Action to support small businesses in the North East is in disarray following a 50% government funding cut, with work by the North East Local Enterprise Partnership (NELEP) to increase the business birth rate, support scale-ups and drive productivity at a standstill due to enforced staffing reductions.
The problem centres on the North East Growth Hub, set up by NELEP in 2016 as a one-stop shop for new and established micro and small-and-medium-sized enterprises (SMEs) with ambitions to develop and grow.
Though it claims to have been exceeding targets, it was hit last year by a government funding cut from £700,000 to £350,000 as well as indirectly by a reduction in LEP core funding from £500,000 to £375,000.
This led to redundancies for staff working on levelling up the business birth rate, developing a regional scale-up plan and driving up productivity.
The NELEP board was told last November
“Due to several members of staff leaving the LEP and internal changes we have not been able to progress this work.”
Two months on, the problem is not resolved. A new report to the board this week records:
“Funding cuts put a hold on this activity – opportunities to access resources are required to commence this work.”
The work on business birth rate, scale-ups and productivity are all coded “red” in the Annual Delivery Plan Update to be presented to the NELEP board on Thursday. So are two others. One relates to securing investment to continue to deliver and develop the Growth Hub and the business and sector growth ecosystem.
The other “red” item is how to integrate the Growth Hub with the UK Shared Prosperity Fund (UKSPF) to ensure a cohesive investment plan for the whole region. While the Growth Hub is a regional resource, the UKSPF, worth a total of £102mn over two years, is divided between the North of Tyne Combined Authority and the four individual councils south of the river.
The report warns:
“It’s unlikely that a ‘one size fits all’ approach will work and that a flexible model that can integrate with different delivery structures will be required.”
This, however, has not yet been achieved.
With five of the eight items in the Delivery Plan relating to growing businesses by delivering the Growth Hub on behalf of the Department for Business, Energy and Industrial Strategy coded “red”, only three achieve a higher ranking
One is that in response to the 50% funding cut, NELEP will implement a new operating model for the Growth Hub which will fulfil the government’s requirement by continuing to provide a one-stop-shop for all businesses to access support and advice, whilst developing a more targeted approach for key growing sectors. It is ranked “amber”.
Even this more limited aim is in doubt. The report states:
“Although performance is high and above targets the pressures on staff are high due to reduced budgets and having to take on additional responsibilities to compensate.”
Also graded “amber” is a commitment to support businesses to identify and mitigate areas of risk around net zero plans and the effects of rising energy prices as they adapt to new ways of working; a cost-of-living toolkit has already been published by the Growth Hub.
However, decarbonisation is being considered as one of the areas of regional collaboration for the UKSPF, which is replacing the European Regional Development Fund (ERDF). The report warns:
“Although plans are in place to bring forward new programmes, existing ERDF funding programmes to support energy efficiency are coming or have come to an end.”
…and one “green”
That leaves only one Growth Hub-related initiative, relating to inward investment, rated as “green”, as it has been consistently, though with volatile results. Until the government carried out a review of LEPs early last year none of the eight items discussed here was rated “red” as recently as July.
NELEP’s delivery plan encompasses more than 70 initiatives in all, and apart from the eight discussed, all clustered under the heading of delivering the Growth Hub, only one is coded “red”.
Under the North East Devolution Deal, due to come into force in May 2024 subject to public consultation and parliamentary approval, NELEP will be integrated into the region’s new mayoral combined authority covering the same geography – Northumberland, Tyne & Wear and County Durham.
The North East Growth Hub is apparently not the only one to have been hit by budget cuts. According to this week’s report, NELEP’s chair, Lucy Winskill, in coordination with the LEP Network, has written to Business Secretary Grant Shapps encouraging continued investment in Growth Hubs.
At a time when the government is desperate to encourage economic growth, it seems like short-sightedness to the point of blindness to undermine efforts to support small business creation, scale-up and productivity for the sake of a comparatively puny £350,000. Even if increased to the amount needed for the 38 growth hubs across England it would surely be money well spent.