I am writing to you in regard to the future strategic development of the economy in the North East.  At your appearance before the BIS select committee in July you confirmed that your Department was flexible with regard to:

• The responsibilities of Local Enterprise Partnerships (LEPs)
• The geographical reach of the LEPs and/or how responsibilities could be divided between organisations of different scale

Over the summer your Department has sought bids for LEPs and I am aware that a number of bids will be submitted from across the North East.  I have also been speaking to businesses and organisations in the area.

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There is a strong sense that if we are to compete with the ‘great’ cities of the country – Manchester, Leeds, Birmingham – then we need to do so at a level above that of the city itself.  Newcastle on its own cannot match Manchester for economic scale or Leeds for size of population.

But we can match any city in the country for skills, enterprise and creativity, if given the chance.

The uncertainty over the future of government support for economic development has already had a chilling effect locally.  Our businesses are reluctant to invest or plan when they do not know which economic levers will be controlled locally and which nationally.  Suggestions that direct investment and access to European funding will be under the control of central government are causing real concern.  London does not have a good track record in accepting the higher transaction costs associated with directing economic support to the North East.

But the prospect of all economic support being directed at the city level is no more attractive.  We all agree that decisions should be taken as locally as possible. However economies of scale and the realities of the business environment dictate that certain functions cannot be carried out successfully at the local government level. This is particularly true of both the traditional and new industries on which our economy is based.

Local businesses are reluctant to risk losing access to future grant controlling bodies by criticising their potential existence. Nevertheless there have been many voices strongly calling for some economic functions to be maintained above the city level:

• The North Business Forum and the Association of North East Councils, embracing all of the major business organisations in the North East, have agreed that six economic functions which would be most effective when organised at the level of the North Eas
• Our leading local paper, the Journal, has been running a campaign to emphasise the importance of scale in our economic development
• Our universities work with each other and see themselves as serving geographic areas wider than the cities in which they are based
• A leading player in Newcastle’s thriving voluntary sector notes the disadvantages of excessive fragmentation of resources and approach as well as the importance of their involvement in LEPs
• MPs and councillors of all parties support the retention of key economic levers across the North East

The challenging economic environment that we face, coupled with forthcoming reductions in public sector spending will hit the North East harder than many areas of the country.    As a geographic entity the North East has many common features:

• The North East’s economy differs from the national economy with respect to:
  • manufacturing that accounts for a bigger proportion of the economy in the NE – just under 21%, compared to just under 16% nationally
  • the public sector, which accounts for 23% of the regional economy, compared to 17% nationally
  • business services which account for 25% of the regional economy, but 35% nationally

• Whilst the North East has relatively low levels of business stocks and start ups, both at around 60% of national rates, each of the past six years have seen the region’s business stock grow at a faster rate than the national average
• The average GVA per capita in the North East was £15,900 in 2008 compared to the UK level of £19,557 – 23% below that of the UK (Office for National Statistics)

1NE made successful interventions in a number of areas, particularly offshore wind,  the automotive sector, process industries and tourism.  Fragmenting that kind of economic intervention would inevitably raise costs.  Equally, directing them from central government would reduce effectiveness.

The people of Newcastle are not concerned as to the name or location of an economic development body but we are very concerned that it should have the powers and scale to be effective.

At this difficult time for our city I hope you will ensure that we retain the necessary powers to rebuild and rebalance our economy.
Yours

Chi Onwurah MP

References

1. See letter dated the 16th July from the NBF and ANEC
2. http://www.nebusiness.co.uk/business-news/business-comment/2010/09/01/last-chance-to-get-our-bid-spot-on-51140-27177982/
3. See letter dated the 10th August from Professor Ray Hudson, Pro-Vice Chancellor of Durham University
4. See letter dated the 31st August from Sally Young, Chief Executive Officer of Newcastle Council for Voluntary Service
5. See for example EDM 75, tabled by Kevan Jones on the 25th May
6. http://www.statistics.gov.uk/cci/nugget.asp?id=2279