Cable’s folly conceals 80 per cent funding cut to regions

This afternoon the government confirmed the first trickle of successful Local Enterprise Partnerships (LEPs), the bodies designed to replace the eight regional development agencies in England.

In a much anticipated white paper entitled ‘Local growth: realising every place’s potential’, ministers confirmed that just 24 out of a total of 62 bids they received – 39 per cent – were fit to go forward. Little wonder given many submissions were cobbled together during the summer to meet the government’s truncated consultation deadline.

An effort CBI director-general, Richard Lambert, described as “a shambles” with bids of a “very odd shape and size” being put forward for consideration.

The immediate effect of today’s announcement is to create two-tier approach to regeneration with areas that now have an LEP able to steal a march and submit bids to the new Regional Growth Fund (which is now open for business), while areas without a signed-off LEP need to go back to the drawing board and resubmit proposals to the department for business.

Abolishing regional development agencies, which secured £4.50 worth of investment for every public pound spent, with anaemic, budgetless LEPs is a pointless piece of economic vandalism. The utter lack of support among business leaders, local authorities and other players in the regions has been deafening. LEPs are a solution no-one wants.

To compound the problem, Vince Cable admitted on Tuesday there will be no government core funding for LEPs. They will have to rely on local authorities and businesses to finance their efforts to stimulate greater private sector growth.

Exactly how hard-pressed local authorities will cover this additional burden is not answered. And why on earth some businesses will elect to pay for the upkeep of their local LEP when others do not is utterly baffling. Is the plan to siphon-off business rates to pay for LEPs? The White Paper is “looking at proposals for local authorities to keep the business rates they collect locally, reducing central redistribution…” so that may be on the cards.

Meanwhile, as Labour MP Adrian Bailey, chairman of the BIS committee, pointed out the other day:

“The most disadvantaged regions are those with the most public sector employment…”

So the challenge of stimulating greater private sector activity will fall hardest on those areas with the greatest economic need – and, in all likelihood, the weakest private sector to begin with.

The ministerial magic bullet to these seemingly intractable questions is the much-heralded Regional Growth Fund. This pot is designed to help create “long term private sector led economic growth and employment”. The amount on offer has been beefed up from £1 billion over two years, to £1.4 billion. But it was revealed last week that this sum will now cover three years. There are no promises of funding after 2013/14.

This means that £1.4bn spread over three years will see, on average, just £467million a year available for English regional economic development – down from £2.3 billion spent annually by RDAs. A devastating 80% drop-off in funding.

On average, the eight RDAs each spend £288 million a year. If the RGF pot was spread evenly across the eight English regions, there would be just £58 million available in each region per year. Of course, the weighting depends on the criteria Michael Heseltine, the new chairman of the panel overseeing RGF bids, uses to allocate its limited resources. In some regions, the fall-off will be even more catastrophic.

Lord Heseltine sidestepped a question on the sheer scale of the cuts to regional funding this morning on the BBC’s Today programme. He grandly responded that it was “yesterday’s language” to concentrate on how much money there would be for the new LEPs. But no-one is fooled by the infamous Heseltine bluster. “Money will matter”, according to Alexander Ehmann, head of parliamentary affairs at the Institute of Directors.

Ehman said:

“If they don’t have this, they’ll be little more than a toothless talking shop.”

The sheer disdain ministers have for regional development agencies and their breezy lack of concern for regional economies also risks creating a “brain drain” of experienced regeneration professionals. The former chief executive of Yorkshire Forward, Tom Riordan, made this point the other day. Apposite, given his well-regarded former neighbour, the chief executive of the North West Development Agency, Steven Broomhead, quit last week. This potential exodus will hamper efforts to ensure the “orderly transition” from RDAs to LEPs.

In any event, the transfer is not a like-for-like swap. LEPs are pale, anemic imitations of RDAs. They lose their budgets and control of key economic levers such as inward investment and sector leadership which will be centralized in BIS; while responsibility for leading economic development gets ‘localised’. It is like confiscating tanks and guns from an army and suggesting they use harsh language to fight a battle instead.

Loss of control over functions like inward investment will mean it becomes impossible for regions to market themselves internationally and key decisions about whether a factory ends up in the north-east or the south-east will be influenced by civil servants sat in London. Back to the 1980s.

But we should not be surprised by the dilettante tinkering of the coalition’s generals. Their lack of regard for the importance of regional policy was highlighted in Vince Cable’s speech last week to the CBI. Not a single word about the regions or LEPs.

Last month, we described the government’s approach to regional economic development as “a dog’s breakfast”. Those congealed gristly lumps do not look any more appetising after today’s announcement.