Written evidence from the Institute of
1.1 Thank you for giving the Institute of
Directors (IoD) the opportunity to respond to the new inquiry
on Local Enterprise Partnerships (LEPs), which was announced on
15 July 2010. This paper presents our response to your call for
evidence. Issues surrounding sub-national economic development
are of considerable interest to the business community in general
and to the IoD in particular. We are therefore pleased to participate
in the consultation and present our response for your consideration.
1.2 ABOUT THE
1.3 Founded by Royal Charter in 1903, the
IoD is an independent, non-party political organisation of 40,000
individual members. Its aim is to serve, support, represent and
set standards for directors to enable them to fulfil their leadership
responsibilities in creating wealth for the benefit of business
and society as a whole. The membership is drawn from right across
the business spectrum. 84% of FTSE 100 companies have IoD members
on their boards, but the majority of members, some 70%, comprise
directors of small and medium-sized enterprises, ranging from
long-established businesses to start-up companies.
1.4 IOD RESPONSE:
1.5 Despite substantive engagement by the
IoD in the development of LEPs, it is worth noting that the IoD
believes there is a "power imbalance" between local
authorities and businesses in the formation of workable LEPs.
While business has been encouraged to suggest and develop workable
proposals for LEPs, the unwillingness to co-operate by certain
local authorities means desired collaborations are impossible.
Inversely, it is always possible to find some business support
for a local authority driven proposal, even if limited to a handful
of individual businesses within the proposed area. This means
it is much easier for local authorities to develop workable proposals
than the business community.
1.6 The IoD does not believe that it is
necessary to launch tens of LEPs on day one. The non-universal
nature of LEPs at their inception means that gaps can be tolerated
and therefore the IoD would encourage government only to approve
the LEPs with full support, clear objectives and a strategic size.
Further LEPs can be added at a later stage and indeed may be better
constructed having learnt lessons from a "pathfinder"
LEP community, rather than taking a more permissive approach to
1.7 The overarching objective of LEPs should
be to provide an environment in which wealth creation/economic
development can flourish.
1.8 LEPs should be able to retain some of
the revenues gained from fostering an increase in business and
enterprise within their area. It might be worth base-lining Business
Rate revenues for LEP areas and allowing a percentage of any increase
in revenues (generated by increased economic activity) to be retained
within the local authorities. This must not be seen as a precursor
to re-localisation of Business Rates, which the IoD opposes.
1.9 Government should also consider using
the LEP reforms to look at other local authority business levers
including Business Rate Supplements to ensure they compliment
rather than conflict with the reformed model.
1.10 LEP FORM
1.11 The IoD believes that form should be
decided by businesses and local authorities on the ground. However,
LEPs should have universal (or near-universal) business/business
organisation support, both within their proposed functioning area,
but also in the wider hinterland of the LEP.
1.12 The IoD is concerned that in many regions,
LEP proposals are becoming too parochial. Local authorities seem
all too comfortable with the development of proposals at the lowest
levels of partnership possible ie two to three upper tier authorities.
While this might make practical sense in some cases the IoD are
concerned that local authorities are seemingly unwilling to move
outside of historical comfort zones or to engage over the merit
of wider (and more strategic) collaborations.
1.13 The IoD has concerns that LEPs are
being given "support" by individual businesses already
engaged in procurement supply chains of the proposing local authorities.
Indeed there is also a concern that some business organisations
may be seeking to shape LEPs on the basis of their own organisational
functionality, rather than on the basis of functional economic
areas or the best interests of economic development.
1.14 The IoD agrees that LEPs do not need
to be universal in coverage of the UK. Clearly there is a strong
case for LEPs in well defined economic areas, but business can
also see the case for LEPs geared around specific projects or
more short-term specific needs.
1.15 The IoD believes (at present) that
no clear case for the overlap of LEPs has been made (with the
exception of possible project based LEPs eg on road improvement
etc). Therefore the IoD remains sceptical about local authority
participation in multiple LEPs.
1.16 The IoD absolutely rejects the view
that a LEP can ever be formed of one upper tier local authority,
even if accompanied by lower tier council support. The concept
behind LEPs is to bring strategic decision-making and an economic
growth focus to functional economic areas.
1.17 LEP GOVERNANCE
1.18 The IoD strongly believes that all
LEPs should be governed by a "Board" of business and
local authority representatives only.
1.19 Representation on the LEP "Board"
should be 50% business and 50% local authority representation,
with a casting vote for a Chairman also from the business community.
If the purpose of these bodies is economic development and they
are to be truly business led, this is a necessary governance framework.
Further reflections on the composition and representation follow:
1.20 There should be a central government
requirement that LEP "Boards" reflect the broad business
profile of the LEP area ie representation from key sectors and
sizes of businesses.
1.21 Unlike the RDA Board, LEP "Boards"
must maintain a singular focus on economic development in the
locality they cover and therefore should not have representatives
from any other constituencies than business and local government.
1.22 The IoD would like to see the Government
consider a different process for the selection of business representatives
to the LEP "Boards" than has taken place under the RDA
framework. Particularly, we discourage political appointments,
whether ministerial or local government led.
1.23 Local authorities will need to consider
whether in larger LEPs, all local authorities need to be represented
on the "Board" as this will act as a serious barrier
to the creation of larger LEP frameworks. Particularly, when a
commensurate number of business representatives need to be found
to maintain the 50/50 balance.
1.24 Local authority representation should
also be of elected official status, rather than of paid executive
staff, such as Chief Executives. This will enable the LEP to field
its decisions with a democratic mandate and the direct input of
1.25 Critical to LEP status is the stability
of arrangements. Business would argue that LEPs should be created
on a fixed term basis eg five years, but that the term length
should be decided by the LEP at its formative stages. Continuation
beyond this point would be possible, but dissolution before the
period is out should be largely rendered impossible to safeguard
projects and to ensure continuity.
1.26 Appointments to the LEP "Board"
could be made through an appointments panel, nominations committee
or other arrangement that allowed for the regular input of business
representative groups in the region.
1.27 LEP FUNCTION
1.28 The IoD believes that the function
of LEPs is as much about what they should not do (the limits of
their activities) as the areas that are necessary for them to
cover. At present the policy space in which LEP functions are
being decided is a "no-limits" environment, where local
authorities have been encouraged to propose whatever they feel
is appropriate. Further reflections on the areas in and out of
scope for LEPs is below:
1.29 The core activity areas for LEPs were
Transport (delivery and influence).
Infrastructure (delivery and influence).
Planning (delivery and influence).
1.30 LEPs must not have any significant
Inward investment (by all means support
UKTI, but that should be the extent of the involvement).
Business Support Delivery: The remnants
of the Business Link programme must not be delivered locally as
this would increase cost, confusion and incoherence.
Skills: Advocacy to national and sectoral
bodies may be acceptable, but no delivery or formal role should
be created for LEPs. The skills space is already overpopulated
with organisations working to deliver.
Regeneration: Where regeneration is the
method by which clearly evidenced economic benefits for business
can be delivered then we would expect such projects to go ahead.
The reason for naming regeneration as an area in which we see
no role for LEPs is that so often the regeneration itself becomes
the objective rather than the consequent economic development.
The IoD would not support LEP activities in this area.
New subsequent central government agendas
and priorities. The failure of RDAs to deliver was linked in large
part to the constant "mission creep" that they faced
in the form of additional activities from central government.
LEPs must not be allowed to move away from their relentless focus
on growth and wealth creation.
1.31 The LEP would need to have influence
to be of value.
1.32 The role of the LEP would be to catalyse
and commission work in preference of direct deliverythough
direct delivery would still be part of its role.
1.33 In order to have influence, the LEP
would need to have a funding role. This would not require it to
be financed in order to conduct large free-standing projects,
but rather to stimulate and catalyse further contributions from
private and public sectors.
1.34 Strategic planning is critical to the
LEP model and business would value the development of a strategic
economic plan, focussed on transport and infrastructure needs
within the LEP.
1.35 The IoD sees no reason why the LEP
should have any statutory planning powers.
1.36 The IoD was disappointed to see reference
in the Government's letter to local authorities to a function
around the low carbon economy. However desirable, this type of
multi-purpose agenda setting might be, it weakened the economic
coherence of RDAs. This type of central government agenda may
be a consequence of the work commenced by LEPs, but must not be
a specifically mandated role.
1.37 The process of reform should recognise
that not all activities previously conducted by RDAs need to be
passed down to LEPs. Some would be passed up to national government
and others would fall away altogether.
1.38 LEPs should focus on the barriers to
economic growth and tackle those issues that they are equipped
to deliver against (economic development).
1.39 In order to maintain the correct focus,
central Government should define "Economic Development"
and ensure that LEPs focus on this role. As examples of areas
to be omitted, the business community rules out any role for LEPs
in tackling issues such as social exclusion and non-economic regeneration.
1.40 Once the LEP's role has been agreed,
there must be strong leadership from its "Board" to
ensure that it does not become an agency for other government
activities. The LEPs will only be successful if they have a single
and unwavering focus on economic development. No other central
government policy aims must be delivered through LEPs.
1.42 The IoD believes that the majority
of funding should be delivered through a Regional Growth Fund
or similar biddable "Central Pot". All bids would need
to exhibit clear economic benefits and from this decisions on
allocation could be made.
1.43 The IoD would not want to see the Regional
Growth Fund ring-fenced into separate funds for different regions.
The only analysis that should be applied to bids is the strength
of their supporting economic benefit for the proposed intervention.
Therefore, if the best submissions emanate from the South East
or West Midlands this should be where the funds go. No specific
regional subsidies should be delivered through LEPs.
1.44 Secretariat Funding: Given the lack
of economic competencies within local authority workforces, some
provision of funds will have to be offered to LEPs to provide
(a) basic administration and secretariat functions (minimal) and;
(b) economic advice resources, such as economists and infrastructure
expertise. This is necessary, because business members of the
LEP "Boards" will require access to advice that might
otherwise be siloed in local authorities.
1.45 Regional Growth Funding: Business would
like to see the majority of funding administered through a bidding
system, whereby LEPs could put forward a business case for funding
from a nationally administered "Regional Growth Fund".
The sums awarded to LEPs from the Regional Growth Fund would only
form part of the funding necessary for a given project; thereby
requiring LEPs to attract other investment from non-governmental
1.46 LEP VALUE
1.47 The Treasury, BIS and business should
be responsible for the allocation of resources from the Regional
Growth Fund. Critically, the business community would expect clear
expectations and relevant definitions of economic development
activities in order to ensure clear focus. National level business
representation on the awarding body is essential eg business representative
1.48 All bids from the Regional Growth Fund
must make a pure economic case for their benefit. Social, environmental
and other aims must not be considered by the BIS/Treasury/Business
assessment team. LEPs will be expected to demonstrate the economic
credentials of their project and to demonstrate that (should planning
permission be necessary) all consents are already obtained before
bidding for resource.
1.49 The types of projects that could be
undertaken with funds from the "Regional Growth Fund"
might include: the formation of hubs, clusters, infrastructure,
science parks, transport improvements etc.
1.50 Overspends on projects should become
the joint liability of local authorities on the LEP and should
not be picked up by central government.
1.51 All allocations of funds from central
government, eg Regional Growth Funds, should be subject to post-implementation
evaluation to explore the benefit of the activity. The Treasury
should support LEPs in this activity to explore a national framework
for best value projects going forward.
1.53 The IoD remains concerned that regional
funding from Europe could be threatened unless the system of LEPs
is developed with sensitivity to this important funding stream.
The EU recognises certain geographical regions and we can see
little way of retaining funding without retaining these structures
somehow. Whatever the mechanism proposed, the IoD is clear that
this funding must continue to be claimed and that in doing so
the Government must avoid the creation of unnecessary bureaucracies.
6 August 2010