Local government and business in the UK - Business Environment

The basis of local economic development
As a major service provider, consumer, employer and landowner, local government has always played an important role in the economy and its influence on business activity at local level remains considerable. Large local authorities annually spend hundreds of millions of pounds, employ tens of thousands of workers and support many thousands of additional jobs through the placement of contracts with local businesses. Further employment is also created through the multiplier effect, as local authority employees spend their income in the local economy and local citizens consume local authority services such as transport and leisure.

Not content with local economic conditions, many local authorities have actively intervened in the local economy by establishing economic development programmes which are designed to alleviate the familiar problems of unemployment, industrial decline and environmental decay. These programs often co-ordinated through an economic development unit within the local authority normally comprise a range of initiatives designed to create or safeguard local jobs by supporting local businesses and encouraging enterprise in a variety of ways (see below). While the origins of such initiatives can be traced back to the nineteenth century, the majority of measures have been introduced in the last 25 to 30 years and represent a move from a reactive to a proactive role by local authorities in local economic development.

The basis for such local authority intervention is partly legal and partly political. Under the law, local authorities in the United Kingdom can only engage in activities for which they have statutory authority, whether granted by public statute (i.e.applying to all authorities) or by private Act (i.e. applying to a specific authority). These statutes not only impose specific duties on local authorities to provide certain services (e.g. education, special housing, care in the community), but also may grant both general and permissive powers which allow local government to engage in different forms of development activity such as the purchase and sale of land and other assets, the granting of financial assistance to industry, and the provision of promotional and advisory services. It is worth noting that the 1989 Local Government and Housing Act introduced, for the first time, a clear statutory basis for local authorities’ economic development activities. Under subsequent legislation (i.e. The Local Government Act 2000) local authorities in England and Wales now have a duty to prepare ‘community strategies’ which improve the economic, social and environmental well-being of their area and its inhabitants and contribute to the achievement of sustainable development in the UK.

Funds for local economic development come from local, national and supranational sources, though not all authorities qualify for all three. By far the largest contribution has come normally from locally generated income, which includes the council tax, local authority reserves and revenue derived from charging for local authority services. Central funding includes the government’s block grant to support local authority services, income from other centrally funded programs(e.g. environment) and from the various initiatives which are part of the government’s regional and urban policy. In the case of the latter, these have traditionally been available to authorities within the assisted areas and/or the Urban Program areas, though some funds have been channelled through other agencies (e.g. the Scottish and Welsh Development Agencies).

Supranational support from the European Union has come mainly from the ERDF and has been used in the assisted and Urban Programme areas to fund infrastructural projects (e.g. Tyne and Wear Metro, Liverpool Ring Road). In addition, further funding may also be available under certain circumstances from the European Social Fund (e.g. for training), the European Coal and Steel Community(e.g. for support for declining steel and coal areas), the European Investment Bank(e.g. low-interest loans for infrastructural investment) and a number of other sources. More often than not, these funds have been directed at those areas identified by the national government as areas of greatest need hence the decision by the United Kingdom government in the 1980s to extend the number of authorities covered by its Urban Programme, thus qualifying those added to the list for EU financial aid (see discussion above). As with other funds from non-local sources, EU funding has increasingly required the provision of match funding and the establishment of cross-community partnerships before funds can be accessed for economic development purposes.

Types of intervention
Local authority aid to industry and commerce takes a wide variety of forms, but three areas in particular are worth noting: help with land and buildings; financial assistance; and the provision of information, advice and other support services. These were three of the major priorities identified by local authorities in a survey carried out in the late 1980s by the chartered accountants Deloitte, Haskins & Sells.

As far as land and buildings are concerned, local councils as planning authorities, landowners and site developers clearly have an important role to play in industrial development, and despite some attempts by central government to reduce their influence, their involvement in the local property market has remained significant over time. Among the key activities undertaken by local government in this area have been:

  1. The identification of land available for industrial use (e.g. local authority registers of vacant land and land use), including services connected with attracting inward investment.
  2. The provision of local-authority-owned land for industrial and commercial development.
  3. The supply of on-site infrastructure (e.g. roads, drainage).
  4. Land reclamation and site assembly.
  5. Environmental improvement (including derelict land).
  6. Advice and help to private sector developers.

In addition, local authorities have often been involved in the provision and/or conversion of premises for business use (including starter units, workshops and small factories) and have encouraged the development of a number of science parks, usually working in conjunction with private companies and institutions of higher education.

Financial assistance has also been important in encouraging business activity, with local authorities sometimes providing grants to firms seeking to move to new premises or to expand and/or convert existing buildings, particularly if additional jobs are likely to be created. Funds mainly in the form of grants or loans have also been made available to firms wishing to purchase new equipment or to establish certain types of enterprise (e.g. co-operatives) or to meet some of the costs of creating jobs for the unemployed or to cover rental charges. Added to this, some councils established Enterprise Boards, which were essentially trading companies concerned with the provision of long-term development capital for investment in local businesses and property. Using funds from local sources, the boards invested in local companies usually by taking an equity stake and managed their portfolio of investments through a specially created company which was independent of the local authority. Through such investments the boards sought to attract additional funds from financial institutions such as pension funds, thus creating a financial leverage which was designed to multiply the impact of the support from the public sector.

To complement these direct forms of intervention, all local authorities have sought to encourage local economic development through their promotional and advisory activities which are aimed at both existing and would-be entrepreneurs. Many councils, for example, produce publicity material, booklets, leaflets, information packs and other types of promotional literature, extolling the advantages of their area for tourism or for industrial and commercial use; this can be one of the factors encouraging investment, including direct inward investment by multinational companies, particularly if it is supported by financial and/or other incentives offered by the local authority (e.g. the Toyota development at Burnaston near Derby) or under regional or urban assistance programs (e.g. the Nissan plant near Sunderland).

Similarly, as active providers of information to businesses on matters such as vacant premises and sites, local labour market conditions, housing availability and sources of finance, local councils deliberately promote their respective areas and many make use of trade fairs or trade delegations to ensure that the ‘message’ is not restricted to a domestic audience but also reaches potential overseas investors. For the most part, these activities tend to be co-ordinated through the economic development unit or some other agency operating under the purview of an authority’s chief executive officer. Significantly, however, an increasing number of authorities have established specialist marketing departments in an effort to ‘sell’ their area to organisations and individuals who are likely to contribute to the regeneration of the local economy through investment in capital assets and through job creation.

Partnership with the private sector
While local authorities acting alone can be an important agency for local economicdevelopment, their support for local businesses often occurs through some form ofpartnership with the private sector and, increasingly, with a range of other agencies(e.g. local authorities have been asked by central government to set up ‘strategicpartnerships’ to tackle cross-sector issues within the local community). Such partnershipsincluding the establishment of Local Enterprise Agencies are increasingly seen as a vital element in effective economic regeneration in the SME sector at both local and regional level.

Local Enterprise Agencies (known as Enterprise Trusts in Scotland) date back to the early 1970s, but their main period of growth began a decade later, with the number of agencies reaching around 300 by the end of the 1980s. Using funds provided by industry and commerce and by central and local government, LEAs act essentially as business development organisations assisting both new and existing enterprises. Their core activity is to provide information and business counseling (often referred to as ‘signposting’) which points individuals wishing to start a business to sources of help or assists those already running a business with specific problems. In addition most LEAs provide a number of other services, including business training, workspace, help with the preparation of business plans, provision of ad hoc services (e.g. solicitors), advice on marketing, taxation, personnel matters and help in locating premises. In recent years LEAs have worked increasingly in partnership with other support organisations, particularly through the Business Link network and the Learning and Skills Council.

Unlike Enterprise Boards which were essentially interventionist bodies established by Labour local authorities, Enterprise Agencies are independentorganisations which are either private sector initiatives or more regularly a partnership between the public and private sectors, operating through a board which is private sector led. Increasingly, LEAs have tended to work together to provide a more effective service to small businesses, as exemplified by the formation of the Local Investment Networking Company (LINC) in 1987. LINC which was run jointly by a number of LEAs located throughout the United Kingdom and sponsored by several large companies including BP and Lloyds Bank was established to help small businesses seeking funding and additional managerial input to find suitable investors. The aim of the organisation was to help both small start-up and growing firms whose financial requirements tended to fall into an ‘equity gap’ (below £250 000) which was often difficult to bridge through conventional sources. It did this by bringing together private investors willing to invest in new or expanding small businesses and companies looking for such investment and/or additional management skills to aid their development. LINC was replaced in 1999 by the National Business Angels Network a network of informal investors (’business angels’) willing to invest time and money in supporting cash-starved entrepreneurs.

Further encouragement to the creation of public and private sector partnerships comes from organisations such as Business in the Community (BITC), which also operates as an umbrella organisation for local enterprise agencies. BITC’s main roleis to encourage the involvement of the business community in a wide range of issues affecting local areas and, in particular, in economic development at local, sub-regional and regional levels. The assumption is not only that the business sector has a responsibility to the local community but also that it has the skills, experience, expertise, contacts and other resources which help to increase the chances of such economic development initiatives being successful.

Within the area of economic development and enterprise, BITC has been particularly active in encouraging community-based partnerships between businesses, government, local groups and individuals aimed at regenerating urban and rural communities, and in this it often works alongside national organisations such as the Action Resource Center and the Civic Trust. In addition, through a range of initiatives on community enterprise, customized training, business support, innovation and partnership sourcing, the organisation has sought to develop closer links between firms and their local communities in the belief that such community involvement is a natural part of successful business practice, as well as a key influence on the quality and quantity of business activity at local level.

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