The New Local Enterprise Partnerships: An Initial Assessment - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Questions 43-68)



Q43   Chair: Welcome once again. What I should have done with the previous panel but forgot to do, but would welcome you to do, is ask you to introduce yourselves for the benefit of the Committee and any other people present?

Mr Paul Nowak: My name is Paul Nowak. I am Head of Organisation and Services at the TUC. Amongst the responsibilities of my department are the TUC's regional councils and our involvement with various different regional stakeholders.

Mr David Corner: My name is David Corner. I am Director at the National Audit Office with responsibility over the last few years for doing value for money work on Regional Development Agencies.

Councillor David Sparks: David Sparks, Vice Chair of the Local Government Association and a councillor in Dudley.

Chair: Thank you very much. Rachel Reeves is to start.

Q44   Rachel Reeves: I wondered, from your perspective, particularly I guess the TUC and LGA, what functions of RDAs do you think should be continued and what do you think might be delivered at a local level, if anything?

Mr Paul Nowak: We think the RDAs have played an important role in terms of providing strategic leadership at a sub­national level, providing support, co-ordination and large scale investment in key strategic sectors. I think, the Committee heard about some of those before; whether it is the NaREC example in the North East or the wave hub—the work that has been done around renewable energy in the South West. That is real key strategic sector work that it would be hard to envisage being done at a lower level or on a smaller scale.

We think the RDAs have been very important in providing adequate co-ordinated responses to economic shocks and again, the Committee heard before about the Rover taskforce, but I think maybe an even more current example is the Corus situation in the North East, where the Regional Development Agency worked closely with local councils and local businesses, with Jobcentre Plus and others, including trade unions, to put in place a package of support, including support, for example, for apprentices whose contracts came to an end with the closure of the Corus plant.

I could go on, but I think another crucial point to highlight is the engagement of the private sector and other key social partners in economic regeneration. That was maybe at the tail end of the last session. I think the RDAs by and large have done a good job in engaging the private sector and getting the right sort of people involved in the work of the RDAs and certainly trade unions have played an important part and would want to continue to play that sort of role moving forward with the LEPs.

Councillor David Sparks: I think there are three points we would like to make in relation to the LGA on this. First of all, our main objective would be for as much as possible to be done at a local level, because our practical experience both before and since the RDAs existed has been that, unless you tackle things at a local level, you will not actually get to grips with the real problems that face our communities.

The second point, and we have given evidence on this before, is that we have undertaken economic research over the years that has demonstrated that the key economic component is the sub­region. Therefore, the Local Economic Partnerships need to embrace sub­regions.

The third point, notwithstanding both of these, is that we accept that there is real concern, especially in relation to major skills provision, inward investment and major infrastructure, that the Local Enterprise Partnership set-up itself will not cater for that, so there needs to be some regional context.

Q45   Rachel Reeves: Following on from that, David particularly, do you think that you will have the economies of scale at local level? When you say that things should be dealt with at as local a level as possible, what does that mean in terms of the number of LEPs that the LGA or you would envisage? Also, on your point about inward investment, the plans of the Government seem to be to move that back to Whitehall. How does that fit in with the priorities and the best level at which to function?

Councillor David Sparks: If we can deal with the last point first, this is an old hobby horse of the civil service: they want to grab as much as they possibly can and we are against it, pure and simple. They have continually been fighting this battle, as long as there have been RDAs and before RDAs existed. In the West Midlands, we developed the West Midlands Industrial Development Association so that we were able to get some kind of a regional handle on inward investment, because a national agenda did not deliver for the West Midlands. That is point number one.

Point number two is that, as far as we are concerned, we are quite clear that there are probably about 50 sub­regions in England that are clearly identified and need to be taken into account when establishing Local Enterprise Partnerships.

The third point is a lesson for everybody—not just RDAs, but absolutely everybody—in terms of strategic economic action. The trick has always got to be to have local relevance to strategic action. It is no use having something at a regional level if it does not relate locally; you have to translate it down to local action. That is why we welcome the opportunity that there is to establish something new that might be more relevant in relation to regeneration of our local communities through Local Enterprise Partnerships.

Mr Paul Nowak: From the TUC's perspective, clearly there are functions that we feel could be delivered effectively at local level. If you talk about programmes around employability, for example, where having a good understanding of local needs and local issues, clearly a LEP could have a very important role to play. We are concerned about possible fragmentation, particularly if we are talking about 40, 50 or 60 LEPs—we are worried about LEPs having the critical mass that they need, both in terms of scale and the expertise to be able to do the functions that the Government want them to do. We are worried about their capacity, the resources that will be available to them and, in some cases, we would be worried about their credibility with key partners, including the private sector.

In relation to inward investment, I think Jack Dromey made a point before about the potential, if inward investment is taken solely up to the national level, in effect for the investment to flow to those areas of the country—for example the South East—that are already successful in attracting inward investment. I think that is where we feel there is a real need for a partnership between work that is done at a national level, a sub­national level and a local level as well. Just to give a bit of an example that predates even the RDAs, going back to the days of the old Northern Development Company that was set up and was crucial in attracting investment from the likes of Nissan into the North East, it would have been difficult for a local authority or even a group of local authorities in, for example, Sunderland or Tyne and Wear, to attract that level of investment without the support of the wider region and regional partners.

Chair: David Ward.

Mr Binley: Sorry, could I pop in a supplementary, Chair?

Chair: Okay, just before we come on to yours, David.

Q46   Mr Binley: Sorry, David. I just wanted to know in terms of the formal structure, because we are coming on to this, whether there is a need, because LEPs are in being, for LEPs to operate in every region, or whether we should be specific about where we have them. RDAs were much more successful in some areas than they were in others. Many would say the South East and areas of that kind perhaps do not need them and we do not need to put emphasis there. Would you agree with that?

Mr David Corner: I would just say that there are some areas of deprivation in the South East that are greater than in the North East, so there may well be an argument, if one of the core functions of LEPs is to address deprivation, for there to be LEPs in the South East.

Councillor David Sparks: Our view on that is quite clear. We are absolutely focused on the importance of the sub­regions. There is no point doing economic research and finding out what the position is and then doing nothing about it. But we acknowledge that just to establish 50 Local Enterprise Partnerships will in itself be inadequate, because you will throw the baby out with the bathwater, and at the same time you will not realise the true potential of the Local Enterprise Partnership.

Mr Paul Nowak: To reinforce the point David has just made, I think in our evidence we made the point that eight out of the top 10 local authorities with the highest claimant to vacancy ratios were actually found in London and the South East, so there clearly are pockets of deprivation even in so­called prosperous areas or regions of the country. I think it does flag up the point which was made in the previous session about the need for co-ordination between LEPs at regional or sub­national level, and probably between groups of LEPs as well, when we are talking about key strategic sectors that were talked about before in terms of renewables, nuclear and so on. These are not sectors restricted to one part of the country, neither are they spread evenly across England, so co-ordination between LEPs at regional level, but also co-ordination between groups of LEPs nationally, we would want to see built in to the arrangements in terms of the White Paper.

Councillor David Sparks: I think there is an elephant in the room here. I listened to the RDAs' evidence and they did not pull any punches; I am not going to pull any punches now. I think one of the factors that have not come out so far is the fact that when you are talking about Local Enterprise Partnerships and the 50 sub­regions, you are actually talking about something meaningful. Regional Development Agencies were confined to administrative units decided by civil servants that did not necessarily relate in the same way throughout the country. This is a handicap that many of them had. I would have hoped that the one thing that we would do is that in establishing Local Enterprise Partnerships, we would take the opportunity in terms of co-ordinating different LEPs to do something meaningful so that you would not necessarily be talking about a region that extends from Banbury all the way down to Dover, which is totally different from the emphasis that you have in the North East.

Chair: Yes, we have had a fairly wide ranging number of responses. David Ward?

Q47   Mr David Ward: Just a supplementary to earlier comments, really, about this local-regional-national debate, but specifically in the area of skills development. I wondered what your views were on where that lies.

Councillor David Sparks: To be quite honest on this one, this is a really interesting point, because the experience we have had, especially in relation to the current debate over Local Enterprise Partnerships, is that not all government departments are as enthusiastic about this concept as others. We are particularly concerned about the Department for Work and Pensions and their enthusiasm to actually act locally, because it is particularly important when you are talking about skills provision that you are talking about the region and the local; it is not just national programmes. We have a real concern that unless something happens at a national level with proper political direction given, you might very well find that the skills provision could really go back—we would take several steps back.

Mr Paul Nowak: Can I just make a point about skills? My understanding is that BIS are out to consultation on their national skills strategy and there is passing reference to the LEPs in that document, but the only reference really is to local colleges, so we think more thought needs to be given to the potential relationship between LEPs and the broader national skills strategy. How LEPs would influence, for example, national sector skills councils is again particularly important for key strategic sectors like automotive, where there would be the need to have a national view as well as a local one. Certainly our experience with the Regional Development Agencies and the work that has happened over the past few years—the TUC have done a lot of work through our unionlearn arm, working together with employers, with local colleges and with other providers, trying to address skills gaps at a regional and local level—we would not want that sort of work to be lost. We think that there is a lot of work that can be done by a wide range of partners and LEPs need to have relationships beyond local colleges. They will be very important relationships but certainly will not be adequate in and of themselves.

Q48   Chair: Could I just ask, for a quick response, what you think is the critical mass for the size of a LEP?

Councillor David Sparks: We do not think that there is a single formula for this; we think it varies throughout the country. If you use the North West, for example, quite clearly you would be talking about something in terms of Manchester and Merseyside, but you must not use the same arithmetical formula on somewhere like Cumbria. You need to have some variation. You have to tackle the economic geography and the importance of rural and urban areas.

Mr Paul Nowak: Again we would be wary of being too specific or trying to have some sort of arithmetical formula, but as I said before, I think there is something to be said for a combination of scale and expertise. Certainly the indication of the bids that came through yesterday suggest that a number of the proposed LEPs are just too small to carry the clout and weight they would need to really be able to support economic development and private sector growth in their areas. Again, not to be too prescriptive, this is where at times LEPs working together and being co-ordinated would help to give that critical mass as well.

Chair: Right. Jack Dromey?

Q49   Jack Dromey: Thank you, Chair. David, you spoke earlier about how, for LEPs to realise their full potential, co-ordination will be essential, and about strategic functions that can best be discharged only at a regional level. The evidence before us, including what we have heard today from various RDAs, is that it is true that RDAs vary in their performance. It is also true that regional economies vary in their nature, including the need for effective regional arrangements. It is also true that in the Midlands, the North East, the North West and Yorkshire, there has been a strongly expressed desire by both local authorities and the business community and others, including the voluntary sector, for the retention of a strong regional strategic structure working in partnership with the sub­regional—the LEPs. Is that a position supported by the LGA?

Councillor David Sparks: Absolutely. I think it is important for people to realise, despite all the different changes that there have been, the LGA stated policy—and I am speaking as much as leader of the Labour group of the LGA as the Vice Chair—as being in support of Regional Development Agencies or a regional approach. We have always argued that the sub­region is the key focus, but it needs to be within a regional context.

The other point we have always argued is that there should be local variation. If I can state, because I have stated before when I have given evidence, that the fact of the matter is that in relation to the Rover crisis, Birmingham, North Worcestershire and Worcestershire county council were the local authorities involved. They would probably have come together regardless of the RDA, but it was the initiative of the RDA that brought them together and it was the way in which the RDA was able to cement the activity that made sure they met regularly. That then identified the fact that my own local authority in Dudley was also involved to a considerable extent.

I am a local politician. Unless it makes sense for my ward, it is not my business. The fact of the matter is that Rover did make sense for my ward, because there were people who lived in my ward whose jobs were at risk either because they worked at Rover or because they worked with companies that supplied Rover. Because the RDA was able to manage the transition, it meant that many of those stayed in jobs and therefore in somewhere which is facing fundamental structural change, I think that you need something that goes beyond the boundary, because Dudley itself could not cope with that crisis.

Q50   Chair: Could I invite the NAO just to see if they wish to supplement that with any observations?

Mr David Corner: I don't think I do, no.

Chair: Sorry?

Mr David Corner: I don't think I do, no. Not on the particular merits of local versus regional, no.

Chair: Sorry, I had difficulty in hearing you.

Mr David Corner: No, I don't want to supplement on the particular merits of local versus regional delivery.

Chair: You don't want to comment on that? Okay, well, we cannot put you on a rack and extract that, although it is a tempting prospect.

Mr David Corner: I tell you what I can do: I can tell you what in our work have been identified as the advantages and disadvantages of having that regional layer.

Chair: If you do it very briefly, that might be of benefit.

Jack Dromey: Very helpful.

Mr David Corner: I think during our work for the independent performance assessments and the independent supplementary reviews, one of the key advantages of having a regional layer was actually to do with critical mass and economies of scale—building up pools of expert advice and support. A good example of that would be the work that Yorkshire Forward have done in supporting physical regeneration of the South Yorkshire towns, where you have a set of issues that are quite similar between different localities and you can have a pool of expertise that is brought in to help and support in similar ways.

The other advantage of the RDAs was that they were seen to be business­led. They had boards that had business people. They understood business and they had processes and procedures to engage well with business.

The other thing that people said to us was that RDAs took a much longer view, perhaps, than local authorities did, which is obviously important in terms of economic development. To some extent, they were more autonomous from local political influence. They could also build capacity where none previously existed, or perhaps increase existing capacity to tackle change. Of course, they also had a role in terms of drawing together key partners, including local authorities, who had not previously been drawn together in that way—think of New Street station in Birmingham and the critical role there of the RDA in bringing seven district councils together.

The things that people were critical about the agencies when we were doing our work was that they tried too hard to make sure everyone got something, therefore they spread the investment too thinly; and that the strategies were too broad to be really applicable at local level. So they were good at vision but not so good at identifying what needed to be actually implemented to realise that vision.

I suppose the biggest criticism, really, was the sheer effort and bureaucracy that was involved in developing the plans at a regional level. RDAs were expected to influence the plans of local public bodies. RDAs spent only 2% of public money, so they were expected to align and persuade other public sector agencies and business itself and align that spending to the priorities identified in the strategic plan. That involved sheer effort and bureaucracy: in the North East, you are talking about aligning the plans of 12 local authorities, four sub­regional partnerships and three economic urban regeneration companies. It was extremely difficult to achieve.

Chair: I have to say, for a no comment, that was an extremely full, informative and helpful comment. Thank you. Can I move on and invite Chi Onwurah?

Q51   Chi Onwurah: Thank you very much. I would like to hear your views about the balance of powers between the regional, the national and the local level, and particularly which functions should be co-ordinated at national level. The Department did originally give a list of functions which it believed were better co-ordinated at the national level, although in his appearance before this Committee last time, the Secretary of State indicated flexibility, particularly on a regional level—I actually wrote to him yesterday to remind him of that. The Department suggested that inward investment, sectoral leadership, innovation, business support, finance and training should be co-ordinated nationally. What are your views on that? What would you understand by national co-ordination? Would you still see a role at the regional or indeed at the local level?

Councillor David Sparks: If I could kick off, I think that there should be absolutely minimal movement back to a national level of anything—absolutely minimal, because the civil service cannot run it as well as we can in our regions and our localities. There should still be, in terms of inward investment, skills provision and major infrastructure, a major role at a regional level or however they co-ordinate themselves together. We should add to that, not reduce it. The third point is that there is no point in arguing about localism if you give on the surface more power for local areas, whilst at the same time you ensure that the bulk of the allocation, the money, etcetera goes to the centre.

There is one fundamental point that needs to be drawn out. Our view as local authorities of Local Enterprise Partnerships is different from the pure business interpretation. These proposals are very much influenced by the original Business Links proposals. We look at RDAs far more from the point of view of major infrastructure investment, co-ordination of big projects than we necessarily do in terms of business support. We have a long track record at a local level in working with the private sector and in particular targeting SMEs, not necessarily CBI type companies. That is why we think there should be a massive emphasis and increase on the local. We think there should be national, there should be regional, there should be local; but there should be an opportunity to reduce the amount of emphasis at national level, not increase it in any way, shape or form.

Mr Paul Nowak: To restate one of the points I made before, we think there clearly is a national role in terms of sector support and inward investment, but we also see a very clear role for support and practical delivery at a regional or sub­national and local level. We think those working in partnership is the best way forward. In terms of strategic finance, I have not got details to give to the Committee, but certainly my understanding is that One North East has done a lot of work on strategic finance. Again, you would not want to lose good, best practice examples of those sorts and if it is useful, we can provide information on that, but I am sure One North East can as well.

Mr David Corner: Can I give an auditor's perspective?

Chair: Please do.

Mr David Corner: What we would really expect the Department to be doing is looking in each case, in each individual service, at whether it would provides better value for money to retain it nationally or to devolve it? There may well be some cost reductions that can be made in the provision of some of the current RDA services—for example, the Manufacturing Advisory Service is currently delivered by the RDAs; each has a separate contract or group of contracts for suppliers. There would, no doubt, be some savings in bringing that into the centre. But we would also be expecting the Department to be looking and asking, "Would a centralised service provide the same level of service to manufacturers? Are there actually synergies in keeping it at a local level? Is there a strong regional or local element to the advice that is given by the Manufacturing Advisory Service that means it would be better for it to be delivered locally that would outweigh the administrative savings of bringing it into the centre?"

Q52   Chi Onwurah: Can I just comment on that and follow up with a broader question? I take that point. In my experience of cost analysis such as that, central Government has a tendency to specify the costs, because they can be quantified, but does find it much more difficult to cost the dynamic benefits of having synergies and local independence, etcetera Would you agree with that?

Mr David Corner: I think it is much more difficult, but again we would be expecting the Department to look at what evaluations are available—the Manufacturing Advisory Service has been externally evaluated—also taking on the views of business, of course.

Q53   Chi Onwurah: We talked about the regional and the national and the local level. Of course there is England as a nation in competition in certain circumstances with the Scottish and the Welsh, where the development agencies will remain as they are. Do you think that there is a potential to disadvantage England? For a specific example of that, if we look at the tourism industry in the North East, in the absence of any regional body, it is very difficult to explain that by visiting Newcastle, you also have access to the beautiful countryside of Northumbria as a whole.

Councillor David Sparks: I am in regular contact with my opposite numbers in the Welsh LGA and COSLA, the Confederation of Scottish Local Authorities. In fact, I visited the president of COSLA in Edinburgh last Thursday and saw my opposite number on the Welsh LGA on Friday. I think this is a very fundamental point. I know from conversations with my colleague councillors in Wales and Scotland that the current structure in England is a considerable disadvantage to them as much as it is to us. The fact is that there is a vacuum in England puts them at an advantage—so much of an advantage that it almost becomes a disadvantage—and it is undeniably the case that places like the North East and indeed the West Midlands on the marches are at a disadvantage now and could be at a considerably greater disadvantage if these proposals are not put through in a considered way. We are at a disadvantage now; it is a question as to whether the disadvantage gets greater. I think that we need to really look at that, because if we are not careful, we could very well find that there will be other consequences far beyond this particular agenda today.

Mr Paul Nowak: I would not want to comment on whether or not English localities would be disadvantaged in comparison to Wales and Scotland, but maybe make two points. I think the danger in sweeping away the RDAs and the creation of LEPs is if it is not done properly, things like business intelligence, which is currently done at a regional level, could suffer. I think actually there are things that we can learn from Wales—Wales in particular has very well established social partnership arrangements, which bring together private sector employers, trade unions, community and the voluntary sector, with the Welsh Assembly. This has resulted, for example, in programmes like ProAct and ReAct, which have been instrumental in preventing redundancies, making sure that where redundancies and large scale shocks happen that workers have access to skills and support to find alternative employment. I think those sorts of lessons will be usefully applied in terms of the thinking behind LEPs as we move forward.

Chair: Could I just go back to Chi's first question on the issue of national and local objectives and functions? I have had a number of Members indicate they have supplementaries on that. I will take each supplementary and then perhaps if you could answer them collectively. Rachel Reeves, you were first.

Q54   Rachel Reeves: Thank you, Chair. I want to come back to what David Corner said about the way in which Government should make decisions. I couldn't agree more with you about that, but it seems to me that what we are having is a slightly schizophrenic approach from Government with this decision to move some things to the local authority level and then to move other things back to Whitehall and miss out this regional level. What particularly worries me is that there does not seem to have been any consultation or analysis that it is the right thing to do, for example, to put inward investment or trade promotion back in London, or business support in the locality versus at the regional level or in Whitehall. I'm just wondering whether any of you think that that consultation has been done, whether there is any rationale for the Government's decisions to move some things to a very local level and some things to a very national level, or whether it is, as I think, slightly schizophrenic.

Chair: Right. That was supplementary question one. Jack Dromey?

Q55   Jack Dromey: Very briefly, if I can ask David this question: we heard earlier about the existing rigorous performance management arrangements operated through the NAO for the Regional Development Agencies. Have you been asked to advise on the drawing up of a performance management regime for the LEPs? The other point is, very briefly, Paul, given what was said earlier on by David about the success story of the Rover plant in the West Midlands and the commendation in an article before me from Digby Jones of that success story, does the TUC regret Digby once being described as the man who waters the workers' beer; and, more seriously, performance management?

Chair: That is supplementary two. Nicky Morgan, now.

Q56   Nicky Morgan: Thank you. I just wanted to ask, in relation to your audit, your view on the Manufacturing Advisory Service. I wonder if you have done any work on the Business Links, because that is one of the areas that I certainly have been told has worked less well and, obviously, that is certainly something suggested in the document or the letter from the Department with the report back to the centre.

Chair: Right. Response to supplementary one, from Rachel Reeves, first.

Councillor David Sparks: If I could just very quickly come in on that one. I think what is not being taken into account and you need to take into account—I know governments change and it all starts again, but the fact is we have had an unhappy coincidence here—is that there were fundamental changes in the last couple of years of the previous government at a regional level and now we have these changes, the net result of which is that, for the first time since the 1950s, in the West Midlands there is not really a regional set-up where we get round the table in a region where there has always been a bipartisan, cross­party consensus on the need to have regional action on things like housing overspill and so on and so forth. The other point of it is, quickly, to pass straight into it, local enterprise agencies existed before Business Links. When Dudley had its local enterprise agency it worked a lot better than when it had Business Links to be perfectly honest. That is what we are aiming for, to go back to a local approach. It worked well.

Chair: Right, supplementary two, the NAO.

Mr David Corner: On the performance management framework, I'm not clear. I think the reason why the NAO was asked both to do the independent performance assessments and then the supplementary ones was in part because the Regional Development Agencies were part of national government—they were non­departmental public bodies. So I don't know what the arrangements will be for the audit or indeed the performance management framework for local enterprise partnerships.

Jack Dromey: Have you been asked?

Mr David Corner: I am not aware that we have been, no.

Jack Dromey: Can you check? Because the point Margot made earlier on about the wise expenditure of public money, the ratio of money invested to jobs created and other performance management indicators is very important. Can you make enquiries and let the Committee know?

Mr David Corner: Yes. I would just add to that, though, that the regional growth fund is going to be administered as I understand it by the Department—by Whitehall. The monies for that fund are going to be voted by Parliament, so the NAO will expect at some stage in the future to report to Parliament on how well the fund is being set up and, of course, in the longer term what impact it has had and its overall value for money. So we will have access in order to do a report to Parliament.

Chair: We will look forward to seeing you again.

Mr Paul Nowak: Can I, Chair, just respond very quickly to Rachel Reeves' supplementary, because I think the characterisation of the development of the LEPs as rather schizophrenic is probably a good characterisation of the tension between the drive between localism and taking other functions into Whitehall. We do not see any very clear rationale as to why some functions have been taken up and others have not, and I think the approach suggested by the NAO of a genuine, sophisticated cost-benefit analysis has merit.

Chair: Yes. Supplementary three, MAS and Business Link.

Mr David Corner: We have not done any particular work on Business Links. We did look at aspects of the management of Business Links, both as part of our IPA and ISR work and we did note in general the evidence did seem to suggest that businesses were more pleased with the service that they were getting in recent years, but there was still a lot of criticism of the service. There is still room for improvement.

Chair: Luciana?

Luciana Berger: My question has been asked.

Chair: You feel it has been asked. Fine. Chi?

Q57   Chi Onwurah: One of the successes, which has already been mentioned, of the RDA in the North East was in co-ordinating large-scale investment , for example, in advanced manufacturing, such as Nissan and also renewable energy. We have also talked earlier today about the complexities of dealing with European funding and how skills have grown up in that area within the RDAs. This was asked earlier of the RDAs, but I would like your views on how we avoid losing those skills. Is it actually feasible that some of those complex technical skills can be located at the local authority level?

Councillor David Sparks: Number one, it is not feasible that all of those skills could be accommodated at the local authority level, first of all because we face massive cuts; and secondly, it is not part of our statutory function, and when you are facing cuts in local government, as I know from a long experience, the "statutory function" argument becomes predominant. Second point, a matter of record and empirical fact is that the last time, certainly in the conurbations, that we had a major structural change like this was when the metropolitan counties were abolished. I can tell you from first-hand experience, because I was a deputy leader of one of them at the time, that there were many people with expertise in, for example, reclamation of derelict land and other skills that were lost. Subsequently, local authorities have not recruited to the same level because over the last 10 or 20 years the emphasis in local authorities has been to run a very tight ship. I think that the only way that this can be avoided is if there is some structure at a regional level, and certainly at a local authority level, that is dedicated to maintaining that expertise, because otherwise it will be lost—regardless of speeches.

Mr Paul Nowak: Can I make a couple of points on skills and expertise, first of all in relation to staff in RDAs but then also to wider stakeholder engagement. In terms of staff, we have this mooted reorganisation—a move from the RDAs to LEPs—running alongside some immediate cuts in budgets for RDAs, which has resulted in some cases in large scale redundancies, and we have a very clear fear that you are going to see a lot of skills and expertise being lost within the Regional Development Agencies over the next six to 12 months. My understanding is that the North West Development Agency, for example, has already identified potentially up to 100 staff for voluntary redundancy. Now, some of those staff may be exactly the sort of people that you need—with their skills, expertise and knowledge—in the new LEPS. So to make sure that we do not lose those skills and that expertise, we would want to make sure that staff were properly involved, properly consulted both around the immediate short-term cuts which are going to result in posts being lost, but also long-term movement in the transition to LEPs.

The other parts of skills and expertise is that wider stakeholder engagement, making sure that, as we move towards the LEPs we do not lose the engagement of the private sector, universities and the social partners. That is why it is important that the transition is managed effectively and in an orderly way, so that we are not in the process of closing down RDAs before we have put in place an adequate replacement. We do have some real fears about skills and expertise being lost.

Mr David Corner: Sorry, I was just going to say we also have some concerns about potential loss of skills. We are thinking particularly of the management of the ERDF and RDP funds, which have very complex rules that are very difficult to understand. Of course, we—the UK—have lost money through disallowances in the past because of issues about the management of these funds. The delivery chains for the schemes are very long and that really presents problems in terms of oversight and giving assurance to the Department about those funds, which is what the European Commission is looking for. We will be keeping a close eye on how those responsibilities are transferred from the RDAs and where they are transferred to.

Mr Paul Nowak: Can I just make one supplementary point? Particularly at a time when public finances are under such pressure, I think one of the things that everybody would want to avoid is large numbers of staff going on voluntary redundancy programmes and then being re-employed as consultants on ERDF programmes. It does happen.

Chair: Before I bring in Luciana, I have Brian Binley.

Q58   Mr Binley: Just a quick one. There is a very specialist area concerning the urban development corporations and John Prescott's four development areas scenario, where skills went from the county council in terms of strategic planning and only exist there, and yet they are going to be wrapped up. I just wanted to make that point so it is in the report, David, and seek your views on that because that is a specific area where we really could lose strategic planning skills that are going to be vital to develop long-term enterprise.

Councillor David Sparks: I completely agree, and it is not just I agree; the fact is it has happened before and there is no reason to think it is not going to happen again because the climate in which these changes are going to be undertaken in is far more hostile.

Mr Binley: Thank you. That helps.

Q59   Luciana Berger: Further to the concerns that you have raised, do you mean there is a case for piloting the new structures first? Do you think it would be feasible to have a parallel system of residual RDAs alongside trial LEPs?

Councillor David Sparks: I think that in those areas where local authorities want that to happen, that is what should happen. In those areas like the North East where local authorities think they've got a package, that is what Eric Pickles should agree to, as he said he is into localism.

Mr Paul Nowak: We do not have a hard or fast position on this. I think we would have a concern, though, that there is a danger that you over-complicate matters. In some areas of the country we could have RDAs; in some we could have LEPs; and in some other areas of the country we would have neither RDAs nor LEPs. That might just complicate the transitional process even further, and worsen the lack of clarity and transparency about the process.

Councillor David Sparks: I think there is one really important point that you are touching on with this and I think it is being glossed. I'm not going to make any comments about the evidence given earlier, but the fundamental factor that is missing is passion. We are about passion. Unless you have everybody in an area signing up to what is on offer, you are not going to get the passion. That was the disadvantage that some RDAs had, because the other areas did not know what they related to. Now, if you have a group of people—local authorities and businesses—who go to the trouble to come forward with a proposal, and they have the passion about that proposal, then that has to be the right way forward.

Q60   Margot James: I wanted to come in on this issue of regional overlay for certain functions. Presumably the LEPs would empower some sort of regional structure to look after things such as ERDF applications, for example, which I believe cannot be made from anything other than a regional perspective by European rules. We also heard in the previous session how transport is another area. There are some areas where it generally seems to be agreed by most of the witnesses that there should be some structure above the LEP to co-ordinate. Since one of the objectives behind the whole transition is to reduce bureaucracy and reduce administration and management costs as a proportion of the overall spend on business, how do you see us achieving that? Is there a risk of creating two levels where previously there was one? What are the cost implications and bureaucracy implications of that risk?

Councillor David Sparks: I happen to handle the European funding for the LGA and have done for over 10 years. We had a UK summit on structural funds in Brussels a month ago where this very question was raised. There is real concern that we could be disadvantaged in relation to European funding in the next round in particular, for two reasons. Number one, as you have identified, there are regional funds that need to be allocated through regional bodies. Number two, for about 15 to 20 years—maybe a slight exaggeration there—we had a battle with UK Government to get European money into our region, because a lot of the European money used to be top-sliced, and it used to fund Manpower Services Commission schemes and things like that; local communities never saw it. The fundamental point here is that I would think that Eric Pickles needs to reconsider the letter that he sent out. He needs to reconsider, in particular, the national reference, and that needs to be reviewed in light of the proposals that he will now have for LEPs. He should then produce guidance so that those LEPs, if they have not made provision in a region or a collection of regions, to deliver this function to the satisfaction of business and others—those proposals need to be revisited until that is addressed.

Mr Paul Nowak: Can I just add a point, which is just that I think it is about getting the structure of the LEPs right in the first place. If we end up with 40, 50 or 60 LEPs, it is very hard to see how you have effective co-ordination without the duplication of effort and an additional layer of bureaucracy, as you were alluding to, being in place. So, it is about getting the structure right in the first place. That might be a more manageable process with 12, 15 or 20 LEPs—with 40, 50 or 60 it is very hard to see how you get that co-ordination.

Councillor David Sparks: Yes, but there was a precedent; we have never learned from history. There was a precedent: when the metropolitan counties were abolished, some areas like Greater Manchester and the West Midlands went down a lead authority role or they set up joint boards. But there was a provision: when they were abolished, local authorities could not just inherit the functions. The Government said you had to come up with the machinery in an area that delivers that function, and that is what we are saying. We are not saying, from an LGA point of view, that we should go to 50 units in the UK and then that is it. We are acknowledging that those 50 units have got to be within a wider context, and there is a gap at the moment as to what that wider context is going to be.

Q61   Mr David Ward: There is a difference, I think, between something that is flexible and something that is wobbly. I think the consensus is on a need for a smooth transition. We know what will not be, but what we seem to be lacking is what we are transitioning to. Just picking up your point, David, about the guidelines, what I think needs to come out of all of this, whether it be right or wrong, are some clear guidelines on what will be allowed, so that we can then get along with this transition phase. Don't you agree?

Councillor David Sparks: I completely agree with that.

Chair: Okay, if we are in agreement, can I bring in Nadhim Zahawi?

Q62   Nadhim Zahawi: Thank you very much, Chair. I think we have heard about your immediate concerns regarding the move to the LEPs, and I just wanted to confirm, David Corner, that one of the weaknesses or criticisms of the RDAs was this idea that when you are overstretched in terms of resources, where you try to please everyone, that might expand—being overstretched in terms of where you are looking and what your remit is and less focus? If you talk to business, focus leads to success and so on.

Mr David Corner: I was talking more spatially, really, rather than sectorally.

Nadhim Zahawi: Right. So, my thoughts are that part of the idea with the LEPs is this focus on bringing it back down. If you can bring it local, then you have a greater chance of getting focus and, therefore, success, and some functions need to go the other way because they are more strategic. If you were in charge, what would you do differently to achieve that success, bearing in mind this idea that lack of focus can lead to the problem we have had and that criticism of the RDAs? That goes for all three, by the way, not just you, David.

Mr David Corner: I think there are two key things. There needs to be real clarity and agreement between local politicians, administrators, the business community and local agencies about the priorities for development. What are the priorities? Where are you going to spend your money? How are you going to get the most bang for the buck? That is going to be even more the case with the regional growth fund, which is going to be less than half of what RDAs were spending at their peak. How do you get that consensus? How do you get that agreement? I think you have to get that based on comprehensive and really robust, strong intelligence about what are the problems and the priorities, and then you need to have strong evaluation of what has worked in the past and what is likely to work in the future. I think one of the success stories of the RDAs is that intelligence that they have managed to gather. I am thinking of the work, often led by the RDAs, by the regional observatories, where they have looked in detail at their regional economies and at market failures; they have then identified the appropriate interventions to address those market failures. In some regions that intelligence has developed with a lot of active engagement of the city regions or the potential LEPs. In some, there has been less active engagement, but I think it is vital that that intelligence is not lost, and that it is used for the benefit of the LEPs.

Councillor David Sparks: Recognising that there is a change of Government and a change of Government policies, fundamentally, in relation to RDAs, as outlined in the election, in the unlikely event of me being a Tory Secretary of State—

Mr Binley: Stranger things have happened. Do you want the answer now?

Nadhim Zahawi: We're a broad church, David.

Councillor David Sparks: Quite frankly, what I would have done is is to have had a more extensive consultation exercise saying that it is policy to abolish RDAs and then have a consultation about whether a) that was the right thing to do in that particular area and b) if there was going to abolition, the consultation should include asking how would you deliver these functions? You could systematically do it on the basis of the local region, sub-region or whatever, but there needed to be further consultation. I think, in fact, RDAs needed to be reviewed anyway for their own good, but just abolishing things French revolution-style is not always a good idea.

Mr Paul Nowak: I would echo the point about consultation. The TUC's primary standpoint is that we think the focus of sub-national economic development should be about creating good-quality employment and restoring economic growth. In many ways it is measuring the LEPs or the RDAs against whether or not they are delivering against that overarching set of objectives. I think the other thing is just making sure that there is genuine stakeholder engagement, particularly private sector engagement, but I would echo again the calls for universities or other social partners—trade unions included—to be a part, because it is about ensuring that, whatever spatial arrangement there happens to be with the LEP, there is genuine consensus and partners are genuinely signed up to what the LEP is trying to achieve. There is a danger that with the proposals we have seen so far, it is clear that engagement is not uniform across England.

Q63   Chair: Can I just move on to alternative funding models proposed for LEPs. You might have heard this same question posed to our previous panel. What are your views about the partial diversion of business rates to LEPs? I suspect the LGA will have strong views on that. Also, accelerated development zones and increment financing or bond-issuing powers; and, if you have any views, the regional infrastructure fund with the recruitment of initial project investment through the planning system—I think. You may not be aware or have an opinion, but where you are aware and do have an opinion, then I'd welcome it.

Councillor David Sparks: Our view is that we see the fundamental finance for LEPs coming from a single pot-type approach. You roll in a variety of programmes and funding streams from national and European Government, plus any innovative proposals to do with local finance, bringing the new ones that have been listed earlier in the session as part of our, literally, ongoing discussions with central Government of whatever party with view to getting a better system for financing local government. So, we are open to innovation.

Chair: Open to innovation—right.

Councillor David Sparks: We're open to innovation, but, fundamentally, for the LEPs to be effective, they need to be adequately funded. Our view is that that funding should come from central or European Government money; it cannot come from council tax payments.

Chair: If I can just perhaps pin you down a little, David, on that. My instinct, from my years as a finance chair on a major local authority is that the prospect of diverting business rates to, shall we say, an alternative organisation would be regarded with some hostility in local authorities. Would you feel that's correct?

Councillor David Sparks: Yes, that would be the case, but if a local enterprise agency was made up of local authorities and the money went via the local authority, and it was the case that more money from the business rate was part of a big deal in relation to local authorities, then we might be open to do a deal. But our view is that this is one part of our activity. When you are talking about local government finance, you are talking about a major picture that really does need addressing, hasn't been addressed and involves bigger issues.

Chair: Can I bring in Rachel Reeves?

Q64   Rachel Reeves: I think in some sense this has been covered, but for David Corner again, from the work you have done on value for money, what is the one lesson that you think the LEPs could learn in terms of achieving value for taxpayers' money?

Mr David Corner: Learn the lessons—that would be the one piece of advice I would give. I think the RDAs were initially quite slow to evaluate the impact of their investment, partly because it is difficult to evaluate the outcome and impact of the various levers that they used to try and foster regional economic growth, and partly because they were given by Whitehall so many objectives, some of which were conflicting. Eventually, the PricewaterhouseCoopers work did emerge and that showed that the RDAs had achieved £4.50 for every pound that had been spent and that there was the potential for £6.40, but what did that really mean in terms of value for money from that data collected? Could it have been 10% more, twice as much more? We don't know. Since that work, it did actually help to galvanise the RDAs and to address some of the weakness that we had identified before about ensuring that they evaluated their projects and used the lessons when they were planning their future projects to ensure they got the best value for money. RDAs did make a lot of progress in that regard.

Chair: Last couple of questions, Nicky Morgan.

Q65   Nicky Morgan: Yes, just one to the end. I don't know if we have touched on this before, but I wanted just get your perspective on the structure, accountability and the makeup to the boards—you might have heard earlier, obviously, about the importance of businesses being involved. I am assuming from an LGA perspective that you will have views on local council and councillor involvement, which I think is critical. In relation to the TUC, I noticed that you talked about the involvement of those in the workplace; how is that achieved? I wanted your views on how boards of the RDAs operated at the moment and, again, the lessons to be learned from that in terms of the composition and working of the boards of the LEPs.

Councillor David Sparks: If I could kick off, and I unfortunately will upset people, I know, but you asked me a question and I have to give you the answer. I was involved in the establishment of RDAs and in fact negotiated the four places for local authority representatives on the boards. That was meant as a counterbalance to the fact that the RDA board would be dominated by the private sector and other sectors, and the assembly would be the other way round. What happened, quite frankly, was that the civil service captured the board so that the boards did not operate with the local champion role to the extent that they could have done, in my opinion.

The second point is that local authorities have absolutely no problem whatsoever with sharing boards with the business community. My own local authority has recently set up a company which is chaired by the private sector; we have a long track record on that—there is no problem with that whatsoever. In fact, it is the norm.

I think that the lesson to be learned from RDAs is it really is important, first, who you put on the board and, secondly, when they are put on the board, what they do. They should not be administrative. That's for the executives, the officers, etcetera. They should be put there because they have a passion for the area—a commitment to the area—and I think that that was lost. What the balance is depends on what the culture is in that particular area, but there should guidance. So, if you have a culture that, "Oh, we'll have it all," you say, "Well, that's not on. That's unacceptable," because successful economic regeneration will only happen where you have cross-party consensus and a buy-in from the whole community. That is the same all over the world.

Q66   Nicky Morgan: Did you agree with the point made earlier about social enterprises, third sector, universities and so on?

Councillor David Sparks: The one good thing about an RDA board is that all of these are represented on it. I think that would have been a useful exercise in itself to interview all those who had been members of the boards as to whether they found it satisfactory. At times, I found it a very strange experience, but I was very fortunate; I was involved in the West Midlands RDA, where there were some strong individuals and it was a good place to be, but it was only because there were strong individuals that we were able to ensure that the board functioned as a board, because at the time there was tremendous pressure from the Government office. Government office tried to embrace it straightaway and, unfortunately, I have to say this as well—this will upset even more people—but when there was a subsequent change from the Department of the Environment as it then was, to what was then the DTI, the civil service grip was even tighter. I think it was a terrible job that the chief executives of the RDAs then had to do—as has been emphasised, not in those terms, by David Corner—in all the ridiculous number of targets and bureaucracy that they had to jump through. What we have to do is escape from all of that.

Mr Paul Nowak: Certainly the feedback I get from TUC regional secretaries and from trade union representatives who have been involved in RDA boards is not to wear rose-tinted glasses and to say that they were perfect, but they were designed to be private sector-led; they were private sector-led. They were designed to have the engagement of local authorities and the wider stakeholders, and they did. Certainly, a number of our TUC regional secretaries and other senior union figures sat on the boards. I think there are issues that actually are similar for trade unions and social partners, and similar to the private sector in terms of the capacity to send people along to those boards, and the quality of the people who you get to sit on those boards. Again, I think there is a danger with a lot of fragmentation that you will not get the quality of person that you want to get proper engagement of, for example, the private sector. That partly goes back to what it is LEPs actually end up doing.

Councillor David Sparks: I think that is absolutely crucial.

Mr Paul Nowak: And to whether or not they are considered as credible and they have real capacity, real resources. People are not going to give up a lot of time and effort if they feel this is a talking shop or an organisation with no teeth. I think it is very important that we support particularly the third sector, community organisations, voluntary sector and trade unions to make sure that they are able to put forward people to represent those interests on the boards of the new LEPs. I think it really does come down to what it is LEPs are going to do, and the perception of whether or not they are effective organisations.

Councillor David Sparks: I would fundamentally reinforce that. I have been on dozens and dozens of boards, so I have a deep background here. If you are talking about purely business support, then that can be run in a totally different way to what you would be doing if you were talking about economic regeneration. If you are talking about economic regeneration, you need a different approach because you are not running a company; you are running a regeneration agency. If, however, you are running a company to provide business advice and support, then you don't need a whole load of people; you need a group of people who know what they're doing running a business like that.

Q67   Chair: Just before we finish, could I ask David Corner: do you foresee any problems with resourcing to measure performance in a period of financial restraint? Potentially, what would be the consequences? Have you any views?

Mr David Corner: Sorry, I'm not sure I quite understood.

Chair: Do you foresee any problems with resourcing to measure performance of LEPs?

Mr David Corner: I don't think the decision has really been made about performance and measurement frameworks for LEPs. We would obviously expect to see those bodies putting resources aside to develop performance frameworks and we would expect LEPs in some way to be subject to some kind of audit.

Q68   Chair: Right. Lastly—probably more appropriate to Paul and David Sparks—very briefly, what do you think should be the priorities for the regional growth fund?

Councillor David Sparks: It will vary according to different regions, but overwhelmingly you are talking about the provision of skills, the provision of infrastructure, and making our areas more able to compete in a global market.

Mr Paul Nowak: I think it has to be about restoring economic growth. That's the primary focus, we believe, of the regional growth fund. It is important particularly with the timescales that have been laid out for the first round of bids to the RGF—that bids are actually driven by real strategic priorities, rather than who writes the best or earliest bid. We think there is a danger that with a very compressed timescale, those LEPs that are good at conjuring up bids will perhaps get priority of funding. I would echo all the concerns that were made in the previous session about the short term nature of the RGF—the two years and the concerns about what it means in the context of the broader cuts to the RDA budget—I think it is in fact £73 billion worth, potentially, of broader public sector spending cuts.

Chair: That is helpful. Can I just finish by saying once again that if you feel that you would like to add anything to the replies that you have given during this session, do please feel free to send in a memorandum to us—obviously as soon as possible so that we can incorporate it when we draft our conclusions. I finish by thanking you for your comprehensive replies and particularly to the NAO, who I think did not want to say too much, but actually contributed well. For a body skilled in no comment, they made a number of very helpful comments.

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