The shape of LEPs to come

“Permissiveness,” a mandarin at the Department for Communities & Local Government says, “is the word we should associate with Eric Pickles”.

Those who listened to Mr Pickles’ first keynote speech as communities secretary might take issue with this assessment. The talk on the Local Government Association conference floor in Bournemouth was of a “censorious” and “headmasterly” tone, with Mr Pickles seemingly eager to lecture councils about their ills. “What we wanted was a clear direction on policy,” more than one chief executive was heard to say.

Not least on the formation of the new local enterprise partnerships (LEPs), the economic development bodies earmarked to replace the regional development agencies.

It was in the context of LEPs that the mandarin’s “permissiveness” remark was made: in short, the message was that Mr Pickles does not intend to instruct councils about the formation of LEPs.He wants the partnerships - effectively consortiums of councils banding together over sub-regions - to emerge from the “bottom up”.

But there is a fine line between “permissiveness” and a policy vacuum and the danger is that with the latter the most powerful prevail.

Hence concern in smaller towns and cities across England - such as Peterborough and Norwich - as well as districts adjacent to metropolitan areas - such as those in north Derbyshire - that it will be county councils that will seize the LEP agenda.

For their part, counties might argue that LEPs are best hosted within their boundaries to avoid messy disputes. But scrapping regional economic development in favour of a geography dictated by arbitrary county council boundaries merely repeats the problem the reform is meant to resolve. The issue is how to plan and deliver strategies to boost growth over areas that represent real economies, which most county councils do not.

To be fair, ministers have stressed that LEPs should be created over “natural economic areas” and be focused on cities. But they have also said that they should comprise groups of upper-tier councils.

Therein lies the tension. In Peterborough, for example, the city wants to join with three neighbouring districts to form an LEP. This would constitute a real economic area - that of Greater Peterborough - but would not comprise a group of top-tier authorities. Is that OK? If permissiveness is Mr Pickles’ mantra, then yes.

But if one or all of Cambridgeshire, Northamptonshire or Lincolnshire object to Peterborough and its neighbouring districts going it alone, then what does Mr Pickles do? At some point the secretary of state will need to step in and arbitrate, because with LEPs, size - or better - geography, matters. Permissiveness only goes so far.

Behind the scenes LGC understands that ministers have a clear idea of how the new economic development geography will look, with the final picture comprising fewer than 40 LEPs (with Treasury pushing for between 20 and 30).

Indeed, LGC has been told that Mr Pickles has been pushing some counties, such as Kent and Essex, to join together. Other areas could also benefit from “guidance”.

Size is a pressing issue because ministers have asked councils to submit their LEP proposals by 6 September. Other questions, not least what LEPs will be for, are likely to be answered by a white paper expected later this summer. That should set out the functions that LEPs might take on.

Ministers have already said LEPs could take on powers over planning and housing; local transport and infrastructure; employment, skills and enterprise - particularly supporting small business start-ups; the transition to a low-carbon economy; and in some areas, tourism.

What they have not said is what the extent of these powers will be: will they have full commissioning powers over skills and employment, for example, or London-style powers to regulate bus services? These are the things that will add substance to Mr Pickles’ mantra of localism, localism, localism.

The other key question is money. It seems unlikely LEPs will have a dedicated funding stream, rather they will be asked to bid into a £1bn regional growth fund over 2011-12 to 2012-13. That is significantly less cash than was available through the RDA network, which over 2010-11 had a budget of £1.4bn.

Councils must now test Mr Pickles’ “permissiveness” by establishing strong partnerships across sensible economic geographies and demanding not only a full range of powers, but also new financial tools - such as tax increment financing. These will enable the LEPs to maximise the impact of the little cash that is left for economic development.

It’s time to see if Mr Pickles is as amenable as the DCLG would have us believe.

See LGC 15/07/10 for a full map of the geography of England’s nascent LEPs.