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Making the UK the best place in the world to start and grow a business ENTERPRISE THE ROLE OF ENTERPRISE IN LOCAL ECONOMIC REGENERATION Terry Watts Economic Inclusion Team (Enterprise in Deprived Areas Unit) Slide 2 Making the UK the best place in the world to start and grow a business 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) Slide 3 Making the UK the best place in the world to start and grow a business 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 Slide 4 Making the UK the best place in the world to start and grow a business 4 Government has tried to boost enterprise since 97 Two key factors: 1. Building supportive business environment which encourages people to start and grow business, investing for the long-term 2. 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 Slide 5 Making the UK the best place in the world to start and grow a business 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 7 th in the top twenty economies of the world with the best business conditions. The report also ranks the UK 5 th 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 Slide 6 Making the UK the best place in the world to start and grow a business 6 GOVERNMENTS ENTERPRISE FRAMEWORK ACHIEVEMENTS AND CHALLENGES Slide 7 Making the UK the best place in the world to start and grow a business 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 - 3.7 million people SMEs productivity growth exceeded large firms productivity growth over the period 1999-2003. Survival rates much higher than a decade ago 92% after one year and 69% after three years 1 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 Slide 8 Making the UK the best place in the world to start and grow a business 8 But there are still challenges ahead Although womens 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 Slide 9 Making the UK the best place in the world to start and grow a business 9 Importance of SMEs to the Economy Share of enterprises, employment and turnover by size of enterprise, UK, start 2004 Slide 10 Making the UK the best place in the world to start and grow a business 10 Enterprising SME sector GDP growth Productive churn Innovation Competition Productivity growth Employment growth Link between enterprise and economic performance Slide 11 Making the UK the best place in the world to start and grow a business 11 SBS Leadership Role Policy Delivery Evidence from Research & Stakeholders Evidence from Customers Centre of SME Expertise Innovator Engine for Change SMEs WHITEHALL SBS in the centre of a virtuous circle, influencing policy & delivery Slide 12 Making the UK the best place in the world to start and grow a business 12 The Governments Enterprise Policy Slide 13 Making the UK the best place in the world to start and grow a business 13 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 Slide 14 Making the UK the best place in the world to start and grow a business 14 A picture of spatial deprivation in England Rural North West North West (incl Liverpool and Manchester) West Midlands, (incl Birmingham) Some wards in Cornwall There are also some very deprived wards situated on the coastline London East Midlands, former mining towns North East Slide 15 Making the UK the best place in the world to start and grow a business 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; Slide 16 Making the UK the best place in the world to start and grow a business 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 Slide 17 Making the UK the best place in the world to start and grow a business 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 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 Slide 18 Making the UK the best place in the world to start and grow a business 18 Neighbourhood Renewal: Delivery Chain Slide 19 Making the UK the best place in the world to start and grow a business 19 L LEGI Local Authorities, RDAs City Regions Science City 4 th Block LAAs LABGI LSP NRF OK Slide 20 Making the UK the best place in the world to start and grow a business 20 Slide 21 Making the UK the best place in the world to start and grow a business 21 Whats new? Local Authorities have always had a role in economic development, so whats 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. Slide 22 Making the UK the best place in the world to start and grow a business 22 Jargon Map NRFNeighbourhood Renewal Fund: has been in place since 2000. ODPM funding administered by GOs to help regenerate deprived communities LSPsLocal Strategic Partnerships: local partnerships, normally Local Authority led, initially set up to allocate NRF. LAAsLocal Area Agreements: agreements entered into by local partners for various streams of ODPM funding, in particular NRF 4 th BlockAn new element of funding incorporated into LAAs, aimed at economic development (diagram follows) LABGILocal Area Business Growth Incentives: an earlier funding stream to support business in deprived areas. LEGILocal Enterprise Growth Initiative: a new stream of contestable funding, to be incorporated into LAA 4th block, and aimed at enterprise and business support. City RegionsThe latest concept in local determination with fuzzy, x- cutting boundaries based on the economic influence of cities. Slide 23 Making the UK the best place in the world to start and grow a business 23 Jargon Map theres more Core CityOne of eight cities identified as core in England. Includes Newcastle. Not to be confused with the eight city regions in Northern Way CRDPCity 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 Slide 24 Making the UK the best place in the world to start and grow a business 24 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) Local Strategic Partnerships Slide 25 Making the UK the best place in the world to start and grow a business 25 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 4 th block. Some of the 4 th 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 4 th block of the respective LAAs, and be subject to the LAA management regime. Local Area Agreements Slide 26 Making the UK the best place in the world to start and grow a business 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 Slide 27 Making the UK the best place in the world to start and grow a business 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 Slide 28 Making the UK the best place in the world to start and grow a business 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: 1. Efficiency: local areas suffering from market failures that mean they are less efficient or productive as they could be 2. Equity: concentrations of deprivation raise deep equity concerns in terms of sub-optimal outcomes for local people Slide 29 Making the UK the best place in the world to start and grow a business 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) Slide 30 Making the UK the best place in the world to start and grow a business 30 Progress towards PSA 6 Enterprise PSA 6(iii) SR04 Slide 31 Making the UK the best place in the world to start and grow a business 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 2000-2003 Slide 32 Making the UK the best place in the world to start and grow a business 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 (2006/07-2008/09) 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 Slide 33 Making the UK the best place in the world to start and grow a business 33 More enterprise in under-represented groups Achievements: Task Force on Womens Enterprise to champion womens 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 2005 - 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 Womens 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 Slide 34 Making the UK the best place in the world to start and grow a business 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: 1. Effective targeting: target the most deprived areas with potential using efforts that benefit local people 2. Effective solutions: solutions need to address underlying barriers, be locally specific, well understood and implemented 3. Significant commitment: need a significant commitment of resources and efforts over a long period 4. Strong local partnerships: strong lead from local authorities, but need to work with community and business partners 5. An integrated approach: policies in isolation dont work, and need to be combined with and complementary to wider efforts 6. Evaluate and build evidence: need to develop better understanding and evidence of what works Slide 35 Making the UK the best place in the world to start and grow a business 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 Slide 36 Making the UK the best place in the world to start and grow a business 36 LEGI - how much is it worth? Worth 50 million p.a. in 2006-07 rising to 150 million p.a. by 2008-09 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 2005-06 it costs money to develop proposals! 10 winning bids in the 1 st Round (2006-07), representing 15 local authorities worth 126 million over 3-year period Slide 37 Making the UK the best place in the world to start and grow a business 37 LEGI - how does it work? Dont 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 Slide 38 Making the UK the best place in the world to start and grow a business 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 Slide 39 Making the UK the best place in the world to start and grow a business 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 Slide 40 Making the UK the best place in the world to start and grow a business 40 LEGI attributes So whats so special about LEGI Its devolved and locally flexible Its 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. Slide 41 Making the UK the best place in the world to start and grow a business 41 Final messages to LEGI bidders Dont 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; Dont shrink tough choices and decisions. Slide 42 Making the UK the best place in the world to start and grow a business 42 LEGI 1 st Round Winners: Proposals Slide 43 Making the UK the best place in the world to start and grow a business 43 Final Message Enterprise: a tool to help tackle disadvantage