Where next for local growth policy?

Michael Heseltine asked for £12 billion, but got just £2 billion. bisgovuk

Now the dust has settled on the government’s spending review and the publication of long-term infrastructure investment plans, where exactly are we with local growth policy?

The coalition’s approach to local growth has been based on three principles: shifting power to local communities and businesses, increasing confidence to invest, and focused investment on “places of potential growth”. The government has also, to a large degree, simply stopped doing strategic planning while centralising innovation, skills, science, trade and investment.

The abolition of well-funded Regional Development Agencies (RDAs) last year formed part of a concerted move away from regional governance towards “functional economic areas” as the primary targets of local growth policies.

To replace regional agencies, the government created 39 Local Enterprise Partnerships (LEPs). These are voluntary partnerships between local authorities and the private sector, designed to promote economic growth and job creation within their local areas.

Numerous other initiatives have been launched to go along with LEPs: the Regional Growth Fund and Growing Places Fund, eight City Deals and 24 Enterprise Zones. The local partnerships have also received small amounts of funding directly from Whitehall to cover executive and administrative costs. Local authorities – as key partners of LEPs – are critical to creating the conditions to support local businesses and job creation, but faced with a 43% cut in funding some councils are understandably finding it difficult to help drive sustainable growth.

Happy partnerships?

So how is the government expecting these LEPs to promote local growth in practice?

There are 39 LEPs in England, and although each is different, there are similarities between certain partnerships which will shape their success or failure. In particular, some LEPs to date have had minimal resources and capacity at their disposal to boost local growth. Findings from a recent survey of all 39 local partnerships, conducted by Newcastle’ Centre for Urban and Regional Development Studies and University College London, suggested two main challenges:

As the primary vehicles for delivering local growth, LEPs are facing growing expectations. This may crowd out and distort their organic growth as private sector-led, locally-owned, locally-valued and sustainable institutions.

Second, the variability of and competitiveness between local partnerships, stoked in part by the government, could be their “Achilles heel”. With some failing to deliver local growth within a flat-lining national economy, the whole LEP family risks either becomes discredited, or the collectively moving at the pace of the slowest.

The Heseltine pot

The spending review saw the announcement of the new Single Local Growth Fund. In his report on local growth released last year, No Stone Unturned, Michael Heseltine called for a “major rebalancing of responsibilities for economic development between central and local government”, and proposed a growth fund of £12 billion per annum over four years. George Osborne’s creation of a £2 billion annual “single pot” (equivalent to total regional agency budgets in 2009/10 or 4% of the High Speed Rail 2 budget) has left many disappointed.

The local growth fund is clearly not a panacea, but it could make some difference. Its impact will multiply when aligned with EU structural funding - money designated to improve Europe’s poorer regions - and if it levers in additional private investment.

The sense of frustration with the fund lies in the fact that on devolution and decentralisation, the reality has failed to match the government’s rhetoric. The spending review provides more evidence of local areas having to “earn autonomy” to gain the trust of Whitehall.

There is also unease at the hoops local actors have had to jump through to “demonstrate” their ability to manage government resources. The competitive bidding framework used to allocate funding is cumbersome, with the 39 LEPs having to prepare local growth strategies, EU Structural and Investment Fund Strategies and bids to the “Heseltine pot”. The gap between Heseltine’s vision and George Osborne’s reality could halt momentum in certain local areas.

Cluttered landscape

With LEPs, City Deals, Combined Authorities, City Regions, Core Cities, Key Cities, Enterprise Zones and more all part of the growing lexicon of local growth, the landscape is increasingly cluttered.

There is likely to be rationalisation amongst some local partnerships, and a streamlining of the relationships between different players. Reaching consensus among the main political parties would help to cement a more permanent place (post 2015) for LEPs and other sub-regional arrangements.

The initial signs are positive. A period of relative stability, genuine devolution and a mature relationship between central and local government would go some way to improving the next phase of the local growth agenda.