HC 585 Published on 25 July 2013

by authority of the House of Commons London: The Stationery Office Limited

House of Commons

Business, Innovation and Skills Committee

Local Enterprise Partnerships: Interim Government Response to the Committee's Ninth Report of Session 2012–13

First Special Report of Session 2013–14

Ordered by the House of Commons to be printed 9 July 2013

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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) Mike Crockart MP (Liberal Democrat, Edinburgh West) Caroline Dinenage MP (Conservative, Gosport) Julie Elliott MP (Labour, Sunderland Central) Rebecca Harris MP (Conservative, Castle Point) Ann McKechin MP (Labour, Glasgow North) Mr Robin Walker MP (Conservative, Worcester) 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) Margot James MP (Conservative, Stourbridge) Dan Jarvis MP (Labour, Barnsley Central) Simon Kirby MP (Conservative, Brighton Kemptown) Gregg McClymont MP (Labour, Cumbernauld, Kilsyth and Kirkintilloch East) Ian Murray MP (Labour, Edinburgh South) Nicky Morgan MP (Conservative, Loughborough) Chi Onwurah MP (Labour, Newcastle upon Tyne Central) Rachel Reeves MP (Labour, Leeds West) Mr David Ward MP (Liberal Democrat, Bradford East)

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.

Publications

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. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only.

Committee staff

The current staff of the Committee are James Davies (Clerk), Amelia Aspden (Second Clerk), Peter Stam (Committee Specialist), Josephine Willows (Committee Specialist), Ian Hook (Senior Committee Assistant), Pam Morris (Committee Assistant), Henry Ayi-Hyde (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 biscom@parliament.uk

Local Enterprise Partnerships: Interim Government Response 1

First Special Report

The Committee published its Ninth Report of Session 2012–13, Local Enterprise Partnerships, on 26 April 2013. The Government’s Interim Response was received on 1 July 2013 and is appended to this Report.

The Committee’s original recommendations are reproduced in bold.

Appendix: Interim Government Response

On 26 April 2013 the BIS Select Committee published their report into Local Enterprise Partnerships. This document sets out the Government’s interim response. A further response will follow the June Spending Round along with the publication of the LEP Guidance for local Growth Deals and Single Local Growth Fund.

Monitoring and Accountability of LEPs

The Committee makes a number of recommendations relating to LEP accountability and monitoring by Government.

We agree that national economic growth relies on strong regional growth and that LEPs are key drivers in that respect. For that reason we believe that constant monitoring of LEPs (and all elements of the Government’s Plan for Growth, for that matter) is essential. (Paragraph 13)

It is right that LEPs set their own objectives and priorities and this should continue. We agree that centralised and overly-prescribed objectives would go against the local and regional purpose of LEPs. However, we have heard that there is inconsistency between LEPs in terms of their objectives. Consequentially, accountability may be at risk. We have already recommended that a single BIS Minister be made responsible and accountable for LEPs and that LEPs should have a single point of contact within the Department. We recommend that through this streamlined channel of communication, the Government monitors LEPs’ objective setting processes closely—against a minimum baseline of performance—to ensure that all LEPs remain fit for purpose and have the capability to access future funding. This would also facilitate the provision of advice and best practice between LEPs and the Department. (Paragraph 55)

LEPs should have a significant impact on their local community, indeed they would not be operating successfully if they did not. We therefore recommend that LEPs develop a set of benchmarks, relevant to their local economies, against which communities can measure their success. These benchmarks should be monitored by the Government and published in a form which is easily accessible to the local communities. (Paragraph 58)

Although LEPs receive public money from central government, we believe that it is right that they are free to react to local issues. In fact, that is the premise upon which LEPs have been set up. However this must not be an excuse for an excessively handsoff approach from Government. Value for money should be monitored and proven. We

2 Local Enterprise Partnerships: Interim Government Response

recommend that the Department takes on a more active monitoring of LEPs and takes opportunities (such as future funding bids and periodical reviews) to ensure that value for money is being achieved. This scrutiny should be proportionate to the scale of money involved and we further recommend that the National Audit Office monitors this aspect of public expenditure. (Paragraph 63)

There is a balance to be found between the accountability of LEPs to public and private bodies. From the evidence received, it appears that this balance is generally being met, but communication between stakeholders can always be improved. We therefore recommend that every LEP needs to demonstrate a commitment to engagement with all of its stakeholders. We have heard examples of good practice and believe that this should be led by LEPs themselves. Transparency is key, especially when private groups and individuals have invested money into LEPs. Accountability is best achieved through excellent communication, transparency and lucidity. (Paragraph 66)

Government believes that to date, its approach to LEP progress monitoring has been proportionate and does not accept the recommendation that constant monitoring of LEPs is essential.

The Committee rightly recognises that it is for LEPs to set their own objectives and priorities. Government believes that LEP accountability is primarily to their local community. The Budget response to the Heseltine Review1, sets out in detail below Government’s view of how accountability, including for financial propriety and value for money should be delivered and how it can be strengthened through further devolution:

Para 2.37. Devolution of economic leadership and growth funding to local leaders offers an important opportunity to strengthen local democratic and financial accountability.

Para 2.39. Governance must be robust, proportionate and transparent, and should draw on the recommendations in the Department for Communities and Local Government (DCLG) report Accountability: Adapting to decentralisation. Departmental accounting officers are responsible for assuring Parliament that local spending financed by government grants meets high standards, including delivering value for money. To do this there must be a robust local accountability system in place, with local Section 151 officers and democratically elected councillors responsible for ensuring that public money is managed with propriety and regularity, and value for money.

Para 2.40. The Government will need assurance that taxpayers’ money is being spent well. This is why negotiation on the strategic plan will be iterative, and the decision on both amount and flexibilities that each area will receive will be bespoke. Specifically, where places have not yet made the transition to effective governance and joint working across the LEP area, there will be central controls on how the Single Local Growth Fund can be spent, based on the strategic plan and discussion process described above, and a greater emphasis on central monitoring and evaluation.

1 Government Response to the Heseltine Review, Cm 8587, March 2013, pp46-47

Local Enterprise Partnerships: Interim Government Response 3

Government will provide further guidance for LEPs on this after the Spending Round on the development of their strategic plans; this will include requirements for monitoring and evaluation as LEPs take the strategic lead on the Single Local Growth Fund.

LEP Resources and Funding

We welcome the fact that Government has agreed to provide core funding to LEPs for the next two financial years. However, we are concerned that the timescale is too short to allow LEPs to make longer-term investment. We therefore recommend that the Government commits to core funding for LEPs and as a priority sets the level of that funding for the five years following 2015. In the wider context, a consensus on long-term investment should be developed across the political parties to deliver certainty and confidence. (Paragraph 20)

We will publish a full response to this recommendation after the June Spending Round.

We are not convinced by the Minister’s argument that that it is “too complicated” to assess the 39 LEPs individually as regards to their funding requirements. A one-size-fits-all approach is misguided because different LEPs face very different investment barriers. When planning future core funding the Government should consider allocation on a case-by-case basis to ensure the most efficient use of public funds. (Paragraph 21)

The requirement to ‘cash-match’ public funding has, in some cases, led to an overreliance on Local Authorities as LEPs struggle to find other willing investors. We recommend that in future funding rounds, the Government considers individual LEP’s funding arrangements to assess whether cash-matching requirements are appropriate. In this respect it should take into account the local economy, local government influence and the track record of cash-matching in the area. (Paragraph 25)

As the Committee report concludes, Government has responded positively to needs of LEPs for funding for its core activities. A core offer of £250 k per LEP for each of the two years 2013/14 and 2014/15, matched and in some cases exceeded by local partnership resources is designed to support core functions such as Chair and Board support and to enable the recruitment of some dedicated executive resource. These are activities which are common to all LEPs. This approach also responds to earlier feedback from LEPs that bidding for individual sums of start-up and capacity funding had been resource-intensive and burdensome.

The requirement for matched funding from local partners is regarded as important in securing a balance between central government funding and local partnership buy-in. In implementing this requirement, we have included as eligible match, private sector Board members’ time, contribution on specific projects and priorities as well as LA resources which are fully at the disposal of the LEP. In implementing the second year of core matched funding we will be asking LEPs to report on the matched resources which have been available during the first year.

4 Local Enterprise Partnerships: Interim Government Response

We support Lord Heseltine’s recommendation for a single funding pot and we welcome the government’s acceptance of it. However, greater detail is needed on how the various funding streams will be brought together. We will expect the Department to set out these details in its response to our Report. (Paragraph 22)

The Government accepts this recommendation. Details of the Single Local Growth Fund will be set out in the Spending Round to be announced by the Chancellor on 26 June. Following the Spending Round announcement, Government will also publish guidance for LEPs on Local Growth Deals, The Single Local Growth Fund and the requirement for local economic strategies.

Revenue and finance raising powers for LEPs and sharing good practice

The introduction of revenue-raising powers has the potential to damage the reputation and standing of LEPs in their local communities by transforming them into an unpopular levy raising body with no democratic legitimacy. We do not, therefore, recommend any formal revenue raising powers be granted to LEPs. However, LEPs and interested parties need to be incentivised to be innovative in attracting investment, for example with LEPs being able to raise their own finance.

We have heard from witnesses and experts of specific examples of such innovation and recommend that the Government highlights best practice where it sees good marketing, promotion and innovation. (Paragraph 28)

Government agrees LEPs should share best practice and supports this through the facilitation of BIS Local who lead BIS’s relationship with LEPs. The LEP Network also has a role to play in communicating LEP initiatives across the network.

LEPs and Government

LEPs remain unsure of where responsibility for their work lies in Central Government. We conclude that this is a clear result of the fact that responsibility for LEPs is shared between the Department for Business Innovation and Skills and the Department for Communities and Local Government. The Government policy is to assign a named officer to be the contact for each LEP—either from BIS or DCLG. This is confusing and inconsistent. We believe that a single lead department is needed. We therefore recommend that the Government appoints a single Minister, based in the Department of Business, Innovation and Skills, who has responsibility and accountability for LEPs. (Paragraph 34)

We also recommend that all LEP contact officers are based in the BIS Department, either through staff transfer or by inter-Departmental secondment. In addition to their responsibilities to LEPs, contact officers should be tasked with facilitating all Government Departments’ support for LEPs. (Paragraph 35)

Government does not support the recommendation for a single lead Minister with accountability for LEPs. This would put at risk the benefits of having joint ministerial responsibility and commitment to local growth with a range of Departments, reflecting the

Local Enterprise Partnerships: Interim Government Response 5

reality that the drivers of local growth include among other things, transport, infrastructure, energy, planning, skills, innovation and access to finance.

To further strengthen the commitment to local growth across Government, the Deputy Prime Minister (DPM) Nick Clegg has announced the new creation of a new Cabinet committee—the Local Growth Committee. The Local Growth Committee will bring together the Secretaries of State from all the key economic departments, bringing together the ministerial groups previously chaired by the DPM on the Regional Growth Fund (RGF) and City Deals. It will provide oversight across the local growth agenda to drive jobs and growth across England.

It will include consideration of issues such as the implementation of the 1st wave of City Deals, signing off the 2nd wave of City Deals and allocation of RGF money. It is also likely to discuss the design and implementation of the Single Local Growth Fund and look at cases where infrastructure policy could impact upon particular localities.

The DPM will chair the committee with Chancellor George Osborne as deputy chair. Other members will include Vince Cable, Michael Gove, Eric Pickles, Ed Davey, Patrick McLoughlin and Danny Alexander. The Committee will meet on ad-hoc basis but intends to meet for the first time before the summer recess.

At local level we recognise that that Government’s interface with LEPs must be expertly managed, to secure joined up responses to LEP issues. Government has accepted Lord Heseltine’s recommendation for Local Growth Teams to enhance and mobilise support from across departments in support of LEP growth priorities, this builds on the success of BIS Local in providing effective relationships between LEP and Government. Each LEP also now has a nominated Senior Whitehall Sponsors from across the economic departments , supported by BIS Local, Sponsors engage with their LEPs at a strategic level and provide both challenge and support for the Chair and Board.

LEPs and Board Membership

The evidence supports the view that LEP boards should properly reflect the local area. However, we note that the balance between board size (manageability) and optimal representation is not always easy to achieve. While Government guidelines go some way in outlining expectations, LEPs should ensure that the interests of the following are represented:

• Small or medium enterprises;

• Large businesses;

• Local employees (for example a Union);

• Local government; and

• The education sector (see next recommendation).

6 Local Enterprise Partnerships: Interim Government Response

We have heard that LEPs can struggle to find representatives from local businesses, particularly small and medium enterprises. To achieve this Chambers of Commerce, small business organisations and trade organisations could be actively targeted for representation on LEP boards. (Paragraph 49)

This is primarily a recommendation for LEPs to pursue. It is up to LEPs who is on their boards and Government encourages effective involvement of stakeholders. This may be through the main board or sub-groups looking at specific policy areas.

A real strength of the LEP model has been its ability to attract strong private sector leadership and there has consistently been a high quality field of applicants for Board appointments.

The business voice, including that of small business, is of key importance and LEPs have developed strong SME engagement through a range of mechanisms. In many cases, members of the local FSB and local Chambers of Commerce are on LEP Boards.

Government has specifically supported wider business engagement through capacity and start-up funding—ongoing core funding will also help LEPs continue to do this.

LEPs and Skills

We believe that skills should be a core priority. While we acknowledge that many LEPs have got the balance right, and note the government guidelines on the subject, we have heard that some LEPs need to refocus. We therefore recommend that LEPs be required to demonstrate their levels of engagement with local education, in particular with skills and apprenticeship providers, FE colleges and schools. (Paragraph 50)

The Government accepts this recommendation.

It is up to LEPs to determine the priorities for their areas. Some skills elements will be included in the SLGF and LEPs will have to provide details of how they intend to deliver their strategic plans.

The Government is committed to putting control over the skills system in the hands of employers and learners and ensuring that the skills system is responsive to the skills needs of local communities to support growth and jobs. We have put £340m directly in the hands of employers through the Employer Ownership of Skills Pilot and will support demand from learners aged 24+ through Advanced Learner Loans.

In response to Lord Heseltine’s report, the Government stated that a skills system that is responsive to local needs can help drive economic growth. To ensure that local businesses can shape the pipeline of talent emerging from local further education (FE) institutions, at Autumn Statement 2012, the Government agreed that LEPs would have a new strategic influence over skills policy in accordance with Lord Heseltine’s analysis. LEPs will be responsible for setting local skills strategies and will work with the FE providers to agree how those priorities will be delivered. LEPs have a number of levers to strengthen their engagement with providers—for example Chartered status for FE colleges is now dependent upon having taken into account the skills priorities of local LEPs. The Government is reforming the delivery landscape so that employers have direct influence

Local Enterprise Partnerships: Interim Government Response 7

over qualifications and learning programmes and by ensuring that businesses and LEPs are represented strongly on college governing bodies.

LEPs and the Local Economy

We recommend that the Department and the Minister gather the information required to assess both how well LEPs match current functional economic market areas and also the impact of having overlapping LEPs. It should do this as a matter of urgency. (Paragraph 41)

Government upholds the principle that the determination of LEP boundaries rests with local partnerships themselves. The Budget response to the Heseltine Review states that:

Para 2.71 In a small number of cases since their inception, LEPs have amended their original boundaries. The Government will not stand in their way if, in the light of experience and their enhanced role, LEPs want to make further changes, subject to support from business, from civic leaders and an assessment that this represents a significant functional economic area.2

Business and civic leaders are best placed to understand how their local labour markets and their economies work in practice and where there are important linkages that cross local authority and other LEP boundaries. This approach to LEP boundaries has resulted in a number of overlaps and varying scales of LEP areas; this reflects economic reality. LEPs have developed significant flexibility and innovation in partnership and collaborative working. Where there are overlaps in geography or where an economic opportunity spans more than one LEP area, pragmatic solutions have been agreed which work on the ground.

2 Government Response to the Heseltine Review, Cm 8587, March 2013, p.51

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