, it is one that has really been touched on quite a lot already,
but it is to do with the overlapping of the LEPs, but if I can
just take one part of it, which has been briefly referred to,
and that is what I think is being described as horizontal co-operation
between LEPs, which may of course be in different parts of the
country. I just wondered if you have some views on that. Research
is a good example in university collaboration.
Sir Harry Studholme:
I think it is a really interesting point. When you start to talk
about functional economic geography, geography is not simply what
happens on a map or the boundaries of local authorities. It is
happening at all kinds of levels. You touched on aerospace, for
instance, where significant elements of our aerospace industry
in the North West, a great deal around Bristol, some in Derby
and stretching as far south as Yeovil, and how you align that
against, say, the retail environment, which is clustered around
specific cities. So at one cut there is a complexity, but that
is seen even at the more local level. There is an example in the
bids that have been put in surrounding Devon, which is in my part
of the country. There is a bid from Somerset which correctly recognises
that there are links between Devon and Somerset; but at the same
time, there are strong links with Devon and Cornwall. s Devon,
Plymouth and Torbay mentions Cornwall in their joint bid, but
at the same time, Cornwall with the Isles of Scilly sees itself
as a functional Local Enterprise Partnership zone. So your point
about this overlap is a very astute one. Thank you.
Mr David Ward: It wasn't
my idea, but thank you.
Q14 Rebecca Harris:
The Department has listed a range of functions that the RDAs performed
which they want to control nationally—inward investment,
sector leadership and business support. I just wanted to know
what your views were on that, which I think was touched on in
the very first question; at what level you think delivery of those
functions should happen.
Sir Roy McNulty:
I will make a couple of comments. I have to admit that I personally
struggle with what is proposed a bit; if this is localism then
withdrawing quite a lot of functions back to Whitehall seems to
me a slightly odd interpretation of that. Having said that, as
I mentioned earlier, I would tend to put a greater emphasis on
the delivery as opposed to the policy making. For a lot of these
functions, which previously have been delivered by the RDA relatively
close to the ground, we need to find a way—my comments earlier
about the co-ordinating body are relevant to this—whereby
delivery can be achieved closer to where the action is and not
completely repatriated to Whitehall.
Q15 Rebecca Harris:
Thank you. In theory, this is a great new future and the LEPs
are going to be an enormous success, so this is almost an odd
question, but do you think that there are risks in the abolition
of the RDAs that England and the English regions will now be disadvantaged
compared with Scotland and Wales?
Mr Alan Clarke:
Can I say something about that from the North East, because we're
obviously very close to Scotland when we're in Berwick? I think
there is already a disadvantage even just in terms of inyear
budget cuts which are taking place in this country; they are not
happening in the devolved Administrations at the moment. Scotland,
which I know a fair bit about, being just over the boundary, is
still spending money on foreign direct investment, GBI grants,
tourism promotion, etcetera in this year, when we in England have
had to stop some of this activity. We certainly cannot commit
any money beyond March 2011, so Scotland already has a relative
advantage.
Also, to my knowledge, there are no known significant
structural changes proposed in the devolved Administrations' approach
to economic development. We all want LEPs to be a success with
the new regional growth fund, but inevitably it is going to take
time for them to bed down, to grow, to develop the expertise,
etcetera. In the meantime, I think again the devolved Administrations
will be in a relatively much stronger position. They were already
well resourced and have significant political power anyway, so
certainly from a North East perspective, being so close to Scotland,
that is something that means major companies which we have been
talking to about potentially looking at Scotland and the North
East as a location, are now more likely to look at Scotland than
the North East. I think it is a real problem now and it will continue
for the next two to three years, from my experience.
Q16 Rebecca Harris:
At the very least a teething problem, then, and they would keep
many of those functions which we may be losing?
Sir Harry Studholme:
Yes, to explore that further with the South West relative to Wales,
even before the discussions we are having now, obviously there
are challenges, for instance on inward investment, which is a
very key instrument for relative economic development. If you
can attract companies from overseas to, say, the North West or
the North East, most of the inward investment successes derive
from preexisting relationships; they are existing customers
who actually operate inside areas. Creating those relationships
is absolutely key to, say, bringing in companies from Japan or
from America. In this flux, those relationships have a risk of
being broken down and we are already seeing our inward investment
experts being approached by people from Wales and Scotland, so
the very people with the relationships actually may well change.
Does RDA abolition disadvantage England relative to Wales and
Scotland? I think the factual evidence is that it may well.
Q17 Chair: I think
it was Sir Roy who commented that he was having difficulty
in understanding how some of these functions could be repatriated
nationally. My understanding of the Government's argument is that
there will be some functions co-ordinated nationally, including
inward investment, sectoral leadership, business support, finance
and training, but delivered locally. I am a little unclear what
mechanisms exist to actually do this, and I would welcome any
thoughts that you might have on it.
Sir Roy McNulty:
I am equally unclear. As yet, I think we have had no explanation
as to what exactly is envisaged, other than that they will be
led nationally, which is, as I said earlier, an odd interpretation
of localism. It is crucial that there are mechanisms for things
to be delivered closer to the ground in the West Midlands, and
I am sure the same applies to the other RDA areas, but what that
mechanism is has yet to be described. I know it is the view of
the business community in the West Midlands that that local delivery
function could well be aligned with the co-ordinating body and
be one of the functions of the co-ordinating body that I touched
on earlier.
Q18 Chair: Could
I just pick up on training and skills delivery, because we had
conflicting proposals from different business organisations. Some
did not feel that it was appropriate to be done through LEPs;
others felt it was much better to be done through LEPs. Could
you envisage a model where, if you like, skills and tailoring
the skills agenda to meet the needs of local industry could be
better done at LEP level?
Sir Roy McNulty:
I do not think it is either/or. I think there are quite a number
of things which local authorities are already doing, certainly
in the West Midlands, which you could easily envisage a LEP doing.
But there are other training and skills issues which run across
a wider area. For example, not all of the LEPs that are proposed
have a significant university in them, and those universities
serve a much wider catchment area than any individual LEP that
they happen to be located in. We tend to get fixated with either/or.
The reality is that things need to work at several levels—at
both a LEP level and at a West Midlands level.
Q19 Nicky Morgan:
Good morning. On the different levels, we talked about the West
Midlands needing a co-ordinating body and there are a number of
functions that you would expect LEPs to collaborate with each
other on, because there are certain things to be delivered. I
thought it would be interesting to know how that works in the
RDAs at the moment. Are there certain either sectors or particular
programmes where certain RDAs are already having to work with
each other because what is needed to be delivered an RDA cannot
do on its own, and even perhaps where national Government has
to be involved too? I am thinking perhaps inward investment could
be one of those areas.
Sir Harry Studholme:
Can I start by answering that and then we can go to the North
West? I think there are a couple of good examples, for instance
in aerospace or nuclear, where it does apply across the country.
I am also conscious that in areas where—I was on holiday
in Japan and therefore made a visit to various South West companies—as
development agencies, we work closely overseas in making sure
that there is a co-ordinated approach and there are relationships.
Steve?
Mr Steven Broomhead:
Aerospace is a good example where the RDAs have worked very closely
together on the ASTRAEA project, particularly working with the
prime BAE. If it had not been for that working together, that
project would not have come forward. Another really good example
is the Northern Way, where the three RDAs in the North have worked
collaboratively for over five years around ensuring that the North's
economy continues to grow. Obviously, rebalancing the economy,
we note, is one of the Government's priorities and we hope with
the new architecture of LEPs that the Northern Way, around the
rebalancing of the economy, can continue in some way. The Northern
Way has been very good in terms of focusing on transport issues,
science and innovation issues and energy and environmental issues,
and we hope that can continue.
Ms Pam Alexander:
Can I just add a different dimension to that? As well as the geographical
and sectoral, we have worked together on some key infrastructure
projects—for example, we have worked closely with Advantage
West Midlands on drawing European money into improving the rail
gauge between Southampton and the West Midlands. So there are
some key strategic infrastructure projects where we have worked
together, as well as geographical projects, which would be mirrored
in the South, in, for example, Milton Keynes, South Midlands or
the Thames Gateway, and sectoral projects, which I think we would
say is probably a route through into the link between the local
and subregional and panregional delivery and the national
delivery mechanisms that will be driven from the centre.
Q20 Jack Dromey:
Can I follow Nicky's question in relation to inward investment?
There has been an emphasis thus far in relation to the potential
of the English regions losing out to Scotland and Wales. The Committee
heard in July on this issue of the nationalisation of inward investment,
as is being proposed, that the current track record of UKTI is
that the bulk of inward investment coming to Britain through UKTI
goes to the southern swathe of England. Can you comment on that,
and what would be your fears in relation to the northern swathe
of England were there not to be a strong regional function on
inward investment?
Mr Alan Clarke:
Yes. We have significant experience of working with UKTI. It is
a very positive relationship in the region; their offices are
actually within our offices, so they work hand in glove together.
But UKTI themselves would be the first to admit that more than
50%—probably more than 60% or 70%—of the successful
inward investment cases in the North East—are not started
from a UKTI enquiry. There is, I think, an understanding that
we generate our own enquiries, partly through international companies
that are already based in the North East like Nissan, who are
looking to reinvest all of the time, but they are in great competition
with other locations for that. We also have a group of agents
who operate internationally, representing the North for way beyond
the life of the RDA—our Japanese agent has been representing
the North East for 25 years, for instance—so there
is long experience in the North East of dealing with inward investment.
UKTI understand that; we do not stand on each other's toes, by
and large, but certainly if we were relying on UKTI leads and
enquiries, the North East would lose out heavily and we have the
statistics to show that, with some independent evaluation that
we had done. I am sure the same is true of the North West.
Mr Steven Broomhead:
If I might add that the North West is the third largest region
for foreign direct investment and has been for the last three
years—to deal with your question about the focus on the
South. In my own region, UKTI, whilst we have a strong partnership
with them, produces only 13% of the total foreign direct investment
into the North West. Obviously, with the changes that are coming
along, we are, I think, somewhat concerned about the impact of
those changes on foreign direct investment unless the architecture
is made very, very clear.
Sir Harry Studholme:
I think it is worth explaining the relationship between Regional
Development Agencies and UKTI for inward investment, because there
appear to be duplicated functions. In fact, if you are trying
to encourage business into the country, you need both the relationship
overseas and the relationship on the ground with the company,
so if the company comes into England, it needs to be established—it
needs to have links with the council on planning, if it is going
to build anything. It needs a fairly complex relationship with
the existing business networks, and it is that part of the equation
that the RDAs have been very successful at providing. It is that
practical experience on the ground, linked into the wider services
for business. The operation overseas through the embassies, etcetera,
is a very different role to the operation on the ground.
Sir Roy McNulty:
If I might just add that I think this is another example of this
conjunction of national level strategy or policy and local delivery,
because supposing UKTI comes up with a lead with somebody who
is interested in coming to the West Midlands, there are many issues,
as Harry said, of land use, planning, local labour supply, training
issues and so on, where UKTI will not hold the hand of the inward
investor to work them through. You need a local delivery capability
and I know that that theme is strongly to the fore in the LEP
proposals from the West Midlands.
Q21 Mr David Ward:
I am just trying to get a feeling for this. Are you just being
too polite to say that you fear that we are in a baby and bathwater
situation here?
Sir Roy McNulty:
Well I don't think so, although the comment was made to me that
there is not only a danger of throwing the baby out with the bathwater,
but there is a danger of throwing the bath out as well—but
that was a rather extreme view. I think with any major structural
and organisational change such as we are looking at here, there
are risks—as was touched on earlier; there are many risks.
The risks can be mitigated; we can put in place measures to make
sure that the risks do not actually materialise, and I think that
is a very important element of this whole change process going
forward.
Chair: Can we just move on to this issue
of the transition and risk? Nadhim Zahawi.
Q22 Nadhim Zahawi:
Thinking about localism and collaboration, we have been talking
about inward investment and probably the larger profile of companies.
I have just a couple of questions. First, 97% of our region, the
West Midlands, Sir Roy, is obviously SMEs and I would love
to hear from everyone how you feel the RDAs have fared in terms
of performance with SMEs. On co-ordination and collaboration,
we all agree that it is taken as read that you need a strategic
approach as well as the local approach and that LEPs will struggle
to collaborate, but I understand that between the RDAs, you have
produced something like 24 nanotechnology centres around the country,
which is not a perfect example of collaboration or co-ordination
and I would love to hear your thoughts on how that happens. Unlike
nuclear and other examples of success, can you just talk about
some of the failures of the current structure in co-ordination—two-tiered?
Sir Harry Studholme:
As I take it, there are at least two questions there; one about
SMEs and the second about collaboration and duplication. I think,
to take the collaboration and duplication one, which is also almost
two questions, it is a very interesting question, because for
me the development of the Regional Development Agencies has been
a journey. It started off as a process of bringing various nondepartmental
public bodies together; it was a consolidation of business-related
activity that had previously been ensiloed. Part of that process
was the consolidation and then there was the process of desiloing,
of getting the synergies and the cost savings from that, and the
ability to experiment. With the ability to experiment comes the
risk of failure, and I think the question is not whether you fail;
the question is whether you learn from your failure. I think the
nanotechnology point is a point very, very well made. It is from
learning those lessons that the focus on things like the advanced
manufacturing centre, the composites centre that we are working
on and the co-ordination in aerospace has come. It is an important
point and it is probably a point that the Local Enterprise Partnerships
need to learn, that the lessons have been learned in the past
on this journey about how to deal with business.
On the point about SMEs, I think it is also an interesting
question, because business is not one thing. You use the word
"business", but it consists of everything from banking,
to retail, to construction, to plumbers, to people who are farming—it
is a very, very wide categorisation. What is important is the
challenge of how you manage to capture that as widely as possible.
We have talked a bit about large companies and the CBI. The SME
question, certainly in most regions we relate well to the Federation
of Small Business; other small rural activities would be the NFU.
On the whole, it is a relationship which is really at the sort
of level I would expect. We have a business forum, we have very
useful meetings with those and meetings with other business organisations,
which are on the whole positive but are occasionally critical.
I view that as a really positive situation.
Sir Roy McNulty:
Just to add a few comments on that, I have been the chair of Advantage
West Midlands for a year and have spent a lot of time in that
year talking to many businesses all around the West Midlands.
To be straight about it, I think we all could do better in terms
of support for SMEs. AWM has done many good things, and many of
the people I have met have been extremely praising of the help
and support they got, but across the board I do not think the
picture is as good as it could be and part of that is because
there are so many players in it. It is not only the RDA and Business
Link; you have the chambers involved in support of SMEs, you have
the universities involved, you have the local authorities involved,
and I certainly do not blame any small business man who is thoroughly
confused as to who is doing what and helping whom. I think the
LEPs are an opportunity to straighten quite a lot of this out,
and provide a much more comprehensible set of support mechanisms
where each of those parties can do what they are good at, but
we do not get the amount of duplication and cross-purposes that
at times we can get with the present setup.
Q23 Rachel Reeves:
Just building on Nadhim's and David's point on the transition
and this question about throwing the baby out with the bathwater
as well, there is a report by the Work Foundation, I think, that
says that, in a way, this is the very worst time to abolish the
RDAs, because of the economic situation we are in, with the fragile
recovery. Certainly in my region, given the work that the RDA
has done with Corus and with Lloyds Banking Group and HBOS to
keep jobs in the region, my worry—I just want to see if
it is shared by you in your regions—is that getting rid
of RDAs at the moment risks a lot of uncertainty in the business
sector about who the right people are to go to. Will some things
fall through the gap? Then, a very specific question about the
transition: I think in Yorkshire Forward, we have assets of around
£62 million, which I think Alan touched on earlier.
Have there been discussions about the disposal or the transfer
of those assets? What would your preference be about what happened
to your RDA assets?
Sir Harry Studholme:
Can I split that into two questions? One is the question about
assets and the second is the right moment question. I am not sure
we are the best people to ask as to whether as turkeys we vote
for Christmas or not, but there is in any large organisation,
and it is true in business, a pendulum that runs from the centralisation,
the economies of scale, the advantages of consistency, the feeling
of control at the centre you get with the delegation of powers,
the ability to make things happen, to respond on the ground, the
choice and sensitivity to local issues and the fine grain. That
balance you see endlessly in FTSE 100 companies. It is a constant
change. Our job as government agencies is to make things happen.
So the question to us is not when, but how—how to make things
happen on the ground and how, as far as possible, to make sure
that the work that we have been doing is carried on as effectively
as possible for this country. The next question, on assets, is
more complicated and I wonder if Steve would like to say something.
Mr Steven Broomhead:
BIS have estimated there is about £500 million worth
of assets within the RDA family at the moment. Again, we are awaiting
advice and guidance from Government on those assets. To answer
your question, in my own region, I think it is important and I
would like to think that the assets of the North West agency can
be retained in the North West for use by the North West. There
are some assets that could be classified, potentially, as national
assets—for Daresbury technology, the science and innovation
campus, which has had £65 million of agency investment,
may be classified and perhaps moved somewhere else. What I think
it is very important to avoid is a fire sale of assets on behalf
of the taxpayer, because we have invested in these assets. There
are also some liabilities—things that have been passed to
us over the years, such as former coalfield land. They will also
need appropriate advice and treatment by Government. We await
advice on that issue.
Sir Harry Studholme:
Two points. First, when you start talking about assets, it is
as important to start talking about liabilities. The creation
of the development agencies took over pre-existing problems like
coal mines—things that need things doing to them. That is
a huge part of our work—how we handle the liabilities of
the past—so it is not just about assets. The second thing
is that we never acquire assets because they are simply a speculative
thing. Assets relate to programmes, they relate to people and
they relate to things that need doing for the economy. Those assets
may be viewed differently in different contexts. When you sell
them on, you lose that context, so in terms of the physical asset,
there is a change as you sell them. The third point, really, is
our assets are not just our physical assets. Assets are very much
in the forms of know-how, expertise and hardwon experience.
The consequences of making mistakes are that you have people who
are less likely to make those mistakes in the future. The asset
question is a really important question, but it is not just the
£500 million of the valuation.
Q24 Nadhim Zahawi:
To wrap those answers all together, what I am hearing from you
is that you have learned a lot of tough lessons, you have been
through a consolidation period and are coming out the other end.
There is a lot of intellectual property inside your organisations.
How do we safeguard that through the transition and is there an
argument to be made for a transition period where you have residual
RDAs and trial LEPs, where some of this stuff can be piloted,
rather than a cut and an immediate restructure? Would that help
in terms of that transition of know-how and IP assets, physical
and otherwise? What is your view on the process—could there
be a middle bit?
Sir Harry Studholme:
Steven will talk about piloting.
Mr Steven Broomhead:
There is a transition period until 1 April 2012 and
obviously the Government will be making decisions about LEPs fairly
soon. We will work very closely with the LEPs, in parallel, on
transition issues around assets, liabilities, people, knowledge,
etcetera, to make sure. Indeed, some of the projects and
programmes may be transferred to the LEPs—some of the projects
we have been able to fund this year, which the LEPs and local
authorities in particular know about, we will be encouraging them
to perhaps bring them forward to the regional growth fund to make
sure that legacy is not lost. So I think there is a period that
is being established for transition working. Whether it is long
enough I think depends on some policy decisions and clarity which
I hope will be in the October White Paper.
Sir Roy McNulty:
I think it comes back again to managing risk. A transition period
might be a way to manage it. There are other ways you can manage
it: one is making sure you can retain the people with the specialist
knowledge until the assets are transferred, or transfer the people
with the assets, but what I think would really damage the asset
transfer is if that know-how disappears, those people find jobs
in the near term and have gone, and the whole history and the
knowledge of the issues to do with some of these complicated sites
has disappeared.
Q25 Chi Onwurah:
I would like to question the feasibility of transferring some
of these most important non-tangible assets. In the case, for
example, of One North East, one of the successes has been the
growth of the renewable energy offshore wind industry. This is
a very technically complex industry—the technology itself,
but also the supply chain and the manufacturing processes. I have
criticised Regional Development Agencies for not having enough
engineering and scientific and technology knowledge. Are you proposing
and suggesting that that kind of detailed understanding should
go to, for example, an engineering team in Newcastle, North Tyneside,
Teesside, etcetera? How are you specifically going to hand
that over?
Mr Alan Clarke:
Yes, we have been involved in those discussions for the last 12 months
leading up to this change of government policy with the local
authorities in the North East—there are just 12 unitary
authorities, so it makes the conversations easier—and with
the business organisations and BIS as well. Interestingly, in
the proposal that was put forward yesterday by the local authorities
and business for a regional economic partnership, the assets around
low-carbon vehicles, around the process sector in the south of
the region and around new and renewable energy—NaREC is
now a national facility with probably the thick end of £100 million
having been spent on it through the RDA—there is an agreement
that the sort of level of expertise to manage, further develop
integrate and get the manufacturing benefits and the skills benefits
should be done at the regional level and not at the local level.
I think that is a grown-up realisation that it is horses for courses
in terms of what is best done at different geographic levels.
NaREC is specifically referred to as one of those things that
the region would like to continue to do at a regional level but
obviously with national dialogue. It is obviously a global industry
we are talking about.
Sir Harry Studholme:
That is a very good point, because it is not just a North East
issue; there is Wave Hub in the South West; there is a manufacturing
technology centre in the Midlands; there is Daresbury, Harwell,
etcetera. So this is quite a key issue.
Q26 Jack Dromey:
I have two questions on transition. First of all, on the issue
of know-how, my colleague Nadhim talked about the immensely important
intellectual property that you have built up. In the process of
transition to the LEPs, are you losing that know-how, on the one
hand; and, on the other hand, to manage better the transition,
what steps do you think would be helpful?
Sir Harry Studholme:
The simple answer is yes.
Sir Roy McNulty:
We are beginning to. I am aware of one or two of our really good
people who have had offers to go elsewhere and they will probably
take them. What we need is a mechanism to incentivise, if you
will, the people we need to stay right through to the end. That
is not only people with specialist knowledge of some of the complicated
sites or some of the complicated projects, but down to basics
like IT people, or accounting people, who have to finally wrap
the books up. We know what we need to keep, but we need a mechanism
to make it worth those people's while to stay. Otherwise, they
will, wisely, take the first good offer that they get.
Q27 Jack Dromey:
Right. The other question is this: we are aware of the budget
reductions that you are being asked to make of 60%, 40% and 20%.
What is the impact of that now and the anticipated impact in the
financial year commencing April 2011? Sir Roy, in the
Midlands, what are you being asked to reduce your current budget
by and what would the impact of that be on your programmes?
Sir Roy McNulty:
I can provide you with the precise figure, but I think for us
it is a reduction of about 30%. The impact is that we are basically
almost completely out of doing any new business or any new projects.
We are pretty well fully committed right through the period to
the envisaged end date of the RDAs, so we are not doing anything
new. We have quite a wide range of commitments which need to be
met and projects need to be completed, but we are out of the development
game, if you want to put it that way.
Q28 Jack Dromey:
So in a transitional period of between perhaps one and two years,
existing programmes are being continued, but any new requests
for assistance cannot be met?
Sir Roy McNulty:
Absolutely. We basically are pretty well fully committed on what
we currently understand our budget will be and, as I say, I will
provide the Committee with the precise figures for next year.
Mr Alan Clarke:
Could I add a second answer to that, though? It does vary from
region to region. We have a little bit more headroom next year
deliberately to do some strategic things in the North East, but
a whole series of constraints have been imposed on RDAs in terms
of our spending. Some of it is common to all of the public sector,
like the marketing freeze, but we have some very substantial additional
constraints. One of them is that we cannot commit any money at
the moment beyond March 2011, even for good-quality job-creating
schemes. If you do have some headroom at the moment, you can spend
money this financial year, subject to the new constraints, but
you cannot commit money into next year. It might be clarified
during the comprehensive spending review, but that is a real problem,
because economic development is difficult to switch on and switch
off within a matter of months. You really need a two to three-year
horizon to do these sorts of things. I think that is a real problem
in some regions; it certainly is in the North East.
Q29 Jack Dromey:
But we were told by Ministers—the Minister of State told
the Committee at the end of July that there would be guidance
given in August on the interim financial and accounting arrangements.
Has that guidance been given?
Mr Alan Clarke:
We have the guidance, but it is very constraining. It is not particularly
to help you; it is to stop you from spending money, essentially.
Mr Steven Broomhead:
There are some other unintended consequences of these decisions.
I will give you two: businesses were looking forward to receiving
GBI grants for businesses, but we are unable to do that; and on
the funding of tourism boards—a very important industry
for the nation—we are unable to provide any resources now
to support the five tourist boards in the North West in the future.
Q30 Margot James:
Sir Roy, could I just go back to your answer about ongoing
projects? I understand your position that the RDAs are not able
to fund new projects in the current circumstances, but you did
say that all existing projects were going ahead. I wondered if
I could ask you to clarify that, or possibly make further investigations,
because businesses in the Black Country which have been receiving
and supporting other companies with ERDF funding have told me
that certain projects, particularly in the IT support field, that
are current projects have been put on hold. I am very concerned
to hear about this and I wondered if you could get back to the
Committee on that.
Sir Roy McNulty:
A small number of projects were under discussion. In two cases
which we had made a commitment, on further review and looking
at our priorities, we decided not to go ahead. I can provide you
with the details of those. I will make enquiries along the lines
you have described and see if there are other cases that I am
not aware of.
Sir Harry Studholme:
But I think it is a fair point. It is a very tight environment
and there is a line between what are legal commitments and what
are moral and anticipated commitments. It is a very tightly constrained
environment.
Q31 Luciana Berger:
I am going to talk a bit more about funding and resources. You
touched in quite a lot of detail on funding for current and pending
RDA projects. My concern is about what will happen around EU grants
and funding. I am conscious that there is a €1.3 billion
uncommitted ERDF resource still available through the convergence
and competitiveness programme. What is the panel members' impression
of how that will or will not transfer to the LEPs?
Mr Steven Broomhead:
The ERDF programme has been the responsibility of the RDAs for
the last three years and it is a very important economic driver
and investment opportunity. ERDF resources are not affected by
the changes, except of course where the development agencies are
unable to provide any new match funding to support those particular
projects. That is where we are asking universities and businesses
to come along, to see whether or not they can find those resources.
So the ERDF programme is virtually two thirds of the way through
now. I think all of us have met our commitment targets and I think
it is a programme that is going well. In terms of its future management,
again we await policy advice from the Government about the way
it wants to manage this programme and any future programme. There
have been some very helpful discussions between the RDAs and the
CLG about these issues and whether or not the programme moves
away from the RDAs before we are dissolved on 1 April 2012.
Again, we wait to receive further advice.
Sir Harry Studholme:
Again, it is a good question, because there are two sides of it.
The first is that the inclusion of European funding in the Regional
Development Agencies' portfolio has been beneficial in that it
has allowed synergies between other aspects of business relationship
to be used to ensure the better utilisation of those funds for
the country. The second side of it is that these are incredibly
complicated, highly audited funds from Europe and great care needs
to be taken to avoid the fines and the consequences of the loss
of competent administration.
Q32 Luciana Berger:
Thank you. In the evidence that we have received, we have had
a number of various alternative funding models be proposed for
LEPs and I will list a few of them. There is the partial diversion
of business rates to LEPs as a funding source; there is accelerated
development zones; tax increment financing and bond issuing powers;
and a regional infrastructure fund with recoupment of initial
public investment through the planning system. Those are just
a few; you might have some of your own. I wondered what your thoughts
or feelings were on some of those and if you had anything else
to add.
Mr Alan Clarke:
Can I start on that one? I think we feel as RDAs that we would
be very supportive of those approaches. I think at a time when
public finances are very difficult and reducing, any innovative
way of creating income to develop economic projects, etcetera,
is critical. As a group of Regional Development Agencies, again
going back to the earlier point, we have a whole range of people
with the technical knowledge and skills in how to do some of these
things. Some of them are around property, some of them are around
access to finance, some of them are partnerships with the private
sector, but there is a whole array across the whole of the country.
We would be happy to offer that expertise to help.
The only other point I would make, though, in terms
of the overall objective of the new Government to rebalance the
economy, is that the ability to do some of these things varies
massively through different parts of the country. So whether you
have fairly positive values on property helps, and whether you
feel you can get a significant uplift on property helps. In the
North East, I think a site in the middle of Newcastle city centre
that Newcastle council, through Science City, wants to do with
the university has very great prospects for tax increment funding;
but other parts of the North East where there is market failure
would not offer this opportunity. I think it is an opportunity
and we would be very happy to use our expertise to help, but it
cannot be applied uniformly across the country. I think there
is a whole range of experience that you have through the different
regions in England, but I think it is a very positive step forward
in a time when funding is going to be extremely tight.
Sir Harry Studholme:
I don't know whether it is helpful to see them in a slightly different
frame, when you talk about ADZs or bonds or whatever, but I think
there are different ways to get funding. One is increasing public
sector debt through things like bond issues and things which obviously
need be repaid and there are issues as to how well that is spent.
Using derisking and taking out elements of projects which
allow private sector investment to come in, which is a major part
of how well RDAs have operated, is a very good way of levering
in private sector money. Revolving funding is, again, increasingly
used, particularly in the European funds, but also in the regional
infrastructure funds that take money that is then repaid by developers
to then be reused to create infrastructure in the future. Tax
relief proposals are also a good mechanism, but you need to understand
how you are targeting those.
Chair: Can we move on
to Margot James? We are running a little over time, so brevity
in questions and in answers would be very welcome.
Q33 Margot James:
I have two questions here. I will ask the one about value for
money for RDAs. What lessons do you think we could learn for the
future auditing of LEPs? I have picked out from the research that
PricewaterhouseCoopers provided the Committee to show that the
cost of jobs created by RDAs was measured against widely different
criteria. It came out on one measure at about £16,000 per
job created and on another measure about £65,000 per job
created. This is, at the upper end, quite alarming. What lessons
do you think the Government should learn in applying value for
money auditing to the new structures?
Mr Steven Broomhead:
I think in making judgments about each LEP proposal in the next
few weeks, Government should ensure that there is a performance
management framework attached to each consideration and LEP proposal
and evaluation. The PWC work was a very detailed piece of work
evaluating over £2 billion-worth of agency investments
over a five-year period and showed many things, including the
issue that for every pound of agency investment it generated anything
between £4.20 and £6.20 of net economic value. I think,
in terms of the whole performance management arrangements and
evaluation—indeed, RDAs have been inspected by the NAO twice
during our 11-year lifetime—there have to be some questions
raised about where LEPs are going to be using taxpayers' resource
through the regional growth fund, what are the performance arrangements
that need to be put in place?
Sir Harry Studholme:
To quickly add a little bit to that, I think the performance management
has been critical—those things we have learned from and
moved on from. You have shown that there is a range of outcomes
and one needs to aim for the better outcomes to get the better
results. Clearly, some of the ones are about timing: when you
redevelop a city centre or something, the short term may be very
different from the long term and the impact more diffused. So
some of it is about the ways in which you gather the information,
which can be misleading.
Q34 Rachel Reeves:
Obviously the Government are planning to set up this regional
growth fund and I wondered what you thought the priorities should
be for that. Then following on from Alan's point that most projects
have a long time frame—you cannot just switch economic regeneration
on and off—do you think that this two-year pot of money
is sufficient, or do you think that that creates additional uncertainty
about the timeframe of the projects?
Sir Harry Studholme:
The stated objectives of the regional growth fund—to encourage
private sector investment by providing support for projects with
significant potential, etcetera and support in particular those
areas and communities that are currently dependent on the public
sector in a transition—are very laudable objectives and
we would totally agree with those objectives. They reflect some
of the existing tensions within economic development and they
are tensions that have existed for decades, which are: do you
address global competitiveness issues or do you address the issues
of economic deprivation? Both are very important things for society
to address. That is the first part of your question.
The second part is, as you say, that economic development
is a long-term issue. One of the big challenges of the Regional
Growth Fund, and this is where we need to work to minimise its
impact (of this challenge), is that all of these funding sagas—and
we have experience from European funding and city challenges—have
a ratio of government activities (set up costs) against delivery.
The Government's activities—the learning process—tends
to be at the beginning as you set up the structures. You learn
from the lessons of how you deliver these things. It will be a
lot of hard work in trying to make the regional growth fund deliver.
Mr Alan Clarke:
Perhaps just from my point of view, having managed some of these
things and also been in some of these things over the years, two
years is really not long enough, in my view, and it may well be
that the growth fund will be extended in time when there is a
comprehensive spending review announcement, but it takes an awful
long time to set things up for people to bid, have the proper
governance arrangements, determine who is accountable for the
money, etcetera, let alone then the delivery and implementation.
You are almost closing down the programme just as it is starting.
City challenge was five years, Single regeneration budget
was seven years, New Deal for Communities is 10 years and
Development corporations were 10 years. Two years is far
too short, in my view.
Mr Steven Broomhead:
I think as well, given the fact that there are going to be many
more LEPs and private sector organisations than the nine RDAs
bidding for regional growth funds, which is actually one third
per year of what the agencies' budgets are collectively, it is
going to be very competitive. Most of the money, we understand,
is likely to be capital, so if I can just go back to my point
earlier about organisations which support local economic delivery
on the ground, looking for capacity funding, revenue is going
to be a very challenging situation.
Q35 Nicky Morgan:
I have one question about the size of the bids for the regional
growth fund, because there is a suggestion in the consultation
document that this should be about £1 million or more.
I just wondered how that sat with the typical size of projects
that you as RDAs have invested in. It goes back to the point that
Brian has made, and I think it is made by a lot of constituents,
about support for smaller companies. For smaller companies, £1 million
actually may be too much, but then that goes back to the point
about what size of companies and your point I think, Sir Harry,
about global competitiveness versus economic deprivation. Talking
about economic deprivation, some smaller companies may not want
£1 million; they may want a smaller amount. Is that
worth investing?
Sir Harry Studholme:
I think there is a difference between programmes and projects.
You can create programmes which will deal with your issue of dealing
with smaller entities and smaller grants within a programme. I
am assuming that it will be possible to bid for programmes within
a regional growth fund.
Q36 Chair: A number
of business organisations made reference to the need to have an
element of revenue funding in any allocation from the regional
growth fund, on the basis that LEPs are unlikely to have the capacity
to deliver without some sort of proportion of any grant or loan
being used for revenue funding. Have you any views on that?
Sir Roy McNulty:
I think that comment is absolutely correct. LEPs are going to
be new organisations finding their feet with considerable economic
challenges to deal with, certainly in the West Midlands. If, at
the same time, they do not know whether from year to year they
are going to have enough money to actually do the job, you have
a very difficult recipe. It is highly unlikely that local authorities
will have spare money to put in, and if your only source of funding
is something that you have to keep on bidding into and you do
not know whether you will succeed or not, I think some level of
reasonable stability in funding going forward for several years
is absolutely essential.
Q37 Mr Binley: I
think it is even more vital than that. Access to capital has lessened
over the past 12 months, just at the time when we are coming
out of recession and we need to make sure that SMEs get moving,
because most of us believe that is where the real job growth is
going to come from. Could you help us by telling us how we might
pressurise Government to ensure there is funding to help those
companies who do not want £1 million? Some of them only
want £10,000, for God's sake.
Mr Alan Clarke:
Can I partly respond to that? We have had significant experience
over the last few years of dealing with our regional banks and
in the North East we have Northern Rock, which deals more with
the housing market—it is a successful Northern Rock now—but
we do meet with the banks as an RDA board, or the chairman and
several board members and I have been doing so for the last 18 months.
I think getting banks to behave differently is a longterm
job. I realise that we do not want them to behave as they did
in the past, because that would be wrong, but that is where most
businesses get their finance from. We have JEREMIE funds in the
northern region, certainly. We have a very substantial fund of
£125 million which is beginning to get through to businesses
that banks would perhaps not support, but we want them to provide
the money as well, otherwise it is not additional. I think the
banking issue is still a major one within all of this.
Q38 Mr Binley: It
is a vital one. The pressure on banks is to build up their capital
assets. The G20 said they have to have another £130 billion
in the UK. This is in direct opposition to releasing money to
subsidise SMEs. Could you think about that and come back to us?
I think it is the issue of the day and we have to impress upon
Government that they have a role in this as well. I am sure they
are aware of that, but I think it would be helpful if we could
press on it.
Can I go on to express the concern which a number
of organisations have reported to us? First of all, the FSB is
saying that it is absolutely vital that LEPs are private sector-led
and do not become a form of local strategic partnership. The Institute
of Directors believes there is a power imbalance between local
authorities and business in the formation of workable LEPs. There
is real concern that this is going to be a local government-dominated
operation in certain areas. I recognise that it is patchy throughout
the country. How can we encourage business to participate in LEPs?
What more do we need to do, particularly if there is no dedicated
funding stream available to them?
Sir Roy McNulty:
I have spent a lot of time over the last year talking to businesses
about exactly that, because my analysis of the situation, certainly
in the West Midlands, is that business has not been sufficiently
involved in economic development affairs. The simple bottom line
from what many, many people have told me is that business is prepared
to pitch in and provide the leadership that is envisaged in this
case, provided it is a businesslike environment and a businesslike
process and that the input and efforts which they are prepared
to put in are seen to make a difference. If on the other hand,
as you hypothesised, there is no assurance of funding and there
is no clarity as to where the LEP is taking its strategy, then
business will not be too keen to do it. So the thing has got to
be set up right with a chance of success, in a businesslike way,
then business, I think, will participate.
Q39 Mr Binley: Again,
I repeat, could you help us with telling us how we might put pressure
on about the funding?
Sir Roy McNulty:
Well I know that in the West Midlands, the key issue for the business
community is this co-ordinating body and its effectiveness, because
they can see that if we had six LEPs in the West Midlands left
to their own devices, that is not a recipe for success.
Mr Binley: I understand
that point.
Sir Roy McNulty:
That is the critical thing, certainly for business in the West
Midlands.
Mr Steven Broomhead:
I think the importance of private sector leadership is significant.
That has been one of the great learning lessons from the RDAs
and that needs to be replicated inside the LEP arrangements and
to make sure you have an inclusive partnership between public,
private and also, if I might say, the voluntary sector and social
enterprise. That needs to be thought through in terms of the actual
membership of LEPs.
Sir Harry Studholme:
To answer one bit of your question, the cultural issue is a big
thing; the difference between public sector and private sector
culture. The RDAs have gone some way to bridging that with an
approximately 50:50 composition of staff from the private and
public sectors. Concerning the issue that you are raising about
money and making sure that these funds continue, I think it is
important to see the transition as not simply being about Local
Enterprise Partnerships. LEPs may well be a small part of what
is being transferred. The Local Enterprise Partnership letter
that went round talked about planning, transport and housing,
which have very little to do with the core business of Regional
Development Agencies and it is those other functions that are
very important to focus on as one re-ensilos some of those functions.
Mr Binley: I accept that
totally. There is no sense in developing enterprise if you do
not develop housing and infrastructure at the same time; the two
have to go hand in hand.
Sir Harry Studholme:
Yes.
Mr Binley: That is one
of the big messages that I think LEPs are able to deliver.
Q40 Mr Binley: Let
me talk about another point, which was raised with me by the chamber
of commerce, which says, "In order to achieve effective co-ordination
between LEPs, it is critical that central Government provides
greater clarity over the division of labour between Whitehall,
LEPs and any other economic development body." That touches
on your point, Sir Roy, again. Is that happening?
Sir Roy McNulty:
It may be happening but it is not visible to us as yet.
Q41 Mr Binley: Ah,
that is pretty important. Can I ask also how we involve further
and higher education and the third sector in LEPs? You are right—that
social aspect is absolutely vital to their success and I am not
sure we really understand how that is happening either. Do you?
Ms Pam Alexander:
I think it is variable across the bids that we have seen so far
in all of our regions, but I think that what is probably uniform
is the understanding that skills are going to be absolutely at
the heart of any success for a LEP. Therefore, I think universities
are being involved, further education colleges are being involved
and, as Steve has said, we do have a model in the RDA boards,
where we have had a balance with a business majority but with
local government representation and also with representation on
every RDA board from the learning community and also from communities
more generally. They will bring solutions, not just issues, and
that is one of the key reasons why they must be involved.
Q42 Mr Binley: But
you would recommend that this is a point we emphasise in our report,
I assume?
Sir Harry Studholme:
Yes.
Mr Binley: That is really
what I wanted to get from you. I am grateful.
Chair: I want to draw
this session to a close now, because we have another session.
Could I say to any members who have questions that they are perfectly
free to write to any of the panel themselves?
Mr David Ward: I am not
going to ask this question, but I do not think we have mentioned
the word startup. We mentioned SMEs, but not startup
and I think it is something maybe we could ask outside.
Chair: Yes, we will be
talking to business organisations in a subsequent session. Equally,
of course, if on reflection you feel that you could add, or even
wish to counter some of the comments that you made in response
to our questions, do feel free to submit a supplementary memorandum
to the Committee prior to the compilation of the report. Can I
thank you for your attendance and co-operation and invite our
next panel to replace you—the representatives of the LGA,
NAO and TUC.
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