Getting the region up to speed in creating high-growth firms is one of the key challenges lying ahead of local enterprise partnerships, according to a new report.

The annual State of the West Midlands report, published by the West Midlands Regional Observatory (WMRO), highlights the region’s place at the bottom of the league table in its share of the fast-growing companies needed to create private-sector jobs.

The report details a list of challenges – including addressing persistent skills shortages as well as ironing out inequalities between rich and poor areas – which will be handed over to the Local Enterprise Partnerships (LEPs) due to replace regional development agencies from 2012.

It also highlights WMRO research on the impact of public sector spending cuts on employment in the region.

Its projections show cutbacks could lead to a further fall of nearly 50,000 in the number of people in work in the region by 2016, with the loss of 80,000 public sector jobs being offset by a gain of around 30,000 in the private sector.

But this doesn’t take account of the potential knock-on effects of spending reductions on the private sector which could wipe out some of the gains, the observatory said.

Despite the gloomy prediction, the report did offer some hope for jobs. Pointing to research showing that on a national level around half of all new jobs are generated by around six per cent of high-growth firms, the observatory said local policy-makers needed to focus more on encouraging innovative high-value firms.

The West Midlands’ level of high-growth firms is closer to five per cent, but WMRO forecasts show that if the region’s economy was brought up to the national level of high-value businesses in areas like ICT, digital media, business and financial services and high-technology manufacturing, it could lead to more than 200,000 additional jobs.

WMRO acting chief executive Stephen Howarth said the relatively small differences in the share of high-growth business was enough to make a significant impact on the region’s potential for job creation.

“When you scale it up over the number of firms and jobs, it makes a big difference.”

He said there were two reasons the region was lagging behind.

“It’s partly to do with the mix of businesses we’ve got in the region.

“We’ve got fewer businesses in some of the sectors where there is a lot of high growth business – high-tech industry and the fast growing service industry.

“It’s also partly down to cultural issues about the aspirations businesses and individuals have about growing their businesses.”

The report said that creating a mix of conditions to support high-growth businesses was needed to rebalance the region’s economy. These include access to finance and offering the right mix of employment sites such as incubator units for start-ups.

But providing this could prove a challenge for LEPs – which will not inherit Advantage West Midlands’ multi-million pound budget and will have to apply to a centralised fund for regional growth.

Last month Vince Cable gave the go-ahead to LEPs covering Birmingham & Solihull with east Staffordshire, Lichfield and Tamworth, Coventry and Warwickshire, Stoke-on-Trent and Staffordshire and The Marches, but bids from the Black Country and Worcestershire were told to go back to the drawing board.