Written evidence submitted by the Productivity Insight Network (LRS0063)


 


About PIN

The Productivity Insights Network was established in January 2018 and is funded by the Economic and Social Research Council. As a multi-disciplinary network of social science researchers engaged with public, private, and third sector partners, our aim is to change the tone of the productivity debate in theory and practice. It is led by the University of Sheffield and Oxford Brookes University, with co-investigators at Cambridge Econometrics, Cardiff University, Durham University, University of Sunderland, SQW, University of Cambridge, University of Essex, University of Glasgow, University of Leeds and University of Stirling. The support of the funder is acknowledged. The views expressed in this report are those of the authors and do not necessarily represent those of the funders.


Levelling up: local and regional structures and the delivery of economic growth

Terms of Reference

On 3 June 2020, the Business, Energy and Industrial Strategy Committee launched a super inquiry on Post-Pandemic Economic Growth. This wide-ranging inquiry will look at the options available to Government to secure our economic recovery from the impact of Covid-19; covering investment, industrial strategy, jobs, skills, exports and sustainable growth. This over-arching inquiry will run throughout this Parliament and will include a number of sub-inquiries.

“Levelling up: local and regional structures and the delivery of economic growth” is a sub-inquiry to examine how local and regional government structures in England (including the role of powerhouses, local enterprise partnerships and growth hubs, city and regional mayoralties, and councils) could be reformed or better equipped to deliver growth locally, with specific reference to the Government’s ‘levelling up’ agenda.

 

Evidence base: what evidence exists to measure the performance of the various tiers of regional and local government in the delivery of growth? What evidence have regional and local leaders based their local or regional industrial strategies on, and what forms of stakeholder engagement were included in the drafting of priorities? Considering the cost of institutions, what cost benefit analysis exists to show the value for taxpayers’ money when compared to the delivery of wealth and job creation?

This is entirely the wrong question to begin with and the wrong starting point to think about these issues. It is the counterfactual position which is the correct starting point.

In comparison to our other advanced OECD peer-group of competitor countries, the UK is an extreme outlier in terms of the scale of its interregional inequalities combined with NO national growth advantage whatsoever from having such inequalities (Carrascal-Incera et al. 2020; McCann 2016). Countries with more devolved sub-national governments display much more balanced (‘levelled up’) regional growth patterns, less dominance by one or two cities and regions, and overall long-run national productivity growth which is at least as strong, and in many cases much stronger, than the UK. The countries are also more resilient to adverse economic shocks than the UK. The evidence on this is overwhelming. Stronger, larger and more autonomous sub-national governance generates more balanced regional growth at no cost to national growth (Carrascal-Incera et al. 2020).

Local regional leaders have based the policy-formulation approaches on an ad hoc plethora and paucity of data, depending on where they are located. Some local leaders have based their Local Industrial Strategies on detailed evidence and serious stakeholder engagement, but many have little or no real data or institutional capacity on which to build serious policies. This is especially problematic for LEPs located in rural or primarily small town areas.

The cost-benefit part of this question is irrelevant to the challenge faced and desired outcome.

Local structures: what structures exists across the country and how does this compare across different regions? How do these different tiers work together to deliver local growth? What good case studies exist, and can lessons be learnt from poor collaboration or leadership? How should local structures support delivery of regional growth across England? Do regional or local structures act in the best interests of local priorities and stakeholders or act more as a delivery arm of central Government? What should local authorities do more or less of to achieve these aims? Where should government focus its post-Covid-19 levelling up policy to best support regional growth: English regions, core-cities, towns, Growth Hubs and LEPs?

Apart from the new City-Region Combined Authorities, much of the local and regional governance set-up in England is currently a patchwork of overlapping, uncoordinated and even sometimes contradictory ad hoc institutional configurations with little or no logic to them, given the policy challenges that they face. This is especially the case for LEPs, and this is especially problematic given that they are charged with developing local industrial strategies. At present, local government displays levels of local autonomy akin to Albania and Moldova. No other advanced economy looks like us.

Central government should massively scale up and widen the city-region model in terms of resources and decision-making autonomy. In addition, there needs to be multi-level systems of support (local, regional, national) especially for complex phenomena such as the development of entrepreneurial ecosystems. The current sub-national governance situation is a total mess, especially as it relates to economic issues, and there needs to be an Independent Inquiry into Devolution to think through these issues properly.

This challenge is exacerbated by the resourcing of LEPs, and subsequently their capacity and capability to meaningfully engage with the national industrial strategy, let alone design, develop and deliver local industrial strategies. This issues is both a cause and effect of the governance challenge, which can see LEPs reduces to operationalising strategy rather than assuming any substantive role in driving the strategic transformation of their respective regions. 

In operationalising local structure there has been a focus on ecosystems. Academic debate on ecosystems distinguishes between framework conditions and systemic conditions to support entrepreneurial growth. While these are in part shaped nationally, there are measures that regions can take to augment their respective regional and local ecosystems.

 

Stakeholder engagement: how does each tier of regional or local government engage with delivery stakeholders (such as businesses, education providers, etc)? Do different tiers engage in different ways? Where are there examples of good practice? Do stakeholders believe the different tiers are effective and worthwhile to engage with? Do stakeholders consider certain tiers to be more of a constraint on growth as opposed to a delivery partner for growth?

Scotland is the best example in the UK, because it is close to the 3-5million OECD-wide optimum size in terms of sub-national devolution scale, which allows for ongoing accessibility of local stakeholders to decision-makers, while at the same time provides for sufficient scale for chosen actions to have outcomes. This scale greatly reduces the number of degrees of separation between people within social networks and hierarchies and thereby maximises the incentives for both top-down, but more importantly bottom-up engagement, between citizens and businesses and sub-national. The Scottish government there has both top-down expert knowledge (which can be codified in policy documents) but also lots of local tacit knowledge ‘from the coalface’ which can be actioned upon.

In complete contrast, in England the over-centralised and top-down structure of governance maximises the degrees of separation between citizens and decision-makers and thereby minuses the incentives for any bottom-up engagement (because citizens know that it is largely pointless unless you are already major national firms or institutions with a major London base). The result is that the centre (Westminster government) has lots of top-down expert knowledge (which can be formalised) but absolutely zero tacit local knowledge ‘from the coalface’ which can be actioned upon.

The only exceptions here are London and the ‘home counties, because Westminster and Whitehall decision-makers have personal 24/7 tacit knowledge of these localities. As such, London works is largely the same way as Scotland, both because of its devolved status, and also because of the local tacit knowledge of London-based decision-makers. 

The ability of LEPs to convene stakeholder communities is highly varied across the UK. While there is often a level of engagement its effectiveness is constrained by the extent to which there is a shares vision of the region to which the stakeholders collectively contribute in a coordinated manner. The ability of stakeholders to shape and subsequently enable growth is critical – whether businesses or universities. This often demands aligning organisation and institutional interests, which is not within the purview of many stakeholders operating more locally. There is also a need to ensure that stakeholders are embedded within and engaged beyond the region.

 

Sustainable local economies: how could a green economic recovery stimulate local economies and embed upskilling at a regional level? Which tiers are best placed to provide the leadership of local net zero and skills-based priorities? Should leadership responsibilities be separate from delivery responsibilities?

Directionality to innovation-related actions should be prioritised and incentivised, so that where public funding is available for entrepreneurship, innovation and R&D initiatives, the explicit objectives of the projects or programmes should be sustainability and inclusiveness. Some of these types of policies and programmes could be effectively delivered at the local (government) level, thereby building local institutional capacity, driving innovation and risk-taking, and targeting sustainability and inclusiveness.

Arguably the division between leadership responsibilities and delivery responsibilities have served to disempower LEPs. As noted above the governance arrangements need to empower LEPs and ensure that they have the capacity and capabilities to act.

 

Targeted regional investment: how could ‘shovel ready’ growth projects in England drive local growth and jobs? How could clustered R&D investment support local growth? How should priorities be agreed across the regions?

Having ‘clustered R&D’, ‘shovel-ready’ projects and ‘agreed priorities’ in the same question makes this question meaningless and un-answerable. There is an implicit challenge concerning the ‘shovel ready’ projects, and the extent to which these are true ‘growth’ projects.  Being familiar with the pipeline of ‘shovel ready’ projects across a number of LEPs in England, they tend to be focused on enabling growth, building capacity and capability, and or developing infrastructure. In funding projects of this nature, the ways in which they will enable and deliver growth need to be understood more explicitly.

 

Regional funding: how should the UK Shared Prosperity Fund be specifically targeted to replace EU Funding and address regional inequality? What role should local structures play in allocating funding to best achieve regional growth? What role could the British Business Bank have in the post-Covid-19 levelling up of regional economies?

The key priorities for the Shred Prosperity Fund are scale, along with devolved design, delivery and management, and a broader range of eligibility indicators and objectives. The less that Whitehall is involved in the process the better. The extent to which funding is set up as being centrally-orchestrated and competitive between regions should be minimised, while the governance bodies managing the funds should be at least city-regional in scale, and preferably region-wide in scale. Any competitive tendering should be within (large) regions, and not between them. Priorities should be given to activities which are coordinated across jurisdictions within large regions and also potentially between large regions. Most local government bodies should not be involved in projects as they are too small, unless they are willing to pool sovereignty to work together. The eligibility criteria for local to be included in the SPF envelope at different levels should also be extended to include multiple deprivation indicators, not just GVA per capita, although this should still remain a key part of the eligibility definitions.

The British Business Bank does the right things in broadly the right ways, but it is still tiny in comparison with the needs it is being charged with addressing. It needs to be scaled up to something of the order of one seventh of the size of the European Investment Bank, and should have a constitution which makes it largely independent of Westminster and blocks central government meddling. Its primary remit should be developing (relationship-based) finance for SMEs and real estate development in the weaker regions, and in turn the city-regions Combined Authorities need to be able to be granted sweeping powers over their own local land use planning regimes.

 

Project Speed: Project Speed will bring forward proposals to deliver government’s public investment projects. How should Project Speed identify and distribute growth opportunities into communities across the country to best achieve its levelling up agenda? What should the balance be between Whitehall decision making and local decision making? Do we have the capacity and capabilities at local and/or regional level to do this work on behalf of central government?

City-region institutions should be given almost complete autonomy to design and deliver these projects, while also allowing them to work together. Local government in general will be too small to do anything of substance, so any actions they propose will be largely symbolic. However, they should still be in the driving seat, because developing local and sub-national capacity for policy design and delivery is the crucial goal. There is a need to invest in capability and capacity regionally and locally to design, develop and deliver projects of this nature. Learning from the issues associated with other IS related projects it is important that the Project Speed is able to identify the difference that the proposed intervention will make.

 

References:

 

Andre Carrascal-Incera, Philip McCann, Raquel Ortega-Argilés and Andres Rodriguez-Pose, 2020, “UK Interregional Inequality in a Historical and International Comparative Context”, National Institute Economic Review, 253, R4-R17

 

Philip McCann, 2016, The UK Regional-National Economic Problem: Geography, Globalisation and Governance, 2016, Routledge, London

 

September 2020