European Regional Development Fund

Written evidence submitted by the Core Cities Group

1 Key points

The Core Cities

1.1 England’s Core Cities (Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield) are the main drivers of the country’s economy outside London and the South East. Their primary urban areas deliver 27% of the national economy, more than London, and contain 16 million residents.

1.2 This critical role has been recognised by successive Governments, and now within the localist ‘City Deals’ process. This has been initiated to secure decentralisation of powers, functions and resources to improve competitiveness and deliver growth across the Core Cities and their Local Enterprise Partnership areas.

1.3 However, Core Cities are also home to much of England’s deprivation and regeneration need, with as an average, 62% of each region’s Job Seekers Allowance claimants residing in or around a Core City. Benefits claimants have doubled across the Core City Local Enterprise Partnership areas since 2004, 7.3% of their populations are now classed as long term sick, with 35% of the whole of the UK’s current claimant count rise located in their LEP areas.

1.4 Yet the growth potential of Core Cities remains strong, with recent independent forecasts demonstrating their capacity for an additional 1.3 million jobs and £61 billion GVA economic output, above current baseline projections, to 2030. This is however dependant in part upon the levels of local financial control required to improve economic conditions and competitiveness, as well as other growth factors. ERDF and ESF have a key role to play in achieving these targets for big cities.

Getting better value and outcomes: a decentralised, integrated approach

1.5 A more decentralised and integrated approach to ERDF across large urban areas will support such growth, and this is recognised in the principle set out by the EU that national ERDF allocations should be delegated to cities for management. However, the Common Strategic Framework has not completely clarified how different funds might work together at this level. Therefore we agree with the direction of travel toward urban priorities and an enhanced role for cities, although the suggested minimum of 5 percent delegation is far less than is currently allocated to UK cities. We are keen to work with Government to model and then implement delivery models that maintain simplicity, but that are able to more effectively support local economic priorities.

1.6 ERDF has been used to fund a wide range of schemes across the Core Cities, primarily with the aims of creating the conditions and infrastructure to support economic growth, business and enterprise, job creation and reducing dependency.

1.7 ERDF represents good value for the UK tax payer which can be evidenced through schemes in Core Cities and elsewhere. However, the review of ERDF and the way in which it is distributed and invested offers significant further opportunities to: maximise value for money; get better economic and employment outcomes; and consolidate and leverage other sources of investment, particularly in our major cities.

1.8 Therefore, as well as contributing to growing and rebalancing the UK economy, the future treatment of ERDF offers considerable potential to further implement the localism agenda. There is substantial evidence, from Europe and elsewhere, that cities with higher levels of self-determination, particularly over investment decisions, have consistently outperformed cities operating within the more centralised English system. Even Scottish cities, in some respects, currently have more freedom than those of England.

1.9 The City Deals process is designed in part to counteract the above effect and stimulate growth. A more decentralised treatment of ERDF would support the process initiated by the City Deals, allowing cities to provide consolidated, holistic, local investment strategies for business, economic growth and jobs. ERDF should be aligned with other European funds within such plans, alongside further local and national investment including as examples: Regional Growth Fund; Growing Places Fund; Tax Increment Financing; other Departmental funds; EIB; and wider Community Budget approaches. EU funds should therefore be seen as an integrated part of local growth and investment plans, bought into and owned jointly by the public and private sectors within a place.

A new localist model for urban ERDF

1.10 Strategic governance, accountability and risk management structures will be key to the successful deployment of ERDF investment. Our view is that there is an important role for the LEP in guiding strategic investment decisions for future economic growth, but that detailed oversight of ERDF delivery should be through the statutory local and national partners of the LEP, rolled out in partnership with the private sector.

1.11 Given the accountability and risk profile of managing EU funds, we understand Government’s concern to design a system that is compliant with EU expectations and can deliver effectively for the nation as a whole. Government’s inclination may therefore be toward a nationally led structure similar to that of the current programme.

1.12 However, our view is that it is both possible and desirable to run a national system within which there is a substantial, delegated allocation to a small number of large urban areas (Core Cities plus), on the basis of local agreement – i.e. non-compulsory - and subject to competency tests. Any allocation to cities would be best done on their ability to deliver growth and reduce dependency, rather than just population numbers.

1.13 This would allow for both national and city-level programming, integrated into wider city economic strategies, creating flexibility, integration and improved outcomes across functioning economies and labour markets. Cities would need to demonstrate competencies, for example: sound economic planning; private sector support; strong governance; added value; and clear accountability and audit routes. Government should work with Core Cities in further developing the detail of these options.

1.14 The suggested approach would take full advantage of the 7 year programming period of ERDF. This would allow cities to develop projects and programmes longer than the term of a given Parliament, allowing integrated and longer term planning.

1.15 Core Cities will also respond to the BIS consultation on ERDF and will send a copy of that paper to this Committee for information. We would be glad to provide a witness to this Inquiry if required, and any further information as requested.

 

2 The role and potential of the Core Cities

2.1 Cities deliver growth, and are the places that will drive future economic performance and productivity. The 8 Core Cities urban areas alone produce 27% of England’s wealth. Add in London and it grows to half; take a few more and the vast majority of our economy is emerging from a small landmass of dense business and population centres. Growth and reform can therefore only happen at sufficient scale in cities.

2.2 Four in five people in the UK live in an urban area and 62% of jobs are located in them. People are drawn to cities for their social and cultural vibrancy and the economic opportunities they offer. Cities drive innovation and have a brand and status that attracts investment to their local and wider areas. For business to compete nationally and globally, they need the assets provided by cities: intellectual capital; private sector agglomeration; connectivity; and investment in public services.

2.3 These 8 LEP areas contain 25% of the entire UK population, and the cities themselves have a higher than average share of employment and growth, highlighting their key economic role. They have a broad sectoral employment base and are home to large, graduate-hungry business and professional services sectors, which will lead economic recovery.

2.4 Yet significant barriers to growth exist, including rising dependency, high levels of deprivation, and low skills levels, coupled with the current lack of systemic flexibility to focus all efforts within a place to deliver the improved outcomes needed. Reform also has an essential role to play in rebalancing the economy by driving up productivity, yet many of the tools for reform are not available at the local level. For example, between now and 2030, our LEP areas will need to bring 300,000 people out of economic inactivity and significantly increase skills levels to have a chance of achieving their growth forecasts and avoid jobless growth.

2.5 Worklessness and in particular low skills levels are a significant anchor-drag on productivity in urban areas. The productivity loss to the state as a result of youth unemployment is estimated at £10 million every day. Because of their high concentrations of deprivation alongside economic opportunity, cities labour markets are the places where public sector reform can deliver greatest rewards.

3 Growth forecasts for Core Cities LEP areas

3.1 Independent forecasts for Core Cities and their LEP areas have been conducted recently, including include three different scenarios: Baseline (little change from current trajectory); Upper (achievable best case); and Lower (possible worst case).

3.2 The Upper case demonstrates a significant opportunity to increase jobs and growth. However, the Lower case could mean a return to urban decay in some areas.

3.3 The transformative effects of the Upper scenario would be profound for both local and national economies, achieving the following across our 8 LEP areas.

Achieved on top of Baseline case	By 2022	By 2030
Additional economic output, GVA per annum	£29 billion	£61 billion
Additional jobs	747,000	1,300,000
Additional people brought out of economic inactivity	170,000	300,000
Net fiscal contribution to Exchequer	£20.5 billion	£43 billion

3.4 However, recession and public finance reductions have had a significant impact, with our LEP’s estimated to have lost almost 250,000 jobs over the period of recession, and a rise in claimant count of 50,000 from September 2010. A protracted contraction in demand and other factors, could lead to:

· the loss of almost 1 million jobs below the baseline forecast; and

· the loss of £37 billion GVA below the baseline.

4 New approaches to reducing dependency

4.1 Whilst driving economic growth is a key priority, the other side of the equation is a critical need to reduce dependency through public sector reform, and ensuring the benefits of economic growth can be linked to the local population. The ‘whole area’ Community Budget pilots, which Include Mancjester, have a pivotal role in in defining how we use our resources more effectively to achieve this, as well as important implications for the future use of elements of EU finance.

4.2 To support new approaches, there is a strong need to tackle the institutional barriers and structures that exist both within places, and between agencies that invest and intervene in an area, to enable efficient, outcome focused working at a local level. Community Budgets offer a route to creating combined single budgets which could radically transform local ability to create growth and reduce dependency.

4.3 Although CLG has shown significant leadership, we have yet to see a real enthusiasm for this approach across the whole of Whitehall, which risks undermining the potential of decentralisation. There are therefore some changes to existing structures and systems which might help facilitate better outcomes from the investment of EU funds.

5 Future EU and ERDF delivery models

5.1 Whilst it is understandable that Government will want to mitigate accountability and risk issues for delivery of ERDF at the national level, our view is that it is both achievable and desirable to create a national system that has a parallel structure for delegation to large urban areas, where the desire and competency to take on delegation exists locally.

5.2 A set of city-designed and delivered programmes might sit alongside a national programme, agreed at the strategic level by LEPs with statutory partners acting as accountable bodies. This should be subject to local agreement (i.e. not compulsory), and dependent upon competency tests, as above. Such a model would require the agreement of an Integrated Territorial Investment to deliver both ERDF and ESF.

5.3 This option would allow Government to provide a localist focus for the major urban LEPs, where greatest potential for increasing growth and reducing dependency exists, whilst maintain a national programme that effectively covers the rest of the country. This option also allows for complete integration of EU funds within wider economic strategies and investment plans, leveraging investment and maximising outputs.

5.4 Within this model, transition areas would need to be taken account of. This might result in a slightly different menu of options and split between ESF and ERDF. If the Core Cities and their partners were to be allocated amounts of funding to manage through a local accountable body, it would be for each city to develop their priorities accordingly.

Core Cities Group

April 2012