Oral evidence: Government Support for BusinessHC 770-iiTuesday 18 November 2014
Oral evidence, 18 November 2014.
Witnesses
Caroline Norbury MBE, Chief Executive Officer, Creative England, Jim Farmery, Director of Business Development, Creative England, and Steve Futter, Senior Account Manager, Solent LEP, gave evidence.
Chair
Good morning, and thank you for agreeing to help us with our inquiry. I am running behind time so I am going to bat on quickly. First, would you just like to introduce yourselves for voice transcription purposes, starting with you, Caroline?
Caroline Norbury
Hello, I am Caroline Norbury. I am the Chief Executive of Creative England.
Steve Futter
Good morning. I am Steve Futter, Senior Account Manager at Solent Local Enterprise Partnership.
Jim Farmery
I am Jim Farmery. I am a Director at Creative England.
Chair
Thanks very much. I will repeat what I said to the previous panel: some questions will be general to all, but do not feel you have to contribute if a predecessor speaker has said everything that you think needs to be said on the subject. Can I just start? We heard last week about the so‑called “alphabet soup” of Government initiatives there. From your perspective—and if you could make it brief, I would be grateful—how easy is it to navigate the schemes available for business? How can they identify them readily? Who would like to lead on that?
Caroline Norbury
I am happy to do that. There are a lot of discussions about Government support being crowded. Our experience is that, whilst the landscape is certainly complex and multi‑layered, it is quite sparsely populated in terms of the sorts of support that the businesses we work with are looking for. Obviously our experience is very concentrated around creative and digital businesses. We work across film, TV, videogames, creative and digital media. What we hear from those businesses is that they want to talk to people who have experience of the specific needs of their businesses—people who have been there and done it themselves. Our sense is that a lot of the business support that is available is very generic and may not therefore meet the needs of those very specific businesses.
Steve Futter
From a Solent LEP perspective and the businesses we speak to, the issue is not one of quality of advice or diversity of advice, but access to that relatively complex landscape and how a business navigates through that, given the sector demands that a given business may have or where they are in their journey as a business. We have found that the Solent Growth Hub, which is relatively recently established, is making some very good inroads into that, in terms of the navigator service they offer to businesses. We certainly refer a lot of calls through the Growth Hub. We find them very useful, primarily because that draws on the local sector expertise and it enables more organic private‑sector‑led growth. We have found that to be quite a useful way through what looks like a reducing alphabet soup.
Chair
The FSB has recommended that we should have, as they do in the US, a small business administration to give oversight to these schemes. Do you think that is appropriate and is it a way that you think could cut across the different departmental responsibilities that you have to deal with at the moment?
Jim Farmery
I personally do not think that would be appropriate. The best model that can develop is a blend of the local, through the LEPs, and the national, through BIS, DCMS and the other national programme providers, as well as things like R and D, the Research Councils, Innovate UK and so on. All small businesses are not alike; there are very specific sector requirements. There would be a challenge that you would probably be introducing another layer in that mixture. I do think the best model that can develop is a really well engaged blend of the national and the local. That would be the optimum kind of thing for me.
Chair
You think it could add to the bureaucracy of delivery.
Jim Farmery
There is a danger it could just add another layer and another level of cost.
Chair
Can I have a view from the creative industries?
Caroline Norbury
We work together, so obviously I agree with Jim.
Chair
Can I just move on? Last week we discussed a concept of “corporate welfare”. That is, the support that the public sector gives to the private sector, in various guises. From your perspective, what do you think the purpose and objectives of Government support for business should be? We will start with the creative industries.
Caroline Norbury
The issue with the creative industries is it is a very diverse sector and it is full of lots and lots of very small businesses. One of the challenges, therefore, is that when it comes to any sort of overarching planning, messaging and so on, it is quite difficult to coalesce all of those businesses and therefore for those businesses also to speak with one voice to Government. Government’s role should be to create the right conditions for growth and prosperity. One of the ways of doing that is to invest in areas that the private sector will not invest in. One of the challenges with the creative industries is that often you are investing in ideas, and there is a real challenge around how you pay for and frankly how people are comfortable paying for investment in intellectual property. It is a very difficult concept; it is very difficult to legislate around, etc. Therefore, we have not really tackled how we do it, because it is hard to measure and very easy to abuse. In terms of the challenges around the creative industries being lots and lots of voices, the Creative Industries Council has made huge leaps in terms of pulling together that one voice, but it is still very challenging. If you work in aerospace and automotive, yes, the supply chain is very diverse and complex, but you can get five or six people around the table from the big companies, who are at the top of the food chain. You cannot really do that with the creative industries and, therefore, you need a much more nuanced approach in terms of how you reach those businesses within the supply chain. Government is doing a really excellent job at the moment, in terms of the steps it has made with the Creative Industries Council and, in particular, some of the tax credits have absolutely helped to make the UK much more competitive internationally. With some particular sectors, it has halted a flight in terms of talent and capital, and it has made the UK much more attractive to work in. Our creativity is our USP; it is one of the things that the UK excels at. As I said, it is quite a hard concept to grasp, when it comes to how you develop that business‑wise.
Chair
Of course the Council was put in place as a result of a recommendation from this Committee.
Caroline Norbury
Thank you very much.
Chair
I felt I did have to make that point. Steve, do you have a very quick comment on this?
Steve Futter
I would agree broadly with the comments of other panel members and the previous panel too, on that role of Government in enabling and supporting business growth primarily. That is through advice and also finance. While I was sitting listening to the first panel, I was trying to think of local examples from the Solent. There has been a site, a disused airfield at Daedalus near Gosport, which has now been designated as an Enterprise Zone. It had previously been marketed and it fairly comprehensively failed to market successfully, and now, through significant public sector investment, the infrastructure and enabling works have taken place. As a result of that, we now have the CEMAST College, which is an extension of Fareham College, focusing on manufacturing and advanced skills training. There is also a business incubation innovation centre going on there in the coming months. That is a good example of where public sector investment has stepped in and driven the provision of utilities, broadband and public transport, which has created a much more appealing area for businesses to invest in.
Chair
Can I move on to a question for Creative England again, which has been partly covered by your previous response? You wrote to say, “The mechanisms deployed by the Government to support the creative industries have never constituted an overall industrial strategy.” Now, you have touched on this, but could you briefly say what schemes in this area have worked well from the Government and what could be improved?
Caroline Norbury
Perhaps Jim might be able to give a bit more detail. All I was going to say is that we have managed to make the Regional Growth Fund work for our businesses, because what we have been doing is getting small amounts of money to small businesses that need it, whereas one of the challenges with the Regional Growth Fund is that it is not necessarily very small‑business‑friendly. Perhaps Jim can talk a little bit more in detail about how we have managed to do that.
Jim Farmery
I am more than happy to do that. One of the things I was going to say was, if you look at other sectors, one of the things that I look at with a degree of envy is the Manufacturing Advisory Service, in terms of the consistency and support, and the focus that that has been allowed to bring in that manufacturing sector, which is very diverse in its own sense. That is a result of the use of Government funding to direct a particular sector programme and sticking at it, investing over a number of cycles of Government. MAS has been going for more than 10 or 15 years, I would have guessed. If you look at that for other sectors, there is not the same level of sector provision or sector‑specific support, as Caroline was saying. They do pull together the primes from the top of the supply chains, and are able to provide a diffusion of Government support, but also a generation of different ideas and different approaches as well. The Creative Industries Council has done a fantastic job, but it has only been around for two years. It has then had to look for other sources of funding to enable the actions that have come out of the Creative Industries Council.
Chair
I am going to bring in Brian in a moment with a supplementary, but effectively do you find yourself acting as a sort of MAS for the creative industries?
Jim Farmery
We perform some of that function.
Caroline Norbury
But without that money.
Jim Farmery
We are not paid to do that. We are in the middle of our second RGF programme. We use the fact that we are running reasonably scaled RGF programmes as a way of communicating that message to those businesses and a way of connecting them to other programmes that are available as well.
Chair
I am going to bring in Brian. You might like to perhaps submit written evidence to give us one or two examples of this.
Mr Binley
I am worried about what you have just said, because the Manufacturing Advisory Service is much more about more established and stable industries. You are working right at the frontier very often. You are creative, and the very nature of creativity is to be at the frontier. I just wonder whether your example of the Manufacturing Advisory Service is a good example to suit you and whether it might clog you down in bureaucratic terms.
Jim Farmery
With things like the games industry, sometimes there is a slight confusion over the fact that the games industry has been around for decades now. The very first consoles were developed 30 or 40 years ago. It is changing all the time. There are new platforms being developed.
Mr Binley
I was old enough to play Pac‑Man; I understand that.
Jim Farmery
The same is true of manufacturing. What is really important is that consistency of offer, consistency of support and the degree of specialism within those terms that has been allowed to develop and has not been put at risk because of changes in Government and changes in political direction. That has been a consistent support platform. There is a lot to be learned from that approach in itself. Even within manufacturing, you have things like additive manufacturing, composites, 3D and a whole range of equally cutting‑edge developments in the manufacturing world that are finding their way through supply chains, just as there are in our industry.
Mr Binley
Can I stop you very quickly? I come from Northamptonshire, where we are very much involved in autosport, aerospace, composites and so forth. They do not want too much overseeing, quite frankly; they just want some help to ensure that they can finance their schemes. We have to be a little bit careful. That is the only point I am making.
Chair
This is really just a quick question, and basically it may be to Caroline or you, Jim. Are you calling for the Government to introduce an industrial strategy for your sector?
Caroline Norbury
Create UK, which was published in July, is a strategy. It puts forward a series of recommendations for both Government and for industry, and we would absolutely sign up to supporting the recommendations there for Government to look into.
Chair
Okay, we will look at that. Can I bring in Brian?
Mr Binley
Again? The Brian Binley show, but only for three minutes, Mr Chairman, not even 15, as Andy Warhol said. You have all been engaged in the Regional Growth Fund in different ways. Can I ask what your experience is in assessing RGF money and how it works?
Steve Futter
Yes, certainly. I am happy to talk about that. As the LEP, we applied from round one all the way through to round four. Our initial bid in round one was unsuccessful, and the perception, certainly from an LEP perspective, was that the notion of trying to rebalance the economy in favour of private sector jobs is a great thing, but it was used as something of a blunt instrument at that point. It missed some of the local detail around the urban areas in the Solent region, areas such as Gosport for example, where the job density is very poor. We felt that, as a LEP, we have access to that knowledge but were not assessed on the fact that we had provided that. Having said that, from rounds two to four, we applied for a number of different funds and were successful. Whether that was a change in our approach—we certainly had a lot of support from Caroline in terms of developing an application called Bridging the Gap—or whether there was a change in that assessment process is difficult to say. Certainly from that point forward, it has been relatively easy to access that funding.
Mr Binley
A quick supplementary: I get the impression that, if you had been successful with the first tranche, you would have had a much greater chance of being in the pot for the second and following tranches. I am concerned, however, that some people are slow on to the game and they have been left behind because they were not so good in the early days. Is that a concern?
Steve Futter
Possibly. Certainly as a LEP we have applied for funding, but what we also do is look at bids from other businesses that have come into the RGF and written letters of support. That is a case of us reviewing their bid and, depending on our perception of the strength of that bid, we will either decide to support or not. The majority of the 12 or 14 that we have written letters of support for have been subsequently supported by BIS, which is great. Whether there is something in that about coming to the game late, I am not too sure. There is certainly an issue in terms of that £1 million minimum level of funding, which is exactly why we applied for Bridging the Gap, so we could take that £1 million chunk of money and slice it down into smaller grants, from £5,000 to £75,000, for which there is a significant appetite locally. That has worked really well for us.
Jim Farmery
If I could comment quickly, we are delighted to have been successful twice for RGF funding and, as I said, we are in the middle of our second programme right now. It was very clear to us from the outset that RGF was not designed for the kind of programmes we were putting forward initially, and we had to do a huge amount of convincing in that there was a demand for the products that we wanted to deliver—that there was the private match funding out there and that we were a capable delivery organisation as well. Now, because we have delivered one successfully, on time, ahead of target in terms of our jobs created and so on, we have proved the model in terms of there being the pent‑up demand for SMEs to invest in projects in development themselves, but we still face that challenge against larger corporates that are investing in large capital programmes, which have the capital sitting there ready to invest. Ours is much more based on incremental programmes with individual SMEs. We are working with hundreds of SMEs as part of our RGF programme, rather than just one large corporate.
Mr Binley
Did your changes make you more successful or was it the Regional Growth Fund that changed themselves in terms of what they were considering?
Jim Farmery
We met halfway, if I am really honest. They recognised they needed to be more flexible to try to hit the companies we were working with, and we have proved that we can do it—there is the demand out there—and we can run a successful programme. They brought in a bit more flexibility. The other thing I would definitely mention is the timing. With the first programme that we were running, we heard that we were successful in autumn 2011. We were not contracted until April 2012, which was when the programme was due to begin. We had the contract three weeks after the programme was due to begin and we had to hit all our targets on a two-yearly basis from a standing start. The second time we were successful in RGF 4 that time was halved, so BIS absolutely recognised that they needed to do things more effectively. They outsourced initially the DD in the first round that we ran. They did it all in-house, because they had developed more expertise in the DD work. Also, we had a track record as well in the level of DD; they were not just talking to somebody brand new. However, they definitely recognised that they needed to speed up the process, and that has been fantastic.
Mr Binley
I am delighted to learn that, at the interface, flexibility has been achieved. That is good. Very quickly, what other changes might we ask the Regional Growth Fund to improve on?
Jim Farmery
At the moment, we are bidding for round six, so we are right in the middle of a bid process. Unless we are successful, the programme we currently run will end in March next year. I absolutely think that they should be looking to do contract extensions. At the moment, we are bidding on a blank sheet of paper along with everybody else. There is a recognition that we have done a good job and we have hit our targets, but we are going through exactly the same process as somebody bidding for the first time. If you are in business and you are working with an existing supplier who was doing a good job, it is very unlikely you would continually go out to re‑tender that. You might want to revisit it and perhaps test the market but, at the moment, there is not even any room for them to do that.
Mr Binley
You equally cannot afford to be complacent. At least I am happy that you are keeping on your toes all the time. If you become complacent, then that does not achieve what the Regional Growth Fund wants you to achieve.
Jim Farmery
I recognise that.
Caroline Dinenage
I am going to start with Steve, please. Have there been any problems associated with the fact that LEPs have not been able to apply for the latest rounds of the Regional Growth Fund?
Steve Futter
From our perspective, I do not think there have. Our local Growth Deal has £12 million - £2 million for the next six years - to enable us to effectively extend our Bridging the Gap programme, which, as I said earlier, was funded through the Regional Growth Fund. We have been able to form a plan to effectively continue building that pipeline of projects that we know locally is very strong and be in a position to continue to fund them. The only challenge that presents is that we are shifting from a model that is a mixture of capital and revenue investment—that is what we are used to and what businesses locally are used to—to a 100% capital model under the Growth Deal. That may present some problems locally, but it is too early to tell. Having said that, I would say that around 80% of what we have funded has been capital anyway, with smaller amounts of revenue funding that enable that activity to take place, so I do not foresee any major problems with that, fingers crossed.
Caroline Dinenage
Chairman, I need to just declare an interest, because I was involved in the setting‑up of the Bridging the Gap fund. With that in mind, you have already alluded to it a couple of times. Could you just outline for the panel basically how it works?
Steve Futter
Bridging the Gap was initially focused on SMEs in Portsmouth City, Gosport and Havant, with access to funding between £5,000 and £75,000. Each applicant had to create a certain number of jobs based on the amount of funding they were seeking to access and also had to leverage in private sector investment as well. That has been running in Portsmouth, Gosport and Havant since 2012, and in Southampton, the Isle of Wight and the Waterside Parishes of the New Forest since 2013. I have some figures to date in terms of investment. We had two separate RGF contracts for those two funds. The total of that was £4.1 million. We have committed £3 million to date under Bridging the Gap. We have supported 90 businesses and, as a result, created over 400 jobs. Interestingly, that has also leveraged in another £6.5 million of private sector investment, so appetite for the fund continues to be really strong. We were lucky enough as a LEP to be awarded some exceptional RGF funding to extend the fund across the Solent as a whole, which is hugely useful in terms of simplifying our funding to the SME community. Obviously there is a criticism around the multiplicity of schemes out there, so now we can say we have Bridging the Gap. The strength of it has been the fact that it is very vanilla, as much as anything else. Any business can apply. There is no sector focus; as long as they are based in the Solent area, creating and safeguarding jobs in the Solent area, they can access funding.
Caroline Dinenage
It was done in partnership with local newspapers, which was the key, because it was meant to attract businesses that may not have been engaged with some of the more formal business networking communities.
Steve Futter
Thank you for the reminder. It was one of the real strengths of the scheme, delivered in partnership with the Daily Echo on the Southampton side and the News on the Portsmouth side, both of which have given significant in‑kind investment, in terms of free marketing not just for the fund but also in running full‑page interviews with successful beneficiaries. That has been hugely positive. We were also lucky enough to get support through Portsmouth University, which through their business support services can help people to apply for the funds.
Ann McKechin
If I just come back to you again, Steve, you have been talking about the Bridging the Gap fund. What has been your experience in matching the Regional Growth Fund with private funding? Have you found an appetite among private funders?
Steve Futter
Yes, we have. The just over £3 million investment from the fund and £6.5 million in private sector leverage have been really heartening. Since we launched Bridging the Gap 1 up to now, we have seen those percentages of funding increasing, if anything, so there is more appetite to fund. When the panel sits down to consider these applications—and we have private sector businesses and SMEs represented, the Federation of Small Businesses and the banking sector—they have been really heartened to see the variety of funding coming through attached to this project.
Ann McKechin
I suppose to some extent you select and you sift through the applications, so that private funders can have some assurance about the level of risk that they will be taking and investing with.
Steve Futter
Yes, and that is one of the great things around the RGF as a whole, because it de‑risks to a degree that private sector investment and makes everyone more comfortable that they are putting money into something that has a good chance of success. Locally, we have tried to mirror the national RGF principles of competitiveness primarily, so we know that the strongest applications are being supported and the pipeline continues to be strong. Irrespective of that, it is the strongest applications that come through.
Ann McKechin
Obviously your own experience is a very interesting example, but one of our concerns is that the Government told us that more than 22% of successful RGF bids were withdrawn. There has been some talk early this morning about the issue of due diligence after the application, but many were withdrawn because they were unable to secure the match funding required to proceed. I just want to ask the whole panel if that requirement is an obstacle to supporting businesses or does there need to be some sort of link mechanism such as the Solent practice has looked at? I would be interested in the view from the sector side.
Jim Farmery
The beauty of the approaches that we have taken is that you want to encourage that investment and stimulate that investment, whether in new project development, developing your own IP or expanding the business into other areas. We have been using the RGF that we have been managing to encourage other businesses to then invest themselves. There is a real danger if you do not try to stimulate that other investment. They have to be in the game. They have to be willing to take the risk as well. The RGF, in every case that we have been putting in, is de‑risking and pushing them over that decision to invest their own money. I know at a larger scale for some of the large capital projects, the RGF is there to do a similar thing. I personally think that is quite appropriate, to be honest.
Caroline Norbury
If I can just add a supplementary to that, it is important to bear in mind that what we are trying to do is address areas where people have not been successful. For example, one of the things that we do via the RGF is we have what we call “repairable grants”, but they are basically people who have been turned down by banks for lending, because of the inherent riskiness of what it is that they are doing. Jim is absolutely right that people need to have some skin in the game but, equally, if the purpose of the Regional Growth Fund is to work in difficult areas, to encourage businesses that would not otherwise have a chance of flourishing, then one again has to bear that in mind and not just go for the easy wins. What we are trying to do is intervene to create growth.
Ann McKechin
And probably encourage more risk‑taking amongst private funders ultimately.
Caroline Norbury
Absolutely. With the creative industries in particular, there are a lot of myths about the riskiness of it. A lot of what we are trying to do is to give more confidence to people who might not otherwise look at those businesses.
Mike Crockart
You will not be surprised—you were in the room when I was asking before—that my questions are about how we judge success. Steve, the Bridging the Gap fund on the website says that it will “create over 125 new jobs and safeguard at least 75 existing jobs”. Do you think that employment is the primary way of assessing the impact, or is that just because it is Regional Growth Fund money and that was the aim behind it, so that is what you have to measure?
Steve Futter
The previous answer that you had was telling. That is something that needs to be considered up front. Certainly in the contracts that we have for delivery of RGFs, it is about those private sector jobs that are created or safeguarded, and also the private sector funding that is leveraged as a result. There are other possibly more interesting measures. Solent, in terms of business start-up rates, is lower than the national and regional average, and it is the same for business survival rates. There may be something in there that would be interesting to measure but, certainly from a national perspective, we do report primarily on the number of jobs created and safeguarded, and the private sector funding.
Mike Crockart
Are there views about other things that should be measured?
Jim Farmery
In our space, most of the investment that companies raise goes on people. It goes on developers and technical expertise or commercial expertise in the business, pretty much in every case, because the businesses we are dealing with are usually micro or small businesses. There are very few that are 50‑plus; there are some, but not many. Also, they are not investing in large pieces of capital equipment, so they are very different from the manufacturing businesses, pharma businesses or any of those others that are investing in large pieces of capital equipment. That is not what they are using their money for, so there is a direct connection with the investment they are raising and expansion, and it is usually about people on the ground. I personally believe that the leverage of investment is really fundamental. I believe that that is the most important thing you could do to encourage them to de‑risk that investment for others and encourage them to invest in their own businesses as well. I personally think that that is more important than creating the jobs. In other sectors, not in ours necessarily, you do get that element of jobless growth. If you invest in a new production line, it might reduce the headcount but safeguard the rest of the people in that team. That is not the case in our industry at all. It is still quite labour‑intensive as an industry.
Caroline Norbury
I would obviously endorse everything everybody has said. I would also say that, with the creative industries, there is a huge concentration of those businesses around London. Obviously there is an awful lot of noise around Tech City and everything that has managed to achieve. If you are in Huddersfield, Wakefield or Bromsgrove, bumping into a venture capitalist, understanding anything or knowing where you are going to go to talk to somebody who knows something about private equity is very difficult. Creating a better mechanism for unlocking regional capital and creating a conversation about regional capital and getting that investment into businesses is hugely important. That goes to Jim’s point, I suppose, about not just people putting their own resources in and unlocking matched funding, but a much more sophisticated approach to how we fund those types of IP businesses, which are the drivers of the growth of this country. The creative industries are worth something like just under £71.5 billion to this country. The creation of intellectual property assets is absolutely at the heart of what is going to drive this economy, and it cannot just happen in London and the South East. Therefore, our industrial strategy has to reflect that objective.
Paul Blomfield
I wonder if I can return to the issue of the role of the LEPs and perhaps direct this to either Jim or Caroline initially. In the Creative England submission to us, you said that the Government should explore ways of incentivising LEPs to collaborate with private and public sector bodies, and with each other to avoid duplication. What specific incentives did you have in mind?
Jim Farmery
There is one particular area that we are facing at the moment, which is the ERDF funding. The way that the ERDF is structured is at a LEP level. At the moment, we run three successful ERDF programmes under the old regional system. In many cases, there is a real danger that, if you are developing an ERDF‑backed programme and you are only doing it in one particular LEP area, there is a massive resource issue there. You could easily run in multiple LEP areas with the same level of resource. In terms of the cost of running it, there is a much more efficient way of running a much larger programme, but also there is the scale and the impact that you could create. We are talking to a number of LEPs at the moment about a content fund across a number of LEP areas to encourage investment in games, film and TV projects as well. You could create something of huge international scale if you could then draw in resources from a number of LEP areas. There is a real interest in doing that but, at the moment, the mechanics of unlocking particularly things like ERDF would force you, or force us if we were the applicant, to apply individually, so the whole scheme would rely on us being successful four or five times with individual LEP bids. I would imagine that, in other industries and other areas, there is an equal challenge. I live in Leeds and I work in Manchester, so I experience the transport issues week to week commuting around the M62 and using the train network, so I know that there is a real willingness to collaborate amongst those LEPs, because it is happening right now, in transport, skills and other areas as well.
Paul Blomfield
Can I interrupt you, Jim? You are describing the problem very well. As a Member of Parliament for Sheffield, I understand exactly what you are saying. In terms of the solution, you talked about incentivising. What specific incentives did you have in mind?
Jim Farmery
Sometimes it is the mechanics. It is the structural process. ERDF is a good example. I am not sure, and if there is one it has not been explained to us so far, that there is a way of applying for ERDF, for example, across five LEP areas. At the moment, you would physically have to apply in each LEP area, because that is the way it is structured right now. Ultimately, it is a shared responsibility, I guess between DCLG and BIS, in terms of management of ERDF, together with the LEPs. There could be a look at that process and structure. They would not necessarily have to incentivise them. They are quite keen to work together, but sometimes it is trying to unlock that process.
Paul Blomfield
If we get the process right, that would be the incentive. Thanks for that. I wonder if you could share with us any specific examples of how you think LEPs have been collaborating well.
Jim Farmery
The obvious one at the moment is very timely. It is things like transport. There is absolutely an acknowledgement from people like me, who might live in Yorkshire but might have an office in Manchester, and equally might live in the North West and work in Yorkshire, Huddersfield or somewhere, that there are lots of ways that a shared approach to those kinds of transport issues can unlock a huge amount of investment and potential.
Paul Blomfield
Are there any examples from the creative sector?
Jim Farmery
There has been an interesting development with the BBC move to Salford, because you have supply chain development growing across the North of England now, genuinely. You have people and businesses building careers and businesses based around relationships that span different multiple LEP areas. We work with them all the time. Investing and having a shared approach to things like transport can only encourage and support that because, if you make that easier—if you physically make that easier to happen on a transactional basis—you can encourage investment and growth, because businesses will have a firmer sense of their future if they have access to much better transport infrastructure. I absolutely acknowledge and welcome any development that can go on there.
Paul Blomfield
When we are talking about the Manchester‑Leeds link, let us remember Sheffield as well.
Mr Walker
Coming back to Steve, the Solent LEP website states that you want to “create an environment that will bring about sustainable economic growth and private sector investment in the Solent”. That is quite a broad aim. How do you measure progress against that target?
Steve Futter
That is a really challenging question. In terms of economic development and trying to create the right atmosphere for that to flourish, we will be measured on the strength of our partnerships as much as anything else. We are locally focused and private sector led, with that local knowledge and understanding of what the local economy needs. The entire notion of a LEP is predicated on the sense that it should be underpinned by a functional economic geography. We are lucky to have quite a mixed economy, but there is a strong focus on advanced manufacturing, marine and maritime businesses in the Solent area, so it will be around how we engage with businesses and what funding comes into the area to address and support the development of that coastal functional geography, as much as anything else.
Mr Walker
How can you measure your success without a counterfactual of what life would be like without the LEP? Do you measure yourself against neighbours or peers competing in the same sectors?
Steve Futter
Again, it comes back to that point of a functional economic geography. The LEP area makes sense. There are other LEPs where perhaps that is not quite so obvious, so I would be interested in comparing progress against other areas that have a similar economic base, as much as anything else.
Mr Walker
In April 2013, this Committee published a report on LEPs that recommended that LEP boards should seek to widen their membership to better reflect the regions that they are in. How do you feel you are doing on that front and particularly with regard to small and medium‑sized businesses, which often do not seem to identify with the LEPs so much as the larger businesses?
Steve Futter
We are doing quite well. The board is democratically elected and there are directors from the business community, the local business community importantly, local authorities, the higher education sector as well as the third sector. It is quite a broad representation. They stand for a time‑limited term. In fact, all of our board members will be standing down in January of this year, I believe, to go through the re‑election process. From a demographic perspective, it is good. In terms of how we engage with the SME community, we are quite fortunate. Bridging the Gap has worked as a really good visible brand for the LEP. The SME community understands that it is for them and, as a result, the application rates have been very high, and we are also lucky to have the Federation of Small Businesses and SMEs represented on the decision‑making panel itself. That, plus the board, plus our ongoing open consultation events to help shape our European funding bid and our local Growth Deal have been really positive and always really well attended, so I think we are doing a pretty good job.
Mr Walker
Another report that this Committee produced was on the high street and the future of retail. One of the things that we discovered during that report is that retail seems to be very poorly represented on LEP boards in general, despite the fact that it represents a very high proportion of jobs. Have you ever done an analysis as to the different sectors represented on your LEP and the proportion of the jobs market that they represent?
Steve Futter
What an interesting question. I certainly do not have that to hand, but it is something I can ask back in the office and submit something on later.
Mr Walker
Is there any retail representation on your LEP at all?
Steve Futter
Off the top of my head, I do not think so, but I will double‑check.
Chair
If you could, send in some written evidence. Could I just explain that the attrition of members is not due to the quality of your responses? It is due to the fact that questions are now in the Commons and some Members will have questions on the order paper. However, we just have a couple of questions now from Caroline. I know Paul has to go to an urgent meeting as well so, if we can get things over quickly, I would be grateful.
Caroline Dinenage
It feels like an Agatha Christie movie, Chairman. Can I talk about access to finance, particularly with regard to Creative England? When it comes to accessing finance, you have been critical of the Government, saying that “the systems and mechanisms … don’t acknowledge the specific characteristics of creative companies”. Could you talk us through that in a little more depth? Do you think the Government has taken too much of a broad‑brush approach to this?
Caroline Norbury
There is a very clear knowledge gap amongst both creative businesses but also amongst the finance sector. I do not think there is enough done to navigate that or to improve information on both sides of the divide. I do not know that it is necessarily solely something that Government has to intervene in. In the last six months, since we published the Create UK strategy, we have made quite a lot of movement in terms of having a very good discussion with both the Intellectual Property Office, the British Bankers Association and so on, around getting a dialogue going about what those particular issues are. There is a perception problem here, which is a lot more complex than is often reported, in that, yes, creative businesses, particularly parts of the sector such as films and games are quite risky, but one’s perception of risk is cultural, is it not? There has been a lot of conversation over the last five years in terms of banks and risk. We feel more comfortable with that than we do around investing in ideas. There is a lot more that could be done to improve the knowledge base of creative businesses around finance, the different types of finance and how to navigate that. Equally, there is an awful lot that could be done to improve the knowledge base of investors, financiers and lenders around the opportunities within the creative and digital sector. There are particular Government interventions that could help. For example, there is a very useful tax credit, the R and D tax credit, which is not applicable to businesses from the creative sector. One could look at that. We have done some initial work looking at whether or not that could be expanded to include creative businesses. The Patent Box is another Government intervention, which is under a spotlight at the moment in terms of higher powers, looking at whether or not that is an eligible support mechanism. I suppose the gist is that there are existing mechanisms for other parts of the economy, but we have not really looked at whether or not they are fit for purpose for creative businesses. If you look at the resources within Government, within the Department for Business, Innovation and Skills, there is one civil servant who has “creative industries” in their job title. Given that this is a massively expanding part of our economy, I do not know that that reflects the opportunity that we have for this sector.
Caroline Dinenage
That is really useful. Steve, do you think that this problem expands beyond the creative industries or is it something that is more limited to that?
Steve Futter
In terms of access to finance?
Caroline Dinenage
And some of the strong Government initiatives not necessarily being applicable to every kind of industry.
Steve Futter
My experience primarily is of the Regional Growth Fund and what that has enabled us to do locally. Access to that particular funding has been hugely useful. We talked earlier about de‑risking private sector investment, so that is a real strength. One of the other things we like about the Regional Growth Fund is that there is flexibility inherent within it. As long as you are hitting those job targets and leveraging the correct amount of private sector investment, there is a real ability to promote different types of programmes. We have done that successfully across the Solent, where we have sector‑specific funds focusing on advanced manufacturing, geographically focused funds, so something specifically for the Isle of Wight to drive up job creation there, or something, as I said earlier, totally vanilla, which is Bridging the Gap. It does not have to have a sector focus. That flexibility has been really welcome in terms of the Regional Growth Fund as a whole.
Caroline Dinenage
This is for everybody. What sort of problems do you have to overcome in your day-to-day dealings with companies to ensure that they are suitable for funding?
Jim Farmery
We take the businesses through a pretty rigorous due diligence process of our own. We effectively mirror the RGF process for larger businesses, but we scale it appropriately. We do it in a much more realistic time frame and we sometimes get independent advice and bring in independent expertise as well, where appropriate. We want to invest and support businesses that are going to leverage in their own money, leverage in other money and invest in projects and schemes that are going to be sustainable. We have a very limited amount of RGF. It is a tiny amount nationally, even compared with some of the local programmes that we have heard about this morning. Our round was £5 million for two years on each occasion. I have heard discussion about £25 million just in particular areas, so it is a relatively tiny amount of money, but we want to manage it well and spend it effectively, so we want to make sure that the businesses that we are supporting are sustainable and have solid business plans. We take them through appropriate processes to look at that.
Caroline Dinenage
Do you think that there is sometimes a bit of a contradiction between needing to do all the checks and balances, needing to do all the preparation and needing to do all the due diligence, and then being able to support businesses with funding and other support in a way that is timely and enables them to capture the market?
Jim Farmery
Yes. We work really hard on turning those programmes around very quickly. We do a lot of telephone conference calls internally as a team, because we are casting the net across a wide area of the country, and with teams based out in Bristol, Birmingham, Sheffield and Manchester. We do a huge amount of legwork. We are out on the road all the time looking for different businesses. We have weekly investment sifting panels. We have monthly investment panels on a more formal basis, so we are really keen that those businesses are not hanging around waiting for us to make those decisions.
Caroline Dinenage
That is very crucial, isn’t it?
Caroline Norbury
Just as a supplementary to that, your wider question, in terms of the support those businesses need, is that there is in the UK an absence of other types of risk and equity capital in a way that perhaps there is not in America. We do tend to rely very much on very established places such as banks to put in that money. Now, our money is always very early stage, and there is quite a lot of provision from 250 onwards, but it is in that space where, once you have something going, even if you might be in revenues, making that jump to the next point where there is much more available is really hard. We can only talk about film, TV, games, and creative and digital businesses, but our experience is that is the real pinch point. Our funds within the Regional Growth Fund are not set up to do that. We are very much about taking people to that place. I would just say that where we struggle is we often have to make a decision, but without necessarily any clarity in terms of where they are going to go next.
Steve Futter
In terms of timeliness from our perspective, it is certainly something that I know applicants have got frustrated with in the past. We have tried to respond to that as positively as we can, bearing in mind that we are dealing with public funding that needs to be managed in a robust and appropriate way. We have tried to make the due diligence process reflective of the amount of funding that an applicant is seeking. The process for someone seeking £5,000, as opposed to someone seeking £75,000, would be appropriately streamlined, and that has been welcomed. At the moment, the average is between three and four months from application to the first drawdown of funding, so that has improved significantly over the time that we have been running the funds and learning from our own experiences primarily.
Caroline Dinenage
That is helpful. Thank you, Steve. Finally, and this is for everybody, the British Business Bank is now up and running. Do you think it is ready to take on the role of helping businesses find finance?
Steve Futter
That is not something I have any direct experience of so far. It is something that we may see coming in future rounds and making up the component of a funding package for a given business but, from my perspective, it is too early to tell.
Caroline Dinenage
That is a resounding nobody knows, Chairman.
Caroline Norbury
Our experience is that, when we originally started putting together our bids for the Regional Growth Fund, it was very difficult to get any information out of the British Business Bank, in terms of their support for the sector. There is now much more information available. They are very willing to have a dialogue. They have been incredibly helpful in terms of providing information and so on, but these are very early days. They have a huge remit, which is big but also very diverse. In terms of whether or not they are set up to deal with some of the issues that we specifically have raised, I am not sure, because their mantra is very much a generic approach and we are obviously lobbying and campaigning for something that is slightly different. So far, we have an awful lot more information from them. It seems to me that their systems are up and running, in terms of being able to collect the right sort of data around businesses.
Mr Walker
Just very quickly on that, you put in your written evidence that you are recommending the development of a creative content fund for the British Business Bank. Is that something that you have had any feedback from them on?
Caroline Norbury
Not officially, no. We are in early discussions.
Chair
Thank you. That concludes our questions. Once again, I thank you for coming before us today. That has been incredibly helpful. We will be looking at this. If you feel that, in retrospect, you might have said something that you did not, please feel free to submit it in further evidence. Equally, if we feel there is a question we should have asked you but did not, we may write to you and would be grateful for a response. Thank you very much. Oral evidence: Government Support for Business, HC 770-ii 35