The New Local Enterprise Partnerships: an Initial Assessment

House of Commons Business, Innovation and Skills Committee

The New Local Enterprise Partnerships: An Initial Assessment

First Report of Session 2010–11

Volume I Report, together with formal minutes, oral and written evidence

Additional written evidence is contained in Volume II, available on the Committee website at www.parliament.uk/bis

Ordered by the House of Commons to be printed 29 November 2010

434-I Published on 9 December 2010 by authority of the House of Commons London: The Stationery Office Limited £23.00

Business, Innovation and Skills Committee

The Business, Innovation and Skills Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Innovation and Skills.

Current membership Mr Adrian Bailey MP (Labour, West Bromwich West) (Chair) Mr Brian Binley MP (Conservative, Northampton South) Paul Blomfield MP (Labour, Sheffield Central) Katy Clark MP (Labour, North Ayrshire and Arran) Rebecca Harris MP (Conservative, Castle Point) Margot James MP (Conservative, Stourbridge) Simon Kirby MP (Conservative, Brighton Kemptown) Gregg McClymont MP (Labour, Cumbernauld, Kilsyth and Kirkintilloch East) Ian Murray MP (Labour, Edinburgh South) Mr David Ward MP (Liberal Democrat, Bradford East) Nadhim Zahawi MP (Conservative, Stratford-upon-Avon)

The following members were also members of the committee during the parliament. Luciana Berger MP (Labour, Liverpool, Wavertree) Jack Dromey MP (Labour, Birmingham, Erdington) Nicky Morgan MP (Conservative, Loughborough) Chi Onwurah MP (Labour, Newcastle upon Tyne Central) Rachel Reeves MP (Labour, Leeds West)

Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/bis. A list of Reports of the Committee in the present Parliament is at the back of this volume.

Committee staff The current staff of the Committee are James Davies (Clerk), Eliot Barrass (Second Clerk), Louise Whitley (Inquiry Manager), Neil Caulfield (Inquiry Manager), Anita Fuki (Senior Committee Assistant), Stephen Furber (Committee Assistant) and Jim Hudson (Committee Support Assistant).

Contacts All correspondence should be addressed to the Clerk of the Business, Innovation and Skills Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected]

Contents

Report Page

Summary 3

1 Background to the Inquiry 5 Introduction 5 Committee inquiry and structure of this report 7

2 The Creation of New Local Enterprise Partnerships 8 The record of the RDAs 8 The record of other existing economic partnerships 10 LEPs as an opportunity for culture change 11 Scope for better business and local government cooperation 11 Functional economic geography and critical mass 13 Regional variations 14 The position in comparison with Scotland and Wales 16 Is there a ‘right’ number of LEPs? 17

3 The Functions of Local Enterprise Partnerships 19 Former RDA functions to be transferred to the national level 19 Priorities for the new Local Enterprise Partnerships 20 The role of LEPs in setting skills agendas 22

4 Collaboration and competition between Local Enterprise Partnerships 25 Collaboration between LEPs 25 An ongoing need for active coordination? 27

5 Timing and transition of the change to Local Enterprise Partnerships 29 Is now the right time to move to LEPs? 29 Achieving a smooth transition 31 RDA staff, and the importance of retaining RDA know-how 32 Business certainty on funding 33 Continuity of EU funding 34

6 Funding and resources for the new bodies 36 Financing the new bodies 36 RDA assets 39 The Regional Growth Fund 40

7 Powers and accountability 43 Challenges and opportunities in achieving accountable and fully functioning bodies 43 The need for appropriate powers 43 Accountability 46 Stability 47

8 Conclusion 49

Conclusions and recommendations 50

Annex 55

Formal Minutes 57

Witnesses 58

List of written evidence 59

List of written evidence in Volume II 59

Summary

The need to maintain the momentum of economic recovery makes it timely to take a fresh look at sustaining local growth. Our Report indicates broad support for the creation of Local Enterprise Partnerships as a way of addressing local growth. In particular we recognise the potential of LEPs to offer a greater focus on local economic needs, and build on the affinity between business, local government and other partners at a local level.

LEPs also offer opportunities to improve on the achievements of the Regional Development Agencies, but it would be a retrograde step were the RDAs’ successes in overcoming unfruitful local rivalries to be lost in a disorderly competitive scramble. It is right that LEPs should compete at certain levels, but there will be an equally important need for them to collaborate where it makes economic sense. Mechanisms should be put in place to encourage this. We also recommend that the Government monitor very closely the overall performance of LEPs against the Scottish and Welsh enterprise bodies, especially as, unlike those bodies, LEPs will need to be broadly self-financing.

Local Enterprise Partnerships are being introduced quickly, and at a time of greatly constrained public funding. We set out our concerns that, in the short term, LEPs will need know-how and powers and in some cases financial resources to make a positive difference. This will be a challenge to both Government and the business sector. LEPs can offer the kind of forum for implementing business objectives which business has often sought, so the business community will need to be prepared to give its support both in resources and finance. For its part, Government will need to be willing to devolve power to LEPs to give them credibility from the outset. That need for devolution and willingness to hear the local voice should extend to recognition of regional bodies—including permanent regional bodies—where there is a majority demand for them.

Government needs to be conscious of the potential gap in LEP funding—between start-up and an eventually self-sustaining financial model—and in certain cases be willing to support LEPs at inception. LEPs’ role in promoting growth and rebalancing the economy is too important, and the potential dividends from their success too great, to permit them to fail for lack of small amounts of transition funding.

The Regional Growth Fund will play an important part in supporting recovery and in rebalancing the economy, but it should be aligned with other sources of Government funding to minimise gaps in overall support for enterprise and to recognise the needs of smaller businesses and of the rural economy. The RGF application process is not straightforward, and it risks being weighted in favour of more affluent areas. The Independent Advisory Panel which is charged with considering applications for funds under the RGF will need to consider whether superficially less well presented offerings merit further examination.

If LEPs are to be a success, the Department’s transition team will need to concentrate its efforts in three areas: retaining RDA know-how, realising the full potential of RDA assets, and leveraging potential EU funding. Our Report highlights the importance of retaining RDA know-how and we air our concerns that this may not be receiving sufficient

attention. Furthermore, it is an area in which a small amount of transition funding could pay a considerable dividend.

Finally, LEPs, unlike RDAs, have both the advantage and the disadvantage of being creatures of local political persuasion. In many instances this might offer more cohesion, but LEPs run the risk of being undermined by political instability. A principal determinant of the success of the LEP project will be in the extent to which central and local government, business, and other sectors can offer stability alongside a welcome move toward more local diversity.

1 Background to the Inquiry

Introduction 1. In March 2009, our predecessor Committee scrutinised the performance of the Regional Development Agencies.1 Its report examined the merits of the RDA structure and considered published reviews by the National Audit Office and an ongoing review by PricewaterhouseCoopers.2 In particular, it covered the likely impact of the then Government’s Local Democracy, Economic Development and Construction Bill— including the Bill’s requirements for local authorities to perform economic assessments, and raised concerns that the RDAs’ expanding remit was distracting them from their core functions.

2. Following the General Election, the Coalition Government announced that the RDAs would be abolished, with many of their core functions being taken over by new Local Enterprise Partnerships. The policy of removing RDAs was presaged to a greater or lesser extent in the manifestos of both Coalition parties. The Liberal Democrat Manifesto said that the party would:

[r]eform Regional Development Agencies (RDAs) to focus solely on economic development, removing duplication with other parts of government and allowing substantial budget reductions. We will give responsibility for economic development to local authorities. Where existing RDAs have strong local support, they may continue with refocused economic development objectives. Where they do not, they will be scrapped and their functions taken over by local authorities.3

3. The Conservative Manifesto stated:

We will give councils and businesses the power to form their own business-led local enterprise partnerships instead of RDAs. Where local councils and businesses want to maintain regionally-based enterprise partnerships, they will be able to.4

4. The Coalition Agreement formalised the position of the two parties: “We will support the creation of Local Enterprise Partnerships—joint local-authority-business bodies brought forward by local authorities themselves to promote local economic development— to replace Regional Development Agencies. These may take the form of the existing RDAs in areas where they are popular.”5

5. On 29 June 2010, the Secretary of State for Business, Innovation and Skills and the Secretary of State for Communities and Local Government wrote jointly to local authority leaders and business leaders, inviting them to submit outline proposals for Local Enterprise

1 House of Commons Business and Enterprise Committee, Fourth Report of Session 2008-09, Regional development agencies and the Local Democracy, Economic Development and Construction Bill, HC 89-I

2 PricewaterhouseCoopers report, Impact of RDA Spending, March 2009; National Audit Office report, Regenerating the English Regions, March 2010. 3 http://network.libdems.org.uk/manifesto2010/libdem_manifesto_2010.pdf 4 http://media.conservatives.s3.amazonaws.com/manifesto/cpmanifesto2010_lowres.pdf 5 www.cabinetoffice.gov.uk/media/409088/pfg_coalition.pdf

Partnerships by 6 September—a ten-week time period.6 The letter itself contained outline parameters for LEP submissions—on roles, governance and size, as well as listing a number of functions which the Government believed would be led nationally; for example, inward investment, sector leadership, responsibility for business support, innovation, and access to finance such as venture capital funds. The letter also stipulated that partnerships should “better reflect the natural economic geography of the areas they serve and hence … cover real functional economic and travel to work areas.”

6. 55 LEP bids were received by the Department, along with a further bid relating to tourist collaboration (in the South East), two others on regional cooperation (in the North East and the West Midlands), and four more on cross-boundary working arrangements (in the North West, Peak District, the South East, and West Leicestershire and Northern Warwickshire).

7. While the bids were being considered, the Secretaries of State for Business, Innovation and Skills and for Communities and Local Government wrote to the Mayor of London, London borough leaders and London business leaders on 8 October 2010 inviting proposals from partnerships of London boroughs for London local enterprise partnerships. Submissions were requested by 5 November 2010.

8. On 28 October 2010, the Department announced that 24 of the 55 LEP bids had been approved. On the same day, the Department published a White Paper, Local growth: realising every place’s potential7 which provided further details on the LEP process and abolition of the RDAs.

9. In a parallel development, in July 2010, the Government also announced the creation of a Regional Growth Fund to address the lack of balance in the economy in England.8 The two main objectives of the fund would be:

to encourage private sector enterprise by providing support for projects with significant potential for economic growth and create additional sustainable private sector employment; and

to support in particular those areas and communities that are currently dependent on the public sector make the transition to sustainable private sector-led growth and prosperity.9

Initially the fund comprised a total of £1bn of investment for the years 2011–12 and 2012– 13. The Spending Review, published on 20 October 2010, increased that sum to £1.4 billion, spread over three years to 2013–14.10

6 www.communities.gov.uk/documents/localgovernment/pdf/1626854.pdf; and see Annex 7 www.bis.gov.uk/assets/biscore/regional/docs/l/cm7961-local-growth-white-paper.pdf 8 www.bis.gov.uk/Consultations/regional-growth-fund-consultation?cat=open 9 Op. cit., page 6. 10 See Table 2.5; www.hm-treasury.gov.uk/spend_index.htm

Committee inquiry and structure of this report 10. We decided to undertake an inquiry into the Government’s proposals for LEPs in the context of the acknowledged need for sustainable growth and a rebalancing of the English economy and to make some observations of our own on a policy that is still being developed and fine tuned. We therefore decided to make this area the subject of our first inquiry of the new Parliament.

11. Contributors to the inquiry were invited to submit evidence on the following areas:

x The functions of the new Local Enterprise Partnerships and ensuring value for money;

x The Regional Growth Fund, and funding arrangements under the LEP system;

x Government proposals for ensuring coordination of roles between different LEPs;

x Arrangements for co-ordinating regional economic strategy;

x Structure and accountability of LEPs;

x The legislative framework and timetable for converting RDAs to LEPs, the transitional arrangements, and the arrangements for residual spending and liability of RDAs;

x Means of procuring funding from outside bodies (including EU funding) under the new arrangements.

12. We received 131 submissions, which reflect the breadth and depth of interest in the future of local enterprise and regeneration. We held four oral evidence sessions during early September and October 2010, first with a cross-section of RDAs and the Local Government Association, the National Audit Office and the TUC; secondly with the British Chambers of Commerce, CBI, Federation of Small Businesses, and IoD; thirdly with a cross-section of LEP bidders; and finally with the Minister of State for Business and Enterprise, Mr Mark Prisk MP, on 21 October 2010. We thank all the individuals and organisations who took the time to provide evidence to assist this inquiry.

2 The Creation of New Local Enterprise Partnerships

The record of the RDAs 13. The new Local Enterprise Partnerships will replace the existing Regional Development Agencies. The RDAs came into existence in 1999, bringing together a number of structures and funding streams which had focused on regeneration, including English Partnerships, the Rural Development Commission, regional inward investment organisations, regional supply chain offices, single regeneration budget teams and innovation and enterprise teams (in Government Offices). The original statutory remits of the RDAs were (for each of their respective areas):

(a) to further economic development and regeneration;

(b) to promote business efficiency, investment and competitiveness;

(d) to enhance the development and application of skills relevant to employment; and

(e) to contribute to the achievement of sustainable development in the United Kingdom where it is relevant to [their] area to do so. 11

They were also obliged to prepare and keep under review a regional economic strategy for their area.12

14. However, over time the RDAs’ functions expanded to include innovation, sectoral development, tourism, implementation of digital access, transport infrastructure, resource efficiency, social exclusion and response to economic shocks.13 In addition, in 2006 they acquired a PSA (public service agreement) target to “[m]ake sustainable improvements in the economic performance of all English regions and over the long term reduce the persistent gap in growth rates between the regions, defining measures to improve performance and reporting progress against these measures by 2006”.14

15. In some activities, for example economic shocks, there was evidence of effective intervention. EEF asserted that “RDAs played a very important role in gathering good quality economic intelligence based on their understanding of the area and preparing areas very well for when they encountered economic shocks”.15

16. The TUC agreed:

11 Regional Development Agencies Act 1998, section 4(1).

12 See section 7 of the 1998 Act. 13 For a full list, see Ev 152. 14 http://webarchive.nationalarchives.gov.uk/+/http:/www.berr.gov.uk/aboutus/corporate/performance/performance_Fr amework/page14316.html 15 Q 72 [Radley]

We think the RDAs have been very important in providing adequate co-ordinated responses to economic shocks and…the committee heard before about the Rover taskforce, but I think maybe an even more current example is the Corus situation in the North East, where the Regional Development Agency worked closely with local councils and local businesses, with Jobcentre Plus and others, including trade unions, to put in place a package of support, including support, for example, for apprentices whose contracts came to an end with the closure of the Corus plant.16

17. Other RDA functions, however, were considered to have been distractions from their principal objectives. John Cridland of the CBI put it in this way:

Arguably, what we got wrong with RDAs is that, when they began to succeed, as so often happens, we became excited and we said, “If they can do that, why do they not do x, y and z as well?” We gave too many things to RDAs, so they almost became the only game in town rather than differentiating where region was the main issue because of an economic zone or where local was the main issue because of a travel to work area. On some issues, such as I have illustrated with the national innovation policy, when we are on a relatively small island with modest resources, greater national drive would work. There is room for each.17

18. RDAs also suffered from a perceived deficit in accountability as a result of the failure of the policy for elected regional assemblies. As Tom Riordan of Leeds City Council told us, “one of the problems with the RDAs was that they never managed to become creatures of our regions enough, because of the lack of democratic accountability and despite lots of efforts by people and good working relationships with local government.”18

19. As non-departmental public bodies, RDAs were directly accountable to central Government through the Department and RDA board members were appointed by the Secretary of State. A majority of the board members had business backgrounds, but each board also included four local authority appointees as well as members from trade unions, the third sector, and usually education. RDAs therefore appeared to provide a forum in which business and local government were able to decide jointly on strategy. However, British Chambers of Commerce told us:

RDAs had business-led boards, but very many of our business members in the Chambers and probably some of the other business organisations as well often felt frustrated that they weren’t strong representatives of the business community’s voice as a whole or that they only represented a business that actually was involved in public sector contracting, etc. There were always some frustrations around that.19

20. There was also criticism that RDAs did not achieve the level of private sector leverage seen with the Single Regeneration Budget which had preceded them.20

16 Q 44 [Nowak]; Councillor Sparks also gave some favourable views – see Q 49. 17 Q 84 [Cridland] 18 Q 125 19 Q 79 [Marshall] 20 Ev 143 (Local Government Association), paragraph 6

21. EEF gave the following appraisal of the RDAs:

The RDA network chalked up both successes and failures in its 12 year history. It is therefore important to look at the strengths and weaknesses of the RDAs as we move towards a new system of sub-national governance.

RDAs improved the understanding of local economies and their connections with businesses and helped to identify and deal with the consequences of economic shocks. They were also able to catalyse delivery of infrastructure that would have economic benefits beyond Local Authority boundaries and took a strategic approach to planning decisions.21

22. It is clear that while RDAs provided many benefits to their regions, mission creep and the lack of a clearly defined strategy undermined their success. Furthermore, they suffered from a democratic deficit. A key test of the new Local Enterprise Partnerships will be the extent to which they learn from both the successes and the failures of the RDAs.

The record of other existing economic partnerships 23. Running alongside the RDAs were a series of ad hoc economic partnerships between business and local government. Several LEP bids have been based on those networks or partnerships between business and local government, including those from Greater Manchester, Leeds City Region, Coventry and Warwickshire, Thames Valley Berkshire, and West of England. There are other such partnerships, both at higher and lower levels than that of LEPs, among them Furness Enterprise, Central Bedfordshire Strategic Partnership, Gatwick Diamond, South East Economic Partnerships, South East Diamonds for Investment and Growth and the Northern Way.

24. The overall impression given by the persistence of these partnerships and the quality of some of their submissions, both to the inquiry and as bids for LEP status, is that they offer a track record of successful co-working between local authorities and businesses. What is perhaps regrettable is that the decision to move forward to LEP bid invitations was not made in the light of at least some transparent review of the relative successes of these bodies, and of the lessons to be learned from them, particularly those operating at the same functional economic level as LEPs. A proper evidence base for the policy decision would have included such a study, with consideration of the merits of such proto-LEPs against the merits of retaining an ‘RDA lite’ structure; that is, a retained RDA system but with a slimming back down of RDA functions to those originally envisaged.

25. LEP policy is already being implemented, but it could be proceeded with alongside an examination of the record of some forerunners to LEPs, so that lessons could be learned from their performance and from any failings. The learning curve of the initially successful 24 bidding organisations is one that could also contribute to the success of other, following, LEPs and help to even out performance. Given the important part that LEPs will play in recovery, we recommend that the Government undertake a rolling review of the first tranche of LEPs.

21 Ev 123

LEPs as an opportunity for culture change 26. The evidence submitted to us indicated broad support in principle for the move to LEPs. That support represented a reasonable cross-section of bodies such as Centre for Cities, University of Plymouth, Pennine Lancashire Chief Executives, Yorkshire and Humber Stakeholders Group, and the Greater Manchester Chamber of Commerce. Of the 131 submissions to us, very few, if any, were entirely opposed to the idea of LEPs, although many had reservations about certain aspects of how they would work. John Cridland of the CBI said, “what is encouraging [...] is that everybody, all key stakeholders and existing bodies, is accepting the principle of change. Nobody is trying to swim against the tide.”22 Chris Fletcher of Greater Manchester Chamber of Commerce commented that: “businesses are very interested in this; there’s a great deal of interest out there—a surprising amount of interest out there.”23

27. The positive reaction appears to be based on the scope for LEPs to facilitate better cooperation between business and local government (flowing from the inherently smaller geographies of functional economic areas, compared with regions), provided there is proper business engagement.

Scope for better business and local government cooperation 28. Louise Bennett of Coventry and Warwickshire Chamber of Commerce, itself a signatory to the Coventry and Warwickshire LEP bid, set out the advantages of LEPs to the partnership between business and local government, saying:

I think that having the private sector at the table gives you a stronger barometer of what’s going on in the economy, both locally and globally, and I think it gives us a real opportunity to have very much demand-led local economies.24

29. The CBI highlighted the importance of dialogue between local authorities and business. It argued that “too often, the business community and the local authority world are not sufficiently involved with each other. It is clear to us that there are some sub-national issues for the business community which are of great importance, where business is an absolutely key stakeholder.”25 This point was reiterated by the Institute of Directors who described the interaction between the two in the following terms “in our experience, they are not sour; they are not bad; but there is a lot of misunderstanding between the two. LEPs present an opportunity for us to address that”.26

30. Among our first panel of LEP witnesses, Alex Plant of Greater Cambridge and Greater Peterborough saw LEPs as an opportunity to improve on this. He believed that LEPs had the potential to be “truly business led” and have a “genuine local focus and differentiation”.27 Paul Gresham of Gatwick Diamond Initiative added: “Absolutely, the

22 Q 95

23 Q 127 24 Q 156 25 Q 70 [Cridland] 26 Q 78 [Ehmann] 27 Q 118

business focus is important. SEEDA, which was our RDA, was very supportive, but it did have a large geographical patch.”28 Geoff French of the Enterprise M3 bid commented: “LEPs give you the opportunity to look at the geographic areas and have logical areas for each LEP, rather than areas that are dictated by historic boundaries, which are really no longer applicable in many instances.”29

31. The need for real business commitment and involvement was highlighted both as an opportunity and a challenge. The Local Government Association believed that:

“unless you have everybody in an area signing up to what’s on offer, you are not going to get the passion. That was the disadvantage that some RDAs had [...] Now, if you have a group of people—local authorities and businesses—who go to the trouble to come forward with a proposal, and they have the passion about that proposal, then that has to be the right way forward.”30

32. In a later session, Geoff French of Enterprise M3 referred back to this, saying:

I was looking at the evidence given by the Local Government Association, [who] spoke about having areas that were small enough or appropriate enough that you could have a passion for them—that was the word he used—or an affinity for them. I think that’s very much the case. I can have an affinity for North Hampshire and the M3 corridor, because that’s where I spent all of my working life, but not for some larger amorphous mass.31

Barrie Williams of Business Voice West Midlands put it in this way:

I think that, as a previous speaker said, it’s about areas of business that have an affinity with each other. There are natural communities of businesses that work around specific industries very often, and whether they cross borders or are on the borders or not, that’s the group of people that want to come together, because they are the people who can really make the thing work.32

33. Yorkshire and Humber Chambers of Commerce rightly set the bar very high for LEP aspirations. It said that “LEPs had to ‘ramp up’ business involvement way above what has been done in most LSPs33 in the region and in the Leeds City Region pilot”. 34 It also argued that Government should reject proposals which did not demonstrate a true partnership with business. It concluded that “businesses need to be directly involved in the formative stages of the LEPs, not asked to sign up to a pre-defined structure and plan”.35

28 Ibid. 29 Ibid. 30 Q 59, Sparks 31 Q 120 32 Q 158 33 Local Strategic Partnerships 34 Ev w298, paragraph 4 35 Ibid.

34. It is clear that there is a significant level of enthusiasm for a fresh approach to partnerships between business and local government; and one which is based on a greater affinity for local economies among those participating. We conclude that LEPs have the potential to offer a more dynamic approach to enterprise through local businesses and local government. LEPs may also provide an enhanced opportunity for small and medium sized businesses to have a greater say in local development priorities. The opportunity for greater business command represents, however, a challenge both to business communities and to local government to be yet more proactive and creative.

Functional economic geography and critical mass 35. The joint BIS and CLG letter of 29 June 201036 indicated that LEPs should reflect “functional economic areas”; in other words, areas that are reasonably self-contained and coherent in terms of their travel-to-work pattern or economic homogeneity, also taking into account matters such as extent of supply chain or transport infrastructure. Working with such areas has the advantage that they are more likely to deliver business engagement.

36. It is clear that some RDA regions were simply too big to profit from that kind of local empathy. Examples frequently cited include the distance of Cornwall from Bristol, or the arbitrary separation of counties such as Hertfordshire (which fell into the South East England Development Agency’s area) from its neighbour Bedfordshire (which came within East of England Development Agency territory) notwithstanding that the considerably more distant Sussex was still counted within the South East, and the totally different nature of the Manchester economy from that of Cumbria.

37. It is worth noting, however, that RDAs’ policies were far from being applied on a blanket basis within regions, and were capable of nuance toward local needs; merely because the SWRDA counted both upland Devon and Bristol within its geographical remit did not mean that it lacked the sophistication to apply different considerations to them.37 However, it is also true that there was dissatisfaction with RDA procedures: in its evidence, the Regional Studies Association said “The Local Enterprise Partnership [...] proposals are welcome in the sense that they may free localities from top-down national control through literally volumes of guidance and regulation that characterised the functioning of the [English] RDAs”.38

38. On the question of whether local authority boundaries fit the bill for deciding what is a functional economic area, the Centre for Cities publication Beyond the Boundaries: Why cross-boundary collaboration matters and what this means for local enterprise partnerships39 highlighted the distinction between such boundaries and real economies, observing that many UK cities are “’under-bounded’ with administrative geographies that captured only part of their real economic areas, including “the area where people commute, shop and do

36 See Annex. 37 The Area Action Forces initiative is an example of tailoring approaches to the needs of individual areas. 38 Ev w193, paragraph 22 39 www.centreforcities.org/assets/files/10-09-07%20Beyond%20the%20Boundaries.pdf

business.”40 Examples cited include Leicester, with only 51% of Leicester’s jobs taken by Leicester residents, and Sunderland, where the Nissan supply chains extended substantially beyond the local authority area of Sunderland.

Regional variations 39. Different parts of England will face different challenges, and the critical mass and degree of regional coordination necessary for LEPs will vary between different parts of the country. Tom Riordan of Leeds City Council believed that this was reflected in the North of England:

I think the further away from London you are, the more critical mass you need, from my experience of the last few years in the RDA. Particularly in the North, we need significance to catch the eye of those national agencies and policymakers who sometimes find it quite hard to get their heads around the geography of the country.”41

40. The CBI, a survey of whose members had produced some 66% support for a continued level of regional coordination, noted that requirements differed across the country but that support was far stronger in the North and the Midlands, where regional identity is stronger, than in the East and the South, where it was not as strong. John Cridland argued that:

You see in a number of those Northern and Midland regions that business groups have said that, even if there are a number of LEPs, there may be a need for an overarching body that can deal with some of the bigger ticket infrastructure issues, which a number of us have said is a prime purpose of business engagement with local authorities across boundaries.42

41. Speaking of the six West Midlands LEP bids, Sir Roy McNulty of Advantage West Midlands believed that a level of regional coordination in the West Midlands would be necessary:

It would be very difficult for six LEPs separately to address either of [the] issues [of supply chain and international competitive advantage. A shock as big as the Rover collapse spread right across the West Midlands. Major industries like automotive and aerospace, which again spread right across the West Midlands, would not wish to deal six times with different bodies to address the macro issues that concern them. That point has been made very forcibly to me by people from the automotive sector and the aerospace sector. I think all of that points to the need…for some form of coordinating body.43

40 Op. cit., Chapter 1, paragraph 2. 41 Q 119 42 Q 74 43 Q 3

42. The North East Economic Partnership44 submitted a proposal whereby LEPs in the North East would collaborate on a wide range of issues including legacy projects of One North East, carbon capture and provision of expertise for developing the low carbon economy, inward investment, sectoral support and applying for EU funding. We understand that the Government intends to recognise and work with the North East Economic Partnership, albeit the details are presumably still being worked on, and we welcome that willingness. There appears also to be a strong wish to establish a body to represent the views of Yorkshire LEPs.45 Other such partnerships may emerge, for example in the West Midlands.

43. A consistent theme in the evidence we heard was that such partnerships should be allowed to emerge and evolve organically within the relevant areas based on what local bodies agree is needed.46 The County Councils Network described these as “coalitions of the willing.”47 Chris Fletcher of Manchester Chamber of Commerce believed that the vital factor in establishing such partnerships was that they were “a product of the LEPs, not the other way around.” If they were not, he warned that RDAs would merely be reinvented.48 Barrie Williams of Business Voice West Midlands agreed, though he raised the concern that should evolution not start “on day one” then services such as the Manufacturing Advisory Service could be lost.49

44. The need for well-constructed coordination was put forward in the Centre for Cities paper Beyond the boundaries. Taking the example of the Birmingham city region it found that manufacturing firms in that area could choose “between 55 different support initiatives, provided by at least 29 separate delivery bodies and portals”. It observed that this was confusing, ineffective and inefficient and that:

[c]oordinating activities across the real economic area increased the opportunities to reduce confusion, rationalise service provision and realise economies of scale and scope—as well as improve relationships with business who can then have just one main point of contact.50

45. We believe that regional groupings should be recognised where there is a wish for them and the Government should be prepared to fully engage with such bodies where they have clear local business support. Where a minority of business community members in an area disagrees with the need for a regional grouping, that minority should be willing to show flexibility in accommodating the majority wishes of members who want to maintain an element of regional coordination. Regional groupings should

44 A consortium of the Association of North East Councils and the Northern Business Forum, proposed to operate as a company limited by guarantee. Members of the NBF include the North East Chamber of Commerce, CBI North East, EEF Northern, the IoD and the FSB. ANEC includes all 12 North East strategic councils. 45 See, for example, Ev w299, paragraph 10. 46 See, for example, evidence from: Devon and Cornwall Business Council, East of England Business Group, Greater Manchester Chamber of Commerce, CEDOS/ADEPT, and the Regional Studies Association. 47 Ev w64 48 Q 132; and see also Qq 136 and 137 [French.] 49 Q 167 50 Op. cit., page 7.

also be recognised where LEPs believe it is appropriate to have an overarching body dealing with matters such as transport, infrastructure or EU funding.

The position in comparison with Scotland and Wales 46. Both Scotland and Wales have their own development agencies, which have dedicated budgets and impressive one-stop shop websites that incorporate clear information for investors on areas such as start-ups and international trade. When we asked the Minister whether he agreed that it would be “bad news” if the English regions were to lose out in comparison with these well focused and well resourced national development bodies, he replied, “it would, but they won’t”.51

47. We are not sure whether to be reassured by the Minister’s confidence or concerned. Certainly, Dr. Brian Gibbons, a Welsh Assembly Member, saw the demise of the RDAs as an opportunity for Wales:

One good thing that the Westminster Government has done is to abolish regional development agencies in England. That was a pretty stupid decision from the point of view of regional regeneration in England, because we know that the investment return from those agencies, particularly the best-performing ones, was quite substantial. However, it removes significant competitors at a regional level from the market. That provides Wales with a range of opportunities that would not have been available to us previously. Therefore, we should be thankful for small mercies.52

48. Several organisations considered this to be a risk, particularly if LEPs were not resourced as well as equivalent bodies in Scotland and Wales. They included Leeds City Region,53 Cambridgeshire Horizons,54 Councillor David Sparkes for the LGA,55 and the North West Business Leadership Team.56 Alexander Ehmann of the IoD took the view that LEPs would not be inherently disadvantaged when compared with equivalent bodies in Scotland and Wales, but agreed that there might be a problem if there is a disparity in resourcing.57

49. We note the Minister’s confidence that LEPs will not be overwhelmed by the Welsh and Scottish development agencies, but we remain concerned that without a separate funding stream LEPs could suffer. We recommend that the Government, in its response to our Report, set out how those functions which are being best performed in Scotland and Wales will be matched by LEPs in England, in particular in light of the fact that the Regional Growth Fund will not be available to support the ordinary functions of an individual LEP or LEPs.

51 Q 219 52 Welsh Assembly debates, 6 October 2010.

53 Q 139 [Riordan] 54 Ibid. [Plant] 55 Q 53 56 Ev w157, paragraph 5 57 Q 94

Is there a ‘right’ number of LEPs? 50. The appropriate number of LEPs was considered at some length by our witnesses. The Local Government Association’s opinion was that there were some 50 functional economic areas in England; 58 a figure that corresponded fairly closely to the 55 LEP proposals submitted to the Government. However, British Chambers of Commerce felt that upwards of 50 LEPs was too many, preferring between 35 and 40 on the basis of live and work criteria.59 The CBI would have preferred still fewer—of the order of 3060—while the IoD wanted the minimum number commensurate with continued access to EU funding.61 EEF argued that 12 to 15 LEPs would be more manageable.62

51. EEF and others among the principal business organisations63 highlighted the risk that undersized LEPs could lack the necessary critical mass. Sir Roy McNulty of Advantage West Midlands believed that a LEP with a population below 1 million would lack “sufficient clout”,64 while the TUC expressed concerns about the capacity of small LEPs, the resources that would be available to them, and “in some cases, we would be worried about their credibility with key partners, including the private sector.”65 Adam Marshall of the BCC put it more specifically, saying: “We would want to see areas like Newcastle and Gateshead, and also like Birmingham and Solihull, which is another one that is identified in the Centre for Cities report66 as very under-bounded, working more closely with their neighbours to try to get to a more sensible economic scale and geography.”67

52. Many organisations told us that creating too many LEPs risked creating a confusing and over-fragmented structure, particularly with regard to delivery of LEP functions. Centre for Cities68 and One Nucleus (a not-for-profit life science and healthcare cluster based in Cambridge and London) were among those who voiced this concern. The latter stated that “nothing frustrates One Nucleus members more than fragmentation. They have neither the resource nor the time to wade through potential ‘mind spaghetti (as one member described the potential scenario)’”. 69 The Institute of Directors was similarly concerned about LEPs being “too parochial”,70 adding, in oral evidence:

The Institute of Directors’ general concern has been about the LEP proposals that we have seen to date: they have not had enough scale to them. Local authorities have

58 Q 45 [Sparks] 59 Q 114 [Marshall] 60 Q 114 [Cridland] 61 Q 114 [Ehmann] 62 Q 114 [Radley] 63 For example, British Chambers of Commerce, Ev 100, paragraph 10; CBI, Ev 113. 64 Q 10 65 Q 45 [Nowak] 66 Beyond the boundaries; op. cit. 67 Q 78 68 Ev w36, page 1 69 Ev w167 70 Ev 139, paragraph 1.12

not looked beyond traditional relationships with other local authorities that they felt comfortable with to wider bodies. The risk with that is twofold. First, they are not strategic enough and will not be able to deliver in the areas where we need them to deliver. Secondly, they will not have the broad based support of business in order to deliver. To give a specific example, in the South, which has been referred to already, I believe there have been 17 proposals for Local Enterprise Partnerships. To garner the amount of business support that is necessary for that, both in terms of being able to go ahead but also the governance arrangements, the way that organisations like ourselves, as national organisations, will engage with those bodies and keep those people engaged is a massive task. The jury is out on that.71

53. The Sector Skills Council for Science, Engineering and Manufacturing Technologies (SEMTA) expressed similar worries in its written evidence:

We have serious concerns that the proposed LEP structure will compound complexity for companies, particularly those with a geographical spread to their premises. It will also increase administration costs.72

54. When we asked the Minister whether he believed there was a “right” number of LEPs, he responded:

I have no intention of guessing a number. Although we are quite rightly not trying to look at it from the centre, what matters is having the number of LEPs that meet those criteria that will make a difference to improving their local economy. I do not mind how many that is. What I mind [about] is whether they are going to be able to make that difference.

55. We conclude that, while there are clear merits in founding local economic partnerships on strong local loyalties, a structure consisting of significantly more than 40 bodies has the potential to result in business confusion, lack of critical mass and insufficient economies of scale. However, a structure which produced 12 to 15 while delivering a simplified structure might risk reimposing those arbitrary associations between areas for which the RDAs were criticised.

56. It seems likely that, with 24 LEPs already approved, the final number will rise to around 40. LEPs should be approved on their business case rather than an artificial maximum number, but the Department must be aware that too high a number of LEPs runs the risk that they will not be effective.

71 Q 75 [Ehmann] 72 Ev w212

3 The Functions of Local Enterprise Partnerships

Former RDA functions to be transferred to the national level 57. In the joint BIS and CLG letter of 29 June 2010,73 the Government stated its belief that certain RDA functions would be best led nationally, specifically: inward investment, sector leadership, responsibility for business support, innovation and access to finance, such as venture capital. The weight of evidence to us elicited the following conclusions:

x national leadership of activities such as inward investment and response to economic shocks would be inadequate without local knowledge and support;

x there is scope for cost saving through an appropriate level of national delivery of business support;

x quality of delivery at local level is critical;

x clarity of delivery is also important (that is, who is doing what);

x there should be, as the CBI put it, an “appropriate cascade of functions” (that is, devolution where possible); and

x the level of service provision should offer value for money.

It is also worth noting that the Manufacturing Advisory Service and the Technology Strategy Board both received good feedback, with the latter being identified as a worthy candidate to coordinate innovation activity, especially during the period of transition to LEPs.

58. In relation to the list of functions contained in the joint letter from the two Secretaries of State, Tom Riordan of Leeds City Council said:

I think the danger, one of the risks at the moment, is that BIS centralises too much, and I think, as I said at the start, you can’t rebalance the economy from the corridors in Whitehall. We have to be given the opportunity and the capacity to do that from our patches.74

59. John Cridland of the CBI acknowledged that there were some issues where “a stronger national framework may well be desirable to get better outcomes, particularly in more austere times.”75 In particular, he highlighted the area of inward investment which he agreed should be led at a national level because RDA management of inward investment had been counter-productive:

73 See Annex 74 Q 134 75 Q 75 [Cridland]

Was it helpful that RDAs were opening international offices, having stands next to each other at international trade fairs? In our judgment, it probably was not. It was a laudable attempt to promote their brand in international markets, but frankly, in most international markets, we need initially to promote a UK brand and then—and this is my point—disaggregate that.76

He explained that a form or either sub-national or local delivery would still be necessary and gave the following as an illustrative example:

if a Brazilian company has made a decision to come to a particular part of the UK, the Midlands or the North, people on the ground can then help that business make the right investment choice, so that it is not left to national Government.77

He concluded that this aspect of handling inward investment had not been reflected in the Secretary of State’s letter.

60. The Government has obviously listened to some of these concerns, because the White Paper set out a more nuanced approach, which indicated that the Government would “look to devolve functions to the local level wherever it makes sense to do so.”78 The White Paper also stressed that “national leadership does not necessarily imply a monopoly of power and responsibility, and there will be scope to share and pool power and responsibility between national and local levels.”79

61. We welcome the fact that the Government appears to be taking a flexible approach to the national and local functions. However, for this to become a reality, the Government will need to demonstrate that it is committed to devolving functions where there is clear evidence to show that they have already been managed well at regional level.

Priorities for the new Local Enterprise Partnerships 62. The majority of evidence submitted to us emphasised the importance of LEPs focusing on the core areas of encouraging enterprise, removing barriers to growth and rebalancing the economy. Steve Radley of EEF reflected the view of many when he said that the focus of LEPs should be on promoting and strengthening recovery and helping to rebalance the economy. He identified planning, housing and transport infrastructure as priorities, on the basis that they made a real difference to productivity and encouraged enterprise and employment.80 The IoD likewise took the view that transport, infrastructure and planning were the key items.81 The importance of an adequate housing stock to local growth was stressed by several bodies.82 On the other hand, the South East England Chambers of

76 Ibid. 77 Ibid.

78 Paragraph 2.21 79 Paragraph 2.22 80 Q 72 81 Q 71 [Ehmann], and Ev 140, paragraph 1.29 82 For example, Cambridgeshire County Council, National Housing Federation.

Commerce argued that LEPs should not be overly concerned with planning and infrastructure at the expense of business goals and that skills, business development, new enterprise, innovation and exports must be high on the agenda. The Regional Studies Association also argued that LEPs should not be distracted by attempts to influence national policies on infrastructure, higher education and science.83

63. The IoD84 and EEF85 both stressed that the focus should not be on those areas of regeneration which were only indirectly connected with economic regeneration. The IoD did not oppose the inclusion of wider regeneration in principle, but argued that “so often the regeneration itself becomes the objective rather than the consequent economic development.” However, a significant minority of submissions argued for LEPs to have regard to the need for growth to be socially and environmental sustainable.86 The FSB concluded that while LEPs should be focused exclusively on economic development, they should have the capacity to address all issues that impact on that, including transport, infrastructure, planning and housing at the strategic level, tourism, the low carbon agenda, and skills and training.87

64. The Local Growth White Paper indicated that local authorities would be expected to produce local development plans.88 We assume that these will be prepared in full consultation with the local LEP. The White Paper also set out a range of potential roles for LEPs, including:

x working with Government to set out key investment priorities, including transport infrastructure and supporting or coordinating project delivery;

x coordinating proposals or bidding directly for the Regional Growth Fund;

x supporting high growth businesses, for example through involvement in bringing together and supporting consortia to run new growth hubs;

x making representation on the development of national planning policy and ensuring business is involved in the development and consideration of strategic planning applications;

x leading changes in how businesses are regulated locally;

x strategic housing delivery, including pooling and aligning funding streams to support this;

x working with local employers, Jobcentre Plus and learning providers to help local workless people into jobs;

x coordinating approaches to leveraging funding from the private sector;

83 Ev w192, Executive Summary paragraph 4

84 Ev 140, paragraph 1.30 85 Ev 123, paragraph 13 86 See, for example, Ev w25, Ev w50, Ev w306, Ev w108. 87 Ev 126, paragraphs 1, 6 and 10 88 Local Growth White Paper, paragraph 3.11.

x exploring opportunities for developing financial and non-financial incentives on renewable energy projects and Green Deal; and

x becoming involved in delivery of other national priorities such as digital infrastructure.

65. We conclude that the Government’s list of potential roles for LEPs appears broadly consistent with the evidence presented to us on suitable priorities for the new bodies. However, while we welcome the further details on LEP activity contained in the White Paper, the Government must guard against a re-run of the history of RDA mission creep.

The role of LEPs in setting skills agendas 66. In its evidence to the inquiry BIS acknowledged that gaps in skills constitute barriers to local growth, and we heard a strong majority of views in favour of LEPs having a stake in determining local skills agendas based on business demand. The TUC89 and the UK Commission for Employment and Skills90 argued particularly strongly for LEPs to include skills needs within their priorities, the latter also stressing the importance of adequate consistent data on which to base decisions.91 Illustrating the skills gap, A4e (originally established some 20 years ago to help unemployed people in Sheffield) pointed to the example of only 4% of 7,000 construction jobs having gone to people living in the boroughs around the Olympics construction site because of a mismatch between job opportunities and local skills.92

67. The West of England’s submission went further and suggested that LEPs should have a level of financial interest in the funding of training:

In order to deliver growth successfully within the West of England…the Local Enterprise Partnership will need to ensure that the workforce has the skills required by those sectors. Key will be ensuring that the needs of local businesses are understood and that the skills provision is ‘demand led’. The [LEP] will need to be able to coordinate skills to help drive up participation and attainment and enhance business productivity and competitiveness. HE and FE institutions are vital partners in this work and will be members of the Board.

In order to be able to fulfil this important function it is essential that [LEPs] are provided with sufficient leverage to bring skills providers to the table and be able to influence their plans. This needs to be reflected in how HE and FE planning and funding regimes are organised so that they pay heed to business demand.93

89 Ev 161, paragraph 12 90 Ev w242, passim 91 Ibid., paragraphs 3.8 to 3.13 92 Ev w2, footnote 1 93 Ev w291, paragraph 2.6

68. Both the Association of Colleges94 and South East Economic Partnerships95 referred to existing work and knowledge in this area, including activities being undertaken by Employment and Skills Boards in improving adult skills for employment. The Association suggested that that LEPs integrate this work into their strategies alongside skills needs in general. It further suggested that colleges be involved as members of LEP governing bodies.96

69. Centre for Cities wanted LEPs to have powers over local Jobcentre Plus offices with a role for LEPs in determining the number of apprenticeships being developed and in what sector of the economy they should be offered. However, the FSB stressed the importance of recognising small business needs, and the limitations on their capacity to provide apprenticeships particularly where there are bureaucratic limitations. It wanted fully functioning group training associations97 and apprenticeship training agencies98 to help reduce the capacity problem.

70. By contrast the IoD99 and EEF100 believed that this would be a distraction from LEPs’ core priorities. Both stressed the need to avoid re-cluttering a skills landscape which was already overcrowded. The IoD was also concerned that local authorities might feel too ‘at home’ looking at skills needs, to the detriment of other pressing needs such as in local transport or infrastructure.101

71. The Government’s position is set out in its White Paper which stated that in future all public funding for adult skills provision will be routed through the Skills Funding Agency to its network of approved and quality assured colleges and training organisations. LEPs would be encouraged to develop effective working relationships with partners to meet local

94 Ev w12, paragraph 14 95 Ev w225 96 Op. cit. 97 GTAs are training and development centres designed to simulate real working conditions where employers can have employees trained to their own requirements and benefit from the “at cost” structure. Most of the country's apprenticeships are managed by GTAs. Each GTA is owned and shared by local employers, each of whom does not have their own training facility and treat the GTA staff as their training manager and even human resources manager. Managers of GTAs are experienced in the needs of especially medium and smaller employers and will direct the training process, providing most from the GTA's own resources but also sourcing quality provision from elsewhere if required. The GTAs will also manage the “bureaucracy” involved and access the most effective funding relevant to the employee's training and the employer's needs. GTAs cover most employment sectors and the network which has been established since the 1960s covers all geographical areas. 98 The distinctive feature of the ATA model is that it is the ATA who acts as the apprentice employer and who places them with a host employer. The host employer pays the ATA a fee for the apprentices’ services; this fee being based on the wage agreed with the host and the ATA management fee. The ATA model offers other benefits for the employer. These include; • Support with recruitment – finding the right apprentice to meet the employers’ needs • Responsibility for the wages, tax, National Insurance as well as administration and performance management • Supervision of the apprentice during the Apprenticeship period

• Links with an approved training provider and support to both the apprentice and host employer throughout the Apprenticeship. 99 Ev 140, paragraph 1.30, and Q86 100 Ev 124, paragraph 18 101 Q 86

demands. The envisaged set of LEP potential roles includes working with local employers, Jobcentre Plus and learning providers to help local workless people into jobs.102

72. We welcome the Government’s intention that LEPs should be encouraged to work effectively to meet local skills demands. Without distracting from their aim of fostering enterprise and removing barriers to growth, LEPs can clearly have it on their radar to identify both opportunities and gaps and should work with local training providers to address those objectives.

73. Further education involvement in LEPs seems to us to be particularly important to addressing skills gaps, while higher education involvement makes sense from the point of view of encouraging ideas for LEPs to use in innovation. We believe that LEPs should consider co-opting representatives of further education and higher education onto their governing bodies, either permanently or on an ad hoc basis.

102 Local Growth White Paper, paragraph 2.7.

4 Collaboration and competition between Local Enterprise Partnerships

Collaboration between LEPs 74. Written evidence submitted to us stressed the need for LEPs to be willing to collaborate with each other when appropriate.103 Representatives of LEP bidders did not consider this to be a significant problem. Louise Bennett of Coventry and Warwickshire Chamber of Commerce told us:

Certainly in our proposition we clearly talk about the need to collaborate with other LEPs. I can give you three very quick examples of that […]: first, high performance engineering, which is not just about Coventry and Warwickshire as a LEP; it’s also about Northamptonshire in terms of Silverstone, and brings in MIRA in Nuneaton, which is part of Coventry and Warwickshire, WMG—Warwick Manufacturing Group—which is part of Warwick, the JLR R&D centre and Prodrive out in Banbury. It goes beyond the Midlands, and I think there will be a clear need for collaboration around the LEPs.

Tourism and leisure is completely different. We have some iconic brands in Coventry and Warwickshire, obviously with our town centres, but also with Stratford on Avon. We are more likely to look to the Cotswolds in terms of collaboration as we are to Birmingham for things like business tourism. You can come up with lots of different examples and they are all about matters of joint interest and collaboration, and the evolution of that collaboration rather than structural co-ordination.104

75. This view was echoed by Geoff French from Enterprise M3:

We’re all big boys; we will come together where we have common cause to make with Government or whatever. We already have worked significantly in the Basingstoke Diamond, with Reading and with Oxford, which are other Diamonds, and when appropriate we will very happily work with Paul [Gresham] and the Gatwick Diamond […], so I don’t see that as a problem at all. 105

76. However, not all of our witnesses took this view, and several warned against the rise of unfruitful competition.106 The Manufacturing Technologies Association argued that England was not a large country and gave the following warning:

103 Examples are: One Nucleus, Association for Consultancy and Engineering, Local Government Association, Campaign to Protect Rural England, South East Economic Partnerships, North West Universities Association, Tourism South East, Centre for Cities, North West Business Leadership Team, Society of Motor Manufacturers and Traders, National Housing Federation, Federation of Small Businesses, TUC, New Local Government Network, Regional Studies Association, and British Chambers of Commerce. 104 Q 161 105 Q 122 106 For example, see SEMTA, Ev w213

It would be a substantial step backwards if the new structure were to allow old rivalries to reassert themselves or rose to actively encourage them by adopting an overly competitive funding structure.107

77. New Local Government Network believed that local barriers to collaboration across local authority areas should not be underestimated and that fears about the “loss of sovereignty, bridging political divides and diverting resources from more parochial activity” were major obstacles that local authorities would have to overcome.108

78. While collaboration between multiple LEP bodies represents a significant challenge it should be noted that RDAs’ own record on collaboration was not perfect. While Tate Liverpool109 and the Regional Studies Association110 gave a positive assessment and pointed to the success of the NWDA in getting oft-competing cities such as Manchester and Liverpool to work more collaboratively, Sir Harry Studholme of the South West Regional Development Agency conceded that the experience of having allowed 24 nanotechnology centres to proceed without greater coordination between regions was an example where RDAs fell down.111 Business Voice West Midlands struck a more pessimistic note both on the RDA record and the prognosis for LEPs. It observed that “RDAs didn’t work together; very often, councils don’t work together, and it’s very difficult to see why LEPs over such a large area would do that.”112

79. The Local Government Association suggested that there may need to be a role for central government where necessary cooperation is not achieved: “there is a demand from councils, businesses, and potential LEPs for coordination between LEPs; this coordination cannot be achieved without central intervention and should be allowed to generate a range of different arrangements to suit different circumstances.”113 The Association for Consultancy and Engineering took a similar view and recommended the establishment of a national LEP forum, a knowledge transfer network, and incentives to engage beyond the local area.114

80. The challenge facing both the business and political community will be to ensure that, where appropriate, LEPs collaborate to the benefit of all parties. Therefore, we recommend that the Government consider making LEP recognition conditional on membership of a knowledge sharing network so that weaker LEPs have access to the experience and know-how of others, or even a duty to cooperate similar to that envisaged for planning bodies.

107 Ev w133, paragraph 19 108 Ev w150, paragraph 1.5 109 Ev w227 110 Ev w192 111 Q 22 [Studholme] 112 Q 166 [ Williams] 113 Ev 142, Executive Summary 114 Ev w7, section 3

An ongoing need for active coordination? 81. Many organisations told us of the need for interaction not only with geographical neighbours but also “virtually” with sectoral partners, higher education bodies working in their field in other parts of the country, and even overseas partners. A number of our witnesses highlighted the need for some geographically distant LEPs to work along sectoral lines. Sir Harry Studholme of SWRDA referred to the need to recognise functional economic geography and gave the example of aerospace where “significant elements of our aerospace industry in the North West, a great deal around Bristol, some in Derby and stretching as far south as Yeovil”.115 Kevin Lavery of Cornwall Council took a similar view in respect of the automotive industry, saying “there are some things that go beyond LEP boundaries…[T]he motor industry goes well beyond the West Midlands […]; there are very important parts of the industry in the North East and the North West too.”

82. The CBI also saw a need for LEPs to cooperate on what it described as “pan-region issues”:

We have seen a desire from the business community to have something at the regional level that works with LEPs [...]. That is very understandable. There is a nuclear cluster in the North West of England. There are automotive and engineering clusters in the West Midlands and North East, and processing businesses and chemicals in the North East.116

83. These views point to a common sense need for collaboration in certain industry sectors. However, the question remains whether a continuing subnational coordination function is necessary.

84. Alan Clarke of One North East cited the national renewable energy centre, NaREC, as an example of a project better delivered at the regional rather than a local level,117 and Sir Harry Studholme added the South West Wave Hub, and the Daresbury and Harwell research centres as similar cases. Andrew Lewis of Newcastle City Council provided the following illustration:

I have a really important case study that gets to the heart of your question around the low carbon and offshore wind sector off the North East coast. It requires a huge, effective public-private partnership arrangement to make that work and to deliver the investment that we know will generate tens of thousands of jobs. It requires local action, because to some extent we are often owners of the assets as local authorities— with the Port of Tyne, for example. It requires integration of supply networks right across the whole of the North of England. It requires innovation and support, some of which is in a national centre, which is based in Northumberland. It requires a really effective partnership arrangement to make it work.

In the past One North East, our RDA, would have taken the lead on much of that work, so we’ve got to respond to that as local authorities and business networks to

115 Q 13 116 Q 76 [Cridland] 117 Q 25

put together the sort of partnership that will retain and keep the momentum going on what is an incredibly important investment for us. Now, at the moment, we are in a position where the LEPs’ geography does not really help us with that in the North East, so we are continuing to work with our neighbours to see if we can put together a much stronger partnership arrangement to be able to deliver really important investment opportunities like that.118

85. The Government has acknowledged the need for cooperation between LEPs on both local and sectoral issues, and the White Paper actively encouraged that approach:

The Government wishes to encourage cooperation between partnerships where this would result in a more efficient use of resources and secure a better outcome than operating in isolation. This cooperation need not be restricted to neighbouring partnerships and will be particularly important where partnerships share a common interest, such as the need to support important industrial clusters. The aerospace industry, for example, has important clusters in both the North West and the South West. The Government will also encourage groups of partnerships which contain key sector clusters to work collaboratively with the relevant national industry bodies. Likewise it will encourage collaboration around particular themes, for example, tourism.119

86. When we put it to the Minister that there may be a need for a form of regional, cross- boundary or other subnational coordination he agreed that this could be beneficial although he did not appear to favour any formal institution carrying out that role:

Our view is that if a group of LEPs wish to form a forum or strategic team on a particular project, we have absolutely no prejudice against that, but they do not need to come to use for permission […] they will actually focus on those rather than necessarily on another bureaucracy that has a permanent secretariat.120

87. We welcome the Government’s agreement that strategic coordination of certain projects or sectors may require groups of LEPs to work together, including on a regional or sectoral basis where appropriate. Where there is agreement among LEPs that there should be a body to perform such coordination, we recommend that the Government support it.

118 Q 161 119 See paragraph 2.14. 120 Q 210

5 Timing and transition of the change to Local Enterprise Partnerships

Is now the right time to move to LEPs? 88. The evidence submitted to us demonstrated a high level of support for the transition to LEPs at an early stage, and there was certainly no strong body of opinion arguing for delay. When he came before us, the Minister believed that the time was right for change:

Having moved out of recession and into a period of what we hope to be sustained growth, now is a good moment to change the nature of the development agencies, and particularly for them to be relevant as we move forward in this coming Parliament and this part of the economic cycle.121

89. While there was a consensus that the timing of change was suitable, a number of our witnesses were less than happy with the truncated timetable for establishing LEPs. A number of organisations told us that the 6 September deadline for LEP bids had not allowed sufficient time for bids to be compiled with full business input. Among these were several local Chambers of Commerce, the British Chambers of Commerce and the West Midlands Enterprise Board. Greater Manchester Chamber of Commerce told us that:

The current haste and speed of change is causing some concern. Whilst acknowledging the Government’s desire to move quickly on this process to enable action to start to address the deficit, the danger is that gaps are left in current provision which may prove detrimental in the medium to long term.122

South East England Chambers of Commerce agreed:

The opportunity for business leadership in shaping the new LEPs is a welcome development but the timescales are too short for meaningful business input.”123

90. The LGA also believed that a greater level of consultation would have been preferable. Councillor Sparks, representing the LGA, argued for a more structured approach to the bid process:

What I would have done is to have had a more extensive consultation exercise saying that it is policy to abolish RDAs and then have a consultation about whether a) that was the right thing to do in that particular area and b) if there was going to abolition, the consultation should include asking how would you deliver these functions? You could systematically do it on the basis of the local region, sub-region or whatever, but there needed to be further consultation.124

91. The CBI told us:

121 Q 196 122 Ev 138, paragraph 3.3 123 Ev w220, paragraph 1 124 Q 62

It was unfortunate that LEP bids were requested before a White Paper was issued, because we all have been trying to do the best we can, but in something of a fog. [..] There is a requirement for a strategic framework within which many and varied bids would then come forward. As that strategic framework was not in place but there was a short deadline for producing bids, this exacerbated the fragmentation and, with no disrespect to colleagues in the local authority world, it also exacerbated a tendency at the moment for bids to be local authority dominated.125

92. The Minister defended the timetable and argued that requesting bids before publication of the White Paper had benefited bidders rather than hindered them:

If we had come forward and said, ‘What are your priorities, but by the way we have already decided what the rules are,’ then I think there would be a natural scepticism among people that the Government had already decided what they should be doing. So we genuinely took the view that we should invite people, with few prescriptions at the beginning, to put forward what they would like to achieve.126

He asserted that the choice was between consulting and spending 18 months in the process, or making an early decision. He believed that the latter was the best option.127

93. However, it became clear that the Minister himself had raised concerns about the timetable. On 14 September 2010, he had written to the Secretary of State airing his concerns. The letter, which was subsequently leaked to the press, referred to “lack of credible business representation; negotiations dominated by local politics; and a lack of a clear focus on economic growth” and cited the tight timetable as an exacerbating factor. It went on to say:

“At worst, the danger is that the CBI and others become detached from this policy heralding likely failure in large parts of England” and “attempts to engage business have been cursory in too many circumstances.”

94. The IoD believed that the tight timetable had created a power imbalance between local authorities and businesses, with business unable to exert sufficient influence to make its voice heard.128 However, the letter of 29 June 2010, inviting bids for LEPs was addressed to both local authority leaders and to business leaders and did not give control of the submission process to local authorities. Furthermore, our witnesses from the business community confessed that: “it is taking some of our members some time to wake up to the fact that it’s not about responding to a local authority proposal but putting forward our own.”129 LEPs represent a major opportunity for business to get involved in the way it has long been seeking, take advantage of the opportunity. In this respect we are encouraged by

125 Q 82 [Cridland] 126 Q 197 127 Q 240 128 Ev 139, paragraph 1.5, and Q 89 [Ehmann] 129 Q 83 [Marshall]

the comments of John Cridland, who acknowledged that there was a lot of work to do in autumn 2010, but said that business would be playing its part.130

95. The proof of the bidding has, to some extent, been in the eating. Bids covering the whole country were produced on time, with comparatively little overlap. Twenty-four have already emerged as approved, and a further tranche is currently under review. The message is now presumably clear, that there needs to be full consultation and collaboration between local government and business, with business stepping up to the challenge of the new era and local government being prepared to work in partnership.

96. When we asked our witnesses whether there should have been a piloting of the LEP programme before implementation there was a consensus against the proposal and instead a view that approval should be given as soon as possible.131 However, there are clearly large areas of the country where the LEP position is yet to be determined, and it is vital both to individual local economies and to an overall rebalancing of the national economy that this is resolved at the earliest opportunity. It is right that those LEPs that are ready should not be held back and equally right that other areas should not be left behind, struggling. The Minister was aware of this dilemma and agreed that the first tranche of approved bids could act as pathfinders for others.132

97. While the truncated timetable for LEP bids has been less than perfect, it has delivered 24 approved bids, which will now go forward. However, their coverage of England is patchy. We agree with the Minister that they could act as pathfinders of the next tranche of LEPs but we recommend that the Government intensify its support for those bids that need more work. The second tranche of approvals should happen as soon as possible, not least because of the imminent deadline for the first round of Regional Growth Fund bids.

98. Universal coverage by LEPs may not be necessary, but gaps should not result from Government non-approval of bids for areas that have expressed a wish to have an LEP. Instead, additional support should be targeted to such areas to enable them to meet the requisite approval standards.

Achieving a smooth transition 99. Both the 29 June 2010 letter and the Local Growth White Paper emphasise the Government’s “determination” and “commitment” to achieve an orderly transition from RDAs to LEPs, with a clear timetable. The CBI paid tribute to the professionalism of the RDAs in handing over to successor bodies,133 and the Minister recorded his thanks to the RDA leadership for their willingness to work with the Government in managing the transition in difficult circumstances.134

130 Q 95 131 See, for instance, the TUC (Q 59), the IoD (Q 115), and the LEP bidders (Qq 144-5). 132 Q 223 133 Q 95 134 Q 198

100. However, a number of concerns about transition emerged in the evidence to our inquiry, including the importance of retaining RDA know-how, the need for business certainty on funding (both for business support functions and for specific projects), and the criticality of retaining and maximising EU funding.

RDA staff, and the importance of retaining RDA know-how 101. The importance of not losing RDA expertise with the demise of RDAs was stressed by numerous bodies. The Society of Motor Manufacturers and Traders referred to RDA staff’s excellent knowledge of their areas and the importance of the resource they provide.135 The National Audit Office agreed.136 On RDAs’ strategic economic intelligence the Regional Studies Association said: “This expertise was not easily, quickly or cheaply acquired, and it is vital that LEPs do not have to begin from scratch in understanding where they can most effectively intervene to stimulate local economic development.”137 West of England said that its discussion with the business community had demonstrated a wish for transfer to LEPs of at least some of the resources and skills of RDAs, such as in support for high- growth sectors and in project development (specifically at the public/private sector investment interface).138

102. Good economic intelligence will be vital to recovery and growth, but the RDAs’ know- how is already being dissipated. Press reports indicate RDA job losses to date of 1,000 (from a total of some 3,000).139 Even where RDA staff are not already being made redundant, they are obviously (given intended closure in March 2012 at the latest) looking to find new positions. Sir Roy McNulty of AWM told us:

What we need is a mechanism to incentivise, if you will, the people we need to stay right through to the end. That is not only people with specialist knowledge of some of the complicated sites or some of the complicated projects, but down to basics like IT people, or accounting people, who have to finally wrap the books up. We know what we need to keep, but we need a mechanism to make it worth those people’s while to stay. Otherwise, they will, wisely, take the first good offer that they get.140

103. The Local Growth White Paper says “We will seek to ensure that the relevant knowledge built up by the RDAs over the years is not lost as this will be an important asset” and sets out the destination of certain RDA functions in Annex B. Philippa Lloyd, Director of the Economic Development Directorate at BIS, told us that “there is a specific knowledge management workstream in the […] national transition planning approach to help ensure that we do track and retain and key knowledge.”141 Despite the Government’s protested determination to effect a managed transition, the fact is there seems not yet to be

135 Ev w218, paragraph 17 136 Q 62. See also EEF, Q 72; BCC, Q 93.

137 Ev w194, paragraph 35 138 Ev w291, paragraph 3.3 139 Regeneration and Renewal, 8 and 22 November 2010. 140 Q 26 141 Q 243 [Lloyd]

any clear plan on how to avoid this potentially very serious loss of support for business. We received anecdotal evidence that contingency plans around retention payments for 20 or so skeleton staff for each RDA have been discussed, but this may well be too little and too late. Furthermore, the RDAs’ administration budgets for the wind-down period have still not been made clear.

104. The IoD stressed that access to finance would be key to resolving this problem:

There is not clarity, at this stage of the process, about where local authorities or Local Enterprise Partnerships will be able to derive any finance to be able to take on some of those individuals concerned, in terms of resources, as personnel at the very least, but also in terms of their knowledge base […] As part of their LEP proposals, I think local authorities will need to show some ability to invest upfront and take these individuals on board.142

105. However, we were told that local authorities may be unable to step in to fill the gap. Andrew Lewis of Newcastle City Council said:

We are losing some really quite important bits of capability at the regional level. We, as local authorities, can’t simply step in and fill that gap because of the pressures on our own budgets. It won’t be until December that we know our own local government settlements. The opportunities for us to be able to maintain that capacity are really very limited.143

The solution may not necessarily require a big budget. Alex Plant of Cambridgeshire Horizons said that specialist skills might be lost for the want of a “relatively small amount of funding.”144

106. The need to support recovery and growth with the necessary intelligence should be of pre-eminent importance in spending priorities, even at a time of highly constrained public finances. We recommend that the Government set aside funds for managing retention of RDA expertise, if necessary by providing proportionate incentives for an adequate number of RDA staff to remain in post or by providing interim funding for recruitment to LEPs pending establishment of more permanent LEP funding models. Furthermore, the Government should bear in mind the fact that retention of RDA expertise may also assist in developing those LEP bids which fell short of approval in the first round. Evidence to us suggests the need for a proactive approach to these issues by the Department’s transition team.

Business certainty on funding 107. At a time when accrued RDA spending commitments have been running at over £1.4bn,145 a number of organisations were concerned that current uncertainty over funding both of specific RDA-supported projects and of RDA business support services is affecting

142 Q 98 [Ehmann] 143 Q 181 144 Q 143 145 Financial Times, 26 October 2010.

their ability to plan investment. Several business representative organisations mentioned this,146 and one submission dealt entirely with an instance of withdrawn Grant for Business Investment (GBI) funding.147 Committee Members have been hearing the same message from constituents.

108. RDAs have been told to disengage from commitments, where necessary by renegotiating contracts. They cannot commit to any expenditure beyond March next year (four months away).148 As Sir Roy McNulty put it, “we are out of the development game, if you want to put it that way.”149 The answer to a written parliamentary question put to Baroness Wilcox gives an impression of clarity as to the parameters for RDA spending,150 but we hear of a different reality in practice, with constant changes to and uncertainty around spending mandates over the summer.151

109. The Government urgently needs to finalise the process of setting clear spending mandates for RDAs (including for their day-to-day administration budgets between now and wind-down) so that there is certainty for businesses on the extent of future funding of projects and broader business support.

Continuity of EU funding 110. Well over half of those submitting evidence to the inquiry152 mentioned the need to secure continued EU regional funding, both for the current period to 2013, and thereafter. The Local Growth White Paper spells out the significance of the funds involved, which amount to some £2.8 billion for the period 2007–13, more than £1 billion of which has yet to be allocated.153 The White Paper says:

The Government is working on new delivery structures to replace delivery by the RDAs to ensure that the ERDF programmes continue to be implemented with minimal disruption. We will also encourage alignment of the Regional Growth Fund with ERDF, where the aims of bids are eligible for support from both Funds.

The Government believes that it is important that any new delivery structure increases the local accountability for ERDF investment decisions to improve the impact of the fund in terms of the growth and jobs it supports. Any future delivery structure should also look to increase the private sector leverage of the fund and minimise the administrative burden. We will look at good practice from other

146 See, for example: British Chambers of Commerce, Ev 103, paragraph 27; Federation of Small Businesses, Ev 128, paragraph 23 and Qq 94 and 102; see also North West Business Leadership Team, Ev w157. 147 Ev w231 148 Q 28 149 Q 27 150 House of Lords written answers, 20 September 2010 151 As reported in Regeneration and Renewal, 26 July, ‘Treasury halts RDA match funding for EU aid’. 152 See, in particular, Devon and Cornwall Business Council (Ev w71), Centre for Cities (Ev w36), West Midlands Enterprise Board Ev w283) Cambridgeshire County Council (Ev 107), the TUC (Ev 160) and New Local Government Network (Ev w150). 153 The exact amount is not certain, but The Newcastle Journal, 16 November, reported the figure as £1.9bn

countries such as Wales which achieves 60 percent private sector match funding across its ERDF competitiveness programmes.

To inform the new delivery structure, the Government is working with local authorities, universities and other stakeholders to carefully develop the framework within which ERDF will operate. The new delivery structure will be announced at Budget 2011.154

111. We note that the Government will announce the new delivery structure for European regional funding at Budget 2011. We will carefully monitor whether that structure addresses the ability of LEPs to win EU funding. In the meantime, the Government has to ensure that there is no hiatus in funding in the period between the winding down of RDA activity and the start-up of other projects, including Regional Growth Fund projects. It is crucial that the construction of the new LEP system does not jeopardise the allocation of funds either in the current or in the future spending rounds. The extent of RDA expertise in preparing bids for EU funding is also another reason to put in place a proper transition plan for the retention of a level of RDA expertise.

154 White Paper, paragraphs 2.34, 2.35 and 2.39 (in part).

6 Funding and resources for the new bodies

Financing the new bodies 112. Annual funding for RDAs and the projects financed by RDAs was of the order of £1.1 billion155 after spending reductions by the previous Administration, down from a peak of nearly £2 billion.156 The Local Growth White Paper confirmed that:

“Local enterprise partnerships will be expected to fund their own day-to-day running costs and will also want to consider how they can obtain the best value for public money by leveraging in private sector investment. Local enterprise partnerships and proposed partnerships may wish to submit bids to the Regional Growth Fund, but will not receive preferential treatment against bids from other private or public-private partnerships.”157

The White Paper also announced that the Government would launch a Local Government Resource Review in January 2011 (after a consultation period), focusing on the possibilities of:

x allowing local authorities to retain locally raised business rates subject to local business approval;

x rewarding authorities whose business rate yield increase exceeds a certain threshold by allowing retention of the increase for a certain period (the Business Increase Bonus);

x tax increment financing, whereby local government is allowed to borrow elements of the capital required to fund development against the future revenue streams anticipated to arise from that development.158

113. These ideas, together with other related concepts such as accelerated development zones,159 regional infrastructure funds,160 and local government bond issues161 were suggested by several of the organisations which submitted evidence to our inquiry. They were examined at length and largely endorsed in the 2008 joint report by Core Cities Group and PricewaterhouseCoopers entitled Unlocking City Growth: Interim Findings on

155 Excluding London. 156 Source: RDA annual reports 157 Paragraph 2.14.

158 Local Growth White Paper, paragraphs 3.30ff 159 Defined localities within which business rate retention is permitted. The Leeds City Region bid makes reference to a proposed ADZ for the Aire Valley with possible initial funding from the Regional Growth Fund. 160 Suggested by SEEDA, which has experimented with the concept already, as explained at Ev 157, paragraph 21. 161 Suggested by Network Rail, LEP45 and the Regional Studies Association, LEP86.

New Funding Mechanisms,162 which suggested there was already a need to go beyond business rate supplements163 and community infrastructure levies.164

114. In general, evidence submitted to us recognised the need to develop innovative approaches to finance, although Cambridgeshire Horizons, which has been involved in exploring them, cautioned against regarding them as a panacea.165 The IoD was strongly opposed to broad relocalisation of business rates,166 albeit not to the concept of allowing local authorities to retain some increased revenues.167 The FSB opposed diverting business rates to LEPs.168 British Chambers of Commerce was open to the idea of some business rate increases, provided there was business accountability and representation.169 John Cridland of the CBI agreed, saying:

the long view of the business community was that it would put its hands in its pocket if it was convinced of the benefit to the particular community and the economy of that community. In return, it expected to have a vote; it expected this to be a real choice, not something that could be required of it.170

115. The White Paper stated that the Local Government Resources Review would need to consider a number of issues in relation to business rate retention, including:

x how to fund councils where locally raised funding would be insufficient to meet budget requirements and control council tax levels, as well as councils who do not collect business rates, such as upper tier authorities;

x the position of councils whose business rate yield would be significantly higher than their current spending; and

x how to ensure that proposals retained a genuine incentive effect and reward for promoting growth.171

It continued:

Consideration of these issues should take into account the national picture, due to the significant variations in need and current business rate yield, in different parts of the country. We will however consider a range of options to balance this. For example, until 1990, the Government operated a ‘London pool’. The pool enabled a

162 www.regenmomentum.co.uk/pdfs/Unlocking_City_Growth.pdf 163 As provided for in the Business Rate Supplements Act 2009. 164 As provided for in the Planning Act 2008. 165 Q 146 [Plant] 166 Q 78 [Ehmann] 167 Ev 139, paragraph 1.8 168 Q 104 [Cherry] 169 Q 104 [Marshall] 170 Q 104 171 Local Growth White Paper, paragraph 3.36.

re-distribution of business rates from London Boroughs with higher yields to those with lower yields and significant pressures.172

116. We welcome the Local Government Resources Review and its recognition that alternative funding models based on potentially greater contributions from business would require support and endorsement from the local business community. However, variations between local economies must be addressed when considering such models. Given the importance to local authorities and LEPs of developing new funding streams, there is a risk of a gap in funding unless the Review is conducted expeditiously and subsequent legislation introduced as soon as possible.

117. Certain organisations, among them EEF173 and the FSB174 agreed with the Minister that funding was not the be all and end all of LEP success and that activities that did not require funding, such as influencing local policy direction, would also be important. The CBI told us:

I hope we won’t slip back to the idea that for LEPs to provide any useful function they must have money. There will be occasions when LEPs will need money, in the way that Adam has already described, but I think it is secondary to business and local authorities working together to set a strategy. The funding issues flow from that.175

118. British Chambers of Commerce was optimistic that business would meet the challenge of committing time and know-how to the new bodies, on the basis that business will be helping itself.176 Enterprise M3 agreed,177 and both it and Gatwick Diamond178 took the view that LEPs could and should avoid large overheads. Both spoke of restricting running costs to the order of the low hundreds of thousands of pounds per year.

119. The Federation of Small Businesses emphasised that if LEPs are to be independent creatures they should not be overly dependent on local authority financing, which in any event would obviously be under pressure over coming years.179

120. However, Cambridgeshire Horizons said:

if the LEPs are really to make a difference to some of these quite tough, tricky issues that we’ve discussed, including things like EU funding, […] you can’t just do it on a voluntary basis. You need some executive function in place […] This goes back to the fact that you either grant fund it or, if you’re not going to grant fund it, give it the means to raise money itself, and if you don’t do either of those things, this won’t work.180

172 Paragraph 3.37 173 Ev 125, paragraph 25 174 Q 104 175 Q 104 [Cridland]

176 Q 111 [Marshall] 177 Q 146 [French] 178 Q 121 [Gresham] 179 Ev 128, paragraph 19 180 Q 146 [Plant]

Tom Riordan of Leeds City Council agreed:

if we want to go for second prize, we don’t need the resources; if we want to go for first prize and for the areas of the country really to boost the tax revenue of the country, we need a bit of priming money to be able to do that.181

121. Several of the key LEP roles envisaged by the White Paper182 will require an element of funding. Oxfordshire County Council, speaking of those RDA initiatives that have provided real benefit to business, told us: “At the very least such initiatives should be funded during a transitional phase while they work to develop other forms of sustainable business model.”183

122. LEPs will not necessarily require large budgets to run their operations, but they will need a degree of independent financing which will take time to develop on a sustainable basis. Innovative funding methods such as tax increment financing will need to be trialled before being applied generally, and in any case will probably not be suitable for all local economies. Furthermore, the private sector might not be willing to stump up cash until LEPs have a track record of success, so there is a risk of a short- term funding gap. We strongly recommend that, where there is a demonstrable need, the Government consider setting aside funds to support those LEP start-ups which lack the initial capacity to establish themselves.

RDA assets 123. The Government’s proposed approach to dealing with RDA assets and liabilities is set out in Chapter Two of the Local Growth White Paper,184 which states that the primary considerations will be to dispose of assets together with their associated liabilities, and to achieve the best possible outcome for the region, consistent with achieving value for the public purse. A number of subsidiary considerations are then listed, including that a reasonable balance be reached between national deficit reduction, national policy aims, and local ambitions/opportunity.185

124. Given that there will be no independent funding stream for LEPs, RDA assets are potentially of massive importance to the success or failure of LEPs, particularly as they might be the key to leveraging in private funding. Unsurprisingly, evidence to the inquiry contained a variety of views on the appropriate destination for RDA assets: for their transfer to LEPs,186 for transfer to a national body,187 for transfer to consortia of LEPs,188 for transfer to the relevant upper-tier authority,189 and for transfer to the Homes and

181 Q 146 182 See paragraph 2.7. 183 Ev w168, paragraph 4 184 Paragraphs 2.43 to 2.47

185 Paragraph 2.46, bullet point 4 186 For example, Centre for Cities (Ev w36). 187 For instance, South East Economic Partnerships (Ev w224). 188 For example, Pennine Lancashire Chief Executives (Ev w175). 189 Such as CEDOS/ADEPT (Ev w27).

Communities Agency.190 That said, there was a clear view that there should not be a fire sale of assets.191

125. RDA assets are substantial; the value given in the White Paper (but before taking into account associated liabilities) being some £500m,192 and inevitably the process of dealing with them will be complex. Although the extent of the liabilities is apparently still being determined , we were encouraged by the Secretary of State’s assurance that the Regional Growth Fund would not be used to deal with them. He said: “There is no question of, as I think you were implying, dumping the legacy costs on the Regional Growth Fund. That is certainly not the intention.” 193

126. We believe that the transfer of RDA assets should be assessed on a case by case basis. Given their potential importance to future development projects, transfer should be expeditious but should avoid any risk of a “fire sale” at a time when land prices remain depressed. The process of disposal needs to be transparent and should be open to scrutiny. If disposal is used to pay off part of the national debt, the Government should favour bidders who can demonstrate that their proposed use of the relevant asset will benefit the local economy. We further recommend that the wind-down plans of the RDAs be made publicly available.

The Regional Growth Fund 127. The ‘Focused Investment’ chapter of the Local Growth White Paper explains the Government’s objectives for the Regional Growth Fund, including rebalancing the economy between the public and private sectors, and addressing market failures through investment in infrastructure, strategic intervention where it can achieve economic transformation and private sector growth, and support for areas facing long-term growth challenges. These objectives are broadly in line with the views of those submitting evidence to our inquiry on where the RGF should be targeted.194

128. Consultation on the Regional Growth Fund ran from July to September 2010, and the White Paper has expanded on the Government’s thinking on the fund’s operation, as well as setting out various ways in which the Government has taken consultation responses into account. Notable among the latter, other than the fund increase from £1 billion to £1.4 billion, was the extension of the fund’s period of operation from two to three years, in response to comments, including from our witnesses, that two years was too short a period to allow economic development projects to reach anything like fruition.

129. The RGF’s independent Advisory Panel will have its work cut out in endeavouring to stretch RGF funds to meet demand. Local Enterprise Growth Initiative funds have been withdrawn, as has the Grant for Business Investment in all but exceptional, large-scale cases,195 and the entire RGF funding pot over its three year period of operation

190 For example, the National Housing Federation (Ev w143).

191 See, for example, Devon and Cornwall Business Council (Ev w71). 192 Paragraph 2.28 193 Evidence session on Comprehensive Spending Review, 26 October, Q 81. 194 For instance, IoD (Ev 139 and Q 105); Centre for Cities, Ev w36; Cambridgeshire Horizons (Q 151). 195 Local Growth White Paper, paragraph B.34.

approximates to the funding for RDA activity for one year. The Government has, however, announced an additional fund of £200 million by 2014–15 to support manufacturing and business development, with the focus on supporting potential high-growth companies and technology commercialisation.196 Also available is the Business Growth Fund of £1.5 billion which will operate over several years.197 The RGF is intended to complement, without duplicating, other rebalancing interventions, such as access to finance, banking reform, the Work Programme, and the Green Investment Bank.198

130. The White Paper indicates that the £1 million minimum for the Regional Growth Fund received mixed reviews and the Government has committed to a review of that threshold after the first bidding round is ended.199 We heard a similar set of mixed reviews, with concern in particular that rural sector project bids and rural sector SMEs, as well as SMEs in general, could be left out in the cold as a result of the relatively high RGF threshold.200 We note also that support for agriculture seemed to be something of an afterthought in certain LEP bids.

131. With business support funds necessarily constrained, the Government must ensure proportionate support for all sectors of the economy, consistent with its overall objectives. Where the criteria for certain funding mechanisms, such as the £1 million threshold for the RGF, might effectively exclude certain sectors, it has to ensure that other funding routes are clearly identified. Furthermore, the RGF must be clearly demarcated from major national infrastructure investments.

132. Although the Department has clearly attempted to make the guidance accompanying the RGF as accessible as possible, the process for applying to receive RGF funding will still be time-consuming and may often require professional advice.201 We are concerned that the very areas that most need to receive RGF funds will be among those with the least resource to pursue a successful application. When we put this to the Minister, he did not consider this to be a significant obstacle:

“I do not think it necessarily means that some areas will be unable to operate these LEPs without a pot of administrative funding from central Government.”202

133. If that means that the Government will be supporting less prosperous areas in getting their RGF bids off the ground, we welcome the assurance. If it does not, the Government should think about this as a matter of urgency.

134. The bidding process for the Regional Growth Fund will need to be kept as simple as possible to allow less prosperous areas and less well resourced projects to compete fairly. The Independent Advisory Panel deciding on bids has to be alive to this, and

196 Ibid., paragraph 4.33 197 Ibid., paragraph 4.11 198 Ibid., paragraph 4.3

199 Ibid., paragraph 4.17 200 See, for example, National Farmers Union (Ev w135), Commission for Rural Communities (Ev w54, paragraph 2.4, University of Lincoln (LEP 58), Regional Studies Association (LEP86, paragraph 7)). 201 Annex B to the Information for Applicants, containing extracts of EU state aid rules, alone runs to 20 pages. 202 Q 260

should take this into account. Looking behind the surface to the potential of less well presented or even less well thought out applications should be part of the Panel’s role.

7 Powers and accountability

Challenges and opportunities in achieving accountable and fully functioning bodies 135. Effective accountability, performance management and political stability will all be key challenges to LEPs. Evidence to the inquiry included many well considered suggestions for ensuring good governance of LEPs, including involving the further and higher education sectors as well as voluntary and social enterprise bodies. The White Paper goes some way to addressing these issues, stating that LEPs:

will want to work closely with universities, further education colleges and other key economic stakeholders. This includes social and community enterprises, which play an important role in creating local economic growth through providing jobs and training, delivering services and helping create community wealth in some of the most deprived parts of the country.203

136. The CPRE observed that voluntary and environmental sector involvement would have the added benefit of providing direct connections back to the local communities and organisations as well as improving transparency, accountability and quality of decision making.204

137. Several organisations highlighted the importance of establishing mechanisms to avoid business conflicts of interest within LEPs, while maintaining the objective of strong LEP business leadership. Suggestions on how to manage such potential conflicts included such measures as adopting limited terms for LEP board members, and not allowing board members to decide on projects in which they are themselves involved as potential contractors.205

138. There are three other particular issues in the area of effective LEP function on which we wish to comment: the need for appropriate powers, that of accountability and performance management, and that of political stability.

The need for appropriate powers 139. The White Paper makes clear that LEPs will not be defined in legislation, although it observes they might well require a legal personality.206 However, it does prescribe a set of key roles for local authorities in supporting growth.207 These include leadership and coordination, supporting growth and development through supply of land, using significant land assets to leverage private funding, influencing investment decisions via the

203 See paragraph 2.8 204 Ev w27, paragraph 18 and 22 205 Q 112 [Marshall] 206 Local Growth White Paper, paragraph 2.9. 207 White Paper, Box 2.A.

use of statutory powers, particularly the planning system, supporting local infrastructure, and others.

140. There was a range of opinion from those who submitted evidence on whether LEPs should have statutory powers over planning. The FSB thought that power to use planning (and licensing) levers might be a vital part of the LEP armoury given their limited spending power.208 Centre for Cities was also in favour and argued that LEPs should be able to promulgate compulsory purchase powers through their local authorities.209 CEDOS/ADEPT agreed, believing that the loss of the current RDA powers of compulsory purchase would be a retrograde step. Both the IoD and Cambridgeshire disagreed, believing that statutory planning powers should remain with local authorities.210 In any event, as the TUC said, there needs to be some clarity around this. In the meantime, we are pleased that the Government has agreed with the suggestion of a duty of cooperation in planning matters.211

141. There was no division of opinion, however, on the need for LEPs to be given the power and recognition they need to do their job, both in terms of downward devolution of power from Whitehall and in determining local authority policy. Many of those who submitted evidence to us warned that without adequate power to influence local authorities LEPs ran the risk of becoming nothing more than talking shops.

142. The need for devolution of power to LEPs from central government was articulated by Centre for Cities, who pointed to previous failure to devolve powers to multi-area agreements. Furthermore, there was a general agreement that Departments across Whitehall needed to commit to supporting LEPs. Yorkshire & Humber Chambers of Commerce summed things up pragmatically in this way:

It will be difficult for LEPs to achieve their aims unless they have real decision making and funding powers. This doesn’t necessarily mean significant central funding (which we know simply isn’t there) but LEPs must have some tools to achieve their aims. Otherwise they risk talking about the skills, transport or planning issues which are barriers to business growth without being able to do anything serious to address the barriers. The risk is they are merely ‘big LSPs’ or grandly titled multi-area agreements. ‘Talking shops’ will not sustain the interest of serious business leaders.212

143. It also highlighted the wide range of relationships that a LEP could develop Government Departments:

DWP could work with LEPs to make sure employment programmes reflect local circumstances (although LEPs should be focused on creating jobs rather than simply on worklessness). DfE would have a common interest with LEPs on 14-19 skills or enterprise education. DCMS might want to work with LEPs on the local tourism

208 Ev 127, paragraph 8 209 Ev w36, page 4 210 Ev 141, paragraph 1.35 and Ev 108, paragraph 3.6 211 Local Growth White Paper, paragraph 3.20. 212 Ev w301, paragraph 20

agenda which is particularly important in parts of our region such as the Yorkshire coast, moors and dales. Treasury could support LEPs by giving them the financial flexibility and funding mechanisms to implement their plans. BIS will share LEPs’ ambitions to promote business start-ups and perhaps other functions it has said it will lead nationally. DfT have a key role to play in working with LEPs to match local and strategic transport priorities. This range of activities underlines the importance of a variety of government departments buying into the LEP model–not just CLG.213

144. Yorkshire & Humber Chambers of Commerce concluded that LEPs would not succeed without central Government as a committed partner, and recommended that the Government consider appointing a Minister or a senior civil servant to act as the “primary link and point of liaison between the LEP and the centre”.214

145. The IPPR North, in its paper Four Tests for Local Enterprise Partnerships took a similar view:

The role of central government should be to respond to the aspirations of LEPs, removing barriers to the achievement of their economic vision. Where they are able to evidence the need for increased power or control of specific functions, central government’s job should be to deliver it. But for this to work it is essential that all departments are fully signed up to making LEPs work. Past initiatives, such as multi area agreements, have fallen at the hurdle of drawing powers down from central government, with some departments more committed to devolution than others (Russell 2010). A champion is needed to lead the process in Whitehall, encouraging and challenging departments to go further and faster. Given the primary remit for LEPs is economic growth, we suggest the Department for Business Innovation and Skills is well placed to play this role.215

146. LEPs will need to have clear powers to influence and determine local authority policy or risk becoming nothing more than talking shops. Such powers might usefully be set out in a memorandum of understanding between the LEP and its partner local authorities. While we understand the Government’s reluctance to set out a statutory framework for LEPs, we believe that agreement on terms of reference for how such relationships will be built would encourage sharing of best practice to the benefit of both business and local authorities.

147. It is vital that all relevant Government Departments fully support LEPs and, where appropriate, devolve power to them. We recommend that the Government consider directing Departments to prepare memoranda of understanding between themselves and LEPs setting out a commitment to devolved power. Publication of those memoranda would be an excellent first step on the road towards greater consistency in relations between Departments and would have the potential to incentivise LEPs to work for greater devolution of power.

213 Ibid., paragraph 13 214 Ev w300, paragraph 14 215 See section one, paragraph 3

Accountability 148. At the start of our Report we refer to the problems faced by RDAs in relation to accountability which together with the value for money offered by the RDAs has been a matter of contention. Shortcomings in RDA performance were identified in the audits undertaken by PricewaterhouseCoopers and by the National Audit Office,216 in particular in respect of the RDAs’ initial slowness in evaluating the results of their investments. The RDAs went some way to addressing these shortcomings and it would be unfortunate if the lessons learned were not taken on board by LEPs.

149. To permit that to happen, and to allow proper assessment of LEPs’ relative contributions, there will need to be both proper local economic intelligence and the means to calibrate LEP performances against each other by way of consistent nationally coordinated data. The SMMT emphasised this need for national metrics,217 while the IoD told us that it would be a “major schoolboy error” were that not to be the case.218 The NAO told us it expected LEPs to be subject to a properly financed audit process, saying: “We would obviously expect to see [LEPs] putting resources aside to develop performance frameworks.”219

150. When we asked the Minister about this, he told us that accountability for LEP spending of central Government funds would be managed as for any other arrangement in terms of public accountability, while partnerships would be accountable for their expenditure of local resources “in the normal way”.220 However, he admitted that the decision on the mechanism for assessing value for money had not yet been taken.221 That said, the Minister confirmed that the Government would not impose “some sort of heavy- handed, detailed central accountancy process.”222 The abolition of the Audit Commission has created the potential for a new accountability gap at the local level, particularly as there is no organisation to take on a strategic role of auditing LEPs and their use of public funds.

151. A system as innovative as that of Local Enterprise Partnerships must be subject to proper performance and value for money review. To achieve that, it is critical that the Government put in place measures for auditing the performance of LEPs based on consistent data measures and criteria. We strongly discourage the Government from recognising any LEP without insisting on full local scrutiny—including by publishing of accounts and minutes where appropriate and by giving local stakeholders the means to question LEP boards. Furthermore, where LEPs are in receipt of public funds we recommend that they be subject to an independent and transparent auditing process meeting the minimum standards required for NDPBs.

216 PricewaterhouseCoopers report, Impact of RDA Spending, March 2009; National Audit Office report, Regenerating the English Regions, March 2010. 217 Ev w217, paragraph 9

218 Q 93 [Ehmann] 219 Q 67 [Corner] 220 Q 282 221 Q 285 222 Q 282

Stability 152. It is clear from press reports, and from the fact that substantial areas of the country are yet to have a LEP approved, that achieving local consensus around the form of LEPs has in many cases involved significant negotiation. This was not helped by the initial uncertainty around whether county-based bids would be accepted, but it has also been a symptom of local politics—particularly in areas such as Lancashire, the West Midlands, Humberside and the South West. Furthermore, it is clear to us from the evidence of LEP bidders that partners in some bids—including successful ones—had their eyes on several possible outcomes. There would have been many ways to cut the LEP cake, and the division that will emerge, while no less valid for it, is clearly one possibility only, with all that that means in terms of possible future uncertainty.

153. This risk of damage to LEPs effectiveness by ‘politicking’ was predicted in evidence to us from several bodies. The Regional Studies Association rightly highlighted the problems in the West Midlands.223 South East Chambers of Commerce told us that local political tensions were in some areas preventing a sensible debate, 224 while the SMMT referred to the risk of ‘turf wars’.225 The British Venture Capital Association spoke of potential political bun fights which the RDAs had largely avoided through providing a politically neutral space in which business and politicians could come together.226

154. There is a risk that the LEPs, while avoiding the arbitrary borderlines of the RDA structure, may instead create a constantly shifting landscape in which the starting framework is already the result of a somewhat arbitrary—albeit genuinely felt—alliances. These alliances may come under pressure as local elections results disrupt the initial partnership agreement. The Federation of Small Businesses recognised this, stressing that LEPs must be sustainable in the long term, surviving political change at both local and national level.227

155. There are two ways in which this risk may be avoided. First, while collaborations between LEPs will of necessity need to evolve, businesses and LEPs themselves must resist the temptation for LEPs to be constantly shape shifting. While it is inevitable that some LEPs will be less successful and might therefore want to dissolve and reform, there should be an expectation that, once recognised, a LEP will in most cases retain the same form and coverage for a sustained period, and it could be built into LEPs’ constitutions that any shift away from that would require more than a simple majority decision. Secondly, Government must resist and preferably devolve away from itself the power to recognise new LEP patterns merely for reasons of political expediency—a difficult step, but a necessary one for its LEP project to remain credible.

156. LEPs will need to develop ways to meet the challenge of changes to the local and national political landscape. In order to facilitate this, we recommend that the

223 Ev w192 224 Ev w220 225 Ev w218, paragraph 16 226 Ev w19 227 Ev 126

Government consider the establishment of an independent process for validating any changes in LEP boundaries.

8 Conclusion

157. Local Enterprise Partnerships offer a radical new approach to local growth and the relationship between local government and business. The partnerships face the challenges of limited resources and the need to collaborate while maintaining healthy competition. The Government also faces the challenge of ensuring a successful transition to the new structure, respecting local wishes while pushing for maximum national coverage of LEPs so that no area is left behind. For LEPs to be a success, the Government will also have to commit to devolving power where possible, and supporting LEPs in their start-up period both through appropriate financial support and retention of RDA know-how.

158. All sides, including business, need to engage to overcome the potential difficulties caused by local politics. The Minister has himself acknowledged that there needs to be a clearer focus on economic growth. A great deal of work and creativity is required from all involved, but the prospect of more vigorous, more responsive local economies is to be welcomed. We plan to revisit this subject to see how the new structure is developing, in a year to 18 months.

Conclusions and recommendations

The creation of new Local Enterprise Partnerships 1. It is clear that while RDAs provided many benefits to their regions, mission creep and the lack of a clearly defined strategy undermined their success. Furthermore, they suffered from a democratic deficit. A key test of the new Local Enterprise Partnerships will be the extent to which they learn from both the successes and the failures of the RDAs. (Paragraph 22)

2. LEP policy is already being implemented, but it could be proceeded with alongside an examination of the record of some forerunners to LEPs, so that lessons could be learned from their performance and from any failings. The learning curve of the initially successful 24 bidding organisations is one that could also contribute to the success of other, following, LEPs and help to even out performance. Given the important part that LEPs will play in recovery, we recommend that the Government undertake a rolling review of the first tranche of LEPs. (Paragraph 25)

3. It is clear that there is a significant level of enthusiasm for a fresh approach to partnerships between business and local government; and one which is based on a greater affinity for local economies among those participating. We conclude that LEPs have the potential to offer a more dynamic approach to enterprise through local businesses and local government. LEPs may also provide an enhanced opportunity for small and medium sized businesses to have a greater say in local development priorities. The opportunity for greater business command represents, however, a challenge both to business communities and to local government to be yet more proactive and creative. (Paragraph 34)

4. We believe that regional groupings should be recognised where there is a wish for them and the Government should be prepared to fully engage with such bodies where they have clear local business support. Where a minority of business community members in an area disagrees with the need for a regional grouping, that minority should be willing to show flexibility in accommodating the majority wishes of members who want to maintain an element of regional coordination. Regional groupings should also be recognised where LEPs believe it is appropriate to have an overarching body dealing with matters such as transport, infrastructure or EU funding. (Paragraph 45)

5. We note the Minister’s confidence that LEPs will not be overwhelmed by the Welsh and Scottish development agencies, but we remain concerned that without a separate funding stream LEPs could suffer. We recommend that the Government, in its response to our Report, set out how those functions which are being best performed in Scotland and Wales will be matched by LEPs in England, in particular in light of the fact that the Regional Growth Fund will not be available to support the ordinary functions of an individual LEP or LEPs. (Paragraph 49)

6. We conclude that, while there are clear merits in founding local economic partnerships on strong local loyalties, a structure consisting of significantly more

than 40 bodies has the potential to result in business confusion, lack of critical mass and insufficient economies of scale. However, a structure which produced 12 to 15 while delivering a simplified structure might risk reimposing those arbitrary associations between areas for which the RDAs were criticised. (Paragraph 55)

7. It seems likely that, with 24 LEPs already approved, the final number will rise to around 40. LEPs should be approved on their business case rather than an artificial maximum number, but the Department must be aware that too high a number of LEPs runs the risk that they will not be effective. (Paragraph 56)

The functions of Local Enterprise Partnerships 8. We welcome the fact that the Government appears to be taking a flexible approach to the national and local functions. However, for this to become a reality, the Government will need to demonstrate that it is committed to devolving functions where there is clear evidence to show that they have already been managed well at regional level. (Paragraph 61)

9. We conclude that the Government’s list of potential roles for LEPs appears broadly consistent with the evidence presented to us on suitable priorities for the new bodies. However, while we welcome the further details on LEP activity contained in the White Paper, the Government must guard against a re-run of the history of RDA mission creep. (Paragraph 65)

10. We welcome the Government’s intention that LEPs should be encouraged to work effectively to meet local skills demands. Without distracting from their aim of fostering enterprise and removing barriers to growth, LEPs can clearly have it on their radar to identify both opportunities and gaps and should work with local training providers to address those objectives. (Paragraph 72)

11. Further education involvement in LEPs seems to us to be particularly important to addressing skills gaps, while higher education involvement makes sense from the point of view of encouraging ideas for LEPs to use in innovation. We believe that LEPs should consider co-opting representatives of further education and higher education onto their governing bodies, either permanently or on an ad hoc basis. (Paragraph 73)

Collaboration and competition between Local Enterprise Partnerships 12. The challenge facing both the business and political community will be to ensure that, where appropriate, LEPs collaborate to the benefit of all parties. Therefore, we recommend that the Government consider making LEP recognition conditional on membership of a knowledge sharing network so that weaker LEPs have access to the experience and know-how of others, or even a duty to cooperate similar to that envisaged for planning bodies. (Paragraph 80)

13. We welcome the Government’s agreement that strategic coordination of certain projects or sectors may require groups of LEPs to work together, including on a regional or sectoral basis where appropriate. Where there is agreement among LEPs

that there should be a body to perform such coordination, we recommend that the Government support it. (Paragraph 87)

Timing and transition of the change to Local Enterprise Partnerships 14. While the truncated timetable for LEP bids has been less than perfect, it has delivered 24 approved bids, which will now go forward. However, their coverage of England is patchy. We agree with the Minister that they could act as pathfinders of the next tranche of LEPs but we recommend that the Government intensify its support for those bids that need more work. The second tranche of approvals should happen as soon as possible, not least because of the imminent deadline for the first round of Regional Growth Fund bids. (Paragraph 97)

15. Universal coverage by LEPs may not be necessary, but gaps should not result from Government non-approval of bids for areas that have expressed a wish to have an LEP. Instead, additional support should be targeted to such areas to enable them to meet the requisite approval standards. (Paragraph 98)

16. The need to support recovery and growth with the necessary intelligence should be of pre-eminent importance in spending priorities, even at a time of highly constrained public finances. We recommend that the Government set aside funds for managing retention of RDA expertise, if necessary by providing proportionate incentives for an adequate number of RDA staff to remain in post or by providing interim funding for recruitment to LEPs pending establishment of more permanent LEP funding models. Furthermore, the Government should bear in mind the fact that retention of RDA expertise may also assist in developing those LEP bids which fell short of approval in the first round. Evidence to us suggests the need for a proactive approach to these issues by the Department’s transition team. (Paragraph 106)

17. The Government urgently needs to finalise the process of setting clear spending mandates for RDAs (including for their day-to-day administration budgets between now and wind-down) so that there is certainty for businesses on the extent of future funding of projects and broader business support. (Paragraph 109)

18. We note that the Government will announce the new delivery structure for European regional funding at Budget 2011. We will carefully monitor whether that structure addresses the ability of LEPs to win EU funding. In the meantime, the Government has to ensure that there is no hiatus in funding in the period between the winding down of RDA activity and the start-up of other projects, including Regional Growth Fund projects. It is crucial that the construction of the new LEP system does not jeopardise the allocation of funds either in the current or in the future spending rounds. The extent of RDA expertise in preparing bids for EU funding is also another reason to put in place a proper transition plan for the retention of a level of RDA expertise. (Paragraph 111)

Funding and resources for the new bodies 19. We welcome the Local Government Resources Review and its recognition that alternative funding models based on potentially greater contributions from business would require support and endorsement from the local business community. However, variations between local economies must be addressed when considering such models. Given the importance to local authorities and LEPs of developing new funding streams, there is a risk of a gap in funding unless the Review is conducted expeditiously and subsequent legislation introduced as soon as possible. (Paragraph 116)

20. LEPs will not necessarily require large budgets to run their operations, but they will need a degree of independent financing which will take time to develop on a sustainable basis. Innovative funding methods such as tax increment financing will need to be trialled before being applied generally, and in any case will probably not be suitable for all local economies. Furthermore, the private sector might not be willing to stump up cash until LEPs have a track record of success, so there is a risk of a short-term funding gap. We strongly recommend that, where there is a demonstrable need, the Government consider setting aside funds to support those LEP start-ups which lack the initial capacity to establish themselves. (Paragraph 122)

21. We believe that the transfer of RDA assets should be assessed on a case by case basis. Given their potential importance to future development projects, transfer should be expeditious but should avoid any risk of a “fire sale” at a time when land prices remain depressed. The process of disposal needs to be transparent and should be open to scrutiny. If disposal is used to pay off part of the national debt, the Government should favour bidders who can demonstrate that their proposed use of the relevant asset will benefit the local economy. We further recommend that the wind-down plans of the RDAs be made publicly available. (Paragraph 126)

22. With business support funds necessarily constrained, the Government must ensure proportionate support for all sectors of the economy, consistent with its overall objectives. Where the criteria for certain funding mechanisms, such as the £1 million threshold for the RGF, might effectively exclude certain sectors, it has to ensure that other funding routes are clearly identified. Furthermore, the RGF must be clearly demarcated from major national infrastructure investments. (Paragraph 131)

23. The bidding process for the Regional Growth Fund will need to be kept as simple as possible to allow less prosperous areas and less well resourced projects to compete fairly. The Independent Advisory Panel deciding on bids has to be alive to this, and should take this into account. Looking behind the surface to the potential of less well presented or even less well thought out applications should be part of the Panel’s role. (Paragraph 134)

Powers and accountability 24. LEPs will need to have clear powers to influence and determine local authority policy or risk becoming nothing more than talking shops. Such powers might usefully be set out in a memorandum of understanding between the LEP and its partner local

authorities. While we understand the Government’s reluctance to set out a statutory framework for LEPs, we believe that agreement on terms of reference for how such relationships will be built would encourage sharing of best practice to the benefit of both business and local authorities. (Paragraph 146)

25. It is vital that all relevant Government Departments fully support LEPs and, where appropriate, devolve power to them. We recommend that the Government consider directing Departments to prepare memoranda of understanding between themselves and LEPs setting out a commitment to devolved power. Publication of those memoranda would be an excellent first step on the road towards greater consistency in relations between Departments and would have the potential to incentivise LEPs to work for greater devolution of power. (Paragraph 147)

26. A system as innovative as that of Local Enterprise Partnerships must be subject to proper performance and value for money review. To achieve that, it is critical that the Government put in place measures for auditing the performance of LEPs based on consistent data measures and criteria. We strongly discourage the Government from recognising any LEP without insisting on full local scrutiny—including by publishing of accounts and minutes where appropriate and by giving local stakeholders the means to question LEP boards. Furthermore, where LEPs are in receipt of public funds we recommend that they be subject to an independent and transparent auditing process meeting the minimum standards required for NDPBs. (Paragraph 151)

27. LEPs will need to develop ways to meet the challenge of changes to the local and national political landscape. In order to facilitate this, we recommend that the Government consider the establishment of an independent process for validating any changes in LEP boundaries. (Paragraph 156)

Overall conclusions 28. Local Enterprise Partnerships offer a radical new approach to local growth and the relationship between local government and business. The partnerships face the challenges of limited resources and the need to collaborate while maintaining healthy competition. The Government also faces the challenge of ensuring a successful transition to the new structure, respecting local wishes while pushing for maximum national coverage of LEPs so that no area is left behind. For LEPs to be a success, the Government will also have to commit to devolving power where possible, and supporting LEPs in their start-up period both through appropriate financial support and retention of RDA know-how. (Paragraph 157)

29. All sides, including business, need to engage to overcome the potential difficulties caused by local politics. The Minister has himself acknowledged that there needs to be a clearer focus on economic growth. A great deal of work and creativity is required from all involved, but the prospect of more vigorous, more responsive local economies is to be welcomed. We plan to revisit this subject to see how the new structure is developing, in a year to 18 months. (Paragraph 158)

Annex

Letter of 29 June 2010 from the Secretaries of State for Business, Innovation and Skills and for Communities and Local Government to Local Authority Leaders and Business Leaders

Dear Colleague

Local enterprise partnerships

We are writing to you to invite you to work with the Government to help strengthen local economies. The Coalition Government is committed to reforming our system of sub- national economic development by enabling councils and business to replace the existing Regional Development Agencies. The purpose of this letter is to invite local groups of councils and business leaders to come together to consider how you wish to form local enterprise partnerships.

We are working with the Regional Development Agencies (RDAs) to enable this transition. We are reviewing all the functions of the RDAs. We believe some of these are best led nationally, such as inward investment, sector leadership, responsibility for business support, innovation, and access to finance, such as venture capital funds. Some of their existing roles are being scrapped, such as Regional Strategies. The forthcoming White Paper on sub-national economic growth will set out our approach in more detail.

Separate arrangements will apply in London, where discussions are currently underway with the Mayor of London on how we can further decentralise powers, particularly in the context of the abolition of the Government Office for London.

We are determined that the transition from the existing RDAs be orderly, working to a clear timetable.

Meanwhile, we are keen to encourage local businesses and councils to work together to develop their proposals for local enterprise partnerships. We want to encourage a wide range of ideas, and to aid that, we would suggest some parameters.

Role

We anticipate that local enterprise partnerships will wish to provide the strategic leadership in their areas to set out local economic priorities. A clear vision is vital if local economic renewal is to be achieved. The Coalition Government is determined to rebalance the economy towards the private sector. We regard local enterprise partnerships as being central to this vision.

Partnerships will therefore want to create the right environment for business and growth in their areas, by tackling issues such as planning and housing, local transport and infrastructure priorities, employment and enterprise and the transition to the low carbon economy. Supporting small business start-ups will therefore be important. They will want to work closely with universities and further education colleges, in view of their importance to local economies, and with other relevant stakeholders. In some areas, tourism will also

be an important economic driver. Further details will be set out in the forthcoming White Paper.

Governance

To be effective partnerships, it is vital that business and civic leaders work together. We believe this would normally mean an equal representation on the boards of these partnerships and that a prominent business leader should chair the board. We would, however, be willing to consider variants from this, such as where there is an elected mayor responsible for the area, if that is the clear wish of business and council leaders in the partnership area. The governance structures will need to be sufficiently robust and clear to ensure proper accountability for delivery by partnerships.

Size

We have been concerned that some local and regional boundaries do not reflect functional economic areas. We wish to enable partnerships to better reflect the natural economic geography of the areas they serve and hence to cover real functional economic and travel to work areas.

To be sufficiently strategic, we would expect that partnerships would include groups of upper tier authorities. If it is clearly the wish of business and civic leaders to establish a local enterprise partnership for a functional economic area that matches existing regional boundaries, we will not object. We will welcome proposals that reflect the needs of every part of England, not least areas that are economically more vulnerable. Government is keen to work closely with and through capable local enterprise partnerships which meet these criteria.

Going forward

As set out in the Budget, we will publish a White Paper later in the summer, which will set out the Government’s approach to sub-national growth. Legislation to abolish RDAs and enable local enterprise partnerships was announced in the Queen’s speech and is expected to be introduced to Parliament in the autumn.

We would therefore welcome outline proposals from partnerships of local authorities and businesses, reflecting the Coalition Government’s agenda, as soon as possible, and no later than 6 September.

Formal Minutes

Monday 29 November 2010

Members present:

Mr Adrian Bailey, in the Chair

Paul Blomfield Mr David Ward Margot James

Draft Report (The New Local Enterprise Partnerships: An Initial Assessment), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 158 read and agreed to.

Summary agreed to.

Annex agreed to.

Resolved, That the Report be the First Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Written evidence was ordered to be reported to the House for printing with the Report.

[Adjourned till Tuesday 30 November at 9.30 a.m.

Witnesses

Tuesday 7 September 2010 Page

Sir Roy McNulty, Chair, Advantage West Midlands, Steven Broomhead, Chief Executive, North West Development Agency, Alan Clarke, Chief Executive, One North East, Pam Alexander, Chief Executive, South East of England Development Agency, and Sir Harry Studholme, Chief Executive, South West Regional Development Agency Ev 1

Counsellor David Sparks, Chair of Regeneration and Transport, Local Government Association, David Corner, Director DCLG and Regions, Value for Money, National Audit Office, and Paul Nowak, Chairman, TUC Ev 13

Tuesday 14 September 2010

Dr Adam Marshall, Director of Policy and External Affairs, British Chambers of Commerce, John Cridland, Deputy Director General, CBI, Steve Radley, Director of External Affairs and Policy, EEF, the manufacturers’ organisation, Mike Cherry, Policy Chairman, Federation of Small Businesses, and Alexander Ehmann, Head of Parliamentary and Regulatory Affairs, Institute of Directors Ev 24

Tuesday 12 October 2010

Alex Plant, Chief Executive, Cambridgeshire Horizons, Greater Cambridge/Greater Peterborough, Chris Fletcher, Deputy Chief Executive and Policy Director, Greater Manchester Chamber of Commerce, Greater Manchester, Tom Riordan, Chief Executive, Leeds City Council, Leeds City Region, and Geoff French, Group Chairman, Scott Wilson Group Plc, Ev 44 Enterprise M3

Barrie Williams, Chief Executive, Business Voice West Midlands, Kevin Lavery, Chief Executive, Cornwall Council, Cornwall and Scillies (‘Empowering Enterprise’), Louise Bennett OBE, Chief Executive, Coventry and Warwickshire Chamber of Commerce, Coventry and Warwickshire, Andrew Lewis, Director, Policy Strategy and Communciation, Newcastle City Ev 55 Council, and Hilary Chipping, Director, Milton Keynes South Midlands

Tuesday 19 October 2010

Mark Prisk MP, Minister of State for Business and Enterprise, Philippa Lloyd, Director, Economic Development Directorate, and Philip Rycroft, Director- General of Innovation and Enterprise Group and Chief Executive of Better Ev 69 Regulation Executive, Department for Business, Innovation and Skills

List of written evidence

1 Department for Business, innovation and Skills Ev 87 2 Advantage West Midlands Ev 91, 97 3 Basingstoke and Deane Council Ev 98 4 British Chambers of Commerce Ev 99 5 Business Voice West Midlands Ev 105 6 Cambridgeshire County Council Ev 107 7 CBI Ev 111 8 Coast to capital Local Enterprise Partnership Ev 114 9 Cornwall and Isles of Scilly Enterprise Partnership Ev 119 10 EEF, the manufacturers’ organisation Ev 122 11 Federation of Small Businesses Ev 126 12 Gatwick Diamond Initiative Ev 131 13 Greater Manchester County Council Ev 136 14 Institute of Directors Ev 139 15 Local Government Association Ev 142, 145 16 Milton Keynes Council Ev 145 17 Regional Development Agency Network Ev 146 18 SEEDA Ev 155 19 TUC Ev 160

List of written evidence in Volume II

1 A4e Ev w1 2 Alex Murray Ev w2 3 Association for Consultancy and Engineering Ev w6 4 Association of Colleges Ev w9 5 Association of Regional Observatories Ev w13 6 Birmingham City University Ev w15 7 British Library Ev w16 8 British Private Equity & Venture Capital Association Ev w19 9 British Property Foundation Ev w21 10 BT Ev w23 11 Campaign to Protect Rural England (CPRE) Ev w25 12 Chief Economic Development Officers Society and the Association of Directors of Employment, Economy, Planning and Transportation Ev w27 13 Central Bedfordshire Local Strategic Partnership Ev w32 14 Central Berkshire Diamond Forum Ev w33 15 Centre for Cities Ev w36 16 Centre for Local Economic Strategies Ev w41 17 Centre for Low Carbon Futures Ev w44 18 Chartered Management Institute and Institute of Business Consulting Ev w45

19 Chris Stanton, former Head of Policy for Employment and Skills at Surrey Economic Partnership Ev w48 20 Churches Regional Commission Ev w50 21 Commission for Architecture and the Built Environment Ev w52 22 Commission for Rural Communities Ev w53 23 Community Development Finance Association Ev w57 24 Core Cities Group Ev w59 25 Country Land & Business Association Ev w61 26 County Councils Network Ev w64 27 David Butcher, MD of FD Outsourcing Ltd Ev w66 28 De Montfort University Ev w70 29 Devon and Cornwall Business Council Ev w71 30 East Devon and South Somerset District Councils Ev w73 31 East of England Business Group Ev w79 32 East of England Development Agency Ev w81 33 East of England Science and Industry Council Ev w86 34 East of England Space for Ideas Forum Ev w87 35 Encocam Ev w89 36 Engineering and Machinery Alliance Ev w90 37 English Heritage Ev w94 38 Enterprise for All Network Ev w95 39 Enterprise UK Ev w97 40 Essex County Council Ev w100 41 Exeter City Council and Exeter Chamber of Commerce Ev w102 42 Fair Finance Consortium Limited Ev w104 43 Forum of Private Business Ev w105 44 Friends of the Earth England Ev w108 45 Furness Enterprise Ev w110 46 Gatwick Airport Ltd Ev w112 47 Gatwick Diamond Business Association (Cadia) Ev w115 48 Graham Pearce, Aston University and Sarah Ayres, Bristol University Ev w116 49 Institute of Chartered Accountants in England and Wales Ev w120 50 Koios Group Ltd Ev w122 51 Local Government Yorkshire and Humber Ev w126 52 National Association for Voluntary and Community Action Ev w129 53 Manufacturing Technologies Association Ev w132 54 National Express East Anglia and c2c Ev w134 55 National Farming Union Ev w135 56 National Federation of Enterprise Agencies Ev w140 57 National Housing Federation Ev w143 58 Network Rail Ev w147 59 New Local Government Network Ev w150 60 New Start Magazine and Shared Intelligence Ev w153 61 North West Business Leadership Team Ev w156 62 North West Transport Roundtable Ev w158

63 North West Universities Association Ev w160 64 Northern Way Ev w162 65 Norwich City Council Ev w164 66 One Nucleus Ltd Ev w166 67 Oxfordshire County Council Ev w168 68 Paul Ragan Ev w174 69 Pennine Lancashire Chief Executives Ev w175 70 Persimmon Homes Special Projects Western Ev w179 71 Professor Alan Townsend Ev w181 72 Passenger Transport Executive Group (PTEG) Ev w185 73 Public and Commercial Services Union Ev w188 74 RAISE Ev w190 75 Regional Studies Association Ev w192 76 RISE Ev w196 77 Rocket Science and Rose Regeneration Ltd Ev w198 78 Royal Town Planning Institute Ev w205 79 Screen England Ev w210 80 Semta Ev w212 81 Sheffield City Region Forum Ev w213 82 Social Enterprise Coalition Ev w216 83 Society of Motor Manufactures and Traders Ev w217 84 South East England Chambers of Commerce Ev w219 85 South East Diamonds for Investment & Growth Partnership Ev w221 86 South East Economic Partnership Ev w224 87 Tate Liverpool Ev w227 88 Tensor PLC Ev w228 89 The BETA Model Ev w230 90 Tml Precision Engineering Ltd Ev w231 91 Tourism Alliance Ev w232 92 Tourism South East Ev w235 93 UK Business Incubation Ev w241 94 UK Commission for Employment and Skills Ev w242 95 United Kingdom Science Park Association Ev w249 96 University of Hertfordshire Ev w254 97 University of Lincoln Ev w256 98 University of Portsmouth Ev w258 99 University of Plymouth Ev w259 100 Universities South West Ev w261 101 University of Surrey and Surrey Research Park Ev w265 102 Universities UK Ev w270 103 University of the West of England, Bristol Ev w273 104 VASTO Ev w277 105 Voluntary Sector North West Ev w277 106 West Midlands Enterprise Board Ev w283 107 West of England Ev w288

108 Woodland Trust Ev w292 109 Work Foundation Ev w295 110 Yorkshire and Humber Chambers of Commerce Ev w298 111 Yorkshire and the Humber Forum Ev w303 112 Yorkshire & Humber Stakeholders Group Ev w306 113 Yorkshire and The Humber Rural Affairs Forum Ev w309

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Business, Innovation and Skills Committee: Evidence Ev 1

Oral evidence

Taken before the Business, Innovation and Skills Committee on Tuesday 7 September 2010

Members present Mr Adrian Bailey in the Chair

Jack Dromey Rebecca Harris Mr Brian Binley Nicky Morgan Nadhim Zahawi Chi Onwurah Rachel Reeves Margot James Mr David Ward Luciana Berger ______

Examination of Witnesses

Witnesses: Steven Broomhead, Chief Executive, NWDA, Alan Clarke, Chief Executive, One North East, Pam Alexander, Chief Executive, SEEDA, Sir Harry Studholme, Chairman, SWDRA, and Sir Roy McNulty, Chair, Advantage West Midlands.

Q1 Chair: Good morning and thank you for Ms Pam Alexander: Well, if I could address that one, attending this first session on RDAs and LEPs. I will I think it depends what it is that you are asking start with a couple of questions. Could I just localities to do. Clearly there will be a big advantage emphasise that obviously there has to be an element in businesses working really closely with their local of time management here? Please don’t every member authorities, and indeed with social enterprise and their of the panel feel that they are under a burning universities and further education colleges, to focus on obligation to answer every question. If the points that economic growth and indeed on some of the economic you would like to make have already been made by underperformance indicators in areas. I think our another member of the panel, don’t worry about not concern is that there should be a framework which repeating them. bridges the sub-regions that will be covered by each Can I just start with a couple of general questions? of the Local Enterprise Partnerships, particularly if First of all, what functions of the RDAs do you think there is not coverage across the whole of England and should be continued? One of the issues that have there might be some areas that are not getting the arisen from our search for evidence is the comments attention that others are getting. made by a number of organisations that RDAs in So our concern, I think, would be that there needs to effect were obliged to take on various Government be operational flexibility of the sort that the Regional objectives which rather hampered their effectiveness Development Agencies have had. We have taken some in certain areas. What functions do you think should time to mature into an organisation which we believe be continued through the proposed structure by the has a good ability to integrate but also a flexibility to Government? use our single pot funding as effectively as is needed Sir Harry Studholme: Thank you Chairman. What we for each different function. We believe that Local have tried to do is to allocate the questions among Enterprise Partnerships, too, will be on a journey and us, so hopefully the repetition point will not occur. the way in which they develop from a focus not just In particular about the functions, would Steve like to on the fine grain, but also being able to deliver those answer that? national functions, which are crucial for the economic Mr Steven Broomhead: Thank you, Chairman. Over growth of the UK, is something which I think needs the context of the previous Government, I think there to be addressed very clearly. was certainly some mission creep for RDAs and there Chair: Thank you. Jack Dromey? was an acquisitive nature to the functions that we had and now have, but to answer the question directly, I think major functions will be: business support; Q3 Jack Dromey: Thank you, Chair. I would like to business finance; foreign direct investment, where we ask you first of all about how RDA functions can be already work with UKTI; science and innovation, delivered through smaller bodies and what challenges which are very important; enterprise; sector LEPs face in delivery. To take a couple of practical development, particularly the manufacturing industry examples, the way on the one hand that the shock and some of the new sunrise industries round the to the system in Rover between 2000 and 2005 was creative industries; and energy and low carbon— handled—diversifying the supply chain so that in the making sure, I think importantly, that we continue to event of Rover’s collapse in 2005, the supply chain focus on the rural agenda. did not collapse—and on the other hand, strategic business support for industries like nuclear, aerospace Q2 Chair: Thank you. Anybody wish to add to that? in certain key regions that you represent, and indeed Could I just ask you maybe a tricky question? Do the automotive cluster employing 150,000 in the you think a local framework could work better than a Midlands. How could such functions be delivered regional one—the crux of the whole issue? through smaller bodies? What would be the challenges cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands that LEPs would face in facing up to challenges of North East that there is still a need to do certain types that kind? of economic activity at the regional level, Ms Pam Alexander: We don’t know what these complementary to the five LEP applications that have smaller bodies will look like yet, but one of the been submitted. That happened yesterday. Sorry to questions will be how well they relate to sectoral interrupt. geographies as well as economic and political Mr Steven Broomhead: Certainly the businesses of geographies, because you have given an example the North West are looking for a degree of co- there of a sector, which Sir Roy, of course, has ordination and advocacy in Brussels and in other considerable knowledge of, where there are national places for the North West’s economy. One of the roles and indeed international issues to be dealt with, as of the RDAs has been to be a regional referee round well as the local issues. I think in relation to supply inward investment opportunities and certainly chains, again, sectors do not very often focus just on businesses are very clear to us that they would like one locality and therefore it would be really important to see a degree of co-ordination and advocacy in the that there is sufficient integration across boundaries to North West. enable those issues to be driven forward and enough evidence and lessons from interventions in the past to Q5 Jack Dromey: There is just one final related work out what will really help to get supply chains question. I think you said that the voice of business is support, or to identify those international, global very clear about the desire for there to be continuing competitive advantages which we can gain if we regional co-ordination. You spoke about inward really drive through the most important sectors for investment as one potential function. Other key the future. functions of regional co-ordination? Sir Roy McNulty: I think if one was looking at the Sir Roy McNulty: I think issues such as we have West Midlands, where we understand there may be six described, which spread across a number of LEP proposals, it would be very difficult for six LEPs boundaries: transport infrastructure would be another separately to address either of those issues. A shock good example of that. I think there are a number of as big as the Rover collapse which spread right across functions which would be most efficiently provided the West Midlands. Major industries like automotive on a shared services basis. It will make no sense for, and aerospace, which again spread across the West say, six LEPs in the West Midlands each to have their Midlands, would not wish to deal six times with own data collection activity collecting the same data different bodies to address the macro issues that over and over again and probably ending up with concern them. That point has been made very forcibly different results. There are specialist things like that to me by people from the automotive sector and the which would make sense. Then thirdly and lastly, aerospace sector. I think all of that points to the there is the important area of the various functions need—this is again, I believe, reflected in the LEP which are said to be going to be led nationally. Maybe proposals—for some form of co-ordinating body to that is right or maybe it is otherwise, but the important address issues that spread wider than the boundaries thing, I think, is where are those functions delivered? of the LEPs themselves. There needs to be a focal point for delivery of those functions at West Midlands level. Q4 Jack Dromey: Can I just tease that out further, Sir Roy, the case for retaining regional co-ordination? Q6 Jack Dromey: Indeed, that’s what the CBI have The CBI has said in its evidence to us that said to us in their evidence to us in terms of the MAS Government should not throw out the baby with the functions—importance of regional delivery. bathwater—indeed, a survey of CBI members says Sir Roy McNulty: Absolutely. To come back to the 65% would prefer LEPs to operate at regional level. question I nearly answered earlier: what is the view What is the voice of business in the Midlands or of business? Business Voice West Midlands, which is indeed any of the other regions represented today? the umbrella body for all of the business organisations Sir Roy McNulty: I can only speak about the voice of in the West Midlands, I believe has expressed to business in the West Midlands. They are crystal clear Ministers their desire to see a strong co-ordinating that they want some form of effective co-ordinating body with a range of functions such as I have body to address issues such as you have described and described. a number of other facets of making and supporting the Jack Dromey: Thank you. LEP structure. Jack Dromey: Can I ask you one final question, Q7 Mr Binley: I just want to understand what the which is—[Interruption.] My apologies, did you want voice of business is and you have just touched upon to say something? it. My fear is that the CBI is pretty dominant in all of Mr Alan Clarke: Sorry to interrupt. Yes, it is just that this and we are going to get the jobs growth in the there is a specific proposal from the North East of main from SMEs, so I want to be sure, because one England from business organisations and all 12 local of the criticisms of RDAs is they did not go where the authorities to establish a North East economic real action is, right at the coal face with SMEs. Are partnership going forward to deal with the very you including those in your review of the West functions that we talked about earlier, so the CBI, the Midlands view of business? Chamber of Commerce and the Federation of Small Sir Roy McNulty: Absolutely. Business Voice West Businesses all support that. That was submitted Midlands encompasses, to the best of my knowledge, yesterday to the same timetable as the LEP all of the significant business organisations, including applications, so I think that is just a realisation in the the Federation of Small Businesses and the EEF, and cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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I would not accept the proposition that the CBI voice Q11 Nadhim Zahawi: So help me with the is dominant. The CBI is a very important and capable arithmetic. What does that say for the West Midlands? organisation, but there is a consensus among that Sir Roy McNulty: I think three or four may be a better whole range of organisations, including the chambers. answer than the six which I believe are being proposed. Q8 Jack Dromey: The Chambers of Commerce and the IoD? Q12 Rachel Reeves: I will make the point about Sir Roy McNulty: Yes. Yorkshire and the desire there to have some sort of Mr Binley: I’m happy that you have confirmed that. regional entity. That is certainly what I am hearing from businesses in my region. In the discussions you are having with the Department, are they sympathetic Q9 Chair: We have had various submissions to having some sort of regional structure maintained? proposing a certain number of LEPs as being the If so, how will that be funded? My understanding is appropriate number for the UK. Would there be the that the funding for the day-to-day functions would need for a regional co-ordinating body if, overall, not come from the regional growth fund money, so there was only a limited number of LEPs, say 15 to how would you propose that these community interest 20? Judging by the consensus emerging from the West companies, or whatever they are structured as, would Midlands, that is highly unlikely, but could you be funded? construct an argument on the basis of a limited Mr Alan Clarke: Two answers. The civil servants number of LEPs? within BIS I think are positive about the idea of Sir Roy McNulty: Well clearly at the extreme, if there regional proposals, because although, quite rightly, was only one, then you have solved the problem, but they have talked about a national leadership of these I think most likely there will be at least three, maybe big strategic economic interventions in a global more, eventually in the West Midlands. I personally market, they realise they can’t all be delivered doubt if six is the optimum number. I think history centrally from Whitehall and that you need other shows, in the West Midlands certainly, the difficulty people to deliver it, and it is very difficult to deliver of getting those various configurations to co-operate. these things through 40 or 50 local organisations. I think that is another reason why, in our particular In terms of funding, I can talk only from the North case, to deal with the economic challenges we have, East perspective. We have a number of assets— we need a strong co-ordinating body such as Business property, vehicles and so on—which bring in income Voice West Midlands have proposed. each year which is invested back into economic Mr Alan Clarke: Can I just add to that from a North development in the North East: on average, £6 million East perspective? Sorry to interrupt. I think obviously or £8 million a year. So although local authorities and from what we know, there are something like 50 LEP business have not quite got to this point yet, certainly submissions or thereabouts, or there are likely to be. if I am asked the question, I would say that income How you get down to 20, I am not sure, but if you from such a property portfolio, which is property in look at regions like Yorkshire, who are not here today, the North East developed in the North East, could be they have a relatively small number of LEPs used to pay for the salaries of a new group of people. proposed—just four or five—but interestingly the Then, obviously, the products that they are responsible business organisations have grouped together in that for managing would depend on whether BIS have part of the country and said that they would like four those products in the future and they could be strategic economic functions of the sort we have delivered in a partnership with the national level as talked about already to continue. So even in a region well, so that you have the global view of this with a small number of LEPs for the size of the competitive economic activity. I am not sure of the population, I think there is an acknowledgment that model in Yorkshire. there is a need for regional-level activity and that is Rachel Reeves: Thank you, Alan. in Yorkshire, as an illustration of the point. Mr Steven Broomhead: I will also add, Chairman, that you are going to need some innovatory approaches to the funding of any regional body, Q10 Nadhim Zahawi: Sir Roy, you mentioned that because there is the wider issue of the uncertainties six is not an optimal number. What would be an of the funding of the Local Enterprise Partnerships optimal number? themselves around capacity support. That matter may Sir Roy McNulty: I think a view will have to be taken be dealt with through the White Paper, which we as to what scale you need to really be effective in understand comes out in October, and may be an issue this role. that is contained within the comprehensive spending Nadhim Zahawi: I am asking for your opinion. review, but certainly, as Alan said, you can use various Sir Roy McNulty: I think if you use population as a funds which are managed at the moment on a regional yardstick, I cannot imagine that a LEP would really basis—be it a JESSICA fund or a JEREMIE fund, or have sufficient clout if you have a population unit venture capital loan funds—to generate small amounts below 1 million. I know at least one of the proposals of income to help to fund streamlined regional co- which has gone in is for a unit of significantly less ordination and advocacy structures. population. I guess, ideally, probably a million-plus. Chair: David Ward. Not more than two million because then the thing gets Mr David Ward: Good morning everyone. It is a so big that it is really difficult for a grouping like a difficult process, this, because you have already LEP to have traction. touched on about 15 of the questions which I keep cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands biting my tongue and saying that’s coming up later where the action is and not completely repatriated to on. But the comments that Alan has just made do Whitehall. make some assumptions about the transfer of ownership of assets, which is a question that is Q15 Rebecca Harris: Thank you. In theory, this is a coming up later on. That’s all. great new future and the LEPs are going to be an Sir Harry Studholme: Do you want us to reply about enormous success, so this is almost an odd question, the ownership of assets? but do you think that there are risks in the abolition Mr David Ward: Well it is coming up later on. Do of the RDAs that England and the English regions you want to move onto my question? will now be disadvantaged compared with Scotland Chair: Yes, do. and Wales? Mr Alan Clarke: Can I say something about that from Q13 Mr David Ward: Well again, it is one that has the North East, because we’re obviously very close to really been touched on quite a lot already, but it is to Scotland when we’re in Berwick? I think there is do with the overlapping of the LEPs, but if I can just already a disadvantage even just in terms of in-year take one part of it, which has been briefly referred to, budget cuts which are taking place in this country; and that is what I think is being described as they are not happening in the devolved horizontal co-operation between LEPs, which may of Administrations at the moment. Scotland, which I course be in different parts of the country. I just know a fair bit about, being just over the boundary, is wondered if you have some views on that. Research still spending money on foreign direct investment, is a good example in university collaboration. GBI grants, tourism promotion, etcetera in this year, Sir Harry Studholme: I think it is a really interesting when we in England have had to stop some of this point. When you start to talk about functional activity. We certainly cannot commit any money economic geography, geography is not simply what beyond March 2011, so Scotland already has a happens on a map or the boundaries of local relative advantage. authorities. It is happening at all kinds of levels. You Also, to my knowledge, there are no known touched on aerospace, for instance, where significant significant structural changes proposed in the elements of our aerospace industry in the North West, devolved Administrations’ approach to economic a great deal around Bristol, some in Derby and development. We all want LEPs to be a success with stretching as far south as Yeovil, and how you align the new regional growth fund, but inevitably it is that against, say, the retail environment, which is going to take time for them to bed down, to grow, to clustered around specific cities. So at one cut there is develop the expertise, etcetera. In the meantime, I a complexity, but that is seen even at the more local think again the devolved Administrations will be in a level. There is an example in the bids that have been relatively much stronger position. They were already put in surrounding Devon, which is in my part of the well resourced and have significant political power anyway, so certainly from a North East perspective, country. There is a bid from Somerset which correctly being so close to Scotland, that is something that recognises that there are links between Devon and means major companies which we have been talking Somerset; but at the same time, there are strong links to about potentially looking at Scotland and the North with Devon and Cornwall. s Devon, Plymouth and East as a location, are now more likely to look at Torbay mentions Cornwall in their joint bid, but at the Scotland than the North East. I think it is a real same time, Cornwall with the Isles of Scilly sees itself problem now and it will continue for the next two to as a functional Local Enterprise Partnership zone. So three years, from my experience. your point about this overlap is a very astute one. Thank you. Q16 Rebecca Harris: At the very least a teething Mr David Ward: It wasn’t my idea, but thank you. problem, then, and they would keep many of those functions which we may be losing? Q14 Rebecca Harris: The Department has listed a Sir Harry Studholme: Yes, to explore that further range of functions that the RDAs performed which with the South West relative to Wales, even before the they want to control nationally—inward investment, discussions we are having now, obviously there are sector leadership and business support. I just wanted challenges, for instance on inward investment, which to know what your views were on that, which I think is a very key instrument for relative economic was touched on in the very first question; at what level development. If you can attract companies from you think delivery of those functions should happen. overseas to, say, the North West or the North East, Sir Roy McNulty: I will make a couple of comments. most of the inward investment successes derive from I have to admit that I personally struggle with what is pre-existing relationships; they are existing customers proposed a bit; if this is localism then withdrawing who actually operate inside areas. Creating those quite a lot of functions back to Whitehall seems to me relationships is absolutely key to, say, bringing in a slightly odd interpretation of that. Having said that, companies from Japan or from America. In this flux, as I mentioned earlier, I would tend to put a greater those relationships have a risk of being broken down emphasis on the delivery as opposed to the policy and we are already seeing our inward investment making. For a lot of these functions, which previously experts being approached by people from Wales and have been delivered by the RDA relatively close to Scotland, so the very people with the relationships the ground, we need to find a way—my comments actually may well change. Does RDA abolition earlier about the co-ordinating body are relevant to disadvantage England relative to Wales and Scotland? this—whereby delivery can be achieved closer to I think the factual evidence is that it may well. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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Q17 Chair: I think it was Sir Roy who commented country. I am also conscious that in areas where—I that he was having difficulty in understanding how was on holiday in Japan and therefore made a visit to some of these functions could be repatriated various South West companies—as development nationally. My understanding of the Government’s agencies, we work closely overseas in making sure argument is that there will be some functions co- that there is a co-ordinated approach and there are ordinated nationally, including inward investment, relationships. Steve? sectoral leadership, business support, finance and Mr Steven Broomhead: Aerospace is a good example training, but delivered locally. I am a little unclear where the RDAs have worked very closely together what mechanisms exist to actually do this, and I on the ASTRAEA project, particularly working with would welcome any thoughts that you might have on the prime BAE. If it had not been for that working it. together, that project would not have come forward. Sir Roy McNulty: I am equally unclear. As yet, I think Another really good example is the Northern Way, we have had no explanation as to what exactly is where the three RDAs in the North have worked envisaged, other than that they will be led nationally, collaboratively for over five years around ensuring which is, as I said earlier, an odd interpretation of that the North’s economy continues to grow. localism. It is crucial that there are mechanisms for Obviously, rebalancing the economy, we note, is one things to be delivered closer to the ground in the West of the Government’s priorities and we hope with the Midlands, and I am sure the same applies to the other new architecture of LEPs that the Northern Way, RDA areas, but what that mechanism is has yet to around the rebalancing of the economy, can continue be described. I know it is the view of the business in some way. The Northern Way has been very good community in the West Midlands that that local in terms of focusing on transport issues, science and delivery function could well be aligned with the co- innovation issues and energy and environmental ordinating body and be one of the functions of the co- issues, and we hope that can continue. ordinating body that I touched on earlier. Ms Pam Alexander: Can I just add a different dimension to that? As well as the geographical and Q18 Chair: Could I just pick up on training and sectoral, we have worked together on some key skills delivery, because we had conflicting proposals infrastructure projects—for example, we have worked from different business organisations. Some did not closely with Advantage West Midlands on drawing feel that it was appropriate to be done through LEPs; European money into improving the rail gauge others felt it was much better to be done through between Southampton and the West Midlands. So LEPs. Could you envisage a model where, if you like, there are some key strategic infrastructure projects skills and tailoring the skills agenda to meet the needs where we have worked together, as well as of local industry could be better done at LEP level? geographical projects, which would be mirrored in the Sir Roy McNulty: I do not think it is either/or. I think South, in, for example, Milton Keynes, South there are quite a number of things which local Midlands or the Thames Gateway, and sectoral authorities are already doing, certainly in the West projects, which I think we would say is probably a Midlands, which you could easily envisage a LEP route through into the link between the local and doing. But there are other training and skills issues sub-regional and pan-regional delivery and the which run across a wider area. For example, not all of national delivery mechanisms that will be driven from the LEPs that are proposed have a significant the centre. university in them, and those universities serve a much wider catchment area than any individual LEP Q20 Jack Dromey: Can I follow Nicky’s question that they happen to be located in. We tend to get in relation to inward investment? There has been an fixated with either/or. The reality is that things need emphasis thus far in relation to the potential of the to work at several levels—at both a LEP level and at English regions losing out to Scotland and Wales. The a West Midlands level. Committee heard in July on this issue of the nationalisation of inward investment, as is being Q19 Nicky Morgan: Good morning. On the different proposed, that the current track record of UKTI is that levels, we talked about the West Midlands needing a the bulk of inward investment coming to Britain co-ordinating body and there are a number of through UKTI goes to the southern swathe of functions that you would expect LEPs to collaborate England. Can you comment on that, and what would with each other on, because there are certain things to be your fears in relation to the northern swathe of be delivered. I thought it would be interesting to know England were there not to be a strong regional how that works in the RDAs at the moment. Are there function on inward investment? certain either sectors or particular programmes where Mr Alan Clarke: Yes. We have significant experience certain RDAs are already having to work with each of working with UKTI. It is a very positive other because what is needed to be delivered an RDA relationship in the region; their offices are actually cannot do on its own, and even perhaps where within our offices, so they work hand in glove national Government has to be involved too? I am together. But UKTI themselves would be the first to thinking perhaps inward investment could be one of admit that more than 50%—probably more than 60% those areas. or 70%—of the successful inward investment cases in Sir Harry Studholme: Can I start by answering that the North East—are not started from a UKTI enquiry. and then we can go to the North West? I think there There is, I think, an understanding that we generate are a couple of good examples, for instance in our own enquiries, partly through international aerospace or nuclear, where it does apply across the companies that are already based in the North East cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands like Nissan, who are looking to reinvest all of the as we are looking at here, there are risks—as was time, but they are in great competition with other touched on earlier; there are many risks. The risks can locations for that. We also have a group of agents who be mitigated; we can put in place measures to make operate internationally, representing the North for way sure that the risks do not actually materialise, and I beyond the life of the RDA—our Japanese agent has think that is a very important element of this whole been representing the North East for 25 years, for change process going forward. instance—so there is long experience in the North Chair: Can we just move on to this issue of the East of dealing with inward investment. UKTI transition and risk? Nadhim Zahawi. understand that; we do not stand on each other’s toes, by and large, but certainly if we were relying on UKTI Q22 Nadhim Zahawi: Thinking about localism and leads and enquiries, the North East would lose out collaboration, we have been talking about inward heavily and we have the statistics to show that, with investment and probably the larger proﬁle of some independent evaluation that we had done. I am companies. I have just a couple of questions. First, sure the same is true of the North West. 97% of our region, the West Midlands, Sir Roy, is Mr Steven Broomhead: If I might add that the North obviously SMEs and I would love to hear from West is the third largest region for foreign direct everyone how you feel the RDAs have fared in terms investment and has been for the last three years—to of performance with SMEs. On co-ordination and deal with your question about the focus on the South. collaboration, we all agree that it is taken as read that In my own region, UKTI, whilst we have a strong you need a strategic approach as well as the local partnership with them, produces only 13% of the total approach and that LEPs will struggle to collaborate, foreign direct investment into the North West. but I understand that between the RDAs, you have Obviously, with the changes that are coming along, produced something like 24 nanotechnology centres we are, I think, somewhat concerned about the impact around the country, which is not a perfect example of of those changes on foreign direct investment unless collaboration or co-ordination and I would love to the architecture is made very, very clear. hear your thoughts on how that happens. Unlike Sir Harry Studholme: I think it is worth explaining nuclear and other examples of success, can you just the relationship between Regional Development talk about some of the failures of the current structure Agencies and UKTI for inward investment, because in co-ordination—two-tiered? there appear to be duplicated functions. In fact, if you Sir Harry Studholme: As I take it, there are at least are trying to encourage business into the country, you two questions there; one about SMEs and the second need both the relationship overseas and the about collaboration and duplication. I think, to take relationship on the ground with the company, so if the the collaboration and duplication one, which is also company comes into England, it needs to be almost two questions, it is a very interesting question, established—it needs to have links with the council because for me the development of the Regional on planning, if it is going to build anything. It needs a Development Agencies has been a journey. It started fairly complex relationship with the existing business off as a process of bringing various non-departmental networks, and it is that part of the equation that the public bodies together; it was a consolidation of RDAs have been very successful at providing. It is business-related activity that had previously been that practical experience on the ground, linked into the ensiloed. Part of that process was the consolidation wider services for business. The operation overseas and then there was the process of desiloing, of getting through the embassies, etcetera, is a very different role the synergies and the cost savings from that, and the to the operation on the ground. ability to experiment. With the ability to experiment Sir Roy McNulty: If I might just add that I think this comes the risk of failure, and I think the question is is another example of this conjunction of national not whether you fail; the question is whether you learn level strategy or policy and local delivery, because from your failure. I think the nanotechnology point is supposing UKTI comes up with a lead with somebody a point very, very well made. It is from learning those who is interested in coming to the West Midlands, lessons that the focus on things like the advanced there are many issues, as Harry said, of land use, manufacturing centre, the composites centre that we planning, local labour supply, training issues and so are working on and the co-ordination in aerospace has on, where UKTI will not hold the hand of the inward come. It is an important point and it is probably a investor to work them through. You need a local point that the Local Enterprise Partnerships need to delivery capability and I know that that theme is learn, that the lessons have been learned in the past strongly to the fore in the LEP proposals from the on this journey about how to deal with business. West Midlands. On the point about SMEs, I think it is also an interesting question, because business is not one thing. Q21 Mr David Ward: I am just trying to get a You use the word ”business”, but it consists of feeling for this. Are you just being too polite to say everything from banking, to retail, to construction, to that you fear that we are in a baby and bathwater plumbers, to people who are farming—it is a very, situation here? very wide categorisation. What is important is the Sir Roy McNulty: Well I don’t think so, although the challenge of how you manage to capture that as comment was made to me that there is not only a widely as possible. We have talked a bit about large danger of throwing the baby out with the bathwater, companies and the CBI. The SME question, certainly but there is a danger of throwing the bath out as in most regions we relate well to the Federation of well—but that was a rather extreme view. I think with Small Business; other small rural activities would be any major structural and organisational change such the NFU. On the whole, it is a relationship which is cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 7

7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands really at the sort of level I would expect. We have a how, as far as possible, to make sure that the work business forum, we have very useful meetings with that we have been doing is carried on as effectively those and meetings with other business organisations, as possible for this country. The next question, on which are on the whole positive but are occasionally assets, is more complicated and I wonder if Steve critical. I view that as a really positive situation. would like to say something. Sir Roy McNulty: Just to add a few comments on that, Mr Steven Broomhead: BIS have estimated there is I have been the chair of Advantage West Midlands for about £500 million worth of assets within the RDA a year and have spent a lot of time in that year talking family at the moment. Again, we are awaiting advice to many businesses all around the West Midlands. To and guidance from Government on those assets. To be straight about it, I think we all could do better in answer your question, in my own region, I think it is terms of support for SMEs. AWM has done many important and I would like to think that the assets of good things, and many of the people I have met have the North West agency can be retained in the North been extremely praising of the help and support they West for use by the North West. There are some assets got, but across the board I do not think the picture is that could be classified, potentially, as national as good as it could be and part of that is because there assets—for Daresbury technology, the science and are so many players in it. It is not only the RDA and innovation campus, which has had £65 million of Business Link; you have the chambers involved in agency investment, may be classified and perhaps support of SMEs, you have the universities involved, moved somewhere else. What I think it is very you have the local authorities involved, and I certainly important to avoid is a fire sale of assets on behalf of do not blame any small business man who is the taxpayer, because we have invested in these assets. thoroughly confused as to who is doing what and There are also some liabilities—things that have been helping whom. I think the LEPs are an opportunity to passed to us over the years, such as former coalfield straighten quite a lot of this out, and provide a much land. They will also need appropriate advice and more comprehensible set of support mechanisms treatment by Government. We await advice on that where each of those parties can do what they are good issue. at, but we do not get the amount of duplication and Sir Harry Studholme: Two points. First, when you cross-purposes that at times we can get with the start talking about assets, it is as important to start present setup. talking about liabilities. The creation of the development agencies took over pre-existing Q23 Rachel Reeves: Just building on Nadhim’s and problems like coal mines—things that need things David’s point on the transition and this question about doing to them. That is a huge part of our work—how throwing the baby out with the bathwater as well, we handle the liabilities of the past—so it is not just there is a report by the Work Foundation, I think, that about assets. The second thing is that we never says that, in a way, this is the very worst time to acquire assets because they are simply a speculative abolish the RDAs, because of the economic situation thing. Assets relate to programmes, they relate to we are in, with the fragile recovery. Certainly in my people and they relate to things that need doing for region, given the work that the RDA has done with the economy. Those assets may be viewed differently Corus and with Lloyds Banking Group and HBOS to in different contexts. When you sell them on, you lose keep jobs in the region, my worry—I just want to see that context, so in terms of the physical asset, there is if it is shared by you in your regions—is that getting a change as you sell them. The third point, really, is rid of RDAs at the moment risks a lot of uncertainty our assets are not just our physical assets. Assets are in the business sector about who the right people are very much in the forms of know-how, expertise and to go to. Will some things fall through the gap? Then, hard-won experience. The consequences of making a very specific question about the transition: I think in mistakes are that you have people who are less likely Yorkshire Forward, we have assets of around to make those mistakes in the future. The asset £62 million, which I think Alan touched on earlier. question is a really important question, but it is not Have there been discussions about the disposal or the just the £500 million of the valuation. transfer of those assets? What would your preference be about what happened to your RDA assets? Q24 Nadhim Zahawi: To wrap those answers all Sir Harry Studholme: Can I split that into two together, what I am hearing from you is that you have questions? One is the question about assets and the learned a lot of tough lessons, you have been through second is the right moment question. I am not sure we a consolidation period and are coming out the other are the best people to ask as to whether as turkeys we end. There is a lot of intellectual property inside your vote for Christmas or not, but there is in any large organisations. How do we safeguard that through the organisation, and it is true in business, a pendulum transition and is there an argument to be made for a that runs from the centralisation, the economies of transition period where you have residual RDAs and scale, the advantages of consistency, the feeling of trial LEPs, where some of this stuff can be piloted, control at the centre you get with the delegation of rather than a cut and an immediate restructure? Would powers, the ability to make things happen, to respond that help in terms of that transition of know-how and on the ground, the choice and sensitivity to local IP assets, physical and otherwise? What is your view issues and the fine grain. That balance you see on the process—could there be a middle bit? endlessly in FTSE 100 companies. It is a constant Sir Harry Studholme: Steven will talk about piloting. change. Our job as government agencies is to make Mr Steven Broomhead: There is a transition period things happen. So the question to us is not when, but until 1 April 2012 and obviously the Government will how—how to make things happen on the ground and be making decisions about LEPs fairly soon. We will cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 8 Business, Innovation and Skills Committee: Evidence

7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands work very closely with the LEPs, in parallel, on Sir Harry Studholme: That is a very good point, transition issues around assets, liabilities, people, because it is not just a North East issue; there is Wave knowledge, etcetera, to make sure. Indeed, some of Hub in the South West; there is a manufacturing the projects and programmes may be transferred to the technology centre in the Midlands; there is Daresbury, LEPs—some of the projects we have been able to Harwell, etcetera. So this is quite a key issue. fund this year, which the LEPs and local authorities in particular know about, we will be encouraging them Q26 Jack Dromey: I have two questions on to perhaps bring them forward to the regional growth transition. First of all, on the issue of know-how, my fund to make sure that legacy is not lost. So I think colleague Nadhim talked about the immensely there is a period that is being established for transition important intellectual property that you have built up. working. Whether it is long enough I think depends In the process of transition to the LEPs, are you losing on some policy decisions and clarity which I hope will that know-how, on the one hand; and, on the other be in the October White Paper. hand, to manage better the transition, what steps do Sir Roy McNulty: I think it comes back again to you think would be helpful? managing risk. A transition period might be a way to Sir Harry Studholme: The simple answer is yes. manage it. There are other ways you can manage it: Sir Roy McNulty: We are beginning to. I am aware one is making sure you can retain the people with the of one or two of our really good people who have had specialist knowledge until the assets are transferred, offers to go elsewhere and they will probably take or transfer the people with the assets, but what I think them. What we need is a mechanism to incentivise, if would really damage the asset transfer is if that know- you will, the people we need to stay right through to how disappears, those people find jobs in the near the end. That is not only people with specialist term and have gone, and the whole history and the knowledge of some of the complicated sites or some knowledge of the issues to do with some of these of the complicated projects, but down to basics like complicated sites has disappeared. IT people, or accounting people, who have to finally wrap the books up. We know what we need to keep, but we need a mechanism to make it worth those Q25 Chi Onwurah: I would like to question the people’s while to stay. Otherwise, they will, wisely, feasibility of transferring some of these most take the first good offer that they get. important non-tangible assets. In the case, for example, of One North East, one of the successes has Q27 Jack Dromey: Right. The other question is this: been the growth of the renewable energy offshore we are aware of the budget reductions that you are wind industry. This is a very technically complex being asked to make of 60%, 40% and 20%. What is industry—the technology itself, but also the supply the impact of that now and the anticipated impact in chain and the manufacturing processes. I have the financial year commencing April 2011? Sir Roy, criticised Regional Development Agencies for not in the Midlands, what are you being asked to reduce having enough engineering and scientific and your current budget by and what would the impact of technology knowledge. Are you proposing and that be on your programmes? suggesting that that kind of detailed understanding Sir Roy McNulty: I can provide you with the precise should go to, for example, an engineering team in figure, but I think for us it is a reduction of about Newcastle, North Tyneside, Teesside, etcetera? How 30%. The impact is that we are basically almost are you specifically going to hand that over? completely out of doing any new business or any new Mr Alan Clarke: Yes, we have been involved in those projects. We are pretty well fully committed right discussions for the last 12 months leading up to this through the period to the envisaged end date of the change of government policy with the local authorities RDAs, so we are not doing anything new. We have in the North East—there are just 12 unitary quite a wide range of commitments which need to be authorities, so it makes the conversations easier—and met and projects need to be completed, but we are with the business organisations and BIS as well. out of the development game, if you want to put it Interestingly, in the proposal that was put forward that way. yesterday by the local authorities and business for a regional economic partnership, the assets around low- Q28 Jack Dromey: So in a transitional period of carbon vehicles, around the process sector in the south between perhaps one and two years, existing of the region and around new and renewable energy— programmes are being continued, but any new NaREC is now a national facility with probably the requests for assistance cannot be met? thick end of £100 million having been spent on it Sir Roy McNulty: Absolutely. We basically are pretty through the RDA—there is an agreement that the sort well fully committed on what we currently understand of level of expertise to manage, further develop our budget will be and, as I say, I will provide the integrate and get the manufacturing benefits and the Committee with the precise figures for next year. skills benefits should be done at the regional level and Mr Alan Clarke: Could I add a second answer to that, not at the local level. I think that is a grown-up though? It does vary from region to region. We have realisation that it is horses for courses in terms of what a little bit more headroom next year deliberately to do is best done at different geographic levels. NaREC is some strategic things in the North East, but a whole specifically referred to as one of those things that the series of constraints have been imposed on RDAs in region would like to continue to do at a regional level terms of our spending. Some of it is common to all of but obviously with national dialogue. It is obviously a the public sector, like the marketing freeze, but we global industry we are talking about. have some very substantial additional constraints. One cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 9

7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands of them is that we cannot commit any money at the members’ impression of how that will or will not moment beyond March 2011, even for good-quality transfer to the LEPs? job-creating schemes. If you do have some headroom Mr Steven Broomhead: The ERDF programme has at the moment, you can spend money this financial been the responsibility of the RDAs for the last three year, subject to the new constraints, but you cannot years and it is a very important economic driver and commit money into next year. It might be clarified investment opportunity. ERDF resources are not during the comprehensive spending review, but that affected by the changes, except of course where the is a real problem, because economic development is development agencies are unable to provide any new difficult to switch on and switch off within a matter match funding to support those particular projects. of months. You really need a two to three-year horizon That is where we are asking universities and to do these sorts of things. I think that is a real businesses to come along, to see whether or not they problem in some regions; it certainly is in the North can find those resources. So the ERDF programme is East. virtually two thirds of the way through now. I think all of us have met our commitment targets and I think Q29 Jack Dromey: But we were told by Ministers— it is a programme that is going well. In terms of its the Minister of State told the Committee at the end of future management, again we await policy advice July that there would be guidance given in August on from the Government about the way it wants to the interim financial and accounting arrangements. manage this programme and any future programme. Has that guidance been given? There have been some very helpful discussions Mr Alan Clarke: We have the guidance, but it is very between the RDAs and the CLG about these issues constraining. It is not particularly to help you; it is to and whether or not the programme moves away from stop you from spending money, essentially. the RDAs before we are dissolved on 1 April 2012. Mr Steven Broomhead: There are some other Again, we wait to receive further advice. unintended consequences of these decisions. I will Sir Harry Studholme: Again, it is a good question, give you two: businesses were looking forward to because there are two sides of it. The first is that the receiving GBI grants for businesses, but we are unable inclusion of European funding in the Regional to do that; and on the funding of tourism boards—a Development Agencies’ portfolio has been beneficial very important industry for the nation—we are unable in that it has allowed synergies between other aspects to provide any resources now to support the five of business relationship to be used to ensure the better tourist boards in the North West in the future. utilisation of those funds for the country. The second side of it is that these are incredibly complicated, Q30 Margot James: Sir Roy, could I just go back to highly audited funds from Europe and great care your answer about ongoing projects? I understand needs to be taken to avoid the fines and the your position that the RDAs are not able to fund new consequences of the loss of competent administration. projects in the current circumstances, but you did say that all existing projects were going ahead. I wondered Q32 Luciana Berger: Thank you. In the evidence if I could ask you to clarify that, or possibly make that we have received, we have had a number of further investigations, because businesses in the Black various alternative funding models be proposed for Country which have been receiving and supporting LEPs and I will list a few of them. There is the partial other companies with ERDF funding have told me diversion of business rates to LEPs as a funding that certain projects, particularly in the IT support source; there is accelerated development zones; tax field, that are current projects have been put on hold. increment financing and bond issuing powers; and a I am very concerned to hear about this and I wondered regional infrastructure fund with recoupment of initial if you could get back to the Committee on that. public investment through the planning system. Those Sir Roy McNulty: A small number of projects were are just a few; you might have some of your own. I under discussion. In two cases which we had made wondered what your thoughts or feelings were on a commitment, on further review and looking at our some of those and if you had anything else to add. priorities, we decided not to go ahead. I can provide Mr Alan Clarke: Can I start on that one? I think we you with the details of those. I will make enquiries feel as RDAs that we would be very supportive of along the lines you have described and see if there are those approaches. I think at a time when public other cases that I am not aware of. finances are very difficult and reducing, any Sir Harry Studholme: But I think it is a fair point. It innovative way of creating income to develop is a very tight environment and there is a line between economic projects, etcetera, is critical. As a group of what are legal commitments and what are moral and Regional Development Agencies, again going back to anticipated commitments. It is a very tightly the earlier point, we have a whole range of people constrained environment. with the technical knowledge and skills in how to do some of these things. Some of them are around Q31 Luciana Berger: I am going to talk a bit more property, some of them are around access to finance, about funding and resources. You touched in quite a some of them are partnerships with the private sector, lot of detail on funding for current and pending RDA but there is a whole array across the whole of the projects. My concern is about what will happen country. We would be happy to offer that expertise around EU grants and funding. I am conscious that to help. there is a €1.3 billion uncommitted ERDF resource The only other point I would make, though, in terms still available through the convergence and of the overall objective of the new Government to competitiveness programme. What is the panel rebalance the economy, is that the ability to do some cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 10 Business, Innovation and Skills Committee: Evidence

7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands of these things varies massively through different lifetime—there have to be some questions raised parts of the country. So whether you have fairly about where LEPs are going to be using taxpayers’ positive values on property helps, and whether you resource through the regional growth fund, what are feel you can get a significant uplift on property helps. the performance arrangements that need to be put in In the North East, I think a site in the middle of place? Newcastle city centre that Newcastle council, through Sir Harry Studholme: To quickly add a little bit to Science City, wants to do with the university has very that, I think the performance management has been great prospects for tax increment funding; but other critical—those things we have learned from and parts of the North East where there is market failure moved on from. You have shown that there is a range would not offer this opportunity. I think it is an of outcomes and one needs to aim for the better opportunity and we would be very happy to use our outcomes to get the better results. Clearly, some of the expertise to help, but it cannot be applied uniformly ones are about timing: when you redevelop a city across the country. I think there is a whole range of centre or something, the short term may be very experience that you have through the different regions different from the long term and the impact more in England, but I think it is a very positive step diffused. So some of it is about the ways in which you forward in a time when funding is going to be gather the information, which can be misleading. extremely tight. Sir Harry Studholme: I don’t know whether it is Q34 Rachel Reeves: Obviously the Government are helpful to see them in a slightly different frame, when planning to set up this regional growth fund and I you talk about ADZs or bonds or whatever, but I think wondered what you thought the priorities should be there are different ways to get funding. One is for that. Then following on from Alan’s point that increasing public sector debt through things like bond most projects have a long time frame—you cannot issues and things which obviously need be repaid and just switch economic regeneration on and off—do you there are issues as to how well that is spent. Using think that this two-year pot of money is sufficient, or de-risking and taking out elements of projects which do you think that that creates additional uncertainty allow private sector investment to come in, which is about the timeframe of the projects? a major part of how well RDAs have operated, is a Sir Harry Studholme: The stated objectives of the very good way of levering in private sector money. regional growth fund—to encourage private sector Revolving funding is, again, increasingly used, investment by providing support for projects with particularly in the European funds, but also in the significant potential, etcetera and support in particular regional infrastructure funds that take money that is those areas and communities that are currently then repaid by developers to then be reused to create dependent on the public sector in a transition—are infrastructure in the future. Tax relief proposals are very laudable objectives and we would totally agree also a good mechanism, but you need to understand with those objectives. They reflect some of the how you are targeting those. existing tensions within economic development and Chair: Can we move on to Margot James? We are they are tensions that have existed for decades, which running a little over time, so brevity in questions and are: do you address global competitiveness issues or in answers would be very welcome. do you address the issues of economic deprivation? Both are very important things for society to address. Q33 Margot James: I have two questions here. I will That is the first part of your question. ask the one about value for money for RDAs. What The second part is, as you say, that economic lessons do you think we could learn for the future development is a long-term issue. One of the big auditing of LEPs? I have picked out from the research challenges of the Regional Growth Fund, and this is that PricewaterhouseCoopers provided the Committee where we need to work to minimise its impact (of this to show that the cost of jobs created by RDAs was challenge), is that all of these funding sagas—and we measured against widely different criteria. It came out have experience from European funding and city on one measure at about £16,000 per job created and challenges—have a ratio of government activities (set on another measure about £65,000 per job created. up costs) against delivery. The Government’s This is, at the upper end, quite alarming. What lessons activities—the learning process—tends to be at the do you think the Government should learn in applying beginning as you set up the structures. You learn from value for money auditing to the new structures? the lessons of how you deliver these things. It will be Mr Steven Broomhead: I think in making judgments a lot of hard work in trying to make the regional about each LEP proposal in the next few weeks, growth fund deliver. Government should ensure that there is a performance Mr Alan Clarke: Perhaps just from my point of view, management framework attached to each having managed some of these things and also been consideration and LEP proposal and evaluation. The in some of these things over the years, two years is PWC work was a very detailed piece of work really not long enough, in my view, and it may well evaluating over £2 billion-worth of agency be that the growth fund will be extended in time when investments over a five-year period and showed many there is a comprehensive spending review things, including the issue that for every pound of announcement, but it takes an awful long time to set agency investment it generated anything between things up for people to bid, have the proper £4.20 and £6.20 of net economic value. I think, in governance arrangements, determine who is terms of the whole performance management accountable for the money, etcetera, let alone then the arrangements and evaluation—indeed, RDAs have delivery and implementation. You are almost closing been inspected by the NAO twice during our 11-year down the programme just as it is starting. City cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 11

7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands challenge was five years, Single regeneration budget moving, because most of us believe that is where the was seven years, New Deal for Communities is 10 real job growth is going to come from. Could you help years and Development corporations were 10 years. us by telling us how we might pressurise Government Two years is far too short, in my view. to ensure there is funding to help those companies Mr Steven Broomhead: I think as well, given the fact who do not want £1 million? Some of them only want that there are going to be many more LEPs and private £10,000, for God’s sake. sector organisations than the nine RDAs bidding for Mr Alan Clarke: Can I partly respond to that? We regional growth funds, which is actually one third per have had significant experience over the last few years year of what the agencies’ budgets are collectively, it of dealing with our regional banks and in the North is going to be very competitive. Most of the money, East we have Northern Rock, which deals more with we understand, is likely to be capital, so if I can just the housing market—it is a successful Northern Rock go back to my point earlier about organisations which now—but we do meet with the banks as an RDA support local economic delivery on the ground, board, or the chairman and several board members looking for capacity funding, revenue is going to be a and I have been doing so for the last 18 months. I very challenging situation. think getting banks to behave differently is a long-term job. I realise that we do not want them to Q35 Nicky Morgan: I have one question about the behave as they did in the past, because that would be size of the bids for the regional growth fund, because wrong, but that is where most businesses get their there is a suggestion in the consultation document that finance from. We have JEREMIE funds in the this should be about £1 million or more. I just northern region, certainly. We have a very substantial wondered how that sat with the typical size of projects fund of £125 million which is beginning to get that you as RDAs have invested in. It goes back to through to businesses that banks would perhaps not the point that Brian has made, and I think it is made support, but we want them to provide the money as by a lot of constituents, about support for smaller well, otherwise it is not additional. I think the banking companies. For smaller companies, £1 million issue is still a major one within all of this. actually may be too much, but then that goes back to the point about what size of companies and your point Q38 Mr Binley: It is a vital one. The pressure on I think, Sir Harry, about global competitiveness versus banks is to build up their capital assets. The G20 said economic deprivation. Talking about economic they have to have another £130 billion in the UK. This deprivation, some smaller companies may not want is in direct opposition to releasing money to subsidise £1 million; they may want a smaller amount. Is that SMEs. Could you think about that and come back to worth investing? us? I think it is the issue of the day and we have to Sir Harry Studholme: I think there is a difference impress upon Government that they have a role in this between programmes and projects. You can create as well. I am sure they are aware of that, but I think programmes which will deal with your issue of it would be helpful if we could press on it. dealing with smaller entities and smaller grants within Can I go on to express the concern which a number a programme. I am assuming that it will be possible of organisations have reported to us? First of all, the to bid for programmes within a regional growth fund. FSB is saying that it is absolutely vital that LEPs are private sector-led and do not become a form of local Q36 Chair: A number of business organisations strategic partnership. The Institute of Directors made reference to the need to have an element of believes there is a power imbalance between local revenue funding in any allocation from the regional authorities and business in the formation of workable growth fund, on the basis that LEPs are unlikely to LEPs. There is real concern that this is going to be a have the capacity to deliver without some sort of local government-dominated operation in certain proportion of any grant or loan being used for revenue areas. I recognise that it is patchy throughout the funding. Have you any views on that? country. How can we encourage business to Sir Roy McNulty: I think that comment is absolutely participate in LEPs? What more do we need to do, correct. LEPs are going to be new organisations particularly if there is no dedicated funding stream finding their feet with considerable economic available to them? challenges to deal with, certainly in the West Sir Roy McNulty: I have spent a lot of time over the Midlands. If, at the same time, they do not know last year talking to businesses about exactly that, whether from year to year they are going to have because my analysis of the situation, certainly in the enough money to actually do the job, you have a very West Midlands, is that business has not been difficult recipe. It is highly unlikely that local sufficiently involved in economic development affairs. authorities will have spare money to put in, and if The simple bottom line from what many, many people your only source of funding is something that you have told me is that business is prepared to pitch in have to keep on bidding into and you do not know and provide the leadership that is envisaged in this whether you will succeed or not, I think some level case, provided it is a businesslike environment and a of reasonable stability in funding going forward for businesslike process and that the input and efforts several years is absolutely essential. which they are prepared to put in are seen to make a difference. If on the other hand, as you hypothesised, Q37 Mr Binley: I think it is even more vital than there is no assurance of funding and there is no clarity that. Access to capital has lessened over the past as to where the LEP is taking its strategy, then 12 months, just at the time when we are coming out business will not be too keen to do it. So the thing has of recession and we need to make sure that SMEs get got to be set up right with a chance of success, in a cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 12 Business, Innovation and Skills Committee: Evidence

7 September 2010 NWDA, One North East, SEEDA, SWDRA, Advantage West Midlands businesslike way, then business, I think, will Government provides greater clarity over the division participate. of labour between Whitehall, LEPs and any other economic development body.” That touches on your Q39 Mr Binley: Again, I repeat, could you help us point, Sir Roy, again. Is that happening? with telling us how we might put pressure on about Sir Roy McNulty: It may be happening but it is not the funding? visible to us as yet. Sir Roy McNulty: Well I know that in the West Midlands, the key issue for the business community Q41 Mr Binley: Ah, that is pretty important. Can I is this co-ordinating body and its effectiveness, ask also how we involve further and higher education because they can see that if we had six LEPs in the and the third sector in LEPs? You are right—that West Midlands left to their own devices, that is not a social aspect is absolutely vital to their success and I recipe for success. am not sure we really understand how that is Mr Binley: I understand that point. happening either. Do you? Sir Roy McNulty: That is the critical thing, certainly Ms Pam Alexander: I think it is variable across the for business in the West Midlands. bids that we have seen so far in all of our regions, but Mr Steven Broomhead: I think the importance of I think that what is probably uniform is the private sector leadership is signiﬁcant. That has been understanding that skills are going to be absolutely at one of the great learning lessons from the RDAs and the heart of any success for a LEP. Therefore, I think that needs to be replicated inside the LEP universities are being involved, further education arrangements and to make sure you have an inclusive colleges are being involved and, as Steve has said, we partnership between public, private and also, if I do have a model in the RDA boards, where we have might say, the voluntary sector and social enterprise. had a balance with a business majority but with local That needs to be thought through in terms of the actual government representation and also with membership of LEPs. representation on every RDA board from the learning Sir Harry Studholme: To answer one bit of your community and also from communities more question, the cultural issue is a big thing; the generally. They will bring solutions, not just issues, difference between public sector and private sector and that is one of the key reasons why they must be culture. The RDAs have gone some way to bridging involved. that with an approximately 50:50 composition of staff from the private and public sectors. Concerning the Q42 Mr Binley: But you would recommend that this issue that you are raising about money and making is a point we emphasise in our report, I assume? sure that these funds continue, I think it is important Sir Harry Studholme: Yes. to see the transition as not simply being about Local Mr Binley: That is really what I wanted to get from Enterprise Partnerships. LEPs may well be a small you. I am grateful. part of what is being transferred. The Local Enterprise Chair: I want to draw this session to a close now, Partnership letter that went round talked about because we have another session. Could I say to any planning, transport and housing, which have very little members who have questions that they are perfectly to do with the core business of Regional Development free to write to any of the panel themselves? Agencies and it is those other functions that are very Mr David Ward: I am not going to ask this question, important to focus on as one re-ensilos some of but I do not think we have mentioned the word those functions. start-up. We mentioned SMEs, but not start-up and I Mr Binley: I accept that totally. There is no sense in think it is something maybe we could ask outside. developing enterprise if you do not develop housing Chair: Yes, we will be talking to business and infrastructure at the same time; the two have to organisations in a subsequent session. Equally, of go hand in hand. course, if on reﬂection you feel that you could add, or Sir Harry Studholme: Yes. even wish to counter some of the comments that you Mr Binley: That is one of the big messages that I made in response to our questions, do feel free to think LEPs are able to deliver. submit a supplementary memorandum to the Committee prior to the compilation of the report. Can Q40 Mr Binley: Let me talk about another point, I thank you for your attendance and co-operation and which was raised with me by the chamber of invite our next panel to replace you—the commerce, which says, ”In order to achieve effective representatives of the LGA, NAO and TUC. co-ordination between LEPs, it is critical that central cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 13

7 September 2010 LGA, NAO and TUC

Examination of Witnesses

Witnesses: Councillor David Sparks, Chair of Regeneration and Transport, Local Government Association, David Corner, Director DCLG & Regions, Value for Money, National Audit Ofﬁce, and Paul Nowak, Head of Organisation and Services, TUC.

Q43 Chair: Welcome once again. What I should Councillor David Sparks: I think there are three have done with the previous panel but forgot to do, points we would like to make in relation to the LGA but would welcome you to do, is ask you to introduce on this. First of all, our main objective would be for yourselves for the benefit of the Committee and any as much as possible to be done at a local level, other people present? because our practical experience both before and since Mr Paul Nowak: My name is Paul Nowak. I am Head the RDAs existed has been that, unless you tackle of Organisation and Services at the TUC. Amongst things at a local level, you will not actually get to the responsibilities of my department are the TUC’s grips with the real problems that face our regional councils and our involvement with various communities. different regional stakeholders. The second point, and we have given evidence on this Mr David Corner: My name is David Corner. I am before, is that we have undertaken economic research Director at the National Audit Office with over the years that has demonstrated that the key responsibility over the last few years for doing value economic component is the sub-region. Therefore, the for money work on Regional Development Agencies. Local Economic Partnerships need to embrace Councillor David Sparks: David Sparks, Vice Chair sub-regions. of the Local Government Association and a councillor The third point, notwithstanding both of these, is that in Dudley. we accept that there is real concern, especially in Chair: Thank you very much. Rachel Reeves is to relation to major skills provision, inward investment start. and major infrastructure, that the Local Enterprise Partnership set-up itself will not cater for that, so there Q44 Rachel Reeves: I wondered, from your needs to be some regional context. perspective, particularly I guess the TUC and LGA, what functions of RDAs do you think should be Q45 Rachel Reeves: Following on from that, David continued and what do you think might be delivered particularly, do you think that you will have the at a local level, if anything? economies of scale at local level? When you say that Mr Paul Nowak: We think the RDAs have played an things should be dealt with at as local a level as important role in terms of providing strategic possible, what does that mean in terms of the number leadership at a sub-national level, providing support, of LEPs that the LGA or you would envisage? Also, co-ordination and large scale investment in key on your point about inward investment, the plans of strategic sectors. I think, the Committee heard about the Government seem to be to move that back to some of those before; whether it is the NaREC Whitehall. How does that fit in with the priorities and example in the North East or the wave hub—the work the best level at which to function? that has been done around renewable energy in the Councillor David Sparks: If we can deal with the last South West. That is real key strategic sector work that point first, this is an old hobby horse of the civil it would be hard to envisage being done at a lower service: they want to grab as much as they possibly level or on a smaller scale. can and we are against it, pure and simple. They have We think the RDAs have been very important in continually been fighting this battle, as long as there providing adequate co-ordinated responses to have been RDAs and before RDAs existed. In the economic shocks and again, the Committee heard West Midlands, we developed the West Midlands before about the Rover taskforce, but I think maybe Industrial Development Association so that we were an even more current example is the Corus situation able to get some kind of a regional handle on inward in the North East, where the Regional Development investment, because a national agenda did not deliver Agency worked closely with local councils and local for the West Midlands. That is point number one. businesses, with Jobcentre Plus and others, including Point number two is that, as far as we are concerned, trade unions, to put in place a package of support, we are quite clear that there are probably about 50 including support, for example, for apprentices whose sub-regions in England that are clearly identified and contracts came to an end with the closure of the need to be taken into account when establishing Local Corus plant. Enterprise Partnerships. I could go on, but I think another crucial point to The third point is a lesson for everybody—not just highlight is the engagement of the private sector and RDAs, but absolutely everybody—in terms of other key social partners in economic regeneration. strategic economic action. The trick has always got to That was maybe at the tail end of the last session. I be to have local relevance to strategic action. It is no think the RDAs by and large have done a good job in use having something at a regional level if it does not engaging the private sector and getting the right sort relate locally; you have to translate it down to local of people involved in the work of the RDAs and action. That is why we welcome the opportunity that certainly trade unions have played an important part there is to establish something new that might be more and would want to continue to play that sort of role relevant in relation to regeneration of our local moving forward with the LEPs. communities through Local Enterprise Partnerships. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 14 Business, Innovation and Skills Committee: Evidence

7 September 2010 LGA, NAO and TUC

Mr Paul Nowak: From the TUC’s perspective, clearly Mr Paul Nowak: To reinforce the point David has just there are functions that we feel could be delivered made, I think in our evidence we made the point that effectively at local level. If you talk about eight out of the top 10 local authorities with the programmes around employability, for example, highest claimant to vacancy ratios were actually found where having a good understanding of local needs and in London and the South East, so there clearly are local issues, clearly a LEP could have a very pockets of deprivation even in so-called prosperous important role to play. We are concerned about areas or regions of the country. I think it does flag up possible fragmentation, particularly if we are talking the point which was made in the previous session about 40, 50 or 60 LEPs—we are worried about LEPs about the need for co-ordination between LEPs at having the critical mass that they need, both in terms regional or sub-national level, and probably between of scale and the expertise to be able to do the groups of LEPs as well, when we are talking about functions that the Government want them to do. We key strategic sectors that were talked about before in are worried about their capacity, the resources that terms of renewables, nuclear and so on. These are not will be available to them and, in some cases, we sectors restricted to one part of the country, neither are would be worried about their credibility with key they spread evenly across England, so co-ordination partners, including the private sector. between LEPs at regional level, but also co-ordination In relation to inward investment, I think Jack Dromey between groups of LEPs nationally, we would want made a point before about the potential, if inward to see built in to the arrangements in terms of the investment is taken solely up to the national level, in White Paper. effect for the investment to flow to those areas of the Councillor David Sparks: I think there is an elephant country—for example the South East—that are in the room here. I listened to the RDAs’ evidence already successful in attracting inward investment. I and they did not pull any punches; I am not going to think that is where we feel there is a real need for a pull any punches now. I think one of the factors that partnership between work that is done at a national have not come out so far is the fact that when you are level, a sub-national level and a local level as well. talking about Local Enterprise Partnerships and the 50 Just to give a bit of an example that predates even the sub-regions, you are actually talking about something RDAs, going back to the days of the old Northern meaningful. Regional Development Agencies were Development Company that was set up and was confined to administrative units decided by civil crucial in attracting investment from the likes of servants that did not necessarily relate in the same Nissan into the North East, it would have been way throughout the country. This is a handicap that difficult for a local authority or even a group of local many of them had. I would have hoped that the one authorities in, for example, Sunderland or Tyne and thing that we would do is that in establishing Local Wear, to attract that level of investment without the Enterprise Partnerships, we would take the support of the wider region and regional partners. opportunity in terms of co-ordinating different LEPs Chair: David Ward. to do something meaningful so that you would not Mr Binley: Sorry, could I pop in a supplementary, necessarily be talking about a region that extends from Chair? Banbury all the way down to Dover, which is totally Chair: Okay, just before we come on to yours, David. different from the emphasis that you have in the North East. Q46 Mr Binley: Sorry, David. I just wanted to know Chair: Yes, we have had a fairly wide ranging in terms of the formal structure, because we are number of responses. David Ward? coming on to this, whether there is a need, because LEPs are in being, for LEPs to operate in every Q47 Mr David Ward: Just a supplementary to region, or whether we should be specific about where earlier comments, really, about this local-regional- we have them. RDAs were much more successful in national debate, but specifically in the area of skills some areas than they were in others. Many would say development. I wondered what your views were on the South East and areas of that kind perhaps do not where that lies. need them and we do not need to put emphasis there. Councillor David Sparks: To be quite honest on this Would you agree with that? one, this is a really interesting point, because the Mr David Corner: I would just say that there are some experience we have had, especially in relation to the areas of deprivation in the South East that are greater current debate over Local Enterprise Partnerships, is than in the North East, so there may well be an that not all government departments are as argument, if one of the core functions of LEPs is to enthusiastic about this concept as others. We are address deprivation, for there to be LEPs in the particularly concerned about the Department for Work South East. and Pensions and their enthusiasm to actually act Councillor David Sparks: Our view on that is quite locally, because it is particularly important when you clear. We are absolutely focused on the importance are talking about skills provision that you are talking of the sub-regions. There is no point doing economic about the region and the local; it is not just national research and finding out what the position is and then programmes. We have a real concern that unless doing nothing about it. But we acknowledge that just something happens at a national level with proper to establish 50 Local Enterprise Partnerships will in political direction given, you might very well find that itself be inadequate, because you will throw the baby the skills provision could really go back—we would out with the bathwater, and at the same time you will take several steps back. not realise the true potential of the Local Enterprise Mr Paul Nowak: Can I just make a point about skills? Partnership. My understanding is that BIS are out to consultation cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 15

7 September 2010 LGA, NAO and TUC on their national skills strategy and there is passing partnership with the sub-regional—the LEPs. Is that a reference to the LEPs in that document, but the only position supported by the LGA? reference really is to local colleges, so we think more Councillor David Sparks: Absolutely. I think it is thought needs to be given to the potential relationship important for people to realise, despite all the different between LEPs and the broader national skills strategy. changes that there have been, the LGA stated policy— How LEPs would influence, for example, national and I am speaking as much as leader of the Labour sector skills councils is again particularly important group of the LGA as the Vice Chair—as being in for key strategic sectors like automotive, where there support of Regional Development Agencies or a would be the need to have a national view as well as a regional approach. We have always argued that the local one. Certainly our experience with the Regional sub-region is the key focus, but it needs to be within Development Agencies and the work that has a regional context. happened over the past few years—the TUC have The other point we have always argued is that there done a lot of work through our unionlearn arm, should be local variation. If I can state, because I have working together with employers, with local colleges stated before when I have given evidence, that the fact and with other providers, trying to address skills gaps of the matter is that in relation to the Rover crisis, at a regional and local level—we would not want that Birmingham, North Worcestershire and sort of work to be lost. We think that there is a lot of Worcestershire county council were the local work that can be done by a wide range of partners and authorities involved. They would probably have come LEPs need to have relationships beyond local together regardless of the RDA, but it was the colleges. They will be very important relationships but initiative of the RDA that brought them together and certainly will not be adequate in and of themselves. it was the way in which the RDA was able to cement the activity that made sure they met regularly. That Q48 Chair: Could I just ask, for a quick response, then identified the fact that my own local authority in Dudley was also involved to a considerable extent. what you think is the critical mass for the size of a I am a local politician. Unless it makes sense for my LEP? ward, it is not my business. The fact of the matter is Councillor David Sparks: We do not think that there that Rover did make sense for my ward, because there is a single formula for this; we think it varies were people who lived in my ward whose jobs were throughout the country. If you use the North West, at risk either because they worked at Rover or because for example, quite clearly you would be talking about they worked with companies that supplied Rover. something in terms of Manchester and Merseyside, Because the RDA was able to manage the transition, but you must not use the same arithmetical formula it meant that many of those stayed in jobs and on somewhere like Cumbria. You need to have some therefore in somewhere which is facing fundamental variation. You have to tackle the economic geography structural change, I think that you need something that and the importance of rural and urban areas. goes beyond the boundary, because Dudley itself Mr Paul Nowak: Again we would be wary of being could not cope with that crisis. too specific or trying to have some sort of arithmetical formula, but as I said before, I think there is Q50 Chair: Could I invite the NAO just to see if something to be said for a combination of scale and they wish to supplement that with any observations? expertise. Certainly the indication of the bids that Mr David Corner: I don’t think I do, no. came through yesterday suggest that a number of the Chair: Sorry? proposed LEPs are just too small to carry the clout Mr David Corner: I don’t think I do, no. Not on the and weight they would need to really be able to particular merits of local versus regional, no. support economic development and private sector Chair: Sorry, I had difficulty in hearing you. growth in their areas. Again, not to be too Mr David Corner: No, I don’t want to supplement on prescriptive, this is where at times LEPs working the particular merits of local versus regional delivery. together and being co-ordinated would help to give Chair: You don’t want to comment on that? Okay, that critical mass as well. well, we cannot put you on a rack and extract that, Chair: Right. Jack Dromey? although it is a tempting prospect. Mr David Corner: I tell you what I can do: I can Q49 Jack Dromey: Thank you, Chair. David, you tell you what in our work have been identified as the spoke earlier about how, for LEPs to realise their full advantages and disadvantages of having that regional potential, co-ordination will be essential, and about layer. strategic functions that can best be discharged only at Chair: If you do it very briefly, that might be of a regional level. The evidence before us, including benefit. what we have heard today from various RDAs, is that Jack Dromey: Very helpful. it is true that RDAs vary in their performance. It is Mr David Corner: I think during our work for the also true that regional economies vary in their nature, independent performance assessments and the including the need for effective regional independent supplementary reviews, one of the key arrangements. It is also true that in the Midlands, the advantages of having a regional layer was actually to North East, the North West and Yorkshire, there has do with critical mass and economies of scale— been a strongly expressed desire by both local building up pools of expert advice and support. A authorities and the business community and others, good example of that would be the work that including the voluntary sector, for the retention of a Yorkshire Forward have done in supporting physical strong regional strategic structure working in regeneration of the South Yorkshire towns, where you cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 16 Business, Innovation and Skills Committee: Evidence

7 September 2010 LGA, NAO and TUC have a set of issues that are quite similar between Councillor David Sparks: If I could kick off, I think different localities and you can have a pool of that there should be absolutely minimal movement expertise that is brought in to help and support in back to a national level of anything—absolutely similar ways. minimal, because the civil service cannot run it as The other advantage of the RDAs was that they were well as we can in our regions and our localities. There seen to be business-led. They had boards that had should still be, in terms of inward investment, skills business people. They understood business and they provision and major infrastructure, a major role at a had processes and procedures to engage well with regional level or however they co-ordinate themselves business. together. We should add to that, not reduce it. The The other thing that people said to us was that RDAs third point is that there is no point in arguing about took a much longer view, perhaps, than local localism if you give on the surface more power for authorities did, which is obviously important in terms local areas, whilst at the same time you ensure that of economic development. To some extent, they were the bulk of the allocation, the money, etcetera goes to more autonomous from local political influence. They the centre. could also build capacity where none previously There is one fundamental point that needs to be drawn existed, or perhaps increase existing capacity to tackle out. Our view as local authorities of Local Enterprise change. Of course, they also had a role in terms of Partnerships is different from the pure business drawing together key partners, including local interpretation. These proposals are very much authorities, who had not previously been drawn influenced by the original Business Links proposals. together in that way—think of New Street station in We look at RDAs far more from the point of view of Birmingham and the critical role there of the RDA in major infrastructure investment, co-ordination of big bringing seven district councils together. projects than we necessarily do in terms of business The things that people were critical about the agencies support. We have a long track record at a local level when we were doing our work was that they tried too in working with the private sector and in particular hard to make sure everyone got something, therefore targeting SMEs, not necessarily CBI type companies. they spread the investment too thinly; and that the That is why we think there should be a massive strategies were too broad to be really applicable at emphasis and increase on the local. We think there local level. So they were good at vision but not so should be national, there should be regional, there good at identifying what needed to be actually should be local; but there should be an opportunity to implemented to realise that vision. reduce the amount of emphasis at national level, not I suppose the biggest criticism, really, was the sheer increase it in any way, shape or form. effort and bureaucracy that was involved in Mr Paul Nowak: To restate one of the points I made developing the plans at a regional level. RDAs were before, we think there clearly is a national role in terms of sector support and inward investment, but we expected to influence the plans of local public bodies. also see a very clear role for support and practical RDAs spent only 2% of public money, so they were delivery at a regional or sub-national and local level. expected to align and persuade other public sector We think those working in partnership is the best way agencies and business itself and align that spending forward. In terms of strategic finance, I have not got to the priorities identified in the strategic plan. That details to give to the Committee, but certainly my involved sheer effort and bureaucracy: in the North understanding is that One North East has done a lot East, you are talking about aligning the plans of 12 of work on strategic finance. Again, you would not local authorities, four sub-regional partnerships and want to lose good, best practice examples of those three economic urban regeneration companies. It was sorts and if it is useful, we can provide information extremely difficult to achieve. on that, but I am sure One North East can as well. Chair: I have to say, for a no comment, that was an Mr David Corner: Can I give an auditor’s extremely full, informative and helpful comment. perspective? Thank you. Can I move on and invite Chi Onwurah? Chair: Please do. Mr David Corner: What we would really expect the Q51 Chi Onwurah: Thank you very much. I would Department to be doing is looking in each case, in like to hear your views about the balance of powers each individual service, at whether it would provides between the regional, the national and the local level, better value for money to retain it nationally or to and particularly which functions should be co- devolve it? There may well be some cost reductions ordinated at national level. The Department did that can be made in the provision of some of the originally give a list of functions which it believed current RDA services—for example, the were better co-ordinated at the national level, although Manufacturing Advisory Service is currently in his appearance before this Committee last time, the delivered by the RDAs; each has a separate contract Secretary of State indicated flexibility, particularly on or group of contracts for suppliers. There would, no a regional level—I actually wrote to him yesterday to doubt, be some savings in bringing that into the remind him of that. The Department suggested that centre. But we would also be expecting the inward investment, sectoral leadership, innovation, Department to be looking and asking, “Would a business support, finance and training should be co- centralised service provide the same level of service ordinated nationally. What are your views on that? to manufacturers? Are there actually synergies in What would you understand by national co- keeping it at a local level? Is there a strong regional ordination? Would you still see a role at the regional or local element to the advice that is given by the or indeed at the local level? Manufacturing Advisory Service that means it would cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 17

7 September 2010 LGA, NAO and TUC be better for it to be delivered locally that would Welsh Assembly. This has resulted, for example, in outweigh the administrative savings of bringing it into programmes like ProAct and ReAct, which have been the centre?” instrumental in preventing redundancies, making sure that where redundancies and large scale shocks Q52 Chi Onwurah: Can I just comment on that and happen that workers have access to skills and support follow up with a broader question? I take that point. to find alternative employment. I think those sorts of In my experience of cost analysis such as that, central lessons will be usefully applied in terms of the Government has a tendency to specify the costs, thinking behind LEPs as we move forward. because they can be quantified, but does find it much Chair: Could I just go back to Chi’s first question on more difficult to cost the dynamic benefits of having the issue of national and local objectives and synergies and local independence, etcetera Would you functions? I have had a number of Members indicate agree with that? they have supplementaries on that. I will take each Mr David Corner: I think it is much more difficult, supplementary and then perhaps if you could answer but again we would be expecting the Department to them collectively. Rachel Reeves, you were first. look at what evaluations are available—the Manufacturing Advisory Service has been externally Q54 Rachel Reeves: Thank you, Chair. I want to evaluated—also taking on the views of business, of come back to what David Corner said about the way course. in which Government should make decisions. I couldn’t agree more with you about that, but it seems Q53 Chi Onwurah: We talked about the regional to me that what we are having is a slightly and the national and the local level. Of course there schizophrenic approach from Government with this is England as a nation in competition in certain decision to move some things to the local authority circumstances with the Scottish and the Welsh, where level and then to move other things back to Whitehall the development agencies will remain as they are. Do and miss out this regional level. What particularly you think that there is a potential to disadvantage worries me is that there does not seem to have been England? For a specific example of that, if we look at any consultation or analysis that it is the right thing to the tourism industry in the North East, in the absence do, for example, to put inward investment or trade of any regional body, it is very difficult to explain promotion back in London, or business support in the that by visiting Newcastle, you also have access to the locality versus at the regional level or in Whitehall. beautiful countryside of Northumbria as a whole. I’m just wondering whether any of you think that that Councillor David Sparks: I am in regular contact with consultation has been done, whether there is any my opposite numbers in the Welsh LGA and COSLA, rationale for the Government’s decisions to move the Confederation of Scottish Local Authorities. In some things to a very local level and some things to fact, I visited the president of COSLA in Edinburgh a very national level, or whether it is, as I think, last Thursday and saw my opposite number on the slightly schizophrenic. Welsh LGA on Friday. I think this is a very Chair: Right. That was supplementary question one. fundamental point. I know from conversations with Jack Dromey? my colleague councillors in Wales and Scotland that the current structure in England is a considerable Q55 Jack Dromey: Very briefly, if I can ask David disadvantage to them as much as it is to us. The fact this question: we heard earlier about the existing is that there is a vacuum in England puts them at an rigorous performance management arrangements advantage—so much of an advantage that it almost operated through the NAO for the Regional becomes a disadvantage—and it is undeniably the Development Agencies. Have you been asked to case that places like the North East and indeed the advise on the drawing up of a performance West Midlands on the marches are at a disadvantage now and could be at a considerably greater management regime for the LEPs? The other point is, disadvantage if these proposals are not put through in very briefly, Paul, given what was said earlier on by a considered way. We are at a disadvantage now; it is David about the success story of the Rover plant in a question as to whether the disadvantage gets greater. the West Midlands and the commendation in an article I think that we need to really look at that, because if before me from Digby Jones of that success story, we are not careful, we could very well find that there does the TUC regret Digby once being described as will be other consequences far beyond this particular the man who waters the workers’ beer; and, more agenda today. seriously, performance management? Mr Paul Nowak: I would not want to comment on Chair: That is supplementary two. Nicky Morgan, whether or not English localities would be now. disadvantaged in comparison to Wales and Scotland, but maybe make two points. I think the danger in Q56 Nicky Morgan: Thank you. I just wanted to ask, sweeping away the RDAs and the creation of LEPs is in relation to your audit, your view on the if it is not done properly, things like business Manufacturing Advisory Service. I wonder if you intelligence, which is currently done at a regional have done any work on the Business Links, because level, could suffer. I think actually there are things that is one of the areas that I certainly have been told that we can learn from Wales—Wales in particular has has worked less well and, obviously, that is certainly very well established social partnership arrangements, something suggested in the document or the letter which bring together private sector employers, trade from the Department with the report back to the unions, community and the voluntary sector, with the centre. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 18 Business, Innovation and Skills Committee: Evidence

7 September 2010 LGA, NAO and TUC

Chair: Right. Response to supplementary one, from Chair: Yes. Supplementary three, MAS and Rachel Reeves, first. Business Link. Councillor David Sparks: If I could just very quickly Mr David Corner: We have not done any particular come in on that one. I think what is not being taken work on Business Links. We did look at aspects of the into account and you need to take into account—I management of Business Links, both as part of our know governments change and it all starts again, but IPA and ISR work and we did note in general the the fact is we have had an unhappy coincidence evidence did seem to suggest that businesses were here—is that there were fundamental changes in the more pleased with the service that they were getting last couple of years of the previous government at a in recent years, but there was still a lot of criticism of regional level and now we have these changes, the net the service. There is still room for improvement. result of which is that, for the first time since the Chair: Luciana? 1950s, in the West Midlands there is not really a Luciana Berger: My question has been asked. regional set-up where we get round the table in a Chair: You feel it has been asked. Fine. Chi? region where there has always been a bipartisan, cross-party consensus on the need to have regional Q57 Chi Onwurah: One of the successes, which has action on things like housing overspill and so on and already been mentioned, of the RDA in the North East so forth. The other point of it is, quickly, to pass was in co-ordinating large-scale investment , for straight into it, local enterprise agencies existed before example, in advanced manufacturing, such as Nissan Business Links. When Dudley had its local enterprise and also renewable energy. We have also talked earlier agency it worked a lot better than when it had today about the complexities of dealing with European Business Links to be perfectly honest. That is what funding and how skills have grown up in that area we are aiming for, to go back to a local approach. It within the RDAs. This was asked earlier of the RDAs, worked well. but I would like your views on how we avoid losing Chair: Right, supplementary two, the NAO. those skills. Is it actually feasible that some of those Mr David Corner: On the performance management complex technical skills can be located at the local framework, I’m not clear. I think the reason why the authority level? NAO was asked both to do the independent Councillor David Sparks: Number one, it is not performance assessments and then the supplementary feasible that all of those skills could be accommodated ones was in part because the Regional Development at the local authority level, first of all because we face Agencies were part of national government—they massive cuts; and secondly, it is not part of our were non-departmental public bodies. So I don’t know statutory function, and when you are facing cuts in what the arrangements will be for the audit or indeed local government, as I know from a long experience, the performance management framework for local the “statutory function” argument becomes enterprise partnerships. predominant. Second point, a matter of record and Jack Dromey: Have you been asked? empirical fact is that the last time, certainly in the Mr David Corner: I am not aware that we have conurbations, that we had a major structural change been, no. like this was when the metropolitan counties were Jack Dromey: Can you check? Because the point abolished. I can tell you from first-hand experience, Margot made earlier on about the wise expenditure of because I was a deputy leader of one of them at the public money, the ratio of money invested to jobs time, that there were many people with expertise in, created and other performance management indicators for example, reclamation of derelict land and other is very important. Can you make enquiries and let the skills that were lost. Subsequently, local authorities Committee know? have not recruited to the same level because over the Mr David Corner: Yes. I would just add to that, last 10 or 20 years the emphasis in local authorities though, that the regional growth fund is going to be has been to run a very tight ship. I think that the only administered as I understand it by the Department— way that this can be avoided is if there is some by Whitehall. The monies for that fund are going to structure at a regional level, and certainly at a local be voted by Parliament, so the NAO will expect at authority level, that is dedicated to maintaining that some stage in the future to report to Parliament on expertise, because otherwise it will be lost— how well the fund is being set up and, of course, in regardless of speeches. the longer term what impact it has had and its overall Mr Paul Nowak: Can I make a couple of points on value for money. So we will have access in order to skills and expertise, first of all in relation to staff in do a report to Parliament. RDAs but then also to wider stakeholder engagement. Chair: We will look forward to seeing you again. In terms of staff, we have this mooted Mr Paul Nowak: Can I, Chair, just respond very reorganisation—a move from the RDAs to LEPs— quickly to Rachel Reeves’ supplementary, because I running alongside some immediate cuts in budgets for think the characterisation of the development of the RDAs, which has resulted in some cases in large scale LEPs as rather schizophrenic is probably a good redundancies, and we have a very clear fear that you characterisation of the tension between the drive are going to see a lot of skills and expertise being lost between localism and taking other functions into within the Regional Development Agencies over the Whitehall. We do not see any very clear rationale as next six to 12 months. My understanding is that the to why some functions have been taken up and others North West Development Agency, for example, has have not, and I think the approach suggested by the already identified potentially up to 100 staff for NAO of a genuine, sophisticated cost-benefit analysis voluntary redundancy. Now, some of those staff may has merit. be exactly the sort of people that you need—with their cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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7 September 2010 LGA, NAO and TUC skills, expertise and knowledge—in the new LEPS. So Councillor David Sparks: I think that in those areas to make sure that we do not lose those skills and that where local authorities want that to happen, that is expertise, we would want to make sure that staff were what should happen. In those areas like the North East properly involved, properly consulted both around the where local authorities think they’ve got a package, immediate short-term cuts which are going to result that is what Eric Pickles should agree to, as he said in posts being lost, but also long-term movement in he is into localism. the transition to LEPs. Mr Paul Nowak: We do not have a hard or fast The other parts of skills and expertise is that wider position on this. I think we would have a concern, stakeholder engagement, making sure that, as we though, that there is a danger that you over-complicate move towards the LEPs we do not lose the matters. In some areas of the country we could have engagement of the private sector, universities and the RDAs; in some we could have LEPs; and in some social partners. That is why it is important that the other areas of the country we would have neither transition is managed effectively and in an orderly RDAs nor LEPs. That might just complicate the way, so that we are not in the process of closing down transitional process even further, and worsen the lack RDAs before we have put in place an adequate of clarity and transparency about the process. replacement. We do have some real fears about skills Councillor David Sparks: I think there is one really and expertise being lost. important point that you are touching on with this and Mr David Corner: Sorry, I was just going to say we I think it is being glossed. I’m not going to make any also have some concerns about potential loss of skills. comments about the evidence given earlier, but the We are thinking particularly of the management of the fundamental factor that is missing is passion. We are ERDF and RDP funds, which have very complex rules about passion. Unless you have everybody in an area that are very difficult to understand. Of course, we— signing up to what is on offer, you are not going to the UK—have lost money through disallowances in get the passion. That was the disadvantage that some the past because of issues about the management of RDAs had, because the other areas did not know what these funds. The delivery chains for the schemes are they related to. Now, if you have a group of people— very long and that really presents problems in terms local authorities and businesses—who go to the of oversight and giving assurance to the Department trouble to come forward with a proposal, and they about those funds, which is what the European have the passion about that proposal, then that has to Commission is looking for. We will be keeping a close be the right way forward. eye on how those responsibilities are transferred from the RDAs and where they are transferred to. Q60 Margot James: I wanted to come in on this Mr Paul Nowak: Can I just make one supplementary issue of regional overlay for certain functions. point? Particularly at a time when public finances are Presumably the LEPs would empower some sort of under such pressure, I think one of the things that regional structure to look after things such as ERDF everybody would want to avoid is large numbers of applications, for example, which I believe cannot be staff going on voluntary redundancy programmes and made from anything other than a regional perspective then being re-employed as consultants on ERDF by European rules. We also heard in the previous programmes. It does happen. session how transport is another area. There are some Chair: Before I bring in Luciana, I have Brian Binley. areas where it generally seems to be agreed by most of the witnesses that there should be some structure above the LEP to co-ordinate. Since one of the Q58 Mr Binley: Just a quick one. There is a very objectives behind the whole transition is to reduce specialist area concerning the urban development bureaucracy and reduce administration and corporations and John Prescott’s four development management costs as a proportion of the overall spend areas scenario, where skills went from the county on business, how do you see us achieving that? Is council in terms of strategic planning and only exist there a risk of creating two levels where previously there, and yet they are going to be wrapped up. I just there was one? What are the cost implications and wanted to make that point so it is in the report, David, bureaucracy implications of that risk? and seek your views on that because that is a specific Councillor David Sparks: I happen to handle the area where we really could lose strategic planning European funding for the LGA and have done for over skills that are going to be vital to develop long-term 10 years. We had a UK summit on structural funds in enterprise. Brussels a month ago where this very question was Councillor David Sparks: I completely agree, and it raised. There is real concern that we could be is not just I agree; the fact is it has happened before disadvantaged in relation to European funding in the and there is no reason to think it is not going to next round in particular, for two reasons. Number one, happen again because the climate in which these as you have identified, there are regional funds that changes are going to be undertaken in is far more need to be allocated through regional bodies. Number hostile. two, for about 15 to 20 years—maybe a slight Mr Binley: Thank you. That helps. exaggeration there—we had a battle with UK Government to get European money into our region, Q59 Luciana Berger: Further to the concerns that because a lot of the European money used to be top- you have raised, do you mean there is a case for sliced, and it used to fund Manpower Services piloting the new structures first? Do you think it Commission schemes and things like that; local would be feasible to have a parallel system of residual communities never saw it. The fundamental point here RDAs alongside trial LEPs? is that I would think that Eric Pickles needs to cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 20 Business, Innovation and Skills Committee: Evidence

7 September 2010 LGA, NAO and TUC reconsider the letter that he sent out. He needs to Nadhim Zahawi: Right. So, my thoughts are that part reconsider, in particular, the national reference, and of the idea with the LEPs is this focus on bringing it that needs to be reviewed in light of the proposals that back down. If you can bring it local, then you have a he will now have for LEPs. He should then produce greater chance of getting focus and, therefore, success, guidance so that those LEPs, if they have not made and some functions need to go the other way because provision in a region or a collection of regions, to they are more strategic. If you were in charge, what deliver this function to the satisfaction of business and would you do differently to achieve that success, others—those proposals need to be revisited until that bearing in mind this idea that lack of focus can lead is addressed. to the problem we have had and that criticism of the Mr Paul Nowak: Can I just add a point, which is just RDAs? That goes for all three, by the way, not just that I think it is about getting the structure of the LEPs you, David. right in the first place. If we end up with 40, 50 or 60 Mr David Corner: I think there are two key things. LEPs, it is very hard to see how you have effective There needs to be real clarity and agreement between co-ordination without the duplication of effort and an local politicians, administrators, the business additional layer of bureaucracy, as you were alluding community and local agencies about the priorities for to, being in place. So, it is about getting the structure development. What are the priorities? Where are you right in the first place. That might be a more going to spend your money? How are you going to manageable process with 12, 15 or 20 LEPs—with get the most bang for the buck? That is going to be 40, 50 or 60 it is very hard to see how you get that even more the case with the regional growth fund, co-ordination. which is going to be less than half of what RDAs were Councillor David Sparks: Yes, but there was a spending at their peak. How do you get that precedent; we have never learned from history. There consensus? How do you get that agreement? I think was a precedent: when the metropolitan counties were you have to get that based on comprehensive and abolished, some areas like Greater Manchester and the really robust, strong intelligence about what are the West Midlands went down a lead authority role or problems and the priorities, and then you need to have they set up joint boards. But there was a provision: strong evaluation of what has worked in the past and when they were abolished, local authorities could not what is likely to work in the future. I think one of the just inherit the functions. The Government said you success stories of the RDAs is that intelligence that had to come up with the machinery in an area that they have managed to gather. I am thinking of the delivers that function, and that is what we are saying. work, often led by the RDAs, by the regional We are not saying, from an LGA point of view, that observatories, where they have looked in detail at their we should go to 50 units in the UK and then that is regional economies and at market failures; they have it. We are acknowledging that those 50 units have got then identified the appropriate interventions to address to be within a wider context, and there is a gap at the those market failures. In some regions that moment as to what that wider context is going to be. intelligence has developed with a lot of active engagement of the city regions or the potential LEPs. In some, there has been less active engagement, but I Q61 Mr David Ward: There is a difference, I think, think it is vital that that intelligence is not lost, and between something that is flexible and something that that it is used for the benefit of the LEPs. is wobbly. I think the consensus is on a need for a Councillor David Sparks: Recognising that there is a smooth transition. We know what will not be, but change of Government and a change of Government what we seem to be lacking is what we are policies, fundamentally, in relation to RDAs, as transitioning to. Just picking up your point, David, outlined in the election, in the unlikely event of me about the guidelines, what I think needs to come out being a Tory Secretary of State— of all of this, whether it be right or wrong, are some Mr Binley: Stranger things have happened. Do you clear guidelines on what will be allowed, so that we want the answer now? can then get along with this transition phase. Don’t Nadhim Zahawi: We’re a broad church, David. you agree? Councillor David Sparks: Quite frankly, what I would Councillor David Sparks: I completely agree with have done is is to have had a more extensive that. consultation exercise saying that it is policy to abolish Chair: Okay, if we are in agreement, can I bring in RDAs and then have a consultation about whether a) Nadhim Zahawi? that was the right thing to do in that particular area and b) if there was going to abolition, the consultation Q62 Nadhim Zahawi: Thank you very much, Chair. should include asking how would you deliver these I think we have heard about your immediate concerns functions? You could systematically do it on the basis regarding the move to the LEPs, and I just wanted to of the local region, sub-region or whatever, but there confirm, David Corner, that one of the weaknesses or needed to be further consultation. I think, in fact, criticisms of the RDAs was this idea that when you RDAs needed to be reviewed anyway for their own are overstretched in terms of resources, where you try good, but just abolishing things French revolution- to please everyone, that might expand—being style is not always a good idea. overstretched in terms of where you are looking and Mr Paul Nowak: I would echo the point about what your remit is and less focus? If you talk to consultation. The TUC’s primary standpoint is that we business, focus leads to success and so on. think the focus of sub-national economic development Mr David Corner: I was talking more spatially, really, should be about creating good-quality employment rather than sectorally. and restoring economic growth. In many ways it is cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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7 September 2010 LGA, NAO and TUC measuring the LEPs or the RDAs against whether or Q64 Rachel Reeves: I think in some sense this has not they are delivering against that overarching set of been covered, but for David Corner again, from the objectives. I think the other thing is just making sure work you have done on value for money, what is the that there is genuine stakeholder engagement, one lesson that you think the LEPs could learn in particularly private sector engagement, but I would terms of achieving value for taxpayers’ money? echo again the calls for universities or other social Mr David Corner: Learn the lessons—that would be partners—trade unions included—to be a part, the one piece of advice I would give. I think the RDAs because it is about ensuring that, whatever spatial were initially quite slow to evaluate the impact of their arrangement there happens to be with the LEP, there investment, partly because it is difficult to evaluate is genuine consensus and partners are genuinely the outcome and impact of the various levers that they signed up to what the LEP is trying to achieve. There used to try and foster regional economic growth, and is a danger that with the proposals we have seen so partly because they were given by Whitehall so many far, it is clear that engagement is not uniform across objectives, some of which were conflicting. England. Eventually, the PricewaterhouseCoopers work did emerge and that showed that the RDAs had achieved Q63 Chair: Can I just move on to alternative funding £4.50 for every pound that had been spent and that models proposed for LEPs. You might have heard this there was the potential for £6.40, but what did that same question posed to our previous panel. What are really mean in terms of value for money from that your views about the partial diversion of business data collected? Could it have been 10% more, twice rates to LEPs? I suspect the LGA will have strong as much more? We don’t know. Since that work, it did views on that. Also, accelerated development zones actually help to galvanise the RDAs and to address and increment financing or bond-issuing powers; and, some of the weakness that we had identified before if you have any views, the regional infrastructure fund about ensuring that they evaluated their projects and with the recruitment of initial project investment used the lessons when they were planning their future through the planning system—I think. You may not projects to ensure they got the best value for money. be aware or have an opinion, but where you are aware RDAs did make a lot of progress in that regard. and do have an opinion, then I’d welcome it. Chair: Last couple of questions, Nicky Morgan. Councillor David Sparks: Our view is that we see the fundamental finance for LEPs coming from a single Q65 Nicky Morgan: Yes, just one to the end. I don’t pot-type approach. You roll in a variety of know if we have touched on this before, but I wanted programmes and funding streams from national and just get your perspective on the structure, European Government, plus any innovative proposals accountability and the makeup to the boards—you to do with local finance, bringing the new ones that might have heard earlier, obviously, about the have been listed earlier in the session as part of our, importance of businesses being involved. I am literally, ongoing discussions with central Government assuming from an LGA perspective that you will have of whatever party with view to getting a better system views on local council and councillor involvement, for financing local government. So, we are open to which I think is critical. In relation to the TUC, I noticed that you talked about the involvement of those innovation. in the workplace; how is that achieved? I wanted your Chair: Open to innovation—right. views on how boards of the RDAs operated at the Councillor David Sparks: We’re open to innovation, moment and, again, the lessons to be learned from that but, fundamentally, for the LEPs to be effective, they in terms of the composition and working of the boards need to be adequately funded. Our view is that that of the LEPs. funding should come from central or European Councillor David Sparks: If I could kick off, and I Government money; it cannot come from council tax unfortunately will upset people, I know, but you asked payments. me a question and I have to give you the answer. I Chair: If I can just perhaps pin you down a little, was involved in the establishment of RDAs and in fact David, on that. My instinct, from my years as a negotiated the four places for local authority finance chair on a major local authority is that the representatives on the boards. That was meant as a prospect of diverting business rates to, shall we say, an counterbalance to the fact that the RDA board would alternative organisation would be regarded with some be dominated by the private sector and other sectors, hostility in local authorities. Would you feel that’s and the assembly would be the other way round. What correct? happened, quite frankly, was that the civil service Councillor David Sparks: Yes, that would be the case, captured the board so that the boards did not operate but if a local enterprise agency was made up of local with the local champion role to the extent that they authorities and the money went via the local authority, could have done, in my opinion. and it was the case that more money from the business The second point is that local authorities have rate was part of a big deal in relation to local absolutely no problem whatsoever with sharing boards authorities, then we might be open to do a deal. But with the business community. My own local authority our view is that this is one part of our activity. When has recently set up a company which is chaired by the you are talking about local government finance, you private sector; we have a long track record on that— are talking about a major picture that really does need there is no problem with that whatsoever. In fact, it is addressing, hasn’t been addressed and involves the norm. bigger issues. I think that the lesson to be learned from RDAs is it Chair: Can I bring in Rachel Reeves? really is important, first, who you put on the board cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

Ev 22 Business, Innovation and Skills Committee: Evidence

7 September 2010 LGA, NAO and TUC and, secondly, when they are put on the board, what real resources. People are not going to give up a lot they do. They should not be administrative. That’s for of time and effort if they feel this is a talking shop or the executives, the officers, etcetera. They should be an organisation with no teeth. I think it is very put there because they have a passion for the area—a important that we support particularly the third sector, commitment to the area—and I think that that was community organisations, voluntary sector and trade lost. What the balance is depends on what the culture unions to make sure that they are able to put forward is in that particular area, but there should guidance. people to represent those interests on the boards of the So, if you have a culture that, “Oh, we’ll have it all,” new LEPs. I think it really does come down to what you say, “Well, that’s not on. That’s unacceptable,” it is LEPs are going to do, and the perception of because successful economic regeneration will only whether or not they are effective organisations. happen where you have cross-party consensus and a Councillor David Sparks: I would fundamentally buy-in from the whole community. That is the same reinforce that. I have been on dozens and dozens of all over the world. boards, so I have a deep background here. If you are talking about purely business support, then that can be Q66 Nicky Morgan: Did you agree with the point run in a totally different way to what you would be made earlier about social enterprises, third sector, doing if you were talking about economic universities and so on? regeneration. If you are talking about economic Councillor David Sparks: The one good thing about regeneration, you need a different approach because an RDA board is that all of these are represented on you are not running a company; you are running a it. I think that would have been a useful exercise in regeneration agency. If, however, you are running a itself to interview all those who had been members of company to provide business advice and support, then the boards as to whether they found it satisfactory. At you don’t need a whole load of people; you need a times, I found it a very strange experience, but I was group of people who know what they’re doing very fortunate; I was involved in the West Midlands running a business like that. RDA, where there were some strong individuals and it was a good place to be, but it was only because Q67 Chair: Just before we finish, could I ask there were strong individuals that we were able to David Corner: do you foresee any problems with ensure that the board functioned as a board, because resourcing to measure performance in a period of at the time there was tremendous pressure from the financial restraint? Potentially, what would be the Government office. Government office tried to consequences? Have you any views? embrace it straightaway and, unfortunately, I have to Mr David Corner: Sorry, I’m not sure I quite say this as well—this will upset even more people— understood. but when there was a subsequent change from the Chair: Do you foresee any problems with resourcing Department of the Environment as it then was, to what to measure performance of LEPs? was then the DTI, the civil service grip was even Mr David Corner: I don’t think the decision has really tighter. I think it was a terrible job that the chief been made about performance and measurement executives of the RDAs then had to do—as has been frameworks for LEPs. We would obviously expect to emphasised, not in those terms, by David Corner—in see those bodies putting resources aside to develop all the ridiculous number of targets and bureaucracy performance frameworks and we would expect LEPs that they had to jump through. What we have to do is in some way to be subject to some kind of audit. escape from all of that. Mr Paul Nowak: Certainly the feedback I get from TUC regional secretaries and from trade union Q68 Chair: Right. Lastly—probably more representatives who have been involved in RDA appropriate to Paul and David Sparks—very briefly, boards is not to wear rose-tinted glasses and to say what do you think should be the priorities for the that they were perfect, but they were designed to be regional growth fund? private sector-led; they were private sector-led. They Councillor David Sparks: It will vary according to were designed to have the engagement of local different regions, but overwhelmingly you are talking authorities and the wider stakeholders, and they did. about the provision of skills, the provision of Certainly, a number of our TUC regional secretaries infrastructure, and making our areas more able to and other senior union figures sat on the boards. I compete in a global market. think there are issues that actually are similar for trade Mr Paul Nowak: I think it has to be about restoring unions and social partners, and similar to the private economic growth. That’s the primary focus, we sector in terms of the capacity to send people along to believe, of the regional growth fund. It is important those boards, and the quality of the people who you particularly with the timescales that have been laid out get to sit on those boards. Again, I think there is a for the first round of bids to the RGF—that bids are danger with a lot of fragmentation that you will not actually driven by real strategic priorities, rather than get the quality of person that you want to get proper who writes the best or earliest bid. We think there is engagement of, for example, the private sector. That a danger that with a very compressed timescale, those partly goes back to what it is LEPs actually end up LEPs that are good at conjuring up bids will perhaps doing. get priority of funding. I would echo all the concerns Councillor David Sparks: I think that is absolutely that were made in the previous session about the short crucial. term nature of the RGF—the two years and the Mr Paul Nowak: And to whether or not they are concerns about what it means in the context of the considered as credible and they have real capacity, broader cuts to the RDA budget—I think it is in fact cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:20] Job: 005834 Unit: PG01 Source: /MILES/PKU/INPUT/005834/005834_No1-7Sept CORRECTED.xml

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7 September 2010 LGA, NAO and TUC

£73 billion worth, potentially, of broader public sector incorporate it when we draft our conclusions. I ﬁnish spending cuts. by thanking you for your comprehensive replies and Chair: That is helpful. Can I just ﬁnish by saying particularly to the NAO, who I think did not want to once again that if you feel that you would like to add say too much, but actually contributed well. For a anything to the replies that you have given during this body skilled in no comment, they made a number of session, do please feel free to send in a memorandum very helpful comments. to us—obviously as soon as possible so that we can cobber Pack: U PL: COE1 [SE] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Ev 24 Business, Innovation and Skills Committee: Evidence

Tuesday 14 September 2010

Members present: Adrian Bailey (Chair)

David Ward Luciana Berger Rebecca Hall Jack Dromey Nadhim Zahawi Chi Onwurah Margot Jones Rachel Reeves ______

Examination of Witnesses

Witnesses: Adam Marshall, Director of Policy and External Affairs, British Chambers of Commerce, John Cridland, Deputy Director-General, Confederation of British Industry, Steve Radley, Director of Policy and External Affairs, EEF Mike Cherry, Policy Chairman, Federation of Small Businesses, and Alexander Ehmann, Head of Parliamentary and Regulatory Affairs, Institute of Directors, gave evidence.

Q69 Chair: Good morning, gentlemen, and can I and local authorities can probably create a better 30- welcome you to our inquiry and thank you for your to-40-year vision for a locality, and then come up with participation? Before we start with the questioning, some of the measures that are required to deliver that. can I ask you to introduce yourselves, so we can check the voice levels and everything are okay? Q71 Chair: Thank you. In the submissions that we Adam Marshall: I’m Director of Policy and External have received from business, a number have made the Affairs for the British Chambers of Commerce. point that one of the things that the RDAs suffer from ohn Cridland: CBI Deputy Director-General. is having too many objectives and functions. What do Steve Radley: Director of Policy, EEF. you think should be their core functions and what Mike Cherry: Policy Chairman, Federation of Small could we live without? I refer to the successor Businesses. organisations to the RDAs: what should be delivered Alexander hmann: Head of Parliamentary and at a regional or sub-regional level? Regulatory Affairs at the Institute of Directors. Alexander hmann: Ultimately for Institute of Directors members, the key focus has to be on Q70 Chair: Thanks very much. I will start with fairly transport and infrastructure. When you are talking about issues like inward investment and general levels general questions. I would emphasise that there is no of business support—provisions of grants and need for every member of the panel to speak at length assistance—those are areas where our membership on every question that is asked. If you feel that the has been accepting of the possibility that they might points that you want to make have been adequately not be delivered by whatever body succeeds the RDA. covered by another speaker, please resist the We need a fundamental focus on infrastructure temptation to repeat them. development with a view on economic growth and First, do you think that partnership between business wealth creation, without getting into some of the and local authorities is really necessary? Could we in issues that the RDAs were sometimes drawn into fact just abolish RDAs and let business get on with about more broad social concerns, right though they the job? were to address, around regeneration. ohn Cridland: Why don’t I start on that, Chairman? We think dialogue is important. Too often, the Q72 Chair: Following from what you’ve said, how business community and the local authority world are do you think detailed or local business support could not sufﬁciently involved with each other. It is clear to be delivered at a national level? us there are some sub-national issues for the business Alexander hmann: It is the Institute of Directors’ community, which are of great importance, where view that the majority of business support, in terms of business is an absolutely key stakeholder. help and advice, can be delivered nationally through Infrastructure planning, land-use planning and a telephone service and online support. When it comes economic regeneration are just three that come to to face-to-face interventions and supporting business mind. Often, those issues will need a dialogue that through growth, we think that can primarily be done goes beyond individual local authority boundaries. with a move away from paid advisers—we currently Groupings of local authorities with business leaders have about 1,000 through the Business Link have a role to play. If we lost everything, we would network—to an established and accredited system of have thrown the baby out with the bathwater. mentors, which could be delivered from the business Chair: Does anyone wish to supplement that? community. You could gain greater scale from that at Adam Marshall: There is also a question about vision far less cost. for a local economy and community. So often, we see Chair: Interesting. economic strategies that have been developed in local Steve Radley: I agree with a number of the points authority economic development units that end at Alex made there. The focus of the successor bodies administrative boundaries or do not necessarily take has to be about promoting economic recovery, account of what businesses’ preferences and priorities strengthening it and helping to rebalance the economy. might be. So a mature partnership between business In that respect, the areas the successor bodies are cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD directed to cover in the letter are primarily the right no money left, that it is better to have a local or ones, in terms of planning, housing, transport regional framework to get that focus back? What infrastructure—the sort of things that make a real would be the critical mass for that local framework difference to our productivity growth—and also for the LEPs, in terms of geography, population, area, encouraging enterprise and employment. I do think GDP or any other measure that you think could work? that some of the things that RDAs did are actually ohn Cridland: Clearly, this is quite a complex very useful, and we need to find a body that has picture, and there is no single answer across the whole sufficient scale to deliver those. It needs to be able to country. CBI members, as our evidence stated, favour take a strategic overview of the area’s needs and have closer aggregation towards regional than towards local a vision, with good understanding, of an area’s level, but that is stronger in the North and the economic potential and what needs to be done to fulfil Midlands, where regional identity is stronger, than it that, and then actually catalyse some action to make is in the East and the South, where it is not as strong. that happen. Also, RDAs played a very important role You see in a number of those Northern and Midland in gathering good-quality economic intelligence based regions that business groups have said that, even if on their understanding of the area and preparing areas there are a number of LEPs, there may be a need for very well for when they encountered economic an overarching body that can deal with some of the shocks, so they were able to respond to them. We need bigger-ticket infrastructure issues, which a number of to be putting things in place at a level below the us have said is a prime purpose of business national to be able to do those things properly. engagement with local authorities across boundaries. Mike Cherry: Transport and infrastructure remain Further south, there has not been the same desire but, very crucial to small businesses. They are needed on even in the South, there is still a desire to have in a a daily basis to be able to do business. When you look sense what the Secretary of State’s letter of 29 June at local business support, clearly, the FSB’s view has stated: a genuine functional economic area. always been that a national portal that delivers what When we look at some of the LEP bids that are our members want at that national level is crucial. We essentially county-based, or in the case of Lancashire also feel there should be far more focus on local where there are three bids, this is too much delivery of what members actually need. A lot of fragmentation. Equally, some of the larger city region savings could be put in place by doing that. bids—I think of Leeds—have attracted quite a lot of business support. There were some interesting Q73 David Ward: Coming back to the first question developments, for example, in the East Midlands, if and the IoD submission, I was reading a comment my memory serves me right, where Derbyshire and here about the profitability of the LEPs, and the Nottinghamshire have got together. I do not think it relationship between the LEPs and the local has to be at the regional level—there is nothing wrong authorities and their procurement policies, deferred with it being at a single city level—but we have a lists and so on. Could you elaborate on that? preference for aggregation beyond local authority Alexander hmann: The only reference we made in boundaries. As I mentioned in my opening answer to terms of the proposals that were put forward to the Chairman, many issues that business wants to talk Government and the consideration given to whether to local authorities about—planning, infrastructure the LEP proposal should go ahead was that we must and economic development—do not naturally fit avoid any conflicts of interest being wedded to any within any single local authority area. We think, of the implicit support for the area that is set out. I won’t bids that have come in, and clearly there is a lot to be point to specific examples but, as I have discussed looked at with those bids, there is a fragmentation, with my colleagues from the other business groups, I which the business community and certainly the CBI am aware of one business group, which could be our membership are not comfortable with. own or another, supporting the proposal but not Adam Marshall: In this very early stage, there has knowing the view of the other national business been a considerable and somewhat understandable groups in that area. We very much encourage amount of focus on the size and scale, the functions Ministers and the Government to ask that question and powers that a LEP might hold, and the about why, and to find out whether there is support governance arrangements between business and the from broad-based business organisations nationally. local community. I would like to reel it back to first Also, the point we were making about the tendering/ principles and come back to your question about why procurement process is to find individual businesses we are doing this in the first place. From our that might support a proposal. I would imagine it perspective, we have to ensure that any LEP bids that could be quite difficult for a business to reject a LEP are successful actually have a very clear sense of proposal from a local authority or group of local outcomes to which they are working. From our authorities with whom they contract, and so I would perspective that is: growing local GDP, adding local urge some caution on the businesses concerned. jobs and ensuring that a local economy is diverse enough so that, if there is another economic shock, Q74 Nadhim Zahawi: I want to try to put you on whether external or internal to this country, that area the spot a bit here. We have heard the good things that has a better chance of getting through it. It is my sense RDAs have done and also some of the less good that, in some areas of the country—and this is things, such as a lack of focus from having such a reflected in some of the answers from my wide stakeholder audience. Alex referred to them not colleagues—that there hasn’t been sufficient enough being as clear in their focus on the tasks. Do you focus on those outcomes at the start, and we have think, because we have to make decisions and there is entered right into the detail. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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All that being said, I completely agree with John’s back to the point about scale made earlier. The point about real economic areas. What the business Institute of Directors’ general concern has been about community is saying to us in some places is that those the LEP proposals that we have seen to date: they do not resemble administrative geographies at all. I have not had enough scale to them. Local authorities will give the example of West Sussex, which has put have not looked beyond traditional relationships with in a bid, together with Gatwick Airport, parts of other local authorities that they felt comfortable with Surrey and the London Borough of Croydon. That to wider bodies. The risk with that is twofold. First, actually reflects a real economic area, because you they are not strategic enough and will not be able to have a motorway corridor, a railway corridor and a deliver in the areas where we need them to deliver. major international airport, and a group of people who Secondly, they will not have the broad-based support have got together and said, “We want to focus our of business in order to deliver. To give a specific attention on international trade and export. This is example, in the South, which has been referred to where we can grow our local economy in the future.” already, I believe there have been 17 proposals for That to me has vision; they have put outcomes to it; Local Enterprise Partnerships. To garner the amount and now they are moving on to talk about the size, of business support that is necessary for that, both in governance and scale. That is a very persuasive way terms of being able to go ahead but also the of doing this. governance arrangements, the way that organisations like ourselves, as national organisations, will engage Q75 Luciana Berger: How do you believe that RDA with those bodies and keep those people engaged is a functions can be delivered through smaller bodies? massive task. The jury is out on that. Greater scale John, you touched on the theme of fragmentation. would enable the possibility of greater success. If that What are the additional challenges you believe LEPs is not possible, we would encourage the Government face on delivery? to step back from agreeing to all proposals on the table ohn Cridland: Forgive me for starting again, but you in a vast wave of LEPs, and instead enable things to specifically asked me that question. If one goes back bed down in a few very good example areas to see to the letter from the two Secretaries of State of how that goes. 29 June, it seemed to me to identify two possible Adam Marshall: Can I briefly come back to the point models: things could be delivered nationally, more so about how functions are delivered, i.e. via national than was the case in the past; and a second set of strategy and local or pan-local delivery, as John was things could be delivered locally. I think there is a alluding to? Among Chamber members, that is a third category. CBI members have a strong sense that particularly important topic in the regions of the North there are some issues where a stronger national and the Midlands, as you might expect. In the South, framework may well be desirable to get better there has been less worry about inward investment outcomes, particularly in more austere times, but you being decided from Victoria Street, but when we still need some sub-national and probably local consult our members in places like the North East or delivery. A specific example is inward investment, Yorkshire, there is a very serious worry that, while the which was one of the issues that the two Secretaries civil servants in Victoria Street might be able to set of State’s letter said should increasingly be national. national strategy, they are not in a position to help a Do we need a strong national framework for inward business locate in their areas. There is quite a lot of investment? Of course we do. Was it helpful that innovation going on at the moment, where they are RDAs were opening international offices, having trying to come up with ideas and arrangements that stands next to each other at international trade fairs? would allow those functions to be directed nationally In our judgment, it probably was not. It was a laudable and delivered locally. In order to not be too attempt to promote their brand in international pessimistic, we need to look at these optimistically as markets, but frankly, in most international markets, we well and say there will be new types of arrangements need initially to promote a UK brand and then—and emerging that involve both the public and the private this is my point—disaggregate that. sectors. The goal is to ensure that inward investment Can all inward investment decisions be determined by can be directed; so that it can come into the right civil servants in Victoria Street? We do not think so. national port of call and then go to the localities that That would be a classic example of my third category. require it. It is perfectly reasonable for the Government to establish a stronger national framework for dealing Q76 Jack Dromey: Steve, you have spoken about the with inward investment. That is something we would importance of strategic overview; and John, about not actually welcome. CBI members would then want to throwing the baby out with the bathwater, giving be convinced that, at a local or pan-local level, there examples of transport infrastructure and coping with are agencies and individuals with the ability so that, shocks to the system. Can I ask you, representatives if a Brazilian company has made a decision to come of the business community, about specific industries? to a particular part of the UK, the Midlands or the Would the best interests of motor manufacturing in North, people on the ground can then help that the Midlands and the nuclear industry in the North business make the right investment choice, so that it West be served by the retention of a strong regional is not left to national Government. That wasn’t strategic structure, working in partnership with the reflected in the Secretary of State’s letter. LEPs? Alexander hmann: You asked whether these LEPs ohn Cridland: Particularly in the West Midlands, the would be able to perform the role that they are set out North West and the North East, and to some degree to do. 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14 September 2010 BCC, CBI, EEF, FSB and IoD geographical region—we have seen a desire from the issues is that the letter overstates the national and business community to have something at the regional understates the regional and local. It is quite possible level that works with LEPs on those pan-region issues. to have a regional underpinning of national leadership That is very understandable. There is a nuclear cluster on inward investment. in the North West of England. There are automotive and engineering clusters in the West Midlands and Q78 Chi Onwurah: I want to pick up this point of North East, and processing businesses and chemicals competition and collaboration, because it seems that in the North East. is the key to having effective economic development. Coming back to my earlier answer, the letter from the You as organisations all compete with each other. As two Secretaries of State said that sectoral leadership you have talked about, local authorities often compete should be a national issue. It is similar to inward with each other. Businesses within your organisations investment: we need a stronger focus on sector value compete with each other. So what are the key factors chains, as well as then identifying the key regions that we need to get right to ensure there is effective where those sector value chains can be delivered. To collaboration to deliver successful economic take your particular example of automotive: in the last development? In putting that question, I want to couple of years, with the national attempt to pull suggest that the organisation for which you previously together the automotive industry, which led to the worked, Adam, the Centre for Cities, has delivered establishment of the Automotive Council, that is a part of that answer in a recently published document, powerful nationally driven sector value chain that then Why Cross-boundary Collaboration Matters and has massive implications for certain parts of the What This Means for Local Enterprise Partnerships’, country, particularly the Midlands, North West and where it has been somewhat more blunt than perhaps North East. We just have to be cute at mapping the you have been so far in your responses as to what overlapping sets. In recent years, we have perhaps is required to have effective economic development; underemphasised sectoral value chains and, in some specifically talking about real economic markets and cases, overemphasised regional identities, sometimes identifying that a number of bids from LEPs currently when they were not strong enough, but we mustn’t do not have the scale. For example, it specifically now swing the pendulum too far the other way and identifies Newcastle/Gateshead as being too small and ignore the fact that, for automotive, nuclear or marine not taking into account the travel-to-work and housing engineering, there are some very strong regional markets. It comes up with a figure of about £2 million clusters. The two are compatible. What we don’t want to £3 million as being of a scale that would give the is for every region in the country to seek to become a right incentives for economic development world-class biotechnology cluster, not because it isn’t collaboration. Would you agree with that? laudable, but it simply isn’t feasible to have 10 Adam Marshall: I would congratulate my former world-class biotechnology clusters in the UK. The old approach, which said each region will design its own colleagues on that report. The most important thing is strategy, tended to lead to that sort of regional to see a mature partnership between business and local competition. We need a better mapping of sectoral government on the ground. That gives all of us in the value chains, so we can put the effort and the little bit business organisations much confidence in of money left over where we can get the biggest bang arrangements as they are emerging. When all of the for our buck, but not to the point of ignoring regional business organisations and local authorities get clusters. Sectoral and geographical clusters overlap. together, sign a bid and say, “We are in this together,” Adam Marshall: John has made my point, which is, we feel probably much more comfortable that as someone who had to read every regional strategy business interests are being represented, and that the for many years in a previous existence, you see the local authorities, as the democratically elected leaders same sectors and clusters cropping up over and over of those areas, are being represented. again. That repetition has to fall out. Effective collaboration requires clarity as well. As I have said before, those who have set out a good Q77 Jack Dromey: Just another quick question: economic story are one step ahead of the rest. They there was a very interesting report by the OECD about are often also a step ahead because they have made UK policies for a sustainable recovery, which spoke specific asks of the Government: they have said, about the problems associated with complete “These are the powers that we want. These are the decentralisation in terms of weaker regions specific areas that we think will allow us to unlock economically and weaker local authorities falling that economic growth and, by the way, here is how behind. On this issue of inward investment, we heard we want to use resources more effectively or more at an evidence session in July that the overwhelming efficiently.” It takes that total package. Colleagues majority of investment secured through UKTI goes have said that the jury is still out on many proposals. to the southern swathe of England. Do you share the I think that is the case because those partnerships have concerns that were expressed by the regional not necessarily had the time to arrive at that same development agencies from the Midlands and the point. We would want to see that happen. We would North last week that those regions might be want to see areas like Newcastle and Gateshead, and disadvantaged unless there was a strong regional also like Birmingham and Solihull, which is another involvement in the attraction of inward investment? one that is identified in the Centre for Cities report as ohn Cridland: I certainly do, speaking for the CBI. I very under-bounded, working more closely with their am not disputing the principle that we need a stronger neighbours to try to get to a more sensible economic national framework for inward investment. 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Alexander hmann: There are two parts to try to businesses are less likely to engage with it, and then address, which have not been addressed there. I you will not have that focus on economic broadly agree with what Adam has said. Broad-based development that you need to have. support is critical, and we have said so. That needs to be ongoing from the business community. I think there Q80 Nadhim Zahawi: To go back, as this has been is a separate question though that hasn’t been tackled raised by several of the panellists, how would you by what the Government has looked at to date. It goes make LEPs that have geographical or functional back to one of the earlier questions, and is about the overlap work better? We have heard a little of this, state of relations between local business and local but I would love to hear from Adam. You mentioned government. In our experience, they are not sour; they the motorway, Croydon and Gatwick idea. There is are not bad; but there is a lot of misunderstanding going to be overlap. I hope the focus will come from between the two. LEPs present an opportunity for us being able to act very locally in delivering some of to address that, which is a great opportunity, but at the what is needed. How would you try to overcome the same time, it has not come with a set of proposals that overlapping functionally or geographically? seek to bridge that permanently. One of the things that Adam Marshall: Invariably, there will be difficulties may need to happen with time is consideration of what and teething problems in adjusting to any new the incentives are from a local authority perspective geography for economic development. This also to take seriously the economic development agenda. comes back to Rachel’s previous point about capacity. Part of that might be financial. The Institute of It is sometimes very difficult for local authorities to Directors would certainly not go as far as looking at conceive of these sorts of new geographies, much less the re-localisation of business rates, but there might do anything within them. Where this is different is be a case for looking in some detail about whether that business leadership will be far more integrated, there is some financial device for rewarding local and business already operates in those geographies. I authorities for taking seriously economic development will take RDAs as an example. RDAs had business- and rewarding them for having delivered around that led boards, but very many of our business members in agenda. the Chambers and probably some of the other business Chair: We will be covering that area. organisations as well often felt frustrated that they weren’t strong representatives of the business Q79 Rachel Reeves: A point that a number of you community’s voice as a whole or that they only have made, particularly Steve at the beginning, is that represented a business that actually was involved in one of the biggest priorities we have at the moment public-sector contracting, etc. There were always as a nation is in terms of rebalancing and restructuring some frustrations around that. the economy in the wake of the financial crisis. It concerns me that the forces that are being put in place, Q81 Nadhim Zahawi: Is it just that bigger business especially the fragmentation, are going to make it was not represented? harder to do that in many ways, especially because Adam Marshall: It was less to do with size. The local authorities will have to fulfil a number of reports we would get back from the local business objectives in an environment with much reduced community would say, “This person has a specific budgets. My worry is that that fragmentation will interest,” or “This person perhaps doesn’t speak for prevent the focus that local authorities, including their all of us.” That happened in a number of places and leaders, will be able to give to the key challenge of on a number of occasions. This time, where things rebalancing the economy, when that is competing with must be different is through a broad-based agreement looking after vulnerable children, the closure of day care centres or whatever else is on the agenda. I just among the business groups and representatives of the wondered what your view is, especially Steve’s. business community that really top-flight people are Steve Radley: Some of this goes back to some of the leading this effort. We and I am sure all of the other arguments about critical mass, which I have not groups have also said that half of the boards plus the commented on yet. There are a couple of other Chair, at the very minimum, need to come from the important points to make. One is to recognise the business community, because they will be the ones scarcity of public funding, which I think is well who will help with this transformation, in terms of understood. The ability of the new partnerships geographies and things like that. In a mature between local authorities and businesses is going to partnership, they will help to work with local depend on their ability to develop economic expertise authorities to get over the too difficult’ problem of and a sound understanding of their economy’s working beyond administrative geographies. potential, their needs and what needs to be done to fulfil that potential. It is also only going to be the case, Q82 Nadhim Zahawi: How would you get over the if the LEPs come up with a sensible set of objectives scepticism from business? and the ability to deliver on them, that you will be Adam Marshall: That is a very difficult point indeed. able to attract businesses of a sufficient quality. One A number of businesses have already said to us that thing that will be absolutely vital to the success of the LEPs need to hit the ground running because, after LEPs is that you have a good board of businessmen six months of transition, we will start to lose the faith there, who will help the local authorities to engage in of our colleagues in the local business community. the economic development agenda, stay focused on it That is a very big challenge indeed. Some speedy and cover the right issues. If you end up with too decision-making and signals on the part of the many small fragmented bodies without much clout, Government, about which types of bids they think are cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD worth pursuing, and then swift action, are going to where our organisations can put forward the right be required. members to bring that value to the table and be ohn Cridland: I might add, if I may, that I think recognised for that. scepticism is the order of the day, despite the fact that Steve Radley: Like the other organisations here, we we accept this change and see great opportunity in the have looked to engage very constructively with the change. It was unfortunate that LEP bids were different bids that have been put together, and requested before a White Paper was issued, because encouraged our members and informed them of what we all have been trying to do the best we can, but is going on. We have encountered the same degree of in something of a fog. We don’t have the strategic scepticism, and there are now a couple of things we framework. Now clearly ministers would say they did need to get right. The sub-national White Paper needs not want to determine the pattern; they wanted it to to provide some clarity about how things are going to be bottom-up, but we would all share the vision issues work going forward, in terms of the process, funding that Adam opened his evidence with. There is a and how the national and local organisations will work requirement for a strategic framework within which together. We need to get that absolutely right. The many and varied bids would then come forward. As other thing is that businesses will be watching the that strategic framework was not in place but there quality of the bids that get through very closely. If was a short deadline for producing bids, this business is then going to engage, we need to ensure exacerbated the fragmentation and, with no disrespect the bids that actually get through are those that have to colleagues in the local authority world, it also business support so far, that map to proper economic exacerbated a tendency at the moment for bids to be geographies and have been thought through in terms local-authority dominated. There are very few bids of what the LEPs want to deliver and how they’re where there has been any significant debate with the going to develop the capability to do that. CBI. There may be other groups with which there has been more debate. The CBI membership has watched Q83 David Ward: My concern is that, without a what is going on, but at the moment is waiting until clear moral lead, LEPs end up doing what they can the CBI regional councils over the next three weeks do, rather than what they should be doing. My guess evaluate their own view of whether the bids have would be that the local authorities would continue sufficient vision and business input. We have all of going, because they were sent, but the businesses our regional councils meeting in each of the English might start failing to attend unless they saw some regions next week. At the moment, I don’t think that clear purpose in being there. There was a suggestion we have achieved that critical mass of key business of a period of time for the life of one. It’s almost suck leaders, small as well as large, committing to it and see’, which is not very scientific. Is that the individual bids, because they have been approached thinking behind that to see how it would develop? by a number of local authorities and are tending to Alexander hmann: That certainly was a proposal wait until the map clarifies itself a little. We have not from the Institute of Directors. We felt that some sort got off to an ideal start. of sunset clause for these bodies was the right thing, Alexander hmann: Can I add something to that as because it would give the business community not well, please, Chair? I just wanted to say that I only a set of strategies and things to undertake at the completely agree with John’s point. If Government onset, but also a timeframe in which they would be had taken the approach of asking the business able to deliver them, and then they would be able to community what their geographical areas would have review whether the boundaries and objectives had been and overlaid that on to the proposals that had been met. Where that timeframe is set is the question been put forward, you would probably find the two mark, but there needs to be a clear end for these don’t quite meet. There has been good activity in bodies, at which they are reviewed and then possibly some activities and poor in others. I will give an reconstituted. example. I received a letter yesterday from Cornwall Adam Marshall: This is a major culture shift for County Council saying, “Thank you for wanting to businesses, as well as a culture shift for local engage with us about the LEP proposal. Yes, we have authorities. As my colleagues have said, many filed one. Sorry we haven’t spoken to you. If it is different types of businesses are interested in this granted, we will talk to you.” agenda, but have yet to find their feet in terms of Mike Cherry: If you are going to be focusing on engaging. There is often the sentiment in the business rebuilding on the economy, it is vital from our community that things are done to us, rather than done perspective that you include the small and with us. This is an opportunity for us to co-create and micro-business community in that engagement. We set the agenda. It is taking some of our members some very much welcome the 50/50 structure that was time to wake up to the fact that it’s not about proposed in the Secretary of State’s letter, and our responding to a local authority proposal but putting members have given a huge amount of effort and good forward our own. A bit of time to engender that will in the process. I think it is concerning though that culture shift and make sure it happens is going to be we need to be recognising the value that business, the very important. business community and the business organisations should be able to bring to this whole process. In many Q84 Rebecca Harris: We have touched on this of the RDAs, business brought huge value to some of slightly already with Jack’s question, which was about the process and was recognised for that. There was sectoral leadership and inward investment, two of the a business-led ethos within the RDAs that was not list of functions the Government have said they now genuinely business-led from the ground up. This is want to have coordinated nationally. I want to tease cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD out some of your differences. I think the Institute of I still feel that the Secretaries of State’s letter dragged Directors and the CBI are pretty emphatic that they us to the two extremes. There’s excellent work at don’t want LEPs to be dealing with inward regional and sub-regional level between groups of investment, but the Chambers of Commerce have businesses and particular universities, science and some concerns about that. Likewise, I think that the industry councils, and science parks, and nobody is Federation of Small Businesses has some concerns saying that all those decisions should be taken about the subtlety there will then be in ensuring we nationally in the Department for Business. There have inward investment and training, for example, at needs to be an appropriate cascade. Arguably, what a lower level. This is really to ask those of you who we got wrong with RDAs is that, when they began to have problems, or concerns rather, with some of those succeed, as so often happens, we became excited and functions being taken nationally to talk about them. we said, “If they can do that, why do they not do , y Alexander hmann: I am sure they will speak for and as well?” We gave too many things to RDAs, themselves, but all of the organisations around the so they almost became the only game in town rather table have a national policy position and then various than differentiating where region was the main issue different branch or regional frameworks, which will because of an economic zone or where local was the be deciding on the merits of individual cases. That main issue because of a travel-to-work area. On some presents some of the answers to your question. issues, such as I have illustrated with the national Nationally, I have the impression we are broadly all innovation policy, when we are on a relatively small of one mind about the types of things that absolutely island with modest resources, greater national drive need to be done, but there are grey areas about things would work. There is room for each. that could be. All we have really said as an organisation is, provided, in a given LEP area, the Q85 Rebecca Harris: John, do you feel confident broad-based support of the nationally representative that that will be achieved naturally from this process? business organisations and businesses on the ground Are you concerned that we will lose that appropriate can be shown to be calling for some of those grey level of delivery? areas, by all means press ahead. Inward investment is ohn Cridland: I am hopeful, but there is an awful not a very good example, because of the need for a lot of work to be done this autumn. We were all universal service delivery. In terms of approaches to waiting for 6 September to see how many bids came whether or not regeneration is a priority, or indeed in, how visionary they were and how much they whether working with universities or the skills agenda focused on economic outcomes for our citizens and is a particular priority, those things can be delivered businesses. This autumn we expect to have to roll up if there is broad-based business support for doing that our sleeves and work very hard, both with bids and from the organisations on the ground. I see that as a the Department for Communities and Local bolt-on, as opposed to the core responsibilities of Government to raise the quality and find the best LEPs. aggregation, both for function and of geography. ohn Cridland: Without repeating the earlier Mike Cherry: To come back on the point about comments I made, we see a hierarchy of need here. It inward investment, we would say that should be based is somewhat different in the North and the Midlands on local needs. That would be the end of our line on from the East and the South. I think there will be a that particular issue. To come back and look further survival of the greater regional coordination of LEPs, down on what we would be requiring, certainly on underpinning or overpinning of LEPs, in the far business support, as I’ve mentioned earlier, we would North. I also think that each issue is slightly different. want it to be spent more wisely on targeted support, As I mentioned, I found the letter from the two if it was delivered at the local level. An interesting Secretaries of State presented the two extreme figure is that only 5% of the current spend goes on the positions—things that could be totally local or totally micro-business sector. That really needs to be national. Actually, there is a very important middle addressed and addressed in a far more targeted way. ground of national framework with local delivery. Coupled with that, we have always advocated the If you take a particular issue I have not yet impact on some of the local initiatives that happened mentioned—innovation—it is the view of CBI with access to finance. Where there are good local companies, small as well as large, that national initiatives, this often brings in mentoring and I think support for innovation had become too fragmented that is an area that that could be much better through the RDAs. There were lots of good efforts. It developed and explored to help small businesses grow is not to say it should all be national, but we feel and perhaps diversify, as we take all these economic innovation should swing the pendulum back to a drivers forwards. It is very good to get inward greater national framework. That’s because we think investment coming in, but there are a lot of businesses we have identified some of the right mechanisms for out there, which need just that seed bit of help, either promoting innovation in this country, and we would in finance or with mentoring, which could enable them back the role of the Technology Strategy Board and to take that next step forward. the limited public funds we have through the board. Adam Marshall: The point that I would want to make We have some good ways of engaging small is that, perhaps in the Secretaries of State’s letter, the businesses with innovation vouchers—a very targeted Government perhaps went a bit ahead of itself when and focused way of promoting innovation—but we do it talked about nationalising such a broad range of not need eight different innovation vouchers around functions before setting out the detail a little further. the country. That is an area where we would swing John’s point about there being a spectrum of activities the pendulum back towards national. with national strategy and local delivery is an cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 31

14 September 2010 BCC, CBI, EEF, FSB and IoD extremely important one indeed. The challenge that perhaps more appropriately delivered through LEPs? now faces all of us is that this transition has been I would welcome your opinion on that. embarked on; it is now happening. How do we ensure Alexander hmann: The Institute of Directors’ that, at the end of the day, all of these various budget national policy position was not convinced by the lines and services do what we want them to, which is need for LEPs to address skills centrally. The reason to help create and grow businesses? Sometimes in our for that is we have only just had a review last year of discussions in Whitehall about how best to structure the complexities of the skills system. Any desire to or organise some of this stuff, or at what level it bring about a local element to addressing skills would should be strategised or delivered, we lose sight of certainly have to be offset by commensurate that. What we in the Chamber network and I am sure reductions in the bureaucracy and involvement of the other business organisations will be looking at other bodies elsewhere in the national picture. The very closely and engaging with over the next few other concern we have around the skills agenda is it months is ensuring that whatever emerges, whether feels a bit too much like home for the local authorities. on inward investment, or something else we have not It absolutely plays a role around economic mentioned, which is export support, if we have to developments—there is no doubt about that—but rebalance our economy towards exports, how do we these are actually the types of broader ensure that the wallpaper manufacturer in Lancashire economic-crossing-social issues with which local that has a big market in Russia gets its goods out to authorities have typically felt more at home. If given Russia. That is what we need to do at the end of the the responsibility for doing skills, they will retrench day. into those areas, as opposed to dealing with transport, Steve Radley: Can I just add a couple of points? I infrastructure and planning needs, which I think are won’t repeat what others have said. The important the central and critical roles. point about shades of grey is a key one. To take the example of access to finance, there are some important Q87 Chair: If I could come back on that, the whole things that will need to be done nationally, probably purpose of LEPs is to have a more business-driven in terms of improving transparency, competition approach to this. Do you not think that modifies your within the banking industry and banks’ understanding argument? of business. Again, there are some very local Alexander hmann: It might be one of those grey initiatives that would be particularly relevant to small areas. It is only if the business community in any businesses. Innovation is something that lends itself given locality believe that skills are something they to a mixture of different levels of intervention. really need to address as part of their strategy. Certainly from our experience, a lot of companies tend Adam Marshall: I would like to express a bit of a to look for partners in universities that have the disagreement with Alex on that point. What expertise that is most appropriate for them, rather than employers traditionally and historically have been the one that is in their natural economic geography. very bad at is sitting down at a locality in a town or That lends itself to a more national approach. city, around a table, and saying, “These are the skills One of the dangers is that we end up with too much gaps we have. These are the people we can’t get for our businesses. What can we do about it?” Part of the being national. If the LEPs bids are not of sufficient reason for that is that the architecture is so Byzantine quality and they fail to achieve critical mass, you and difficult for them to penetrate. They just say, “I’ll could see things being dragged up to the national level do it myself.” If LEPs provide a forum whereby that shouldn’t be there. For example, we have already employers can sit down and say, “Actually what we heard suggestions that the Government might take a need in this area are a lot of people qualified with national approach to issues such as economic shocks, Level 3 and 4 technician-type skills in the business intelligence and European funding. These manufacturing industries or the office jobs that we things should be delivered much more sensibly at a have,” etc, what we can do is try to influence those regional level. The fact that people are worried about big bureaucracies and funding programmes through the capability of LEPs suggests that they are the LEP to ensure that money is being spent in the considering proposing covering these issues at what is right place. I guarantee that the skills needs of probably not the optimal level. Wolverhampton are very different from the skills needs of some place like the West of England. LEPs Q86 Chair: To follow up Rebecca’s question, you have a role in saying “this is what employers want”. have talked a lot about investment in business support, This would ensure that employers do not come back to but focus on skills and training for a moment. This is me and continually report what I call the underwater an issue I have thrown at me all the time by local basket-weaving problem’. They tell me that in their businessmen in the SME sector. We have had a area lots of people are qualified to Level 2 in divergence on opinion in the evidence submitted to underwater basket-weaving, but there is no place for the Committee. First, what is you opinion? Will LEPs them to weave baskets around here. be able to improve on the skills level and, more Alexander hmann: Chair, if I might just set the appropriately, this skills balance within local areas? record straight, there is no difference there, because Secondly, something most in my mind, would it be that is a role in catalysing, commissioning and appropriate to have a skills agenda of high-skilled influencing, which we find a fine role for the LEP to provision often between universities and particular be playing across a range of areas. We did not want industrial sectors determined at the national level and to see them acting as a delivery mechanism around the apprenticeship-level intermediate skills level the skills agenda. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD

Steve Radley: Our starting point on this is a very good which is Norfolk, Suffolk, Cambridgeshire and a little consultation by BIS, actually looking at the skills for bit of Essex, but they didn’t feel it went all the way sustainable growth. It makes a lot of very good points to the old East of England boundary. The local about having a simpler skills system, which is authorities haven’t rallied around that proposal; that is demand-led, driven by the needs of learners and a proposal that has largely come from the business business. To quote one sentence: “Attempts by community. Then there are county-based local policymakers to achieve skills objectives for authority proposals. Certainly, I can only speak for the individual parts of the economy will undermine our CBI, but the CBI has had no involvement in those and ambitions for a simple system that responds to well- would not instinctively think they were of sufﬁcient informed choice.” What that argues is that we do not scale. The absence of consultation, rather than just a try to impose some sort of regional or local planning set of conversations or an exchange of letters, as we role. Our experience of the last few decades is that heard earlier, leads to proposals coming from different that does not work; you will end up wasting money, purposes. I will not answer the other question, because clogging up the system and not having the right sort the risk of more national aggregation was not actually of responsive outcomes. At the same time, I could see I point I had made. a good well run LEP, one engaging with business, to Adam Marshall: I think, however, that there has been have some sort of facilitating role—for example, some consultation. In many of the areas you were bringing organisations together to undertake training. describing, John, yes, there are businesses that feel That could include apprenticeships. Things like group that they are not consulted. There are business training organisations and fostering relationships organisations that have yet to be involved in that between business and universities, where universities consultation. In an organisation like ours, which has a can actually help businesses with their skill needs. front door in pretty much every town and city around That sort of facilitating role is a very good one, but the country, I feel that many Chambers of Commerce we need to avoid a planning-type experience. have been able to get involved in these proposals. In some cases, they have said, “Hang on, you are running Q88 Rachel Reeves: I want to build on this point away with this, local authorities, and actually need to about consultation. We have talked about the fact that pull back and involve the wider business community.” you haven’t been consulted very much by the local In some cases, they have had much involvement from authorities in drawing up the LEPs, and obviously the the beginning in drafting and developing the LEPs had to be submitted before the White Paper proposals. came out. Have you been consulted at all on what powers are going to be brought back into Victoria Q89 Rachel Reeves: Have they been involved in the Street and what is going to be devolved to the Local consultation about what is going to be in Whitehall Economic Partnerships? Do you think you should and what at local level, through consultation with the have been consulted more? There seems to be a very Department? valid discussion to be had about many of these issues. Adam Marshall: I would agree with John’s Building on what you were saying about the quality characterisation that we have had conversations. I of the LEPs, you are saying there is a risk that more would wonder about the way you phrased the responsibilities are going to be nationalised because question, “centralisation as a consequence of the move of that. Can you just clarify whether you think that to LEPs”. I think that some of the ideas on more than were set out in the 29 June letter might be centralisation predated the idea of moving to LEPs— centralised, because of the quality of the LEPs? i.e. this notion that you could provide certain services ohn Cridland: Let me begin with the consultation from the centre, cheaper, predated some of the point. I would say there have been conversations. I’m discussions on LEPs, so I would not want to comment not suggesting that these are two communities that on that. never meet. There have been conversations at a local Mike Cherry: Certainly, the LEPs consultation, in its level with CBI members and at Whitehall between the truest sense, has been patchy, I have to say. In some CBI and ministers, but I wouldn’t say either of those cases, it has worked incredibly well, where everybody sets of conversations have been consultation, because has come together and business organisations have frankly a consultation will take place now we have also worked together to put forward the bids, but you the 56 bids to look at in detail. The consultation on do have the situation where a letter of support has the vision and the framework will take place when we been put in without genuine consultation. We have have the White Paper, when there is something for us made that point in our comments back to bids, where to get our teeth into and have a more fundamental we now see, after 6 September, genuine consultation debate. At the moment, I think we would not in those areas where it has not yet happened, taking characterise what has happened as consultation. the whole thing forward in a proper way. It comes If you look in particular regions, you can see the back to everybody understanding exactly what the consequences of that. For example, if I look at the Secretaries of State put in their letter, that it would be East of England, I don’t think many people feel—I a 50/50 partnership between business and local don’t as a citizen of Bedfordshire—a particular authorities. As to 1 Victoria Street, I would be taking identity with the East of England. You can see that on the basis that there is still consultation to be businesses coming up with a LEP bid that says, “We had on the exact proposals that have been put out and don’t want everything to disappear back to the six the outline subject that they want to look at. counties.” There is something that businesses in the Alexander hmann: I do not want to dwell on it too East of England have characterised as East Anglia, much more, but the way I would phrase the cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD experience that we have had in terms of consultation obviously well established reputable business is that we have had good and bad experiences, but organisations and also barely a local authority that there has been a power imbalance. It is easy for local doesn’t have some economic development unit or authorities to press ahead with the proposal—after all, regeneration unit. Yet, I just wonder, picking up a they are the submitting organisations—and it is a point Adam made, whether a beneficiary of all of this requirement of the proposal that they obviously need will not just be structural changes but cultural to garner the support of the local authorities with changes. Maybe that is a real benefit that could come which they work. It is slightly more difficult for a from this as well, on all sides. business organisation to try to corral local authorities to a proposition with which they might not agree. I Q93 Jack Dromey: All of you said in different ways will say no more on that particular point, but I think in your evidence about the problems associated with that underlines it. the transition from what we’ve had to what is In terms of national policy, I don’t know which one proposed. John, you spoke earlier on about rolling up of my colleagues made the point, but they mentioned, your sleeves in the autumn. You’ve got a hell of a as you rightly pointed out, what would happen if we job to do, haven’t you? If you look at proposals and were to have fewer LEPs or LEPs failed. Would more circumstances where Eric Pickles says there needs to things move to a national level? I don’t think that’s a be economic geography as the determinant, you have risk because, ultimately, we do have the backdrop of East Sussex versus Brighton and Hove, Hampshire Regional Development Agencies until March 2012, I versus Enterprise M3, Lancashire versus Blackpool, think. It would clearly be good to transition before Fylde and Wyre, and, indeed, Liverpool versus that point, but we have that time and, for that reason, Manchester. Well, there’s nothing new there. First, in we should very much consider the proposals that have the interim period, as well as resolving all of these come forward not on the basis that we must have issues, can you comment on some of the concerns them, because they must be up and running, because expressed to us last week—the loss of know-how otherwise we will risk having to take everything to a currently in the Regional Development Agencies? national level. We should view them with caution and Secondly, because of the financial constraints already consideration, and only take forward those proposals being imposed upon the RDAs, they will not be able that really stand out, and ask those that have more to undertake any new commitments over the next work to do to go back to the board and perhaps two-year period. Thirdly, that’s in circumstances consult more widely with business organisations, where the Regional Growth Fund is yet to be before they go forward. established and not yet up and running. Is that not Chair: I’ll take the three questions and then ask you going to have pretty serious implications for the to answer. business community between now and April 2012? Chair: This is a big question, and I’d like to deal with Q90 Nadhim Zahawi: Going back to it after we’ve teased out other issues. Could you just intelligence-gathering, and Adam’s example about the respond first to the questions from David, Margot skills agenda, i.e. gathering intelligence from and Nadhim? businesses in LEPs and then feeding that back up, and Alexander hmann: I will rattle through the three, that working quite well; we have heard in a couple of then maybe pass down, if there are any others. On the evidence sessions that that sort of research and better intelligence-gathering, Nadhim’s point, yes, it evidence-gathering is better coordinated regionally or could be better, but it is going to require some national at national level. Would you not think that having 50 coordination to make sure that the data are in a way or 56 more granular intelligence-gathering networks that is interoperable. It would be a major schoolboy would produce better data? Therefore, you are still error if we don’t make sure that happens. There are coordinated, but actually the structure of the LEPs possibilities there, but they need to be coordinated. would encourage better-quality intelligence-gathering With regard to other organisations’ involvement and from business. different business organisations’ views, I think the key thing about LEPs and maintaining the support of the Q91 Margot James: Before I make my question, I business community overall, as we have said in the want to point out that I’m a member of the Black response to this Committee, is about broad-based Country Chamber of Commerce. I wanted to follow support. Whether it is the IoD or the British Chamber up a point you made, Adam, about the number of of Commerce, having just one organisation say, “We businesses that are sometimes driving the process, support this proposal,” isn’t enough. The Government which I think we would all encourage. But there are should observe that. They should ask questions about many different organisations representing business why the other business organisations have not and the five of you gentlemen here today to a certain endorsed the proposal similarly, and ensure it has extent represent organisations that have some overlap broad-based support from national business and conflicts. How do you see that panning out at a organisations, businesses within the LEP area and, local level? I have seen some areas where a particular indeed, from businesses that sit outside the area. This body representing businesses has driven the train and is a very important point; it is the opposite of turkeys has not really been incentivised to involve the other voting for Christmas. Everybody is going to vote for organisations. it, because their area is potentially going to get something. The question you have to ask is whether Q92 David Ward: I’m just reflecting on what was the people who sit on the periphery also see that as a an interesting discussion a little while ago. There are genuine economic geographical area. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Ev 34 Business, Innovation and Skills Committee: Evidence

14 September 2010 BCC, CBI, EEF, FSB and IoD

I absolutely agree on the last point about cultural funded if they have clear support from the local change. I think that is fundamentally the objective we business community to do them. have to drive at here: to form a closer relationship ohn Cridland: I’d only add that, in each of the between local government and business. The cultural English regions, there is some form of informal change is partially among the business community, business forum, where the five organisations giving too. evidence to you this morning liaise at the regional and Adam Marshall: Coming back to Nadhim’s point on potentially at the sub-regional level. Clearly, we are data and intelligence-gathering, I mentioned one all independent organisations, and I have mentioned example of an area where I think a LEP has a each CBI regional council, which typically has 50 data-collection role, i.e. working with employers to businessmen or women on it at chief executive level. find out what skills they need in that real economic They’re elected from the CBI membership and will, area. With that said, as some of my colleagues have in each English region, make their own decisions as underlined, the RDAs have done quite a lot of work the CBI regional voice about which LEP bids they over the years to build up regional observatories and support and which they think are inadequate. Those data sets, which would be a great shame to lose. There decisions will be taken over the next three weeks. are two things we have to do. One is to identify what Notwithstanding that we are independent, we certainly data we need to collect for a real economy, at city, talk to each other at the regional level. Some of the regional or sub-regional level. Secondly, how do we requests to have greater scale and aggregation and to keep those good things that the RDAs did, in terms of move beyond local authority boundaries have come at building up regional data sets, which are critical to a regional meeting, where these five organisations everything from skills through to inward investment have said, “Something is happening here into which and everything else? I do not think it is a question of we do not feel we have sufficient business input. We’d one or the other; I think it is a question of both. like to put an extra proposal on the table.” On Margot’s point on business driving the process and Chair: I want to go on to transitional issues, but many organisations being represented in the areas, we before I do so, Rebecca, your question sparked off this have seen plenty of creative tensions locally. Those long session. Is there anything you want to add? sorts of things always come to our attention between various organisations. What isn’t remarked on as Q94 Rebecca Harris: It was about the question we much is the amount of close-working between the had moving on to the transition. It is about the step business organisations on so many of these bids. between RDAs’ abolition and whether there is Whether through fortune or misfortune, I’ve read all potential here for England to be disadvantaged 56 of them and the number of times when I see CBI, compared with the Scottish and Welsh Development FSB, IoD, EEF and BCC mentioned in a bid, whether Agencies. Ultimately or in the short term will the as people who have been key to the process or are transition affect access to European funding or are there issues of scale? Do you see any problems there? hoped to become key, is encouraging to me. Collectively, we represent what is a very difficult Mike Cherry: I’ll pick up on this one if I may, Chairman. We are concerned that the transition is not voice to capture, which is the voice of the local and already happening as it should be. We have members the national business community. Our task is great on who are being told that certain funding is being that front, but it is one we can achieve. cancelled or is not available to them, and that is Steve Radley: Just a few very quick responses to those raising concerns. This needs to be thought through and questions: as Adam has actually just said, the key become a lot smoother going forward to ensure that thing to intelligence-gathering will be getting the the funding that is available continues to be available transition right, and retaining that collective memory for those businesses that need it. That is my view on and the quality of data already there. the transition: make it smooth and transparent. On business involvement, just as we have made points On financial constraints, if you look at where we want about the quality of consultation, which has been very LEPs to be and take the Regional Growth Funds into varied across the country, in some cases it has been account, you need to forget about those, because there extremely good, with the five or more organisations is not a lot of money available in any case. As we actually working together very effectively. When understand it, the Regional Growth Funds are only you’ll start to see the different organisations start to going to be for those areas that have a high cohere together a lot more effectively is when we have dependency on the public sector. We would remove a lot more clarity about how the LEPs are going to that from the equation and try to say it is up to operate and what they’re going to do. When we’ve business and local authorities to get together and fully got that clear sense of purpose and strategy, it will be make these work, and not go after the money, but much easier to make the businesses cohere around make it based on pure economic development. that. Alexander hmann: There’s nothing inherent to the Culture change is an important point, and it’s for both proposed LEP system that means that we’re set to be business and local authorities to develop a better at a disadvantage in relation to Wales and Scotland. I understanding of each other. Another thing related to do take the point that Mike’s made that there is a that, which would actually be very important with the serious question about the financial resources that are way things are set up is that, if you have strong boards going to be allocated to this. We might find that we with strong business representation on them, they will are therefore at a disadvantage, depending on the avoid the problems we have had with RDAs and amount of resources that are allocated to the activities. mission creep. Activities will only be undertaken and In theory, with the support of business, these things cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD should actually be able to drive forward. Mike has replacement body ready to take up the reigns, might made a similar point about what’s happening right cause some stops to ongoing business activity, which now, in terms of businesses being rather uncertain is precisely the opposite of what we’re all trying to about certain funding streams and business support achieve. I wonder if you could all comment on the provision. balance between the haste and the problems with Rebecca Harris: There are confidence issues as well. business drop-off from existing projects. Alexander hmann: Confidence is an issue and, for Chair: I’ve had personal experience of this. that reason, it also perhaps partially addresses one of Margot James: I have as well, yes. the points made earlier about the speed at which this Adam Marshall: When I referred to six months process has gone ahead. Ultimately, and this reads earlier, I think that is the period we have to gain across, speed is one thing, but we need to ensure that business buy-in and confidence. The transition needn’t whatever we design here is fit enough for purpose not be complete in that time period, but some clarity on to need fundamental reorganisation again in the near how it will go forward must be in hand. We will be future. That kind of destabilisation would be very facing transitional arrangements not just until counterproductive. 2011 12, but until the current European budgetary period ends in 2013. Some of that expenditure doesn’t Q95 Chair: Can we develop these transition issues? close until 2015, so we do have a very long transition Jack Dromey asked a number of questions. Do you period here. This goes back to the previous point want to supplement them? about confidence and uncertainty in the business David Ward: No, Chair. We look forward to your community. Precisely one of the things that has caused comments. a confidence issue in this transition is what happens ohn Cridland: Coming back to Jack Dromey’s with some of the EU funding that has been passed question, what is encouraging in this area is that through the regional level. Right now the RDAs are everybody, all key stakeholders and existing bodies, there and it is continuing to operate through that level. is accepting the principle of change. Nobody is trying How quickly can we put arrangements in place to to swim against the tide. Our RDA colleagues are ensure that the UK and the regions’ full allocations being extremely professional about the fact that their are spent, so that they are not clawed back and those job is to hand over to successor bodies as sensibly as regions can take viable economic development can be arranged. We are in for a hugely busy autumn. projects forward, which can lead to job creation, There is a lot to be done, both at the national business growth, etc? These are the sticky questions consultation level and at the regional and sub-regional that we will all be trying to answer over the autumn. levels, to make the vision and the structure of these Clarity on those within that six-month period will be bids right, but there is good will on all sides. Clearly, extremely important for business confidence, so that a as a statement of the blindingly obvious: we must number of big businesses, which have said, “If this deliver a managed transition. I mentioned very early EU-funded project goes ahead, I will put £100 million on the dangers of throwing the baby out with the into this particular locality,” can take that decision. bathwater. We have to identify the key knowledge, learnings and IP that need to be passed from RDAs to Q97 Chi Onwurah: It is quite a specific question. LEPs. I think business will play a full role in that. John, you mentioned earlier the importance of having The critical thing, more so in the North and the overarching bodies in particular regions, such as the Midlands than the South, is that business in those North East, as part of the transition. I’m thinking areas feels strongly that some of those tasks will about large infrastructure projects and the skill sets continue to need to be performed at a regional level, associated with them, the renewable industries and very leanly and cost-effectively. This notion of some how they’re handed over. I understand, Steve, that you overarching cross-LEP structure will be critical to have concerns that overarching bodies simply delivering that managed transition. That is less represent a lack of effective scale in the LEP bids in necessary in the East and the South, where regional that region. I wondered if you could comment on that, identity was never as strong and not as much risks both John and Steve, as to whether you see a need for being lost. an overarching body in these areas or greater scale in the LEP bids. Q96 Margot James: Continuing this issue of ohn Cridland: It will differ in different parts of the transition, I would like to talk about issues with the country. The North East is a very good example, timing of all this. Adam, you mentioned earlier that because it is the smallest economic region, using the you thought we might have six months before, if old geography, and therefore the risks of things didn’t go well, we would lose the confidence fragmentation are even greater. A number of us have of business. According to the Manchester Chamber of already commented on the fact that some of the LEP Commerce in their submission, they stated that the bids in the North East—Durham comes to mind, current haste and speed of change are causing some Newcastle and Gateshead—do appear to be below concern, and that’s come out in some of the comments critical mass. The view of business in the North East this morning. Another take on this is offered by the would be that, while fully accepting that any successor RDA network in their submission, where they say bodies would be leaner both in mission and resources, there is also a risk of disruption to the pipeline of and are not about recreating RDAs, it is essential in economic development projects. Coupled with the the North East of England that, because the region is RDA budget cuts, that will cause RDAs to wind down so small, there is some pan-regional body on those future commitments which, in the absence of a fundamental issues of infrastructure planning and cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Ev 36 Business, Innovation and Skills Committee: Evidence

14 September 2010 BCC, CBI, EEF, FSB and IoD economic development, on which we’ve already RDA budgets and the fact the Regional Growth Fund touched. is not up and running, your members are submitting I think CBI members are pretty pragmatic. They have fresh bids of one kind or another for support. They essentially accepted that there will be some LEP bids will not get that support in the transitional period. in the North East. They will have some views on Again, what would you say to Government what help scalability, but they don’t think a single unitary you, as the business community, to navigate through Enterprise Partnership for the North East and nothing what would be the best part of two years by way of below at the sub-regional level is a viable option. transition? Their view would be to avoid the smallest of the ohn Cridland: Any business in the High Street LEPs, but there were still be a need for something at launching a new product would ensure that it didn’t the regional level. I stress again: it must be very lean withdraw the old product until the new product was and focused. This is not a recreation of what we had available, otherwise it would see a significant hit in before. turnover. This is not saying the gravy train must Steve Radley: I’d very much agree with John’s point continue. Those small businesses in CBI membership, about being very lean and focused. If we go beyond as Mike has already said, that are really quite that, we will end up creating complexity and wasting dependent on particular services from RDAs, through money. In some areas of the country, you can see Business Link, need to have clarity. Services may be some of the proposals that have been put forward for different in future, but there won’t be an interregnum. a pan-regional body fulfilling very much that role— If, because of funding cuts, a particular RDA believes being very lean and focused, managing the transition, it is in its interests and necessary to balance its making sure expertise isn’t lost and probably holding budgets that effectively Business Link is withdrawn a coordinating role on an ongoing basis. It does feel in a part of the country, and we have a year before for some of the other parts of the country that some any successor service—whether a national portal or of the proposals to have pan-regional bodies are something run through the LEPs—is available, that is looking to preserve RDAs. That does not seem to be not acceptable to businesses, whose growth potential a sensible way forward. Pragmatically, if we end up we depend on to rebalance the economy. The message with a reasonably large number of LEPs in a region to Government would be: we know resources are and a regional body coordinating them, it would not constrained and that the status quo is not an option, be a terrible outcome. What we were saying was that but be careful that we have a new service, however the fact that people are even considering the need for lean and repackaged, up and running, before you a regional body suggests the different partners have completely withdraw the old. failed to come together sufficiently to create bodies of critical mass and overcome local political rivalries. Q100 Rachel Reeves: In terms of the timing of all this and the interregnum that you just mentioned, Q98 Margot James: How can the Government John, it seems to me, coming back to the point that I ensure that the expertise and know-how that exists in made earlier, that a time when we are trying to the RDAs are not lost? How do we retain some of the restructure the economy is possibly the most very good people with the knowledge in the system? dangerous time to lose things in the transition stage. I Alexander hmann: May I comment first on that? wondered what your thoughts are on that. The critical thing here is ultimately around finance. Alexander hmann: There is no opportune moment There is not clarity, at this stage of the process, about at which to change the system when, as John’s rightly where local authorities or Local Enterprise pointed out, we potentially don’t have a clear view on Partnerships will be able to derive any finance to be what the successor bodies are. I don’t feel that we’ve able to take on some of those individuals concerned, heard from our membership that the actual move to in terms of resources, as personnel at the very least, LEPs and the changes that are taking place around but also in terms of their knowledge base. We need business support are in any way going to be damaging some clarity around that. I certainly know from per se. It is just about speed, transition and ensuring experience that in the RDAs and, indeed, the RDA there is satisfactory overlap between the two. There is National Secretariat, a loss of personnel has already nothing fundamentally wrong with the fact that the set in. In a sense, we are already some way down that change is taking place now. Most business process. As part of their LEP proposals, I think local organisations along this table, from what I’ve seen of authorities will need to show some ability to invest their contributions, would say that all our ambitions upfront and take these individuals on board. are that Local Enterprise Partnerships would be able to deliver more for less than Regional Development Q99 Jack Dromey: With one voice on this issue of Agencies. transition, you’re saying, “Get a move on. Get it right. Make sure you hear the voice of business with the full Q101 Rachel Reeves: If there was a transition support plan.” There are then those significant period, as Jack pointed out and John said as well, in transitional issues that I referred to earlier, two in which businesses do not have the support they might particular. First, we were told last week that valuable from the RDA, because that support is not available know-how is already starting to be lost. If you were because the Business Link has been withdrawn, at a talking to Government right now, what would you say time when we know businesses are going through an they should do to work with the RDAs to try to extremely difficult period, with lack of access to bank ensure, as best we all can, that that doesn’t happen? finance and uncertainty in future prospects for the Secondly, because of the constraints being imposed on economy, it seems to be a dangerous time, where cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 37

14 September 2010 BCC, CBI, EEF, FSB and IoD things may fall through the gaps. You particularly do something that we want to retain so we, as a business not want those gaps to exist. community, will work with the local councils to figure Adam Marshall: We have to consider this as only one out how to retain it.” piece in a wider jigsaw of initiatives that support Alexander hmann: I’m heartened by the fact that I business that emanate from Government. You haven’t seen in any of the LEP proposals a great deal mentioned one around access to finance; many of of focus on brand. I think it’s actually a costly process those initiatives are not being driven regionally, but and not necessarily the most advantageous. Maybe nationally. Other major considerations that our some of the LEPs that go ahead will turn their members bring up time and time again include attention to it over time, but actually brand is national planning for the big infrastructure decisions associated with once the actual LEP itself or an that we need to see, delivery of big transport economic area has delivered something of some value, infrastructure projects that are already on the books, as a coherent area. It can then start branding itself new housing, and skills. These are all parts of the as such. jigsaw, in addition to this regional element of our economic development work. The business Q104 David Ward: On funding, resources and where environment is complex. As Alex said, there is no the money is coming from for all the LEPs, funding good time, necessarily, to change structures, but there models have been proposed for LEPs. There are are many things going on, even as this particular suggestions for sources of funding as part of a change is taking place. diversion of business rates to LEPs, accelerated development zones, tax increment financing or bond Q102 Jack Dromey: The RDAs made very clear last issuing powers. The general question is on the funding week that, from here on in, the forms of support of LEPs. What your views are on that? available to your members now will not be able to be Adam Marshall: We probably need to separate two made available in future to new bids. issues here. First, what is the money that LEPs will Alexander hmann: May I come back on that? I have use to run their day-to-day operations? Most of us in heard examples from members, predating this point, the business organisations have been very clear in where those funds have not been available to them, saying we don’t want to see big bureaucracies develop even European funding. I know some members have around LEPs, but perhaps a very small secretariat had difficulty accessing Objective One funding. I can function, simply in order to coordinate the activities see it is not ideal, but ultimately the majority of of those businesses and local authorities involved may businesses out there are dealing with the situation as be in order. There’s a question as to whether that it is, and they are hopeful that we can produce a money comes from the Government, i.e. via the structure that replaces it and works well, as soon as Regional Growth Fund, or elsewhere. possible. I think the funding that you’re referring to is about Mike Cherry: I want to come back on what I feel is the kinds of innovative funding streams LEPs could a fundamental thing for small businesses. Pots that are try to put together, if they had a big project—for time sensitive do not meet the needs of the business. example, a piece of infrastructure—that they were told The business needs to know what is available to it “no” to, by the DfT for example, but wanted to move going forward. You should certainly not cut funding ahead anyway. Where I think this structure has its just after it’s been approved or is likely to be going advantages is that conversations about things like ahead, which affects the growth of that business going accelerated development zones, business rates forward. That ongoing need of the business needs to supplements, etc, are being had with the business be recognised, irrespective of whether we’re changing community in a key position. This is business from RDAs to LEPs, or whatever else is being developing a funding solution with local government, changed. It is the business need that should be taking rather than feeling that this is being done to it in a priority, if you want genuine growth and economic locality. If the majority of businesses in a particular development. area were to vote to say, “We’ll put a penny on the Chair: We are coming on to the issue of potential rates if it means we will get the rail station upgrade alternative funding. or the new road that we require,” that would be an innovative use of this model going forward. The key Q103 David Ward: This has been a very rational there is for democratic accountability and business discussion about functions, what level and so on. Does representation to go hand in hand, and for both to branding come into this at all in terms of the RDAs agree that that is a priority. and the disappearance of those? Being parochial, I’m ohn Cridland: I’d agree with that. All through the thinking of Yorkshire in particular. Does a debates in Parliament about supplementary business consideration of what follows come into this at all? rates and the community infrastructure levy, the long Adam Marshall: From talking to my colleagues in view of the business community was that it would put Yorkshire, there is a serious concern about place its hands in its pocket if it was convinced of the marketing for the county going forward, and the idea benefit to the particular community and the economy that they want to retain the Yorkshire brand and be of that community. In return, it expected to have a able to drive it going forwards. I think that is a valid vote; it expected this to be a real choice, not thing to do in their particular situation, but they are something that could be required of it. We are strongly already looking at ways to do it that are not affected supportive of the principle of the uniform business by this structural shift in the way governance works. rate. I think that has been a great success over the They are trying to be innovative and say, “This is years, in protecting economic growth and avoiding cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Ev 38 Business, Innovation and Skills Committee: Evidence

14 September 2010 BCC, CBI, EEF, FSB and IoD small businesses in particular being priced out of projects going ahead. If they fail to do that, we won’t certain localities by the decisions of local politicians. actually see funding being attracted and these projects I think these additional funding mechanisms have to going ahead. It’s a way in which the market will be innovative but they also have to be consensual. determine outcomes here. Many of those debates are already taking place, and I Alexander hmann: For us, there’s a direct impact think it would be less the case for us finding a funding on what finance needs to be in place in order to enable flow for LEPs, than LEPs finding a legitimate place LEPs to practise from day one. As others have said, in all those existing funding mechanisms that Adam there will absolutely need to be some secretariat and yourself have described, because people can see function. I hope some of that can be drawn by local that something needs to go forward. authorities pooling resources that already exist or With that said, I don’t think we should become financial resources to deliver some of that. I do not obsessed by this question because, at the risk of think it should be incumbent on a brand new financial repetition, we accept that structures going forward stream. That would show some skin in the game from will have much less public money than the past, the local authorities concerned, too. because that’s simply an economic necessity. I’d go I think there is a separate point about where the further; I would say that CBI members would finance comes from to deliver on transport and prioritise the influencing role that LEPs need to infrastructure projects. The Regional Growth Fund perform, just as they prioritised the influencing and should have its prime focus there. I don’t think it championing roles that RDAs performed. Ask a CBI should have a broad focus; it should be for those types member company, large, medium or small, what the of projects, and be about leveraging private sector most important issues are, and they will always say investment alongside. that they are the issues of infrastructure and planning, There is a broader question here about what kind of which we have talked about relentlessly this morning, financial package we want to see LEPs having in the and which are primarily the statutory responsibility of future. That ties to my earlier point that I made around local government. The value of LEPs is that business risk and reward around local authorities, and the gap is a stakeholder at the table. I hope we won’t slip back between local authority and business understanding. to the idea that for LEPs to provide any useful In many ways, a lot of the decisions around planning function they must have money. There will be and transport run contrary to decision making around occasions when LEPs will need money, in the way political issues. They often have an electoral impact. that Adam has already described, but I think it is To elevate the importance of the economic, we need secondary to business and local authorities working to look at whether there is a reward for local together to set a strategy. The funding issues flow authorities in this system. I am not going as far as to from that. say we should look at any re-localisation of business rates, but it is worth looking at whether we can reward Q105 Chair: I would interpret the comment that you in some financial way those local authorities that take are not in favour of the partial diversion of business some quite difficult decisions about economic rates to LEPs. development and do well in some financial way. The ohn Cridland: I’d be completely opposed to it. last point I would make is that I think there is a way Mike Cherry: Chairman, I’ll answer that question of using the assets that RDAs have established over straight off: we are also utterly opposed to that. As time to fund some of this, if we do it in a smart way. John and Adam have rightly said, we feel LEPs For that reason, the IoD is not at this stage convinced should be about influence, not about money, which is that assets should, by definition, go to the localities in something I mentioned earlier. We also suggest a basic which they happen to exist. secretariat for the LEPs. It needs to be independent of local authorities, and I would suggest also needs to be Q106 Chi Onwurah: It’s clear from what you’re independent of business, so that it can truly deliver on saying that your belief is that LEPs are economic providing the support that LEPs will inevitably need, rather than political bodies. However, as we’ve seen, but looking to commission perhaps advice and most of the bids from LEPs are around local authority research only. and political boundaries. How do we avoid LEPs On the issue of the Regional Growth Fund, as I’ve becoming too politicised? If the answer to that is also said, we don’t see that being used at the money around business involvement, which is also something pot for LEPs either, going forwards. Yes, it could be that you’ve all mentioned, in my experience top-flight a vehicle that could possibly lever in extra funding, business people focus on growing their businesses. and I think that remains to be seen as the amounts go That is why they’re top-flight business people. How forward in the areas that it will have impact. are you going to make top-flight business people Steve Radley: Just a couple of quick points: like the committed to a strong involvement in LEPs? other business organisations here, we would be very Adam Marshall: It goes back to the vision point that opposed to diverting business rates to fund LEPs. I made at the very beginning of my evidence. If you Building on some of the points that were made earlier, go to a business person with an elevator pitch that is the ability of LEPs to draw in alternative forms of spot on—it talks about their involvement in their local funding will depend on their ability to engage with area and how that can become a dynamic economy the local business community. If they have good within the next 20 years—I think that person might businesses on board that put sensible proposals be interested. Their interest might be piqued and they together, they are far more likely to succeed in might participate in the LEP. If you go to someone developing those funding streams to get those sensible and say, “We have a slightly ill-defined strategic plan cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD for the next 10 years in our locality. It’s got to do was the “how?” How do we get these people on some economic stuff, but it’s also got to so some board? You seem to be suggesting it is up to the LEPs political, social and environmental stuff,” that to target and identify them. business person will react in precisely the way that ohn Cridland: I think the LEPs would talk to the you’ve put forward. regional parts of the five organisations you have here today and maybe some others, and we would help to Q107 Chi Onwurah: Can you be more specific? identify, but the job description is vital to ensure those When you say “if you go to”, who is going to be people are not delegates. going to these business people? Are you going to be Alexander hmann: The one point I would add that doing that? I don’t think John’s covered—I don’t know whether Adam Marshall: It would be a promoter, whether he agrees—is that these positions need to be from the private or public sector. I think there are publically advertised. I’m happy for us to be business people and local authorities in each area who consulted, by all means, to let us see whether among have brought forward those proposals, and who are our networks we have and know those people, but trying to corral that sort of support. It’s not been let’s make this open. We also need to ensure that the uniform as to who’s been doing the canvassing and decision-making process about the appointment of the asking. We have received calls from members who these individuals, which, incidentally, might be more say to us, “I’m not interested in being involved in this interesting for us and might be something we are one, because it doesn’t strike me as being particularly involved with jointly, as business organisations, about dynamic,” so that dynamism and vision is key. Doing the assessment and interviewing process around that. this right is about saying to these key business people: We need to draw in those individuals who are not “You have a real chance to influence.” A lot of within our networks. Moreover, something that has business people have joined quite a large number of held back the standard of the people who have been these partnerships over the past 20 years or so and involved in the past around this agenda is that they have felt, in one way or another, that they didn’t give have been ministerial appointments, by definition, and them a chance to exercise that influence. so they have been politicised. They have had elements ohn Cridland: Business won’t sit on talking shops. of a political agenda tied to them. We think that They will go to the first meeting and never go back, stepping away from that and, indeed, avoiding the for exactly the reason you’ve said. I also think it’s potential pitfall of making these local government important, as well as the LEP being visionary and appointments, is also something to miss. dynamic in its pitch, that the business representatives Mike Cherry: By having business engaged as the are visionary and dynamic as well. That won’t be Secretaries of State have laid out will avoid this from achieved by rounding up the usual suspects. It won’t becoming too politicised, if this is proper engagement be achieved by the CBI or the FSB putting forward a going forwards. Going back to your point, Chi, the particular rep. What we need are people who speak business community can play a very large role in the for themselves and carry conviction within the selection of the Chairmen of these LEPs, through our business community. respective organisations, but also through the I have seen sometimes within RDAs there was a groupings that occur in some of the regions, where concern or sense that, for one or two people on the there are elective mechanisms to put forward what one RDA board, their real life was as management would hope would be the right person to head consultants, or they had plenty of time or were whichever body it is that you wanted somebody semi-retired. It is vital that we have the chief appointed to. While I would always advocate that executive of the biggest employer in the area. I do not certainly the smaller micro-businesses should think it matters whether the individuals on these LEP definitely be represented within the LEPs, who heads boards are large or small companies; they should be those LEPs is crucial, and business has a significant both. It is much more important that he or she carries role to play in that, I suggest through our regional conviction with the wider business community, that groupings. they are somebody who has a sense of mission and wants to do the tasks that Adam was describing. Q109 David Ward: I had one comment from Alex Those people can almost be identified in each city in on the assets, but what are the views on the RDAs’ the country. They are the people who give a strong assets and where they should go? sense of civic duty and public purpose, but they do it Adam Marshall: We need to be very careful at while being genuine entrepreneurs. I would want each looking at this because, where there are assets, there LEP board to have people reflecting the strengths of are also liabilities. One of the things the RDAs were the economy, but also the new cutting edge parts of working very hard to do was to convert some of those the economy. We clearly need businesses and business liabilities into assets. What I have said to the number leaders from a full spectrum, not just establishment of LEP bids that I have engaged with and a number business, but ethnic minority businesses, cutting edge of people in various local Chambers around the service businesses and creative business. The country, who have been involved in those processes, individual stands out from the crowd because of what is that, “Before you say you want some of the RDAs’ they stand for. assets, look at them very carefully, and make sure that they can indeed create a revenue stream for you and Q108 Chi Onwurah: You’re giving me a job help you to create some kind of new infrastructure or description of the sorts of people who should be there, economic value.” In some cases, the RDAs were in which wasn’t quite what I asked for. What I asked the middle of a very long process of turning around a cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Ev 40 Business, Innovation and Skills Committee: Evidence

14 September 2010 BCC, CBI, EEF, FSB and IoD site, for example, that actually has a negative market Fund should be for capital projects. What are your value. There’s caution needed on that, indeed. views on the priorities for the RGF? Alexander hmann: Absolutely Adam’s right to Chair: Who’s going to lead on it? point out the liability side of the argument, too, but ohn Cridland: A brief comment: Adam mentioned for that reason, the enthusiasm I’ve seen for liabilities earlier that a lot of these spending decisions have to and assets has been expressed in the bids where they be set in the context of wider public spending. We perceive there to be assets, and less so where they won’t be able to crystallise our view about the perceive there to be liabilities. There’s a serious Regional Growth Fund until we see the outcome of fairness question here as well. When you look at some the spending review, in a few weeks’ time. If you take of the assets that perhaps the South East Development the transport point, which a number of us have Agency had acquired, a great deal of the more mentioned already, it is quite challenging to map the financially beneficial assets are in Kent, for example. Department for Transport’s regional transport Kent would do very well from taking on all of those spending on top of the LEP infrastructure. We have assets as they were gathered, and I dare say there’s an concerns, as ever, that public capital spend for the equivalent local authority that would, by definition, interests of the long-term growth of the economy may receive a large swathe of liabilities. It’s the IoD’s view take too much of a hit in a spending review, because at this stage, and we’re obviously open to discussion it’s a long-term benefit versus short-term political about this, that the best thing to do with these assets priorities. The reason for mentioning that point is and liabilities in the first case is to draw them together quite what we need the Regional Growth Fund to do in some kind of national development corporation, and quite how far it should be larger or smaller and have those assets looked at in relation to the projects, capital or current spending, has to be looked LEPs, but use whatever wealth can be generated from at in the context of which other areas of vital interest those assets to be pumped back into the LEP system. to local economies have the Government had to pull back other streams of funding support from, within Q110 David Ward: What can we learn from the the spending review. At the moment, we’re excited audits of RDAs on achieving value for money? about the Regional Growth Fund, because it has great Adam Marshall: Just to open that up a little bit—to potential. We want it to be catalytic and innovative. give the RDAs credit, they were probably some of the We don’t want it simply to fall into blocks. Part of its most audited quangos ever to exist. In part, I think purpose will be to maintain and provide LEPs with that reflects their success locally and regionally at ability to do critical things in their localities and embedding themselves, being recognised and known regions, where other areas of public spending have to be from and part of that region. While it is entirely necessarily needed to be withdrawn. appropriate to look at the audits of RDAs and value Alexander hmann: The answer on capital is that, at for money, they are one of a number of quangos out this stage, given the size of the fund, we would see the majority of it, if not all of it, going to capital needs there spending billions and billions of taxpayers’ and to, as I say, act as a catalysing factor to private pounds. They are probably the most over-audited. investment. I think there is a particular risk with the Alexander hmann: Clearly, there will need to be fund that it ends up being spread to thin. I think the satisfactory evaluation for the Local Enterprise £1 million is a reasonable minimum. However, I don’t Partnerships. I am unsure at this stage whether it think that all proposals below that level should needs to follow the same kind of model as the automatically be rejected as a standard, if something Regional Development Agencies. Given the economic can demonstrate for a lower sum of money a quite return that was supposedly generated by the Regional substantial return. That is something we have set out Development Agencies, according to the audit reports, in our response: it must be able to demonstrate a clear we should be setting ourselves a higher threshold for economic return of a certain value. If it can delivery with these LEP proposals, against which we demonstrate a return on investment that is should be able to assess ourselves. demonstrably high enough, we would be happy to see that money spent on that. Q111 Rachel Reeves: You have said that much of the In terms of the question about whether two years are LEPs will be about influence and shaping the agenda, enough, I think probably not. We need a longer-term but there is this £1 billion Regional Growth Fund view about whether this fund or other funding will be money. I’d be interested in your views about the available for these types of projects, because it will priorities for that money. Within that are a couple of tie in very closely with whatever timeframes there are things. The Regional Growth Fund, as you all know, for the Local Enterprise Partnerships. Clearly, if they is over two years. Do you think that is the right time have five-year timeframes, it is quite difficult to period, especially if the priorities are around envisage what they might be able to do beyond the infrastructure and transport projects? Is two years the two years for which this fund will exist. That will right timeframe for the funding? There was also need looking at. something that suggested that the bids for money from Lastly and slightly tongue in cheek, I was not totally this growth fund should be in excess of £1 million. convinced by the Chamber’s comment that all I’m particularly interested in the views of the FSB on proposals should go through a pre-stage assessment that, because the businesses that I speak to in my by the BCC. To comment on the bidding process, I region certainly don’t need anything like that sort of think it is important that we are not bogged down in money to support them. The intention at the moment too many stages of the process as well. We need to is also that all the money in the Regional Growth have proposals judged based on whether they meet cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 41

14 September 2010 BCC, CBI, EEF, FSB and IoD minimum credentials. If they don’t, then ask them to is the only way we will stop the stop-start of regional return for a second phase of bidding, perhaps in the economic development. same year, rather than asking for a rather elongated bidding process. Q112 Nadhim Zahawi: Adam, you suggest in your Mike Cherry: I think it was the £1 million threshold submission that LEPs can make use of private sector that you were questioning. We certainly do not see the capacity. How realistic do you think that is? Coupled £1 million threshold as being absolute. Certainly, rural with that, obviously one of the bottlenecks for the areas are likely to require smaller amounts, so long as boards of LEPs or the representation from business on the benefits can be established. those boards will be the experience and expertise of Coming back on the two-year period, this comes back those individuals. I know Alexander said he was being to the answer that I gave to Jack, which is that, when tongue in cheek, but all of your organisations have you have a two-year period and don’t know what’s incredible IP in their membership—i.e. the wisdom of going to follow, business wants certainty and crowds. How could you help LEPs or LEP boards continuity. These stop-go funding streams just do not pick the winners? deliver that. Adam Marshall: We have said very clearly to our Steve Radley: I’m in the boring position of agreeing membership that a Chamber of Commerce in a with what Mike said there. We have a history over the particular area needs to be involved with a LEP in one last 20 to 30 years of providing funding for a couple of two ways. One way is to try to shape the strategy, of years, which then fizzles out. If you do not have influence the priorities, etc, by sitting on the board that longer-term certainty of funding, it would be over time. The other way is perhaps by not doing that much more difficult to leverage in funding from the and saying, “Okay. Perhaps the Chamber could help private sector to match. That’s an important point. the LEP to deliver on the ground, if it makes a We have a concern with the process for the Regional successful bid to the Regional Growth Fund or Growth Fund being set up. One of our concerns in something else.” For obvious reasons, those two rules terms of the timescales between LEP bids being put need to be kept very separate indeed. You cannot be in and approved and these being put in is that it’s judge and jury on the same project; that is extremely important. extremely short. We need to ensure we allow time for the individual LEPs to understand the issues that areas Your point about private sector capacity more broadly is one I would like to pick up very briefly. As you are facing and look at what actually needs to be done say, in our memberships we have huge numbers of in terms of capital investment to achieve that. The infrastructure consultants. We all speak to them on majority of the funds should be used for capital a regular basis. We have huge numbers of lawyers, funding. Perhaps there is a pragmatic case for using a solicitors, etc. If this is a cultural shift, as we referred little of it for initial set-up costs, but it should be to earlier, and there is a sense of business helping mainly about those things that will deliver business, we would like to see these people giving up productivity benefits in the medium to longer term. their time for the economic development and good of One area where we need to see some clarity are the their locality. The reason why the LEP needs to be dual objectives here in terms of the bids that will strong and set up with relative clarity and speed is so deliver the greatest returns and improvements in that those people can be engaged and feel that finally productivity, and also looking to help areas that are they have a place to deploy their expertise on behalf very dependent on the public sector diversify away of the local economy. from them. I don’t think the two necessarily need to Chair: Can I move on? I partially pre-empted be in conflict with each other, but we need a lot more Rachel’s next question. I apologise for that. clarity over actually how these bids are going to be assessed. Q113 Rachel Reeves: You have all made clear how Adam Marshall: As someone who has been involved important it is to have business on the boards of the in economic development for many years, trying to LEPs, really driving the agenda. In the board of pick apart funding schemes is a particular bugbear of Yorkshire Forward we had the Vice-Chancellor of mine. We have a three-year settlement cycle for local Leeds University. The two universities in Leeds are government in this country. We have a three-year certainly critical to the local economy. Keeping national spending review cycle in this country. Under graduates in the city is very important for the the previous Government, there were attempts to put long-term economic future. In terms of the make-up in a 10-year transport guideline, but then we would of the boards, do you see any involvement for the have particular funds pop up for six or 12 months at third, university or FE sectors, and how would you a time. We need to get economic development funding envisage that working? right, once and for all, if we are going to see business Alexander hmann: May I comment on that? We delivering the type of growth on the back of an have a very clear view on this. We think that one of infrastructure investment. I would echo my colleagues the issues about the multiplicity of roles RDAs when they say that two years feels short and creates undertake was partially because of the multiplicity of uncertainty. What we really need to see is a long-term interests on the board. We think it is necessary to have guideline for this sort of thing. However it plays out, two representative sets. There is the local authority; however it is used, we want to see a Government we hope those to be senior leadership roles and come in and say, “For the lifetime of this parliament elected members, and would also want to see business ” or perhaps we will try to gain cross-party support so representatives. At this stage, we cannot see any case that we can put a decade-long initiative in place. That for why you would need any further representatives cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

Ev 42 Business, Innovation and Skills Committee: Evidence

14 September 2010 BCC, CBI, EEF, FSB and IoD on Government structures. That is not to say that they from members who gave evidence then. You haven’t do not play a fundamentally important role in the been so direct. engagement strategies around that. Adam Marshall: I have a feeling we could all play Adam Marshall: I would emphasise the E’ in the with the jigsaw pieces for a very long time and try to acronym LEP’. It stands for Enterprise’ so, to a make them ﬁt together in lots of different ways. I do certain extent, I would agree with Alex that we’d want not think 56, which is the number of bids received, is to ensure it is laser-beam-focused on economic, the appropriate number. I think it is certainly fewer enterprise and business growth. However, if an LEP than that. We had hoped privately for 35 to 40, and steps forward and says, “I need the Vice Chancellor even that is quite a large number. When you look at on board, because the Vice Chancellor is effectively economic catchment areas around England, if you running a 20,000-person business and we think that were to sub-regionalise the country, to be very wonky she or he is important for these reasons,” you have to about the whole thing, you would probably up with take that on a case-by-case basis. What I would not 35 to 40 areas, if you looked at measures of like to see is guidance coming from the Government self-containment for commuting and various other that effectively converts what is a Local Enterprise statistics. There is no such thing as an optimum Partnership into something very much like the old number because, in addition to economic geography, Local Strategic Partnerships, which businesses there is that thing called politics, which we all ignore became very disenchanted with very quickly, because at our peril. If I were the Government right now, I their representation and level of interest were so wide would encourage some of the clashing bids in those that they didn’t have a focus. That is the concern. 56 to resolve those clashes. In areas where the Steve Radley: One of the ways you can also address economic scale does not match the area in which this is actually making sure that, in terms of your someone who works in a business can say, “I live, selection criteria for business people on the board, work and play there,” it’s probably the wrong scale. they are good quality people who have an ohn Cridland: For the CBI, those decisions will be understanding of good contacts with the universities taken by our elected regional council. It will be a and the third sector. You need those sorts of people bottom-up decision in each region of which LEP bids on the boards anyway. they wish to support. That will be done over the next ohn Cridland: I would take a slightly different view. three weeks. It is not for me to pre-empt that and say Many of Britain’s universities and FE colleges are a particular number; it will be based on the criteria active corporate members of the CBI, and that is that we’ve discussed throughout this evidence session. because they see themselves as major businesses and Clearly, 56 is too many; eight was far too few. It will employers in their localities. Without repeating my be somewhere in between. My guess is that CBI earlier rather lengthy answer about the job description, companies would probably wish to see three possibly if the criteria of a FE college principal or a university four where there was previously one, so we might end vice-chancellor meet those criteria, I wouldn’t want to up with around 30. I would be quite surprised if it got treat them any differently, simply because they happen much beyond that, but this is an issue for our to work for an educational institution rather than a regional councils. private sector company. It’s the quality of the Steve Radley: As I was probably unwise enough to be individual, just as we make no differentiation within quoted on this, I have to offer a view on the numbers. the CBI membership. The reason for their being there I think of somewhere in the range of 15 to 20. That’s is, as other colleagues have mentioned, that they see not based on any exact science. It’s based on themselves as a business and they are making a coordination issues, the preferences in businesses in contribution to economic partnership. If they are there certain regions of the country to take a more regional to debate education policy then, as Alex has said, approach, the ability to achieve critical mass to there are other ways of involving them. In principle, deliver, and also the complexities of actually making I would not wish to differentiate between classes of these local bodies work with national organisations as business leader. well. If you go much beyond that, you are looking Alexander hmann: That raises a governance point at many relationships being formed, which is quite of, based upon the existing proposals of a 50/50 split, cumbersome. The ultimate issue is not any of the whether such a university representative is considered organisations here saying, “It should be number”; under business. Under the proposal you have set out it’s actually how many of these bids are credible and there, it sounds as though they would be, but there is how many command business support. That is a question of whether they are therefore qualiﬁed as ultimately the important issue. the business half of the LEP governance structure. Mike Cherry: I would endorse some of what Steve Mike Cherry: As you are probably well aware, said, but I would go a little further. We need to ensure Chairman, the HE/FE community is part of the that those that are taken forward get around the business grouping in the West Midlands business politics, beyond the geography and look at genuine wider group. economic development for their localities, which is the intention of all of this process. I think you’re Q114 Chi Onwurah: I had a general question, inevitably going to end up with black holes. That has because what I didn’t gain from the very interesting yet to be resolved as this all goes forward. discussion is an issue that has arisen a number of Alexander hmann: I want to make one brief point times: an idea from each of the panellists as to what before giving a number, which is what I know you you feel the optimum number of LEPs would be? In want. To restate the point, nothing doesn’t have clear our last session we had a view between 15 and 20 evidence support across the board. That is essential. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:32] Job: 005834 Unit: PG02 Source: /MILES/PKU/INPUT/005834/005834_No2-14Sept CORRECTED.xml

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14 September 2010 BCC, CBI, EEF, FSB and IoD

Any number that is minimal, but still requires us to those that need a little more work, and those that need get away with our European funding, would be an rejection. On the basis that tier 2 can come back, we important number. I do not know what that is at the should consider the very exemplary ones that have moment, and I am not sure that the Government do, come forward to be our “pilot”. but that’s very important. I think in this first phase, Adam Marshall: I agree with that. If we hold back and we see it as a phase, there should be about a dozen the best while the rest of the train catches up, we will based upon what we’ve seen. That should be because be undermining the very principle that is supposed a number of the proposals that come forward may well to underscore Local Enterprise Partnerships. They can be things we want to pursue, but they require a second serve as beacons for some of the others and help them look, a little bit more discussion and some more improve their own structures. digging into what’s being done. Perhaps some of the Mike Cherry: We’d endorse that, Chairman. certainty around some of the areas around this Chair: There seems to be a degree of consensus on policymaking area will enable us to decide whether that. From the point of view of a politician, I think they are the right things to go forward. there is a good business case for that. Can I thank you all for coming today? It’s been a long but very Q115 Chair: Arising from that is the issue that, if interesting dialogue. It could well be that, on the Government’s view is that there is an insufficient reflection, you go away and think that perhaps you’d number of LEP submissions to cover the whole of the like to amplify any of the responses that you’ve given UK, would you think it appropriate for the or perhaps you’d like to put the responses that you’ve Government to single out and effectively run given a little differently. You can send us a pilot-project LEPs? supplementary contribution. Equally, of course, Alexander hmann: It’s the IoD’s view that, whether Members may well forward a question on to you, if you call it a pilot or not, there are three grades that they had not managed to ask it at this meeting. On should be applied to the original proposals. Those that note, I’ll conclude. Thank you for coming. which are absolutely A , can go ahead. There are cobber Pack: U PL: COE1 [SE] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 44 Business, Innovation and Skills Committee: Evidence

Tuesday 12 October 2010

Members present: Mr Adrian Bailey (Chairman)

Luciana Berger Margot James Mr Brian Binley Rachel Reeves Jack Dromey Mr David Ward Rebecca Harris Nadhim Zahawi ______

Examination of Witnesses

Witnesses: eoff rench Group Chairman, Scott Wilson Group PLC, Paul resham, Chairman Gatwick Diamond Initiative, Alex Plant, Chief Executive, Cambridgeshire Horizons, Chris letcher, Deputy Chief Executive and Policy Director, Greater Manchester Chamber of Commerce, and om Riordan, Chief Executive, Leeds City Council, gave evidence.

Q116 Chair: Right, good morning everybody. Thank need LEPs? Couldn’t we just abolish the RDAs and you for agreeing to attend this morning’s session. Just do without? Very short answers please. a few words of organisation; we have something like eo rench: Shall I start? Just very quickly, I think 30-odd questions for the first session, and another it’s a great opportunity to continue the integration of session to follow with other representatives. So, first business and local authorities, which, certainly in the of all, don’t feel obliged to answer every question; if North Hampshire area, has been going on for some we feel that somebody is evading anything or, shall time, but I see this as a logical next step in that we say, not participating in a way that the Committee progression of greater business involvement with the would like, we would direct the question specifically local community. to you, but do not necessarily feel that you have to Paul resham: I would echo that. The Gatwick contribute on every question. Can I also make it clear Diamond has been going for eight years and is a very that obviously there has been a large number of good example of private-public partnership aimed at submissions from would-be LEPs, and the fact that improving the economic sub-region that we are, and we have invited you to come here and give evidence the more we can do to encourage that the better, and this morning does not imply any particular approval certainly the businesses we’re involved with would of your particular bid. However, we had to interview support that. a cross-section of these schemes, and you have hit the Alex Plant: I think the issue really for LEPs is that jackpot. Could I just get you to give your name and the business environment, the conditions that allow the body you represent, just for voice levels? for successful economic growth, require there to be an eo rench: Good morning. My name is Geoff integration between the business sector, the third French; I am here representing Enterprise M3. Until a sector and the public sector. During a period where few weeks ago I was Group Chairman of Scott times are tough, and funding is going to be a very Wilson, an international firm of consulting engineers scarce resource, unless we can actually get a greater working around the world, but headquartered in level of collaboration between those sectors we’re not Basingstoke. going to make the most of what will be a limited set Paul resham: Good morning. I’m Paul Gresham. of funds. I’m the Chairman of the Gatwick Diamond Initiative, Chris letcher: I endorse all the views that have gone and I’m also the senior partner of KPMG’s office in before, but I also think the point of view of the focus the South East, based in Gatwick. on the functioning economic areas is where the Alex Plant: I’m Alex Plant. I’m representing the significant difference is between the RDAs and having Greater Cambridge and Greater Peterborough a void there. I think, certainly for a city region like Enterprise Partnership, and I’m the Chief Executive Greater Manchester, that gives us the greatest of Cambridgeshire Horizons, which is the body set up opportunity yet for taking forward economic growth to oversee housing growth and infrastructure delivery involving both the public and private sector. across Cambridgeshire. om Riordan: I think if the Government is going to Chris letcher: Good morning. I’m Chris Fletcher. achieve its aim of rebalancing the economy it can’t do I’m the Deputy Chief Executive of Greater it from the corridors of Whitehall. I think we need our Manchester Chamber of Commerce, part of the own capacity to be able to do that, particularly in the Greater Manchester Local Enterprise Partnership bid. North of England, and there’s a big gap between the om Riordan: Good morning. I’m Tom Riordan. I’m national and the local, and you need something in Chief Executive of Leeds City Council. I’m the lead between to try and bring people together in the way officer for the Leeds City Region Local Enterprise that has been said. Partnership. Until recently I was Chief Executive of one of the Regional Development Agencies, Yorkshire Q118 Chair: Thanks. Some of you obviously have Forward, as well. been working almost in sort of quasi LEP-style structures for some time, which does seem to imply Q117 Chair: Right, thanks very much. A very that you feel there is a need for this sort of structure. general question to start with: why do you think we What advantages are there of this sort of structure in cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 45

12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan comparison to the RDAs, and what do you think are through place, and that is an opportunity I think the major challenges to you because of the smaller perhaps we should try to grasp. scale of the operation? Tom, we’ll start from your end Chair: Thank you. Nadhim. on this. om Riordan: Thank you. Chris just mentioned the Q119 Nadhim Zahawi: Thank you, Chairman. Can I functioning economic area, which is quite a jargonistic just press you a little bit further on this and ask you way to describe it. If you think about the way that what you all think the critical mass is for a LEP— jobs markets work and housing markets work, then I whether it is size of geography, population, area GDP? think certainly what we’ve tried to come up with in You may want to come to it from your own the Leeds City Region is something that reflects that perspective, because obviously there will be in the way that we try and work together. I think differences in different parts of the country. Why do getting the local authorities to work together in our you think your proposal, and how it would work, is area is vital; we’ve three of the top 10 biggest better than possible other options? conurbations in the country outside London, so getting Paul resham: Shall I kick off with that? From the that right is vital. I assume the big challenge is going Gatwick Diamond perspective, it isn’t about to be—unless something quite surprising happens— population; it has to be about the local economy and that there are much less resources for this activity, where the businesses in the local economy look to. and I think how we make that work is the central With Gatwick and Crawley at the hub of it, we get challenge here. businesses looking from Brighton up north to Chair: You don’t have to repeat each other. Gatwick, and we get businesses looking down from Chris letcher: I agree, but perhaps the main issue Croydon and then the east and west. That would give is that it puts things right back at the heart of the a population of between 800,000 and 1.2 million to communities; we’ve a great history in Greater 1.5 million, depending on what you put in, but you Manchester of the private and public sectors working can’t necessarily have businesses perhaps in rural together. This is the next stage of that, but something Chichester, which would look towards Portsmouth with a real purpose behind it. and Southampton rather than Gatwick. It has to be Alex Plant: I think the opportunity is to make the very much about the local economic area. LEPs more truly business led, because RDAs haven’t om Riordan: I think the further away from London always felt as if they were, and I suppose echoing you are, the more critical mass you need, from my what both Chris and Tom said, it gives you the ability experience of the last few years in the RDA. to have a genuine local focus and differentiation, Particularly in the North, we need significance to because the issues that concern us in Cambridge will catch the eye of those national agencies and be different from those that will be facing colleagues policymakers who sometimes find it quite hard to get in Lowestoft. In a regional context, sometimes that their heads around the geography of the country. With was difficult—to get the true local focus that you Leeds and Manchester in particular, there is a real perhaps want. opportunity to create a new economic growth area in Paul resham: Absolutely, the business focus is the country that really starts to punch its weight and important. SEEDA, which was our RDA, was very is seen as a positive to people such as those in the supportive, but it did have a large geographical patch. Treasury. The LEPs do give us an opportunity to do We have a specific local economic sub-region with an that; there is a lot of enthusiasm from businesses in airport at the middle of it and it is very important to particular. Critical mass around economy, geography major on that, and it’s very important that it is and population in the North would be my argument business driven so that we get engagement with businesses for funding and for resources. for what is needed. eo rench: Just one other factor, if I could, Chair, that hasn’t been mentioned yet, which is the fact that Q120 Nadhim Zahawi: What size population? the LEPs give you the opportunity to look at the om Riordan: We are 3 million Leeds. I don’t think geographic areas and have logical areas for each LEP, it’s an exact science, but the growth areas around the rather than areas that are dictated by historic Leeds City Region and the Greater Manchester areas boundaries, which are really no longer applicable in are the ones that I think could really drive some many instances. additional growth for the country. Chair: Thank you. Alex Plant, you wanted to come eo rench: Building on what Tom said, it needs back. to be larger as you go away from London, so those of Alex Plant: Thank you, Chair. One other opportunity us on the fringe of London will be smaller, because we didn’t mention is that the RDAs were dealing with the prime requirement is coherence—coherence of the a certain set of issues, which was effectively the BIS area. It is difficult to have a huge area adjacent to agenda at a more local level. I think one of the London and have that coherence. I was looking at the interesting things for me is this is an opportunity to evidence given by the Local Government Association, bring the BIS and the CLG agendas together, because and its spokesman spoke about having areas that were that’s traditionally been quite difficult. In Whitehall small enough or appropriate enough that you could you’ve tended to have the departmental side of BIS, have a passion for them—that was the word he used— CLG and, I might add, DFT as well. If we get LEPs or an affinity for them. I think that’s very much the right you could have a genuine co-ordination of the case. I can have an affinity for North Hampshire and issues around housing, planning, transport, the M3 corridor, because that’s where I spent all of my environment, skills, and really make that happen working life, but not for some larger amorphous mass. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 46 Business, Innovation and Skills Committee: Evidence

12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan

Alex Plant: I think there’s an issue about the areas Q122 Nadhim Zahawi: Let me push a bit further on around London, outside of the metropolitan cities, that point: you think there is no disadvantage at all in which have a different spatial make up, a different having the smaller LEPs, but do you think, then, you economy, but also that some of our small cities really will have sufficient leverage and voice with national matter, and a lot of the high growth potential is in Government, and outside bodies, to be effective if you those small cities, as well as in the metropolitan areas are smaller? in the North. You look at somewhere like Cambridge, eo rench: I think we are just trying to strike a which has fantastic high-tech, high-growth balance. I think if you go back to what I said earlier, opportunities in there, and one of the few areas in the it’s areas that you can feel passionate about or have UK that is a genuine global brand. Therefore, that an affinity with, so to get business really motivated in scale, in our case, is about looking at Cambridge and your area, it needs to be a relatively small, coherent its travel-to-work area, looking at our neighbouring area, but we’re all big boys; we will come together city of Peterborough, with high growth potential as where we have common cause to make with well, and putting those together into a single place. Government or whatever. We already have worked The population of that is about 1.3 million, but we are significantly in the Basingstoke Diamond, with also one of the most rapidly growing areas of the Reading and with Oxford, which are other Diamonds, country, so our population growth is expected to go and when appropriate we will very happily work with on to about 1.5 million. Paul and the Gatwick Diamond to my left here, so I I often look at somewhere such as Cambridge, which don’t see that as a problem at all. has this depth in terms of knowledge economy and Paul resham: I believe we’ve been punching above the best university in the world, and it feels like it has our weight in terms of size for a number of years, the conditions that allow for a rapid economic growth, because we have existed for a number of years with such as Manchester perhaps experienced 200 years the airport at the hub, so I don’t think we would have ago, when all the conditions were right in the an issue. industrial revolution. We are at a knowledge revolution now, so how do we make those buoyant Q123 Nadhim Zahawi: Does everyone feel the cities really work for the country as a whole? same way? Chris letcher: I would use the Goldilocks argument Q121 Nadhim Zahawi: Thank you for that. So just a little bit: it’s either too big, too small, and it’s what following the logic of being close to London, we need feels just right is what you should actually go for. Not smaller clusters and, further away, bigger, do you too far away from Manchester, we’ve the situation in Lancashire, for example, where there’s a lot of open agree with the submission that we had from the South warfare, I suppose, breaking out and putting three bids East Diamonds for Investment & Growth, which in instead of one. It’s what feels right, and it’s also suggested that it was right for there to be a greater about what potential there is there. There’s no point number of LEPs in the South East? Do you think there setting up one of these bodies if it’s just going to go are disadvantages associated with that? along in glorious isolation; there has to be something Paul resham: I do not think there are necessarily that it’s going to address. We’ve got significant issues disadvantages, because you have to get the size in Greater Manchester, and we see the LEP for according to the economic area. I don’t think there are Greater Manchester forming a real answer to some of disadvantages other than, is there overhead that gets those problems around worklessness, productivity and put into it? If you operate, as we do, is on a very low so on. So sometimes what you’re actually setting up budget—our budget last year was £200,000—you can to achieve and deliver is just as important as the size then actually scale according to what you have; you of it. don’t have to put a lot of resource into it. Size: does it matter? It is the agreement between Alex Plant: Once the LEP landscape becomes a bit partners about what they are actually there to do—that clearer, what will naturally happen is you will have is the most core, fundamental thing when people are the core operating base, which is the LEP, but there putting these things together. will be times when you then come together across a om Riordan: It is the objective that you’re aiming broader geography, because issues will naturally lend for that’s important and form follows function. The themselves to that. You need to treat this with a degree objective may be slightly different. As I said before, of flexibility. nearer to London it’s much more of a stimulation of eo rench: As the other South East LEP at the private sector investment that’s possibly going to be table, I ought to add my voice to that. All that’s been there already, and organising that better. In the North, said here is right, although I suspect that the number and those places further away from London, it is more of LEPs that there should be around London depends of a challenge, I would say, for those areas that are on the number of good bids you get for LEPs around going to be hit hard by the public sector cuts, and London, quite honestly. I think there is a fundamental there isn’t the tradition and the culture of strong point there: rather than forcing things, the whole idea private sector growth. I think there is a risk in that for of this process was to see who put forward coherent those areas. proposals based on strong business support, functional areas and the like, and that ought to be the Q124 Nadhim Zahawi: Thank you very much. I’m discriminating factor. I do not believe there is any conscious of the time. Just a supplementary for the problem in the Diamonds working together where de-flawless’ Gatwick Diamond: your memorandum they have common purpose and common cause. says that it is crucial to recognise the Gatwick cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 47

12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan

Diamond as a functional economic area, not to be Berkshire, now Reading, there isn’t quite the same disadvantage it by forcing it into partnerships with affinity, especially if the characteristics of that area areas that are not part of the airport-led economy. are significantly different from the rest of the county. What will you gain if you end up being part of the To take Hampshire as an example, you will think Coast to Capital partnerships, and what will you lose? either green, rural economy or you’ll think Is the real thrust of your submission that you don’t Portsmouth and Southampton. Neither description really want to be linked with a rural tourism applies to North Hampshire, which is completely economy? different. It is horses for courses. Paul resham: What will we lose being part of the om Riordan: Could I just add to that? I think it is Coast to Capital, if I can answer that first? The main different, as has been said, and one of the problems thing is that it has to be cross-county-border and the with the RDAs was that they never managed to problem with pure Coast to Capital is it doesn’t become creatures of our regions enough, because of include Surrey, and Surrey is an important part of the the lack of democratic accountability and despite lots Gatwick Diamond economy. We have to make sure of efforts by people and good working relationships we have the interaction with businesses and with the with local government. The people are more Surrey authorities, and at the moment we have six passionate, where I come from, about different things; district councils, three in Surrey and three in West even in Leeds, people are more passionate about being Sussex. One of the benefits of what we have been from Morley than from Leeds in some parts of Leeds; doing is getting them to talk to each other, to think people are passionate about being from Yorkshire and about planning, to think about transport, to think about from Leeds. I do not think that is the dictating factor the economy, to think about skills and education. We in what we have put forward. What we want to do is mustn’t lose the benefit of that gained over the last try and get an approach that allows flexibility within eight years. it; if Leeds and Bradford need to work together on What do we gain from it? I think we can look further something, they can. If all of us need to work together north and further south, and we’ve had more on something else, they can. discussions, as a result of this process, with Brighton Chris letcher: To add to that, a lot of the business and Hove, and with Croydon, which I think is great, support model was done on a regional boundary basis, because they can say, “Actually, we do feel part of the and in various city regions and various areas in that, Gatwick Diamond.” Do we have an affinity with rural you have that local identity, but the overarching West Sussex? It is an important part; we have a regional delivery structure wasn’t delivering properly national park in West Sussex, which goes into the on the ground for big people in those areas. That is Gatwick Diamond, so tourism is important. We get where you have this local pride, local focus, against lots of visitors coming through the airport, but we the larger local area. don’t have quite such an affinity from an economic Paul resham: Counties matter to the residents and a business point of view, because some of the probably more than the businesses. Often businesses risks and issues are different. Does that answer? do not mind whether they are based in Surrey or West Chair: Could I bring in Brian Binley? Sussex. How do I see that? Our vision is that people go, “We might live in West Sussex, but we are part of Q125 Mr Binley: Just a quick supplementary, really. the Gatwick Diamond, which is a vibrant business It’s interesting, gentlemen, that you all think size economy.” doesn’t matter—I find that a particularly interesting Alex Plant: We very much take it from a business comment—but can I press you on what I saw as a perspective. contradiction? On the one hand, you’re arguing that Chair: I think we have probably explored this one. it’s areas that people have a passion for that really Rachel Reeves, you had a separate one? matter, and I have some sympathy with that, but on the other hand, you argue that the traditional Q126 Rachel Reeves: Yes. A few weeks ago we had boundaries don’t matter. Yet people have a massive representatives of the five main business bodies in passion for traditional boundaries. Believe me, in front of us, and they said very clearly, all five of them, Northamptonshire, Sir, they do, and they did in that the number of LEPs did matter; that there were Hereford and Worcester, and they did around Avon— far too many bids in; that 50 or 60 LEPs was not a let me finish—when Peter Walker was involved in sustainable number; and they wouldn’t get the local government reform in 1973. Counties do matter business buy-in that they needed. I’m hearing to people. Traditional boundaries do matter. How do contradictory things from you today, but that is very you pull those two things together? clearly—I think we will all agree—what the business eo rench: Well, since you were looking at me as representatives said to us. What level of business buy- you asked that, let me try and answer. I am sure there in are you getting for your bids, and do you think are some areas where people have a great affinity for that we can have 60 LEPs, especially with the funding the current counties and the current county arrangements and the size of the Regional Growth boundaries, and in those cases I would expect to see Fund, which is about a third of the money previously that reflected in the LEP submissions that came in. In available to the RDAs? other areas—I think Gatwick is quite similar to the Chris letcher: Do you want me to lead on this, North Hampshire example—when you are at one edge coming from a Chamber of Commerce perspective in of a county, or at the edges of several counties, and Greater Manchester? First of all, the number issue, I we are at the northern edge of Hampshire, the western think, goes back to what Geoff or Paul said—I cannot edge of Surrey, and the southern edge of what used to remember which—but it is very much around what cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan works. It is not a numbers race; it is what works. The of buy-in from business for the LEP submission that bids have to be effective, and if that is 20, 30— we got. I can’t answer for all 57 bids; I can answer only for ours. Q127 Rachel Reeves: Is it about economies of scale Chair: Can I bring in Jack Dromey? as well? Chris letcher: Absolutely. Also—this is going back Q128 Jack Dromey: Thank you, Chairman. In our to the Greater Manchester proposal—we have roughly first evidence session, the Chair of Advantage West 100,000 businesses in Greater Manchester; that’s a Midlands said as follows: “It would be very difficult huge number of businesses, roughly 1 million for six LEPs separately to address either of the issues employees, and a GVA of about £50 billion. That is of supply chain and international competitive larger than some European countries in some respects, advantage. Major industries, like automotive and around the size of the economy, so it makes perfect aerospace, which, again, spread right across the West sense if there is one for Greater Manchester. Midlands, would not wish to deal six times with Businesses are very interested in this; there’s a great different bodies to address the macro-issues that deal of interest out there—a surprising amount of concern them. All of that points to the need for some interest out there—and part of that might have come form of coordinating body.” We then had evidence from the fact the RDAs are going and the LEPs are from the business community, and the CBI, the IoD, taking their place, so immediately they are aware of the Federation of Small Businesses and the what local enterprise partnerships are. Engineering Employers Federation, in different ways, From our members’ perspective it is very much were all very clear indeed that in particular regions it around making certain that the LEP represents what was of the highest importance that you had a regional they want from businesses, what they want to put in co-ordinating function and focus—for example, in the place and support their growth; there is a lot of West Midlands on the automotive industry, in the business backing for these and a lot of interest. North West on the nuclear industry, and in the North However, obviously what we need to see, when we East chemicals, process and engineering. get the “yes” or “no”, is how that is delivered on the Now, that is what has been said to us in evidence ground; that is the key thing. The people who are then before this Committee. Do you agree with that, or, can responsible for the LEP will have to bring with them I put it this way, does anyone disagree with that? that level of support that we have seen up to now, and eo rench: I disagree with that, because all the that is the crucial litmus test for things going forward. examples you quoted were around the North West, the Alex Plant: To answer your question, our businesses’ North East and the West Midlands. I think the nature response to this has been very much seeing that this of the economy in the South East isn’t quite that— is their area. When we’re talking to businesses in the Science Park in Cambridge, they’re interested in their Q129 Jack Dromey: But I did not refer to the nature immediate area, their labour market, and that is what of the economy in the South East. drives them. The reality of the true economic eo rench: Yes. I know you didn’t. Sorry Jack, I geography might be that, in the South and East, you was just trying to answer your point. I thought it was have the area that you’re in and the labour market you a general point you were making that there perhaps fish in; then you have London, and then you have, in should be regional co-ordination in every region, and our case, West Coast US. We’re not going to have a if I’ve misunderstood your point I apologise. LEP that covers that, because it’s not possible, but doing something bigger—to pick up an economy of Q130 Jack Dromey: In the evidence given to us thus scale mentioned in the conversation I had with lots far, there has not been the same strength of feeling in of our business colleagues—started to lead them to relation to, for example, the South East and the South disengage. It goes away from the things that really West, but the evidence is very clear in relation to the drive their businesses. Midlands and the northern regions in the way that I’ve Paul resham: I would just add that we have very described. It would be interesting to get comments good business involvement so far, and to carry on it on that. needs to be a mixture of large and small businesses. om Riordan: I would agree with that analysis, and It is very important that we have the SMEs involved, we’re working with the other LEPs in Yorkshire as which we do through a business association and they’re emerging to look at which issues we still need through the FSB. Indeed, one of the co-founders of to collaborate on, and there are issues like—I’ll give the Gatwick Diamond owns an SME. I think that it is you one example—carbon capture and storage, which particularly important that we cover all sizes of is something that Yorkshire Forward did some great business. work on. We’ve got the biggest scheme in the world eo rench: Can I jump in quickly? On the whole about to start in Doncaster. It will provide a massive business about the number of LEPs, surely you go job generating opportunity if it succeeds; it would be back to the exam question almost, and that is, the daft of us not to work with the Humber and with LEPs are asked to come forward and identify the South Yorkshire, which has the skills. The Humber functional areas, identify that they have business has the access to the ports; we have some of the power support, identify all the other good things. If they stations. So it’s about working together on those issues don’t have business support, if they haven’t evidence where it matters to do so. So I would strongly agree that they have business support, that would be a with that, and I think that one of the dangers is that reason for not appointing them as a LEP. We would the people we’ve got working on those things, who not have submitted the bid if we hadn’t got the level are in the RDAs at the moment, are in danger of just cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan being made redundant and going, and we, as LEPs, Q133 Jack Dromey: So the notion of successful would want to have that specialist expertise going LEPs, sensibly defined, but where appropriate in forward. The difficulty at the moment is working out particular regions—a continuing regional co- exactly what those issues are, what the framework is ordination and focus in particular on key and how much resource is available, because once you manufacturing sectors? know those things you can, cut your cloth accordingly. Chris letcher: I think it has to work like that. It may Chair: Yes, yes, just a moment. David? well be, for example, that under that model—this has been mooted in the North West—a particular LEP may take the lead where you have, for example, a Q131 Mr Ward: Just to keep the ball rolling, really, particular cluster of businesses involved in a region- I have a supplementary about the YEP—that’s wide specialist sector. It may well be that the LEP for specifically in the region. Do you want to tell us about that area takes the lead, as it were, among the other Yorkshire Enterprise Partnership? LEPs to begin to pull that strategy together. om Riordan: Yes, we are talking to our partner LEPs Jack Dromey: Preston or Cumbria depending on— about whether we could work together, and one Chris letcher: It could well be. proposal that has come through purely from a group of businesses is to have a community interest Q134 Jack Dromey: Can I then ask just one other company; it’s been called the Yorkshire Enterprise set of questions? It relates to the Department’s list of Partnership. I don’t think it is designed to be functions that would be co-ordinated centrally. Now, something that is like a LEP; it’s more about I’m not going to go through all the list of the functions delivering those things that I was just talking about that have been cited thus far, but can I ask about two? that should be done on that Yorkshire-wide basis. We Inward investment: the problem about the evidence have a very successful tourism body that’s increased that we’ve heard thus far is when you do not have an our tourism, in a recession, by about 20%. Again, it effective regional or city region focus, or in your case, would be a bit remiss of us to let all that expertise go. a passion for Gatwick, and look at the track record of So I think in our part of the country we probably do the UKTI: £6 in £10 of what has come by way of need something that’s slightly different to do inward investment through UKTI has gone to the different things. southern swathe of England. Now, with a passion for Gatwick, you may throw your hat in the air; I’m not Q132 Jack Dromey: Can I just then follow that sure that would be the case in relation to Leeds and through. Chris, take, for example, the North West— Manchester. How do you overcome the problem of nuclear? what happens if it’s done centrally, including Chris letcher: Yes. The work so far on this, and the incidentally in relation to ERDF monies? transition from the NWDA to however many LEPs om Riordan: I think the point is a powerful one, and there will be in the North West, it’s set in process now I think the danger, one of the risks at the moment, is where those groups are being formed to look at those that BIS centralises too much, and I think, as I said at issues, and particular issues like that are being picked the start, you can’t rebalance the economy from the up and recognised. There’s a great deal of skill, a great corridors in Whitehall. We have to be given the deal of work has gone in already in the North West, opportunity and the capacity to do that from our and to back Tom’s point up, the danger is that that patches. My experience of working with national agencies is that they do find it quite hard to get their just gets dissipated and disappears completely off the heads round the geography of the country, so they are scene. There are a series of groups being set up to going to have to get much better than that. At the handle the transition over, and to input where same time, we should almost jointly commission necessary on those region-wide issues, shall we say, activity with BIS in those parts of the country where and maybe particular sectors in particular areas. The they believe that they want to get more growth than work, as far as I’m aware, hasn’t advanced yet to otherwise would happen on its own. I think that’s a looking at those individual issues at that level, but difference again; it’s about more of a partnership with certainly the drive and determination are there, with BIS, recognising and accepting that there is a national the public sector and the private sector working framework that we’re working within, not as much together to make certain that whatever advances have flexibility as before and less resources, but given that been made over the last few years through the RDA capacity and those resources to do the job. are retained. Chair: I’d say that seems a fairly definitive answer. The important thing is that whatever the regional Is there any other speaker who wishes to disagree groups are going forward, they are a product of the with it? LEPs, not the other way around. So, in other words, the LEPs feed into the region, not the region feeds out Q135 Jack Dromey: Just a final quick question: to the LEPs, because otherwise we’re just reinventing another function to be centralised, MAS. How do you the RDA all over again. I think that’s an important have the effective delivery of that kind of advice difference there, and it also reflects the ability for service? We’ve heard in evidence it has been greatly those local areas—where there may be, for example, welcomed by the business community. How do you a particular individual company that specialises in have that from Whitehall? What are the regional nuclear manufacturing, using that as an example—to delivery mechanisms? get maximum benefit out of it. It’s important we don’t Chris letcher: We’ve been quite clear about that; lose that connectivity, so plans are in place. we’re looking to retain MAS as a key function for cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan growing the manufacturing sector in the North West which we’re going to have to do given the overall and Greater Manchester. There are certain things in economic prescription that the Chancellor is giving us, this that it just does not make sense to have as but actually it’s in no one’s interest if Cambridge centralised functions and, in fact, there’s artificial doesn’t grow rapidly; that’s bad news for Manchester. barriers being put in place right from the word go in What we’re trying to go for, surely, is not a North- the whole structure to begin to say, “Well, these are South rebalancing, but general growth. So we’re led nationally; these are led locally.” We have been investing in areas that can grow rapidly, and given the go-ahead for LEPs; it has obviously been particularly those areas that can grow their private recognised for the ones that have been successful that sector job base. there is a way they can work effectively. I think it just So you need a little bit of the framework around it, needs any powers that they need to deliver what which I think was your question, which enables those they’ve put in their proposal that needs to be delivered things to happen, but then gives sufficient powers locally, whether that’s MAS, inward investment, down to the local level really to allow them to get on business support, whatever it is; they need the full and address their critical barriers. range of tools to do the job effectively. Chair: Can I bring David Ward in? Chair: I think there are signs of, shall we say, Mr Ward: Sorry, Mr Gresham, you look like you flexibility on this. Brian, can I bring you in? might— Paul resham: I would echo that, but I think it has Q136 Mr Binley: Yes. I think two of my questions to be about what are the issues facing the local have been well answered, and I’m perfectly happy economy, and they will differ. He has a best university with the information we have. I just want to bring this in the world; we don’t have a university, and therefore together, because it is an important part of what we’re one of our issues is getting the right skilled work trying to do. It seems to me that the old Danegeld line force, and that’s something that we would be has some relevance in more ways than one in this addressing. Now, I don’t need someone to tell me to debate, because you do have a sizeable difference do that, because we know, but I would need help with between the areas Jack describes—the West Midlands, how we best do it, and that’s one of the things that I North West, North East and Yorkshire—and the South think we would be doing. East, South West and my part of the Midlands. There eo rench: Can I come in quickly, Chair? are different needs there, and that argues massively Chair: Yes, if you are quick; we are running way for flexibility. So it seems to me that, as we’ve already behind, and I’m conscious that we have another team said, the size of the LEPs doesn’t matter, but the to interview. powers do. Their powers to co-ordinate and work in eo rench: A one-liner: I’m intuitively against partnership are absolutely vital to the success of this setting up co-ordinating bodies until you’ve worked project. So, should we leave it to the LEPs to decide out what it is you’re trying to co-ordinate. or should there be a little bit more direction from the centre in terms of co-ordination in the way that Jack is Q137 Mr Binley: So on a needs basis? That’s what talking about, or looking at those rather smaller needs, you were talking about? which are related to smaller-sized businesses in the eo rench: Yes. areas that some of you are talking about? Mr Binley: That seems quite sensible to me. But not Alex Plant: Shall I have first go? I think the key point direction from the centre? in the question is that the barriers to growth, which I Chair: David Ward on skills. think we’re all concerned with wherever we are in the country, are different, as you say, and the ability for Q138 Mr Ward: Just following on the functions the individual LEPs to be given the tools, the powers theme—where do you see LEPs in the skills agenda? and the freedoms to have a go at unblocking them is Paul resham: I think I’ve answered that from a absolutely critical. The issues that I know are Gatwick Diamond perspective; we want some preventing the area that I’m representing meeting involvement in the skills agenda, because we know from its economic potential are very different, because we have a bit of an issue, and we think we can we’ve mainly got an issue about labour markets, influence it, but we do need support. housing supply, transport infrastructure. Skills is an eo rench: I think that is right; it’s a classic case issue for part of the region, but not all. If Tom or Chris of the division between the national policy, which were doing their analysis of the Leeds or Manchester would apply to universities and that sort of stuff, and areas it would be different. You have to facilitate the the higher education and that level, and colleges, ability for the LEPs to get on and address their which apply within our area and where we can have individual barriers, and to do so by bringing together a direct influence on what is being turned out. the best of the private and the public sector resources om Riordan: Of all the policy areas, skills is available. probably the most complex in terms of the strategies, So that goes to a model that is fairly strong in terms the plans, the bodies, the ways that you try and think; of its devolved powers, and, by the way, needs a bit you have to think in five dimensions sometimes of funding. You have to have a bit of funding to get around national, local, clusters, levels, Level 4, Level this going otherwise you’re never going to get 3 and so on. I think if the LEPs are to be given a role anywhere. I suppose it also goes to the issue of on skills it should be to try and drive simplicity, rebalancing, which was mentioned by Tom just now. working with the business community to try and cut To my mind, rebalancing—yes, it is about rebalancing through some of this complexity and really get away from the public towards the private sector, universities, FE colleges and businesses working cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan together. We all obsess about structures and about the certainly planning to deliver, there will be a signiﬁcant public sector bits of funding, but most of the boost in opportunities to get the economic growth and investment in skills goes on private investment. How recovery programme back on track and fully do we work with that better? How do we get that to functioning. work better? How do we get that to help our om Riordan: For those regions where it worked universities, which are, as we speak, having pretty well, there is a real issue for the community challenges of their own? around the specialist expertise that sits in those Chair: Can I just bring in Luciana with a quick one RDAs—how do we hang on to it? How do we make and a quick answer. sure that it’s not just going to disappear and then be re-employed by the public sector at greater cost to the Q139 Luciana Berger: We know that the Scottish taxpayer? That’s the key transition issue. and Welsh RDAs are to remain. How do you think, or Chair: That touches on a number of issues. Just a how will you ensure, that LEPs will remain moment: Rachel and then Jack Dromey. competitive? om Riordan: I think this is a big problem, and one Q141 Rachel Reeves: Just building on that, where we need—I come back to what I said before— particularly for you Tom, what would you do to make national agencies and Whitehall to become much sure that that information isn’t lost and that we have better at being geographical when it comes to England a transition that works for the region, for example, and, if you like, batting for us in a way that perhaps where you and I are operating? they haven’t needed to in the past. We also need the om Riordan: I think BIS, working with the LEPs, bigger LEPs in the North to punch their weight, and needs surgically to look at what the current RDA does to make sure that we work together. There may be and what the LEPs will be tasked to do, and to make some issues where we want to choose one or two sure that those functions are resourced, and that the things to work together to make sure that we are being people who do them at the moment are retained in the heard alongside the Scottish and Welsh voices. new structures. Alex Plant: I just would say I think there’s a real risk, Chris letcher: The danger is if you don’t do that, because at the moment the position seems to be there you could end up with the LEPs having to reinvent would be almost no funding at all for LEPs. If you what’s gone beforehand, and straight away any end up with a real shoestring position for LEPs, but resource that is there disappears on reinventing the very well-funded, big Secretariats in Scotland and wheel, and that is a real problem, and it’s a signiﬁcant Wales, the consequence for England is not necessarily challenge, and one that should be avoided, because going to be very good. that would be the worst of all possible starts for the Chair: Can we move on now to Rachel Reeves? new structures going forward.

Q140 Rachel Reeves: Obviously, economically Q142 Rachel Reeves: Are you having those types of we’re facing an extremely challenging time at the conversation with the Department and are you moment, emerging just very gradually from the confident that some of the things and some of the recession. In that context, do you think that this is people who are working at the RDAs could be the right time to be changing the structure of regional transferred to the LEPs and that that would be funded economic development? by somebody? Presumably the local councils, with the Paul resham: Given that the policy has been that it cuts that they’re having to make, are not going to be is changing, I think we’re all sitting here saying it’s able to pick up the bill for the old RDA functions. fine to change, as long as what we come up with is om Riordan: We are having the conversations with better and makes a difference to the economy, and the RDA in the region, and there’s this group of helps our local economies grow. business people who are putting forward a eo rench: I have no problem with the change if proposition. The problem, as with a lot of these things, it makes everything more relevant to the partnership will come with the pension liabilities of the staff, and between local authorities and the business community. that’s an issue that needs addressing centrally so that Alex Plant: Potentially, it is exactly the right time to we can retain the people. It would be the main do it. It’s the point I made earlier about how we’ve stumbling block to whether it’s councils or chambers never managed to integrate those issues of housing, of commerce or groups of businesses that want to take planning, transport—they’ve always sat in different over these functions. I suspect that will be the main boxes—and, in a world where resources are tight, liability that they would be advised by their auditors effective collaboration becomes all the more or their financiers not to take on, and that’s the key important, so we have to get this right, and I think the barrier to it happening. chance is now. The problem that I have around the Chair: Jack Dromey. general position of moving things down to the local level—that’s desirable and sensible, it gives you the Q143 Jack Dromey: Just following on from what my ability to address those things, and it feels like there colleague Rachel has asked, so your message then— may be some powers around to do it—is that you also it seems to me that it’s coming from all of you—is need the funding ability, whether that’s direct funding that two issues are key. First, this issue of transition or ability to raise funds. Without that it won’t work. and the preservation of specialist skills, particularly of Chris letcher: I agree from a time perspective. I a sectoral nature. Secondly, Alex, your point about think, when is a good time to do it? If they deliver in resource. Therefore, what is your message, not to put the way that people are expecting them to, and words in your mouth? You described the issue of cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 52 Business, Innovation and Skills Committee: Evidence

12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan transition as needing to be sensibly handled, including on, but there’s a fine line between doing too much with the Department, and the issue of resource, of that and delaying actual moving forward with the likewise, needs to be sensibly addressed. You might benefits from a LEP. want to expand on that. om Riordan: The important thing for me is to move Alex Plant: I think I agree with both issues, but the at the pace of the fastest, not the pace of the slowest, issue of resource has to be dealt with sensitively, and anything that can enable us to do that and that particularly during the transition period. There’s a real recognises flexibility and difference will help. risk of babies and bathwater coming upon us at the Chair: Can we move on to funding and resources moment and, for the want of a relatively small amount with Rebecca Harris? of funding, particularly in those start-up years, you might lose some of those things. Yes, I can see clearly Q146 Rebecca Harris: A number of your that money is extremely tight, everybody is going to submissions have made some aspirations at least. I have to be working as leanly as they possibly can, but think Greater Manchester says you’ll be able to some resource funding and the ability to raise your operate on a third of the running costs, presumably own finance, which is a really good question that we for an RDA— may come on to later on in the discussion, are the key Chris letcher: From a business support perspective. elements. But 2011 12 looks a really tough transition Rebecca Harris: Right. I would be interested to hear year, and like Tom we’ve been talking to colleagues about that. I gather Enterprise M3 reckons we are in the RDA and in the Department, but without a little going to be financially sustainable, or aspires to— bit of resource magic none of this stuff is going to Chris letcher: Aspires. happen. Rebecca Harris: eo rench: Whether it’s resources or powers or By 2013 or whatever. It’s really just the ability, as Alex has just said, to raise money, be a question to all of you, though: how realistically do that that through TIFs or supplementary business rates you think that LEPs are going to be able to resources or whatever, some ability to shape your own destiny themselves and whether it’s just going to be based on is needed. volunteer time from the private sector, or how you’re Chair: I need to move on and bring David Ward in. going to cover your back-room functions, basically? We’re getting very short on time. If I appear to cut If you’re going to be able to handle things like getting any of the speakers off, please feel free to submit any EU funding, or dealing with major project supplementary written evidence that you may wish to management, and the assets and potential liabilities— give. It is not that we do not want to hear what you all that kind of thing. It’s a general question for all of say; it is just that we are running out of time to hear you, going forward, beyond the transition phase. it and we have other organisations whose advice is eo rench: Very quickly, it’s kind of difficult to equally as important. David, quickly? answer that question, because we don’t know how much funding is going to be made available, what Q144 Mr Ward: Well, you’ve successfully identified powers we might have, and that sort of thing. But we the baby and bathwater section. We don’t seem to see that the North Hampshire and M3 corridor know yet where we want to be, but we are interested economic partnership operates at next to zero costs, in how we get from here to wherever that will be. The maybe because the cost is met by the local authorities idea of piloting—is that something some LEPs are for their own staff, and there will be interest in the trying out and seeing what works? Will you favour business community to give time at very little cost, that? because we have, if I can put it this way, a vested self- eo rench: It depends how many good LEP bids interest. We are very interested in our area being a there are that meet the exam question that was set. If success, attracting new business, and all the things there are a number of good ones, I don’t see any that are needed to attract new business are things that reason why we shouldn’t push ahead with them. I make it attractive for us to retain our staff in the area, think it would be wrong artificially to constrain the so we are very keen to support it. number, especially if there are good bids. Alex Plant: All that is great, but on this transition Chris letcher: The other issue is taking this to issue, which we talked about, in solid state, if the intent—why it was originally put together and the LEPs are really to make a difference to some of these whole idea behind a LEP, which was that no two quite tough, tricky issues that we’ve discussed, would look the same. So to say, for example, the including things like EU funding, if that’s something Greater Manchester model would work in Cambridge, that comes, you can’t just do it on a voluntary basis. and vice versa, I don’t think it would do. I also think You need some executive function in place to allow as well the issue there around pilots is you potentially the LEPs to make the most of the kind of support that could be seen to be adding a time delay into the Geoff’s just talked about. This goes back to the fact process. The one thing we haven’t got is time to be that you either grant fund it or, if you’re not going to playing in the sandpit for some of this, because the grant fund it, give it the means to raise money itself, economy is not getting— and if you don’t do either of those things, this won’t work. Q145 Mr Ward: Maybe pathfinders, would that be a Geoff mentioned TIFs, for example—the tax better word? increment finance proposal and the Deputy Prime Chris letcher: I think there needs to be something Minister’s announcement a couple of weeks back that whereby the ones that are initially given the go-ahead that would be something that the Coalition wished to need a real, proper look at the lessons learnt and so take forward. That could be a very helpful means by cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan which you start to move areas on to a more self- focus my question on the EU grants and the funding sustaining basis, but the experience of TIFs in the US streams that we’ve enjoyed from that source. Mr is, when they work they work brilliantly, but they are Riordan, you mentioned that it was imperative that we not a panacea, so you have to be a little bit careful didn’t lose the expertise that did exist in some of the with them. Certainly we have already put in proposals RDAs, and I’ve been impressed in my own area of for a TIF scheme in our area, and we think where you the West Midlands that there is considerable expertise can deliver something—for example, infrastructure around the generation of EU bids and management of delivery that increases business rates, and use the them. How ready do you think LEPs will be to obtain business rates to repay the borrowing you put in place EU grants and funding without the RDAs’ support? for the infrastructure in the first place—everyone’s a om Riordan: I think it is about staff. If we got the winner. staff somewhere attached to some body in the area, Overall, in the end it raises the tax base for the country whether that’s a council, a residual body of the RDA as a whole, which allows you to deal with all sorts of or something else such as the LEP or a group of LEPs, issues, not just the issues locally. Some of that needs we’ll be okay. If we don’t have that expertise, I don’t to be given a real push, such that there are tools that think it’ll work. I think the other big issue is match are available for LEPs pretty quickly, so you can start funding; there’s a big problem with the reduction in to move to a more self-sustaining position, but it public sector spend in that usually you need match won’t get you there immediately. funding to come in to get the projects moving, so we om Riordan: I strongly agree with that. It depends need to address that as well, and perhaps look to the on the scale of our ambition: if we want to go for Commission and others to be more flexible in the way second prize, we don’t need the resources; if we want that we deliver out the last part of the European to go for first prize and for the areas of the country programmes. really to boost the tax revenue of the country, we need a bit of priming money to be able to do that. I agree Q148 Margot James: Would you agree though that strongly that the TIF proposal is a good idea and it’s the public sector is not the only source of match something that we should be able to get on with pretty funding? quickly where we have delivery in place. om Riordan: Yes. One of the flexibilities would be Chris letcher: From a Greater Manchester to allow more private sector match funding. European perspective, there’s another layer to this from the funding is quite a good driver of behaviour, because potential for the combined authority to come in from it’s a pot of money that people want to get moving. April next year, which is to say a lot of the local So if you increased the amount of private investment authorities will begin to rationalise some of their that was needed, I think that would be a sort of win- operations. That immediately gives you some sort of win in getting the stuff moving and getting the private economies of scale to deliver some of this stuff around sector into this much more in the way that the the LEPs. Also, some of it is around that maturity of Government wants. the people who are involved in the partnership, and the length of time that they’ve been working together, Q149 Chair: Just before you go on, you’ve analysed to say, “Well, we can bring this to the table,” or, “This the problem, but exactly how do you envisage dealing is how we work together to get it done.” Money would with it? be great, but obviously we live in the real world and Margot James: Could I just add a rider to that? we recognise that there’s no cheque attached to the Chair: Yes, yes. LEP proposals. It is a significant issue, because if these are going to be successful they have to work Q150 Margot James: We have heard that, although from day one, and if half the problem is looking at any co-ordinating mechanism should be bottom up— how we’re going to raise funds to do x, y or z, that’s I strongly agree with that—is this European funding taking the mind off the key task at hand, which is an area where LEPs, in what might be called a region, about that economic growth, securing jobs, getting need to work closely together? jobs and supporting business; straight away, the om Riordan: If you want a more specific answer in objectives become skewed and completely lost. our patch, the collaboration that we are working on, Paul resham: We have a very low-cost model at the Yorkshire-wide, would be just the place to put that moment, which works very well, and we use a lot of sort of activity, because it wouldn’t make sense for us staff from SEEDA, the local authorities, business and to do it in three or four separate places. so on to do what we’re doing, which works well. Occasionally, there will be funds needed to do certain Q151 Margot James: Thank you. Could we just go things—perhaps innovation and growth hubs, those on to the Regional Growth Fund. I don’t think we’ve sorts of area where you need to look at getting covered that, have we Chair? funding—so you can have different models, but Chair: No, no. occasionally you do need to prime it up with some Margot James: What should be the priorities, in your reasonable funds, such as, perhaps for us in terms of view, of the Regional Growth Fund, and do you have education or a science park and those sorts of things, any views on how long it should run for? working with the private sector. Alex Plant: To my mind the priorities should be about Chair: Margot? targeting money where you can sustain private-sector job growth, and the current priorities as written in the Q147 Margot James: I think I’m happy with the first consultation document seem to miss the point a answers that you’ve given on funding, so I will just little bit, from my point of view. How long it should cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 54 Business, Innovation and Skills Committee: Evidence

12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan run for—don’t have a strong view; wish it were success. Having spent some time in the US looking at bigger. where it’s worked really well—Portland, Oregon, is om Riordan: Investment in jobs is what it needs to the example; if anybody’s interested, go and have a focus down on, as Alex has just said. I do think it’s look at what they did in Portland. It is absolutely difficult to do things in two-year blocks, particularly fantastic—transformed a completely rundown former capital schemes, so it does need longevity. Longevity rail town into one of the most successful and vibrant would get past the problem of it being smaller, economies on the West Cost of the US, and they did because if you’ve more certainty going into the future, it through TIF. It doesn’t work everywhere, but it’s a you’re able to put together more significant schemes. tool we should have in the box. eo rench: There is also a challenge about how I have no problem with Treasury deciding to have a much you back where success is already happening, look at making sure these are good bets, but we really to make sure that success continues, and where you do need to have that ability to get some of this stuff need to back new areas. Given the situation that we’re away, because currently we don’t have it. So in strong in as the economy stutters a bit, there’s a need to keep favour of those issues, but they’re all really the same the existing plates spinning, if I can put it that way, set of questions around the first bundle. I’ll let others as well as starting new plates to spin, otherwise we talk. might just find that some of the places that were or are good economic drivers at the moment might slip Q153 Chair: Is there anybody else who wishes to backwards. add to that? om Riordan: Sorry, you might expect me from the Chris letcher: I think the other thing to say is there North to come in on that. We have the same issue are already, for example, business improvement within the North, in that there are some big growth districts, which have been running for several years. poles, but there are also some smaller towns and areas In the majority of cases, once they are set up and that are really going to suffer from the public cuts. It’s running, they’ve been relatively successful, so there a central issue; to me, it’s going back to the objective are mechanisms out there, but I think things like TIF, of this, which is about investment and jobs. It’s not as ADZs or whatever bring a completely different hard in some parts of the country to attract that private dynamic into play. An important thing to say is if investment and those jobs as it is in others, so I think anything is connected with business rates, there’s got you need to be proportionate to that and recognise it. to be some mechanism there to consult with Equally, the North needs a strong London and South businesses to take a viewpoint on what’s going on. East, to grow for the country as a whole, so it’s just Also, an element of hypothecation is important. getting that balance right, which is always a very om Riordan: The other question is what you do with difficult one to strike. those areas that can’t use these sorts of mechanism— that won’t have that business growth—and that’s Q152 Chair: A number of submissions have outlined where I think there is a big challenge, because outside potential alternative sources of funding for LEPs. I the driver of London and the South East, which is shall refer to some of them. If you have an opinion, where the Olympics is coming, there is a real issue give it briefly; if you haven’t an opinion, feel free not around housing regeneration and the construction to give it. First, the partial diversion of business rates market. There are not going to be huge, new public to LEPs or accelerated development zones; secondly, sector schemes. With the cuts coming, what are we tax increment financing or bond issuing powers, and going to do about those areas? There is a different lastly, infrastructure funds with recoupment of initial question. public investment through the planning system. Chair: Thank you. Can we just finish off with Those, I think, are a reasonable summary of some of Luciana Berger? the suggestions that we’ve had so far. Again, don’t everybody feel free to comment if your comment has Q154 Luciana Berger: I think we’ve covered been covered. question 19. My two questions are very different, but Alex Plant: The first set of issues to my mind are all you can perhaps choose to answer both, or either, or one and the same thing. TIFs and ADZs are another just one of them. We’ve heard passing reference to the name for the same scheme really. Using part of role of the third sector. How can other sectors, such business rates is the way in which you get a TIF to as further and higher education, and other third work. In simple terms, what it’s about is saying, if sectors, be involved in LEPs without losing a strong you’re going to invest in an area, and that generates business-based dynamic? In fact, do you think they an uplift in the business rates over and above what should be included at all? Very distinctly, how do you would otherwise have happened, then you allow the think LEPs can avoid becoming politicised or subject local area to recoup that increment in business rates to too much business self-interest? to repay the borrowing they have to incur to put the Paul resham: Could I answer that? We actually infrastructure in in the first place. have a very strong governance structure in place in That’s that whole bundle of schemes. Whether you do the Gatwick Diamond as it works at the moment, with it through a bond or whether you do it from prudential representation from the public sector and from borrowing doesn’t really matter; that’s just the means business, and it works very well. You have to make of getting the debt. But those are the things we talked sure that you get the right balance, and sometimes it about earlier, around calling it TIF in that context. To takes a bit of discussion. We do have representatives my mind, it is well overdue that this country gives on our board of higher, secondary and tertiary local areas the ability to invest in some of their own education, so FE colleges and a university. That is cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 55

12 October 2010 Geoff French, Paul Gresham, Alex Plant, Chris Fletcher and Tom Riordan very useful, because we then get them to think joined does begin to deliver what’s in the document and also up about the skills agenda and what is needed. I think for the beneﬁt of business on a broader scale. There it is very important that they are involved, that there is that element of governance in there, outside the are skills involved. board itself. eo rench: There would be a more formal linkage, om Riordan: I think that social enterprise and the especially on education between business and further third sector need to be an important part of the education, and higher education, as a beneﬁt of the equation, and particularly the universities need to be LEP rather than as a danger. central to what we’re trying to do if it’s about Alex Plant: I think we’re working closely with our investment and jobs and innovation. There’s a voluntary and community sector colleagues in our bid. difference between representation and involvement for I think that sector is likely to grow in importance over me, where people do tend to look to the boards and the coming years, so it’s absolutely fundamental it think, well, if we’re in we’re in, and if we’re out, should be part of your LEP in my view. FE and HE— we’re out, and that can’t be the case. On the yes, of course. Your question at the end was an democratic side, I do think there’s a need for some interesting one about how you avoid over- sort of ongoing link, not directly on to the boards politicisation or an individual business interest driving necessarily, but what will happen is that, in three years it. I think the answer there really is around having time, if the political leaders have changed, they’ll see appropriate scrutiny mechanisms in place, and these LEPs doing their work and they won’t feel probably having revolving doors in terms of your ownership of them, and we’ll be right back to where board membership. we started—the problem on the RDAs. So how you Chris letcher: I agree with that from the point of get that democratic link without it being suffocating these sectors; they do need to be a part of it. From the operationally for the LEPs is the important balance point of view of the LEP board going forward, there that you need to strike, but it’s really important that will be an open recruitment process around that, and we keep that. the Chamber of Commerce will be involved in it. As Chair: I thank you for your contribution. I’ll just well, part of our involvement within this process is reiterate what I said before: if, in retrospect, you feel we’re the largest Chamber in the UK—we have 5,300 that there is something that you haven’t said but you members. They employ about a third of the work would wish us to know, feel free to submit further force in Greater Manchester, so we have that input written evidence to us. I conclude by thanking you into that body straight away to make certain that it once again and wish you good luck.

Examination of Witnesses

Witnesses: Barrie Williams, Chairman, Business Voice, West Midlands evin Lavery, Chief Executive, Cornwall Council, Louise Bennett OBE, Chief Executive, Coventry and Warwickshire Chamber of Commerce, Andrew Lewis, Director, Policy, Strategy and Communication, Newcastle City Council, and Hilary Chipping, Director, Milton Keynes-South Midlands Growth Area, gave evidence.

Q155 Chair: I welcome you to this inquiry, and Commerce, and I do have both a public and a private thank you for your attendance and your patience. I sector background. didn’t identify all of you, but I suspect you’ve been Andrew ewis: Hello. I am Andrew Lewis from sitting at the back, so you may well have rehearsed Newcastle City Council. I am here representing some of your answers. Can I just reiterate what I said Newcastle and Gateshead, and we are also a signatory in my introduction to the previous panel of speakers? in the North East Economic Partnership. Obviously, we recognise that you’re here arising from Hilary Chippin : I am Hilary Chipping, and I am here the evidence that you sent to us concerning your bid, today representing the Businesses Local Authorities but the fact that we have selected you to be Higher Educational Institutions and all partners interviewed doesn’t in any way imply that we are involved in the South East Midlands LEP. I have also backing a bid; it is not within our power to do so. Can had a background in enabling sustainable growth across the Milton Keynes-South Midlands growth I also say again, do not feel that everyone has to area. answer every question? If we feel there are any gaps, we will direct a question personally to you. Once Q156 Chair: Thanks very much. I’ll open with the again, thank you for coming. Please give your name same question as I did before. Basically, why are you and the organisation that you represent in order for us needed? Why are LEPs there? Could the local to check our voice levels. economies ﬂourish without either RDAs or LEPs? Barrie illiams: Barrie Williams, Chairman of What is your particular offer? Business Voice West Midlands. Barrie illiams: Shall I start? evin avery: Kevin Lavery. Chief Executive of Chair: Yes, you can start. Cornwall Council, but I do have a background in the Barrie illiams: I think as far as LEPs are concerned, private sector. the economy has obviously been failing; we haven’t ouise Bennett: Louise Bennett, representing been creating the number of jobs that we need to Coventry and Warwickshire. I am the Chief Executive create, and as a consequence of that we need to look of Coventry and Warwickshire Chamber of at what we have been doing and take a new approach. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 56 Business, Innovation and Skills Committee: Evidence

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping

I think enterprise is the key to that, and enterprise at University and one recently at the University of a local level. So we would support LEPs to encourage Northampton, so I think that there are differences of and invigorate enterprise at a local level as the means view between business and the county council. to accelerate the growth of jobs. evin avery: Yes, we do need them. I think Q158 Chair: I think it’s fair to say there’s divergence successful economies can grow best if the public and within the business community on the appropriateness private sectors work together. The public sector can’t of LEPs to deliver; certainly in my own local area in create the jobs, but it can help create the conditions the Black Country the local business community is for the private sector to succeed, and that means that burning to make something of it. We have had a infrastructure, planning and what have you have to be submission from Dr Marshall of the British Chambers tied into the vision of the business community. of Commerce who said, “We want to see areas like ouise Bennett: I think the private sector is Newcastle and Gateshead, and Birmingham and opportunistic by nature, and I think this is an Solihull working more closely with their neighbours opportunity for much stronger public-private working. to try to get a more sensible economic scale and I think we can build on solid foundations, certainly in geography.” The implications of that being that at Coventry and Warwickshire. I think that having the least one major sector of the business community feels private sector at the table gives you a stronger that the submissions are too small and inadequate. So barometer of what’s going on in the economy, both what do you think are the main challenges facing locally and globally, and I think it gives us a real LEPs in delivery, and what do you think are the opportunity to have very much demand-led local benefits of smaller-scale working over and above economies. those that were obtained by the RDAs? Andrew ewis: I think we recognise in the North East ouise Bennett: Shall I start, bearing in mind that region the critical importance of growing the private comment was made by Adam at the British Chambers. sector at a time when the public sector is likely to I think essentially what Adam was trying to say was become relatively less strong, and we don’t feel that at the end of the day it has to be the right economic can be delivered without a really strong partnership geography when he referred to Birmingham and the between the public and private sectors. It can’t be Black Country clearly working together. I suspect delivered from London, but nor can it be guaranteed many of us are in agreement that— from individual local authorities working alone, so we Chair: Sorry, he said Birmingham and Solihull need to find arrangements to collaborate across a working together. It might have been rather more geography that makes sense to deliver the public- inflammatory if he had said Birmingham and the private partnership arrangements that we think will Black Country. deliver economic success. ouise Bennett: I think he said Birmingham and the Hilary Chippin : Yes, I think we definitely need Black Country in the transcript. Birmingham and LEPs, and what’s more important is that businesses Solihull are a LEP; they are working together. I think across the South East Midlands feel that very strongly what is important is having the right economic too. We have learned a lot about delivering sustainable geography; certainly for Coventry and Warwickshire, growth across this area and the need to work together, if I can talk about Coventry and Warwickshire, we and, as some of the speakers earlier today said, in a have a population of just under 1 million population. time of scarce resources it’s going to be even more We are like a mini-England, and we are very diverse important to work in partnership and use those in our industrial base, in our people base. We have resources effectively. seven local authorities, but essentially 85% of our Mr Binley: Chairman, forgive me— people live and work in our economy, so our whole Chair: Just a moment Brian. Just before I ask my next focus, our whole world, is around wealth creation and question, as you can see, something has been said that jobs for those people. If you talk to local businesses has stirred up Brian Binley. Brian, I’ll let you come in. on the ground, that is what matters to them—where they get the people, have they got the right skills, how Q157 Mr Binley: Businesses across the so-called well they can work with partners as the private sector? South East Midlands LEP region are in support of I think it’s about economic geography and not just this proposal—what evidence do you have for that? about size. Bearing in mind that I run two businesses in Chair: I can come back to Dr Marshall; he did say Northamptonshire—or part of two businesses in Birmingham and Solihull, but he did say working Northamptonshire; I do not run them any more—it more closely with their neighbours, which I presume just is not the case. in this context means the Black Country. Hilary Chippin : A number of the developers that ouise Bennett: He did, bless him. have played a big part in delivering sustainable Barrie illiams: I think that, as a previous speaker growth across the former Milton Keynes South said, it’s about areas of business that have an affinity Midlands growth area are based in Northampton, and with each other. There are natural communities of they were some of the first private-sector people to businesses that work around specific industries very write in support working across the area. I am very often, and whether they cross borders or are on the well aware that there are differences of view around borders or not, that’s the group of people that want to the county council and the Northamptonshire come together, because they are the people who can Chambers, but equally we’ve had a number of events really make the thing work. I think smaller LEPs is to engage with small and medium-sized enterprises, not a problem; I’d rather think that if you had only 15 and large businesses, and hosted one at Cranfield LEPs you’d almost have the RDA situation repeated. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 57

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping

So I think that they should be more community based, doing pretty well, and we want that to continue. We and they should be depending on what the natural size have a series of landmark investments, including most is of the business community and the industries that recently super-fast broadband, the biggest broadband they represent. investment programme in Europe, but the key thing is Andrew ewis: Can I come in there, because we know that we have to work with other areas too. Newcastle and Gateshead was also mentioned by your We have been talking to Bristol and the West of correspondent? Let me say straight away that I think England about what we can do together on creative I agree with him. It’s really important that Newcastle industries and aerospace, and we’ll work with Devon and Gateshead work very closely with our neighbours, and Plymouth on the A38 and the A30 connections, and that’s exactly what we’re planning to do, and because those things cross boundaries, and you have indeed are doing. I introduced myself as representing to work with that. Newcastle and Gateshead, but also the North East Chair: You have partly touched upon the areas I know Economic Partnership, which was explicitly put Nadhim was going to come in on. together in order to retain the cohesion that we need working across a bigger geography where it really Q159 Nadhim Zahawi: Yes, Chair. I think that the makes sense. We have identified a number of areas previous panel touched upon the critical mass where that’s particularly valuable, and we want to see question—we had answers from 800,000 to 1.2 a deal with central Government that would allow us million in a couple of submissions to 3 million from to retain the critical mass that we need across the the bigger cities. Louise answered it concisely in the North East region as a whole. sense that in your area it’s just below 1 million, and We are also very clear that Newcastle and Gateshead 85% live and work there. Can I challenge the other has a critical role to play in that, because strong panellists to just tell me what they think the critical regions need strong cities, and we have a lot of mass is for their LEP—whether it’s GDP or positive experience of working together with our population? business base across the River Tyne. We would see Barrie illiams: I find it very difficult to be form following function; it is very important that we reasonably specific about a figure for critical mass, bring together the partnerships that are necessary to because for me it’s the natural business grouping that deliver the right functions, and that this arrangement works together, so employment and the population, is flexible enough to be able to deliver critical mass but also the industries within that group and the alongside really effective local delivery. supply chains that apply within that broad area. I think Hilary Chippin : That is absolutely right. Also, from the critical mass would vary quite significantly from the point of view of the South East Midlands, one of one location to another. the challenges would be to engage effectively with Hilary Chippin : Yes. From the South East Midlands businesses of all sizes across a relatively large area, point of view, I think it is very much about what and we’ve already put in place a number of ways of works in terms of a functional economic area, what doing that. I also agree with my colleagues that it works for businesses, what works for the health sector, would be important to look at wider areas for and transport. In terms of the South East Midlands particular issues. For example, from a transport point proposal, at the moment we have around 1.8 million of view, it is really important to look beyond the South people. We’ve made it very clear that we’re very East Midlands, to join up with Oxfordshire and much open to working with other authorities, and Cambridgeshire for our east-west links, and possibly with Northamptonshire County Council and Northamptonshire and Hertfordshire to the south. It is the other two districts in Northamptonshire as well. In a case of working with your partners, depending on terms of the size, I don’t think it’s a numbers issue; the particular issues that you’re focusing on at the it’s about what really matters to people, how you can time. make something work effectively, so if it is a wide evin avery: Perhaps I could come in. I represent area, you have to make sure that you really do engage. Cornwall, which is one of the smaller LEP submissions, but I think size isn’t the key thing here: Q160 Nadhim Zahawi: Could I just push both of ambition, vision, funding and having a strategic you on that? What does that mean? How are you approach to economic development rather than a lot going to measure it, and what has the health sector of very, very small projects, which have little impact; got to do with it? having a real partnership between the public and Hilary Chippin : Because we’ve been working as a private sector; and having the ability to move quickly, partnership of authorities across this area for some rather than spending lots of time trying to get time, we have three PCTs that have been looking at everyone to agree on things, are more important. In the important links between the hospitals across this Cornwall we are quite small; we are smaller than area. With a growing population, there’s a need to Birmingham, but actually, as a Geordie, we’re bigger provide more health facilities. If you can do that than Newcastle and Gateshead. We have a population across this functional economic area and link it up of 550,000; we’ve two local authorities in the with well-being, transport, better connectivity and partnership; and the largest development company in better broadband connections to support telecare, the South West region. We are 10 times the size of you’ve got something that really works for the SWRDA, and we manage a convergence programme community and for businesses. of £750 million, so there is some critical mass there. Andrew ewis: On your question about critical mass, We have also had a very high level of growth against when it is important and how we deliver it, we are a low economic pace over 10 years, so we’ve been very clear that certain economic development cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping functions require critical mass. They need to be Warwick Manufacturing Group—which is part of delivered at sub-regional level, or regional level, but Warwick, the JLR R&D centre and Prodrive out in they need to cover sufficient geography that they Banbury. It goes beyond the Midlands, and I think make sense to be delivered at that level, and we would there will be a clear need for collaboration around put in that category inward investment and technology the LEPs. support, cluster development and some of the work Tourism and leisure is completely different. We have that we’ve done in the North East on access to finance some iconic brands in Coventry and Warwickshire, through public-private partnerships. These obviously with our town centres, but also with arrangements don’t make sense over a relatively small Stratford on Avon. We are more likely to look to the geography; they need a critical mass to deliver them. Cotswolds in terms of collaboration as we are to Equally there are much more local, say, regeneration Birmingham for things like business tourism. You can projects, where we naturally want to work with a more come up with lots of different examples and they are limited set of partners at a much more local level. I all about matters of joint interest and collaboration, think it’s quite important that we don’t see a one-size- and the evolution of that collaboration rather than fits-all geographical solution that ignores the structural co-ordination. complexity of economic development in the modern Andrew ewis: I have a really important case study world, which requires different functions to be that gets to the heart of your question around the low operated at different levels. carbon and offshore wind sector off the North East coast. It requires a huge, effective public-private Q161 Nadhim Zahawi: Just on that point of co- partnership arrangement to make that work and to ordination, we heard in a previous evidence session deliver the investment that we know will generate tens from the Chair of Advantage West Midlands that it of thousands of jobs. It requires local action, because would be very difficult for six LEPs separately to to some extent we are often owners of the assets as address either the issues of supply chain or of local authorities—with the Port of Tyne, for example. international competitive advantage. Major industries, It requires integration of supply networks right across such as automotive and aerospace, which spread right the whole of the North of England. It requires across the West Midlands, would not to wish to deal innovation and support, some of which is in a national six times with six different bodies. Do you agree centre, which is based in Northumberland. It requires with that? a really effective partnership arrangement to make it Barrie illiams: I agree with that in part in that I work. think from an enterprise point of view, and sharing In the past One North East, our RDA, would have business contacts, experiences in different markets taken the lead on much of that work, so we’ve got to and so on, the local enterprise model still works, but respond to that as local authorities and business when it comes to inwards investment, cluster networks to put together the sort of partnership that management, innovation, technology transfer maybe, will retain and keep the momentum going on what is and even European funding I guess, I would see the an incredibly important investment for us. Now, at the LEPs as being not of sufficient mass in that situation moment, we are in a position where the LEPs’ to do that, and I think a co-ordinating body would geography does not really help us with that in the serve that purpose. North East, so we are continuing to work with our evin avery: Can I just come in? I think you’re neighbours to see if we can put together a much absolutely right. There are some things that go beyond stronger partnership arrangement to be able to deliver LEP boundaries. The example you quote, the motor really important investment opportunities like that. industry, goes well beyond West Midlands too; there are very important parts of the industry in the North Q162 Nadhim Zahawi: I absolutely get your idea East and the North West too. You’re never going to about collaboration, and I see it in business all the get a boundary that fits everything; economies are time, when businesses come together, but let me just complex things, but there are ways of making these push you a little bit further. Do you really believe that things work. In Cornwall, we have a very important it is sufficient leverage to get a big voice with national renewable energy function, now and for the future. Government and with other outside bodies—the EU? We’d be happy to do things nationally; things don’t Will you have the ability, because of your size, to have to be done in Whitehall, but absolutely we have do that? to be open-minded and not insular. ouise Bennett: I think if you have the right ouise Bennett: I prefer to use the word composition of any board or any organisation, you can “collaboration” rather than “co-ordination”. Co- certainly punch above your weight. Coventry and ordination almost sounds like being done unto, so I Warwickshire has been punching above its weight for tend to think in terms of collaboration and LEPs an awful long time, which is why we are considered collaborating with each other. Certainly in our to be the engine of growth for the West Midlands, proposition we clearly talk about the need to which is great, albeit we think we would want to set collaborate with other LEPs. I can give you three very ourselves against some more leading-edge economies quick examples of that, which I gave some thought in the South and globally. I think it is about punching to this morning: first, high performance engineering, above your weight, and that is about, obviously, which is not just about Coventry and Warwickshire as getting the right people around the table, but in a LEP; it’s also about Northamptonshire in terms of Coventry and Warwickshire we have been doing it for Silverstone, and brings in MIRA in Nuneaton, which some time now, for about 15 years based on public- is part of Coventry and Warwickshire, WMG— private partnership. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping

Q163 Nadhim Zahawi: Just a final one for Kevin. In to rebalance the economy from Whitehall and Victoria our second evidence session, Kevin, the Institute of Street. Do you think that it’s right that powers like Directors mentioned having received a letter from innovation, inward investment and business support, Cornwall County Council saying, “Thank you for come back to London? If you do not think that is wanting to engage with us about the LEP proposal. right, do you think there is flexibility in the plans? Yes we have filed one. Sorry we haven’t spoken to Barrie illiams: I would like to take that first. you. If it is granted, we will talk to you.” The local Business Voice West Midlands is a body that FSB also tells us that they and other local business represents 26 different business representative organisations have doubts about your bid, and would organisations, including the five major ones. Our prefer to include Devon. Do you want to comment on members are very clear about this: they believe that that? Do you think there would be advantages to a there is a need for some form of co-ordination larger LEP that did include Devon? between national Government and the LEPs. In our evin avery: First, in terms of the FSB and the IoD, submission we did not propose a community-interest the FSB at the time did support the submission; the company, but we raised the question that the form chairman of the local FSB branch was a signatory on could be a community interest company. It was our bid. If you look at the bid, it’s there. In terms of something that interested us within our bid. On the the Institute of Directors, the local branch chair also things that we would like to see, there are supported the bid. There are differences in the local infrastructure issues, but there are the things like business community; there is no question about that. innovation, inward investment and clusters. Earlier, We had two months to prepare a bid and carry out a MAS was mentioned. It would seem daft to us to have series of consultations; I personally took part in a lot MAS with every LEP, however many there were, and of those. We’ve done an awful lot. I would say, would we lose it in the transfer process? It’s a valuable overall, we’ve had an awful lot of support across the service. We very much feel that that is the case; those business community and it’s demonstrated in the bid are the things that we would like to see in that. document and the senior business figures who have Andrew ewis: I would just like to echo that. I think got themselves behind it. So that’s the first part of that the letter that was sent on 29 June from the your question. Secretaries of State talked about a lot of these In terms of whether Devon is better or not, we did functions being led nationally, and that rang a lot of have extensive discussions with Devon. I think there’s alarm bells in the North East, particularly from our strong local feeling. We’ve had a very successful business community, which in the past has seen that recent track record doing it at the Cornwall and Isles about 80% of inward investment into the North East of Scilly level. We’ve been the third highest GVA has come through the RDA rather than through UKTI, growth over 10 years. It’s from a low base, so we’ve which in the past was never seen to be as effective in done an awful lot. We have a major European the North East region. That is why I think we programme, which we’re spending well; it’s highly responded with this offer to Government that we regarded across Europe. We do need to work with would create a North East economic partnership that Devon on transport in particular, and on tourism, would help them to deliver these nationally led which we do, as well as on sharing resources in functions more effectively at regional level, and we various areas, which we do. As a council, we meet would be keen to develop some influential capacity to six-weekly with our counterparts for the three deliver those functions in the region. principal authorities in the Devon area, so we do do The European Structural Fund Programme is clearly that. We think, on balance, it is going to work better designated at regional level, so we need to maintain at the Cornwall level, and we know that is going to some capacity to be able to get the most out of that be strongly supported by the local community. before the end of the current European funding Chair: I have three Members indicating they wish to programme, and we have some existing public-private ask a supplementary—Rachel Reeves, Margo James partnership arrangements at the regional level, which and Brian Binley. I’ll take them in order. If it has been have been developed within our region and which we answered, please feel free to forego that. Rachel want to see maintained in the region. All those Reeves. arguments necessitate, for us, some degree of regional capacity to continue to deliver where it makes sense Q164 Rachel Reeves: Two quick questions. When at that level, and that’s the proposition we put forward. Tom Riordan spoke this morning about the LEP for We have a really strong and effective lobby for that Leeds City Region, he talked about the community from our business communities. interest company, Yorkshire Enterprise Partnership, evin avery: If I could come in on the South West— which the Yorkshire bids hope will coordinate no is the answer. We do not want to see regional tourism, transport, low carbon and some of those more arrangements in the South West. It is an artificial strategic issues. Would you like to see that in your region, not an economic entity. We have very little in own regions—some sort of regional structure common in Cornwall with Swindon and Gloucester, remaining? If so, what powers would that have? to be honest—they are more linked with other Today, we are, I fear, talking about devolving to more economies—but we do need to co-operate across our functional economic areas and whether that’s the right boundaries. Particularly important linkages for us are level at which to engage in regional economic in the South West Peninsular and with the Bristol regeneration, but at the same time the plans seem to City Region. involve centralising a lot of powers back to Whitehall. In terms of central co-ordination, yes, of course, there Tom Riordan said this morning that it’s not possible is some required, but we need the centre to act more cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping as a facilitator and to start joining up government. If the enterprise dimension at the local level really to we are going to have LEPs that cover transport, get businesses operating together and moving forward infrastructure, planning and business support, and link within a defined area. these things together, BIS has to be able to do that across Whitehall. We are much better at that locally Q167 Margot James: Do you not think that your than BIS is nationally, and some things can be co- mistrust of LEPs managing their functions right from ordinated nationally, but they don’t need to be in the outset might disadvantage your proposed body in Whitehall. They can be in localities. actually working with those LEPs that you’ve ouise Bennett: Could I just respond very quickly to mistrusted from the outset? I presume you are aware that, Chair? of the regret expressed by various councils in the West Chair: Yes. Midlands, which I won’t quote. Well, one, Coventry— ouise Bennett: Very quickly. On your first question, your council, Louise—mentioned that the submission Rachel, I do think collaboration is important, but the by Business Voice West Midlands was counter- key would be, do not be too prescriptive too early. productive and damaging. Presumably they meant the Allow some flexibilities. Let us be very clear about timing thereof, but have you any comment on that? the LEPs’ intentions and what the matters of interest Barrie illiams: We know full well that they didn’t are. To agree with my colleague, it is important we do welcome our approach, because we have a different not throw the baby out with the bathwater— view. That is the view of our members, and absolutely. On your second point, this whole national outstandingly of our members. We have to represent versus local issue reminds me of the private sector that view. We feel there is a case of throwing out the some 10 years ago where their strap line was “going baby with the bathwater; I hear what Louise says global but being local”. It reminds me of that, because about the evolution of LEPs, and I think evolution of I think, particularly for things like inward investment, LEPs will take place, but if on day one you do not there clearly is a need for national policy, national have evolution, what do you do with the MAS? Do promotion, but local progression. There is clearly a you suddenly stop it? It has been a very valuable tool need for that marriage. at increasing business performance; no one can Chair: Margot? answer that question. That question may change the views of our members, but at the present time they Q165 Margot James: Thank you. In fact, Louise, see a lot of things that would just fall away, which you’ve just touched on what I wanted to ask about. they already regard as being quite valuable. I thought Your proposal talked about the benefits of local LEPs the purpose of LEPs was the whole emphasis on the coming together when it mattered beyond the LEP word “local”. If you are going to have 15 or 20 of boundaries. Would you agree with some witnesses that them, well, what’s the difference from RDAs? we heard in the earlier session this morning who mentioned that it was very important that such a Q168 Margot James: If I might just come back once means of collaboration across LEPs emerged from the more Mr Chairman. You mention your members are LEPs that are established, rather than be imposed in support of the proposal and that’s what has driven down by some regional structure? you to make it, but presumably you count among your ouse Bennett: I do, because I believe you just have stakeholders the local Chambers of Commerce? to give us time; you have to allow evolution to Barrie illiams: Chambers are one of our members, happen. You have to give us a little bit of flexibility, yes. give us our heads. Let us be very clear about what the matters of interest are, and then, absolutely, Q169 Margot James: And some of them are collaboration and co-ordination will be critical; it absolutely opposed to what they see as the precipitate will be. way you have gone about making your proposal without consultation? Q166 Margot James: In that case, if may follow up Barrie illiams: I agree, but also, of course, we have with Barrie Williams from Business Voice West EEF, the IoD, the FSB and the five major bodies on Midlands, do you not think Business Voice West our board, together with people like the Co-op, the Midlands has got slightly ahead of itself in creating a NFU and a large number of members. The Chambers proposal before it had even seen the other LEP were one voice in our organisation; we have a proposals, without the support of many of the disagreement, but we are a democratic board. Our stakeholder communities in the West Midlands? board’s view was we have 25 members going down Barrie illiams: We did not take our view lightly; we one route, and one member wanted to go down had talked to the local authorities in the region totally, another route and disagreed with us, but we took the and the West Midlands Leaders Board—we’d spoken view that this was what the majority of our members to them. It is the view of our members that we do not wished to see. think that LEPs will work together very easily across a broad area. RDAs didn’t work together; very often, Q170 Chair: Louise, you obviously wish to add to councils don’t work together, and it’s very difficult to that? see why LEPs over such a large area would do that. ouise Bennett: Very quickly. Margot, I think you hit Our members overwhelmingly feel that a lot will be the nail on the head—sorry to dominate this. I think lost in the co-ordination of many of the services. We it was a timing issue. I think Business Voice West do not believe that distribution nationally is a good Midlands quite rightly flagged up the challenges that idea, and we think that LEPs ought to concentrate on the whole LEP structure presents us in terms of not cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping throwing baby out with the bathwater, but the timing summer, and Cranfield hosted an event, which had was divisive. To be fair to Business Voice West over 160 representatives, a lot of them from Midlands, it was about trying to flag up those businesses, and we have had wide support from the challenges—back to BIS, back to CLG, and say, Chambers, the FSB, and the IoD across that area. “Look, you need to think carefully about how we You’ve already mentioned that Northamptonshire progress this.” Chambers has been looking in a different area. The pessimism is that local authorities won’t talk to Those organisations have used their networks of each other. I only ever have one response to that, and members to draw in support for this particular that is that the private sector will walk away from the partnership. Not just in my view, but in the view of table if it doesn’t happen. businesses, the voluntary sector, the social enterprise Chair: Can I bring in Brian Binley for an East sector and higher education institutions across this Midlands perspective? area of South East Midlands—you mentioned Milton Keynes, but it certainly does not feature in the title of Q171 Mr Binley: We have no feeling for the concept this partnership, nor does it wish to take a dominant of East Midlands at all in Northamptonshire and role over other partners—it is important to work with therein lies one of the problems with whole putting those areas that wish to work together. together this rather disparate jigsaw. I want to probe Finally, because we have worked together across this the motivation for selecting a given area—in your area, and we produced something called a minds, because you were very involved in the very collaborative working agreement, we have in some early processes in that respect. I am going to use the ways gone, with the help of the three RDAs, beyond South East Midlands thing to do it. I recognise the identifying particular sectors, such as high problem of time, and I recognise that meant a serious performance engineering and the other sectors of lack of consultation. That is the truth of the matter. I logistics and sustainable construction, which are really do want to understand what, Hilary, you see as important across the whole area. We have identified cohesive about an area that seems to many in my part that skills connectivity, both through transport and of the world to lack cohesion totally, and seems to broadband, are really important issue, and those are be created from a perspective based on a sustainable the issues that businesses of all sizes come and tell us communities area that in many respects has a very are important to make sure that we provide those variable performance; some of us would say it was highly skilled people that businesses need to grow in quite disastrous in certain areas. The second point is the area. it seems to be put together on the one cohesive perspective of Milton Keynes as a regional centre, and Q172 Mr Binley: Let me press just a little further, so I’d like to know what you see as the cohesive Mr Chairman, with your indulgence. The arguments elements that put this rather odd conglomerate that you’ve just given me can be made about any together, other than those two factors, which are not number of variable conglomerations. Right around the held very highly, I must tell you, by many people in area that I live in, I see nothing specific about an my part of the world? identity for the South East Midlands that makes the Hilary Chippin : Thank you. Well, we have a track case convincingly, and therein lies the problem, other record of working across local authorities and across than, right at the centre of it, sits Milton Keynes. the three regional boundaries in this area, which has There is a fear of the great regional Milton Keynes indeed given us a lot of challenges in the past, but also enabled us to learn a lot about working together centre amongst many people. I still want to know, and the way things are carried out in the different where is the passion coming from for this particular regions. Yes, we have focused particularly around the conglomerate that didn’t exist in the East Midlands, sustainable communities agenda in the past, which has and was one of its downfalls, and I fear will not exist very much been around growth in jobs and everything in this conglomerate, as well as in a number of others that is needed to deliver that agenda. We have a lot of that my colleagues have been concerned about? evidence demonstrating what the travel-to-work area Hilary Chippin : May I pick up one of the comments covers. You mentioned Milton Keynes, but it’s much that you made in the earlier session about wider than that: Bedford, Milton Keynes, Northamptonshire County Council? Clearly, people Northampton, Luton and Aylesbury. There is a lot of who live in the community of Northamptonshire feel evidence to support that as a cohesive area in which passionate about that. No doubt they support football people will travel to and from work. I have already and rugby teams. You can be passionate about one mentioned the health sector; there is a range of particular area, but you can also feel that it’s important hospitals across the area. You’ve already mentioned to be part of a partnership that is going to support that the consultation, of necessity, took place over the economic growth involving a number of partners. summer, but we had a lot of support from businesses Certainly the passion that has been coming across to of all sizes. me from the business and higher education We are very fortunate in having such a wide range of communities in particular is that this South East higher education institutions across this area. We have Midlands area does make sense. People would be very Cranfield University, which is a post-graduate happy if the County Council would come on board as university specialising in engineering; the Open part of the partnership, but whether they do or not, as University; the University of Northampton; the has been said on a number of occasions already this University of Bedfordshire; and University Centre morning, collaboration with other surrounding LEPs Milton Keynes. They joined together over the is absolutely essential. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping

We work very closely already with Northamptonshire Q176 Mr Ward: We’ve had a fair look really at this and Buckinghamshire around transport issues. I hope brave new world of mutually beneficial collaboration. we are going to work with Oxfordshire and Have you any concerns about competition between Cambridgeshire as well. Partnership working will LEPs? continue whatever happens in terms of LEPs. ouse Bennett: Do you want me to go? I think there will be inevitably competition around inward Q173 Mr Binley: What can you do that can’t be done investment. I think it is about marrying national in different ways through partnership working on a policy, national promotion, local progression, but that needs basis, recognising that the needs in geographical local progression could exist across a number of LEPs terms change? who may want to bring forth that inward investor to Hilary Chippin : I believe, as has already been said their level. But what is wrong with a bit of this morning, that now is the time when it’s going to competition in terms of thereby improving our offer, be essential to work in partnership, because resources and getting it right for the potential inward investor. are scarce. We are going to need resources and will So there may be, but what’s wrong with a little bit of need to use those resources efficiently. We are going competition I say? to need to be really clear about what will enable Andrew ewis: I think that is right. We need to businesses to grow. In my view, and in the view of distinguish between productive and unproductive partners and potential partners across this South East competition. What I would not want to see is a Midlands area, if we try and work in isolation in national framework that was so cautious and so smaller areas, first, we risk duplication of effort. We careful about the competition between local areas that risk not being able to have that dialogue with central they impose some really heavily prescriptive centrally Government, which has already been mentioned, and defined structure here; that would not be appropriate, I particularly support what was said by Alex Plant in and it would not work either, because people naturally the earlier session about the importance of working want to compete for their area and, as Louise says, it across the CLG, BIS and transport agenda, because is not a bad thing if they do. We need to watch that is absolutely critical in terms of supporting carefully that we get the proper balance between business growth. I feel that only by having that competition and collaboration at a local and regional partnership of authorities, businesses and higher level; we certainly would not want to be in the education institutions, and the voluntary sector, on the position where we were in a competition with other scale of the South East Midlands, and possibly slightly parts of the North East region, because we’ve had larger, are we going to be able to be effective in terms such a long history of working together on issues like of delivering that agenda of economic growth. low carbon economy and so on. Mr Binley: Thank you. I am not convinced, but I do It’s important to maintain those links and that thank you for your answer. cohesion and to work right across the boundary, either Chair: Thank you. We have had a fairly long and across the country, or across the North; whatever robust debate on this. There are a couple of other geography makes sense. The core cities network questions that I know we wanted to ask on this remains very important for us, and collaboration subject, part of which I think has been covered, but between major English cities is really important. All Margot, you had something. Is there anything you right, it’s competitive sometimes, but there are also wanted to bring in? areas where we need to work together. Hilary Chippin : Can I just add briefly; across the Q174 Margot James: I think we have probably South East Midlands we’ve learned a lot about healthy covered question 7, and somebody touched on the competition and the need to work in a complementary issues of when—I think it was you Louise—when you way. We have already heard the Milton Keynes/ have LEPs that are overlapping geographically there Northampton issue, and I think across the South East is a case for working together, but what about when Midlands people have learnt that by working together there is some economic interest with a remote LEP, in we can add value, and it is actually better for the a certain research area or something of the sort, can whole area, and I believe that the LEPs will work you envisage a way of bringing in a LEP from some together and add value across the wider range of distance away where it has some economic LEPs. commonality with the main LEPs in your particular Barrie illiams: I actually think competition is region? inevitable, and almost certainly good, because if it is ouise Bennett: That’s the beauty of LEPs that did about job creation, as I think it should be, then a not exist in our previous world. We could exactly do nearby LEP may well in fact say, “Well what have that. As my colleague here was talking about the they done that is actually better than we have done, power industry I was sitting here thinking, “I must and what can we do to change our operation to create talk to him,” because we obviously have one of the further jobs?” I think it is probably a good thing. largest wind turbine manufacturers in our patch in Warwickshire. Q177 Mr Ward: Question 8, which is the same as with the previous panel, which is the skills agenda, Q175 Margot James: You see no barrier to that? and where you see that? ouise Bennett: No. Andrew ewis: I think I would echo the comments Margot James: I think most of the other points have that were made to you in the previous session. We are been covered. finding our way in a new policy environment, and Chair: David? skills and the allied policy area of employment cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 63

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping support and new employment programmes is also our colleagues in the peninsula to get it right for the relevant here. Increasingly what we are seeing is a locality. model of delivery for employment skills that is not Chair: You all seem to be pretty consistent on that. closely aligned to the policy delivery model that is Could we just move on to another question, which being promoted by Communities and Local touches on it? Rachel, it was question 19. Government, for example. It is much more about local providers working within a national framework, and Q178 Rachel Reeves: Yes, about the links between in that context the key role at a local level is to LEPs and further education and higher education. provide a partnership arrangement where the local Yorkshire Forward, on the board there, Michael providers, the HE and FE institutions, know and Arthur, who was Vice Chancellor, or is Vice understand the needs of their local economy. By Chancellor of Leeds University, sat on the board, but working together with business, and by bringing my understanding is that the local enterprise universities and colleges into that partnership, we partnership should have 50/50 local authority and think we will be in a better place to ensure a more business representation on it. A big part of the local effective skills offer, particularly in those areas where economy, certainly in Leeds, is the university and the the economy is changing radically, and the skills mix FE sector, which is also very important in terms of needs to change with it. skills and up-skilling the local economy. I was Hilary Chippin : Can I just say that skills is an area wondering what role you might see for the education that we are particularly focusing on in the South East sector, but also the third sector in the structure of Midlands proposal, as we did within the Milton LEPs? Keynes South Midlands growth area. We have focused Andrew ewis: In our case it’s a central role, partly a lot of attention on that area; we know that, for because universities and colleges are right at the heart example, South East Midlands is below the national of what we want to achieve for our area. Certainly, average in terms of NVQ Level 4 skills, and we are within Newcastle and Gateshead we have two very keen to increase that. What I think we have learnt universities and two colleges, all of which need to be is that it’s really important, particularly in the engaged in this programme, and certainly have lent changing environment, with the Learning and Skills their support to the work we’re doing. They, along Councils going, and the importance of working across with a number in our business community, would also local authorities in order to improve skills levels and want a wider geography, which is precisely one of the work with higher education institutions, that it’s an reasons and drivers for us to continue to try and patch area in which collaboration can be extremely that together. As far as the third sector is concerned beneficial. Getting the right skills in response to there is a really important role that LEPs can play in employer demand does not just happen unless you stimulating the social enterprise sector, and certainly have somebody working really hard to co-ordinate the leader of our council is particularly keen to use that between the providers and those people that need LEPs and also our own role as a city council to create the skills. We will continue to work in that area, and better conditions for the development of social the area of apprenticeships, working with the National enterprise, so again right at the heart of this agenda. Apprenticeship Service, is something that we found Barrie illiams: I think it is really very important particularly beneficial. that LEPs work together again on this particular area, ouse Bennett: I think it is again about national and because not all FE colleges or all local universities local; I think that it should be about national policy, will carry the courses or the training that’s required in particularly in schools education. It should be about a particular LEP area, so I think collaboration between national policy that thinks through and sets possibly LEPs, and education represented within that, is quite volumes, funding, some market making, but I equally necessary. think that it has to be about locally demand-led, and evin avery: In Cornwall we have six FE and HE then local delivery. I can give you some nice examples institutions that have come together in the Combined of that in our patch. We have an industry, a business, Universities for Cornwall. They have tripled in size in Converteam, who, because it needed semi-skilled and the last 10 years; we have opened a number of world- skilled workers in its patch, basically worked with class research facilities in Cornwall, which includes Warwickshire College to develop a power academy to Exeter and Plymouth Universities as part of the club. get all of its technicians coming through the college It is very much part of the economic future, and at the into its industry. Triton Showers, another part of heart of our LEP, and they are already on the Warwickshire, rely quite heavily on apprenticeships, governance of our existing development company. and apprenticeships are wholly demand-led, they wouldn’t work if they weren’t demand-led. Equally Q179 Rachel Reeves: Will they be on the board of we have our challenges, like JLR, who desperately your LEP? will need thousands of more graduate engineers; it is evin avery: We currently have a development about engineers and it is about just getting our heads company with a board of 11: six from the private around that in terms of marrying national policy with sector, five from the public sector, and that includes local influence, and local delivery. one representative from the Combined Universities Barrie illiams: I agree with Louse. of Cornwall. evin avery: I think Louise is right; it is about getting the balance right. We also know in Cornwall Q180 Mr Binley: How is the private sector that we have to look across the border and work with contingency made up? cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 64 Business, Innovation and Skills Committee: Evidence

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping

Rachel Reeves: I thought there was supposed to be Andrew ewis: I can kick off on that. I think we do 50% business— have concerns about it. I think there are a number of Mr Binley: I am just asking generally. really quite critical elements of the transition that we Chair: We have taken enough time asking the panel, are not very clear about at this stage. I think it was let’s not start asking each other. said in the previous panel that 2011 12 as a year is a Mr Binley: I am asking the panel, but I am looking transition year, but it seems to be a transition year to you to allow me to. How is the contingency made without very much capacity available, and certainly up? Tell me who they are? not funded for that year. So although the abolition of Barrie illiams: I do not think that’s actually been the RDAs is timed for I think March 2012, the reality resolved yet. Approaches have been made to numbers of winding down big organisations is that you lose of business people with a view as to whether they that capacity very rapidly and, of course, the RDAs would be prepared to participate in LEPs. Many of are already in the process of delivering that. them have said, “Well, let’s wait and see how and We are losing some really quite important bits of what is required.” In principle they say, “Yes, we capability at the regional level. We, as local would like to be involved,” but it varies, and Louise authorities, cannot simply step in and fill that gap may say they have a set number of business people, I because of the pressures on our own budgets. It won’t don’t know, but certainly in our discussions that’s the be until December that we know our own local way it is. government settlements. The opportunities for us to evin avery: Just picking up what Nadhim be able to maintain that capacity are really very mentioned earlier about the FSB in Cornwall. I think limited. The RDA in a region like the North East has one of the tensions has been about who is going to be had a big hand in a lot of activities, so we have on the board. What we’ve been concerned about in regeneration schemes, like our Science City, where the Cornwall is, let’s get the thing first, let’s be clear on RDA is a one-third partner with the university and the what we’re trying to achieve, and then let’s look at council. We would like to see that become a bilateral having the right governance to make that work. What partnership between the council and the university; we we did with the Cornwall Development Company, think that is entirely in line with the Government’s where we have a majority of private-sector aspiration for localism, but we are just waiting. We representatives, was to have a headhunting company are waiting for the Government to give the green light actually find people from the local area, and we went to that proposition, and it is a bit tied up with the through a process; we wanted gifted individuals on wider question of RDA assets and how they can be that board. Now, this is for discussion, but that’s the managed out. sort of approach we’d want to explore, doing it jointly We feel at the moment that there are a lot of really with representatives from the private sector. critical things to get right in the transition, and we ouse Bennett: In Coventry and Warwickshire, don’t yet have the clarity of how that is going to be managed. There are a lot of organisations that are just Rachel, we will keep to the spirit of the letter. We waiting to understand what will be available next year, want a business leader clearly in the chair, someone what the councils will be able to do to step up to the who is in business; then we will have 50/50 plate on this, and there’s a genuine concern about how representation, but we will bring in the universities. we will get to what ought to be a good end point, but Interestingly, it is not just about the skills side, which the process of getting there could destabilise us. is the supply side, it is about the work they do on ouse Bennett: I think we are all worried about the the demand side, and jobs, which is the transfer of transition. I think there are challenges around knowledge into the private sector, so you create devolution of powers and funding, but there is just wealth, you create jobs. one point I would like to make that did not come up Mr Ward: If I remember rightly the IoD nuance was in the previous session and may not come up here. that they were happy for them to be on the board as a That is just to say to the panel: do not undervalue business; as a big business in the locality, creating or underestimate the skills and competencies, and the jobs. knowledge, that sit upon the ground within your local Chair: I think we’ve covered this pretty adequately. authorities, within enterprise support agencies, within Can I just move on to the issue of timing and universities, who for years have been doing all of the transition? I would reiterate, no need for everybody to sorts of things that equally we do at the regional level repeat what others have said; only if your view either in terms of collaboration over bidding for EU funds. contradicts or is a significant addition do you need to A lot of those competencies and skills equally sit at say anything. Rebecca Harris. the local level. Hilary Chippin : Could I just say that clearly the Q181 Rebecca Harris: I think we have already seen timing is tight, but in terms of the transition we are a little bit of evidence here about how controversy has very fortunate that we work with three RDAs: East of built up in certain area, perhaps because of the speed England, South East, and East Midlands. We have this process has been going on at, so perhaps no been having regular discussions about how we can consultation was possible. Really, what, if any, ensure that we don’t lose the excellent work that we immediate concerns do any of you have in terms of have put in place with them. So, for example, we have the transitional arrangements, the timing with which identified work streams such as improving broadband the Department is driving this process, and what connectivity across the whole patch that is now being would you change or have changed in terms of getting passed across to people within my team, and there are things off the ground? also skills and resources around the delivery vehicles cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 65

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping across the South East Midlands; there are six delivery jointly owned by the two councils. We have, for 10 vehicles, two in Northamptonshire. There are a lot of years, had a destination marketing and tourism and very skilled people, particularly in the area of culture agency, the Newcastle Gateshead Initiative, funding—we will come on to that in a moment—but which has business membership and secures some of we have learned a lot about innovative forms of its funding directly from the business base. There are funding and working with private sector, and we are a number of organisations working on a public-private keen not to lose those skills as we move forward into partnership basis between Newcastle and Gateshead, the LEP. so that does demonstrate that, where the councils see evin avery: I do not want to prolong this—we are the real benefit of working together and pooling their worried about losing key personnel, and we have economic development capacity, they can do that. already recruited a number of people into our We have a bit more of a challenge making that work organisations to help overcome that. I think dealing across the whole of the North East region, because, of with the pension issue that was mentioned earlier course, that has been funded by central Government would really help, because it reduces the risk in through the RDA. As I said before, we can’t step in actually taking somebody on. and compensate for that. What we want to do at that Chair: I think Rachel Reeves has got a particular level is come to an arrangement with central supplementary issue she wishes to ask to Coventry Government on those functions which are going to be and Warwickshire. led nationally. We assume they are going to be funded nationally, but we need to step up to that and to put Q182 Rachel Reeves: Yes. Louise, you’ve said that in place a partnership arrangement between central Coventry and Warwickshire LEP will set up a shadow Government and business and local government in the board by 1 October. Is that running and can you tell region to be able to deliver those functions going us a little bit about how it’s going? forward, and that would certainly include the ouse Bennett: It is, because in Coventry and European Structural Funds Programme where there is Warwickshire there is a public-private partnership that considerable resources there to be spent within the was founded some 15 years ago, and it was founded North East region. The challenge is to have a by private sector working with the Chamber of continuing capacity to deliver that and the matched Commerce and others, with the county, and with the funding that is required in order to be able to unlock city, and with our districts. So what we have done is the money from Brussels. very simply say that that partnership will service and Hilary Chippin : In terms of the South East will host our LEP until we’re at the point where we’re Midlands, building on the experience with the growth absolutely up and running. So it is being serviced and area, we do have a model of very small contributions it is being hosted. from the local authorities, and some money from Rachel Reeves: Thank you. CLG, the Homes and Communities Agency. At the Chair: Nadhim? moment we have not had any RDA funding, and we have really learnt how to deliver growth across the Q183 Nadhim Zahawi: Thank you Chairman. Just area by using the limited resources that we have on to funding. How realistic is it to suggest that you effectively. Clearly, as you say, where you need can resource yourselves on the back of volunteer time particular skills, such as project management and from the private sector, and minimum back office bidding for European funding, we will need to call on functions? I mean, how are you going to handle resources to do that. I think we are strong believers administering EU funding, for example, or major that, if you can demonstrate that there is added value project management? Or deal with land assets? How realistic is it that you can do this? through this partnership working, then you are much more likely to attract funding rather than asking for evin avery: I cannot speak for my colleagues here, but certainly in Cornwall we are already running a the resources up front. major European programme which is £750 million; Barrie illiams: I do not really have a very strong we have a property portfolio that is bigger than the view about the ERDF funding, although I have RDAs in our area, so we have the skills to do that. participated in it to quite a large degree, but I think We have our own development company, which is the it’s really a question of having the resources in the largest in the South West region, so even for a small appropriate point, and with the transfer of people who LEP we have the money and we have the personnel. have skills, I think looking after those skills is, as I ouse Bennett: Very much the same. Funding will be said, exactly the right thing to do. a challenge, but we have an existing public-private partnership that will, as an interim, service the LEP. It Q184 Nadhim Zahawi: Just a supplementary for you has an executive, it has a secretariat and, on the Barrie; you are proposing to cut staffing costs from European funding issue, already within Coventry and £20 million, which is the old RDA, down to £3 to £4 Warwickshire we are a very successful sub-region in million. How did you reach a figure of £3 to £4 terms of our bids for non-structural funds, and equally million for your staffing costs? ERDF or ESF. Barrie illiams: We felt generally that we were Andrew ewis: Certainly Newcastle and Gateshead looking at the things that we felt, and our members has a long history of pooled funding and pooled felt, should be kept in some co-ordinating body, and capacity on economic development, so we have a city that the best view of the costs of those functions that development company, 1NG, that works across the we would want to keep, one of which was ERDF boundary, both Newcastle and Gateshead, and is funding, was this £3 million to £4 million figure for cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 66 Business, Innovation and Skills Committee: Evidence

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping labour cost. I wasn’t actually involved in the if you can have some of those income stream assets assessment of it, but— then actually that can help fund some of the core funding requirements going forward. In terms of the Q185 Nadhim Zahawi: So what would you cut out? assets for key developments, it’s absolutely vital if we You said there were some things you felt you do not are going to get some really good bids together for need to do; what are those? the regional growth fund to have that transfer, and Barrie illiams: Well, there was a large number of have it pretty quick. things done by the RDA— ouse Bennett: To concur with my colleague; the Nadhim Zahawi: Sorry, I can’t hear. asset transfer, certainly some of the physical assets, Barrie illiams: A large number of things were done although they may come with some risks, is crucially by the RDA. I mean, the massive chunk of business important to Coventry and Warwickshire, Ansty being support, for instance, through Business Link one of our largest examples, which is a large obviously isn’t going to be there in the future. There technology park, a piece of land, that we would want are things like regional strategies and regional spatial to see come home into Coventry and Warwickshire. strategies, which have disappeared. There are a huge Andrew ewis: There has been a certain amount of number of things which have been done by the RDA. confusion about this, because, as you say, assets are We are not trying to recreate an RDA; we are simply different in different places, and they have different trying to set up, or to have set up, not necessarily by functions. We have drawn a clear distinction between us, a co-ordinating mechanism for things like inward assets that are integral in the regeneration in a investment, innovation, and MAS and so on, to ensure particular area. I mention the Science City site in that those organisations and those three things, the Newcastle as a good example of that. Now, in that LEPs themselves—it is difficult to know how this is case it’s not an asset that has a market value, but it is going to happen, but it’s difficult to see how the LEPs really important to the future development of that site, in the first phase are going to support those. and some transfer arrangement does need to take place in order to retain momentum on those regeneration Q186 Nadhim Zahawi: So just pushing a bit further aspirations. There are also sites that are linked closely on that, if you don’t mind, the £3 to £4 million; what to the innovation agenda, and they need to be is that supporting? What is the headcount? considered in that context. Barrie illiams: I think the head count was 30 Finally, there are revenue-raising assets, so in the people. North East we have Buildings for Business, and On Site, which are two public-private partnerships where Q187 Nadhim Zahawi: Right. How did you come the RDA has been a 50/50 owner. Those are assets up with the number—what are the things that it will that have been generated within the region, and they deliver? are generating income which supports activities in the Barrie illiams: Well it would deliver the things that region, and it is our firm view that they should be kept we had in our submission, which were the functions in the region and used to deliver economic such as hosting an inward investment and aftercare development for the future. team, cluster working with companies, we’d have someone doing that job; we’d want to be involved in Q189 Mr Ward: There are seven sites in Bradford European programmes, administration of EU funding which Yorkshire Forward owns. Would they go to the through the ERDF scheme, and generally that group LEP or Bradford Council? of services. Andrew ewis: You would need to take a case-by- Chair: We are reaching the 1 o’clock deadline, so case assessment of what is the purpose of that asset; moving into time added on. There is just a couple is it integral to an economic development site; who of quick questions I want to finish off. Yes, you’re are the other partners on that, and then come to an next David. asset-by-asset agreement about the best way to deliver that functionality going forward. What I wouldn’t Q188 Mr Ward: We covered the EU bit, I’m not sure want to see is a single, one size fits all, central solution we covered this in the previous panel session, that’s where all the assets are owned by some holding the assets, and in many cases those assets—certainly company that then is very remote from local in our part of the world—are actually liabilities. Now, decision making. with the economy as it stands and the requirements Barrie illiams: I think we would prefer to see the for development funding, which is not there, what assets transferred locally to the LEPs, certainly not put about the assets run by the RDAs? I know what you’ll into a national situation. say: the assets aren’t just the physical things, it’s the ouse Bennett: I think there isn’t a one size fits all’, staff, but I think we’ve covered that bit. I agree with my colleague here, and certainly in evin avery: In terms of the physical, you are right, Coventry and Warwickshire, because we have such there are some liabilities, but there are also some strong partnership working we’d be more than assets that provide income, and there are some assets comfortable to see assets transferred back into the that are crucial to future development. Those assets local authorities, because what we are trying not to do crucial to future development, and the ones that is recreate a mini-RDA within Coventry and provide an income stream, are really needed to make Warwickshire. these LEPs work. Okay, there is not going to be much money in the regional growth fund, and there is not Q190 Chair: There are really two very quick going to be much, if any, core funding available, but questions. First, I want to pose to Cornwall and the cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

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12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping

Scilly Isles: in your submission you mentioned a local need to move from here to an effective business-led investment fund, could you just very briefly tell me a organisation that is clear about what it is doing, and little bit about that? about the ability to do it, without losing the local evin avery: In Cornwall Council we have seven politicians on the way. Across the area that I work in, councils coming into one, so we’re in a very fortunate the South East Midlands, at the moment we’ve 14 position where we can actually deal with the financial local authorities, we’re still hopeful we might have a crisis we’re all facing in the public sector; we’re well few more join us in the Northamptonshire area, but prepared for that, we have a lot of synergies by we’re all quite clear that business will not want to be bringing seven into one. Our ambition is to reinvest involved in an endless meeting with 14 or 16 local some of the savings out of that process, and put it authorities involved. back into the local economy. Next year we are still in On the other hand, we do not want to lose people in the very early stages of looking at our capital the process. We started in the summer, as I said programme, but we are looking at a very substantial already, with a big event focused on business capital investment in key projects around the engagement, hosted by Cranfield University; we’ve economy. Our aspiration is to have something of the had another, smaller workshop teasing out what order of our European grant programme, without any businesses actually will want the LEP to do; I think red tape around it, which would be at the disposal of there’s some very interesting issues coming out of that the LEP. in terms of the larger businesses and the smaller businesses perhaps focusing in different areas. We Q191 Chair: I do not want to labour this point, but I have another event in November, and in the meantime think in your submission you also mention a business the FSB, the Institute of Directors and Chambers investment and so on; now, rather than deal with it across the area have been holding their own local now I’d be grateful if you could perhaps send me a meetings; we have been using their networks, we have further briefing on— an update that has gone out to our 300 or 400 contacts. evin avery: Very happy to do that. It’s a process of engagement, being open and Chair: To finish off, Brian Binley. inclusive, while not taking too long to get to a position where people feel that those on Board, are people they Q192 Mr Binley: If LEPs become politicised you can respect and are representative, but the Board have problems, and it is a real danger, and we’ve doesn’t have to have somebody from each business in already seen in my part of the world politicisation each area to be representative. based on rather traditional divisions, quite frankly. The thrust for the creation of a LEP has been pretty Q194 Mr Binley: Forgive me, I want to know the much from a political arena, and not a business arena. mechanisms that you are using to contact businesses How do you stop it being politicised, or continuing to and get them involved. be politicised, because if you don’t business won’t be Hilary Chippin : I can be specific then; following the involved, and if business isn’t involved, you fail? event in Cranfield we have a contact list; we have Andrew ewis: It is clearly a balance. I think we are contact lists from all of the Chambers and the three where we are because the RDA architecture was not organisations I mentioned, which we are going out to seen to be sufficiently accountable to local people, and on a regular basis. We have already dates in the diaries politicians. We are looking at structures that are more for regular meetings with the business organisations, locally accountable and have that closer link to the which we held all through the summer—there is one local democratic process. I think we are very clear happening the week after next. We are setting up a that we want these to be business-led, we want them working group and a steering group, which is a step to have a degree of operational independence, so not towards a shadow board, because we know that we every decision has to be signed off by every local need to have that inclusivity of higher education politician, and we want to put in place structures that institutions, the voluntary sector, further education deliver that. It is about accountability on the decisions colleges, and businesses, small and large, and the that really make sense, key policies on the frameworks business organisations, and all the local authorities. and the way in which the operations are conducted, That is far too big to actually run an effective LEP, but then you need to give a degree of arms-length but we feel that we need to be absolutely open and operational delivery, business-led, in order for it to be transparent about going through those stages and effective and meaningful for the business community. collecting views as to what people want us to do, and It is that balance that we all need to strike in the then being realistic about what we can do, and the Governance models that we put forward. form of the organisation that is best placed to do that. So that’s why the partners have not made up their Q193 Mr Binley: I admire your desire, and I do quite minds at the moment as to whether it’s going to be a like your management talk; I thought it was very community-interest company or quite what we need impressive. What are you going to do on the ground in order to deliver the things that are most important to ensure these people are involved? to businesses across the area. Hilary Chippin : Can I just perhaps try and say what It probably sounds a little bit sort of process-led, but we’ve done already? I think absolutely it is the we need to have open and transparent mechanisms for challenge, as my colleague here has said, to move actually getting everybody, in rooms all over the from where we are now, and there’s been a lot of to- South East Midlands, dealing with some clear ing and fro-ing over the summer and all the politics questions: what we want the partnership to deliver; and suchlike, and different geographies emerging. We what are we going to take over from the RDAs and cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:37] Job: 005834 Unit: PG03 Source: /MILES/PKU/INPUT/005834/005834_No3-12OctCORRECTED.xml

Ev 68 Business, Innovation and Skills Committee: Evidence

12 October 2010 Barrie Williams, Kevin Lavery, Louise Bennett OBE, Andrew Lewis and Hilary Chipping the delivery vehicles and all the other organisations paper. I think we can prolong this debate for a long across the patch so that we don’t lose that; and what time, and I do not wish to. I thank you for your can we do that will really make a difference and attendance, and I’ll once again say to you, if there is enable the private sector to grow in the future. anything that you would like to go to Committee that Chair: We are now 12 minutes over time. If you have you feel that you haven’t been able to fully elaborate anything else to add then please feel free to put it on on then please feel free to send it to us. cobber Pack: U PL: COE1 [SO] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

Business, Innovation and Skills Committee: Evidence Ev 69

Tuesday 19 October 2010

Members present Mr Adrian Bailey (Chairman)

Luciana Berger Rachel Reeves Mr Brian Binley Mr David Ward Jack Dromey Nadhim Zahawi Margot James ______

Examination of Witnesses

Witnesses: Mr Mark Prisk MP, Minister of State for Business and Enterprise, Philippa Lloyd, Director, Economic Development Directorate, and Philip Rycroft, Director-General of Innovation and Enterprise Group, and Chief Executive of Better Regulation Executive, Department for Business, Innovation and Skills, gave evidence.

Q195 Chair: Good morning Minister. I think we are Q196 Chair: We understand the situation and of as fully attended as we are going to be, and although course we will be interviewing Ministers next week it is slightly early, if you are happy to do so can I to perhaps pick up on some of the things that you will invite you to introduce your team and make a few not necessarily be able to cover at this meeting. You opening remarks if you wish to? have outlined the Government’s approach to this. Why Mark Prisk MP: Thank you very much Mr Bailey. is this change being made so hurriedly and how do The team I have with me are my senior officials in you think LEPs will be better than RDAs in this area: Philip Rycroft on my right, Philippa Lloyd rebalancing the economy both geographically and in on my left. I thought it might help the Committee if I terms of the private and public sector? just make a few brief opening remarks, which will Mark Prisk MP: I think it is important that we do act promptly, but we want to make sure it is an orderly perhaps create a shape for our discussions and help transition. Having moved out of recession and into a you with your inquiry. period of what we hope to be sustained growth, now On being elected in May the Government believed is a good moment to change the nature of the very strongly that one of our key priorities must be development agencies, and particularly for them to be the growth of the economy, and a crucial element of relevant as we move forward in this coming that is to rebalance that economy. That is both in terms Parliament and this part of the economic cycle. Why of sectors but also in terms of geography. To do that better? Because I think the LEPs, as many businesses we need a modern framework of economic have said to us, will be better able to focus on making development, based on the real economic geography local economies and local markets work better for of the country. The elements of that framework are: them. That is about freeing up issues around local first of all, a national economic leadership to make transport problems, planning restrictions, bureaucracy, sure that we are able to improve the UK’s enabling regeneration to happen on the ground; competiveness as a whole; secondly, the formation of practical matters that actually affect local businesses. Local Enterprise Partnerships to replace the RDAs, One of the other problems with the RDAs has been which obviously is at the heart of your inquiry today; their lack of accountability in democratic terms. That the £1 billion RGF, the Regional Growth Fund; and is why we are moving away from a Whitehall non- fourthly, something which perhaps we tend to forget, departmental public body through to something that is the creation of the best environment for all businesses, genuinely rooted in our constituencies and our whether that is investment in high-speed rail or trying communities. I think that is an important shift as well. to make the tax system more supportive to the creation I think there are both economic and also and growth of small businesses. accountability benefits from making that change. The benefit of LEPs as we see them rests principally on them being development agencies that are formed Q197 Chair: Thank you. It was well known that the Conservative party, and then subsequently around real economic geographical areas, genuine Government, wanted to abolish the RDAs prior to the partnerships between public and private, and election. I think what has taken people by surprise is democratically accountable. Chair, on a practical note the fact that it has been done before the publication we meet today just before the publication of the of the White Paper and a clear idea of the successor comprehensive spending review and also before the organisations. Why was this done and what was the publication of a White Paper on this very subject. I evidential basis for this decision? will do my best if I can to answer the Committee’s Mark Prisk MP: I think one of the important shifts questions, but I am sure members will understand that here is moving away from a central model of there may be areas that I can’t give more detail on. Whitehall diktat, to genuinely saying to local What I would say, if I can Chair, is that once we are communities, “What matters in your area?” And in position to know when the White Paper is letting them say to us what their priorities are. If one forthcoming, we will make sure this Committee is looks at a rural area like Cumbria or an urban area kept fully informed of that. like Greater Manchester, they will have very different cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft priorities. At the moment they are lumped together in moment, businesses are in serious trouble. We had a single agency with a border that I suspect is often some more bad news this morning. Access to working more about administrative convenience for Whitehall capital is now absolutely vital and all the structure you than it is about the relevance of shaping that local put in place thereafter is not going to help people who economy. That is why we feel it is important to make go to the wall now. I understand it is Treasury, I that move. I think we feel that making this shift now, understand your difficulties, but I know you to be a yes it is prompt, but it is not overly hasty because I very forthright and doughty defender of business, so I think we felt it was important that we actually say to wonder whether you could give us any hints of what local communities, “What are your priorities?” If we might be coming within the next three or four weeks, had come forward and said, “What are your priorities, well before LEPs get into play, that might help in but by the way we have already decided what the rules that situation. are,” then I think there would be a natural scepticism Mark Prisk MP: There are two issues there. One is among people that the Government had already what we are doing about access to finance, and decided what they should be doing. So we genuinely yesterday I chaired the first Small Business Economic took the view that we should invite people, with few Forum, which is dealing expressly with that issue with prescriptions at the beginning, to put forward what the banks and the small business organisations. You they would like to achieve. are absolutely right—you know me reasonably well in that context—that I want to make sure that access to Q198 Mr Binley: Good morning Minister, we are finance, particularly around working capital, is delighted to see you. I think we need to know in delivered, and that pressure is there. However, that is general terms how you feel that LEPs will improve a national question that is not necessarily to do with the nation’s economy. But specifically, in a transitional the structure of government agencies. period at a time when financing of small businesses Philip Rycro t: May I just add to that in terms of the is absolutely crucial, and very time-restricted, quite national picture? As the Minister has said, access to frankly, how do you feel your Department is going to finance is absolutely critical across the piece and that deal with that transitional period and help to get the is why the Government published the Business working capital to small businesses that they so badly Finance Green Paper some weeks ago. We are due a need to ensure the budget strategy works? response to that over the next two or three weeks, and Mark Prisk MP: There are two issues there. I think clearly what happens tomorrow will be relevant to the the first one is making the transition from RDAs to Government’s interventions in this space. It is also LEPs orderly and we are very much focused on that. worth emphasising the work of the Bank Taskforce, I want to put on record my thanks to the RDA in response to a lot of the discussions that the leadership, in difficult circumstances for them on a Government have been having with the banks, which personal note, to be willing and able to work with us among other things introduced the new £1.5 billion to manage this transition. It is several thousand equity fund for growth businesses. It does not address contracts, it is nine different agencies, and the existing the whole of the space but it is a very useful addition single regional budget is five different Government where we knew there was a big gap in that market. Departments; it is a complex process. What we have tried to do is to establish a clear transition order, and Q200 Chair: Can I just follow up this issue of we will be setting out more about that in the White finance? You say quite rightly that there are two Paper, so that people can see the steps that we are distinct issues. There are the funding issues, taking and also make sure that they can see what is inevitably, because of the much-advertised public happening between the Government Departments and sector deficit and funding restrictions that are going to the RDAs themselves, enabling us then to discuss with take place, and could have taken place under whatever LEPs what they wish to take on and to then take that structure we had. Secondly, there is the restructuring second step. issue, but it is not quite true to say they are You raise the broader issue about finance to small unconnected. You have a progressive reduction in businesses and this is where I think it is important to finance being disbursed by the RDAs at the same time distinguish between local priorities and national as the RGF is being set up. As I see it, this approach priorities. The national side to things is important has been taken without detailed consideration of because access to finance is something that affects existing financial support arrangements for businesses every small business, whether you are in an area that in areas that may not fit so comfortably with the new is in difficulties or not. That is why we feel this is an funding regime. For instance, I have had a company area that Government should lead at the centre rather approach me that has a progressive stage of financial than something that is led at a sub-national level; that support over the next three years through the RDA is why the Government have been making very and because of the new approach is unclear whether concerted efforts, working with the banks, to make it will get funding, and therefore whether it should sure that access to finance is delivered. I think this is continue with its investment over the next two or three where it is important to distinguish what I call the years. Would a better approach not have been to start national strategic interest, which Government need to with existing contractual obligations and then set up a lead on, and the local priorities, which local funding stream like the RGF subsequently, or at least partnerships are best able to deliver. bearing in mind those existing financial obligations? Mark Prisk MP: The difficulty with this is that when Q199 Mr Binley: I am most grateful. I understand you want to create a new organisation, if you do not your answer, but I will still say that, at this very start from a fresh piece of paper there is a whole series cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft of live contracts, and that would be the case at any Mark Prisk MP: Our view is that we have been very point in the economic cycle. There is no neat point to encouraged by the 58 positive applications that have do it. I entirely agree with you that, certainly from a come forward, and we are working our way through personal point of view in trying to manage this, it is those. We have also noted that in many of them people a complex matter, but I would not accept that have said what they want to do in their areas, but they therefore we should solely focus on new contracts and are talking very closely with other colleagues in their then try to row backwards. I think you have to give neighbouring areas because there may be an clarity both to the existing organisations and also individual project—a motorway improvement or a about what the new organisations are going to do, and railway issue—where they will want to come together there needs to be a clear point to that. As we have on an ad hoc basis in order to take a strategic view. said, the intention is to wind down the RDAs so they Our view is that under this new more localist model, complete their work no later than March 2012, and they do not need our permission. I recall—this is therefore we will be able to wind up and establish the partly the danger of me being a chartered surveyor LEPs over that period so they are fully operating from and going back to my days as an urban planner—the the spring of that year. days of SERPLAN in which the home counties, as I think it has to be a transition. It is not going to be they were then, came together on key transport neat from a central point of view. The key thing, projects that were of shared mutual interest. They did which we are very much focused on, is doing our level that on an ad hoc basis. They presented that to best to make sure that among those many contracts Government as a group and then they would re-form and obligations, and assets and liabilities, we are very as they needed to or form if they did not need to. Our carefully focused on not dropping too many balls. view is that if a group of LEPs wish to form a forum Chairman, I cannot guarantee to you that I will not or a strategic team on a particular project, we have drop any. I would love to do that, but I suspect we absolutely no prejudice against that, but they do not will. It is very complex; there are several thousand need to come to us for permission to do that. I think contractual relationships involved, but we are doing that is an important thing because then what will our best. I would also say, as I said to other Members happen is they will look at where the strategic before, that I am always very much open to talking to opportunities lie, and they will actually focus on those Members when something comes to their attention. rather than necessarily on another bureaucracy that We cannot save absolutely everything because has a permanent secretariat, and we start going down inevitably there will be some things where the a similar path. viability of the project has changed because the economy has changed. Something that may have been Q202 Nadhim Zahawi: signed up three years ago, at the beginning of 2008, So you are not going to be may now look more questionable. It is difﬁcult, but I prescriptive? You will allow it to evolve? hope that we can work our way through, and I am Mark Prisk MP: Yes. conﬁdent that we will. Chair: You show a becoming modesty, Minister. Q203 Nadhim Zahawi: Just one more question Mark Prisk MP: I am aware that this is the beginning before I hand over to Jack. Will the public bodies or of the process, and I am also aware that in this modern localism Bills contain enabling clauses granting the age what one says now will be re-presented in due newly formed regional bodies the legal powers that course. they would need, for example, to bid for European matching funding? Q201 Chair: I would just come back to the central Mark Prisk MP: Do you mean the LEPs or are you point. I think there has been clarity in terms of funding thinking of a sort of cross-LEP LEP or a regional for the RDAs. Where there has not been clarity is LEP? the impact upon the individual investment plans of Nadhim Zahawi: Either. companies being funded by the RDAs, and that Mark Prisk MP: Okay. What is the legal status? inevitably has caused doubt and uncertainty at a time Clearly an LEP will need to have a legal personality— when nationally the country could do without it. I think that is the appropriate phrase. Again we are Nadhim Zahawi: I just wanted to take you back to not prescriptive about what that will be because many what you just said about the White Paper setting out areas already have a development corporation or the process step by step. We have taken evidence from company that is a side adjunct and they want to use a number of people and organisations, and essentially that vehicle because they have existing assets. Rather the common thread has been that some form of than create additional legal and accountancy fees, our regional co-ordination or collaboration is necessary in view is that we do not need to prescribe the precise certain geographies. For example, in the West nature of the legal personality, but clearly if they are Midlands or in the North, where there are clusters of going to take on assets or contracts they need to have automotive manufacturing and nuclear. Are you still one. So that would be our view. We do not need to willing to allow collaboration or co-ordination where pass legislation about that. Of course we will need to demand exists, and how will you determine where that have legislation elements in order to complete the can happen? Some of the evidence has said that they wind-up of the RDAs, and that willpredominantly be would prefer it to be evolutionary rather than directed part of the Public Bodies Bill. In terms of the need for from your Department. I would just really love to hear additional legislation for the creation of LEPs, we do your views on that. not believe we will need additional statutory powers. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft

Q204 Jack Dromey: Minister, the evidence given by is a very important and new tool; one that the last the organisations representing the private sector has Government instituted and which we have strongly been unmistakable. The CBI, Engineering Employers endorsed. It is a good idea and it works well, Federation and Federation of Small Businesses are all particularly around the supply chain issues. Of course, saying with one voice that in those regions where as you also know, while there are important there is a powerful argument, there should be a geographical elements there is also a national element. regional co-ordinating mechanism. The evidence has Working on the technology road map and particularly been consistently focusing on the West Midlands, the the supply chain, so that we manage to make sure it North West, North East and Yorkshire. In the West does not hollow out, is a very important part of Midlands, Business Voice West Midlands has been national Government priority. At local level, the absolutely clear about this. You have said that if the argument you have put forward is very strong, and I LEPs choose to have a regional coordinating would be amazed if you said to me that the mechanism then they can do so. What happens if the overwhelming view of the locally elected LEPs do not agree to do that? individuals—from their authorities, the universities, Mark Prisk MP: If the partners do not agree they the other partners—would turn a deaf ear to that and cannot progress. be completely unwilling to engage in that process. So we will stand by. I do not think it is for us to force it Q205 Jack Dromey: In which case, given that the on local partners, but I would be amazed if there were approach of Government has been to say that this not some sort of forum if that is the view of businesses should be business-driven in partnership with the local in that part of the country. authorities, the unmistakable voice of business is that damage would be done to the project we all agree Q207 Jack Dromey: The problem is that the LEPs with—rebalancing the economy and growing the cannot agree with one another right now, let alone private sector. Is that something you are content to agree to that kind of strategic focus. May I ask just allow to happen? one final question? Are the Government speaking with Mark Prisk MP: No, I think that is a nice way of one voice, because there appear to be distinctly trying to put it. I should, by the way, congratulate you different messages coming out of BIS and CLG? BIS on your new position on the Front Bench and I look on the one hand recognises the power of the business forward to debates, I am sure, in that context. What I argument for that regional focus where appropriate, would say to you if I may is that we get a variety of and CLG on the other hand is saying, “It does not business views. The national CBI will often have a matter what the private sector say to us; if the LEPs particular view, their regional bodies will have slightly do not agree then that’s that.” different views, and local branches may have other Mark Prisk MP: No, I do not think there is a views. Let us say that in your area of the West difference of opinion at all. I work very closely with Midlands there is an overwhelming view of the my colleagues in CLG, my officials work very closely business community that they wish to form a forum with their opposite numbers in CLG, and indeed we to bring together the different LEPs; it is up to them are working with other Departments as well. I am well to work with the partnership. If they cannot agree it aware there are reported remarks or whatever, but I is not for us to step in and say, “Thou shalt do that.” have learned not to necessarily believe everything I read in the newspapers. Q206 Jack Dromey: Can I press you on this? If I take a very topical example, the motor-manufacturing Q208 Jack Dromey: So you are not a member of the cluster employs 150,000 in the Midlands. When it Anne Boleyn tendency? came to the decision made by Jaguar Land Rover last Mark Prisk MP: I am not going to make any week, a very significant factor was the power of that historical reference in that context. motor-manufacturing cluster in terms of what was available to them: machine tool companies, the Q209 Chair: Nadhim, do you wish to come back on component companies, research and development, and any of your points? all the way along to the games industry in the Nadhim Zahawi: No I think they have been pretty Midlands. It was a very significant factor. What the well covered. business community are saying is, had it not been for the work of Advantage West Midlands managing Q210 Margot James: I want to move on to the LEP shocks to the system on the one hand—diversifying bids that you have received so far, 58 in total. There the supply chain between 2000 and 2005 in the case have been reports that some have been very well of Rover—and galvanising that motor-manufacturing received indeed and are fit for approval more or less cluster on the other hand, that motor-manufacturing straight away. Five were described in the press as cluster would be nowhere near as robust as it is now. “absolute stonkers”—I am not quite sure where that That in turn was key to the major decision made by came from. Can you give us an idea roughly how Jaguar Land Rover. What you do centrally is to wash many are ready for approval, and also can you give your hands of responsibility and say, “It is down to us an idea of what has particularly impressed you the LEPs to decide,” despite what the business within the bids you have received and on what basis community are saying. You are ignoring the clear you are evaluating one bid against another? voice of business. Mark Prisk MP: I think it is important that when we Mark Prisk MP: No. Let me explain. First of all, as clear the LEP applications for proceeding to the next you well know, the Automotive Council, nationally, stage we talk to them first and we set that list out in its cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft entirety. That will be something we will be publishing be some outliers—of population that most LEPs shortly, and if you will forgive me I am not going to might cover. mention a name A or a name B, because I think that Mark Prisk MP: The criteria I have given you—the that is unfair on those and others. What we are trying strength of the business engagement, the coherence of to do is to assess them on the basis of what the support the economic geography, local authority support and from business is. That is a very important criterion. that ability to add value—are the benchmarks we are How deep is that? How broad is that? Is the economic working against. There is a huge variety. If you are geography coherent? What is the nature of the local trying to deal with, say, Lincolnshire but you are also authority support, and does this application add real trying to deal with the Leeds area and look at their value and ambition in terms of bringing something comparative merits, you have to be careful not to be that would deliver value over and above that which too prescriptive because the danger then is you are would otherwise occur? Is there something really trying to judge the economic priorities of what matters strong about the way in which they are approaching in a rural area like Lincolnshire directly against what what they are doing, something that adds to the value, matters in a very urban area, and they are not the rather than just putting three or four organisations same. So it is trying to keep a benchmark, if you together and coming up with a similar number? Does like—in other words, things they need to get two and two equal five? That is our remit. through—rather than defining what they need to We have been very encouraged by the range, and achieve. We are being deliberately less prescriptive, indeed some of the original thinking behind a number and I appreciate that means at this moment you may of the applications. I think also what is interesting is feel that is not as clear as you would like it to be. I looking at some of the principal city areas. It is understand that. From a personal point of view it notable that most of our leading city areas have would be far easier if I was able to say, “17 rules and brought forward applications that relate to that that’s what you do.” However, I think this benchmark geography, and that I suspect reflects their view. I is a better approach so we get that diversity which must be careful in not going too far because people reflects the real needs of local economies. start reading the wrong signals in that sense. We are very close to being able to allow some of the Q213 Chair: I think the press reports have said five, partnership applications to move forward to the next and I quote, “are absolute stonkers”. I think that is a step. The purpose of that will then be for us to look compliment or could it be a misprint? in more detail at their governance, the functions they Mark Prisk MP: I will leave you to judge that if I have asked to undertake. With regard to those who may. I am sure you are better able to judge it than perhaps have not initially succeeded against those I am. criteria, we are talking to them about how we can help them and what steps they need to take to strengthen Q214 Mr Binley: Just a very quick one Minister. I what they have suggested. So that is where we are at was delighted to hear about the fact that you are not the moment. setting very tight parameters on this whole business of size of LEPs because as you know there is an Q211 Margot James: How many LEPs do you feel application for a LEP based on the county of will be approved in the end? Northamptonshire. Adding that to your comments Mark Prisk MP: I have no intention of guessing a about the need to be flexible about working number. Although we are quite rightly not trying to partnerships on a needs basis, are you saying now that look at it from the centre, what matters is having the a LEP the size of Northamptonshire would not be number of LEPs that meet those criteria that will make ruled out of your thinking? a difference to improving their local economy. I do Mark Prisk MP: I think the criteria I set out are pretty not mind how many that is. What I mind is whether clear, and that allows us to judge each partnership on they are each going to be able to make that difference. their merit, as you suggest. Are they going to make their local markets work? Are Mr Binley: I am very grateful. they going to make their local economies better? Are they going to free enterprise as individual Q215 Jack Dromey: You spoke eloquently earlier on organisations? That is my test rather than trying to fit about the driving force being localism, but you are it so there are number or Y number. I just need to proposing to nationalise certain functions, in be careful—perhaps there is a natural enthusiasm of particular inward investment. The problem about that, wanting to say, “We must have or Y,” or whatever. Minister, is that the track record of the current national This is where we have to have the discipline just to mechanism, UKTI, is clear: £6 in £10 of the money make sure the merit of each partnership is the key, secured through the UKTI goes to the southern swathe rather than a number that we have decided centrally. of England. Is that not a recipe for the Midlands and the North losing out? Q212 Margot James: Sorry, I wasn’t trying to push Mark Prisk MP: We have discussed this before and I you for a precise number, more a range, because some think it is an important issue. The direction we want of the witnesses we have seen in recent meetings have to take is to make sure that the UK’s competiveness all got the message that 59 is too many and that is strengthened. I personally do not believe that having Government want to see a much-reduced number nine RDAs trying to establish sector leadership, on going forward. So although I am not pressing you for the basis that somehow a business sector is principally a precise number, I wondered if you could give us a solely confined within one RDA, is helpful. That is sense of the range or the size—obviously there might why we have drawn back to the Business Department cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft for sector leadership, the Automotive Council being on that will be limited, but we will come back on that a very good example. With UKTI it is important to if we can. However, be very clear: I do understand the remember that something like 47% of the value of the importance of having that national framework and that projects that have been progressed by UKTI in recent it should not become a London-centric organisation. years has gone to the North, when in GVA terms it is about 27%, so I would not necessarily accept the Q219 Jack Dromey: One final question, Minister. It argument you made. is all the more important, is it not, because given the Let me just explain where we want to go with this, relative robustness of the economy of the South East, because I think this may help. Our view is that, and given that in Scotland and Wales there are highly particularly abroad, it is very important that there is a developed, well-focused and well-resourced regional clear single voice in terms of seeking to attract inward and national development agencies like Scottish investment. We had the nonsense when I was in Enterprise, it would be very bad news, would it not, Shanghai two years ago of discovering that two blocks for the West Midlands, the North West, the North down from the principal UKTI effort to promote the East, and Yorkshire if they were to lose out. UK there were entirely separate offices of RDAs, Mark Prisk MP: It would, but they will not. jostling and competing for the same business; it does Jack Dromey: We will see. not make sense. I spoke to two German businesses who said, “Look, we are confused, someone is trying Q220 Chair: Just quickly getting back to the issue of to explain to us why it is that Coventry and Leicester the bids. If the initial bids are not considered up to are entirely different areas and they should compete scratch, is there an option for reconsideration and with each other.” Of course it comes down to the way resubmission, and if so, when would the deadline be? the map has been drawn. Abroad, we want to make Mark Prisk MP: We are talking to all of the sure there is a clear, strong, effective voice. That will applicants, and clearly there are one or two we have work most effectively if the roots when dealing with been talking to about elements that need to change or those inquiries are strong and local. So I have asked improve in terms of the criteria I have set out. We will UKTI to make sure that they bring forward a model set out who is where in terms of who has been cleared that will allow them to have that strength of voice for progress and who has not as a whole, and we are abroad when dealing with incoming inquiries but that also talking to them about the timetable for that. That is not London-centric. I think that you are entirely will be quite clear very shortly. right to be anxious to make sure that we do not end up creating something that is solely about one part of Q221 Nadhim Zahawi: Going back to what Jack the country, and that we have a model that has a single was just talking about, which was the joined-up payroll but nevertheless strong local roots in the way thinking that is going to be crucial if we are going to in which we deal with those inquiries. get this right. What will happen if you do have the five stonkers but they have overlap, and you have gaps Q216 Jack Dromey: How would that be achieved? in the rest of the country where LEPs have been If you look at the track record in the West Midlands rejected? What will happen then? We will have in terms of inward investment in automotive, in the vacuums in parts of the country. I completely North West in terms of inward investment in nuclear, understand that it needs to be an evolutionary process. and in the North East in terms of inward investment in The RDAs are still going to exist until March 2012— chemicals and process, the respective RDAs all have I get that bit; but what will you be able to do from the a proud record of achievement precisely—your point centre? I guess it would be counter to the strategy of earlier on, about localism—because they knew their localism to interfere. What will you be able to do if local economy. Now, co-ordination of approach, of there is overlap and they are all good, or where there course that is right so that people do not trip over one are gaps? another’s feet, but how do you achieve what you Mark Prisk MP: I think the first thing to bear in mind stated from Whitehall? Is that not the antithesis of is what I said right at the beginning, which is that what you said in terms of localism? there is a national framework for economic Mark Prisk MP: Not at all. I think you can have a development. Business support led from the centre, national organisation that has strong roots across the sector support led from the centre, trade, capital whole of England in terms of— market failures, and also support for innovation. That is all going to be something that Government as a Q217 Jack Dromey: What do roots’ mean? whole are going to take the leadership for. Mark Prisk MP: It means having a presence in those localities so that they have knowledge and Q222 Nadhim Zahawi: So the shocks will be done understanding of their immediate local economies. centrally? Mark Prisk MP: They will be led centrally. Then of Q218 Jack Dromey: What kind of presence? course the establishment of the LEPs will be a Mark Prisk MP: I think we are getting ahead of programme that will allow them to focus on the issues ourselves. I have asked UKTI to bring forward a that matter to them locally. It may be things like model. I will look at that model to make sure that I transport problems, planning problems, infrastructure have considered that it has a genuine national spread, problems. I think very often the issue for a small local and that will be set out in the coming months. They business, or indeed a medium or larger business, is do not have a budget just yet, and they won’t have removing some of the barriers—the things that hold until Wednesday, so my ability to give you the detail businesses back from growing in their locality— cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft which very often are best dealt with at local level. under the table, and indeed have asked repeatedly if What are the transport priorities for that area? What we would only tell them what the secret plan was. I do they need to make sure that they marry the skills? have to tell them: there is no secret plan. There is no How do they ensure that regeneration happens in a magic set of hidden rules that we are not telling them particular secondary area of the city? Those sorts of about. I do not blame them because after a good 10 things are best dealt with in the local area. or 15 years of centralised control, someone actually We are progressing with LEPs; the fact that we have treats them as a grown-up and says, “You choose, it had 58 tells me that there is an appetite for this. There is your decision,” and some people have found that will be some squabbles in parts of the country, but very difficult to cope with. my inclination is that once people see that others are progressing and that actually the message from the Q225 Chair: What you are saying is very interesting. centre is, “If you can’t agree on a partnership then it It does seem to be that there is a grey area in the is not something we can force on you,” then I think engagement between Government and the LEPs. In that those squabbles will start to dissipate and we will order for the Government to get the LEPs to deliver see considerable progress. In a way it would have certain services there has to be a legal recognition of been far easier for any government to have said, “We what is a particular LEP in an area. On the other hand, will dictate on this, and we will drive it and lead it.” you have said that in effect they can more or less go We are taking a perhaps more difficult path for it alone. If there is no statutory recognition of a ourselves in saying to people, “This is your economic particular LEP, what is there to stop any particular area, this is your economy locally, you lead it.” So far group of business organisations, possibly in I have been very encouraged that most areas have conjunction with a particular local authority, saying, really taken up that ball and run with it. “We’re a LEP. We’re separate. We want part of the action.” How would the Government respond to that? Q223 Nadhim Zahawi: You will be opening yourself Mark Prisk MP: A LEP needs to have a legal up to short-term attack because you will be seen as personality in order to own assets and contracts and not doing very much, but what you are suggesting is to operate in that way. A number of them have asked a nudge process, that is, people will see others to undertake certain functions. Where Government progressing, and then the penny will drop that they Departments engage them and say, “Yes, we would ought to progress as well. I think it would be unwise like to engage with you in delivering those functions,” to be in pursuit of uniformity because it is not the way what will then happen is that the Department will only the country works or the way the economic regions do that if it is with a partnership that has been cleared are in our country, but would you, for example, to progress. That is where the mechanism lies. It, of consider having pathfinders, which is best practice for course, allows those partnerships to also undertake how these things work, so other areas that are left out their own functions and to set their own priorities. It will say, “Well actually this is how it is working. allows Government to be able to engage with them on Maybe we ought to see how it would work for us”? a contract-by-contract basis. Mark Prisk MP: In a funny sense I think what will happen is, that because a number will and have come Q226 Chair: So at some stage—I think I am forward that we will be able to clear to progress interpreting this correctly—the Government would straight away, they will make themselves pathfinders; we do not need to have a formal programme around give a stamp of approval for a particular structure in that. I think that is the way it will work. But I think an area and say, “Yes, that is a LEP that we will deal you are right: what we have tried to do is to recognise with.” the considerable variety of economic geography, Mark Prisk MP: The intention is that we clear the especially within regions, which often is not in any LEPs to be able to progress on the basis of the criteria way reflected in how the RDAs have operated, and that I have set out. To go back to Mr Dromey’s say to business and civic leadership, “It’s your area. discussion around UKTI, it may well be that in a These are the things that you can make a difference major city the delivery of trade and investment is on. What do you want to do?” You are right; it does something that the UKTI wishes to engage in with that open us up in the short term to being accused of not particular city LEP. They will enter into discussions having a clear national plan. I am quite happy to take because it is a LEP that we recognise so we will be the brickbats on that if we get the longer-term able to enter into those discussions directly. It is a progress right, and in four or five years’ time a local different mechanism from what we have had in the business in our constituencies looks at their area and past, where you have a single budget into which five thinks, “You know what? It is easier to start up a Departments put their money and then it is spent on a business. It is easier to grow my business. I feel there much more discretionary basis and, I have to say, a is a partnership here between civic and business more difficult to track and measure basis. This is a leaders that understands my economy and that I feel more direct approach and I think that will deliver good is accountable to me.” That will be good progress. value for money.

Q224 Nadhim Zahawi: Are you ﬁnding it hard with Q227 Chair: I am sorry to labour the point. We are local political leaderships to think beyond political coming on later to the issue of accountability, but at boundaries and to think about economic boundaries? the end of the day if you have an engagement between Mark Prisk MP: I think it has varied. Some people the Government or Government organisations and an have been convinced that we have a secret plan hidden individual local organisation there has to be some sort cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft of governmental definition of the unit they are dealing think of a potential example fairly close to home. with. I am still not quite clear whether this is the case. Would you let them go ahead, a self-declared LEP? Mark Prisk MP: I would say it is slightly different, Mark Prisk MP: We have invited people to bring but I do not know whether it is something my officials forward their proposals. They are not mandatory; we want to clarify in technical terms. What I would say are not dictating, “Thou shalt have a LEP whether you to you is that where we look, for example, at business want one or not.” The fact that we have had 58 support, BIS might be looking at the delivery of how suggests to me that most people do, both the business that might deliver it. It would then look at the and the civic community. There are areas where the partnerships that have progressed and say that we civic community may have come forward and there would like to engage with these. We will then enter have been complaints from the business community into a relationship with them as we would with anyone that they have not been engaged, and the business else. But we would only do so with those partnerships. community now want to take a front step on that. Fine, [Interruption.] That is obviously Mr Binley’s LEP I do not have a problem with that. I think what is calling him now. That is the important change. happening is people are suddenly realising that the age Mr Binley: You handled that test well I must say. of centralisation, in terms of we tell them what they ought to have, has ended. So inevitably there has been Q228 Mr Ward: First of all, good morning. a period of realisation about what this means and how Just to sum up a bit if we can. There seems to be a this works. Some have grasped it quickly; others are trade-off between a lack of prescription and flexibility, taking longer to do so. That is fair enough, I and certainty, so we are moving into a period of understand that. What I envisage is there will be a uncertainty in terms of what these things are. That has diverse range of partnerships undertaking functions come across in a number of presentations. There needs that matter to them and not necessarily to me. to be some solid ground. Can you just sum up what Government will be engaged with them on a function- the solid ground is on which this will be based? by-function basis while providing the national Mark Prisk MP: Do you mean functionally, in terms leadership on the strategic economic priorities for the of who does what? UK as a whole. So it is a little more complex, but actually it is not dissimilar in some ways to the period Q229 Mr Ward: The whole caboodle really. When before we had the RDAs. we are talking about these things, when we are discussing what should happen, there is a lack of clear Q232 Chair: Could I just clarify? Are you saying criteria. For the reasons that you explained, you want that if, for instance, a business group were dissatisfied people to form their own judgments on a local basis. with the LEP and wanted to go it alone, the What is the solid ground that people can stand on Government would deal with them as if they were when they are putting together a notion of what these a LEP? things will be? Mark Prisk MP: The partnership has to have a Mark Prisk MP: The purpose of the LEP, as we have balance of public and private. Let us say, in a said, is to enable them to establish their local hypothetical sense, that a civic side—the local economic priorities and then to deliver on those, authorities—simply cannot agree and the business especially in areas like transport, planning, community starts to take the leadership in putting a infrastructure, regeneration—including housing—in bid together, we will look at that. However, in the end that area, and indeed obviously skills. Looking at the they have to meet the same criterion, which is: is the applications, people have put forward different things board that they have put forward to us a genuine depending on what their priority is. So once cleared, partnership of civic and business? What it does is to they will then talk with the relevant Government put the onus to sort this out back on the local area. Departments, of which there are several, to engage The tricky part from our point of view is if we try with them in forming the relationship so they can then to mandate a partnership it would not work anyway, deliver on those with those Departments where they because if the partners cannot agree on forming the wish to. That will become a mechanism to deliver partnership they certainly won’t be able to maintain specific things in their area related to their local it. We have to be realistic in recognising that if these priority. Now it is complex looking at it from the are going to be genuine partnerships they have to be centre simply because different areas will ask to do bottom up. That does mean that there will be a short different things. We have tried not to say, “You will period when there are discussions and in some cases do , Y and Z,” on those areas. What we have done squabbles. I think you will find that the vast majority is to bring back to the centre a number of national will settle those. functions that we think should be dealt with on a consistent basis and not on a sub-regional basis. Q233 Chair: That may or may not be correct. I accept the point that one of the criteria is that there Q230 Mr Ward: So the solid ground is what works? must be equal representation from the business and Mark Prisk MP: That is a pretty good basis for most the local government community, and without that it things, yes. would not be acceptable. However, from a business perspective, if they could not get a satisfactory Q231 Chair: What would happen if, within a LEP, a response from the local government side, they could group decided in effect they wanted to declare UDI then be effectively precluded from any of the and go their own way because they did not agree with advantages of operating as a LEP. Would that be how it was going within the wider organisation? I can correct? cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft

Mark Prisk MP: If the local partners cannot agree, Philip Rycro t: In some respects the timing of this we cannot form a partnership. So the onus does rest discussion is obviously before two rather important there and I think that is the right way to deal with it. events: the spending review itself, which in terms of setting the forward financial framework is going to be Q234 Margot James: I wanted to probe your view very important, and then there is the White Paper on the role of skills within LEPs. Most of the LEP itself. Both those two, in a sense, are pretty key proposals have indicated that they see themselves as milestones in setting out the forward timeline on this. being involved in setting skills requirements locally. We are working with the RDAs very closely on their Do you think that skills should be a part of every transition closure plans and, as has been mentioned LEPs remit? already, with a target date for the end of March 2012, Mark Prisk MP: No, I do not think that I should say which gives us an end point on that. The key what every partnership should do, that would be my challenge over the next few weeks is going to be how starting point. You are right; some have indicated that we manage through that process: the development of for them skills would be important. As you know we the LEP programme, the future of the national level are looking to free local colleges and training functions, which are again critically dependent on organisations so that they can address what local spending review outcomes. Today is not the best time businesses and local learners want to do more than in a sense to give all the precise dates on that, but we they have been able to in the past. I think this sits very will have the material and the milestones in place to neatly alongside LEPs because then what they will be be able to get that timetable running over the next able to do is work together in order to forge the three or four weeks. priorities and skills and training that the local colleges, training organisations, LEP members and so on wish Q237 Mr Ward: Then 2012 is all up and running, to form, rather than what we set at the centre. I think but will it be all? Will it be some of them? Will some the two sit quite neatly next door to each other. be still halfway through? Mark Prisk MP: The overall 2012 limit is the Q235 Margot James: You have mentioned FE backstop, which is the point at which the RDA wind- colleges; they are often large employers and down should be 99% complete. There may be one or significant businesses in their own right in any given two legal issues around. You may have the legal entity area. Do you see them as being lead players in the that may still exist, but it may be a shadow delivery of the skills agenda and would you envisage organisation. Fundamentally, the new LEP FE colleges as being at the heart of most LEPs or any environment will be fully up and running from that LEP where skills have been identified as being a key spring. You will see it phased, not least because some issue for that LEP? Could you see an FE college being are ready to go and have ambitions, and as Committee a likely player within the organisation of the LEP? members have rightly identified there are pressing priorities, so we do not want to hold it back. What we Mark Prisk MP: I think that there is every chance are trying to do is make it an orderly process that is that that will be the case. Indeed it would be surprising prompt but does not get ahead of itself. It is a tricky if an LEP set out an ambition that specifically balance and I would not pretend to you that it is included improving skills and then failed to engage anything else. We are trying to make sure that it is an with the college in any way, so I would expect them orderly progress so we know where we are, we have to do that. Just to broaden it very slightly if I may, in the asset register, we are talking to the individuals, we those areas where skills are important, I would hope know how we are going to make the transition, we that the civic side of the leadership would incorporate know who is going to be doing what, and then work not just local authorities but obviously FE colleges, towards that over the coming 18 months. universities and of course the trade union movement as well, because they are all part of that local Q238 Rachel Reeves: Welcome to you, Minister. economy. You and your civil servants have said that it is difficult at the moment to be entirely clear because we have Q236 Mr Ward: On timing issues, I am yearning for not yet had the comprehensive spending review. I a bit of prescription. There needs to be some certainty think the same could go for the local authorities who in terms of what is going to happen and when it is have had to come in and put in bids when they are going to happen. I just wonder if you could take us very uncertain about what funding the LEPs might through the timetable, the White Paper and when these have available, and also in the wider context of the things will come into operation. Will they all come in huge cuts to local authority budgets. I was wondering at the same time? Will they be staggered? Just some whether you could comment on that. idea of the process from here to there. Two people in front of us during the course of this Mark Prisk MP: We have received the 58 inquiry were Councillor David Sparks and applications. We are dealing with those and are very John Cridland of the CBI. David Sparks said: “Quite close to completing our full response to those. We frankly, what I would have done is to have had a more have the White Paper that deals not just with LEPs, extensive consultation exercise saying that it is policy but with the other topics I mentioned—the Regional to abolish RDAs and then have a consultation”, and Growth Fund and other related issues as well. Those that “RDAs needed to be reviewed anyway for their will then be set out in the next few weeks. I do not own good, but just abolishing things French know whether my officials want to go into a little revolution-style is not always a good idea.” Then more technical detail about the process. John Cridland of the CBI said, “It was unfortunate cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft that LEPs were requested before a White Paper was Philip Rycro t: Obviously we will be working very issued, because we have been doing things in closely with the RDAs on how we manage this something of a fog.” I was wondering whether you process. If I can just echo what the Minister said could comment on those comments and whether you earlier on in terms of paying tribute to the think there is any merit to them. commitment of the chief executives and the chairs to Mark Prisk MP: I am not quite sure about the French make sure that this is well managed and is an orderly revolution; I think we have moved from Anne Boleyn process. There are a number of headlines in that which to Marie Antoinette, but we will put that to one side. you have identified. There is handling of the assets I think the CBI, naturally, have expressed their wish and the liabilities. Earlier on, members touched on the to have absolute clarity and certainty. We have tail of commitments—where there are legal explained to them that many of the areas where they commitments the RDAs need to see out. There is the want to see that—things like inward investment, whole question of how we manage the process of business support, sector leadership and so on—are closures—so the retention of key staff—through all of going to get precisely that. So quite naturally they that. Then alongside that there is the knowledge and want to have this relatively prescriptive, and we have skills point. How do we make sure that we do not lose spelt out why they won’t be having it as prescriptively that knowledge? How do we capture that? How do we on the ground. I think there is an important issue here, make sure it is available for successor organisations? which is that democratic accountability is an All of these things are advancing week by week. I important issue that needs to sit alongside the think we are in a better place than we were six or importance of growth. I am sure that the CBI will seven weeks ago, and I can tell you that the dialogue recognise that, but we have a very good dialogue with with the RDAs is very intense around all of this and them and I understand where they are coming from. they are very clear that they will each need to develop In terms of local authorities and the uncertainty that a very clear transition and closure plan over the next you described, again we are trying to make sure that few weeks. what local authorities have overwhelmingly asked for in recent years—that we give them greater freedom, Q240 Jack Dromey: This is no way to manage the different powers, more powers, the ability to set their transition is it? John Cridland of the CBI put it very own priorities—is what we are going to deliver to well when he said, “No good businessman or woman them. Certainly most local authority leaders that I would take a current product off the shelf until they speak to, while they would recognise that everyone were ready to replace that product with the new would always love to feel that somehow there is a product.” The difficulty is that you have a period of clearer plan, recognise that the great opportunity here the best part of two years of transition in is that they finally will be able to be an integral part circumstances where, first, you are significantly of real economic partnerships on the ground, and for reducing the moneys available to the RDAs; secondly, the most part they have very much welcomed that. the RGF is not yet established; and thirdly, there is a haemorrhage of talent already under way. Can I first Q239 Chair: Just to take the Marie Antoinette ask you to comment on that? Then I want to come on metaphor a little further, you appreciate that our role to what practical steps you are taking to address that. will not be to play that of the tricoteuses—knitting Mark Prisk MP: The full details of the RGF will be while our regional development policy goes to the set out very shortly in the White Paper and that will guillotine. Obviously we will be making some fairly be progressing promptly. We have already been able positive and robust recommendations on this. I believe to go out in consultation and get responses to that, so David Ward wanted to ask something about the that is progressing. The movement from the RDAs to transition period. the LEPs is complex because it is about dealing with Mr Ward: I think there are a whole bundle of issues. a vast range of contracts and assets and liabilities and It keeps coming back to, or I do anyway, the certainty people. Even if we were moving to nine identical and uncertainty. I am sure it is a worrying time for a organisations it would be difficult. I am not pretending lot of the staff within the RDAs—some are that it is easy. I think this is the right point to do it disappearing and that was always the plan. It is that because we have moved out of recession, we are transition period I think and how in particular we have moving into what I trust and hope will be a period of talked in the past about the assets of the RDAs, and sustained growth; that is the picture that is there. I indeed the liabilities, but it has been pointed out that think that this point in the economic cycle is probably it is not just physical assets that the RDAs have; it is the right moment to do it. knowledge, skills and expertise that we could be in I think I would also say to you that I understand that danger of losing during the transition period. Do you the CBI will be anxious about this: fine. Anyone have some thoughts on how we get from here to there engaged in any transition process will be concerned without losing a lot of the good aspects of the RDAs? to make sure that it works, but judge it when it is Mark Prisk MP: I am very alert to the fact that within settled and when it has progressed. I think when you the RDAs there are people who have experience and see the new LEPs coming forward and we start knowledge that we very much value. I am not in the focusing on getting them up and running, the natural business of suggesting that is not the case. We are anxieties about what it means, how it will work, and trying to make sure that as we manage the transition what it looks like from the centre will actually start to we think about the assets physical, as you rightly dissipate. I understand the scepticism, which is describe, but also the know-how and the knowledge perfectly natural; whenever you make big changes that is there as well. there is always a worry that somehow the new cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft arrangements will not work, and that although the old economies and sectors within key economies, are arrangements were not perfect maybe we could have preserved during the period of transition? reformed them; we felt that wasn’t the case. Either we Mark Prisk MP: We have worked with each of the spend a year to 18 months examining and consulting, RDAs to make sure we know exactly what they are or we make a decision. We made that decision and we doing, where their strengths, weaknesses, assets and will get on with it as promptly as we can. That is liabilities lie—both people and property. What we are the aim. working with them on is a specific and worked- through transition programme for each of them and Q241 Jack Dromey: This comes just at the time together, so that we can see not only what they have when something unites all parties in Parliament— individually, but where the overlaps often lie. What rebalancing the economy, growing the private sector. we are looking to then do is feed those into our Yesterday we had a welcome announcement in approach, both in terms of things like sector relation to the nuclear industry. We hear from leadership, inward investment, trade and business Manchester in their evidence that there are real support, so that we are able to make that transition problems in terms of retaining the necessary skills in clearly. the North West to take full advantage of that. There is Some things will have a clear national strategic the background of last week’s welcome announcement importance. That is where central Government need by Jaguar Land Rover, and the opportunity to build on to step up to the plate, lead that and run that. Other that in terms of a renaissance of motor manufacturing, things will be national assets, but we want to work building on what is already a strong base in the West with the local people—the local partnership—because Midlands. They too, in the West Midlands, are losing they are well placed and they have the local expertise. skills. In practical terms, what are you doing to avoid So we have to do it on a case-by-case basis. But you that loss of key skills at a key time? are absolutely right and we have a specific programme Mark Prisk MP: I am working, as I have since the for each of them. I do not know whether my day I started this job, closely with the management colleagues want to add anything. and senior leadership of people like Jaguar Land Philip Rycro t: If I may just respond to your point Rover, as you know, to make sure that they understand about what I said. I think I chose my words quite that this Government are serious about their business, carefully as transition and closure because clearly— and indeed about their sector. We are strengthening the sector leadership because major multinationals, Q243 Jack Dromey: It is more closure than such as the one you have just described, look to see transition. whether the Government of that country are serious Philip Rycro t: I did not say that. The RDAs clearly about key investment. If they do not see Ministers, are going to close and we have to manage that. It and they do not have active engagement with is how within that you get the transition to the new Ministers, then whatever may be good on the ground arrangements so that we do not lose assets and will be a problem. That is why I have been working knowledge and skills that are important nationally. very strongly to make sure that we strengthen our That is why the process of working this through with sector teams in the Business Department and that we the RDAs is so important to manage over the next make sure that we have a better understanding, few months. whether it is automotive, aerospace, pharmaceutical or Philippa loyd: All I was going to say is that there is whatever, so we are better able to do that. It is about a specific knowledge management workstream in the Ministers forming strong relationships with the senior whole national transition planning approach to help management of those multinationals, not just when ensure that we do track and retain the key knowledge there is a contract to sign or a deal to be done, but where we need to in order to manage the closure and building relationships. I often feel that we as a country transition, as Philip and the Minister have set out. can learn something from other politicians from other countries where Ministers are engaged at a much Q244 Luciana Berger: If I can just come to a earlier stage in building relationships with those question following on from Jack. We are going to talk multinationals. Like you, I very much welcome what a little bit later about EU funding and how that will Jaguar Land Rover have been saying both to us and be secured under new arrangements. If I can use EU to people locally over the last six months. There are funding as an example, in the transition arrangements very encouraging signs on that. But it needs the currently across the UK, where we have RDAs we national engagement as much as it does what happens have specialists that administer funding applications on the ground. The two are very important. in the ongoing process for EU funding. Can you use that as an example of how you see the current skills Q242 Jack Dromey: I totally agree about the and knowledge working when we transition to LEPs? importance of that national engagement and welcome Mark Prisk MP: Just broadly—I may leave some of the national engagement that there has been. We will the technical details—what I would say to you is that be looking for that to be translated into forms of the managing authorities for the different EU support at the next stages. Forgive me if I press you programmes under the structural funds will remain the further on this, because Mr Rycroft, forgive me if I same. What we are looking at is how we can make say this, I think effectively gave the game away. This sure that in this period to the end of 2013—which is more about the closure plan than a transition plan. is when the current range of ERDF programmes, for What practical steps are you taking to ensure that vital example, concludes—the remaining period is skills and knowledge in key RDAs, covering key managed, as it has been in the past, with a central cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

Ev 80 Business, Innovation and Skills Committee: Evidence

19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft managing authority in Whitehall and then working commitments of RDAs. Have you assessed the costs with the local partners on the ground. We have a of forming LEPs versus the savings from abolishing specific part of the transition programme that we have RDAs? talked about that reflects that element of it to make Mark Prisk MP: The RDAs of course receive funds sure that we are looking very carefully at the ERDF from five or so different Departments in a single pot stream of funding, which very often comes into and then use their money in a different way. So it is different projects in different ways, so that we quite difficult to measure that in advance. The view understand where that is and we make sure that we we have taken is that having established the desire to manage that transition in an orderly fashion. wind the RDAs down and replace them with LEPs, we Philip Rycro t: If I may just add briefly to that. need to establish that orderly process, get the financial Obviously we have been working very closely with controls into place, and then start to work that the various Government Departments who lead on the through. I do not think at this stage it would be various aspects of work, in this case CLG, as to what possible to come up with a number, not least because sort of skills and capabilities they will need to transfer a lot of the contracts engaged are live contracts, and from the RDA. That is one of the very clear questions therefore the picture changes on a fairly daily basis. that we are working on.

Q245 Luciana Berger: Just to reinforce the point, Q248 Luciana Berger: We have also heard stories of obviously you are talking about what happens conflicting instructions from BIS on how far the centrally and we know how things work. There is RDAs should be de-committing from, for example, equally expertise in the RDAs currently and it is still Business Link contracts. Can you comment on that unclear how that is going to transition. please? Mark Prisk MP: We are working with them now, so Mark Prisk MP: I am wary of commenting on they are part of that dialogue we have just described. reports. All I would say is that obviously the RDAs need to manage the contractual arrangements they Q246 Mr Ward: This is again about the closure have. They keep us informed, but what we are not programme of the RDAs and their offices. Did you trying to do is micro-manage the details; those are for ever really just consider them as something that could them to deal with. be morphed—as transitional vehicles for moving from here to here—rather than create a new organisation? Q249 Margot James: I would like to ask about the What we have received in a number of presentations position of LEPs taking over the funding of mid- is the fact that the RDAs branched out into far too stream RDA finance projects because there is going many areas and broadened their remit beyond their to be an issue of lead-time gap between the formation original purpose. It could be argued there was a case of the LEPs and the closure of the RDAs. Some RDAs for contracting back to the original RDAs as they were seem to have taken quite swift action to cancel set up. Was that ever considered as a way forward? projects mid-stream. Do you regard this as a problem? Mark Prisk MP: I think the difficulty is that you go Mark Prisk MP: I think again what we have had to back to the question of what are the benefits of the do is say that the RDAs have been required, as every LEPs: one, to get the economic geography right; two, part of the public sector has, to deal with in-year there is a genuine partnership between the business savings. Obviously on Wednesday the Chancellor will and civic communities; and three, they are set out what happens thereafter, so I will not get into accountable. I think it would have been incredibly that. Clearly those have been challenging numbers for difficult, and possibly more confusing, to have tried them. Again what we have tried to do—this is partly to do that, because it might work in some areas but reflecting the future landscape where localism is not in others and the boundaries were changed. Our important—is not to tell them which bit of their view was that it would be better to have a clear budget they need to retain or reduce, or whatever. So decision to actually wind down the RDAs and establish the new LEPs, especially with that very it has to be on an RDA basis, but I do not know different character, because you are moving from what whether my officials want to say anything further on is essentially a Government non-departmental public the technical side of that. body to a local partnership, so they are very different Philip Rycro t: In terms of managing the in character. Will some of the outstanding individuals commitments, clearly as the Minister has said, we are who are currently engaged in economic development in an environment where all aspects of public working for the RDAs be attracted to some of the expenditure have been looked at very carefully and LEPs in the future? Quite possibly, but I think what the RDAs are not exempt from that. Where there is we are trying to make sure is that there is an orderly lower priority activity they have to think very hard transition from RDA to LEP, but for us to try to micro- about whether to continue that. We have been working manage that and move from what is essentially a with them very closely to get a clear fix on what the quango to a local partnership would have been future stream, the tail of commitments that they have possibly more confusing and actually would have over next year, and indeed the two or three years probably taken longer. beyond, what that picture looks like. That therefore has allowed us to engage in discussions within Q247 Luciana Berger: Minister, you mentioned Government about how we manage that in a spending previously that you are currently doing some work to review context. That is obviously something that is assess the assets and liabilities and existing pretty pertinent to tomorrow’s announcements. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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Q250 Margot James: Are you finding differences Will they be under the auspices of LEPs? My fear is, between RDAs in where they are finding their as we have heard, that there is going to be a quick fire efficiency savings from? For example, are you finding sale of those assets. Or are they going to come back that some are finding a greater proportion of their into Whitehall? target savings from back office costs or direct Mark Prisk MP: It will be quite rightly on a case-by- employee redundancy savings, versus grants and case basis, depending on the nature of the asset. You support for business and the sort of money that is tied have named two examples, but there is a huge variety up going directly into business? Are you finding of different types of assets, and indeed liabilities, on differences? which we have worked with the RDAs to establish a Philip Rycroft: Obviously all parts of Government are register. Where there is something that clearly has a looking very hard at the back office admin costs, and national strategic role—a major institution that we required all RDAs to look hard at their happens to be in an area—clearly if that fits with the administrative costs. But if you look at the totality of functions that I have described, like trade and so on, their expenditure through the single pot, that forms a then we would naturally look at central Government relatively small proportion of the total expenditure. In taking a leading role in that area, but we do not rule effect, while all RDAs have had to focus hard on that, out that including the local partnership being able to and I am sure they will continue to focus hard on that, be involved. Other assets will be dealt with on the they have also all had to look very hard at the greater basis of what the partnership asks for and what the volume that sits in the commitments to the contracts. merits are of each case. I am being relatively general, but my official may want to be slightly more Q251 Margot James: One more question if I may, technical. Chair. We have talked about the ERDF situation with Philip Rycroft: Exactly. I think that everybody regards to expertise and trying to hang on to the recognises that the biggest concern around a fire sale knowledge that RDAs have built up. What about is that it would not be a sensible way of dealing with ERDF funding that has been granted that is as yet assets and liabilities. We have to think about these as unspent? If I may give an example from my own assets and liabilities and how we manage this as a region, the West Midlands, £234 million of the current whole, and how we manage this in a way that schedule of funding from ERDF is unspent, requiring leverages the best return for those assets—and turning matched funding. The RDAs were the body charged the liabilities into assets over time—from the point of with providing some of that matched funding; they no view of the local areas. This will require a lot of hard longer have the money with which to do that. What work over time, with the LEPs among others, in order will happen to that unspent money if they are not to realise best value from that asset and liability allowed to find other sources of matched funding? portfolio. Mark Prisk MP: As you know, the Treasury have Philippa Lloyd: We are establishing principles quite rightly said that, for all parts of Government, surrounding the disposal of assets, working very commitments cannot be entered into in those closely with Communities and Local Government and circumstances without prior permission beyond the Treasury, and that will provide the underlying basis current financial year, which is a perfectly logical on which the case-by-case consideration will then thing to do. That has meant that there has been at least proceed. That is what we are working on. some ability to get a handle on that. In terms of Mark Prisk MP: So the merit will be based on a clear existing commitments where it is clear that there is a set of principles. I think that is the important point, copper-bottom legal commitment, then obviously that because clearly you are dealing with lots of very is something we are looking at very closely to make different types of assets so you need to have sure that we do not by accident suddenly manage to something that is an objective set of criteria. undermine a project. One of the tricky parts of the old regime that we are dealing with is that a project may Q253 Nadhim Zahawi: Minister, you quite rightly have a little bit of public funding, perhaps through an explained the way RDAs were funded by pooling five RDA or maybe another public body, a little bit of Departments and taking bits of money, but that this is ERDF and some private funding as well. This is why difficult to measure. How will the LEPs be funded? we are just trying to make sure that we step carefully Will there be additional public funding above the so that we do not find that one of those elements drops Regional Growth Fund for LEPs? away without us being aware of that in advance. It Mark Prisk MP: Our view is very much that the LEPs is difficult. have brought forward a range of different requests for things they want to do. The basis of how central Q252 Luciana Berger: Can I ask specifically about Government works with them, and therefore the the RDA assets? We know that RDAs have been asked funding that comes with the delivery of those projects, to submit a list of everything that they have. Two will be on a project-by-project basis. In terms of value examples in my constituency: Wavertree Technology for money, I think you are right in alluding to the Park is currently under the auspices of the North West problem that we have had with the previous Development Agency, as is the former Littlewoods arrangements, which is that the remit has not been that building, which was due to be two new schools under clear and the line of accountability has not been that the Building Schools for the Future programme, and clear. I think one of the benefits of the LEPs will be now not going ahead. What is going to happen to that the remit will be much clearer, and the those assets? We have heard different and conflicting accountability will be much clearer. I think that will things. Are they going to be transferred to localities? be an improvement. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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Q254 Nadhim Zahawi: And will the funding be Mark Prisk MP: The first role of the LEP is to from central Government or from local government? establish that vision as to what their economic Mark Prisk MP: Where we engage with a partnership priorities are. That does not need to be something that for a function that we wish to do with them in is a newly established bureaucracy with additional partnership, then clearly if they are delivering streams of funding. Then they will want to actually something that a Department is looking at, such as tackle issues around transport, infrastructure, business support, we would enter into a relationship planning, regeneration and skills or whatever. As I with them. That would be a contractual relationship, have described, that will then come with a different as you would expect in any other circumstance. arrangement for funding. In addition to that, of course, local authorities will have new powers, which the Q255 Nadhim Zahawi: Nadhim Zahawi: So it is on CLG are bringing forward, in terms of changes to how a case-by-case basis? they operate and the additional set of tools around Mark Prisk MP: Yes. TIF and the two incentives I talked about in terms of business rate and council tax bonus. They will have a Q256 Nadhim Zahawi: Would you extend local range of tools available to them, and what they will authority powers to raise money for the LEP then be able to do, in the way they wish, is to draw operations? Just so one can get some baseline those together and vest those in the partnership consistency on some of the evidence we have. working with business, in order to put that forward. It Mark Prisk MP: As you are aware, and as all is a different funding model; I fully accept that. But I Members are aware, the Communities and Local do not think it necessarily means that some areas will Government Department has set out their ideas for a be unable to operate these LEPs without a pot of bonus around council tax and a bonus around business administrative funding from central Government. rates. They are looking at the Tax Increment Finance arrangements. The details of those will be set out in Q261 Chair: I still think it comes back to how they the White Paper. You are quite right: those sit are going to develop the expertise to make, say, alongside the ability of the LEPs to draw down a applications to the RGF, or draw up transport plans, range of different tools in economic development, so unless they can draw in additional expertise that, that they can then apply those resources to the vision virtually by definition, they do not have at the that they have identified for their area. Therefore, that moment. will be included, and it will be set out in detail in the Mark Prisk MP: Well I am not sure by definition they White Paper. don’t have that at the moment. What is encouraging about some of the partnership bids we have seen is Q257 Chair: Can I pick up on this very point? I have the way in which both civic and business leaders have just heard reports that the CLG failed to include an identified that they wish to bring both power and item to cover funding for LEPs in their spending resources to that discussion. I would not say that they review bid. Are you able to clarify that? are without the ability to deal with that. The fact that Mark Prisk MP: I am not in a position to make a there are a fair number—I forget the exact number— comment on that. I am sorry, Chairman. of applications or expressions of interest in the RGF would suggest that actually they are already quite Q258 Nadhim Zahawi: Just one final bit. It is well placed. completely logical that they come forward with projects that central Government can then look at. Is Q262 Mr Ward: I think it is a question of whether it only BIS or will CLG and other Departments be it is going to be money in, money out. Where there is able to fund those projects? a particular agenda, there will be an allocation of Mark Prisk MP: I think, for example, a number of funding, whether it is to deal with skills or whether it LEPs have come forward with their ideas for specific is to deal with other matters. The money will come in regeneration programmes, and that is clearly where and the money will go out on that. I suppose we are CLG will want to engage with them. Yes, the talking about some core funding for the people who opportunity for Whitehall Departments to engage with are going to put in the bids in the first place. It is that partnerships is an important element to this. core funding of the activities, which may be very small, but may still be required. Q259 Nadhim Zahawi: With pots of money—with Mark Prisk MP: I think what I would say is, we are funding? wary of going back to a situation where we establish Mark Prisk MP: Yes, with projects they want to a fund, and the moment we announce that fund it will deliver that are funded centrally. have already been spent in the minds of the organisations because it will be identified as being Q260 Chair: Could I just make one point? One of capable of doing that. What we want them to do is to the problems as I see it is that if there is not funding focus on the things that make a difference to freeing for a LEP, those areas that historically have not had a the local economy. One of the key points about this is strong business involvement in regeneration will very that it is about local growth. I would put to you that often, almost by definition, be the areas that are most while funding projects is important, sorting out in need of rebalancing the economy. Unless there is bureaucracy and red tape, dealing with some of the some sort of CLG-funded support for a bid, they are planning restrictions and freeing the local economy is going to lose out. How are you going to counteract just as important to local businesses as the size of the this particular problem? grants they offer. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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Q263 Nadhim Zahawi: Just so that we are clear, my comments, submissions and letters that I have seen, understanding is that this is a very clever and what they really want is a local partnership that revolutionary idea to free up local government to be understands what is holding them back. Yes, they able to raise what I would call the core funding, so want something that is able to talk with them and that it pays for the expertise that can then bid for engage with them on things like business support, but projects with Departments or elsewhere. they also want something that deals with the issues Mark Prisk MP: Yes. The White Paper will set out around planning, infrastructure, the need to regenerate the details in terms of the bonus in terms of council areas and the freeing up of the skills agenda so that tax, the bonus in terms of business rates and the TIF they can get the people they actually need and not the funding. These will provide the bedrock, if you like, people central Government think they ought to have. that will be there. Those powers and that freeing of the local economy is just as important as how much money is actually Q264 Chair: Can I bring Rachel Reeves in? put forward. Particularly on the aspect of EU funding, which partly I cannot give you a speciﬁc answer because, as we touches on the issues that Margot James raised earlier. know, I am speaking just before the comprehensive spending review. What I would say to you is that the Q265 Rachel Reeves: I was not going to ask about amount of central administrative funding for LEPs EU funding, but I was going to ask about the fact that will not be the determinant as to whether or not these I am still unclear whether the LEPs are going to have are successful. What will matter is whether they have core funding. Are they? the vision, the partnership, the geography and the Mark Prisk MP: We are looking at the details of what ability to deliver. Funds come into that, but it is also we can and cannot fund, because at the moment of about their ability to recognise the need to remove the course, we do not have our own departmental budget barriers for small businesses. That is what SMEs say ﬁnalised. to me.

Q266 Rachel Reeves: It is just a bit funny, isn’t it, Q267 Rachel Reeves: When I was in business I to ask local authorities and businesses to put in bids would have found it very hard to put in a submission to set up LEPs with what they are going to achieve to run something if I had no idea of whether there and what they are going to do, without them knowing would be any funding to enable me to run it. whether they are going to have any funding to be able Mark Prisk MP: Well, when I was in business, I think to do these things. I expect what an LEP can achieve what I found was important was that when you are might depend quite crucially not just on what powers looking to put proposals forward you are clear about they have but what funding they will have as well. what your marketing plan is. I have been really One example, which is a bit of a broader issue as well, encouraged by the 58 proposals that we have received, is around tourism funding. Welcome to Yorkshire, for because there is a very high quality of ambition. I example, has been very successful. One of the things think that is very encouraging. that all of the LEPs in Yorkshire have put in their bids is that they want to set up a community interest Q268 Chair: You have mentioned, quite rightly, high company—called Yorkshire Enterprise Partnership, I quality of ambition, but let us look at the reality of believe—that would do some of the regional stuff that the situation. You have a LEP half comprised of the RDA successfully did in the past. That community interest company would need core funding because, representatives from the business community— for example, in Leeds I believe we are in the process businesses that in the current economic climate may of closing 20 libraries, day care centres etc. I am not be really struggling and not able to free up either sure how local authorities are going to be able to fund ﬁnancial or personnel resources to make major things given the cuts that are going on. Is there going contributions to LEP bids. In the other half, you have to be core funding? You cannot answer that maybe, local authorities that at the moment are rigorously and yet the LEPs have to put bids in. Then what about going through their budgets in order to see how best these community interest companies, which I guess they can maintain their statutory obligation, and in are critical to the success of LEPs, certainly in my themselves, are unlikely to be able to devote any area? major resources to complicated bids. In addition, you Mark Prisk MP: If you have a successful organisation have EU bids, which we know are highly specialised that has been helping grow the local economy, I would and complex and require a degree of expertise in order be amazed if the LEPs do not want to participate. In to be successful. Similarly, major projects, particularly tourism for example, it would be Visit England that transport projects, all require specialists with a high will be, if you like, the central body that will be degree of expertise, often quite expensive, and yet you working with local partnerships to develop the new have two sides of this LEP equation that are unlikely organisations, or indeed working with the established to be able to devote the resources to putting in the sort ones. That stream will be there. of bids that are necessary. How seriously are you In terms of the central funding, I think we have to be going to develop access to EU funding and major careful not to assume that economic development is projects on the basis that appears to be emerging at just about money, or indeed administrative money. Of the moment? course there needs to be some funding to enable them Mark Prisk MP: Well, Mr Bailey, I am not quite as to be able to develop what they want to achieve, but gloomy, if I can put it that way, in that context. for a lot of small businesses, especially in many of the Chair: Realistic. cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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Mark Prisk MP: Okay, that is perhaps fairer. You say Q271 Luciana Berger: You see that everything will “realistic”; I say “gloomy”. The reality is we are in be done centrally then? If you said that your feedback very difficult and straitened times. The current has been that LEPs only want to be part of the Government, I think rightly, as a member of it, have management, rather than the application— taken the view that we need to tackle this deficit that Mark Prisk MP: It is a complicated situation. ERDF we have inherited. That means there is going to be have a managing authority, which in this case is a tremendous pressure right across every part of the Government Department—the Communities and public sector, so it is not as easy as it might have been Local Government Department. It will then have two or three years ago to put in the funds that we delivery partners on the ground, which are at the would like to. Nevertheless, I think the landscape that moment predominantly RDAs, but they have other we are shaping—one where the partnerships are projects where there are other delivery partners. What genuinely reflective of an area that people feel an we are looking to do is to manage that process, keep identity with, where you put the business, the local the managing authority at the centre constant and then authority and other civic leaders together and there is look at how we transfer that across to the LEPs. That accountability—is the right shape for that. is an orderly process across through to that. You have Now, at the moment the picture is obviously difficult the central managing authority, which is what Brussels financially, but I do not think we should solely hark requires of any EU member, and then they have their on principally about how much grant, or how much delivery partners. Obviously what we are looking to subsidy there is. It is also about the powers and how do is to make sure that we involve the LEPs as the they are used. It is about getting the benefit of civic potential new delivery partners, so that they are able and business leaders to work more closely together. I to engage in the discussion about the overall priorities, think there is a real benefit from that. the topics, if you like. The types of expenditure under EDRF are predominantly set now and up until the end Q269 Nadhim Zahawi: I beg your indulgence just of 2013. You are right, it tends to take about 18 so that we can have a balanced inquiry. I do recall that months or two years in advance. The broad parameters when we asked the IOD, the FSB, the CBI and the of what they are going to spend those on are defined, Chambers about funding, they said that was not the maybe not with regard to individual elements or key priority, which I was surprised at, I have to be honest. priorities within them, but what we are looking to do The priority was strategic vision, direction and is make sure we can involve the LEPs in as effective passion from the LEPs, and the board of the LEP, in a way as possible, so that they have a say in choosing terms of delivering on some of the infrastructure within that programme, let us say on regeneration, projects that businesses were worried about. That did how that might be delivered. come across in the evidence session that we had with Philippa loyd: As the Minister said, most LEPs that them, as I recall. have come forward have said that they wanted a Mark Prisk MP: Certainly it would not reflect the greater say in ERDF implementation rather than discussions that we have had with them both now as taking on delivery per se. CLG are working hard with a Minister in Government, but also prior to this when thinking through the priorities for businesses on the the RDAs in order to look at new delivery ground. arrangements, because obviously we will not have RDAs going forward, in order to minimise disruption and to ensure that we have continuity of ERDF going Q270 Luciana Berger: Just specifically on the EU forward. Obviously that involves working with the funding, carrying on from previously. If LEPs are not in place to cover all areas by very early next year, Commission as well, so that is what is going on at how do you think they will be able to attract new EU the moment. funding from 2013? Mark Prisk MP: The new scheme starts in 2014. Q272 Rachel Reeves: The RGF is obviously £1 Luciana Berger: Yes, but it is sometimes up to two billion over two years. Most regeneration and years for the lead-up times. infrastructure projects take longer than two years. Do Mark Prisk MP: Well, the priorities are pretty much you envisage the RGF being something that continues, set for the period through to 2013 now in fact, because and would bids for projects that last longer than two they tend to have an 18-month clearance programme years be considered? with Brussels and so on. The reality is that the broad Mark Prisk MP: The precise criteria of what will and commitments, as it were, in terms of ERDF, for the will not be accepted by the RGF will be set out in the period to the end of 2013, are pretty much set. What White Paper. In terms of the funds, you are right to we are looking to do is to see how we can involve the say that programmes will very often go beyond that LEPs so that they can be a part of the discussions period and that is something that Lord Heseltine and about how those are managed. I thought what was his panel will look at very carefully, not least looking interesting was that most of them didn’t come forward at what the key criteria are, which are of course first and say, “We want to run these,” but what they wanted of all something that will encourage growth, and, to do was to be able to participate in how they are secondly in particular, growth in an area where there managed. That is a different thing. They wanted to is a particular dependence on one sector, namely the have their say, as it were. As for the period after 2013, public sector, and how that can be better diversified. when the new phase starts from 2014, that is Those will be the principal criteria on which it will be something which obviously I am not in a position to based. The time frame is not something I can go into detail on today. comment on at this stage. cobber Pack: U PL: COE1 [O] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

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Q273 Rachel Reeves: Will we hear more about that information into the public domain of the White Paper in the comprehensive spending review? has to take its place in the queue, if you like, in terms Mark Prisk MP: You will hear more about it in the of management of that. For that reason, there is not a White Paper. ﬁrm date yet, but we hope to get one very soon.

Q274 Rachel Reeves: What about whether this is an Q278 Chair: So we hope to get an announcement of ongoing pot of money? We know that for the next when it will be very soon, or we will get the two years there is £1 billion. Will we learn in the independent— comprehensive spending review? Philip Rycro t: A firm date to which we can work. Mark Prisk MP: It will be in the White Paper. The comprehensive spending review will obviously cover Q279 Rachel Reeves: Bids into the RGF, are they the big envelope numbers. The White Paper will then due in December? be able to set out the details of the RGF, the criteria, Mark Prisk MP: I will need to double check with my the process and so on. So that is where you will get officials on that so I do not give the wrong answer. that detail. Philippa loyd: Yes they are. The RGF itself has to be launched very soon. Q275 Rachel Reeves: Okay. So we will know when we have the White Paper whether the Regional Q280 Rachel Reeves: Okay. Will we have the White Growth Fund is just two years or whether it is an Paper before this? ongoing facility. Mark Prisk MP: That’s a good way of asking the Mark Prisk MP: It will set that out. It may take the same question. view, and it may be a logical view, which is that in Philippa loyd: It all depends on the decisions taken fact they will want to wait to see how that is on the timing. It could be at the same time as the progressed in the first year before making a final White Paper or it could be earlier. Decisions on that decision. However, clearly you will have to reflect on will be taken very soon. the fact that the White Paper will set out proposals in the context of the spending envelope as a whole. Q281 Luciana Berger: Who takes that decision? Clearly the spending review will be looking at that Who is ultimately responsible for deciding the whole period through until the end of this Parliament. timetable? Mark Prisk MP: Well clearly not just one Q276 Rachel Reeves: I am sure that you will tell me Department, because there are financial issues, there that this will be set out in the White Paper as well. are legal issues and there are issues across other There was some suggestion that there would be a Departments. It is something that has to be dealt with minimum bid, or a recommendation of minimum bids, across Whitehall. to the RGF of about £1 million. The business representatives who came to see us, especially the Q282 Chair: Can we move to an issue we touched FSB, suggested that bids for smaller amounts of on earlier? The issue of structure and accountability. moneys would be very useful, especially for smaller We had a discussion about the level of official businesses. Is that something you would envisage or Government recognition and the legal entity that LEPs that you could comment on at the moment? would have. Will LEP accounts and performance be Mark Prisk MP: I think at this stage the criteria, as I audited and if so, by whom? say, will be finalised and I am wary of giving you one Mark Prisk MP: Where an LEP takes on a function element and not the whole picture. That will be set and therefore draws funds down from a Government out in the White Paper. I would be surprised if the Department, then we would manage that as we would figure were to go below £1 million, as perhaps the manage any other arrangement in terms of public FSB have suggested. accountability and so on. Clearly where a local partnership is engaged in using its own resources, they Q277 Chair: When will we get the White Paper? will be accountable in the normal way that they would Can you give a target date? in those functions. There is a distinction between the Mark Prisk MP: As you will understand, Mr Bailey, two. It is important to bear in mind that these are not we have the comprehensive spending review non-departmental public bodies; these are local tomorrow. I think I cheerfully said it was in two days’ partnerships. Therefore, we will not centrally be trying time earlier, for which I apologise—it has been a long to impose some sort of heavy-handed, detailed central day. Once that has happened there is a whole series of accountancy process. Where they are dealing with announcements that we will want to make, not only their own resources, they will be subject to their own this Department, but many others. Because of what normal processes. Where we as a Department, or will have happened then, of course, we will have another Department, are bringing funds forward, then budgets that we can start to flesh out in terms of logically obviously we will track, monitor and activities. For that reason, I cannot give you a date at scrutinise that as we would normally. this stage, in terms of the White Paper, but I do not know whether my officials want to explain the process Q283 Chair: If LEPs have drawn down Government that we are going through, which might help outline funds as you said, will there be a process for, if you things. like, monitoring those funds—their outcomes and Philip Rycro t: Just very briefly. Obviously from the value for money—and will the assessment of them spending review the sequence of managing that and the details be laid before Parliament? cobber Pack: U PL: COE1 [E] Processed: [07-12-2010 16:42] Job: 005834 Unit: PG04 Source: /MILES/PKU/INPUT/005834/005834_No4-1 OctCORRECTED.xml

Ev 86 Business, Innovation and Skills Committee: Evidence

19 October 2010 Mr Mark Prisk MP, Philippa Lloyd and Philip Rycroft

Mark Prisk MP: There will be the normal not want to try and force them. I would be surprised performance management and monitoring of that if a political party and a local authority decided to process. I do not know if my ofﬁcial want to add to walk away from a successful partnership. We that in terms of— recognise that over a period of seven, eight, 10 or 15 years, there will be changes. Of course there will. Q284 Chair: I would be grateful for an elaboration Some partnerships will be very successful and others on this. will struggle. That is the nature of these things. But I Philippa loyd: On grant conditions, where think our view will be that it is not for us to wade partnerships receive funding from Government, grant straight in and dictate who does what. conditions would set out the proper accountability, including appraisal and evaluation arrangements, as Q289 Nadhim Zahawi: Finally, we hear from Bob we would normally. Neill that London will have its own LEPs. What is your view in terms of LEPs for London? Q285 Chair: Will there be some sort of value for Mark Prisk MP: The LDA is not directly within my money assessment as was done with the RDAs by jurisdiction. It is within the Mayor’s jurisdiction, and PWC, for example? we want to work closely with him and the local Mark Prisk MP: I do not think we have taken a view political and business communities in London. We in the context of saying that if as a Department we are have sought expressions of interest in how LEPs engaging with a series of organisations, in this case might be formed, and we are expecting those to be LEPs, then clearly we want to monitor that very returned to us on 5 November. closely and make sure we are getting value for money. As for the formal decision about the nature of that, Q290 Chair: Just before we conclude, could I just we have not taken that decision yet. get back to the issue we touched on before regarding the legal status of LEPs? If they are not on a statutory Q286 Chair: One point on that. The Audit footing, what would be the legal basis for monitoring Commission has been earmarked for closure. What them? will be the successor arrangements in the context of Mark Prisk MP: Most of these partnerships will monitoring LEPs. probably have a company status in legal terms. I think Mark Prisk MP: In terms of monitoring local we should distinguish between a statutory footing—in government you will appreciate that that more speciﬁc other words, what I interpret by that is that we pass a issue is beyond my remit. I think I would probably be new piece of legislation to create a new, different kind wise not to stray beyond it too far. As I say, clearly of legal animal. Many of these partnerships will be every local authority—or more to the point, every part of a limited company or something of that type. LEP—will be subject to normal performance There will be variations of that, and that is why we measurement. However, in terms of central have said that we will not be too prescriptive about Government funding, which is what I am focussed on the legal personality, but they will need to have a and is part of my budget, that will be dealt with as we legal personality. deal with any other public partner, as it were. Q291 Chair: Presumably if they are set up on some Q287 Nadhim Zahawi: Just a supplementary point sort of company basis, then appropriate company law on that. Presumably local accountability kicks in, and would be exercisable. Is that correct? the boards of those LEPs will have a governance Philip Rycro t: Exactly. They would not be exempt structure to them, and that would be dealt with locally from company law. Of course, Government have in the normal way. arrangements with a whole variety of bodies all the Mark Prisk MP: Exactly. I think what Mr Bailey was time. In terms of the standard accounting procedures, concerned about was the inter-relationship between the visibility to Parliament of Government the LEP and the central Government. However, you expenditure, the monitoring of that and the value for are absolutely right. I think the element that we should money, there will be no exemptions for LEPs from all not ignore is the fact that if there is a local public of those normal processes in terms of the good line of body that is a partnership, it will be directly sight and in terms of the proper expenditure of accountable locally. public money.

Q288 Nadhim Zahawi: Just rolling the clock Q292 Chair: Thank you. That concludes our forward. If in seven years’ time there is a change in questioning. We have gone from Anne Boleyn, the politics of a particular local authority and they appropriately to marriage guidance and then the have a seven-year itch and want a divorce from the French revolution. I must confess, when we decided LEP, what would happen then? Does that cause on this as a topic I had not realised just how far and turbulence in terms of business? wide it ranged. Thank you, Minister and your ofﬁcials. Mark Prisk MP: If the partners fall out, clearly we We will be deliberating and producing a report with are happy to take what I would describe as a very recommendations fairly shortly. Thank you very informal role of marriage guidance. However, we do much. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [SO] PPSysB Job: 005834 Unit: PG05

Business, Innovation and Skills Committee: Evidence Ev 87 Written evidence

Written evidence from the Department for Business, Innovation and Skills Executive Summary – The Coalition Agreement committed the Government to creating a more balanced economy where new business and economic opportunities are more evenly shared between regions and industries, ensuring that every person has a stake in growth and makes the most of available resources. – Central and Local Government have important roles to play in enabling recovery and economic rebalancing. They must work with the grain of the market and focus on dealing with those market failures which inhibit private sector growth and lead to a lack of balance. — In pursuing this, the RDAs have had a range of local successes. However, economic performance has continued to vary considerably with persistent differences between the North and South. As a result, the Government does not believe that the current arrangements can be allowed to continue as they are and must be improved. — Instead, the Government is committed to supporting the creation of local enterprise partnerships—joint local authority-business bodies—to replace RDAs. These partnerships will lead efforts to improve the economic performance of the places they represent. BIS and CLG are jointly leading the development of the policy on local enterprise partnerships. — The funding of local enterprise partnerships is a matter that will be considered as part of the Spending Review. — The Government has said that partnerships will play an important role in bringing together bids to the new Regional Growth Fund for economic growth projects in their areas. — The Government will publish a White Paper on sub-national growth that will set out more detail on the creation of local enterprise partnerships—as well as on the Regional Growth Fund. — The Government wishes to see an orderly transition from the current arrangements to the new arrangements.

Introduction 1. As the Strategy for Sustainable Growth (published by the Government on 20 July 2010) makes clear, it is the private sector that will provide the growth this country needs. However, to support the private sector we need a growth agenda where the Government’s role is as an enabler of balanced and sustainable growth. In line with this, the Coalition Agreement committed the Government to ensuring that the economy is more balanced with new business and economic opportunities more evenly shared between regions and industries, ensuring that every person has a stake in growth and makes the most of available resources.

Economic Context and the Rationale for Government Intervention 2. The Government has inherited an extremely fragile economy,only just returning to growth after a deep recession and with an unsustainable budget deficit. The Budget announced urgent action to cut the fiscal deficit to ensure macroeconomic stability. However, this means cuts in public spending and therefore the recovery will have to be led by growth in the private sector. As such, limited public sector resources need to be focused on ensuring that the conditions are in place to facilitate private sector growth. 3. The economy that emerges from recession needs to be stronger and more resilient. The recession has showed us that a lack of balance in the economy makes it vulnerable to shocks, undermining its long-term growth potential. In future, the Government needs to shape a rebalanced and fairer economy that is more balanced between the private and public sectors, more sectorally balanced, and less reliant on the Greater South East. Both central and local government have important roles to play in enabling recovery and economic rebalancing. They must work with the grain of the market and focus on dealing with those market failures which inhibit private sector growth and lead to a lack of balance. 4. Efforts by the previous Government to spread growth evenly were ineffective and inefficient. The Greater South East still persistently outperforms the rest of the country: gross value added (GVA) per head in the Greater South East in 2008 was £25,697 compared to an average of £17,601 in the North, West and Midlands, and in recent years GVA per head has been growing faster. This is not a new phenomenon and it is believed that the current geographical pattern of economic activity emerged in the 1920s, as traditional manufacturing with a strong presence in the North and Midlands began to lose its prominence in the British economy in favour of service sectors with a significant presence in London and the South East. Government needs to help places with declining industries to adjust and grow in new and competitive sectors. Places are not bound by their economic history: European regions with similar initial sectoral specialisations in the early 1980s subsequently had very different economic outcomes.1

1 Overman and Puga (1999), Unemployment clusters across European regions and countries. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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5. To secure the recovery and rebalance the economy, Government must create an environment that nurtures new business and encourages existing ones to grow. Ensuring that firms have access to skilled labour and incentives to innovate is important in driving this growth. Evidence shows that differences in the levels of skills and innovation explain a large part of the differing growth rates across the country. However, there are other factors such as investment in infrastructure, access to finance and planning laws which, although they do not drive growth, can act as barriers—improvements in these areas are likely to facilitate further growth where the underlying conditions exist. 6. The Government believes that policy to promote growth should champion the growth of successful places. Agglomeration effects mean that businesses experience productivity gains from locating near other businesses that benefit the whole economy. It is important therefore that Government works with these forces and promotes growing areas outside the Greater South East with vibrant economies, particularly within the major cities. Research by the Spatial Economic Research Centre suggests that the underlying conditions for growth (such as a skills base and innovation) exist in many cities outside London but that market failures, such as a lack of affordable housing owing to planning restrictions and inadequate transport infrastructure are holding back growth and preventing people from moving in to take jobs. Intervening to correct these would provide a high return means of achieving growth for the whole country and for the areas surrounding these cities. 7. For places that do not have the underlying conditions for growth, achieving growth will be more difficult and may involve dealing with complex conditions which prevent businesses from growing and locating in a place. Evidence2 suggests that the primary focus should be on dealing with the individual characteristics of people and businesses. This means developing a skills base, improving managerial and entrepreneurial skills and tackling the barriers people experience to becoming employed—be they related to ethnicity, childcare, incentives or transport. 8. To realise opportunities for growth it is important both to ensure that policy is shaped to meet the different needs of places across the country and that the full geographic impacts of decisions are considered. Governance needs to take place at the lowest level that captures all the relevant externalities and economies of scale. To achieve this the Government must delegate the governance of many policy areas to the functional economic area at which markets operate, while establishing leadership at national level for those policies that tackle national and international market failures. There are also functions where the skills or experience required is specialised, such that there are economies of scale and scope in organising the provision of these skills at the national level—often this will be because the skills relate to large and complex markets where by their nature impact on a national and global scale.

The Role and Effectiveness of the Regional Development Agencies 9. London and the South East as a whole have been significantly more prosperous than the rest of the country for at least the last 140 years.3 There have been periods where regions outside London and the South East have caught up; however, after the 1970s the regions began to diverge again due to renewed faster growth in London and the South East. This divergence seems to have accelerated over the last 20 years. The RDAs were created to be a business-led and strategic driver of economic development in their regions, however, since their inception the gap in growth rates between London and the South East and the rest of the country has persisted. For example, between 1989 and 1998 the growth rate of London and the South East was on average 0.6% higher than the rest of the country. And, between 1999 and 2008 the gap was the same, with the gap even widening to 0.7% between 2002 and 2008. 10. Under the Regional Development Agencies Act, each RDA has five statutory purposes to pursue in its area: — to further economic development and regeneration; — to promote business efficiency, investment and competitiveness; — to promote employment; — to enhance the development and application of skills relevant to employment; and — to contribute to sustainable development. In pursuing their purposes the RDAs have had a range of local successes. However, as the economic analysis indicates, economic performance across England has continued to vary considerably with persistent differences remaining between the North and South. 11. While the previous regional policy has been unsuccessful in narrowing the differences in growth rates across the country, the RDAs have had their remit extended on a number of occasions, resulting in them having a range of responsibilities that is so broad that they have not been able to focus on their core objectives. Further to this, they have suffered from having to operate within arbitrary boundaries that do not reflect natural economic areas and from a lack of local accountability. Additionally, the waste caused

2 The richest area has wages 67% greater than the poorest; but when the effect of individual characteristics are stripped out, the gap due to place is only 16%. 3 BIS calculation on data from Geary and Stark (2010), Crafts (2004a and b), Lee (1971) and ONS. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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by a lack of focus on core objectives is reflected in the evaluation of RDA spending which found that just 50% of spending produced 85% of value added and meaning that 50% of RDA spending had little measured impact on regional economies.4 12. As a result, the Government does not believe that the current arrangements can be allowed to continue as they are and must be improved to better promote growth as a route out of recession.

The Government’s Solution—The Creation of Local Enterprise Partnerships 13. In line with its commitment to decentralise power and its wider localism agenda, the Government wants to see local civic and business leaders come together to build a common, bottom up vision for what could be achieved in their area. In particular, the Government is committed to supporting the creation of local enterprise partnerships—joint local authority-business bodies—to replace RDAs. The intention is that these partnerships will lead efforts to improve the economic performance of the places they represent. The partnerships will complement the Government’s actions at national level to rebuild and rebalance the economy, both structurally and geographically, while supporting reductions in the deficit. BIS and CLG are jointly leading the development of policy on local enterprise partnerships. 14. The Secretaries of State for Communities and Local Government, and Business, Innovation and Skills wrote to local authority and business leaders on 29 June 2010 inviting them to work with the Government to help strengthen their local economies through creating local enterprise partnerships. The letter encourages local businesses and councils to work together to develop their proposals for local enterprise partnerships, and asks for outline proposals to be received by 6 September.

Functions 15. The Government expects that local enterprise partnerships will provide the strategic leadership for economic development in the area that they cover. It is likely that they will want to set out the local economic priorities as a vision for economic renewal. 16. In support of this, it is expected that partnerships will want to focus on creating the right environment for business and growth in their areas, including tackling issues such as planning and housing, local transport and infrastructure priorities, employment and enterprise and the local action to support the transition to the low carbon economy.It will be up to the partnerships themselves to propose which functions to take on and how they will fulfil them. However, it is likely that they will want, in view of their importance to local economies, to work closely with universities and further education colleges—who the Government is freeing up to deliver the skills in demand locally—and with other stakeholders. 17. To fulfil their proposed role it is expected that local enterprise partnerships will take on some of the functions currently being carried out by the RDAs. The Government is already working with the RDAs to prepare for this transition and is reviewing their functions as part of this. However, the Government believes that some current RDA functions will be best led at the national level under the new arrangements—these include inward investment, sector leadership, responsibility for business support, innovation, and access to finance. The Government is keen to hear how partnerships see themselves providing a local role in relation to the delivery of these functions in their area. 18. In terms of value for money, the Government will expect local enterprise partnerships to demonstrate how they will achieve value for money in the delivery of the functions that they provide. For those functions that will be delivered under national leadership, the Government will continue to endeavour to provide them in the way that delivers value for money.

Structures, governance and accountability 19. The Government is concerned that some local administrative boundaries do not reflect real functional economic areas. Decisions made at those levels therefore are not always co-ordinated or do not always take into account the effects outside the decision-making areas. For example, decisions on strategic planning issues need to take into account the impacts on the broader functional economic area. As such, the Government is keen that local enterprise partnerships reflect the natural economic geography of the areas they serve, and cover complete functional economic areas. It is expected that this will mean that partnerships will include groups of upper tier local authorities, providing the partnerships with the critical mass to be sufficiently strategic to maximise their effectiveness. 20. It will be for those coming forward with outline proposals to ensure that they line up with the boundaries of neighbouring partnerships. Additionally, where it is clearly and demonstrably the wish of the business and local authority leaders to establish a local enterprise partnership for a functional economic area or group of functional economic areas that match the existing regional boundaries, the Government will not object on grounds of geography. The Government will consider the outline proposals it receives by 6 September and decide how to respond to them.

4 BIS calculation based on PricewaterhouseCoopers (2009), Impact of RDA spending volume 1. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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21. With regard to the detailed governance of individual partnerships, that will be for the partnerships themselves to propose. However, the Government is of the view that for the partnerships to be effective it is vital that civic and business leaders work together. In most cases the Government believes this would mean the partnership being led by a board with an equal representation of business and local authority leaders on it and with a prominent business leader as its chair, although variants would be considered, such as where there is an elected mayor responsible for the area, if that is the wish of business and council leaders. 22. The Government anticipates that the proposals it receives to form partnerships will include governance structures that are sufficiently robust and clear as to ensure proper accountability for the delivery of functions by partnerships.

Co-ordination between local enterprise partnerships 23. The Government does not believe in the imposition of economic plans at the regional level. It does, however, recognise the importance of ensuring that actions are co-ordinated between neighbouring local enterprise partnerships where that makes sense. The Government is keen that local enterprise partnerships engage with their neighbours and is aware that a number of regions are already considering what arrangements could be put in place to help the partnerships in their area to co-ordinate their activity where it is relevant to do so. 24. For those functions that will be led at the national level the Government will want to ensure co- ordination with any local delivery.

Funding 25. Subject to what is said below about the Regional Growth Fund, the detailed funding of local enterprise partnerships is a matter that will be considered in the Spending Review. 26. The 2007–13 Structural Funds programmes (including the ERDF programmes within England) continue to operate. The Government is working with partners on developing alternative delivery structures for the ERDF programmes in England following the abolition of the RDAs.

The Regional Growth Fund 27. The Chancellor of the Exchequer announced in the Budget that the Government would create a £1 billion Regional Growth Fund in 2011–12 and 2012–13 to support people and places to adjust to reductions in public spending. This is a pre-Spending Review commitment and other allocations of funding for economic development will be considered in the Spending Review. 28. The Government launched a consultation on the operation of the Growth Fund on 23 July. The consultation makes it clear that local enterprise partnerships will play an important role in bringing together bids for the areas they cover and that proposals from partnerships will be looked upon favourably— particularly where they are put forward as a holistic package on behalf of an area and demonstrate that they have the support of the local community. 29. This does not mean that access to the fund is restricted to local enterprise partnerships. Private sector companies and other public-private partnerships will be invited to bid for the fund independently, but where such proposals are received the Government will wherever possible seek the view of the local enterprise partnership for the area. 30. The Government believes that tasking local enterprise partnerships with a lead role in co-ordinating funding through the Regional Growth Fund demonstrates the Government’s commitment to decentralisation and will encourage local authorities and businesses to form effective partnerships across England.

Next Steps and Transitional Arrangements Sub-national growth White Paper 31. As set out in the Budget, the Government will publish a White Paper on sub-national growth. The White Paper will: — set out the detailed position on how the Government will work with local enterprise partnerships following its receipt of the outline proposals, and the next steps involved; — set out the Government’s response to the current consultation on establishing the Regional Growth Fund, including when the bidding process will begin; — consider the most appropriate framework of incentives for local authorities to support growth, including exploring options for business rate and council tax incentives, which would allow local authorities to reinvest the benefits of growth into local communities; and — promote the role for a simplified planning consents process, as part of the shift to a more locally driven planning regime, where there is potential or need for business growth—particularly through the use of Local Development Orders. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Timetable and transitional arrangements 32. The Government recognises the need for an orderly transition from the current arrangements to the new arrangements already announced. Such a transition is important in terms of supporting growth and protecting the recovery, but also in terms of providing certainity so far as possible to those employed by the RDAs and those involved in projects that are being funded by the RDAs.

RDA abolition 33. As statutory bodies, legislation will be required to abolish the RDAs and the Government is considering the best legislative vehicle for this. The expectation is that the RDAs will be wound up by April 2012. However, the abolition will not be simple as the RDAs have complex portfolios and there are a substantial list of long-term investments to be worked through, much of which is currently held in over 40 RDA subsidiary bodies. Plans are being developed to deal with this. We will ensure that the legislation for abolition gives sufficient flexibility for dealing with managing out residual assets, liabilities and commitments beyond March 2012. 34. Consistent with all parts of Government the RDAs have been asked to exercise expenditure restraint. 35. We will work with the Greater London Authority and the London Development Agency to manage the transition of assets and liabilities associated with changes to the delivery of economic development functions in London.

Creation of local enterprise partnerships 36. The Government will legislate as necessary to allow the creation of local enterprise partnerships and to allow the partnerships to take on the functions intended for them. The Government is considering the best legislative vehicle for this. 20 August 2010

Written evidence from Advantage West Midlands Executive Summary The functions of the new LEPs and ensuring value for money: — Given the major challenges faced by the West Midlands, the new arrangements that emerge need to be at least as effective as those we have at present; — LEPs in the West Midlands must therefore be focused upon creating the optimum environment for business and helping to address the Region’s longstanding economic challenges; — Some functions can be delivered more effectively and efficiently on a cross-LEP basis; — Rigorous resource management processes will be required if LEPs are to be as cost effective as the current arrangements; — Interventions must be evidence-based and focused on achieving maximum impact; — Local Enterprise Partnerships will need the certainty of core funding to be effective. The Regional Growth Fund (RGF), and funding arrangements under the LEP system: — Transformational projects take time to develop and deliver; — Resources should be focused on those regions most in need of assistance. Government proposals for ensuring co-ordination of roles between different LEPs: — Co-ordination of roles across LEPs will be more difficult the greater the extent to which the functions and coverage of LEPs are left to local determination; — Effective and efficient delivery of nationally-led functions will also be more challenging if the functions and coverage of LEPs are left entirely to local determination; — Some functions can be delivered more effectively and efficiently on a cross-LEP basis. Arrangements for co-ordinating regional economic strategy: — Mechanisms must be developed to direct investment and deal with spillovers that have a cross- LEP impact. Structure and accountability of LEPs: — Effective cross-Local Authority working is essential, but Business must play the crucial role; — LEPs need effective leadership to address the major challenges faced. The legislative framework and timetable for converting RDAs to LEPs, the transitional arrangements, and the arrangements for residual spending and liability of RDAs: Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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— The process for moving from the current to the new arrangements must be rapid and well executed to avoid further deterioration in the prospects for the West Midlands economy. Means of procuring funding from outside bodies (including EU funding) under the new arrangements: — To continue to maximise the benefits to national and regional economies from existing European funding (principally ERDF) it is important to minimise the risk of disruption to current implementation arrangements; — Securing private sector engagement requires credibility and coordination.

1. Introduction This submission has been prepared at the request of the Committee by Advantage West Midlands. It is structured around the seven topics outlined in the Committee’s initial call for evidence and is based on more than eleven years experience of promoting sustainable economic growth and regeneration in the West Midlands. During this time, the Agency’s interventions have delivered a significant and positive impact on the regional economy, returning £8.14 for every £1 invested. The performance of the Agency has also been independently assessed on two separate occasions—in 2006–07 and 2009–10—by the National Audit Office. In both assessments, the Agency was awarded the maximum possible performance rating, making us one of only two RDAs having achieved the maximum NAO rating twice.

2. The Functions of the New Local Enterprise Partnerships (LEPs) and Ensuring Value for Money Given the major challenges faced by the West Midlands the new arrangements that emerge need to be at least as effective as those we have at present—The economy of the West Midlands has been in relative decline since the 1970s. In contrast to every other UK region, total private sector employment in the West Midlands contracted between 1998 and 2007. The Region was also hit very hard by the recent recession with unemployment rising to 10.4% at its peak, higher than in any other UK region. LEPs in the West Midlands must therefore be focused upon creating the optimum environment for business and helping to address the Region’s longstanding economic challenges—Specifically, the functions for LEPs should include: — Local leadership—Developing and maintaining an evidence-based understanding of the issues and opportunities affecting the economy in their areas, and the interrelationships with other LEP areas. Developing a clear, focused and deliverable framework for addressing these issues and opportunities—concentrating only on those actions where the LEP can make a difference through delivery or influence. — Planning and housing—Establishing and implementing a proactive planning regime to encourage businesses to expand and progress and ensuring the provision of appropriate quantity and types of housing in the right places to support economic growth. — Transport and infrastructure project delivery—Developing and delivering transport projects and other infrastructure priorities necessary to support economic growth. Seeking innovative ways of funding the required investments. — Employment—Supporting the creation of employment opportunities by improving the conditions for business start-up and growth. Influencing providers of education, basic skills and training to improve the employability of the local workforce as well as the need for better retention of graduate-level employees. — Enterprise—Ensuring that nationally-led provision of advice and support for new and existing businesses is adequately tailored to the needs of the local business community and the local economy. — Transition to a higher value economy—Maximising opportunities around existing local sector specialisms and local markets. — Funding—Accessing and ensuring optimal use of appropriate sources of funding to deliver the above, including the Regional Growth Fund and European funding—this may be through cooperation or through a single route where most efficient and effective. Rigorous resource management processes will be required if LEPs are to be as cost effective as the current arrangements—In July 2009 the Treasury benchmarked RDAs’ back office costs and the productivity of those functions. Overall the Agency was the most cost effective RDA. In creating five or six LEPs covering the West Midlands, care will be needed to ensure that overall administration costs, as a proportion of investments delivered, are not greater than in the present situation. Some functions can be delivered more effectively and efficiently on a cross-LEP basis—This is the case where interventions have a scale of impact, or require co-ordination, across LEP areas; where interventions can be more efficiently delivered (because of economies of scale or the need for specific expertise or capacity) on a collective basis; and/or where national frameworks or funding can be more effectively informed and influenced through collective working. Specifically, the functions which can most effectively and efficiently be delivered on a cross-LEP basis are likely to include: Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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— Strategic leadership for common cause and influence—Providing a single voice on shared issues where national frameworks or funding can be more effectively informed and influenced by working collectively than by working on an individual basis. — Support for innovation and technology transfer—Influencing and delivering nationally-funded programmes to support and encourage technology transfer and research and development, to improve business competitiveness in the West Midlands. — Support for key sectors (including low carbon and specialist business support)—Influencing and delivering nationally funded support to—and building and maintaining relationships with— nationally identified key sectors and strategic businesses based in the West Midlands, including the supply chain for globally focussed industries such as aerospace and automotive. — Inward investment—Hosting an inward investment and aftercare team with specialisms suitably aligned to the West Midlands’ strengths in key sectors/technologies, linked to national priorities. — Advocacy of specialist skills and training—Working with business and individual LEPs to collectively articulate to providers the demand for sector specific and high level skills and training, focused on the needs of businesses in the West Midlands. — Infrastructure— Providing a mechanism for engagement with government and national private sector infrastructure service providers on key and universal infrastructure challenges facing the West Midlands, including Next Generation Access Broadband and distributed energy networks. — Evidence base, business intelligence and economic analysis—Developing and maintaining an evidence base and expertise focused on business-relevant issues that can be utilised and shared by LEPs. This would also include providing the capacity to appraise and evaluate investments. — Response to economic crises—Providing a bridge between national interests and LEPs in response to economic shocks that have an impact across LEP areas and/or require specialist input (for example, the closure of a major employer or an incident that presents a major disruption to normal business activity). Interventions must be evidence-based and focused on achieving maximum impact—Advantage West Midlands has undertaken comprehensive evaluation of its interventions since 2002. As well as demonstrating the Agency’s impact (overall generating £8.14 for every £1 invested), these evaluations contain valuable evidence about what works. For example: — Inward investment—The Agency’s inward investment programmes have generated the highest rates of return. Evaluation covering the period 2004–09 shows that £9.8m of inward investment projects generated £216 million of Gross Value Added (GVA) for the economy and has created and safeguarded 2,072 net jobs to date. The overall rate of return is estimated at £22 for every £1 invested based on outcomes achieved to date. The results also highlight a range of spill-over benefits, particularly in relation to outsourcing business functions to UK suppliers and increasing the level of R&D activity/joint-research within the Region. We help inward investors understand the value of setting up in the region and can support their arrangements for finance, workforce and facilities. One example—in the digital economy—is Rare Games, a Microsoft Games Studio. In 2010 we helped Rare Games access the existing digital community and university resources, and then supported them finding premises to set up in Birmingham, bringing 90 high value technology gaming jobs to the West Midlands. — Finance for business—Evaluation of the Selective Finance for Investment scheme in the West Midlands (the predecessor of the Grant for Business Investment), over the period 2002–09 indicated that overall, net GVA generated is £679 million, equivalent to a return on investment of £12.50 for every £1 invested. — Land and buildings for economic growth—The GVA created by our land and property projects funded over 2002–07 amounts to £328 million. One project in particular which has delivered good returns is the redevelopment of Fort Dunlop—the iconic building which sits alongside the M6 motorway, just north of Birmingham City Centre. Prior to redevelopment, in 2005, it had remained vacant and derelict for nearly 25 years. The Agency refurbished and extended the building with joint venture partner Urban Splash. It is now successful mixed use scheme housing over 50 companies in office, retail and leisure uses.

3. The Regional Growth Fund (RGF), and Funding Arrangements under the LEP System Local Enterprise Partnerships will need the certainty of core funding to be effective—LEPs will need sufficient capacity and staff with the requisite skills and expertise to understand and prioritise the issues facing their area. The basis on which any core funding is allocated to LEPs, however, needs to take account of the objectives of the RGF. In particular, more resource should be allocated to those areas—such as parts of the West Midlands—most in need of support in making the transition to private sector-led growth. For example: — The Agency established six sub-regional Regeneration Zones in the West Midlands, to tackle the highest concentrations of deprivation, delivering regeneration and linking areas of need to areas Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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of opportunity.Over 300 projects were developed and delivered through the Zones mechanism. The Agency’s expertise and management, combined with funding capacity locally was critical to their success. The Agency contributed significant resources to developing the capabilities of Zone staff (typically in local authorities) to develop funding bids and drive effective sub-regional collaboration. This enabled local development of—and support for—locally based schemes including Camp Hill (Warwickshire), Wolverhampton Science Park, Chatterley Valley (North Staffordshire) and the Rural Enterprise Centre Network (Shropshire and Hereford). Without central resources from the Agency to support local scheme development, the design, approval and subsequent delivery of these initiatives would have been impossible. Transformational projects take time to develop and deliver—The current proposal is for the RGF to run for just two years, though it seeks to fund transformational projects of scale. Two years is a very short window in which to develop and deliver truly transformational projects. For example: — Major transformational projects such as the redevelopment of Birmingham New Street Station, the redevelopment of Longbridge, or the new Manufacturing Technology Centre (MTC) need time. The New Street and Longbridge projects were five years in development before any construction work commenced. Site acquisition, design work, public consultation and local planning requirements take time to complete, as does the process of building support from key local and national partners. On the MTC initial scoping and work with partners including Rolls Royce, Airbus UK, their supply-chains plus three universities took 18 months before agreements were signed to commence delivery of this £40 million world-class manufacturing research and technology centre. The economic impact of schemes of this scale is only subsequently realised over a period of years. Building and testing the economic case to maximise the impact of interventions on this scale cannot and should not be rushed. — Resources should be focused on those regions most in need of assistance—Rather than being open to all areas of England, access to the RGF should be restricted to areas outside of the “greater south east”. This would enable resources to be more efficiently targeted on those areas—such as parts of the West Midlands—most in need of support in making the transition to private sector-led growth. For example, the City of Worcester currently has the third highest proportion of employment in the public sector in the region.5 The Agency has provided significant support to develop the existing business base in Worcester—for example we are working closely with Worcester Bosch to help their expansion into renewable technologies. We have coordinated all other public sector bodies with the aim of developing a new manufacturing and R&D facility for the company,to create 2,000 jobs. We have worked closely to support the company with funding for their new premises, securing the relevant planning consents and supply chain development. This an excellent example of the Agency’s ability to provide leadership and real value added to develop a project relevant to the regions priorities and governments policy agenda. This is openly acknowledged by the public and private sector project partners.

4. Government Proposals for Ensuring Co-ordination of Roles between Different LEPs Co-ordination of roles across LEPs will be more difficult the greater the extent to which the functions and coverage of LEPs are left to local determination—If LEPs emerge on an essentially voluntary basis, there can be no guarantee of nationwide coverage and the scope for co-ordinating activity across LEPs will be reduced. There is also a danger of unnecessary duplication of effort and wasted resources as every LEP area seeks to become a centre for low carbon or medical technologies. RDAs have handled this sort of issue positively and cost effectively—eliminating duplication by taking lead roles in different industrial sectors and markets to give a clear signal to business about an area’s strengths and commitment. There are a number of sector based collaborations which have adopted this approach including the Low Carbon Economic Area for Advanced Automotive Engineering which brought together leading private sector and university expertise as well as the multi partner investment into the Manufacturing Technology Centre to provide facilities and skills to support industrial companies and their supply chains to bring about major improvements in manufacturing competitiveness. Effective and efficient delivery of nationally-led functions will also be more challenging if the functions and coverage of LEPs are left entirely to local determination—A range of Government Departments used Regional Development Agencies (RDAs) to help deliver their objectives. At times it proved difficult for Government to provide co-ordinated planning guidance to the nine RDAs. There is a risk that the difficulties of “tasking” delivery bodies will be multiplied many times through the move to working with what could be a patchwork of LEPs, each differently constituted and with different levels of capability. There is a further risk in that those areas facing the most intractable problems may also be the areas least able to develop effective LEP arrangements. Some functions can be delivered more effectively and efficiently on a cross-LEP basis—As noted above, on grounds of efficiency and effectiveness, some functions should be delivered on a cross-LEP basis. These arguments make sense both from an individual LEP perspective and in terms of the effective and efficient

5 32% for the City of Worcester, in comparison to 27% in the West Midlands region and 26% English average. Source: the Annual Business Inquiry (ABI) 2008 Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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delivery of nationally-led functions The case for sub-national co-ordination is exemplified through the development of localised broadband and renewable energy infrastructure solutions. Broadband Delivery UK (BDUK) has identified a need for sub-national intervention to support the roll out of universal standard and superfast broadband— understanding localised cross local authority or delegated authority boundary issues and business growth needs, providing a route to Internet Service Provider engagement/negotiation and intervening in planning and investment solutions. In addition, to meet future energy needs and to contribute to national carbon reduction targets, the West Midlands (as all regions) needs to establish secure, reliable, integrated renewable energy infrastructure. However, given geographical constraints, the West Midlands possesses a limited ability to establish large scale renewable energy infrastructure such as on or offshore wind or hydro electricity.Therefore, small scale renewable energy solutions will be critical, requiring an integrated approach to implementation across rural and urban areas to provide surety of access to required fuels (energy crops, waste etc) and the scale of output required to support economic growth. — The growth we need nationally will require Government to work closely with the large strategic private sector employers—who have a presence across different regions and sub-regions. Examples in the West Midlands include Jaguar Land Rover, Ericsson, Fujitsu, Goodrich, Caterpillar, Stadco, BMW, Specialist Computer Holdings and GKN. Under the present arrangements the Agency provides a single point of contact with these companies. More widely, the Agency currently “account manages” over 500 businesses across the region, to increase their productivity through providing knowledge and awareness of government funded business support, linking them to networks, and informing them of suitable finance and innovation opportunities. This level of relationship management will be difficult to deliver so effectively through multiple LEPs. — Business supply chains do not reflect administrative boundaries—they are increasingly national and global. To create significant collaboration between producers and/or along supply chains it is essential to coordinate activity above local level. RDAs have dealt with this by having one RDA lead for different sectors to drive cross-boundary collaboration—for example the Agency has led on infrastructure and digital industries. We also collaborate internationally. For example, through the Climate KIC we are a partner in a consortium that brings together six major European regions, working with five of Europe’s top universities including Imperial College and ETH Zurich and ten major companies including CISCO, Shell, Thales and Bayer.

5. Arrangements for Co-ordinating Regional Economic Strategy Mechanisms must be developed to direct investment and deal with spillovers that have a cross-LEP impact—In the past, Regional Economic and Regional Spatial Strategies provided the strategic frameworks for guiding public and private sector investment. For example, in the West Midlands we were able to maximise impact by focusing limited public sector investment on 20 Impact Investment Locations. As budgets continue to tighten, the ability to articulate and agree evidence-based investment priorities on a cross-LEP basis is more important than ever. A joined up approach across LEPs will be crucial to deliver sustainable sub national economic growth. For example:

— For some projects, for example, the proposed High Speed Rail development, it is vital that partners in the West Midlands collectively and proactively get behind a single approach, to secure the development, recognising that some parts of the region will benefit more than others. If the development is to be successful, co-ordinated sub-national engagement is required across a number of LEP areas with a broad range of public and private stakeholders—addressing localised blight and environmental issues generated by the rail line, managing displacement of growth from areas not directly served, and maximising the economic potential of the rail investment through ensuring an integrated approach to transport and economic development. To date the Agency has provided the facilitation and act as the interface between national (HS2 Ltd and Department for Transport) and sub-national partners (local authorities and the private sector). We have played a key role in maintaining a unified approach in the West Midlands. We have also recently been working with the private sector to inform them of the significant business benefits that would result from the (£30 billion) investment in high speed rail, and with local authorities and other public agencies, to facilitate interconnectivity and maximise the economic impact.

6. Structure and Accountability of LEPs Effective cross-Local Authority working is essential, but Business must play the crucial role—Local Authorities must work effectively across boundaries. It remains to be seen how the proposals for elected mayors in Birmingham and Coventry will impact on LEP structures and accountability. Our soundings with Business Leaders indicate that they are prepared to get involved in trying to turn around the West Midlands economy, provided they are engaging in business-like structures and processes; the needs of business are at the front of everyone’s mind; and their efforts make a difference. Government and local authorities must work actively with business (businesses as well as business representative organisations) to make the new structures work. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Most importantly, LEPs need effective leadership to address the major challenges faced—Each LEP should be seen as the centre of a powerful guiding coalition, engaging all the principal players in the area’s economy. In addition to business and local authority leaders, these coalitions are likely to include universities, colleges, the health and third sector, politicians, schools and other players.

7. The Legislative Framework and Timetable for Converting RDAstoLEPs, the Transitional Arrangements, and the Arrangements for Residual Spending and Liability of RDAs The process for moving from the current to the new arrangements must be rapid and well executed to avoid further deterioration in the prospects for the West Midlands economy—RDAs are complex, multifaceted organisations, responsible for a broad agenda and the investment of significant sums of money. Specific issues arise in relation to: — Transfer of programme and assets—The transfer of residual RDA programmes and assets to LEPs will be a complex process that, if carried out hastily, could be costly, impact negatively on delivery, harm partner relations, and risk losing knowledge and expertise embedded within the RDAs. This will take time to package within RDAs prior to transfer, and significant time, effort and capacity in LEPs to digest, understand and effectively continue delivery once the transfer has taken place. There is also an issue around how to deal with “closed” schemes where certain funding agreements have conditions that require managing long after the official project end date. It is vital that early and careful consideration is given to the transfer of RDA assets such that their value can be retained for the good of localities as well as enabling the value of those assets that are nationally significant to be maximised—and to arrive at a sensible approach for disposing of assets where appropriate. The final governance arrangements for closing down RDAs also need to be considered, to ensure the right balance of responsibilities between the RDA Board, the Accounting Officer and the Department for Business Innovation and Skills. — Requirements of LEPs—LEPs need to be in place and be fully accountable structures before residual RDA programmes and assets can be transferred to them. The pace at which this happens is likely to vary, as will the time taken for LEPs to embed. This will influence the RDA wind down process and ultimately the continuity and performance of service to businesses, individuals and communities. — Requirements for nationally-led arrangements—Similar to the case for transfer to LEPs, for those areas that government wishes to see returned to nationally-led delivery arrangements, Departments will need to be confident that appropriate alternative mechanisms are in place to continue delivery and secure outcomes. They also need to be confident that activity will not retreat into silos in the absence of an overarching strategic coordination body that joins up different policy functions in order to drive sustainable economic development. Nationally—led functions must be delivered in a way that facilitates integration both across Departments and between national and local levels. — Maintaining delivery by RDAs during the wind down period—Alongside the transition process, there remains significant committed RDA investment still to be delivered prior to closure in March 2012. It is imperative that the move to the new arrangements does not put at risk the successful delivery of these investments, jeopardising the outcomes they were designed to achieve. Individual RDA structures must remain viable while no alternative is in place if these ongoing investments are to be successfully delivered. This will be a significant challenge and risk, particularly given issues of staff retention. — Legacy, learning, capacity and expertise—Best practice suggests that the learning and experience gained by RDAs and RDA staff should not be lost. Thought must be given to how this can be effectively retained and the benefits maximised through the transition.

8. Means of Procuring Funding from Outside Bodies (including EU Funding) under the New Arrangements To continue to maximise the benefits to national and regional economies from existing European funding (principally ERDF) it is important to minimise the risk of disruption to current implementation arrangements—In particular: — Lisbon Agenda—The Programme must be structured around delivery of the Lisbon agenda (at least 75% of expenditure on activities related to enterprise, innovation and the knowledge economy). The West Midlands Programme currently has a target of 87.5%. — Critical mass—Effective management of ERDF programmes requires a critical mass of experience and subject expertise in order to ensure controlled delivery and to minimise irregular expenditure and grant recovery. This is a relatively scarce resource which should not be further disaggregated if efficiency and effectiveness are to be maximised. — Risk of lost funds—Any changes in the Programme content or management arrangements must be carefully planned and tightly managed. The European Commission are the prime stakeholder in the Structural Funds programmes and they possess the authority to suspend payments if at any Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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point they are not content with the management and control arrangements. It took almost two years to agree the current arrangements—a significant change, mid-programme, would result in a similarly protracted exercise and leading to delays in delivery and ultimately significant funds being returned to Europe as a consequence. Securing private sector engagement requires credibility and coordination—RDAs have a track record of establishing and maintaining credibility with private sector investors, both in terms of “place-making” and in securing large scale private sector investment. To do this effectively requires critical mass and credibility. The public/private property partnership PxP the Langtree Group Plc is a one example of how we have used our credibility to effectively engage the private sector. PxP is our joint venture limited designed to accelerate regeneration and maximise private sector investment and expertise in a range of key projects. It takes the form of an asset backed property vehicle and was created in April 2007 with £30 million of equity investment available. Since the initial business plan was agreed there has been a significant downturn in the UK’s property sector. Nevertheless, construction on the original portfolio of investments is still on track and works will commence on a number of sites. Other new opportunities are already identified for PxP that will lead to further development and the creation of employment opportunities—at a time when most private sector property have been completely inactive as a result of the recession and difficulties in securing debt finance. 12 August 2010

Further written evidence from Advantage West Midlands to Margot James MP, member of the BIS Committee At the BIS Select Committee meeting on 7 September, you asked me a question regarding the withdrawal of Agency funding to a project designed to help local businesses improve their IT, Having made inquiries, I believe that you were probably referring to a region-wide pilot project called “The IT Advisory Service” aimed at improving the take up and usage of IT amongst SMEs. This was being run by Business Link who, of course, are recipients of AWM funding, and was being delivered through a number of consultants who are quite naturally concerned about the effect of the termination of this activity on their business. This pilot was due to end on 31 March 2011 but new applications for support will be closed from the end of November 2010. Whilst recent cuts to AWM’s budget have contributed towards this early closure, BIS’s own review of the “Solutions for Business” programme, as well as of the Business Link model itself, have played a part. You will no doubt be aware that BIS now favour a business support model based to a greater extent on an on-line service. Of course, the point of this project was to get SMEs on-line in the first place so we do have some concerns as to how West Midlands’ businesses, who have a poor record of adopting IT, will be able to fully access such a new on-line service. That said, we accept that it is the prerogative of BIS to close down projects such as the IT Advisory Service, just as they are doing for other grant-funded programmes run by Business Link, such as the Diversification programme, “Business Transformation”, the Environmental Advisory Service and the Innovation Advisory Service which have also had to close applications to new clients following instructions from BIS. 21 September 2010

Further written evidence from Advantage West Midlands With reference to the hearing which I attended on 7 September, and with particular reference to Question 27, I said I would provide the precise figures for the effect of reductions in AWM’s budget for year commencing April 2011. The figures are as follows:

Year 2011–12 AWM Budgets as AWM Budgets as understood on understood on 5 May 2010 7 September 2010 ££ Single Pot £180,503 98,437 ERDF 24,800 23,700 Other 22,063 22,063 Total 227,366 144,200 Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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This represents an overall reduction of 36%, in the funding available to AWM, between early May and the date of the Committee hearing. For the sake of completeness, I should mention also that we have, since 7 September, been asked to calculate the effects of further substantial cuts affecting 2011–12 but, to the best of our knowledge, no decision has been made as to whether such further cuts will be enacted. 21 September 2010

Written evidence from Basingstoke and Deane Council 1. Introduction 1.1 The borough of Basingstoke and Deane has a strong well-balanced and diverse economy performing well in knowledge based sectors such as IT, telecommunications, financial services, a growing R&D sector in bioscience and healthcare and advanced manufacturing around defence. However in order to perform well coming out of recession the area will need to address a number of issues including infrastructure such as transport and broadband and to ensure its workforce is suitably skilled. Driving economic prosperity for the area is our first corporate priority. 1.2 Basingstoke and Deane is home to many major companies including AA, Motorola, MEPC, Sony, Huwawei, Shire, Sandoz, Barclays Corporate, AXA-Winterthur, Game, Thales, Eli Lilley, De La Rue, Vitacress and Scott Wilson. Many of whom are active in our Borough Business Partnership. 1.3 Realising that business crosses administrative boundaries, in 2008 we joined forces with neighbouring districts, Hampshire County Council, Hampshire Economic Partnership, SEEDA and others to form the North Hampshire and M3 Corridor Economic Board. The board focuses on the key economic issues affecting business in the area, specifically skills development, infrastructure improvement and inward investment.

2. Themes to be Discussed by the Committee 2.1 The North Hampshire and M3 Corridor Economic Board will be submitting proposals for a Local Enterprise Partnership (LEP) and the functions that are relevant in this area are: — Supporting innovation and enterprise growth. — Identifying barriers to growth such as transport, infrastructure and skills and developing actions with appropriate organisations. — Promoting the area and attracting investment. However it is important that a LEP deals with local economic issues and therefore the functions of a LEP should allow for flexibility to respond. This is illustrated well by comparing the north and south of Hampshire, where the economic issues and profile in the Economic Assessment are very different. 2.2 In terms of ensuring value for money, it makes sense to utilise existing economic structures such as economic boards and partnerships set-up around Multi-Area Agreements. Keeping bureaucracy to a minimum would also help to maintain value for money. In managing our Economic Board in north Hampshire we have kept our running costs to a minimum by sharing out tasks between constituent members. Some provide support to the main board others to the three project groups reporting in to the board. 2.3 Co-ordination between LEPs will be important for a number of issues such as transport and in the South East there is an existing network, the South East Diamonds for Investment and Growth (SEDfIG). The eight functional economic areas making up the “Diamonds” are — Brighton and Hove. — Gatwick. — Milton Keynes and Aylesbury Vale. — North Hampshire. — Oxford and central Oxfordshire. — Reading. — Thames Gateway Kent. — Urban South Hampshire. They account for a disproportionate amount of GVA within the region and will provide the majority of economic and housing growth within the south-east in the next few years. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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The SEDfIG have a track record of working together across the South East but also more locally. The “west of London arc” of Oxford, Reading and North Hampshire has developed a good working relationship through the SEDfIG and specifically on projects for example to understand and develop their knowledge economy sectors. The necessary partnership structures and governance are in place and it would be efficient to utilise this structure in co-ordinating and supporting LEPs in the South East. 2.4 The structure of the North Hampshire and M3 Corridor Economic Board is straight-forward and strategic, comprising a main board and project groups. Membership of the main board includes Leaders and Chief Executives of the district councils and Cabinet Member and Director of Hampshire County Council. A similar structure for LEPs would allow for local accountability through local authority leaders and allows for flexibility in delivering economic projects. Business involvement is also essential in the structure and we would again develop this by building on our existing networks such as our well-established Borough Business Partnership and our Basingstoke Ambassadors scheme. Working in partnership with business has helped to deliver broadband improvements in the area. 2.5 In order to ensure clarity,stability and aid planning a timetable for transfer from RDAs to LEPs needs to be established. It would also be helpful to have more details about the process for assessing LEP submissions after 6 September. 2.6 Basingstoke and Deane Borough Council has good experience of successfulEUprojects to support the local economy and is currently a partner in six projects including Entredi which is about business enterprise and innovation, URBACT which focuses on recovery from the recession, EcoAdvantage looking a sustainable business and FLOW supporting older workers to carry on being economically active. We also have experience of assessing EU funding proposals. 2.7 Basingstoke and Deane also established a venture capital fund, 3en to support high growth technology business and recently set-up a lifeline fund within 3en offering loans to viable businesses experiencing cash-flow difficulties. 3en has led to job creation and entrepreneurial growth locally.

3. Summary — Functions of LEPs should be flexible enough to respond to local economic issues. — Value for money can be obtained by keeping LEPs strategic with a simple structure and governance arrangements, where possible making use of existing economic boards. — Co-ordination between LEPs in the same region would be valuable and in the South East there is a ready made structure in SEDfIG to carry out this function. — Accountability can be achieved through the involvement of local authority leaders. — A timetable outlining details of transition from RDAs to LEPs would be helpful. 13 August 2010

Written evidence from the British Chambers of Commerce Introduction 1. The British Chambers of Commerce (BCC) welcomes the opportunity to respond to the Business, Innovation and Skills Committee’s inquiry into the Government’s proposal to establish Local Enterprise Partnerships (LEPs) for economic development in England. 2. The BCC is a powerful and influential network of 55 Accredited Chambers across the UK. No other business organisation has the geographic spread or multi-size, multi-sector membership that characterises the Chamber Network. Every Chamber sits at the heart of its local business community, providing representation, services, information and guidance to member businesses and the wider local business community. 3. While there is a wide array of views within the Chamber Network on the appropriate structures for sub-national economic development in England, the BCC and its member Chambers are committed to making LEPs work. We are also committed to ensuring that the wealth-generating private sector plays a pivotal and central role in delivering comprehensive and transformative economic change in towns, cities and counties across the UK. LEPs, fundamentally, must be about challenging the status quo—and creating a stronger enterprise culture in local areas across the UK. 4. Accordingly, the BCC has been working with Ministers, Whitehall and town halls on the transition to LEPs. In recent weeks, we have: Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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— Set out what LEPs should aim to achieve: productivity growth, private-sector wealth creation (which in turn generates jobs), and local economic diversity. Each area’s journey to achieve these will be different. This has been shared with ministers and Whitehall by the BCC, and used by individual Chambers of Commerce to structure debate in their local areas [see slides attached]; — Actively assisted Chambers of Commerce and Local Authorities in a number of areas on locally- specific proposals for transformative economic growth. This process of engagement has included everything from private meetings with local leaders to business summits with 200-plus in attendance; and — Worked with the leadership of the Local Government Association to ensure that LEP proposals are developed as real public-private partnerships, rather than just a public-sector-led approach. 5. Given the extensive track record of Chambers of Commerce and their members in driving local economic development we are confident that Chambers will continue to play a central role in the implementation of LEPs. We stress, however, that LEPs must be transformative—with an innovative and clear vision for local economic change, driven jointly by private and public sector actors. If LEPs simply become a new vehicle for “business as usual”, either as consultative talking-shops or day-to-day delivery bodies, they will fail to deliver the fundamental shift toward private-sector-led growth that so many areas across England require. This response therefore deliberately focuses on purpose, structure, and strategy, and responsibility for setting funding priorities—rather than on delivery. The BCC believes that delivery will require a mixture of bodies—with the private sector involved as far as possible—but that the mix will differ from area to area.

The Functions of the New Local Enterprise Partnerships (LEPs) 6. The BCC is concerned that discussion on the functions of LEPs has preceded careful thinking about why they are being created in the first place. LEPs must have a clear purpose from which their functions, geography, and governance arrangements logically flow. As noted above, LEPs’ fundamental role must be to set out a clear long-term vision for the growth of the private sector across a clearly-defined geographic area—which would remain even if the structures developed by the LEP approach are reformed by future Governments. This vision should be accompanied by a short-term delivery plan that emphasises pragmatic, achievable actions by public and private sector bodies operating on the ground. While LEPs may set that delivery plan, they need not necessarily be the day-to-day delivery bodies. In fact, LEPs should be “strategic commissioning bodies”—rather than direct delivery agencies. 7. In each area of England, the BCC believes that LEPs should develop their own tailored proposals to: — Raise local productivity levels; — Increase private-sector wealth creation (which should, in most areas, translate into jobs growth); and — Deliver greater economic diversity (in areas that are over-dependent on a single sector for growth) and sustainability (in all areas, including those that have been relatively successful at delivering private-sector growth in recent years). 8. To achieve these objectives there are some clear functions that LEPs should co-ordinate to improve the local business environment. Setting a small number of clear functions will demonstrate LEPs’ value to local businesses, who are often rightly sceptical of new governance arrangements and initiatives. Key functions should be to focus on: — Setting a clear, shared long-term vision for enterprise growth for their area—including a realistic analysis of the area’s comparative advantages and its opportunities for private-sector growth. This must not be a repeat of the experience with RDAs, which identified far too many “comparative advantages”, many of which were unrealistic and unspecific (eg the oft-cited aspiration to create biotech and creative industries sectors, which featured in every RDA strategy); — Identifying existing barriers to business growth—eg in terms of land use planning, infrastructure, skills/labour market—and the actions required to remove these barriers; and — “Selling” the area, by taking responsibility for bids for central government funding (eg the Regional Growth Fund) as well as levering in private sector resources to support priority local infrastructure projects. 9. The lack of clarity about LEP functions is also hindered by Ministers’ reticence to publicly set out the criteria they will use for determining which LEP proposals will be given the go-ahead. While we do not believe that a prescriptive and top-down approach is required, business wants an assurance from Ministers that no LEP will go ahead unless its purpose is to address the core economic priorities described above. Business also wants to be assured that critical government departments beyond CLG and BIS, such as DfT and DWP, are fully “bought in” to this approach. Otherwise, it is possible we could have LEPs approved which are simply not credible propositions. 10. We believe Ministers should make it clear going forward that they will not approve LEP proposals that: — Do not have the local business community at the heart of their development, and are supported by businesses and respected business organisations in their areas, including Chambers of Commerce; Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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— Are not of an adequate size or scale to reflect genuine functioning economic areas (rather than existing local political boundaries). We would suggest no more than 40 LEPs to ensure appropriate scale; — Are seeking a very broad number and range of functions which lack a clear relationship to the LEP’s core economic role; and — Are based on unrealistic resource expectations.

The Regional Growth Fund, and Funding Arrangements under the LEP System 11. While the BCC supports some of the principles articulated in the Government’s Regional Growth Fund consultation—including a focus on transformative capital investments, and a more open bidding process that allows for private-sector as well as local authority involvement—we also have concerns regarding the proposed approach. We have attached the BCC’s draft response to the Government consultation response on the Regional Growth Fund, which explains our rationale in further detail. 12. We believe that the project funding approval process should: — Be based upon the three core objectives we have set out for LEPs (as above); — Prioritise public/private bids that will improve the local business environment, with a particular focus on transport infrastructure, premises, and skills (only in those cases where existing skills initiatives are failing to deliver against business needs); and — Support bids which will deliver high levels of absolute growth (eg in the South), as well as bids that enable greater private sector diversification in areas of the country that have become over- dependent on the public sector (eg the Midlands and the North). 13. The BCC believes that the Fund must be a long-term initiative, rather than simply a two-year grant- making scheme. It would be incongruous for the Government to have different cycles for the Regional Growth Fund, local government finance settlements, and its Council Tax and Business Rate Bonus schemes—as this would help areas to maximise the impact of public money. If the Fund proves successful, and is able over time to offer returns on loans and equity investments, the Fund could expand to include private-sector capital (eg from pension funds) and local authority investments (eg from reserves, of which there are tens of billions in council accounts). 14. The Fund could also be the vehicle for bidding for and delivering European Union competitiveness funding from 2013 onward. We make further comments on EU funding in section 27 below. 15. Given the limited resources available through the Regional Growth Fund, and the need to focus its resources on a relatively small number of capital projects, we do not believe that LEPs should expect significant grants from the Fund for their revenue operations. As local government revenue funding will continue to be squeezed over the medium-term, LEPs must be realistic about the scale of resource available—and both councils and local businesses will have to find innovative ways to contribute staff time and resources in a way that maximises value for money. It is therefore critical that: — LEPs look carefully at the possibility of “under-arching” support structures—pooling resources and sharing functions where appropriate; — Ministers veto LEP plans based on unrealistic resource expectations; and — LEPs make use of available private sector capacity, as well as the information and experience gathered by RDAs prior to their dissolution.

Government Proposals for Ensuring Co-ordination of Roles between Different LEPs and Regional Economic Strategy Co-ordination across LEP areas 16. The Government’s stated desire to devolve power away from the centre over the course of this Parliament—including the abolition of RDAs, regional planning, and the Government Offices for the Regions—means that LEPs will become the key intermediary between Whitehall and Town Hall in the years to come. 17. However, our experience to date suggests that a “patchwork quilt” of LEPs is likely to emerge over the coming months—with focused and effective partnerships in some areas, less-effective LEPs in other areas, and still further areas with no LEP at all. This variation means that clarity over the division of labour between central government, LEPs, and any other economic development bodies must be delivered over the coming months. 18. Businesses want LEPs to be of sufficient scale to avoid the need for a wide range of coordinating structures between them. We accept, however, that LEPs should work together across their boundaries on a mutually beneficial project basis. This could be for transport projects linking multiple centres, (eg the connection between Manchester and Leeds or road connectivity between Dorset and other parts of the South West), to collect important economic data, or to focus on particular inward investment interests (eg renewable energy in Norfolk/Suffolk, or advanced manufacturing in the West Midlands). Such activity Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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might vary in form from informal close-working to a more formalised contractual basis, but should not require the creation of additional branded, overlapping structures that are difficult for businesses to understand.

Functions to be nationalised 19. In their June letter to local councils and business leaders, the Secretaries of State for Business and Communities specified that a number of activities previously administered regionally will now be nationally- led, including international trade support, inward investment, innovation, sector development, major infrastructure, European funding, access to finance, business support, and tourism.

20. There is significant discontent in the Chamber Network about the “nationalisation” of some of these functions—with local business leaders stating a clear preference to retain certain functions at a sub-national level in some areas. Many Chambers in the North and Midlands (including the North East, North-West and Yorkshire and the Humber) believe that there is a continued need to retain control over some of the strategic economic functions presently exercised by RDAs, notably around inward investment and place-marketing. Similar points have been made in the South West, particularly with regard to tourism. And a number of areas commented on international trade—and expressed concern that “nationalisation” of this agenda could work to their area’s detriment.

21. Enabling sub-national co-ordination and delivery of certain functions where there is a compelling case should not, however, stretch to the maintenance of regional offices overseas—which the BCC commented on in a previous appearance before this Committee. It would be preferable to have a single “sales force for UK plc” overseas that fully understands regional opportunities and niches.

22. Whilst there is not a clear consensus in the Chamber Network regarding the functions that should be “pan-regional” and the functions that could be “nationalised”, it is important that areas are given the opportunity to co-ordinate functions where there is a consensus that they are needed. Government should not pre-determine what functions be centralised, but allow LEP bids to demonstrate capacity for delivery of certain functions at sub-national level and to commit to delivering certain outcomes for both their own area and UK plc by doing so. Government should then approve or reject these proposals on their merits, taking into account the need to ensure LEPs collectively do not engage in wasteful competition.

The Structure and Accountability of LEPs 23. It is important that LEPs are strategic bodies, which set an economic vision and delivery plan for their areas. With limited resources, they will require a chair, a board structure and a small secretariat, but should not hold statutory functions to fulfil this remit. They could, however, hold responsibility for transferred assets, and for submitting funding bids—so that the public-private partnership takes the lead in prioritising economic development resources.

24. LEPs need to unlock the economic dynamism and enterprising spirit in local communities and bring in real business experience and representation into the heart of their decision-making. Equally local authority leaders will need to be more strategic in many areas—and work across a geographic area that represents a functional economy, rather than the ward or council area that they were elected to represent. The BCC therefore believes that:

— LEPs should set the economic strategy for the area, with local authorities responsible for the delivery of any statutory functions on the ground. They may also lead bids for funding, and/or be accountable for certain assets or funding streams being used in the sub-region. Local private sector companies could also play a key delivery role.

— LEP Boards must be chosen in an open and transparent manner. They must have at least 50% private-sector members, a respected and high0level business chair, and they must be chosen to ensure that each area’s most dynamic and visionary businesses are represented. In order to ensure that business members enjoy the support of their peers, it may in some cases be possible to 1) require nominations to be seconded by a representative sample of local businesses, and/or 2) subject these nominations to a “business vote” of some sort, with electors drawn from Chambers of Commerce and other business representative organisations active in the area.

— In order to ensure that LEPs are considered the top economic strategy bodies for their areas, council leaders—not back-benchers—should be the public-sector representatives. No alternates should be allowed. This will give the business community—which is often sceptical of the value of new partnership structures—greater confidence to engage.

— LEPs must put in place rigorous processes to review their own performance in progressing towards meeting their delivery plan outcomes. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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The Legislative Framework and Timetable for Converting RDAstoLEPs, the Transitional Arrangements, and the Arrangements for Residual Spending and Liability of RDAs 25. The speed at which the Government is moving towards converting from RDAs to LEPs represents a big change of pace for both business and local authorities. Many are concerned that the short timeframe for LEP proposals, the Regional Growth Fund and the Decentralisation and Localism Bill run the risk of creating a system that has not been well thought through. For what are likely to be major changes to a whole range of functions that will affect business, there is a need to take time to get this process right, rather than rushing to get it done quickly. Businesspeople are enthusiastic to engage—but given the inherent time and resource pressures they face, the timeframe is proving challenging.

26. There is also a real risk that during the transition period will there will be a policy and delivery vacuum at the sub-national level. As RDAs are wound up it is probable that the capacity, staff, expertise and information that they have built up will gradually wane, with little more than a skeleton service available by the time of their abolition. Government should set out a more detailed public timetable for the transition, and proposals for how capacity gaps will be managed prior to the new arrangements being in place.

27. The Government needs to set out how existing assets, liabilities and spending commitments will be managed during the transition. Where RDA assets are not deemed to be strategic national assets, LEPs should be given first refusal on taking on ownership, provided they can demonstrate capacity to manage them and to generate sufficient returns. This would then create revenue streams to support major projects and to lever in private sector investment. Given the lack of public funding likely to be available to LEPs, it would be a missed opportunity for the value of the sites to go back to HM Treasury when it could be used to help unlock local economic development.

28. As a matter of urgency, the Government must also set out arrangements for an orderly transition of existing European funding programmes. This is a major cause for concern expressed by business leaders in many areas of the country—where private-sector investment is often contingent upon the completion of EU- funded projects, and in some cases RDA match-funding. For example, the North West Development Agency have already cancelled a planned development for business office space in Liverpool, and £250,000 support for a business to move into to new premises in Cornwall has also been pulled. A lack of clarity on transition arrangements for EU funding programmes could jeopardise resources during the current Budget period, and complicate the UK’s position for the negotiation of the new 2013-19 EU Budget round.

Conclusion 29. The overall BCC position is therefore as follows:

Overall Summary of the BCC position

Chambers of Commerce are excited to play a central and proactive role in LEPs—but our business members are clear that they must be transformative bodies, focused on delivering enterprise growth. They must be a real partnership led by the private sector.

Too much of the discussion on LEP functions has preceded careful thinking about their purpose. Chambers believe that LEPs must have a strong economic focus—on productivity, private-sector job creation, and economic diversity. They must then set a clear vision, identify barriers to growth, and propose how to remove those barriers and foster investment confidence.

While the Chamber Network supports the principle of a Regional Growth Fund, resources must be tightly prioritised on packages of investment that improve the local business environment— particularly infrastructure—and deliver clear economic benefits.

In order to achieve effective co-ordination between LEPs, it is critical that central government provides greater clarity over the division of labour between Whitehall, LEPs, and any other economic development bodies. Questions over functions set to be “nationalised”—especially around inward investment and international trade—must be resolved as a matter of urgency.

LEP Boards must be private-sector led, with at least 50% business members—plus a dynamic and respected business Chair. BCC believes that LEPs could develop a nomination and selection process for business members that captures the interest of local businesspeople. Council leaders— not back-benchers or Cabinet members—must be the public-sector representatives, to deliver legitimacy and confidence.

The Government must ensure that the appropriate time is taken to get the transition towards the new system right, putting in place a clear timetable with arrangements for the transition of RDA assets and European funding, both of which are a critical part of the funding mix in many areas. 13 August 2010 Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Annex 1 REGIONAL GROWTH FUND CONSULTATION: RESPONSE FROM THE BRITISH CHAMBERS OF COMMERCE Introduction 1. The British Chambers of Commerce welcomes the concept of a Regional Growth Fund, which will enable innovative private-sector led growth bids to challenge and compete with more established approaches to economic development. However, we would like to record some concerns about the haste with which the Fund is being established—as well as the need to use its incredibly limited resources to support a relatively small number of projects with the potential to spark substantial private-sector growth. 2. Business leaders across the UK are clear that any future efforts to grow local and sub-regional economies must be based around a clear and innovative shared vision—and a desire to fundamentally re- shape the way that local economies operate. There is a danger that the Fund could become little more than a new way to finance “business as usual” in economic development—with resources being spread thinly across the country to satisfy political and geographical considerations, and investments focused on relative, rather than transformative, economic improvements. 3. Our summary view is that the Fund must make a real and demonstrable difference to existing activity on the ground—and not simply used to pick up executive staff from Regional Development Agencies and other bodies that are undergoing transition and closure. The Fund’s criteria must require clear, transparent plans that show how the funds are going to hit the ground—and deliver improvements to local productivity, private-sector job creation, and economic diversity. This is especially important as the Fund will have significantly less resource at its disposal than the RDAs. Our responses to the individual consultation questions can be found below.

Q1) Allocation of Funding 4. BCC strongly supports the bid principle articulated in initial Government statements on the Regional Growth Fund, and subsequently referenced in the consultation document. We believe that the only way for the Government to spur innovation in economic development—and to break out of the grant mentality that has predominated in many areas in recent years—is to allow a wide range of bidders (private, public, voluntary, and hybrid) an equal opportunity to demonstrate how their proposals can deliver the biggest economic boost for an area. 5. We believe that at least 80–85% of the resource available under the Growth Fund (£400–420 million pa) should be allocated on a bid basis to support capital investment. The bidding process should be flexible—eg the Government should encourage bids for loans, equity investment, and grant funding on an equal basis, rather than split the fund into separate tranches. 6. The remaining 15–20% of the Fund (£80–100 million pa) could be used to support LEPs on a grant basis—to ensure that each LEP can fund the revenue costs associated with bringing local infrastructure projects forward. Business leaders across the country repeatedly emphasise the importance of small amounts of revenue funding in order to lever in significant capital investment, whether from the public or the private sector. This funding must not, however, simply be used to fund recruitment of senior executive staff—as noted above.

Q2) Type of activities 7. The BCC has set out three fundamental principles that we believe represent the core mission for all Local Enterprise Partnerships. Allocations from the Regional Growth Fund should mirror these. Accordingly, the Fund should only be used to support projects that deliver: — Increases in productivity/private sector economic activity in a LEP area; OR — Increases in the number of private sector jobs in a LEP area; OR — Improvements in economic diversity (where the LEP area suffers from sectoral imbalance) or economic sustainability (where the LEP area needs to invest to maintain existing strong sectoral mix). 8. We agree that a level of flexibility will be required in determining whether the activity proposed in a given local area fits with the above objectives. However, given the business community’s consistent calls for greater investment in local transport infrastructure and premises for private-sector growth businesses, and the limited amount of resource available under the Fund, the BCC believes that “package” bids that improve an area’s physical business environment must be prioritised over other interventions (eg back-to-work initiatives that offer fewer short-term prospects for visible local economic growth, despite their clear social benefits). Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Q3) Criteria for assessment 9. The BCC is concerned that the two high-level objectives for the Fund—leveraging private-sector growth and reducing public-sector dependence—may not always both be covered by a single bid. 10. Accordingly, the Government should think further about how it will differentiate between bids that deliver high levels of absolute growth (eg a project in a successful area levering in significant new private sector investment and large number of private-sector jobs) and those that deliver greater diversification and transformative potential (eg a project in a less-successful area that “creates a marketplace” for substantial private-sector investment). 11. In addition to the criteria set out in the consultation document, BCC believes that no bid should go forward to the Independent Approval Panel for consideration without the express endorsement of the local Chamber of Commerce—to ensure that there is a real unity of purpose between local private—and public- sector actors. We believe that this would also cut down on the number of poor-quality or hastily-considered bids received by the Panel. 12. The BCC also believes that bids to the Fund must demonstrate how the capital received would integrate with other public-sector investment within a locality—so that private-sector led growth is best aligned with limited Government investment.

Q4) Two-stage bidding process 13. We understand the Government’s desire to hold two rounds of bidding, one for 2011–12 and one for 2012–13. However, we would question whether robust bids can be brought together by December 2010 for the first round. Many bids made at that time will simply be existing “off-the-shelf”, public sector-led projects that have been delayed or cancelled due to RDA and local funding constraints. Additionally, this tight timescale might “crowd out” potential private-sector bidders, who will need to invest significant time and resources to develop innovative new bids and partnership arrangements with councils and other local actors. We would suggest a date for the first round that coincides with the start of the 2011–12 financial year—eg 6 April 2011. 14. The BCC strongly supports the principle of a two-stage bidding process—with outline bids followed by the development of a full business case. This will prevent the wasting of time and resource, both by local authority economic development departments (which are likely to be smaller and even more under- resourced in future as councils’ budgets become even more constrained), and by any putative private—or third-sector bidders.

Q5) Longer-term role for the Regional Growth Fund 15. Economic transformation—whether local or national—is a long-term undertaking. The British Chambers of Commerce believe that in order to be successful, the Regional Growth Fund must be a sustained initiative. Otherwise, it will be viewed as an unstable, short-term source of grant funding—rather than a long-term enabler of critical local infrastructure projects. 16. A long-term Fund will help to build up business and investor confidence—thereby delivering the private-sector leverage that the Government wants to see as a result of the Fund’s pump-priming investment. 17. Chambers of Commerce would also support mechanisms to recycle money into the Fund over time— eg from loans and equity investments, in a manner similar to the European Investment Bank’s JEREMIE initiative, which already operates in a number of areas of England. 18. We would also encourage the Government to explore the possibility of direct private-sector and local authority investment in the Fund over the longer term. Please see the attached paper, written in 2008 by the BCC’s Director of Policy, Adam Marshall (while at the Centre for Cities think-tank) for some further ideas on how this could be encouraged.

Conclusion 19. We would be happy to discuss any of the points made in this response with Ministers or officials in further detail, if that would be helpful. Please contact Adam Marshall, Director of Policy and External Affairs, on 020 7654 5815 or a.marshallwbritishchambers.org.uk.

Written evidence from Business Voice West Midlands Introduction 1.1 Business Voice WM is appreciative that the Committee gave Business Voice WM the opportunity to appear before it on 12 October. 1.2 Further to the Chairman’s invitation to provide further clarification in addition to the evidence we have presented to the Committee, this supplementary submission is intended to provide additional details of our stance that we trust would be of benefit to the Committee. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Role of Local Government 2.1 Local authorities are an important component of the local economy. Its’ ability to harness the human and financial capital of a locality to drive local economic growth is of great value and we recognise that the strength of local government in serving their local areas could be enhanced by the introduction of Local Enterprise Partnerships (LEPs). 2.2 However, LEPs can only operate on the basis of their local nature in helping to drive local enterprise. When it comes to addressing supply chain patterns or providing services that need to take account of economies of scale, LEPs—on their own—are ineffective in helping to develop the UK economy. 2.3 Therefore, we propose a mechanism is needed as LEPs can come together in the interests of the common good in order to address the business efficiencies that need to be made across complex supply chains in order for economic growth in each locality to be sustained and developed. 2.4 In addition, such a mechanism can also address a plethora of issues that, due to the local dynamics of LEPs, cannot be addressed at a local level as there are a number of functions that can only be delivered effectively through co-ordination across LEPs because they intrinsically straddle LEP boundaries or are otherwise unlikely to be successful with purely local delivery across LEPs. 2.5 These functions are explored in more depth in the submission we have sent to the Government which the Committee has seen. In essence these functions can be summarised as follows: — Inward Investment. — Clusters. — Innovation and Technology Transfer. — High level and specialist skills. — European programmes. — Infrastructure. 2.6 We support the Government in its assessment that economic development structures should be business led. It is business that will drive the economy out of this economic downturn and, while local authorities have a role to play, business leadership is necessary for ensuring a focus on the economy remains.

Collaboration Role and the Wider Economic Background 3.1 As the evidence presented to the Committee on 12 October demonstrated, there was near unanimity from most witnesses in the two sessions for some form of collaboration across LEPs to exist. 3.2 Therefore the debate seemed to be now focusing on whether such collaboration should be given direction or whether collaboration should evolve. 3.3 We believe that in the current economic environment, when the economic conditions in the West Midlands are particularly serious, whether or not predictions of a double dip recession prove to be correct, there is not the time or space to wait for an evolutionary process to develop. 3.4 LEPs need to work together urgently if global economic shocks hit the aerospace and automotive sectors, for instance. Active co-operation between LEPs and with the Government would be required in such an eventuality so that the number of potential job losses could be minimised and action can be implemented as quickly as possible to help sectors weather a potential bear market and put in place interventions so that the foundations for growth can be laid. An evolutionary approach would delay the need for such urgent collaboration to take place in a timely manner.

Finances 4.1 Further to the question from Mr Nadhim Zahawi regarding the financial figures contained in our submission to the Government, may we clarify that the figures cited in the document do not refer to a request for new resources from the Government. Instead, we propose that a small proportion of existing public funds could be utilised. 4.2 Specifically, the figures refer to an estimate of the administrative element of strategic business support that the Government has suggested should be led nationally. We propose, along with the majority of witnesses, that strategic business support, such as the Manufacturing Advisory Service and the Midlands Aerospace Alliance, should be led and delivered in the respective sub national areas. 4.3 In the case of the West Midlands, we believe that if this happened, this element for administrative support for such programmes can also be used to provide the basis for a mechanism to enable collaboration across LEPs to take place. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Regional Growth Fund 5.1 We are concerned that the Government has set a deadline of 30 December for bids to access the Regional Growth Fund. To assist councils and businesses in preparing their bids for funding, we would suggest that it would be helpful if the deadline was extended, to enable bids to be prepared in the full knowledge of the Government’s stance on LEPs and the publication of the Sub National Growth White Paper.

Transition 6.1 We believe that there is talent relating to many of the responsibilities of the Regional Development Agency which should be preserved and it is currently unclear how this should happen. It is paramount that this matter is resolved. 6.2 In addition, the issue of the transfer of assets from the RDAs to LEPs is still to be finalised, including whether LEPs would have to carry the burden of some assets which may, because of the current market conditions, be in negative equity. 6.3 These matters should be addressed urgently in order for a renewed focus on business growth to occur as we are concerned that until such matters are addressed a debate on structures will divert attention and resources away from addressing the economic downturn. 20 October 2010

Written evidence from Cambridgeshire County Council Evidence submitted on behalf of: Cambridgeshire County Council Cambridge City Council South Cambridgeshire District Council East Cambridgeshire District Council Fenland District Council Huntingdonshire District Council Greater Cambridge Partnership; local economic partnership; www.gcp.uk.net Cambridgeshire Horizons; local delivery vehicle for coordinating sustainable growth; www.cambridgeshirehorizons.co.uk

1. Executive Summary 1.1 This submission seeks to present a case for continued investment in economic growth in Cambridgeshire, identify best practice from Cambridgeshire in managing funding and delivering growth and provide evidence of key issues in determining effective, efficient and accountable Local Enterprise Partnerships. Local Enterprise Partnerships should be supported to reflect and be able to respond to local issues in order to then be able to support business to establish and grow.

2. Introduction to Cambridgeshire 2.1 Cambridgeshire is a major engine for growth. The area has a diverse knowledge based economy, and is one of the few truly international brands (not least through Cambridge University) that the UK has. The characteristics of the Cambridgeshire economy mean that it is well placed to attract investment that might otherwise locate elsewhere internationally. 2.2 However, the continuation of Cambridgeshire’s success, which is also critical to the performance of the wider UK economy,depends in large part on the delivery of new homes and low carbon infrastructure, so that growth is not hampered by unaffordable housing and unacceptable congestion and the area continues to attract the best talent and companies from around the world. Without such investment the growth potential of Cambridgeshire is at real risk. 2.3 Local Enterprise Partnerships offer a unique opportunity to tackle the barriers that are already limiting the growth of our economy, but only if they are truly empowered to take on that role. Cambridgeshire has a track-record of innovation and flexibility in managing funding to support economic growth and deliver sustainable infrastructure, when we are empowered to do so. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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3. The Functions of the New Local Enterprise Partnerships and Ensuring Value for Money 3.1 The primary function of Local Enterprise Partnerships should be to identify and tackle, through investment, obstacles to economic growth. Supporting Local Enterprise Partnerships in areas that have the greatest potential to grow and have politically committed to growth will achieve the greatest value for money.

3.2 Drive the localism agenda In order for Local Enterprise Partnerships to meet the needs of local economies they must reflect the nature of the functional economic area. It must be recognised that mid size cities and market towns play a vitally important role in the national economy, balancing quality of life with economic growth and connecting the rural economy with core economic hubs. The State of the Countryside Report 2008 found that rural areas supported more than their national share of workplaces in energy and utilities, construction, transport and communications and manufacturing. Functional economic geographies in the north of the country, away from the influence of London, are very different from those in the south of the country where economic linkages and commuting patterns are much more complex. Local Enterprise partnerships covering a number of towns and smaller cities should therefore not be disadvantaged on account of their size and nature and it must not be assumed that a larger Local Enterprise Partnership covering a single large city will achieve greater value for money. Unless a Local Enterprise Partnership represents a realistic economic geography, it will not represent local needs, agreement of joint priorities will be harder to achieve and this will risk spreading the resources of the Local Enterprise Partnership too thinly across too many issues.

3.3 Long term, flexible forms of investment Enabling Local Enterprise Partnerships to make long term investments and allowing them to be flexible in how they spend money will generate the greatest return on investment. Cambridgeshire has a track-record of innovation and flexibility in managing funding to support economic growth and deliver sustainable infrastructure, when we are empowered to do so.

3.4 Critical role in Inward Investment Local Enterprise Partnerships have an important part to play in inward investment. Successful inward investment relies on a detailed knowledge of; the local economy,gaps in supply chains, key sectors of growth, property and land availability, labour supply and key contacts within local authorities, the business community and the academic community. This kind of knowledge and networking is only realistic if inward investment is owned and driven locally. The importance of local knowledge is recognised in the coalition governments localism agenda—this agenda needs to be driven forward through enabling Local Enterprise Partnerships to have a real impact in their local economies.

3.5 Business Support informed by local intelligence The delivery of business support services should be a function of Local Enterprise. Business support is only effective if it responds to the particular issues of local businesses. These issues will vary significantly based on the sector, size, growth potential, location and employees of the business. The Local Enterprise Partnership should provide a mechanism for local business intelligence to inform economic development and business support functions, ensuring that those services delivered are effective and achieve the greatest value for money.

3.6 Local authority responsibility for statutory policy-making responsibilities Local Enterprise Partnerships should provide a mechanism for businesses to help inform local authority decision making, with local authorities continuing to exercise their statutory policy-making responsibilities for planning and housing. In addition, Local Enterprise Partnerships could have an important role in helping local authorities overcome barriers in the implementation of policy and coordinating delivery.

4. The Regional Growth Fund, and Funding Arrangements under the LEP System 4.1 Invest in areas with the greatest potential to grow The emphasis of the Regional Growth Fund should be on supporting areas with significant potential for economic growth and creating sustainable private sector employment. Oxford Economics have demonstrated that the East of England is one of only three regions making a net contribution to UK plc, yet the Cambridge area, the key driver of economic growth within the region, faces increasing constraints in terms of housing affordability, transport infrastructure and skills. GVA-based capital allocation of the proposed grant proportion of funding would lead to a much fairer distribution than a formula based on outdated population estimates and would ensure that those areas with the most potential to grow, receive the support they require to fulfil their potential. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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4.2 Growth of the economy and growth of sustainable communities It should be recognised that sustainable new homes and communities will be a vital element in support economic growth, alongside a direct support for innovation, commercialisation and enterprise. The Cambridgeshire Integrated Development Programme (2009) identifies and costs the interventions required to deliver our vision for long term, sustainable, high quality growth and forges a connection between housing and economic ambitions. Within the programme is an evidence base on sub-regional infrastructure needs. £3.9 billion of infrastructure investment in transport, education, community facilities, health, open space, waste and utilities is needed to deliver our vision for sustainable economic and housing growth. Without investment from the Regional Growth Fund and through the Homes and Communities Agency, Cambridgeshire and the wider region will no longer continue to perform, particularly in light of increasing competition from abroad. The high value nature of Cambridgeshire’s economy means that it competes with locations across the globe to attract and retain the best quality people and businesses. Growth in Cambridgeshire must therefore be high quality across homes, places, connectivity, communities and culture. For this reason, we developed the Quality Charter for Growth. The Charter aims to ensure the area remains an international leader in architecture, design, community development and low-carbon growth for years to come.

4.3 Supporting private sector jobs growth The county and district councils of Cambridgeshire, along with district councils outside of the Cambridgeshire administrative area, already work together with businesses through the structure of the Greater Cambridge Partnership, a local economic partnership. Private sector jobs growth has already been recognised as a key priority across that partnership given that 43% of Cambridge’s workforce is employed by the public sector and a significant number of residents in the districts surrounding Cambridge, commute into Cambridge to work. Funding from the Regional Growth Fund will be vital in ensuring that the future Local Enterprise Partnership is able to address the barriers currently restricting private sector jobs growth in the local area, both in terms of “hard” physical infrastructure and “soft” infrastructure such as skills development and training.

4.4 Enable flexible investment and local retention of funds Cambridgeshire has a track-record of innovation and flexibility in managing funding to support economic growth and deliver sustainable infrastructure, when we are empowered to do so. Allowing local areas with a proven track record of delivery to take more risks will generate greater returns on investment. The Regional Growth Fund should provide the opportunity for the area to capitalise on and increase its existing strengths and assets and gain greater freedoms and flexibilities, allowing it to potentially re-profile and vire funds won via the Regional Growth Funds to more achieve the best possible outcomes for the local area and the wider UK economy. Cambridgeshire Horizons have used progressively more ambitious models of investment and have progressively achieved more with this investment. Two examples of recent investments follow:

Trumpington Meadows and Clay Farm Working closely with developers, Cambridgeshire Horizons put in place funding mechanisms that kick started development in areas critical for the sustainable growth of Cambridgeshire. A £4.5 million loan (paid into an escrow account) was agreed with the Trumpington Meadows land company in exchange for the delivery of 100 houses by Sept 2012, 200 by 2013 and 300 by Sept 2014. If the developer fails to hit the housing targets, the rate of interest on the loan increases. As a result of this agreement, development will start on the site this year that may otherwise not have happened. A development at Clay Farm has now been agreed in principle as a result of an equity investment model with associated delivery targets for housing and infrastructure. Subject to negotiations Cambridgeshire Horizons plan to make an £8 million investment in Clay Farm and are seeking to obtain a 20% internal rate of return on the investment taken from the surplus profits that developers make on the scheme. Thereafter, Cambridgeshire Horizons will take a 20% share of ongoing surplus profits until the end of the project. Again, as a result of this agreement, development will soon begin on the site that otherwise is unlikely to have happened. Furthermore Cambridgeshire Horizons could see at least a £15 million return on the initial £8 million investment. These examples show that the more the locality is able to share in the risks of the investment, the more the locality stands to benefit from the investment. We therefore request that central government allow localities to retain more of and take responsibility for the money that is generated by the local economy and be empowered to achieve more with the limited funding available, for example through Tax Increment Financing, the Community Infrastructure Levy and a sub-regional business rate supplement Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Tax increment financing Tax Increment Finance is a method of borrowing funds to pay for infrastructure, on the basis that additional housing requiring that infrastructure will increase tax revenues. Although this system is widely used in America, it has not been tried yet in England, in part because the US has a wider range of local tax instruments, such as property tax, whereas the English tax system is more centralised. Cambridgeshire Horizons has written to the Department of Communities and Local Government suggesting that a pilot project could be taken forward in Cambridgeshire, using the increments in business rate income, which could be returned to local control.

The Variable rate Tariff or Community Infrastructure Levy Cambridgeshire Horizons and LPAs in Cambridgeshire have been leading work to examine the potential for a countywide system of standard charging on new development, in order to fund infrastructure. This charge could take the form of the currently proposed Community Infrastructure Levy or a Variable Rate Tariff based in existing Section 106 legislation. Either of these innovative funding methods could provide contributions towards subregional projects. Such a charge would need to have varied rates to take account of differing development economics across Cambridgeshire.

4.5 Revenue Funding for Local Enterprise Partnerships Cambridgeshire has been working hard to achieve efficiencies yet still deliver high quality results and services. Through the umbrella of “Cambridgeshire Together”, public service leaders across the county have come together to explore new ways of working, improve services and offer better value for money. Each of the eight projects developed have associated outcomes that will benefit the people of Cambridgeshire. As a result of the work taking place within the programme, Cambridgeshire has been named as a national Total Capital and Assets Pathfinder as well as being shortlisted for the MJ Total Place Achievement of the Year 2010. However, this work would not be taking place without revenue funding received from Improvement East. The same principle is true of the innovative funding models developed by Cambridgeshire Horizons. Without having received some revenue funding from the Housing Growth Fund, Cambridgeshire Horizons would not have been able to achieve the same return on investment from the capital element of the funding programme. It is therefore vital that Local Enterprise Partnerships are provided with some revenue support if they are to fulfil the ambitious role that Government intends for them.

5. Government Proposals for Ensuring Co-ordination of Roles between Different LEPs 5.1 LEPs should be supported to coordinate themselves We fully recognise that to work on issues such as key transport corridors requires Local Authorities and Local Enterprise Partnerships to work beyond their borders. Cambridgeshire’s authorities have a track record of creating strategic alliances with neighbouring areas to address key areas of work as and when necessary. Examples of this are the A428, the A47 and East West Rail.

A47 Alliance Cambridgeshire County Council works with Norfolk County Council, Peterborough, District Councils and local business in the A47 Alliance to press for improvements to capacity and address safety issues. Some improvements have come forward to the route during the life of the Alliance and is an effective voice for the joint aspirations. The route is a key link to and from the fenland area of Cambridgeshire and Norfolk.

A428 Cambridgeshire County Council with the Highways Agency, Bedfordshire Authorities, District Councils and Local Development Bodies such as Cambridgeshire Horizons and Renaissance Bedford to promote/ study improvements to the A428 length of the regional route. The A421/A428 and A14 between Cambridge and Ipswich will shortly form a new east west dual carriageway route between Felixstowe and Milton Keynes/M1, but one length Caxton common to Black Cat Roundabout on the A1 still exists as a single carriageway road and is much in need of improvement. Co-ordinated action between local authorities and development interests appears to be the only way forward.

East-West Rail Working with many other authorities on the promotion of an east—west rail route between Ipswich and Oxford. Significant progress has been made in developing services between Oxford and Bedford a link which requires extra trackwork. Improved services have been achieved between Cambridge and Norwich and Cambridge and Ipswich through this joint working. Currently, there are few cross boundary schemes which are being promoted due to the lack of funding, but Local Authorities are well versed in cross border co-operation. Various powers exist to facilitate this and this is usually effected through one authority becoming the lead authority, but both contribute Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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proportionately. (An example of this is the nearby A1073 new road scheme from Peterborough to Crowland, jointly promoted and implemented by Lincolnshire County and Peterborough City, with Lincolnshire leading ).

6. Structure and Accountability of LEPs 6.1 Governance Business led Local Enterprise Partnerships still need proper governance arrangements so that residents can have their say on key issues that affect them and can have confidence that LEP decisions are made in an open and transparent way.

6.2 Importance of Universities on the Local Enterprise Partnership Board Currently government suggests that business and civic leaders will have equal representation on the boards. We are concerned that this does not take into account the valuable role that others (eg universities) can play in the local economy.

6.3 Meaningful consultation Given that proposals for LEPs are being developed over the summer months government should consider that businesses, residents and local authorities are given further opportunity to develop the proposals, once submitted, after 6 September.

7. Means of Procuring Funding from Outside Bodies (including EU Funding) under the New Arrangements 7.1 Delegation to a consortia of local authorities across a region or to LEPs Local Enterprise Partnerships needs the ability to be legally constituted in order to be able to access and manage European Funds and either it or one of its key partners enabled to administer programmes previously delivered at a regional level. Some local authorities have the capacity to administer EU funding, as is evidenced through Cambridgeshire’s successful participation in the Territorial Cooperation programmes Interreg IIIB and IIIC, which are funded through ERDF, however many will struggle to provide the required match funding. Central government should ensure that Regional Growth Funds are eligible as match for European Funding programmes.

Written evidence from the CBI The CBI is Britain’s leading business organisation, representing 240,000 firms of all sizes covering all sectors and located across the UK. We therefore have a strong interest in economic development across all the English regions and welcome the opportunity to comment on the development of Local Economic Partnerships. The CBI believes strong local and regional economies across the UK are an integral part of UK competitiveness. We have always argued that there are a number of issues which can and should be addressed at a sub national level but above local level. We have never favoured any particular structure or title, but are concerned that in the rush to abolish Regional Development Agencies (RDAs) and elicit bids for Local Enterprise Partnerships (LEPs), there is a risk of throwing out the baby with the bathwater. This matters far more than the details of structures or titles. We are not wedded to the existing RDAs network, which had weaknesses as well as strengths, but we will judge the success of LEPs on whether they are: — Focusing on sustainable economic growth; — Driving genuine workable strategic partnerships in the pursuit of growth between business leaders and local authorities; — Avoiding the risk of fragmentation of effort and structures which would inhibit growth, increase “running costs” and undermine efficient delivery; and — Enabling the articulation and delivery of a business-led regional growth agenda in parts of the country where there is a genuine desire for this. The rest of this submission sets out the issues LEPs will need to address to deliver the outcomes set out above, by: — focusing on the right microeconomic growth priorities; — delivering the right functions at the right level; and — achieving the right scale and governance. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Focusing on the Right Microeconomic Growth Priorities A focus on sustainable growth must be at the heart of the new arrangements, with the detailed priorities varying from area to area. But the overall economic context provides the backdrop against which the new arrangements must work. The Coalition Government has rightly made cutting the deficit its overall priority. The first significant economic challenge that follows from this is whether the private sector can expand far and fast enough to offset the contraction that is about to hit the public sector. The second is whether private sector growth will help rebalance the economy by strengthening manufacturing. Private sector growth will not happen without sound, stable macroeconomic policies. But setting the right priorities for microeconomic policies is also important and is the context for any sub national structures. Key microeconomic priorities to help drive private sector growth include: — Promoting enterprise: The focus should be on growth-orientated SMEs, with provision of advice and support for new/growing SMEs, for example, relating to local/regional markets, funding opportunities and availability of premises; — Enabling manufacturers to take advantage of the improving economic context for exports (such as sterling depreciation, the recovery in Asian markets, and the strong productivity position of many manufacturers stemming from productivity gains before the recession). Securing market share in high value-added fields is especially important, which in turn shows the importance of innovation support; — Maintaining UK’s strong record in Foreign Direct Investment (FDI): Ernst & Young data shows that the number of FDI projects in the UK in 2009 almost matched the level in 2008, despite the recession, so the UK has a strong basis on which to build. While the promotion of the UK abroad as an investment location must be led by national Government through agencies such as UKTI, there is a need to provide regional/local linkage for foreign investors who have decided to invest in UK with practical help and support; — Creating new low carbon energy infrastructure to enable economic growth to be compatible with carbon reduction targets. Such infrastructure will offer opportunities to UK engineering, construction and manufacturing firms in the supply chain; — Improving transport links: Recent OECD reports have repeatedly urged the UK to increase investment in transport to help improve the flow of goods and people into and around the UK economy to bolster long term economic prospects. Transport strategy requires a strong business input at all levels: local, regional and national; and — Improving skills levels: Ensuring secondary, further and higher education are key partners and can respond flexibly to local employer demand. This is vital to make sure employers have an available skilled workforce able to take up job opportunities from future growth. Skills funding should respond to employer demand with training providers having the freedom to put together responsive training packages. These economic priorities provide a basis for assessing the priorities for LEPs themselves, provided LEPs have sufficient geographical scale to be able to think and act strategically.A recent CBI survey of its members in the English regions supports these priorities, with the four areas for possible LEP activity getting most support being “employment and enterprise”, “transport and infrastructure”, “inward investment” and “business support”.

Response Response Per cent Count Access to finance 43.0% 74

Business support 55.2% 95

Employment and enterprise 68.0% 117

Innovation 37.8% 65

Inward investment 62.8% 108

Planning and housing 43.0% 74

Sector leadership 23.3% 40

Transition to low carbon 35.5% 61

Transport and infrastructure 66.3% 114

None 1.7% 3

don’t know 3.5% 6

Other 11

answered question 172

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Delivering the Right Functions at the Right Level With regard to functions, the joint letter from BIS and CLG Secretaries of State of 29 June 2010 proposed a split approach, with some functions devolved to LEPs and others “led nationally”. For this to work successfully, some programmes which are nationally-led must be delivered at regional/local level. This particularly applies to activity around business support, innovation and business investment. But programmes in these areas need to be assessed on a case-by-case basis in terms of whether regional/local knowledge would add value. It is also critical that once the scope of LEPs is established, it is not allowed to grow incrementally (as happened with RDAs), either through mission creep from the LEP itself or by central or local government loading additional initiatives onto LEPs. To avoid this, LEP delivery and effectiveness should be reviewed regularly and LEPs should commission private sector partners to ensure cost-effective delivery of functions.

We set out below our thinking on the right level for vital functions:

— Innovation/business support: These are critical functions for improving economic growth. Programmes should be led nationally by BIS, but some should be delivered at a regional level where this would add value. The Manufacturing Advisory Service is a good example of this, whereas the innovation vouchers scheme could probably be run directly from BIS (given that the purpose of the scheme is to connect firms with relevant academic institutions and expertise regardless of where that expertise might lie);

— Inward investment: We do not believe we need any overseas promotion other than that led by UKTI. However, once an investor has decided to invest in the UK, UKTI should work with either the LEPs or a pan-regional body in an iterative process to decide on the best location for the investment and then to “account manage” the inward investor. UKTI regional directors could be co-located either with LEPs where they are operating at regional scale, or with a “regional coordinating body” where this had been established across a number of sub regional LEPs. UKTI, through its regional directors, would work with the LEPs or a “regional coordinating body” to decide appropriate bodies through which its contracted services would be delivered on the ground;

— Transport: Transport is an issue that is relevant at every level, from local (eg bus services) to national (eg High Speed Rail). LEPs should play a key role on local transport issues, but the new arrangements must find a way of replicating the ability of RDAs at their best to provide a business sense of priorities across the regional level transport agenda, ensuring for example that when schemes crossed local authority boundaries (eg strategic routes to ports, rail freight facilities) they were given due prominence;

— Planning: The revoking of Regional Spatial Strategies (RSSs) risks creating a policy vacuum above local level. This is because while the Government has focused on the housing target element of RSSs, in practice they set out policies and spatial priorities for a wide range of vital economic infrastructure such as waste and energy. Local Development Frameworks would then cross-refer to these RSS priorities. RSSs had flaws, but in their place we need a regional business perspective to articulate infrastructure priorities and influence relevant local plans and planning decisions; and

— Funding: We recognise that LEP funding will and should be much less than aggregate current RDA funding given the need to cut the deficit. It is also clear that disseminating funding for some national programmes to a regional level has hindered economies of scale (eg running costs of regional venture capital funds tend to be relatively high). The Regional Growth Fund however will be a source of potential funding, and LEPs will need to focus on leveraging in private sector funding. Accessing EU funding is also important, and LEPs will need to be able to operate at the scale needed to do this.

Achieving the Right Scale and Governance In terms of scale, all boundaries are artificial to some extent, and it is true that RDA boundaries did not necessarily reflect natural economic geographies. However, business is concerned that in the rush to put together LEP bids and the understandable temptation to use existing sub regional bodies (ie local authorities and existing sub regional business bodies/fora) as the building blocks of such bids, there is a risk of fragmentation. A post-RDA system of large numbers of small LEPs could lead to an over-focus on very local issues and too much competition between LEPs. This is borne out by our recent CBI regional member survey: Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Response Response Percent Count

Regional 65.7% 113

County 26.7% 46

City 15.7 27

District 5.2% 9

None 2.3% 4

Don’t know 4.7% 8

Other (please 11.0% 19 specify)

Answered question 172

skipped question 1

It is clear that in many regions, there is a strong desire amongst CBI members for some form of body with a pan-regional perspective. This could happen either through a LEP which has a regional boundary, or “a regional coordinating body” complementary to a small number of sub-regional LEPs. Either model could be effective. The key issue is that where there is a business wish for a regional element, this is met. In terms of governance, achieving the right level of business involvement in a LEP is crucial. In the challenging economic climate, business people are inevitably busier than ever. It is also generally true that those who have the experience, strategic perspective, and skills to add most value will be the busiest (and the most in demand. We are hearing of a number of senior individuals within CBI member companies who are being approached by several competing LEP bids to get involved). High-calibre business people will be prepared to support an organisation if they are convinced it will be truly focused on economic growth and has the scale, scope and structure to make a genuine difference. Delivering on the model of a 50:50 business and local government split on the LEP board, with a business chair having the casting vote, will be vital to boost confidence in the LEPs ability to deliver and attract high-calibre business participation. Furthermore, more thought should be given to real engagement with the broader business community to ensure robust two-way communication channels are established to help local businesses shape LEP decision-making. 23 August 2010

Written evidence from Coast to Capital Local Enterprise Partnership I enclose a short note which I hope will address the issues the Committee is examining. I would just like to say in response to your point that the Committee wished to hear from business led proposals that the Coast to Capital proposal is also business led, in partnership with our local authority colleagues. A list of supporting businesses is shown in the attached submission. Should you wish to see the full Coast to Capital proposal, it can be found at: http://www.westsussex.gov.uk/LEP 1. This supplementary note is submitted specifically for the Committee’s meeting on 12 October 2010 when it will examine some of the proposals for Local Enterprise Partnerships. The Coast to Capital proposal was highlighted to the Committee at the meeting with business representative organisations on 14 September 2010. 2. The Coast to Capital proposal may be of interest in relation to some of the key issues the Committee has set out in the terms of its Inquiry: — The determination of the areas to be covered by LEPs, and how LEPs will work together. — The functions of LEPs. — Structure and accountability. — Funding of LEPs. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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The Coast to Capital LEP Partnership 3. The initial proposal has been led by John Peel, Chairman of the West Sussex Economic, Skills and Enterprise Board with input from business leaders from business organisations representing more than 7,000 businesses including: Sussex Enterprise South London Business CADIA/Gatwick Diamond Business Association West Sussex Growers Marine South East Federation of Small Businesses—West Sussex Branch Engineering Employers Federation Civil Engineering Contractors Association 4. There is firm support from many individual strategic businesses in the area including: Arora Hotels Lloyds TSB Baker Tilley Parafix DHM Stallard Ricardo Gatwick Airport Southern Railways ITT Southern Water Legal and General Time 24 Manufacturing Local authority input has come from West Sussex County Council, the London Borough of Croydon, Brighton & Hove City Council and some district councils. The proposal is supported by the University of Brighton, University of Chichester and Sussex University.

Our Area 5. The Committee is interested in how LEP areas should be decided. In determining the area to be covered by our LEP, we were influenced by the views of the private sector on what they recognise as the natural functional economy. While there are many factors which overlap, it became clear that businesses believe the core economic driver that determines the functional economic area is international trade activity, which is reliant on the economic dynamo of Gatwick Airport. Recognised as one of the South East’s key growth areas, the Gatwick Diamond is linked to the south to Brighton & Hove, itself a significant local economy, and to the West Sussex coast. To the north, the Gatwick Diamond is tied to the Croydon economy and through it to the London economy. To the east and west the Diamond is interlinked to the rural economy, which has distinctive strengths. 6. Within this area, businesses recognise the travel to work patterns; they share a labour force, which is mainly resident in the area; they work with a common skills infrastructure in terms of schools, colleges and higher education; and they are reliant on the same transport infrastructure. They face many of the same business issues and have strong common ground about the investment and development that is required to further improve the environment for strong business growth. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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7. We believe a LEP area needs to be large enough to give scale to allow sufficient grip on our key issues— the application of a common strategic direction on skills, business growth, investment enterprise etc., across a sufficiently large mass of businesses and individuals to make a measurable difference. The Coast to Capital area is such an economy of scale and critical mass that generates £32.5 billion per year, exports £9.1 billion, with £3.7 billion of tourism income. The area has 79,000 businesses, 113,000 self-employed and 721,000 jobs (of which 27% are in the public sector). 8,000 new businesses are started each year. 8. However, LEP areas also need to be compact enough to allow local engagement of businesses and enable the tackling of local economic development issues. In the Coast to Capital area we have addressed this by explicitly recognising five inter-locking business environments which naturally fit together and which are tight enough to allow us to get things done at local level and to effectively engage a wide range of businesses, without fragmenting to such an extent that we lose sight of the bigger opportunities and the greater prize. 9. Each of the five interlocking local economies has its own attributes and particular problems and opportunities, but they are bound together by the potential to be transformed from a series of coasting and/ or underperforming economies to an integrated high performance economy. Within Coast to Capital we will ensure that the characteristics and needs of the five interlocking business environments are fully recognised and included in the priorities and activities of the LEP. 10. Two of the areas have submitted their own LEP proposals—Gatwick Diamond and Coastal West Sussex. The Coast to Capital proposal includes these two areas in their entirety and with full recognition of their issues. Both have committed to work with Coast to Capital. However, we believe that as LEPs in their own right, the areas might not adequately recognise the real opportunities for businesses in working across a wider area that links the Coast, to Brighton & Hove, the Gatwick Diamond and via Croydon, to the London economy.The danger of LEP areas which are too small are that they may get trapped in their current patterns of business and local economy, and will find it difficult to effect real change and growth. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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11. We believe that an argument could be made for a slightly enlarged area, which would include a further part of Surrey and the coastal part of East Sussex which would fit in well with our proposed LEP. We know that both Surrey and East Sussex County Councils have put in separate LEP bids. However, there are good reasons for both these separate proposals—there are distinct and specific issues in each area which are sufficiently well differentiated from Coast to Capital to warrant separate proposals. We will work closely with these adjoining areas on issues of common interest—for example, transport infrastructure, innovation and links to higher education, coastal issues and the rural economy and the economies of rural market towns.

Vision and Functions of LEPs 12. The functions we envisage for Coast to Capital LEP are determined in part by the Government’s agenda for LEPs, but also by our vision. The vision is straightforward and exciting. It places international growth and entrepreneurship at its very heart. The aim is to transform business and economic performance so that the area can compete in any international marketplace. The LEP aims to develop an economy that is trade-led with a business community that is outward-looking, investment-focused and driven by the need to be innovative. It will have a skilled workforce delivering high value added and knowledge-driven products and services. 13. To deliver the vision, the Coast to Capital proposal has focused on a small number of issues which are specific to this area rather than trying to cover every possible aspect. There are in any case existing strategies, partnerships and delivery mechanisms for spatial and economic development priorities. 14. The Coast to Capital LEP has just two key priorities: — Enterprise and entrepreneurship—tackling low levels of enterprise and business formation so that the longer term competitive health of the area is secured. — International trade—60% of UK productivity gain is driven by businesses that are internationalised. The area has some slight competitive advantage in this, but the proposal is to significantly increase the numbers of firms who trade internationally. These priorities will act as the economic engine to drive the required increases in employment, productivity, innovation and business growth. Other issues will not be ignored, but businesses have said that by focusing in this way the LEP will have maximum impact on the economy as a whole.

How the LEP will Work 15. The LEP will be a strategic body and will take a long term view of the issues affecting businesses. It will set priorities for creating the right conditions for businesses to flourish. Led by businesses, the LEP’s role will be: — Understanding the local economy and its drivers. — Developing a strategy to create the right environment (including planning and infrastructure protocols with the planning authorities). — Setting investment priorities and identifying a small number of catalytic projects. — Raising funding from the private sector and bidding for funding. — Commissioning delivery (possibly from a single purpose delivery vehicle). — Establishing an Enterprise and Export academy to be run jointly by further and higher education. 16. In doing this the LEP will work with and seek to influence statutory and other bodies that are responsible for planning, transport, education and skills etc. that impact on business.

Structure and Accountability Being accountable 17. We will be openly accountable to the business community, local people and interested organisations, publishing regular reports of our activities. We will hold a bi-annual open meeting. We will challenge and hold others accountable to our strategic priorities and principles in so far as their activities impact on business success. 18. Subject to the responsibilities and powers that the Government gives to LEPs in the forthcoming White Paper, we will establish appropriate robust governance structures, and will establish working relationships with the bodies that have statutory responsibility for functions which are critical to creating a positive business environment, such as planning. 19. We do not expect the LEP to do everything itself. In line with the Government’s principles of Big Society,we anticipate and want to encourage local business and social enterprise partnerships to also become involved and help determine the conditions for growth. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Our LEP structure 20. The outline structure we envisage for our LEP is: The Partnership Board—will be formed as set out above, and be responsible for overall strategic direction and priorities. LEP Forum—to engage wider stakeholders, we will convene a regular forum to consult on businesses issues, not less than once per year. LEP Team—a small team, comprised in part secondees from business and other stakeholders, will support the Board, maintain partner relationships and manage the commissioning and delivery of projects. Special Purpose Vehicles (SPVs) and other vehicles—these will be formed to take forward particular investment and financing projects, for example the catalytic investments in key locations.

Funding for LEPs 21. For Coast to Capital we have started from the assumption that private sector investment will drive the achievement of our goals in the long term. We have made the assumption that the private sector will deliver, as the first resort, the support services that need to be put in place. We have made no assumptions about the transfer of residual RDA funding to LEPs. 22. It is our role as the LEP to create the favourable conditions for private sector investment and to convince all businesses that they should invest in their own business growth, including buying external support when necessary. We will establish long term relationships with private sector suppliers of finance including banks, venture capitalists and developers. To deliver our goals we will need to facilitate and lever- in at least £5 billion of private sector investment. 23. As well as creating the right conditions for investment we will also lead investment in certain critical locations by bringing together landowners, developers, investors and potential occupiers. We will establish investment mechanisms and special purpose vehicles (SPVs) where necessary, learning from existing examples such as the regeneration vehicle established in Croydon. 24. The role of the public sector will be critical. Local authorities have a wide range of powers covering planning, economic development, education, housing and transport which will help to create the favourable conditions for investment. Local authorities’ role is to make things happen, while ensuring minimum bureaucracy. Further and higher education are significant investors in their own right as well as providing essential skills and innovation infrastructure. 25. Public sector sources of funding and investment will be used strategically, acting to unlock specific developments or to lever-in private sector funding. Possible sources of public sector funding will include: — Establishing new business Improvement Districts and Supplementary Business Rates. — Regional Growth Fund—may be helpful in getting a rolling programme of investment going. We will also seek to make greater use of European Union funding, using the private sector investment we will unlock to act as leverage. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Coast to Capital Local Enterprise Partnership is supported by the following businesses and organisations

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28 September 2010

Written evidence from the Cornwall and Isles of Scilly Enterprise Partnership Executive Summary Cornwall Council and the Council for the Isles of Scilly along with our business partners feel that the development of Local Enterprise Partnerships (LEPs) will enable us to better match economic development to local needs.

The Regional Growth Fund, and funding arrangements under the LEP system We emphasise that while scale of project is important to ensure that there is a palpable return on investment, we would ask that due consideration is given to projects on their merits and that LEPs in rural areas are given equal consideration with those from urban areas.

Government proposals for ensuring co-ordination of roles between different LEPs Cooperation with other LEPs and local authorities will be sought on areas of mutual interest.

Arrangements for co-ordinating regional economic strategy • Structure and accountability of LEPs In terms of the structure and accountability, we would see the existing Cornwall and Isles of Scilly Economic Forum evolve to take on the governance function of the LEP. Its composition would in broad terms have equal representation of democratically elected councillors and business representatives. Processed: 07-12-2010 16:01:39 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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

We feel that it is imperative that guidance is given as soon as possible, outlining the timelines pertaining to the transitional arrangements from RDAs to LEPs.

Means of procuring funding from outside bodies (including EU funding) under the new arrangements The LEP should provide the key strategic direction to procuring funding from outside bodies. Cornwall Council, the Council of the Isles of Scilly, along with a wide range of business representatives including the Federation of Small Business (FSB) and the Cornwall Chamber of Commerce, are currently working on the development of a Cornwall and Isles of Scilly Enterprise Partnership. We believe that the development of a genuine partnership between local authorities and business, aimed at promoting enterprise in a joined up and focussed manner, will form a key plank in transforming the economy of our area. Given that Cornwall and the Isles of Scilly rely heavily on public sector employment, and we are currently pursuing a strategy of “transforming” our economy through the opportunities offered by European Convergence funding and the strategic direction of Cornwall Council articulated through its recent economic white paper, the development of an Local Enterprise Partnership (LEP) has come at an opportune moment. We feel that it will offer Cornwall and the Isles of Scilly the chance to better match economic development to local needs, requirements and to re-profiling the economy away from public sector reliance towards new growth areas, especially in sectors such as low carbon technology. We welcome the opportunity to input into the deliberation of the Business, Innovation and Skills Committee, and we would be more than willing to provide further information in the future if required. In terms of the general areas of investigation and debate as outlined on the Parliamentary guidance, we would proffer the following opinions.

The functions of the new Local Enterprise Partnerships and ensuring value for money The functions of the LEPs should not be limited to those of the regional development agencies (RDAs) replicated on a smaller scale. We firmly believe that LEPs should be ambitious, bespoke and should contain the functionality appropriate to promoting enterprise. Within Cornwall and the Isles of Scilly, the functions that we think will be important to consider include: — Creating the conditions for growth, including elements of: — Planning. — Transport. — Housing. — Regeneration. — Infrastructure. — European programmes (ERDF and ESF). — Key sectors, including low carbon, digital economy, rural and tourism. — Skills development. While this list is not exhaustive, and there will need to be a clear demarcation between the strategic direction of the governance structures versus delivery on the ground, we feel that the above list would allow us to start to shape the economic landscape in a way that will allow enterprise to be promoting in a holistic fashion without the usual frustrations of diffuse mechanisms of control and direction. In terms of value for money, providing a single governance framework for a wide range of service areas, with a single set of priorities matched to local economic needs and requirements, will ensure that scarce resources are focused where they are required, rather than where false or misleading targets suggest they should be. Additionally, existing governance and delivery mechanisms would be used to develop the LEP without the requirement to create something from scratch that could be costly, take time to implement, and also have no track record upon which to build.

The Regional Growth Fund, and funding arrangements under the LEP system The role of the Regional Growth Fund (RGF), and how this will impact the funding arrangement for the LEP,is an area where we are still seeking greater guidance on how these arrangements will develop. However, we are heartened to see that the emphasis of the RGF is on rebalancing the economy, namely away from narrow sectoral interests such as finance and also away from the over reliance on the south east. Cornwall and the Isles of Scilly, with its peripheral location and economy based around a high proportion of small and medium sized enterprises (SMEs), should be well placed to help support the guiding principles of the RGF. However, the RGF should not be the only source of Convergence match funding coming from Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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central government, and Cornwall’s case as the only Convergence area in England (with ring-fenced funds) should be reflected in the funding made available to lever in European funds and ensure the successful delivery of the European programmes. The additional emphasis on supporting private sector growth in areas with a high reliance on public sector employment is one that should be encouraged, and as aforementioned we feel that support for cutting edge growth industries through locally targeted funding will provide the stimulus required to help these types of businesses flourish. The one point that we would emphasise is that while scale of project is important to ensure that there is a palpable return on investment (ie the guide of £1 million), we would ask that due consideration is given to projects on their merits and that LEPs in rural areas are given equal consideration with those from urban areas. The rural economy forms the lifeblood of many communities throughout Cornwall and the Isles of Scilly, and we feel that it is crucial that there is a fair playing field when it comes to assessing impact during the bidding process.

Government proposals for ensuring co-ordination of roles between different LEPs There will be areas such as airport development where cooperation with other LEPs will be required (ie Bristol), and it will largely be a case of recognising examples of best practice and mutual interest, ensuring that appropriate partnership arrangements are put into place.

Arrangements for co-ordinating regional economic strategy—Structure and accountability of LEPs This question is one that perhaps requires further clarification, as with the demise of other regional strategies such as the Regional Spatial Strategies (RSS) it is difficult to see what “regional” might mean in the context of developing an economic strategy. Within the context of Cornwall and the Isles of Scilly, the LEP would be required to provide the strategic direction for economic development throughout the area. As such, it would bring together the various strands outlined earlier to provide a comprehensive approach to the promotion of enterprise. However, this would obviously have to have some wider linkages with partner LEPs, especially in areas such as strategic infrastructure, planning and transport, to ensure that decisions are taken with the broadest possible context and impact in mind. In terms of the structure and accountability of the Cornwall and Isles of Scilly Enterprise Partnership, we would see the existing Cornwall and Isles of Scilly Economic Forum evolve to take on the governance function of the LEP. Its composition, while not yet decided upon, would in broad terms have equal representation of democratically elected councillors and business representatives. It is absolutely crucial that the governance arrangements allow for two key facets of the LEP to properly develop: to improve the democratic accountability of local economic development decision making processes, and to ensure that business has the chance to directly influence the decisions taken to promote enterprise. In terms of the structure, we would envisage the governance structure of the revamped forum, directly influencing and guiding the delivery of local derived economic development priorities. The delivery of these priorities would fall primarily, although not exclusively, on the Cornwall Development Company (CDC), which will have to requisite capacity to deliver key infrastructural projects. However, it must be acknowledged that delivery can take many different forms, and without wide private sector delivery in a range of key areas, the goals and ambitions of the LEP will not be fulfilled.

The legislative framework and timetable for converting RDAs to LEPs, the transitional arrangements, and the arrangements for residual spending and liability of RDAs We feel that it is imperative that guidance is given as soon as possible, through the impending white paper and subsequent legislative frameworks, outlining the timelines, processes and details pertaining to the transitional arrangements from RDAs to LEPs. Within Cornwall and the Isles of Scilly, where we have major European funding programmes at their half way point (with the ERDF element being administered by the SWRDA with their single pot monies being used as match funding for many projects), any lack of clarity that could lead to delays or postponements of projects could have a hugely detrimental effect on the local economy. The transitional arrangements must be clear, efficient and ensure that key personnel dealing with ongoing programmes are not lost or hampered during the transition phase. Existing spending commitments should be honoured, especially where there is an outcome that fits with the aims and requirements of the RGF, and due consideration should be given to vulnerable economies such as that in Cornwall and the Isles of Scilly when large scale spending cuts are being considered. Cornwall and the Isles of Scilly have a strong track record of delivery, with a leverage ratio of 1:9 when it comes to European funding, and these issues must be taken into consideration when considering major cuts and the impact that they may have. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Means of procuring funding from outside bodies (including EU funding) under the new arrangements The LEP should provide the key strategic direction to procuring funding from outside bodies. In terms of European funding, we would see the LEP bringing together the various strands such as ERDF, ESF and RDPE into a single strategic vision that would ensure that the best possible returns are gained from a coherent utilisation of these funds. This should improve on the previous situation where the administration of the various funds was carried out by different organisations, with the results that local coordination was difficult, and outcomes were sometimes compromised. It would be envisaged that in broader terms, the LEP should be well placed to bid into funding bodies as it would be able to articulate local priorities and show a broad level of support for any proposals that were submitted. While the Council would have to act as the accountable body (unless the LEP could be formally constituted in an appropriate manner), the LEP would provide a powerful mechanism to match local support to external funding, with the potential to make this funding go much further of local priorities are met. 13 August 2010

Written evidence from the EEF Introduction 1. EEF welcomes the opportunity to respond to the first inquiry of the new BIS Select Committee. Our membership of 6,000 manufacturers, who will be key to delivering a more balanced economy, and our strong regional presence throughout the country leave us well-positioned to respond to this inquiry. We also see this as a particularly important inquiry, given that we are in the early stages of economic recovery and that the government has a crucial role in determining how well it is sustained. 2. Generating sustainable growth and increasing employment and investment are clear priorities. The new coalition has begun to set out some of its policy thinking about how the UK’s business environment can best support companies to grow and invest in the UK. Central government controls many of the levers that deliver the right business conditions such as fiscal policy and the better regulation agenda. But sub- national governance structures—closer to the needs of communities and local labour markets—also play a role in creating the conditions for growth. 3. Over the past decade Regional Development Agencies (RDAs) have bridged the gap between national policy and strategy and local variation and delivery. The RDAs were intended to take a strategic overview, in addressing economic needs across local authority boundaries, with the latter lacking critical mass and resources. 4. The transition from RDAs to Local Enterprise Partnerships is intended to deal with the democratic accountability that the RDAs lacked. However, the RDA network chalked up both successes and failures in its 12 year history. It is therefore important to look at the strengths and weaknesses of the RDAs as we move towards a new system of sub-national governance. 5. RDAs improved the understanding of local economies and their connections with businesses and helped to identify and deal with the consequences of economic shocks. They were also able to catalyse delivery of infrastructure that would have economic benefits beyond Local Authority boundaries and took a strategic approach to planning decisions. 6. The coalition government is seeking to address concerns with the democratic deficit and the fact that some of the geographical boundaries of RDAs (particularly in the Southern half of England) were administrative constructs rather than meaningful economic areas. However, while these may be legitimate issues to address, they were not the primary reasons for why RDAs were not more effective. Many of the problems associated with RDAs were associated with a continued expansion of their objectives by central government, leaving them with a confused remit. Too often they were seen as the default delivery body for central government. For example, it was entirely appropriate to give RDAs the task of opening up the procurement opportunities to business arising from London hosting the Olympics. However, it was not appropriate to give them the job of using the Olympics to promote healthier lifestyles. The lesson is clear— sub-national economic bodies such as RDAs can be effective when they are focussed on a clear set of objectives geared to realising the economic potential of their area. 7. EEF has therefore argued for some time for reform of RDAs, with regional economic bodies refocused on their original remit of promoting economic growth in their area. Therefore the coalition’s proposal to encourage business and local government to work together to set out a vision for their economy, identify what is needed to achieve it and set out a plan for delivering it is a good one. However, for the LEPs project to succeed, a number of criteria will need to be met. We see the following as particularly critical: — Clarity on what is needed to rebalance our economy. — Getting the right balance between central and sub-national government. — Ensuring LEPs have a clear remit and are focused on the right issues. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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— Achieving sufficient critical mass for LEPs. — Securing engagement from business. — Delivering value for money.

Rebalancing the Economy 8. There is a wide acceptance of the need to re-balance our economy and lay the foundations for sustained economic growth. There are many areas where the balance needs to shift—between the public and the private sectors, between consumer spending and investment and exports, between the different business sectors (with manufacturing playing a greater role) and between different regions of the country. These shifts are never easy to achieve, particularly at a time when economic recovery is still uncertain and public spending is set to face significant cuts. 9. This raises questions about the role of government. In particular, it requires government to become a more sophisticated and strategic partner with business, doing more with less. This means refocusing activity on the areas where it can best add value, ensuring the structures it sets up minimise waste and direct resources to where they are most needed and providing the strong signals and clear leadership to business. 10. In achieving this rebalancing, we see the following areas as particularly critical: — Leadership from government on the opportunities in key sectors and technologies and the strategies it will develop to ensure that the UK exploits them. — Support in developing export markets, particularly in fast-growing emerging economies. — Access to the right forms of finance that will fund the range of investments that manufacturers will need to undertake to be competitive, particularly the riskier forms of investment with longer-term and more uncertain pay-offs. — Relevant and easy to access business support, including the day-to-day information supplied by Business Link and the more intensive intervention that helps firms to improve their efficiency provided by organisations such as the Manufacturing Advisory Service. — Technology and innovation support. — A simple to access and use skills system that responds rapidly to the needs of employers and learners.

Getting the Right Balance between Central and Sub-national Government 11. We believe that the areas listed above, as well as inward investment, should be managed on a national basis. In some cases, this represents a more centralised approach than the one that has operated with RDAs. This will help to avoid some of the problems associated with RDAs and to allow LEPs to focus on where they can be most effective. 12. In the areas listed above, a national approach should be adopted for the following reasons: — It avoids the duplication of resources in setting up structures across the country to perform the same management role. — A common approach across the country, particularly in areas such as sector leadership, provides the clear signals to the companies, particularly the major ones, who will be investing in growing technologies and markets and driving these sectors forward. — Differences in business needs, particularly in areas such as skills, are driven by differences between the industry sectors they occupy rather than by geography. — In many key areas, industry benefits from a national approach, For example, EEF’s research on innovation has shown that manufacturers tend to take a national or international approach to partnering with universities, looking to work with those whose strengths meet their particular needs. A regional or even sub-regional approach, that seeks to partner firms with local institutions, is therefore not the most effective. — In areas such as inward investment, the understandable desire of RDAs to promote the strengths of their particular area, created confusing messages for inward investors and wasted resources by setting up competing offices in target markets abroad.

AClear Remit for Local Enterprise Partnerships 13. In simple terms LEPs should focus on one issue and stick to that remit—supporting economic development in their locality. They need to be able to set out a vision for what their economy can achieve and a plan for delivering this. They should not be involved in issues such as non-economic regeneration, and measures to tackle social exclusion. These are issues that are best left to other bodies such as local authorities and their local partners, who are much better placed to deliver solutions closer to those that need them. By concentrating on those issues on which they have a good chance of making an impact; they will also stand a much better chance of persuading local businesses to engage with them. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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14. The remit for LEPs to create the right environment for business and growth set out in the Secretaries of States’ letter, is therefore the correct one with a focus on planning, local infrastructure housing and business start-ups. These issues cut across local economies and travel-to-work areas and require solutions coordinated by local authorities and the private sector. Together, they can act to address infrastructure bottle necks and improve transport links or facilitate networks of Business Angel investors and mentors to support business start-ups. In many cases, this will involve working closely with central government on issues that they have identified as a priority for realising the economic potential of their area.

15. They also need to able to take on some of the important work currently carried out by the RDAs and Government Offices. This includes maintaining top quality intelligence on key local businesses, with a good understanding of the economic implications for the local and national economy where key companies are at risk. Coupled with this, they must have the ability to anticipate and respond quickly to economic shocks.

16. It is also important that LEPs focus mainly on catalysing and commissioning. In this respect, LEPs should learn from where RDAs achieved some success—by taking a strategic overview of their areas’ needs, using their influence and the funding that they could contribute to specific projects to bring the different parties together and to commission the work that was required. By developing this strategic positioning and understanding, they also should also be equipped to take the lead on developing recovery efforts from economic shocks and emergencies. They would also need to be able to bid for and disperse funds from European Union Programmes (eg European Regional Development Fund). Legally,these programmes need to be administered and evaluated on a regional basis and the UK would lose significant funds if it was not able to do this.

17. There are also some areas in which LEPs should avoid getting involved. For example, we are concerned that LEPs could recreate the proliferation of products to support business that has recently been addressed by the Business Support Simplification Programme. LEPs should only consider commissioning additional products if they have the clear support from local businesses, which are also willing to contribute funding towards them. However, these products should not receive funding from central government.

18. They should also not get involved in directing skills provision, except for any immediate remedial action following an economic shock. As indicated above, skills issues are best approached by looking at the needs of individual sectors. In addition, the evidence from the UK and abroad is that the needs of employers and learners are best met by a system that responds quickly to their needs rather one that seeks to predict and provide skills and training. The objective of skills policy should be to create a fully functioning market for training, with informed learners and employers, responsive providers and a system of funding that follows demand. The Department for Business is currently consulting on simplification of the skills system in England to achieve this aim. We therefore do not need another tier of government in an already cluttered landscape.

Achieving Critical Mass 19. LEPs will only be able to deliver on the objectives set out above and secure engagement from business if they achieve sufficient critical mass. This is vital if they are to take a strategic overview of their areas’ needs and to have a meaningful impact on them. For example, a small body compromised of a number of local authorities is unlikely to have the clout to influence major issues such as transport and other infrastructure. The tight public spending situation means that the resources that local authorities will be able to contribute to LEPs will be constrained by the likely cuts that they will experience in the CSR, while any upfront funding available to finance, for example, a secretariat or develop expertise in economic development, will be very limited. The Regional Growth Fund, a pot of £1 billion spread over two years and available to organisations other than LEPs, is also likely to be very thinly spread.

20. In putting together their bids to central government, potential LEPs need to learn the lessons from Learning and Skills Councils. The former Learning and Skills Council provides a good history lesson of establishing sub-national arrangements that lack sufficient scale. In 2001 the LSC was established as national body with regional committees. By 2004 nine regional offices were put in place—in part to engage with the RDAs—but also to manage the implementation of LSC strategy. They were also necessary to improve the balance between the national framework and policy and local operations and delivery.

21. Arguments have been put forward for a small “under-arching” regional body to support and coordinate the work of the LEPs. We can understand why these bodies might be needed if we end up with a large number of LEPs that lack the critical mass to achieve the objectives that we have set out in our submission. However, we would regard such an arrangement as a sticking plaster, introducing more complexity into the system and a sign that LEPs had failed to achieve sufficient critical mass. England is not a large country and we believe that the optimal number of sub-national bodies is close to the current number of RDAs. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Ensuring Engagement with Business 22. It is vital that LEPs are able to engage the time of business people with some standing and a network to receive and broadcast information. LEPs that do not attract business people of this standing on to their boards and, in particular, to chair them will be doomed to failure. It is therefore important that they meet the criteria set out above—they are focussed on economic growth, limit themselves to a small range of issues and have critical mass. The appointment process must also avoid the complexity and politicisation that business reported to us was associated with RDAs. 23. It is also vital that the new bodies have some stability. While there may be some merits in setting up LEPs as task and finish bodies to accomplish particular projects, such an approach would make it much harder to secure the commitment of business. We therefore recommend that LEPs should be set up for a fixed period of say five years, subject to periodic review of whether they are meeting their objectives and remedial action if they are not.

Delivering Value for Money 24. Many of the value for money and performance concerns can be addressed by addressing the issues that we have already set out in this submission. In particular, it will be vital to get the right balance between central government and LEPs in terms of the areas of responsibility. Creating LEPs with genuine critical mass will also help to avoid resources being wasted administering large numbers of small bodies. 25. The funding model for LEPs will also have a key role to play. Past problems with mission creep can be avoided by giving LEPs fairly minimal upfront funding to provide a secretariat and ensure that they have some expertise in economic development. To carry out particular projects, they would need to look outside their organisation, primarily by bidding into the new Regional Growth Fund or to individual government departments eg the Department for Transport or attracting funding from business. 26. In seeking to ensure value for money, it is also important to understand how the Regional Growth Fund will operate. The principle of a Regional Growth Fund is a sound one. It will provide a single pot from which LEPs can bid for funding for projects that they can demonstrate will fulfil an unmet need in the region and will support economic growth. This funding will allow LEPs to leverage private sector involvement. LEP boundaries are yet to be determined, but individual areas will have different needs and solutions to local problems. The ambitions of each LEP will, by their nature, be different and evolve over time. Combined with the current fiscal constraints, this means that an allocation of funding for each LEP, additional to existing Local Authority Budgets, may not be the most effective allocation of resources. 27. There must, however, be clear direction to LEPs over the criteria that will be used to allocate money from the fund and this is where we have concerns over the proposed timetable for bidding for funds and allocating them. Under current proposals the Regional Growth Fund would be operational by the end of this year, with the first round of bids due by December. However, it is not clear how many LEPs would be established at this point, leaving other local groups to take a lead on bidding for funds. In addition, this timescale is unlikely to allow sufficient time for local groups to make a thorough assessment of need and pull together a high quality proposal with demonstrable benefits for the local economy. Importantly, groups cannot be expected to bring forward proposals without clarity over the criteria used to judge bids. The proposal also anticipates that bids will be in the region of £1 million or more. This risks spreading the money rather too thinly, exacerbating our concerns about critical mass. 28. We are concerned about the rushed approach that the government is taking to the Regional Growth Fund. The consultation document leaves a number of questions unanswered and EEF is currently working on its response. We will be happy to take more detailed questions on this issue when we give oral evidence to the Select Committee.

Conclusion 29. In this submission, we have set out our overall principles and more detailed proposals for making the new LEPs work most effectively. However, we wish to conclude with some overall concerns. As indicated earlier, we are at an early stage of recovery. While order books in manufacturing may currently be fairly full, firms are still uncertain about the future. Many businesses will be considering whether to start increasing investment and where to make that investment. It is therefore vital that the White Paper on Sub-National Economic Growth sets out a clear blueprint and puts in place a system that it is fit for purpose for the foreseeable future and does not need to be reformed again in the current Parliament. 30. This is an important issue as there is the real danger of disruption, waste of resources and disengagement with business if the government gets this wrong. Against the backdrop of a tight Spending Review, the administrative costs associated with the new arrangements are kept to a minimum and that resources are focussed on where they can best add value. In addition, the process of transition from the current RDAs to LEPs must be an orderly one. 13 August 2010 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Written evidence from the Federation of Small Businesses (FSB) The Federation of Small Businesses (FSB) welcomes the opportunity to submit evidence to the Committee Inquiry. The FSB is the UK’s leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own business. The FSB is non-party political, and with 213,000 members, it is also the largest organisation representing small and medium sized businesses in the UK. Small businesses make up 99.3% of all businesses in the UK, and make a huge contribution to the UK economy. They contribute 51% of the GDP and employ 58% of the private sector workforce. We trust that you will find our comments helpful.

Executive Summary 1. This submission addresses the Federation of Small Businesses’ (FSB) current thinking on the emerging Local Enterprise Partnerships (LEPS). It considers the firstly the future role of LEPs and makes the point that the functions of the partnerships should be focussed exclusively on economic development. In doing so sets out some key issues which LEPs will need to be able to address. It states that LEPs should be both business led and reflective of areas of economic activity,rather than existing boundaries. As part of this there must be representation of the interests of small businesses and the self employed in the area. The submission suggests that there should be basic independent funding for LEPs. The FSB also has some concerns regarding the transition from RDAs to LEPs and the submission asserts that we would like to see detailed plans for handling it in a way which ensures minimum disruption for business. 2. The submission goes on to address issues related to handling those functions which the government has indicated it wishes to be led nationally in a post RDA environment. In particular it outlines: — The need to ensure than any future approach to inward investment is fully responsive to local need. — That there are opportunities for better provision of business support at a national level, but that good, direct face-to-face local provision must be retained. — That LEPs could still have a role to play in promoting innovation and sector leadership. — That better access to finance is of vital importance to small businesses and that LEPs provide an ideal vehicle to drive and co-ordinate local investment through a variety of local schemes. — That skills and training provision would benefit from a demand led system if it focuses on the needs of business, but that there may be opportunities for LEP involvement through working with local education and training providers in a commissioning capacity. 3. The submission also touches on the issue of rebalancing the economy and urges that it is approached in a way which recognises the complexities of the current reliance on public sector investment.

Introduction 4. This submission addresses some basic principles which the FSB believes are vital for the future roles of LEPs including the functions and funding of the partnerships and co-ordination both between different LEPs and with national government led functions. 5. The committee particularly asked for submissions focussed on the FSB’s views on: — Handling the activities that the Government has said it is considering making national such as inward investment, sector leadership, business support, innovation and access to finance under a non-RDA structure. — Rebalancing the Economy under the new structure. — The capacity of local authorities to cope with a new structure at a time of reduced budgets. — The future of skills and training.

The Future Role of LEPs Function 6. The LEPs’ role should be exclusively to promote economic development and the proposals for the key areas on which the LEPs should concentrate are in principal correct. The FSB believes that the LEPs need to retain a narrow focus on driving employment and enterprise. Issues such as planning, local transport and infrastructure are also key factors in economic development. So LEPs need to be able to tackle them effectively. However it is important that they remain focussed within the context of promoting local economic development. Originally, the RDAs were given five roles/functions centred on economic development, regeneration, investment, competitiveness, and employment and skills. But since 2000 no less than 16 additional responsibilities, including Business Link, were placed on them so the original objectives were diluted and lost. LEPs need to retain their focus. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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7. The information provided by government as to the functions and powers LEPs will be granted to address these issues has so far has been extremely limited. Also, in advance of the Comprehensive Spending Review it is difficult to know what funding streams will be available and which, if any, will be available to LEPs to lever in tackling their priorities. The FSB realises that we are now operating in a different environment where government intervention and public spending cannot be seen as the solution. If the economy is to grow strongly in that new environment then there is need for local communities to generate solutions. The FSB firmly believes that small businesses are in a strong position to help deliver these. We know from our own membership how good small businesses are at problem solving and finding efficient ways of achieving results. Bringing these skills and knowledge together behind LEP priorities will be key to their success. 8. If LEPs are to enhance the economic performance of their area it is vital that the powers that they are given are appropriate and sufficient, particularly if spending power is limited. For example LEP’s should be given the freedom to use planning and licensing levers or targeted business rate discounts to encourage business development in a particular area. Existing local authority business levers need to be considered in the context of how they can be improved and utilised by LEPs. 9. LEPs should give the lead in strategic economic development and leadership in their area. Using “improving local transport” as an example, transport issues, especially road transport, are of fundamental importance to small businesses. Transport and travel to work patterns are closely related to the geography of economic areas and therefore it is right that local transport strategy is approached in a way which crosses traditional local authority boundaries. If the new LEPs are genuinely reflective of natural economic areas then they should be better positioned to address these issues. In order for them to do so effectively they should be given the power to develop an economic strategy for their area and to prioritise investment in transport and infrastructure within the LEP area accordingly. If LEPs are to be able to generate the right environment for business and growth in their area then this approach needs to be mirrored across all issues on which LEPs are to take a lead. 10. LEPs must have the capacity to address all issues which impact on economic development. In particular: — Transport. — Infrastructure, including encouraging local solutions to deliver high speed broadband connectivity. — Planning and Housing at a strategic level where it relates to economic development. — Tourism—This is a major economic driver in many parts of the country but especially in rural areas. Promotion of and support for tourism relies on funds from the RDAs and local authorities, which is under threat. LEPs must be enabled to continue to invest in this key part of the local economy. — Low Carbon agenda—If moving towards a low carbon economy remains a priority then the LEPs should be well positioned to help drive it, through for example, encouraging the procurement of more services and goods locally. — Skills & Training— By being able to commission local businesses to work in partnerships with local colleges, universities and training providers to set up Group Training Associations and Apprenticeship Training Agencies where there is local business need. 11. In pushing some responsibilities down from RDAs to LEPs while at the same time taking others upward to be led nationally there must be some clear coordination so that local initiatives gel with national strategy. It is also important that emerging LEP policy recognises the interconnected nature of local economies. Mechanisms must be put in place to allow LEP’s to both work together on a sub national level, for example when considering co-ordination of transport connections which run between multiple or neighbouring LEP areas and also to co-ordinate with those departments handling national level strategy. LEPs should also be encouraged to work together to promote specific one off projects such as the creation of a key rail or road transport route. The FSB would also support collaborations between LEPs in the creation of focussed, targeted partnerships to promote enterprise in particular areas such as infrastructure or sub-regional economic development. 12. While the government has expressed an intention to place certain RDA functions under national leadership, there is a lack of clarity about how this would work and how much of the delivery and capacity to manage local activity will be retained by LEPs. There is a danger that this will contradict the government’s “localism” agenda and undermine the capacity of LEPs to deliver economic development if it is not handled correctly. 13. LEPs must be sustainable in the long term, including surviving political change at both local and national level. They must also be able to influence national government and its agencies, particularly given the intention to transfer a number of functions upwards to national level. 14. If LEPs are to remain efficient and value for money then their role should extend to identifying strategic priorities and undertaking appropriate commissioning work, but not into areas of direct delivery. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Form 15. The FSB supports LEPs of any size and coverage provided that they are reflective of the local economy. However, care must be taken to ensure that they have the capacity to deliver economic development. In some cases RDAs were seen to be too large and diffuse to represent a genuine local economic area. Conversely, it is vital to ensure that the reverse does not occur with LEPs. They must represent an area of economic activity rather than being allowed to reflect existing local authority boundaries or through a reluctance to collaborate more widely. In the smaller LEPs both the public sector and business community must be sure that the LEP is viable. In particular the FSB would like to clear plans for ensuring that the proposals for LEPs have the full backing of their local business community before they are given the go ahead by government. 16. The FSB has welcomed the government’s indications that business will be equally represented on LEPs, with business taking the chair. We also welcome the commitment by the Secretary of State for Communities and Local Government6 that the small business voice should have a central role in the partnerships. It is vital that the voice of small businesses and the self employed is represented on LEPs. The FSB would like to see clear stipulations which ensure representation for small and micro business interests is consistent across the country. 17. In order that the LEPs have the strongest independent business voices possible the FSB would like to see provisions for preventing commercial conflicts of interest between LEP membership and involvement in delivery of LEP related activity.

Funding & Capacity 18. The FSB has concerns over the funding of LEPs and this links closely into the issue of the capacity of local authorities to cope with a new structure at a time of reduced budgets. It is the FSB’s view that the LEPs should not be funded from local authority budgets but provided with basic funding for a streamlined secretariat and administrative function and to access research and advice. This will assist with identifying the correct priorities and developing strong proposals and bids. 19. If the administration of LEPs is left to local authorities this is, firstly, likely to lead to local authority dominance of the agenda and, secondly, there will be concerns about whether local authorities have the capacity to help deliver economic development over and above their current activity given the public sector funding climate. At present, other than undertaking Local Economic Assessments, economic development is not a statutory requirement for local authorities who are already facing significant pressures right across their budgets. It is absolutely vital that LEPs are private sector led and do not become a form of local strategic partnership. Moreover, given that the Regional Growth Fund appears likely to be particularly targeted at those areas that are more dependent on the public sector it raises questions as to how those LEPs outside of these areas will have the capacity to deliver outcomes for their businesses and communities. If LEPs are required to rely on local authority and large national business funded support then there is a significant danger that the voice of small and micro businesses who are the drivers of their local economies will get squeezed out. Funding streams for economic development which the LEPs have access to should also remain independent of local authority budgets so that it can truly drive economic development and not risk being drawn into covering budget shortfalls.

Transition from RDA to LEPs 20. It is vital that during the period of transition between RDAs and LEPs that the skills, experience, and useful networks now present in the RDAs are not lost. For example, an important aspect of the RDAs’ work was the routing of European and Government investment funds. Among the beneficiaries are Rural Regeneration Zones (RRZs) and Accelerated Development Zones (ADZs). And equally important to business was the identification of employment land and brown field sites. Most RDAs also have, or had, a Regional Observatory, which collected regional data and with statistics from ONS, produce statistical reports about the state of the region. 21. At a lower level there are Local Development Frameworks, which will be set in stone next February, and Community Strategic Partnerships (CSPs). Added to this there are Local Area Agreements (LAAs), which together with Local Strategic Partnerships (LSPs), are responsible for the routing of some local authority funding, including economic monies. A number of areas have also formed Multi Area Agreements (MAAs). Significant care needs to be taken as to how these different structures and strategic approaches fit together in the new environment, as business will want to focus resources where it is most effective. 22. The previous Government also asked all the English unitary and upper tier shire councils to prepare an economic assessment of their area. Many authorities will have done work on these assessments. The data gained so far could be of use in the future, particularly as LEPs begin to look at the priorities for their local area. Work already undertaken should not be thrown out with the change in structures. 23. It is important for business that there is as much continuity as possible and the FSB would like to see the government issue clear plans for handling the process of transition as soon as possible.

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24. The FSB would also like to see some clarity from the Government on a number of questions. Firstly, how will the Government utilise LEPs on EU funding? Currently, RDAs are the portal at which the EU supports the regions, across the member states. As LEPs will not be bounded by regional constraints, this needs to be considered. The FSB recommends that this finance is kept at national level and distributed to LEPs on a project basis. This must be done in a way which ensures distribution according to the needs of LEP areas and prevents larger LEPs from dominating the process. 25. Secondly, there is a question about the existing loan, grant and equity projects RDAs have. Many organisations and firms will be mid-way through contracts and projects and as such, will need clear guidance of how the demise of RDAs will impact on them. LEPs will not be taking over the existing regional boundary, or even carrying out the same process and functions, so this may cause concerns.

Activites the Government has Indicated it wants to make National 26. The government is proposing to move responsibility for some functions including inward investment, business support and access to finance to a national level. If this is to happen then it is vital that proper mechanisms are put in place to ensure that LEP’s and local business have a strong voice in influencing the implementation of those strategies in their area and ensuring they take account of local need.

Inward Investment 27. The current system has led to some duplication and overlap in terms of inward investment strategy (for example through multiple overseas inward investment offices and RDAs competing to attract the same organisations to their region). Better co-ordination of inward investment activity across the UK is therefore needed. Nevertheless, the FSB has some concerns about the responsibility for inward investment being led exclusively on a national level. As mentioned above there is a risk that this contradicts with the localism agenda. Investment must not be allowed to gravitate to the economically stronger areas of England, creating further imbalance in the economy. 28. The FSB believes that aspects of inward investment strategy must still be driven locally. For example the identification of an area as a destination for a particular sector requires a local business perspective. If the Government decides to proceed with their proposals to lead inward investment activity at a national level then any approach must be strongly influenced by local need and priorities. It should be for LEPs to identify the strengths and weaknesses of their local economies and decide how they would benefit from inward investment and/or focus on developing local business growth, and then co-ordinate with the national body on any activity. The Government must ensure it works with all LEPs in attracting the right businesses to the right areas.

Business Support 29. There have clearly been changes in terms of the way that businesses can access information and therefore scope to bring together some of that provision nationally; for example, through the improvement of online resources. Management of functions such as web-based portals should be handled nationally and should help to ensure a consistency of business support services across the UK. However, it is vital that direct, face to face, advice and support is preserved and continues to be provided at a local level. Any new system must ensure that services remain easy to access and are of direct benefit to businesses. Access to IT technology and broadband services are not universal, particularly for small businesses and centralised provision should not be seen as a replacement for direct support. 30. If regional business support programmes are going to be contracted on a national basis then a mechanism needs to be in place to give LEPs an input into their delivery. The ability to monitor centrally contracted business support services should be made an integral part of LEPs role. In particular LEPs should be given the powers to influence the provision of support for business start ups and businesses that are in the early stages of growth. The role of enabling small and micros businesses requires a perspective based on knowledge and insight into the local economy and the capability to oversee and monitor progress.

Innovation 31. It is not clear that there are sufficient differences between the needs of regions to justify the management of innovation at a sub-national level. Like elements of business support there is scope for this function to be simplified and managed nationally in a more efficient manner. Nevertheless, like business support, it is vital that face to face advice continues to be delivered in an accessible manner on the ground. Innovation should be seen as more than simply applying to high tech sectors such as IT and bio-technology. It should be used to encourage investment in innovations, such as opportunities in the media industry, that can improve business productivity and profitability.This is particularly important for start ups and emerging small businesses where margins are often tight. For example, a LEP could help to promote increased public procurement with local small businesses. Part of this would be helping businesses deliver services more efficiently through utilising innovative technologies or techniques and therefore be in a position to bid for contracts. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Sector leadership 32. The ability for local economies to support and drive particular sectors and clusters must not be diminished by putting sector support into a solely national function. It is important that this can be properly coordinated with the LEPs’ overall approach to economic development. There is already a tendency for businesses to cluster where they can best collaborate together and LEPs could offer a good opportunity for local economies to help encourage this type of growth locally.

Access to finance 33. Access to finance is the lubricant that will drive economic prosperity. It requires both national drive and local innovation and delivery because its availability is vital to all businesses, particularly small and medium sized enterprises. The banks have the capacity to deliver the access to business finance in a manner and on a scale which will make it easier for small businesses to survive and grow. This requires a strong top down push to ensure that enterprises across the country are given the access to finance that they so desperately need. 34. It is vital that the banks and other lenders fulfil their obligations and lend locally to all businesses large and small, irrespective of sector, so that firms can invest in growth and help rebuild the economy. The FSB has undertaken research on small business finance since 2008 and have seen slight improvements in the cost of new and existing finance, and the number of firms being accepted for finance.7 However, more work needs to done to improve the situation and the FSB believes that LEPs will have role to play. 35. The new environment is going to require efficient and responsive local solutions and the FSB recommends that LEPs are an ideal vehicle to be able to drive local investment through schemes such as Community Investment Trusts (CITs). These vehicles would draw down money from organisations and state agencies (EU, Government Funding Streams, Lottery, big business, etc) which is then invested into worthwhile community business projects such as social enterprises, keeping social hubs open—pubs and post offices for example—and other business related causes. The structure of CITs is a board of people (from local authority and business) who decide funding priorities and manage the fund investment team. All monies would be retained by the CIT and invested giving community investors a dividend. Investees would enjoy the same tax incentives as those who invest in Venture Capital Trusts. Capital Gains Tax is not paid on any gain made on the disposal of VCT shares. Also dividends on ordinary shares in VCTs are exempt from income tax. LEPs are in the best position to know what is needed in their area. 36. Certain local authorities have decided to set up council banks, such as the Bank of Essex. While the council brought in a bank to provide the back office services and administration for the project, the local authority devised the criteria and priorities. LEPs should be allowed the freedom to explore these routes of economic development especially where bank branches have closed and other access to finance is particularly challenging. 37. Additionally, LEPs should look into the potential to use the Financial Intermediary Scheme which helps small business who find attracting credit through the major banks difficult. This scheme could be funded by the proposed streamlining of Business Link and administered through private financial intermediaries, where the LEP could take a commissioning role. The scheme could also help start up businesses in developing business plans and sourcing alternative financing models if necessary.

Skills and training 38. The FSB is supportive of a demand led system so long as the focus is also on the needs of micro and small businesses as opposed to providing skills at a deadweight loss. FSB members were largely unimpressed by Train to Gain in terms of awareness. Those who experienced the Information, Diagnostic, Brokerage element felt the service was suitable. But, reaching the hardest to reach businesses has proved difficult. In an FSB survey in May last year, 88% of businesses had not taken up an offer of training through Train to Gain in the previous six months. 39. At the local level the FSB is concerned by the focus on driving up numbers on programmes as opposed to the demands of small businesses. The FSB is keen to see a system whereby employee training is commercially focussed through colleges and training providers so that skills are obtained to better suit small business. Unitisation of learning is critical in the skills system and we encourage the Qualifications and Credit Framework to make it easy for training providers to gear learning in this area. 40. An excellent example of why LEPs need small business representation is that for too long employee training has been focussed at the majority rather than the hardest to reach smaller businesses who cannot get their training recognised. In terms of apprenticeships, fully functioning Group Training Associations and Apprenticeship Training Agencies are critical to reducing the bureaucracy on smaller businesses who wish to offer apprenticeships.

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Rebalancing the economy 41. The FSB welcomes the recognition of imbalances in the UK economy and the fact that only private sector growth can help to reduce the dependency on the public sector in some areas of the country. The private sector must be enabled to drive economic development to assist with the transition and the inevitable cuts in public sector employment. However the reduction in dependency on the public sector must be managed carefully so as not to stifle much needed growth in the private sector. A significant number of FSB members do business with the public sector and this will be mirrored across other business organisations. There is a delicate balance to be struck as spending priorities are addressed. 42. The FSB also urges that attempts at rebalancing are not seen in overly simplistic geographic terms. Although public sector dependency is on average higher in certain regions of the UK such as the North West and North East, it should not be assumed that other areas will be unaffected if they are not given similar assistance. For example although the East of England region is overall well balanced towards the private sector, areas within it such as Cambridge, South Norfolk and Ipswich have significantly high levels of public sector employment. Distribution of spending and measures taken to aid transition such as through the regional growth fund need to be sophisticated enough to take account of this. 13 August 2010

Written evidence from Gatwick Diamond Initiative Executive Summary 1.0 The Gatwick Diamond Initiative (GDI) welcomes the opportunity to submit written evidence to the Committee on the new Local Enterprise Partnerships (“LEPs”). The GDI believes that while there is limited published information from government on the scope and functions of the new LEPs, the concept of enabling business, rather than politics and boundaries, to identify and drive priorities for local economic renewal and development has potential if approached adeptly. 1.1 The joint letter of 29 June from the secretaries of state for Business, Innovation and Skills and Communities and Local Government invites local groups of councils and business leaders to come together to consider how to form new LEPs; with clear strategic leadership and vision; effective governance equally split between the private and public sector; and reflecting functional economic areas. 1.2 The Gatwick Diamond Initiative is already a successful collaborative business led public/private partnership which aims to facilitate, coordinate and lead the actions necessary to create the right environment for business growth in the area surrounding Gatwick Airport—an area geographically covering three district and borough councils in East Surrey and three in North West Sussex. This initiative has grown from a response to a request from businesses to give the area an identity to support a vibrant economy which crosses traditional county boundaries and follows the natural economic geography of the area. Set up in 2003, the GDI aims to take the economic performance of the sub-region from good to excellent. The GDI is led by two business champions, Paul Gresham of KPMG, and David Butcher of FD Outsourcing, who are leading thousands of businesses which are determined that the business voice will be heard. 1.3 Our vision is: “To become a world class internationally recognised business location achieving sustainable prosperity”. That vision is shared, owned and driven by the two county councils and six district councils, two further education colleges and neighbouring universities, Gatwick Airport and many corporate, large and small businesses who have freely collaborated to identify and build consensus around the key deliverables that will enable the area to realise its vision. We have already achieved much and have a clear vision as to what we intend to achieve in the future. 1.4 Our strategic priorities of “Inspire, Connect and Grow” tackle planning, housing, transport, infrastructure, employment, skills, enterprise, tourism and green economy issues whereby businesses advise local authorities of barriers to growth and how needs are prioritised and best met within limited budgets. 1.5 Gatwick Diamond businesses believe that the collaborative strategic leadership already provided through the GDI in partnership with local authorities means that it is well placed to meet the requirements of a Local Enterprise Partnership as known so far.

The Gatwick Diamond 1.6 The functional economic area, at the centre of which is Gatwick Airport, geographically stretches in the north from Leatherhead and Redhill in Surrey, to Burgess Hill and Haywards Heath in West Sussex to the south. Close economic links also exist with Croydon to the north and Brighton to the south along the A23/M23 corridor. 1.7 Two county councils and six district and borough councils are active members of the Gatwick Diamond: Surrey County Council along with Reigate and Banstead, Mole Valley and Tandridge councils and West Sussex County Council along with Crawley, Horsham, and Mid Sussex councils. Both Croydon and Brighton and Hove councils are also supporters. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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1.8 Our aspiration is that the area becomes a primary destination for high value added investment from the most advanced and successful companies, home grown and from outside the region. Achieving such status relies on the area safeguarding its many valuable assets which must be combined with new assets to offer citizens, businesses and future investors a truly unique proposition. 2.0 The Gatwick Diamond area has a GDP of £13.3 billion with a population of 600,000 and workforce of 343,000. Eighty per cent of the workforce is in employment. The transport network is vital to the business community with regional hubs at Gatwick and Redhill. Access to international destinations from the Airport and the surface transport network provides excellent connectivity to central London (using the Gatwick Express) and beyond by rail and to the motorway networks via the M23 and M25. At the centre of the Gatwick Diamond is the UK’s second largest airport with the world’s busiest single use runway, transporting 33 million passengers per annum to 200 destinations in 90 countries on long and short haul flights, employing 23,000 on-site staff and generating a further 13,000 jobs. 2.1 It is already a base for many successful businesses including HQ offices for ExxonMobil and Unilever in Leatherhead, and Thales and the European HQ for Group 4 Securicor in Crawley for example. The area is a key regional centre for the professional services sector attracting companies such as KPMG, PricewaterhouseCoopers, Deloittes, BDO Stoy Hayward, Grant Thornton, Thomas Eggar, ASB Law and a number of banks regional headquarters. The other key sectors are Advanced Manufacturing, Environmental Technologies, Health Technologies (provision and service), Tourism, Travel and Hospitality and Creative Industries. 2.2 Major private sector investments are being made in the area. Gatwick Airport is spending nearly £1 billion of capital improvements; Thales, the French-owned aviation and defence conglomerate is midway through the implementation of its Project Sapphire, which consolidates activities from a number of locations around the UK into new facilities in Manor Royal, Crawley. And Ceres Power is developing its new innovative cell technology for domestic use taking its first step towards full scale production by securing a 50,000 sq. ft. manufacturing base in Horsham. 2.3 Globalisation and our world class vision demand better performance and benchmarking against high performing international business locations reveals much more work is needed to safeguard the area’s economic vibrancy and way of life. Relative to other European and North American airport focused international business locations the area is mid ranking or lower. 2.4 There is a deficit in knowledge economy related assets and levels of investment and there is a need to improve the education, learning and skills profile of the area to meet future business needs. In an area where there is no university but two excellent further education colleges, a university centre is required to provide significantly improved levels of higher education aspiration and participation and responding to employer engagement needs and opportunities. 2.5 The area’s towns do not have the identity and quality of place that will attract and retain the talented people needed to secure high added value growth. The area needs to improve its infrastructure to grow sustainably and connect the economy to global value chains. 2.6 Gatwick Rail Station is already the busiest airport rail station in the UK with over 12 million users in 2009. However, the GDI is currently campaigning to government ministers that the Gatwick Express remains a dedicated and non-stop premier service for international and local business travellers, commuters and tourists. In addition, funding had already been agreed in a £53 million private/public sector initiative to upgrade the very tired and inefficient track, platform and station at Gatwick. This funding is now under threat, which contradicts government’s stated aims of increased public access to the airport, especially with the impending traffic implications from the Olympic and Paralympic Games in 2012. Continued investment will be a major factor for businesses to invest in the Gatwick Diamond. While private sector investment will continue to be leveraged, it is essential that the area secures adequate public sector investment too, particularly in respect of the transport infrastructure. 2.7 All of which we must achieve with minimal impact on our environment in an area which has a significant part designated as an Area of Outstanding Natural Beauty. 2.8 The Gatwick Diamond is an excellent example of a public/private sector partnership providing strategic leadership to achieve its vision in a time of minimal funding and we would commend this model to the Select Committee for consideration.

Response to the New Local Enterprise Partnership Concept 2.9 The letter of 29 June from the secretaries of state and the parliamentary select committee internet pages suggest some topics to which we respond now with our knowledge and experience. 3.0 Role—“LEPs will wish to provide strategic leadership setting out local economic priorities”. In 2008 the Gatwick Diamond Initiative developed a “Futures Plan” which provides strategic leadership and direction following a four step, consultative and collaborative process: 3.1 First, an assessment of the current economic situation in the areas was undertaken. The key economic, social and infrastructure attributes were reviewed and benchmarked against high performing business locations, mainly airport based. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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3.2 A mapping exercise was completed with key stakeholders using “themed meetings” to assess planning, transport, business support and education and skills issues, opportunities and challenges. 3.3 Ideas and concepts for how the vision could be realised were discussed through workshops with the stakeholder businesses, local authority CEOs and leaders. 3.4 Finally, the partners worked together to define its overall direction, strategic initiatives and the actions to be taken to deliver the Gatwick Diamond vision. The local authorities, businesses and FE colleges then committed to working together across county boundaries to achieve a world class vision. The Futures Plan sets out a route map to develop a modern knowledge economy based on smart working and sustainable growth to improve global competitiveness. 3.5 The GDI would strongly recommend that full consultation with large and small businesses takes place as early as possible in the process of setting up a new LEP. Over the years there have been too many public/sector partnerships which have failed because of lack of evidence from the private sector and lack of leadership from the public sector. There is an inherent conflict of interest amongst many council members who want to restrict business growth to satisfy their constituents not realising that with business growth comes improved quality of place to live, work and do business. 3.6 The GDI would also recommend that the businesses themselves have a principal role to play in strategic leadership. Local Authorities need to be guided and led by businesses and the partnership needs to be continually tested for business support. 3.7 Strategic Leadership is not about inviting businesses to six monthly events to consult. It is all about local authority executives and members regularly seen to be out in the business community talking on a one to one basis to small business owners as well as CEOs of corporations. Businesses far prefer this type of interaction in place of group discussion events which are perceived as talk shops. Business needs to identify the barriers to growth, lead the discussions and drive the agenda. 4.0 Governance—“an equal representation of business and civic leaders …with a prominent business chair.” The governance of the Gatwick Diamond is clearly defined with agreed terms of reference and is recommended to the Select Committee as an effective model: 4.1 Chaired by a senior partner at KPMG, the business-led Overview Forum is made up of large and small businesses, Gatwick Airport, colleges, Local Authority leaders and their CEOs. It meets every six months and reviews progress against the actions from the Futures Plan. 4.2 The Management Group, chaired by a local businessman, and populated by business and council representatives meets every two months to oversee the operational management and coordination of activities. There are also four thematic workgroups, the membership of which is 50% businesses: 4.3 Chaired by a neighbouring university senior executive, the Inspire Group brings together key agencies and businesses to develop knowledge assets and encourage links to universities and colleges, to raise educational aspirations creating a talented workforce driving innovation and enterprise. Its priority is the visionary development of a university centre based in Crawley. A bid in 2009 to HEFCE for £2.6 million funding to provide infrastructure for 250 students was one of only six successful nationally but public sector funding was pulled at the last minute. The plan is now to expand current HE provision in a “virtual” university centre environment at the two FE colleges in Crawley and Redhill and to continue to seek foreign and private sector funding for a new university centre on a medium to long term basis. 4.4 A District Council CEO chairs the Grow Group, which is primarily concerned with creating the conditions to support and encourage appropriate physical development that will meet the needs of existing and future employers and communities. Its members are both private sector developers and planning authorities united around a common set of goals, capitalising on the identification of Redhill as a New Growth Point. The six local planning authorities have aligned their local development frameworks for the first time. Following a recent stakeholder and business workshop, the councils are working towards the launch of an integrated strategy which will cover all relevant land use, infrastructure and economic development issues allowing proper consideration of potential strategic business locations This will form the statutory basis for land use planning within the Gatwick Diamond and all local development frameworks will have to reflect its provisions. The Grow Group is also responsible for developing a more comprehensive approach to energy conservation and alternative supply opportunities. 4.5 Chaired by a county council executive, the Connect Group’s role of maintaining and improving connectivity, both transport and broadband, is of critical importance to achieving the ambition to be a globally competitive economy. Actions include progressing and ensuring the delivery of planned major transport projects, upgrading and transforming Gatwick Airport Rail Station; addressing east/west public transport access to Gatwick and Redhill following the introduction of the FastWay bus rapid transit network linking Crawley with Gatwick Airport and Horley; further successful implementation of the “Easit” voluntary travel planning pilot with large employers and Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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improved transport hubs at Three Bridges, Crawley and Redhill; ensuring that Gatwick Airport fulfils its potential as a single runway two terminal airport linking the Gatwick to increasingly more key business destinations worldwide; and working with the private sector supporting the development of the broadband fibre infrastructure to provide super-fast high speed connectivity both in the commercial centres and rurally. 4.6 The Marketing and Communications Group’s role is to build confidence in the local business community to encourage inward investment and to develop a position of influence with local, regional and national government and public agencies. Chaired by a marketing specialist from the private sector, this group has developed a stakeholder newsletter, delivered a monthly PR programme, sponsored the Gatwick Diamond Business Awards, and a Meet the Buyer event, and is currently organising an inward trade visit from 10 business representatives from Atlanta, USA. This trade visit is unusual in that local companies will be paying for the whole trip, including flights, rooms, dinner and transport to businesses; and local authorities have provided human resource to assist. It is an excellent example of leveraging private sector funding to benefit the area. It is hoped to continue this formula with further inward investment trade visits from the current and future new route destinations offered by Gatwick Airport. 4.7 The GDI is neither a membership nor a political partnership and therefore at all times acts impartially and only for a positive economic future of the business and wider community. Neither is it a membership partnership which would compete with the important roles played by local membership organisations such as local business forums, Chambers of Commerce, and the Institute of Directors. Indeed these membership organisations are key partners in the Gatwick Diamond. The GDI would recommend that party politics play no part in the new LEPs. 5.0 Size—reflecting functional economic areas. The Gatwick Diamond Initiative is an excellent example of a “perfectly formed” public private sector partnership of six district and borough councils, which sits within two county council areas, and recognises the economic relationship with two neighbouring councils. 5.1 It is a clear economic area with predominant sectors, with Gatwick Airport at its heart. Considerable evidence regarding transport movements and modes, education choices, community and business hubs has been collected which clearly identifies the geographic parameters of the area, notwithstanding the critical relationships with both Surrey and West Sussex economies and Croydon and Brighton. Crawley alone, on 2% of land area, provides 37% of the business rates for West Sussex for example. The boundaries of the Gatwick Diamond while clearly defined should also be regarded as global with the airport at its centre accessing the world for business and tourism. 5.2 The Gatwick Diamond brand is now well recognised after only seven years of use by the business community. Punching Gatwick Diamond into Google currently comes up with 155,000 results. A decision was made early on that the logo would be offered free of charge to any business for use in its marketing and recruitment. This open and low cost marketing policy is a good example of how to promote an area for inward investment with little money because businesses own the brand and they promote it to their benefit. Examples are as diverse as the Gatwick Diamond Rotary Club and Gatwick Diamond Investigations. 5.3 The GDI does not have a large back office which uses up funding. Currently a part time Director is the sole employee making use of the resources of the public and private sector partners to effect change. The GDI recommends to the Select Committee that back office costs are kept to a minimum in new LEPs. When collaboration and partnership is truly effective, as is the case in the Gatwick Diamond, the councils already have all the back office resource and specialist expertise required for housing, transport, infrastructure and planning. 5.4 The preference of businesses in the area is to maintain the Gatwick Diamond brand which is promoting and growing the economic area and has created a strong identity. However, it is recognised that in the minds of the government a Local Enterprise Partnership may prove to be a larger economic area than the Gatwick Diamond. Should that be the case we would emphasise that the Gatwick Diamond Initiative has always worked hand in hand with and been supported by both Surrey and West Sussex county councils. This is a relationship we would want to continue whatever optimum size a LEP should become and whatever part the Gatwick Diamond plays within it. However, it is critical that the Gatwick Diamond remains recognised as a functional economic area and is not disadvantaged by being forced to be part of other economic areas which do not easily fit with this airport led economy. 6.0 The Regional Growth Fund: 6.1 Are there benefits from allocating the different elements of the fund in different ways? The GDI firmly believes that it would be more appropriate to the economic geographies of areas to allocate the fund in different ways. Decisions must be made at a local level meeting local needs. In the Gatwick Diamond funding from a Regional Growth Fund would be used to match fund with the private sector to achieve the stated goals which may very well not be the same goals as another region. Flexibility will be key and should be granted. 6.2 What type of activities should the fund support? 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they are looking. For the Gatwick Diamond, the upgrade of the Gatwick Airport Rail station is an excellent case in point, as are the many stalled and much needed town centre developments as well as the formation of a new university centre of excellence which would provide some of the higher education aspirations needed by the young in the area. 6.3 Are the criteria right for assessing bids? The GDI agrees with the bid criteria being appropriate. However, what should be at the top of any criteria is the actual impact of funding provided. The impact has to be significant which will often mean that it should not be time limited. Impact could include: how many more private sector jobs provided? How many more people educated to Level 4? How many more journeys made by public transport? How many more businesses started up in innovative green technologies? How many more employees living locally and not commuting? 6.4 Do you think we should operate a two stage bidding process? The GDI concur that a two stage bidding process could be appropriate. Government should recognise, however, that where projects are not started until 2013 in the second stage that it could be a five or even 10 year window before any impact is realised. Previous government regimes have favoured short term “stop start” funding. This has been proven to be ineffective and intensely frustrating for the private sector who are used to investing for the long term. 6.5 Should a Regional Growth Fund become a long term means of funding activity that promotes growth? There are many partnerships which have failed because they relied too heavily on public sector funding and could never be sustainable. The private sector will invest when they see the public sector investing but they will quickly back off when they see funding which is clearly not going to benefit their businesses. This is not an unreasonable stance when businesses have private shareholders to satisfy. 7.0 What should be the functions of the LEPs and how will value for money be ensured? Based on the Gatwick Diamond Initiative model, the functions of the new LEPs should be identifying, influencing and lobbying by the business community and sharing in the decision making with the councils to allocate funding to the projects most appropriate for business needs ensuring economic growth. The new LEP should co- ordinate the efforts of all the private sector and public sector stakeholders to maximise the effect of their existing budgets benefitting the local economy. Businesses should identify those barriers to growth where limited public sector investment will unlock significant additional investment from the private sector. An example of this for the Gatwick Diamond is the matched funding from Gatwick Airport to develop the rail station. However, it is proposed that once the business led decisions have been made, the actual implementation of funding in those infrastructure, planning, housing and transport projects should remain with the local authorities. Back office costs in the LEP itself should be kept at a minimum further ensuring value for money. Big offices and high head counts are absolutely unnecessary when the shared public/private sector LEP role should be largely voluntarily led. Businesses are prepared to invest time and energy in decision making which will help grow their economy, as long as they feel that real benefit is being achieved as a result of their efforts, that bureaucracy and process does not get in the way of common sense and that the public sector is making a corresponding financial investment. 8.0 What will be the funding arrangements for the Regional growth fund under the LEP system? Funding arrangements need to be kept as simple and transparent as possible. The local authorities should be awarded the funding and allocate sufficient, and as agreed with the business community, to the LEPs to enable a simple structure of governance. This will provide the accountability necessary to influence decision making according to business needs. New LEPs should not be set up with huge financial back offices when the rigour of process can be provided by the local authorities. Otherwise there is a risk of duplicating back office functions and creating a chain of funding where more and more “sticks to the sides” as it flows through. 9.0 How will coordination of roles between LEPs be ensured? This could be in a similar way to the current Local Government Association coordination of roles. In addition, a neighbouring LEP should ensure that a representative sits on adjacent LEPs to share knowledge, best practice and minimise duplication. What the GDI does not consider useful is another layer of bureaucracy between economic needs and funding. 10.0 What arrangements will there be for coordinating regional economic strategy? Again this could be along the lines of the Local Government Association on a regional basis as currently. There is no need for another additional structure as seen by regional partnership boards. Whatever the structure, businesses from each of the LEPs need to sit on such regional coordinating structures to ensure the business voice. 11.0 What will be the structure and accountability of LEPs? The Gatwick Diamond Initiative would recommend that the LEP is a limited by guarantee company. Its articles must ensure that any public funding obtained will return to the Local Authorities and/or government in the case of closure. As earlier explained in section 4.0, the successful governance structure adopted by the Gatwick Diamond is a model that could be followed elsewhere. Each LEP should be accountable straight to the Department of Business Innovation and Skills providing a good balance with the Local Authorities reporting to the Department of Communities and Local Government 12.0 What should be the legislative framework and timetable for converting RDA’s into LEPs, the transitional arrangements and liability of RDA’s? The timetable needs to be quick for both legislation and for the transition, although appropriate time needs to be spent designing the new LEPs. The current Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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uncertainty is having a detrimental effect which will only get worse until the position is clarified and a long delay will discourage business interest. Implementation should be achieved as rapidly as possible. A possible idea would be to set up a group at BIS with experienced representatives from successful public/private sector partnerships seconded in to design a model. 13.0 How will funds be procured from outside bodies under the new arrangements? LEPs should be able to bid for funding from the EU, and other sources independently and in collaboration with other LEPs depending on the project. Those funding bids needs to be clearly appropriate to the area’s objectives and business needs because LEPS should not become 100% fund seekers in their own rights. This drives inappropriate behaviour by not for profit organisations trying to ensure sustainability. LEPs must be strong enough to survive without the expectation of public sector funding “bailing them out”. Hence the importance of keeping back office costs minimal.

Conclusion 14.0 The Gatwick Diamond Initiative is excited about the prospect of the new LEPs but given the scale of ambition in the proposals and the vacuum that currently exists in public sector activity, it is critical that the government comes to decisions and provides more information publicly and urgently. Businesses need and want to understand the government’s direction regarding economic growth as quickly as possible because investment decisions for them may take them out of the UK altogether. 13 August 2010

Written evidence from the Greater Manchester Chamber of Commerce 1.0 Introduction Greater Manchester Chamber of Commerce is the most prominent and collective voice of business across Greater Manchester and is the largest in the UK with over 5,300 members who between them employ 1/3 of the total workforce in Greater Manchester. The Chamber is well placed to understand the needs and concerns of the business community as it not only provides help, advocacy and representation to its member businesses, but also provides services to another 8,000 non-member businesses.

The Chamber welcomes this opportunity to give written evidence to the Business, Innovation and Skills Committee on behalf of our members concerning the proposals for the introduction and subsequent operation of Local Enterprise Partnerships (LEPs).

2.0 Summary Proposals for a Greater Manchester LEP are at an advanced stage and are the result of several years worth of established and integrated work between the local authorities under the auspices of AGMA (Association of Greater Manchester Authorities) and the private sector, primarily through the Greater Manchester Chamber of Commerce.

The proposals not only fully address the initial outline requirements for LEPs from government, as described in the joint BIS/CLG letter of 29 June, but also identify and make recommendations that would make the function of a GMLEP much more effective and relevant for local needs and priorities.

The Chamber is fully supportive of the move to LEPs in order to help deliver the required private sector growth and capacity, however we feel that there are significant elements of the proposals that require further development especially around the transfer of those RDA functions (inward investment, sector leadership, business support, innovation and access to finance) that government proposes to be nationally led in the future. Our view is that if the LEP is to be fully effective then all services and functions must be controlled and delivered locally across the full spectrum of business support needs. To create artificial barriers at the outset will prove damaging in the long term and cause confusion at a critical time for the economy. It is vital that effective business support delivery is at the heart of LEP activity, our members have been vocal in their demands for a significant change in the existing arrangements yet the proposals as they stand at present from government only offer, at best, a half way house solution. We believe our proposals offer a viable, workable and transferable solution to this fundamental issue.

There must also be effective transitional arrangements in place to ensure a smooth and timely handover from RDAs to LEPs and it is vital that any funding currently earmarked for local programmes should be retained under local control and not be transferred to and between central government departments.

The following section identifies in detail the key areas and topics for the committee in addition to expanding on other issues described above. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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3.0 Issues for Evidence 3.1 Functions of a Local Enterprise Partnership including revised proposals for business support and capacity We fully agree with the guidance from government that the priority aim of the current formation process for LEPs should be on the purpose and functions rather than the structure and governance. We also agree with the geographical basis for LEPs being functional economic areas rather than specific local authority boundaries. From the content of 29 June letter and taking into account that LEPs have their origins in the demise of the RDAs, there are five functions that have been identified as being best led nationally. These are inward investment, sector leadership, business support, innovation and access to finance. Current proposals identify that LEPs will be able to create the right environment for business and growth by tackling issues such as housing, planning, local transport and infrastructure, employment, enterprise, the transition to a low carbon economy and business start-ups. At the time of the letter from BIS and CLG it was anticipated that further details on the function of LEPs would be set out in a white paper that was expected to be released in summer. Latest information now suggests that this has been delayed until late September/early October. This will be too late for the initial LEP proposal deadline of 6th September and also be too late to have any real effect on the CSR which will be released on 20 October. In the absence of a formal mechanism to respond to governments initial proposals we would welcome the opportunity to raise our suggestions as to how a significant number of core functions of a LEP could be more effectively delivered and incorporated into a cost effective and comprehensive local business support mechanism. To be truly effective and deliver what will be needed to support the required private sector growth, LEPs must have as much control over all elements of business support as necessary. Whilst current RDA functions may be run nationally in the future, there must be a workable and effective structure in place to ensure that LEPs have as much control as required to ensure successful local delivery. This must be available to areas where LEPs exist and are effective and may take the form of a sub-contract or tender model. Where areas have no LEPs then neighbouring LEPs or other contractors should be allowed to deliver the service. Whilst there must be consistency in the quality of the service it should be recognised that areas have different needs and requirements and flexibility must be built in so that individual LEPs may be allowed to tailor elements of the function in order to achieve a satisfactory service delivery.Any attempt by central structures to control the local delivery of any service or programme will weaken a LEPs ability to deliver on its remit. Tailoring support to meet identified needs, linking policy strands closely within LEP areas and ensuring that business support, skills and employment are linked together and not delivered in isolation will further strengthen the ability of LEPs to successfully deliver economic growth. In Greater Manchester the Chamber, with strategic and delivery partners, has identified a model for the delivery of all the major elements of business support and growth that exceed the basic requirements laid out for LEPs at a cost of approximately 1/3 of current delivery. The identified mechanism and model offers a workable solution to ensure the successful local control and delivery of the proposed nationally led functions. In addition to meeting the requirements around strengthening overall economic growth, this also addresses major priorities for Greater Manchester as identified within the Manchester Independent Economic Review around international trade, productivity growth, inward investment and business engagement and which have been subsequently included as priority action areas in the Greater Manchester Strategy and carried forward into the proposals for a Combined Authority, due to commence in April 2011. In addition to the ability of delivering effective support for growth, this model also delivers a true local business advisor led service, leading to the involvement in fee paying and co-funded services, which has been absent for the last four years and has been a source of dissatisfaction for the business community. This practical, tailored approach, coupled with broader strategic issues that the LEP would be responsible for eg housing, infrastructure, planning would enable a Greater Manchester LEP to deliver everything required to ensure the continued economic success of the local economy. Full details will be included in the GMLEP bid.

3.2 Structure and accountability of LEPs LEPs should set the economic strategy and delivery plan for their areas and have a functional Board structure, chaired by a representative from the private sector, that reflects the true partnership nature of public and private sectors yet does not become or is seen to become further strata of organisation or bureaucracy. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Board members should be seen and acknowledged as influential leaders who are able to operate successfully at a strategic level and also take on accountability for their actions and ultimately the performance of the LEP. It is important that any operational or delivery organisations are not hindered or obstructed in the pursuit of their activity by excessive or poorly thought through governance arrangements.

3.3 Transition from RDAs to LEPs The current haste and speed of change is causing some concern. Whilst acknowledging government’s desire to move quickly on this process to enable action to start to address the deficit, the danger is that gaps are left in current provision which may prove detrimental in the medium to longer term. Questions remain about the potential future use of RDA assets currently within the region and it is felt that these must be retained to assist with binding the work and objectives of the relevant LEPs together. There is current potential for random cuts to be made by the RDA to address immediate budgetary issues eg ignoring the value and impact of projects in favour of cutting spend as contracts fall due for renewal. This could be damaging in the extreme and could adversely affect the ability of LEPs to be as fully effective as possible from the start of their operation. We would like an early positive decision on a GMLEP following submission of the proposal on 6 September. Due to the nature of the importance of the Greater Manchester economy any hold up or delay to allow other areas to catch up will be detrimental to the local economy and also ultimately the ability of the UK economy to move back into full and sustainable growth. We would expect to see formal approval for a 2011 transition from the NWDA to a GMLEP.

3.4 Regional Growth Fund We will be responding in full to the current Regional Growth Fund consultation however in relation to LEPs we have some concerns about the potential conflict that may arise by allowing non-LEP bodies to bid for funds yet still have LEPs as being the main coordinators of the fund. Recognising the ongoing consultation on RGF this needs clarification for the avoidance of doubt.

3.5 Co-ordination of regional economic strategy and between LEPs The Chamber acknowledges that co-operation between LEPs will be a necessity. However the new structure and framework of LEPs will allow greater integration between non-traditional areas eg Greater Manchester having the ability to work closer with other surrounding LEPs some of which may not necessarily be within the North West. There is though, in the short term at least, still a need for an under arching residual body that is a product of and answerable to LEPs to ensure an effective transition from current RDA work and to ensure relevant strategic economic and infrastructure issues are addressed, alongside supporting the delivery of residual contracts after the RDA has been abolished. Current proposals in the North West are for this to be undertaken on a very light touch basis that will give the necessary anchor point but in no way replicates previous levels of bureaucracy or control that could stifle innovation and growth And with the LEPs being very much in the driving seat. The other major consideration is that LEPs established with Chambers of Commerce firmly at their centre will inherit a natural heritage and depth of experience of close working and co-ordination not just with immediate neighbours but across wider geographic areas. This is also a fundamental benefit as integration of services with public funding will help further reduce costs.

4.0 Conclusion Greater Manchester Chamber of Commerce is supportive of LEPs and is engaged at the highest level with the preparation for a Greater Manchester LEP. As a result of this work, opportunities have been identified for a business support model that would: — be business friendly and hence maximises the degree to which businesses do things which they would not otherwise have done; — be delivered at approximately one third of recent costs but nevertheless deliver a higher volume of businesses started and assisted and higher growth outcomes; — link directly to the requirements of the Greater Manchester Strategy; — strike a proper balance between what Government will do centrally and what must be led and delivered locally such that we work together with national programmes (eg UKTI); — be integrated with business funded services so as to maximise impact and minimise costs; — be based on the use of advisers for the majority (but not all) of the programmes; and — retain what is best in the current regional programmes and structures. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Whilst acknowledging the role and remit of a LEP is more than just delivering business support we feel that this is a fundamental issue that needs addressing if LEPs are to be truly successful and deliver the economic and employment growth that is required. We would hope to see Chambers of Commerce playing key roles in the set up and running of LEPs. This would help bring in necessary skills in addition to acting as a viable and legitimate conduit to the private sector. 12 August 2010

Written evidence from 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 IoDResponse: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 ie two to three 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. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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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 eg 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 ie 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 eg 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 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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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 eg business representative organisations. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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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, eg 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

Written evidence from 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; and — 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.8 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.

8 See, for instance, the LGA’s publication “Vive la Devolution” of February 2007: http://www.lga.gov.uk/lga/aio/21918 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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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 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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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 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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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

Further written evidence from the Local Government Association I am grateful to the Committee for asking me to provide oral evidence on behalf of the Local Government Association to the inquiry into local enterprise partnerships earlier this month. The Committee asked if there were issues upon which we would like to submit supplementary evidence. There are three.

On Strategic Decision-Making Firstly, I would like to emphasise the importance that local government attaches to local enterprise partnerships acting as the strategic decision making body in the area for the key decisions that underpin economic performance. The proposal put forward by the Black Country, for example, is multi-dimensional and far more ambitious than simply looking to be a business-support mechanism. Many other proposals for LEPs call for the devolution of responsibility for the decisions on economic development, skills, employment support, business support, transport, other infrastructure and in some cases housing—all areas intrinsically linked with the economic development of an area. The ability to take these decisions on these issues together in co-ordinated way,to fit with local economic needs, will maximise the economic impact of LEPs and ensure their abilities to plan strategically.

On Regional Coordination Secondly, there will need to be co-ordination between local enterprise partnerships. Whilst functional economic geography is important, it is not an exact science. Local enterprise partnerships will need to manage the economic issues that straddle their boundaries. The precise arrangements for co-ordinating local enterprise partnerships will vary from place to place, depending on the precise nature of the cross boundary issues—in some places and for some issues this may require a degree of regional co-ordination, which has been recognised, for example, by councils in the North East. At my own council, Dudley, there is an all-party agreement on the need for local LEPs to coordinate activities at a level above or beyond themselves and this is something that LEPs must be free to coordinate and take forward.

On Funding Flexibility Thirdly, it will be important for local enterprise partnerships to have the funding and financial flexibility to help drive forward economic growth in their economies. I therefore welcome the financial flexibilities announced in Liverpool by the Deputy Prime Minister which will give local authorities the freedom to borrow against business rates. 24 September 2010

Written evidence from Milton Keynes Council Milton Keynes Council welcomed the recent invitation to local authorities by the Government to submit a LEP proposal by the 6 September. The Council in partnership with neighbouring authorities will be submitting a proposal for a LEP.Milton Keynes Council also welcomes the inquiry and the role of the Select Committee in examining: — The functions of the new LEPs and ensuring value for money. — The Regional Growth Fund, and funding arrangements under the LEP system. — Government proposals for ensuring co-ordination of roles between different LEPs. — Arrangements for co-ordinating regional economic strategy, structure and accountability of LEPs. — The legislative framework and timetable for converting RDAs to LEPs, the transitional arrangements, and for residual spending and liability of RDAs. — Means of procuring funding from outside bodies (including EU funding) under the new arrangements. We would like to bring to the attention of the Select Committee a few points that could help strengthen the White Paper and by implication support local delivery of economic development. We would like the Select Committee to consider the main points summarised below that we think are essential to the work of the LEP: Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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1. The Composition of LEPs—Groups of Upper Tier Authorities The requirement to use building blocks of upper tier authorities, the boundaries of which are often based on historical factors that do not relate to today’s economy will in many areas be in tension with the alignment of partnerships with the natural economic geography of an area. The Milton Keynes South Midlands area, the emerging area around the new city of Milton Keynes, is a classic case. Its city-region economy did not exist even 40 years ago, and yet it is now recognised by local authorities and businesses alike as the economic powerhouse covering the area between London and Birmingham. Economic development has been stifled by administrative boundaries and we hope that you will allow sufficient flexibility for a local solution that better meets our contemporary circumstances. Locally we find ourselves working frequently and directly with neighbouring district councils on economic development issues. They have a role as local planning authorities, that means they have a powerful influence in shaping local economies. We therefore ask that LEPs comprising a mixture of unitary authorities and district authorities with their business communities be considered.

2. Areas of Growth require Support if they are to Continue to Deliver We wish to draw attention to the role of LEPs in co-ordinating and driving housing and employment growth in major growth areas. This is particularly important in a post recession period, when these areas must perform well to help pull the country fully from the residual effects of the recession. Particularly acute is the case of areas which have experienced prolonged growth, and where the planning of infrastructure, balanced housing and balanced economies is all based on the assumption of continuing growth. It is essential that such areas be recognised as enterprise areas, with the ability to attract Government support to complete the development of sustainable housing profiles and infrastructure and to give some support for the high levels of inward investment needed.

3.Inward Investment Activity must have a Local Dimension While there is a clear need for national level support such as foreign trade delegations, national-level marketing, data collection and analysis, etc. we believe that, to be effective, this must be complemented by inward investment work that is more sub-regionally focussed. Inward investment therefore needs to be a key part of LEP work and may need some Government support at the LEP level, particularly where the growth target is high or the local economic base very low.

4. Responsibility for Business Support Support for business is critical in reviving a failing economy but this type of support is very different from the support needed in a high growth area, or in an area requiring major rebalancing of its economy. We believe that, whether services are centralised or not, there is a need for the balance of services available in an LEP area to be fine-tuned to the needs of that area in close co-operation with the LEP.

5. Additional Responsibilities (a) We are concerned that sub-regional transport infrastructure does not appear on the LEP list at all. There should be an explicit role for LEPs supported by locally determined arrangements for liaison on major cross LEP projects and planning. (b) We are concerned that access to European funding is normally at regional level and the change to LEPs will require consideration as to how this might work in future. (c) LEPs should have an explicit role in respect of training and skills. A letter was also sent to RT Hon Vince Cable MP and RT Hon Eric Pickles MP on 7 July 2010 highlighting the above points. We hope that the above is a useful contribution into your inquiry and would greatly appreciate the Select Committee considering these points when examining the LEP topics. We look forward to being party to an application for an LEP in due course. 12 August 2010

Written evidence from 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. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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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 level1 and several different funding streams, mostly focused on regeneration. RDAs were assigned the following statutory purposes: (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;2 they set economic development goals and priorities, and provided an implementation framework showing how different partner bodies would contribute to achieving the goals, within a national policy framework. Supported by a comprehensive evidence base, the strategies underpinned RDAs’ ability to take a long view of regional economic issues. 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 do3. Typically, RDAs’ budgets account for on average 0.7% of public expenditure in their regions.4 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 2010–11, 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 six 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.5 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 2002–03 to 2006–07 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.6 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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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.”7 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.8 As the “department of growth”9, BIS will be leading the drive to realise the Government’s long term vision for balanced and sustainable growth that will also generate the tax revenue to repay the deficit.

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)10 makes it clear that LEPs will form a vital part of the Government’s approach to economic development in England, with a focus on strengthening local economies. In the letter the Government commits to “reviewing all the functions of the RDAs” with further details to follow in a White Paper on sub-national economic growth. The letter does not specifically allocate any existing RDA functions to LEPs; instead, it invites “a wide range of ideas”. It also affirms that some functions are “best led nationally, such as inward investment, sector leadership, responsibility for business support, innovation, and access to finance.” 14. Ministers may be open to the proposals for supporting structures on a wider basis than individual LEPs,11 where these are strongly supported locally. It has also been suggested that that LEPs (individually or jointly) may have a part to play in the delivery of the “nationally led” functions. 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 Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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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.12 The success of LEPs is likely to be judged, not only by their ability to deliver economic benefit for their areas and, as with previous structures, by how efficient they are at maximising the proportion of their budgets that is spent on activity to stimulate growth. In this context, and in a time of intense pressure on public expenditure, we suggest that LEPs should be subject to a robust evaluation framework commensurate with the detailed independent evaluation framework applied by BIS and HMT to the RDAs, particularly where they are carrying out functions on behalf of central Government. 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 July13 confirmed that it will be centrally administered with ministers making decisions on the basis of an approval panel chaired by Lord Heseltine. The fund is not restricted to LEPs, with the Government proposing that applications should be possible from partnerships involving universities, and other public-private partnerships. 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.14 This is why the previous Government ensured that RDAs in less prosperous regions received a higher per capita grant. In practice, however, all regions contain a mixture of successful and lagging areas, and RDAs have prioritised their spend and activity with the aim of both narrowing the gap in growth rates within their regions, and seizing opportunities to build on strengths to drive up regional economic performance overall. 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.15 High quality economic development projects can often take many months and years to bring forward, so many good projects are likely to be already “on the books” and ready to go. At the same time, local partners in new LEPs will need time to develop propositions. These constraints may limit private sector investment opportunities and wider access to European funding, which requires guaranteed funding over several years. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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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—eg 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 sites16 and severe flooding; events which may or may not occur in areas not covered by a LEP. Hitherto, RDAs have very effectively led the coordination of responses to economic shocks, providing immediate capacity, providing in some cases funding for recovery and coordinating wider activity via their established business groups and established links with local authorities, other public bodies and communities. 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? Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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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.17 The appointment of a BIS transition board is an important element in the transition and we look forward to the development of a comprehensive transition plan on which to base important decisions. 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 (eg 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 billion18 uncommitted ERDF still available through the Convergence and Competitiveness programmes, which are intended primarily to support the Lisbon agenda, ie have a policy focus on enterprise, innovation and sustainable development—objectives that chime with those that have been set for BIS. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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44. However, in order to draw down these funds, programmes may need to find another £1.3 billion19 in match funds, and it will be important to manage the risk of decommitment of ERDF across the English programmes and risks arising from any decision to transfer the responsibility for the management of Structural Fund programmes to new structures, together with the requisite systems and procedures. The transfer of responsibilities for the management of the Convergence and Competitiveness ERDF programmes from the Government Offices to the RDAs at the start of the current programmes, with the setting up of the requisite systems and procedures, took over three years to put in place to meet EC requirements. 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

Function Detail Business Support — Business Link services — Lead on Solutions for Business at sub-national level — Primary public sector engagement with c.25,000 key companies — Support for business networks, including high growth companies — Manufacturing Advisory Service (MAS) Business Finance — Community Development Finance Institutions — Regional Venture Capital & Loan Funds Development of key — Specialist support to develop new sectors and supply chains of national sectors and regional economic significance eg composites, advanced engineering, micro-electronics and digital design, environmental technologies, life sciences, marine science and creative industries — Development and management of Strategic Investment Fund projects (18 national projects) that support key sectors (eg National Composites Centre, the Nuclear Advanced Manufacturing Research Centre etc.) FDI and international — Attracting foreign direct investment (FDI) and retaining existing investors trade through key account management functions, working in partnership with local authorities — Promoting exports and international trade — Providing local knowledge and access to influencers (eg on planning) Innovation — SfB products (eg Innovation vouchers) — Design Council Products (eg “Designing Demand”) — Knowledge transfer and commercialisation activity and supporting businesses to link to the research base — Major project development and delivery of Infrastructure to support innovation (eg NAREC in NE, AMP in South Yorkshire) — forming consortia of partners for capital input — Securing European funding — Secretariat for Science & Industry Councils — Regional intelligence, and relationship management — Partnership work with the Technology Strategy Board Research Councils/ — Initiation/funding of university research (some RDAs in liaison with HEIs Research Councils) — Engagement with universities on economic development, and links with sectors, and to the skills and innovation agendas Enterprise — Supporting business start-ups both generically and to target groups eg women, young people, BME communities — Promoting enterprise culture Energy and low carbon — Regional Strategies and renewable energy targets — Renewable energy capacity studies — Major project delivery, research and partnership with business eg carbon capture & storage — Accessing finance such as JESSICA, ELENA & ERDF — Low Carbon Economic Areas—major projects and lead responsibility in seven of the eight designated areas — Resource efficiency support to business Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Function Detail — Retrofit/construction expertise and support — Low carbon business networks and business support — Strategic Investment Framework major projects — Offshore wind infrastructure competition Tourism Economy & — Responsibility for tourism in the regions including strategy, delivery Creative Economy structures & operations — Delivery of tourism support — Development of creative industries through funding Regional Screen Agencies etc — Promotion of major events with economic significance Digital — Digital Britain agenda — Hi-speed broadband infrastructure — Market stimulation Skills — Development of Regional Skills Strategies and annual Skills Priority Statements — Management of skills brokerage and some funding of skills initiatives eg STEM, where it is linked to employer demand and evidenced regional growth sectors — Low carbon skills (SSC & LAs) — Sponsorship of Regional Employment and Skills Boards/Partnerships — Provision of labour market intelligence to inform strategy and investment plans — Shaping skills provision in line with employer demand and evidenced regional growth sectors — Integrating skills provision with business support, enterprise, innovation and physical regeneration Strategy, evidence and — Prepare and maintain Regional Economy Strategies and shared plans at foresight sub-regional and local levels. — economic intelligence function to support local, sub-regional, regional, and national decision making, strategy, policy, and investment decisions — Regional Observatories — Statutory Consultee role on the economic aspects of spatial planning — Economic, strategy and policy support for local areas eg through integrated master planning, city-region strategy development, LEAs, MAAs, EPBs, LAA delivery and to support major project appraisal — Pan-regional collaboration and making the case to government eg through RDA network input to the Budget European programmes — Manage the ERDF Programmes (Convergence and Competitiveness) and ESF (in some regions). — Deliver the socio-economic measures of the Rural Development Programme for England (RDPE) Regeneration — Targeted Regeneration activity to support delivery of economic priorities— either direct delivery or provision of funding to partners (such as LAs) — Contribute to Regional Funding Allocations advice on housing, transport and regeneration spend. — Supporting development of community regeneration skills and expertise — Accessing JESSICA funding Transport — Evidencing and strategic advice on transport and infrastructure, and infrastructure partnership engagement on Regional Funding Advice and prioritisation. — Some RDAs fund specific transport and other infrastructure initiatives to unlock growth eg the South West Regional Infrastructure Fund, Capacity Funds etc. — Work on ports infrastructure, and other large/strategic projects where investment addresses transport blockages that are holding back economic growth or people accessing economic opportunity; including where this crosses local, sub-regional or regional boundaries E.g. through the Northern Way Rural — Delivery of socio-economic measures of the Rural Development Programme for England (RDPE). See EU Programmes above. — Rural economic development — Promotion of Rural broadband — Food supply chain development Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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Function Detail Resource efficiency and — Waste and resource efficiency needs of businesses climate change — Development/delivery of Climate Change Risk Assessment Provision — Promotion of sustainable development objectives Olympics and 2012 — Nations and Regions Group (engagement across UK on the 2012 Games) Legacy — CompeteFor (matches buyers & suppliers for 2012 contracts) — London 2012 Buyer Engagement Team (develops 2012 business opportunities) — London 2012 Business Network (maximising 2012 opportunities/business advice) Third sector — Support for social enterprises — Some support for the voluntary & community sector, inc partnership and capacity building — Activities to tackle economic and social exclusion — Social Enterprise (OTS Social Enterprise Business Support, School Gates Project) Economic Shocks — Support to business, communities and the economy as part of the recovery efforts from economic shocks and emergencies (not a statutory duty) — Rapid response service, with JobCentre Plus and LAs in the event of company closures

References 1 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).

2 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 (eg Highways Agency, Environment Agency) whose investments could be aligned with regional priorities to support economic growth.

3 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.

4 Impact of RDA Spending (March 2009), http://www.berr.gov.uk/files/file50735.pdf, p.7.

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

6 ibid.

7 The Coalition: Our programme for government.

8 Foreword, A Strategy for Sustainable Growth.

9 Vince Cable, ibid.

10 Pickles/Cable letter (29 June 2010).

11 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.”

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

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

14 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).

15 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).

16 Examples include the collapse of MG Rover, the closure of the Teesside Corus plant and the wide ranging impacts of the recession. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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17 Letter from Jane Henderson to Philip Rutnam, 16 July 2010. 18 Based on level of commitments as at 30 June 2010 and at an average exchange rate of £1 %ƒ1.2074 over the life of the programme. 19 The total level of match will depend on the exchange rate.

Written evidence from SEEDA Summary (i) The South East of England is the engine room of the UK’s economy, making a net contribution to the Exchequer, some £18 billion in 2006–07. This is critical to supporting public spending and investment across the UK. (ii) However the South East’s global competitiveness is not guaranteed. Tackling the twin challenges of driving economic growth and addressing economic vulnerabilities will require public investment and strong national agencies/offers eg UK Trade and Investment linked effectively to excellent LEPs. (iii) SEEDA has played a key role joining up the many partners and integrating interventions critical to business, economic and employment growth, set in the context of the Regional Economic Strategy. SEEDA is committed to working with local and national partners to ensure a smooth transition to new arrangements. Based on the experience of delivering economic development in the South East over the last 11 years, this submission identifies key factors that SEEDA believes must be tackled in moving forward.

The South East of England—Critical for the UK’s Economy 1. SEEDA is pleased to be invited by the BIS Select Committee to submit evidence to its inquiry. The South East of England is the “engine room” of the UK’s economy, contributing over 15% of national GDP, some £182 billion.9 It is the UK’s second largest manufacturing region by value, marginally behind the North West, and has the UK’s largest high technology manufacturing sector, employing more than 150,000 people. The South East contributes some £18 billion10 more to the Treasury than is spent on public services in the area. London and the East of England are the only other net contributors to the Exchequer. This is redistributed to support public spending and investment in other areas of the country. The UK’s overall financial welfare and competitiveness is inextricably linked with the South East’s continued success. 2. The South East is much more than simply a commuter suburb of London. Although part of the London global city region, the South East is a polycentric and diverse region of over eight million people; the globally-connected economic strengths of the Thames Valley contrast sharply with the economic challenges and deprivation in many poorly-accessibly coastal towns. 3. Significant market failures affect both the better and lesser performing economies of the South East and affect global competitiveness. These include an over-stretched transport network and lack of affordable housing for workers. Equally, public investment and intervention is often required to catalyse opportunities for private sector innovation and growth. For example, the growth and success of the Thames Valley as a major concentration of high technology manufacturing and international headquarters functions has been driven by Government policy and funding decisions surrounding the development of London Heathrow airport and defence research facilities. However businesses are increasingly concerned that the area’s future success is threatened by problems such as transport congestion and lack of access to high speed broadband. 4. Furthermore, ensuring the environmental sustainability of the South East’s success is a key issue— although improving, the South East’s ecological footprint is still too large. In the move to a national low carbon economy, the scale of the South East economy offers a key challenge and opportunity, but one which will require significant investment and joint working nationally and locally. 5. The South East economy competes globally rather than nationally. There is already evidence that although the South East’s absolute performance remains good, its global ranking is slipping due largely to increased competition from emerging economies. The latest World Knowledge Competitiveness Index11 shows that after improving in the global ranking table from 77th place in 2003 to 55th in 2005, the South East slipped to 74th in 2008. Investment in the South East will encourage businesses to locate in the UK rather than Europe, the US or the Far East—failure to invest will drive businesses overseas rather than to another part of the UK. 6. The South East has a key part to play in continuing to build recovery from recession. Improvement in the economies of other parts of the country must not be at the expense of declining investment and performance in the South East economy if the UK economy is to revive. Driving economic growth and

9 ONS, 2008. 10 2006–07, latest available data (Oxford Economics). While some of this contribution represents the link with London, almost £15 billion was directly from employment within the South East. 11 Centre for International Competitiveness, 2010. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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addressing economic vulnerabilities will be critical to achieve this. Major global businesses say that that difficulties posed by congestion, resource and utilities overload, expensive housing and skills shortages mean that their continued investment in the South East and therefore the UK is already in doubt.

South East of England—The Critical Challenges and Opportunities for LEPs and National Government 7. The South East economy’s inherent strength means that it has the potential to recover from the recent economic crisis faster and stronger than any other UK region. However this is not guaranteed and requires sustained public investment and effective delivery arrangements. 8. Businesses say that in a diverse region with 74 local authorities operating in a predominantly two-tier county and district system, SEEDA’s ability to facilitate coordinated action between the private and public sectors, locally and nationally, set in the context of the Regional Economic Strategy, has been particularly important. 9. The changed circumstances of in-year budget cuts and transition to closure mean that SEEDA has adopted the following four priorities: — Delivering for the region through the £80 million Single Pot budget and nearly £40 million of other programme funding during 2010–11, as well as through advice, interventions and deal-making activities. — Contributing to shaping the economic development model for the future, through advice sought by national and local partners and through responding to consultations. — Transitioning those functions which are valuable to the South East and are valued by partners, both local and national. — Carrying out an orderly transition to closure, including through new activities to ensure legacy of knowledge and expertise, as well as delivery, is not lost. 10. With the forthcoming abolition of RDAs, the South East’s global economic competitiveness will be dependent on LEPs and national agencies working effectively together to tackle in particular the following key issues: (i) Innovation and growth. (ii) Global competition for foreign direct investment. (iii) Transport and other key business infrastructure. (iv) Deprivation.

(i) Innovation and growth 11. The South East has world class clusters and opportunities for innovation and growth such as advanced engineering, aerospace and healthcare. However these opportunities often exist in emerging sectors such as environmental technologies, requiring joined-up public sector support to harness their potential. The alignment between RDAs and the Technology Strategy Board has created vital opportunities for regional centres of excellence to contribute to national programmes. LEPs and national agencies will need to work closely to seize global, national and local opportunities. 12. Maximising global opportunities will require LEPs and national bodies to have strong intelligence of the global economy and the unique assets that exist within the South East, as well as strong private sector engagement. For example, having identified the potential global opportunities of the space sector and an existing cluster of activity in the South East, SEEDA has brokered agreement from a cross-industry group to establish the International Space Innovation Centre, a major global centre of space research and expertise, at Harwell in South Oxfordshire. SEEDA’s work with UK Trade and Investment is maximising the Centre’s potential to attract high value international companies to the country. 13. Understanding market opportunities and how the strengths of different localities could add greater value working together is also critical for LEPs to maximise opportunities for collaborative innovation and accessing funding opportunities. For example SEEDA has established a sector consortium for healthcare which identified the potential for developing telecare products and services for global markets. SEEDA’s experience working with the national Technology Strategy Board helped development of a successful bid for an International Centre of Excellence, based in three complementary specialist centres across the South East involving the public and private sectors. SEEDA has also funded Innovation and Growth Teams to bring together all those supporting innovative and high growth businesses. This approach has helped local businesses raise £26 million in Oxfordshire in the last four months alone. 14. Innovation can also play a critical role in addressing economic challenges, but strong intelligence and partnership working is required between the public and private sectors. For example, SEEDA has worked with local and national partners on the Isle of Wight to maximise the opportunities of the high-growth composites sector and address the deep-rooted economic challenges facing the island. Using its understanding of national and local government ambitions and market opportunities relating to the low- carbon economy, SEEDA worked with GKN Aerospace, as part of the National Composites Network, to Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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establish a highly successful composites research centre. This created and safeguarded over 300 jobs on the island. This is now encouraging other global companies to invest, for example the VestasTechnology Centre, leading to an estimated 400 high-tech jobs over the next two years, which might otherwise have gone overseas.

(ii) Global competition for foreign direct investment 15. The South East is competing for businesses which may otherwise locate elsewhere in the world, not elsewhere in the UK. High value foreign direct investment is strongly linked with economic performance of top global regions. It gives local companies access to markets, innovation, capital, technology and revenue benefits. 16. SEEDA has incorporated support for Foreign Direct Investment as part of part of an effective economic development strategy and developed strong relationships with UKTI, international and local partners to implement it. It will be critical that LEPs have a strong relationship with UKTI in the future. First quarter 2010 results shows that SEEDA’s targeted and integrated approach is working, achieving 20 new inward investments and more than 250 new jobs. 50% of investments are high value and 90% are knowledge driven. 17. For example SEEDA worked with Quintiles, a leading international clinical research provider, over the last year to secure a 500 job European HQ in the UK, which might otherwise have gone abroad. The company was considering locations in other EU member states as their leases on three sites in Bracknell were shortly coming to an end. SEEDA, in partnership with UKTI and local partners in Thames Valley, was able to use its specialist expertise to facilitate, smooth and speed the choice of a new location in the Thames Valley.

(iii) Transport and other key business infrastructure 18. Future investment in infrastructure must address both the challenges of economic growth and the need to reduce our ecological footprint. Investment choices for transport and other infrastructure must be aligned with investment decisions made in economic development, housing, regeneration and skills. 19. Strategic transport priorities across the South East were clearly defined by local authorities and other partners working together through the South East Transport Board. Prioritisation of investment is critical in a period of constrained public funding. Local authorities in the South East have an established track record of working together on a collective basis to agree investment priorities. A key decision was to use two years (£339 million) of regional transport funds to prioritise the building of the Hindhead tunnel, to address the last remaining bottleneck on the A3, a key arterial route for the economy. This support allowed a start to be made building the scheme after decades of debate. As set out in its Comprehensive Spending Review submission, South East England Councils recognises the need to review the investment priorities for the medium/longer term and is ready to undertake that difficult task as part of the Spending Review 2010. 20. It will be important that LEPs work together at a critical scale across local administrative boundaries to address business needs and opportunities. For example SEEDA has been working with partners including Advantage West Midlands to upgrade the rail gauge between Southampton and the West Midlands, to allow for larger containers to be carried by rail rather than road. This secures and enhances the efficiency, economic performance and global competitiveness for Southampton, as well as for the whole South East and the Midlands. This project covers a wide geographic area and effective coordination and leadership has been achieved through having a core partnership between SEEDA, the port industry and Network Rail. SEEDA brokered delivery of this scheme, developing an innovative funding package together with the key partners in a public-private partnership. 21. LEPs and other public sector funding partners will need to be capable of working together to provide innovative ways to fund critical infrastructure. A key problem is where the private sector will pay for infrastructure, but not at the critical time when it is needed to unlock development. In response to this a Regional Infrastructure Fund was developed by the South East and South West. The public sector makes the initial investment, with that investment then recovered at a later stage through the planning system, and the investment can then be recycled to deliver further infrastructure. Scale is a critical issue to enable effective gathering and “recycling” of funds—SEEDA is working with partners on the key issue of how this important fund will be managed in the future once the RDA is abolished.

(iv) Deprivation 22. Although characterised by a generally buoyant globally-competitive economy, the South East also has significant areas of deprivation that need support if they are to deliver economic growth and social improvements for local residents. 500,000 people live in areas that rank within the 20% most deprived areas of the country.12 Much deprivation is concentrated in coastal areas, and the intensity of the issues makes them difficult for local partners to tackle alone. As highlighted in the South East England Councils’ submission to the Comprehensive Spending Review,13 excluding South East businesses from National Insurance discounts ignores the need to encourage new job creation in areas of the South East that desperately need incentives to support economically-led regeneration.

12 Index of Multiple Deprivation, ONS, 2007. 13 http://www.secouncils.gov.uk/ Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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23. To tackle deprivation, LEPs and other partners will need to drive an integrated approach to economic development, aligning investment in economic opportunities over a sustained period of time. For example in 2002 SEEDA brought national, regional and local partners together to form a taskforce to tackle the failing coastal economy in Hastings and Bexhill, the main aim being to enable long-term private sector investment. A focused long-term action plan secured Government first-phase investment of £57 million. Between 2001 and 2009 Hasting and Bexhill average earnings have increased from 68% to 82% of the South East average, business starts now exceed closures, and 1,000 jobs have been created. The tipping point is within reach now that private sector funding is being drawn in, and local capacity has been built which can now be transferred to others, but this has taken many years of concerted effort and still needs reinforcement to be maintained. 24. Similarly SEEDA provided the substantial capacity needed to address the large scale economic decline after the colliery closures in East Kent and the dockyards at Chatham. SEEDA led a cross-agency programme to lever funding through the National Coalfields Programme, generating vital alternative employment opportunities for the local workforce, providing the capacity that local authorities in the area lacked. At Chatham Maritime a multi-agency approach with private sector partners has created new jobs and homes as well as the Universities at Medway campus in the historic navy buildings. 25. Drawing from the experience set out above, SEEDA makes the following comments on the Committee’s specific lines of inquiry.

The Functions of the New Local Enterprise Partnerships and Ensuring Value for Money 26. SEEDA has worked closely with businesses, local authorities and other partners for 11 years to address the twin challenges of supporting economic success and addressing vulnerabilities. The Government has announced that RDAs will close by Spring 2012, although the exact timing is not yet clear. In the future, strong LEPs, working in tandem with effective national agencies (such as UK Trade and Investment and the Technology Strategy Board), will be critical to addressing these issues. 27. In summary, reflecting the collective RDA response, SEEDA believes the following characteristics will be critical to the success of LEPs and help ensure value for money: — Business focus, and driven by pro-active coalition of businesses and local authorities. — Coordination, integration and co-investment with local, sub-national and national partners, with delivery built around a shared vision. — Critical mass, with a scale of resources and scope of remit to influence and lever other partners, in particular private sector. — Use of economic evidence and intelligence to direct strategy and delivery for greatest impact. — Operational flexibility, including agility to respond to urgent business needs or economic shocks eg recession/major redundancies or natural disasters. — Informing development and helping delivery of Government programmes. 28. To ensure conditions are right for investment and growth, LEPs will need to prioritise and tackle a range of issues relating to businesses, people and places. As set out in the Ministers’ letter,14 these include physical infrastructure, employment and enterprise (which businesses tell us must include skills and supply chain development) and the transition to the low carbon economy. The Government’s commitment to localism means that it will, of course, be for LEPs themselves to identify the specific issues relevant in their area, but delivery will require cross-agency working. 29. Ministers have indicated that some RDA activities, such as innovation and inward investment, will be best led nationally in the future. Businesses are concerned to understand how LEPs will also be engaged in these activities, working closely with national lead bodies and other LEPs where appropriate. This is important not only to maximise opportunities based on intrinsic local assets such as industrial strengths and research excellence, to attract and provide aftercare for inward investors and to provide support for and reach into SMEs and supply chains, but also to help align the work of different national bodies at the local level.

The Regional Growth Fund, and Funding Arrangements under the LEP System 30. We know that businesses support the Regional Growth Fund’s two proposed objectives of encouraging private sector growth, and the transition to a less public-sector dependent economy. The Fund will enable public-private partnerships to bring forward integrated packages to address economic needs. 31. The South East’s strong economic base offers opportunities for high returns on public investment, which will strengthen the UK economy as a whole. Independent evaluation15 of SEEDA’s work has shown business development and competitiveness interventions have achieved very high impacts on economic growth, especially sector support (£23 GVA per £1 spent), trade interventions (£9 GVA per £1 spent) and

14 Letter from Rt Hon Dr Vince Cable MP and Rt Hon Eric Pickles MP to local authority Leaders and business leaders, 29 June 2010. 15 Impact of RDA Spending, Department for Business, Enterprise and Regulatory Reform 2009. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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foreign direct investment (£9 GVA per £1 spent). Interventions of this sort have enabled the private sector and national partners to develop major centres of excellence which are stimulating further private sector investment, including the International Space Innovation Centre and the International Centre for Excellence in Telecare. Therefore it is essential for the future competitiveness of the South East and the UK that the Regional Growth Fund explicitly supports further investment of this type. 32. The coastal towns of the South East, however, under-perform in relation to England as well as South East averages. Many of the South East’s disadvantaged areas rely heavily on the public sector. In parts of the south coast around 40% of jobs are in education, heath and public administration,16 and across the South East some 40% of job losses during April to June 2010 were in the public sector17. Business start-ups are also lower than national average on the south coast.18 The combination of potential high exposure to public sector cuts, high unemployment and low forecasted private sector employment growth19 means that many areas in the South East that could be badly affected by public sector cuts are also those where there will be limited private sector job opportunities. They too will need access to the Regional Growth Fund if they are to transform this dependency. 33. The consultation document proposes that programmes should be £1 million or greater over two years. Programmes of this scale take time to develop, and require considerable leadership, expertise and, often, pro-active long-term partnership working. Therefore for spend to be achieved in 2011–13 the Fund must be accessible to programmes which are already well advanced in their planning and, critically, have the support of business and LEPs. 34. LEPs should not be solely dependent on public funding so will need to develop innovative new funding models, such as the Regional Infrastructure Fund (see para 21), to ensure timely delivery of projects and maximise the impact of limited public and private sector funding.

Government Proposals for Ensuring Co-ordination of Roles between Different LEPs; and Arrangements for Co-ordinating Regional Economic Strategy 35. The Government has revoked20 Regional Strategies. We understand it will be for local authorities, LEPs and other partners to determine where joint working on strategy or delivery may be beneficial. However, given the scale of issues and opportunities to address, businesses are concerned about the potential lack of coordination between different LEPs, particularly in the absence of an overall economic vision. 36. Although the requirement to work together through Leaders’ Boards has been removed by the Government, SEEDA is supportive of the work of South East England Councils, and is exploring with them and South East Strategic Leaders and SEBUS, the business forum, how LEPs might choose to work together on key issues of cross-boundary significance. 37. “Functional” or “natural” economic areas should be taken into account when developing LEPs. Across the greater South East there are a number of nested economic areas which cross over the South East’s 74 local authorities. These include the London global-city economic area, as well as smaller economic areas within it. LEPs will therefore need to work together on key issues that cross boundaries; indeed in some instances it may be appropriate for parts of LEPs to overlap if there are different, but complementary, issues at their core. The Government must also ensure London’s different governance arrangements do not become a barrier to effective joint working between LEPs and the Mayor and/or London boroughs.

Structure and Accountability of LEPs 38. Businesses want real influence and an ability to directly influence policy and funding decisions. To offer this, LEPs will need ability to influence, and will need to manage and be accountable for funds. This may require them to be established as legal entities in their own right. 39. Business involvement is critical in driving LEPs forward to ensure they keep a focus on real business needs and delivering results. Businesses support Ministers’ expectations that LEPs should have a business chair. The clarity of the LEP’s business-focus will be fundamental to drawing businesses into its work and retaining their support.

The Legislative Framework and Timetable for Converting RDAstoLEPs, the Transitional Arrangements, and the Arrangements for Residual Spending and Liability of RDAs 40. The Government is committed to abolishing RDAs by Spring 2012. Given the physical scale and diversity of the South East, and the number of local authorities, it is likely there will be a significant number of LEPs in the South East, operating at a very different geographic scale to SEEDA.

16 ONS Annual Population Survey 2009. 17 HR1 redundancy notification form data via BIS/JobCentre Plus. 18 In the coastal South East during 2007 there were fewer than three start-ups per 1,000 population, compared to the average rate across England of 3.5 and a South East average of 3.9. Source: ONS VAT Registrations/Deregistrations 2007. 19 Experian & Cambridge Econometrics forecasts, 2010. 20 Letter from Steve Quartermain, Chief Planner CLG, to Chief Planning Officers, 6 July 2010. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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41. SEEDA is committed to carrying out an orderly transition to closure in collaboration with partners and stakeholders, so as to transfer those projects and programmes which partners and/or Government wish to take forward after SEEDA’s closure. SEEDA also wants to ensure the best use is made of intellectual and physical assets in moving forward to new arrangements. 42. SEEDA welcomes the joint arrangements with Government through the BIS-RDA Transition Board. However further significant progress on transition is dependent upon Government’s final agreement on what LEPs will established and clarity from Government about which RDA functions will move to a local or national level. Clarity from Government on these issues is needed as soon as possible if risks relating to transition, in particular the loss of momentum for business-focused activities, financial/contractual impacts on partners, and loss of specialist expertise and relationships, are to be minimised. 43. SEEDA is working with senior business representatives and local authority Leaders to agree key actions to help transition. SEEDA also has robust internal management processes to plan for transition and mitigate against risk. This includes looking at different transition options so they are ready to progress as soon as there is clarity. SEEDA is contributing to work led by BIS to address transition arrangements for assets, liabilities and commitments.

Means of Procuring Funding from Outside Bodies (including EU Funding) under the New Arrangements 44. Businesses say that it will be critically important for LEPs to be strong public-private sector partnerships that are able to draw in significant public and private sector finance. It will be important that capacity to maximise access to European funding, including European Investment Bank, is not lost in transition. It is clear that other parts of the European Union will continue to operate on a regional basis, and LEPs will need to look carefully at how to ensure they can engage at an appropriate spatial scale. 45. LEPs will need to consider the issue of aggregation of projects to achieve the critical mass necessary to access some loans from the European Investment Bank. For example, SEEDA took the lead on coordination of work by local authorities on energy efficiency retrofitting because of the need to find enough projects in the South East to reach the Bank’s minimum threshold of ƒ100 million total project size. 46. A critical issue is that of business access to finance and how this may operate in the future. Businesses have valued how SEEDA has brought its expertise and critical mass to this issue, working with the South East’s Business Link operators to set up Finance South East in 2002 to address market failure in the availability of finance for growth companies, notably around the risk capital funding gap up to £2 million. The primary vehicle to deliver this is the South East Funding Escalator, a series of funds managed by Finance South East and financed by SEEDA and other public and private sector partners. Since the launch of its first fund in 2004, funding of around £27 million21 has been committed to more than 300 companies, resulting in a further £100 million of private sector leveraged funding.22 Finance South East has also developed innovative funding solutions, including funds supporting the low carbon agenda such as the European Regional Development Fund’s South East Sustainability Loan Fund. SEEDA is working with partners to understand how the important work of Finance South East will fit with the Government’s move to place Capital for Enterprise Limited at the heart of publicly backed funds nationally.

Conclusion 47. Given the South East’s fundamental role in driving the global competitiveness of the UK, strong LEPs working in tandem with effective national agencies will be fundamental to addressing the twin challenges of driving economic growth and addressing economic vulnerabilities. SEEDA has demonstrated how a well targeted and coordinated use of money and human resources can make a real difference. SEEDA is committed to helping ensure a smooth transition to new arrangements, to help ensure the best economic outcomes not only for businesses and residents in the South East, but also the UK as a whole.

Written evidence from the TUC About the TUC The TUC is the voice of Britain at work. We represent 60 affiliated unions and 6.3 million members. The TUC campaigns for a fair deal at work and social justice at home and abroad. Through its six regional offices, the TUC works with employers, government agencies and other civil society partners across the country, promoting economic development, skills, workforce development and the just transition to a low carbon economy.

21 Including £8.7 million of capital provided by SEEDA in the South East Funding Escalator since 2006–07. 22 Excluding Grant for Research and Development and Grant for Business Investment which is committed separately by SEEDA, and the future of which SEEDA understands is being considered by Government outside of the arrangements for LEPs. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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Executive Summary 1. The TUC believes that the primary focus of sub-national economic development should be on restoring economic growth and creating good quality and sustainable employment. This should support growth that addresses inequalities both between and within regions of the UK, promotes jobs and supports key sectors of the economy. 2. The need for the UK to compete in a global market across a range of sectors, and the transition to a low carbon economy with the development of renewable energy projects, provides potentially huge opportunities for renewing local economies and boosting high value-added sectors such as engineering, construction and manufacturing. 3. We welcome the Government’s commitment to supporting “sustainable growth and enterprise balanced across all regions and all industries”, the promotion of the “green industries that are so essential for our future” and making “the UK the leading hi-tech exporter in Europe”, as outlined in “The Coalition: our programme for government”. 4. However, these potential benefits will only be secured through joined up interventions in support of skills and employment, infrastructure, business support, procurement and supply chain management. This requires strategic co-ordination on a sub-national level, with a critical role for strong, strategic planning and delivery. 5. The TUC is not theoretically wedded to any particular spatial configuration or institution for the purposes of supporting economic development. We recognise the benefits that can accrue from a local or “functional economic area” focus in the development and delivery of employment and skills programmes. 6. However, it is our view that the establishment of Local Enterprise Partnerships must include measures that retain a balance between local accountability and delivery and the capacity, economies of scale and strategic vision that are derived from larger sub-national structures. In our view there should be scope for retaining some structures of regional planning and governance, either through stand alone institutions or through some form of integration of LEP structures within a larger sub-national dimension. 7. Furthermore, elements of good practice developed under the previous Regional Development Agency structures, particularly constructive engagement with social, economic and environmental partners (SEEPs), should not be jettisoned in the process of restructuring. 8. We believe that real change in the business environment will come from the workplace, it is essential that economic development and industrial strategy have a workplace focus. As such, trade unions have a key role to play. 9. For Local Enterprise Partnerships to meet the needs of local businesses, workforce and communities, it is essential that mechanisms for effective stakeholder engagement are developed and consistently applied across each locality. 10. The move away from RDA’s to the new LEP’s represents a period of extreme uncertainty and insecurity for staff currently working in the RDA’s and related bodies. It is essential that during this process staff and their trade unions are properly involved and consulted, and that the government honour existing Protocols and agreements, including the Cabinet Office Protocol for Handling Surplus Staff Situations.

The Functions of the New Local Enterprise Partnerships and Ensuring Value for Money 11. Functions and responsibilities proposed to be covered by Local Enterprise Partnerships include planning and housing, local transport and infrastructure priorities, employment and enterprise and the transition to the low carbon economy. Previous RDA areas of responsibility to be taken over at a national level will include inward investment, innovation, business support, strategic finance and sector support. 12. A crucial element missing from this equation is skills. The TUC believes that investment in skills should be closely aligned with the needs of local economies and have sufficient flexibility to enable providers to meet the current and forecasted needs of both local businesses and the workforce. As such, mechanisms should be put in place to ensure that the LEPs are able to influence the allocation of skills funding and provision. 13. The TUC welcomes and supports the Government’s pro-active stance in support of manufacturing, green industries and other key sectors and we recognise the need for a national approach to sector support. However, LEPs may have a key role to play in supporting national initiatives in support of sectors that are strategically important to a local economy, particularly in the development of clusters and the delivery of vertical support for key sectors. LEPs should be required to demonstrate a programme of support for such key sectors in partnership with national initiatives. 14. In terms of the planning and housing function of LEPs, there is a potential conflict between the alignment of strategic planning and the delivery of affordable housing to meet economic development objectives with the delegation of planning powers to local authorities. 15. Where the majority of members within the LEP and other local stakeholders take a view of the need for affordable housing that runs contrary to those expressed by individual local authorities within the LEP, it is unclear which takes priority. In the past, there have been great disparities between local authority Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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“option one” housing figures and those outlined in regional spatial strategies (see table below, published in Inside Housing 19/2/10). “Option one” housing figures are the projected number of homes that local planning authorities believe is needed to meet their requirements by 2026.

POTENTIAL DROP OR RISE IN HOUSING OUTPUT IF LOCAL DECISION-MAKING SUPERSEDES NATIONAL TARGETS

Local Authority Regional Spatial Potential drop Region option one figure Strategy figure or rise North East 7,800 7,425 !4.8% North West 22,844 23,111 -1.1% Yorks and Humber 16,600 22,260 -25.4% East Midlands 20,400 21,515 -5.1% West Midlands 18,280 19,895 -8.1% East of England 23,900 26,830 -10.9% London 27,596 30,500 -9.5% South East 28,900 32,700 -11.6% South West 23,060 29,623 "22.1%

16. Echoing the views of the House Builders Federation, the Royal Town Planning Institute and eighty per cent of the planning consultants responding to a survey run by “Planning Resource” (Planning Resource 12/3/10), the TUC believes that devolving housing targets and planning to local authorities will lead to a fall in housing completions. 17. We believe that this has the potential to hinder renewal in the crucial housing sector and associated supply chains, as well as failing to meet the needs of the 1.7 million households on social housing waiting lists. 18. We believe greater clarity is required about the mechanisms to balance the alignment of delivery of housing (and other infrastructure) with the delegation of planning powers to local authorities. It is our view that where LEPs identify strategic needs, local authorities should conform to those targets and objectives. To adopt a colloquialism, what safeguards will be put in place to prevent the development of a “NIMBY’s charter”?

The Regional Growth Fund and Funding Arrangements under the LEP System 19. The TUC welcomes the £1 billion set aside for the Regional Growth Fund, although this figure is dwarfed by the £73 billion of cuts to public spending that will weaken local economies. There is also a need for additional clarity about its management and allocation. 20. The £1 billion is a scaling back of the £1.4 billion RDA budget and the fund will be open to competition between LEPs and other private sector-led partnerships. Possible outcomes from this would be that either LEPs absorb the majority of this funding, leaving areas without LEPs potentially excluded from its benefits or that funding will be shared and LEPs will therefore take an even further hit in terms of funding in comparison to the RDAs they are replacing, hampering their ability to function effectively. Neither outcome is particularly desirable. What businesses and other partners need is a degree of certainty in terms of funding and capacity within and outside of LEPs. This is unlikely to be derived from this process. A more prescriptive approach to funding allocations might be useful. 21. A further concern is that the caveat that funding will be prioritised for areas with an over-reliance on public sector employment may exclude parts of London and the South East, where need is often greatest. For example, eight out of the top 10 local authorities with the highest claimant to vacancy ratios in the UK are in London and the South East (TUC June 2010).

Government Proposals for Ensuring Co-ordination of Roles between different LEPs 22. As previously stated, there are huge opportunities for growth in regional economies through the low carbon economy. For example, there are a number of inter-related renewable energy projects, with overlapping timescales that are dispersed across the south west of England. These potentially include two new nuclear power stations, major offshore wind farms such as the Atlantic Array, the Severn Barrage and the Wave Hub off the Cornish coast. Combined these projects could deliver approximately 25,000 jobs, with additional jobs coming through the multiplier effect in supply chains. 23. The TUC believes that to harness the opportunities afforded in this case, there needs to be effective intervention in a way that co-ordinates support for skills, infrastructure, business support and supply chain management across a broad area of the south west. We have reservations that the scale of LEPs in the south west will be insufficient to meet the planning and delivery challenges posed by these large-scale projects. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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24. Furthermore, as outlined in the Eddington Review, an already multi-tiered and fragmented transport system necessitates “strategic sub-national governance” particularly in light of the “economic importance of the UK’s cities and regions and the role that transport can play in supporting that economic success”. There may well be inter-regional transport investment decisions that impact more greatly on local economies than those within a LEP area, for example, cross-Pennine links. 25. In its January 2010 report on the future of RDAs, the Centre for Cities suggested a re-allocation of RDA programmes based on a spatial assessment of each programme, taking into account economies of scale and the extent to which interventions are generic or need to be tailored to local need. In their view, two policy areas required a wider regional dimension, as follows: — Regional transport projects—requires regional, or inter-regional, coordination. For example, the connection between Manchester and Leeds. — Programmes for regionally strategic industries—impact beyond the city-regional level, requires significant expertise eg nuclear industry in the North West Larkin, January 2010 26. The TUC would support this view. As such, it is necessary to ensure that mechanisms are put in place to provide joined up delivery between individual LEPs and other parts of a region that may fall outside of LEP areas, as outlined in paragraph 6 above.

Arrangements for Co-ordinating Regional Economic Strategy—Structure and Accountability of LEPs 27. The TUC has some concern in regard to the governance arrangements outlined for LEPs. It is our view that a narrow focus on partnerships between business representatives and local authority leaders may lead to the exclusion of other social, economic and environmental partners (SEEPs). 28. This echoes concerns raised by other SEEPs in relation to the restructuring of regional governance arrangements under the previous administration’s Sub-National Review. For example, the South West Stakeholders group, formed in the aftermath of the disbandment of the Regional Assembly, expressed the view that “stakeholders feel increasingly alienated from regional governance and marginalized in decision- making”. It is essential that SEEPs from a range of communities and civil society organisations maintain a voice both in terms of articulating demand side need but also as a partner in facilitating and delivering programmes. 29. Trade unions have a key role to play in embedding and supporting work-based interventions around skills, carbon reduction, productivity and high performance workplaces. In its report “Recession, Recovery and Reinvestment: the role of local economic leadership in a global crisis” the OECD asserts that “trade unions have a key role to play in both identifying where companies and whole industries are in trouble and in considering how they best be supported”. The report goes on to identify three key areas where trade union partnership is particularly effective: — Job pacts: Trade unions have a crucial role to play in supporting local jobs pacts which bring Government, Business and Trade Unions together at the local level to ensure that jobs are retained in the local economy wherever possible through flexible collaboration. — Using the intelligence function fully: Trade unions often foresee how a company is performing from a “shop floor” perspective … restructuring works best with active trade union support. — Supporting displaced workers: Trade unions can play key roles in supporting people who lose jobs and are often well placed to run advisory services and advocate re-training. They are also in a good position to help with temporary and intermediate employment programmes. Clark, OECD, 2009 30. The TUC’s “Skills, Recession and Recovery” project, delivered through project workers in each TUC regional office, is a good illustrative example of the third element identified above. 31. Trade unions also have a productive role to play in boosting the economy. In 2007, a government report, “Workplace Representatives: A review of their facilities and facility time”, estimated that “workplace reps were worth up to £1.13 billion in direct benefits to the economy and that their impact on productivity could be worth anywhere between £3.2 billion and £10.2 billion” (BERR 2007). This is particularly true in the area of learning and skills, where it is estimated that Union Learning Reps are, “worth £94 million–£156 million in enhanced productivity” (BERR 2007). 32. LEP structures must ensure that full and effective consultation with trade unions and other SEEPs is built into the design and delivery of interventions in support of local economies. 33. There is also a need for greater clarity about the process for appointment to the board of LEPs. There is a need to ensure that business representatives on the boards of LEPs are genuinely representative and can speak on behalf of the diversity of business interests across an LEP area. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [E] PPSysB Job: 005834 Unit: PG05

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The Legislative Framework and Timetable for Converting RDAstoLEPs, the Transitional Arrangements, and the Arrangements for Residual Spending and Liability of RDAs 34. The combined challenges of supporting a weak recovery from recession, rebalancing the economy and moving to a low carbon economy mean that the need for certainty, stability and leadership is required now more than ever. 35. We share the concerns expressed by the EEF over the current lack of clarity and the need for a clear blueprint to be laid out by the Government in the autumn. We echo the views of Terry Scouler, Chief Executive of EEF, when he says “if there is insufficient clarity about (LEPs’) remit there is a real risk that government will have to apply sticking plaster in 12 months time and business will fail to engage” (Daily Telegraph 11/8/10). 36. Evidence from discussions on-going in the regions suggests that consensus has yet to be reached on a number of fundamental issues related to spatial dimensions as well as functions and governance arrangements of LEPs. There is conflict between local authorities and between business organisations. It is important that restructuring is not introduced prematurely and that transitional arrangements are contingent on genuine consensus being reached about the scale and remit of LEPs and their relationship with national Government. 37. Dependent on the nature of allocations made through the Regional Growth Fund, indicated in paragraph 18, it is possible that the uneven distribution of LEPs in the early stages of transition might see LEP areas gaining early advantage, producing inequalities and imbalances that could persist, for example between city regions and rural areas. 38. We would also advocate a full assessment, including equalities impact assessments, on the impacts of restructuring on the residual funding and liabilities held by RDAs, prior to final decisions being made on the scheduling of transition arrangements.

Means of Procuring Funding from Outside Bodies (including EU Funding) under the New Arrangements 39. There are two sets of issues in relation to European Funding and the establishment of Local Enterprise Partnerships. First is to ensure that the opportunities offered in the remainder of the current programming period up to the end of 2013 are realised. Second is the potential for LEPs to be able to attract and deploy funds in the future. 40. Currently the two main funds focused on local economic development are the European Regional Development Fund and the European Social Fund. The ERDF is focused on business support and regeneration and the ESF is a labour market programme that helps people back into work and supports up- skilling of the current workforce. 41. The ERDF will invest £3.2 billion in the period 2007–13. DCLG is the national managing authority for England, with RDAs currently charged with managing and monitoring the ten Operational Programmes. The England ESF programme is investing £2.5 billion, with virtually all the funds allocated to regions and invested through co-financing against priorities determined by a Regional Framework. ESF is currently administered by Government Offices in the region and RDAs are responsible for leading on the production of Regional Frameworks. RDAs also play a key role in managing agricultural support programmes, R&D funding such as Framework 7 and the Rural Development Programme. 42. Whilst in most programmes the majority of the resources are already committed, there is still the need to secure the investment of the reminder of the funds and to manage and monitor the existing programmes many of which could continue to spend into 2014. 43. With LEPs not due to replace RDAs until 2012, it will be very difficult to maintain the momentum of programmes and ensure that all available resources are invested and accounted for if, at the same time, those bodies responsible are going through major structural change and in most cases abolition. 44. Even if LEPs were to be established earlier there are still significant risks. In all regions it is expected that there will be more than one LEP. For example in the North West it is possible that there will be seven LEPs and it is suggested that to try to formally agree and transfer the responsibility and accountability for the remainder of the various current programmes to them would be very difficult to achieve practically and would exacerbate the risk of losing momentum and opportunity. Moreover it is understood that the Government has indicated that there could be areas of the country that are not covered by LEPs and in those cases then by definition alternative arrangements would be necessary to administer funds in their areas. 45. The debate on the future of Structural Funds post 2013 has already begun but will be unlikely to be concluded before 2012. However the current debate suggests that the overall EU Budget will be more constrained and more focused. It is expected that there will be EU-wide programmes aimed at supporting the ambitions of Europe 2020 and the UK could still be able to access funds to support work on competiveness, labour market change and the knowledge economy. Processed: 07-12-2010 16:01:40 Page Layout: COENEW [O] PPSysB Job: 005834 Unit: PG05

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46. Experience of the current funds suggests that to develop successful programmes, part-funded from EU sources, there is a need for sufficient capacity to develop, deliver and manage the complex requirements for evaluation and auditing. Smaller LEPs may lack the geographical reach and the practical capacity to successfully bid for and manage programmes and may need to partner neighbouring LEPs to achieve results. 47. It is also likely that, with reduced volumes of main programme funding available to the UK, specialised horizontal programmes may become more significant. Successful bids to funds for R&D, for example, tend to require collaboration between regional structures and Higher Education institutions which may require further cross-LEP collaboration to help develop appropriate bids.

Conclusion 48. As stated earlier, the TUC is not theoretically wedded to any particular spatial configuration or institution for the purposes of supporting economic development. We recognise the benefits that can accrue from a local or “functional economic area” focus in terms of delivering labour market interventions. 49. However, we believe that the new arrangements for LEPs should: (a) Ensure sufficient capacity, economies of scale, vision and strategic leadership to meet the considerable challenges ahead. (b) Promote the role of social, economic and environmental partners, including trade unions, in the development and delivery of LEP strategies. (c) Co-ordinate LEP activity with broader strategic goals, particularly in the areas of sector support, skills, affordable housing and the just transition to a low carbon economy. (d) Provide effective arrangements for LEPs to work together to meet wider spatial needs and objectives and to effectively access EU funding. 50. It is our view that the Government should set out a clear set of guidelines through its White Paper, providing reassurance and certainty to the transition process and seeking a broad consensus around the future role, scale, remit and relationships of LEPs. 51. As part of this process of building consensus it is essential that RDA staff and their trade unions are properly involved and consulted, and that the government honour existing Protocols and agreements, including the Cabinet Office Protocol for Handling Surplus Staff Situations. 13 August 2010

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