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

Written evidence from the EEF


  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.


  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.


  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.


  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.


  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.


  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.


  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.


  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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