Plans to revive the West Midlands economy by handing billions to Local Enterprise Partnerships have been thrown into confusion after Business Secretary Vince Cable ruled them out.
His surprise intervention is a major blow to proposals drawn up by Conservative peer Lord Heseltine, West Midland councils and business leaders, which were presented to the Chancellor in March.
But Greater Birmingham and Solihull Local Enterprise Partnership (LEP) chairman Andy Street claimed Dr Cable was out of touch with the rest of the Cabinet – where plans to divert funding to LEPs had strong backing.
Mr Street said: “I think Vince Cable is wrong. He doesn’t seem to agree with this other government colleagues.”
The Birmingham plan was a result of a three-month inquiry led by Lord Heseltine, the former Deputy Prime Minister, and included proposals to improve transport infrastructure around Birmingham Airport, improve education and training in the region and fight poverty.
The measures, known as the Greater Birmingham Project, would be led by the Greater Birmingham and Solihull Local Enterprise Partnership, with funding from central government. It followed an earlier report last year in which Lord Heseltine set out plans to revolutionise the way government supports economic development.
He proposed creating a pot of money of up to £70 billion for LEPs across the country to bid for, with the cash coming from the abolition of a series of schemes managed by central government.
And George Osborne, the Chancellor, appeared to accept the proposals in the March Budget, when he announced plans for a “single pot” of funding for LEPs.
Under the Treasury’s proposals, they would bid for a share of the cash, with some receiving more than others depending on the quality of their proposals.
It would place LEPs at the forefront of efforts to back industry and boost the economy – with the Greater Birmingham and Solihull LEP leading the way.
But speaking to regional newspapers at Westminster, Dr Cable cast doubt on the plans by announcing he wanted the cash to go to democratically-elected councils instead.
The Business Secretary said LEPs were not democratic and did not have the resources to manage large sums of money.
He said: “There is a genuine concern about LEPs themselves – hardly any of them come up to me and say they’d like billions more money to spend, that’s not the way they think and it’s not the way they operate. So it’s a false premise to think that’s where we should be starting from.
“What I think they would like to do is to gradually expand their scope.
“There is an issue about their capacity because they are quite small organisations. They have a little bit of core funding.
“And there’s an accountability issue. Usually five to six to seven business people on a board, most of whom come from bigger companies because if you are running a small or medium-sized enterprise, you don’t want to spend an afternoon sitting in the LEP headquarters.
"That’s good, it’s not a bad model. But you can’t hand over large chunks of public money with limited controls to that kind of structure.”
He highlighted the Government’s policy of signing “city deals” with local authorities, in which they received funding in return for economic growth, and said ministers would stick with these rather than diverting cash to LEPs.
Dr Cable said: “The mechanism we prefer is the city deal, where we are dealing with accountable city councils.
“They may be a different political party but they have a basic structure and legitimacy. So the city deals are formally negotiated with the cities, the mayors or councils, and the LEPs are alongside them vetting their proposals or whatever.”
Birmingham and neighbouring authorities last year agreed a £1.5 billion “city deal” with government, which included plans to create 3,560 apprenticeships. Councils need to demonstrate that they have involved local businesses in their city deal plans in order to receive the money which means involving their local LEP, but it is councils that take the lead.
Dr Cable said: “That’s how it will happen rather than the slightly caricatured picture of Heseltine where the government just hands out billions of money to some Local Enterprise Partnership and they just spend it in the way they want.
“It’s not going to happen that way, it will happen in a variation of the city deal model.”
Dr Cable also insisted that the Government should continue to manage training and apprenticeships nationally – contradicting Lord Heseltine’s proposal that the national schemes should be scrapped, freeing around £17 billion to be distributed to LEPs.
But Speaking to the Post while launching the LEP’s Strategy For Growth, Mr Street said Dr Cable’s labelling of LEPs did not reflect the hard work and structure arranged in Greater Birmingham – which has drawn praise from the likes of the Chancellor and Communities Secretary Eric Pickles.
However, he said if the comments were aimed at improving the quality and accountability of LEPs up and down the country then it is understandable.
He said: “Every time in the past two years we have been asked to man up and prove ourselves we have given evidence and show that we have been able to use the funds to leverage private sector money.
“Whenever we have been asked to prove something we have done it.”
He added: “Vince is a wily politician. He could be saying to LEPs ‘you have got to really step up your game’ and I think that would be fair. If this is all about trying to drive improvement I would say fair enough, but as reported he was just wrong.”
George Osborne, the Chancellor, had already come out in favour of the national Heseltine proposals, he said.
“The Government are on record in saying that they agree with 81 of the 89 recommendations of the Heseltine report, and on June 29 we will find out how much money is in the single growth fund.”