House of Commons - Business, Innovation and Skills Committee

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

Written evidence from SEEDA

SUMMARY

(i) The South East of England is the engine room of the UK's economy, making a net contribution to the Exchequer, some £18 billion in 2006-07. This is critical to supporting public spending and investment across the UK.

(ii) However the South East's global competitiveness is not guaranteed. Tackling the twin challenges of driving economic growth and addressing economic vulnerabilities will require public investment and strong national agencies/offers eg UK Trade and Investment linked effectively to excellent LEPs.

(iii) SEEDA has played a key role joining up the many partners and integrating interventions critical to business, economic and employment growth, set in the context of the Regional Economic Strategy. SEEDA is committed to working with local and national partners to ensure a smooth transition to new arrangements. Based on the experience of delivering economic development in the South East over the last 11 years, this submission identifies key factors that SEEDA believes must be tackled in moving forward.

THE SOUTH EAST OF ENGLAND—CRITICAL FOR THE UK'S ECONOMY

1. SEEDA is pleased to be invited by the BIS Select Committee to submit evidence to its inquiry. The South East of England is the "engine room" of the UK's economy, contributing over 15% of national GDP, some £182 billion.[9] It is the UK's second largest manufacturing region by value, marginally behind the North West, and has the UK's largest high technology manufacturing sector, employing more than 150,000 people. The South East contributes some £18 billion[10] more to the Treasury than is spent on public services in the area. London and the East of England are the only other net contributors to the Exchequer. This is redistributed to support public spending and investment in other areas of the country. The UK's overall financial welfare and competitiveness is inextricably linked with the South East's continued success.

2. The South East is much more than simply a commuter suburb of London. Although part of the London global city region, the South East is a polycentric and diverse region of over eight million people; the globally-connected economic strengths of the Thames Valley contrast sharply with the economic challenges and deprivation in many poorly-accessibly coastal towns.

3. Significant market failures affect both the better and lesser performing economies of the South East and affect global competitiveness. These include an over-stretched transport network and lack of affordable housing for workers. Equally, public investment and intervention is often required to catalyse opportunities for private sector innovation and growth. For example, the growth and success of the Thames Valley as a major concentration of high technology manufacturing and international headquarters functions has been driven by Government policy and funding decisions surrounding the development of London Heathrow airport and defence research facilities. However businesses are increasingly concerned that the area's future success is threatened by problems such as transport congestion and lack of access to high speed broadband.

4. Furthermore, ensuring the environmental sustainability of the South East's success is a key issue—although improving, the South East's ecological footprint is still too large. In the move to a national low carbon economy, the scale of the South East economy offers a key challenge and opportunity, but one which will require significant investment and joint working nationally and locally.

5. The South East economy competes globally rather than nationally. There is already evidence that although the South East's absolute performance remains good, its global ranking is slipping due largely to increased competition from emerging economies. The latest World Knowledge Competitiveness Index[11] shows that after improving in the global ranking table from 77th place in 2003 to 55th in 2005, the South East slipped to 74th in 2008. Investment in the South East will encourage businesses to locate in the UK rather than Europe, the US or the Far East—failure to invest will drive businesses overseas rather than to another part of the UK.

6. The South East has a key part to play in continuing to build recovery from recession. Improvement in the economies of other parts of the country must not be at the expense of declining investment and performance in the South East economy if the UK economy is to revive. Driving economic growth and addressing economic vulnerabilities will be critical to achieve this. Major global businesses say that that difficulties posed by congestion, resource and utilities overload, expensive housing and skills shortages mean that their continued investment in the South East and therefore the UK is already in doubt.

SOUTH EAST OF ENGLAND—THE CRITICAL CHALLENGES AND OPPORTUNITIES FOR LEPS AND NATIONAL GOVERNMENT

7. The South East economy's inherent strength means that it has the potential to recover from the recent economic crisis faster and stronger than any other UK region. However this is not guaranteed and requires sustained public investment and effective delivery arrangements.

8. Businesses say that in a diverse region with 74 local authorities operating in a predominantly two-tier county and district system, SEEDA's ability to facilitate coordinated action between the private and public sectors, locally and nationally, set in the context of the Regional Economic Strategy, has been particularly important.

9. The changed circumstances of in-year budget cuts and transition to closure mean that SEEDA has adopted the following four priorities:

— Delivering for the region through the £80 million Single Pot budget and nearly £40 million of other programme funding during 2010-11, as well as through advice, interventions and deal-making activities.

— Contributing to shaping the economic development model for the future, through advice sought by national and local partners and through responding to consultations.

— Transitioning those functions which are valuable to the South East and are valued by partners, both local and national.

— Carrying out an orderly transition to closure, including through new activities to ensure legacy of knowledge and expertise, as well as delivery, is not lost.

10. With the forthcoming abolition of RDAs, the South East's global economic competitiveness will be dependent on LEPs and national agencies working effectively together to tackle in particular the following key issues:

(i) Innovation and growth.

(ii) Global competition for foreign direct investment.

(iii) Transport and other key business infrastructure.

(iv) Deprivation.

(i) Innovation and growth

11. The South East has world class clusters and opportunities for innovation and growth such as advanced engineering, aerospace and healthcare. However these opportunities often exist in emerging sectors such as environmental technologies, requiring joined-up public sector support to harness their potential. The alignment between RDAs and the Technology Strategy Board has created vital opportunities for regional centres of excellence to contribute to national programmes. LEPs and national agencies will need to work closely to seize global, national and local opportunities.

12. Maximising global opportunities will require LEPs and national bodies to have strong intelligence of the global economy and the unique assets that exist within the South East, as well as strong private sector engagement. For example, having identified the potential global opportunities of the space sector and an existing cluster of activity in the South East, SEEDA has brokered agreement from a cross-industry group to establish the International Space Innovation Centre, a major global centre of space research and expertise, at Harwell in South Oxfordshire. SEEDA's work with UK Trade and Investment is maximising the Centre's potential to attract high value international companies to the country.

13. Understanding market opportunities and how the strengths of different localities could add greater value working together is also critical for LEPs to maximise opportunities for collaborative innovation and accessing funding opportunities. For example SEEDA has established a sector consortium for healthcare which identified the potential for developing telecare products and services for global markets. SEEDA's experience working with the national Technology Strategy Board helped development of a successful bid for an International Centre of Excellence, based in three complementary specialist centres across the South East involving the public and private sectors. SEEDA has also funded Innovation and Growth Teams to bring together all those supporting innovative and high growth businesses. This approach has helped local businesses raise £26 million in Oxfordshire in the last four months alone.

14. Innovation can also play a critical role in addressing economic challenges, but strong intelligence and partnership working is required between the public and private sectors. For example, SEEDA has worked with local and national partners on the Isle of Wight to maximise the opportunities of the high-growth composites sector and address the deep-rooted economic challenges facing the island. Using its understanding of national and local government ambitions and market opportunities relating to the low-carbon economy, SEEDA worked with GKN Aerospace, as part of the National Composites Network, to establish a highly successful composites research centre. This created and safeguarded over 300 jobs on the island. This is now encouraging other global companies to invest, for example the Vestas Technology Centre, leading to an estimated 400 high-tech jobs over the next two years, which might otherwise have gone overseas.

(ii) Global competition for foreign direct investment

15. The South East is competing for businesses which may otherwise locate elsewhere in the world, not elsewhere in the UK. High value foreign direct investment is strongly linked with economic performance of top global regions. It gives local companies access to markets, innovation, capital, technology and revenue benefits.

16. SEEDA has incorporated support for Foreign Direct Investment as part of part of an effective economic development strategy and developed strong relationships with UKTI, international and local partners to implement it. It will be critical that LEPs have a strong relationship with UKTI in the future. First quarter 2010 results shows that SEEDA's targeted and integrated approach is working, achieving 20 new inward investments and more than 250 new jobs. 50% of investments are high value and 90% are knowledge driven.

17. For example SEEDA worked with Quintiles, a leading international clinical research provider, over the last year to secure a 500 job European HQ in the UK, which might otherwise have gone abroad. The company was considering locations in other EU member states as their leases on three sites in Bracknell were shortly coming to an end. SEEDA, in partnership with UKTI and local partners in Thames Valley, was able to use its specialist expertise to facilitate, smooth and speed the choice of a new location in the Thames Valley.

(iii) Transport and other key business infrastructure

18. Future investment in infrastructure must address both the challenges of economic growth and the need to reduce our ecological footprint. Investment choices for transport and other infrastructure must be aligned with investment decisions made in economic development, housing, regeneration and skills.

19. Strategic transport priorities across the South East were clearly defined by local authorities and other partners working together through the South East Transport Board. Prioritisation of investment is critical in a period of constrained public funding. Local authorities in the South East have an established track record of working together on a collective basis to agree investment priorities. A key decision was to use two years (£339 million) of regional transport funds to prioritise the building of the Hindhead tunnel, to address the last remaining bottleneck on the A3, a key arterial route for the economy. This support allowed a start to be made building the scheme after decades of debate. As set out in its Comprehensive Spending Review submission, South East England Councils recognises the need to review the investment priorities for the medium/longer term and is ready to undertake that difficult task as part of the Spending Review 2010.

20. It will be important that LEPs work together at a critical scale across local administrative boundaries to address business needs and opportunities. For example SEEDA has been working with partners including Advantage West Midlands to upgrade the rail gauge between Southampton and the West Midlands, to allow for larger containers to be carried by rail rather than road. This secures and enhances the efficiency, economic performance and global competitiveness for Southampton, as well as for the whole South East and the Midlands. This project covers a wide geographic area and effective coordination and leadership has been achieved through having a core partnership between SEEDA, the port industry and Network Rail. SEEDA brokered delivery of this scheme, developing an innovative funding package together with the key partners in a public-private partnership.

21. LEPs and other public sector funding partners will need to be capable of working together to provide innovative ways to fund critical infrastructure. A key problem is where the private sector will pay for infrastructure, but not at the critical time when it is needed to unlock development. In response to this a Regional Infrastructure Fund was developed by the South East and South West. The public sector makes the initial investment, with that investment then recovered at a later stage through the planning system, and the investment can then be recycled to deliver further infrastructure. Scale is a critical issue to enable effective gathering and "recycling" of funds—SEEDA is working with partners on the key issue of how this important fund will be managed in the future once the RDA is abolished.

(iv) Deprivation

22. Although characterised by a generally buoyant globally-competitive economy, the South East also has significant areas of deprivation that need support if they are to deliver economic growth and social improvements for local residents. 500,000 people live in areas that rank within the 20% most deprived areas of the country.[12] Much deprivation is concentrated in coastal areas, and the intensity of the issues makes them difficult for local partners to tackle alone. As highlighted in the South East England Councils' submission to the Comprehensive Spending Review,[13] excluding South East businesses from National Insurance discounts ignores the need to encourage new job creation in areas of the South East that desperately need incentives to support economically-led regeneration.

23. To tackle deprivation, LEPs and other partners will need to drive an integrated approach to economic development, aligning investment in economic opportunities over a sustained period of time. For example in 2002 SEEDA brought national, regional and local partners together to form a taskforce to tackle the failing coastal economy in Hastings and Bexhill, the main aim being to enable long-term private sector investment. A focused long-term action plan secured Government first-phase investment of £57 million. Between 2001 and 2009 Hasting and Bexhill average earnings have increased from 68% to 82% of the South East average, business starts now exceed closures, and 1,000 jobs have been created. The tipping point is within reach now that private sector funding is being drawn in, and local capacity has been built which can now be transferred to others, but this has taken many years of concerted effort and still needs reinforcement to be maintained.

24. Similarly SEEDA provided the substantial capacity needed to address the large scale economic decline after the colliery closures in East Kent and the dockyards at Chatham. SEEDA led a cross-agency programme to lever funding through the National Coalfields Programme, generating vital alternative employment opportunities for the local workforce, providing the capacity that local authorities in the area lacked. At Chatham Maritime a multi-agency approach with private sector partners has created new jobs and homes as well as the Universities at Medway campus in the historic navy buildings.

25. Drawing from the experience set out above, SEEDA makes the following comments on the Committee's specific lines of inquiry.

THE FUNCTIONS OF THE NEW LOCAL ENTERPRISE PARTNERSHIPS AND ENSURING VALUE FOR MONEY

26. SEEDA has worked closely with businesses, local authorities and other partners for 11 years to address the twin challenges of supporting economic success and addressing vulnerabilities. The Government has announced that RDAs will close by Spring 2012, although the exact timing is not yet clear. In the future, strong LEPs, working in tandem with effective national agencies (such as UK Trade and Investment and the Technology Strategy Board), will be critical to addressing these issues.

27. In summary, reflecting the collective RDA response, SEEDA believes the following characteristics will be critical to the success of LEPs and help ensure value for money:

— Business focus, and driven by pro-active coalition of businesses and local authorities.

— Coordination, integration and co-investment with local, sub-national and national partners, with delivery built around a shared vision.

— Critical mass, with a scale of resources and scope of remit to influence and lever other partners, in particular private sector.

— Use of economic evidence and intelligence to direct strategy and delivery for greatest impact.

— Operational flexibility, including agility to respond to urgent business needs or economic shocks eg recession/major redundancies or natural disasters.

— Informing development and helping delivery of Government programmes.

28. To ensure conditions are right for investment and growth, LEPs will need to prioritise and tackle a range of issues relating to businesses, people and places. As set out in the Ministers' letter,[14] these include physical infrastructure, employment and enterprise (which businesses tell us must include skills and supply chain development) and the transition to the low carbon economy. The Government's commitment to localism means that it will, of course, be for LEPs themselves to identify the specific issues relevant in their area, but delivery will require cross-agency working.

29. Ministers have indicated that some RDA activities, such as innovation and inward investment, will be best led nationally in the future. Businesses are concerned to understand how LEPs will also be engaged in these activities, working closely with national lead bodies and other LEPs where appropriate. This is important not only to maximise opportunities based on intrinsic local assets such as industrial strengths and research excellence, to attract and provide aftercare for inward investors and to provide support for and reach into SMEs and supply chains, but also to help align the work of different national bodies at the local level.

THE REGIONAL GROWTH FUND, AND FUNDING ARRANGEMENTS UNDER THE LEP SYSTEM

30. We know that businesses support the Regional Growth Fund's two proposed objectives of encouraging private sector growth, and the transition to a less public-sector dependent economy. The Fund will enable public-private partnerships to bring forward integrated packages to address economic needs.

31. The South East's strong economic base offers opportunities for high returns on public investment, which will strengthen the UK economy as a whole. Independent evaluation[15] of SEEDA's work has shown business development and competitiveness interventions have achieved very high impacts on economic growth, especially sector support (£23 GVA per £1 spent), trade interventions (£9 GVA per £1 spent) and foreign direct investment (£9 GVA per £1 spent). Interventions of this sort have enabled the private sector and national partners to develop major centres of excellence which are stimulating further private sector investment, including the International Space Innovation Centre and the International Centre for Excellence in Telecare. Therefore it is essential for the future competitiveness of the South East and the UK that the Regional Growth Fund explicitly supports further investment of this type.

32. The coastal towns of the South East, however, under-perform in relation to England as well as South East averages. Many of the South East's disadvantaged areas rely heavily on the public sector. In parts of the south coast around 40% of jobs are in education, heath and public administration,[16] and across the South East some 40% of job losses during April to June 2010 were in the public sector[17]. Business start-ups are also lower than national average on the south coast.[18] The combination of potential high exposure to public sector cuts, high unemployment and low forecasted private sector employment growth[19] means that many areas in the South East that could be badly affected by public sector cuts are also those where there will be limited private sector job opportunities. They too will need access to the Regional Growth Fund if they are to transform this dependency.

33. The consultation document proposes that programmes should be £1 million or greater over two years. Programmes of this scale take time to develop, and require considerable leadership, expertise and, often, pro-active long-term partnership working. Therefore for spend to be achieved in 2011-13 the Fund must be accessible to programmes which are already well advanced in their planning and, critically, have the support of business and LEPs.

34. LEPs should not be solely dependent on public funding so will need to develop innovative new funding models, such as the Regional Infrastructure Fund (see para 21), to ensure timely delivery of projects and maximise the impact of limited public and private sector funding.

GOVERNMENT PROPOSALS FOR ENSURING CO-ORDINATION OF ROLES BETWEEN DIFFERENT LEPS; AND ARRANGEMENTS FOR CO-ORDINATING REGIONAL ECONOMIC STRATEGY

35. The Government has revoked[20] Regional Strategies. We understand it will be for local authorities, LEPs and other partners to determine where joint working on strategy or delivery may be beneficial. However, given the scale of issues and opportunities to address, businesses are concerned about the potential lack of coordination between different LEPs, particularly in the absence of an overall economic vision.

36. Although the requirement to work together through Leaders' Boards has been removed by the Government, SEEDA is supportive of the work of South East England Councils, and is exploring with them and South East Strategic Leaders and SEBUS, the business forum, how LEPs might choose to work together on key issues of cross-boundary significance.

37. "Functional" or "natural" economic areas should be taken into account when developing LEPs. Across the greater South East there are a number of nested economic areas which cross over the South East's 74 local authorities. These include the London global-city economic area, as well as smaller economic areas within it. LEPs will therefore need to work together on key issues that cross boundaries; indeed in some instances it may be appropriate for parts of LEPs to overlap if there are different, but complementary, issues at their core. The Government must also ensure London's different governance arrangements do not become a barrier to effective joint working between LEPs and the Mayor and/or London boroughs.

STRUCTURE AND ACCOUNTABILITY OF LEPS

38. Businesses want real influence and an ability to directly influence policy and funding decisions. To offer this, LEPs will need ability to influence, and will need to manage and be accountable for funds. This may require them to be established as legal entities in their own right.

39. Business involvement is critical in driving LEPs forward to ensure they keep a focus on real business needs and delivering results. Businesses support Ministers' expectations that LEPs should have a business chair. The clarity of the LEP's business-focus will be fundamental to drawing businesses into its work and retaining their support.

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

40. The Government is committed to abolishing RDAs by Spring 2012. Given the physical scale and diversity of the South East, and the number of local authorities, it is likely there will be a significant number of LEPs in the South East, operating at a very different geographic scale to SEEDA.

41. SEEDA is committed to carrying out an orderly transition to closure in collaboration with partners and stakeholders, so as to transfer those projects and programmes which partners and/or Government wish to take forward after SEEDA's closure. SEEDA also wants to ensure the best use is made of intellectual and physical assets in moving forward to new arrangements.

42. SEEDA welcomes the joint arrangements with Government through the BIS-RDA Transition Board. However further significant progress on transition is dependent upon Government's final agreement on what LEPs will established and clarity from Government about which RDA functions will move to a local or national level. Clarity from Government on these issues is needed as soon as possible if risks relating to transition, in particular the loss of momentum for business-focused activities, financial/contractual impacts on partners, and loss of specialist expertise and relationships, are to be minimised.

43. SEEDA is working with senior business representatives and local authority Leaders to agree key actions to help transition. SEEDA also has robust internal management processes to plan for transition and mitigate against risk. This includes looking at different transition options so they are ready to progress as soon as there is clarity. SEEDA is contributing to work led by BIS to address transition arrangements for assets, liabilities and commitments.

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

44. Businesses say that it will be critically important for LEPs to be strong public-private sector partnerships that are able to draw in significant public and private sector finance. It will be important that capacity to maximise access to European funding, including European Investment Bank, is not lost in transition. It is clear that other parts of the European Union will continue to operate on a regional basis, and LEPs will need to look carefully at how to ensure they can engage at an appropriate spatial scale.

45. LEPs will need to consider the issue of aggregation of projects to achieve the critical mass necessary to access some loans from the European Investment Bank. For example, SEEDA took the lead on coordination of work by local authorities on energy efficiency retrofitting because of the need to find enough projects in the South East to reach the Bank's minimum threshold of €100 million total project size.

46. A critical issue is that of business access to finance and how this may operate in the future. Businesses have valued how SEEDA has brought its expertise and critical mass to this issue, working with the South East's Business Link operators to set up Finance South East in 2002 to address market failure in the availability of finance for growth companies, notably around the risk capital funding gap up to £2 million. The primary vehicle to deliver this is the South East Funding Escalator, a series of funds managed by Finance South East and financed by SEEDA and other public and private sector partners. Since the launch of its first fund in 2004, funding of around £27 million[21] has been committed to more than 300 companies, resulting in a further £100 million of private sector leveraged funding.[22] Finance South East has also developed innovative funding solutions, including funds supporting the low carbon agenda such as the European Regional Development Fund's South East Sustainability Loan Fund. SEEDA is working with partners to understand how the important work of Finance South East will fit with the Government's move to place Capital for Enterprise Limited at the heart of publicly backed funds nationally.

CONCLUSION

47. Given the South East's fundamental role in driving the global competitiveness of the UK, strong LEPs working in tandem with effective national agencies will be fundamental to addressing the twin challenges of driving economic growth and addressing economic vulnerabilities. SEEDA has demonstrated how a well targeted and coordinated use of money and human resources can make a real difference. SEEDA is committed to helping ensure a smooth transition to new arrangements, to help ensure the best economic outcomes not only for businesses and residents in the South East, but also the UK as a whole.

9 ONS, 2008. Back

10 2006-07, latest available data (Oxford Economics). While some of this contribution represents the link with London, almost £15 billion was directly from employment within the South East. Back

11 Centre for International Competitiveness, 2010. Back

12 Index of Multiple Deprivation, ONS, 2007. Back

13 http://www.secouncils.gov.uk/ Back

14 Letter from Rt Hon Dr Vince Cable MP and Rt Hon Eric Pickles MP to local authority Leaders and business leaders, 29 June 2010. Back

15 Impact of RDA Spending, Department for Business, Enterprise and Regulatory Reform 2009. Back

16 ONS Annual Population Survey 2009. Back

17 HR1 redundancy notification form data via BIS/JobCentre Plus. Back

18 In the coastal South East during 2007 there were fewer than three start-ups per 1,000 population, compared to the average rate across England of 3.5 and a South East average of 3.9. Source: ONS VAT Registrations/Deregistrations 2007. Back

19 Experian & Cambridge Econometrics forecasts, 2010. Back

20 Letter from Steve Quartermain, Chief Planner CLG, to Chief Planning Officers, 6 July 2010. Back