Category Archives: Economic geography

Where next for LEPs?

Paul Hunter, Head of Research, The Smith Institute

This week saw the launch of a Smith Institute collection of essays, Where Next for LEPs. The report which includes a commentary on a new survey of LEPs, shows there is little appetite for a return of the Regional Development Agencies, despite recognition of their achievements. There now seems to be cross party support for LEPs and city regions. According to Labour’s shadow chief secretary, Rachel Reeves :

“We won’t waste time on a costly reorganisation, we will get on with delivering real improvements and change. The next Labour government will inherit a “patchwork quilt” of regional, sub-regional and local structures of economic governance – uneven and inconsistent, threadbare in some places and multi-layered in others. We are not interested in tearing it up, but in finding ways of strengthening and extending partnerships between businesses, communities, and elected leaders within and across areas.”

Consistency must surely be a good thing, with shifts in structures blamed for the loss  of institutional memory and organisational improvements which can only happen over time. But despite this consensus, if the UK is serious about spreading economic growth more evenly, how far can LEPs go to achieving this? The recent Ernst and Young assessment of investment into the UK highlighted the fall in foreign direct investment in the North and Midlands, in part due to the demise of the RDAs. In terms of jobs and growth all the regions continue to lag behind London and the South East.

The Institute’s report questions the capability of the LEPs to make much difference to the economic divide within and between the regions. LEPs are for the most part invisible to both the public and key stakeholders. The main concerns are:

  • Resources: do LEPs have adequate resources? At the moment LEPs receive relatively little funding and certainly not enough to help rebalance the UK economy.
  • Accountability: If greater resources are to be made available, do LEPs have the right accountability structures? Many are subject to no scrutiny or independent evaluation.
  • Capacity: Are LEPs the right size to fill the void between national and local decision making? And will they end up competing rather than collaborating?

For the time being Labour is content to sign up to a consensus (with a greater focus on city deals and regional banks). With no new money on the table, it remains questionable whether tackling the regional divide will be a priority for Labour, even though it has the most seats in under-performing places. Tensions also remain between consistency and finding a more appropriate geographic scope and scale of agencies (if we deem LEPs too small and too many). If they are to remain, a key question must be whether any government can really make the LEPs work where the Coalition has failed, and, if so, how?

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A new deal for the North

Michael Ward, Research Fellow, The Smith Institute

Public services in the north of England are being stretched to breaking point and another round of efficiency savings won’t improve the situation. We need a new approach and a new way of thinking.

The Coalition’s Office for Budget Responsibility has now established that the 2008/9 recession was deeper and more damaging than had at first been thought. And since the start of the austerity programme in 2010 the economy has flatlined.

This lack of growth is serious for the public sector. With the economy grinding along at a far lower level of activity than had been anticipated, tax revenues are not there to fund existing levels of public services – let alone to cope with increased demand or demographic change.

The coalition originally expected five years of squeeze, followed by a period of recovery. But this time, unlike past recessions, the economy has not bounced back. Austerity is now forecast to continue at least until 2018. As a report from the Smith institute (Public service north: time for a new deal?) pointed out this week, happy days are certainly not here again and particularly so in the North.

Now some services, notably the NHS, have been ‘protected’. The trouble is, logically, if you propose overall cuts, and then protect some services, other policy areas are hit even harder. Thus, the cumulative cuts to the DCLG’s Communities budget – covering, among other things, much of the social housing budget – are forecast to reach 70% by 2018.

In addition, the national tax base is declining. As North Sea Oil production passes its peak, so tax revenues from oil production begin to fall sharply. As environmental taxes begin to change behaviour (for example, as fuel duty encourages manufacturers to develop more fuel-efficient engines), so the yield from these taxes goes down.

Corporation tax rates are increasingly set with reference to tax rates in other jurisdictions, as countries jostle to attract footloose investment.

On top of all this, the local government finance system does not serve the needs of the north well. The tax base – for council tax and business rates alike – is now heavily concentrated in London and the South East. Since 2010, the grant system has become less redistributive.

Grants that used to be targeted on the areas with the highest needs have been ‘rolled in’ to the general grant – and, in turn, some of that general grant has been taken out of the formula to fund the government’s New Homes Bonus – which favours more affluent areas and the South.

All this amounts to a car crash for public services in the North. As Julie Dore, leader of Sheffield City Council’s Leader, said last year: ‘To have another three years of cuts will cause the whole social infrastructure to collapse and services will go.’

So what needs to happen?

  • First, the key redistributive elements of central government support to local government need to be restored, giving poorer communities a fairer share;
  • Second, councils and trade unions need to work together to drive up service productivity. There are no quick fixes – but without this, both jobs and services will go; and
  • Third, service providers and civil society across the North need to work out what the deal is for the future – an alliance for change under the umbrella of ‘Public Services North’.

It is time to face the big questions:

  • As a society, what will we provide through the state, what through the market?
  • What services will be provided by local government, what by central?
  • How will we pay for public services, through taxation or user charges?

These choices will not simply go away after the next general election. Any incoming government will face serious constraints on what it can promise. Neither is there any easy way out for service providers.

This article first appeared in Public Finance