towards a modern regional policy - smith institute · derek mapp, chairman, east midlands...

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Designed and produced by Owen & Owen

Facilitated by the East Midlands Development Agency

Edited by Tony Pilch

towards a modern regional policy

towards a m

odern regional policy2004

EMDA Cover V1 28/6/04 11:27 am

T H E S M I T H I N S T I T U T E

Facilitated by the East Midlands Development Agency

Edited by Tony Pilch

Published by the Smith Institute

ISBN 1 902488 75 X

© The Smith Institute 2004

towards a modernregional policy

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Contents

PrefaceBy Wilf Stevenson, Director, Smith Institute

ForewordDerek Mapp, Chairman, East Midlands Development Agency

Executive summary and Recommendations

Introduction: the new localism

Part 1: The barriers to regional and local economic growth

Part 2: Evolving the framework

Conclusion

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PrefaceWilf Stevenson, Director, Smith Institute

The Smith Institute is an independent think tank, which has been set up to undertakeresearch and education in issues that flow from the changing relationship between socialvalues and economic imperatives. In recent years the Institute has centred its work on thepolicy implications arising from the interactions of equality, enterprise and equity.

The regional development agencies were created in 1998 with the aim of ensuring fullemployment and higher-than-trend growth across England. The Smith Institute hasworked closely with the RDAs and key Whitehall policy makers in recent years, holdingnational and regional events that have tracked the development of the RDAs as well ashelping to share best practice. We have also published a series of key pamphlets lookingat the issues that affect the RDAs.

As part of this agenda, the Smith Institute, in association with East Midlands DevelopmentAgency, is delighted to be publishing Towards a Modern Regional Policy. This pamphletdescribes the barriers that may prevent the English regions from achieving their potentialand offers a series of recommendations that we think may assist the drive for sustainablegrowth in every region.

ForewordDerek Mapp, Chairman, East Midlands Development Agency

As Chairman of East Midlands Development Agency for the last five years, I have witnessed at first hand the exciting and challenging agenda that has unfolded in thecountries and regions of the United Kingdom as the government has sought to put inplace a modern and dynamic regional policy. In my own case, in England, I have been privileged to participate – along with other regional development agency chairs andregional and national stakeholders – in an increasingly productive dialogue with governmentand policy makers on the kind of structures we need in the regions to deliver the government’s, and our, shared vision of a productive, fair and competitive economy.

During my time at East Midlands Development Agency, the regions of England haveundergone some pretty radical transformations. We have increasingly been given the tools and flexibilities necessary to contribute more fully to achieving the government’s aspiration to raise the performance of all regions, and to reduce the disparities betweenthem. Those changes continue apace with, for example, the recent announcements forfurther devolution of decision making to the regions, which accompanied the 2004 budget, and with referenda on elected regional assemblies likely in some of the Englishregions. We have now a major, possibly unprecedented opportunity to establish real andlasting means for achieving economic success across and between all regions.

Much, however, remains to be done to ensure that we build on the success achieved todate in translating national policy into effective regional delivery and in ensuring thatnational policy is fully engaged with and adaptable to regional economic priorities. I amkeen, with others, to continue to work to address the barriers to achieving this and to keepthe momentum for change going.

I am delighted, therefore, to welcome the Smith Institute’s timely and important contribution to this debate, which – consistent with the thrust of government policy forthe regions over recent months and years – sets out to identify and offer recommendationsfor overcoming the barriers to achieving real change that all of us in the English regions,and beyond, will recognise.

Many will have views and contributions to make to this exciting agenda. I am delightedto introduce this paper and I look forward very much to watching this important debate unfold.


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Executive summary and Recommendations

Executive summary

The government’s economic policy recognises that the prosperity of any country is dependent on strong economic performance at regional and local levels. The governmenthas put in place a radical set of measures aimed at strengthening the long-term buildingblocks of growth by exploiting the indigenous strengths of each region and community in Britain.

Barriers to regional and local economic growthPart 1 of this paper demonstrates how, in spite of a great deal of progress, a number of barriers prevent regional and subregional agencies from maximising regional and subregional growth:

• Significant aspects of policy remain top-down, without sufficient levels of regional and local input.

• Top-down policy constrains regional and local delivery because decisions on delivery are made in Whitehall rather than near the customer.

• Targets do not match priorities, as a result of targets being set on the basis of departments priorities rather than regional economic needs.

• Lack of co-ordination between local, regional and national organisations means they arefailing to maximise opportunities to work together and drive economic development.

Evolving the frameworkPart 2 offers a series of recommendations in response to each of these barriers, based onretaining broadly the same framework between local, regional and national agencies. Keyrecommendations include: regional development agencies preparing for the 2005 budgetby developing detailed proposals for the regionalisation of key aspects of policy; a newrelationship between local and regional agents; and a new role for government offices.

The delivery of these recommendations will be enhanced by strengthening the executivefunction and accountability within the regions. Not only will this help tackle each of thebarriers more effectively, it will also help synchronise the activities of local, regional andnational agencies in driving economic growth.


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Recommendations

This paper makes the following six recommendations:

Recommendation 1In the run-up to the 2005 budget, RDAs and local agencies should work together to develop detailed proposals for the regionalisation of policy in skills, investment, innovation, competition and enterprise.

These proposals should comprehensively set out:

• the evidence that supports the regionalisation of policy; • the added value of regional, rather than national, policy; • what the aims of the policy would be; • which agencies would be responsible for delivering it; • what it would mean for existing agencies; • what the costs would be; and • what would be the benefits for service users.

Recommendation 2In parallel with RDA efforts to set out detailed policy proposals in key areas (as set out inthe first recommendation), all government departments must be able to demonstrate thatin developing key policies, RDAs and local agencies have been consulted in designing anddeveloping appropriate delivery mechanisms.

Recommendation 3The government should work with RDAs to develop voluntary regional public serviceagreements. As with local public service agreements, when targets are achieved, RDAsshould be rewarded for meeting regional public service agreements with new freedomsand flexibilities.

Recommendation 4To encourage a greater focus on economic development at the local level and collaborationwith key regional agencies, the government should:

• make it a formal responsibility of local authorities to collaborate with other agencies to achieve full employment and rising prosperity in their area;


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• ensure that in agreeing the next round of targets with local authorities, local public service agreements correlate to regional economic strategies;

• reduce the central inspection regime targets to one overall aim of achieving full employment and rising prosperity; and

• align all local boundaries so that the possibilities of joint working between key local agents are joined up.

Recommendation 5The role of government offices for the regions should be enhanced to ensure that theyfocus on four objectives:

• joining up local/regional agencies;• brokering agreements between key agencies;• driving improved accountability; and • ensuring that public-sector investment is allied with regional economic strategies.

Recommendation 6In the run-up to the 2005 budget, RDAs should develop detailed and comprehensive proposals to improve the executive function within the English regions in relation to bothpolicy and delivery and to strengthen regional accountability in those regions in whichthere is no directly elected assembly.


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The next decade will see the biggest ever shift of power from Whitehall and Westminsterto regions, localities and communities.Gordon Brown, speech to the Social Market Foundation, 2003

There is little doubt that the overall prosperity of any country is dependent on strong economic performance at regional and local levels. Strong, sustainable improvements inthe economic performance of all areas, particularly areas that are underperforming, drive improvements in national economies. This philosophy underpins much of the government’s economic approach.

Regional and subregional economic policy in England does not have a good track record– the ambulance work of the 1930s, the top-down capital grants of the 1960s, or the laissez faire of the 1980s. But since 1997 the government has put in place a new framework of policy that aims to empower regions and localities to improve regional and subregional economic performance.

In Scotland, Wales and Northern Ireland, devolved administrations have been establishedthat have substantial autonomy over economic development functions and over key productivity drivers such as skills and innovation.

In England, nine regional development agencies have been established to act as champions for economic development in their regions. They exert strategic influence over the type, scale and combination of services delivered in their region. Each agency has a statutory duty to formulate and keep under review a regional economic strategy, reflecting differing regional priorities and drawn up through consultation with regionalstakeholders.

RDAs have the following statutory purposes:

• to further economic development and regeneration;• to promote business efficiency, investment and competitiveness;• to promote employment;• to enhance development and application of skills relevant to employment; and• to contribute to sustainable development.


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At the subregional level, the Local Government Act 2000 gave local authorities sweepingpowers to promote the economic development of their areas. This was built on, two yearslater, with central and local government agreeing on the need to “promote the economicvitality of localities” as one of the seven shared priorities from the 2002 spending review.The Local Government Act 2003 further extended council powers, including introducing anew power to establish business improvement districts where agreed by local businessesand the council.

The government has also provided more explicit mechanisms that allow local authoritiesto focus more flexibly on local priorities. The 2000 spending review launched local publicservice agreements that allow the 150 top-tier local authorities to negotiate a suite of 12targets with the centre, many of which can focus explicitly on local issues.

This approach of giving more freedom and power to local and regional agencies, oftencalled “the new localism”, insists that local people and local institutions have a unique andpivotal part to play in transforming their own communities into more prosperous places.Unless all play their full part – central government, local government, the private sector,the voluntary sector, community groups, and individuals as citizens – Britain will not beable to achieve its potential in the new global economy.

This philosophy has been brought to bear on the government’s approach to public servicereform. In major areas such as health and education, policy is guided by a belief that services should be designed and delivered as close as possible to the service user. The government’s commitment to public service reform is founded on a commitment to devolution – alongside standards, flexibility and expanding choice. Foundation hospitals –which stress the devolution of power to front-line NHS staff, as well as new financial freedoms – are one example. There are many others.

Although the government’s new economic framework remains relatively young – RDAswere established only five years ago – there is an increasing body of evidence to suggestthat regional and local agencies are helping to deliver increased regional and subregionaleconomic growth. RDAs have achieved most of their reporting targets – on employmentopportunities, new businesses, brownfield land and learning opportunities – and localauthorities are starting to put in place the foundations of subregional growth. Manchester,for instance, has shown how local authorities can drive economic development throughstrong strategic leadership and partnership approach.

Clearly, there is much more to do, not least in meeting the government’s public serviceagreement target to:

… make sustainable improvements in the economic performance of all English regions and over the long term reduce the persistent gap in growth rates between the regions, defining measures to improve performance and reporting progress against these measures by 2006.1

This target is extremely ambitious. To achieve it will require a historic shift in the relationshipbetween national, regional and local agencies. If government ambitions are to be realised,it is vital that the working relationship, structures and responsibilities between Whitehalland the regions maximise the opportunities for regions to achieve their true economicpotential. To achieve this, national government must act as an enabler – by providing thenecessary flexibility, power and resources to allow regions to develop their own solutionsto their own problems.

The Smith Institute has been tracking the issues surrounding the regional and localdimensions of the government’s economic agenda, and has published a number of pamphlets – Age of Regions, Growing the Economy: The Local Dimension, Progress in the Regions: Five Years of Leading the RDAs – which record many of the key issues and identify successes so far achieved.

This paper begins by identifying and describing the barriers that prevent regional and subregional agencies from generating even further regional and subregional growth. Thelist of barriers is not meant to be exhaustive. Instead, the paper seeks to describe some ofthe most fundamental policy issues that hinder national, regional and subregional effortsto maximise growth.

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1 Chapter 5, 2002 spending review, public service agreements white paper (HM Treasury, 2002).


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Part 1

The barriers to regional andlocal economic growth

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Part1. The barriers to regional and local economic growth

1. Significant aspects of policy remain top-down

Delivering economic growth and prosperity in every part of the country requires a stronginstitutional framework for formulation and delivery of regional and local economic policy.It requires a new policy process that recognises that regional and local economic policy isbest devised and developed by regional and local expertise. A key aspect of recognisingregional and local economic needs is to establish institutions with the necessary freedomand flexibility to respond to local economic issues. In this regard, the government hasachieved a great deal.

A major step forward was undoubtedly the establishment of regional development agencies, with a primary role as strategic drivers of regional economic development. RDAswere set up to co-ordinate regional economic development and regeneration, enable theEnglish regions to improve their relative competitiveness, and reduce the imbalance thatexists within and between regions. The publication of regional economic strategies hasbeen another major step in regionalisation, by setting out region-specific economic goalsto which all partners in a region can sign up.

Regional development agencies work to take forward regional competitiveness and takethe lead on regional inward investment. Since their establishment in 1999, a number offurther measures have been taken in an effort to give RDAs greater flexibility to meetregional economic needs. The single funding pot, with 100% flexibility, represented amajor achievement, as did the 2002 spending review process, which drew on a wider collection of regional needs and priorities. The review committed new resources to allowRDAs to deliver their regional economic strategies. This progress was built on in the run-up to the 2004 budget, which saw RDAs being asked to identify the top 10 barriersto growth.

Just as the government has pursued a policy of devolution at the regional level, in a parallel (but not yet overlapping) step, the government also recognised the need for flexibility at the local level, by allowing local authorities greater freedoms and flexibilitiesto develop policies and approaches that best suit local needs and priorities. The LocalGovernment Act 2000, with the powers it granted local authorities, was a key measure. Inaddition, local authorities are now starting to take advantage of:


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• significant increases in local authority funding, which has increased by 30% in real terms since 1997;

• a reduction in the proportion of funding that is ring-fenced. Ring fences will be removed from £750 million of resource from 2004/05;

• the creation, in the 2000 spending review, of local public service agreements, which are voluntary, negotiated agreements between an individual local authority and the government; and

• tying further freedoms to high performance through comprehensive performance assessment.

Despite the progress made in establishing regional institutions and giving local authoritiesgreater freedoms, many (particularly in the regions) continue to feel that too many policies – especially in key areas such as skills, investment, innovation, competition andenterprise – are still imposed without sufficient levels of regional and local input. Thisfrustration mirrors the findings of the Haskins rural delivery review2, which gave a comprehensive account of how policy has become increasingly centralised and top-down.The result is that services fail to meet regional and local needs:

Whilst this top-down approach might have been acceptable a generation ago it is notappropriate today. In the past, citizens’ high trust of governments contrasted with theirrelatively modest expectations of state intervention. Today, the reverse is increasingly thecase, reflected in an uneasy combination of distrust and excessive expectation. Peoplewant to know what is going on and resent a system that lacks transparency and does not adequately recognise individual circumstances. They seek tailored responses to their problems and become impatient when they do not get them.3

The skills agendaThe most glaring example of a top-down approach to policy is that of the skills agenda.The Department for Education & Skills launched the Learning & Skills Council in 2001 andmade it responsible for planning and funding all post-16 education and training (otherthan in universities). As a result, when regional development agencies and other localagencies consider local skills issues and the responses to them, they have to spend a largeproportion of their time and resources cultivating relationships and policies with learningand skills council representatives. Similarly, decisions that have a major impact on the

2 Christopher Haskins, Rural Delivery Review: A Report on the Delivery of Government Policies in Rural England (October 2003). 3 Christopher Haskins, Rural Delivery Review: A Report on the Delivery of Government Policies in Rural England (October 2003), p14.

economic potential of the English regions – for instance, transport policy decisions – areoften imposed on the regions without significant consultation with regional and localagencies.

However, there are signs that the government is beginning to recognise that a processthat draws on the input of local and regional expertise and gives regional agenciesresponsibility over key policy areas can help deliver effective solutions.

Firstly, some government departments are engaging in dialogue with regional and localagencies as part of their policy development process. In particular, the Treasury hasworked closely with regional development agencies and local authorities in developingthe 2003 budget and the 2004 spending review. The government also asked the regionaldevelopment agencies to work together to identify the top 10 institutional barriers thatthey believe are hindering effective co-ordination of decisions and service delivery in theregions, in the run-up to the 2004 budget.

Secondly, key responsibilities have recently been devolved to regional development agencies, such as the running of business links, announced in the 2004 budget.

Despite this progress, many in the regions continue to feel that the design of policies (andtheir delivery) still has a national rather then a regional/local bias and that in order forlocal and regional agencies to gain more control over specific policy areas they have to gothrough a time-consuming and exhaustive justification exercise.

This problem should not be misunderstood. The problem is not necessarily that policymakers are located in Whitehall. It is that without an effective process that ensuresregional input into national policy making, policies emanating from Whitehall that seekto promote economic development in each region are likely to be too blunt in tackling thespecific nuances and needs of each region or locality. When central government developstop-down solutions, without proper consultation with local and regional experts, anddevelops policies that impose national solutions as a response to what may be regionaland local problems, it threatens the achievement of its own objectives.

The reality is that however skilful RDAs and local government become at working effectively together, without “region-friendly” national policy they are destined to fail.Government departments notoriously covet control over how their money is spent andpolicy is developed, driven by our parliamentary system of financial “regularity and

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propriety” to protect ministers’ interests. Tom Riordan, Executive Director of Strategy and Policy, Yorkshire Forward4

2. Poor top-down policy constrains regional and local delivery

Most government services – education, healthcare, support for businesses – are deliveredby regional and local agencies and people. Yet, as the previous section showed, most government services and policies are designed at a national level. In the main, this is true of policies and services to support regional economic development. Despite anacknowledgement that organisations such as RDAs are the strategic leaders of growth inthe regions, particularly in setting out a regional economic strategy, much of their workis based on following the lead of national government and delivering services and policies that were designed in Whitehall.

Because services are often designed without sufficient input from local and regionalagencies – which are charged with delivering services – they often lack the nuance and sensitivity to meet specific regional and local needs and constrain effective regionaldelivery. RDAs’ capacity to respond to regional needs is constrained by having to workwith often blunt national policy solutions that are often unduly complex. According to theBetter Regulation Task Force:5

The first response to a failure in delivery is usually for the centre to take control. But thiscan mean that flexibility to fit the solution to local need is lost.

An example: delivery of enterprise policyEnterprise policy is an example of policy that has been developed on a top-down basis butwhich is left to local and regional agencies to deliver. The government provides relativelylarge sums of money (approximately £8 billion in 2001/02) to support small businesses. The majority of this expenditure is accounted for by support for farmers as well as various tax measures. Approximately £2.2 billion is devoted to other initiatives, of whichthere are many.

The decision to devolve responsibility for the management of business links to RDAs(announced in the 2004 budget) is welcome. However, when it is considered against the


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4 Growing the Economy: The Local Dimension (The Smith Institute, 2003).5 Better Regulation Task Force, Local Delivery of Central Policy (July 2002).

plethora of other initiatives designed to promote enterprise, it is easy to see why some in the regions complain about the complexity of delivery.

The government has created the Small Business Service, enterprise areas, the BusinessIncubation Fund, the Phoenix Fund, nine regional venture capital funds, the BridgesCommunity Development Venture Fund, the University for Industry, and the enterprisemanagement incentive. It has also introduced new tax measures, such as the creation ofthe community investment tax credit and business planning zones. And it has increasedthe emphasis on enterprise in schools, and made it policy that every child should haveexperience of enterprise by the time they leave school. This is not a definitive list, but itdoes illustrate the complexity of delivering policy6 developed in Whitehall.

The growth in the number of players active in the regions has led to some concern abouta lack of clarity on who does what.7

3. Targets do not match priorities

It is crucial for local and regional agencies to retain the confidence of key local andregional stakeholders that they work towards targets that match regional and local economic priorities as understood by stakeholders.

Today, RDAs are asked to work towards three tiers of targets:

• tier one: broadly replicates the RDA’s statutory purposes (to further economic development and regeneration, to promote business efficiency, investment and competitiveness, and so on);

• tier two: this tier reflects departmental interests and prior funding streams, with targetscovering areas such as sustainable economic performance and regeneration; and

• tier three: this tier contains short-term targets intended to be clearly measurable and directly attributable to the agencies, such as employment opportunities created and new businesses supported.

RDAs have achieved most of their targets for 2002/03, the first year of present reportingarrangements. Whether it be employment opportunities created, new businesses supported,


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6 Adams, Robinson and Vigor, A New Regional Policy for the UK (Institute for Public Policy Research, 2003).7 Your Region, Your Choice: Revitalising the English Regions government white paper (May 2002).

hectares of remediated land or learning opportunities created, RDAs have delivered.However, given that regional economic strategies form the basis upon which the agenciesplan their activity, it is important that the regional priorities set out are synthesised withtargets that represent those priorities. According to the National Audit Office:8

Agencies find that the targets do not support the strategies because they derive from different processes … Regional stakeholders do not feel ownership of the targets but perceive them as centrally driven and not regionally specific.

The reason for the mismatch between priorities and targets is clear. The objectives and priorities set out in each regional economic strategy are developed through analysing the regional evidence base and consulting stakeholders. On the other hand, central government targets are set nationally on the basis of departmental priorities. In otherwords, the continuing top-down approach to the regions means that regional agenciesare asked to work towards targets that match national rather than regional priorities.

Efforts to raise the demand for skilled workers in the East Midlands provide one exampleof the clash between national targets and regional priorities. Recent analysis by EastMidlands Development Agency has found that a specific priority for the East Midlands isto drive up the demand for and provision of higher-level skills, in particular level four andabove, so that the region can break out of its low-skills/low-pay equilibrium. EastMidlands partners are therefore working to address regional needs and priorities throughthe existing framework for regional employment and skills action and the development ofthe East Midlands regional skills and productivity partnership.9

However, the existing target frameworks that are set at national level encourage partners,in particular learning and skills councils and Jobcentre Plus, to concentrate on level twoskills and on getting the “hardest to help” unemployed into employment. While this provides a necessary baseline for skills development, it is not sufficient to address the economic needs of the region. Therefore, local and regional partners’ ability to focus onregional priorities is compromised by the need to meet non-specific national targets.

Recent research commissioned by East Midlands Development Agency has also demonstrated in detail how different target frameworks across the region do not allow


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8 Success in the Regions, HC 1268 Session 2002/03 (National Audit Office, November 2003).9 The regional skills and productivity partnership provides a regional framework for partners to align activities and resources to ensure theinfrastructure is in place.

the most effective delivery to tackle regional issues and therefore maximise impact at a national level.

The National Audit Office raises four points about the existing framework of targets:10

• It does not give sufficient clarity about what the agencies are delivering for the investment made by departments in support of government priorities.

• It does not allow sufficient flexibility for the agencies to address regional priorities, either by tailoring national programmes or by acting on their own initiative to address issues that are not national priorities.

• It does not give sufficient weight to the agencies’ role in partnership and brokerage.• It does not provide the best base for creating synergy between action to address

regional priorities and action to address national priorities.

The RDAs are now reviewing their framework of targets with government departments.The review, Tasking the RDAs, will do away with the system of tier two and tier three targets. Instead, RDAs will have a set of targets that will contribute to around a dozendepartmental PSA targets, which are core to the RDAs’ work, and will also be able to agreesupplementary targets relevant to each region’s needs.

While the new system will overcome many of the issues with the present system, it stillrepresents a top-down approach and will not be sufficient to allow RDAs fully to addressregional needs. RDAs will continue to be tasked on the basis of their contribution tonationally set priorities, rather than being able to set priorities specific to regional andlocal needs.

4. Lack of co-ordination between local, regional and national organisations

Despite the obstacles to progress so far mentioned, there is no doubt that the government’sprogramme for promoting economic growth has created an unprecedented level of new powers and new flexibilities at the regional and local level. Given the traditionally centralised nature of the UK political system, this represents a radical break with the past.

However, for this new framework to deliver the government’s objectives, it is vital thattwo conditions are in place:


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10 Success in the Regions, HC 1268 Session 2002/03 (National Audit Office, November 2003).

• that local and regional agencies work together towards shared aims and objectives; and• that organisations responsible for investing and delivering key public services

(such as health and education) collaborate with agencies responsible for economicdevelopment in order to maximise the economic impact of the government’s substantial investment programme.

Evidence suggests that local and regional agencies are failing to maximise opportunitiesto work together to drive regional and subregional growth. This matters because governmentdata shows that it is at the subregional levels that Britain has the greatest degree ofinequality of incomes – greater than that in any other EU country. Income per head in theSouth East, for example, ranges from about 20% below the national average in Brightonand Hove to around 15% above the national average in Berkshire and Portsmouth. In theNorth East, productivity in Sunderland and Tyneside is about 80% of the national average,while in South Teesside it is about average.11

Unless subregional disparities are tackled, efforts to drive improved regional – and therefore national – growth will be limited. But unless local and regional agencies worktogether, those disparities will remain. This point is recognised by Steve Houghton, Leaderof Barnsley Metropolitan Borough Council and Deputy Chairman of Yorkshire Forward:12

… if I’m honest, the inability of RDAs and local government to come together to fullyengage has led to a number of missed opportunities …

Although an increasing number of regional and local partners do now recognise the importance of working together to promote regional and subregional economic development, the relationship between the regional and the local is undermined by anumber of factors.

First, links between RDAs and subregional partners can be weak. While it is true that eachRDA has some form of subregional structure or arrangement with local partners to helpdeliver the regional economic strategy, the extent to which those partners are workingtowards – or even engaged with – that strategy varies greatly. Local authorities, becauseof their service delivery functions and (relatively) significant budgets, are key subregionalpartners for RDAs. But given the relative immaturity of the RDAs, developing a close partnership between RDAs and local authorities will take time.


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11 Growing the Economy: The Local Dimension (The Smith Institute, 2003).12 Quote taken from the seminar "Growing the Economy: Encouraging Economic Development" held by the Smith Institute on 28 April 2004.

Indeed, in most cases local authority expertise in economic development is still developing.Despite the government’s recent measures to promote local government’s contribution toeconomic development, in too many areas local authorities are still not as activelyinvolved or influential as they should be in shaping this new economic agenda. Whilesome local authorities excel in their economic development work, too often authoritiescan take too limited a view of their economic role and particularly their relations withlocal businesses. The challenge to local authorities must be to become active partners inbusiness development and growth at every level: a new relationship based on sharedunderstanding and shared goals.

Focus on national, not regional priorities A second factor behind the failure to maximise collaboration between RDAs and localauthorities is that existing arrangements mean that there is an explicit incentive for localauthorities to concentrate on delivering nationally agreed targets, rather than regionalpriorities.

Both local authorities and RDAs have agreed targets with national government, throughpublic service agreement targets. Although regional strategies are based on gaining wide-spread stakeholder support – including from local authorities – there is between RDAs andlocal authorities no mechanism of the public service agreement type which could helpstimulate the strength of partnership required to deliver both regional strategies and driveregional growth. There is therefore a far greater incentive for RDAs and local authoritiesto focus their efforts on delivering their obligations to national government (set out inlocal public service agreements and public service agreements) rather than workingtogether towards delivering the regional and local priorities set out in regional strategies.

Figure 1: Existing target frameworks between national government, regional and local agencies


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National govermentdepartments

Local publicservice agreements

Public serviceagreement targets

Regionaleconomicstrategies

Local authorities

Regionaldevelopment

agencies

Local and regional collaboration in driving economic development is also undermined by the inadequacy of inspection regimes to help drive improved economic performance at the local level, promote integration between key local authority service areas that impact on economic development, and emphasise the importance of collaborative working between local and regional agencies.

The comprehensive performance assessment was introduced in 2002 as a way of supporting councils to deliver improvements in services to local people and has beenimportant in driving improvements in key areas such as social care and education.However, its failure to capture the importance of economic development to the work of local authorities means that local authorities have an incentive to concentrate on“non-economic” activities.

More generally, the lack of integration between the various inspectorates that local government faces – the Best Value Inspection Service, HM Fire Services Inspectorate, HMInspectorate of Constabulary, the Office for Standards in Education, the Social ServicesInspectorate and the Benefit Fraud Inspectorate – can act as a disincentive to the kind ofjoint working that is necessary to promote economic growth.

This is not helped by the lack of alignment in the boundaries surrounding key local agents, allof which can impact on economic development. At the local level, health authority boundariescan differ from police boundaries, which can differ from local education authority boundaries.This makes it extremely difficult to develop the kind of joint working and alignment ofstrategy necessary to drive economic development at the local and regional level.

Having described the failure to maximise local-regional co-operation, it should beacknowledged that there can be a parallel failure between national departments andregional agencies to work together, particularly in maximising the economic potential ofthe record levels of investment now being seen in public services. This is importantbecause investment – whether public or private – is one of the five drivers of economicgrowth and is vital to raising the productivity of underperforming regions and localities.

Clearly, the government has made significant investment in public services, but to have itsoptimal impact in the regions it needs to be allied with regional strategies. By 2005/06,the government will be spending some £320 million on public services.13 Of this, just £70


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13 KPMG, England’s Economy – Harnessing the Power of the Regions (December 2003).

billion will be directly controlled by central government, with the remainder, £250 billion,being devolved to local bodies in health, housing, education, policing and local government.

The potential economic impact of this spending in the regions is massive. In procurementterms alone, if public spending in the regions can be directed in ways that maximise the benefits to regional and local economies, the potential dividend is very significant. Ifhospitals can ensure that their capital expenditure, their spending on providing ancillaryservices and their spending on catering all benefit local supply chains, the knock-oneffects within the regions and subregions will be considerable.

Bypassing the RDAsDespite the sheer weight of these economic drivers in the regions, and despite RDAs beingthe “strategic leaders” within the regions, the existing settlement means that RDAs willhave little influence over how this money is spent. Similarly, although local authoritiesdeliver the vast bulk of public services, they too will be bypassed when major decisions are taken on the delivery of public services. The local authority role in, for instance, theprocurement decisions of primary care trusts is difficult to identify.

More generally, core public service departments in Whitehall fail to take sufficient accountof RDA regional strategies when developing their services. Although engagement withregional policy varies across government (and is strongest in the Department for Trade & Industry, the ODPM and HM Treasury) too many decisions are taken by centraldepartments without regard to their impact on the regions, and without input fromregional stakeholders. One reason is the limited and narrow departmental ownership ofregional targets, which has the effect of reducing departmental–regional engagement. For instance, although employment and transport are core economic issues, neither theDepartment for Work & Pensions nor the Department for Transport have public serviceagreement targets with the regions.

Two obvious potential dangers arise from the current detachment between regional agencies and public service departments. The first is that major spending decisions aretaken that do not fit in with the blueprints for regional economic development that arethe regional economic strategies. If regional economic strategies are to deliver their objectives, it is imperative that they draw on and can influence the major economic decisions within their regions.


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The second danger is that, in the absence of structures to co-ordinate the spending ofhealth, education, police and other resources, local and regional agencies act in silos.British governments have, for many decades, been accused of not being “joined up”, withdepartments working to their own agendas producing strategies that often conflict witheach other. If the present government takes this seriously – which it appears to, given thevarious departmental changes in the machinery of government in recent years – moreneeds to be done to ensure that the mistakes of previous national governments are notrepeated in the future at the regional level.

Looking forwardDespite the barriers thus far described, it has to be acknowledged that the governmenthas, since 1997, made massive progress in devolving economic policy to the regions andsubregions of the UK. This has led to real achievements, many of which were set out bythe Smith Institute in Progress in the Regions: Five Years of Leading the RDAs.14

The establishment of RDAs, the new freedoms given to local authorities to promote economic development, the single funding pot, the decision to devolve responsibility forbusiness links to RDAs, and the involvement of RDAs in the budget process all represent arecognition on the part of national government that the prosperity of any country isdependent on strong economic performance at regional and local levels.

What this means in terms of policy and delivery was most clearly set out in the recentpublication of the devolved decision-making review, which drew on input from the RDAs.The review not only saw the government declare its rationale for greater regional andlocal involvement in policy making, it also established the next steps necessary to ensurethat the institutional framework is focused on delivering enhanced economic outcomesin the regions and localities of the UK.

As the government considers its next steps in promoting greater devolution, it is clear thatin order to deliver enhanced economic outcomes, the barriers that have so far beendescribed will need to be addressed. A continued bias in favour of national rather thanregional and local decision making, poor delivery mechanisms, a mismatch betweennational targets and local/regional priorities, as well as lack of co-ordination betweenlocal, regional and national organisations, all threaten the achievement of the government’snoble ambitions. However, the responses to these barriers can take many forms.

14 Progress in the Regions: Five Years of Leading the RDAs (The Smith Institute, 2003).


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The next section briefly reviews each of the barriers set out in Part 1 before discussingways in which these barriers can be overcome. These recommendations are based aroundfurther empowering existing institutions in order to tackle the specific barriers mentionedas well as to synchronise the activities of local, regional and national agents in drivingregional and subregional economic development.


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Part 2

Evolving the framework

Part 2. Evolving the framework

1. Developing bottom-up policy

Despite the government’s progress in devolving power to the regions and subregions ofthe UK, significant aspects of policy remain top-down. Policies that are fundamental toeconomic development – skills, investment, innovation, competition and enterprise – arestill imposed on the regions without sufficient levels of regional and local input. The failure to design and develop policy at the appropriate level, or to develop bottom-up policy, has the effect of forcing RDAs to deliver centrally driven policy in response to problems that are often regional or local in nature.

A bottom-up approach must be a process that involves – and is open to – local, regionaland national stakeholders so that they can understand how major policy decisions thataffect the regions are consistent with regional priorities. Although regional economicstrategies have generally received widespread endorsement, it is often difficult to see hownational policies have taken account of or are designed to meet regional economic needs.The government has indicated that it is willing to move in this direction:

We recognise that central government needs to prescribe less detailed policy at thenational level. Local communities are quite capable of making sensible decisions at theregional and local level on their economic development needs and write policies on thisinto their plans as a matter of course.Ed Balls, Chief Economic Adviser to the Treasury15

The Treasury has been at the forefront of government efforts to promote devolution, and,as part of the 2004 budget, recently published Devolving Decision Making: 2 – Meeting theRegional Economic Challenge: Increasing Regional and Local Flexibility. This documentsets out the government’s progress in devolving decision making as well as its approachto increasing regional and local flexibility. It also presents the criteria by which the government can judge at what level policies should be designed, either at the national,regional or local level.

The government’s approach is for interventions to take place regionally either when thereare not significant and clear economies of scale or scope that would make national deliverymore efficient, or when there is a regional market failure, that is, when the market failures:

15 Balls, Healey and Koester, Growing the Economy: The Local Dimension (The Smith Institute, 2003).


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• affect only some regions/localities; or• affect different regions to different degrees, for example, barriers to start-ups; and• have most of their impact regionally or locally, for example support for small and

medium-sized enterprise investment readiness; and

In the future, these criteria will be key to guiding both the extent and nature of local andregional input into major policy decisions. Indeed, announcements made in the 2004 budget suggest that the criteria have already begun to shape policy. The decision todevolve responsibility for business links to RDAs is recognition that business start-up ratesvary widely between regions, and that the barriers to enterprise may be better addressedat the regional level.

It is manifestly inappropriate that regional and local agencies become involved in thedesign of policies in all areas of government activity. National government has a legiti-mate role in setting the framework of national policy, consistent with its own prioritiesand objectives. It is also the government’s job to set national standards that matter to the public, within a framework of clear accountability, designed to ensure that citizens have the right to high-quality services wherever they live. However, when one of the government’s key aims is to promote economic growth, it is right that those agencieswhose job it is to drive economic development – particularly RDAs – have an input intothe design of policies that aim to achieve these objectives.

Regional differences in productivity driversGovernment analysis shows that the five drivers of productivity are:

• enterprise;• innovation;• competition;• skills; and• investment.

In order to understand in which areas of policy RDAs are best placed to help build bottom-up economic policy, it is important to evaluate briefly each of the five key productivity drivers in the context of the government’s own criteria.

In terms of enterprise, the government has already recognised that there are strongregional differences in enterprise levels across the country, and that barriers to enterprise


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may be better addressed at the regional level. The government has therefore helped facilitate the development of bottom-up enterprise policy by handing responsibility forbusiness links over to RDAs, although RDAs still have to work with a large number ofschemes.

Levels of innovation also vary widely between the regions of the UK. Using levels ofexpenditure on research and development as a proxy for levels of innovation, evidenceshows that there are substantial variations in the amount of expenditure on research and development undertaken by firms in different parts of the UK. In 2001, business expenditure on research and development represented 3.4% of total GVA in the easternregion, compared to only 0.4% of GVA in the North East and Wales. In response, RDAshave been given greater levels of flexibility in promoting innovation, and many RDAs arenow making significant investments in science and innovation.

However, the key policy to promote innovation, the research and development tax credit,is nationally based and, some would argue, perpetuates the existing pattern of innovationbecause it is likely to have a larger impact in the southern part of the country where innovative businesses are more common. The continued variation in innovation activitysuggests that greater focus should be applied to developing policies that tackle marketfailures at the regional level, and that regional and local institutions should have as muchflexibility as possible to develop local solutions to local barriers to innovation.

As with enterprise and innovation, there are significant regional variations in the levels of competition across the country. Treasury evidence shows that since 1980 the higher start-up rates in London and the South East have increased the local business stock bymore than a third, meaning more businesses per head of population and greater localcompetition. By contrast, the North East of England, Scotland and Wales have seen onlymarginal net growth in the size of their business communities.

On skills, a range of evidence indicates regional variations in the stock of skills among theUK population, as well as differences in the flow of highly skilled people entering theworkforce. Evidence also suggests that these variations are attributable to regional market failures. Consistent with its own criteria – that where market failures differ byregion, the responsibility for addressing the failures should lie at the regional level – thegovernment has established the local learning and skills councils, and RDAs have workedwith these and with others in developing regional skills partnerships.


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However, many in the regions question the rationale for the separation between agenciesresponsible for delivering economic development at the regional level – RDAs – and thoseresponsible for delivering higher skills levels, like learning and skills councils, particularlywhen skills are such an important driver of economic development. Although regionalskills partnerships are still evolving, it will be important for the government to address any institutional barriers, should they arise, that might prevent the delivery of effective, bottom-up skills policies that can drive economic growth.

In terms of investment, there are again, as a result of regional market failures, significantregional differences – measured either by average total capital expenditure per employeeor by the distribution of early and expansion stage venture capital. Clearly, there are many different aspects to regional economic investment, from investment in housing to investment in transport, with different investments often having different impacts,dependent on varied regional characteristics.

In summary, a brief analysis shows that there are vast regional differences in the driversof productivity. Moreover, the differences are often driven by regionally specific marketfailures. By the government’s own criteria, this suggests that policy responses should bedesigned with a significant amount of regional and local input. In some areas of policy,such as enterprise, regional agencies have had a significant input into major enterprisepolicy decisions.

For the 2004 budget, RDAs were asked to suggest policy measures on five key themes:barriers to business start-ups; provision of government services to small businesses; access to finance for small and medium-sized businesses; barriers to skills provision; andknowledge transfer between businesses and universities. Following this process, the government decided to devolve regional and local business link services to RDAs. Clearly,the government took seriously and acted decisively on the views of RDAs. RDAs havewarmly welcomed this measure, which will allow them to develop bottom-up solutions tolocal business problems.

Although there is a strong rationale for greater regional intervention in key areas of policy, it should not be assumed that the government will hand over responsibility for theentirety of skills policy, innovation policy, and so on, to RDAs. Despite the progress madein devolving decision making, most notably by the Treasury and the ODPM, large areas ofWhitehall remain resistant to relinquishing further control to the regions and localities of the UK. Therefore RDAs need to rise to this challenge by raising their game and


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demonstrating to national government that they have the competence and capacity to deliver key aspects of policy more effectively than national government.

RDAs and local agencies should work together to demonstrate to the government how,for instance, a regional/local skills policy could be rolled out. This would need to addressthe following questions: Who would be responsible for delivering what? What would itmean for existing agencies working to promote skills? What would it mean for local andregional budgets? What are the implications for schools, local education authorities, andfurther and higher education colleges? What is the role of national government? Withoutthis amount of precision in drawing up the regionalisation of major policy areas, it isunlikely that the Whitehall machine will be willing to take a step into the unknown andlet go.

Recommendation 1In the run-up to the 2005 budget, RDAs and local agencies should work together to developdetailed proposals for the regionalisation of policy in skills, investment, innovation, competition and enterprise.

These proposals should comprehensively set out:

• the evidence that supports the regionalisation of policy; • the added value of regional, rather than national, policy; • what the aims of the policy would be; • which agencies would be responsible for delivering it; • what it would mean for existing agencies; • what the costs would be; and • what would be the benefits for service users.

2. Simplifying delivery

Most government services – education, healthcare, support for businesses – are deliveredby regional and local agencies and people. Yet most government services and policies aredesigned at a national level, without sufficient input from local and regional agencies. The result is that services often lack the nuance and sensitivity appropriate to local circumstances, and those charged with delivery struggle to work with blunt, national policies that are often unduly complex.


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This issue was raised in the run-up to the 2004 budget, when RDAs submitted their top10 barriers to more effective regional delivery. RDAs stressed the need “to ensure genuinedevolution of responsibility over decision-making delivery structure”.

Since RDAs were established, central government has acted to promote flexible deliverysolutions. The government introduced a new, streamlined funding arrangement for theRDAs, where they received their allocations through a single funding pot, rather than individually from their separate contributing departments. This significantly increased theflexibility for RDAs to manage their own resources to meet their regional priorities in theway they decide is most effective. In addition, the RDAs were given increased delegationsfor individual investment projects in 2003, providing them with greater autonomy fromgovernment after demonstrating their capability to appraise projects effectively.

Beyond greater financial flexibility and increased freedom over individual projects, morecould be done to provide RDAs with greater operational flexibility over the national policies that they are asked to deliver. This should involve trusting in local and regionalagencies to develop their own delivery solutions in order to meet local, regional andnational policy goals.

But the design of effective delivery has to start with the design of effective policy. That is to say, the policy design process should begin with an understanding of the delivery environment, particularly any constraints that may limit the ability of local and regionalagents to deliver the policy. That is why a bottom-up approach to policy – which drawson the expertise of local people at an early stage – is so important; it can help inform thedevelopment of efficient delivery mechanisms. Therefore, the measures recommendedabove, which deal with how to develop bottom-up policy, must also be taken into accountwhen addressing how to develop effective delivery mechanisms.

The Haskins review explores the relationship between policy and delivery and concludesthat there needs to be a “clearer definition of roles and better communication betweenpolicy developers and delivery experts”, based on the following:16

• Arrangements for delivery and customer service should be made the responsibility of delivery organisations rather than policy developers.


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16 Quotes taken from Christopher Haskins, Rural Delivery Review: A Report on the Delivery of Government Policies in Rural England(October 2003).

• The prime responsibility for developing delivery systems should rest with the deliverer.• It is desirable not only to effect a clearer separation between policy and delivery

roles but also to devolve delivery (by which I mean, delegate power to the frontlinedeliverer to decide how programmes are administered). Deliverers should be given theflexibility to determine the best ways of achieving the desired outcomes, within aframework agreed with DEFRA.

These principles are consistent with the first recommendation made in this paper, whichaims to develop bottom-up policy and which implies a far greater dialogue betweennational policy makers and regional/local delivery agents.

Recommendation 2In parallel with RDA efforts to set out detailed policy proposals in key areas (as set out inthe first recommendation), all government departments must be able to demonstrate thatin developing key policies, RDAs and local agencies have been consulted in designing anddeveloping appropriate delivery mechanisms.

3. Synchronising targets and priorities

The present top-down approach to policy in many areas means that regional agencies areoften asked to work towards targets that match national rather than regional priorities. A basic principle of potential reforms that seek to improve the target framework is thattargets should reflect regional and subregional priorities rather than cloud them. Thisprocess should, again, be bottom-up, based on national and regional officials regularlycoming together to decide how best to pursue regional priorities, in contrast to the status quo where targets are largely imposed from the top down.

The Audit Commission report, Targets in the Public Sector, confirmed the importance ofpromoting localism in targets and emphasised the need to “shift towards an approachthat encourages and supports local experimentation, learning and partnerships; and ashift to fewer nationally set targets and more targets set by localities”. 17 In addition, therecent National Audit Office report Success in the Regions recommended that the government should:

17 Audit Commission, Targets in the Public Sector public-sector briefing (2003), p2.


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… simplify the agencies’ targetry framework and align it more closely with regional economic strategies and relevant public service agreement targets.

Recent successful efforts to promote greater local discretion over targets have come in the form of local public service agreements. These were developed in 2000 and are partnership agreements between individual local authorities and the government, intendedto improve more quickly, and/or to a higher level than would otherwise be the case, keyoutcomes for people living in the authority’s area.

These agreements work in the following way. The local authority identifies and undertakesto deliver targets for those key outcomes that exceed the performance it would previouslybe expected to deliver. In order to achieve these outcomes, the local authority is able toapply for pump priming funding and the government offers agreed additional flexibilitiesto aid the authority in delivery of its enhanced targets. As an added incentive, the government provides additional resources to those authorities that can demonstrate thatthey have achieved their enhanced targets.

Local public service agreements have been widely welcomed in local and central government.They have provided several benefits:

• a structure whereby locally desired outcomes are placed alongside national priorities as part of the same performance management framework through a process of negotiation;

• additional incentives for delivery through financial rewards for success and scope for relaxing identified statutory and administrative barriers to delivery; and

• giving local authorities access to central expertise in target setting and measurement.

Local public service agreements stand in contrast to the present framework of targets forRDAs. Where local public service agreements are explicitly based on local priorities, targetsfor regional public service agreements fail to provide sufficient focus on regional targets.Where local public service agreements are proposed by local people, targets for regionalsuch agreements are proposed by national government. Where local authorities arerewarded for meeting local public service agreements with new freedoms and flexibilities,RDAs have little incentive to work towards targets that do not match regional priorities.

There is no reason why the philosophy behind local public service agreements could notbe applied to the regional level. That is to say, regional agencies should be given stronger


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incentives to work towards regional and subregional priorities rather than national priorities, as is the case at present.

To use the example of East Midlands Development Agency’s search for higher-skilledworkers, the problem is that the existing target frameworks encourage local partners andagencies to concentrate on lower, level two skills. Regional capacity to focus on regionalneeds is therefore compromised by the adherence to national targets. An improvement tothe target framework would create an incentive to focus on regional need by raising thesupply of highly skilled workers. This could be done by the regional agency negotiating a regional public service agreement with the national government that focused on delivering more highly skilled workers, in parallel with the existing public service agreement target, which focuses on level two skills.

The regional/subregional target framework could also be improved by a greater synthesisbetween regional and local targets. This could be done by a requirement to ensure thatlocal public service agreements reflect priorities set out in regional strategy documents,which would help correct the imbalance of incentives and provide greater incentives forlocal agencies to concentrate on regional and subregional needs. At present this does nothappen – local public service agreements are agreed directly between central governmentand local authorities.

Recommendation 3The government should work with RDAs to develop voluntary regional public serviceagreements. As with local public service agreements, when targets are achieved, RDAsshould be rewarded for meeting regional public service agreements with new freedomsand flexibilities.

4. Joining up local, regional and national efforts to drive economic growth

Part 1 showed how the failure to join up local, regional and national agencies underminesefforts to drive economic growth. In many circumstances the relationship between RDAsand key subregional partners, such as local authorities, can be undermined by a numberof factors. First, although all RDAs have some form of relationship with local authorities,the links are often weak, with varying degrees of commitment on the part of local authorities either actively to focus on pursuing economic development or to work withRDAs in doing so.


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Too often local authorities take a limited view of their role in economic development and relationship with local business. Their challenge is to become active partners in business development and growth at every level; to create a relationship based on shared understanding and goals.

However, this is made difficult when the incentive regime – particularly in the form of localpublic service agreements – encourages local authorities to focus on their relationshipwith national government rather than regional agencies. This is compounded by the localauthority inspection regime, the comprehensive performance assessment inspectorate,which has so far been inadequate in driving improved economic performance at the locallevel or in promoting integration between key local authority service areas that impact oneconomic development.

Although comprehensive performance assessment for local authorities has been importantin driving improvements in key areas such as social care and education, it has failed tocapture the importance of the authorities’ role in economic development. As a result, localauthorities have an incentive to concentrate on “non-economic” activities. The lack ofintegration between key inspectorates is accentuated by the lack of alignment betweenkey local authority boundaries, which makes it extremely difficult to develop joint working and strategies between key local service organisations such as health, educationand the police.

The lack of integration between the various inspectorates that local government dealswith – from the Office for Standards in Education to the Benefit Fraud Inspectorate – canalso act as a disincentive to joint working, which is necessary to promote economicgrowth. The lack of alignment in the boundaries surrounding key local agents – health andeducation authorities or police boundaries, for instance - has a further negative impacton economic development. This makes it extremely difficult to develop joint working andalignment of strategies between key agencies.

These barriers to the forging of strong relationships between local and regional agenciesprovide a strong justification for the reform of both incentive and inspection regimes atthe local level, as well as a review of the various local boundaries that can prevent keylocal agents from working together.


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Recommendation 4To encourage a greater focus on economic development at the local level and collaborationwith key regional agencies, the government should:

• make it a formal responsibility of local authorities to collaborate with other agencies to achieve full employment and rising prosperity in their area;

• ensure that in agreeing the next round of targets with local authorities, local public service agreements correlate to regional economic strategies;

• reduce the central inspection regime targets to one overall aim of achieving full employment and rising prosperity; and

• align all local boundaries so that the possibilities of joint working between key local agents are joined up.

Regional assemblies to improve co-ordinationBeyond the local-regional relationship, RDAs can often find that there is a lack of co-ordination between regional agencies and (often national) organisations that have a keycontribution to make to economic development – such as the Small Business Service,learning and skills councils, JobCentre Plus, New Deal for Communities organisers andlocal strategic partnerships. While the government’s eagerness to devolve responsibilityand delivery to the local/regional level is welcome, it can mean that a large range of bodies and agencies are working independently of each other. This undermines efforts todrive economic development.

A related problem is that in some cases there has been a failure to connect the government’s economic development agenda with the government’s public serviceinvestment agenda. In short, because of a lack of co-ordination between key partners, thesubstantial levels of investment now being seen in public services are not creating theoptimum economic dividend.

The key government proposal to improve co-ordination and decision making at thelocal/regional level lies in the form of the government’s plans to introduce regionalassemblies, set out in Your Region, Your Choice. The main proposals are:

• The government will provide for the establishment of directly elected regional assemblies where support is demonstrated in a referendum.

• The elected regional assemblies will generally draw their functions and powers largely from central government bodies, rather than from local government.


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• They will have three main kinds of functions – preparing regional strategies, “executivefunctions” in areas where the regional assembly has complete responsibility for anissue, and “influencing functions” relating to issues that have a regional dimension but that also need local and national input.

• Executive functions include economic development, planning, housing capital investment and housing association allocations, and certain functions to do with culture and sport. Influencing functions include business support, regional employment and skills, planning of major projects, transport, regional cultural strategies and public health.

• They will have to agree their key objectives with central government, and will have to monitor performance against these.

• Assemblies will “also need to ensure they all fit together effectively so they improve people’s living standards and quality of life”.

The government believes that giving assemblies the strategic lead on regional issues willhelp to improve regional performance and that greater accountability will lead to moreeffective decision-making processes. However, this implies that those regions that do nothave assemblies will not have the capacity to drive improved regional performance andwill have poorer levels of accountability. Moreover, it needs to be asked whether or notthe proposed changes will either facilitate greater joining-up at the regional and locallevel or help synchronise major public investment with economic development decisions.

The proposals set out in the white paper to develop regional assemblies represent anexplicit acknowledgement of the vacuum that exists in governance frameworks that seekto promote economic development. This is welcome. But in those regions that do expressa sufficient interest in regional assemblies, the proposals set out in the white paper seemto do little to improve the capacity to shape economic development. And those regionsthat do not express sufficient interest will be left with the status quo – a vacuum. In bothcases, opportunities to maximise the development of a governance framework that trulysupports regional and local development may have been missed. In those regions withoutelected assemblies, there is therefore a need for a body that is able to drive improvedregional performance, through greater co-ordination of local and regional agencies andimproved accountability.

The role of government offices for the regionsBoth instalments of the devolved decision-making review discuss the role of governmentoffices for the regions in the context of the post-elected assembly environment. Government


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offices for the regions bring together the activities and interests of 10 different governmentdepartments within a single organisation, which gives them the potential to take a cross-departmental approach and to provide a coherent view of delivery in the regions.The government offices contribute to the delivery of over 40 public service agreements on behalf of their sponsor departments, covering a diverse range of tasks, including regenerating communities, fighting crime, tackling housing needs, improving publichealth, raising standards in education and skills, tackling countryside issues, and reducingunemployment.

Government offices for the regions directly manage significant spending programmes on behalf of government departments. In 2002/03, they were responsible for around £9 billion of government expenditure. They oversee budgets and contracts delegated toregional organisations, as well as carrying out regulatory functions and sponsoringregional development agencies. As part of central government, their role also includesproviding a regional perspective to inform the development and evaluation of policy.

However, even the government’s own research has shown that:

Government in the regions plays a helpful part in supporting area-based initiatives andmaking links between them, but government offices for the regions have been as yetunable to resolve the conflicting requirements of different government departments.18

The government has stated that it “will consider how the role of government officesshould evolve to fit the new environment in the context of the 2004 spending review”.Government offices could potentially play a far more proactive role in helping to driveregional and subregional economic development, particularly in those regions unlikely tosee the establishment of regional assemblies in the short to medium term.

Since their establishment, government offices for the regions have acted as administratorsof major government programmes and resources and have seen their role become largelymanagerial. For balanced regional economic development to become a reality, this willneed to change. Rather than being managers of government programmes, governmentoffices should become strategic facilitators of regional and subregional economic growth.

This means helping RDAs to tackle many of the barriers to economic growth, including

18 Research Summary Number 1, sponsored jointly by the Regional Co-ordination Unit and the Neighbourhood Renewal Unit of theDepartment for Transport, Local Government & the Regions (May 2002).


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those set out in this paper. For instance, government offices should work to facilitate bottom-up policy, supporting RDAs in their efforts to ensure that policies in the regionsare attuned to the needs of those regions.

Clearly, government offices for the regions have a wider role than solely to promote economic development, but they can make a major contribution to economic development by helping to join up the work of major government departments so thatthe economic impact of public service investment is maximised and that governmentdepartments help rather than hinder the delivery of regional economic strategies.

They could also provide a greater brokerage role, negotiating agreements between RDAsand key delivery organisations, perhaps through promoting the pooling of budgetsbetween major public-sector organisations to help facilitate greater flexibility. They couldalso work to ensure that the target framework surrounding the relationships betweennational, regional and local agents provides explicit incentives to work towards deliveringregional economic strategies.

A new role for government offices for the regions is consistent with the findings of theBetter Regulation Task Force:

We recognise that government offices have a legitimate role in monitoring RDA spendingas part of the public accountability chain, and that is better done on the spot than in thecentre. But for government offices to be seen as helpers and partners as well as “bigbrother” they need to be able to feed back issues to the centre and champion the bodiesthey “sponsor” when they need help. There is no room for observers – government officesstaff must show they have an active role.19

Recommendation 5The role of government offices for the regions should be enhanced to ensure that theyfocus on four objectives:

• joining up local/regional agencies;• brokering agreements between key agencies;• driving improved accountability; and • ensuring that public-sector investment is allied with regional economic strategies.

19 Better Regulation Task Force, Local Delivery of Central Policy (July 2002).


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Culture shiftThe five recommendations made so far represent a significant step from the existingarrangements surrounding the relationship between RDAs and national and local agencies. Bottom-up policy, new delivery arrangements, improved targets and a newstrategic role for government offices are all necessary measures that would help theregions and localities of the UK to meet their potential.

However, implementing these recommendations will require a paradigm shift in the culture and management of regional and local agencies. For example, it is doubtful thatwithout fundamental reform of the way that government offices are managed, theywould be able to deliver on the four objectives set out in the fifth recommendation. Asthings stand, government offices lack the executive capacity or powers to be able to joinup the work of local and regional agencies and drive improved accountability across theregions. Worse still, the Better Regulation Task Force has found that regional stakeholders“did not understand how the government offices add value to either the economic development or skills agenda”.

But the problems in focusing and co-ordinating the activities of all agents in driving economic development go beyond the government offices. Arguably, the delivery of allthe recommendations set out in this paper will require change in the way that national,regional and local agencies work together. For instance, the delivery of the first recommendation – which seeks to promote the regionalisation of policy – will require an improved stimulus at the regional level so that regional proposals represent more than just the lowest common denominator.

Although the regional emphasis documents produced for the 2004 spending review werea great advance on what had gone before – because they had to be signed off by the RDAboard as well as the government office’s senior management team and assembly board –punches had to be pulled in a number of areas in order to secure the necessary sign-off.

Providing executive leadershipChange is also necessary to ensure that when regional policy is developed in a key policyarea, like skills or transport, there is the necessary leadership within regions to enable thatpolicy to be delivered. Similarly, delivering the fourth recommendation – which promotescollaboration between local and regional bodies in promoting economic development –will be extremely difficult, particularly given the relative immaturity of local authorities in this area, without improved authority to drive change.


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Overcoming the cultural and structural constraints to a co-ordinated approach to regionaland local economic development – as well as delivering the first five recommendations –will not be easy. It is made more difficult by the lack of executive leadership at the regionaland local level. As things stand, no one has the capacity to lead the regionalisation of policy. No one has the authority to ensure that local and regional agencies are workingtowards a shared vision and goals. Nor is there anyone who can turn the perception ofgovernment offices from Big Brother to strategic facilitators.

Derek Mapp, Chairman of the East Midlands Development Agency, has led the way inresponding to these constraints by proposing a model that could potentially overcomethese difficulties and enable the recommendations set out in this report to be delivered:

We need to transform the way in which national policy is translated and delivered at theregional level. Central government has a requirement to lead on the creation of nationalpolicy, with Whitehall departments moving much more to a focused policy role. Theregions, closer to the customer, should be able to make a substantive difference to thedelivery of that policy, translating those policies into real outcomes.

The model is based on filling the leadership vacuum within the English regions, by creating a “first minister” within each of the English regions, and adopting reforms basedon two fundamental steps:

• strengthening the executive function within the English regions, in relation to both policy and delivery; and

• strengthening regional accountability in those regions in which there is no directly elected assembly.

Under this model, government would appoint regional ministers in each of the Englishregions. The regional minister’s prime role would be to lead the newly reformed government offices in bringing together and co-ordinating the work of the key regionaland subregional stakeholders. The “first ministers” would be directly accountable to parliament, and in a broader sense accountable to non-elected regional assemblies.

In due course, where regions move to directly elected assemblies, a modest adaptation ofthe roles and accountabilities of both first ministers and executives could provide the basisfor a more persuasive account of the role of assemblies themselves.


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Figure 2: A model for strengthening executive and regional accountability at the regional level

Learning from the Scottish and Welsh experienceThe argument for strengthening the executive function in the English regions not onlytakes account of the need to increase the executive capacity at a regional and local levelin order to co-ordinate the work of key agencies, but also recognises the Scottish andWelsh experience over the last 25 years. The government made clear in its 1997 whitepaper proposing regional development agencies that its thinking about RDAs had beenvery much influenced by the achievements of the Scottish Development Agency (laterScottish Enterprise) and the Welsh Development Agency.

Arguably, another important part of the picture in both countries was the role played by thepredevolution Scottish and Welsh offices. These brought together a wide range of “domestic”policy and delivery functions, providing high-level policy input on the consequences foreach country of departmentally led Whitehall debates on policy initiatives.

The integration of thinking and responsibility within both the Scottish and Welsh officesalso helped to break down the barriers between the policy silos that all too often exist


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Regionalassembly

Regionalgrand

committee

HomeOffice

Departmentof Health

ODPM/Treasury

Departmentfor Education

& Skills

Departmentfor Trade

& Industry

Local authorities

RDAs Keyagencies

Regional firstminister

Reformed regional goverment office

nationally. Because both were operating at a more manageable level in terms of populationsize and economic weight, it was often more straightforward to link national policy initiatives to their local consequences – ensuring better policy design, and a muchstronger two-way dialogue. Local delivery was also more easily monitored and managedthan is possible from Whitehall. This is precisely the kind of role that newly reformed government offices could aspire to.

There is a clear opportunity for the government to examine the feasibility of transferringthe Scottish and Welsh models to the government offices of the English regions. Such an approach could have a significant impact on the ability of the English regions to contribute to the achievement of the UK’s economic potential. Initiatives within health,education and other spheres to bring responsibility and accountability much closer at thepoint of use – with, in some circumstances, very local focus - do not run counter to this.Indeed, it is difficult to see how the national-local interface required of such approachescould be handled effectively without a strong regional dimension (illustrated by the recentproposals in relation to the regionalisation of the fire service).

The argument for the second proposal – strengthening regional accountability – is relatedto the first: it is difficult to envisage a strong executive without very clear-cut mechanismsof parliamentary (or, in due course, assembly) accountability. But it also reflects a perceptionthat the debate about accountability at a regional level will not stand still. In regionswhere no assembly is in prospect, no change over the next five years may create a vacuumand undermine the abilities of RDAs, non-elected assemblies and their partners to raisethe sights and ambitions of their regional communities – an essential component of everyregional economic strategy.

To follow the analogy with the predevolution experience of Scotland and Wales, it is suggested that the creation of English regional executives as described above should be accompanied by the designation of a “first minister” for each region. This person wouldbe directly responsible within government for all aspects of the regional executive’s functions, and able to engage across government with (reformed) Whitehall departments,which would be slimmed down to concentrate on national policy coherence and specialistexpertise, with most delivery responsibility decentralised to regional executives.

The strength of a regional minister would be that he or she would be a champion for theregion, would make themselves an absolute nuisance in ending the silo mentality there is within Whitehall to achieve the collective good that is required for each region.


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The minister will have the position, authority and powers to make each region work as a business. This model will ensure that all policies and plans fit together across all departments. It will, and should, override silo structures. It should ensure that all leadersof agencies and public authorities will be obliged to work together. It will create a moreeffective role for government offices as well, acting as secretariat to the minister. Perhapsthey should also have greater influencing powers on the efficiency of planning. Most ofall, it should have a regional business plan to incorporate all of the public expenditurewhich goes into a region. Derek Mapp, Chairman of the East Midlands Development Agency

The proposals to strengthen the executive function and enhance regional accountabilitywithin the English regions should not be considered in isolation from the first five recommendations. They are fundamental to the delivery of these recommendations. Basedon the predevolution model in Scotland and Wales, each regional minister would be able to lobby hard for greater regional input into national policy making, ensuring more effective bottom-up policy and efficient delivery systems.

A regional executive would also be better placed to ensure that key relationships betweenregional and subregional agencies are based around the need to work together to meettargets which are in synch with local and regional priorities. Perhaps most importantly,this model would stand a far greater chance than the present arrangements of being ableto synchronise two of the government’s key objectives – maximising the impact of investment in public services and promoting economic growth.

The strength of these proposals is not just that they offer the potential to tackle the cultural and structural barriers to regional economic growth; they also represent anacknowledgement that RDAs need to become better at developing their own proposalswhich shape the government’s economic devolution agenda. In short, for regional andlocal agencies to realise their ambitions they must become better at developing serious,detailed and comprehensive proposals of how this can be done.

Clearly, proposals to strengthen both the executive function and the regional accountability of regions are ambitious and would represent a shake-up of the national,regional and local relationship. They would also change the operating environment within which RDAs and other key agencies work. But because of the potential gravity ofthese recommendations – relative to the typical pace of change in Whitehall – more workneeds to be done on clarifying the detail and implications of the proposals. Without this,


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it is unlikely that the Whitehall machine will take the initiative and work to develop the proposals.

Recommendation 6In the run-up to the 2005 budget, RDAs should develop detailed and comprehensive proposals to improve the executive function within the English regions in relation to bothpolicy and delivery and to strengthen regional accountability in those regions in whichthere is no directly elected assembly.


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Conclusion

Conclusion

In little over five years, the government has put the regions and subregions of the UK atthe heart of its new economic framework. The government recognises that the one-size-fits-all approaches of the past failed to develop and exploit the economic potential ofthe regions and countries of the UK. That is why the RDAs were established: to act as

regional champions seeking to maximise their potential. The same philosophy has alsobegun to shape the government’s approach to the subregions of the UK, with new flexibilities now available to local authorities to help drive economic development.

Despite this progress, there are still major obstacles that threaten the achievement of thegovernment’s key objective for the regions – improved economic performance for allregions, while reducing the gap in growth rates between them. In the main, those barriers are a product of the framework that governs the relationship between local,regional and national agents. The barriers, both cultural and structural, are the product ofa framework that, despite the massive progress made since 1997, still has remnants of anational rather than a regional/local bias.

Looking forward, this paper offers a series of recommendations to reverse this bias andovercome many of the barriers that hinder regional/local economic growth. Althougheach of the recommendations is important and will, if pursued, help drive economicdevelopment, two stand out.

The first recommendation calls on RDAs to raise their game in developing serious proposals for the regionalisation of key aspects of policy. In similar fashion, the sixth recommendation argues that RDAs need to follow the lead of Derek Mapp of the EastMidlands Development Agency and work up comprehensive proposals to improve theexecutive function and strengthen the accountability of regions.

Both recommendations are based on the principle that the responsibility to shape a system that has a regional/local bias lies with both national government and regional/local agencies. Equally important, the interlinkages between the recommendations mustbe recognised. That is to say, unless the vacuum of economic leadership at the regionallevel is tackled – as in the sixth recommendation – it will be difficult to maximise thepotential of the first five recommendations.


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Since 1997, much progress has been made on the regional economic journey, and inrecent months the government has gone even further by devolving to RDAs responsibilityfor business links. Significantly, the government has indicated a willingness to go evenfurther, based on the various rationales set out in the devolved decision-making review.

There is little doubt that the next phase requires an evolution in the relationship betweennational, regional and local organisations. This will require national, regional and localbodies to make some tough decisions. Having been very effective in identifying the barriers to regional economic growth, RDAs now have a particular responsibility to beginto develop serious and detailed proposals that set out what greater regional control overkey policy areas would actually look like. In parallel, local authorities must also begin torecognise the value of promoting economic growth at the subregional level by buildingpartnerships with local and regional economic agencies.

Having indicated its ambition to reform the role of government offices, national government will now need to consider whether it is willing to maximise the potential ofthese reforms – as well as the other recommendations in this paper – by strengtheningthe executive function and accountability of the regions.


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towards a modern regional policy - smith institute · derek mapp, chairman, east midlands...

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