PN 2: Promoting Flexibility Across the Regions
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Budget 2003 takes new steps to promote greater regional flexibility. In a flexible and dynamic economy, regions must be empowered to harness their indigenous strengths, tackling weaknesses in education, innovation and skills, to promote growth and full employment in all communities. Key steps include:
Measures suggested by the RDAs, to which the Treasury is responding positively today, include:
Commenting on the contribution made by the RDAs, the Chancellor said:
“The focus of this Budget is flexibility and fairness, at both a national and regional level. For the first time, the Treasury asked the Regional Development Agencies to make a formal contribution to the Budget. This strong regional input, together with Ministerial visits to the English regions, has ensured that this Budget responds to the needs and priorities of the English regions. I look forward to the RDAs’ response to the Budget”. Yorkshire Forward Chairman Sir Graham Hall, who leads the RDAs on Treasury matters and is the current RDA Chair of Chairs, said:
“We welcome the opportunity to input into the Budget development process. Rather than seeking additional resources, our recommendations focused on areas where monies could be better employed and more flexibility could improve local delivery. I am pleased that the Treasury has considered our suggestions seriously and we look forward to repeating this exercise in future years to help the Government achieve sustainable economic growth in all UK regions and narrow the gap in regional disparities”. Derek Mapp, Chair of the East Midlands Development Agency, commented:
“A continued shift away from central subsidies and towards local flexibility and incentives is the right way to kick-start regional economic growth, driving up levels of enterprise, skills, innovation, investment and productivity – all vital to the UK's international competitiveness. The Regional Development Agencies are the catalysts for change, stimulating the economic heartbeat of the English Regions. As the move to devolve powers and responsibility gathers pace, the Regional Economic Strategies take on even greater significance as the basis for determining priorities in the regions”. DETAILS RDA involvement in the Budget process The process by which the RDAs contribute to the Budget builds on earlier Budgets and the 2002 Spending Review, where RDAs provided their collected proposals on a range of issues. By specifically asking the RDAs to focus on four themes, the Treasury ensured that the RDAs focused on areas where their regional knowledge and experience allows them to add value to preparing the Budget. The Annex to this press notice gives full details of the RDAs’ input to the Budget process, and the Treasury’s response to each of their suggestions. RDAs for the 8 English regions (outside London) were established on 1 April 1999. The London Development Agency was established in July 2000 as an executive body of the Greater London Authority. Since 2002, the RDAs have had increased flexibility over their funding streams. This allows them to determine their own priorities, based on the needs of the region. This flexibility will increase as the commitments inherited by the RDAs reduce over the next two to three years. The RDAs’ combined budget will rise to £2 billion per year by 2005-06, from £1.6 billion in 2002-03. Relocation review The Government has commissioned a new study into the scope for relocating employment opportunities in the public services. The increased local and regional focus to policy-making, backed up by traditional issues of costeffectiveness imply a case for reviewing the location of civil servants and other public service workers. The details of a potential relocation policy will be prepared by the next Spending Review. The Chancellor and Deputy Prime Minister have commissioned an independent review, for which each Government department has been invited to identify opportunities for relocation. Regional pay flexibility The Government’s cross-cutting review of the public sector labour market, conducted as part of the 2002 Spending Review, found that public sector wages vary far less by region compared with those in the private sector. The review concluded that there was significant scope to increase the flexibility and responsiveness of the public sector labour market through the setting of pay and conditions. Budget 2003 announces that measures will be implemented to ensure that public sector pay systems include a stronger regional and local dimension, where appropriate. This includes the civil service, Pay Review Body groups and other public sector workers. More locally responsive public sector pay systems will ensure that low paid workers do not lose out, and service users across the country will benefit from better public services. Further details will be announced in the coming months. NOTES FOR EDITORS HM TREASURY PRESS OFFICE Press enquiries: 020 7270 5238 Non-media enquiries: 020 7270 4558 INTERNET SITES Further information and all published documents relating to the Budget may be found on the Internet at the following address: HM Treasury www.hm-treasury.gov.uk Inland Revenue www.inlandrevenue.gov.uk Annex: The Treasury’s response to RDA input into Budget 2003 ENTERPRISE RDA Proposal: Promoting enterprise in disadvantaged areas The low level and rate of business start-ups in disadvantaged areas in all regions was identified by the RDAs as an area of concern. The RDAs see a key role for the education sector (especially schools) in increasing enterprise in disadvantaged areas. RDA Proposal: School-based promotion Secondary and tertiary education systems should be re-focused to present enterprise and innovation in a more positive light and to provide experiencebased learning opportunities built around enterprise. Support and guidance offered to schools should be considered in the context of the ‘Review of Enterprise and the Economy in Education’ (February 2002) by Sir Howard Davies. This could be coupled with innovative formats, such as a campaign involving high profile regional and national role models. The £75 million of resources committed by Government to implement the Davies review should be targeted in the 2,000 Enterprise Areas. Treasury response The Government agrees that efforts to build an enterprise culture must begin in schools. Following the recommendations of the Davies Review, the Department for Education and Skills is currently designing pilots to investigate how best to provide pupils with five days of enterprise experience in their school career. The pilots will begin in 2003 and cover around 250 secondary schools, including a number of schools in Enterprise Areas. Rigorous evaluation of these pilots will inform a national roll out from 2005-06. Budget 2003 also announces:
RDA Proposal: Enterprise outreach Funding for organisations that help develop enterprise ideas and opportunities for communities and individuals in disadvantaged areas should be targeted in Enterprise Areas, using social enterprise and other grass roots organisations under the strategic direction of RDAs. The new Small Business Service (SBS) / RDA pilots should explore mechanisms to channel resources effectively to support enterprise outreach work (perhaps using childcare provision as an example). SBS targets should be revised with greater emphasis on increasing levels of enterprise in deprived areas to encourage funding of enterprise outreach work. Treasury response The SBS has a key role to play in meeting the DTI Public Service Agreement target to increase levels of enterprise in disadvantaged communities. It is developing seven core strategies, two of which will include a strong outreach component in order to ensure that the objectives of the strategies are met. The 2002 Spending Review announced an additional £40 million by 2005-06 for the SBS, compared with 2002-03. It was also announced that the Phoenix Fund would be extended by two years beyond March 2004, delivering an extra £50 million to promote enterprise among disadvantaged groups, including through targeted outreach programmes. These activities will complement ongoing work to promote an enterprise culture. The RDA / SBS pilots, by aligning business support services with Regional Economic Strategies, will better enable RDAs to use the Business Links network to reach all parts of the business community. RDA Proposal: Graduate business start-up support There should be provision of targeted support (funding and advice) to graduates starting up businesses in disadvantaged areas (near their home or place of study). Government should explore the use of a part write-off of student loans for graduates setting up enterprises in disadvantaged areas. Treasury response The Government recognises that more people
between the ages of 16 and 25 consider starting
up a business than any other age group. Therefore,
in order to support graduate start-up, the Government
will consider establishing a National Council
for Graduate Enterpreneurship to act as a central
information RDA Proposal: Transition out of the informal economy There should be provision of a transition period for those starting a new enterprise, targeted at the 2,000 Enterprise Areas. There should also be a one-off amnesty for those operating businesses in the informal economy to become legitimate. Treasury response Budget 2003 announces that from 10 April Customs & Excise will operate, as part of its VAT strategy, a time-limited incentive scheme for businesses not registered for VAT, but trading above the registration threshold, to move into VAT registration. Under existing rules, businesses and others
who have failed to notify the Inland Revenue
that they are liable to pay tax can also substantially
reduce tax penalties, often to nil, if they
come forward voluntarily. The Inland INNOVATION RDA Proposal: Encouraging small and medium-sized enterprises (SMEs) to innovate The RDAs recognise the importance of SMEs in
creating employment, but in some cases the contribution
of SMEs to innovation and exploitation of new
technologies has been less significant than
larger firms. The lack of innovation culture
and specialist skills, and the need for better
information for SMEs are highlighted by the
RDAs as reasons for the relative under-performance
of SMEs in innovation. The RDAs propose that
the relative importance of a third stream of
funding for knowledge transfer from higher education
institutions Treasury response The Government welcomes the contribution RDAs can make to promote innovation. In the 2002 Pre-Budget Report, an Innovation Review led by the DTI was announced. This review will provide a wide-ranging review of business innovation and its contribution to UK productivity growth. It is looking at current strengths and weaknesses of innovation policy at the regional level, and will report to the Government in summer 2003 on how innovation policy can be improved in future. The Treasury also announced, in the 2002 Pre- Budget Report, an independent review of business-university interactions, led by Richard Lambert, and reporting to the Government in late summer 2003. One of the review’s terms of reference is to look at the national, regional and local economic impacts of business-university interactions, including how RDAs and Sector Skills Councils can best support such interactions. Both review teams are actively engaging with the RDAs. The Secretary of State for Trade and Industry, Patricia Hewitt, has asked Sir Tom McKillop (as chair of the first Regional Science and Industry Council) to work with the RDAs to ensure that best practice in promoting innovation and knowledge transfer is shared and spread rapidly between the regions. Building on the success of the R&D tax credit in encouraging research in all regions, the Budget announces a series of improvements to the existing tax credits for R&D for SMEs and large companies. RDA Proposal: Addressing funding gaps There is a need to raise significantly the relative importance of the third stream of higher education funding to encourage a change of culture in higher education funding to send clear signals about the importance of working with SMEs. There should be support for proof of concept funds1 based in each region, by raising the share of higher education institution resources delivered through the third stream of funding (RDAs are supporting such funds as well through existing resources). 1 For higher education institutions and other public sector research establishments Treasury response In the 2002 Spending Review, the Government
increased funds available for the Higher Education
Innovation Fund (HEIF) – the third stream,
and combined it with funding previously allocated
to University Challenge and Science Enterprise
Challenge to form a permanent third stream of
funding to universities (in addition to teaching
and research). The second round of HEIF will
have funding of £187 million in total,
for investment between 2004 and 2006. The 2002
Spending Review also increased the resources
available to The Government’s science strategy “Investing in Innovation” (July 2002) set out that RDAs should be involved in the development and prioritisation of universities’ proposals for the use of HEIF, and that the Government will consider how to make use of the RDAs’ regional perspective in the allocation of knowledge transfer funding. RDAs will be encouraged to assist with the development and prioritisation of universities’ proposals alongside regional strategies. The Government is consulting on the details of this arrangement. RDA Proposal: Innovation through the supply chain Government should encourage large firms and
major public sector procurers to join forces
with a number of RDAs and others, to sell innovation
benefits through the supply chain to SMEs in
a more systematic way. The NHS (and other key
public procurers) should work in partnership
with RDAs in SME supplier development to encourage
best practice in SMEs and expand Treasury response In the 2002 Pre-Budget Report, the Government welcomed the Competition Commission’s recommendations to improve competition in procurement, and announced that the Office of Government Commerce (OGC) would be considering steps to increase competition, and thereby value for money; and to encourage better long term capacity planning, in markets where the Government possesses significant purchasing power. The OGC has appointed a team to undertake this work, which is supported by a working group comprising the DTI, the Small Business Service and the Treasury. The OGC will report to Ministers in the summer. The OGC is already taking further steps to enable SMEs to compete for government contracts and deliver value for money. OGC has produced a booklet and video for public sector purchasing staff, launched an Internet portal, www.supplyinggovernment.gov.uk, to advise SMEs on access to government contracts; and has simplified the financial appraisal of suppliers to make it easier for SMEs to bid. In addition, the Better Regulation Task Force’s report on reducing the barriers to SMEs in doing business with the public sector will be published in May. The Government will ask the OGC, the SBS and the Local Government Procurement Forum, where appropriate, to act on their recommendations. The NHS is also encouraging SMEs to play a greater role in its procurement by producing material to explain how purchasing works in the NHS, working with suppliers – including SMEs – to innovate for future NHS purchasing needs, working with trade associations to keep suppliers up to date on changes to the NHS, and using standard sets of Terms and Conditions and contracts, which are available on the internet. The NHS also provides a helpdesk telephone line for suppliers and, in October 2002, launched a Supplier Information Database that enables suppliers to provide pre-tender and pre-qualification information once only. RDA Proposal: Promoting better foresighting work There should be a focus on “completion of cycle” in foresight work (nationally and regionally) by continuing dissemination to and engagement with SMEs. This should use SME-based case studies and role models to highlight benefits, building on work done regionally and nationally and better relaying messages through to SMEs concerning market opportunities. Treasury response The DTI Innovation Review will be looking at issues and policies in this area and the Government encourages RDAs to contribute their views and suggestions to this review. REGULATORY REFORM RDA Proposal: Working with Government to reduce regulatory burden RDAs have recognised that the Government has sought to reduce what are seen as unnecessary, out-dated or overly complex regulations. The RDAs welcomed the work of the Regulatory Impact Unit and the Better Regulation Task Force and the introduction of Regulatory Impact Assessments. The introduction of the Regulatory Reform Action Plan and Regulatory Reform Orders, as a structured means for identifying existing legislation which needs reform, and the introduction of an improved small firms impact test, as part of Regulatory Impact Assessments, will help ensure that regulation is necessary and proportionate. The RDAs would welcome an annual summit with Government, in collaboration with other organisations, to raise and discuss practical suggestions to ease the regulatory burden on new business start-ups and growing businesses. Treasury response The Government welcomes this proposal and will consider any specific and practicable suggestions for lightening the regulatory burden on business, while continuing to meet agreed policy objectives. The Government recognises the need to continue to improve the dialogue between Government departments and the regions and will consider the best means of taking this forward. RDA Proposal: Regulations impacting on micro growth businesses At present the costs of regulation commence at various key growth stages of micro businesses (the first employees, the fifth employee, moving over the VAT threshold, etc) and can become a barrier to growth. There is little coordination across Government and its agencies on how SMEs can be helped through what can be a complex maze. National research should establish a stronger evidence base on regulations that most affect small businesses as they attempt to grow. A revamped Regulatory Impact Assessment (RIA) would lead to the identification of those sectors and size of businesses on which regulation would place the most burdens and in what way. Once pressure points have been identified, it would be imperative that the Government devotes energy and resources to alleviate problems identified. There should also be consideration of the impact of environmental regulation and taxes on SMEs. The Climate change levy agreement target-setting and verification need to be made more cost-effective and less burdensome (e.g., by self-verification). Treasury response To reduce the burdens on small businesses, Budget 2003 announces changes to company law, extending the less onerous accounting and reporting regime to more small businesses and clearer principles for future employment regulation. Further measures to reduce the burdens on SMEs include an increase in the VAT threshold in line with inflation and steps to reduce the burden of statistical surveys. Following the Cross-cutting Review on Services for Small Businesses, the SBS is increasing its capability to conduct research on small business needs, including regulation, and fully meet its remit to become a centre of expertise on small business issues. The SBS is tasked by its Public Service Agreement to make the UK the best place in the world to start and grow a business by 2005. Progress against this target is measured through international comparisons conducted by organisations such as the OECD and through independent reviews, such as the Growth Plus annual survey. The SBS is working to meet this target through individual programmes such as the recently launched Start-up pack and forthcoming Business.gov, as well as working with other Government bodies to improve the support they offer to small business through the regulatory process. Business Links already provide generic advice on regulations affecting business. More importantly, however, regulators themselves are increasingly being pro-active in supporting businesses in meeting regulatory requirements in line with the Enforcement Concordat. Improved guidance on the concordat is currently subject to public consultation. The Government recognises that regulation should facilitate innovation and is currently preparing its responses to the BRTF reports. RIA guidance (issued in February) makes clear the need for assessments to consider the costs and benefits on different business sectors, with a particular focus on the impact on small businesses. The Government and the SBS will continue to work with businesses to ensure effective implementation. SKILLS RDA Proposal: Addressing skills and training shortages The RDAs propose that the education and skills sectors should be more responsive to employer needs. Training provision is often inflexible and fails to meet adequately the needs of employers and employees. The need to raise skill levels across the UK and the link between this and enhancing productivity and competitiveness is also recognised by the RDAs. Treasury response The UK has a large number of adults who lack
basic literacy and numeracy skills and also
a large number of adults in the workforce with
low skills. This poor skills performance is
a major factor in the productivity gap between
the UK and its competitors. The Government has
introduced a successful basic skills strategy
and is tackling the lack of intermediate skills
in the workforce. The Department for Education
and Skills has a target of reducing the number
of adults in the workforce who lack level 2
skills (around 8 million) by 40 per RDA Proposal: Flexibility to meet employer needs The full NVQ base is not always relevant to employers. Meeting employer needs should drive funding. Learning and Skills Councils (LSCs) should have the flexibility to respond to regional skill needs identified through the Framework for Regional Employment and Skills Action (FRESA) process. There should be provision of 20-30 per cent of local LSC resources as ‘single pot’ funding driven by agreed regional skills needs. The RDA adult learning (and SBS) pilots should be used to test the benefits of moving towards funding and incentives built around employer needs. Treasury response The Review of Funding of Adult Learning is looking at how to get greater flexibility to meet employer needs, including examining the relationship between funding and qualifications, which Government recognises is too rigid. The review is ongoing and will feed into the National Skills Strategy, setting out how the Government will achieve its targets in this area, which will be published in June 2003. RDA/LSC pilots will look at how local delivery can be tailored to meet regional skills needs. The Government welcomes the RDAs’ suggestion that pilots might be used to test different funding and qualification arrangements. RDAs, LSCs, the Department for Education and Skills and the Treasury are currently engaged in work to develop flexibility for these pilots, including on funding and qualifications. The Government will be considering suggestions such as the ‘single pot’ for some LSC money in the context of the review of funding and RDA/LSC pilots. The Success for All reform programme for further education is introducing key measures to increase employer responsiveness across the sector. RDA Proposal: Workforce development At a time of national high employment, but also employer cut backs in investment, there is a danger of a drop in employer investment in training. The RDAs support the introduction of tax credits for employers providing training to employees (tied to the achievement of an NVQ level 2 or 3 qualification). To take account of the lower incidence of training amongst smaller firms this could be restricted to smaller employers. Credits could vary regionally and be linked to sectors identified as priorities in each region’s FRESAs. The RDAs also support waivers on tuition fees or bursaries where there are identified national skill shortages, for example engineering, ICT and technology. Treasury response The Government has an open mind on the use of fiscal incentives for training. However, policy in this area is being developed in the context of the Employer Training Pilots, which are currently testing a variety of models based around compensating firms that provide employees with time off to train. While the White Paper on higher education did not include proposals for a waiver of tuition fees or bursaries for shortage subjects, it reiterated the Government’s commitment to two-year foundation degrees, which in many cases will provide a relatively cost-effective option. The White Paper also proposed that universities that have implemented Access Agreements should be able to vary tuition fees from £0 to £3000. This will create a strong financial incentive for universities to price effectively to retain the viability of courses. RDA Proposal: Skills for employability A national approach to promote a greater understanding of the world of work into the 14 to 19 and Higher Education curriculums is needed. Besides developing employability skills, such a programme would seek to increase the amount of business knowledge promoted within learning and encourage an awareness of entrepreneurship. The £75m of resources committed by Government to implement the Howard Davies recommendations should be targeted on the 2,000 Enterprise Areas. Treasury response A working group led by Mike Tomlinson is reviewing the 14-19 phase of education and will report on how to improve the vocational opportunities available to young people. The National Modern Apprenticeship Taskforce was launched in February to increase the numbers of employers offering work-based learning to young people, and Budget 2003 announces its work plan. RDA Proposal: Leadership and management skills The Government is proposing a comprehensive response to the Council for Excellence in Management and Leadership report. There should be full recognition of the need for training, preferably accredited to a common standard, for small start-ups and micro businesses Treasury response Working in partnership with high street banks, the Government will develop a new package to support the development of SMEs. The package will include:
A steering group chaired by Sue Brownson OBE,
chief executive of Blue Bell BMW and member
of the Small Firms Council, will oversee the
management and development of the support package.
The group will include banks, the Small Business
Service, University for industry/Learndirect,
small business |
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