Meeting the growth challenge

September 2, 2011

As the Government finalises its plans to boost UK growth, with a series of programmes, measures and initiatives scheduled for announcement in the Autumn, now is the time to take stock of where the growth agenda in the UK is and what needs to happen next.

There is no doubt these are testing times for local economies: they are at the forefront of the Government’s growth agenda, but in light of recent cuts they are constrained by stretched resources and capacity. Achieving strong and sustainable growth will not be easy, particularly as the debt crisis in the eurozone and the recent US downgrade cast new doubts over the growth outlook for the global and UK economy. Undeniably, prospects for local growth are in many cases tied to the global context. Nevertheless, the Coalition government has made clear the critical role that sub-regional economies – through Local Enterprise Partnership (LEPs), in some cases coupled with Enterprise Zones – will play in driving national growth and rebalancing the economy.
Over recent months, as the process of setting up the LEPs and Enterprise Zones has been taking shape, there debates have been ongoing over the specific functions these vehicles will play, and the policy levers required to maximise their impact. Key issues such as ensuring genuine business engagement and influence over those areas that matter the most for growth – namely infrastructure, planning, transport and skills – have been rightly identified as critical success factors by a number of stakeholders. In fact, the latter is particular important in the case of Enterprise Zones; if not accompanied by measures to address long-term drivers of growth, these areas risk simply displacing activity in the short term and overall having a limited positive impact.
There is another point that requires closer examination, and that is the need to address some of the tensions that could arise from the interaction of policies pursued at different spatial levels. An effective growth strategy must acknowledge the way that local economies work, and will reflect the fact that labour and housing markets for example, often cross municipal boundaries. Yet, the government’s localism agenda is attempting to push decentralisation to its lowest level, including neighbourhoods and communities, while at the same time critical policy tools, including the soon to be devolved ability to set the local business rate and the implementation of planning regulation, will rest with individual local authorities. Given this, it is imperative that councils and businesses within local enterprise partnerships now take the lead in identifying and resolving these tensions, and where appropriate establish mechanisms to pool funding and powers to deliver critical infrastructure, transport and skills provision.
The Government has, sensibly, taken steps to avoid the ‘retail park’ consequences of similar reforms in the 1980s. By picking areas of the country that are already set up with the potential to grow in a particular industry, they are hoping to capitalise on existing expertise and infrastructure, and avoid a ‘race to the bottom’. This is an admirable, if as yet unfulfilled ambition. However, as with the issue of cross-boundary co-ordination, the very nature of Enterprise Zones means that some areas, targeted laser-like with broadband investment and tax breaks, stand to benefit massively, whilst others may continue to struggle. This begs the question, how do localities and the government ensure that Enterprise Zones create sufficient ‘spill-over’ to stimulate growth in poorer, less capable areas. How does growth in the Enterprise Zones of Sheffield and Leeds stimulate growth in Rotherham and Barnsley? Will the Zone in Runcorn and Warrington be vigorous enough to inspire growth across Merseyside and into Lancashire? We are not calling for uniformity of growth or of industrial policy across the country – localism dictates that some areas will fare better than others, but the new growth infrastructure needs to be able to accommodate the consequences for less successful areas. At this stage, it is not clear how ministers intend to tackle this.
Calling for growth that ‘spills over’ into neighbouring areas is just another way of calling for sustainable growth. There are certainly some quick wins opening up for government and some specific areas – some immediate boosts to the state’s coffers through tax breaks and business rate retention for example – but the ultimate goal has to be growth that is self-sustaining. Economic success will be judged nationally but will be driven locally. The emerging infrastructure has to create the space for this to happen.
There is a fundamental question underpinning all of these issues that has come to the fore of late – how can local areas pursue inclusive growth that can open up opportunities to a broader cross section of the population, and harness their economic potential? Even though they cannot be reduced to a simple explanation, recent demonstrations of violence and social unrest across the UK have revived the debate about social and economic exclusion, particularly in the case of younger generations.

Now is the time for businesses, councils and communities to come together and focus on delivering growth priorities, and discuss what kind of growth they want. Localities will soon benefit from a range of new tools that, together with the establishment of LEPs and Enterprise Zones, will enable them to drive growth in their area.

However there remain a number of outstanding questions to be answered. How do we ensure that Enterprise Zones successfully generate additional net investment across the UK, while minimising the amount of displacement of activity? How will they interact with LEPs? Will business rate relocalisation empower communities or exacerbate long-standing regional disparities? And how can local areas play a meaningful role in ensuring that their populations have the necessary skills and qualifications to access opportunities in the future?

The success of the Government’s strategy to restore long-term, sustainable growth to the UK economy will depend upon developing robust responses to these challenging questions.

Paula Lucci, NLGN Head of Research
The MJ, September 2011


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