Is Devolution already with us? A briefing paper on the major changes to regional funding since 2010

A paper provided to East Devon Watch by D W Daniel – feel free to reproduce or retransmit unchanged and with attribution:

Executive summary

1. In 2010 the coalition government commenced a major shakeup of regional funding with the ultimate aim of providing a form of English devolution. This briefing paper attempts to summarise the sequence of changes from an East Devon perspective when it comes to detail. It has proved to be a difficult task. The author has failed to find a single source listing, for example, the sums paid to Local Enterprise Partnerships (LEPs). Many sources aggregate data to produce numbers that cannot be cross compared. Even government sources are inconsistent. The LEPs themselves are also an unreliable source, publicising bids but not the outturn, especially if unfavourable. Bearing these caveats in mind the author believes the briefing presents an accurate and comprehensive picture of where we are at the beginning of 2017 in a process that continues to evolve.

2. Across England (it only affects England) LEPs now control an annual budget of £2 billion. They are self-selecting bodies, Chaired by businessmen with businessmen in the majority. Although there may be a few local councillors on the board, they have to be in a minority. As the National Audit Office points out LEPs have no track record for delivery. There appear to be no metrics by which the investment decision they make can be evaluated and no mechanism for scrutiny. Likewise there appears to be no mechanism for publicly accountable scrutiny of any conflict of interest that might arise in the way these funds are distributed. All this has happened below the radar of public perception, even amongst councillors.

Regional Growth Fund and Local Enterprise Partnerships

3. 2010 was the year Deputy Prime Minister, Nick Clegg, introduced a white paper “Local growth: realising every place’s potential. (CM 7961)”, part of the Localism ideal of “handing power to local people”, announcing a £1.4 billion Regional Growth Fund open to bidders who had ambition and a clear vision for growth. The white paper also announced the eventual abolition of Regional Development Agencies and the establishment of the first phase of 24 LEPs to take their place. “The Government wishes to see partnerships which understand their economy and are directly accountable to local people and local businesses.” The ultimate aim was to move towards regional devolution.

4. LEPs have to be chaired by a prominent business leader and at least half of the board members must come from the private sector. LEPs should be based on functional economic areas rather than regions. The initial intention was that LEPs should be self-funding from private enterprise. In the event this did not materialise. In August 2011 the government allocated funds to LEPs from a one-off start-up fund of £5 million and in the 2012 Autumn Statement each LEP was offered support for “capacity building” to enable them to “support the development and delivery of their strategic plan”. Each LEP was offered £125,000 in 2012/13 for “immediate support”. In a 2016 report the NAO says: “The Department provides LEPs with £500,000 in core funding for administrative purposes, subject to LEPs securing £250,000 in match funding from local partners. All LEPs received the same core funding, regardless of size or structure.” Subsequent growth deals include sums for administration.

5. The first phase of 24 LEPs from 62 bids was announced in the 2010 white paper. These included Cornwall and Isles of Scilly LEP and the West of England LEP (Bristol, Bath, North and North East Somerset, and South Gloucester). This decision meant that the South West could never subsequently be considered as an integrated economic region from the point of view of devolution. By end 2012 the government had approved a further 15 LEPs to fill in the gaps so that the whole of England was covered. LEPs vary in differing levels of size, urbanisation, population, and existing infrastructure and it is questionable as to how many could be suitable platforms for full devolution along the lines originally envisaged.

Heart of the South West

6. In July 2012 the Heart of the South West (HOTSW) LEP, held its first meeting though research shows it was actually appointed by the government in June 2011. The HOTSW covers 17 local authorities in Devon and Somerset and the two unitary authorities of Plymouth and Torbay. It became a Community Interest Company (CIC) incorporated at Companies House on 6 Feb 2014. Its bespoke articles of association added clauses, for example, allowing for the removal, in certain circumstances, of the lock on asset transfer, normally fundamental to (CIC). The current (2017) self-selecting board numbers 20. It is chaired by Steve Hindley (Chairman Midas Group, a construction and development company). Of these 20 board members: six are elected local councillors; four have backgrounds in construction, development or property; three are senior members of educational establishments; three are connected to defence and software industries; the remainder have backgrounds in utility, employment and skills consulting, outsourcing and grant distribution. Only four of the 20 are women. Not the sort of mix you would immediately think of as having an understanding, or being representative, of Devon’s rural and seasonal tourist economy and its mix of small businesses. The Devon County Councillor and leader of East Devon District Council (EDDC), Cllr Paul Diviani, joined the board on 13 November 2013. Despite this EDDC councillors, and Devon County Councillors, have been kept in the dark about the workings, expenditure and outcomes, if any, of our LEP.

7. Devon and Somerset are surrounded by two single county LEPs: Cornwall and Dorset; and the metropolitan West of England LEP centred on Bristol and Bath.

8. It was not until another three years had passed that, in September 2015, news of HOTSW began to filter out into general awareness and then only because they published their fully fledged statement of intent to launch (on our behalf) a bid for devolution. Not until then had any minutes been available in the public domain. As we shall see by this time HOTSW had already compiled a fully-fledged strategic plan and submitted it to government. There has been no public consultation at any time.

Single Local Growth Fund

9. In October 2012 Lord Heseltine published a government commissioned report “No Stone Unturned: In Pursuit of Growth”. His main recommendation was to combine all separate funding streams supporting growth into a single funding pot for local areas. This was accepted in the 2013 Spending Review with the creation of a Single Local Growth Fund (SLGF) of £2 billion from existing skills, housing and transport budgets from 2015/16, an additional £5 billion transport funding between 2016/17 and 2020/21 and a pledge to maintain SLGF at a total of at least £2 billion each year through the next Parliament.

10. This money was intended to be administered by LEPs who were then barred from bidding in any further Regional Growth Fund (RGF) deals and in the 2015 Spending Review the RGF was in effect closed leaving the LEPs responsible for the distribution of all growth funding i.e. de facto taking the place of the former Regional Development Agencies. Interesting to note that in April 2013 the then Business Secretary Vince Cable argued (interview with the Northern Echo) that big decisions on funding must be administered from Whitehall on the basis that some LEPs had very small numbers of business people on their boards and were not publicly accountable and unsuited to manage large amounts of public money. See later comments by National Audit Office (NAO) which also points out that LEPs lack any track record of delivery.

LEP Strategic Economic Plans and Growth Deals

11. In July 2013, the Department for Business, Innovation and Skills gave LEPs guidance and set deadline of March 2014 to submit final versions of their Strategic Economic Plans, which would then be assessed by central government. In March 2014, all 39 LEPs submitted Strategic Economic Plans for approval. In July 2014, the government announced details of funding secured by each LEP over the period 2015 – 2021. In January 2015, the government expanded the deals, with LEPs securing a further £1 billion in total investment between 2016 and 2021. As of March 2016, £7.3 billion worth of Growth Deal funding had been allocated to LEPs. Funding is made as a single annual grant payment, made at the start of each financial year to a nominated local authority to act as accountable body. For HOTSW the accounting body is Somerset County Council. Nothing can be found on how scrutiny is to be conducted. LEPs are grouped into three categories of flexibility in how they can spend Growth Deal funding. This categorisation is based on the Department of Communities and Local Government (DCLG)’s judgement of each LEP’s ability to deliver their Growth Deal programmes and the strength of their governance arrangements. LEPs can receive greater flexibility through improving their governance.

12. As a result of a 2014 freedom of information request, the Department for Business, Innovation & Skills (since merged and renamed) published a table listing the amounts awarded to LEP led and delivered programmes and projects in Rounds two, three and four of the RGF (private sector firms could bid independently- see Augusta Westlands below). HOTSW appear to have been singularly unsuccessful in their bidding as they received nothing. (Cornwall and Isles of Scilly LEP received £13M in round two and West of England LEP £39.8M in round two and £25M in round three). Despite this failure HOTSW is now controlling well in excess of £150 million investment fund to 2021.

13. In Oct 2012 Augusta Westland secured a £46 million cash windfall from the RGF, as a private sector bid, to help the company create a new production line for helicopters targeted at the civil aviation market, with matched company funding. This is a good example of the way the RGF operated historically but highlights the potential for future conflicts of interests as the business controlled LEPs assess and distribute future grants. A Director of Augusta Westlands is a HOTSW board member.

14. In July 2014, the Heart of the South West LEP, following submission of its strategic plan, was awarded £103.2 million from the Local Growth Fund over the period 2015-2021; in January 2015 a further £65.2 million of funding was awarded between 2016 and 2021 (these figures exclude any European funding which LEPs also administer). The LEP estimates up to 22,000 jobs could be created, 11,000 homes built and up to £260 million of public and private investment generated as a result of this funding. The bid proposal included £13 million to provide Hinkley C infrastructure and £55 million of pump priming to provide Hinkley housing. A Nuclear Training College was also proposed. The deal agreed also includes £13.7 million loan funding to three developers to accelerate home building at: Frome, Brixham, Exeter and Highbridge.

15. It is difficult to find these projections in the actual growth plan (because it covers a longer period than the funding) – but they do appear in what are called “Factsheets”, supplementary papers associated with the government published growth deals. There are consistent, comparable, “claimed” growth figures for all 39 LEPs for the 2015-2021 period from which one finds:

(a) HOTSW is claiming to be able to generate the fourth highest number of jobs 22,000 (outbid only by Greater Birmingham and Solihull, Dorset and South East LEPs).

(b) HOTSW is also claiming to be able to deliver the fourth highest number of homes 11,000 (outbid only by Hertfordshire, Thames Valley and again South East LEP).

The author is left wondering at what point ambition over reaches itself.

Growing Places Fund

16. As if this was not complex enough there is also the £500 million Growing Places Fund announced on 7 November 2011, extended by £270 million in 2012. This fund was designed to tackle immediate infrastructure investment constraints, with a focus on housing and transport. The allocations to LEPs were made in February 2012, these were calculated using a formula based on population and employed earnings. The June 2012 HOTSW Newsletter indicates a £21.5m fund is available to them. In retrospect this can be considered as a one-off fund.

National Audit Office findings

17. This transformational process has been subject to a series of reviews by the National Audit Office (NAO). The latest NAO progress report on the Regional Growth Fund was published in Feb 2014. The report found more than three-quarters of the fund set up to boost regional economies remained unspent (£2.6bn allocated in Rounds one to four, but only £492m had so far actually reached projects and £425 million was being held by programme intermediaries (of which £10 million was for administration)). The estimate of the average cost per net additional job of bids selected in round four is £52,300. This compares with £30,400 in the first round, £33,500 in the second, and £39,700 in the third, but these differences probably reflect greater realism. Around half of jobs created were covered by just five of the 291 operational schemes. The general conclusion, as with the previous report, was that this expenditure was not optimising value for money.

18. In a report on LEPs published on 23 March 2016 the NAO made this comment on Growth Deals. “The Department’s [DCLG] published guidance set out what they expected to see in LEPs’ strategic economic plans; however, the Department intentionally did not specify the format that these plans should take. They did this to encourage LEPs to decide the process of formulating plans locally, competitively and in a way that would encourage innovation. This resulted in wide variation across the 39 plans in the way information was presented, time periods covered, and the evidence bases they used. Additionally, the Department did not define output metrics until after the plans were approved. LEPs therefore used different definitions to describe the outputs of their planned interventions, such as jobs. The Department’s assessors reported that they found it challenging to assess the bids consistently; this will have made it difficult to identify the plans that represented the best value for money.”

19. On LEPs the same NAO report says that when the Growth Deals were agreed, the Department did not have enough assurance that they had the resources, capacity and capability to do this, and LEPs do not yet have an established track record of delivery. To oversee and deliver Growth Deal projects effectively, LEPs need access to staff with expertise in complex areas such as forecasting, economic modelling, and monitoring and evaluation. Only 5% of LEPs considered the resources available to them to be sufficient to meet the expectations placed on them by government. Additionally, 69% of LEPs reported that they did not have sufficient staff and 28% did not think that they had sufficiently skilled staff.

20. The NAO also found they were unable to obtain information on senior staff remuneration from publicly available accounts for 87% percentage of LEPs. The median number of full-time equivalent staff employed by LEPs is 8.

Conclusion

21. Over the past six years huge changes have taken place with regard to the way central government grants to regions are administered. But this has largely happened below the radar of public perception. Across England LEPs now control an annual budget of £2 billion. Hundreds of millions of pounds worth of local investment funds are now in the hands of our Local Enterprise Partnership, a self-selecting group of big-business(men) (gender specific term deliberate), who appear to be unaccountable to anyone and unrepresentative of the local economy. This has happened irrespective of whether or not any formal devolution has occurred. There appear to be no metrics by which the investment decision they make can be evaluated and no mechanism for scrutiny. Likewise there appears to be no mechanism for publicly accountable scrutiny of any conflict of interest that might arise in the way these funds are distributed. What has happened to democracy?

January 2017

Main References Sources
Relevant Government papers

https://www.gov.uk/government/publications/local-growth-realising-every-places-potential-hc-7961

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209279/PU1524_IUK_new_template.pdf

https://www.gov.uk/government/publications/heart-of-the-south-west-growth-deal

https://www.gov.uk/government/publications/local-enterprise-partnerships-leps-funding-from-the-regional-growth-fund-rgf

Heart of the South West Growth Deal proposal

http://heartofswlep.co.uk/wp-content/uploads/2016/09/Growth-Deal-2015-Heart-of-SW-Final-3-4.pdf

Parliamentary briefing papers on Regional Growth, Growth deals and LEPs:

http://researchbriefings.files.parliament.uk/documents/SN07120/SN07120.pdf

http://researchbriefings.files.parliament.uk/documents/SN05874/SN05874.pdf

http://researchbriefings.files.parliament.uk/documents/SN05651/SN05651.pdf

National Audit Office Reports

https://www.nao.org.uk/wp-content/uploads/2016/03/Local-Enterprise-Partnerships.pdf

https://www.nao.org.uk/wp-content/uploads/2013/12/10285-001-Local-economic-growth.pdf

https://www.nao.org.uk/wp-content/uploads/2015/02/Progress-report-on-the-regional-growth-fund.pdf

Independent Report University of Plymouth

http://www.rtpi.org.uk/media/1733437/rtpi_research_report_leps_economic_planning_and_delivery_south_west_march_14_2016.pdf

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