A strong local economy is the bedrock of a thriving community locally and a robust and balanced economy nationally. Recent research has shown that there is a strong correlation between local SME growth and regional economic growth. With the abolition of RDAs, there is an opportunity for local authorities and Local Enterprise Partnerships to play a central role in the rebalancing of the economy, locally and sub-nationally.
We focus here on three key issues:
- implementing local economic development;
- improving skills; and
- growing small and medium size enterprises.
Local economic development
National government has a strategic role in identifying sectors of national importance and driving them from the centre, via research and innovation funding. However, there needs to be explicit connections between national and sub-national economic development. The dismantling of the RDAs could, given the right conditions, lead to strong sub-national private sector-led growth. This opportunity must not be wasted. Local authorities, LEPs and partnerships between these are best placed to identify and drive growth locally.
In particular, local authorities and LEPs should assess local economic performance; the sectors where strong private sector growth can emerge with appropriate support for innovative SMEs and the skills base. The LEP bidding process has shown a strong appetite for local areas to take control of funding and powers for innovation, business support and sector development. Similarly, the patchwork quilt of skills funding and agencies can be radically simplified and made more productive via a repatriation to local authorities and LEPs.
The balance between national strategic priorities and local economic growth, together with the communication and collaboration between these two areas, will be central to a successful rebalancing of the economy towards greater private sector growth, particularly outside the greater South East. Local Enterprise Partnerships are the main tool for achieving this and they will be a central test of genuine localism.
There must be a genuine debate between LEPs and the Treasury/BIS about where economic and sector development powers and functions are best deployed. It will not be sufficient for most RDA powers to be taken by central government. Local areas have the best connections with most businesses that are below the multi-national and national level, and the strongest and most sustainable regional economic growth comes from SMEs.
There should be no gap between national and sub-national priorities. Too often in the past there was a disconnect between what were the priority growth sectors nationally, and what was happening on the ground. Whilst it is right for government to set out a few priority sectors, it must build more on what local areas are saying about their potential for growth. There must be an explicit connection and dialogue between these two levels.
LEPs should be driven by local partners pooling staff, resources and assets. It is assumed that LEPs will be resourced by LEP partners, in the form of secondments and in-kind contributions. The is a strong case for LEPs to receive RGF funds but only where there is private sector support.
Given the aspiration for private businesses to drive LEPs, they must be incentivised to participate in and add value to LEPs, with similar incentives, not necessarily monetary, being offered to public LEP partners.
The abolition of RDAs, whilst giving local authorities greater freedom and scope, will also take away support and seed funding for regeneration projects. Criteria for any LEP funding or their access to any other regeneration funds, should be based on proven partnership. Only those LEPs which have already pooled priorities, resources and assets (including from the private sector) should be able to access the Regional Growth Fund.
Mutuals and social enterprises also have a key part to play in innovation and growth, not merely in reducing the cost of the state. Mutuals are well placed to take a lead role in delivering regeneration projects, especially in building and delivering collaborations between LEPs. Ensuring that there is a light touch legislative and support regime available for such enterprises to deliver will be central to achieving this aim.
Skills
Recent analysis anticipates that employment will remain stable in the coming months but that the medium-term employment outlook is likely to be weaker than the Office for Budget Responsibility (OBR) expectation of employment increasing next year. Further rises in unemployment in the next two years remain a distinct possibility as private sector recovery is offset by the some 600,000 public sector job losses over the next five years.
Ensuring that we have a workforce equipped with the skills that employers need employers is vital for economic recovery. Research12 indicates that while skills shortages are relatively small, skill gaps are more common and impact on about one in five employers. Increasing the number of higher skilled people only makes sense if the jobs are available for them to fill and employers are able to make use of these skills. The real cause for concern is for those with low or no qualifications and those who are unemployed or inactive. Those not in work are likely to be at both ends of the age spectrum, particularly the young; they are likely to be low skilled; they are more likely to have a disability; and they are more likely to be from an ethnic minority group.
The scale of the challenge for people and communities across the UK is truly daunting, especially as the full impact of public sector expenditure cuts take hold and employers across all sectors reign back spending on training.
It is therefore essential that:
- Public policy must recognise that everyone (employers, individuals, trades unions, communities and Government) has a role to play. Solutions must developed in conjunction with employers, particularly SMEs, so that they have talent pipelines in place to support future growth.
- New and innovative approaches to skills development are adopted as we strive to achieve more for less.
- We recognise that one size does not fit all. Regional variations across the UK are significant and engagement at a community level is vital. People have different learning preferences and designing solutions around their needs is vital if investment is to have any impact.
- We remove as much bureaucracy, jargon and management-speak as possible. Training must be aspirational and inspire action. How will training improve the bottom line for my business? How will it create employment opportunities for me and improve my life chances?
We urgently focus on those with low or no qualifications. Getting this right will be vital to our economic recovery.
Supporting small and medium sized businesses
There is remarkable political consensus on the importance of the SME sector to our economic recovery. What is not clear is how they will be supported and where the resources to fund such support will come from.
The SME sector in the UK has been badly hit by the recent recession. but it is characterised by resilience and optimism. A recent report highlighted:
- Nationally 48 % of small businesses say turnover is down with nearly a quarter seeing a dip of more than 10%;
- 61% are confident about their business prospects for the coming year;
- Word of mouth plays a crucial role: 47% of respondents have approached peers and 32% choose friends and family before their banks (29%).
- External support is still critical; 43% of respondents want more support around access to finance, 39% ask for more access to legal and regulatory advice and 33% request more advice about growing their business.
There is a debate on bank support for SMEs. The British Bankers’ Association (BBA) say that banks are supporting SMEs if they have a robust business plan and can show how any loan will be repaid. They point out that government and regulators send contradictory signals about lending and increasing their capital. The Small Business Federation (SBF) say that banks set onerous conditions often charging significantly above the base rate. and demanding excessive collateral. Small businesses are saving more than they are borrowing: the SME sector has about £56bn on deposit as savings but it is only borrowing about £45bn. This clearly needs to be reversed so businesses can expand.
There is broad agreement that we need to support SMEs as we navigate through these troubled economic waters. Of course, if you take out a loan, you need to be able to repay it. But if you present the owner of a small business, already under extraordinary pressure, with too many hoops or unreasonable conditions they will walk away.
The ‘Task Force’ recently established by the Banks to review their support for business is currently looking at a number of key issues:
- the price of lending and demand for loans;
- helping banks obtain finance through securitisation;
- government-backed lending schemes for businesses;
- other ways of backing businesses such as through trade finance.
However, it will not report until September 2011 at the earliest. Given that the credit crunch started some three years ago, many feel that this delay is unacceptable.
Existing SME support is viewed as fragmented, difficult to access and cloaked in bureaucracy. There is also the view that it is targeted at those best able to navigate the system rather than those with true potential. As with other aspects of government support, there is a need for simplification and targeting to where support will have the most impact.
With many people facing redundancy for the first time, DWP and its agencies (most notably Job Centre Plus) need to tailor their services identify budding entrepreneurs so that they can be taken out of the mainstream process and provided with the necessary support to realise their business ambition. The creation of business mentoring programmes and the provision of bespoke business, financial, sales and marketing planning would ensure that emerging small businesses get the necessary support to build their businesses on the strongest possible foundations.
Framing a plan of action
This is one of the few areas where action by government will be critical. it will need to reshape its national and sectoral policies and programmes: to mesh with the work of the Local Enterprise Partnerships: to recognise the specific needs of SMEs and use simple ways of responding; to enable local solutions on mentoring support and guidance; to encourage and support those with business ideas and potential to bringing them to life; and to complete the banking Task Force very quickly.
Actions on the economy
Tags: Economic, Economy, Government, Local Authorities, RegenerationNational priorities for growth need to be closely linked to local priorities
Tailor support to SMEs and complete reviews quickly
Ensure that skills are enhanced through simple processes and specifically help budding entrepreneurs
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