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


Written evidence from Advantage West Midlands

EXECUTIVE SUMMARY

  The functions of the new LEPs and ensuring value for money:

    — Given the major challenges faced by the West Midlands, the new arrangements that emerge need to be at least as effective as those we have at present;

    — LEPs in the West Midlands must therefore be focused upon creating the optimum environment for business and helping to address the Region's longstanding economic challenges;

    — Some functions can be delivered more effectively and efficiently on a cross-LEP basis;

    — Rigorous resource management processes will be required if LEPs are to be as cost effective as the current arrangements;

    — Interventions must be evidence-based and focused on achieving maximum impact;

    — Local Enterprise Partnerships will need the certainty of core funding to be effective.

  The Regional Growth Fund (RGF), and funding arrangements under the LEP system:

    — Transformational projects take time to develop and deliver;

    — Resources should be focused on those regions most in need of assistance.

  Government proposals for ensuring co-ordination of roles between different LEPs:

    — Co-ordination of roles across LEPs will be more difficult the greater the extent to which the functions and coverage of LEPs are left to local determination;

    — Effective and efficient delivery of nationally-led functions will also be more challenging if the functions and coverage of LEPs are left entirely to local determination;

    — Some functions can be delivered more effectively and efficiently on a cross-LEP basis.

  Arrangements for co-ordinating regional economic strategy:

    — Mechanisms must be developed to direct investment and deal with spillovers that have a cross-LEP impact.

  Structure and accountability of LEPs:

    — Effective cross-Local Authority working is essential, but Business must play the crucial role;

    — LEPs need effective leadership to address the major challenges faced.

  The legislative framework and timetable for converting RDAs to LEPs, the transitional arrangements, and the arrangements for residual spending and liability of RDAs:

    — The process for moving from the current to the new arrangements must be rapid and well executed to avoid further deterioration in the prospects for the West Midlands economy.

  Means of procuring funding from outside bodies (including EU funding) under the new arrangements:

    — To continue to maximise the benefits to national and regional economies from existing European funding (principally ERDF) it is important to minimise the risk of disruption to current implementation arrangements;

    — Securing private sector engagement requires credibility and coordination.

1.  INTRODUCTION

  This submission has been prepared at the request of the Committee by Advantage West Midlands. It is structured around the seven topics outlined in the Committee's initial call for evidence and is based on more than eleven years experience of promoting sustainable economic growth and regeneration in the West Midlands. During this time, the Agency's interventions have delivered a significant and positive impact on the regional economy, returning £8.14 for every £1 invested. The performance of the Agency has also been independently assessed on two separate occasions—in 2006-07 and 2009-10—by the National Audit Office. In both assessments, the Agency was awarded the maximum possible performance rating, making us one of only two RDAs having achieved the maximum NAO rating twice.

2.  THE FUNCTIONS OF THE NEW LOCAL ENTERPRISE PARTNERSHIPS (LEPS) AND ENSURING VALUE FOR MONEY

  Given the major challenges faced by the West Midlands the new arrangements that emerge need to be at least as effective as those we have at present—The economy of the West Midlands has been in relative decline since the 1970s. In contrast to every other UK region, total private sector employment in the West Midlands contracted between 1998 and 2007. The Region was also hit very hard by the recent recession with unemployment rising to 10.4% at its peak, higher than in any other UK region.

  LEPs in the West Midlands must therefore be focused upon creating the optimum environment for business and helping to address the Region's longstanding economic challenges—Specifically, the functions for LEPs should include:

    Local leadership—Developing and maintaining an evidence-based understanding of the issues and opportunities affecting the economy in their areas, and the interrelationships with other LEP areas. Developing a clear, focused and deliverable framework for addressing these issues and opportunities—concentrating only on those actions where the LEP can make a difference through delivery or influence.

    Planning and housing—Establishing and implementing a proactive planning regime to encourage businesses to expand and progress and ensuring the provision of appropriate quantity and types of housing in the right places to support economic growth.

    Transport and infrastructure project delivery—Developing and delivering transport projects and other infrastructure priorities necessary to support economic growth. Seeking innovative ways of funding the required investments.

    Employment—Supporting the creation of employment opportunities by improving the conditions for business start-up and growth. Influencing providers of education, basic skills and training to improve the employability of the local workforce as well as the need for better retention of graduate-level employees.

    Enterprise—Ensuring that nationally-led provision of advice and support for new and existing businesses is adequately tailored to the needs of the local business community and the local economy.

    Transition to a higher value economy—Maximising opportunities around existing local sector specialisms and local markets.

    Funding—Accessing and ensuring optimal use of appropriate sources of funding to deliver the above, including the Regional Growth Fund and European funding—this may be through cooperation or through a single route where most efficient and effective.

  Rigorous resource management processes will be required if LEPs are to be as cost effective as the current arrangements—In July 2009 the Treasury benchmarked RDAs' back office costs and the productivity of those functions. Overall the Agency was the most cost effective RDA. In creating five or six LEPs covering the West Midlands, care will be needed to ensure that overall administration costs, as a proportion of investments delivered, are not greater than in the present situation.

  Some functions can be delivered more effectively and efficiently on a cross-LEP basis—This is the case where interventions have a scale of impact, or require co-ordination, across LEP areas; where interventions can be more efficiently delivered (because of economies of scale or the need for specific expertise or capacity) on a collective basis; and/or where national frameworks or funding can be more effectively informed and influenced through collective working. Specifically, the functions which can most effectively and efficiently be delivered on a cross-LEP basis are likely to include:

    Strategic leadership for common cause and influence—Providing a single voice on shared issues where national frameworks or funding can be more effectively informed and influenced by working collectively than by working on an individual basis.

    Support for innovation and technology transfer—Influencing and delivering nationally-funded programmes to support and encourage technology transfer and research and development, to improve business competitiveness in the West Midlands.

    Support for key sectors (including low carbon and specialist business support)—Influencing and delivering nationally funded support to—and building and maintaining relationships with—nationally identified key sectors and strategic businesses based in the West Midlands, including the supply chain for globally focussed industries such as aerospace and automotive.

    Inward investment—Hosting an inward investment and aftercare team with specialisms suitably aligned to the West Midlands' strengths in key sectors/technologies, linked to national priorities.

    Advocacy of specialist skills and training—Working with business and individual LEPs to collectively articulate to providers the demand for sector specific and high level skills and training, focused on the needs of businesses in the West Midlands.

    Infrastructure— Providing a mechanism for engagement with government and national private sector infrastructure service providers on key and universal infrastructure challenges facing the West Midlands, including Next Generation Access Broadband and distributed energy networks.

    Evidence base, business intelligence and economic analysis—Developing and maintaining an evidence base and expertise focused on business-relevant issues that can be utilised and shared by LEPs. This would also include providing the capacity to appraise and evaluate investments.

    Response to economic crises—Providing a bridge between national interests and LEPs in response to economic shocks that have an impact across LEP areas and/or require specialist input (for example, the closure of a major employer or an incident that presents a major disruption to normal business activity).

  Interventions must be evidence-based and focused on achieving maximum impact—Advantage West Midlands has undertaken comprehensive evaluation of its interventions since 2002. As well as demonstrating the Agency's impact (overall generating £8.14 for every £1 invested), these evaluations contain valuable evidence about what works. For example:

    Inward investment—The Agency's inward investment programmes have generated the highest rates of return. Evaluation covering the period 2004-09 shows that £9.8m of inward investment projects generated £216 million of Gross Value Added (GVA) for the economy and has created and safeguarded 2,072 net jobs to date. The overall rate of return is estimated at £22 for every £1 invested based on outcomes achieved to date. The results also highlight a range of spill-over benefits, particularly in relation to outsourcing business functions to UK suppliers and increasing the level of R&D activity/joint-research within the Region. We help inward investors understand the value of setting up in the region and can support their arrangements for finance, workforce and facilities. One example—in the digital economy—is Rare Games, a Microsoft Games Studio. In 2010 we helped Rare Games access the existing digital community and university resources, and then supported them finding premises to set up in Birmingham, bringing 90 high value technology gaming jobs to the West Midlands.

    Finance for business—Evaluation of the Selective Finance for Investment scheme in the West Midlands (the predecessor of the Grant for Business Investment), over the period 2002-09 indicated that overall, net GVA generated is £679 million, equivalent to a return on investment of £12.50 for every £1 invested.

    Land and buildings for economic growth—The GVA created by our land and property projects funded over 2002-07 amounts to £328 million. One project in particular which has delivered good returns is the redevelopment of Fort Dunlop—the iconic building which sits alongside the M6 motorway, just north of Birmingham City Centre. Prior to redevelopment, in 2005, it had remained vacant and derelict for nearly 25 years. The Agency refurbished and extended the building with joint venture partner Urban Splash. It is now successful mixed use scheme housing over 50 companies in office, retail and leisure uses.

3.  THE REGIONAL GROWTH FUND (RGF), AND FUNDING ARRANGEMENTS UNDER THE LEP SYSTEM

  Local Enterprise Partnerships will need the certainty of core funding to be effective—LEPs will need sufficient capacity and staff with the requisite skills and expertise to understand and prioritise the issues facing their area. The basis on which any core funding is allocated to LEPs, however, needs to take account of the objectives of the RGF. In particular, more resource should be allocated to those areas—such as parts of the West Midlands—most in need of support in making the transition to private sector-led growth. For example:

    — The Agency established six sub-regional Regeneration Zones in the West Midlands, to tackle the highest concentrations of deprivation, delivering regeneration and linking areas of need to areas of opportunity. Over 300 projects were developed and delivered through the Zones mechanism. The Agency's expertise and management, combined with funding capacity locally was critical to their success. The Agency contributed significant resources to developing the capabilities of Zone staff (typically in local authorities) to develop funding bids and drive effective sub-regional collaboration. This enabled local development of—and support for—locally based schemes including Camp Hill (Warwickshire), Wolverhampton Science Park, Chatterley Valley (North Staffordshire) and the Rural Enterprise Centre Network (Shropshire and Hereford). Without central resources from the Agency to support local scheme development, the design, approval and subsequent delivery of these initiatives would have been impossible.

  Transformational projects take time to develop and deliver—The current proposal is for the RGF to run for just two years, though it seeks to fund transformational projects of scale. Two years is a very short window in which to develop and deliver truly transformational projects. For example:

    — Major transformational projects such as the redevelopment of Birmingham New Street Station, the redevelopment of Longbridge, or the new Manufacturing Technology Centre (MTC) need time. The New Street and Longbridge projects were five years in development before any construction work commenced. Site acquisition, design work, public consultation and local planning requirements take time to complete, as does the process of building support from key local and national partners. On the MTC initial scoping and work with partners including Rolls Royce, Airbus UK, their supply-chains plus three universities took 18 months before agreements were signed to commence delivery of this £40 million world-class manufacturing research and technology centre. The economic impact of schemes of this scale is only subsequently realised over a period of years. Building and testing the economic case to maximise the impact of interventions on this scale cannot and should not be rushed.

    — Resources should be focused on those regions most in need of assistance—Rather than being open to all areas of England, access to the RGF should be restricted to areas outside of the "greater south east". This would enable resources to be more efficiently targeted on those areas—such as parts of the West Midlands—most in need of support in making the transition to private sector-led growth. For example, the City of Worcester currently has the third highest proportion of employment in the public sector in the region.[5] The Agency has provided significant support to develop the existing business base in Worcester—for example we are working closely with Worcester Bosch to help their expansion into renewable technologies. We have coordinated all other public sector bodies with the aim of developing a new manufacturing and R&D facility for the company, to create 2,000 jobs. We have worked closely to support the company with funding for their new premises, securing the relevant planning consents and supply chain development. This an excellent example of the Agency's ability to provide leadership and real value added to develop a project relevant to the regions priorities and governments policy agenda. This is openly acknowledged by the public and private sector project partners.

4.  GOVERNMENT PROPOSALS FOR ENSURING CO-ORDINATION OF ROLES BETWEEN DIFFERENT LEPS

  Co-ordination of roles across LEPs will be more difficult the greater the extent to which the functions and coverage of LEPs are left to local determination—If LEPs emerge on an essentially voluntary basis, there can be no guarantee of nationwide coverage and the scope for co-ordinating activity across LEPs will be reduced. There is also a danger of unnecessary duplication of effort and wasted resources as every LEP area seeks to become a centre for low carbon or medical technologies. RDAs have handled this sort of issue positively and cost effectively—eliminating duplication by taking lead roles in different industrial sectors and markets to give a clear signal to business about an area's strengths and commitment. There are a number of sector based collaborations which have adopted this approach including the Low Carbon Economic Area for Advanced Automotive Engineering which brought together leading private sector and university expertise as well as the multi partner investment into the Manufacturing Technology Centre to provide facilities and skills to support industrial companies and their supply chains to bring about major improvements in manufacturing competitiveness.

  Effective and efficient delivery of nationally-led functions will also be more challenging if the functions and coverage of LEPs are left entirely to local determination—A range of Government Departments used Regional Development Agencies (RDAs) to help deliver their objectives. At times it proved difficult for Government to provide co-ordinated planning guidance to the nine RDAs. There is a risk that the difficulties of "tasking" delivery bodies will be multiplied many times through the move to working with what could be a patchwork of LEPs, each differently constituted and with different levels of capability. There is a further risk in that those areas facing the most intractable problems may also be the areas least able to develop effective LEP arrangements.

  Some functions can be delivered more effectively and efficiently on a cross-LEP basis—As noted above, on grounds of efficiency and effectiveness, some functions should be delivered on a cross-LEP basis. These arguments make sense both from an individual LEP perspective and in terms of the effective and efficient delivery of nationally-led functions The case for sub-national co-ordination is exemplified through the development of localised broadband and renewable energy infrastructure solutions. Broadband Delivery UK (BDUK) has identified a need for sub-national intervention to support the roll out of universal standard and superfast broadband— understanding localised cross local authority or delegated authority boundary issues and business growth needs, providing a route to Internet Service Provider engagement/negotiation and intervening in planning and investment solutions. In addition, to meet future energy needs and to contribute to national carbon reduction targets, the West Midlands (as all regions) needs to establish secure, reliable, integrated renewable energy infrastructure. However, given geographical constraints, the West Midlands possesses a limited ability to establish large scale renewable energy infrastructure such as on or offshore wind or hydro electricity. Therefore, small scale renewable energy solutions will be critical, requiring an integrated approach to implementation across rural and urban areas to provide surety of access to required fuels (energy crops, waste etc) and the scale of output required to support economic growth.

    — The growth we need nationally will require Government to work closely with the large strategic private sector employers—who have a presence across different regions and sub-regions. Examples in the West Midlands include Jaguar Land Rover, Ericsson, Fujitsu, Goodrich, Caterpillar, Stadco, BMW, Specialist Computer Holdings and GKN. Under the present arrangements the Agency provides a single point of contact with these companies. More widely, the Agency currently "account manages" over 500 businesses across the region, to increase their productivity through providing knowledge and awareness of government funded business support, linking them to networks, and informing them of suitable finance and innovation opportunities. This level of relationship management will be difficult to deliver so effectively through multiple LEPs.

    — Business supply chains do not reflect administrative boundaries—they are increasingly national and global. To create significant collaboration between producers and/or along supply chains it is essential to coordinate activity above local level. RDAs have dealt with this by having one RDA lead for different sectors to drive cross-boundary collaboration—for example the Agency has led on infrastructure and digital industries. We also collaborate internationally. For example, through the Climate KIC we are a partner in a consortium that brings together six major European regions, working with five of Europe's top universities including Imperial College and ETH Zurich and ten major companies including CISCO, Shell, Thales and Bayer.

5.  ARRANGEMENTS FOR CO-ORDINATING REGIONAL ECONOMIC STRATEGY

  Mechanisms must be developed to direct investment and deal with spillovers that have a cross-LEP impact—In the past, Regional Economic and Regional Spatial Strategies provided the strategic frameworks for guiding public and private sector investment. For example, in the West Midlands we were able to maximise impact by focusing limited public sector investment on 20 Impact Investment Locations. As budgets continue to tighten, the ability to articulate and agree evidence-based investment priorities on a cross-LEP basis is more important than ever. A joined up approach across LEPs will be crucial to deliver sustainable sub national economic growth. For example:

    — For some projects, for example, the proposed High Speed Rail development, it is vital that partners in the West Midlands collectively and proactively get behind a single approach, to secure the development, recognising that some parts of the region will benefit more than others. If the development is to be successful, co-ordinated sub-national engagement is required across a number of LEP areas with a broad range of public and private stakeholders—addressing localised blight and environmental issues generated by the rail line, managing displacement of growth from areas not directly served, and maximising the economic potential of the rail investment through ensuring an integrated approach to transport and economic development. To date the Agency has provided the facilitation and act as the interface between national (HS2 Ltd and Department for Transport) and sub-national partners (local authorities and the private sector). We have played a key role in maintaining a unified approach in the West Midlands. We have also recently been working with the private sector to inform them of the significant business benefits that would result from the (£30 billion) investment in high speed rail, and with local authorities and other public agencies, to facilitate interconnectivity and maximise the economic impact.

6.  STRUCTURE AND ACCOUNTABILITY OF LEPS

  Effective cross-Local Authority working is essential, but Business must play the crucial role—Local Authorities must work effectively across boundaries. It remains to be seen how the proposals for elected mayors in Birmingham and Coventry will impact on LEP structures and accountability. Our soundings with Business Leaders indicate that they are prepared to get involved in trying to turn around the West Midlands economy, provided they are engaging in business-like structures and processes; the needs of business are at the front of everyone's mind; and their efforts make a difference. Government and local authorities must work actively with business (businesses as well as business representative organisations) to make the new structures work.

  Most importantly, LEPs need effective leadership to address the major challenges faced—Each LEP should be seen as the centre of a powerful guiding coalition, engaging all the principal players in the area's economy. In addition to business and local authority leaders, these coalitions are likely to include universities, colleges, the health and third sector, politicians, schools and other players.

7.  THE LEGISLATIVE FRAMEWORK AND TIMETABLE FOR CONVERTING RDAS TO LEPS, THE TRANSITIONAL ARRANGEMENTS, AND THE ARRANGEMENTS FOR RESIDUAL SPENDING AND LIABILITY OF RDAS

  The process for moving from the current to the new arrangements must be rapid and well executed to avoid further deterioration in the prospects for the West Midlands economy—RDAs are complex, multifaceted organisations, responsible for a broad agenda and the investment of significant sums of money. Specific issues arise in relation to:

    Transfer of programme and assets—The transfer of residual RDA programmes and assets to LEPs will be a complex process that, if carried out hastily, could be costly, impact negatively on delivery, harm partner relations, and risk losing knowledge and expertise embedded within the RDAs. This will take time to package within RDAs prior to transfer, and significant time, effort and capacity in LEPs to digest, understand and effectively continue delivery once the transfer has taken place. There is also an issue around how to deal with "closed" schemes where certain funding agreements have conditions that require managing long after the official project end date. It is vital that early and careful consideration is given to the transfer of RDA assets such that their value can be retained for the good of localities as well as enabling the value of those assets that are nationally significant to be maximised—and to arrive at a sensible approach for disposing of assets where appropriate. The final governance arrangements for closing down RDAs also need to be considered, to ensure the right balance of responsibilities between the RDA Board, the Accounting Officer and the Department for Business Innovation and Skills.

    Requirements of LEPs—LEPs need to be in place and be fully accountable structures before residual RDA programmes and assets can be transferred to them. The pace at which this happens is likely to vary, as will the time taken for LEPs to embed. This will influence the RDA wind down process and ultimately the continuity and performance of service to businesses, individuals and communities.

    Requirements for nationally-led arrangements—Similar to the case for transfer to LEPs, for those areas that government wishes to see returned to nationally-led delivery arrangements, Departments will need to be confident that appropriate alternative mechanisms are in place to continue delivery and secure outcomes. They also need to be confident that activity will not retreat into silos in the absence of an overarching strategic coordination body that joins up different policy functions in order to drive sustainable economic development. Nationally—led functions must be delivered in a way that facilitates integration both across Departments and between national and local levels.

    Maintaining delivery by RDAs during the wind down period—Alongside the transition process, there remains significant committed RDA investment still to be delivered prior to closure in March 2012. It is imperative that the move to the new arrangements does not put at risk the successful delivery of these investments, jeopardising the outcomes they were designed to achieve. Individual RDA structures must remain viable while no alternative is in place if these ongoing investments are to be successfully delivered. This will be a significant challenge and risk, particularly given issues of staff retention.

    Legacy, learning, capacity and expertise—Best practice suggests that the learning and experience gained by RDAs and RDA staff should not be lost. Thought must be given to how this can be effectively retained and the benefits maximised through the transition.

8.  MEANS OF PROCURING FUNDING FROM OUTSIDE BODIES (INCLUDING EU FUNDING) UNDER THE NEW ARRANGEMENTS

  To continue to maximise the benefits to national and regional economies from existing European funding (principally ERDF) it is important to minimise the risk of disruption to current implementation arrangements—In particular:

    Lisbon Agenda—The Programme must be structured around delivery of the Lisbon agenda (at least 75% of expenditure on activities related to enterprise, innovation and the knowledge economy). The West Midlands Programme currently has a target of 87.5%.

    Critical mass—Effective management of ERDF programmes requires a critical mass of experience and subject expertise in order to ensure controlled delivery and to minimise irregular expenditure and grant recovery. This is a relatively scarce resource which should not be further disaggregated if efficiency and effectiveness are to be maximised.

    Risk of lost funds—Any changes in the Programme content or management arrangements must be carefully planned and tightly managed. The European Commission are the prime stakeholder in the Structural Funds programmes and they possess the authority to suspend payments if at any point they are not content with the management and control arrangements. It took almost two years to agree the current arrangements—a significant change, mid-programme, would result in a similarly protracted exercise and leading to delays in delivery and ultimately significant funds being returned to Europe as a consequence.

  Securing private sector engagement requires credibility and coordination—RDAs have a track record of establishing and maintaining credibility with private sector investors, both in terms of "place-making" and in securing large scale private sector investment. To do this effectively requires critical mass and credibility. The public/private property partnership PxP the Langtree Group Plc is a one example of how we have used our credibility to effectively engage the private sector. PxP is our joint venture limited designed to accelerate regeneration and maximise private sector investment and expertise in a range of key projects. It takes the form of an asset backed property vehicle and was created in April 2007 with £30 million of equity investment available. Since the initial business plan was agreed there has been a significant downturn in the UK's property sector. Nevertheless, construction on the original portfolio of investments is still on track and works will commence on a number of sites. Other new opportunities are already identified for PxP that will lead to further development and the creation of employment opportunities—at a time when most private sector property have been completely inactive as a result of the recession and difficulties in securing debt finance.

12 August 2010






5   32% for the City of Worcester, in comparison to 27% in the West Midlands region and 26% English average. Source: the Annual Business Inquiry (ABI) 2008 Back


 
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