1. THE ROLE OF ENTERPRISE IN LOCAL ECONOMIC REGENERATION
Terry Watts
Economic Inclusion Team
(Enterprise in Deprived Areas Unit)
ENTERPRISE

2. The enterprise vision
“For my mission for Britain – indeed enterprise is truly open to all, a nation of ambition united in the key to our future economic success and social cohesion – is a country where encouraging and celebrating innovation and enterprise.”
(Chancellor of the Exchequer, 2004)

3. Enterprise contributes to productivity growth
Enterprise one of the ‘five drivers’ of productivity
SMEs employ over 50% of private sector workforce
SMEs account for more than £1 trillion of private sector turnover
Enterprise creates productive ‘churn’ through innovation and competition with existing players

4. Government has tried to boost enterprise since ‘97
Two key factors:
Building supportive business environment which encourages people to start and grow business, investing for the long-term
Correcting market failures that create obstacles to successful enterprise, investment and business growth
For example:
Improved access to finance for small businesses through enhanced incentives to invest in small businesses through Venture Capital Trusts or the Enterprise Investment Scheme and through an expanded Small Firms Loan Guarantee program;
Funding a pathfinder round of Enterprise Capital Funds;
Improving the delivery of business support to small businesses and enterprise through a programme of regionalisation and tackling local barriers to enterprise through transferring Business Links’ funding to RDAs;
Created 2,000 Enterprise Areas in the most deprived areas of the UK, to help businesses start up, develop and grow;
Supporting a national campaign by Enterprise Insight. Enterprise week - schools
Devolution of control of the Small Businesses Service to RDAs to make it more responsive to regional needs.
The Enterprise Conference

5. …and things are getting better!
The UK remains a good place to start and grow a business, with the World Bank's study "Doing Business in 2005" placing the UK top in the EU and 7th in the top twenty economies of the world with the best business conditions.
The report also ranks the UK 5th in terms of the cost of starting a business, it is less costly than in both France and Germany.
The UK has been rated by the OECD as having the lowest barriers to entrepreneurship of any major economy

6. GOVERNMENT’S ENTERPRISE FRAMEWORK ACHIEVEMENTS AND CHALLENGES

7. Achievements: A thriving small business sector
Record number of businesses - 4.3million – 600,000 more than in 1997
Employment in SMEs up by 900,000 since 1997
Self-employment is at a record high million people
SMEs’ productivity growth exceeded large firms’ productivity growth over the period
Survival rates much higher than a decade ago – 92% after one year and 69% after three years1
Number of VAT-registered businesses increased every year since 1995, although some signs that start-up volumes are starting to fall
Positive signs of more enterprising population
55,000 social enterprises contribute £27bn turnover and £8.4bn GVA
1 Based on VAT registration/de-registration dates

8. But there are still challenges ahead…
Although women’s self-employment is at an all-time high (almost 1 million) there is still a significant gender gap
Although the gap is narrowing, some ethnic groups have much lower levels of self-employment than others
Although the gap is narrowing, self-employment in the most deprived areas is lower than in other areas
Although SME productivity is growing faster than for all firms, around a half of all SMEs do not plan to grow in the next 2-3 years
Although start-ups are higher than in the past, there are still significant regional disparities in people considering going into business and/or people starting up
Although the vast majority of firms do not have difficulties raising finance, there is evidence that those with a track record of growth face more difficulties than others

9. Importance of SMEs to the Economy
Share of enterprises, employment and turnover by size of enterprise, UK, start 2004

10. Link between enterprise and economic performance
Productive ‘churn’
Innovation
Competition
Productivity
growth
Enterprising
SME
sector
GDP
growth
Employment
growth
The creation and growth of small firms helps to drive productivity growth by providing a competitive spur to other businesses to improve efficiency and seek quality improvements.
Nearly half of small firms with between 10 and 50 staff are active innovators. They have a crucial role to play in the economy as a source of new products and processes.
A thriving SME sector is also important to generating new prosperity in disadvantaged areas.
Given their importance to the wealth of all of us, Government has a major role in helping small firms succeed and prosper and to reduce the barriers which prevent those enterprising individuals who want to start in business take those important first steps.
Government has taken steps to ensuring that SMEs have access to support and advice and a strong voice and influence within govt. hence establishment of the SBS and appointment of the SBC.
SBS’ PSA target is :
[SR 2002 PSA target] to: “Help build on enterprise society in which small firms of all kinds thrive and achieve their potential, with
(i)                 an increase in the number of people going into business;
(ii)               an improvement in the overall productivity of small firms; and
(iii)             more enterprise in disadvantaged communities.

11. SBS in the centre of a virtuous circle, influencing policy & delivery
Evidence from Research & Stakeholders
SBS
Leadership Role
Policy
Centre of SME Expertise
Innovator
Engine for Change
Delivery
WHITEHALL
SMEs
The Small Business Service (SBS) is an Agency of the DTI established in April Our role is to ensure that:
·        Many more people, regardless of their background, have the desire, skills and opportunity to start a successful business;
·        Everyone with the ambition to grow their business is helped and supported; and
·        There is a supportive business environment with all small businesses finding it easy to respond to government and access its services.
The SBS is positioned as the catalyst driving this transformation – the UK’s centre of SME expertise, innovation and engine for change.
SBS offers help to a wide range of customers, from those wishing to become self-employed or start up their own business, to existing employers with up to 250 staff. It is a centre of expertise on small business issues and provides access to the range of services directed primarily towards small businesses.
Evidence from Customers

12. The Government’s Enterprise Policy
Many departments and agencies have an impact on the small business sector.
The Government can have a bigger impact by sharing objectives and working collaboratively. Which is why, in December 2002, the SBS published a strategic framework “Small Business and Government; the Way Forward” – heralding a government wide-approach to helping small businesses based around these seven themes...
Since then the SBS has worked with partners using this framework to build a cross government action plan, leading to…

13. Aspiration of full employment Building sustainable communities
National Objectives
Build a fairer society
Aspiration of full employment
Building sustainable communities
Empowering communities
But over last 30 years inequalities surfaced both between regions and, to much greater extent, within regions……

14. A picture of spatial deprivation in England
Rural North West
North East
East Midlands, former mining towns
North West (incl Liverpool and Manchester)
West Midlands, (incl Birmingham)
London
There are also some very deprived wards situated on the coastline
Some wards in Cornwall

15. Neighbourhood Renewal
The National Strategy for Neighbourhood Renewal Action Plan (launched in January 2001) represents a new approach towards neighbourhood renewal
it tackles the true scale of the problem with support for hundreds, not just a handful, of our most deprived neighbourhoods;
it tackles the fundamental problems of worklessness, crime and poor public services in addition to the physical environment in a ‘holistic way;
it harnesses the hundreds of billions of pounds spent by key Government departments rather than relying on one-off regeneration spending;

16. Neighbourhood Renewal
…..(continued)
It puts communities at the heart of renewal, working in partnership with businesses, local government, service providers and the voluntary sector;
It makes sure communities are directly involved in

17. Key Components
Neighbourhood Renewal Fund – currently running at £500m per year
Local Strategic Partnerships - Involving local communities and residents
Developing pilot initiatives and programmes for tackling the worst aspects of deprivation
New Deal for Communities
Neighbourhood Management
Neighbourhood Wardens
Improving skills and knowledge & access to data for all involved in neighbourhood renewal
Learning & sharing good practice including from pilot or pathfinder programmes

18. Neighbourhood Renewal: Delivery Chain

19. Local Authorities, RDAs
4th Block
LAAs
LEGI
Local Authorities, RDAs
NRF
LSP
City Regions
LABGI
Science City OK

21. Changing political environment Continuing commitment to devolution
What’s new?
Local Authorities have always had a role in economic development, so what’s new?
Changing political environment
Continuing commitment to devolution
Research and academic work on the importance of place
Better partnership working and co-operation
Comprehensive Spending Review (CSR) will be an opportunity to review spatial splits of responsibility.

22. Jargon Map
NRF
Neighbourhood Renewal Fund: has been in place since ODPM funding administered by GOs to help regenerate deprived communities
LSPs
Local Strategic Partnerships: local partnerships, normally Local Authority led, initially set up to allocate NRF.
LAAs
Local Area Agreements: agreements entered into by local partners for various streams of ODPM funding, in particular NRF
4th Block
An new element of funding incorporated into LAAs, aimed at economic development (diagram follows)
LABGI
Local Area Business Growth Incentives: an earlier funding stream to support business in deprived areas.
LEGI
Local Enterprise Growth Initiative: a new stream of contestable funding, to be incorporated into LAA 4th block, and aimed at enterprise and business support.
City Regions
The latest concept in local determination – with fuzzy, x- cutting boundaries based on the economic influence of cities.

23. Jargon Map –there’s more……
Core City
One of eight cities identified as “core” in England. Includes Newcastle. Not to be confused with the eight city regions in Northern Way
CRDP
City Region Development Plan: Plans being drawn up for city region development. First used in Northern Way
Science Cities
An initiative covering 6 cities, initially York, Manchester Newcastle; then Birmingham, Nottingham, Bristol

24. Local Strategic Partnerships
Have been in existence since 2000 (LGA)
Typically, LSPs might include LAs, Voluntary/Community orgs, JC+, BLOs, Bus Reps, Ent Agencies, Police, etc.
They were conceived as “the partnership of partnerships”, and have been deemed successful for NRF
DCLG has launched a consultation on extending their powers/influence. That will include economic development.
May get executives.
Vision is that LSPs take the “strategic lead” in their localities.
Now 360 of them (88 original NRF areas)

25. Local Area Agreements
LAAs are the mechanism by which Government funds an increasing number of local initiatives.
The agreements are made between lead Local Authorities and GO Community (DCLG) teams acting for Government.
We are particularly interested in the “4th block”. Some of the 4th block agreements made, for example, contain targets to increase business starts.
The DCLG philosophy is “hands off”. It is down to the LSP partners to decide how to meet these targets.
It is likely that the LEGI funding will be rolled up into the 4th block of the respective LAAs, and be subject to the LAA management regime.

26. Enterprise can help develop deprived areas
Enterprise contributing to local economic development:
Local productivity growth
Employment and income growth
Improve service provision
Creating multiplier effects and building supply chains
Increasing the local tax base
Improving the physical environment
Investing in community and building social capital
Deprived areas can offer a competitive advantage for business:
Strategic location (close to transport and comms)
Latent market demand
Possibilities for clustering / agglomeration
Pool of under-utilised labour
Significant commitment of public resources

27. …but still an enterprise gap in deprived areas
Enterprise gap b/w most affluent and most deprived areas significant and persistent
Fewer businesses start-up and more fail in deprived areas
Part of wider gap in economic activity rates

28. Addressing barriers to enterprise
Barriers can be persistent and more acute than in more affluent areas:
Access to suitable finance and business support services
Lack of experience, skills or training of potential employees
Weak enterprise culture
Greater incidence of administrative or institutional barriers
Poor business environment
Rationale for Govt intervention twofold:
Efficiency: local areas suffering from market failures that mean they are less efficient or productive as they could be
Equity: concentrations of deprivation raise deep equity concerns in terms of sub-optimal outcomes for local people

29. More from the Chancellor
“The facts we have to confront are shocking - for decades many areas have been no-go areas for enterprise. As late as 2000 the rate of business creation in our high unemployment communities was one tenth of that in our prosperous areas with all the consequences for fewer jobs, less prosperity and less income for local authorities. If the same rate of business creation prevailed in our poorest areas as in our richest areas we would have over a hundred thousand more small businesses in Britain.
When we considered the challenge we recognised that inner cities areas cities and old industrial areas should not be seen as simply “problem” areas but as new markets where businesses can thrive because of the competitive advantages they often offer – with strategic locations, untapped resources, a high density of local purchasing power and the potential of their workforce.  And we want to remove all unnecessary barriers to unlocking this potential. This has led to our policies for enterprise at the local level to help firms start up, invest, hire and expand.”
(Gordon Brown, Sustainable Communities Summit, 2005)

30. Progress towards PSA 6 – Enterprise PSA 6(iii) SR04

31. Enterprise gap has narrowed
Start-up rates in the most disadvantaged areas of the UK increased from 25.5 VAT registrations per 10,000 adults in 2000 to 28.9 in 2003
2 percentage point narrowing of the gap over

32. More enterprise in disadvantaged communities
Achievements:
1st Round Local Enterprise Growth Initiative (LEGI): 10 successful bids covering 15 local authorities amounting to £126 million of funding over three years (2006/ /09)
Good practice for effective business support for disadvantaged groups captured from Phoenix Development Fund
Challenges/Next Steps:
Significant reduction to schemes encouraging routes off benefits into self-employment mean delivery of PSA6(iii) jeopardised
Sharing learning and good practice from Phoenix Development Fund with RDAs and LAs which have responsibility for enterprise and economic development
2nd Round of LEGI: tackling the weaknesses in many of the unsuccessful first round bids. Joint conference to help LAs on 22 May, hosted by DTI
Developing close working relationship with Department for Communities and Local Government on regeneration and city- regions

33. More enterprise in under-represented groups
Achievements:
Task Force on Women’s Enterprise to champion women’s enterprise development created to radically increase rates of women entrepreneurs.
RDAs funded to run 5 Women's Enterprise Units looking at different approaches to the development of women's enterprise
Women On-line campaign attracted 5,000 female visitors
Ethnic Minority Business Forum: Successful ‘Race for Enterprise’ National Conference held and action plan launched
Targets being achieved - latest data for female entrepreneurs (March February 2006): 33.5% (1.1% increase against baseline) and the 4 quarters ending winter 2005 the gap for under-represented groups excluding Indian and Pakistani had fallen from 4% to 3.4%
Challenges/Next Steps:
Appoint Women’s Enterprise Task Force Chair and ensure Task Force operational by June 2006
Ensure RDAs give priority to encouraging and supporting under-represented groups
Work with banks and financial institutions to improve access to finance for ethnic minority entrepreneurs

34. The Local perspective - Developing a principled approach (the birth of LEGI)
Recognition that we need to learn from others and develop a set of principles to guide policy development:
Effective targeting: target the most deprived areas with potential using efforts that benefit local people
Effective solutions: solutions need to address underlying barriers, be locally specific, well understood and implemented
Significant commitment: need a significant commitment of resources and efforts over a long period
Strong local partnerships: strong lead from local authorities, but need to work with community and business partners
An integrated approach: policies in isolation don’t work, and need to be combined with and complementary to wider efforts
Evaluate and build evidence: need to develop better understanding and evidence of what works

35. Local Enterprise Growth Initiative (LEGI) – what does it do
Sponsored by 3 Government Departments (DTI, DCLG, HMT)
Aim: “to release the productivity and economic potential of our most deprived local areas and their inhabitants through enterprise and investment – thereby boosting local incomes and employment opportunities.”
Objectives: local entrepreneurial activity, local business growth, inward investment employing local labour
Features:
Devolved and locally flexible – Local Authority led & developed
Eligibility - Neighbourhood Renewal Fund areas
Areas with need and potential
Targeted and intense – £2-10m p.a. (around 30 areas)
Long-term for lasting change – 5-10 years
Highly flexible funding (100% resource, through LAA)
Builds an evidence base

36. LEGI - how much is it worth?
Worth £50 million p.a. in rising to £150 million p.a. by
Three phased rounds of funding worth £50 million p.a. each
To fund areas in sufficient depth we estimate around 30 areas might be supported
£10m ‘pump-priming’ in – it costs money to develop proposals!
10 winning bids in the 1st Round ( ), representing 15 local authorities worth £126 million over 3-year period

37. LEGI - how does it work?
Don’t reinvent the wheel…! Use existing processes and institutional frameworks
Local Authority led – a significant degree of discretion and control over what is done – using well being powers
Working with local partners – especially local businesses and RDAs to develop proposals
Government Offices make recommendations to a National Panel (includes private sector presentation)
National Panel makes recommendations to Ministers
Funds channelled through the local authorities’ LAAs
More than one chance…

38. How does LEGI connect?
Enterprise and jobs key dimension in ‘renewal’ of communities and neighbourhoods;
About opportunities, realising potential, raising aspirations;
About better services and better access;
About breaking down barriers – finance, skills, image
Most importantly – it offers the opportunity of tranformation

39. How does LEGI connect (continued)…
Also:
Real opportunities for business
Strategic location (sometimes)
Latent market demand
Pool of under-utilised labour
Possibilities for clustering/agglomeration
Significant commitment of public resources

40. and…. So what’s so special about LEGI LEGI attributes
It’s devolved and locally flexible
It’s targeted and focussed
It is looking long-term for lasting change
There is highly flexible funding
Real opportunities to join up and integrate regional, sub-regional and local enterprise agendas
and….

41. Final messages to LEGI bidders
Don’t re-invent wheels;
Be demand-driven not supply led;
Join up and integrate;
Be clear what works and why;
Be imaginative and think about new approaches;
Don’t shrink tough choices and decisions.

42. LEGI 1st Round Winners: Proposals

43. Enterprise: a tool to help tackle disadvantage
Final Message
Enterprise: a tool to help tackle disadvantage