Business, Energy and Industrial Strategy Committee
Oral evidence: Post-pandemic economic growth: Levelling up – local and regional structures and the delivery of economic growth, HC 675
Tuesday 24 November 2020
Ordered by the House of Commons to be published on 24 November 2020.
Members present: Darren Jones (Chair); Alan Brown; Judith Cummins; Richard Fuller; Ms Nusrat Ghani; Paul Howell; Mark Jenkinson; Mark Pawsey; Alexander Stafford; Zarah Sultana.
Questions 88 - 144
I: Henri Murison, Director, Northern Powerhouse Partnership; Katherine Bennett, Chair, Western Gateway; Lord Kerslake, Chair, UK2070 Commission; and Rachael Greenwood, Director, Midlands Engine.
II: Marvin Rees, Mayor, Bristol City Council; Sir Peter Soulsby, Mayor, Leicester City Council; Rokhsana Fiaz, Mayor, Newham Council; Andrew Carter, Chief Executive, Centre for Cities; and Duncan Simpson, Research Director, TaxPayers’ Alliance.
Written evidence from witnesses:
Witnesses: Henri Murison, Katherine Bennett, Lord Kerslake and Rachael Greenwood.
Q88 Chair: Welcome to this morning’s session of the Business, Energy and Industrial Strategy Select Committee. This is our last hearing under this inquiry on levelling up and looking at how different tiers of local, regional and national Government are responsible for delivering on the Government’s commitment to level up the economy. We have two panels today. On the first panel, we are delighted to welcome Katherine Bennett, the chair of the Western Gateway; Rachael Greenwood, the director of the Midlands Engine; Henri Murison, director of the Northern Powerhouse Partnership; and Lord Kerslake, chair of the UK2070 Commission. Good morning to all of you.
My opening question this morning, to get us started, is to each of you. Who should be responsible for delivering the levelling-up agenda, and how do we measure its success?
Katherine Bennett: Thank you for the invitation to be here today. i have been listening in to your other hearings. Much has been written and a lot of analysis done on levelling up. Is it all about north versus south? Is it about the relationship between the four nations in the UK? Whatever we think about it, it is obviously current Government policy.
I like to look through the lens of a businessperson, which is what I was asked to do when I was appointed to this role. I remember another Government policy that was all about rebalancing the economy, so some of these phrases have longevity and cause a lot of debate. For me, the whole point should not be about the word “levelling” but perhaps more about the word “up”. We want to work together to ensure that economies improve across the whole of our nation.
The Western Gateway is very new. We have only just marked our one‑year anniversary. We did not emerge as a result, necessarily, of a huge amount of Government policy; rather, we emerged organically as a result of the city regions of Bristol and Cardiff, which realised that their economic footprint had a great potential to be a powerhouse. What happened was a great levelling-up issue, in that the Severn Bridge tolls were taken down. That has now led to a lot more economic development.
It became a really strong concept and led to the creation of the latest powerhouse. By the way, it is worth pointing out for your inquiry that this is the first cross‑border one, which was announced back in November 2019. There are 4.4 million people in the whole area across south Wales and western England, from Swindon to Swansea and from Salisbury to Tewkesbury. It is estimated that about 100,000 people commute across the bridge. It is a very strong economic area.
We are an area of contrasts. I know your other witnesses have talked about deprivation. There are lots of pockets of deprivation in many parts of the UK, whether it is London, Bristol or around Newport in south Wales. I know there has been a lot of debate about the structures. We are all waiting on tenterhooks for the devolution White Paper.
My final point is as a businessperson. We were all a bit flummoxed when the Northern Powerhouse was set up. “What does it mean?” But it has really generated a huge amount of interest and has a huge impact across the globe in many ways. For me, powerhouses can be a force for good. We are one of many parts of Government structures, as you said, Chair, but we are happy to play our part.
Q89 Chair: Rachael Greenwood, is the Midlands Engine the responsible delivery partner for levelling up? How will you be measuring success?
Rachael Greenwood: Levelling up for the Midlands Engine means equality: equality of opportunity for our communities and for our businesses, equality in infrastructure investment and a fair share of public sector funding, including in R&D. Levelling up means reversing historical trends of investment and proactively targeting the removal of barriers to economic growth.
All bodies have a role to play in levelling up. For the Midlands Engine, levelling up presents a challenge of scale. We have a £76 billion gap in GVA—that is one measure—the lowest R&D investment over time in our region by the public purse, and an £83 billion cumulative shortfall in overall public sector funding compared to average spend per capita elsewhere in the UK over the last 15 years. Those are the Treasury’s own figures.
We welcome the Government’s confirmation of their definition of levelling up and we stand ready to deliver those elements that it makes sense to do so at a regional scale. Specifically, we believe we are well positioned on gathering and sharing regional intelligence so we can target and prioritise interventions. We are well positioned, too, to grow the international reach of our region as an economy of scale that can transact in a global marketplace. Equally, we are advancing a prioritised portfolio of regionally significant infrastructure investments, including transport. These are areas where we believe pan‑regional partnerships such as the Midlands Engine can lead.
Q90 Chair: Henri Murison, as the third of our powerhouses and as the first powerhouse, is it your responsibility to deliver levelling up? How will you measure success?
Henri Murison: It is not the responsibility of Whitehall alone to deliver this. Much of the investment that is going to close those longstanding regional inequalities—in this case, I am preoccupied with those between north and south, but there are, of course, others in the country—will have to come from Whitehall, but the idea that Government Departments can do this through initiatives or their own programmes is not credible.
The primary building block for delivery has to be devolution. In the north of England, we are fast approaching 100% devolution: that is metro Mayors with combined authorities. There is a role for Transport for the North in pan‑regional delivery, but it is quite narrow, in our opinion. There is absolutely a convening role at the northern level particularly to mobilise businesses. Alongside public investment, there is a core role for private businesses to invest. We have a number of very large private infrastructure projects in the north of England, such as Anglo American’s new mine in Scarborough. That will drive the economy in Scarborough as importantly as devolution to, say, North Yorkshire and York.
We think the role of the Northern Powerhouse is to take that original concept by Jim O’Neill of agglomeration economics and draw together bottom‑up Mayors, combined authorities and business leaders around shared goals and areas where we can collaborate across the north, like energy policy, but not dictate to local places what is in their interest. Whitehall should stop doing that as well.
Q91 Ms Ghani: Good morning, everybody. My first question is to Lord Kerslake. I am going to reflect on the UK2070 report that you were involved in. The report said that the economic shock has had differential impacts on communities and that centrally defined responses have the danger of being place blind. I wondered if you could expand a bit more on “place blind”. If that is the case, who is responsible for levelling up?
Lord Kerslake: Thank you very much for the question. There is no doubt that Covid has not been a leveller. It has impacted on those who are most vulnerable and, therefore, on places where there are large numbers of vulnerable people. We know that we have a very unequal economy in this country.
Those inequalities take a number of different forms: gender, ethnicity and so on. In the UK2070 Commission, we focused on spatial inequalities. We did that because they are the starkest ones in this country. We are 28th out of 30 developed countries. They are structural; they are long term; they have been with us for a long time. At the heart of them is a productivity gap, which means that, as a country, we are underperforming.
Who is responsible for dealing with this? The responsibility is both central and local. It is not one or the other; it is both. Central Government need to have a clear plan that is comprehensive, long term and large scale. “Go big” is what we called it. But the delivery and the initiative need to be local, at the lowest possible level. That might be local councils, combined authorities and, where you cannot do it at those two levels, with the pan‑regional partnerships that are involved today.
It has to go big and local, with shared responsibility. By the way, we need a Government Minister at senior level in the Cabinet to take the lead on levelling up. I am really worried that, a year on, we have very little definition of Government plans. That risks its credibility unless that gets sorted.
Q92 Ms Ghani: There is not absolute clarity on what “levelling up” means as well. To follow up on that question, reflecting on what Mr Murison said earlier, we are also making the assumption that whatever we consider as levelling up is the responsibility of either national Government or local government. Surely there is a role for local or national businesses to play here. How do you see them interacting with local decision‑makers when it comes to the so‑called levelling-up agenda?
Lord Kerslake: You are right about the need for Government to have a clearer definition of what they mean by levelling up and to set themselves some targets for success, so we can all tell whether they have succeeded.
Yes, businesses are critical to this. One of the strengths of what I call the pan‑regional partnerships, the ones we have heard from already and we will be hearing more from today, is that they have all involved business. It is not simply about local government. They are the conveners and, ultimately, the people who should take the democratic leadership, but they should not do it alone. Business leaders are critical, because they have the insights into the needs on training, job growth and infrastructure that are crucial to getting this right at local level. It has to be a collaborative partnership, but, ultimately, democratically elected leaders have to be at the forefront of the thinking.
Q93 Ms Ghani: Ms Bennett, thank you so much for joining us this morning. Western Gateway is the newest of the powerhouses. What lessons have you taken from the established powerhouses, good and bad?
Katherine Bennett: Thank you for the question. One of the first things I did was pick up the phone to the Midlands Engine, the previous newest powerhouse. I had very generous guidance and advice from my counterpart there, Sir John Peace, and from Rachael, who is on the Committee today. We spoke to the Northern Powerhouse as well. As I said earlier, our powerhouse or cross‑regional partnership goes across the border into Wales, so there was a different dynamic there. One of the most important things that I can see is the collective voice. The big thing was creating relationships and trying to work together. We are still in that process. We can speak with one voice when the geography makes sense.
Going back to your question about business relationships, when I have gone out and talked to businesspeople—I did a big speech last week to Business West and I am doing a big speech tonight at the Cardiff Business Club—I have had no end of support and emails sent out to me from other businesspeople, a lot of whom have businesses on both sides of the River Severn. They like the idea of getting behind this and becoming what I call an ambassador for the Western Gateway, because it is not just the responsibility of local authorities, as you have said. It is also something that businesses care about very deeply. They can become big advocates for potential inward investment.
Q94 Ms Ghani: Can you explore in a bit more detail the particular policy issues or challenges that you face as a cross‑border powerhouse?
Katherine Bennett: There are always going to be difficulties when you are dealing with lots of different authorities. I have to say that I have had very generous support from people across all parts of the powerhouse. The partnership board has some very strong‑minded and individual people on it who care passionately about their council areas.
I have had numerous discussions with the Welsh Government as well. As you may know, Airbus, the company I work for, has a site in south Wales and a site in Bristol. We tick the box on cross‑border economic interests. That has been a big thing for me. I was literally on the phone to Luke Hall yesterday, the Minister for our area, and David T. C. Davies at the Wales Office, so I am keeping the relationships going.
The challenge, apart from keeping the relationships going, is how we can present a united voice in bids for investment, whether we are supporting Bristol in part of the process of being a freeport or some of the opportunities coming up on the nuclear side. For me, it is about getting people together in coalition and making a case for investment.
Q95 Ms Ghani: I want to have a discussion about data. There seems to be a lack of regional economic growth data, and that is going to be fundamental to how you deliver the levelling-up agenda. How are you able to set targets, and how will you measure them?
Henri Murison: We would emphasise that we started the Northern Powerhouse with the Northern Powerhouse independent economic review. That set some very clear ambitions for the north of England primarily built around productivity. Our key focus in the north of England is on making the economy more productive. That is about not just having more economic activity and closing the gap with London and the south-east; it is about being able to share the benefits of that success around society.
The fundamentals are that large areas in the north of England, such as in parts of the north-east, have not quite recovered from the deindustrialisation of previous decades. Unless you can bring greater prosperity to those places, it is very hard to deal with the wider inequalities. The Northern Powerhouse independent economic review is monitored and continually updated by Transport for the North, which leads it.
I would critique the ONS’s productivity figures. These come out for the regions two years in arrears. I can only give you today the data from 2018. That showed that some areas of the north were significantly outperforming productivity growth in London. Liverpool, for instance, and Cheshire and Warrington are two areas that were doing very well. There were a number of other areas significantly outperforming London and there were other areas not doing as well in our city regions.
That brings me to the point that there is not an amorphous northern picture. There are trends across the north around our productivity problem, but the particular circumstances, given the sectoral mix, are different. There are similarities, say, between Cumbria and the Humber; they are very energy‑dependent economies. The Tees Valley is very similar. But the core cities and city regions are quite different. They share more in common with each other despite being geographically further afield.
Remember the ManSheffLeedsPool idea that Jim O’Neill first developed. Those cities along the M62 are in quite close proximity. Sheffield is not very far from Manchester. If people from Sheffield or, vice versa, from Manchester could more easily commute between these two places, it would have a significant impact on economic activity. If you look at the dynamism of the London economy, the reality is that its productivity is partly a reaction to its labour market mobility. If the south-east was taken away from London, London’s economy would really struggle.
The challenge is that Sheffield, Manchester, Liverpool, Leeds and, in the case of the north-east, Newcastle all suffer from being disconnected from wider city regions, which makes it very hard for attracting businesses and location decisions, because we cannot compete not just with London but with other comparable economies around the world that are much better connected.
There are a number of examples from eastern China. Look at Hong Kong‑Macau. That is a travel‑to‑work area of 200 million. We struggle to get 15 million people in the north of England to be able to commute to more than one or two cities within a reasonable time. That is not a credible basis for economic growth. That is why transport is one of the key drivers of the economic issues we have.
Ms Ghani: Chair, I have just noticed that I should have declared an interest. Mr Murison and I had the pleasure of working together when I was at the Department for Transport. I apologise for not mentioning that at the off.
Rachael Greenwood: We have a regional economic observatory within the Midlands Engine. It is a critical function of our partnership, and it provides comprehensive, contemporary data but, importantly, analysis and intelligence as well on the whole of the midlands economy. The observatory’s work is today delivered through 14 dedicated research partners from universities from every part of the midlands. University partners co‑invest with the Midlands Engine partnership and match our cash investment pound for pound in every piece of work that is delivered.
We have a wider intelligence community, which involves some 50 or more organisations that own and use data. They collaborate to produce the evidence that we know is vital for shaping policies and targeting delivery plans within our region. Like the Northern Powerhouse, we have produced an independent economic review of the Midlands Engine. It was published earlier this year and was the first one to look at our macroeconomy. It identified a number of key barriers to growth, including low R&D investment; decades of underinvestment in infrastructure, transportation, energy and digital; well below average GVA per capita; and a struggle to retain skilled graduates.
The opportunity that the observatory presents has never been better demonstrated than through Covid. We as a partnership, as well as individual businesses and partners, need to understand the economic impact of Covid‑19. Our observatory and our wider intelligence community collaborated at pace to produce economic monitors, which showed that the midlands had a higher percentage of furloughed staff than the UK average, but also showed where there were specific issues or opportunities that businesses and partners could capitalise on. Data is only as good as the use that we put it to, so we can report very positively that our observatory’s Covid economic impact monitors are a fundamental cornerstone in the local recovery plans of partners and businesses in every part of our region.
In terms of how we measure success, the executive board of the Midlands Engine, which drives our policy and our strategic direction, receives regular updates from our observatory. More recently, we published our first Midlands Engine State of the Region report in 2020. Our partners benefit from a monthly dashboard of key performance indicators and key metrics of economic activity. Our executive board uses this information to drive decision‑making. I am very happy to share the range of KPIs with the Committee, but they include metrics you would expect, such as economic growth and unemployment, ranging through to things like CO2 emissions as well.
Q96 Chair: Lord Kerslake, before I come on to the next question, I am interested in your view from a UK2070 perspective about access to data and measurements, and how we decide on what metrics we are going to choose to look at delivery across the country. What was your observation from your work at UK2070 about access to data across the whole of the country, and not just areas where there are powerhouses?
Lord Kerslake: There is a lot of work to do still on data, I have to say. Indeed, some of the things you would want to measure more locally, for example the UN sustainable development goals, are not readily measurable at local level.
Government should decide what their metrics are around economic, environmental and, indeed, social goals. We have heard some of them already from others. They then need to develop the measurement processes that they are going to use to establish that. We have done quite a lot of work on this and how it might be done. Indeed, we proposed that the Government establish a national outcomes framework precisely to do this. I would be very happy to supply the Committee with a fuller note, because it is critical that we have both short‑term and long‑term measures of success. Levelling up is not going to happen overnight, and we need to track our progress constantly.
Chair: Thank you for that. If you could send us that note, we would certainly be grateful.
Q97 Mark Pawsey: Chair, I would like to ask some questions of the powerhouses on the importance of research and development in encouraging economic growth and the role of powerhouses in encouraging it. Henri, is it the case that, if you have research and development taking place in your area, you have a better chance of the manufacturing following? Without the R&D, are you less likely to get it? Is it as simple as that?
Henri Murison: It is pretty simple. I am talking to you today from the site of the former Orgreave works in Sheffield, which is better known as the Advanced Manufacturing Park where the AMRC was built. I am sat in Factory 2050. When you talk to those who are involved in attracting facilities like this, such as the founder investors from Boeing and some of the public sector actors who were involved, as well as the academics and industrial partners who wanted to be involved, the place was important to them.
The challenge is that there are specificities in our economy and in our places. In the north of England, we have four particular strengths: advanced manufacturing, digital, energy and health innovation. Those four strengths create 25% of the employment, but they drive much more of the economy. We need world‑class research and development, and I stress the development, because we have some excellent world‑class research in the north of England. Recent reports by Nesta prove that we probably do not get as much as we should, but we are particularly missing the development of some of the applications of our high‑quality science research.
An opportunity like Royce, a pan‑northern collaboration that also included other parts of the UK, is a good example of excellence in academic research and how that can lead to industrial growth. We need to think through how we work with those in industries like steel. We have facilities in Teesside like the Materials Processing Institute, which has a key role in the future of steelmaking in the UK. How do we support those assets that have both regional and national importance? That requires empowering our metro Mayors and having a northern view, but also working in partnership with central Government.
This comes back to much of what Lord Kerslake has been saying about that integration point of places getting to drive the agenda rather than getting scraps from the table. In the UK, we do far too much jam spreading. The place‑based funding that has been done for universities in the last couple of years is an awful example of small, lowest-common-denominator amounts of money, which take more effort and time to compete for than they bring in benefits.
Instead, when we approach the target for R&D, we need to genuinely see the additional spend as being for places that have lower levels currently. It is not about taking money away from the golden triangle. For instance, a recent report by NHSA showed that many of the productivity issues that have come from our health outcomes in this crisis, which have been worse, could be dealt with in part by more use of our research base in health innovation. The gap in funding from what goes into many parts of the golden triangle would be enough to make a massive step change in the north of England.
If the Government are serious about increasing R&D spending, they should be doing it in the regions. That is probably one of the most important things we could do to genuinely achieve levelling up. Without it, we will see scarce resources going to suboptimal outcomes, because people spend more time competing for funding in national competitions than building genuine local partnerships like the one that made the AMRC possible when this was built, now many years ago. That saw significant upfront investment, but it has paid that back many, many times over to the public sector and to the UK Government.
Q98 Mark Pawsey: It is good to hear that you are coming from one of our excellent catapult centres. Rachael, we have catapult centres in the midlands, including the excellent Manufacturing Technology Centre in my constituency, but you have just told us that the midlands R&D performance is very poor and is lagging well behind the rest of the country. Why is that? What do we need to do to get R&D levels up?
Rachael Greenwood: That is a very good question. We know there is underperformance in R&D intensity within the Midlands Engine and a historical position of very low public sector investment. In the west midlands it is £83 per capita; in the east midlands it is £89 per capita. That is the lowest in the UK in terms of public sector spend.
Q99 Mark Pawsey: Is it a specific objective of yours to improve that?
Rachael Greenwood: It is, most definitely. To put this in context, where the private sector is investing in our region in R&D, it takes £3 or £4, depending on where you are in the east or west midlands, for a private sector investment to lever just £1 of public sector investment. We have some of the highest levels of private sector R&D investment in the UK, which is juxtaposed with the very low levels of investment from the public sector purse.
We know that has resulted in innovation assets not being joined up, not being integrated and spend, as Henri has said, being too concentrated in particular areas. Knowledge diffusion across our business base is poorer than it should be. We are a region of entrepreneurs and innovators. Levelling up definitely means investment from the public purse in R&D so that businesses have access to the resources they need to grow, develop and continue to innovate.
Q100 Mark Pawsey: Katherine, you told us that the first thing you did was speak to other powerhouses. We know that research and development is important, and Henri reminded us of the strengths of the north. Should the powerhouses be competing with one another for research and development? If there is a company looking to place an R&D centre, should you be competing with one another? Should you be acknowledging that, if it is a particular industry, it is more appropriate in the north or the midlands? You would perhaps argue that, for aerospace, it should be in the south-west.
Katherine Bennett: Every region has sectoral expertise, some of which doubles up. I know the north is putting a lot of energy into digital, but so are we. If we are getting into the battle of catapult centres, we have catapult centres around the UK. There is an excellent one in Newport, the semiconductor catapult, and the composites centre is just on the outskirts of Bristol.
Catapult centres were part of the Government’s industrial strategy set up about a decade ago, and they have gone from strength to strength. The key point, as other witnesses have commented, is that centres like that really become a hub for investment. Companies such as mine, Rolls‑Royce, GKN or Formula 1 companies realise the benefit of co‑locating and working closely with academia. That is the key point. I do not see my powerhouse in competition with my friends from the Midlands Engine and the Northern Powerhouse. We want to work together.
Q101 Mark Pawsey: Is there a carve‑up taking place? Have you decided that certain parts of the country are going to get certain types of investment whatever happens?
Katherine Bennett: We cannot be that imperial, if I may say so. Business makes decisions based on where the expertise is, where the workforce is and where the skillsets are. I used to work in the car industry, so I know the automotive sector very well. Your constituency has a large supply base. Suppliers and academia working together encourages investment.
I would not be in the game of carving up. I want the area I am looking after, with the chair role I have, to demonstrate its strengths in low carbon, helping with the net zero targets we all have to meet, and digital. Advanced manufacturing, yes, is a strength in the west of England, in Wales and in your constituency. There are opportunities. The enemy is not in the UK. The target of our competition needs to be external investment and encouraging existing business to continue to invest. That is very powerful.
Q102 Alexander Stafford: I have a very quick question to Lord Kerslake in light of the UK2070 report. To achieve investment in clustered R&D, you recommend establishing a national programme, but surely this is at odds with levelling up. Areas like Rother Valley in my constituency in the north need that investment. A national programme might actually go against this levelling-up programme. What do you say to that?
Lord Kerslake: We do need a national programme, but the reason why we need it is that things have essentially moved in a different direction than people realise. We have seen a regional policy in the past; the money has just gone towards London and the south-east. In the case of R&D, the key point is this, really. First, as a country, we underinvest in R&D. We need to get the level of spending up.
Secondly, in so far as we have invested, we have focused on the so‑called golden triangle of London, Oxford and Cambridge. They need to carry on being brilliant, but we need to grow more centres of excellence. More of them need to exist across the country, and in particular in the midlands and the north. That process cannot just be a local decision. “We choose to be a centre of excellence.” It has to be a combined conversation between central and local players about where those centres of excellence go.
That is why we say it has to be a national programme, but driven at local level. We have not made a lot of reference so far in this debate to universities. They are critical. They were critical in the AMRC, which is not that far away from where I am at the moment, and they will be critical in the future. Yes, it is a national programme, but tailored to local centres and networks of excellence across the country on agreed areas where we can shine in particular places. That is the way we get both more R&D investment and more in the north, which is the critical success we are looking for.
Q103 Chair: Lord Kerslake, just on that point and further to Mark Pawsey’s point, there is tension between competition and collaboration in the debate around levelling up. We have already heard that different powerhouses have shared strengths, albeit in different sectors, around advanced manufacturing, digital, energy and net zero. Different universities perform differently, especially on research compared to teaching. Parts of the country are much better practised at bidding and winning funding than others.
How do we get around the fact that the areas that are currently successful and need to continue to be successful should continue to be funded, but the areas that have not been as successful in bidding and winning funding in the past also need to be given a fair share of the funding? Is it just a case of increasing the size of the pot and sharing it, or is there something fundamentally different between the competitive approach to funding versus a more collaborative approach?
Lord Kerslake: It is a very good question you are raising. There are two things here. We certainly need to increase the size of the pot. We argue in our report for tripling the size of the shared prosperity fund so we can spend £15 billion a year on the agenda of strengthening local places. We do not want to see that money simply given out through short‑term beauty parades, put bluntly, between different places. All the evidence tells us that just does not work.
First, we need a long-term plan from Government. Secondly, we need an honest assessment of where the strengths and weaknesses are in research excellence. We cannot all be digital excellence centres. Some choices have to be made here. Thirdly, we need to have a proper conversation at local level and then with the pan‑regional partnerships about where those centres of excellence are developed. That does not rule out local initiative. There are a huge number of things that can happen at local level.
I often talk about the need to think about Grimsby as well as graphene. It has to be about both: it is about local economic growth as well. As far as R&D is concerned, we need to deal with it in a collaborative, national and local way. Otherwise, we will end up, frankly, wasting the money on short‑term competitive initiatives that do not go very far.
Q104 Paul Howell: I would like to move the discussion on to the UK shared prosperity fund. I will start with the powerhouses. This is about understanding how that should be specifically targeted to replace EU funding and particularly address regional inequality. I have a little more familiarity with the north. I have met Henri before. Even just looking at the north to try to understand how you would do that, the difference between Manchester and Newcastle is one thing; the difference between Newcastle and Sedgefield, where I am from, is another thing again.
I would like you to talk about how you prioritise within your region but also how you would prioritise within the UK. The Government have been asked what their priorities should be and what should be recognised and measured within this UK shared prosperity fund. What are they for your particular region, and are they the same for each region?
Henri Murison: Our initial response would be that previous funding was targeted based on need. Whatever people thought of EU funding, it was needs based. The shared prosperity fund has to take a similar lens. The metro Mayor for your neighbouring area, Ben Houchen, who abuts your constituency at the airport, and his colleagues on the Labour side have written with us, and others like the Joseph Rowntree Foundation, to Government to make it very clear that we need to see a continuation of funding. Particularly if we want people who are furthest from the labour market to be able to get into employment, which is a key way in which we address social inequality, that can only be done through place‑based interventions. They are currently funded by the funding that comes historically from the European Union.
We have to continue doing the things that, for instance, the North East LEP has done very well, in the case of Sedgefield, dealing with the different issues in a coalfield community like yours, Paul, which has significant opportunities for manufacturing growth, as we have seen, for instance, in Newton Aycliffe, versus what is happening in, say, Newcastle and Sunderland, where there are industrial employers, but there is a bigger focus on the digital sector, as I have alluded to before. There is an approach there that is meaningful.
It comes from a bottom‑up approach. Where you have local enterprise partnerships working in partnership with their newly elected metro Mayors, we have seen a very effective approach to prioritising the previous EU funding streams. I have every belief that that will continue. My biggest fear is that central Government Departments will try to top‑slice the shared prosperity fund and pocket it in Whitehall for their own programmes. That is the wrong approach. The shared prosperity fund and the regional funding—the clue is in the name—should be spent in the regions by the regions, not by central Government.
When the Chancellor speaks on Wednesday and reveals a bit more detail about what he has in mind, it would be good to hear from him that the programmes he is suggesting, which I understand will be around piloting what could work for the SPF, should be led by places. If we do that, taxpayers will get value for money. Remember that the whole point about making decisions closer to the problems or the need is that we should be spending less money on initiatives that are poorly targeted and spending it more smartly and effectively.
In the Tees Valley, there is a very clear example. Since the metro Mayor began spending previously national funding streams, like the adult education fund, that money is being spent more effectively. We believe that can be demonstrated. This is about getting value for money for the taxpayer, not just a principled argument about powers being better held at local level. There is an argument for that, but my argument is predominantly a practical one. We are best placed in our local enterprise partnerships and our metro mayoral combined authorities to spend this money.
Q105 Paul Howell: Should we be driving that money into towns as their own economic places, using the example you gave of Newton Aycliffe, or should it go to cities to pull the whole region up? Where would the balance be? Do we need a bit of both, like everything else?
Henri Murison: Cities still play a powerful role in economic development and they require investment. If you look at the combined strengths we have in the north, where I alluded before to those key sectors, my point would be that some of those sectors, like manufacturing and energy, are not located in cities. The investments you make in driving your manufacturing sector will, by their very definition, be on the fringes of city regions in places like Rotherham, near where I am today. Then there are places like the west coast of Cumbria, with the energy sector and nuclear. Of course, investments in Warrington or north Wales benefit the west coast of Cumbria, but you will see, in Mark’s patch, that there is not a city that drives the economy for the west of Cumbria. It is absolutely driven by investments in places. That includes towns.
The work you have done to make clear the economic importance of towns is really important, particularly in the context of their regions. Often a group of towns, like those in the Tees Valley, can function a bit like a city, but it is not the same. It is spending money in Stockton, Middlesbrough, Hartlepool and Darlington. If you just invest in one of those places, none of them would be significant enough to drive the wider economy. You have to look at them as a connected group of economies. Agglomeration can happen without a core city; you can see groups of towns starting to function more like a traditional city region. We think that would drive up productivity. We are starting to see it in places like the Tees Valley, but we need to do more to push that agenda on.
Rachael Greenwood: The shared prosperity fund can play a key role in enabling levelling up by targeting areas of greatest need. We welcome the Government’s ambition to use the fund to reduce inequalities. The Midlands Engine is very focused on prosperity within the region, which means prosperity for every community in every part of our region. The parameters of the fund need to be settled quickly. We need the detail of those parameters. The fund has been in design mode for some considerable time, and we really need clarity on how it will operate. We know it will take time to mobilise, so time is really of the essence.
In the Midlands Engine, we would welcome a degree of local autonomy about how local funding is directed and spent. Quite who should administer funds depends on precisely what they are meant to be used for, but a combination of our combined authority, our upper‑tier authorities, our local enterprise partnerships and, indeed, pan‑regional partnerships may play a role. If the Government view that all these bodies will be part of the conduiting and determination of focus for the shared prosperity fund locally, they need to be involved in advance in the design of the fund. The sooner the Government publish plans on how this will operate, the better.
Q106 Paul Howell: Do you have any suggestions or proposals as to how the parameters should work?
Rachael Greenwood: In terms of the focus, it is very important that there is a whole suite or a phenomenal portfolio, in fact, of activity that has been ongoing over time with a focus on addressing inequalities in local areas. It is really important that there are mechanisms for identifying any gaps between the end of existing funding and the roll‑out and mobilisation of the shared prosperity fund, so significant programmes, activities and interventions do not fall between the SPF coming on stream and European funds diminishing over time.
Katherine Bennett: Our gateway is still in its infancy. I was not asked a question about the data, but the key thing for us is that we are in the middle of our economic review being undertaken at the moment. When we have the results of that, we will be in a better place to make a case. One of the key things for the Western Gateway is that we are not trying to reinvent the wheel. There is already a load of great work being done, whether it is by the cities themselves or the combined authority we have on the English side of the river and the Cardiff capital region.
I know you were an accountant by profession before you joined the House of Commons. For me, it is all about business cases. Putting forward a good combined case will ensure the Government understand that a lot of people, organisations and stakeholders care enough to put their names forward for a bid.
I mentioned the freeport and how that is operating. I quite like the way they have said there will be a number in the UK and then the local areas have to make a case to win that. That works quite well. Way back, I remember when there was a decision being made about the green investment bank. I know Bristol put forward a good strong case for that, but we were disappointed that it went to Edinburgh. You win some; you lose some. For me, it is about coalition building and putting a good business case together.
As a businessperson, I was involved when there was the regional growth fund. That was very important in unlocking a certain number of projects and, more importantly, the skills and training opportunities that then help businesses develop.
Q107 Paul Howell: Picking up on your comment that I am an accountant by trade, how do you stop accountants from getting too involved in a competitive process, to make sure that we get progress rather than just spending our time evaluating things?
Katherine Bennett: Accountants have a huge role to play in all parts of business and the way we run our Governments. I am not one by profession, but I have lots of family friends who are. For me, there is no problem with that. I understand there are going to be some changes in the Treasury on the Green Book process, which we will watch with interest. The most important thing is that the Western Gateway can provide a voice in those changes.
Q108 Paul Howell: I hope you are right in terms of the Green Book changes, I have to say. Is there any specific additional support you can think of, particularly for the poorest parts, to pick up what would have been objective 1 funding? Could I get a quick answer from the three of you?
Katherine Bennett: The loss of EU funds is disappointing for many, but I have been involved in applying for EU funds in my last job. It is not that straightforward and can take a long time. That may be one of the benefits of a UK funding system. I agree with other witnesses: making it more locally run and managed is key to that. We can be fleet of foot and we can respond quickly. Let us make the process clearer and simpler.
Rachael Greenwood: Picking up on the point about competition, if capacity to compete is a challenge in a particular area and that is a reflection of the state of play in that particular geography, perhaps there is an opportunity for the shared prosperity fund to think about how funds are awarded, not necessarily always to the best business case or the top of the pile. There need to be mechanisms to evaluate opportunity, impact and the scale of change that is sought, but it is really important that the SPF recognises the capacity to compete as a fundamental consideration.
Henri Murison: This is a plea against jam spreading. The reality is that, currently, EU funds go disproportionately to the places that need them. Some parts of the country get little or nothing, and that should continue. Some of those places are in the north of England. There are prosperous parts of the north that do not get a lot from the current funding, but would never have got objective 1 funding. If we are going to keep funding areas with the most significant levels of deprivation, we are going to have to give nothing to some people. We should be okay about that.
What Bob alluded to is right: we do not currently have enough money in the pot. If the pot gets no bigger, the Chancellor is going to have to be very focused on not simply giving people money to make them happy when they do not need it. If this money is about dealing with structural inequalities and you do not have significant structural economic problems based on your place, you should not be getting any SPF money, because you should be relying on wider public funding streams that are available to pay for core public services. This money is about dealing with the challenges that are endemic in our nation. It has to be focused on those who need it most.
Q109 Mark Jenkinson: In my discussions with businesses, there is often a perception of overlap and a lack of clarity on responsibility in various local government structures and other organisations such as powerhouses, LEPs and chambers of commerce. Rachael, in written evidence to the Committee the Midlands Engine stated that it was looking forward to the devolution and local recovery White Paper providing clarity on local government structures. What clarity is it that you specifically require, and what are your hopes for that White Paper?
Rachael Greenwood: We are keen to understand what the Government view as the role they would like the pan‑regional partnerships to play. We look forward to the devolution White Paper coming forward. We hope it has a focus on additionality and complementarity for pan‑regional partnerships, which is the way of working of the Midlands Engine.
Our partnership works at scale with shared effort around common causes. We do not duplicate; we rarely operate on a place basis. We take on big shared challenges in our region, like digital, and address things that it makes sense to address at a pan‑regional level, like internationalisation. Fundamentally, our focus is more on additionality. We anticipate and hope that the White Paper will reflect that as a core role and focus for pan‑regional partnerships.
Q110 Chair: Do any of the other witnesses have any views in anticipation of the devolution and local government White Paper? I can see that Henri is bobbing with excitement, so I will give you the chance to comment.
Henri Murison: I am probably one of the few people who are excited about the devolution and recovery White Paper, along with