The New Local Enterprise Partnerships
Memorandum submitted by the Local Government Association
Executive Summary
The LGA has long argued for the devolution of economic development functions to councils and businesses working in partnership at the level of real economic geography. By aligning the geography of decision-making with the actual economic geography and linking decisions across different policies, this would improve outcomes and value for money, as well as improving accountability. The Government’s policy of replacing Regional Development Agencies (RDAs) with Local Enterprise Partnerships (LEPs) has the potential to lead to exactly that desirable result. But for it to succeed:
·
the LEPs need to have ownership of real decisions about priorities and budgets, and a wide remit; RDA functions should only be repatriated to Whitehall departments where it is not possible to devolve them, and they should certainly not be centralised and then recommissioned through local delivery bodies parallel to LEPs;
·
the Regional Growth Fund establishes an attractive model insofar as it pools different departmental funding streams; but the proposed bidding mechanism risks being inefficient and overcentralised;
·
there is demand from councils, business, and potential LEPs for coordination between LEPs; this coordination can be achieved without central intervention and should be allowed to generate a range of different arrangements to suit different circumstances;
·
the transition from RDAs to LEPs should be as swift as possible. RDAs’ mixed pool of assets create special problems and the taxpayer’s interest will not be secured simply by seeking immediate cash realisations;
·
in the short term there is a need for administrative stability about European programmes, but the objective should be to drive future EU allocations through priorities set by LEPs.
The New Local Enterprise Partnerships
1.
The LGA is a voluntary membership body and our 422 member authorities cover every part of England and Wales. Together they represent over 50 million people and spend around £113 billion a year on local services. They include county councils, metropolitan district councils, English unitary authorities, London boroughs and shire district councils, along with fire authorities, police authorities, national park authorities and integrated transport authorities.
2.
The LGA has long argued for the devolution of economic development functions to councils and businesses working in partnership at the level of real economic geography. Aligning the geography of decision-making with the actual economic geography and linking decisions across different policies improves outcomes and value for money, as well as improving accountability. This model operates successfully and is the norm in a number of jurisdictions in Europe, and in North America. The Government’s policy of replacing Regional Development Agencies with Local Enterprise Partnerships has the potential to lead to exactly that desirable result.
3.
Councils are currently working with local business leaders and others to develop their LEP proposals in response to the Government’s invitation letter of 29 June. It would not be right to pre-empt the outcomes of local discussions at this point. In most places, we believe councils and businesses are working well together and we hope that this will lay the foundations for lasting improvements in the relationship between business and the public sector.
4.
It may be worth highlighting, however, that both councils and business organisations have perceived a tension between the Government’s insistence that each LEP proposal should be a genuine statement of ambition driven by local agreement, and the many points in the Ministerial letter which suggest that some proposals have been ruled out before they are made. For example, it is not clear what Ministers mean by "led nationally" [does this mean "delivered through a national delivery body"?] for functions such as business support or inward investment; these are services many would-be LEPs would wish to deliver: does a national "lead" allow that? And if a national "lead" were to commission services through a structure parallel to LEPs and not through LEPs, this would create a significant tension with the Government’s wish to reduce the number of public bodies and structures.
5.
Similarly, the Ministerial letter says that natural economic geography requires partnerships between "a number of upper-tier authorities". This has caused puzzlement in some large counties, without neighbouring unitaries, where a county-level arrangement could make economic sense. While the LGA is very pleased that Ministers are determined not to overlay their original letter with further detailed guidance, it must be recognised that local government and business are unused to the idea of Ministers taking a genuinely laissez-faire approach to local proposals and remain suspicious that these ambiguities in the invitation letter require them to second-guess Ministerial preferences which have been set out only partially and obscurely. It will be important for Ministers to reconfirm after 6 September that they want to pursue conversations with all the LEP proposals they receive and are not intending to "pass" or "fail" them against so far undisclosed criteria.
6.
The Committee is interested in the value for money gains which this change may bring. Although there is an obvious immediate gain in removing the RDAs’ significant overhead costs, the real gain from reform is through better targeting, coordination and accountability of decision-making, which should increase the economic return on public expenditure. Although the RDAs have shown a positive return on their spending, what matters, as the NAO has pointed out, is whether that return is as large as it could be. The RDAs have not, for example, achieved private sector leverage to the same degree as the Single Regeneration Budget, which preceded them. There is also evidence that public sector investment is more supportive of growth where decisions about regeneration, spatial planning, transport and employment are taken in a connected way and LEPs should enable that to happen more easily. Specific examples of ways this may work include:
a.
local enterprise partnerships can bring together the range of activities needed to reduce unemployment. Some will focus on job creation, reducing the demand for welfare payments;
b.
interventions can be targeted to local economic priorities based on the local knowledge of councils and businesses and real economic geography;
c.
the budget of local enterprise partnerships can be applied flexibly across different departmental remits, where the local evidence suggests it will generate the highest levels of local economic growth.
7.
On functions, LEPs should be as broad as councils and local businesses want them to be. Many areas want their LEP to cover the full range of inter-linked issues that underpin local economic performance such as local transport provision and infrastructure investment, housing, regeneration, business support and advice (including better regulation), skills and employment, training provision, or support for individual sectors such as tourism. This may be through direct budget-holding and decision-making, or through taking a strategic role and influencing decisions by councils, businesses and other agencies.
8.
There is a risk, however, that the functions Ministers are willing to devolve to LEPs will be limited to those activities that fall within the scope of BIS and CLG, and that other Government departments do not fully understand – or are deterred by departmentalism from acknowledging - the opportunities that local enterprise partnerships provide to overcome the inefficiencies of departmental boundaries though localising budgets and decisions in LEPs.
9.
This is best illustrated with an example. Labour markets are very different from place to place – in some places there are nearly 30 registered Job Seekers Allowance claimants for every vacancy registered at the local Job Centre Plus, in other areas there are more vacancies than claimants. Getting people back into work requires an integrated approach drawing on a range of public services – for example, mental health, child care and housing. However, the Department of Work and Pensions is proposing to commission the Work Programme nationally without making horizontal linkages to other activities relevant to helping people back to work, and shows no signs of engagement with policy on Local Enterprise Partnerships, despite the centrality of employment to local economic performance.
10.
There is also a risk that some current RDA functions may be recentralised even through they could be discharged more effectively by the local enterprise partnership – business support, inward investment, and sector support are examples where the Government has indicated that it wants to lead the function nationally. This seems to us to contradict the Government’s overall intention to localise services. We expect a number of proposals to challenge Departments’ views on the functions that might be undertaken nationally. A particular version of this risk is that lobby groups which have shared an interest in local economic development with RDAs may now prefer to argue that the interests of national strategy are better served by centralising responsibility rather than supporting the logic of the LEP policy. Tourism – although quintessentially driven by the economics of the differences between places - is one area of the economy where this is a particular issue.
11.
The Government has published a consultation paper on the Regional Growth Fund which we are considering. We expect the funding arrangements for local enterprise partnerships to be clarified in the Spending Review. We welcome the proposal that the Regional Growth Fund should pool funding and be flexible about the allocation of money to different priorities such as transport or physical regeneration. We are cautious, however, about the proposed bidding mechanism and hope that this will not cast LEPs as clients of central government departments.
12.
On co-ordination, we agree that it will be important for local enterprise partnerships to co-ordinate their activities where individual issues – major transport projects for example – address economic geography at a higher scale than that of individual LEPs. The need for this will vary from place to place depending on infrastructure needs and development, clusters of economic activity, travel-to-work patterns and the shape of local retail and consumer markets. These linkages will often straddle the former regional boundaries, depending on the economic connections. LEPs, and the support networks they develop can be left to determine their own arrangements for co-ordinating their activity.
13.
On structure and accountability, we would make a number of points:
a.
The precise form and geographical coverage of LEPs will vary from place to place – determining the boundaries will not be an exact science given the complexity of the economy. The LGA’s central message to Government has been the need for flexibility. What is clear is that the former regional boundaries were not driven by economics; the boundaries of LEPs should represent a much better fit between economic geography and what is administratively practicable.
b.
In many places the models for LEPs, and the partnerships with business, already exist, and councils and business will wish to develop them further as a result of the new opportunity;
14.
The Government has announced that Regional Development Agencies will cease to exist in 2012. This timetable allows councils and businesses to put in place the arrangements for local enterprise partnerships. The precise nature of the transitional arrangements will vary depending on how the issues of function and finance, geography and governance are resolved from place to place.
15.
There is a particular concern in many places about how the assets of Regional Development Agencies will be transferred. We understand BIS are preparing an inventory of assets and liabilities, and an options appraisal. This exercise will need to inform decisions about the future of the RDAs’ assets and liabilities. Councils are keen for the Government to decide its general approach the RDAs’ portfolio swiftly.
16.
Such an approach will need to understand how seemingly small, constituent elements significantly impact on the overarching plans for an area. In some places, for example, individual sites make up crucial elements of the land assembly needed to achieve master plans for regeneration. Where this is the case, the taxpayer’s interests will be best served by understanding the value of the overall scheme rather than the individual asset (in this instance, the risk is that, if sold on the open market, any receipt from the asset could be illusory as it would be directly related to the willingness of the public sector to buy it back at a premium). In others, assets may be loss-making but tenanted by voluntary sector organisations, and the consequences of different options for transfer would need to factor in the total taxpayer value of destabilising those organisations. At the same time, a blanket policy of transferring the RDAs’ portfolio to LEPs (or to councils on LEPs’ behalf – not all LEPs will necessarily want to be direct holders of assets, we believe) risks saddling LEPs with the RDAs’ worse investments, as well as those with a positive value.
17.
It is important that these decisions are made with the full agreement of local councils and businesses that will make up the local enterprise partnerships. We believe that the Government’s thinking on this issue is developing less rapidly than that of councils and we recommend that the Government open a full dialogue with LEPs and councils about it quickly.
18.
With regards to funding from outside bodies, the RDAs currently manage the European Regional Development Fund (ERDF) and some of the Rural Development Programme for England (RDPE). Looking forward, LEP priorities should drive all future EU spending on regeneration and skills - including ERDF, RDPE and the European Social Fund 2014-2020 programmes. In the meantime, it will be important to maintain some administrative stability for the remainder of the current ERDF and RDPE programmes while taking opportunities for funds to better meet local business and community needs, such as ensuring strong LEP representation on the decision-making boards allocating funds to projects.
16 August 2010
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