Paper E – Appendix 1

Appendix 1: Draft Budget representation

Dear Chancellor Budget 2020 – Levelling up the In response to your invitation for Budget representations, we are pleased to set out the priority areas which would enable us to implement our ambitious local industrial strategy at pace. The Humber local industrial strategy was agreed across Government in October, after being accelerated by the Business Secretary in response to the insolvency of British Steel, and is ready to be launched. It focusses on three areas where the Humber has distinctive opportunities:

 Accelerating clean growth – transforming the UK’s highest-emitting industrial cluster into a more productive net zero carbon economy, building on the progress we have made in establishing the UK’s leading offshore wind cluster.  Developing the Humber ports and manufacturing clusters – increasing the value the UK’s largest ports cluster brings to the economy by attracting more value-adding manufacturing activity.  Expanding our knowledge economy – building on recent business R&D investments to step up innovation activity in the Humber, creating more higher-value jobs linked to our strategic opportunities in clean growth, ports and manufacturing. The strategy would support the long-term competitiveness and productivity of the Humber economy, an area which has historically underperformed. Despite recent progress the area has a legacy of pockets of high deprivation and there are some communities, particularly in urban areas and on the coast, which have not shared in the proceeds of national economic growth. Nowhere is more relevant than the Humber to your aim of levelling up the UK. The focussed approach that we have developed with Government will directly contribute to achieving this. We set out below how you could support us to move forward with this at pace through Budget 2020. Humber priorities Decarbonisation of the Humber region With the highest emissions and the necessary natural resources, the Humber is the UK’s biggest decarbonisation opportunity. We are working with businesses that share our ambitions and will, if the policy and regulatory environments are right, be prepared to invest substantially to contribute to achieving them. However we need to take action across our economy and want to move forward with this quickly. As set out in our industrial strategy, we are seeking Government support for the development of an exemplar special purpose delivery vehicle for delivering projects in support of the “whole place” decarbonisation of the area. This would have the required focus, expertise and capacity to undertake a transition on the scale required in the Humber. It would have a dedicated budget and the ability to enter into commercial partnerships, borrow and re-invest the returns on its investments. A Development Corporation could be a suitable way of achieving this.

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As the UK prepares to host COP26, establishing an innovative regional decarbonisation vehicle such as this would demonstrate the Government’s commitment to reducing emissions in its largest industrial cluster, and act as an example for other nations to follow. We welcome your manifesto commitment to investing in energy efficiency for homes, schools and hospitals. Our experience, such as from Building Schools for the Future, has shown that managing multi-site multi-year construction schemes of this scale locally can deliver better outcomes – achieving high value for money whilst developing local skills and supply chains with a long-term legacy. Drawing on this experience, we would like to pilot an ambitious local energy efficiency programme from your new fund. Working across sectors and with local training providers, we believe that managing this locally would deliver greater social as well as carbon benefits on a larger scale and more quickly than a national provider could achieve. Humber Freeport The Humber Enterprise Zone predominantly covers sites linked to the Humber ports. It has brought new manufacturing jobs and businesses to the area, and we have prioritised it for infrastructure investment – including through borrowing for the South Humber Industrial Investment Programme (SHIIP). However, the last remaining business incentives are coming to an end, meaning that it will be difficult to sustain inward investment on this long- term pipeline of sites. We would like to work with Government to explore the benefits of establishing a Humber Freeport on sites around the Humber Estuary, building on the legacy of our Enterprise Zone. This should prioritise non-operational port/airport land capable of attracting new manufacturing jobs, combining the advantage of proximity to the Humber ports with incentives and infrastructure investment to overcome the market failures that persist in our area, caused by low development returns and high abnormal costs. Establishing a Freeport on the Humber could also contribute to levelling up the UK’s trade flows, which are too heavily concentrated in the southern ports with all the consequent impact on congestion. It is important that freeports are aligned with local industrial strategies and avoid local displacement effects. We also recognise that there will be many ideas put forward and believe that local leaders are best placed to prioritise and decide on what is most appropriate for their areas. All regions with ports should be able to put forward proposals equally to be judged on their merits. Therefore, we recommend that in England LEPs should be invited to propose and manage freeports, as has been the case with enterprise zones. Transport infrastructure The A63 Castle Street upgrade in Hull has been the city’s number one transport priority for decades, as it is vital for relieving congestion on the strategic road network to the port and reuniting the city centre with its waterfront. The Examining Authority issued a Recommendation Report to the Secretary of State on Highways England’s application on 24 December 2019, meaning that a decision must be made by March. We hope for an early positive decision, and would like to see confirmation in Budget 2020 that the funds are available for the scheme to begin construction this year. Rail freight is crucial for relieving road congestion and reducing transport emissions. We prioritised investment through our Growth Deal to upgrade the line between the Port of and Doncaster, which can now accommodate the large hi-cube containers, but

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Paper E – Appendix 1 restrictions remain west of Doncaster and from the . We would like to see further priority given to rail gauge clearance and capacity improvements to enable more freight to be carried across the Northern Powerhouse by rail. The UK’s legacy inland waterways network has untapped potential for carrying more heavy freight, such as aggregates, directly to city centre locations – reducing carbon emissions and congestion. However, the handling facilities are not all available to accommodate this. We recommend restoring the freight facilities grant, with priority given to low carbon transport, to support modal shift and complement the investment that will take place through Freeports. Next year will be the 40th anniversary of the Grade I listed Humber Bridge opening. The Bridge is a remarkable feat of British engineering, a vital economic link between the two banks of the Humber Estuary and an important part of the UK’s strategic transport infrastructure. We would welcome the Government’s support to help us deliver a fitting celebration of the Humber Bridge’s construction and the impact it has had. We can demonstrate a track record of delivering successful cultural events, particularly through Hull UK City of Culture 2017. The Government wrote off part of the Humber Bridge’s construction debt, caused by historic high interest rates, in 2012, enabling the tolls on the Bridge to be halved. Since then, journeys across the Bridge have increased by 50% and now total over 9 million per annum. Our analysis shows that most of these are commuters, with the reduced tolls opening up new employment, business, learning and social opportunities and supporting housing growth. However, the Bridge still has spare capacity, with the annual commuting cost of £720 remaining a disproportionate barrier to people accessing work in our lower-wage economy, which in turn constrains the region’s economic growth. Tolls ended a year ago on the Severn bridges, joining those in Scotland. In England, most tolled river and estuarial crossings are in areas that experience higher deprivation, lower earnings, slower growth and lower productivity than average. These act as a brake on local economies, limiting movement of workers and access to opportunities. We recommend that Government launches a review of current tolled crossings to consider the potential benefits of reducing or removing tolls, and how the ongoing maintenance of these integral parts of the UK’s road network can be fairly funded in future. Levelling up innovation We welcome the Government’s commitment to rebalancing R&D expenditure. We have made progress in recent years with globally-significant investments totalling over £200m by international businesses including RB, Smith & Nephew and Croda. We want to go further in developing our higher-wage knowledge economy, and put forward two priority projects linked to our industrial strategy:

 The Offshore Renewable Energy Catapult is developing an Offshore Wind Operations & Maintenance Centre of Excellence, to be based in . A range of unique facilities are proposed, which would position the UK to lead the technology and process innovation required as larger turbines are deployed further out to sea. It is important this progresses quickly to ensure the UK does not sacrifice the early lead it has in the O&M sector.

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 The and Fire & Rescue Service have developed proposals for Ark, a National Flood Resilience Centre1. This would create a unique training, testing and research facility with a full-size street scene that would improve the UK’s readiness for and ability to respond to flood events. Defra and HM Treasury ministers have been briefed previously and the project is supported by the Environment Agency, but requires £XXX capital funding to go ahead. The unusual nature of the project means that it does not fit normal funding streams. In addition to this, we look forward to a successful outcome from the University of Hull’s £35m bid to the Strength in Places Fund for clean local energy innovation, which is widely supported by local industry and stakeholders. Vehicle Excise Duty on motorhomes The Humber is one of the UK’s main centres for caravan and motorhome production, with thousands of people employed by local manufacturers. We therefore share the motorhome industry’s significant concerns in relation to the recent reclassification of motorhomes for VED, which has resulted in a 705% increase in the amount of tax levied when some new vehicles are registered. This threatens to significantly depress demand with a potentially very damaging impact on our manufacturing sector at an already uncertain time. As the industry has set out in its representations, UK motorhomes are built using a commercial base vehicle, fitted with a commercial engine. It is right that the taxation system encourages new car owners to choose cleaner, more efficient engines from the numerous ranges available. However, as motorhomes have commercial engines, new owners do not have a wide range of choice and because of their unique classification, motorhomes now attract the highest car tax, even if the cleanest and most efficient engine is installed. This is despite light commercial vehicles with the same base vehicle and engine being taxed at a lower rate. We support the sector’s request to reclassify motorhomes as commercial vehicles for VED purposes and urge you to work with them to find an appropriate way forward that protects this British manufacturing industry as well as the tourism jobs it supports. The promoters of Lagoon Hull2 have already raised contributions from over a dozen businesses to fund the initial concept work. As you heard when you visited Hull, this is an ambitious project which could be transformational for the city and wider region. However, it will require support to develop to the next stage. Based on similar types of project elsewhere, the promoters estimate that this phase of work will cost £20m. A long-term ‘public good’ infrastructure project of this scale can only happen with Government support, so we support their request to you for funding for further development work. Levelling up local capacity and resources to deliver We welcome the Government’s ambition for full devolution across the Northern Powerhouse, but we recognise that it will take time to agree and implement. To ensure we can work together at pace to level up the UK, there are actions the Government could take at Budget 2020 to step up the momentum of delivery through existing structures whilst providing the foundations for more ambitious devolution in the near future. We propose the following:

1 https://arkfloodcentre.co.uk 2 https://www.lagoonhull.co.uk

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Paper E – Appendix 1 i) Certainty of delivery structures Businesses have stressed to us the importance of continuity of local delivery structures such as LEPs and Growth Hubs, particularly while our future trading relationship with the EU is confirmed, and we know from our experience the impact short-term funding and frequent uncertainty has on staff recruitment and retention. LEP and Growth Hub core funding has remained static for many years, despite rising costs and expectations, while smaller functional economies like the Humber have less partner capacity to draw on. Government will need to work in partnership to level up the region, but to do this we must have the capacity to support this on the ground. To ensure we are on a sustainable footing and have the capacity to deliver on our shared agenda, we would welcome an equitable multi-year funding deal for LEPs and Growth Hubs and recommend that this is a material increase on 2019/20 to reflect the new requirements on us. This would provide the base level of capacity required to maintain business support and engagement and make progress on industrial strategies, which could be built on in due course with appropriate devolved arrangements. ii) UKSPF and future local growth funding The Humber LEP has demonstrated the value of local influence over these funding streams: we have achieved the highest level of commitment in the country for our area ESIF allocation and a good track record of delivering sometimes challenging projects through our Growth Deal, which is forecast to be ahead of profile by the end of this financial year. However, both programmes are coming to an end, risking continuity of delivery in ESIF- funded revenue projects (such as business and training support) and stop-start of capital projects teams which will lose the skills required to deliver future projects. We have also shown how public-private collaboration can robustly prioritise projects, leverage private sector investment, achieve good value for money and – through our local authority accountable body – maintain proper public accountability for funding. We have strong, independently assessed governance and assurance processes in place which are ready to be used for successor programmes from day one. Given this track record and capability, and the demonstrable continuing need for such funds in our area, we would be extremely concerned if control over UKSPF and future local growth funds reverted to Whitehall, or if local decision-making were reserved for metro mayors. Local decision-making will be the best way for us to achieve the investment plan we are developing to support our local industrial strategy at the pace our businesses and communities want to see. We recommend devolving UKSPF in full to LEPs with maximum flexibility, including between capital and revenue expenditure, over a six-year period as with ESIF and LGF. The Humber’s allocation should recognise its comparatively low skills base, productivity and wage growth as well as its strategic opportunities for growth, and be of at least the size of current allocations after LEP overlaps are taken into account. Early certainty of this will enable us to move forward quickly with our proposals, ensuring we are ready to put them into effect when programmes start and thus build on the momentum we have already demonstrated. As part of our planning for how UKSPF might be utilised, we are working with developers to explore establishing a local revolving infrastructure fund, and reviewing learnings from our successful employment and skills schemes to consider future interventions for people furthest from the labour market – addressing flexibly the triple barriers of low skills,

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Paper E – Appendix 1 intergenerational worklessness and poor transport links (affecting urban, rural and coastal communities) in our area. Initiatives such as these are most effective when they are locally led and tailored to local needs, which means local control and flexibility over UKSPF is essential for success. iii) Infrastructure project development funding A critical barrier to delivering the infrastructure revolution you have previously pledged is the shortage of project development funding. The LEP has no funds with which to commission project feasibility and development work, our region lacks the devolved resources that larger metro areas have, and our local authority partners are increasingly constrained. As a result, we are on the whole seeing fewer, smaller projects come forward more slowly, which will lead to less transformational outcomes over a longer period of time. This places our area at a significant disadvantage in accessing Government funding and making the case for investment such as through Transport for the North – in turn undermining your ability to level up infrastructure across the UK. Our recommendation would be to make flexible project development funding available through LEPs, for us to commission development work on projects that would deliver the economic strategies agreed with Government. This will directly enable more strategic projects to be shovel-ready within the next two years. Our existing project pipeline gives us confidence that the project concepts are there to enable development funding to be deployed quickly in the Humber. Without this, it is likely that areas such as ours will continue to be disadvantaged with fewer deliverable projects available to Government to invest in. The funding could be managed through our existing robust assurance processes in accordance with HM Treasury’s requirements. Conclusion The Humber has developed a strong track record of delivery and, as we have set out above and in our local industrial strategy, has some exciting and distinctive opportunities ahead. We hope these proposals are helpful and would be happy to discuss them with your officials. Yours sincerely

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