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BUDGET: PROMOTING FLEXIBILITY ACROSS THE REGIONS

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Budget 2003 takes new steps to promote greater regional flexibility. …

Budget 2003 takes new steps to promote greater regional flexibility.In a flexible and dynamic economy, regions must be empowered toharness their indigenous strengths, tackling weaknesses in education,innovation and skills, to promote growth and full employment in allcommunities. Key steps include:- a package of new reforms to promote enterprise, innovation andskills growth in every region, and to reduce regulatory burdens;- a new study led by Sir Michael Lyons, to examine departmentalproposals for relocating civil service and public service stafffrom London and the South East to other parts of the country. TheChancellor and Deputy Prime Minister have commissioned anindependent review, for which each Government department has beeninvited to identify opportunities for relocation;- measures to ensure that public service pay systems are moreresponsive to regional labour market conditions. The Pay Reviewbodies, which cover 40 per cent of the public sector, will have aremit to take into account regional and local factors;- the structured involvement, for the first time, of the nine EnglishRegional Development Agencies (RDAs) in preparatory work for theBudget. In recognition of their strong regional knowledge, the RDAswere asked to provide advice on measures to increase regionalflexibility. Budget 2003 reflects and responds to their input; and- new steps to promote dialogue and discussion with the regions tostrengthen their input into future policy-making, including newregional statements of the key Budget decisions.Measures suggested by the RDAs, to which the Treasury is respondingpositively today, include:- on enterprise, focusing resources on deprived areas to encourageenterprise in schools - the Budget is announcing the provision ofEnterprise Advisors for secondary schools in deprived areas fromSeptember 2003;- on innovation, that universities should be encouraged to engage inknowledge transfer - the Budget is today announcing work to helpenable regional Science and Industry Councils to do more to connectbusiness with the research base;- on regulatory reform, work with Government to consider how theregulatory burden on small firms can be minimised - the Budget istoday announcing new support to reduce red tape, simplify the taxsystem and improve access to finance for small businesses; and- on skills, greater flexibility to meet employer needs - pilots ofregional management of post-19 skills budgets began in four regions(the East, South East, North East and North West) last week.Commenting on the contribution made by the RDAs, the Chancellor said:’The focus of this Budget is flexibility and fairness, at both anational and regional level. For the first time, the Treasury askedthe Regional Development Agencies to make a formal contribution tothe Budget. This strong regional input, together with Ministerialvisits to the English regions, has ensured that this Budget respondsto the needs and priorities of the English regions. I look forward tothe RDAs’ response to the Budget’.Yorkshire Forward Chairman Sir Graham Hall, who leads the RDAs onTreasury matters and is the current RDA Chair of Chairs, said:’We welcome the opportunity to input into the Budget developmentprocess. Rather than seeking additional resources, ourrecommendations focused on areas where monies could be betteremployed and more flexibility could improve local delivery. I ampleased that the Treasury has considered our suggestions seriouslyand we look forward to repeating this exercise in future years tohelp the Government achieve sustainable economic growth in all UKregions and narrow the gap in regional disparities’.Derek Mapp, Chair of the East Midlands Development Agency, commented:’A continued s hift away from central subsidies and towards localflexibility and incentives is the right way to kick-start regionaleconomic growth, driving up levels of enterprise, skills, innovation,investment and productivity - all vital to the UK’s internationalcompetitiveness. The Regional Development Agencies are the catalystsfor change, stimulating the economic heartbeat of the EnglishRegions. As the move to devolve powers and responsibility gatherspace, the Regional Economic Strategies take on even greatersignificance as the basis for determining priorities in the regions’.DETAILSRDA involvement in the Budget processThe process by which the RDAs contribute to the Budget builds onearlier Budgets and the 2002 Spending Review, where RDAs providedtheir collected proposals on a range of issues. By specificallyasking the RDAs to focus on four themes, the Treasury ensured thatthe RDAs focused on areas where their regional knowledge andexperience allows them to add value to preparing the Budget. TheAnnex to this press notice gives full details of the RDAs’ input tothe Budget process, and the Treasury’s response to each of theirsuggestions.RDAs for the 8 English regions (outside London) were established on 1April 1999. The London Development Agency was established in July2000 as an executive body of the Greater London Authority. Since2002, the RDAs have had increased flexibility over their fundingstreams. This allows them to determine their own priorities, based onthe needs of the region. This flexibility will increase as thecommitments inherited by the RDAs reduce over the next two to threeyears. The RDAs’ combined budget will rise to £2 billion per year by2005-06, from £1.6 billion in 2002-03.Relocation reviewThe Government has commissioned a new study into the scope forrelocating employment opportunities in the public services. Theincreased local and regional focus to policy-making, backed up bytraditional issues of cost- effectiveness imply a case for reviewingthe location of civil servants and other public service workers.The details of a potential relocation policy will be prepared by thenext Spending Review. The Chancellor and Deputy Prime Minister havecommissioned an independent review, for which each Governmentdepartment has been invited to identify opportunities for relocation.Regional pay flexibilityThe Government’s cross-cutting review of the public sector labourmarket, conducted as part of the 2002 Spending Review, found thatpublic sector wages vary far less by region compared with those inthe private sector. The review concluded that there was significantscope to increase the flexibility and responsiveness of the publicsector labour market through the setting of pay and conditions.Budget 2003 announces that measures will be implemented to ensurethat public sector pay systems include a stronger regional and localdimension, where appropriate. This includes the civil service, PayReview Body groups and other public sector workers. More locallyresponsive public sector pay systems will ensure that low paidworkers do not lose out, and service users across the country willbenefit from better public services. Further details will beannounced in the coming months.NOTES FOR EDITORSHM TREASURY PRESS OFFICEPress enquiries: 020 7270 5238Non-media enquiries: 020 7270 4558INTERNET SITESFurther information and all published documents relating to theBudget may be found on the Internet at the following address:HM Treasury www.hm-treasury.gov.ukInland Revenue www.inlandrevenue.gov.ukHM Customs and Excise www.hmce.gov.ukAnnex: The Treasury’s response to RDA input into Budget 2003ENTERPRISERDA Proposal: Promoting enterprise in disadvantaged areasThe low leve l and rate of business start-ups in disadvantaged areasin all regions was identified by the RDAs as an area of concern. TheRDAs see a key role for the education sector (especially schools) inincreasing enterprise in disadvantaged areas.RDA Proposal: School-based promotionSecondary and tertiary education systems should be re-focused topresent enterprise and innovation in a more positive light and toprovide experience-based learning opportunities built aroundenterprise. Support and guidance offered to schools should beconsidered in the context of the ‘Review of Enterprise and theEconomy in Education’ (February 2002) by Sir Howard Davies. Thiscould be coupled with innovative formats, such as a campaigninvolving high profile regional and national role models. The £75million of resources committed by Government to implement the Daviesreview should be targeted in the 2,000 Enterprise Areas.Treasury responseThe Government agrees that efforts to build an enterprise culturemust begin in schools. Following the recommendations of the DaviesReview, the Department for Education and Skills is currentlydesigning pilots to investigate how best to provide pupils with fivedays of enterprise experience in their school career. The pilots willbegin in 2003 and cover around 250 secondary schools, including anumber of schools in Enterprise Areas. Rigorous evaluation of thesepilots will inform a national roll out from 2005-06. Budget 2003 alsoannounces:- £16 million over two years to fund Enterprise Advisors, who willwork alongside head teachers in 1,000 secondary schools indisadvantaged areas, to encourage enterprise practice amongteachers and pupils These advisors will be funded from existing LSCresources and accessed through the network of Education BusinessLinks Consortiums; and- the establishment of a new £1 million Enterprise Promotion Fund, tosupport pri vate and voluntary sector creativity in promotingenterprise awareness across schools, business and the widernon-business community. The Fund will offer resources to projectsmeeting specific enterprise objectives and demonstratingsignificant private sector support.RDA Proposal: Enterprise outreachFunding for organisations that help develop enterprise ideas andopportunities for communities and individuals in disadvantaged areasshould be targeted in Enterprise Areas, using social enterprise andother grass roots organisations under the strategic direction ofRDAs. The new Small Business Service (SBS) / RDA pilots shouldexplore mechanisms to channel resources effectively to supportenterprise outreach work (perhaps using childcare provision as anexample). SBS targets should be revised with greater emphasis onincreasing levels of enterprise in deprived areas to encouragefunding of enterprise outreach work.Treasury responseThe SBS has a key role to play in meeting the DTI Public ServiceAgreement target to increase levels of enterprise in disadvantagedcommunities. It is developing seven core strategies, two of whichwill include a strong outreach component in order to ensure that theobjectives of the strategies are met.The 2002 Spending Review announced an additional £40 million by2005-06 for the SBS, compared with 2002-03. It was also announcedthat the Phoenix Fund would be extended by two years beyond March2004, delivering an extra £50 million to promote enterprise amongdisadvantaged groups, including through targeted outreach programmes.These activities will complement ongoing work to promote anenterprise culture.The RDA / SBS pilots, by aligning business support services withRegional Economic Strategies, will better enable RDAs to use theBusiness Links network to reach all parts of the business community.RDA Proposal: Graduate business start-up supp ortThere should be provision of targeted support (funding and advice) tograduates starting up businesses in disadvantaged areas (near theirhome or place of study). Government should explore the use of a partwrite-off of student loans for graduates setting up enterprises indisadvantaged areas.Treasury responseThe Government recognises that more people between the ages of 16 and25 consider starting up a business than any other age group.Therefore, in order to support graduate start-up, the Government willconsider establishing a National Council for GraduateEnterpreneurship to act as a central information source for studentsand graduates considering starting up in business. The aim of theCouncil would be to engage careers advisers, academics, institutionsand organisations to promote and facilitate self-employment as aviable career option, including through promotional shows, networkingevents and mentoring opportunities. The Government does not believethat partially writing off student loans would be the mostcost-effective way of targeting business support.RDA Proposal: Transition out of the informal economyThere should be provision of a transition period for those starting anew enterprise, targeted at the 2,000 Enterprise Areas. There shouldalso be a one-off amnesty for those operating businesses in theinformal economy to become legitimate.Treasury responseBudget 2003 announces that from 10 April Customs & Excise willoperate, as part of its VAT strategy, a time-limited incentive schemefor businesses not registered for VAT, but trading above theregistration threshold, to move into VAT registration.Under existing rules, businesses and others who have failed to notifythe Inland Revenue that they are liable to pay tax can alsosubstantially reduce tax penalties, often to nil, if they comeforward voluntarily. The Inland Revenue also has a confidentialhelp-l ine for businesses in the informal economy.HM TREASURYPN 02 9 April 2003PROMOTING FLEXIBILITY ACROSS THE REGIONSPART 2 OF 2 PARTSINNOVATIONRDA Proposal: Encouraging small and medium-sized enterprises (SMEs)to innovateThe RDAs recognise the importance of SMEs in creating employment, butin some cases the contribution of SMEs to innovation and exploitationof new technologies has been less significant than larger firms. Thelack of innovation culture and specialist skills, and the need forbetter information for SMEs are highlighted by the RDAs as reasonsfor the relative under-performance of SMEs in innovation. The RDAspropose that the relative importance of a third stream of funding forknowledge transfer from higher education institutions should beraised significantly to help the culture-change in higher education.Treasury responseThe Government welcomes the contribution RDAs can make to promoteinnovation. In the 2002 Pre-Budget Report, an Innovation Review ledby the DTI was announced. This review will provide a wide-rangingreview of business innovation and its contribution to UK productivitygrowth. It is looking at current strengths and weaknesses ofinnovation policy at the regional level, and will report to theGovernment in summer 2003 on how innovation policy can be improved infuture. The Treasury also announced, in the 2002 Pre-Budget Report,an independent review of business-university interactions, led byRichard Lambert, and reporting to the Government in late summer 2003.One of the review’s terms of reference is to look at the national,regional and local economic impacts of business-universityinteractions, including how RDAs and Sector Skills Councils can bestsupport such interactions. Both review teams are actively engagingwith the RDAs.The Secretary of State for Trade and Industry, Patric ia Hewitt, hasasked Sir Tom McKillop (as chair of the first Regional Science andIndustry Council) to work with the RDAs to ensure that best practicein promoting innovation and knowledge transfer is shared and spreadrapidly between the regions.Building on the success of the R&D tax credit in encouraging researchin all regions, the Budget announces a series of improvements to theexisting tax credits for R&D for SMEs and large companies.RDA Proposal: Addressing funding gapsThere is a need to raise significantly the relative importance of thethird stream of higher education funding to encourage a change ofculture in higher education funding to send clear signals about theimportance of working with SMEs. There should be support for proof ofconcept funds(1) based in each region, by raising the share of highereducation institution resources delivered through the third stream offunding (RDAs are supporting such funds as well through existingresources).(1) For higher education institutions and other public sectorresearch establishmentsTreasury responseIn the 2002 Spending Review, the Government increased funds availablefor the Higher Education Innovation Fund (HEIF) - the third stream,and combined it with funding previously allocated to UniversityChallenge and Science Enterprise Challenge to form a permanent thirdstream of funding to universities (in addition to teaching andresearch). The second round of HEIF will have funding of £187 millionin total, for investment between 2004 and 2006. The 2002 SpendingReview also increased the resources available to DTI for otherknowledge transfer activities to £300 million by 2005-06.The Government’s science strategy ‘Investing in Innovation’ (July2002) set out that RDAs should be involved in the development andprioritisation of universities’ proposals for the use of HEIF, andthat the Government will consider h ow to make use of the RDAs’regional perspective in the allocation of knowledge transfer funding.RDAs will be encouraged to assist with the development andprioritisation of universities’ proposals alongside regionalstrategies. The Government is consulting on the details of thisarrangement.RDA Proposal: Innovation through the supply chainGovernment should encourage large firms and major public sectorprocurers to join forces with a number of RDAs and others, to sellinnovation benefits through the supply chain to SMEs in a moresystematic way. The NHS (and other key public procurers) should workin partnership with RDAs in SME supplier development to encouragebest practice in SMEs and expand procurement opportunities.Treasury responseIn the 2002 Pre-Budget Report, the Government welcomed theCompetition Commission’s recommendations to improve competition inprocurement, and announced that the Office of Government Commerce(OGC) would be considering steps to increase competition, and therebyvalue for money; and to encourage better long term capacity planning,in markets where the Government possesses significant purchasingpower. The OGC has appointed a team to undertake this work, which issupported by a working group comprising the DTI, the Small BusinessService and the Treasury. The OGC will report to Ministers in thesummer.The OGC is already taking further steps to enable SMEs to compete forgovernment contracts and deliver value for money. OGC has produced abooklet and video for public sector purchasing staff, launched anInternet portal, www.supplyinggovernment.gov.uk, to advise SMEs onaccess to government contracts; and has simplified the financialappraisal of suppliers to make it easier for SMEs to bid.In addition, the Better Regulation Task Force’s report on reducingthe barriers to SMEs in doing business with the public sector will bepublished in May. The Government wil l ask the OGC, the SBS and theLocal Government Procurement Forum, where appropriate, to act ontheir recommendations.The NHS is also encouraging SMEs to play a greater role in itsprocurement by producing material to explain how purchasing works inthe NHS, working with suppliers - including SMEs - to innovate forfuture NHS purchasing needs, working with trade associations to keepsuppliers up to date on changes to the NHS, and using standard setsof Terms and Conditions and contracts, which are available on theinternet. The NHS also provides a helpdesk telephone line forsuppliers and, in October 2002, launched a Supplier InformationDatabase that enables suppliers to provide pre-tender andpre-qualification information once only.RDA Proposal: Promoting better foresighting workThere should be a focus on ‘completion of cycle’ in foresight work(nationally and regionally) by continuing dissemination to andengagement with SMEs. This should use SME-based case studies and rolemodels to highlight benefits, building on work done regionally andnationally and better relaying messages through to SMEs concerningmarket opportunities.Treasury responseThe DTI Innovation Review will be looking at issues and policies inthis area and the Government encourages RDAs to contribute theirviews and suggestions to this review.REGULATORY REFORMRDA Proposal: Working with Government to reduce regulatory burdenRDAs have recognised that the Government has sought to reduce whatare seen as unnecessary, out-dated or overly complex regulations. TheRDAs welcomed the work of the Regulatory Impact Unit and the BetterRegulation Task Force and the introduction of Regulatory ImpactAssessments. The introduction of the Regulatory Reform Action Planand Regulatory Reform Orders, as a structured means for identifyingexisting legislation which needs reform, and the introduction of animproved small firms impact test, as part of Regulatory ImpactAssessments, will help ensure that regulation is necessary andproportionate. The RDAs would welcome an annual summit withGovernment, in collaboration with other organisations, to raise anddiscuss practical suggestions to ease the regulatory burden on newbusiness start-ups and growing businesses.Treasury responseThe Government welcomes this proposal and will consider any specificand practicable suggestions for lightening the regulatory burden onbusiness, while continuing to meet agreed policy objectives. TheGovernment recognises the need to continue to improve the dialoguebetween Government departments and the regions and will consider thebest means of taking this forward.RDA Proposal: Regulations impacting on micro growth businessesAt present the costs of regulation commence at various key growthstages of micro businesses (the first employees, the fifth employee,moving over the VAT threshold, etc) and can become a barrier togrowth. There is little co- ordination across Government and itsagencies on how SMEs can be helped through what can be a complexmaze. National research should establish a stronger evidence base onregulations that most affect small businesses as they attempt togrow.A revamped Regulatory Impact Assessment (RIA) would lead to theidentification of those sectors and size of businesses on whichregulation would place the most burdens and in what way. Oncepressure points have been identified, it would be imperative that theGovernment devotes energy and resources to alleviate problemsidentified. There should also be consideration of the impact ofenvironmental regulation and taxes on SMEs. The Climate change levyagreement target-setting and verification need to be made morecost-effective and less burdensome (e.g., by self-verification).Treasury responseTo reduce the burdens on small businesses, Budget 2003 ann ounceschanges to company law, extending the less onerous accounting andreporting regime to more small businesses and clearer principles forfuture employment regulation. Further measures to reduce the burdenson SMEs include an increase in the VAT threshold in line withinflation and steps to reduce the burden of statistical surveys.Following the Cross-cutting Review on Services for Small Businesses,the SBS is increasing its capability to conduct research on smallbusiness needs, including regulation, and fully meet its remit tobecome a centre of expertise on small business issues.The SBS is tasked by its Public Service Agreement to make the UK thebest place in the world to start and grow a business by 2005.Progress against this target is measured through internationalcomparisons conducted by organisations such as the OECD and throughindependent reviews, such as the Growth Plus annual survey. The SBSis working to meet this target through individual programmes such asthe recently launched Start-up pack and forthcoming Business.gov, aswell as working with other Government bodies to improve the supportthey offer to small business through the regulatory process.Business Links already provide generic advice on regulationsaffecting business. More importantly, however, regulators themselvesare increasingly being pro-active in supporting businesses in meetingregulatory requirements in line with the Enforcement Concordat.Improved guidance on the concordat is currently subject to publicconsultation. The Government recognises that regulation shouldfacilitate innovation and is currently preparing its responses to theBRTF reports.RIA guidance (issued in February) makes clear the need forassessments to consider the costs and benefits on different businesssectors, with a particular focus on the impact on small businesses.The Government and the SBS will continue to work with businesses toensure effe ctive implementation.SKILLSRDA Proposal: Addressing skills and training shortagesThe RDAs propose that the education and skills sectors should be moreresponsive to employer needs. Training provision is often inflexibleand fails to meet adequately the needs of employers and employees.The need to raise skill levels across the UK and the link betweenthis and enhancing productivity and competitiveness is alsorecognised by the RDAs.Treasury responseThe UK has a large number of adults who lack basic literacy andnumeracy skills and also a large number of adults in the workforcewith low skills. This poor skills performance is a major factor inthe productivity gap between the UK and its competitors. TheGovernment has introduced a successful basic skills strategy and istackling the lack of intermediate skills in the workforce. TheDepartment for Education and Skills has a target of reducing thenumber of adults in the workforce who lack level 2 skills (around 8million) by 40 per cent by 2010.RDA Proposal: Flexibility to meet employer needsThe full NVQ base is not always relevant to employers. Meetingemployer needs should drive funding. Learning and Skills Councils(LSCs) should have the flexibility to respond to regional skill needsidentified through the Framework for Regional Employment and SkillsAction (FRESA) process. There should be provision of 20-30 per centof local LSC resources as ‘single pot’ funding driven by agreedregional skills needs. The RDA adult learning (and SBS) pilots shouldbe used to test the benefits of moving towards funding and incentivesbuilt around employer needs.Treasury responseThe Review of Funding of Adult Learning is looking at how to getgreater flexibility to meet employer needs, including examining therelationship between funding and qualifications, which Governmentrecognises is too rigid. The review is ongoing and will feed into theNational Skills Strategy, setting out how the Government will achieveits targets in this area, which will be published in June 2003.RDA/LSC pilots will look at how local delivery can be tailored tomeet regional skills needs. The Government welcomes the RDAs’suggestion that pilots might be used to test different funding andqualification arrangements. RDAs, LSCs, the Department for Educationand Skills and the Treasury are currently engaged in work to developflexibility for these pilots, including on funding andqualifications. The Government will be considering suggestions suchas the ‘single pot’ for some LSC money in the context of the reviewof funding and RDA/LSC pilots. The Success for All reform programmefor further education is introducing key measures to increaseemployer responsiveness across the sector.RDA Proposal: Workforce developmentAt a time of national high employment, but also employer cut backs ininvestment, there is a danger of a drop in employer investment intraining. The RDAs support the introduction of tax credits foremployers providing training to employees (tied to the achievement ofan NVQ level 2 or 3 qualification). To take account of the lowerincidence of training amongst smaller firms this could be restrictedto smaller employers. Credits could vary regionally and be linked tosectors identified as priorities in each region’s FRESAs. The RDAsalso support waivers on tuition fees or bursaries where there areidentified national skill shortages, for example engineering, ICT andtechnology.Treasury responseThe Government has an open mind on the use of fiscal incentives fortraining. However, policy in this area is being developed in thecontext of the Employer Training Pilots, which are currently testinga variety of models based around compensating firms that provideemployees with time off to train.While the White Paper on higher education did not include proposalsfor a waiver of tuition fees or bursaries for shortage subjects, itreiterated the Government’s commitment to two-year foundationdegrees, which in many cases will provide a relatively cost-effectiveoption. The White Paper also proposed that universities that haveimplemented Access Agreements should be able to vary tuition feesfrom £0 to £3000. This will create a strong financial incentive foruniversities to price effectively to retain the viability of courses.RDA Proposal: Skills for employabilityA national approach to promote a greater understanding of the worldof work into the 14 to 19 and Higher Education curriculums is needed.Besides developing employability skills, such a programme would seekto increase the amount of business knowledge promoted within learningand encourage an awareness of entrepreneurship. The £75m of resourcescommitted by Government to implement the Howard Daviesrecommendations should be targeted on the 2,000 Enterprise Areas.Treasury responseA working group led by Mike Tomlinson is reviewing the 14-19 phase ofeducation and will report on how to improve thevocationalopportunities available to young people. The National ModernApprenticeship Taskforce was launched in February to increase thenumbers of employers offering work-based learning to young people,and Budget 2003 announces its work plan.RDA Proposal: Leadership and management skillsThe Government is proposing a comprehensive response to the Councilfor Excellence in Management and Leadership report. There should befull recognition of the need for training, preferably accredited to acommon standard, for small start-ups and micro businessesTreasury responseWorking in partnership with high street banks, the Government willdevelop a new package to support the development of SMEs. The packagewill include:- measures to stimulate the demand for advice and training by SMEs,including banks making entrepreneurs more aware of the directbenefits of training through improved business performance; and- a web-based training directory to improve the links between thedemand for training by SMEs and the diversity of public and privatesector provision of training, and offer access to onlinecounselling and mentoring.A steering group chaired by Sue Brownson OBE, chief executive of BlueBell BMW and member of the Small Firms Council, will oversee themanagement and development of the support package. The group willinclude banks, the Small Business Service, University forindustry/Learndirect, small business organisations and a range ofentrepreneurs.

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