The West Midlands economy: Optimum arrangements for decision-making.

1.            Business Voice WM Policy Recommendations:

1.       The development of economic strategy is important and this needs to happen at a level that crosses local authority boundaries. We require a business-led regional economic body (RDA) to achieve this.

2.       It is important to identify regional resources separately to those held by central and local government.

3.       The scope of economic decisions that are best made across local authority boundaries needs to be tight.

4.       Local government capability to act across borders is very variable. We favour an RDA being resourced to both create and co-ordinate delivery of a tightly-focussed economic strategy. The RDA should not deliver itself. Delivery should be achieved through the creation of strong sub-regional and local partnerships (e.g. urban development corporations; city regions and local partnerships such as the Black Country Consortium).

5.       The private sector voice has the potential to be articulated effectively via an RDA but work is required to strengthen the governance arrangements to see this delivered.

1.       Introduction.

The purpose of this note is to:

- Review experience of existing decision-making structures in the West Midlands;

- Explore the contribution of the Private sector in these structures; and

- Make recommendations for decision-making structures in the future.

2.       Background.

An analysis of economic regional decision-making needs to be framed by an appreciation of constraints placed on the region by the extensive retention of powers in Whitehall. Large and autonomous departments such as the Highways Agency; Network Rail; Job Centre-Plus; Health and Education and many more retain their own decision-making powers. Typically, this results in regional strategies being decided by Senior Civil Servants and Ministers in London. At best, these strategies are influenced by the strength of local representation – the funding for the redevelopment of New Street Station would be a good example. At worst, the region has to accept services designed for it as part of a national strategy which might be totally unfit for purpose locally.

Only a tiny percentage of the £ Billions spent in the region is subject to local autonomy/control. The scope of this Paper is limited to examining how these funds over which the region has a say, are spent. However, a separate detailed piece of work is required to examine what additional resources can and should be devolved to regions.

It should also be noted that the fact some quangos are regional (e.g. RDA's) does not mean they are free from central direction or influence. The extent of real autonomy in decision-making is highly variable.

3.       Regional structures: The Regional Development Agency.

i)           Purpose of the RDA.

The RDA's primary brief is to co-ordinate the creation and delivery of a regional economic strategy and helping businesses to grow. This involves identifying the most important areas for public sector intervention at a regional level to drive productivity and economic growth. The RDA acts as "ringmaster" in identifying the available regional assets and encouraging co-ordination and alignment of partner resources behind a shared view of strategic priorities.

BVWM comment: The development of economic strategy is critical. Until and unless central government re-visits regional boundaries, the West Midlands must be treated as an economic entity. By chance, travel to work and supply chain patterns demonstrate a region that is often well integrated. In practice, however, there are areas of natural economic geography that place a strain on the concept of the "West Midlands" as an economic entity. Stoke probably has more natural economic ties to Derby or Crewe (and Greater Manchester?) than it does to Birmingham. Examples can be found beyond our own region; the London-Oxford-Cambridge triangle falls under 4 RDA's (EEDA, SEEDA, EMDA and the LDA). There is also a sub-regional economic dynamic to be considered. Whilst there is a case for regional policies, might delivery of these (and local policies) in the West Midlands be better managed economically by dividing it into areas of sub-regional economic geography? For example, a Greater Birmingham area and a Coventry/Warwickshire area?

Local pride and identity mean the creation of such areas "bottom-up" are hard if not impossible to deliver. They require identification and direction from central government.

In the meantime, we believe in the importance of creating economic strategy that sits above/across local authority boundaries. We believe that the scope of this mandate needs to be written tightly. Only those matters related to the economy which can be best decided regionally need to be included. We believe the RDA should focus on the following areas:

-Skills;
-Planning;
-Transport and Infrastructure
-Science and technology (innovation);

        - Business Support delivered by the public sector;

        - Inward Investment (led by UKTI but informed by regional intelligence)

        - Co-ordinating responses to exceptional economic events/crises;

Business and local government must be able to lead together on the strategic direction of an RDA in order for effective accountability and buy-in from the key stakeholders involved in economic development.

ii)         Resources.

The RDA has a budget of c. £300m per annum. Whilst this provides the region with a transparent level of funding, the funds could instead be allocated to the region's local authorities. Whilst this would deliver local political accountability for spending decisions, a critical question is the degree to which local authorities are equipped to allocate funds to a small number of transformational projects? Would there be pressure to spread resources too thinly, giving "a bit to everyone"?

Alternatively, the £300 million could be returned to central government. But it is questionable as to whether the monies would re-appear in the region as part of central spending.

BVWM comment: Identifying resources to be applied in support of strategic investments that cross local authority boundaries is important to the economic future of the West Midlands. We support the separation of these monies from both central and local budgets. There is an attraction in revisiting some of the most successful Urban Development Corporation case studies, when extensive planning and budgetary powers saw accelerated delivery of transformational regeneration.

There is also the opportunity to maximise value for money by creating regional pools of expertise with wide accessibility which individual local bodies could not on their own, afford to have.

Finally, it must be recognised that the RDA resources are tiny compared to the size of the regional economy the RDA is supposed to move (an oil tanker with an outboard motor?). An RDA is only significant to the extent that it can influence the much larger volumes of private sector and central/quango activity.

iii)        Development and delivery of transformational projects of scale.

The evidence that demonstrates the ability of local authorities to collaborate and make difficult choices about priorities is mixed. Local Authorities have combined to make choices about the c. £100 million spent annually via the Regional Funding Advice mechanism. Authorities also combined in deciding not to implement road-pricing. Before the RDA existed, local authorities did agree to put forward a single priority when Midland Metro was funded; and Birmingham had a coherent economic strategy from the mid-80's which it was able to deliver despite the then Government's subdued level of support.

On the other hand, would New Street Station have been achieved without the contribution of the RDA? It is difficult to judge. The RDA allocated £100 million to the project (the single largest investment of any RDA) plus dedicated project resource. Yet local authorities also point to New Street as an example of a shared and agreed priority. Looking on from the sidelines, however, the RDA contribution does seem to have been significant.

It is also a matter of debate as to whether other transformational developments in the region would have happened without the RDA. Examples would include Stoke's University Quarter and the redevelopment of Fort Dunlop.  It is the view of some of the region's largest manufacturing businesses that the West Midlands science agenda would never have advanced as well, had the RDA not been involved. The Science City project and the redevelopment of the site at Ansty being two good examples.

Local authorities will claim they could have identified and delivered these projects alone, had they been in control of the RDA resources.

BVWM Comment: From the perspective of the Private sector, the capability of local authorities in the region varies hugely and is generally worse in those places where the region is underperforming the most. This is evidenced in the CPA results for the West Midlands which reported the West Midlands being behind the UK average. It is difficult to judge, but the experience of the Private sector in working with individual local authorities from across the region leads us to conclude that transformational regeneration progress would have been slower without the input of the RDA. There is a stark and important choice to be made. Should the delivery capability of an RDA (or sub-regional equivalent) be strengthened or should this be devolved to others?  On balance, we believe an RDA should clearly co-ordinate delivery but not get drawn into delivering itself.  Moreover, we believe the scope of the RDA should be tightly focused around those few things that can only be delivered above local level.

To avoid an accusation of the absence of democratic accountability, the process of strategy creation needs to involve local government heavily.

It is however important to recognise the tension: greater locality increases the potential for effectiveness through joined-up action – but depends on good leadership to deliver and risks parochialism. There is no one-size-fits-all solution – the key is to apply the principle of subsidiarity: decisions should be taken at the lowest level at which this is still conducive to delivery that is effective and coherent.

We believe the Private sector can strengthen performance by both contributing to the creation of strategy and driving implementation via chairing delivery bodies/scrutinising performance.

iv)        A voice for West Midlands businesses.

The RDA has been designed to be business-led, albeit is still part of the public sector. The Chair is an independent business person and other businesspeople sit on the board, in an individual capacity. The potential for business to influence government is evidenced by the creation of the Advantage Transition Bridge Fund as part of the region's response to the recession. Based on the success of running a similar fund during the MG Rover crisis, AWM was able to convince government to open a fund again – the first RDA to get such a fund up and running. Senior-level access for the Private sector to influence policies is also evidenced by AWM-led bodies such as the Enterprise and Science City Boards.

The potential for AWM to be business-led is still to be built upon. For example, delivery of business support via Business Link has been extremely difficult and the service is not yet stabilised. There also remains an opportunity to deepen further the governance of AWM via greater engagement with the region's businesses large and small. It would be of significant advantage if board places were made available to business representative organisations e.g. the Chair of Business Voice West Midlands, the President of the West Midlands Chambers of Commerce etc.

Business influence and engagement in local government structures varies. Around the region, local business representative organisations are usually closely-connected to their local authorities/local strategic partnerships. For example, there are many examples where senior Chamber members are Chairs or Vice Chairs of Local Strategic Partnerships.  In North Staffs, the Regional Partnership is currently advertising for a Chair, following the demise of the Elected Mayor, who used to Chair.   The ability of local authorities to join with business to influence the national agenda varies. An example of strong joint leadership would be the efforts underway at the moment to influence Whitehall to devolve more spending autonomy to local areas (via the mechanism of tax incremental financing/accelerated development zones). Also, business has worked well with local authorities on the development of an Employment and Skills Multi Area Agreement for the City Region (although the leadership of the Learning and Skills Council with Job Centre-Plus was catalytic).

BVWM comment: The Private sector in the region recognizes the benefits of all regional stakeholders speaking with one voice on regional priorities. The potential for the Private sector to organize its contribution to the regional voice via the opportunity of an RDA is acknowledged. It is recognized that an RDA is a more efficient vehicle for articulating the voice of the region's businesses into Whitehall than is the alternative, which is to develop multiple local links via local authorities.

That said, there are barriers to maximizing the potential for business in the existing RDA arrangements. These include the difficulty for individuals on the RDA board to be representative of the region's businesses and the constraints placed upon the RDA in terms of its powers and agenda. The interference in the RDA from central government has been a real barrier to the organisation being truly business led. The RDA, for example, cannot even appoint its own Board or own Chairman. An RDA needs budgets that are long-term and protected; we have seen too many examples of RDA budgets being raided by central government.

More work is required to understand in detail the steps necessary to strengthen the voice of the Private sector in the activities of the RDA. It is crucial that the business voice is not restricted to narrowly-defined economic issues: the effectiveness of economic measures depends greatly on the social and environmental context. For example, a motivated and educated workforce depends upon the quality of the wider social fabric. Business needs to express its involvement and interest in such matters, in a manner which attracts wide support.

We must reflect upon initiatives which, collectively, the public and private sectors have struggled to maximise. For example, the perceived weaknesses of the Regional Assembly and the slow pace of progress around the City Region initiative.

Engaging business in a meaningful and committed way remains elusive and patchy. We need to find ways of inspiring our most senior business people to prioritise civic leadership and we must maximise the opportunity to exploit the voice of business via business membership of the Joint Strategy and Investment Board. There is an important contribution to be accessed from inviting elected heads of business representative bodies to play a formal role in the governance of RDA's (e.g. as board members).

One final but important observation. Whilst this Paper seeks to identify opportunities to improve, the Private sector also wants some stability and room to concentrate on our issues. We need to hold onto the best; settle on the improvement opportunities and then resist any interference in our regional/sub-regional/local agendas.

        Business Voice West Midlands

        November 2009