Tag Archives: regional development

Shared Prosperity Fund – greater productivity and inclusivity for Scottish cities?

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new bridge glasgow

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).

Some examples of projects include:

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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Entrepreneurship – the way to drive growth?

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Torn newspaper headlines depicting business strategy

By Heather Cameron

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%.

According to the 2015 Global Entrepreneurship Index, the UK is the most entrepreneurial country in Europe and ranks fourth overall.

Regional disparities

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.

A number of benefits recently highlighted include:

  • 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.

Further reading

Culture, entrepreneurship and uneven development: a spatial analysis, IN Entrepreneurship and Regional Development, Vol 26 No 9-10 Nov-Dec 2014, pp726-752

Business start-ups and youth self-employment in the UK: a policy literature review (2015, University of Brighton)

Policy brief on expanding networks for inclusive entrepreneurship (2015, OECD)

Commercial councils: the rise of entrepreneurialism in local government (2015, Localis)

Self-employment as a route in and out of Britain’s South East, IN Regional Studies, Vol 49 No 4 Apr 2015, pp665-680

Cultural diversity and entrepreneurship in England and Wales, IN Environment and Planning A, Vol 47 No 2 Feb 2015, pp392-411

Activating jobseekers through entrepreneurship: start-up incentives in Europe (2014, European Employment Policy Observatory)

Economic resilience and entrepreneurship: lessons from the Sheffield City Region, IN Entrepreneurship and Regional Development, Vol 26 Nos 3-4, pp257-281

Is entrepreneurship a route out of deprivation?, IN Regional Studies, Vol 48 No 6 Jun 2014, pp1090-1107

*Some resources may only be available to members of the Idox Information Service

Britain’s cities push for more powers

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Manchester Town Hall: (Photograph, James Carson)

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.

Devo-City: a short guide to Britain’s devolving city regions in words and data

Tales of the cities

Economic growth through devolution: towards a plan for cities and counties across England

Charter for devolution

Abstracts and access to subscription journal articles are only available to members of the Idox Information Service.

Britain’s ports: gearing up for the next generation of carriers

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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:

How will the Atlantic Gateway support sustainable economic growth?

Governance, governance models and port performance: a systematic review

The impact of container type diversification on regional British port development strategies

Port to port (how renewables can revive Scotland’s ports)

State of the art (London Gateway deep-water port)

Ports and regional development: a spatial analysis on a panel of European regions

N.B. Abstracts and access to subscription journal articles are only available to members of the Idox Information Service.

‘Workshop of the world’ … Is British manufacturing a thing of the past?

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Image of old industrial plant.

Image: Till Krech via Flickr under a Creative Commons Licence.

By Steven McGinty

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.

 

 Further reading:

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