The New Local Enterprise Partnerships

Memorandum submitted by the Institute of Directors

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 IoD

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: Key Points

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 LEP proposals.

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 i.e. 2-3 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 e.g. 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 i.e. 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 elected representatives.

1.25 Critical to LEP status is the stability of arrangements. Business would argue that LEPs should be created on a fixed term basis e.g. 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 considered:

- Transport (delivery and influence)

- Infrastructure (delivery and influence)

- Planning (delivery and influence)

1.30 LEPs must not have any significant role in:

- 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 delivery – though 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.

1.41 Regional Growth Fund and Funding

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 sources.

1.46 LEP Value for Money

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 e.g. business representative organisations.

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, e.g. 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.

1.52 European Union Funding

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