Written evidence from the Department for
Business, Innovation and Skills
EXECUTIVE SUMMARY
- The Coalition Agreement committed the Government
to creating a more balanced economy where new business and economic
opportunities are more evenly shared between regions and industries,
ensuring that every person has a stake in growth and makes the
most of available resources.- Central and Local Government have
important roles to play in enabling recovery and economic rebalancing.
They must work with the grain of the market and focus on dealing
with those market failures which inhibit private sector growth
and lead to a lack of balance.
— In pursuing this, the RDAs have had a
range of local successes. However, economic performance has continued
to vary considerably with persistent differences between the North
and South. As a result, the Government does not believe that the
current arrangements can be allowed to continue as they are and
must be improved.
— Instead, the Government is committed
to supporting the creation of local enterprise partnerships—joint
local authority-business bodies—to replace RDAs. These partnerships
will lead efforts to improve the economic performance of the places
they represent. BIS and CLG are jointly leading the development
of the policy on local enterprise partnerships.
— The funding of local enterprise partnerships
is a matter that will be considered as part of the Spending Review.
— The Government has said that partnerships
will play an important role in bringing together bids to the new
Regional Growth Fund for economic growth projects in their areas.
— The Government will publish a White Paper
on sub-national growth that will set out more detail on the creation
of local enterprise partnerships—as well as on the Regional
Growth Fund.
— The Government wishes to see an orderly
transition from the current arrangements to the new arrangements.
INTRODUCTION
1. As the Strategy for Sustainable Growth
(published by the Government on 20 July 2010) makes clear, it
is the private sector that will provide the growth this country
needs. However, to support the private sector we need a growth
agenda where the Government's role is as an enabler of balanced
and sustainable growth. In line with this, the Coalition Agreement
committed the Government to ensuring that the economy is more
balanced with new business and economic opportunities more evenly
shared between regions and industries, ensuring that every person
has a stake in growth and makes the most of available resources.
ECONOMIC CONTEXT
AND THE
RATIONALE FOR
GOVERNMENT INTERVENTION
2. The Government has inherited an extremely
fragile economy, only just returning to growth after a deep recession
and with an unsustainable budget deficit. The Budget announced
urgent action to cut the fiscal deficit to ensure macroeconomic
stability. However, this means cuts in public spending and therefore
the recovery will have to be led by growth in the private sector.
As such, limited public sector resources need to be focused on
ensuring that the conditions are in place to facilitate private
sector growth.
3. The economy that emerges from recession
needs to be stronger and more resilient. The recession has showed
us that a lack of balance in the economy makes it vulnerable to
shocks, undermining its long-term growth potential. In future,
the Government needs to shape a rebalanced and fairer economy
that is more balanced between the private and public sectors,
more sectorally balanced, and less reliant on the Greater South
East. Both central and local government have important roles to
play in enabling recovery and economic rebalancing. They must
work with the grain of the market and focus on dealing with those
market failures which inhibit private sector growth and lead to
a lack of balance.
4. Efforts by the previous Government to
spread growth evenly were ineffective and inefficient. The Greater
South East still persistently outperforms the rest of the country:
gross value added (GVA) per head in the Greater South East in
2008 was £25,697 compared to an average of £17,601 in
the North, West and Midlands, and in recent years GVA per head
has been growing faster. This is not a new phenomenon and it is
believed that the current geographical pattern of economic activity
emerged in the 1920s, as traditional manufacturing with a strong
presence in the North and Midlands began to lose its prominence
in the British economy in favour of service sectors with a significant
presence in London and the South East. Government needs to help
places with declining industries to adjust and grow in new and
competitive sectors. Places are not bound by their economic history:
European regions with similar initial sectoral specialisations
in the early 1980s subsequently had very different economic outcomes.[1]
5. To secure the recovery and rebalance
the economy, Government must create an environment that nurtures
new business and encourages existing ones to grow. Ensuring that
firms have access to skilled labour and incentives to innovate
is important in driving this growth. Evidence shows that differences
in the levels of skills and innovation explain a large part of
the differing growth rates across the country. However, there
are other factors such as investment in infrastructure, access
to finance and planning laws which, although they do not drive
growth, can act as barriers—improvements in these areas
are likely to facilitate further growth where the underlying conditions
exist.
6. The Government believes that policy to
promote growth should champion the growth of successful places.
Agglomeration effects mean that businesses experience productivity
gains from locating near other businesses that benefit the whole
economy. It is important therefore that Government works with
these forces and promotes growing areas outside the Greater South
East with vibrant economies, particularly within the major cities.
Research by the Spatial Economic Research Centre suggests that
the underlying conditions for growth (such as a skills base and
innovation) exist in many cities outside London but that market
failures, such as a lack of affordable housing owing to planning
restrictions and inadequate transport infrastructure are holding
back growth and preventing people from moving in to take jobs.
Intervening to correct these would provide a high return means
of achieving growth for the whole country and for the areas surrounding
these cities.
7. For places that do not have the underlying
conditions for growth, achieving growth will be more difficult
and may involve dealing with complex conditions which prevent
businesses from growing and locating in a place. Evidence[2]
suggests that the primary focus should be on dealing with the
individual characteristics of people and businesses. This means
developing a skills base, improving managerial and entrepreneurial
skills and tackling the barriers people experience to becoming
employed—be they related to ethnicity, childcare, incentives
or transport.
8. To realise opportunities for growth it
is important both to ensure that policy is shaped to meet the
different needs of places across the country and that the full
geographic impacts of decisions are considered. Governance needs
to take place at the lowest level that captures all the relevant
externalities and economies of scale. To achieve this the Government
must delegate the governance of many policy areas to the functional
economic area at which markets operate, while establishing leadership
at national level for those policies that tackle national and
international market failures. There are also functions where
the skills or experience required is specialised, such that there
are economies of scale and scope in organising the provision of
these skills at the national level—often this will be because
the skills relate to large and complex markets where by their
nature impact on a national and global scale.
THE ROLE
AND EFFECTIVENESS
OF THE
REGIONAL DEVELOPMENT
AGENCIES
9. London and the South East as a whole
have been significantly more prosperous than the rest of the country
for at least the last 140 years.[3]
There have been periods where regions outside London and the South
East have caught up; however, after the 1970s the regions began
to diverge again due to renewed faster growth in London and the
South East. This divergence seems to have accelerated over the
last 20 years. The RDAs were created to be a business-led and
strategic driver of economic development in their regions, however,
since their inception the gap in growth rates between London and
the South East and the rest of the country has persisted. For
example, between 1989 and 1998 the growth rate of London and the
South East was on average 0.6% higher than the rest of the country.
And, between 1999 and 2008 the gap was the same, with the gap
even widening to 0.7% between 2002 and 2008.
10. Under the Regional Development Agencies
Act, each RDA has five statutory purposes to pursue in its area:
— to further economic development and regeneration;
— to promote business efficiency, investment
and competitiveness;
— to enhance the development and application
of skills relevant to employment; and
— to contribute to sustainable development.
In pursuing their purposes the RDAs have had
a range of local successes. However, as the economic analysis
indicates, economic performance across England has continued to
vary considerably with persistent differences remaining between
the North and South.
11. While the previous regional policy has
been unsuccessful in narrowing the differences in growth rates
across the country, the RDAs have had their remit extended on
a number of occasions, resulting in them having a range of responsibilities
that is so broad that they have not been able to focus on their
core objectives. Further to this, they have suffered from having
to operate within arbitrary boundaries that do not reflect natural
economic areas and from a lack of local accountability. Additionally,
the waste caused by a lack of focus on core objectives is reflected
in the evaluation of RDA spending which found that just 50% of
spending produced 85% of value added and meaning that 50% of RDA
spending had little measured impact on regional economies.[4]
12. As a result, the Government does not
believe that the current arrangements can be allowed to continue
as they are and must be improved to better promote growth as a
route out of recession.
THE GOVERNMENT'S
SOLUTION—THE
CREATION OF
LOCAL ENTERPRISE
PARTNERSHIPS
13. In line with its commitment to decentralise
power and its wider localism agenda, the Government wants to see
local civic and business leaders come together to build a common,
bottom up vision for what could be achieved in their area. In
particular, the Government is committed to supporting the creation
of local enterprise partnerships—joint local authority-business
bodies—to replace RDAs. The intention is that these partnerships
will lead efforts to improve the economic performance of the places
they represent. The partnerships will complement the Government's
actions at national level to rebuild and rebalance the economy,
both structurally and geographically, while supporting reductions
in the deficit. BIS and CLG are jointly leading the development
of policy on local enterprise partnerships.
14. The Secretaries of State for Communities
and Local Government, and Business, Innovation and Skills wrote
to local authority and business leaders on 29 June 2010 inviting
them to work with the Government to help strengthen their local
economies through creating local enterprise partnerships. The
letter encourages local businesses and councils to work together
to develop their proposals for local enterprise partnerships,
and asks for outline proposals to be received by 6 September.
Functions
15. The Government expects that local enterprise
partnerships will provide the strategic leadership for economic
development in the area that they cover. It is likely that they
will want to set out the local economic priorities as a vision
for economic renewal.
16. In support of this, it is expected that
partnerships will want to focus on creating the right environment
for business and growth in their areas, including tackling issues
such as planning and housing, local transport and infrastructure
priorities, employment and enterprise and the local action to
support the transition to the low carbon economy. It will be up
to the partnerships themselves to propose which functions to take
on and how they will fulfil them. However, it is likely that they
will want, in view of their importance to local economies, to
work closely with universities and further education colleges—who
the Government is freeing up to deliver the skills in demand locally—and
with other stakeholders.
17. To fulfil their proposed role it is
expected that local enterprise partnerships will take on some
of the functions currently being carried out by the RDAs. The
Government is already working with the RDAs to prepare for this
transition and is reviewing their functions as part of this. However,
the Government believes that some current RDA functions will be
best led at the national level under the new arrangements—these
include inward investment, sector leadership, responsibility for
business support, innovation, and access to finance. The Government
is keen to hear how partnerships see themselves providing a local
role in relation to the delivery of these functions in their area.
18. In terms of value for money, the Government
will expect local enterprise partnerships to demonstrate how they
will achieve value for money in the delivery of the functions
that they provide. For those functions that will be delivered
under national leadership, the Government will continue to endeavour
to provide them in the way that delivers value for money.
Structures, governance and accountability
19. The Government is concerned that some
local administrative boundaries do not reflect real functional
economic areas. Decisions made at those levels therefore are not
always co-ordinated or do not always take into account the effects
outside the decision-making areas. For example, decisions on strategic
planning issues need to take into account the impacts on the broader
functional economic area. As such, the Government is keen that
local enterprise partnerships reflect the natural economic geography
of the areas they serve, and cover complete functional economic
areas. It is expected that this will mean that partnerships will
include groups of upper tier local authorities, providing the
partnerships with the critical mass to be sufficiently strategic
to maximise their effectiveness.
20. It will be for those coming forward
with outline proposals to ensure that they line up with the boundaries
of neighbouring partnerships. Additionally, where it is clearly
and demonstrably the wish of the business and local authority
leaders to establish a local enterprise partnership for a functional
economic area or group of functional economic areas that match
the existing regional boundaries, the Government will not object
on grounds of geography. The Government will consider the outline
proposals it receives by 6 September and decide how to respond
to them.
21. With regard to the detailed governance
of individual partnerships, that will be for the partnerships
themselves to propose. However, the Government is of the view
that for the partnerships to be effective it is vital that civic
and business leaders work together. In most cases the Government
believes this would mean the partnership being led by a board
with an equal representation of business and local authority leaders
on it and with a prominent business leader as its chair, although
variants would be considered, such as where there is an elected
mayor responsible for the area, if that is the wish of business
and council leaders.
22. The Government anticipates that the
proposals it receives to form partnerships will include governance
structures that are sufficiently robust and clear as to ensure
proper accountability for the delivery of functions by partnerships.
Co-ordination between local enterprise partnerships
23. The Government does not believe in the
imposition of economic plans at the regional level. It does, however,
recognise the importance of ensuring that actions are co-ordinated
between neighbouring local enterprise partnerships where that
makes sense. The Government is keen that local enterprise partnerships
engage with their neighbours and is aware that a number of regions
are already considering what arrangements could be put in place
to help the partnerships in their area to co-ordinate their activity
where it is relevant to do so.
24. For those functions that will be led
at the national level the Government will want to ensure co-ordination
with any local delivery.
Funding
25. Subject to what is said below about
the Regional Growth Fund, the detailed funding of local enterprise
partnerships is a matter that will be considered in the Spending
Review.
26. The 2007-13 Structural Funds programmes
(including the ERDF programmes within England) continue to operate.
The Government is working with partners on developing alternative
delivery structures for the ERDF programmes in England following
the abolition of the RDAs.
THE REGIONAL
GROWTH FUND
27. The Chancellor of the Exchequer announced
in the Budget that the Government would create a £1 billion
Regional Growth Fund in 2011-12 and 2012-13 to support people
and places to adjust to reductions in public spending. This is
a pre-Spending Review commitment and other allocations of funding
for economic development will be considered in the Spending Review.
28. The Government launched a consultation
on the operation of the Growth Fund on 23 July. The consultation
makes it clear that local enterprise partnerships will play an
important role in bringing together bids for the areas they cover
and that proposals from partnerships will be looked upon favourably—particularly
where they are put forward as a holistic package on behalf of
an area and demonstrate that they have the support of the local
community.
29. This does not mean that access to the
fund is restricted to local enterprise partnerships. Private sector
companies and other public-private partnerships will be invited
to bid for the fund independently, but where such proposals are
received the Government will wherever possible seek the view of
the local enterprise partnership for the area.
30. The Government believes that tasking
local enterprise partnerships with a lead role in co-ordinating
funding through the Regional Growth Fund demonstrates the Government's
commitment to decentralisation and will encourage local authorities
and businesses to form effective partnerships across England.
NEXT STEPS
AND TRANSITIONAL
ARRANGEMENTS
Sub-national growth White Paper
31. As set out in the Budget, the Government
will publish a White Paper on sub-national growth. The White Paper
will:
— set out the detailed position on how
the Government will work with local enterprise partnerships following
its receipt of the outline proposals, and the next steps involved;
— set out the Government's response to
the current consultation on establishing the Regional Growth Fund,
including when the bidding process will begin;
— consider the most appropriate framework
of incentives for local authorities to support growth, including
exploring options for business rate and council tax incentives,
which would allow local authorities to reinvest the benefits of
growth into local communities; and
— promote the role for a simplified planning
consents process, as part of the shift to a more locally driven
planning regime, where there is potential or need for business
growth—particularly through the use of Local Development
Orders.
Timetable and transitional arrangements
32. The Government recognises the need for
an orderly transition from the current arrangements to the new
arrangements already announced. Such a transition is important
in terms of supporting growth and protecting the recovery, but
also in terms of providing certainity so far as possible to those
employed by the RDAs and those involved in projects that are being
funded by the RDAs.
RDA abolition
33. As statutory bodies, legislation will
be required to abolish the RDAs and the Government is considering
the best legislative vehicle for this. The expectation is that
the RDAs will be wound up by April 2012. However, the abolition
will not be simple as the RDAs have complex portfolios and there
are a substantial list of long-term investments to be worked through,
much of which is currently held in over 40 RDA subsidiary bodies.
Plans are being developed to deal with this. We will ensure that
the legislation for abolition gives sufficient flexibility for
dealing with managing out residual assets, liabilities and commitments
beyond March 2012.
34. Consistent with all parts of Government
the RDAs have been asked to exercise expenditure restraint.
35. We will work with the Greater London
Authority and the London Development Agency to manage the transition
of assets and liabilities associated with changes to the delivery
of economic development functions in London.
Creation of local enterprise partnerships
36. The Government will legislate as necessary
to allow the creation of local enterprise partnerships and to
allow the partnerships to take on the functions intended for them.
The Government is considering the best legislative vehicle for
this.
20 August 2010
1 Overman and Puga (1999), Unemployment clusters across
European regions and countries. Back
2
The richest area has wages 67% greater than the poorest; but when
the effect of individual characteristics are stripped out, the
gap due to place is only 16%. Back
3
BIS calculation on data from Geary and Stark (2010), Crafts (2004a
and b), Lee (1971) and ONS. Back
4
BIS calculation based on PricewaterhouseCoopers (2009), Impact
of RDA spending volume 1. Back
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