The New Local Enterprise Partnerships

Memorandum submitted by the Regional Development Agency network

Introduction

1. This submission is intended to inform the committee’s inquiry into the formation of Local Enterprise Partnerships (LEPs). It represents the views of the Regional Development Agencies (RDAs) outside London, but not those of the London Development Agency (LDA), given London’s unique governance arrangements. A number of RDAs have also submitted supplementary written evidence highlighting regionally specific views and issues.

Context and Background

2. The Government has announced its decision to abolish RDAs, working to a timetable of closure by April 2012. RDAs are committed to working with Government and local partners to achieve a smooth and orderly transition to new arrangements, including the formation of LEPs. In addressing the topics outlined in the committee’s call for evidence, we draw upon the eleven years experience of England’s RDAs in promoting sustainable economic development and regeneration, and highlight a number of issues which have a bearing on the transition to new arrangements.

3. Regional Development Agencies were established in April 1999. They brought together a number of economic development structures that had been operating at sub-national level

Including English Partnerships, Rural Development Commission, Regional Inward Investment Organisations, Regional Supply Chain Offices, Single Regeneration Budget Teams and Innovation and Enterprise Teams (Government Offices).

(a) to further the economic development and the regeneration of [their] area,

(b) to promote business efficiency, investment & competitiveness in [their] area,

(c) to promote employment in [their] area,

(d) to enhance the development and application of skills relevant to employment in [their] area, and

(e) to contribute to the achievement of sustainable development in the United Kingdom where it is relevant to [their] area to do so.

4. RDAs’ founding legislation required RDAs to prepare and keep under review a strategy relevant to their purposes. These Regional Economic Strategies were developed with the involvement of a wide range of regional partners;

Including local authorities, strategic companies, business organisations, Government Offices (and other parts of national government), further and higher education bodies, third sector groups, and other publically funded bodies (e.g. Highways Agency, Environment Agency) whose investments could be aligned with regional priorities to support economic growth.

5. From 2002 onwards, the advent of the Single Programme concept allowed RDAs to merge departmental funding streams to target spend on identified regional priorities. This flexibility enabled RDAs to unlock opportunities and address issues in an integrated manner, in a way that other bodies with more specific remits are not always able to do

Independent evidence (see Impact of RDA Spending; March 2009) has highlighted the role of RDAs in being able to integrate a range of tools, (articulate needs and allocate resources) to provide an integrated economic development function that maximises the opportunities for sustainable economic development.

6. Over the period since their creation, RDAs have been asked by Government to take on an expanding range of functions (see attached table) and budget lines that were previously administered by central Government itself, among other things, administering grants for business, contracting for business support and the management of European funds for economic development. These additions have boosted the agencies’ ability to support business productivity and economic growth, which has been particularly important in tackling the recession and for the development of new technologies and emerging industries such as low carbon, which will deliver new jobs for the future. It is not possible at this stage to say how many of these activities the Government will wish to prioritise for the future, or how they will be delivered.

7. As NDPBs, RDAs have been directly accountable to central Government through BIS, with Chief Executives, as Accounting Officers, answerable to Parliament. RDA board members are appointed by the Secretary of State. A majority have business backgrounds, but every board also includes four appointees from local authorities as well as members from the trades unions, the third sector and, usually, education. The focus and perspective of RDAs has nevertheless been from a business orientation.

8. For the period 20010/11, as part of a national RDA Performance Framework, we have been required to make six monthly reports to our sponsoring Department (BIS) reporting progress against the following 6 core outputs:

· Jobs created or safeguarded

· Businesses created

· Business supported

· People assisted in skills development

· Cross-Regional collaboration

· Carbon reduction

These replaced the previous "Tasking Framework" which required RDAs to demonstrate how they were supporting the delivery of a range of national PSA targets, including the Regional Economic Performance PSA.

PSA 7: ‘Improve the economic performance of all English regions and reduce the gap in economic growth rates between regions’. See also footnote 14.

9. RDAs’ activities have also been subject to regular audit and extensive independent scrutiny and evaluation. For example, the National Audit Office in 2006 conducted comprehensive assessments of RDA capability and performance, with results demonstrating that RDAs were effective and efficient organisations. These were recently updated in supplementary reviews published in July 2010. In one of the largest independent evaluations of its type, commissioned by BERR (now BIS), PriceWaterhouseCoopers found that between 2002/3 to 2006/7 each £ invested by RDAs directly benefited regional economies by £4.50 rising to £6.40 if future benefits were taken into account. The report also found that the RDAs had levered £5.7 billon of private sector expenditure.

ibid.

10. In addition, RDAs have been scrutinised by local authorities and other social and economic partners in their regions, and have engaged with them to share information and best practice, to develop capacity, and to help support and strengthen partnerships including setting up jointly sponsored delivery vehicles.

The Government’s new model for economic growth - the role of LEPs

11. The Coalition Government has stated that, in addition to tackling the deficit, a crucial part of the Coalition strategy is to rebalance the economy structurally and geographically, they:

"… want to create a fairer and more balanced economy where the UK is not so dependent on a narrow range of economic sectors, and where new businesses and economic opportunities are more evenly shared between regions and industries.

"We will support sustainable growth and enterprise, balanced across all regions and industries, and promote the green industries that are so essential for our future."

The Coalition: Our programme for government.

12. In other statements, the Government has highlighted the importance of developing the industries of the future that build on the UK’s industrial strengths – notably the green economy but also design, creative industries and innovative manufacturing.

Foreword, A Strategy for Sustainable Growth.

Theme 1: "The functions of the new LEPs and ensuring value for money"

13. The joint letter from the Secretaries of State for BIS and CLG to local authority and business leaders inviting applications for local enterprise partnerships (LEPs)

Pickles/Cable letter (29 June 2010).

14. Ministers may be open to the proposals for supporting structures on a wider basis than individual LEPs,

See, for example, Vince Cable’s comment at the BIS Select Committee (20 July): "There may be parts of the country where the business groups and the local authorities will feel it is helpful to have a regional structure, but there are others where they will not and we do not want to prejudge them."

15. The Committee’s inquiry is therefore timely. RDAs’ experience over the past decade points to some key considerations that we believe are core to building a better balanced and more sustainable economy. We suggest these considerations might usefully be applied to the transition of functions to LEPs and other arrangements in support of the Government’s wider growth objectives:

a. Business focus: any organisation whose role is to support and engage with business needs an understanding of business and the ability to "speak the language of business". This is key to credibility and the ability to maximise private sector leverage to get the most from public sector investment.

b. Operational flexibility: responding to the needs of businesses requires a flexible approach that allows for the ability to take managed risks and work across administrative boundaries, whilst at the same time addressing long term challenges.

c. Critical mass: scale of resources and scope of remit brings with it a greater ability to influence and lever in the resources and involvement of others, particularly the private sector. It also allows for the development and retention of specialist expertise, for example in economic analysis, knowledge of particular industrial sectors, and professional skills such as planning and land assembly.

d. Coordination, integration and co-investment: to make complex investments needed to secure economic growth, it is vital that economic actors are able to work across boundaries, to bring together the right private and public sector partners, and deploy flexible funding streams in a holistic way.

e. Use of economic evidence and intelligence: to help decision-makers prioritise spend where it will have the best impact, and to focus on interventions that address distinctive issues and market failures - recognising that different parts of the country have different economic legacies and face different challenges and opportunities.

16. More generally businesses across the regions have emphasised the value of stability in the business environment and support framework. The provision of a consistent, long term policy framework for economic development at both national and local level, along with a credible and readily understood "interface" for engagement with the public sector, is most likely to be conducive to private sector and investor confidence.

17. Geographical coverage and potential diversity of LEPs: As ministers have noted, LEPs may not provide complete coverage of England. There is no requirement for all areas to have an LEP, some will be bigger than others, and the Government has said that local choice and capacity should play a big part in the particular range of activities LEPs will undertake. While this local flexibility will be wholly appropriate for some functions, there is also a risk that too much variability could present difficulties and add complexity for business, especially if LEPs in different areas were providing radically different services and functions, for example business support. In the early days, at least, it seems likely that the strongest areas with well established partnerships and resources - for example in some of the larger cities - will be the first to get going, while areas with less established capacity for joint decision making and delivery, such as some rural areas, would need time to catch up. These scenarios pose a question about the potential capability of Government to deliver national coverage for business programmes in those areas where local leaders either fail to secure a LEP, opt against one, or seek very limited responsibilities.

Consideration: How to ensure that LEPs, which are unlikely to be geographically comprehensive and may by ‘functionally asymmetrical’, provide the business community and stakeholders with a consistent, credible and readily understood interface.

18. Effectiveness and efficiency: RDAs are working with local business and authority partners to ensure that applications for LEPs make full use of existing expertise and experience where desired. RDAs are in the top quartile of public bodies for back office efficiency.

HM Government Benchmarking the Back Office: Central Government (2009).

19. Funding of LEPs: Depending on the extent to which LEPs may be expected to provide all or most of their own core funding, smaller LEPs and those representing less prosperous communities, may find it difficult to develop the capacity to deliver effectively, and to access the skills they may need to develop and bring forward projects. This may particularly affect rural areas with a high degree of dependency on smaller businesses. In this context, and given the tight pressure on public spending, the role of the two-year Regional Growth Fund may be relevant as a source of programme funding for LEPs, and it may be helpful if it offered some ability for LEPs to access revenue funding to support project delivery.

20. Competition or collaboration?: As the Agencies have matured we have increasingly pursued, with support from Government, a range of successful collaborative activities seeking to optimise overall impact on national competitiveness, growth and deliver more effective public value for money. Inter-RDA collaboration activities have focussed on innovation, sectors, research and development work, links with high education, transport and inward investment. It is important that mechanisms for collaborative work across key sectors are maintained, and that LEPs are encouraged to work collaboratively across administrative boundaries in the national economic interest, given the varied (and increasingly virtual) nature of economic geography,

Theme 2: "The Regional Growth Fund, and funding arrangements under the LEP system"

21. Regional Growth Fund (RGF): The Government is currently consulting on the design of the two-year regional fund. The announcement on 23 July

BIS, CLG, CO announcement (23 July 2010).

22. The Government’s consultation document suggests that the fund should have dual objectives – to support projects with significant potential for economic growth and sustainable private sector employment; and to support in particular those areas and communities that are more dependent on the public sector. This duality is consistent with the tasking of RDAs and their role in striking a balance between capitalising on economic strengths in order to drive growth, and supporting areas with weaker economies so that they do not fall farther behind.

This tension was also implicit in the previous Government’s target to improve the economic performance of all English regions while also reducing the gap in economic growth rates between regions (PSA 7).

23. This suggests that it will be helpful for the criteria for the two-year fund to set out how the assessment panel will balance the potentially conflicting objectives of the fund, and how applications will be weighted and the effectiveness of funding assessed.

24. Timescales are also important. Regeneration activity typically takes much longer to yield its full economic benefits than targeted sector development work or skills interventions.

See for instance: Impact of RDA Spending (March 2009) and the NAO’s Regenerating the English Regions: Regional Development Agencies’ support to physical regeneration projects (March 2010).

25. It is therefore critical that the fund’s criteria are brought forward as soon as possible, to allow local partners as much time as possible to put forward proposals and to review projects whose development is on hold because of uncertainty about the availability of budgets, which may otherwise be lost and private sector funds withdrawn.

26. Further more, given the two-year lifespan of the RGF, there will be a need for clarity on future funding in order to maximise private investment over longer timescales, particularly since long-term projects are often those that have the greatest economic potential.

27. A number of RDAs have developed innovative infrastructure funds, which have unlocked significant private sector investment through recyclable public sector investments and loans. In the constrained fiscal environment, such approaches can offer good value for money as a way of stimulating private sector investment as well as sustainability in the use of public funds.

Themes 3 and 4: "Government proposals for ensuring co-ordination of roles between different LEPs" and "Arrangements for co-ordinating regional economic strategy"

28. Co-ordination between LEPs: There is an expectation that LEPs will be strategic bodies, and we assume they will need to engage in cross border/multi agency plans. At a sub-national level Regional Economic Strategies have strengthened the alignment of the priorities and plans of different bodies and localities. Our experience suggests that, while the Government is pursuing simplification of the public sector landscape, inter-agency coordination remains important for many aspects of economic development – such as prioritisation of major infrastructure, supply chain development etc. – where a shared approach will deliver the best economic outcomes, maximise value for money, and remove duplication.

29. A successful strategic plan (at sub-regional, regional or national level) cannot be developed and delivered merely by aggregating local or thematic priorities. It requires a detailed analysis of the global, national and sub-national context and economic drivers, and the prioritisation of key objectives for success. Business and higher education and other groups will expect long-term agreed frameworks to support, and instil confidence in, long-term investment decisions.

30. The Government has given a clear steer that LEP proposals should reflect economic geography, which suggests that the availability of robust and sector- specific supporting economic data is likely to be a factor in the consideration of proposals. However this will not necessarily be straightforward, given that economic geography differs according to sector, industry, technology and other factors. Industrial sectors and supply chains rarely conform to administrative boundaries or tight geographies (in emerging sectors, the "geography" is often virtual or trans-national). In such circumstances it will be important for the LEPs and other economic development bodies to coordinate closely to optimise the economic outcome for the country as a whole and the return for public investment. The extent to which LEPs exist in all of the relevant areas would also be relevant.

31. Groups of LEPs may in some cases wish to create shared resources and capacity to support their joint interests and capability across a wider area or region, and to provide specialist expertise. Another possible approach would be for LEPs with distinctive and significant strengths in particular industries – e.g. automotive, aerospace etc. – to take on a national "lead" role working with Government (as RDAs have done in recent years). This would have the advantage that LEPs could help Government to incorporate local perspectives in the development of economic policies. It would also have the effect of introducing an upward accountability line where LEPs were delivering functions on behalf of Government. The absence of such arrangements would raise the theoretical risk of sub-optimal outcomes resulting from poor inter-LEP collaboration or excessive competition, insufficient focus on integrating economic development functions at different spatial levels, or the exclusion of large rural or other areas.

32. In the light of the Government’s decision in principle to abolish the Government Offices, and in the absence of other sub-national structures, there will be a need to determine whether LEPs should take over the RDAs’ current responsibility for managing ‘economic shocks’ that cross local boundaries, and what body should have responsibility in areas without LEPs. Recent examples include the closure of major manufacturing sites

Examples include the collapse of MG Rover, the closure of the Teesside Corus plant and the wide ranging impacts of the recession.

Consideration: How should LEPs interface effectively with key sectors whose functional economic area spans several LEPs/sub-national regions?

Consideration: What incentives should LEPs have to do this, and what levers will BIS have to ensure delivery and fit with national policy objectives?

Consideration: Who should lead on the response to major economic shocks?

Theme 5: "Structure and accountability of LEPs"

33. Structure: LEP structure and accountability arrangements should reflect their agreed functions, and conform to public sector standards in relation to openness and transparency. The following comments are indicative in advance of clarification of the envisaged functions of LEPs, and how the Government will deal with wider RDA functions post-abolition.

34. Meaningful business involvement is critical: A mixed board of business and local authority leaders will provide local accountability by enabling local figures to be held responsible for the performance of their LEP. In our experience, businesses will seek involvement and remain committed partners only as long the body is able to take decisions efficiently leading to demonstrable and effective change ‘on the ground’, and decisions are not driven by political timetables or non-economic considerations. BIS’s commitment to business chaired boards is a key mechanism for meeting these requirements.

35. This suggests that business leaders should be involved from the outset in LEP formation and invited to engage in open and equal discussion. Although the identification of local authority representatives for LEPs will in most cases be relatively straightforward, it may be more difficult in some areas to secure an appropriate blend of business representation. To be fully effective, boards should reflect a spread of business size, sector expertise, as well as strong links to other key actors in the development and delivery of economic development projects, such as HEIs, Third Sector, other public bodies (UKTI, Highways Agency, NHS, TSB etc.).

36. Funding: With a number of potential funding streams derived from both local and national government, as well as potentially from business and the European Commission, LEPs can expect to be accountable to a range of external bodies. Governance structures will therefore need to be sufficiently robust to cope with multiple reporting structures.

Theme 6: "The legislative framework and timetable for converting RDAs to LEPs, the transitional arrangements, and the arrangements for residual spending and liability of RDAs"

37. Following the Government’s decision to abolish RDAs, RDA Chief Executives have been in regular communication with BIS seeking clarification of the intended post-RDA policy, to ensure that we are able to deliver an orderly transition of functions, assets and liabilities, whether this is to LEPs, to national leadership, to other bodies, or curtailment.

Letter from Jane Henderson to Philip Rutnam, 16 July 2010.

38. To facilitate the smooth abolition of the Agencies and a potential transfer of functions, assets and resource, we have highlighted a number of risks which we are working with BIS to mitigate. Among these one of the most important is the risk of RDA staff with valuable specialist expertise and knowledge being lost ahead of a potential central involvement in alternative arrangements. This in turn could undermine the effective disposal or transfer of assets and liabilities (some of which are critical to delivery of national economic objectives) and add to the challenges of efficiently managing the numerous and highly complex nature of investments and joint ventures.

39. There is also a risk of disruption to the pipeline of economic development projects (at various stages of development), undermining economic prospects, particularly in likely high-growth sectors subject to intense international competition and investment. The impact of these risks is naturally exacerbated by recent RDA budget cuts, which have caused RDAs to wind-down future commitments and which, in the absence of a replacement body of comparable nature (e.g. a set of public economic development bodies operating to a comprehensive geographical coverage with a clear set of agreed sub-national priorities) is already disrupting the flow of future projects and potential for future growth.

Theme 7: "Means of procuring funding from outside bodies (including EU funding) under the new arrangements"

40. Private Sector funding: There is broad consensus among economists that the private sector is still reluctant to invest at this point in the cycle. In order to be successful in unlocking private investment, we believe that LEPs will need to foster strong relationships with businesses. Business credibility and staff expertise are key success factors: feedback from businesses who have invested in RDA projects suggests that they value at least three key characteristics of the RDAs: connectedness and influence, expertise and credibility, and the ability to invest. The latter is often seen as the least important.

41. Thus LEPs will face the immediate challenge of de-risking private investment in order to stimulate private enterprise and growth at a key point in the economic cycle, and ensuring that they have the necessary capacity and credibility.

42. EU Funding: Following the decision to close the RDAs, discussions have now commenced on new delivery arrangements for ERDF and RDPE consistent with EU policy frameworks.

43. There is £1.3 billion

Based on level of commitments as at 30 June 2010 and at an average exchange rate of £1 = €1.2074 over the life of the programme.

44. However, in order to draw down these funds, programmes may need to find another £1.3 billion

The total level of match will depend on the exchange rate.

45. It is important to note that management responsibilities for the current programmes will continue until at least mid 2017 and, based on experience of the previous programmes, could last well beyond 2020.

13 August 2010

Annex 1: Table One: Main Regional Development Agency Functions