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The LEP is dreaming, I fear

The LEP is dreaming, I fear

🕔07.Dec 2012
Curated from Birmingham Post – Business Blog, written by John Clancy

This is the blog version of my print column in last month’s Birmingham Post

The Greater Birmingham and Solihull LEP and its enterprise zone are based on the wrong principles, will fail to create the economic growth and jobs they promise, and will put Birmingham City Council taxpayers at risk if the intended economic growth fails to materialise.

I’m afraid that they are based, as I have said here before, on a field of dreams. The LEP as currently configured is based on outdated, pre-financial crash notions and misplaced faith in private sector finance and private sector growth. It is not based on the financial and economic reality of now.

Even so, it is underpinned by borrowing by the public sector – mainly by Birmingham City Council. The risk lies with Birmingham City Council and its citizens: for growth and jobs much of which could occur outside the city of Birmingham.

It is based on what I believe are politically and economically naive assumptions from another era.

Let it try to succeed, by all means, but do not rely on it. And the public sector should be very careful about what, and how much, it borrows on its behalf. Other engines of growth are needed to be kick-started alongside. It shouldn’t be the only game in town.

A Field of Dreams? Well, Kevin Costner is famously instructed by voices in his head in the 1989 film to build a baseball stadium in the middle of nowhere in Iowa. “If you build it, they will come,” he is entreated. He does, and the ghosts of the Chicago Red Sox greats duly arrive as promised.

The problem with the LEP is it could be only the ghosts of business past that will arrive to empty offices and buildings and infrastructure.

While building the initial and later infrastructure (which the council borrows money to build) can create jobs in itself, can make a visual difference to the city centre and support non-business enterprises, it will not of itself guarantee any sustained business growth.

The enterprise zone itself will largely displace jobs rather than creating them (as happened in the 1980s as experts have emphasised) and lead to further speculative public sector borrowing on a future that is far from secure. No wonder the big business private sector loves it.

The further borrowing now by the city council for the LEP and enterprise zone, as I said last month here, against ‘expected’ future business rates is another field of dreams.

Infrastructure spending is all well and good, as is borrowing to invest in it. But it is a coaxing mechanism for business growth and no more. The real investment needs to be in the businesses themselves, not the infrastructure means to get a putative, imaginary future set of businesses to arrive in the city.

The LEP and enterprise zone are far too much the creatures of big business, retail, A-grade office space, finance and professional services.

And if Birmingham City Council is doing the borrowing and taking on the risk, then Birmingham City Council should be very much more in control of it democratically. It should not be in the hands of a LEP based across the wider bounds of Staffordshire and Solihull. Or let them do the big borrowing as well.

It may be great to have the heart of the LEP in Birmingham city centre through its enterprise zones, but the supposed promised fruits of having it may well be harvested outside the city itself, never mind the city centre, in the LEP’s ‘enterprise belts’ beyond the green belt. And the costs of having it in the city is borne by the city itself – now, through massive borrowing.

Apparently the developers who are hitched into the field of dreams will share some of the city’s risk, by being pinned down to paying businesses rates on what they build in this field of dreams. Really?

We may end up with masses of vacant A-grade office space and infrastructure in this city, against which we have also borrowed (you know – against the future assumed business rate income) in a double whammy of field dreams. Then developers can choose to go bust to evade their business rates responsibilities, or cry penury (as they do now when it comes to Section 106 payments and affordable housing). They won’t take a loss on this: the council will.

It is not at the moment an acceptable model for Birmingham City Council taxpayers to hitch their debts against. Even Michael Heseltine is critical of the model. The city council – and you and me – are left with the risk.

No. We have to reverse the fundamental process at the heart of this LEP venture right at its start. The initial, and the main thrust of the later, investment should be in businesses themselves, not the infrastructure to support them and other intangible schemes. If we build it, they won’t necessarily come.

They will come, now, through investment, now, in thousands of SMEs and in manufacturing businesses across the entire city, not just in its centre, in a model of business investment which sees SMEs and micro-businesses as the future of this city’s growth. Then we would be getting somewhere.

The LEP has been captured by a business status quo which is not the future. Retail, professional and financial services are fine – but this city needs a rebalancing of its economy away from these as the dominant sectors, just as the rest of the UK does. So the city must put direct equity investment into real businesses as a starting priority now, which are crying out for such investment which has dried up completely; not take a punt on an as-yet-unspecified possible future.

Equity long-term investment in Brummie businesses is needed now, just as venture capital companies like 3i and County NatWest successfully did in this city in the 1980s and 1990s (before they were lured away by global capital’s siren calls, leaving this kind of investment high and dry).

Investing in Brummie businesses makes sound financial sense for the city and literally can bring dividends. That’s what should fundamentally drive the LEP.

Wouldn’t you rather put £200 million of money into actual investments in real businesses now with repayments and equity growth and dividends over time, than take a speculative punt on office space and infrastructure?

Has the LEP and/or the enterprise zone led to the creation of a single business yet? It will undoubtedly secure existing big businesses in building and property development – at a cost to the Birmingham taxpayer.

It has stalled for two years at least. The city council has, or is committed to borrowing hundreds of millions of pounds on its behalf.

I would suggest no further massive borrowing on behalf of this LEP until real, definable benefits have been accrued to the local economy. The council (if necessary, outside the LEP) should issue Brummie Bonds to invest in actual businesses themselves – across the city.

Leave the punts for the racecourse.

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