Regional Growth Fund

Angela Smith Excerpts

Tuesday 1st November 2011 Westminster Hall

[Mr James Gray (in the Chair)]

We now come to a debate on UK relations with Libya. I beg your pardon; we do not. That was an extremely good debate on the UK’s relations with Libya, which I enjoyed very much. We now come to a debate on the effectiveness of the regional growth fund.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

I am mightily relieved that the topic is not Libya, Mr Gray, because my notes do not refer to it in the least. I am pleased to have secured this debate on the regional growth fund. I want to start by putting the fund in the context of the economy as a whole. There is no doubt that the British economy is in trouble. We have a growth crisis. Year-on-year growth has all but vanished, with this morning’s Office for National Statistics growth forecast for quarter 3 at 0.5%, and with construction already in negative territory. Unemployment is at levels not seen since Margaret Thatcher was Prime Minister, and is rising at an alarming rate. Worse still, the young are paying the heaviest price, with youth unemployment at almost 1 million.

Worryingly, unemployment is rising at a much faster rate in the regions than in London or the south-east, as Government cuts bite more heavily into the regions. Already, the unemployment rate in Yorkshire and the Humber is almost twice that in the south-east, according to ONS figures. Inflation is running at more than twice the Bank of England’s target rate of 2.5%, while average incomes are rising at half that rate. That means, as the Governor of the Bank of England said recently, that families are experiencing the biggest squeeze on their incomes in living memory.

The Minister, in his response to the debate, will undoubtedly claim that our growth problem is due to the eurozone crisis. No. The blame must lie at the doors of No. 11 and No. 10 Downing street. Our economic growth has faltered thanks to a reckless slashing of investment by this out-of-touch Government. Yes, in 2008 the global economy did go through the worst financial crisis, and subsequently the deepest recession, since the 1930s, and yes, the British economy was badly affected by the irresponsibility of banks over-lending, but since the Government came to power, the UK economy has stagnated, as I have pointed out. Since last autumn, only earthquake-hit Japan has grown more slowly than the UK in the G7. There is no doubt that the Government’s policies are hurting, but they are certainly not working. Today, I want to spell out that it is not just that the Government are not doing enough to help our economy grow; what they are doing, they are doing badly.

The previous Government’s key tools for regional economic development were the nine regional development agencies covering the country. Those tools for investment enjoyed significant Government support both politically and financially, with a budget of approximately £2 billion a year. I think that in the last year of the Labour Government, the budget was £1.7 billion. The Conservatives made no secret of their desire to abolish the RDAs if they won the general election—they did not win it, but they are in power thanks to the Liberal Democrats—but they were very light on what they thought should replace them.

[Mr Marcus Jones (Nuneaton) (Con)]

The hon. Lady seems to be extolling the virtues of regional development agencies. Would she not acknowledge that in the west midlands private sector employment actually fell under the RDAs?

[Angela Smith]

This debate is not about the RDAs. The point that I will make, as the hon. Gentleman will see, relates to the level of investment made by RDAs, as compared to the regional growth fund. We now know what the Government’s alternative is—the regional growth fund. On the evidence to date, the fund represents chaos and confusion, with too little being awarded too late to make any significant contribution to promoting economic growth.

There are three aspects to the Government’s approach to regional investment. The first is local enterprise partnerships, which are unfunded apart from a small start-up fund, and have no clout. The second is enterprise zones, which are a tired blast from the past with a mixed track record when it comes to delivering jobs and growth. The third prong of the Government’s regional growth strategy is, of course, the regional growth fund, and yesterday the outcome of the second round of bids was announced.

[Neil Carmichael (Stroud) (Con)]

There are many other prongs, but the fourth prong that I would have mentioned is the enhanced role of local authorities—their powers of competence, and their capacity to deliver planning decisions that will build businesses.

[Angela Smith]

I thank the hon. Gentleman for his intervention, but it has already been established this morning that the Humber is actually going backwards because of the cuts to local authorities, so I do not think that that is quite true.

We were told yesterday, in a written parliamentary statement, that 119 bids had been awarded funding. That is just a quarter of the bids submitted. Clearly, there were far more losers than winners, with more than 370 bids rejected. Bids totalling more than £6 billion have been submitted in rounds 1 and 2 of the RGF. That says something about the scale of the unmet investment needs of business, and how little the Government are delivering to meet that need.

The RGF was announced on 29 June 2010, alongside the proposals for the LEPs. A Department for Business, Innovation and Skills press release described the RGF’s purpose as being

“to help areas and communities at risk of being particularly affected by public spending cuts”.

However, current guidance from the Department goes into a little more detail:

“The objective is to stimulate private sector investment by providing support for projects that offer significant potential for long term economic growth and the creation of additional sustainable private sector jobs.”

When announced, the original fund was £1 billion, but the 2010 spending review extended the total value to £1.4 billion over three years—from 2011 to 2014. To put those figures in perspective, as I mentioned earlier, the annual budget for the RDAs averaged £1.7 billion in their last few years of operation. The Government’s total spending on the RGF over a three-year period will be just £1.4 billion. One does not have to be Einstein to see that the RGF represents a two-thirds cut in regional investment, which is an indication of where the Government’s priorities lie and that they are certainly not supporting the regions. The Government use a lot of warm words, but deliver very little when it comes to economic investment. There is a really good northern phrase to describe a person who appears to have everything, but who in fact has nothing much to offer: “all fur coat and no knickers”. I have to say that that seems a rather good description of the Government’s approach to regional growth.

It will take more than warm words to persuade businesses up and down the country that the Government have what it takes to kick-start growth in the economy, which has flatlined since last autumn. It is obvious that there is much demand out there for regional investment; rounds 1 and 2 of the fund were over-subscribed many times over. In the first round of bidding, 478 bids were received, with a value of £2.78 billion. Only 50 bids were successful, and only five have received any money so far—hardly the success to which the Government lay claim. Given that so few bids from the first round have progressed to the point where they have fund money in the bank, how on earth can we expect the Government to deal effectively with the 119 announced yesterday?

On top of that, it is absolutely clear that the Government’s approach to regional investment is far too centralised. In an era of so-called localism, how can the Deputy Prime Minister, Lord Heseltine or the Secretary of State for Business, Innovation and Skills justify a bidding process that is governed and determined by Whitehall, particularly given that the investment framework that it replaced was regionally based and closely attuned to the strategic needs of the regions?

[Laura Sandys (South Thanet) (Con)]

I am very lucky, because east Kent received regional growth fund money yesterday. The structure of each of the funds is very different, depending on the local circumstances. Our regional growth fund is transferring to small businesses, and will be transferred to an organisation that will be totally locally focused, and accountable to the local businesses and the employment that we need to create. It is a tailored scheme that reflects the needs of each individual region and its specific employment profile.

[Angela Smith]

The fact that the decisions are made by Whitehall is not altered by anything that the hon. Lady has said. One member of the panel that assesses bids for the growth fund, Mr Moulton, is himself benefiting from the fund to the tune of £5.9 million, which is paid to a company called Redx Pharma, in which he is an investor with a stake of about 26%. Would the hon. Lady like to say anything about the fact that there is not much clarity or transparency in that process? That was not the case with the previous arrangements for distributing regeneration money.

[Laura Sandys]

Our fund in east Kent will be extremely transparent to the business community; it will be accountable to business by delivering jobs on the ground. It will not be something distant, based in Whitehall. In the south-east, the operation used to be based in Guildford; there was not very much on the ground in Margate and Ramsgate.

[Angela Smith]

A Government who trusted the voice of the northern regions, and their intimate knowledge of their manufacturing base, would never have cancelled the Forgemasters loan. [Interruption.] If the hon. Lady thinks that is funny, people in Sheffield and south Yorkshire do not. Yesterday we heard an acknowledgement that the Government got it wrong on Forgemasters, and they have awarded a consolation prize, but nothing takes away from the fact that the original purpose of the loan has passed, and an important strategic opportunity has passed us by, thanks to the spiteful attitude of a condemned Government hellbent on cancelling what they saw as a Labour loan.

[Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)]

I congratulate my hon. Friend on this timely debate, and on her work on Forgemasters last year. Is it not a serious issue that although a previous Government—including the Department for Business, Innovation and Skills and the Treasury—did up to two and a half years of due diligence on the proposed loan to Forgemasters, in the past two and a half months, no such due diligence has been done? Despite the warm welcome for the money announced yesterday for Forgemasters, the board has not even approved the detail of how the investment is to be made. Last year, the Deputy Prime Minister wrongly described the original decision as political, but we now have a most vivid example of such a decision, with the Deputy Prime Minister arriving at Forgemasters, seeking to make a political gesture out of public money.

[Angela Smith]

I completely agree with my right hon. Friend. The Deputy Prime Minister would have been better served yesterday had he acknowledged to the people of Sheffield that he got it wrong and they got it right. If he had shown some humility and apologised for the grave errors that his Government made more than a year ago, perhaps the political point that he was making would have carried a lot further.

One of the issues at the heart of the chaos and confusion surrounding the regional growth fund is the bureaucracy at the heart of the process. For instance, the rules for the fund state that payments will only be forthcoming on successful delivery of outputs. That means that private companies are being asked to invest up front, with the risk that, if they do not make the said outputs in two or three years, they will not receive the moneys promised. That means that the promise to Forgemasters is exactly that: only a promise. That, I am told, is not only putting off many smaller companies from applying, but is making the writing-up of contracts difficult for the successful companies due to the risks involved. In that context, the comments made to me yesterday by the Institute of Chartered Accountants are damning. The institute has been working with BIS officials to make the process simpler and more cost-effective, but it says:

“However, following discussions with our members, BIS officials and firms, we fear that a convoluted approach to the due diligence process for the RGF is resulting in delay, additional bureaucracy and cost for businesses and the government, and undermining the growth goals that the RGF money intends to achieve.”

Those are not my words, but those of the Institute of Chartered Accountants—a damning indictment of the Government’s approach to regional investment.

To make matters worse, the minimum bid for an application to the fund is £l million, with typical leverages of eight to nine being demanded. That means that the fund is out of reach to the average small or medium-sized enterprise—the sectors that the Government say they want to help the most. The Federation of Small Businesses said to me yesterday:

“From our point of view, the minimum amount for bids of £l million has always been far too large for the majority of small businesses. We did encourage collective bids to be made on behalf of SMEs, however this is not ideal.”

[Derek Twigg (Halton) (Lab)]

I praise my hon. Friend for her fantastic campaign on Sheffield Forgemasters, which has resulted in at least a partial climbdown. I gather from what she is saying that we now have a system in place that not only has a lot less money, but is more bureaucratic and more difficult for firms to access. She is right that that is causing a lot of consternation in the business world and among private firms, not least in the manufacturing industry.

[Angela Smith]

My hon. Friend is right. The growth figures today show that we are heading for a gross domestic product growth increase of 0.5% over the past year, which is a significant slow-down from the 2.6% registered in the last year of the Labour Government. It is appalling that the Government do not seem able to resolve issues to do with releasing investment to manufacturing and businesses up and down the country, and do not seem able to ensure that the funding flows quickly to the companies that need it in order to secure our economic future.

[Jason McCartney (Colne Valley) (Con)]

I thank the hon. Lady—my neighbour in West Yorkshire—for giving way, but I found your partisan language, your doom-mongering and your negativity quite shocking, which is a shame.

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[Jason McCartney]

That was a £2 million investment, which will secure 80 new jobs.

[Angela Smith]

I would welcome recognition by the Government that we need far more than what is on offer on the table. We need proper decentralisation of the decision-making processes, more transparency, and a more efficient way of delivering funds to companies. The chances of such funds delivering significant economic growth are about as good as the chances of Huddersfield football club getting a promotion to the championship next year.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

My hon. Friend is making a valid case. Opposition Members do welcome the regional growth fund, but I will welcome it even more when it actually arrives, as so far only eight businesses have received any funds. Our concerns are reiterated by the EEF, the manufacturers’ association, which is cited in The Northern Echo today. It wants to ensure that

“the funding promised flows through directly to the projects concerned as a matter of urgency.”

Is the current speed at which cash is going to businesses urgent or slow?

[Angela Smith]

My hon. Friend is right. It is not only slow; there is inertia at the heart of the Government’s approach to investment in our economy. That is all down to the Chancellor of the Exchequer, who said this morning, when asked by the BBC, that this is a difficult journey for the UK economy, but that we are determined to complete it, so that we have jobs and growth—only warm words, once again. He will not admit that he has got it wrong, or that he needs a plan B, and that is at the heart of the problem we are facing.

[Fiona Bruce (Congleton) (Con)]

The hon. Lady said that small and medium-sized enterprises will not benefit. Does she not agree that the supply chain benefits are enormous? Let me cite the successful bid of Pochin’s of Middlewich in my constituency for £4.1 million, announced yesterday. That will result in the creation of 3,600 new jobs, ultimately, and safeguard a further 200 in the region. Many of those jobs will be in SMEs.

[Angela Smith]

I am sure that hon. Members have come here today to congratulate the companies that were promised money in yesterday’s announcement. Any investment is welcome, but I remind the hon. Lady that the Government cancelled a significant investment in the nuclear industry supply chain 18 months ago. That is what the Forgemasters loan was about, and that is why the Government are seriously damaging the economy. We are talking about a major supply chain that would have ensured that the UK and its manufacturing base were at the forefront of the building of the next generation of nuclear power stations.

How businesses access the fund is a problem, as the Minister admitted in an article in The Times:

“There have also been problems where, given the financial uncertainty from June onwards, it has proven very slow to unlock that private capital.”

So where are we with the Government’s regional growth strategy? It is quite obvious that the Government’s thinking is muddled to say the least. They have dismantled the Labour Government’s regeneration framework and replaced it with a rickety framework, fed with inadequate resources spread very thinly. Worse still, this comes at a time when help is most required by many of the regions because of the Government’s desire to cut too far and too fast.

So what should we be doing to jump-start growth? Labour’s plan to repeat the bank bonus tax, and to use the funds to build 25,000 desperately needed homes and secure jobs for 100,000 young people, would help, as would bringing forward long-term infrastructure projects. We got a start on this yesterday, but we need more. For the medium term, I agree with the Leader of the Opposition when he says that we need to change the very nature of our economy. We need to go back to making things, to give manufacturing a much bigger role in our economy, and we need an economy that looks at the long-term, and not just to short-term profits.

[Mr Marcus Jones]

I thank the hon. Lady for giving way; she is being generous in taking interventions. She tells us how important manufacturing is to rebalance our economy, yet in 13 years of Labour Government, on her party’s watch, we lost 1.7 million manufacturing jobs.

[Angela Smith]

I think the hon. Gentleman overlooks the fact that the Labour Government were prepared to show what is called industrial activism. They worked hard for a long period to ensure that due diligence was in place, and that we invested in key sectors of our manufacturing economy. The hon. Gentleman’s comment is a bit rich, given that the production industries have gone into negative growth in the last quarter. Mining and quarrying took the productive part of the economy into negative growth in the last quarter, so I do not think that we need any comments from Government Members on manufacturing and support for manufacturing.

[Phil Wilson (Sedgefield) (Lab)]

I do not know whether my hon. Friend is aware of this, but the regional growth fund for north-east England will create some 8,500 jobs over three years. That is equivalent to the number of jobs lost in the north-east in the past three months.

[Angela Smith]

That is precisely the point. That underlines the fact that the Government are cutting too far and too fast. Their policies risk producing a double-dip recession.

[Tom Blenkinsop]

Another interesting statistic came out today: the purchasing managers index for manufacturing output slumped to 47.4%, below the 50% figure, which is an early indicator of a downturn in manufacturing. That is a scary statistic for us all to take on board.

[Angela Smith]

I completely agree with my hon. Friend. I repeat that we need an economy that looks at the long term, and not just short-term profits. We need to invest in innovation. We need a co-ordinated, well-funded regional growth strategy, not the disparate, unco-ordinated approach that represents too little, too late, from a Government who have fallen asleep at the wheel and lost their way as far as economic growth is concerned.

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[Esther McVey]

No, I will not. Therefore, we now have to ask how we will spend money better, how we will live within our means and how we will rebalance the economy. I talk as someone who had her own business for the last 14 years. I have set businesses up and sold them. I also set up the biggest business network for women in the north-west, involving more than 9,000 business ladies. I therefore like to see myself not only as a business woman, but as a pragmatist who knows that we can spend only what we have. That is what the coalition Government were facing.

I hope that I have set the debate in context. The regional growth fund was set up to create a fairer and more balanced economy, in which we are not so dependent on a narrow range of economic sectors and in which new business and economic opportunities are evenly shared across the regions and across industries. That is what we set out to achieve.

[Angela Smith]

The regional development agency Yorkshire Forward played an instrumental role in developing the UK’s first technology and innovation centre. We did not call it that. It is the advanced manufacturing research centre in Sheffield. That is now being lauded as the perfect example of where this country needs to go on investment in new technologies and design. Will the hon. Lady at least acknowledge that the RDAs had a very good and effective role in pulling together strategic investments and strategic design and innovation?

[Esther McVey]

I thank the hon. Lady for that intervention. As I said, I did not deal with Yorkshire Forward; I worked with the Northwest Development Agency and I congratulate the staff, who were excellent. I am saying that, despite spending £3.7 billion, what was meant to be done—rebalancing the economy—never happened. We are therefore asking how we can best deliver the money, how we can focus it and how we can ensure that it achieves its purpose.

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[Eric Ollerenshaw]

Let me move on.

I congratulate the Government on being among those who recognised that something needs to be done. Yes, the regional growth fund is not the biggest thing, and we want more to be done.

[Angela Smith]

Will the hon. Gentleman give way?

[Eric Ollerenshaw]

May I just continue a little further before I give way?

At the moment, however, we are learning as we are doing. I was here in May when some Members complained about the first round of bids. I suggested that it was following the old methods of the RDA in the north-west, and my hon. Friend the Member for Congleton (Fiona Bruce) has mentioned that, too. The areas prescribed were Greater Manchester and Merseyside—for obvious reasons, given European rules and all the rest of it; but there was a lack of actual support for good businesses in other areas, such as my own, which had the capacity to expand and take on more people. For example, Northern Tissue Group, with 150 employees—so it was not applying for the biggest grant—was denied a grant in the first round. I am pleased that in the second round it is still in discussions, and it looks as if it may well succeed.

[Angela Smith]

rose—

[Tom Blenkinsop]

rose—

[Eric Ollerenshaw]

I shall give way first to the hon. Lady, and then to the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop).

[Angela Smith]

My constituency is Penistone and Stocksbridge, with an “s” in it. It is being misquoted all over the place.

[Eric Ollerenshaw]

My apologies to Yorkshire.

[Angela Smith]

Is the hon. Gentleman really saying that the Government can do more for less—for two thirds less? Is he really saying that they can deliver more growth and rebalancing of the economy on a fund that is only one third of the original sum on the table?

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[Mr Prisk]

There is a very small proportion of funds related to ERDF in round 1, and even fewer in round 2. My point, which the Opposition do not want to accept, is that when the public sector seeks to invest money, it is doing so to unlock the private sector investment. If we do not get that private sector investment, there will be a problem. The Opposition seem to believe that everything that we do should be measured solely and entirely by how much Government spend. Have they not learned from 13 years that it is how we spend the money that is important?

[Angela Smith]

There is the other issue of the assets that belonged to the RDAs, which could be used to help unlock private sector investment. What will the Government do with those assets? Are we going to have a fire sale, or will we use those assets to invest in infrastructure and private sector growth?

[Mr Prisk]

It is self-evidently the latter, which is why we established the local stewardship model. It is why in July we offered Members of this House the opportunity to meet Ministers, and why we are repeating that exercise on Thursday. We are determined to ensure that the assets are used for the benefit of the local economy. I hope that the hon. Lady will come to that meeting so that she can understand that.