Mark Barrow on LEPs, TIFs & the pursuit of growth

Mark Barrow is strategic director for development and culture for Birmingham City Council and company secretary for the Greater Birmingham and Solihull Local Enterprise Partnership. He has been with Birmingham since September 2010 and was previously chief executive of Newcastle-under-Lyme Borough Council.

Room 151: Lord Heseltine has talked about a single funding pot for LEPs to bid for. How much would the Greater Birmingham and Solihull LEP be entitled to?

MB: If you grab Heseltine’s figures, and they are probably around £70bn over the CSR period, and take a per capita approach to that on our LEP geography you are in something like £2.5bn territory. We are about 3.8% of the population as a LEP.

If you add into that the various ratings in terms of where streams of that cash go, you are into £3bn plus. So it breaks down to £750m, towards a billion per year.

One of the key things that we are all going to be looking for is an understanding of what scope there is for recalibration and re-alignment. It is great for us to come up with our local economic strategy, it’s a nice filter where we can start to say, OK, resources follow priorities and that is all rooted in evidence, but how do all these things fit? That is going to be the challenge going forward: asking what is in play and how it fits with the things that we are already doing, the use of our own assets and borrowing potential, for example. How does it all interact to make the sum greater than the individual parts?

There is some big stuff in Heseltine’s work. You look at No stone unturned… and there is a lot of stuff around skills there. Reorienting the skills delivery sector is not an easy thing to do. At the heart of it is moving away from a demand-led model, where young people turn up and ask for what they want to, to a model where we say ‘this is what our economy needs’.

There are all sorts of mechanisms in there to think about how to aggregate. At the heart of it though is the idea that it is right that those kinds of decisions should be taken locally. There should be local ownership of that and a connection between the resources available and what the local economy needs.

Room 151: So £750-1bn per year would be over what period?

MB: Heseltine suggests a four-year period, but everything around comprehensive spending reviews seems to have got lost recently. There used to be this nice cycle which we felt we understood but things seem to have lost their routine a bit recently. It is a bit like having the Autumn statement in the middle of December isn’t it?

The other thing, and maybe this is where City Deals 2 comes in, is what can we do in advance of 2015? Heseltine’s talking about a system for April 2015, but we all need economic recovery now. It’d be nice to get on with some stuff instead of waiting to see what it all looks like when it is finally cooked and baked.

Room 151: You talk about using your own assets and borrowing. What kinds of things are you thinking about there?

MB: Birmingham City Council is the accountable body for the best part of £400m coming through the LEP. We have already borrowed the first round of Tif money that relates to the Enterprise Zone.

We are also the accountable body for the Regional Growth stuff. We’ve got some programmes running there and are also managing a national scheme for government called the Advanced Manufacturing Supply Chain Initiative; a fund that supports the supply chain in manufacturing, where firms can’t get access to finance from banks. There is £245m in there and it is a national fund that we are managing and delivering.

Room 151: Why?

MB: We made a submission in RDF round two for the fund on a local level. In our area we have a resurgent Jaguar Landrover, aerospace and a few other things and we are keen to make sure that their supply chain are able to access cash. The sector associations like the Society of Motor Manufacturers said, what a good idea, we should have that nationally.

Government thought it was a good idea too and wanted to support it so it went from £25m for the West Midlands to £125m nationally. Then, in the last round of RDF it was doubled, based on the success that we have had moving money into the market.

Room 151: Is it the city council finance department that runs the money?

MB: No, we have an organisation that we wholly own, a company called Finance Birmingham, which is like an investment company that you would see in the private sector. It’s also managing a loan fund and an equity fund and it is FSA registered.

So we’re the accountable body, as a city council and we get sign off on investment decisions, but the investment evaluations and due diligence and monitoring are done by Finance Birmingham. We’ve created a neat model to translate between the world of public and private and this is what people are looking for at the moment. The world of LEPs is private sector led but backed by public sector money. We think we have managed to get the balance right. It’s interesting as a sense of a way forward for LEPs in the new world, because that is what people are going to struggle with. Can you devolve a billion pounds to a LEP? You have got to think about who has the capacity to manage it, where the democratic accountability is, the transparency. None of that is new but this is all just bringing it to the fore in a joined up arrangement.

Room 151: The project rate for LEPs is interesting in that context, how do you see that playing out?

MB: LEPs across the country are all different shapes and sizes. We have set ours up as a company and it has a legal personality. Most don’t and are just loose associations and partnerships. So you will need local authorities to provide the structure in a governance sense as accountable bodies. I guess if you think that through, if that wasn’t the case, would we be creating 39 mini-Regional Development Agencies? Because if the money went straight to them you would introduce something between government and the council.

So in that sense the model as it is is right and fine. There is a degree of assurance about how councils manage large chunks of money. If you look at PWLB that is a factor. PWLB is useful if you want to borrow money today and get a rate today, but the other thing is if you’re looking more long term, as LEPs are going to do, then you might be thinking about the European Investment Bank so you could forward-fix rates. That is a new dimension because if you’re going to get revenue streams that you can borrow against like Tif around Enterprise Zones, you can start to think about planning future borrowing and you are into a different territory. That is where the UK’s rating kicks in.

Room 151: It has gone a bit quiet on the whole project rate story hasn’t it?

MB: Yes, we’ve been trying to do a bit of digging. We as a city have our own triple A status, but then you end up into the realm of what is the status of the counterparties. If up the chain you have a lesser rate than you, what does that mean? The big thing is do we stand on our own right through our own revenue and the value of our asset base?

The older places in the country which have got big asset bases built up over many years have got a lot of coverage against their borrowing in a number of ways. We have still got our housing stock and so have a big asset base and that is an important foundation in this. I think everyone is waiting for a bit of clarity.

Room 151: You have plenty of shovel-ready projects that you can put forward for the project rate haven’t you?

MB: We have got loads of projects, we’re good at lining up things to move forward and the big thing that government wants to hear is what is the gearing involved? If you can do this today what does it unlock from the private sector?

Room 151: Where are you with Tif?

MB: Our Enterprise Zone by value is by far the biggest in the country. The business rate growth rises to about £875m over the life of the EZ, so that is the stream we can borrow against. We’ve already taken a decision against the first £128m and some of that money is coming into play, and it is the Tif model that funds the Enterprise Zone.

There is a lot of effort involved to understand what your baseline is initially, then quite a lot of effort to make sure that you are capturing early growth, if that makes sense. Because as you might imagine, in a number of sites you have got demolition first, so your income flow drops because you are taking things out of the business rate pool for a while.

The challenge, as always, is managing the first few years: it requires pretty close monitoring but we are feeling confident.