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Places make progress: the Industrial Strategy one year on

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Last week marked a year since the launch of the Government’s Industrial Strategy. But you could be forgiven for missing that anniversary: Brexit continues to dominate the policy agenda and the headlines that day were filled with the findings from the latest economic impact analysis.

Meanwhile, though, work is continuing across the country to develop the Government’s flagship domestic policy. All areas are expected to agree Local Industrial Strategies (LISs) by early 2020. And, while questions remain about the nature of the process beyond the wave one and two areas, all combined authorities and Local Enterprise Partnerships (LEPs) are being urged to build their evidence bases so they can prioritise long-term opportunities and challenges to boost productivity.

The Government published its policy prospectus for LISs in October, setting out the rationale and objectives for LISs and its broad approach to developing them. The same month, members of the Industrial Strategy Council (with responsibility for assessing progress) were announced.

With so much emphasis being placed on LIS, what do we know so far?

1. Local partners need to use their strategies to address the fundamentals of local growth

The Government has said that LISs should identify priorities across the ‘foundations of the productivity’: ideas, people, infrastructure and business environment. Part of the challenge in designing a successful LIS will be finding the right policy mix between these priorities.

Skills are one of the most important factors driving differences in local economic performance. As such, addressing skills gaps may be a higher priority in some areas’ strategies than other policy interventions. Figuring out the most appropriate types of skills interventions requires understanding where the market failures lie, the available levers and mechanisms to address them, and what the evidence base tells us about what’s likely to work.

2. Developing a robust evidence base will be crucial for a successful strategy

The evidence base for Local Industrial Strategies (LIS) will need to pass the ‘Treasury bar’ – what HM Treasury think is robust. The What Works Centre for Local Economic Growth (WWG) has set out a series of recommendations for how places should go about building the evidence and we’re expecting guidance from the Government to be published shortly.

The experience of the trailblazer areas is a reminder that it may not be necessary to start from scratch on evidence. So, for example, the West Midlands opted to undertake a critical review of their existing evidence base. Places should also consider what types of analysis are worth investing in – Greater Manchester would caution against spending lots of time and money trying to map supply chains.

What’s critical is how to turn often descriptive analysis into good policy. Within this, it’s important to remember that identifying particular sectoral strengths tells us nothing about the rationale for intervention. What really matters is whether there is a barrier to growth that can be usefully addressed through policy intervention.

Evaluation will also be an important part of getting sign off from the Government on the LIS. They want places to set out clear plans for monitoring and evaluating progress. As the WWG has set out in the past, embedding evaluation in right from the start leads not only to better evaluation but also better policymaking. As part of this, places should identify feedback mechanisms and ensure evaluation is used to inform future decisions.

3. Success will also depend on finding the right balance of public and private sector engagement

Places are also being encouraged to make clear how they plan to work with public and private stakeholders. The trailblazers view LIS as a tool for engaging with business with a greater emphasis on the process than the writing of the strategy itself.

Talking to employers helps to develop a more granular understanding of how to remove barriers and boost productivity. We know, for example, that some of the most successful interventions involve employers throughout design and delivery, and are more successful as a result.

Direct involvement of the private sector – either involving them in the decision-making process or getting them to co-fund programmes – helps to make sure that employers have some ‘skin in the game’. Sharing the cost may also be a more efficient way to allocate scarce resources and help to ensure that interventions respond to employer demand, leading to better outcomes.

But it’s important to find the right balance. The real challenge is to find ways of developing ongoing relationships with the private sector while being careful to avoid ‘capture’ by local vested interests. Consulting widely with a range of businesses and representative bodies, and using independent panels to scrutinise the evidence and strategies, can help avoid this.

4. Combined authorities and LEPs can’t access future local growth funding without an LIS (but we don’t know at this stage what that funding will look like).

According to the prospectus, LISs will provide ‘strategic overview which will inform LEPs’ approach to any future local growth funding deployed through them’ and will be ‘a necessary condition to draw down any future local growth funding being deployed through LEPs’.

Decisions made on the UK Shared Prosperity Fund (UKSPF) and in the 2019 Spending Review are likely to have important implications for LISs. The headline objective for the UKSPF is to ‘tackle inequalities between communities by raising productivity’ through the Industrial Strategy. Yet discussions are ongoing about the design of the Fund and the Government has still to consult on it, although this is still expected before the end of the year. Many want it to at least match EU funding (ESF and ERDF) and for local areas to be given the flexibility to define the types of project that UKSPF is spent on – something Centre for Cities supports.

The Government maintains that LISs themselves should be seen as strategic documents as opposed to bidding ones, however, and should not contain any proposals that require new funding. The ambition is that LISs are strategies for the long term. The challenge for local partners is to find ways to make them stick.