The State of Britain

Whitehall mandarins admit that they do not assess what impact £12bn of taxpayers’ money has on local economic growth

Reading Time: 3 minutes

In its review this month of the 38 Local Enterprise Partnerships (LEPs) – the private sector-led partnerships between businesses and local public sector bodies that support local economic growth – the powerful Public Accounts Committee (‘PAC’ or the ‘Committee’) of the House of Commons found that from 2015-16 to date; £9.1bn of taxpayers’ money has been awarded to LEPs through three tranches of Growth Deals with a further £3bn allocated via other means. The PAC found that the Ministry of Housing, Communities and Local Government (‘the Ministry’ or ‘the Department’) does not to evaluate the Local Growth Fund which means it has no understanding what impact spending through LEPs has on local economic growth.

The Committee observed that the Department chose not to set quantifiable objectives for Growth Deals and that its assertion that every £1 of local growth funding could generate £4.81 in benefits was an unsubstantiated estimate. It found that the Department does receive quarterly performance data from LEPs but fails to use this to measure what value for money LEPs have delivered. Also mandarins were not able to give MPs examples of the private sector match funding and investment generated through LEPs. Civil servants did commit to include methods of evaluation in the design of the UK Shared Prosperity Fund.

The PAC found the Department has improved the assurance framework for LEPs but observed that there was a long way to go before all LEPs were held to account and their work scrutinised effectively. The Committee also recommended that the Department should set out a clear timetable showing how it will meet the April 2020 deadline to remove the four overlapping LEP geographical boundaries and what action it will take if local authorities fail to agree. Additionally the PAC recommended that within the next 12 months, the Ministry should work with LEPs to agree a broader set of diversity targets for LEP boards.

MPs found that LEPs underspent £1.1bn in the three years to the end of 2017/18 which called into question their capacity to deliver complex projects. The Ministry thought capacity issues were unlikely to be the only reason why LEPs were under spending, but the PAC was not clear on how it had reached this conclusion given that civil servants had not completed any systematic analysis in this area. Mandarins told MPs that the Department had now commissioned a research project which will look at the capacity issue.

The Committee also considered the risk that funding allocated on the basis of local industrial strategies may not reach areas with the greatest need. The Department has tied the future of LEPs to the development of local industrial strategies, but the EU funding that is being replaced has largely been focused on areas that are deprived, as opposed to areas which already have relatively high productivity and the potential to build on existing growth. The Department acknowledged 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. MPs were not convinced how the Department will achieve this in practice. Mandarins were unable to specify how the local industrial strategies will be used to determine the funding that local areas receive.

On the economy, a return to work in car factories that shut down in preparation for a no-deal Brexit drove a return to growth in the economy in May of 0.3%. GDP grew moderately with IT, communications and retail showing strength. Both the services and production sectors grew by 0.3% contributing positively to headline GDP growth. However, construction growth was flat over the same period with zero contribution According to the ONS, the UK’s overall trade deficit decreased by £4.6bn to £12.6bn for the three months to May 2019, due mainly to the trade in goods deficit narrowing by £4.6bn to £39.7bn. Falling imports of transport equipment, machinery and chemicals, as well as increased exports of fuels all helped.

There was a surprise 1% rise in retail sales during June, mainly due to growth in non-food stores with increased sales in second-hand goods, including charity shops and antiques. Retail sales growth has slowed in the latest three months though as food stores saw falling sales for the first time this year and department stores continued their steady decline.

Inflation remained unchanged at 2% in June. Key drivers were petrol and diesel prices, which fell this year but rose a year ago, and clothes prices, which dropped by less than this time last year. At 2%, inflation remains below average UK wage growth which rose to 3.6% in May, the highest rate since 2008.

Government borrowing was higher than expected in June. The ONS said that in June 2019, the public sector spent more money than it received in taxes and other income and had to borrow £7.2bn, £3.8bn more than in June 2018. Although government receipts in June 2019 increased by £800m, government expenditure also increased by £4.3bn. The ONS said there was a notable increase in expenditure on goods and services of £1.2bn, while the UK’s contribution to the European Union increased by £400m compared with that in June 2018. The government’s debt repayments rose by £2.1bn. Public borrowing in 2018/19 was at a 17 year low of £23.5bn; while at the end of March 2019, debt stood at a record high of £1,801.1bn.