UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 598-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

Progress on Local Enterprise Partnerships (LEPs) and the Regional Growth Fund

Tuesday 11 September 2012

DAVID FROST CBE, MARK REEVE, LINDA EDWORTHY, JAMES NEWMAN and ADRIAN SHOOTER

PHILIP RAY, DAVID DUNN, PAUL kALINAUckas, SUMITA SHAH, MICHAEL LEITHROW AND ROGER SALOMONE

Evidence heard in Public Questions 1-105

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 11 September 2012

Members present:

Mr Adrian Bailey (Chair)

Paul Blomfield

Katy Clark

Mike Crockart

Julie Elliott

Rebecca Harris

Ann McKechin

Nadhim Zahawi

________________

Examination of Witnesses

Witnesses: Mark Reeve, Interim Chair, Greater Cambridgeshire and Greater Peterborough LEP, David Frost CBE, Chair, LEP Network, Adrian Shooter, Chair, Oxfordshire LEP, James Newman, Sheffield City Region LEP, and Linda Edworthy, Director of Policy and Strategy, Tees Valley Unlimited, gave evidence.

Chair: Good morning and welcome. Thank you for agreeing to attend our session. I understand that Mr Reeve has been delayed on the train. We will crack on without him and then invite him, as and when he arrives, to make his contribution.

Just a couple of quick points: we have an awful lot of questions to ask in a very short time, so I would appreciate brevity in your responses and I will try to discipline the questioners to be equally brief. Some questions will be specific to one of you; others will be general questions. In the event of general questions, if somebody has said everything you want to say, do not feel you have to repeat it; as I say, brevity is what we like.

Before I open the questions, for voice transcription purposes, could you introduce yourselves, starting with David Frost?

David Frost: I am David Frost, Chairman of the national LEP Network.

Linda Edworthy: Linda Edworthy, Director of Policy and Strategy with Tees Valley Unlimited LEP.

James Newman: James Newman, Chairman of the Sheffield City Region LEP.

Adrian Shooter: Adrian Shooter, Chairman of the Oxfordshire LEP.

Q1 Chair: Thanks. We are going to start with a fairly general question, which I am going to composite. If you could give fairly succinct answers, I would be grateful. Looking back, LEPs have now been in action for nearly two years. How has reality compared with your original vision? What do you think are the pluses and minuses of the current LEP landscape? Individually, what do you think your LEP has achieved so far? Who would like to lead on that? Linda, you were smiling, so I will take you first.

Linda Edworthy: I think we were at a distinct advantage in that we were not a newly created LEP. We existed as a partnership before 2010 and followed a long history of partnership working, particularly amongst the five Tees Valley local authorities, who have worked on strategic economic development for at least 10 to 12 years and had a very strong relationship with the private sector in the area. In 2010, we created Tees Valley Unlimited to build on that spirit of partnership-working with the private and public sector, so to a certain extent, the LEP status is almost a strap-line to the partnership. It has helped us build stronger and broader links with the private sector and has, I guess, also with the demise of the Regional Development Agencies, brought a lot more interest from the broader private sector in the activities of the LEP.

So in our view, we got off to a very strong start as a LEP because we already existed and already had an agreed vision for the area. We have a statement of ambition, with two clear ambitions for the area, and a detailed and agreed business plan, jointly agreed by all partners, so we are very focused on what it is we are trying to achieve and we are making use of all potential tools available to us locally in the partnership working. We are seeing a very big change in the private sector culture in the area, towards much more of a culture of, "These are our problems, and we are going to help solve them and shape the way forward," which has been new over the last couple of years. Rather than waiting for, say, the public sector to do things for them, there is a real growth in private sector leadership, so we are very much acting as a facilitator between the private sector and the public sector to help make things happen.

Q2 Chair: Can you very briefly give an example of that?

Linda Edworthy: We have supported the businesses in all three rounds of the Regional Growth Fund-rounds one and two and, most recently, the third round. We have secured £66.6 million of rounds one and two Regional Growth Fund into the area, and those have all been towards company projects. We expect those to create 2,575 jobs in the area. We are not trying to do the job for them, but we are there to help them and support them through processes.

Adrian Shooter: Thinking about reality compared to vision, in Oxfordshire we went into this knowing that we were not going to have the money or the resources that the RDAs had, and I think we were clear we were going to achieve things by partnership-getting people to work together, getting people with common, shared objectives-and I think that has proved to be the case.

So as not to be repetitive, if I look at the pluses and minuses, I must say that we have excellent working relationships between the private sector, Oxfordshire County Council, which is also our accounting officer and provides the administrative support for the LEP, and the six district councils. We have also brought on board our two universities, both of which are very germane to the economic success of Oxfordshire. The private sector, through the various business organisations, has been keen to get involved, to work together and take a leadership role, as I shall perhaps explain a bit later on. The bits that are going to be more difficult to achieve are those that people have been grappling with for many years: those that are led by Government Departments and, in particular, the whole area of skills, on which, as I would like to explain a bit later on, we have started to make some progress, but it is going to be a long and arduous road.

In terms of what we have achieved so far, we have one enterprise zone, in the south of the county, which is very much focused around high-tech developments. A lot of companies there have spun out of the University of Oxford over the years, in, for example, aerospace, medical science and those sorts of areas. A fair amount of speculative development is now taking place as we speak and there is a great deal of interest, and I am very confident that the enterprise zone is going to be extremely successful.

One other thing that we have achieved, which we are very pleased about, is in a very different sort of area-Bicester, which is the north of the county. It is very well situated and there is a ready supply of businesses that want to move into the area but an almost complete absence of suitable business premises, for various reasons. We have managed to free up, through the local plan, the availability of much more land. We have also encouraged the DfT, who have now agreed to put some money into a motorway junction, which itself is going to free up planning applications. So we are now very confident that progress is going to take place there.

James Newman: We were an early starter, but, like everybody else, basically from scratch. There was a political forum of the local authorities that we now have involved in place, but no private sector involvement, so we really focused on trying to create the appropriate partnerships: first, between the public and the private sector; and secondly, between the local authorities themselves that perhaps have had a history of not getting on as well as they might have done. Because we were across existing borders-in other words, we were involved with local authorities in two RDAs-we had that challenge to get over. The third challenge was to get the private sector involved without being too suspicious-we have all been there before as well-about creating what they perceived to be another public sector organisation with the private sector participating. It was very important that this was established as a true partnership in the real sense of the word.

In terms of success, I think it is fair to say that we have certainly brought our local authorities together. They are working much more cohesively, not only at leader and chief exec level but also at officer level, and I think that a crucial part of the delivery process when you get into some of the projects is to get the officers to work together. We have certainly had substantial success in getting the private sector motivated and involved, and involved in sector groups, as well as those individuals who are involved in the board. I think, between the public and the private sector members, we have certainly created a relationship that has allowed us to move forward on the City Deal, of which, no doubt, we will hear more later, in accordance with Government wishes on governance.

I think one of the specifics that we managed to achieve was sorting out where the enterprise zones were going to be. We are a large LEP and there were a number of bids for where the enterprise zones should be, but the private sector effectively led and managed to come up with, we hope, the best solution in terms of where the enterprise zones are. We do not think that necessarily the political leaders could have done that on their own. Likewise, with the Growing Places Fund, we have worked hard to look at what the most commercial projects to look at are, rather than individual local authority requirements.

Chair: I am going to come to you, David, in a moment, but I think Julie wanted to put a question to the Tees representative.

Q3 Julie Elliott: I think you are quite right in saying that you built on what was already there. The urban regeneration company had done a lot of the preparatory work for this, I think, but what I wanted to ask you about was the very large amount of money you mentioned had been secured through the Regional Growth Fund for companies. Can you tell us how much of that money has actually been paid and is with those companies?

Linda Edworthy: I do not have that figure with me today, but I can provide it.

Julie Elliott: Can you write and let us know?

Linda Edworthy: Yes.

Julie Elliott: Thank you.

Q4 Chair: David Frost, in your evidence, you said the Government must support LEPs by "creating a set of strategic levers that they can use to shape their local economies". I am assuming that you mean policy levers. Would you like to elaborate on that? Of course, if you want to pick up on any of the previous contributions, please feel free to do so.

David Frost: Just as a lead-in, since the LEPs first launched, I have spent a lot of time going round the country and meeting them and talking to their boards. I think the positives have undoubtedly been the commitment and passion shown by both the private and the public sector to improving their areas. They talk very positively about their area being the best place to do business and, if it is not, they have a common interest in resolving those issues to make that happen. That sense of passion and pride in place, I think, has been absolutely key. The second thing is it has attracted a lot of new people into this partnership arena, if we can call it that, not least from the business sector. They are not the usual suspects; they tend to be a lot of medium-sized businesses, but businesses that are driving the local economy strongly, and I think that is a strong positive.

Having said that, I think there is some concern-this comes on to your point-about what is now expected of the LEPs: what now? What does Government really see the role and significance of the LEPs being? I think the important thing is they are not a replacement for the RDAs. I think that is one of the negatives: they were seen as being a replacement for the RDAs, but they are not; they do not have the resources. I think a better analogy would be to see the Regional Growth Fund as a replacement for the RDAs.

The issue for us as strategic leaders is the Government needs to decide what they see as the vision for LEPs and what they see them as achieving, and then provide the necessary resources to do that. Just to highlight what I mean by that, it is not quite clear where responsibility for the LEPs lies: does it lie in DCLG or does it lie in BIS? As far as I can see, even after the reshuffle, there is not a sponsoring Minister for the LEPs, and I do not think that helps.

Chair: Thanks. That is very helpful. Mark Reeve has now arrived. Thank you, Mark.

Mark Reeve: Good morning, Chairman. Apologies for my lateness.

Q5 Chair: I will just recap. I started with a fairly general question about how the reality of your LEP is matching up to the original vision, what the pluses and minuses are, and what particular achievement you would highlight for your own LEP. Would you give us a few moments on that?

Mark Reeve: From GCGP’s perspective, we are making good progress. Resources were and remain challenging in terms of core resource for a core executive team. Our proposition is becoming more focused. We have energy and resources currently to get things done. We are developing a more strategic role, with a business-led voice, as a leader for the economy of the area and a strategic funding body. I suppose our significant asset and opportunity is our enterprise zone, Alconbury, which offers a world-class site for business and industry, as well as providing a source of funding for us over the longer term.

In our area, there is, we believe, significant potential for the use of loans and recycling of funds, where we can use fiscal tools to promote opportunities that then can repay within reasonable periods. We have done a reasonable job of pulling together the public and private sectors; certainly, the make-up of the board is consistent with being a business-led board engaging with the public sector. We need more Government support, though, financially and politically, which has just been touched upon by David. There is some confusion around DCLG/BIS-who is responsible, whether there is one voice and whether it is the same story. We do need a decent amount of core funding, which we will keep coming back to, no doubt, from central Government. We need to be at the heart of economic policy at Whitehall as well, if the LEPs are to be supported and believed in from that perspective.

In terms of our milestones so far, I have spoken of the enterprise zone. The enterprise zone, for us, captures what this is going to be about in terms of business locally: we have one entity and one local authority. We believe our discussions at national level have helped persuade Government to find additional funding for the work of LEPs, such as the Growing Places Fund. We have significant work being done at the moment on skills, which we believe is incredibly important, where we are brokering business’ skills needs to skills providers and trying to improve the work-readiness of school leavers in the longer term. We have just launched our growth prospectus, with the objective of getting input from business, the public sector and other third-sector bodies, to make sure we are focused. We believe the LEP will only have the ability to deal with three or four core strategic objectives, and we are trying to focus on those with a growth perspective.

Q6 Chair: Thanks. David Frost mentioned, if you like, a Minister for LEPs. Do the other panel members agree it would be helpful to effectively have an advocate for LEPs within the Government structure?

Adrian Shooter: It would be really helpful to have a focus.

James Newman: Part of the issue is the differences between the two Departments. DCLG seems to be about localism, whereas BIS is adopting a more centralised approach. Of course, as Local Enterprise Partnerships, we are in a dilemma as to who we talk to on what issues. Having a single Minister might help, but he would need to be one in the right Department, or at least with the right approach.

Q7 Chair: I think that is very helpful. In terms of powers, do you think LEPs need more powers and, if so, what? Again, could you give a fairly concise answer? I know there is an issue around funding, which we will explore in a moment, so you can park that one for now.

Linda Edworthy: For us, it is not necessarily about the powers as such but it is about influence, and it is about influence over how certain funds are spent. So we are not necessarily asking to have the funds, but at the moment, particularly on the skills agenda, there is an expectation that the LEPs will sort out the skills agenda, yet we have no powers, we have no influence and we have no money to do that. We would like to make sure that the role we are trying to play is a voluntary role in trying to make sure that young people, their advisers, whether they be parents or grandparents, and the media understand what the job opportunities are in the area for the future and what career options are out there for them, and to make sure that the training providers-HE and FE-all understand that as well, rather than funding following the learner, who at times does not know exactly what they actually want to do or are not best guided in their career choices. At the moment, all we are able to do is try to inform and advise people. We have no influence over that agenda.

Q8 Chair: Would those comments be supported?

Adrian Shooter: I absolutely support that. That is our top issue in this.

James Newman: We hope we have brokered that particular issue through our City Deal, where we bang the drum a lot to persuade Government to allow us to have direct control over some of their money, effectively to create a business- and demand-led approach to skills. We have managed, as part of our City Deal, to get some direct Government funding for that.

Q9 Chair: Where did you get the funding from?

James Newman: Through the SFA, but listening to one of the new Business Ministers last night on Newsnight, he did seem to suggest that Government are finally seriously thinking about business-led, demand-led skills training, not just in the technical skills but in the work-ready part of it as well. I think it does need to go back to that work-ready bit, with the eventual aim of creating the job, not just doing the training for the sake of doing the training, which perhaps has happened in the past.

Q10 Chair: Just one final question from me: a number of you have mentioned enterprise zones. You do not have much in the way of resources. Do you think there is a danger of becoming too focused on the enterprise zone, to the detriment of other particular local agendas?

Mark Reeve: I would suggest so, yes. The enterprise zone will become the be all and end all, because it will be a funding stream that will be guaranteed.

Adrian Shooter: I would disagree with that. I think it is our board’s responsibility to have a balanced view, prioritised on what we need to do, and that is what we are endeavouring to do.

James Newman: Our enterprise zone is just part of an overall strategy for growth, both in GVA and in jobs. We expect the income and the incentives the enterprise zone can provide business to create supply chains to work with other funding streams, both local and national. So it is just part of a package of measures that we are looking to have within our city region.

David Frost: What the enterprise zones have undoubtedly done is given many of the LEPs a real focus for their first 18 months of activity, and essentially allowed them to show to the wider community that they have actually achieved something. I think that has been important.

Q11 Ann McKechin: You have all commented on the difficulties of dealing with central Government and having a clear idea of where the macroeconomic policies sit with your own work. Mark, you mentioned you only have time for about three or four core strategies that you can achieve, given the size of the team you work with. We have a lot of evidence that support is uncoordinated and lacks long-term vision. To what extent do you think there needs to be clearer guidance at the top and it needs to be centralised in terms of where the industrial strategy of the country rests?

James Newman: Shall I take that?

Chair: Please do-please, somebody take it

Q12 Ann McKechin: I will clarify it quickly: if we take one issue, I have read through all the documents but there is very little analysis of productivity of existing businesses in your own area. To what extent are you able to examine the productivity of businesses in your area and then analyse what it needs to be improved?

James Newman: Clearly, with limited resources, not a great deal. We have just commissioned, in fact, a refresh of our 2008 statistics. The RDA had that capability, but we clearly lost that research capability, although we are working with one of our universities, who are doing it for free, on some issues around that. We have just done, along with the other four LEPs in Yorkshire, some research into the skills area, which is why we know that there is some business demand for particular sectors in Yorkshire and in our region for apprenticeships, for instance, which is the bedrock of our City Deal, so there is clearly a continual need for it at city-region level. I suspect individual local authorities might do their own, but it is not going to be top of their list.

Linda Edworthy: From the Tees Valley perspective, I think there is a balance to be struck between us understanding the productivity of our businesses-and, yes, we want to support the businesses to improve that-and the issue of jobs. In the Tees Valley, we have significant large employers. 70 of our top 100 companies are externally and non-EU owned. They tend to be in sectors-petrochemicals, advanced manufacturing and engineering-that can increase productivity and probably reduce jobs, so there is a balance between addressing the productivity element but also addressing the need to create jobs locally.

Q13 Ann McKechin: So you are saying that, if a company increases productivity and presumably increases profit, we do not get extra business as a result of that.

Linda Edworthy: We get extra GVA for the country and profits for the company, but we do not always get extra jobs.

Adrian Shooter: I would like to take this in two parts. You asked whether we think the Government ought to have an industrial policy. Yes, absolutely, I think it should have-it clearly does not and clearly should. Secondly, does the lack of that handicap us? No, I do not believe it does, because we are very focused and very clear that the only reason that the Oxfordshire LEP is there is to encourage and help the creation of private sector jobs. So our job is to determine what, in Oxfordshire, we have to do, which will be different from other areas, and to get on and do that. That is what we are doing, with, I have to say, a lot of enthusiasm and help.

Just picking up a small point on the RDAs, I mentioned earlier on that Oxfordshire County Council provides us with administrative support and help, and is able to provide some of the statistical and other information that we might have otherwise had from the RDA. It is also the case that there are some former RDA people there and in one or two other places we have access to, which is also tremendously helpful in continuity.

Q14 Ann McKechin: Is there too much preoccupation with cities and City Deals? I know, James, that you have mentioned you are using that, but for others, such as Adrian in Oxfordshire, that will not be the case. Is that a problem for you?

Adrian Shooter: Not at all. As I said a minute ago, you have to look at what the particularities are in your area. We happen to be in a county which very much has a focus on the city of Oxford and the university and suchlike, and we will deal with that, but it is also a county where the travel-to-work area and the economic activity by chance happens to be fairly well contained within the boundaries. It is small enough to focus as an entire entity, and there is a relationship between what goes on in the countryside and Oxford city centre.

David Frost: It is also fair to say the initial City Deals were done with the core cities, and, from going round, I think there is clearly an expectation that they should be rolled out further, and also some concern that the core cities are not necessarily the sole economic drivers of the economy within the country. Certainly there are many shire counties that have shown very strong growth and very strong GVA, and they should be afforded a similar type of opportunity to the one that has been offered to the major cities in England.

Mark Reeve: Could I answer that as well? From a GCGP perspective, it is exactly as David said: as a whole, the area is a net contributor to the UK economy, so GVA growth, housing growth and export performance are all in the top quartile. Why shouldn’t Peterborough and Cambridge be given the benefit of a City Deal as well as Manchester etcetera? That is our view.

James Newman: Can I just add to that and perhaps slightly counter it? Our City Deal, as I suspect with some of the others, was originally with the city and not the city region; i.e. the LEP geography. It would have posed a significant political issue in the partnership arrangements that we would have had within the LEP if Sheffield, as a city, was able to go and do its own thing and the rest of the LEP, which I have responsibility for bringing together, was left out in the cold. So I think there has to be a debate, and I certainly would encourage all the areas to be able to have the sorts of deals that we have. We persuaded Sheffield-although it was not particularly difficult to persuade them, to be fair-to make it a city region deal and, as such, the LEP has been heavily involved in negotiations and leading some of the activities to do the City Deal. But I think that it is potentially divisive if certain cities in a LEP area have a City Deal and others do not. If the Government are going to have City Deals, perhaps they should call them LEP deals rather than City Deals.

Q15 Nadhim Zahawi: We touched upon the skills challenge. Can we just explore that a little bit further? What are the biggest skills challenges, if you can just go through those, for your LEP, and how are you beginning to address those? Are you getting the support that you need?

James Newman: Shall I do the start, as we have the City Deal, on skills?

Nadhim Zahawi: Go for it.

James Newman: Clearly, there has been a bit of a history of failure in this particular issue; otherwise we would not still be talking about it. As I said before, it is not just technical skills; it is work-ready skills, so it does involve the schools and the HE/FE sectors as well, as well as businesses. We have an ageing workforce, which we have recognised through some of the research: 33% of our people in manufacturing are over 55 but recruitment of under-25s is only 9%, so there is clearly going to be a gap at some point. As a result of the system currently in FE and HE, to a certain degree we have a lot of people training for things where there are no jobs at the end of the day, so we decided we really needed to do something about that, which is why we put together the City Deal that we did.

It is very much demand-led. The money that Government are providing will be matched by the private sector in the creation of apprenticeships. It will open up the whole world of apprenticeships, I believe, to SMEs, who at the moment are hugely confused-there is a huge amount of bureaucracy involved-by creating an apprenticeship hub, which is building on something we already have in Sheffield. It is a form of brokerage that, if somebody comes out of an apprenticeship for some reason-the SME fails-we can find him somewhere else to go, with the aim, at the end of the day, with all of this, that "demand-led" actually means there is a job there at the end. It is a waste of time doing all of this unless there is a job at the end of the day, because we will have just wasted all our money.

The biggest challenge that we were talking about outside is to persuade the providers-and to get the providers alongside-to start teaching the things that we need for our particular businesses in our particular region, which will all be different, of course. Government, through the SFA and other Departments, have always prescribed things and prescribed outputs, and we made our scheme as flexible as possible, so that in two years’ time, if a sector comes along and says, "We are desperate for apprenticeships," we have not signed up to only doing apprenticeships in manufacturing and we can provide some apprenticeships in low-carbon or whatever the industry is. The whole system needs to be much more flexible, and we are looking forward to getting on with it.

Linda Edworthy: I would echo James’s comments. We are developing very similar approaches, and one of the things we hope will be announced this week is the employer offer pilot-we hope to get one of those into the area-which will reverse the way the funding is driven. The employers will get the funding, so they will determine who will provide the training they want, rather than having to use whatever training has the money available. That is really critical to the businesses-all the businesses are giving us the feedback that they want to choose where they buy the training.

One of the other things is that, because we have a lot of companies that have positive stories to tell, it is not all gloom and doom at all. We have real growth happening in the area. We have had conversations most recently about major skills shortages, where companies cannot recruit welders locally. They need 200 welders in a very short space of time and are having to go, again, to Poland to recruit welders who can pass tests. Even though they are qualified welders, they cannot pass the test for the job that needs to be done. What we are doing is working with the training boards to try to access their funding, to put in very flexible, short training as opposed to long training programmes, which will not address the immediate needs. So I think the systems need to be much more flexible to address immediate needs, or businesses will go elsewhere to find the skills they need.

Q16 Nadhim Zahawi: I will come back to you in a second, David. I am just conscious of the time. Your website does say that the skills framework is "coming soon". What is stopping it?

Linda Edworthy: It is current processes and how the funding is driven at the moment. The learners have the funding following them.

Q17 Nadhim Zahawi: For the other panellists, if you want to come back, and we have heard from Mr Newman about the advantages that City Deals bring to it, there are two supplementaries: first, is there adequate influence over the Skills Funding Agency for you? I guess that is one of the roadblocks here. Secondly, and it has been touched upon in other areas, are the enhanced skills powers of the City Deals disadvantaging your areas? I am looking at Adrian, Linda and Mark for a response on that.

Adrian Shooter: I think the whole skills area is the most difficult problem that faces the LEP, without any difficulty, and we very much would support any moves for the employers to have much more control over where the money is spent. There is another angle, and I am not going to repeat what has been said, because I agree with it. Yes, if additional powers were available that are not available to us, that would be extremely helpful. We very much welcome the Holt report on apprenticeships, which has just been published and confirms very much our research, which is that SMEs in particular are totally confused, because successive Governments have diluted and confused everybody with apprenticeships. We very much support the recommendations from that.

Mark Reeve: I echo my colleagues. I would suggest also that devolving budgets to allow focus on local priorities would be helpful. We have found the SFA notably receptive to local priorities, as opposed to some other bodies. They have made a lot of effort to engage with us and involve the LEPs in determining priorities. Again, we are working with a sub-group that is connecting businesses with skills and skills needs, and making sure there are no gaps. Devolving budgets, however, would speed up progress in dealing with those gaps that we have just spoken about.

David Frost: I think my overall take on this is that you could end up in utter despair. We seem to have made absolutely no progress over the last 30 years on this agenda. All we have seen is a stream of new initiatives and new bodies that have been set up. In my working life, we had the training boards, the Manpower Services Commission, the Training Agency, the Training Commission, TECs, CCTEs, five iterations of the LSC and the SFA. All we seem to do is to set up more bodies, and the same issues that we are now talking about are as endemic now as they were then. If we are talking about devolving the budgets of the SFA down to a local level, what we are essentially looking at is reinventing the Training and Enterprise Councils in some way, which makes LEPs, which may be the answer, a very different beast indeed.

When we talk about skills, however, in essence what we are mainly talking about is employability skills. What we are really talking about is the failure of the education system and the fact that hundreds of thousands of kids are leaving school every year without any qualifications. All it means is, five, seven or 10 years down the track, we as a nation are having to pick up a huge bill to give them that work-ready training. The LEPs are now at the centre of that agenda because the employers are saying, "We do not have the young people coming forward who can provide us with those skills." I chair a group of new state schools called studio schools, which are focused solely on employability. The take-up from employers, because they are desperate to find young people with those skills, is truly awesome.

Quite frankly, we can talk loosely about skills, but until we tackle the failure of the education system head-on, this is just going to be a process that people sitting here in five, 10 or 15 years’ time are going to be talking about in the same way. The answer, quite frankly, is to put this agenda in the hands of the employer, so it becomes demand-led, not supply-led.

Q18 Nadhim Zahawi: You make your point very powerfully, David. My next question is really about the HE and FE sectors. In its evidence, the Department told us that LEP board membership from those two sectors is common. Do you agree that there is good engagement with the HE and FE sectors?

Adrian Shooter: Very much so. In our case, we have two universities, both of which are very much involved-enthusiastically involved, I may say-at pro-vice-chancellor level. As I mentioned earlier, in the case of Oxfordshire those two are both powerhouses for the economic development of the county.

James Newman: In our case, it was the only appointment on the LEP that was guaranteed-one of the vice-chancellors of the universities-and they decided between them which one it would be. So the Vice-Chancellor of Sheffield Hallam University is a full LEP board member, representing the universities and the whole of the HE and FE sectors.

Linda Edworthy: The Chairman of Teesside University is the Chairman of Tees Valley Unlimited. The Vice-Chancellor sits on the board. We have both FE and HE on it. We have an employment and learning skills advisory group as well, with all partners and private training providers represented and engaged.

Mark Reeve: We have, similarly explicitly, a university-based board member. We have a dedicated executive on the skills agenda, with a skills sub-group that is connected to all of the FE and HE bodies.

Q19 Nadhim Zahawi: You are obviously all doing well in that area. We have heard some worrying evidence from the Association of Colleges that FE representation on LEP boards is failing, whereas HE is succeeding. Have you heard similar things from other LEPs?

Linda Edworthy: I know it was expressed as a concern at the outset, when LEPs were established, and, alongside other sectors and other organisations, we got numerous letters from people all wanting to be on the LEP board. We had to take a very firm view that we need to limit the numbers on the LEP board for it to be effective and, actually, sitting at the table four or five times a year was not engagement. It was having our engagement strategies in place that was important, and that is how we have assured sectors such as FE and others that they do not have to have a seat on the board to be engaged with the LEP.

James Newman: We have encouraged FE especially to come together with a single representative; although he is not on the LEP board, at least it is an individual to go to. Also, within all of our various sector groups that we have involved, we have again encouraged the FE and HE sectors to actively participate in those sector groups and to bring their knowledge and experience. Clearly, one of the issues-certainly for our City Deal on skills-came from our sector groups saying, "These are the skills gaps that we have," in construction or in manufacturing, or wherever it was. The FE and HE people on those sector groups will have participated in that debate.

Q20 Chair: Can I just intervene at that point? I think there is an obvious contradiction in terms of the manageability of the LEP board and trying to get the interests of all interested bodies represented on it. I can see the need to have alternative mechanisms in some cases to ensure that all interested bodies are involved; however, is the fact that the Association of Colleges seems to feel that the relationship between LEPs and FE colleges is not what it should be a matter of concern, and do you think that there are potential areas where this might be improved?

Adrian Shooter: As always in these sorts of things, you probably need to look at specifics. We have just heard that it does not appear to be a problem. On our particular LEP, one of our board members is the chief executive of the largest FE college in the region. At our skills working group, we have representatives from other providers as well. Clearly, if it isn’t being represented, there is a problem, but I think you have to get the next level down and find where the problem is.

David Frost: From a national point of view, if that is a strongly held view by AoC, then we need to look at it, but the boards are, by definition, very small in order to make them effective. HE-I know Universities UK has done some research on this and feels well engaged-in totality feel that they are representing not just the HE sector but the much wider education sector within that community, but if the point is being made, then we as a network would take that up.

Chair: This is the point I am trying to get across. It is alright for LEPs to say there is no problem; if the AoC thinks there is a problem, then I think it needs to be looked at.

Q21 Paul Blomfield: I am very struck, from the evidence I have read, from the contributions this morning and from talking to LEP board members locally, that there is an enormous enthusiasm and commitment to the task that you have been set that is often matched by a frustration around some of the areas that you have identified this morning in relation to clarity of Government vision, powers and responsibilities. You are almost succeeding despite Government rather than because of it. I wanted to move to the area of funding and wondered how far that was also true of funding: how far the resources that are available to you match the expectations you might have had when you were given the task two years ago. I do not know who would like to start off.

David Frost: From a national-network point of view, there is a strong view that, for the LEPs to continue, they need some core funding to operate. Clearly, there has been a kick back against the scale that was involved with the RDAs, although, as I said earlier, these are not RDAs. But essentially there is a view, I think pretty strongly held, across many boards that they need some free resource to do some of the basic research and marketing of their own individual communities-some of the questions that have been raised today-and to have the ability to have some of their own staff accountable to the chairman and the board to do that.

There are very big differences in the LEP network across the country. In the north in particular, where you have had a history of large-scale public money going in, with very strong partnerships, not least public-led partnerships, that have essentially reversed themselves into the LEPs, we already see a significant amount of staff, but there are many LEPs that believe that they need that small group-two or three executives-who are there to work for the board, as I say, doing that basic research and dealing with the repeated requests from Government and from other partners. There is a view almost universally that the workload that the chairman and board members are being asked to do is far, far more than they thought it would be. They thought it would die off but it is actually increasing, and they need some support to do that. The level of about a quarter of a million pounds per annum over those 39 LEPs is not a significant sum of money.

Mark Reeve: Could I reinforce that and just say from a GCGP perspective that, as has just been said, we have four part-time staff who play a part-time role in supporting the board. Core funding is essential to get full-time support staff to allow it to operate in any way effectively, without relying, as at the moment, on everybody else providing all of the time.

Q22 Paul Blomfield: It looked, Mark, from reading your evidence, like you have downsized your ambition as a LEP in the light of the funding available. Is that a fair assessment?

Mark Reeve: I think the reality of that will be seen. We have had to become more focused. The LEP set out with lots of strategy in terms of what it might look at; we have had to refocus that because of those resourcing issues. At the moment, that is why the growth prospectus is out there, trying to get a fine focus. We have some very active sub-groups in the clean tech and in the skills agenda area. Where we can leverage resources is where we are going to do best, from an advocacy perspective and from bringing people together.

Q23 Paul Blomfield: I guess you would all agree that the £76,800 that was initially envisioned is insufficient for the task. How realistic is it to expect you to draw in private sector funding?

James Newman: I think the key to the funding of the LEPs is the word "independence". Rightly or wrongly, we took the view that, whilst we had some local authority funding, it was no good the private sector coming along to board meetings and being told what to do by the local authorities who were providing the funding, so clearly we needed to have some substantial funding from elsewhere. The dilemma was always going to be whether we go and tap up private sector companies and create a whole pile of other conflicts of interest, so we deliberately did not do that either. We expect to rely on Government to at least give us some basic funding that will provide us with some independence and some independent people, because a lot of what the larger LEPs are trying to do here is to create collaboration amongst the local authorities where they do not always necessarily agree, and to make decisions, again, against perhaps the political will sometimes, as you will well know.

It is important that we have a level of independence and, clearly, a minimum requirement to have the right people to do it. We have a substantial number of different projects and we need people to do that. We have been lucky, we have secondees from the local authorities. but we have not been able to have the resources to bring people in from the private sector, from outside, which some people might argue we perhaps ought to be doing to get a mix of people. It is very well and good having private sector people, with their knowledge and expertise, on the board, but if you do not have a good executive team with some private sector experience, then you are going to fall back; you are not going to add anything to the way the LEP operates. I was told very clearly by Ministers that they expected us-and the private sector leadership-to operate in a different way from previous partnerships.

Q24 Paul Blomfield: But you have not had the tools to do it.

James Newman: We have been fortunate. We have had some money left over from previous activities as a region, and we had the start-up fund last year, but clearly, we need to get some more permanent funding, which I think will be a statement by Government, more than the actual money, that they believe the LEPs experiment is going to be more permanent. I think I see it as that, and my private sector colleagues will also see it that way as well. The money is great, but it is the commitment by Government to the LEP movement that is probably more important for all of us trying to manage the LEPs on a day-to-day basis.

Q25 Paul Blomfield: I wonder if I could ask each of you briefly what the profile of funding for each of you is. James has talked about the local authority staff seconded in. I am guessing, for local authorities, that is going to become increasingly difficult.

Linda Edworthy: Could I start? I disagree with James in terms of the principle of LEPs being independent of the public sector and the local authorities in the area, because, for me, the principle of LEPs was not about creating purely private sector bodies to work with the public sector and therefore it should be totally independent. To me, it was about bringing real public and private engagement and activity together. Again, for me there is an issue around "one size does not fit all". In some areas, that might be how it needs to be but, in others, it is not necessarily the case. I would be really concerned about LEPs being set up as being totally independent of local authorities.

James Newman: I do not think I was saying that they need to be totally independent; I was saying they need to be partnerships but, in terms of the funding, they cannot rely totally on 100% local authority funding.

Chair: I think Paul’s question is: where do you get your funding from?

Q26 Paul Blomfield: What is the profile of funding for each of you, briefly-where do you get it from? Also, do you find yourself chasing your own tail in terms of spending a significant amount of time looking for funding, or negotiating funding?

Adrian Shooter: I broadly agree with James’s point. I think it is very important that we are a partnership, and that is how I want the thing to operate, and that is how it is operating. I mentioned earlier on we have administrative support from Oxfordshire County Council. We are very clear and they are very clear that the administrative support is supporting the LEP, which has a majority of private sector board members. All of our workstreams are led either by a private sector individual contributing his own time for nothing or, in one case, academics. If you go down below that, they all have their own teams, again with a fair bit of support from the private sector, all of which are provided free of charge. But we certainly are constrained in some of the things we could do, and I do agree with James that some Government funding would help us with that independence, which does not mean that we do not have partnership-we clearly do-and would also give a sign of some commitment as well.

Mark Reeve: I think James is right. The private sector needs to know this is independent. It is a public, auditable body as a local authority. Local authorities’ budgets are coming under pressure. They are putting money in and want to know what they are getting for it. From GCGP’s perspective, we have taken £200,000 from the Growing Places Fund, which is a one-off benefit to our funding, and £140,000 from the local authority. But I very much see that we need a level of partnership with the local authority and the public sector, but independent as a business-led partnership, rather than the local authorities having a significant vested interest in the activity and funding that they want control of, and I speak as an SME in the private sector.

Q27 Chair: If I can just pick up on this, the LEP Network has quoted a figure of £250,000 per LEP per year as the sort of funding that is needed. David, how did you arrive at this figure? Do you think there is a threshold figure of core funding that would enable LEPs, if they received it, to be able to lever in other funding from other sources?

David Frost: The figure was arrived at by discussion with a number of LEPs. Certainly, the business leaders within those LEPs know the current state of public finances and were therefore essentially tailoring demands within the framework. That is the first thing. Secondly, there was a determination not to have a level of public funding that made them, essentially, public bodies and hugely accountable and all the strings that brings in. Thirdly, looking quite simply at what it was that they needed to deliver that agenda, as I say, for the chairman and the board, we came up with the figure of circa £250,000 for a period of at least three years, to show some certainty. That would allow the employment of two or three key staff, with some money to carry out some research and some marketing as well.

Q28 Chair: I believe the Buckingham Thames Valley LEP have contracted their secretariat via an organisation, Buckinghamshire Business First. I am not altogether clear what this organisation is; I suspect it is probably a local chamber of commerce or something. Can anybody enlighten me and, if they know anything about it, do they think, as a model, it is workable for other LEPs? If you do not, just say so, and we will make some further inquiries.

David Frost: I think we will come back.

Q29 Chair: Yes, that is fine. There has been some talk about potential disengagement of LEPs if they do not receive any funding. Do you think, in some areas, that is a serious problem?

David Frost: I do. The point has been made right across this table that LEPs are hugely different in their geography and hugely different because of the history of the scale of resources that have been put into the LEPs. I think there may be some with a smaller geography, and areas where there has not been that history of large-scale public money, where, quite frankly, if there was no money forthcoming, the senior members of the LEP board may say, "Look, we have done the strategy, we have done the visions, we have done the mission statements. We do not have an enterprise zone; we have limited resources. I have a business to run and, quite frankly, I think I have done my public duty and I will go." So it is not wholesale, but I think there is certainly the possibility of a limited number not continuing.

Q30 Chair: Are there any other options the Government can consider on core funding that you can think of?

David Frost: Clearly, rather than a direct grant, you could have a form of match: a floor level of funding and, pound for pound, it is matched against resources that that LEP could bring in. I believe there would, however, still need to be that core element.

James Newman: I think it is important, because of the partnership element, that there are some areas of the country where there is not a huge amount of local authority support, because there are political tensions and so on. If some of it was match, then that might bring some of the local authorities to the table. It would certainly keep them at the table if they were already there and believed that the LEP has a strong purpose in life, which I think we all believe they do. So I am certainly comfortable that, if some of our funding came as a result of match from local authorities, that would be helpful.

Q31 Chair: One or two of you have mentioned the Growing Places Fund. What are your views on the Government’s push to have this as a revolving and potentially self-sustaining fund, generating investment that could be reinvested? Do you think this is a realistic option?

Adrian Shooter: Only on a case-by-case basis. I was previously involved in another public/private partnership in another place, where we did just that. Frankly, it is not feasible in some places, but there are others where it is, and certainly I think we should make our money work as much as we possibly can. If we can get a return and rotate it or reinvest it, that is great.

Chair: Does anybody wish to add to that?

Mark Reeve: I would add to that, Chair, and support it. Certainly, from GCGP’s perspective, it is something that we are very keen to do. It is gives us a local agenda, it gives us local funding to move growth, and we think it is a positive step.

James Newman: From our perspective, as one of those northern areas that have perhaps been over-reliant on grants in the past-and we spent a long time trying to get us out of that grant mentality-certainly having some value for money, as the Government puts it, in the way we spend our money, which is effectively what revolving will inevitably do, is a good thing. We are also looking at the opportunity in our GPF, as we are with the RGF, actually, of perhaps rewarding the creation of sustainable jobs and turning the loan or part of the loan through the GPF into a grant if the jobs are created. It would be a strong condition of it. We have talked about jobs before, and growth in GVA does not necessarily mean growth in jobs. This might be a way of looking at that. We will get value for money for the public purse if we can create the jobs, so we will give the money away, partly as grant. We are in early stages but it is an interesting thought process.

Linda Edworthy: From a Tees Valley perspective, it has been a helpful early start to pursue it on a revolving-fund principle, because that is exactly what we wanted to do with our enterprise zone income. Because the enterprise-zone income is still-certainly for the larger elements of it-some years away, it is a helpful start to that process to create a single revolving fund.

Q32 Rebecca Harris: Could I ask if any of you would like to see greater local revenue-raising powers and, if so, how that might work or what might be the quid pro quos in that?

James Newman: I think it will be a question, I understand-not being an expert-as to where you are. Some regions will gain through this process and others may not. Are you talking about the business rates?

Rebecca Harris: It is quite an open question.

James Newman: In terms of the business rates staying at a local level, I think some areas will gain and some will not, I understand. I cannot really comment any more than that.

Q33 Rebecca Harris: Perhaps you might have more leverage over councils that are not being particularly cooperative or supportive.

James Newman: Possibly.

Mark Reeve: I think more influence in expenditure rather than local revenue-raising powers would be preferable. It comes back to the resource issue and the complexity of raising revenue.

David Frost: I think there could be a potential interest there. Clearly, the emerging enterprise zones are one take on that, but of course there are also the Business Improvement Districts as well, which allowed the raising of a levy on a dual key business vote. I think there is the potential to take that further if the businesses have a clear strategy, if there is a clear dual key business vote, and if it is time limited. The concern with the re-localisation of business rates is that local authorities will just simply raise the level of business rates to levels far outstripping that of inflation, and that is why there has always been a nervousness amongst the business community.

Linda Edworthy: I think the Business Improvement Districts are good and helpful, but they tend to be very local, in a small town centre or industrial estate, so they are not necessarily helpful at the LEP level itself. The other thing that we have looked at is the CIL-the Community Infrastructure Levy-being placed on sites. It is a dilemma, particularly in Tees Valley and the North of England, where, on the one hand, you are incentivising people to go onto sites and, on the other hand, if you put a CIL on it, you are going to penalise them for going to it, so it is a very difficult issue.

Q34 Rebecca Harris: My next question was about the economic data, because one of the other concerns raised about the abolition of the RDAs was that we would lose a lot of the economic data-gathering capability. I know that the LEP Network has done some quite impressive work on economic data, with things like Experian information stuff. Could comment on that and whether you think that is an adequately resourced area and you are able to get enough economic information on your areas?

Linda Edworthy: There is certainly enough national data available and, at times, some people think we have enough evidence on strategies at a national and local level in that sense. It is about particularly business intelligence being very much a local thing, as opposed to having an organisation at a national level provide that for you. Whether it be done through surveys, one-to-one discussions or one-to-many discussions with companies, it is particularly that type of information that is critical to how LEPs take their activity forward.

Adrian Shooter: I would agree with that and just amplify it by saying that most of the business representatives on my board are nominated by the various business organisations: for example, IoD, CBI, Chambers, Federation of Small Businesses, etcetera. We work closely with those as well to survey their members, as well as other businesses that may not be in any of those, to supplement what I mentioned in our case, which is access to information from Oxfordshire County Council, which covers the same area, plus national sources. I think your question was whether it was a problem. No, it is not anywhere near the top of our list of problems.

James Newman: It is not a major problem. I think a lot of knowledge and information was lost to us through the RDA transition process, and I still do not know where quite a lot of the stuff from Yorkshire Forward has gone, for instance. I think it is essential that we have information available; I would not disagree that there is information available. If nothing else, when we are coming to Government Departments and we are asked to evidence why we want to do certain things, then clearly we must have that information available, so it needs to be there, if only for that, apart from developing our own internal strategies as well.

Mark Reeve: We had significant discussion on this at the outset-about not doing the same thing over and over again. We have lots of local authority evidence. We did manage to capture our RDA evidence and, in fact, the office still exists, so we have captured that and put it into a fly-through that is on the LEP’s website and the LEP are developing their statistical measure, looking at the different areas and their needs. So in terms of resources, we have used some outsourced resource on that, but at a small cost, and then leveraged some free resource from the local authorities to support it.

Q35 Rebecca Harris: Mr Newman, in your opening comments, you talked about the success of working with local authorities across boundaries and with officers, but I wondered if all of you could comment on your experience of how well working across county and LEP borders has been.

James Newman: The cross-border issue initially was difficult because, clearly, government was set up on either EU boundaries or on their own administrative, RDA-type boundaries. It is gradually getting better. There is still some work to do and, every time we talk to Government Departments, we do remind them that we are cross-border and that we would therefore like either the statistics or the allocation of money, or whatever. There is an issue, for instance, around transport that we have at the moment, and also potentially around maybe creating some form of City Region authority between the districts and the counties, and allocations, say, of transport money. We are working hard with the Government Departments involved to try to resolve this issue, and it will not be for every LEP-there will only be relatively few LEPs that will have this particular issue-but it is something that we are working our way through, and I hope that Government will start to recognise LEP borders more generally over time.

Q36 Rebecca Harris: But they are not yet.

James Newman: They are moving in that direction, but we are not there yet everywhere. I think that is certainly our experience, anyway.

Adrian Shooter: It is relatively simple in our case: as I said before, we have six district councils and a county council. A very important part of my job is to try to make sure that we are working together in partnership. I am not going to pretend that there are not differences of opinion between the various district councils, and between the districts and the county, from time to time, but they are things that I believe we can surmount and we have to work on them.

Linda Edworthy: Our area is quite straightforward, with five local authorities that have traditionally worked together. I think there has been a slight preoccupation about how we interact with the North East LEP, and our view on that is we will, if there is added value in doing so, but just because there was an old traditional boundary that surrounded us and the North East LEP, that does not mean that it should be a prerequisite for that to happen. We will work with whichever area, whether it be neighbouring County Durham, which is part of the North East LEP, as we are doing for future European funds post 2013, or Hull and Yorkshire in terms of renewable energy. We will identify the issues and, where it adds value to work with people, we will pursue those relationships.

Adrian Shooter: Can I just add a similar thing we do? We maintain close contact with the LEPs around us-and, in fact, some that are a little bit further away-and we recognise that they have may strengths in particular areas, and vice versa. We have various working arrangements with them, which I am sure we will enhance, so we do not end up doing the same thing in two places and so that one benefits from the skills of another.

Chair: I really want to move on-we are running out of time. Mike Crockart has a number of questions particularly to Oxfordshire.

Q37 Mike Crockart: Very quickly, we have talked about the variety and the geography of LEPs. In particular, Oxfordshire has a population of 650,000, so it is quite a small one compared with over a million for Hertfordshire and several million for other areas. I am interested in how you came to the decision that Oxfordshire was the right size and geographical location for the LEP and not, for example, making it wider and "Heart of the South East" or linking up with the technology corridor of Berkshire, where you share a certain amount of technology. Effectively, was it just that the local council decided, "That is what we are going to do"?

Adrian Shooter: No, I think you have to look back a little. Oxfordshire was part of SEEDA-the South East RDA-which people in Oxfordshire found to be an extremely unsatisfactory process, because it was a large and unwieldy organisation and probably one of the less effective RDAs. I mentioned earlier that, as it happens, Oxfordshire is a fairly well packaged economic area, and its economic activity is reasonably coterminous with the boundaries. There was a coming together over a period of time between the political leadership of the county and significant businesses within the county, and a decision was reached that we were going to jointly submit the application for the Oxfordshire LEP, which was successful. Certainly, it is smaller than some of the other places-that is absolutely true-but having run one of the smallest railway companies, Chiltern Railways, for 18 years, there is something to be said for having a smaller outfit, where you can perhaps move quicker, you know people and you can make things happen. We are very confident that we can be very effective at the size we are.

Q38 Mike Crockart: But I do worry that you will end up being overwhelmed by the resources of the local council in terms of policy direction, and you therefore need very strong private sector representation on a body that size.

Adrian Shooter: We absolutely have that and do not have any fear of being overwhelmed, but we are alive to the risk.

Q39 Mike Crockart: Can I pick up on that point? You talked, quite rightly, about spinoffs in aerospace and medical science, and we can probably add cryogenics and space satellite technology to that.

Adrian Shooter: Indeed.

Mike Crockart: What representation do those industries have on your board?

Adrian Shooter: For example, the Chairman of Science Vale UK, who is the Chief Executive of UKAEA, is a member of the board.

Q40 Mike Crockart: But in private sector industry, not in Government bodies.

Adrian Shooter: If you let me finish, in the various sub-committees that we have, all of whom report up through a private sector board member, with the exception of one that I mentioned earlier, we have a number of people representing a number of those industries. It is important that we have-and we do have-strong links into the business sector within the community, and we are working hard to reinforce those.

Q41 Mike Crockart: If I can turn briefly-I am aware of the time, Chair-to a report done by the Financial Times looking at the top 20 LEPs, Oxfordshire did very well and ranked, I think, third in terms of the advantage that you have in location, yet you did not feature in the top 20 in inward investment. Where do you think the mismatch is happening? Where is it going wrong?

Adrian Shooter: I will come straight to the point: the fact of the matter is that the questionnaire that was sent out was not completed, so they did not have the information. That is factually what happened. Having said that, it is also the case that the question of inward investment into Oxfordshire has not been dealt with in the past as satisfactorily as it might, and it is one of our priorities to pull that together, because it is the very best in the place in the country to do business and we are going to make sure that people know that.

Q42 Mike Crockart: The final question: how does that work in the relationship-and perhaps this is open more widely-between you and UKTI and how you generate inward investment?

Adrian Shooter: We are working with UKTI. We have met with them several times recently. Again, there is a lot more work to do. As I mentioned to you, all but one of our workstreams are led by private sector individuals. I have an individual who is working on that very actively. At our board meeting last week, we took a presentation from him. We are not yet fully up to speed but we know what we need to do and we are going to get there.

Q43 Chair: Can I just pick up? You gave us your answer to the issue of not being in the top 20. I think I heard correctly that the questionnaire was not completed. This is the Financial Times questionnaire, is it?

Adrian Shooter: Yes. As I understand it, there was a questionnaire that was sent in that asked for various things and, for whatever reason, it got missed and it was not replied to. That is what I have been told. They had no information.

Q44 Chair: So, basically, you did not respond to it.

Adrian Shooter: They had no information.

Q45 Chair: You do not know why it was not responded to.

Adrian Shooter: It was an oversight.

Linda Edworthy: Sorry, if I could tell the Chair, it is the results of the fDi magazine survey that the FT picked up on. When the fDi magazine sends out surveys, we all look at them and think, "Is it worth our while doing this?" Because they then ring you and up and say, "Will you buy two pages in the next edition?" It is not necessarily the best indicator of how areas are performing.

James Newman: I think we were fifth in one table-I cannot remember which one, it is that important-but we were not in the top 20 in the other. Again, I have no idea. I suspect it is too early in the process as far as LEPs are concerned for any real assessment to be done in terms of creating league tables, because we are all very different.

Linda Edworthy: And is it helpful?

Q46 Chair: I suppose the response is: the danger is you may find yourself having to answer questions at a Select Committee on this. Perhaps slightly more seriously, if the only way of measuring this is by virtue of Financial Times surveys that are not highly regarded by LEPs, do you not think there is a case for having either a Government-initiated survey or one by another monitoring body?

Adrian Shooter: Yes, there is.

James Newman: There is certainly a case for measuring or at least reviewing how LEPs are doing and performing within their own environment, not as a tick-box exercise but a one-to-one with Government Departments, if that is required, because I think it will help the Government Departments as well to understand more about what we are trying to do.

Adrian Shooter: We are very happy to be reviewed, providing it is done in a professional way, and for rankings to be published.

Q47 Chair: I am talking to a Financial Times journalist tomorrow so I will raise the matter with them.

David Frost: I think it is also fair that one of the things that was asked of the LEP Network early on was to do a detailed breakdown, on LEP areas, of the current state of the economy and the current state of the economic geography. We did that and that, of course, is circulated to all LEPs, although it does not attempt to rank.

James Newman: But we will not be buying pages in the Financial Times, because we have no money.

Q48 Chair: I need to conclude fairly quickly but I just have a couple of questions to finish with on accountability. Very briefly, who do you feel you are accountable to as a LEP?

Linda Edworthy: Local businesses and local residents.

Mark Reeve: Both public and private sector within the LEP.

James Newman: To a certain extent to the Ministers who appointed us as well, in terms of their expectations of us-very much so.

Adrian Shooter: I would add to that to the people who we are supposed to be finding jobs for, which is why we are there.

David Frost: There is a wide range, but of course we are also accountable, where there are funding streams, to those Departments that are providing it.

Q49 Chair: The Campaign for the Protection of Rural England complains that, because of what they perceive as lack of clear accountability, LEPs may work contrary to their perceived interests and the green belt and so on. Do you think that is realistic?

James Newman: Certainly, it is not part of our remit. We are very much focused on driving the economy, and we will take advice from our local authority partners and other organisations on that particular issue. Our clear focus is: what is going to help the economy in our region? Rightly or wrongly, I am afraid we have avoided social issues, if I could call them that.

David Frost: I think it is right that the LEPs should, for example, put the minutes of their board meetings on the web, so they can be seen openly.

Q50 Chair: Who decides on the appointees to your respective boards? How is it done?

Adrian Shooter: Private sector appointees are, as I mentioned earlier on, nominated by the various business organisations. Public sector nominees or political nominees are decided by the local authorities.

Mark Reeve: The same for us, Chair.

James Newman: In our case, the public sector nominees are the leaders, and I made it clear at the start that there were to be no substitutes for the leaders; in other words, they could not send an officer or their chief executives. It was important to get those with a democratic mandate around the table, and that has been pretty well adhered to. We have a couple of chief execs there as observers. As far as the private sector is concerned, I was appointed through national advertising by a joint panel of public and private sector and, once I was appointed, I then appointed the rest of the board with private sector colleagues, again through open advertisement. They are appointed for two years and I am about to review the contributions of my existing board members and, hopefully, most of them will be reappointed again.

Q51 Chair: I want to have a concluding question but, Linda, do you want to come in here?

Linda Edworthy: Tees Valley is very similar to James’s situation; the only difference is that, obviously, part of our board existed in advance of the LEP designation. Where we have taken on additional board members from the private sector since then, it has been through advert and appointment panel of mixed public and private members of the existing board.

Q52 Chair: There is a perceived problem with the representation of SMEs, which, by their very nature, often do not have the time to represent themselves on outside boards. Would you agree that is a problem, and is there a way round it by using trade associations or whatever? What is your experience of that?

Linda Edworthy: It does not appear to be a problem for us. Three of our board members are from SMEs. We do not expect them to play a representational role; none of our board members do. They are there because of the nature of their expertise in a particular sector. We do have a separate engagement session, in advance of all board meetings, with all the business representation organisations, including the Chamber, FSB, CBI, EEF and the Institute of Directors-there are probably about 10 of them in the room-where we talk to them about the issues that are coming up at the board and give them the opportunity to put papers directly up to the board without us touching them. It is to develop our engagement through those organisations and through the broader representational roles.

Adrian Shooter: I have two SME chief execs who are on the board. It is certainly true these guys are busy, but we have found two, who have been nominated by various business organisations to be board members.

David Frost: I have not seen that problem at all. If we are talking about micro-businesses, that may be an issue, but in terms of those businesses that are making the real contribution to the economy, they are represented. There seems to be a view from the board that they do not want the representative organisations on the board, they want the businesses themselves; but at every LEP, there is a forum, as in Tees Valley, for engaging with all the key representative business organisations.

James Newman: We were told very clearly, when we had our first private sector meetings before the LEP was formed, that they did not want the good and great there, which is why we went through the advertisement process. We engaged the SMEs through the trade associations, who are not specifically represented on the board, although, as it turned out, we had one of the Chamber presidents at the time on the board. Most of our board members represent some large businesses and some small businesses. Our engagement with the City Deals is the City Deal on skills, which is about supporting SMEs. We have put an RGF bid in, again, specifically because the SMEs were not able to because the thresholds were too high. We work closely with Finance Yorkshire and other funders to ensure that they have some access to finance. There is still more work to be done on devolvement of power, on access to finance and a number of other areas where SMEs clearly have an agenda.

Chair: Thank you very much. Thank you for your contributions, and I just underline that, if in retrospect you feel you could add to an answer that you have given to this committee, feel free to put that in a supplementary form written to the Committee. Similarly, if you feel you would like to answer a question that we did not have the sense to ask you, feel free to put that in. Likewise, if we in retrospect feel there was a question that we should have asked you but did not, then we will feel free to write to you and we would be grateful for your reply. Thank you very much for your help.

Examination of Witnesses

Witnesses: Paul Kalinauckas, Chief Executive, Black Country Reinvestment Society, Roger Salomone, Head of Business Environment, EEF Ltd, Sumita Shah Technical Manager, Public Sector, Institute of Chartered Accountants for England and Wales, Michael Leithrow, General Manager, Northern Pinetree Trust, Philip Ray, Finance Administration Manager, Steelite International, and David Dunn Chief Executive, Sunderland Software City, gave evidence.

Chair: Welcome, and thank you for agreeing to speak to us today I apologise for being slightly behind schedule. As you will see, we had an enormous number of questions to manage with the previous panel. We do not have quite as many to ask you but that does not mean to say Members will not actually expand on our core questions, so I cannot guarantee that.

Could I just underline what I said to the previous panel? Some questions will be specific; others will be collective. Do not feel you have to answer every question if you feel that your response has been covered by a previous speaker.

Before I actually invite the opening question, I must make it clear that I have a declaration of interest in relation to the Black Country Reinvestment Society. Not only do I know the Chief Executive but I am actually an investor in the Black Country Reinvestment Society. I believe in putting my money where my mouth is, although I have to say the size of my investment in the Black Country Reinvestment Society is nothing like as great as the size of my mouth, but no doubt Paul Kalinauckas will make that point at an appropriate time.

Q53 Paul Blomfield: We coincidentally meet in the shadow of a fairly devastating report from the Public Accounts Committee this morning on the Regional Growth Fund, but I wonder if I could start off by asking you to share with us how you found the bidding process in terms of transparency, efficiency, and Government engagement and support?

David Dunn: The process, as I have said in my written evidence, unfortunately sits somewhere in the spectrum of being very at the public sector end and very at the private sector end; hence it is not prescribed one way or the other. If it was very public sector led-i.e. it had a lot of design, a lot of policy and answered a lot of very specific questions-public sector organisations could help businesses complete it. If it was very much at the private sector end of the scale it would be much looser and it would be much easier. It would be very difficult to compare apples and pears. I think it is an unfortunate situation and my recommendation, moving forward, would be more clear guidance on what was being looked for by central Government. I know that perhaps goes against the reactive side of being private sector led, but unfortunately I think it needs that.

Q54 Paul Blomfield: Would that be a general view?

Philip Ray: I would support that at the outset, but what we found most useful was the engagement that BIS made at the workshops that they ran throughout the country and, more importantly, the onetoones that followed those workshops. That actually did give more focus as to what was required in the application process. Prior to those we probably did find them a little bit confusing with their very opengrip type of approach.

Michael Leithrow: The balance between a public and a private sector approach is absolutely correct. We did not find that a particular problem at all and we found the workshops extremely useful. We did have some issues with the spirit of it being light touch in terms of its approach and that would be very easy and open; the reality turned out to be somewhat different. In particular areas, there was a hope or an aspiration that the ERDF could be used alongside RGF, but that does not seem to have happened, as far as I can tell.

Roger Salomone: From our perspective-and I share most of those thoughts-the key one is transparency and how the assessment criteria are going to be interpreted. Clearly, as a company, if you are not sure how it is going to be judged it can be hard to make the best possible pitch in terms of your value composition. That is the key area of improvement.

Q55 Paul Blomfield: The Institute of Economic Development described the process for approval as, "Chaotic, characterised by unclear guidance, bureaucratic delays and opaque decisionmaking. The lack of a strategic approach in both cases is deeply concerning." Would you concur?

Michael Leithrow: I don’t think so. One thing that would have certainly helped would have been very clear guidelines around the value for money element. Is it about creating jobs? What is the benchmark for creating those jobs and what are the criteria that would be acceptable outside of that? What is the social return? What is the return in other terms apart from financial?

Q56 Paul Blomfield: Do you get a sense from any engagement that you have had with the Department for Business, Innovation and Skills that those points have been taken on board for the Round Three bids that have been going in?

Michael Leithrow: As far as Round Two is concerned, I cannot say anything other than yes, given the nature of our organisation, working with people who are predominantly disabled. In Round Three, our bid was unsuccessful, although we thought it was probably a stronger bid than the Round Two bid. I guess it is swings and roundabouts.

Sumita Shah: We have been involved in the bidding process, but we have certainly had some very constructive discussions with BIS in terms of learning the lessons from the Round One and Two processes. We are hopeful that, having learnt some of the lessons from the first two rounds, the application bidding process will be made slightly easier in the Round Three bids.

Q57 Paul Blomfield: The Public Accounts Committee report this morning focuses fairly significantly on delays in the process and BIS is seeking to change that, to improve the position in Round Three, so that the process should take no longer than six months. Do you think their plans will improve it or do you think there are more fundamental problems within Regional Growth Fund allocation?

Paul Kalinauckas: They are going to have to improve it because they have overpromised and underdelivered. We were given approval for our RGF bid as part of a trade association national bid in April 2011 and as recipients of that we still have not had the money. Our trade association drew it down in July this year, but what they need to improve is this overzealous insistence on additional due diligence. For example, we have gone through investment panels; it has been approved. Now PricewaterhouseCoopers are having to go through it all. I am going to another panel meeting this Thursday but no one can tell me when we are going to get it. That is what they need to be doing in the future: fasttracking it. They do not need this excessive due diligence. We are already known to them. We have got a strong relationship with BIS. There is almost an overbureaucratic approach. It is almost like a lack of trust, having awarded it and then having a really long and extremely drawnout process.

David Dunn: I would suggest a target of six months is fairly unambitious, especially in certain businesses in certain sectors where, if a bid is put in, a response is needed more quickly in order to react to the market situation they may well be in. I am slightly biased because I deal with the technology and software sectors, and if they are putting a proposal forward, that opportunity has a very small window and the answer needs to be sooner rather than later. If the answer is no, that is fine, but they need to know it is no sooner rather than later.

Q58 Paul Blomfield: I think it is probably quite ambitious given some of the delivery times at the moment, but I take your point. Would others share the view that six months is not much to be aiming for?

Sumita Shah: My colleague here mentioned the due diligence process and that is where our member firms have been involved in the process so far. What I would say is that we are now clearly coming up to the Round Three bids where members will be involved. You talked about proportionality and having a more proportionate approach. That is certainly the way our understanding is: there will be a much more proportional approach for future due diligence work.

Q59 Chair: Following on from that, if BIS was able to provide closer liaison with applicants and some sort of professional support, would it be possible to reduce the length of time subsequently taken in due diligence, in effect by providing more upfront engagement and support to reduce the length of time between the acceptance of a bid and the actual contractual undertaking?

Michael Leithrow: In organisations such as ours and some of the other members here, there is a lot of knowledge and experience of having delivered public contracts in the past. In my view, the due diligence approach is costly, not recoverable within the programme and puts people off. We can live with that, but the issue is this extension of the due diligence and the due diligence moving into areas, certainly in our case, that were not within the offer letter. It is almost as if the organisation doing due diligence felt it had to do something; it had to investigate this; it had to comment on that. This was completely unnecessary; you could almost completely remove due diligence where there is a track history of having delivered public sector contracts. In our case I cannot see what it has added at all, other than that the accountants have made a nice packet.

Sumita Shah: In terms of how the due diligence process does work, what the accountants are doing and providing is what BIS is asking for, so there is quite a lengthy process in terms of discussion around the scope of work in terms of each project. What accountants are providing is what is being requested by BIS; they are not providing any more than that. Where we perhaps need to move on from this is in learning the lessons from the process, thinking again about the proportionality and how we can improve so that smaller businesses do not have to bear the additional costs of quite a wide scope for due diligence. I go back to saying that we should look at a more proportionate approach for due diligence, especially for the smaller end of the market.

David Dunn: I think the question was whether we should do more due diligence up front and whether central Government provides resource and support for that. My counter question would be that it depends if the cost is direct to the business. Are the businesses paying for that support prior to submitting a bid? I think that would put a lot of businesses off, which may well be an approach that could happen. If the due diligence comes back and they say, "Actually, this project is not within the remit of RGF," that would be useful because again it speeds the process up. If central Government are paying for it, absolutely. An amalgamated deal with the due diligence at a reduced cost could be beneficial as well.

Q60 Nadhim Zahawi: I wonder whether Sumita can shed some light on this. Is the contract with the accountants capped? How is that working?

Sumita Shah: First of all, the applicant begins the bidding process. They provide information to BIS, which will make that initial assessment based on the information provided by the business, and they will make a conditional offer based on that information. On that offer, one of the conditions is that they need to get a due diligence report. Initially, the scope is set without any accountants being involved. The accountants will then bid for that work; a number of different firms may bid for this due diligence work. At that point, they get in discussion with BIS on the scope of the work and trying to narrow down what it is that is required, but the conditions set by the process are that BIS require additional information before they are willing to provide the funds and make the final offer.

Q61 Nadhim Zahawi: Are there time limits? You know that due diligence is as long as a piece of string with a lot of these firms, especially if they are charging an hourly rate. It just depends on how much time you get to do things and if you have a target you have to hit, which in the private sector would mean either an investment date, an IPO or whatever it is. Are they targeted or timelimited in terms of delivering on that scope as part of their bidding process?

Sumita Shah: The timing is actually based on what BIS sets as its requirements. I will give you an extreme example from a Round One bid, where one of our member firms actually discussed the scope of work 15 times before any due diligence work was actually carried out. Now that is an extreme example and this was a voluntary organisation, but that is unusual in the scheme of things and the way due diligence works. That is a very unusual example, but the cost was actually borne by the member firm rather than the business because the relationship around the due diligence had not even started.

Q62 Nadhim Zahawi: Sorry, who covered the cost for that?

Sumita Shah: The firm accepted those costs. They did not actually charge; they understand that the business needs these funds and so they are wearing their own public interest hat. They have borne the cost of having this discussion without actually charging the business.

Q63 Nadhim Zahawi: You mean the accountancy firm.

Sumita Shah: Yes.

Q64 Nadhim Zahawi: I understand that and that is very good of them and philanthropic. Whoever they are, they are to be congratulated. Just going back, do you then set them a target when they have to complete that due diligence?

Sumita Shah: That is set by BIS.

Q65 Nadhim Zahawi: And there is a target for every single one.

Sumita Shah: There is. I think there is a threemonth timetable. I understand there was certainly going to be a timetable in the future. I do not know whether there were timetables for the previous bids from rounds one and two.

Q66 Nadhim Zahawi: That is my point. I am just trying to understand whether there was a timetable. When these provisional offers were made, was there then a discussion with the accountancy firm that is carrying out the due diligence as to the timetabling?

Sumita Shah: I am not aware of that.

Michael Leithrow: I think there is a backstop.

Philip Ray: There was no timetable set for Round Two bidding. We were successful in Round Two and are now just concluding our due diligence.

Q67 Nadhim Zahawi: So there was no timetable on it.

Philip Ray: There was no timetable on it, no. We are in constant discussions with BIS and updating them on where we are. I would also have to say that the fees that we were charged were set up front and were fixed for the scope of the due diligence agreed between ourselves, the auditors and BIS.

Q68 Nadhim Zahawi: The fees were fixed; there was no timetable on when they had to deliver.

Philip Ray: No.

Sumita Shah: Again, through the discussions we have had with BIS in recent weeks, there are plans to add in a timetable and a process around Round Three bids so that it will be much clearer.

Q69 Nadhim Zahawi: I would suggest that it should have been added in Round One.

Q70 Chair: This is one side of the equation, and it would seem amazing that there was not any sort of time limit set on the carryingout of this process. The other side is the actual scope of the due diligence inquiry, because quite understandably if you are continually extending the range of it, it is likely to take longer. In terms of BIS requirements, has there been a continual moving of the goalposts on this?

Sumita Shah: What we would say is that one bid is very different from another. Although we start off with model terms and a model scope, the accountants, together with BIS, need to look at the requirements of that particular application, so there are changes in the work that are done before and during the process as well. There are changes in scope; I would not say necessarily this was a change in target; however, as information is learnt there may be more information that needs to be investigated.

Q71 Chair: Could I just ask you as an accountant-and other members of the panel with perhaps slightly different perspectives-what you think BIS should be doing to change their existing practices to speed up the process without compromising it?

Sumita Shah: I would say initially having the right skills in place to understand the processes. For example, when I talked about the going back and forth 15 times as an example, that was largely due to people involved at the BIS end who did not necessarily understand the due diligence process. That has now actually started to work.

Q72 Chair: Can I clarify? BIS did not have the people in place who understood the process.

Sumita Shah: That is right.

Q73 Chair: And they are now sorting that.

Sumita Shah: That is right. There needs to be consistent application of the process. Again, that is something that is being dealt with and, moving forward, those lessons will be learnt. Previously, due diligence used to be carried out by the old RDAs; they have now been moved to private sector providers, who are the firms. One of our key recommendations would actually be-where you are going to move the process away from inhouse-to involve the firms at an earlier stage in the whole design and application process, so that those firms and the profession can advise on what can and cannot be done. That is a lesson for future growth projects as well.

Q74 Chair: You are saying they should be together prior to application.

Sumita Shah: Yes.

Q75 Chair: Does that not raise potential conflicts of interest?

Sumita Shah: I am not talking about individual firms; I am talking about maybe having the accountancy bodies involved in the discussions. I will give you an example: we are currently working with the Department for Education on funding that they provide to a number of education establishments, and we are involved in the process of talking to them about the sort of accountant’s reports they might need to clarify that the terms have been spent in accordance with the conditions set by the department. We are involved at an early stage and we can help them with the process and explain what can and cannot be done. Therefore, we can try and put in a more proportionate approach, depending on the types of schemes and the types of businesses. For the Regional Growth Fund and for any future growth schemes, we would say learn the lessons from the past and put in more proportionate approaches.

Q76 Chair: Does anybody wish to add to that?

Michael Leithrow: I think "proportionate" is absolutely spoton. Ours was a very simple bid. We wanted to be paid by results, so there was no risk to BIS. We wanted someone to come in and assess it-it was value for money; it was very cheap in terms of job creation-and our ability to deliver it. It could have been done very easily and very proportionately to the size of the bid and the type of organisation. We are a charity; we are regulated by the Charity Commission, Companies House and all of the other funding bids that we apply for. That proportionate approach would certainly have been very, very helpful.

Q77 Chair: I was about to ask you a specific question, Michael. You had a first round failed application and a second round successful one. What would you identity in terms of processes where there were improvements between Rounds One and Two, if, indeed, there were any?

Michael Leithrow: There was very little, really. The key difference was the feedback. The feedback enabled us to change the Round One bid, modify it very slightly into Round Two. It was actually very, very, very similar. There was one element in relation to micro-finance that we took out of the Round One bid. I think the reason that our Round One bid failed was because there was a wholesale bid by the CDFA, which we happen to be part of as well, which was successful. It would have been really useful if we had been able to have a dialogue with BIS to say, "Okay, if you like that part of the bid and this bit is actually capable of being delivered by another part of the RGF programme, why don’t you just let us take that part out?" We could have taken that part away; we could have worked with the CDFA, which we are doing now anyway; and the bid could have gone through in Round One.

Q78 Chair: Just before I move on-and I think that Sumita is probably best placed to answer this, but feel free to comment-I believe in the case of the Black Country, applicants in Round Two had a threemonth delay after notification of success in being assigned a case officer before the due diligence process could begin. Is anybody aware of that and has that been improved, do you know?

Sumita Shah: I am not aware of that particular case.

Philip Ray: I think when we were successful we had about a sixweek delay before we were notified of the processes to move forwards with due diligence.

Q79 Chair: So you were notified, but due diligence did not actually start for another six weeks.

Philip Ray: Yes.

Q80 Chair: Do you know the reason why?

Philip Ray: No.

Q81 Chair: Is this fairly commonplace?

Michael Leithrow: Our experience was very different but I suspect that was because of the very close relationship that we have with DCLG at a local level. The officers within DCLG were supportive of our bid once it had gone past the conditional offer stage, and we found we had a case officer appointed very quickly. The case officer was excellent in terms of helping guide and steer us through the process and making things happen quickly, but I think that we may well have been the exception rather than the rule there.

Q82 Rebecca Harris: This is really a question about how we judge taxpayer value for money from the RGF. The National Audit Office and today’s Public Accounts Committee report have both noted quite wide variations between projects in the basic price per job created. I wanted to ask whether you think we are getting value in terms of job creation or job retention from the RGF.

Paul Kalinauckas: It depends on the project. Our project was about financing small and medium enterprises who will do the job creation. We worked out figures that come out at £2,335 a job, which is fantastic value for money when you are talking over £30,000. That is because it is about using a vehicle. The Government cannot do this directly so they use a vehicle, the small business loan funds, to get the money directly to the microbusinesses who cannot borrow directly from the banks. We ticked all of the boxes. The value of recycle funds is that you can re-lend it and re-lend it, which is why you end up with that type of figure. This will go on beyond the threeyear Regional Growth Fund period because money gets lent and repaid. We were flabbergasted that it took so long to get signed off.

Michael Leithrow: In our case we are talking about similar levels of job cost, £4,000 per job. The important thing that we wanted to get across in our bid was, if you are looking at value for money, it is not just the cost of creating the job. The people we are working with are exforces, people with challenges, people who have offended, people who have got disabilities, young people who are disadvantaged in society. When you start to look at the costs further down the line of someone reoffending, for example, it costs £40,000 on average to keep someone in prison. It costs £4,000 a job with one month payback, return on investment. If I was investing in that business I would not have a problem; it is a phenomenal return.

Roger Salomone: Obviously some bids are much better value for money than others. That does raise the question mark over whether the threshold is set too low. I certainly know of member companies who have had unsuccessful bids who might question why their bids were rejected based on the values that are coming out of the National Audit Office inquiry and the Select Committee report. There is a lack of clarity, and that needs to be addressed.

Q83 Chair: It was in was the NAO report-I think it was picked up by the PAC report as well-that projects could be chosen for reasons other than value for money. Were you aware of this when you submitted your own bids?

Michael Leithrow: No. In fact, in our case-and I suspect generally-there was a very strong emphasis on leverage. Leverage was the key ingredient and fivetoone was a figure that you would use as a kind of starting point. Our particular bid actually had onetoone leverage but it had this other element of bringing in this value for money through the social aspect of the bid, but certainly that was not made clear at the beginning and it was a question of whether we were going to have a go and see whether this would work.

Q84 Chair: Effectively, you were submitting bids on an evaluation basis which was not necessarily going to be applied by BIS.

Michael Leithrow: We hoped that we were fishing in the right pond, but we didn’t know.

David Dunn: I would agree. It was almost a blind application process; you did not know even the category headings under which you were trying to achieve certain things, such as leverage or cost per job. You could make assumptions, and anybody who had previously worked in the public sector would always make assumptions like that, but because we put in a bid on behalf of four private companies at no cost to them, it is very difficult for me to go back and say, "Well, here is the reason why you didn’t get funding." Yes, we got a feedback session, but that is another conversation about what we got from the feedback session.

Q85 Chair: If you are doing the bid on behalf of other companies and basically it has failed because you did not effectively base it on the right criteria, how does that affect your relations with those businesses?

David Dunn: I should perhaps clarify. Each of the individual companies filled out their own application form with our advice and assistance. We made them fully aware, rightly or wrongly, that there was a high chance of being unsuccessful. We managed expectations at the start because there were no criteria out there. The companies that we were working with were a little bit more expensive, they were £8,000 a job, but they were very high quality, very technical jobs that would be sustainable. We were also leveraging more or less onetoeight, which we thought was quite good. A lot of private sector things were being catalysed by the RGF. We have gone back to them. Perhaps, with hindsight, it was almost a good thing that we did not get it because six months waiting to get their money through would have dropped all of their projects anyway. Sorry, that is a horrible thing to say but it is probably very true.

Q86 Chair: Yes. Do you think there is a case for the criteria on which a bid will be judged to be made more specific, bearing in mind that there is always an argument for a degree of flexibility, because, as other people have said, every application is different?

David Dunn: You either, in my eyes, make it more specific to fit with what BIS understand they are looking for, or if you leave it-for want of better terms-open and vague, you need people within BIS who understand the nuances of different sectors, who can then compare, as I said very early on, apples and pears.

Philip Ray: I would agree with that, but I think BIS does also need to keep flexibility within the process and known criteria for judging the applications.

Michael Leithrow: I would certainly agree with that with one proviso: if you start introducing too much flexibility then there will be a flood of applications that are clearly ineligible. The one thing that is very, very, very clear to me about this whole process is that it is about jobs and job creation. If there is to be flexibility, that needs to go at the front of it. You can look at whatever you like, but unless you are creating jobs then do not apply.

Sumita Shah: We are very supportive of the need for clear guidance and that is from the start of the application process all the way through to the end, when funds are being delivered. Going forward, businesses need to know what information they need to have in place for the process and what their expectations should be, so I think we need clear guidance, including the timetables that you have talked about as well

Roger Salomone: We come from the other perspective, but I think clearer and more specific guidance on how bids will be interpreted and assessment criteria is absolutely essential because if not there is potentially scope for a lot of inefficiency. Bids will be submitted that do not stand a hope of being taken forward; conversely, if you have had a bad experience it could discourage you from making bids going forward, if you do not understand how some of the criteria might come into play.

Q87 Chair: I do see a potential difficulty that BIS may have. You may have an excellent bid creating a lot of jobs in the South East of England, where there is low unemployment, and you may have a bid perhaps not creating as many jobs but in a strategically far more important area, where job creation is more vital. Have you any sort of comment or perspective on that? Which would you go for?

David Dunn: It depends on whether BIS decided to place a weighting on that emphasis. Is that one of the drivers of the funds, removing unemployment in areas of high unemployment and higher economic requirement?

Q88 Chair: Well, I would have thought that was pretty central.

David Dunn: In that case it needs to be weighted.

Q89 Chair: You say it ought to be made clear and weighted so that applicants know what the situations is.

David Dunn: It would be an interesting line for BIS to take.

Q90 Chair: In your experience, is the threshold of £1 million an obstacle to businesses applying?

David Dunn: We amalgamated a bid to get over that threshold. When we had an early conversation with BIS at the workshops, they recommended that could be done. The feedback in terms of our unsuccessful bid did not suggest that an amalgamated bid was a problem, so I do not necessarily think the threshold is a problem if you are trying, like us, to grow a sector, where you can bring in a number of companies together.

Q91 Chair: Do others agree with that?

Philip Ray: Yes, I do not see the £1 million being a problem either.

Q92 Chair: In terms of relations with your local LEP, what level of consultation did you have with them before putting your bids in?

Philip Ray: In our case, we were going through the transition between the RDA into LEP so we actually had no consultation whatsoever with the LEP. What we did have was a very strong consultation with our local authority and we found that their support was invaluable in progressing the bid and taking the bid forward.

Paul Kalinauckas: We had a good relationship with our LEP. They endorsed it because we knew them well. When we went to an adjoining LEP, they did not know us so they were not prepared to support our bid. Our bid was one that we did ourselves and we found the answer to this was to have two bids. We did one and our trade association did one. All the work we put in to get the LEP’s support was not really necessary in the end, although what has been an embarrassment is that they have cited us right from the beginning about how wonderful we are and now it is like, "When are you going to get it?" This has been going on since April last year, but the key is that if you had the existing relationships then you got the support, but if you did not and they did not really know you, it took time to build up the relationships.

Roger Salomone: The general picture is that there has been fairly limited engagement from the LEPs. The first and most basic problem goes back to the conversation from earlier this morning around the ability of LEPs to market themselves. Actually, awareness of LEPs is very low, particularly amongst the SME community. I would be surprised if, based on our sample of the 150 members from our regional committees, much more than 10% of companies are aware of LEPs in the first place. You have got to know about them to go there to get their endorsement.

If you do know about them there is a bit of scepticism about what kind of value they would actually add to the bid. I know of companies that have deliberately avoided it, based on perhaps an unfounded concern that they are public sectortype bodies and that it would involve additional bureaucracy in the process. As we have heard, it is quite a lengthy process already. To give you a feel for that, the general experience under the RDAs was that planning applications, from putting in the application to knowing whether or not you had been successful at the back end, took about 30 days to turn around. A lot of companies are putting their bids in for LEP sponsorship and they are sitting there for several months. That is an issue.

Michael Leithrow: We cover two local areas and one of them was talking to us this morning. The dialogue that we had with the LEP was quite interesting, because I thought it would be very much that you would whack in an application and it would either go through the bureaucratic process or you would get a letter signing it off. I was quite impressed by the interest that the LEP were showing in what we wanted to do, how it was going to be delivered and actually understanding what the bid was about. The other LEP was not quite the same; we got support from both, but certainly with the Tees Valley LEP, I found that very interesting and very welcoming. I think, if there is an element of failure, it is moving that on and working with both LEPs to actually use what we have been successful in. We have RDF funding and we have RGF funding: here, we are laying it before you; how can you now use that as part of your delivery model? I suspect it is because of the capacity within the LEP and the fact that micro-enterprise-which is really where we are-and micro-finance are a relatively low priority, but certainly they are very, very interested in what we were doing.

Q93 Chair: Would you say that there is a higher level of awareness amongst SMEs of the Regional Growth Fund compared to LEPs?

Roger Salomone: Yes.

Q94 Chair: It was your comment that provoked my question. Would other members of the Panel agree?

Paul Kalinauckas: I think most small businesses do not even know the LEPs exist; most small businesses do not even know what the Regional Growth Fund is. That is my view, certainly in our locality. They just passed everyone by.

David Dunn: More will know about the Regional Growth Fund because of the third word: fund.

Q95 Chair: Instinctively, I would have thought that was the situation. How would you rate the level of awareness of how to apply for money through the Regional Growth Fund among small businesses?

David Dunn: We took them the opportunity. We knocked on their door and said, "There is an opportunity for you to join an amalgamated group to bid into a Regional Growth Fund." Their first response was, "I have never heard of this." We were doing a selling job on behalf of it because we realised there was an opportunity.

Michael Leithrow: I think those organisations that are relatively switched on would be aware. The roadshows were well attended and trade bodies actually putting the message out certainly helped, but I think if you weren’t aware of it, you weren’t reading the newspapers.

David Dunn: I don’t think the results and feedback from Rounds One and Two in the general press will help drive demand, or have helped drive demand, for Round Three. I think that all of the stories of time lags and perhaps missed promises are not necessarily going to drive people through the door for any further rounds.

Q96 Chair: Having said that, the number of applicants still far outstrips the number of successful applicants.

David Dunn: It depends how many are led by association bodies as well, though.

Q97 Paul Blomfield: I just wanted to say a bit more on the role of LEPs, because there is a kind of view that LEPs really ought to be supporting and coordinating; they ought to be the clearing house and mentor for bids. Others would suggest they steer clear and that local authorities and companies themselves should be putting in the bids. What do you all feel about that?

Paul Kalinauckas: If there is the resource, then it does work well. I know, for example, that in the Black Country some of the officers in Sandwell Metropolitan Borough Council did a lot of work with local businesses, making them aware, giving them support with filling the applications in. Even though it did not come directly through the LEP, because the LEP existed and the local authority was part of that, it was enabling as a process. They were local authority officers who knew what they were doing and could add value in filling out these complicated application forms.

Philip Ray: I would agree with that. We found in our area that the officers within the local authority were actually clued up on how to approach the application process. Really, that was what we tuned into and that was where we got our help from.

Sumita Shah: I do not have enough information about LEPs, but in terms of skills, one of the things we would say is that with the demise of the RDAs some of those previous officers who used to work in RDAs are now working in the private sector. Certainly, where they have been involved in parts of the process-I am talking specifically now about the due diligence process-in parts of the country, in the North, for example, that process has been a lot easier. This experience around skills is probably quite important.

David Dunn: On the caveat of capacity, which was the conversation of this morning, LEPs potentially and controversially provide an opportunity for localised due diligence. That is not financial due diligence; it is whether those bids fit with what is needed in the area. It comes back to the question before by the Chair of the weighting and necessity of jobs and unemployment. I think LEPs could really add value there. The only other point I would make is that endorsement by a LEP and endorsement by a local authority are not necessarily mutually exclusive. I do not think they are necessarily hierarchical, as well. Talking to both of them will give you a good understanding, and they could be really useful going forward.

Q98 Paul Blomfield: This highlights a different question. Very briefly, putting aside all of the other pros and cons of RDAs versus LEPs, was the process in the past richer and better because people were making decisions closer to the point of delivery? Is there a problem with the way that processes have been made lengthier and more remote because they are being centralised rather than regionalised?

David Dunn: I think absolutely. It comes back to Michael’s point before: if you can build a relationship with somebody locally you can quickly get the answers and the process can be sped up.

Q99 Paul Blomfield: Is that the general view?

Michael Leithrow: That mechanism exists, doesn’t it, for European funding?

Paul Blomfield: Yes.

Q100 Chair: Can I just ask a couple of quite specific questions? I have had feedback from my local LEP. First of all, on state aid, certainly one company in the West Midlands was turned down because it required an unacceptable level of state aid and henceforth companies have been advised to get advice on that. Is that an issue that you have come across?

Michael Leithrow: Absolutely, and if you want advice on state aid there is no body to which you can go and talk to get the advice. To find out where you can get the advice is absolutely torturous. Having to find a solicitor who you then have to pay to give you the advice, you could almost lose the will to live. It is an important issue. I cannot imagine that outside of the UK some of our fellow countrymen in Italy and France and Spain go quite to the same lengths that we do, but it is certainly very difficult

Q101 Chair: Just to follow up on this point, what would you recommend that the Government do to improve that situation?

Michael Leithrow: Short of having some central body that you could talk to and say, "Is this an issue? Is there a way around it?" I actually printed off the state aid rules. They are about that thick. It is written in a language that I do not really understand. When I read it I misinterpret what is in there, so I have to go back and read it again. I am convinced I have found the answer only to find, when I read it for a third time, I have actually misread it again and it is no good to me. Some general help would be desirable, and that help used to be available when the RDAs were around.

David Dunn: There were early conversations, stemming back on RGF1, which have perhaps even now turned into urban myths, around the idea of block exemption for a single RGF scheme that could be led by central Government. I merely say that to raise an issue and a question more than to make a comment.

Sumita Shah: If state aid is one of the requirements-and I know accountants are having to look at this as part of their process-then BIS itself needs to provide more guidance on what is state aid and how businesses can actually get more information about it rather than refer businesses to their lawyers, which is additional cost, and actually provide some of that information.

Michael Leithrow: I think once you have actually gone past the offer stage, BIS are very helpful in trying to make sure that state aid is not an issue, but actually getting to that point can be quite changing and it is asking a lot of an accountant to answer a question that really is a legal one.

Q102 Chair: Another fairly detailed but important issue is that unsuccessful companies from Round Two were only able to get feedback about why their project had been unsuccessful by requesting a Round Three "expression of interest" meeting. That, obviously, made that process conditional on them taking that particular step but also meant that there was a delay, often of up to three months. Is that a problem that you have come across? Do you think it is having an effect?

David Dunn: I am not sure if it was explicitly written as a Round Three bid discussion. It did take a while to get feedback for all of the companies that are involved in our bid and, to be perfectly honest, the feedback raised more issues for us. It did not help clarify what a Round Three bid might look like, so much so that we decided that probably it was a waste of the companies’ time and effort to put in a Round Three bid. The companies that had previously applied for Rounds One and Two felt that process was so cumbersome and the feedback was perhaps not very helpful; they decided not to put in a Round Three bid.

Q103 Chair: Is that an experience that others would concur with?

Roger Salomone: I have not personally heard the issue raised but I will look into it because it sounds like a very strange way to go about it, that you have to express an interest in Round Three just to get an input on Round Two.

Q104 Chair: My final question is really just a refinement of a comment I made earlier. Do you think the focus of the Regional Growth Fund should be on areas that are unduly dependent on public sector provision or public sector jobs and that, under the Government’s policies, are likely to be most vulnerable? If so, should that be written into the guidance?

Michael Leithrow: Very parochially, I would say it is very important to recognise communities of interest and not just geographical communities. If someone happens to have a disability and is disadvantaged in an affluent area, well, so be it. They should be entitled and they should be part of that support package. That is quite an important issue for me where the North wins and the South loses.

Philip Ray: The RGF should be focused on areas where development is needed and there is a potential to create jobs and create and improve communities, not just solely focused on the public sector.

Q105 Chair: Would that be a consensus?

Roger Salomone: We would probably have concerns if there is more of a regional perspective hardwired into the rules than there is already. As a country we have got a very significant macroeconomic challenge and we might need to think about how we can get the best value in terms of jobs and wealth creation and under monies available under the RGFs I think that could be a potentially dangerous route to go down. There is a balance to be struck there.

David Dunn: I think it actually comes back to your point before. It should be an element that is looked at, but it certainly should not be a line that is drawn between the North and the South such that only some are eligible. It should certainly be a high percentage of the evaluation criteria.

Chair: Thank you very much for your contributions That is very helpful indeed. We will obviously be examining the PAC report in great detail and we will be having the Minister in front of us in October when we can pick up the issues raised by the NAO, the PAC and which have been raised here today. I will repeat what I said to the other Panel: if you feel that there is an answer to a question that we did not pose but should have, feel free to write to us to give us any further information and, equally, if we feel that perhaps we should have asked something or followed something up that we didn’t, we may write to you and would be grateful for your reply. Thank you very much; that was very helpful indeed.

Prepared 17th September 2012