Public Accounts Committee report: Local Enterprise Partnerships: progress review

- Ministry do not know how effective £12 billion of funding has been for local economic growth

-  Local Enterprise Partnerships have considerably underspent – a sign that capital projects are not coming through quickly enough

- Rapid lessons need to be learnt to help shape funding economic growth post the EU

REPORT SUMMARY

The 38 Local Enterprise Partnerships (LEPs) in England have so far been allocated £9.1 billion through Growth Deals to drive economic growth in their local areas, with another £3 billion allocated via other means. 

We welcome the improvements to LEP governance and transparency since we last examined these issues, but there is still a long way to go for all LEPs to reach the rigorous standards we expect. We remain concerned that LEP boards are not yet representative of their local areas and business communities and that local scrutiny and accountability arrangements are not strong enough considering the significant sums of public funding that LEPs manage.

The Ministry of Housing, Communities and Local Government (the Department) is ultimately responsible for securing value for money for taxpayer funding which LEPs manage. But its decision not to evaluate the Local Growth Fund means it has no understanding of what impact spending through LEPs has on local economic growth.

LEPs have also continued to underspend their local growth funding allocations every year since 2015-16, calling into question their capacity to deliver the complex projects they said were critical to economic growth in their areas. 

COMMENT FROM PAC CHAIR MEG HILLIER MP

“Local Enterprise Partnerships have been given £12 billion of taxpayers’ money to support local economic growth.

“But LEPs have underspent their funding allocation by over a £1 billion in the past three years, raising questions about their capacity to deliver complex projects.

“The Committee has previously raised concerns about the transparency and governance of LEPs and more action is needed to ensure they are held properly accountable for spending.

“LEPs are supposed to be an engine room of local economic growth but they have been dogged by a lack of local accountability and there is little evidence that they have levered in the promised private sector funds."

CONCLUSIONS AND RECOMMENDATIONS

Despite spending up to £12 billion of taxpayers’ money, the Department has no real understanding of the impact which the Local Growth Fund has had on local economic growth. The Department chose not to set quantifiable objectives for Growth Deals. Its assertion that every £1 of local growth funding could generate £4.81 in benefits is an unsubstantiated estimate. Despite receiving quarterly performance data from LEPs, the Department has not used this to build up an understanding of the impact that local growth funding has had nationally, nor has it measured what value for money LEPs have delivered so far. The Department was also not able to give us examples of the type of private sector match funding and investment generated through LEPs’ activities or their management of local growth funds. The Department has acknowledged that it must do better by including evaluation in the design of the UK Shared Prosperity Fund. It intends on using the ‘repository’ of information it holds around ‘what works well’ to inform this work.

Recommendation: In the absence of national evaluation, the Department should use the performance data it receives from LEPs to build a national picture of what is working most effectively in boosting growth and use this to inform the design and plans for evaluation of the UK Shared Prosperity Fund.

The Department has improved the assurance framework for LEPs but there is a long way to go before all LEPs are held to account and their work scrutinised effectively. Given the significant amounts of public funding LEPs manage, there is a clear need for good governance and strong scrutiny. The Department has asked LEPs to adopt one of three models for arranging their local scrutiny arrangements, but it says LEPs are still ‘finding their way’. The Department had assumed that local scrutiny committees could take on the scrutiny of LEPs and their work ‘within their stride’ and has not considered the capacity of these committees to scrutinise LEPs properly, despite the understanding that this will involve a lot of resource and effort. 

Recommendation: The Department should set out how it is going to assess local capacity to scrutinise LEPs’ activities and how it will facilitate LEPs’ accountability to their local areas.  

There are entrenched difficulties with LEPs’ overlapping geographical boundaries which are supposed to be resolved by April 2020. In its 2018 policy paper Strengthening Local Enterprise Partnerships, the Department acknowledged that “retaining overlaps dilutes accountability and responsibility for setting strategies for places”. At that time, the Department identified 20 LEPs with overlapping boundaries, out of a total of 38. Since then, 11 LEPs have agreed to resolve their boundary overlaps, leaving nine that have found it more challenging to arrive at a resolution. The Department says it is “working very actively” with these LEPs and relevant local authorities to meet its target of removing these overlaps by April 2020. LEPs have a duty to cooperate across geographic boundaries and, as such, the Department believes all boundary overlaps will be resolved prior to April 2020. However, it does not have a clear timetable showing how it plans to meet the deadline. The Department says that a resolution from central government may be needed if LEPs and local authorities do not reach an agreement before the April 2020 deadline, but it considers this an option of last resort. 

Recommendation: The Department should set out a clear timetable showing how it will meet the April 2020 deadline and what action it will take if local authorities fail to agree on overlapping boundaries. 

LEP boards are not yet sufficiently representative of their local areas. The Department recognises that reaching the gender diversity target of a third of LEP boards being female by April 2020 and gender parity by 2023 are both going to be difficult to achieve. The Department states that the government prioritised gender diversity as an obvious issue to rectify first. The Department does not require LEPs to be representative of local businesses in the area, despite acknowledging the need for LEP boards to reflect their local areas, nor does it plan to check how representative LEP boards are. 

Recommendation: Within the next 12 months, the Department should work with LEPs to agree a broader set of diversity targets for LEP boards. This should include targets that reflect the makeup of local businesses in their areas.

LEPs continue to underspend their funding allocation each year, calling into question their capacity to deliver complex projects.  LEPs underspent their Local Growth Fund allocations by a total of over £1.1 billion in the three years to the end of 2017-18. The Department’s forecasts show that the underspend is expected to be less in coming years, but it cannot be certain of this. The Department acknowledges that the low proportion of revenue funding given to LEPs to deliver major capital projects is problematic. It says capacity issues are unlikely to be the only reason why LEPs are underspending, but it is not clear how it has reached this conclusion given it has done no systematic analysis in this area. The Department has now commissioned a research project which will set out the capacity that LEPs have, and in doing so, highlight where there are gaps.

Recommendation: The Department should write to us within three months to set out the results of its analysis of LEP capacity and how it will use this information to improve LEPs’ delivery of complex projects. 

There is a risk that funding allocated on the basis of local industrial strategies may not go to areas with the greatest need. The Department has tied the future of LEPs to the development of local industrial strategies for their areas, stating that this is a prerequisite to LEPs accessing future funding after 2020-21. However, the EU funding that is being replaced has largely been focused on areas that are particularly deprived, as opposed to areas which already have relatively high productivity and have the potential to build on existing growth. The Department acknowledges the importance of striking a balance between support to local economies that are further behind and support to areas that can build on existing high productivity. However, we remain to be convinced how the Department will achieve this in practice, and precisely how the local industrial strategies will be used to determine the funding that local areas receive is still to be determined.

Recommendation: The Department should support LEPs to develop robust local industrial strategies based on the economic need of their areas and clearly set out how they will ensure a balance between supporting both high performing areas and areas which are lagging behind.