Urban Jungle

1 June 2012 Local enterprise partnerships are beginning to reveal their plans for investment and the infrastructure industry might want to take note. Paul Jarvis reports
Local enterprise partnerships (LEPs) have been making plenty of noise in the past month.

Having been largely in the background since first being launched two years ago, the organisations are starting to take centre-stage in shaping the future of their communities. Many are talking loudly about spending some cash, largely acquired through bidding for a raft of different central government grants. And business cases are finally beginning to put some meat on the bones of what these partnerships may actually achieve.

New building work will play an important role in all the LEPs’ plans, using it as a tool to stimulate economic growth by improving the environment for investment in their areas.

“Infrastructure is a key focus for us,” says Paul Woolston, chairman of the North East LEP. In March’s Budget, there was plenty of excitement over the announcement of Manchester’s City Deal, which will see the area invest over £1bn into a range of measures to improve its economy – including using an ‘earn-back’ model in which money invested in infrastructure by the public sector can be recycled by retention of rates.

As the LEPs get into their stride, they too could create their own arrangements with central government.

“There could be ‘LEP Deals’ in future, which look beyond City Deals,” says Joe Manning at the New Local Government Network thinktank. “The shires might get involved in that.”

It might not be that easy, though. “The real issue is there is no democratic legitimacy for the LEPs,” says Alex Plant, strategic director at the Greater Cambridge Greater Peterborough LEP. “So it’s difficult to route large amounts of money through them.”

Any effort to deliver a major piece of infrastructure could cause opposition from local residents, but they will be unable to hold the LEP to account in the way they can an elected body.

For his part, Plant says his LEP has worked to involve local councillors through a subcommittee, giving the organisation greater political legitimacy.

But not all partnerships are so far advanced. One of the biggest obstacles to developing new ‘LEP Deals’ or City Deals in second-tier cities is likely to be the lack of organisation at some LEPs.

“LEPs are not uniform across the country,” says Manning. “Some have taken on board existing partnerships, while others, often in more rural areas, have taken longer to develop.”

Philip Woolley, at consultancy Grant Thornton, agrees that many organisations are only in the first stages of their development. “We have not seen many fully formed business plans from LEPs yet. A number of LEPs are now talking about how to get in place a defined process for assessing projects for investment.”

Until that is arranged, investment will not begin to flow.

Slow starters
Central to Prime Minister David Cameron’s ‘Big Society’ concept, the LEPs were meant to give more power to local businesses to drive economic growth in their localities.

However, the concept ran into trouble with some high-profile hitches. Notably, former Tesco chief Sir Terry Leahy turned down the role of chairman of the Liverpool
LEP, having previously been understood to be in favour of the move.

And with little work actually happening on the ground, critics began to question whether the LEPs could replace the Regional Development Agencies (RDAs), which had much more spending power and direct access to Whitehall.

But through clever use of a variety of different funds made available by the government, some LEPs are building up a substantial war chest with which to invest in their local communities. The Community Infrastructure Levy (CIL), New Homes Bonus, Local Sustainable Transport Fund and Growing Places Fund are just some examples of cash being harnessed by LEPs to kickstart their investment plans.

Many are hoping to use the funding they have received to entice private sector investment, getting private partners to match-fund initiatives.

“The LEPs have been using the Growing Places Fund to prioritise investment,” says Manning. “That is an area where there seems to be most excitement among the LEPs, so I expect to see more of that.” The fund has had plenty of interest from the LEPs, and has helped focus their attention on infrastructure projects as they look to unblock transport bottlenecks and get stalled projects off the ground.

Hertfordshire’s LEP, for example, announced in May that it would be investing its Growing Places cash into two stalled business park schemes, as well as in housing projects and the proposed Watford Health Campus initiative.

It’s not the only one. Many LEPs are now looking at where to invest the money they have successfully bid for over recent months.

More than roads
So where will the money go?

There will certainly be opportunities for infrastructure players, including investors, in the LEPs’ plans. “On infrastructure, many LEPs are quite advanced,” says Manning.

“Transport is crucial, in particular unblocking the pinch-points.”

Plant agrees that transport projects will be an important focus, given their ability to kickstart wider developments by unlocking access to land and businesses. “The biggest is the A14 corridor. It’s a project we are taking forward with the Department for Transport, Treasury, the Highways Agency and the local authorities,” he says. “We’re also trying to enhance our rail services.”

Energy, too, will be important. Woolston points to the North East LEP’s “tremendous position” to develop offshore wind projects and it will be working with the neighbouring Tees Valley LEP to explore what opportunities are available.

But it won’t just be economic infrastructure that is the focus of the LEPs’ attentions. Housing will be important in many parts of the country. “LEPs are looking at unblocking land for development, especially for more affordable housing,” says Manning.

“Housing is key, both general supply and affordability,” adds Plant. “The lack of housing is probably our biggest labour market barrier.” And while Woolston cannot yet confirm where the North East LEP will be putting its cash – “we want to identify the top four or five infrastructure projects and look at the issues around them” – he does point to Durham as having a strong case for investment in housing. “It’s been restricted for a long time because of its housing situation,” he explains. “If it can unlock that, I can see the city growing.”

The enterprise zones established by the government will have a vital role to play in the LEPs’ investment priorities, giving them some control over how much money they can raise to reinvest in the economy. Organisations are now beginning to consider what projects could benefit the economy best within those zones, and investing in transport or energy projects to kickstart business interest are featuring high on the lists of many partnerships.

“When we first looked at potential sites for the enterprise zone, a dozen or so sites were identified. So now we want to reconsider those sites and see what we can do outside the enterprise zone concept,” says Woolston.

But not everyone is convinced this will be successful.

“If you have not got an enterprise partnership and you’re not going for a City Deal, marshalling the resources around the LEP is going to be difficult,” warns Woolley. There is not the potential to use money as seed funding, he explains.

If this is the case, questions are raised over whether the LEPs will end up promoting growth in urban environments to the detriment of more rural parts of the country. “Their reason for being is not to redistribute money,” says Woolley, “but to try to make investments in economic growth.”

Even so, tensions are already understood  to have emerged between LEPs and local authorities as they look to negotiate their investment priorities. Plans for a tax increment financing (TIF) type of structure, or something similar to Manchester’s ‘earn back’ scheme, are proving more difficult in some parts of the country, as LEPs want to redistribute money raised in one area to boost economic growth somewhere else.

“There are a number of areas where these discussions are proving difficult at the moment,” says Woolley.

Perhaps the biggest challenge for the LEPs, however, will be how they make the most of the various bits of cash they have managed to get their hands on. CIL, for example, is designed to ensure investment returns over time, similar to TIF or Manchester’s earn back scheme.

But the New Homes Bonus, or the Growing Places Fund, are merely grants that the LEPs or local authorities have bid for, with no guarantee of further rounds of investment coming their way. As a result, the onus is on the recipients of the funding to make it as sustainable as possible, and many LEPs are eager to ensure any investment comes back to them quickly. “We should reap back what we have invested from the Growing Places Fund says Plant.

“We are talking with LEPs about the importance of a sustainable model,” says Woolley. “They are looking to come up with an infrastructure fund that can make for sustainable investment going forward.”

None of this matters, however, if the LEPs are unable to become the investment vehicles they were designed to be. “The difficulty has been the lack of people,” says Plant. “LEPs have not got much in the way of resource. Each LEP needs a dedicated team to implement the wishes of the board.” He argues the government could provide the capacity needed at all the LEPs for the same amount of money invested in just one of the RDAs they replaced.

Others question the whole rationale of the government’s approach to the LEPs. “The problem with the localism agenda is it doesn’t ever deliver anything,” says one consultant.

The danger is, without more direction and central government investment in the LEPs, those big ideas will never be translated into new projects. “Our role will be very much a strategic one,” says Woolston. “We have a small team in place which is focused on big ideas.”

This page was last updated on:
11 September 2012.

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