Vince Cable speech to the Local Government Association

The Business Secretary discusses the drivers of local economic growth.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Dr Vince Cable

Good morning.

I realise that last week’s spending review has generated a lot of questions for you, many of which fall to my colleague Eric Pickles. Let me address the aspects which focus on the economy and on local growth.

It has been an uphill struggle reviving an economy that contracted by more than six per cent in the first fateful year of the financial crisis. Despite interest rates of half a per cent for more than four years, despite quantitative easing and other measures, the UK economy was – as of the first quarter of 2013 – still well below its 2008 peak, and living standards are lower. The economic heart attack that was the banking crisis has left lasting damage.

If recovery is to be meaningful, we now need balanced growth that is well spread across the country and built on a broad sectoral mix. That’s easier said than done. It’s widely accepted that London’s economy – and, in some respects, South East England and North East Scotland – are on different growth trajectories from the rest of the UK. There is a house price bubble in parts of London which is aggravating the imbalances. And while it is possible to present a single story for the UK excluding London and the South East – with growth rates, economic structures and GVA per head all lying within a fairly narrow range; with all regions following broadly the same path before, during and after the financial crisis – there are still significant distinctions at the sub-regional level.

Take the North West. The gap here between local areas achieving the highest and lowest GVA per head is twice as much as it is in the North East, suggesting greater inequality across this region. And if you study this city, you find that the north of Manchester experienced five per cent growth in GVA per head between 2009 and 2011, against just 1.4 per cent for the south of Manchester. Much of that is down to the significant contraction in financial activities in the south of the city. In Burnley, there is a boom in manufacturing and a serious labour shortage; but other parts of the Pennines are seeing little new activity.

The point here is that, although we’re now beginning to see some signs of recovery – with business confidence rated positive in every UK region for the second quarter in succession – circumstances vary widely, as does the capacity to respond.

I don’t want to repeat arguments about the RDAs. They had friends as well as detractors – but they’ve now gone. We have tried to create an alternative model based on business leadership, partnership with local authorities and more meaningful geographies.

The resulting Local Enterprise Partnerships now have the tools and incentives to support jobs and business, whether through support for infrastructure via the Growing Places Fund, support for emerging business clusters through Enterprise Zones, or through City Deals such as those in Birmingham and here in Manchester. And they now have some core funding. These are very early days. Some of the LEPs are struggling to define their role and make an impact. Others have real energy and vision.

The question now is whether these bodies should have a significantly enlarged role as part of a process of decentralisation of decision making, as recommended by Michael Heseltine. My own starting point is the same. Britain is heavily over-centralised, arguably the most centralised in Europe. Successive governments have nibbled away at the responsibilities, revenues and powers of local authorities. A few modest steps are now being taken to reverse the tide, notably in relation to business rates.

Lord Heseltine wants us to be more ambitious and transfer more influence and decision making to local leaders. The government’s response to the Heseltine report set out our intention to move further down this path and negotiate Growth Deals with all LEPs to come into force in April 2015. Growth Deals will build on the success of City Deals. The Greater Manchester deal, for instance, is enabling the city build between five to seven thousand new homes by 2017 and increase the number of apprenticeships for 16-24 year olds by 10 per cent to 6,000.

These Growth Deals enable all LEPs to negotiate with central government for wider powers and influence over the key interventions to promote growth – and for a share of the £2 billion per year Single Local Growth Fund, announced last week.

Inevitably, some people are already saying that this fund is trifling compared to Lord Heseltine’s proposal for a £50 billion single pot – though, of course, that £50 billion was a cumulative, not an annualised, total. Additionally, a fair number of these people blame me for what they regard as the modest size of the fund – the apparent poster boy of Whitehall control-freakery, mistrustful of both local government and local business. Having once satirically cited Stalin to describe Prime Minister Brown, I now read in the press that LEP chairs view me as his British commissar.

Let me to respond to this critique. As it happens, I’ve argued strongly for more powers for local government – to borrow in order to build houses, to set their own tax rates and have a broader revenue base. You would not expect a Liberal Democrat to believe anything else. But I also believe that, in some areas of policy, we need a clear overview – as we are developing under our industrial strategy. It makes no sense to create 39 crypto-RDAs, all with competing trade ambassadors or nanotechnology centres or skills systems.

All ministers agreed that our devolution policy could not be solely about money. There can’t be a one-size-fits-all approach to what resources we release from the centre. In particular, all of us believe that the approach adopted through City Deals has enabled more to be done supporting local initiative and local growth. Through the negotiation process itself, ministers and local leaders have pushed each other to go further and faster. What they achieve above all is to make local areas think hard about growth after years during which it was simply not their issue. This is the biggest win – local dynamism; the knowledge and confidence among local leaders that they can do something about growth.

I expect the same from Growth Deals – agreements which will properly reflect local priorities, local ambitions and local capacity. I’ll return to this in a moment.

As for the Single Local Growth Fund, the £2 billion pot – to which my own department is the biggest contributor of new money – is hardly insignificant, given the scale of the financial challenges we still face as a country. It’s basically the same as what the eight RDAs outside London received in 2009/10 – except that they were frittering a good 10 per cent of it on admin costs.

Complementing the Single Pot, we’ve also promised an additional £600 million to the Regional Growth Fund for 2015 to 2017. The RGF has already allocated £2.4 billion to 300 projects and programmes who have pledged to deliver 500,000 jobs and £13 billion of private sector investment – with round four winners being announced shortly.

While I’m on the subject of money, I also want to cover European Structural Funds. There’s ultimately a positive story to tell here as well: over €10 billion to spend around the UK over the period 2014 to 2020. LEPs, who will be taking on major new responsibilities for the €6.2 billion available for England, will effectively receive a notional seven year allocation – providing rare longer-term certainty. Most areas across England will see an increase – a good result, considering that, at the European level, this budget took an 8 per cent cut.

What’s more, less than five per cent of the money will be held back by the centre, compared to more than 50 per cent under the current programmes. And there’s going to be a single growth programme, instead of the 12 separate schemes which have been in place for period 2007 to 2013. The clear intent is improved streamlining, greater transparency, reduced bureaucracy. I very much hope you will notice the difference you wanted to see.

I recognise that Cornwall, Merseyside and South Yorkshire are the three areas taking a cut in their overall structural funds allocations. However, in the case of Merseyside and South Yorkshire, they have already been on a tapering annual allocation, caused by their rise in relative income over time. Their level of annual spending will remain broadly the same as for recent years – so it’s important not to view structural funds in isolation.

Liverpool and Sheffield City regions have each secured a City Deal, which will bring in over £70 million in public and private investment over the next three years. They have won close to £20 million from the Growing Places Fund, as well as £80 million from the Regional Growth Fund for Sheffield City Region and £170 million for Liverpool City Region. Their four Enterprise Zones will benefit from the additional £100 million recently announced for that specific scheme.

In the case of Cornwall, our hands were tied over what funds we could transfer funds from the other EU budget categories into the EU budget for England’s only “less developed” area. That said, the level of EU funds for Cornwall will still be considerable – at a little over €1,000 per head.

When the final decisions on distribution within England are confirmed, we shall publish the methodology used – but the underlying principles, established through discussion with councils and LEPs, are for greater responsiveness to local needs and real economic geographies, and simpler management.

But the principle I’m most keen to get across today is that local power is as much predicated upon influence as it is on direct control of funding. I can best illustrate this using skills as an example.

We have an opportunity – despite the difficult financial position – to achieve something more through investment in skills than we’ve managed in the past. Skills matter. They matter to young people looking for work; they matter to employers who need qualified staff. I find it heartbreaking when I discover that big orders are being turned away because employers don’t have access to the skills they need.

So local councillors and business leaders must have a say in what skills investment buys. We now have a template based on apprenticeships, via traineeships, with an emphasis on quality and employer-led schemes. There is a national strategy, but we need local engagement, not least to get through to SMEs who currently offer little training and are not using government-funded schemes.

That is why I can announce today an initiative that will design clear incentives for skills providers and LEPs to forge active partnerships, so people acquire the skills required to get local jobs. We have already set out the important role that LEPs must play in setting strategic plans for skills which reflect local priorities. Now, in the (3) pilots we’re about to run, I will ask the SFA to put in place powerful incentives to encourage LEPs to work with FE colleges to deliver the courses that the local labour market demands

The North East LEP has been particularly supportive of an approach of this kind, and I am grateful to them for this. It has the potential to give LEPs real teeth. It’s a solid example of central government listening to what localities are saying and then acting on innovative ideas. We will be trialling this approach in three areas – the North East, Stoke and Staffordshire, and the West of England.

If the pilots are successful, this is the kind of flexibility I’m prepared to have on the table as part of the Growth Deal negotiations with all LEPs.

This – influence, not money – is what LEPs tell me they really want. It’s the centre being willing to adopt locally conceived schemes, rather than ploughing on with its own agenda. I hope it’s just the first of many ideas to be pitched to Whitehall as part of Growth Deals, which contribute to further devolving of decision making.

For that trend to take hold, though, it’s vital that local authorities step forward in support of LEPs: using their own assets and financial muscle to stimulate growth and their experience to enable more robust planning. The Government agreed with Lord Heseltine that LEPs should remain business-led strategic bodies, who look to their local authorities to deliver that strategy.

We need to see more sharing of economic development services in support of LEP priorities and more vocal backing for the business owners on LEP boards, who give up their time voluntarily because they care about their local areas and people. The Greater Manchester Combined Authority is setting a strong example in this regard – with a collaborative approach to growth that’s clearly bearing fruit.

Local authorities are an integral part of each LEP. They are accountable to local electorates, and bring that accountability to the LEP – to the implementation of its strategy. All strategic and major investment decisions will need to be agreed by local authorities as part of the LEP. Again, the point here is local – instead of Whitehall – decision making. At the centre, the emphasis is far more on cross-departmental working through the development of local growth teams, so that the senior Whitehall sponsor for each LEP can help to get resources deployed more effectively in line with their respective strategies.

In some areas – as with skills and training – policy is still evolving. There’s further thinking required, for example, on how the current work on industrial strategy meshes with the aspirations of local leaders. Nevertheless, the reforms we’ve introduced thus far have delegated real responsibility, influence, and resource away from Whitehall in favour of those best placed to decide and act upon local economic priorities. It’s a trend which must continue.

Published 5 July 2013