Written evidence from Furness Enterprise
Ltd
1. FURNESS ENTERPRISE
1.1 This evidence is submitted by Furness
Enterprise which was set up as a public/private sector partnership
(in effect a Local Enterprise Partnership) in 1991 to help the
largely self-contained Barrow in Furness Travel to Work Area,
adjust to the consequence of massive job losses from the local
nuclear submarine naval shipyard and job losses from other major
local employers. Our views are based on extensive experience of
working in partnership with the private sector and government
to help businesses access "money and markets" in innovative
ways.
2. EXECUTIVE
SUMMARY
2.1 Government assistance programmes work
most effectively when they are targeted to realise local opportunities.
We have found that what matters is a clear, common understanding
of the way in which the local economy works that, distinct roles
for the different partnerships are clearly agreed, but with enough
shared membership and communication to ensure coherence and effective
delivery.
2.2 There is now a well understood need
to rebalance the UK economy away from its reliance on financial
services and to reduce our structural balance of payments' deficit.
We welcome this shift of emphasis towards wealth creating manufacturing
and local economies that retain high levels of manufacturing.
2.3 The role of the Department of Business,
Innovation and Skills in supporting industry is changing as outlined
in the July 2010 Government policy statement, "A Strategy
for Sustainable Growth" and the "Green Paper on Business
Finance". The key objective is to promote private sector
enterprise and jobs.
2.4 We believe that the Government through
BIS should operate economic/enterprise policy in such a way as
to distinguish between affluent self sustaining private sector
job generating areas eg London and the South East and deprived
areas with potentially good access to jobs created elsewhere eg
Greater Manchester and job poor deprived areas remote from "engines
of growth" eg Barrow in Furness.
2.5 We are concerned that BIS may abandon
the whole principle of direct assistance to businesses if the
statement in "A Strategy for Sustainable Growth" that...
"where we intervene we must do so to support businesses in
general rather than individual businesses."... is implemented.
We would like BIS to clarify whether this amounts to a Government
policy to abandon Assisted Area discretionary Grants for Business
Investment.
2.6 Policy statements in "A Strategy
for Sustainable Growth" raise issues of whether policy should
attempt to enhance firms' capabilities and/or whether the major
role of Government is to provide relevant infrastructure at the
more aggregate level.
2.7 We believe that "first and foremost
it is at the firm level that capabilities and technology are advanced
and therefore policy needs to relate to the specific needs of
the firm if it is to be most effective" "Horizontal
Aid" allowed for by the European Commission as part of a
policy "to support businesses in general rather than individual
businesses."... would be insufficient on its own to be able
to assist with the growth of existing firms, attraction of inward
investment and reinvestment. Horizontal Aid is available equally
to prosperous regions and companies will tend to locate there
first.
Research Project on DTI Industrial Support Policies:
An analysis of current DTI industry support patterns (dti April
2001)" which BIS refers to in its 26 August 2010 "Measurement
of Drivers of Business Success and Failure"
2.8 Government should continue with the
current economic policy approach that distinguishes between deprived
and affluent areas. The provision of loans and grants under programmes
such as Assisted Areas is preferred for improving the chances
of success for northern local economies over rather than relying
instead on a more generic, favourable business environment approach.
2.9 Continuation of Assisted Area status
until 2013 is absolutely critical to the future economic prosperity
of areas like Furness if they are to be able to continue to benefit
from growth orientated companies of all sizes,New start up businesses,
growing indigenous firms or inward investors. We would add that:
— Assisted Area GBI support has, and is,
being used very effectively to create private sector jobs.
— There is clear evidence that Assisted
Area GBI works as a private sector stimulus.
— GBI should not be taken away.
— If GBI is taken away, the UK will have
an undifferentiated area based policy which will benefit prosperous
areas and city regions at the expense of peripheral areas which
often have significant industries capable of benefitting from
GBI, thereby creating private sector jobs.
2.10 The current freeze on its use in England
is holding up development and jobs by the private sector. Evidence
given to the House of Commons BIS Select Committee on 7 September
stated that:
"There are some unintended consequences
of these decisions. I will give you two: businesses were looking
forward to receiving GBI grants for business but we are unable
to do that"
3. OVERVIEW OF
REGIONAL POLICY
3.1 Ministers have confirmed that "All
Solutions for Business (SfB) products are currently being reviewed,
including the Grant for Business Investment (GBI)".
3.2 UK and EU policy is to "promote
economic development of certain disadvantaged areas within the
EU"...."by supporting investment and job creation"
and to "promote expansion and diversification of the economic
activities of enterprises located in less favoured regions in
particular, by encouraging firms to set up new establishments
there".
3.3 EU National Regional Aid Guidelines
state that—"regional aid can only play an effective
role if it is used sparingly and proportionately and is concentrated
on the most disadvantaged regions", where "regional
aid forms part of a well defined regional policy" which "produces
a real incentive effort to undertake investments which would not
otherwise be made in the Assisted Areas"). We urge government
to retain Assisted area status and GBi grants because it is fits
in with this principle.
3.4 UK Regional policy aims to reduce economic
and social disparities between regions. These disparities are
usually defined in terms of unemployment rate and income per capita
and are aggravated by structural changes which can have social
as well as economic consequences (Armstrong and Taylor, 1993).
In such cases regional policy can help prevent large scale labour
migration from peripheral to core city region areas. The UK's
policy traditionally involved "taking work to the workers"
to obviate the need for the "workers to move to the work".
Contemporary regional policy has been, and is, targeted at specifically
designated Assisted Areas through discretionary policies such
as Grants for Business Investment and the previous Regional Selective
Assistance (RSA). EU policies also aim to reduce/remove disparities
between regions/countries.
The UK was amongst the first European countries
to adopt an official regional policy with the 1934 Special Areas
Act (Alden and Boland, 1996), and 60 years on, there is still
a UK regional policy aiming to address issues of uneven regional
incomes and growth.
3.5 Research conducted for BIS predecessors
DTI concluded:
— "The conclusion from the 10 SFIE
case studies is that the large scale investment that these grants
support is something that makes an appreciable difference to the
individual businesses concerned. In many cases, whilst the grant
did not on its own tempt the firms into making these decisions,
it acted to increase the size of the investment and to emphasize
the growth element of the business decision".
— "There is a high level of full additionality
associated with the Scheme".
— "Increasing the size of investment
is important in areas such as Furness and West Cumbria".
— "Our overall conclusion is that
both the RSA and SFIE Schemes are delivering benefits to the UK
economy through net additional employment, higher value added and
a set of wider benefits that demonstrate linkage into other regional
priorities such as regeneration, skill enhancement, supplier networks
and broader environmental agenda
3.6 Evidence from the local area shows that
Assisted Area discretionary grant aid has been, and continues
to be, a significant source of sustainable private sector jobs
growth in businesses of all sizes, including fast growth new start
firms, through organic growth and through inward investment or
reinvestment. Assisted Area GBI is cost effective.
3.7 Between 2007 and 2009, NWDA offered
£21.8m of GBI grants to help 113 firms create/protect 3,274
jobs in NW England at a cost per job of £6,611 (2008-09).
3.8 GBI continues to be an important source
of finance for businesses particularly as banks remain reluctant
to lend. The grants also help persuade firms to consider more
peripheral areas as opposed to "engines of growth" such
as the cities of Liverpool and Manchester.
3.9 In Barrow in Furness TTWA between August
1993 and August 1998, Assisted Area status enabled 49 firms in
Furness to invest £64.94 million and create and safeguard
1,821 jobs for £5.19 million of grant aid. The scheme helped
support 6.4% of all employees in employment.
3.10 After 2000 and up to 2006, a time when
Furness and West Cumbria was further disadvantaged by only being
eligible for a reduced grant rate under State Aid Rules, Regional
Selective Assistance (RSA) and Selective Finance for Investment
(SFI) created or safeguarded 2,717 jobs in 37 businesses at a
cost of £10.04 million whilst levering in £85.4 million
of private sector investment.
Figure One
FIVE CASE STUDIES ILLUSTRATE THE EFFECTIVENESS
OF ASSISTED AREA INCENTIVES
Kimberly-Clark, Barrow (USA)
A £1.6 million SFI grant in 2005 enabled
local management to secure HQ approval to a £15m investment
as part of the Group's global competitiveness strategy safeguarding
149 jobs.
The development resulted in the Barrow site
footprint being reconfigured, so it is then regarded as a strategic
investment location in Europe rather than one designated for streamlining
or closure.
Since completion of the GBI project the site
has attracted a further £16 million of investment, with potential
for more.
PartyLite Manufacturing, Barrow(USA)
PartyLite are part of Blyth Inc. of USA.
A £0.995 million RSA grant enabled the
largest overseas inward investment into Cumbria for 20 years to
go ahead at Sandscale Park, Barrow in 1997 instead of in Holland
or Eire.
The new plant manufactures candles with 80%
of output destined for mainland Europe. The site now employs 150
people. Further expansion is being contemplated.
Robert McBride, Barrow(UK)
RSA has secured a significant reinvestment project
for the UK instead of it going to France.
A £0.6 million RSA has enabled the company
to secure a £9 million investment from the parent company
which created 25 new jobs and protected 150.
"Project 2000" increased capacity
of the plant.
The company subsequently undertook further investment.
Liberata
A £0.8 million SFI grant in 2005 enabled
Furness to attract a national Centre of Excellence in council
tax and benefits processing, aimed at creating 200 jobs over three
years.
At the time it had 155 staff. It now employs
364 people.
The development would otherwise have located
in a large city in southern or central England.
Diamould Limited
This company secured a small RSA grant when
it started in 1999, a further offer was secured in 2002. SFI was
offered in 2005.
The company has grown to employ 107 people and
is a market leader in subsea connectors.
Schlumberger acquired the business in 2005,
the recent SFI resulted in their commitment to sustain the business
in Barrow, there is potential to grow it from the current 34,000
square feet of premises.
3.8 We are also concerned that across the
UK, inconsistent application of discretionary grant policy is
disadvantaging peripheral English Assisted Areas such as West
Cumbria and Furness. Scotland is still benefitting!
Figure Two
SCOTTISH AREAS STILL BENEFIT FROM ASSISTED
AREA GRANTS
"More than £2 million of grant support
has been secured by two firms in moves that will safeguard or
create almost 300 jobs, Scotsman 8 September 2010 First Minister
Alex Salmond revealed the support for the Ayrshire economy as
the Scottish cabinet met in Kilmarnock yesterday morning."
Commenting on the two awards, he said: "This
investment shows Scotland has a high-quality manufacturing base
and is testament to the talent and skills of the Ayrshire workforce."
(Source: The Scotsman, September 2010)
3.9 All other EU countries are still offering
grants so England's Assisted Areas are competitively disadvantaged.
Wider implications mean English deprived areas are disadvantaged
in seeking to attract investment if EU supported Assisted Area
grants are frozen as now.
3.10 The Grants for Business Investment
(GBI) scheme which provides financial support to businesses to
create or protect jobs is effectively suspended following the
decision to scrap RDAs. The decision to curtail RDA funding led
to NWDA suspending any new offers for GBI,as the nWDA chief Executive
said on 7 September "There are some unintended consequences
of these decisions. I will give you two: businesses were looking
forward to receiving GBI grants for business but we are unable
to do that". Here In Furness two planned inward investment
projects were adversely affected by that decision.
3.11 If the Government wishes to save money
as part of the CSR it could continue to fund GBI in Tier 1 and
Tier 2 Assisted Areas, eliminating Tier 3 support. It should also
require the new Regional Growth Fund to be top sliced so GBI can
still be offered. See below.
4 PROPOSED REGIONAL
GROWTH FUND
4.1 The proposed Regional Growth Fund, will
amount to much smaller resources than the total funding currently
deployed on regeneration through the RDAs. It obviously offers
some potential resource, but it is going to be critical that the
Regional Growth Fund is focused on encouraging private sector
enterprise and sustainable private sector employment, particularly
in those areas and communities currently dependent on the public
sector.
4.2 We understand that a key aim of the
Fund is to help the areas and communities that are likely to be
hardest hit by public sector job cuts and we would add it should
include areas highly reliant on public sector contracts or at
risk from loss of them. In areas like Furness and West Cumbria
this will matter most because it is an area where the private
sector is currently weakest.
4.3 BIS officials will need to address whether
the Regional Growth Fund will take over responsibility for GBI,
and for other forms of financial aid to companies (eg: gap funding)
that is permitted under EU State Aid Rules and was previously
disbursed by RDAs and was designed to help the Assisted Areas.
The committee may wish to seek the Department's views on this.
4.4 It is unclear how GBi could be integrated
into Regional Growth Fund and the process might be made to work
at the sub-regional scale of the proposed LEPs, bearing in mind
the cyclical nature of major private sector investment projects
and the fact that expertise resident in RDAs and regional industrial
development boards to administer the scheme may disipate. The
Committee may wish to ask BIS how they will address this challenge,
perhaps inviting them to clarify whether pooling some grant-giving
activities between neighbouring LEPs will occur.
Appendix A
Barrow in Furness was designated as an Assisted
Area in 1993, renewed in 2000 and in 2007.
Ekosogen North West Index of Economic Resilience
Report 1997-2007, which identified major improvements in Barrow
between 1997-2007 in Enterprise, the Labour Market and Economic
Dynamism
It is the 29th most deprived local authority
in England with high concentrations of worklessness, particularly
Incapacity Benefit claimants.
Experian's 9 September resilience study for
BBC Regions shows the town to be one of the bottom 7 district
council areas.
As the area is remote from the "engines
of growth" in the North West, tackling worklessness has depended
very much on seeking to work locally with the private sector to
create jobs and diversify the economy.
Barrow is an integral part of "Britain's
Energy Coast" which is a programme designed to exploit the
wide range of energy opportunities in the area from nuclear to
wind.
We also have a significant reliance on public
sector jobs and public sector contracts with the shipyard in Barrow
employing 5,041 people out of a workforce of 36,000. Energy intensive
manufacturing industries and a cluster of companies involved in
energy efficient LED or solid state lighting offer growth opportunities.
Assisted Area status and hence the ability to
attract investment and job creation using financial incentives,
has meant that significant private job creation has been achieved
and these results have been confirmed in the.
The results from Furness Enterprise demonstrate
that a local public/private sector partnership with resources
can work effectively with the private sector to create jobs even
in a deprived area.
Between 1992 and the end of 2009, the local
enterprise partnership helped companies create 9,416 jobs and
to safeguard a further 3,399.5 jobs.
Organic growth of local firms accounted for
2,955 new and 1,100.5 safeguarded jobs.
New start businesses provided 1,887.5 jobs.
Inward investment and reinvestment 4,583.5 new
jobs and 2,299 safeguarded jobs.
"Government assistance" to industry
has had a significant role to play in the delivery of this.
25 September 2010
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