House of Commons - Trade and Industry

Select Committee on Trade and Industry Thirteenth Report

II. STRUCTURES

Economic development organisations in England

GOVERNMENT OFFICES

4. Government Offices (GOs) were set up in 1994 to co-ordinate the work of some central government departments in the regions. The GO for the North East (GO-NE) for example, described its role as "the voice of central Government in the region".[3] GOs are assisted centrally by a Regional Co-ordination Unit, which assesses the local impact of proposed regional initiatives. The functions of GOs have broadened in the past two years. A recent PIU report, Reaching Out - the role of central government at regional and local level, emphasised the role of GOs in delivering joined up government and co-ordinating policy. It recommended that they should have "a strongly enhanced role in supporting and evaluating local performance on strategic and cross-cutting issues".[4] Government Offices also control the expenditure of large amounts of money, including Regional Selective Assistance (RSA). They have a role in information gathering for Whitehall departments. As we saw in our inquiry into Vehicle Manufacturing in the UK,[5] GOs also provide the essential link between local and regional initiatives taken in response to a crisis, and the steps being taken centrally.

5. GOs seem unsure whether they are an outpost of Whitehall in the region or a representative of the region to Whitehall. There is a deliberate policy of overcoming departmental divisions at GO level. Government Office South West (GOSW) told us that they try to maintain a "generalist" image in the region, but work within defined departmental structures to Whitehall. It was our impression that the functional organisation of the Offices continues to reflect departmental divisions.

REGIONAL DEVELOPMENT AGENCIES

Formation

6. Regional Development Agencies were set up the by Regional Development Agencies Act of 1998. They have been fully operational since April 1999. There are nine RDAs in England. The statutory function of an RDA is:

(a) to further the economic development and regeneration of its area;

(b) to promote business efficiency, investment and competitiveness in its area;

(d) to enhance development and application of skills relevant to employment in its area; and

The RDAs were formed from the existing English Partnerships regions. There is still some debate about their boundaries. Departments, including MAFF and DfEE, have different regional boundaries. The PIU report urged these departments to consider "how the existing territorial boundaries of field staff might better reflect GO regional boundaries."[7]

Regional identity

7. The three regions we visited were quite different in character. The North East is by and large a coherent region with a strong regional identity. This produced higher initial expectations of the RDA than could, at least initially, be met. The East Midlands was formed by adding Lincolnshire, Northamptonshire and Rutland to the three core counties of Derbyshire, Leicestershire and Nottinghamshire. It is in some ways an awkward mixture of town and country; and not politically united. It has achieved some local credibility through its role in balancing the competing claims of the urban, rural and coalfield parts of the region for European structural funds allocations, and in assisting in the emergence of regional planning guidance. The South West region, although possessing clearer geographical boundaries, also suffers from identity problems. Unreliable, and in some cases non-existent, rail and ineffective road links create an understandable reluctance on the part of those in, for example, Dorset to look towards Plymouth or Exeter for regional leadership. We detected few signs of an inclusive regional identity. An RDA which can be seen to produce the goods for all its constituent parts, in terms of financial and other benefits, may thereby be able to establish a viable identity.

Strategies

8. RDAs are responsible for creating a "regional economic strategy" for the next ten years. We have seen, and been briefed on, the regional economic strategies in the three English regions we visited. They have been the outcome of a consultative process involving a variety of regional partners; in itself the consultation may have had a positive effect. Several are admirably focussed on specific areas where the RDA thinks it can make a difference. They provide a ready-made regional interpretation of national policies for the regional and local arms of new national organisations, in particular the Small Business Service and the Learning and Skills Councils.

9. RDA strategies tend to be broadly aspirational. The British Chamber of Commerce expressed reservations about the realism of these plans:

10. RDAs have not had to make hard choices, for example between regional airports or ports competing for funds or support. They have no mandate to decide between competing infrastructure projects or to prioritise road schemes; or to put the interests of one 'cluster' above another. They have limited discretionary funding and management of grant programmes. As the ambit of their responsibilities grows, so will the requirement for an executive role.

Funding

11. The 2000 Spending Review announced an increase in funding for RDAs, from £1.2 billion in 2000-01 to £1.45 billion in 2001-02 and over £1.7 billion in 2003-04. Of this funding, only a small proportion is discretionary. From April 2002, funding will be from a Single Budget with contributions from DETR, DTI and DfEE. The Government announced in the 2001 Budget Statement that —

We had heard some criticism of the inflexibility in the existing funding arrangements, and of the fixed division between capital and revenue expenditure.

DTI funding

12. DTI proposed to fund RDAs to the tune of £16.9 million in 2000-01. £10 million of this was for inward investment, £4 million for the Competitiveness Development Fund, and £2.7 million for the Regional Supply Network. Funding of RDAs under a new Regional Innovation Fund is to start shortly. DTI's funding of local broadband schemes is also to be channelled through RDAs.

Structure and Relations

13. We found relations between the Government Offices and RDAs to be generally good despite the potential for tensions. GOs are committed to making RDAs work. Boundaries between the bodies can be blurred at times. Where there is shared responsibility, as, for example, in the promotion of inward investment, those within the organisations seemed to be aware of the system. Users of these services may be less clear. The PIU report identified this as a weakness:

Complexity is not necessarily a weakness; but it can hinder effective co-operation and communication. Confusion among users remains the greatest danger, especially during a time of change-over. It is probable that lines will be more clearly drawn as the various bodies become accustomed to their roles. We heard suggestions that it would be useful for one body to be clearly designated as a "lead" agency where there are shared responsibility.

Sub-regions

14. Regions comprise a number of sub-regions, many on county lines. Some of these sub-regions are defined 'areas' of long standing. Others are new, and are beginning to define their identities. Some RDAs have ideas for eventually devolving some of their funding to sub-regions. We heard accounts of how RDAs had helped bring together the constituent parts of some sub-regions into constructive economic partnerships. The Small Business Service (through Business Links) and the Learning and Skills Councils are also based around sub-regional or county-level units.

Assemblies

15. RDAs are notionally "accountable" to the Regional "Chamber", generally referred to as an Assembly, typically composed of a mixture of elected members from local authorities, representatives nominated by the social partners, and others. A Regional Assembly expects to be consulted on strategy. It has no say over business plans or budgets. In March 2001 the government announced £5 million funding for the Regional Chambers to enhance their scrutiny role.[11] We did not pursue the question of plans for the evolution of Regional Assemblies. Enthusiasm among the business community for more active assemblies evidently varies from one region to another.

Small Business Service

16. The Business Link network was set up in 1993 as a network of 80 "one-stop shops" for small businesses. By the late 1990s, the Government recognised that the quality of service provision varied across the network, and decided to create a central agency, roughly modelled on the US Small Business Administration. The Small Business Service (SBS) was launched in April 2000 to provide a single Government organisation to help and represent small firms. It has assumed responsibility for the administration of several DTI-led schemes including SMART and TCS.

17. The SBS took over in the regions from Business Link in April 2001: Business Link (BL) will remain the brand name. There has been a major shake-out of the BL network. The new structure is based on a contract, with each BL run privately and offering "franchised" services overseen by the SBS. In the North East, for example, there will be four new BLs: one a company replacing the old BL; another a merger of two existing BLs; one a revamped version of an existing BL; and the fourth an old BL operation that has been taken over by a private operator. The process has been turbulent in some areas.

18. The SBS has a brief to reach out to micro businesses.[12] In the last period for which figures are available, just over 50% of businesses assisted by the SBS fell into this category. However, in evidence, David Irwin, Chief Executive of the SBS, admitted to us that penetration of the microbusiness sector is far lower than that of others:

The SBS hopes to see the number of microbusinesses helped rise in line with the aim outlined by Hâf Merrifield of the SBS:

19. The SBS regional offices will, we understand, all be co-located with RDAs. This reflects the desire on both sides for a close working relationship. As David Irwin pointed out:

20. There are general hopes that the refreshed network will have a clearer customer focus, and will benefit from its wider remit and the reduced number of outlets. We heard some criticism of the absence of a clear national strategy for business support, the bureaucracy of the new contract regime, and the loss of commercial flexibility. The British Chambers of Commerce remarked to us that Chambers were surprised:

The SBS told us that they had not realised the length of time that would be required to negotiate the Business Link contracts, nor the complexity of the discussion. As the organisations they were working with varied in size and experience, and often required assistance from the SBS during the negotiation period, it had been a difficult time. David Irwin admitted:

21. The new service will have to show improvement on its predecessor in reaching businesses run by those in the ethnic minorities and rural businesses. Some of those we spoke to with experience of Business Links in the past remain sceptical. Peter Waller of the SBS told us when visiting RDAs he had found:

Developing the local network into a stronger, more coherent collection of agencies may prove effective at improving targeted schemes.

Learning and Skills Councils

22. In 1999 the Government announced in its White Paper Learning to Succeed the creation of a national network of Learning and Skills Councils (LSCs), to take over the training tasks of the existing Training and Enterprise Councils (TECs). Their areas of responsibility match those of Business Links. They did not come into full operation until April 2001; we were not therefore able to see them at work during our visits. The process of splitting up TECs who had run joint services with Business Links has left some casualties, as we heard on our visit to Plymouth. But RDAs seemed broadly confident on the future performance of LSCs from what they had seen so far.

23. The British Chambers of Commerce were concerned about the loss of the TECs role "in engaging local businesses in wider economic development and regeneration".[19] They comment "RDAs have been given very modest additional funding to seek to cover this gap, but one of our Chambers cites that it amounts to less than 20% of the funding the TECs were ploughing into local economic development and regeneration."[20] It remains to be seen if the loss of enterprise funding hitherto available from TECs will be made good from other sources. The BCC were also critical of the low level of private sector involvement in LSCs.

British Trade International

24. British Trade International (BTI) was set up in 1999 to take lead responsibility in Government for trade development and promotion in England. In May 2000 it became responsible for inward investment. In Scotland, Scottish Enterprise is responsible for both Scottish Trade International and Locate in Scotland, both of which cover the whole of Scotland. There are BTI offices in each region which act as "partner" agencies to the RDAs. BTI offices will generally be co-located with RDAs. On 6 June 2000, jointly with the Foreign Affairs Committee, we heard oral evidence from Sir David Wright. He told us then:

We heard of the pooling by the West and East Midlands Development Agencies of their inward investment efforts, through joint British Midlands offices in Japan and the USA. We have seen at first hand, and reported on, the duplication in the recent past of inward investment efforts overseas by regional agencies and sub-regional agencies.[22] The new structures could ensure that the overall inward investment effort is better co-ordinated. Sadly, we also heard of the continuing desire of some sub-regional and local authorities to pursue their own efforts.

Economic development organisations in Scotland

25. There are a number of differences between the structure of economic development in England and in Scotland. In Scotland, there are two enterprise networks consisting of an overarching body supported by local agencies; and they are responsible for training as well as economic development. The Enterprise and New Towns (Scotland) Act 1990 set up Scottish Enterprise (SEn) and Highland and Islands Enterprise (HIE) as non-departmental public bodies. They were formed from the amalgamation of the Highlands and Islands Development Board, the Scottish Development Agency, and the Training Agency and their responsibilities are split geographically. HIE, however, has an additional social remit which allows it to support projects which enhance the quality of life in the Highlands and Islands, rather than just on the grounds of economic benefit. SEn is supported by a network of 12 Local Enterprise Companies (LECs). The majority of projects, programmes and services funded by SEn and HIE are delivered by LECs. We visited Scottish Enterprise and one of the LECs, Scottish Enterprise Forth Valley at Stirling, during our visit to Scotland.

FUNDING

26. Scottish Enterprise receives the bulk of its funding from the Scottish Executive's Enterprise and Lifelong Learning Department. In 1999-2000 SEn's funding totalled £453m, predominately grant-in-aid, £5m voted loans, and £50m business receipts. SEn itself spent around £93m in 1999-2000, allocated £335m to LECs, with an additional £23m spent on training.[23] Scottish Enterprise Forth Valley explained to us how individual LECs bid in for funding from SEn on an annual basis. This obviously creates problems for long term planning: the issue is under discussion between SEn and the Scottish Executive. Scottish Enterprise Forth Valley had attempted to deal with the problem by generating reserves to be used, if necessary, to finish projects.

RECENT CHANGES

27. The Scottish Enterprise network is going through a number of changes following a series of consultations and inquiries. In September 1999 the Enterprise and Lifelong Learning (ELL) Committee of the Scottish Parliament announced an inquiry into the delivery of local economic development services in Scotland. Following the publication of that Committee's interim conclusions, the Scottish Executive launched a consultation on the future of the Enterprise Networks in February 2000.[24] In the ELL Committee's Report, published in July 2000, they were critical of the existing arrangements.[25] They concluded that:

The Scottish Executive published its response in December 2000 and its first comprehensive statement on the enterprise networks in February 2001. A Smart Successful Scotland, Ambitions for the Enterprise Networks sets out the Minister's aspirations for the network.[27] Scottish Enterprise described their new priorities as: becoming more customer focussed; harnessing e-business; and operating more efficiently. As part of this, the network is undergoing a number of changes, including creating shared resources for services such as marketing, finance and legal services to replace the individual arrangements that grew up around each individual LEC.

LOCAL ENTERPRISE NETWORKS (LECS)

28. LECs were originally set up as private companies, limited by guarantee and run by independent boards of directors. The ELL Committee recommended in their Report that:

From April 2001, they became wholly owned subsidiaries of either SEn or HIE; their staff are in effect employees of SEn or HIE. This, combined with the current changes, has resulted in a number of job losses throughout the network. Whilst in England, there is a move towards commercial delivery of business advice, in Scotland it is moving back into public management. LECs have their own economic development plans, agreed with other partners such as local authorities and with SEn. Scottish Enterprise Forth Valley had a budget of £22.1m in 1999-2000. Of this, £3.3m was spent on administration and marketing;[29] it is expected that this will fall to around £2m when the shared system is in place.

LOCAL ECONOMIC FORUMS

29. The ELL Committee recommended that Local Economic Forums should be introduced to each LEC area to create a simpler, more cohesive structure for local economic development in Scotland.[30] In March 2001, the Scottish Executive published national guidelines for Local Economic Forums. It stated:

The LECs will facilitate the setting up and servicing of the Forums. Each Forum must include representatives of the private sector, local government, the Enterprise Network, tourism agencies and the local learning sector.

SMALL BUSINESS GATEWAY[32]

30. One area of concern highlighted by the ELL Committee was the advice given to SMEs. This reflects English concerns. In July 2000, the Small Business Gateway was launched. Under one brand, it will "encompass all front line services in the SEn area, including Business Shops and Enterprise Trusts".[33] It will also provide information and advice to start-up companies.

3 http://www.go-ne.gov.uk Back

4 Reaching out - the role of central government at regional and local level, Performance and Innovation Unit, published February 2000 (hereafter PIU Report), p34, Conclusion 1 Back

5 Vehicle Manufacturing in the UK, published February 2001, Third Report, Session 2000-01, HC 128 Back

6 Regional Development Agencies Act 1998, 4 (1) Back

7 PIU Report, conclusion 55 Back

8 Ev p 5, para 5.4 Back

9 Budget 2001, HM Treasury, March 2001, HC 279 Back

10 PIU Report p8, para 19 Back

11 HC Deb, 9 March 2001, Col 367W Back

12 This is defined as a business with fewer than ten employees. Back

13 Q27 Back

14 Q27 Back