Tackling geographical inequalities is critical for ensuring that all parts of the country have the potential to prosper. When the UK was a member of the European Union, it was entitled to a share of funding from the EU’s structural and investment programmes. The UK government and devolved administrations used these pots of funding to support communities in the country’s most deprived regions.
Now that the UK has left the EU, the government has replaced these European funds with the UK Shared Prosperity Fund (UKSPF) , which provides combined authorities, districts, and unitary authorities (collectively known as lead authorities) with funding for communities, places, business, people and skills.
Targeting ‘left-behind’ areas
One of the key aims of the UKSPF is to target those places most in need. These ‘left-behind’ areas have deep-seated and long-standing high levels of deprivation. Their residents have lower skills levels, higher unemployment, longer public transport journey times, lower pay and poorer physical and mental health outcomes than the national average, and even than other deprived areas.
In addition, left-behind areas have insufficient social infrastructure – the connections, organisations and spaces to meet that enable communities to make positive changes for themselves. And many people living in these neighbourhoods feel disconnected or excluded from decisions that are made about how investment is directed in their communities.
Analysing the UKSPF’s performance
The UKSPF was launched in 2022, and was regarded as a major opportunity to overcome these issues. At the start of 2024, a report from the All Party Parliamentary Group for Left Behind Neighbourhoods presented its findings on how the UKSPF has affected England’s most deprived neighbourhoods.
Funding for left-behind areas
The analysis, published by Local Trust, finds that, while the UKSPF allocation formula does take deprivation into account, the spread of national distributions does not appropriately account for levels of community need – or deprivation, across the board. As a result, neighbourhoods that are in greatest need have not received the levels of funding required to tackle disparities in life outcomes and improve pride in place.
Tight bidding turnarounds
The report explains that lead authorities were given just over three months to submit their investment plans for a share of UKSPF funding. It suggests that this tight timeline put pressure on lead authorities to prioritise speed rather than need in their development. It also gave lead authorities little time to encourage genuine community engagement and consultation, or to build new networks with local organisations that might not otherwise become involved.
Funding town centres and responding to crises
Many left-behind areas feel that they have been neglected, in contrast to the funding of social and community projects for town centres and high streets. This report finds that several local authorities used UKSPF funding to top up existing town centre projects. While the report acknowledges the need to fund the regeneration of high streets, it underlines the importance of improving the outcomes of residents in places that are most in need, in line with the UKSPF’s aims.
The research also found that some lead authorities were using UKSPF funding to support people experiencing hardship because of the cost-of-living crisis. One local authority, for example, directed the funding to boost its community food pantry provision for local residents. The report’s authors are not critical of using UKSPF funds to support vulnerable people, but it notes that diverting funds in this way will not achieve genuine community transformation in left-behind neighbourhoods.
Community involvement
Embedding more meaningful community involvement in local levelling up investment is a key part of the new approach proposed for the UKSPF. However, the Local Trust report finds that many of the lead authorities containing left-behind neighbourhoods made no provision for community engagement in their investment plans:
“Local Trust heard from people who are working in communities, delivering UKSPF funded programmes. They reported that there had been very limited consultation by lead authorities, including consultation only with those voluntary and community organisations they already had an established relationship with; other community organisations had made efforts to find out more, but were finding it difficult to get information or to receive a hearing.”
Examples of good practice
Despite these disappointing findings, the report also highlights examples where lead authorities have played an effective part in the UKSPF process. Boston in Lincolnshire and North Northamptonshire ran extensive public consultations to encourage local engagement with their UKSPF bids. Kingston upon Hull, which contains eight left-behind areas, saw UKSPF is an opportunity to push funding to these neighbourhoods, rather than focusing on the city centre. And six of the lead authority investment plans or executive reports analysed by the research identified the unique and intersecting challenges specifically faced by residents of left-behind neighbourhoods.
A blueprint for a better UKSPF
The report concludes with a call for a reinvented funding model for the UKSPF, based on five recommendations:
Target hyper-local investment at ‘left-behind’ neighbourhoods
Confirm UKSPF funding over the long-term
Delegate UKSPF down to the community level
Build in a ring-fenced capacity-building budget to the communities and place strand
Make community involvement in ‘local partnership groups’ mandatory, in the absence of devolution
Final thoughts
The need to fund improvements for areas that for too long have been regarded as left-behind has never been greater. This report underlines the potential for the UK Shared Prosperity Fund to make a real difference to these neighbourhoods, and highlights some examples where local authorities are developing communities most in need.
However, the report also points to the missed opportunities which have resulted in many of the most deprived areas yet again being neglected. It remains to be seen whether the recommendations in the report are adopted, and if this new approach to investment and the empowerment of local communities is given the chance to realise its full potential.
Our colleagues in GrantFinder continually monitor for new open calls for projects to be funded under UKSPF allocations. There are also thousands of alternative funding opportunities on the GrantFinder database for local communities and the VCSE sector across the country, as well as small businesses.
The recent appointment of Marc Lemaître as the European Commission’s director general for research and innovation (R&I) has returned Europe’s R&I gap to the spotlight. Previously head of DG REGIO, the Commission’s directorate for regional development, Lemaître’s experience and knowledge of regional disparities is widely seen as a welcome boost in addressing the historic disparity in the flow of research funding between eastern and western Europe.
The experience of successive European Union (EU) R&I framework programmes shows that the ability to successfully conduct transnational research projects often varies dramatically between regions and countries. Despite successive programmes promising equality of opportunity and access, some countries remain distinctly disadvantaged when research excellence is the determining factor.
The EU has recognised that such disadvantage can take a variety of forms. These include a lack of scientific infrastructure, the ability to establish or access networks or to maintain and retain talents, and the capacity to overcome structural barriers at institutional, regional or national level.
Beginning with Horizon 2020 (2014-2020), the EU introduced measures to widen participation and targeted the 13 countries that had joined the Union since 2004, namely, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia.
This increased focus led to mixed results. The Commission reported that Widening countries gradually increased their participation throughout Horizon 2020. While Widening country participation represented 4.2% of the total budget of the Seventh Framework Programme (FP7), this had risen to 4.8% of the Horizon 2020 budget by 2018 and 5.1% in February 2021. However, the average investment in R&I in the EU was 2.3% of GDP by 2020 – below the 3% target. Of the 13 Widening countries, only Slovenia and Czech Republic invested more than 2%.
Countries that joined the EU after 2004 continue to have relatively under-developed R&I systems, score lower on the EU’s R&I league tables and crucially, when it comes to framework programmes, are far less successful in securing grant funding compared to their research powerhouse neighbours. If the actions introduced between 2014 and 2020 were insufficient to bridge the research gap, what could be done next?
Widening in Horizon Europe
New Widening Participation and Spreading Excellence actions were introduced as part of Horizon Europe (2021-2027) to provide additional support to Member States, Outermost Regions and Associated Countries with low participation rates in FP7 and Horizon 2020 projects to widen their participation in the current framework programme.
Furthermore, the total budget allocated to Widening actions under Horizon Europe has tripled compared with those supported under Horizon 2020, with these actions representing 3.3% of the total €95.5 million Horizon Europe budget. In 2023-24 alone, more than €900 million has been allocated to actions under the Widening Participation and Spreading Excellence Work Programme.
All organisations eligible for Horizon Europe may participate in Widening actions, but only those based in Widening countries may act as coordinators. All Member States classed as Widening countries under Horizon 2020 have retained this status under Horizon Europe, except for Luxembourg, which was replaced by Greece. In addition, the following Associated Countries may apply as coordinators: Albania, Armenia, Bosnia and Herzegovina, Faroe Islands, Georgia, Kosovo, Moldova, Montenegro, Morocco, North Macedonia, Serbia, Tunisia, Turkey and Ukraine.
Calls launched under the Widening Participation and Spreading Excellence component are divided into two destinations – Destination 1: Improved access to Excellence, to strengthen R&I capacities in Widening countries, and Destination 2: Attracting and mobilising the best talents, to support further progress on the free circulation of knowledge in a more efficient and effective R&I system.
Actions funded under the Widening Participation and Spreading Excellence programme include:
Teaming for Excellence: Creates new or modernises existing centres of excellence in Widening countries by supporting partnerships between beneficiary institutions in Widening countries and leading scientific institutions elsewhere in Europe.
Twinning: Boosts the networking activities of research institutions of Widening countries by linking them with at least two research institutions from two different EU or Associated Countries.
Pathways to Synergies: New under the 2023-24 Work Programme, this scheme aims to facilitate synergies between Horizon projects and funds under the cohesion policy in Widening countries. The goal is to help formerly isolated single beneficiaries of regional funding programmes to participate in cross-border collaboration in order to prepare for participation in Horizon Europe calls.
Excellence Hubs: Aims to improve innovation by enabling innovation ecosystems in Widening countries (and beyond) to team up and create better linkages between academia, business, government and society.
Hop-on Facility: Introduced for Horizon Europe, this mechanism allows a single participant from a Widening country to join an ongoing project under Horizon Europe Pillar 2 and the European Innovation Council (EIC) Pathfinder topics.
Widening actions are also delivered via the framework of the European Research Area (ERA). ERA Chairs enable research institutions in Widening countries to host a leading researcher for a period of five years. ERA Fellowships enable researchers to undertake their MSCA Postdoctoral Fellowship in a Widening country, while ERA Talents support R&I investigators and organisations for cross-sectoral exchange of staff and academia-business collaboration for knowledge transfer with a focus on Widening countries.
Another mechanism by which the Commission supports Widening is through the COST (European Cooperation in the field of Scientific and Technical Research) programme, which enables researchers lacking sufficient access to European and international networks to investigate a topic of their choice for four years. A single COST Action must involve at least seven different COST full or cooperating members, among which a minimum of 50% must be from inclusiveness target countries.
The Commission also encourages applicants to partner with Widening countries throughout its funding channels. For instance, one of the key objectives of the QuantERA ERA-NET Cofund in Quantum Technologies Cofund Call 2023 is to ‘spread excellence throughout Europe by involving partners from the Widening countries participating in the partnership’, while several calls launched under the Horizon Europe Clusters also encourage applicants to involve Widening countries.
Progress under Horizon Europe?
Two years into Horizon Europe, figures from the Commission’s Horizon Dashboard indicate that the average success rate of Widening countries in obtaining funding through Horizon Europe is approximately 20%. This figure is equal to the EU 27 average, suggesting that some progress is being made.
Despite this, signs of progress are tempered by the scale of the remaining gap. During Horizon Europe’s first two years, Germany proportionally received more than all the Widening countries combined. As the top-performing country, Germany received 15.5% of the total net EU contribution, compared to 14.3% shared between the Widening countries.
The scale of this gap at the structural level can be seen in the fifth edition of the EU Regional Competitiveness Index 2.0, published in March 2023, which measures the competitiveness of regions across the EU. While this report noted a ‘clear process of catching up’ in eastern and southern EU Member States between 2019 and 2022, it highlighted that the gap between more and less developed regions was widest on the report’s ‘Innovation’ sub-index of metrics and its pillars.
The report also highlighted the persistence of internal gaps within Member States. Some regions in countries including Romania, Slovakia and parts of Bulgaria were found to be moving away from the EU average, while the capital city regions of the three least competitive EU Member States were significantly more competitive than the other regions in these countries. This is a potential cause for concern as it puts pressure on the capital city region while possibly leaving resources under-utilised in other regions.
In this context, the extent to which central European funding opportunities alone can produce far-reaching results is contested. Published in June 2022, a special European Court of Auditors report argued that a real shift depends largely on national governments making R&I a priority to ramp up investment and reforms. While Widening measures can kick-start progress in Widening countries, on their own they lack enough power to create the changes needed in national R&I ecosystems.
In response to the European Court of Auditors, the EU Council adopted conclusions on the report in October 2022. The Council took note of the Court’s conclusion that genuine sustainable change requires continuous national investments and reforms in national R&I systems and called on the Commission to monitor participation levels and evaluate the efficiency and effectiveness of the whole portfolio of Widening measures. If continuous significant imbalances emerge, the need for more tailor-made actions and targeted networking activities to achieve a wider level of participation and address disparities in participation should be assessed.
What are stakeholders saying?
A valuable resource for obtaining sector feedback on the success or otherwise of Widening actions can be observed in responses to a consultation into the past, present and future of the Commission’s Horizon programmes covering 2014-2027. This survey, which ran for 12 weeks from December 2022 to February 2023, enabled stakeholders to share their views on the performance of Horizon 2020 and Horizon Europe to date, and to identify future priorities for Horizon Europe’s Strategic Plan 2025-2027. From this survey, a number of organisations offered their thoughts on the Widening Participation and Spreading Excellence programme.
In its submission, the Coimbra Group of European universities noted that the ambitions of Widening actions are welcome but stated that these dedicated actions risk diverting funds from other essential programmes, such as the ERC and MSCA.
The Group highlighted the potential pitfalls of singling out countries for Widening actions, warning that organisations in higher-performing countries should not see partnering with those in Widening countries as an act out of the ordinary in and of itself; instead, these countries should be regarded as standard partners. As such, the presence of dedicated Widening calls should not discourage organisations in Widening countries from applying to non-Widening actions elsewhere in Horizon Europe.
Coimbra recommended that the Commission reflect on why some Widening countries have such low participation figures, citing the example of Romania receiving no funding for Teaming activities despite submitting 44 such proposals, and to consider the role of national governments in stimulating participation rates. In addition, Horizon Europe applicants should be incentivised to include partners in Widening countries at the very start of the proposal preparation process as an alternative approach to the new Hop-on Facility.
Other recommendations include urging the Commission to issue equally relevant calls for all Widening countries in the future, rather than issuing dedicated calls for sub-groups of countries, and actively involving those countries in the consultation process when designing future funding instruments.
Coimbra’s concerns about the practicalities of Widening actions were echoed by the Danish Agency for Higher Education and Science, which welcomed the goal of the programme but warned that a shift in the Framework Programme’s focus away from excellence would be ‘detrimental’ to its attractiveness and the overall competitiveness of the EU. The Netherlands house for Education and Research suggested that the ideal end-result of the Widening programme would be to narrow the R&I gap so significantly that the programme’s existence would become ‘superfluous’.
Science Europe, which represents 40 national research funding agencies and research organisations from 30 European countries, noted that while developments under Horizon Europe were positive, challenges remain, with brain circulation below target levels and participation rates remaining imbalanced. While it regarded the Hop-on Facility as ‘interesting’, it noted that existing consortia are often disinclined to add new members once their projects are underway.
Regarding some of the practical challenges facing Widening countries, Science Europe warned that the increased size and budget of Pillar II projects makes it harder for those countries to take leading roles in projects, suggesting that a greater number of smaller projects should be supported to mitigate this. Nevertheless, it concluded that narrowing the gap in participation and R&I capacity across Europe should ‘remain a priority’.
The League of European Research Universities (LERU) offered practical proposals to ensure the programme achieves its desired aims. It noted that the ERA actions are ‘considered useful’ by Widening countries and suggested that these and other mechanisms found to be particularly effective could be prioritised and run more consistently to improve their effectiveness. LERU also advised the Commission to evaluate the success of the Hop-on Facility before dedicating further funding to its operation.
Somewhat contrary to Coimbra’s suggestion to avoid focusing on narrow subsets of countries, LERU hailed the positive impact of previous Twinning activities dedicated solely to countries with the very lowest participation rates in Horizon Europe, describing these actions as ‘crucial’. The Twinning Western Balkans call run in 2021 was cited as a particularly successful example which ‘should be repeated’.
The European Trade Association of Research and Technology Organisations (EARTO) noted that measures to strengthen the participation rates of Widening countries have been an ‘important and positive’ development of Horizon Europe but cautioned that they were ‘far from sufficient’. It urged the Commission to take further steps to improve the R&I capabilities of Widening countries, and to specifically support schemes that develop capacity-building of their research institutions, especially those that will improve applied research capabilities.
EARTO also called for ‘attention and reconsideration’ regarding the Hop-on Facility, citing ‘serious hurdles’ to its practical implementation. This was echoed by the Polish Chamber of Commerce for High Tech Technology, which highlighted ‘many bottlenecks’ in the mechanism’s implementation.
The Chamber agreed with LERU that ERA Chairs and Twinning opportunities – in addition to the Teaming for Excellence scheme – have positive impacts for Widening countries and should be continued. However, it noted that research management and administration is ‘one of the weakest link(s)’ of research organisations in Widening countries. It recommended that the Commission establish dedicated calls to facilitate the exchange of best practices, shadow mentoring and knowledge transfer at a large scale to reach a significant number of R&I institutions.
Across these stakeholder submissions, a general consensus can be observed of organisations commending the ambitions of the Widening programme and highlighting successful measures, while urging the EU to go beyond efforts to improve participation rates in Horizon Europe and focus on the root systemic causes of the disparity in the R&I infrastructure of countries across Europe.
Recent developments indicate that the Commission is taking such concerns seriously. In March 2023, the Commission launched a call for expression of interest for Regional Innovation Valleys (RIVs) to strengthen and advance European innovation ecosystems. The RIVs will connect all EU territories and focus on addressing the innovation divide by harnessing deep-tech innovation. The ambition is to identify up to 100 regions committed to better coordinating their R&I investments and policies, and to collaborating on inter-regional innovation projects.
The Commission is also in the process of launching two calls for proposals in May 2023 under the European Innovation Ecosystems (EIE) part of Horizon Europe, and the Interregional Innovative Investments (I3) of the European Regional Development Fund (ERDF). With a focus on addressing the innovation divide, a total of €170 million is allocated (€100 million and €70 million respectively).
ResearchConnect provides ongoing coverage of research funding and policy developments to support the international research community. We offer a user-friendly database containing a global source of research opportunities, covering a broad range of funders and disciplines. Our news content features the most recent research calls and funder updates, opening a window on the latest funding opportunities and developments to researchers worldwide.
There are many questions surrounding the UK’s departure from the European Union, not least on the future of funding.
In Scotland’s regions and cities, EU Structural Funds have provided significant additional funding to support economic development for many years. The current structural funds programme is worth about €10.7 billion to the United Kingdom and up to €872 million to Scotland across the seven-year budget period which ends in 2020. The Funds were originally created to help rebalance regional social and economic disparities. With regional inequality a dominant feature of the current economic landscape, and the potential of Brexit to further exacerbate this inequality, continued investment to address this is vital.
The UK Government has made no commitment to continue with the EU Structural Fund approach following exit from the EU and has instead proposed to introduce a domestic successor arrangement – the Shared Prosperity Fund (SPF). The objective of the SPF is to “tackle inequalities between communities by raising productivity, especially in those parts of our country whose economies are furthest behind.” This objective is widely welcomed. However, as yet there has been no formal consultation on the new Fund and no detail on how it will operate.
Nevertheless, it had been suggested in recent research from the Core Cities Group on Scottish cities that despite the significant contribution from Structural Funds over the years, the proposed SPF could be an opportunity for greater productivity and inclusivity.
Success of EU Structural Funding
The two major EU Structural Funds utilised in Scotland are the European Social Fund (ESF), focusing on skills and jobs, and the European Regional Development Fund (ERDF), which focuses on correcting regional imbalances.
Over £134m per annum is being invested in economic development in Scotland through these funds over the current programming period, which is supported by a significant amount of match funding, largely from the public sector. According to the Scottish Government, the total funding will be around €1.9 billion.
The Scottish Cities – the collaboration of Scotland’s seven cities (Aberdeen, Dundee, Edinburgh, Glasgow, Inverness Perth, and Stirling) – and city regions have already successfully invested in each of the four Scottish Economic Strategy priorities (innovation, investment, inclusive growth and internationalisation) and the UK Industrial Strategy’s five foundations of productivity (ideas, people, infrastructure, business environment and place).
Research suggests that the ending of such funding poses a risk to organisations and the positive economic impact gained, as illustrated by reductions in funding in other areas of the UK.
Limitations
Despite the successes that have been achieved through the use of Structural Funds, the approach is not without its limitations. As argued by the Core Cities report, the approach to managing, overseeing and using the funding has become more bureaucratic and cumbersome. Particular issues highlighted include:
increasing centralisation of funding and decision-making;
the requirement to provide match-funding at an individual project level becoming increasingly problematic due to public sector budget cuts;
monitoring, compliance and audit requirements have become increasingly onerous;
in the current programme period, the role of the Managing Authority has become more transactional, with little engagement at the project development stage;
eligibility rules restrict what can be funded, with some important elements of economic development no longer able to be supported e.g. new commercial premises, transport infrastructure, which can limit the benefits from other Structural Fund investment (such as business growth and employment creation on strategic sites);
the system does not encourage innovation, with high levels of risk aversion amongst programme managers, and a high degree of risk for project sponsors if project delivery does not proceed as planned – a particular issue for projects working with the most disadvantaged groups and those with complex needs.
The report argues that these factors have had the effect of limiting the achievements of the Funds, such as preventing some organisations from applying for funding, which in turn has made others wary about applying. This has led to projects being designed to meet the funding criteria rather than maximising benefits, resulting in too much time and effort on administrative activities rather than those which will have an impact on the economy.
As such, it is suggested that the introduction of the SPF affords an opportunity to change this.
Opportunity for change
According to the report, there is an opportunity to move away from the limitations of the Structural Fund programme approach to more effective arrangements that will increase productivity and contribute to a more inclusive economy. There is scope to increase the funding available through the SPF, reduce bureaucracy and become more responsive to local need.
It is suggested that there is potential for SPF investment in the Scottish Cities to deliver an economic dividend of up to £9bn as productivity increases, producing higher wages at all levels in the workforce, and contributing to a more inclusive economy overall.
Given that Scotland’s performance on some of the key economic indicators is likely to be taken into account when allocating SPF – GVA per job and per hour worked, employment rate, deprivation levels – the report also contends that there is a case for a greater share of the SPF for Scottish Cities. It argues that significant SPF investment in these areas “…will increase competitiveness and tackle inequality, as set out in Scotland’s Economic Strategy, as well as contributing towards the objectives of the UK’s Industrial Strategy, raising productivity and reducing inequalities between communities”.
The report warns that “Scotland will not make significant progress towards a more inclusive economy and society without addressing the deprivation challenges in the Scottish Cities.”
It is recommended that:
the SPF should use a transparent, needs-based allocation system;
the SPF budget should not be determined by previous levels of Structural Funds, and should be significantly increased; and
the Scottish Cities must be closely involved in the design of the SPF.
Final thoughts
There appears to be wide consensus for providing a replacement for EU Structural funding. Most organisations that have commented on the proposed SPF also agree that the level of funding should at least be maintained at its current level.
The concerns in Scotland, and indeed the other devolved legislatures, is the impact the SPF might have in devolved decision making powers currently exercised under EU Structural Funding.
The Scottish Cities have made clear their views on the proposed SPF and the Scottish Government has also launched its own consultation on how the Fund might work for Scotland.
Only time will tell whether the UK Government will take these comments on board, and indeed whether the opportunity for change will be realised at all.
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With endless negative reports on the state of the economy over recent years, the findings of a new study by the Enterprise Research Centre (ERC), The UK growth dashboard 2015, should make for encouraging reading.
Start-ups at record level
The report shows that small businesses have finally made up the ground lost since the recession, with jobs, start-up and growth rates returning to pre-crisis levels in 2014 for the first time since 2008.
Professor Mark Hart, Deputy Director of ERC, said:
“The UK Growth Dashboard provides us with the most detailed picture of where entrepreneurial activity and business growth is occurring around the country.
It shows us that small businesses in every corner of the UK are growing at their fastest rate since the Great Recession, while more and more entrepreneurs have the confidence to take the plunge.”
The UK now has the highest number of start-ups in its history. There were 581,173 new business registrations in 2014, representing an accelerated increase on previous years, and figures from the Office for National Statistics show that the number of firms dropping out of the register has fallen by 6%.
Despite such growth however, the dashboard reveals that large regional disparities still remain in entrepreneurship and small business growth across the nations, city-regions and each of the 39 English Local Enterprise Partnership (LEP) areas.
In England, a complex picture emerges in terms of LEP geography, which challenges some of the presumptions made about growth hotspots across England.
While London dominates, as expected, there is not a simple north-south divide. Major city regions and more rural LEPs from across the country also have above average rates of start-ups. There are 11 local areas in England with above average rates of start-ups showing early signs of scaling. London tops the list but the local area of Birmingham is close behind, as are the local areas of Newcastle, Leeds, Manchester and Sheffield.
There are also a number of places with above average proportions of fast-growing firms. These include some areas in the South East such as Oxfordshire and Thames Valley. Perhaps surprisingly however Leicester and Leicestershire, Greater Birmingham and Solihull, Northampton and South East Midlands LEP areas as well as Greater Manchester, Liverpool and Leeds City Region LEPs also come under this category – showing that some of the fastest growing businesses in the UK are delivering jobs and revenues as well as wealth for their owners outside London and the South East. Perhaps entrepreneurial activity could therefore help to combat the traditional north-south divide in terms of growth.
Economic impact
Indeed, there is evidence that entrepreneurial activity has a positive impact on economic growth independent of other factors.
enhanced economic growth through introducing innovative technologies, products, and services;
existing firms are challenged to become more competitive due to increased competition from entrepreneurs;
new job opportunities in the short and longer term;
raised productivity of firms and economies;
and accelerated structural change by replacing established, inflexible firms.
It is argued that such benefits will be greater in economies where entrepreneurs can operate flexibly, develop their ideas, and reap the rewards.
Barriers to growth
Regulatory barriers have been cited as a significant impediment to successful entrepreneurship, such as the need to buy permits or licenses. The above report argues that governments need to cut red tape, streamline regulations, and prepare for the adverse effects of job losses in incumbent firms that fail because of the new competition.
Lack of capital, risk to household income and concerns about lack of skills and impact on future career are also significant barriers to enterprise. A recent report from the Social Market Foundation suggests that these barriers are preventing potential ‘high-value entrepreneurship’, which, it argues, has the widest positive impact on the UK economy. While the UK has record levels of entrepreneurship overall, it lags behind other countries on rates of high value entrepreneurship.
The growth dashboard similarly reports that skills and staff, and finance are in the top four main barriers to growth among clients in England. These are a particular barrier in more rural LEPs.
Way forward
It would seem that policy-makers need to help overcome these barriers and encourage the support of entrepreneurs directly rather than impeding their potential with unnecessary regulatory burdens.
The SMF report recommends:
prohibiting non-compete clauses in employment contracts;
championing flexible working;
introducing a ‘right to return’ for people leaving work to start a new business;
and reinstating tax reliefs for corporate venturing.
Perhaps if such barriers can be overcome, we will see record levels of all types of entrepreneurship and thus increased productivity.
The Idox Information Service can give you access to a wealth of further information on entrepreneurship and economic development – to find out more on how to become a member, contact us.
On 9 February, leading politicians, decision makers and academics will meet in Glasgow to discuss how more powers can be devolved to the UK’s cities. The meeting is being organised by the Core Cities group, which advocates a bigger say for Britain’s major cities outside London.
The Glasgow gathering is the latest sign of a growing appetite for financial freedom for the UK’s cities and regions. The movement picked up pace during the Scottish independence referendum campaign with the pledge by political party leaders at Westminster to give more powers to the Scottish Parliament. The subsequent publication of the Smith Commission’s recommendations prompted Sir Richard Leese, leader of Manchester City Council and chair of the Core Cities UK cabinet, to respond:
“What’s good enough for the Scottish Parliament should be good enough for big cities across the UK. Today’s commission report unveils significant fiscal devolution for Scotland and the power to retain more of the tax revenue it raises. This is something that Core Cities UK strongly advocates for cities on both sides of the border, giving us the power to make a difference on the ground and unlocking their full potential.”
But even before the Smith Commission had reported, devolution for cities was rising up the political agenda, and the major Westminster parties had already started setting out their proposals:
In November, the chancellor of the exchequer, George Osborne, unveiled a plan to give Manchester new powers over transport, planning, housing, police and skills. Similar packages are proposed for Leeds and Sheffield, part of the government’s commitment to build a ‘Northern Powerhouse’ as a counterbalance to the ‘London super-region’;
The Labour Party has promised that, if elected to government, it will pass control of business rates to the major cities, and that the House of Lords will be replaced by a senate of elected regional and city representatives;
The Liberal Democrats have called for devolution on demand to be offered to any part of England with a population in excess of one million.
Politics is one factor driving the demand for more city devolution; another is the economic situation. As the Centre For Cities recently observed:
“From a public finance perspective, there is an increasing realisation that future reductions in public sector expenditure will be impossible to deliver without changing the way public services are designed and delivered, and this requires more to be done at the local level.”
For many, the moves to cut the purse strings held by Whitehall and Westminster are long overdue. The City Growth Commission noted in October that the UK has the most centralised system of public finance of any major OECD country, with sub-national taxation accounting for only 1.7% of Gross Domestic Product (GDP), compared to 5% in France and 16% in Sweden.
The Commission argued that more powers for the cities would build on the momentum of the government’s City Deals by creating stronger, more inclusive and sustainable growth in the UK, and suggested that London, Manchester and West Yorkshire are already equipped to take on the risks and benefits of fiscal and funding devolution. While some, including the Prime Minister, welcomed the report, others, such as Stephen Brady, leader of Hull city council felt short changed:
“I’m really, really disappointed that Hull once again has been overlooked in favour of the bigger cities. We’re like the forgotten city, despite being strategically so important. We’ve won the City of Culture 2017 bid. What else can we do to prove that we want to be given the chance to run things ourselves?”
His response is a reminder that establishing a comprehensive devolution settlement that covers all of Britain will prove challenging.
Ultimately, the real prize of city devolution could be a fairer society. A report from the International Monetary Fund in April 2014 found that decentralising government expenditure and revenue can help achieve a more equal distribution of income. But the authors stressed that this would require several conditions to be fulfilled, including comprehensive decentralisation on both the expenditure and revenue sides.
During its Glasgow meeting in February, the Core Cities group promises to unveil a ‘Charter for Local Freedom’ setting out the powers it wants central government to devolve down to cities. And with cities set to play a key role in shaping the outcome of the general election, it’s clear that this is one issue that will continue to build. As Alexandra Jones from the Centre for Cities observes:
“The debates about devolution and the city regions have not always had political momentum; there’s no shortage of that now.”
Further reading
We’ll be attending the Core Cities Devolution Summit on 9 February – follow @idoxinfoservice for live tweets and this blog for follow-up commentary.
In contrast to high speed rail lines and airports, seaports don’t often feature in the headlines. But Britain’s ports continue to be strategic links in the chain connecting local and global markets, accounting for:
95% of all cargo movements by tonnage into the UK;
400,000 jobs;
£21 billion to the economy each year; and
significant economic impacts on their hinterlands.
However, the port sector is particularly vulnerable to cyclical boom and bust movements. Container throughput in UK ports has fallen for three consecutive years, reflecting a downturn in global trade. To cut its costs, the industry has increased the scale of transport. Ten years ago, the largest container ships travelling from Asia to Europe held 8,000 to 10,000 containers. These days, as The Independent observed, a new generation of carriers are ruling the waves:
“These triple-E class ships stretch for a quarter of a mile and carry over 18,000 standard 20-foot containers, enough to hold a billion dollars of cargo; if you tried to unload them in one go, the line of trucks would stretch for 68 miles.”
In the UK, there are six berths currently capable of handling such large vessels: three in Felixstowe and two in Southampton. The sixth, and perhaps the most significant is at London Gateway.
Situated at Thurrock, Essex, on the north bank of the River Thames, this new ‘superport’ began operating in 2013. When it reaches full capacity several years from now, London Gateway will be able to handle 3.5 million containers a year. The facility also includes a 9 million sq ft logistics park – the largest in Europe. London Gateway’s owners – Dubai-based DP World – are banking on this ‘port-centric’ approach paying dividends when the economy picks up.
Currently, a large proportion of maritime containers are shipped inland from container ports such as Felixstowe and Southampton to distribution centres in the Midlands, then freighted back to their final destination. London Gateway believes its big selling point is that its own logistics facilities in the South East are closer to the bulk of the UK population, and will cut out unnecessary HGV mileage and CO2 emissions, while generating cost savings.
There are concerns, however, that London Gateway will draw traffic away from rival UK ports. In response to the challenge from London Gateway, the Suffolk port of Felixstowe, owned by a Hong Kong conglomerate, is planning to double its capacity to 8 million containers by 2030.
Britain’s regional ports are also looking to the future:
Work has begun on a £300m project that will add half a million containers to the Port of Liverpool every year, taking its annual capacity to two million;
The Bristol Port Company is currently building a £600m deep sea container terminal at Avonmouth Dock to handle large container vessels and next-generation ultra large container ships;
Aberdeen Harbour is investigating expansion to a site in nearby Nigg Bay;
In Hull, the Alexandra Dock will be transformed into a service hub for the giant wind farms being built in the North Sea.
Concerns about overcapacity remain, heightened by the loss of services from Thamesport on the River Medway to its rivals in Felixstowe and Southampton, and the decision by the SAECS consortium to switch its traffic from Tilbury to London Gateway.
It’s unlikely that any British port will match the throughput of the world’s busiest seaports (in 2013 Shanghai handled almost 34 million containers). However, the extensive and widespread expansion plans suggest that when the anticipated upturn happens, Britain’s ports will be ready.
Further reading
The Idox Information Service has a wealth of research reports, articles and case studies on transport and infrastructure. Items we’ve recently summarised for our database include:
In the 19th century, Britain was heralded as the ‘workshop of the world’, producing everything from locomotives to extraordinary handicrafts. By the 20th century, the United States was the predominant manufacturing power, but Britain had become a specialist in manufacturing. In recent history, economic growth has been led by the service sector, particularly from financial services in the City of London.
This change in the economy has led to a lot of debate. In fact, this was cited as one of the main drivers of inequality by the Scottish Trades Union Congress (STUC) at a recent seminar I attended. However, does this mean Britain should return to its industrial roots, or should it focus on the provision of services, which has been seen as key to recent economic successes?
The Chancellor, George Osborne, certainly thinks there’s a place for manufacturing. In March 2014, he emphasised that his Budget was focused on boosting UK manufacturing and rebalancing the economy across the regions. The Budget included some high profiles measures, including the introduction of £7 billion of funding to cut energy bills for manufacturers, as well as compensation of £1 billion for energy intensive manufacturers.
A recent House of Commons Library statistical release provides some interesting insights into the UK manufacturing sector. It reports that economic output has decreased from 30% in the 1970s to 10% in 2012 and that manufacturing was badly affected during the recession, falling 14.5% between the first quarter of 2008 and the third quarter of 2009. The manufacturing workforce has also reduced from 5.6 million in 1982 to 2.6 million in 2014.
However, an Office for National Statistics (ONS) report provides some signs of optimism. It found that, since 1948, productivity in the manufacturing sector has increased gradually by 2.8% each year, compared to 1.4% in the service sector. The report suggests that the UK manufacturing sector has benefited more from information and communications technology (ICT) than the services sector and the more integrated global economy.
These factors have contributed to a shift from low-value manufacturing, where the focus was on low costs and low skilled workers, to high-value manufacturing, where workers provide value to the production process with their knowledge and expertise.
Interesting trends have also started to develop. For instance, Civitas has produced a report into ‘onshoring’ or ‘reshoring’, a practice that involves firms bringing back production that they had previously sent overseas. Firms are taking this approach for a number of reasons, some of which are related to the difficulties of offshoring such as language barriers, whereas others are looking more at the positives of domestic production, such as improved quality control, as well as an increase in a brand’s appeal by its connection to having products manufactured in countries such as the UK. Examples of onshoring including General Motors, who are currently investing £125 million in a domestic supply chain in the UK.
The report also highlighted that there are still barriers to onshoring. For example, less flexible workforces, although this is deemed to be changing in the United States as trade unions are becoming more flexible.
We have also seen the rise of ‘phoenix industries’. These are groups of firms that use similar technologies and have emerged in traditional industrial areas, typically developing sophisticated components for use in a range of industries. This idea was discussed in a recent article in the Cambridge Journal of Regions, Economy and Society. It focused on a case study of the West Midlands, an area which has been seen as the ‘heartland’ of the automotive industry. The article emphasised the importance of Jaguar Land Rover (JLR), the niche/luxury car manufacturer, for providing opportunities for smaller more innovative companies in their supply chain. Yet, the article also highlights that getting access to funding is key for these companies to develop their prototypes. This lack of funding for small firms was identified as a weakness of the UK sector.
So, is British manufacturing a thing of the past? The answer is most likely no. However, the shape of the manufacturing industry and the role it has to play as part of the overall economy has still to be determined. This will depend on a number of factors including future government policy, particularly addressing issues such as access to capital and shortages of skills, as well as the overall global economy, most notably the ability of the Eurozone to recover from its current economic downturn.
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