By Daniel Hunter

The CBI today (Thursday) published a growth strategy for each geographical part of Britain, emphasising that every area, and cities in particular, need their own bespoke growth plan.

The CBI believes that a successful re-balancing of the economy requires the private sector to grow across the whole country, not just in London and the South-East. This is more challenging further north and west, but the CBI’s research shows that it is achievable.

In its new report The UK’s growth landscape — Harnessing private sector potential across the country, the CBI says that for too long, successive governments have overlooked pockets of private sector potential because economic policy focused on closing the gap between regions, rather than realising and maximising the potential within them.

There are real success stories from every part of the country, particularly within towns and cities, where three quarters of business activity takes place. Private sector employment grew almost three times faster in Sunderland (10%) than in the wider North-East between 1998 and 2008 (3.4%).

So, the Government should take a flexible approach to policy deployment, targeting it on a case-by-case basis at a local, regional or national level, taking functioning economic areas across the UK, particularly towns and cities, as the starting point. While Local Enterprise Partnerships (LEPs) better reflect local business geography than the Regional Development Agencies they replaced, some issues require a more strategic approach than is offered by localism alone.

“In the rebalancing of our economy, every part of Britain needs to grow, and it is harder the further we go from London for the private sector to pick up the slack left by a retreating public sector,” John Cridland, CBI Director-General, said.

“In some parts of the country the public sector is simply too big and the private sector has much heavy lifting still to do.

“But we mustn’t just rely on the usual suspects — London and the South-East.

“It is possible, if the Government avoids a ‘one-size-fits-all’ approach to regional growth across the UK, and instead concentrates on boosting the private sector wherever pockets of potential are found in towns and cities within regions.

“Where there are advantages to local policymaking, the message from businesses to the Government is ‘be bolder’. Businesses want to see LEPs given statutory status, and incentivised to work together on strategic issues such as transport policy, foreign investment, economic analysis, innovation, and industrial policy. Not doing so risks fragmenting the existing business and economic landscape.

“The scale of the challenge is considerable — Government expenditure and household consumption accounted for 89% of GDP in 2009. To move away from a dependence on debt and the public sector, it’s essential that the private sector can invest and export from all parts of the UK. While Government initiatives like the Regional Growth Fund, business rate retention, and Enterprise Zones are certainly welcomed by businesses, the incentives must be bigger and bolder.”

Incentives

The report sets out a number of ways in which the impact of Government growth incentives can be increased, including:

– Reducing the minimum bid threshold for the Regional Growth Fund to £500,000
– Giving preference to city or LEP bids that make funding available to SMEs
– Expanding the geographic footprints of Enterprise Zones
– Reassessing the size of Enterprise Zones and their business rate rebates, and include increases in value, as well as stock, in the Business Rate Retention Scheme

Governance

The Government should give LEPs statutory status so they can take a lead role in shaping their local economies. Although the report says 50% of businesses surveyed expect LEPs in their current shape to have little or no impact on growth, 67% of business respondents say that better financial resourcing would make LEPs more successful. The CBI is calling for:

– The Government to make future LEP funding streams dependent on cross-LEP collaboration
– Where appropriate, the Government should work to ensure City Deals can be agreed over the same geography as LEP areas

Infrastructure

The UK has under-invested in infrastructure and is now ranked 24th in the world for overall infrastructure quality.

Supporting private sector growth will require a focus on connecting economic hubs to national and international markets, particularly in the North, and relieving bottlenecks in UK networks in and between cities. The Government must:

– Bring forward further Tax Incremental Financing (TIF 2) schemes in urban areas outside the core cities, to allow more local authorities to borrow against increased tax revenue generated by new infrastructure.
– Where appropriate, incentivise LEPs to work in partnership with one another to plan for larger-than-local transport projects by providing additional funding and further powers over transport planning

Labour market

The CBI believes the Government should consider implementing localised and market-oriented pay in the public sector. This would help make public services more efficient, and would also help to level the playing field for private sector pay across the UK, thereby boosting growth. The Government should also work with businesses, LEPs, cities, and universities, to map and address local skills needs as part of the local growth strategy.

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