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The coalition: risk, freedom and enterprise

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The new coalition government has taken a radical and deliberately less central and strategic approach to local economic growth. Believing that the country’s economy became “skewed by artificial boundaries and top-down proscription that did not work”.

Instead, they are seeking to “liberalise” economic development by stripping out the regional architecture of RDAs, and instead agreeing the first 31 Local Enterprise Partnerships (LEPs) which will be up and running by April 2012.

LEPs are looser collaborations of local authorities and their local economic partners, with strong business involvement, intending to be more bottom-up and organic and focused on stimulating private sector growth and rebalancing the economy.

Where the previous administration sought to “match the power of government to the creative force of enterprise” to drive industrial, economic and employment growth, this government sees itself less about direct intervention and instead more of an enabler, liberating the natural market forces of economic development.

The recent White Paper ‘Local Growth, Realising Every Place’s Potential’ criticised the previous administration for ‘going against the grain of markets’ with strategies which ‘stifled natural and healthy competition between places’ .

One of the most welcome aspects of the LEPs is the golden democratic thread provided by the leading role for local government. The government sees local authorities as the driving force behind growth including by providing leadership and co-ordination, using land assets to leverage funding to support growth, directly or indirectly influencing investment decisions through planning, and supporting local infrastructure such as transport, business and employment support programmes.

It also sees a key role for local government in providing high quality services, regulating markets through trading standards, and leading efforts to support the health and wellbeing of the local population. The announcement of a new wave of mayors in twelve leading cities also recognises the importance of strong democratic leadership in our localities.

Concerns remain

Yet despite this welcome devolutionary approach to sub-national economic development, some serious concerns remain.

The bottom-up nature of the LEP process, where local authorities and their partners were invited to come together and propose bids to central government to form the Partnerships, was extremely challenging to those with little history around collaborative working. Areas that had stronger histories of delivering City Regions and MAAs had already done much of the groundwork.

For those embarking upon an exercise like this for the first time, a two-page letter from Eric Pickles and Vince Cable gave little insight, guidance or support in developing bids to the government. There was a lack of clarity over LEPs - what their powers would be, what money (if any) would come with them, and confusion over transition arrangements with RDAs. All of this meant that the incentives to overcome the traditional barriers to collaborative working were less clear.

Research by the New Local Government Network showed that the key ingredients to success in sub-regional partnerships included building up an evidence-base and sound understanding of the sub-regional economy, good leadership with vision and ambition for the partnership, and operational capacity to ensure that the local area is capable of delivery . Placing a new ‘duty to co-operate’ on local authorities, public bodies and private bodies that are critical to delivery, such as infrastructure providers is helpful.

However, in order to overcome natural barriers to collaboration, such as fear over loss of sovereignty, a lack of clarity over accountability, local political interests or issues around resource, the most powerful tool is a clear devolved offer from central government. This should be in the form of devolution of a strong financial or policy-based power as an incentive to make worthwhile the time-consuming and costly business of partnership.

Moreover RDAs were backed up by substantial financial clout from central government, and with access to sources of funding from Europe which was match-funded by central government. Indeed it is reported that it could cost as much as £1.4 billion to wind them down and complete existing programmes . Meanwhile, the LEPs come with no budgets to incentivise their formation. The much-heralded Regional Growth Fund of £1.4bn over three years is nowhere close to the sum given to RDAs, and will not be solely dedicated to LEPs .

The government has set out some of the roles it foresees LEPs fulfilling, most notably around local transport, housing and planning, as part of an integrated approach to growth and infrastructure development . LEPs are also to play a key role in pooling and aligning funding streams to support housing delivery, setting out key infrastructure priorities, and supporting or co-ordinating projects.

Yet around key issues such as skills and welfare to work (the second most common theme in the 56 original bids received by government, after rebalancing the economy), there is little evidence yet of the devolution of powers concerning the commissioning or strategic delivery of welfare to work programmes. The recommendation they ‘work with’ local employers, Jobcentre Plus, and learning providers to help workless people into jobs is fairly nominal. Nor will the ability to ‘make representations’ on the development of national planning policy mean much when planning is such an integral part of regional growth.

For a government that has set such store by its commitment to localism and decentralisation, there are still real concerns about the willingness of Whitehall to let go. In the transition from RDAs, there remain key concerns about what will happen to some of their key functions which are likely to be drawn up to central government and its agencies rather than devolved to LEPs or to local authorities.

Inward investment and key sector development will be centralised, and skills funding will be routed through the national Skills Agency, straight to colleges and training organisations. These are crucial levers to drive local economies. As the Total Place approach appears to have run into the sand across Whitehall, it is vital that pressure is maintained in encouraging central government to become more integrated and more willing to devolve budgets and powers.

The government’s broader public service reform agenda also provides a challenge to Britain’s future growth. The localism agenda, aimed at empowering individuals and communities to have more say over their localities holds some potential problems to integrated, strategic economic development.

On planning, for example, despite a ‘national presumption in favour of sustainable development on all planning applications’, there is a fear that the bottom-up approach this government is taking - by giving local residents and communities more planning powers and abolishing Regional Spatial Strategies - could be anti-development.

The New Homes Bonus is the cornerstone of the government’s framework for encouraging housing growth and it provides some small incentive but remains to be seen if that is enough to drive regeneration. Alongside this there is rapid and substantial reform across public services that is in danger of fragmenting local delivery and working against moves to create better integration. Direct elections for police commissioners, commissioning directly by GPs, and free schools all provide new, and potentially conflicting, forms of accountability at the local level, which could mean that driving and leading economic regeneration in a place becomes more disparate and difficult.

Moreover, the financial challenge faced by our localities through the squeeze on public sector spending, and particularly the local government settlement, means that our localities have a sizeable economic task ahead of them. The government is ‘confident’ that the private sector will fill the gap in employment but between first quarter of 2000 and the start of the recession, more than a fifth of all job creation came from the public sector . The need for private sector rebalancing is particularly urgent in the areas that have benefitted most from the expansion of the public sector, such as many of the formerly industrial economies of the North East and North West.

A longer version of this article appears in ‘Going for growth’ edited by Will Straw (Institute for Public Policy Research, 2011).

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