New economic partnerships could be doomed to failure unless they receive an early injection of Treasury cash, a Commons inquiry has warned.
Local Economic Partnerships, such as the one created by councils in Birmingham, Solihull and Staffordshire, will need start-up funding, said the Business, Innovation and Skills Committee.
The committee, chaired by Black Country MP Adran Bailey (Lab West Bromwich West), expressed concern that Ministers appear to have no plans to fund the partnerships, which will instead be expected to raise money on their own.
In a new report, the MPs predicted local economic partnerships would be a success - but warned they would need help at first.
The MPs raised a series of concerns following a detailed inquiry which included interviews with local council leaders, business organisations including the CBI, unions and Government ministers.
They warned that assets belonging to regional development agencies, the existing economic agencies which are to be abolished, could be sold off at low prices in a “fire sale” as part of a dash to raise funds.
Local agency Advantage West Midlands owns 44 sites including Longbridge in Birmingham, Ansty Park in Coventry and the i54 park in Wolverhampton, for which it paid a total of £180 million.
But the portfolio would raise only an estimated £100 million if it was sold today, because of falling property prices.
The MPs also urged Business Secretary Vince Cable to ensure mechanisms are put in place swiftly to manage European funding.
Advantage West Midlands is currently responsible for the European regional Development Fund, which is providing £348 million for the region between 2007 and 2013.
But responsibility for this will not be handed over to local enterprise partnerships, and the Government has said a new structure won’t be in place until next year’s Budget, probably in March.
The committee offered “broad support” for the idea of local enterprise partnerships (LEPs), saying they would be more accountable than the old regional structures.
But Mr Bailey said: “LEPs have the potential to kick-start local growth by concentrating on local areas. But at the moment they are an unproven innovation.
“To succeed, LEPs will need the powers and recognition required to give substance to their visions for turning local economies around. They must also overcome local rivalries and politics and collaborate with many partners for the benefit of the local area.
“Making this a reality will present substantial challenges to central and local government, LEPs and the business community, but the economic prize is too important for them not to meet those challenges head on.”
In particular, MPs said they were concerned about plans to withdraw the funding previously provided to the regional bodies, which once received £2 billion across the country.
The new local bodies will be expected to raise money themselves, for example by winning the agreement of local employers for a temporary hike in business rates or by borrowing money to invest in infrastructure under a scheme called “tax increment financing”.
The report warned: “Innovative funding methods such as tax increment financing will need to be trialed before being applied generally, and in any case will probably not be suitable for all local economies.
“Furthermore, the private sector might not be willing to stump up cash until LEPs have a track record of success, so there is a risk of a short-term funding gap.
“We strongly recommend that, where there is a demonstrable need, the Government consider setting aside funds to support those LEP start-ups which lack the initial capacity to establish themselves.”
It also demanded that Ministers reveal exactly how assets belonging to the regional agencies will be used.
The report said: “Given their potential importance to future development projects, transfer should be expeditious but should avoid any risk of a ‘fire sale’ at a time when land prices remain depressed.
“The process of disposal needs to be transparent and should be open to scrutiny. If disposal is used to pay off part of the national debt, the Government should favour bidders who can demonstrate that their proposed use of the relevant asset will benefit the local economy.
“We further recommend that the wind-down plans of the RDAs be made publicly available.”