Written evidence from Centre for Cities
The Centre for Cities welcomes the opportunity
to provide evidence to the Business Innovation and Skills Select
Committee's inquiry into the new Local Enterprise Partnerships.
Given the Centre's remit, our primary focus is on Local Enterprise
Partnerships in urban areas. This submission draws on policy recommendations
put forward in our 6-step plan for Local Enterprise Partnerships.
EXECUTIVE SUMMARY
— Local Enterprise Partnerships (LEPs)
are a positive step as they will bring economic decision making
into line with real economic areas and make it more democratically
accountable.
— However, the Government risks creating
a situation where there are too many small LEPs that do not reflect
real economic areas.
— To date, many of the potential LEPs have
spent too much time talking about the possible geography and membership
of their LEP rather than what it should actually do. We think
the LEPs debate needs to be rebalanced so that there is more consideration
of what functions they should perform.
— The September 6th deadline for LEP submissions
is too soon for some areas because it has not given them enough
time to think about functions. Government should introduce another
submission deadline in early 2011 for those areas still thinking
through their plans.
— The Government should phase the introduction
of LEPs and accept that some will be more successful than others.
— LEPs should focus on economic development
and private sector growth. To do this their main functions should
be related to the wider drivers of economic growth. This means
transport, planning, housing and skills policies. To deliver these
policy areas LEPs will require some new powers, operational flexibilities
and funding.
— LEPs' should place less emphasis on industrial
policy interventions, like business support and innovation policy
because these types of policies are not major drivers of private
sector growth. However, LEPs do have a role to play in these areas.
— LEPs will need to balance the need for
extensive business engagement against the need to be democratically
accountable bodies.
— The Regional Growth Fund should primarily
be targeted at where it can have the greatest impact on private
sector growth.
The body of this submission is structured around
the topics that the Committee has set out to consider. Before
that we briefly introduce the Centre and outline why we think
Local Enterprise Partnership (LEPs) are a positive step.
ABOUT THE
CENTRE FOR
CITIES
The Centre for Cities is a non-partisan research
and policy institute, aimed at helping cities improve their economic
performance. We work with cities, employers and central government
to develop practical policy solutions which help urban economies
grow.
The Centre for Cities has been a long time proponent
of city regions. We think that powerful city regions will result
in better policy decisions being made, allowing for stronger economic
growth. In 2006, we published City Leadership, a report
which called for more power to be given to city regions.
We also have a strong track record of working
directly with cities, many of which are currently deciding on
how to pursue LEPs. In the past year we worked closely with Birmingham,
Liverpool and the Partnership for Urban South Hampshire (PUSH),
which includes the cities of Southampton and Portsmouth. We are
currently working with Derby, Sheffield and Croydon.
WHY ARE
LOCAL ENTERPRISE
PARTNERSHIPS IMPORTANT?
We think that LEPs are a good policy idea because
they should enable the emergence of stronger city regions that
are able to make more informed (and accountable) policy and investment
decisions that can drive growth in their areas. LEPs are important
because they seek to strengthen sub-national economic development
by devolving power and aligning decision making with real economic
areas.
However, we have some concerns that the geographical
size of some LEPs will be too small to be effective. LEPs are
supposed to cover real economic areas.[25]
However, inevitably the negotiation of LEP geographies is shaped
as much by politics as by the economic evidence. If the outcome
of these negotiations is lots of very small LEPs this is likely
to lead to inefficient policy outcomes. While the Government should
be flexible in its approach to the geographies that local authorities
want to form, it should insist that these capture the vast majority
of a LEP's real economic area.
Policy decisions in areas like transport, housing,
planning and skills need to be taken over the same area that people
travel to work and that businesses engage with their suppliers
and customers. This reflects evidence that suggests that where
the administrative boundaries of an area match its economic footprint
it experiences faster economic growth.[26]
While the Regional Development Agencies (RDAs)
achieved some successes, they were not without their faults. They
lacked accountability, were set an unrealistic task, and were
a barrier to the emergence of stronger city regions.[27]
Also, the regional tier as a whole evolved to contain too many
bodies, with many agencies duplicating each others' functions
and therefore led to waste.
Having set out why we think LEPs are important
we now address the topics which the Select Committee will consider
as part of its inquiry. We regard the first topic—the function
of LEPs—to be the most important, and so have dedicated
most of our comments to this section.
1. THE FUNCTIONS
OF LOCAL
ENTERPRISE PARTNERSHIPS
The functions that LEPs end up delivering will
be critical to their success. However, thus far, our conversations
with cities suggest that many areas have been too focussed on
the geography of their LEP and who the members of individual partnerships
are, and not on what the LEP should do. LEPs must now move on
to the task of defining their objectives and setting out their
plans to deliver on these.
To take account of the varying levels of preparedness
across the country, Government should introduce a phased approach
to LEPs and should set another submission deadline for early in
2011 so that lagging areas have another chance to take part in
the LEP process.
What should the objectives be?
We think that LEPs should focus on improving
the economic performance of their area. In terms of key indicators,
this objective could imply targeting an increase in the productivity
of a city (measured by GVA per capita), the productivity growth
rate, the employment rate or the number of new private sector
jobs being created.
For some LEPs it will be unrealistic to target
an improvement in some of these indicators. For example, LEPs
involving struggling cities, like Blackburn and Stoke, are unlikely
to generate a significant number of new private sector jobs.[28]
In fact, these places are more likely to continue to lose private
sectors jobs. The appropriate aims for LEPs in these situations
maybe focussed more on stabilising the economic performance of
their area (ie slowing the rate of decline).
The broader principle is that individual LEPs
will need to choose objectives and indicators that are appropriate
to their economic context. Government should engage in a dialogue
with individual LEPs about what their objectives should be and
encourage them to be realistic.
Focus on the wider drivers
To improve the economic performance of their
area, LEPs should focus their attentions on the wider drivers
of economic growth—planning, housing, skills and transport.
By contrast the targeted interventions in policy areas like enterprise
and business support that local authorities and RDAs often emphasise
will probably have less of an impact on long term economic growth
and private sector job creation.
In focusing on the wider drivers of economic
growth, many of the interventions that LEPs will need to make
will require using powers they already have at their disposal.
In an era of fiscal constraint, co-ordinating policies across
authority boundaries and prioritising investments within LEP areas
will take on an even greater importance.
In all four of the wider driver policy areas
the key responsibility of a LEP will be to produce an integrated
strategy that identifies the key investment priorities for the
area.
In the individual policy areas our recommendations
are that LEPs should:
Transport: LEPs should identify investment
priorities for their area. Local authorities should pool local
transport plan funding and should transfer the management of the
road network to the LEP level. In areas where there is an Integrated
Transport Authority (ITA) it should be incorporated into the LEP.
Central government should grant LEPs greater control over the
rail and strategic road network, and should support LEPs that
choose to implement a congestion charge. Central Government should
support LEPs to establish, if they wish, Transport for London
style governance arrangements and allow them to borrow against
future revenue streams from public transport and congestion charging
fares.
Skills and employment: For areas where
they do not yet exist, LEPs should create an Employment and Skills
board (ESB) as a sub-group of the LEP. This should cover the same
geography as the LEP. The ESB should draw up a strategy for improving
the skills profile of an area. The strategy would identify employer
skills needs and would commission training provision to meet these
requirements. LEPs should also have a role in guiding the number
of apprenticeships to be delivered in an area and setting the
sectors of the economy that these should be focused in. Finally,
LEPs should gain oversight of Jobcentre Plus services, to ensure
integration between employment support and skills services.
Planning and development: Local authorities
should transfer the responsibility for major planning decisions
to the LEP level. LEPs should be allowed to set the policy environment
for their area, setting out strategic infrastructure requirements
for their area, taking decisions on the proportion of development
to take place on brownfield land and identifying areas for growth
in their area, which could include greenbelt land. LEPs, via their
local authority members, should also be able to enact compulsory
purchase orders. LEPs could also take a lead on identifying public
sector land and assets in their area in order to ensure their
value is being fully utilised as was piloted in Total Place.
Housing: LEPs, particularly those in economically
buoyant areas, will need to deliver sufficient houses, of the
right tenure, in the right places. LEPs should look at setting
LEP-wide housing targets and setting the policy for the proportion
of affordable housing to be delivered in each development. Central
government should transfer Homes and Communities Agency (HCA)
funding to LEPs to deliver these housing plans.
Business growth policy: While the majority
of LEPs' efforts should be focussed on the wider drivers of economic
growth, some scope does remain for LEPs to make specific interventions
in the area of industrial policy. However, here a different (and
more realistic) approach should be taken compared to the one pursued
by RDAs because the evidence suggests that many of the policies
that tried to support the growth of key sectors and clusters have
failed.[29]
Instead of delivering an extensive sector development
programme LEPs should look at providing a focussed and consolidated
business support offer to a smaller group of high growth firms.
To support innovation, LEPs should include university representatives
in their membership and facilitate exchanges between business
networks in different sectors. LEPs should focus more attention
on business retention and expansion support for existing businesses
than chasing inward investment, particularly from overseas.
2. FUNDING AND
VALUE FOR
MONEY OF
LEPS
The funding of LEPs has been an issue on which
the Government has so far provided very little detail.
LEPs need a large single pot of funding to use
as they wish so that they can drive forward economic growth. Without
sufficient financial resource, LEPs will be unable to deliver
on the economic needs of the areas they cover. The fiscal situation
means that no additional money is on the table for LEPs. Instead,
they should be given a flexible single pot of money that they
can use at their discretion to meet the economic development needs
of their economies.
A single pot for LEPs should be drawn from transport,
housing, and employment and skills budgets. The money should be
spent as they see fit to meet the needs of their economic area.
National government should retain some oversight of spending from
this pot, but the conditions attached to the money should be relaxed.
For example, the threshold for major transport projects should
be extended from £5 million to £25 million. Cities should
also use LEPs as the vehicle for coordinating a Business Rate
Supplement (BRS). As LEPs will involve business, using the LEP
to enact a BRS will ensure buy-in and approval from the business
community.
In addition to more flexible use of central
government funds, local authorities will clearly need to fund
many LEP activities by pooling their own budgets and resources.
In terms of the distribution of these funds,
given that LEPs are about strengthening the economy, it should
probably be calculated on the basis of an LEPs share of the economy
(using Gross Value Added figures). This could be done on a national
basis or, if the Government wants to maintain a focus on boosting
the north, on a regional basis—using the existing RDA funding
allocations as a starting point.
Such a funding distribution is likely to favour
LEPs in urban areas. We think this would be the correct outcome.
Cities are the drivers of the UK economy and the majority of future
jobs growth will take place in urban areas.
It terms of cost effectiveness and value for
money, the introduction of a LEP based on our suggestions would
reduce the need for strategic planning, economic development and
transport functions to be delivered by every local authority,
at least to the extent that they currently are being delivered.
The experience in London of the planning and transport arrangements
between the boroughs and the Mayor offer useful insights that
LEPs could learn from.
3. ARRANGEMENTS
FOR CO
-ORDINATING REGIONAL
ECONOMIC STRATEGY
For the most part, the introduction of LEPs
will result in the end to regional economic policy making. However,
there could be a number of areas in which it makes sense to continue
to provide co-ordination and operate oversight at the regional
level, if this is the spatial level at which the policies can
be most effectively dealt with. For example, multi-LEP transport
projects—such as the transport links between Leeds and Manchester
and Liverpool—and nationally strategic industries—such
as the nuclear sector in the North West—are two areas that
we have previously identified as possibly justifying the continuation
of a "multi-LEP" body.[30]
Added to this, accessing and administering European Regional Development
Funds seems likely to continue at the regional level, due to European
regulations. Beyond these functions we do not see a further need
for additional coordination at the regional level.
4. STRUCTURE
AND ACCOUNTABILITY
OF LEPS
LEPs need to have strong governance structures
and be clearly accountable. One of the major failings of the RDAs
is that ultimately the powers that they gained were considered
to be incompatible with their lack of accountability.
We think that LEPs need to have real decision
making powers over issues like planning and transport and that
decisions in these areas need to be democratically accountable.
Therefore, we think that the membership of LEP boards should be
primarily formed of the leaders of the constituent local authorities.
One of our primary concerns with the Government's
current proposals for LEPs is that by creating LEP boards which
have an equal split of business and local authority leaders, LEPs
might end up being relatively weak decision-making bodies due
to a lack of accountability.
To incorporate business views into a LEP board,
we make two suggestions:
— LEPs could form minority business boards.
The business members would have voting powers but would make up
less than 50 percent plus one of a board's membership.
— LEPs could have a business council which
would sit alongside the decision-making LEP board, offering its
advice and with the power to make recommendations to the LEP board
that it would be compelled to consider.
Of these two suggestions we prefer a LEP business
council. However, we recognise that given the Government's stated
preference, the option of a minority business board, might be
more appropriate.
LEPs will also need to face an effective form
of scrutiny. We suggest that LEPs be scrutinised by a "chamber"
of Councillors, drawn equally from all member authorities.
Another issue of importance is how a local authority
city mayor will interact with the LEP board. Mayors are expected
to be elected in England's 12 largest cities in May 2012, subject
to confirmatory referenda.[31]
This is around the same time that LEPs are expected to fully replace
RDAs.
The Government has already suggested that elected
mayors may chair the LEP board in some areas. While we are sympathetic
to this idea, we recognise that it could create some problems.
An elected city mayor could end up being the
most powerful member of a LEP board, thanks to the large number
of votes that they have received and their public profile. A strong
local authority city mayor could create tensions between local
authorities trying to work together in a LEP.
For example, if Birmingham votes for a city
mayor who then chairs a city region LEP, the Mayor for Birmingham
would only have the mandate to represent Birmingham City Council.
Other authorities in the Birmingham LEP may fear that a mayor
would use the power of the LEP to push resources towards Birmingham
local authority, rather than making decisions that benefit the
wider city region. In another example, based on the Conservative
party's previous statements,[32]
the Leeds City Region may end up with three directly elected mayors
on its LEP board.
The preferred solution to the elected mayor
problem would be to create city region elected mayors instead
of local authority city mayors. However, currently this seems
unlikely. One alternative solution would be that an elected city
mayor would chair the LEP board, but would not have voting rights.
The Mayor would then be a powerful advocate for the LEP and could
shape the policy programme, but could not exert undue influence.
Either way the Government needs to define the terms by which these
two points of authority should work together to avoid potential
clashes.
5. THE TRANSITIONAL
ARRANGEMENTS
The transition from RDAs to LEPs is likely to
be difficult and careful arrangements will be needed to ensure
that the process takes place as smoothly as possible. While the
Government is keen not to be prescriptive about the final shape
of LEPs, close management of the transition is vital. Failure
to manage the transition process adequately could undermine the
LEP policy, before it has even begun. The Government should also
bear in mind that the transition is unlikely to be cost neutral.
Previous institutional reorganisations have been expensive and
it seems reasonable to expect that some of the same costs will
be associated with the transition from RDAs to LEPs.
The Government should not attempt to create
all LEPs at the same time. Instead it should phase the introduction
of LEPs. This would allow the cities most advanced in their arrangements—like
Greater Manchester and the Leeds City Region—to progress
their LEPs quickly, while those LEPs that are less advanced would
have more time to bring their plans together. Phasing the transition
is also likely to make the process more manageable from the Government's
perspective. There are also likely to be some LEPs that are even
less developed in their ideas. These partnerships may need to
be phased to start at an even later date. Government should introduce
another submission deadline in early 2011 for those areas still
thinking through their plans.
The Government should also be ready to accept
the failure of some LEPs. The bottom up nature of the LEP policy
will inevitably result in various levels of performance, with
some LEPs performing strongly, some becoming talking shops and
achieving little, and a few failing, possibly quite publicly.
This should not be seen as a failure of the policy as whole.
Finally, when transitioning from RDAs to LEPs,
the Government should allow the transfer of any financial stakes
that RDAs have in assets and funds (eg property portfolios, regional
venture capital funds) to these new institutions. This would allow
LEPs to use the assets to push forward important developments
and to realise their value at a more opportune point in the economic
cycle.
6. THE REGIONAL
GROWTH FUND
The Regional Growth Fund (RGF) is small in comparison
to the overall budget of the RDAs. The budgets of RDAs amounted
to £2.2 billion in 2009-10 and £1.5 billion in 2010-11,
however, the annual budget for the RGF is just £500 million
(£1 billion over the two years). This means that expectations
about the impact of RGF spending should be kept firmly in check
and that the money should be carefully prioritised to maximise
its impact and to ensure its value for money.
To do this Government must be clear about the
objectives of the fund. The Growth Fund's consultation document
sets out the aim of the fund to stimulate private sector job creation
in places hit hard by public sector job cuts. But it is unlikely
that weak economies with a dependence on the public sector will
be key centres for future private sector jobs growth.
We think the RGF should have two independent
objectives. The first should be to stimulate private sector jobs
growth wherever the strongest case can be made for this, including
in those areas that have already been experiencing strong private
sector growth. The second should be to manage transition in struggling
areas that do not have strong private sector growth prospects,
but do need support in dealing with the challenges of on-going
industrial restructuring.
As an indicative split we suggest that the funding
allocation should be split between these objectives on an 80:20
basis in favour of the private sector job creation objective,
so that the main thrust of the fund is focussed on stimulating
private sector employment.
12 August 2010
25 The best measure that we currently have to reflect
real economic areas is travel-to-work areas, which reflect commuting
patterns. Back
26
Cheshire P & Magrini S (2005) European Urban Growth: throwing
some economic light into the black box, LSE Working paper presented
to European Regional Science Association Congress, Amsterdam Back
27
Larkin K (2010) Regional Development Agencies: our position,
London: Centre for Cities Back
28
Webber C and Swinney P (2010) Private Sector Cities: a new
geography of opportunity, London: Centre for Cities Back
29
Duranton G (2009) "California Dreamin": The feeble
case for cluster policies, Processed, University of Toronto Back
30
Larkin K (2010) Regional Development Agencies: our position,
London: Centre for Cities Back
31
Communities and Local Government (2010) Draft structural reform
plan, London: CLG Back
32
Conservative Party (2009) Control Shift: returning power to
local communities, London: Conservative Party Back
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