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

Written evidence from the Regional Studies Association

  Evidence submitted to the House of Commons Select Committee on Business, Innovation and Skills, by David Bailey, Paul Benneworth, Mike Danson and Henrik Halkier on behalf of the Regional Studies Association.

  Authors Affiliations: Professor David Bailey (Coventry University Business School), Dr Paul Benneworth (University of Twente, The Netherlands), Professor Mike Danson (University of the West of Scotland Business School) and Professor Henrik Halkier (Aalborg University, Denmark)


  1.  This evidence seeks to draw on an established, well-informed and respected literature and evidence base on the role of EDAs (economic development agencies) and partnerships in delivering economic development at the regional and sub-regional levels (para 9-12).

  2.  England's regional economic problem does not just arise from the underperformance of the English regions, but also because the greater South East has seduced public investments for decades, out of an exaggerated fear on the part of national politicians of undermining London's strengths (HM Treasury, 2001) (para 12-16).

  3.  "Good" regional development agencies help create collective investments whose need is not immediately visible but which help promote both regional and national competitiveness (para 17-21).

  4.  If LEPs are going to be effective, then they need to be "good" economic development agencies , with the resources to deliver projects, and not be distracted by trying to develop strategies to influence national policies, notably infrastructure, higher education and science policies (para 22-25).

  5.  Conversely, central government needs to clearly commit that powers removed from RDAs will not be centralised where local partners make it clear that they see good value in local delivery of business support (para 26-29).

  6.  There needs to be some element of programmatisation around how LEPs fit with wider public expenditures, or risk a reversion to the 1990s situation where the Single Regeneration Budget and European Funds were being spent to solve problems caused by other public expenditure (para 30-37).

  7.  The Regional Growth Fund proposals imply a number of risks—for example in creating a number of science parks in urban areas (where private developers can be attracted as co-investors, suggesting only partial market failure at worst), and neither funding transformative activities, nor outlying rural localities. (Para 38-43)

  8.  If LEPs influence funding, then they will compete, both within the partnerships but also with each other. BIS proposals must clearly state how funding will not only flow to the big urban areas with the "sharpest elbows" and the greatest capacity to bid. In this regard, a (light-touch) sub-national tier still makes sense in joining up the work of LEPs particularly those outside the big cities which may struggle on many fronts (para 44-49).


  9.  We welcome the opportunity to comment on the outline proposals for revising English sub-national policies, as there seems to be a degree of confusion amongst those making the proposals. With this evidence, we seek to help the Committee challenge CLG's and BIS's understanding of those issues before the full proposals are published.

  10.  The evidence is written by a team with considerable experience in relation to RDAs and regional policy, in England and the UK, but also internationally. This perspective is helpful in disentangling administrative arguments for sub-national economic development from clearly expressed political will for abolishing RDAs. This evidence is being submitted on behalf of the Regional Studies Association, which has since its foundation actively supported research into the perennial English/UK regional problem (cf. Massey, 1977; Roberts, 1983; Harrison & Hart, 1990; Benneworth, 2001; Hardill et al., 2007; Tomaney, 2010).

  11.  The Regional Studies Association (RSA) has provided an international forum to discuss and debate such issues and to inform debates for almost 50 years. A joint seminar series in 2001-04 with UK Ministries (DTI, HM Treasury and ODPM) specifically addressed these concerns in the English context. More recently joint events with the Smith Institute explored the future of regional policy in the UK. This evidence base remains pertinent, complemented by international and collaborative studies on RDAs and regional policies.

  12.  Our aim is to provide a wider perspective by starting from first principles about what is necessary to address the English "regional problem", how local enterprise partnerships and the regional growth fund could contribute to that, and raise some questions which the sponsoring ministries need to clarify before finalising their proposals to Parliament.


  13.  The driver for the Government's proposals is in replacing the English RDAs (ERDAs) which are deemed by the government to have failed because they have not addressed a structural imbalance in the English economy.

  14.  This structural imbalance is a huge and persistent problem for England—it was first recognised in the early 1930s when the Team Valley Trading Estate in Gateshead was set up as the first regional intervention; since then there have been many approaches and policies but the problem of regional imbalance has remained to this day (Loebl, 1988).

  15.  There is an increasing recognition that their intractability is not just the fault of the weakness of outlying English regions, but also the tendency for public policy-makers to overinvest in London and the greater South East, out of a fear of their competitiveness falling, without regard for the opportunity costs for the wider UK economy.

  16.  Regional policy should invest in making the peripheral English regions attractive for public and private investment, and strengthening the national economy, not (as English regional policy in the 1990s did) merely compensate for problems arising from over-concentration of investment in the greater South East region.


  17.  Although the title of "Regional Development Agency" (RDA) may be discredited in government eyes in an English context , RDAs have nevertheless emerged in the last two decades in Europe and North America as important actors in supporting the kinds of territorial economy development necessary to address England's persistent regional imbalances (Danson et al, 2005).

  18.  What RDAs can do is support collective investments addressing market failures with which local actors are not immediately concerned: people often think in local and national terms and so underestimate the intermediate level between local and national. Regional investments can be hard to build support for because people prefer obvious local investments, but there is no way—for example—for every local authority to have an airport (a form of "local myopia").

  19.  RDAs are in the general sense an organisation of local actors that come together to encourage co-operation to identify and develop areas where this local myopia undermines the development of shared assets that could raise regional competitiveness. Halkier et al. define RDAs as "regionally based, publicly financed institutions outside the mainstream of central and local government control designed to promote economic development" (1998, p. 17), which are business-like, promote competitiveness, stimulate endogenous growth, and increasingly stimulate innovative capacity.

  20.  The OECD (2009) has stressed that best-practice local economic development is an activity that defines a path into the future which co-ordinates other actors in making that vision a reality. This necessitates a sophisticated understanding of a range of external factors such as contested investment, investment returns, business cycles, market trends as well as local assets, endowments, and places unique selling points.

  21.  An effective local economic development strategy must also inspire participants' confidence in order to act as an effective co-ordination vehicle. All of this requires leadership skills amongst and across local leaders and their partners if economic development is to succeed, placing a premium upon vision, communication, and partnership-building skills, coming from both local authorities but also businesses.


  22.  The Local Enterprise Partnership (LEP) proposals are welcome in the sense that they may free localities from the top-down national control through literally volumes of guidance and regulation that characterised the functioning of the ERDAs. However, what the current proposals do not make clear is what kinds of regional economic growth drivers will LEPs be able to influence? The English Strategy for Growth hints that this will be in the area of infrastructure, higher education, science and innovation.

  23.  We would point to the fact that three of those areas have purely national budgets with very strong pressures at a national level for control over these elements to remain exclusively national, excluding local voices. In practice, therefore, LEPs will be limited to developing "transformational" projects exclusively in the field of regional innovation/entrepreneurship.

  24.  This is effectively what European Structural Funds and the ERDAs' single pot have been funding for the last five years, so there must be clarity about what will be different this time around. On the other hand, the LEPs need to ensure that their current portfolio of long-term investments that will raise their overall local competitiveness over time are satisfactorily completed, producing the returns and not being simply scrapped.

  25.  Development agencies also become the voice of their localities in discussions around economic development policy that take place within different levels of government. It is striking that whilst the devolved territories will retain their strong voices at the UK and European levels, these proposals will silence, and strongly disadvantage, the English regions. LEPs must ensure that England continues to participate in European projects which seek to guarantee cohesion and competitiveness across Europe. This is also dependent upon strong political support from the centre, and there is no suggestion that BIS are minded to give that support.


  26.  It is widely accepted that localities cannot "pull themselves up by their bootstraps". They must be supported by funding that creates "national" projects with local impacts, not just in economic development "silos", but including industrial, science, education, health and technology policy. Without bending national funds to help outlying regions and meet their needs, the LEPs will be akin to a sticking plaster for an open wound.

  27.  There has been criticism of "identikit strategies" as promoted by the ERDAs, leading to the apparent anomaly of 24 nanotechnology centres across the UK. Where these criticisms are justified by the facts, this tends to be a consequence of deep-seated pressures within England to homogenise across public authorities. LEPs must be freed from being forced in a top-down way to write plans that fit Whitehall bureaucrats' priorities.

  28.  If the LEPs must compete with one another for funding, then the partnerships will self-select partners to strengthen their position in that competition. This will place "big city" authorities in very dominant positions within LEPs, particularly if proposals for directly elected Mayors come to fruition. Likewise, the interests of remote and rural areas are likely to be neglected as they are powerless to offer attractive investment proposals. There is no evidence or rigorous scientific model that validates this privileging of city-regions as effective or efficient in raising national growth.

  29.  BIS needs to be clear about how it will decide between competing claims on the public purse from very different kinds of transformational project, for example between a biotechnology centre in Rusholme and a food packaging centre in Berwick-upon-Tweed. What we can say with certainty is that the Treasury Green Book is not a good way of doing this, as this reinforces a bias towards large urban projects.


  30.  The proposals outlined by BIS appear to involve a substantial recentralisation of powers to Whitehall. In particular, under the current proposals, responsibility and policy for inward investment, industrial sector leadership, business support, innovation, and access to finance (including venture capital funds), will all be recentralised to Whitehall.

  31.  This amounts to running a central industrial policy. We cannot imagine that the government wishes to involve itself in the costs and staffing demands of managing industrial policy at the local level. Without local industrial policy, several promising new sectors would now not be emerging to create significant local employment. We point to the Niche Vehicle Network in the West Midlands, or the offshore wind sector and the low carbon area in the North East as demonstrating the value of an intermediate coordination level between LEPs and Whitehall in fields such as cluster policy and innovation.

  32.  LEPs will have responsibility for local transport, housing, employment, enterprise and supporting business start-ups. The split between local and national level over business support is not clear. However, without LEPs having genuine powers and responsibilities to tailor local business support to local demand, local business will have no incentive to engage with the partnerships, which may leave them as "local authority talking shops".

  33.  The £1 billion, two-year regional growth fund represents a sizeable real-terms funding cut for economic development outside London. If LEPs are to lead local economic development, they must have powers to raise their own investments. There are many overseas examples such as accelerated development zones or bond issuing powers which would enable LEPs to raise funding for local economic development in the context of national budgetary austerity. This would also energise businesses to become involved in LEPs' work.

  34.  A possible lack of proposed real powers (and fundraising ability) for LEPs will be compounded by excessive fragmentation of delivery under a "bottom up" approach. The current proposals for selecting LEP areas are unlikely to produce arrangements which map to "functional economic areas". They are much more likely to reflect political "horse-trading" than to make any geographical or economic sense. In the West Midlands, a LEP covering Greater Birmingham, covering the "Black Country", North Warwickshire and South Staffordshire could effectively map to the Birmingham functional economic area. But there is little prospect of local politicians actually delivering this. At a national level there is likewise a high risk of a hotch-potch of fragmented—and hence inefficient—LEPs.

  35.  A genuine challenge for LEPs is their capacity/capability to take strategically informed decisions to engage in partnership working. Work by the Audit Commission looking at the response of local authorities to the downturn found that 40% of local authorities put actions in place to counter the recession without strategic information on their area (Audit Commission, 2009). Some RDAs have built up detailed evidence-based knowledge about their regions, for example in identifying vulnerable places, firms and sectors. In the West Midlands this informed strategic decisions on how best to spend public resources during the recent downturn (Bailey & Berkeley, 2010). 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 simulate local economic development.

  36.  Similarly, expertise in terms of accessing European funds remains important. RDAs currently have the expertise to access and administer the funding, and—until very recently—to match-fund EU structural funding. Some local authorities have the ability to bid for, win, implement and match EU funding. But for those LEPs without that experience and capacity, a level between small LEPs and the centre will be necessary to ensure that they can access the funds made available. This is vital to ensure that these funds are invested in the public need, rather than the interests of large authorities with a bid-writing infrastructure.

  37.  We appreciate the depth of political antipathy to regional planning in England, particularly in relation to the perceived injustices of regional housing targets. However, regional planning is a very effective way of building trust and transparency around controversial investments such as nuclear power or waste disposal, addressing public hostility to these facilities. These controversies cannot simply be "wished away". No doubt the government will, as did the last Conservative Government with Regional Planning Guidance, return to regional planning once these controversies are politically more pressing than the desire to abolish regional planning bodies.


  38.  The purpose of RGF is admirable: to rebalance weaker local economies away from an "over-dependence" on public sector jobs. This public-sector "over-dependence" is really a phenomenon of the last five years or so, and a deeper sectoral imbalance between the regions will need to be addressed if the RGF is to contribute to national economic performance.

  39.  The devil will be in the detail, and in particular, how far the RGF enshrines the principle that it will flow to regions in proportion to the public expenditure cuts they face. It is those regions facing the greatest cuts which need the greatest help to improve their attractiveness for private high-technology investment.

  40.  If there is a mechanical appraisal system that uses the "usual" characteristics of job creation, innovative nature and private leverage, then there is danger of favouring projects such as urban science parks and technology centres involving private developers adjacent to universities. This may not be the best use of £1 billion over two years, given the Secretary of State's widely publicised comments about the duplication involved in having 24 nanotechnology centres.

  41.  We also raise the question of how the RGF will deal with events and contingencies if there are simply two funding rounds? There is a very strong risk of favouring projects that fit with Whitehall's bureaucratic systems (with public sector sponsors who know these systems) rather than projects which deal with real market failures or crises, particularly if these crises do not conveniently occur three months before the deadline for the round.

  42.  In para 34, we point to the importance of LEPs having the power to raise their own private funding. This would also provide some resources to respond to contingencies or shocks (cf Bailey et al, 2009, re the Rover crisis).

  43.  Rebalancing the UK economy into new technology sectors that create UK employment is a complex process that experience tells us the market cannot satisfactorily deliver. In developing green technologies, public authorities play many roles, commissioning demonstrator projects, creating demand for products, enforcing "green" regulation, subsidising knowledge exchange and innovation, supporting clustering and internationalisation, and funding education. This makes a co-ordinated multi-level approach unavoidable, even where policy is delivered at the lowest level possible, to ensure mutual support between national, regional and local policies, such as technology foresight, clustering and innovation (Charles & Benneworth, 2001). Funding arrangements, including the role of the RGF, must recognise this.


  44.  The idea of partnership working sounds admirable. In reality LEPs will face their own tensions and struggles. There is a need to avoid ending up with arrangements that either adhere to the lowest-common denominator, where everyone agrees because they take no controversial (and therefore important) decisions, or smooth over tensions by giving everyone something. Overall, the challenges inherent in delivering sub-national economic development through partnerships need to be recognised at the outset, as the absence of dedicated RDAs may exacerbate such challenges (Cameron and Danson, 1999).

  45.  One advantage of the ERDAs is that they forced places to confront and address those tensions (in part through their strong evidence bases). So, the NWDA compelled Manchester and Liverpool to develop a sense of how they each contributed to the other's growth. Those two cities are likely to choose have their own LEPs who will compete for funding, not developing mutually beneficial shared projects.

  46.  A clear tension in LEPs is that those places that have a strong asset base will be powerful actors, because they will be able to construct plans that will be attractive for the RGF. At the same time, it is hard to see how remote rural, coastal areas and provincial towns will be able to come up with sensible proposals for plans that will compare favourably against slick, urban high-technology science city projects.

  47.  A further problem—raised by Federation of Small Businesses (FSB)—is the need to recognise the voice of small business. As noted on business engagement above, there is a need to avoid a situation where small businesses get involved with LEPs because they want to win grants. Yet, without a direct benefit then SMEs will struggle to justify getting involved. Individual SMEs may get involved with particular projects, but there is a question of how does the LEP hear the "voice of business" without just hearing the "voice of a few businesses", to the exclusion of others.

  48.  Finally, in looking at the recent performance of local authorities during the downturn, work by the Audit Commission found that some 35% actually worked alone and not through any partnership working (Audit Commission, 2009). LEPs need to offer "boundary spanning" place leadership, which overcomes old rivalries and conflicts, and which can help progress towards difficult decisions based on sound intelligence and a deep understanding of the locality functions economically. This is a key role in building leadership in LEPs (see Policy Studies, 2010).


  49.  The White Paper faces a major challenge, because it needs to set out a clear vision for narrowing regional disparities by investing in those weaker regions to start a process of rebalancing their economies (para 16).

  50.  BIS needs to be clear that partnerships can look very different, not only in their composition, but in their ways of working and activities, otherwise competing for BIS resources will produce "identikit" responses which will strengthen Leeds, Manchester and Birmingham whilst weakening other places such as Liverpool, Bradford and Newcastle (para 27).

  51.  The details of the RGF are critical, and the problems with the Green Book need to be learned. For example, insisting on high leverage may encourage urban property developments; appraisal on the basis of affected populations may exclude rural areas and market towns from transformational projects. To address this BIS may wish to set minimum per capita allocations per LEP subject to quality thresholds (para 29).

  52.  Recentralising policy to Whitehall envisaged in current proposals is greatly injurious to the wider cause of addressing the English regional problem (para 31).

  53.  LEPs will need both real powers and the ability to raise funds if business is to genuinely engage with the idea and if LEPs are to have a genuine impact on local economic development (para 34).

  54.  An intermediate mechanism to "join up" LEPs work between local and national level is inevitable to use public money efficiently in a number of areas, including as a minimum maintaining an intelligence and information gathering base, pursuing effective cluster and innovation strategies and accessing EU funding (para 43).

  55.  Building partnership and strategic leadership skills in LEPs will be vital to making them work (para 46).

  56. The success of the proposals will be on how far they do actually manage to concentrate investment on the most disadvantaged regions and their most disadvantaged localities and start creating polycentric development in England that boosts overall economic growth. More to the point, regions and localities will judge those proposals on how successful are they in preventing the "London Lobby" capturing available funds. This easy or superficially competitive option we believe will deliver a sub-optimal outcome for all as the market failures inherent in the plans and their big city bias will operate and discriminate against the needs of the weaker peripheral and marginal regions undermining their contribution to wider dynamic metropolitan regions.

13 August 2010

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