5 Timing and transition of the change
to Local Enterprise Partnerships
Is now the right time to move
to LEPs?
88. The evidence submitted to us demonstrated a high
level of support for the transition to LEPs at an early stage,
and there was certainly no strong body of opinion arguing for
delay. When he came before us, the Minister believed that the
time was right for change:
Having moved out of recession and into a period
of what we hope to be sustained growth, now is a good moment to
change the nature of the development agencies, and particularly
for them to be relevant as we move forward in this coming Parliament
and this part of the economic cycle.[121]
89. While there was a consensus that the timing of
change was suitable, a number of our witnesses were less than
happy with the truncated timetable for establishing LEPs. A number
of organisations told us that the 6 September deadline for LEP
bids had not allowed sufficient time for bids to be compiled with
full business input. Among these were several local Chambers of
Commerce, the British Chambers of Commerce and the West Midlands
Enterprise Board. Greater Manchester Chamber of Commerce told
us that:
The current haste and speed of change is causing
some concern. Whilst acknowledging the Government's desire to
move quickly on this process to enable action to start to address
the deficit, the danger is that gaps are left in current provision
which may prove detrimental in the medium to long term.[122]
South East England Chambers of Commerce agreed:
The opportunity for business leadership in shaping
the new LEPs is a welcome development but the timescales are too
short for meaningful business input."[123]
90. The LGA also believed that a greater level of
consultation would have been preferable. Councillor Sparks, representing
the LGA, argued for a more structured approach to the bid process:
What I would have done 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.[124]
91. The CBI told us:
It was unfortunate that LEP bids were requested
before a White Paper was issued, because we all have been trying
to do the best we can, but in something of a fog. [..] There is
a requirement for a strategic framework within which many and
varied bids would then come forward. As that strategic framework
was not in place but there was a short deadline for producing
bids, this exacerbated the fragmentation and, with no disrespect
to colleagues in the local authority world, it also exacerbated
a tendency at the moment for bids to be local authority dominated.[125]
92. The Minister defended the timetable and argued
that requesting bids before publication of the White Paper had
benefited bidders rather than hindered them:
If we had come forward and said, 'What are your
priorities, but by the way we have already decided what the rules
are,' then I think there would be a natural scepticism among people
that the Government had already decided what they should be doing.
So we genuinely took the view that we should invite people, with
few prescriptions at the beginning, to put forward what they would
like to achieve.[126]
He asserted that the choice was between consulting
and spending 18 months in the process, or making an early decision.
He believed that the latter was the best option.[127]
93. However, it became clear that the Minister himself
had raised concerns about the timetable. On 14 September 2010,
he had written to the Secretary of State airing his concerns.
The letter, which was subsequently leaked to the press, referred
to "lack of credible business representation; negotiations
dominated by local politics; and a lack of a clear focus on economic
growth" and cited the tight timetable as an exacerbating
factor. It went on to say:
"At worst, the danger is that the CBI and
others become detached from this policy heralding likely failure
in large parts of England" and "attempts to engage business
have been cursory in too many circumstances."
94. The IoD believed that the tight timetable had
created a power imbalance between local authorities and businesses,
with business unable to exert sufficient influence to make its
voice heard.[128] However,
the letter of 29 June 2010, inviting bids for LEPs was addressed
to both local authority leaders and to business leaders and did
not give control of the submission process to local authorities.
Furthermore, our witnesses from the business community confessed
that: "it is taking some of our members some time to wake
up to the fact that it's not about responding to a local authority
proposal but putting forward our own."[129]
LEPs represent a major opportunity for business to get involved
in the way it has long been seeking, take advantage of the opportunity.
In this respect we are encouraged by the comments of John Cridland,
who acknowledged that there was a lot of work to do in autumn
2010, but said that business would be playing its part.[130]
95. The proof of the bidding has, to some extent,
been in the eating. Bids covering the whole country were produced
on time, with comparatively little overlap. Twenty-four have
already emerged as approved, and a further tranche is currently
under review. The message is now presumably clear, that there
needs to be full consultation and collaboration between local
government and business, with business stepping up to the challenge
of the new era and local government being prepared to work in
partnership.
96. When we asked our witnesses whether there should
have been a piloting of the LEP programme before implementation
there was a consensus against the proposal and instead a view
that approval should be given as soon as possible.[131]
However, there are clearly large areas of the country where the
LEP position is yet to be determined, and it is vital both to
individual local economies and to an overall rebalancing of the
national economy that this is resolved at the earliest opportunity.
It is right that those LEPs that are ready should not be held
back and equally right that other areas should not be left behind,
struggling. The Minister was aware of this dilemma and agreed
that the first tranche of approved bids could act as pathfinders
for others.[132]
97. While the truncated timetable for LEP bids
has been less than perfect, it has delivered 24 approved bids,
which will now go forward. However, their coverage of England
is patchy. We agree with the Minister that they could act as pathfinders
of the next tranche of LEPs but we recommend that the Government
intensify its support for those bids that need more work. The
second tranche of approvals should happen as soon as possible,
not least because of the imminent deadline for the first round
of Regional Growth Fund bids.
98. Universal coverage by LEPs may not be necessary,
but gaps should not result from Government non-approval of bids
for areas that have expressed a wish to have an LEP. Instead,
additional support should be targeted to such areas to enable
them to meet the requisite approval standards.
Achieving a smooth transition
99. Both the 29 June 2010 letter and the Local Growth
White Paper emphasise the Government's "determination"
and "commitment" to achieve an orderly transition from
RDAs to LEPs, with a clear timetable. The CBI paid tribute to
the professionalism of the RDAs in handing over to successor bodies,[133]
and the Minister recorded his thanks to the RDA leadership for
their willingness to work with the Government in managing the
transition in difficult circumstances.[134]
100. However, a number of concerns about transition
emerged in the evidence to our inquiry, including the importance
of retaining RDA know-how, the need for business certainty on
funding (both for business support functions and for specific
projects), and the criticality of retaining and maximising EU
funding.
RDA STAFF, AND THE IMPORTANCE OF
RETAINING RDA KNOW-HOW
101. The importance of not losing RDA expertise with
the demise of RDAs was stressed by numerous bodies. The Society
of Motor Manufacturers and Traders referred to RDA staff's excellent
knowledge of their areas and the importance of the resource they
provide.[135] The National
Audit Office agreed.[136]
On RDAs' strategic economic intelligence the Regional Studies
Association said: "This expertise was not easily, quickly
or cheaply acquired, and it is vital that LEPs do not have to
begin from scratch in understanding where they can most effectively
intervene to stimulate local economic development."[137]
West of England said that its discussion with the business community
had demonstrated a wish for transfer to LEPs of at least some
of the resources and skills of RDAs, such as in support for high-growth
sectors and in project development (specifically at the public/private
sector investment interface).[138]
102. Good economic intelligence will be vital to
recovery and growth, but the RDAs' know-how is already being dissipated.
Press reports indicate RDA job losses to date of 1,000 (from a
total of some 3,000).[139]
Even where RDA staff are not already being made redundant, they
are obviously (given intended closure in March 2012 at the latest)
looking to find new positions. Sir Roy McNulty of AWM told us:
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.[140]
103. The Local Growth White Paper says "We will
seek to ensure that the relevant knowledge built up by the RDAs
over the years is not lost as this will be an important asset"
and sets out the destination of certain RDA functions in Annex
B. Philippa Lloyd, Director of the Economic Development Directorate
at BIS, told us that "there is a specific knowledge management
workstream in the […] national transition planning approach
to help ensure that we do track and retain and key knowledge."[141]
Despite the Government's protested determination to effect a managed
transition, the fact is there seems not yet to be any clear plan
on how to avoid this potentially very serious loss of support
for business. We received anecdotal evidence that contingency
plans around retention payments for 20 or so skeleton staff for
each RDA have been discussed, but this may well be too little
and too late. Furthermore, the RDAs' administration budgets for
the wind-down period have still not been made clear.
104. The IoD stressed that access to finance would
be key to resolving this problem:
There is not clarity, at this stage of the process,
about where local authorities or Local Enterprise Partnerships
will be able to derive any finance to be able to take on some
of those individuals concerned, in terms of resources, as personnel
at the very least, but also in terms of their knowledge base […]
As part of their LEP proposals, I think local authorities will
need to show some ability to invest upfront and take these individuals
on board.[142]
105. However, we were told that local authorities
may be unable to step in to fill the gap. Andrew Lewis of Newcastle
City Council said:
We are losing some really quite important bits
of capability at the regional level. We, as local authorities,
can't simply step in and fill that gap because of the pressures
on our own budgets. It won't be until December that we know our
own local government settlements. The opportunities for us to
be able to maintain that capacity are really very limited.[143]
The solution may not necessarily require a big budget.
Alex Plant of Cambridgeshire Horizons said that specialist skills
might be lost for the want of a "relatively small amount
of funding."[144]
106. The need to support recovery and growth with
the necessary intelligence should be of pre-eminent importance
in spending priorities, even at a time of highly constrained public
finances. We recommend that the Government set aside funds for
managing retention of RDA expertise, if necessary by providing
proportionate incentives for an adequate number of RDA staff to
remain in post or by providing interim funding for recruitment
to LEPs pending establishment of more permanent LEP funding models.
Furthermore, the Government should bear in mind the fact that
retention of RDA expertise may also assist in developing those
LEP bids which fell short of approval in the first round. Evidence
to us suggests the need for a proactive approach to these issues
by the Department's transition team.
BUSINESS CERTAINTY ON FUNDING
107. At a time when accrued RDA spending commitments
have been running at over £1.4bn,[145]
a number of organisations were concerned that current uncertainty
over funding both of specific RDA-supported projects and of RDA
business support services is affecting their ability to plan investment.
Several business representative organisations mentioned this,[146]
and one submission dealt entirely with an instance of withdrawn
Grant for Business Investment (GBI) funding.[147]
Committee Members have been hearing the same message from constituents.
108. RDAs have been told to disengage from commitments,
where necessary by renegotiating contracts. They cannot commit
to any expenditure beyond March next year (four months away).[148]
As Sir Roy McNulty put it, "we are out of the development
game, if you want to put it that way."[149]
The answer to a written parliamentary question put to Baroness
Wilcox gives an impression of clarity as to the parameters for
RDA spending,[150]
but we hear of a different reality in practice, with constant
changes to and uncertainty around spending mandates over the summer.[151]
109. The Government urgently needs to finalise
the process of setting clear spending mandates for RDAs (including
for their day-to-day administration budgets between now and wind-down)
so that there is certainty for businesses on the extent of future
funding of projects and broader business support.
CONTINUITY OF EU FUNDING
110. Well over half of those submitting evidence
to the inquiry[152]
mentioned the need to secure continued EU regional funding, both
for the current period to 2013, and thereafter. The Local Growth
White Paper spells out the significance of the funds involved,
which amount to some £2.8 billion for the period 2007-13,
more than £1 billion of which has yet to be allocated.[153]
The White Paper says:
The Government is working on new delivery structures
to replace delivery by the RDAs to ensure that the ERDF programmes
continue to be implemented with minimal disruption. We will also
encourage alignment of the Regional Growth Fund with ERDF, where
the aims of bids are eligible for support from both Funds.
The Government believes that it is important
that any new delivery structure increases the local accountability
for ERDF investment decisions to improve the impact of the fund
in terms of the growth and jobs it supports. Any future delivery
structure should also look to increase the private sector leverage
of the fund and minimise the administrative burden. We will look
at good practice from other countries such as Wales which achieves
60 percent private sector match funding across its ERDF competitiveness
programmes.
To inform the new delivery structure, the Government
is working with local authorities, universities and other stakeholders
to carefully develop the framework within which ERDF will operate.
The new delivery structure will be announced at Budget 2011.[154]
111. We note that the Government will announce
the new delivery structure for European regional funding at Budget
2011. We will carefully monitor whether that structure addresses
the ability of LEPs to win EU funding. In the meantime, the Government
has to ensure that there is no hiatus in funding in the period
between the winding down of RDA activity and the start-up of other
projects, including Regional Growth Fund projects. It is crucial
that the construction of the new LEP system does not jeopardise
the allocation of funds either in the current or in the future
spending rounds. The extent of RDA expertise in preparing bids
for EU funding is also another reason to put in place a proper
transition plan for the retention of a level of RDA expertise.
121 Q 196 Back
122
Ev 138, paragraph 3.3 Back
123
Ev w220, paragraph 1 Back
124
Q 62 Back
125
Q 82 [Cridland] Back
126
Q 197 Back
127
Q 240 Back
128
Ev 139, paragraph 1.5, and Q 89 [Ehmann] Back
129
Q 83 [Marshall] Back
130
Q 95 Back
131
See, for instance, the TUC (Q 59), the IoD (Q 115), and the LEP
bidders (Qq 144-5). Back
132
Q 223 Back
133
Q 95 Back
134
Q 198 Back
135
Ev w218, paragraph 17 Back
136
Q 62. See also EEF, Q 72; BCC, Q 93. Back
137
Ev w194, paragraph 35 Back
138
Ev w291, paragraph 3.3 Back
139
Regeneration and Renewal,
8 and 22 November 2010. Back
140
Q 26 Back
141
Q 243 [Lloyd] Back
142
Q 98 [Ehmann] Back
143
Q 181 Back
144
Q 143 Back
145
Financial Times, 26 October 2010. Back
146
See, for example: British Chambers of Commerce, Ev 103, paragraph
27; Federation of Small Businesses, Ev 128, paragraph 23 and Qq
94 and 102; see also North West Business Leadership Team, Ev w157. Back
147
Ev w231 Back
148
Q 28 Back
149
Q 27 Back
150
House of Lords written answers, 20 September 2010 Back
151
As reported in Regeneration and Renewal, 26 July, 'Treasury
halts RDA match funding for EU aid'. Back
152
See, in particular, Devon and Cornwall Business Council (Ev w71),
Centre for Cities (Ev w36), West Midlands Enterprise Board Ev
w283) Cambridgeshire County Council (Ev 107), the TUC (Ev 160)
and New Local Government Network (Ev w150). Back
153
The exact amount is not certain, but The Newcastle Journal,
16 November, reported the figure as £1.9bn Back
154
White Paper, paragraphs 2.34, 2.35 and 2.39 (in part). Back
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