Learning from LEP integration

In January 2024, in recognition of the challenges and opportunities for local authorities in integrating Local Enterprise Partnerships (LEPs), Henham Strategy was commissioned by the Local Government Association (LGA) to undertake a series of workshops and produce a report, drawing out learning and good practice, along with recommendations. This report was independently developed, researched, and written by Henham Strategy. All views are the authors’ own.

Most areas are making good progress with LEP integration. Everyone we spoke with is awaiting Cabinet approval of their plans, or sign-off from Government. Within those plans, most places are planning on closing their LEPs and transferring functions into the local authority, although there are a significant minority of places planning to retain their LEP. While some areas are moving at pace and are experiencing a smooth transition, some areas are experiencing highly localised challenges:
 

• Places where LEP and council boundaries are not coterminous have faced heightened difficulty. 
• The picture is fractured, with different models developing in different areas: to date, only nine LEPs have been completely integrated with another 11 in areas with devo deals.
• Some districts feel they have gone from having a seat at the strategic table to being ‘squeezed out’ of discussions about what comes next.

The combination of highly localised challenges and being at this point in the planning cycle means there is little replicable good practice to share – however there, are some key issues that need to be resolved across the whole country.

Economic development is a strategic, long-term agenda. It cannot be undertaken without clarity of mandate and funding, which in turn presents a risk to attracting and retaining local business leadership. This is particularly challenging in the context of local authority funding constraints. LEP functions are only a small part of the puzzle.

The purpose of this reorganisation, in the context of very limited funding (either revenue or capital) and at this point in the electoral cycle, is unclear.  Government guidance is vague and sometimes contradictory, and Area Leads are often unable to assist further. While local discretion is welcome, places are bogged down in operational challenges rather than strategic thinking about how best to develop local economies. The limited funding is often insufficient to cover staff costs – and is limited further by operational and legal costs. The lack of clarity on Growth Hub funding – while not unexpected – is causing real challenges, particularly regarding staff transfer.

While there is a will to cooperate between authorities, there are no practical incentives to do so – and in some cases, funding mechanisms like UK Shared Prosperity Fund (UKSPF) actively disincentivise it. This is compounded by the divergence from an evidence based functional economic geography, and towards an area with a minimum population of 500,000 people. 

According to guidance from August 2023, integration of LEP functions into upper tier local authorities (UTLAs) will be undertaken ‘as quickly as possible’ with a broad deadline of 2030.

In this guidance, government funding was committed to local and combined authorities in 2024/2025 to support them to deliver LEP functions:

• business representation
• strategic economic planning
• Growth Hubs and Careers Hubs
• Enterprise Zones and Freeports.

However, funding beyond this date will be subject to future Spending Review decisions. 
Given the challenges this integration process was causing authorities throughout the LGA network, Henham Strategy was commissioned to organise and deliver four workshops on the following:

1. Governance, business representation and joint working with lower-tier authorities.
2. Growth hubs and career hubs.
3. Freeports and enterprise zones.
4. Funding staffing legal and asset integration.

Our work in numbers

Over five weeks we engaged with:

• twenty four councils from across the country
• eleven unitary authorities
• nine county councils
• twenty eight senior officers.
   

We also held additional conversations with:

• County Councils Network (CNN) representing 37 county areas.
• LEP Network representing 36 LEPs.

What LEPs did well

• LEPs were focused on the growth of an identified, evidence based functional economic geography.
• They had buy in from the public, private and academic sectors, attracting strong local leadership, and bound local partners together behind a clear agenda. 
• They also had a clear and sustained government mandate – to ‘ask for forgiveness, not permission’ – and an eventual prize in the form of City Deals, Enterprise Zones and the Local Growth Fund. 
• Nationally, LEPs were estimated to have leveraged £1.76 of private investment for every £1 spent. 
• Some delivered a tangible positive impact and real, lasting change.

Where they presented challenges

• They were criticised for a lack of representation, transparency, accessibility, and democratic accountability – compounded in some ‘overlap’ authority areas covered by more than one LEP.
• There were some examples of particularly poor governance that required Government intervention.
• LEPs, while eventually established as companies limited by guarantee, were largely reliant on local authority capacity.
• Capital funding came largely at the expense of local authorities in the form of reductions to the Integrated Transport Block.
• LEPs consistently underspent their capital allocations.

Workshop 1: governance, business representation & joint working - 11 January 2024

• Good progress is being made, with authorities largely at the point of operational decisions.
• All authorities engaged confirmed they plan to directly deliver LEP functions, rather than carry on with an arms’ length body.
• Authorities were frustrated by the lack of clarity – ‘there is no prize’.
• The purpose of an Economic Growth Board was questioned and concerns expressed that the private sector will ‘vote with their feet’ in the absence of mandate and funding.
• Concerns were raised that the minimum population size does not represent a functional economic geography and could make things less efficient and effective than in the past.
• Challenges were raised over the transfer of staff and liabilities – this was revisited in more detail at workshop four.
• All authorities expressed a clear desire to continue working across administrative boundaries.

Workshop 2: Growth Hubs and Career Hubs - 18 January 2024

• At the time, it was noted that there no clarity from Government on funding for Growth hubs or Career Hubs. The delay in certainty has led to staff flight and threatens existing match funding models.
• One authority was actively exploring the potential to lever in private sector sponsorship.
• One of the challenges with business support underpinning Growth Hubs is that many areas are funding it through UKSPF.  While a Growth Hubs may be delivered at a county level, business support programmes are delivered at a more local level. This could lead to service fragmentation and a ‘postcode lottery for businesses’. 
• There was a strong sense that operating models will change and that match funding arrangements with the Careers & Enterprise Company.

Workshop 3: Freeports and Enterprise Zones (EZs) - 1 February 2024

• LEPs have no involvement in Freeports, so there are no integration issues here.
• Many EZs require LEP representatives as part of their constitutions, which will need to be amended.
• Some areas benefitted from an EZ by being part of a LEP - there are potential challenges with how assets and proceeds will be shared in the future, particularly where new arrangements will not be coterminous with former LEP boundaries.
• Some LEPs are lobbying to retain Enterprise Zone receipts to sustain themselves as separate entities beyond the point of integration. Local authorities are incurring some legal costs to manage and challenge this. 

Workshop 4: Funding, staffing, assets and legal - 8 February 2024

• There are challenges with transferring staff - mechanisms such as TUPE are too long, given where authorities are in the planning process, awaiting Government sign-off, and waiting for clarity of funding. 
• One local authority recommended use of a civil service procedure, rather than TUPE. 
• Some LEPs have generated assets which will be integrated by the local authority to deliver functions or will remain with the LEP so they can deliver an arms’ length model. The latter appears to be minority. 
• Some authorities raised challenges with residual funds generated by evergreen/revolving funds and raised questions around whether this is still public money (and therefore for the local authority to assume), or if it has been ‘washed’ and something for the LEP company to assume.
• Legal costs could be quite high in resolving disputes. Some local authorities have sought external legal support.

Next steps

At this point in the planning of LEP integration, there is little obvious value in attempting to produce guidance for local authorities.

However, there is an opportunity to influence government and to seek clarity on mandate and funding ahead of the Autumn Statement. There is also an opportunity to influence manifestos ahead of the general election – particularly if it positioned as forward thinking about how local and national government can work together to drive local growth (rather than backward looking about LEPs and the challenges of integrating those functions).

The LGA may wish to consider how to amplify these messages. Natural partners include the County Councils Network (CNN), the Institute of Economic Development (who have argued for local authorities to have a statutory responsibility for economic development) and arguably even the LEP Network.

Finally, given that local authorities have new responsibilities for economic development, we recommend that the LGA considers reinstating a ‘workstream’ dedicated to local growth. 

Key messages

We propose the following key messages in any briefing activity:

• Growing and improving the productivity and prosperity of our local places and regions is the key to growing and improving the productivity of the national economy. This extends beyond the integration of LEP functions. 
• Having integrated LEP functions, local authorities are keen to do more – but they need clarity of mandate and long-term funding settlements from government to establish and drive strategic economic development agendas. 
• Local authorities have consistently proven they can be safe guardians of public money, while delivering for their residents and communities when they have the means to do so.
• The operations of the Cities and Local Growth Unit needs to catch up with recent changes to the machinery of government, such as the creation of the Department for Business & Trade (DBT). More DBT staff should be close to the Unit and, over time, it should have an elevated role within – and more formal touch points across – central Government.