In October last year the government introduced Local Enterprise Partnerships to loud sighs of disappointment. The new bodies, which replaced the well-funded Regional Development Agencies, appeared to have little or no power and even less money.
Nonetheless, contractors had little choice but to get involved.
Research by Construction News’ sister title Local Government Chronicle in May this year revealed that contractors made up 3.4 per cent of LEP board appointments and property professionals 5.4 per cent. Another 6.4 per cent came from transport, infrastructure and logistics.
Over the course of the past year, the government began to reward the business community’s enthusiasm for private sector-led regional economic development with a series of new powers and extra resources.
The Regional Growth Fund, a new generation of enterprise zones and the promise of tax increment financing are gradually restocking the armouries of regions that were devastated by the loss of the RDAs.
And with communities minister Eric Pickles’ recent announcement that the £500 million Growing Places fund would be channelled via the LEPs, contractors’ early move to get involved could yet pay off.
The 38 LEPs have been given indicative allocations against which they can submit proposals for funding, with the total sum due to be distributed by the end of January 2012 (see box below).
Which projects get priority will be up to the representatives of each LEP, with ministers keen to let regions decide what would most benefit their economies.
Business and enterprise minister Mark Prisk said it had been “very interesting” to see the differing needs and approaches of each region.
He said: “They have to decide what their priorities are, so in Devon and Cornwall they decided it was broadband.
“Greater Manchester is talking to the Department for Transport about taking on much more autonomy for transport. The exciting thing about LEPs is that there is a genuine appetite to get involved.”
Mr Prisk, who is also construction minister, hopes the £500m will attract a far greater volume of private sector investment as new transport infrastructure unlocks housing and commercial development.
The 22 new enterprise zones - and a further two zones invited in Lancashire and Humberside - were selected by the government in consultation with LEPs. They are designed to attract occupants for that development, spurring further investment in the local communities.
Same name, different focus
Enterprise zones were at the core of regeneration efforts in the 1980s, encouraging investment with 100 per cent capital allowances for construction costs.
The new zones focus on property occupiers rather than owners, and offer 100 per cent relief on business rates over the first five years; plant and machinery allowances; simplified planning restrictions through local development orders; and government-supported superfast broadband. Local authorities will be allowed to keep increased business rates generated by the new zones for at least the next 25 years.
Proposed tax increment financing arrangements will allow authorities to ringfence those funds and borrow against them to fund development.
Canary Wharf is widely hailed as the success story from the 1980s incarnation of EZs, but for Canary Wharf Group strategic adviser Howard Dawber this is a misconception. Instead he says it was the Dockland’s Development Corporation’s determination to “build a new Wall Street” to cater for the demand for large office buildings that drove its success.
“One of the key things for the developer was that the unit cost of construction was tax deductable, and yet still the main developer on Canary Wharf went into administration.
“When Canary Wharf Group looked at whether to invest in the new EZs, we were disappointed by the tax incentives because it is very much manufacturing-based,” he said.
For Mr Dawber, the fundamental point of an EZ is to get businesses to do something they wouldn’t ordinarily do. But as with marriage incentives, he jokes, if you are tying the knot for the tax breaks it’s probably the wrong reason.
“You have got to have a business reason for being there and I think there are probably too many of them. I don’t like the local development orders because they aren’t flexible enough and are too prescriptive and not permissive - but we do like TIF.”
Instead, he points to the zones with “big agencies driving them” as the ones most likely to be successful, highlighting the London Borough of Newham’s Royal Docks as one to watch.
The borough’s executive director for regeneration, planning and property Clive Dutton is “a big fan of EZs”. Royal Docks is the only EZ in London and its “whole prerogative is to create jobs”, he says.
A shortlist of Chesterfield Consortium, St George Central and Delancey was announced earlier this month to draw up proposals for the 50-acre Silvertown Quays site in the Royal Docks. Mr Dutton said he is “absolutely confident” of achieving change in the area “because so much land is owned by the public sector”.
Siemens has already invested £40m in a new global sustainability centre in the area and Mace is in the process of building a cable car to connect it to the south side of the river.
But despite the rapid pace of development in Newham - the whole process only began in January 2010 - Mr Dutton remains cautious about the government’s reforms and their potential for success.
“I suspect it’s a work in progress. Scale and pace are absolutely crucial but we are hopeful we can negotiate with government a more potent package of incentives,” he said.
The government recognises the criticism, openly admitting its regional economic development reforms will require refining if they are to be truly potent.
Alun Hughes, a civil servant working in the Department for Communities and Local Government’s local economic growth team, says he wants to hear from industry about how to make the measures better.
“Enterprise zone policy is not set in stone - options can be explored,” he said.
The next step will be the introduction of tax increment financing, which could get powers from 2013/14. “TIF is going to be critical [for LEPs],” Mr Hughes says. “The key message is that what we have at the moment is just the beginning.”
For all the news on government announcements around the Autumn Statement, see CN’s dedicated webpage.
Regeneration: progress under the coalition government
The government’s regeneration strategy has come in for a pasting from the communities and local government select committee.
Its report earlier this month said ministers had failed to produce a coherent strategy after forcing through massive budget cuts that risked chronic long-term problems in some of the country’s most deprived communities.
Committee chair Clive Betts MP said the government was too focused on economic growth at the risk of deterring investment in areas where the market had failed. “There is no sign that the private sector is filling the gap as public resources are withdrawn,” he said.
The committee called for a national regeneration strategy to target the country’s most disadvantaged communities, a bolstering of the enterprise zone policy, better use of public land and European funding, and community budgets where resources could be pooled across public bodies.
But despite the warnings, Morgan Sindall recently revealed its regeneration pipeline had grown from £1.8bn to £2.2bn since the half year, with a further £900m of work currently at preferred bidder stage.
Matt Crompton and Nigel Franklin, joint managing directors of Muse, Morgan Sindall’s regeneration arm, have led the charge.
Mr Franklin said: “It is a bit hand to mouth at the moment. The government is keen to see quick results from investment, but regeneration is a long-term game.”
The government has given indicative allocations to each of the 38 Local Enterprise Partnerships from the £500 million Growing Places Fund designed to unlock projects stalled by the need for upfront infrastructure. They include:
£12.9m for the Liverpool City Region
£23.9m for the Leeds City Region
£17.4m for the LEP covering Derby, Derbyshire, Nottingham and Nottinghamshire
£14.9m for Birmingham and Solihull
Nearly £40m for London
£14.2m for the Heart of the South West LEP
£16.7m for the North Eastern LEP
£24.7m for Greater Manchester
£32.5m for the South-east, covering Essex, east Sussex, Kent, Thurrock, Medway and Southend
£50m will be allocated to the devolved administrations