Written evidence from the EEF
INTRODUCTION
1. EEF welcomes the opportunity to respond
to the first inquiry of the new BIS Select Committee. Our membership
of 6,000 manufacturers, who will be key to delivering a more balanced
economy, and our strong regional presence throughout the country
leave us well-positioned to respond to this inquiry. We also see
this as a particularly important inquiry, given that we are in
the early stages of economic recovery and that the government
has a crucial role in determining how well it is sustained.
2. Generating sustainable growth and increasing
employment and investment are clear priorities. The new coalition
has begun to set out some of its policy thinking about how the
UK's business environment can best support companies to grow and
invest in the UK. Central government controls many of the levers
that deliver the right business conditions such as fiscal policy
and the better regulation agenda. But sub-national governance
structures—closer to the needs of communities and local
labour markets—also play a role in creating the conditions
for growth.
3. Over the past decade Regional Development
Agencies (RDAs) have bridged the gap between national policy and
strategy and local variation and delivery. The RDAs were intended
to take a strategic overview, in addressing economic needs across
local authority boundaries, with the latter lacking critical mass
and resources.
4. The transition from RDAs to Local Enterprise
Partnerships is intended to deal with the democratic accountability
that the RDAs lacked. However, the RDA network chalked up both
successes and failures in its 12 year history. It is therefore
important to look at the strengths and weaknesses of the RDAs
as we move towards a new system of sub-national governance.
5. RDAs improved the understanding of local
economies and their connections with businesses and helped to
identify and deal with the consequences of economic shocks. They
were also able to catalyse delivery of infrastructure that would
have economic benefits beyond Local Authority boundaries and took
a strategic approach to planning decisions.
6. The coalition government is seeking to
address concerns with the democratic deficit and the fact that
some of the geographical boundaries of RDAs (particularly in the
Southern half of England) were administrative constructs rather
than meaningful economic areas. However, while these may be legitimate
issues to address, they were not the primary reasons for why RDAs
were not more effective. Many of the problems associated with
RDAs were associated with a continued expansion of their objectives
by central government, leaving them with a confused remit. Too
often they were seen as the default delivery body for central
government. For example, it was entirely appropriate to give RDAs
the task of opening up the procurement opportunities to business
arising from London hosting the Olympics. However, it was not
appropriate to give them the job of using the Olympics to promote
healthier lifestyles. The lesson is clear—sub-national economic
bodies such as RDAs can be effective when they are focussed on
a clear set of objectives geared to realising the economic potential
of their area.
7. EEF has therefore argued for some time
for reform of RDAs, with regional economic bodies refocused on
their original remit of promoting economic growth in their area.
Therefore the coalition's proposal to encourage business and local
government to work together to set out a vision for their economy,
identify what is needed to achieve it and set out a plan for delivering
it is a good one. However, for the LEPs project to succeed, a
number of criteria will need to be met. We see the following as
particularly critical:
— Clarity on what is needed to rebalance
our economy.
— Getting the right balance between central
and sub-national government.
— Ensuring LEPs have a clear remit and
are focused on the right issues.
— Achieving sufficient critical mass for
LEPs.
— Securing engagement from business.
— Delivering value for money.
REBALANCING THE
ECONOMY
8. There is a wide acceptance of the need
to re-balance our economy and lay the foundations for sustained
economic growth. There are many areas where the balance needs
to shift—between the public and the private sectors, between
consumer spending and investment and exports, between the different
business sectors (with manufacturing playing a greater role) and
between different regions of the country. These shifts are never
easy to achieve, particularly at a time when economic recovery
is still uncertain and public spending is set to face significant
cuts.
9. This raises questions about the role
of government. In particular, it requires government to become
a more sophisticated and strategic partner with business, doing
more with less. This means refocusing activity on the areas where
it can best add value, ensuring the structures it sets up minimise
waste and direct resources to where they are most needed and providing
the strong signals and clear leadership to business.
10. In achieving this rebalancing, we see
the following areas as particularly critical:
— Leadership from government on the opportunities
in key sectors and technologies and the strategies it will develop
to ensure that the UK exploits them.
— Support in developing export markets,
particularly in fast-growing emerging economies.
— Access to the right forms of finance
that will fund the range of investments that manufacturers will
need to undertake to be competitive, particularly the riskier
forms of investment with longer-term and more uncertain pay-offs.
— Relevant and easy to access business
support, including the day-to-day information supplied by Business
Link and the more intensive intervention that helps firms to improve
their efficiency provided by organisations such as the Manufacturing
Advisory Service.
— Technology and innovation support.
— A simple to access and use skills system
that responds rapidly to the needs of employers and learners.
GETTING THE
RIGHT BALANCE
BETWEEN CENTRAL
AND SUB-NATIONAL
GOVERNMENT
11. We believe that the areas listed above,
as well as inward investment, should be managed on a national
basis. In some cases, this represents a more centralised approach
than the one that has operated with RDAs. This will help to avoid
some of the problems associated with RDAs and to allow LEPs to
focus on where they can be most effective.
12. In the areas listed above, a national approach
should be adopted for the following reasons:
— It avoids the duplication of resources
in setting up structures across the country to perform the same
management role.
— A common approach across the country,
particularly in areas such as sector leadership, provides the
clear signals to the companies, particularly the major ones, who
will be investing in growing technologies and markets and driving
these sectors forward.
— Differences in business needs, particularly
in areas such as skills, are driven by differences between the
industry sectors they occupy rather than by geography.
— In many key areas, industry benefits
from a national approach, For example, EEF's research on innovation
has shown that manufacturers tend to take a national or international
approach to partnering with universities, looking to work with
those whose strengths meet their particular needs. A regional
or even sub-regional approach, that seeks to partner firms with
local institutions, is therefore not the most effective.
— In areas such as inward investment, the
understandable desire of RDAs to promote the strengths of their
particular area, created confusing messages for inward investors
and wasted resources by setting up competing offices in target
markets abroad.
A CLEAR REMIT
FOR LOCAL
ENTERPRISE PARTNERSHIPS
13. In simple terms LEPs should focus on one
issue and stick to that remit—supporting economic development
in their locality. They need to be able to set out a vision for
what their economy can achieve and a plan for delivering this.
They should not be involved in issues such as non-economic regeneration,
and measures to tackle social exclusion. These are issues that
are best left to other bodies such as local authorities and their
local partners, who are much better placed to deliver solutions
closer to those that need them. By concentrating on those issues
on which they have a good chance of making an impact; they will
also stand a much better chance of persuading local businesses
to engage with them.
14. The remit for LEPs to create the right
environment for business and growth set out in the Secretaries
of States' letter, is therefore the correct one with a focus on
planning, local infrastructure housing and business start-ups.
These issues cut across local economies and travel-to-work areas
and require solutions coordinated by local authorities and the
private sector. Together, they can act to address infrastructure
bottle necks and improve transport links or facilitate networks
of Business Angel investors and mentors to support business start-ups.
In many cases, this will involve working closely with central
government on issues that they have identified as a priority for
realising the economic potential of their area.
15. They also need to able to take on some
of the important work currently carried out by the RDAs and Government
Offices. This includes maintaining top quality intelligence on
key local businesses, with a good understanding of the economic
implications for the local and national economy where key companies
are at risk. Coupled with this, they must have the ability to
anticipate and respond quickly to economic shocks.
16. It is also important that LEPs focus
mainly on catalysing and commissioning. In this respect, LEPs
should learn from where RDAs achieved some success—by taking
a strategic overview of their areas' needs, using their influence
and the funding that they could contribute to specific projects
to bring the different parties together and to commission the
work that was required. By developing this strategic positioning
and understanding, they also should also be equipped to take the
lead on developing recovery efforts from economic shocks and emergencies.
They would also need to be able to bid for and disperse funds
from European Union Programmes (eg European Regional Development
Fund). Legally, these programmes need to be administered and evaluated
on a regional basis and the UK would lose significant funds if
it was not able to do this.
17. There are also some areas in which LEPs
should avoid getting involved. For example, we are concerned that
LEPs could recreate the proliferation of products to support business
that has recently been addressed by the Business Support Simplification
Programme. LEPs should only consider commissioning additional
products if they have the clear support from local businesses,
which are also willing to contribute funding towards them. However,
these products should not receive funding from central government.
18. They should also not get involved in
directing skills provision, except for any immediate remedial
action following an economic shock. As indicated above, skills
issues are best approached by looking at the needs of individual
sectors. In addition, the evidence from the UK and abroad is that
the needs of employers and learners are best met by a system that
responds quickly to their needs rather one that seeks to predict
and provide skills and training. The objective of skills policy
should be to create a fully functioning market for training, with
informed learners and employers, responsive providers and a system
of funding that follows demand. The Department for Business is
currently consulting on simplification of the skills system in
England to achieve this aim. We therefore do not need another
tier of government in an already cluttered landscape.
ACHIEVING CRITICAL
MASS
19. LEPs will only be able to deliver on the
objectives set out above and secure engagement from business if
they achieve sufficient critical mass. This is vital if they are
to take a strategic overview of their areas' needs and to have
a meaningful impact on them. For example, a small body compromised
of a number of local authorities is unlikely to have the clout
to influence major issues such as transport and other infrastructure.
The tight public spending situation means that the resources that
local authorities will be able to contribute to LEPs will be constrained
by the likely cuts that they will experience in the CSR, while
any upfront funding available to finance, for example, a secretariat
or develop expertise in economic development, will be very limited.
The Regional Growth Fund, a pot of £1 billion spread over
two years and available to organisations other than LEPs, is also
likely to be very thinly spread.
20. In putting together their bids to central
government, potential LEPs need to learn the lessons from Learning
and Skills Councils. The former Learning and Skills Council provides
a good history lesson of establishing sub-national arrangements
that lack sufficient scale. In 2001 the LSC was established as
national body with regional committees. By 2004 nine regional
offices were put in place—in part to engage with the RDAs—but
also to manage the implementation of LSC strategy. They were also
necessary to improve the balance between the national framework
and policy and local operations and delivery.
21. Arguments have been put forward for a small
"under-arching" regional body to support and coordinate
the work of the LEPs. We can understand why these bodies might
be needed if we end up with a large number of LEPs that lack the
critical mass to achieve the objectives that we have set out in
our submission. However, we would regard such an arrangement as
a sticking plaster, introducing more complexity into the system
and a sign that LEPs had failed to achieve sufficient critical
mass. England is not a large country and we believe that the optimal
number of sub-national bodies is close to the current number of
RDAs.
ENSURING ENGAGEMENT
WITH BUSINESS
22. It is vital that LEPs are able to engage
the time of business people with some standing and a network to
receive and broadcast information. LEPs that do not attract business
people of this standing on to their boards and, in particular,
to chair them will be doomed to failure. It is therefore important
that they meet the criteria set out above—they are focussed
on economic growth, limit themselves to a small range of issues
and have critical mass. The appointment process must also avoid
the complexity and politicisation that business reported to us
was associated with RDAs.
23. It is also vital that the new bodies have
some stability. While there may be some merits in setting up LEPs
as task and finish bodies to accomplish particular projects, such
an approach would make it much harder to secure the commitment
of business. We therefore recommend that LEPs should be set up
for a fixed period of say five years, subject to periodic review
of whether they are meeting their objectives and remedial action
if they are not.
DELIVERING VALUE
FOR MONEY
24. Many of the value for money and performance
concerns can be addressed by addressing the issues that we have
already set out in this submission. In particular, it will be
vital to get the right balance between central government and
LEPs in terms of the areas of responsibility. Creating LEPs with
genuine critical mass will also help to avoid resources being
wasted administering large numbers of small bodies.
25. The funding model for LEPs will also have
a key role to play. Past problems with mission creep can be avoided
by giving LEPs fairly minimal upfront funding to provide a secretariat
and ensure that they have some expertise in economic development.
To carry out particular projects, they would need to look outside
their organisation, primarily by bidding into the new Regional
Growth Fund or to individual government departments eg the Department
for Transport or attracting funding from business.
26. In seeking to ensure value for money,
it is also important to understand how the Regional Growth Fund
will operate. The principle of a Regional Growth Fund is a sound
one. It will provide a single pot from which LEPs can bid for
funding for projects that they can demonstrate will fulfil an
unmet need in the region and will support economic growth. This
funding will allow LEPs to leverage private sector involvement.
LEP boundaries are yet to be determined, but individual areas
will have different needs and solutions to local problems. The
ambitions of each LEP will, by their nature, be different and
evolve over time. Combined with the current fiscal constraints,
this means that an allocation of funding for each LEP, additional
to existing Local Authority Budgets, may not be the most effective
allocation of resources.
27. There must, however, be clear direction
to LEPs over the criteria that will be used to allocate money
from the fund and this is where we have concerns over the proposed
timetable for bidding for funds and allocating them. Under current
proposals the Regional Growth Fund would be operational by the
end of this year, with the first round of bids due by December.
However, it is not clear how many LEPs would be established at
this point, leaving other local groups to take a lead on bidding
for funds. In addition, this timescale is unlikely to allow sufficient
time for local groups to make a thorough assessment of need and
pull together a high quality proposal with demonstrable benefits
for the local economy. Importantly, groups cannot be expected
to bring forward proposals without clarity over the criteria used
to judge bids. The proposal also anticipates that bids will be
in the region of £1 million or more. This risks spreading
the money rather too thinly, exacerbating our concerns about critical
mass.
28. We are concerned about the rushed approach
that the government is taking to the Regional Growth Fund. The
consultation document leaves a number of questions unanswered
and EEF is currently working on its response. We will be happy
to take more detailed questions on this issue when we give oral
evidence to the Select Committee.
CONCLUSION
29. In this submission, we have set out our
overall principles and more detailed proposals for making the
new LEPs work most effectively. However, we wish to conclude with
some overall concerns. As indicated earlier, we are at an early
stage of recovery. While order books in manufacturing may currently
be fairly full, firms are still uncertain about the future. Many
businesses will be considering whether to start increasing investment
and where to make that investment. It is therefore vital that
the White Paper on Sub-National Economic Growth sets out a clear
blueprint and puts in place a system that it is fit for purpose
for the foreseeable future and does not need to be reformed again
in the current Parliament.
30. This is an important issue as there is the
real danger of disruption, waste of resources and disengagement
with business if the government gets this wrong. Against the backdrop
of a tight Spending Review, the administrative costs associated
with the new arrangements are kept to a minimum and that resources
are focussed on where they can best add value. In addition, the
process of transition from the current RDAs to LEPs must be an
orderly one.
13 August 2010
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