Written evidence from West Midlands Enterprise
Board
The West Midlands Enterprise Board submits the
following evidence to the above inquiry. The Board is constituted
by Advantage West Midlands. With the agreement of Advantage West
Midlands the Board has set about using its experience and influence
to do what it can to ensure a smooth transition from RDA to LEP
and national governance of those matters on which it is competent
to comment and advise, namely enterprise, business support and
directly related matters. The Agency has encouraged us to take
increased independence to help where we can.
The Members of the Board are eminent local business
owners and leading representatives of business organisations plus
Local Authority representation. Together we have formulated and
agreed the attached document. Full details of the Members are
attached to the accompanying covering letter.
EXECUTIVE SUMMARY
1. LEP Function and VFM: The proposed
divide between LEP and national responsibilities risks separating
the five key drivers of economic productivity, when in reality
actions are more effective when action on enterprise, innovation,
skills, investment and competition are combined.
2. Value for money comes from both efficiency
and effectiveness considerations. In some areas of enterprise,
actions within a single LEP area may maximise both factors. However,
in many more cases efficiency rises when larger populations of
business are covered than will be found in any single LEP area.
However, effectiveness can fall when actions are centralised at
the national level. Our evidence shows that at the level of a
modest number of LEPs effectiveness is high and significant efficiency
gains accrue.
3. We suggest a model that would allow for
national control (where required), direct LEP involvement and
near financial self-sustainability covering a broad spectrum of
the enterprise and innovation agenda but focussed on business
growth.
4. Regional Growth Fund: The Fund
should recognise the need for LEPs to work together where this
makes economic sense and be prepared to fund relevant projects.
The Fund should be able to offer revenue to amplify the employment
generating effect of capital projects.
5. Timetable: We are concerned that
the currently projected rapid run down of RDA activity is mismatched
with an over-optimistic timescale for LEPs to become operationally
effective There is a serious risk that this will give rise to
an unnecessary hiatus for enterprise and business support just
as public expenditure reductions are rising fastest, impacting
businesses and unemployment.
6. Means of procuring Funds (ERDF):
We are anxious that ERDF funding is being throttled unnecessarily.
Timescales for moving from project ideas to flow of funds is much
longer than most realise. Those organisations with private sector
funds to match ERDF grant should be invited to start discussions
with their local European office forthwith. LEP strategy development
can move much faster than ERDF project appraisal and funding decisions
so there is time for both to coalesce.
DETAILED EVIDENCE
7. The evidence offered covers four of the
six matters being considered by the BIS Select Committee. Our
detailed comments are as follows:
FUNCTIONS OF
LEPS AND
ENSURING VALUE
FOR MONEY
8. It is clear from the Pickles/Cable letter
of 29 June 2010 that LEPs are expected to take responsibility
in some key areas of economic development:
"Partnerships will want to create the right
environment for business and growth in their areas, by tackling
issues such as planning and housing, local transport and infrastructure
priorities, employment and enterprise and the transition to the
low carbon economy. Supporting small business start-ups will therefore
be important".
But not in others, or at most only indirectly:
"We believe some of (the RDA functions) are
best led nationally such as inward investment, sector leadership,
responsibility for business support, innovation and access to
finance, such as venture capital funds"
Function of LEPs
9. The drivers of productivity, from which
economic growth is derived, are a combination of enterprise, innovation,
skills, investment and competition. Furthermore, these factors
tend to work most effectively in combination rather than separately.
The above proposals could give rise to some unnecessary separation.
We therefore propose that consideration is given to national funding
being delivered at a level where, for a given resource, the impact
can be greatest. We give a brief example of what we mean.
Adapting National Programmes to Meet Local
Needs
The RDAs have had responsibility for delivering the
national Grant for R&D programme. In the West Midlands this
has resulted in take up by about 25 businesses per year. This
relatively poor take up rate in the West Midlands suggests that
there is a lack of innovative potential, but this would be to
draw a wrong conclusion—there is a strong appetite for innovation.
The take up rate is low because the national package does not
play to the strengths of entrepreneurs and SMEs in the West Midlands
and because the methods for promoting the scheme do not touch
many of the more productive networks. By comparison, a locally
operated Proof of Concept fund run along similar lines to Grant
for R&D, but stopping short of funding actual R&D, led
to c. 150 SMEs being supported in 2009 with over half now in the
implementation phase of an innovative product or service with
ideas ranging from massively energy saving public lighting systems
to novel ways of dispensing cocktails. The reach was achieved
through a partnership of local providers who were all intimately
connected into important elements of the business infrastructure
and therefore could get quickly to appropriate business whether
start-up or well established. The other advantage of local arrangements
was that these entrepreneurs and SMEs were also networked locally
into mentoring, business growth and other programmes—this
tends not happen when programmes are national. The press article
at Appendix 3 on the case of the new cocktail dispensing system
provides good anecdotal example of how a local delivery system
has worked well for one entrepreneur.
10. The key lesson here is that while it
may be appropriate for government to retain budget responsibility
for business support and innovation, there is a danger that it
could neuter the ability of LEPs to combine the factors of productivity
to the best economic advantage of their area. This is not put
forward as an argument for allowing a free-for-all approach, far
from it. But it is an argument for allowing LEPs, or groups of
LEPs, to put forward ideas for the way that nationally funded
services are delivered in order to ensure they play to local business
conditions and strengths and also to ensure that Partnerships
can network the different resources towards those businesses best
able to take advantage of them to achieve growth and new jobs.
Value for Money
11. The WM Enterprise Board has overseen
a restructuring of Business Link away from six delivery points
across the West Midlands to one. There is no evidence of any reduction
in the level and quality of service provided indeed the reverse
is true. However, most significantly the overheads consumed in
the management of delivery have fallen from 40% to 13% of revenue
throughput so that an additional 27% of the original resource
is available to businesses. This is not intended to be an argument
for retaining Business Link, indeed many of the members of the
Enterprise Board have grave reservations about the IDB model operated
by Business Link. Rather it is an argument for looking more closely
at the scale of operation and degree of closeness to the market
that is required to deliver an effective and cost-efficient programme
for innovation and enterprise.
12. At Appendix 1 we offer two separate
examples where experience would lead us to recommend different
solutions for delivery. However, in both cases strategy formulation
could occur at LEP area level. In the first case, supporting enterprise
in areas of multiple deprivation delivery probably needs to be
at areas smaller than LEP area and in the second, supporting high
growth SMEs, combining the interests of several LEPs may have
the greatest economic impact for any given level of resource.
13. The Enterprise Board has been considering
how coordinated delivery of enterprise and innovation related
services, particularly for businesses with growth potential, might
work in practice. We believe that the best concept is as a service
to a group of LEPs, but with direct LEP involvement alongside
national funders.
14. The intention would be to network together
all those capabilities and resources that can be brought to bear
to overcome the market failures identified in the Case 2 described
at Appendix 2. In the West Midlands the key resources would include
the Universities (12), Science Parks (8), Innovation Centres/Incubators
(10), legacy RDA projects focussed on innovation (c 10), Business
Angel Networks (3), Start Up and SME programmes for High Growth
(4), Science City (1), MAS (1), and Chambers (6). UKTI would also
need to be in involved. This network of organisations has access
to hundreds of local business people, many of whom are keen to
become engaged with what they would see as exciting businesses
with good ideas and real growth prospects.
15. We also have ideas as to how the network
could be energised, which could lead it to become largely self-financing
over time. Appendix 1 contains an outline of this idea, the self-financing
aspect of which is, in part, already being piloted by MAS West
Midlands.
16. We would therefore argue that:
(a) To the extent that BIS will require delivery
of its centralised enterprise/business support and innovation
programmes, they should avoid the approach of identifying a single
national delivery agent as an early step. The fact that budgets
will be much lower means that resources will need to be targeted
on to activities that generate the greatest possible impact. Ensuring
that the right beneficiaries are identified means that structures
that engage efficiently with the networks in every local market
will be essential. Therefore, BIS should pose this problem back
to LEPs and invite them to join with other LEPs around them to
come back with proposals as to how delivery objectives for national
business support and innovation programmes might best be secured
having regard to deliverability, effectiveness and value for money.
(b) We would commend the ideas at Appendix 2,
as a useful starting point for such a discussion with LEPs.
(c) Once the delivery concept has been agreed
for each relevant geographic area, then and only then, should
tendering be considered.
REGIONAL GROWTH
FUND AND
FUNDING ARRANGEMENTS
17. The Regional Growth Fund consultation
document is ambiguous as to whether the funds will be purely for
capital regeneration or will include some revenue. We would urge
BIS to ensure that well conceived revenue activities can be supported
and would be welcome, particularly where they are designed to
amplify private sector employment creation arising from capital
investments supported by the Fund.
18. In support of our arguments under "Functions
of LEPs", we would also argue that where fulfilment of particular
economic development objectives make better sense when several
LEPs combine their interests and they tacitly agree to do so,
then such projects/initiatives should also be able to benefit
from the Regional Growth Fund.
TIMETABLE AND
ARRANGEMENTS FOR
CONVERTING RDAS
TO LEPS
19. It would also seem that the intention
is to substantially close RDA activities by 31 March 2011 with
an eventual closure by 31 March 2012.
20. The judgement we would offer is that
although LEPs may come into existence by April 2011, their ability
to become operational, picking up the reins to create economic
development strategy and bring about effective programmes will
take some considerable time. In most Local Authorities, Economic
Development departments have shrunk to very low levels and much
experience and skill has been lost in the process. Most Local
Authorities still have some capabilities in physical regeneration
and support to inward investment businesses and a few, mainly
larger metropolitan authorities, operate a more diverse range
of economic development activities. However, for many of the new
LEPs there will be a need to re-establish diminished experience.
All this will delay an onset to the effective uptick in local
area economic development that the LEP policy is designed to facilitate.
We would strongly urge that these inherent delays that will exist
before many LEPs can become fully functional should be taken into
account in the timetable for handover from RDA to LEPs.
21. We would also encourage BIS to look
carefully at timing issues and delays that will inevitably arise
for any RDA activities they take back centrally, particularly
where the plan is to operate nationally but deliver locally. There
is always a tendency to assume that these matters will happen
much faster than in practice it is possible to manage and almost
invariably leads to a hiatus in activity and wasted public expenditure.
MEANS OF
PROCURING FUNDING
FROM OUTSIDE
BODIES (INCLUDING
EU FUNDING)
22. The Enterprise Board is concerned that
the current programme for the closure of RDAs includes the removal
of their role as "Administrative Body" for any Regional
ERDF programme they operate, perhaps by as early as March 2011,
with no clear idea of what organisation, if any, will take over
responsibility for administering the programme.
23. At present this is about the only source
of public funding that is available to prospective LEPs, for taking
forward the economic development agenda. ERDF funding requires
that delivery organisations provide 50% or more of the resources,
known as "match". However, while public sector "match"
is now in very short supply for understandable reasons, there
are organisations able to provide private sector "match"
which are currently not being given the opportunity to apply to
the ERDF programme when there is no shortage of ERDF funds. Even
if "match" is freed up from the Regional Growth Fund
there will still be an excess of ERDF.
24. The various Programme documents that
constitute the formal arrangement between the regions and the
EU are formulated against the Lisbon Agenda (innovation and enterprise),
which matches only part of the LEP agenda. Nevertheless innovation
and enterprise are an important aspect of economic development
and they are particularly important to the West Midlands. They
can help to move the business base away from an over heavy reliance
on low value added products and services and into new innovation-led
market areas, as described in the report by James Dyson.[125]
25. We believe it is important for any LEP
that has any part of its constituency in the former West Midlands
region to have access to the ERDF programme so that they can discuss
their ideas with the European team and start formulating proposals.
This must start now, because the lead-time for developing proposals,
first at outline and then at full submission, together with appraisal,
acceptance and contract typically takes about 12 months and often
longer. Therefore, the current hiatus and uncertainty surrounding
ERDF should be addressed urgently ensuring that those organisations
who are prepared to use their own funds as "match" are
taken into the system sooner rather than later and integrated
into relevant LEP strategy as part of the proposal development
process between outline and full proposal.
13 August 2010
APPENDIX 1
VALUE FOR MONEY ISSUES—EXAMPLES
Value for Money—Case 1—Enterprise
in areas of multiple deprivation
Enterprise is just one dimension in which an
area suffering from multiple deprivations can be lifted. It is
best deployed alongside other regeneration and employment stimulating
measures. Thus, strategy at a LEP area level makes good sense.
However, helping unemployed individuals in these
areas into self-employment requires intimate knowledge of the
make-up of the community and the social networks that exist and
are effective. Any delivery agent has to work intensively at this
level reaching into the community to find the individuals who
have the latent desire and capability for enterprise and then
supporting them into business. Effective programme definition
and the organisation of delivery here is not likely to be higher
than City or District Council level, albeit that this might be
devolved from LEP strategy.
Value for Money—Case 2—Stimulating
Business Growth
Research[126]
suggests that within any year only a very small percentage of
businesses will enter a significant growth phase. Some will be
substantial businesses that, with the aid of a range of resources
available to them through the market alone, will secure their
growth objectives.
Other businesses, including many SMEs with an
innovation-led growth opportunity, will not find that the market
works well for them. At the resource levels at which these businesses
operate University costs are often too high, Banks invariably
shy away from the lending risk, Venture Capital Funds often do
not find the returns exciting enough (or the business owners are
not prepared to sell equity) and most SMES do not appreciate the
value of the professional help that could make the investment
in their innovative idea more secure—so will not avail themselves
of the resource.
Across the English regions there are about 10,000
businesses undergoing a significant growth phase in a typical
year. More than 95% are SMEs and about 60% of these (mainly the
smaller businesses) are very likely to fall into the market failure
net described above. Given a typical LEP area with a population
of say 1 million it might look to assist about 200-400 appropriate
SMEs in depth per year. This is far too small a number to create
a comprehensive support infrastructure for. It would be wholly
uneconomic and indeed there is a good chance that many of the
resources that would need to be coordinated for an effective programme
would fall outside their boundary (eg Business Angel Networks,
Business Incubators, University with the appropriate technical
competence, a MAS service etc).
However, working with innovation-led SMEs at
a level of at least 1,000-2,000 a year introduces an economy of
scale and also allows significant engagement with a wider range
of resources but still embedded in just a few LEP areas.
APPENDIX 2
A POSSIBLE DELIVERY MECHANISM FOR INNOVATION
AND GROWTH SERVICES AT MULTI-LEP LEVEL
It is proposed that the model used is a combination
of a voucher scheme, with peer evaluation of client cases and
"approved supplier" delivery partners. A Multi-LEP service
for growth and innovation services would have to ensure all approved
suppliers have demonstrable competence in one or more of their
product offerings. Approved suppliers could be private, public,
3rd sector organisations or individuals.
The substantially reduced public sector resources
will mean that the Innovation and Growth service will serve far
fewer clients than BL has been able to over recent years. It will
therefore be possible to introduce the transparent system of inviting
business people to review individual company applications for
grant-funded vouchers. This could be formalised as "investment"
committees who would review applications and award vouchers (single
or multiple) on a competitive basis, making awards only where,
in their judgement, the applicant business has the competence
to translate the support they receive into meaningful outcomes.
Other features of the system could include:
— Assistance to companies in making applications.
— Encouraging LEPs to use their networks
to put forward businesses in their areas, which accord with LEP
economic development priority sectors.
— Delivery partners introducing clients
who successfully secure voucher(s) receiving a percentage (<10%)
of the voucher value as an introduction fee.
— Where applicants perform well with a
first voucher but require further help in carrying their ideas
through to fruition, they would not necessarily have to submit
an additional application.
— Individual voucher values could range
from £3,000—£20,000 with the higher levels requiring
evidence of matching investment by the client. (Detailed but simple
rules would need to be defined).
— Companies awarded Vouchers being allowed
trade them with any approved supplier.
— Approved suppliers who successfully refer
clients to other parts of the voucher system would be entitled
to 50% of the normal introduction fee.
This system has the merit of transparency, engagement
by business in the operation of the programme, assurance on quality
of supply, accountability for public funds and decision making
that will be acceptable to the vast majority of businesses—because
it is involves their peers.
Making the System substantially self-funding over
time
There are two key dimensions to achieving sustainability
of this model. The first is that by seeking to attract a modest
number of the most promising business opportunities into the innovation
and growth service network, the private sector will want to engage.
The price of engagement will be a combination of discounted and
pro-bono professional work.
The second dimension would be to make the value
of the Innovation and Growth Vouchers repayable on a success basis.
Many businesses when asked if they would be prepared repay grant
monies if they have benefitted in some meaningful way from them
usually do not have any strong objection to making a repayment
provided it is spread over time and reflects gains for the business.
Thus, it is proposed that any business that successfully introduces
a new product or service or a new business method, or makes a
successful investment etc following in-depth support would be
required to pay a turnover levy. The levy would start once the
company has introduced the changes or deployed the action plan
and the business is benefitting from them. The levy would be set
to recover 125-200% of the voucher face value over a period of
one to three years. This would allow for those implementations
that fail to give benefit and consequently do payback and also
to retain the value of the vouchers in real terms. The detailed
terms would be adjusted in the light of experience.
By these means only the organisation and administration
of the innovation and growth service would remain to be paid for,
and while some help from national resources would be valuable
to get things going, the self-evident value for money would allow
responsibility for financial support, as well as strategic planning,
to come back to its constituent LEPs.
APPENDIX 3
EXAMPLE OF LOCAL COORDINATED ACTION TO SUPPORT
ENTERPRISE
BIRMINGHAM IS
SHAKEN BUT
NOT STIRRED
A new drinks brand born in Birmingham is set
to revolutionise the way we drink cocktails at home. "Tails"
is the brainchild of young entrepreneur Nick Wall (pictured),
who has developed a range of cocktails packaged in real shakers,
which will be sold exclusively for five weeks across Selfridges'
four stores in Birmingham, Manchester and London before being
rolled out to other high-end retailers.
Backed by support from the Manufacturing Advisory
Service-West Midlands (MAS-WM)'s New Product Development Programme
and Business Link, the company expects first year activity to
generate sales in excess of £600,000 with plans already in
place to add new flavours to the existing three-strong range,
look at promotional gift ideas and explore diversification.
Nick said: "Following a bit of anecdotal
research it became clear that there was a gap in the market to
introduce a premium experience and brand that actually replicated
bar cocktails.
"The last three years have been spent honing
the idea, developing a product that combines innovative packaging,
convenience and a balance of premium spirits and ingredients to
deliver the taste of bar quality cocktails in your home."
"Tails" has received significant support
from the West Midlands business support community with the Manufacturing
Advisory Service providing the mentoring and grant funded product
development support.
This has been complemented with ongoing assistance
from Business Link and funding from the Advantage West Midlands-backed
Proof of Concept Fund and Innovation Networks.
Extract from: Birmingham Chamber E- news, 5 August
2010
125 Ingenious Britain-Making the UK the leading high
tech exporter in Europe, James Dyson, March 2010. Back
126
The Vital 6%-How high growth innovative businesses generate prosperity
and jobs, NESTA October 2009. Back
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