…help yourself to a cup of coffee!. emc technical assistance project andrew pritchard director of...

…help yourself to a cup of coffee!

EMC Technical Assistance Project

Andrew PritchardDirector of Policy & Infrastructure

Introduction

What is it all about? Some background Your mission today…

What is it all about?

A technical assistance project led by East Midlands Councils to provide an evidence base for future EU funding

To make sure that we maximise the potential of EU investment across the East Midlands

Strong support from DCLG & Council Leaders for the project

Localisation of EU funding

Establishment of a national ‘EU Growth Programme’

LEPs to develop EU investment strategies Each LEP to be given a ‘notional

allocation’ of EU funding to prioritise Payments to be made centrally Notional allocations will be reviewed

against performance from 2017 onwards

“Show me the money”

EU Growth Programme = €6.2 billion UK Local Growth Fund = £2 billion

In and around the EM

D2N2: €249.7

GLLEP: €133.5

LLEP: €126.3

NEP: €55.0

SEMLEP: €88.3

GC&GP: €75.5

UK Local Growth Fund

New Homes Bonus £400m

LA Major Transport Scheme £819m

Local Sustainable Transport Fund £100m

Integrated Transport Block £200m

Further Education Capital Fund £330m

ESF Skills Match Funding £170M

Emerging UK Priorities

•Innovation•SME Competitiveness•ICT 60% + of ERDF

•Employment•Skills•Social Inclusion 80% + of ESF

•Climate Change•Environment•Sustainable Transport No Minimum spend

•Low Carbon Economy 20% + of ERDF

Also…

Minimum 20% of combined ESF/ERDF on ‘social inclusion’

Gender equality, equal opportunities & non-discrimination

Sustainable development

Programme Timescales

September 2013: Draft LEP EU Investment Strategies

January 2014: finalise strategies

March 2014: new EU Programme starts

2017 – first review of notional allocations

Current Experience

Spend under the current ERDF Programme has been slow

Too many small projects - difficult to see a strategic impact

Original operational programme did not fully meet local needs - e.g. Broadband

Future Challenges

1 region replaced by 7 LEPs – 4 overlapping

Pressure for early spend on projects that will deliver clear outcomes

LEP notional allocations to be reviewed in 2017- under-performance could be penalised

Threats v Opportunities

What are we going to do?

Facilitate a series of consultation events Develop an evidence base (or ‘socio-

economic framework’) to inform both the UK Growth Programme and individual LEP Strategies – working with NTU.

Highlight potential areas of collaborative activity that can maximise strategic impact and reduce ‘transaction costs’

Events Diary

1st July: Greater Lincolnshire LEP 5th July: Leicester & Leicestershire LEP 9th July: Competitiveness Round Table 16th July: NEP/SEMLEP 22nd July: D2N2 25th July: Green Economy Round Table

Project Timescales

End of July 2013: Interim Report

September 2013: draft Framework

December 2013 – final Framework

January - June 2014 Awareness raising

Key Outcomes

“It’s the economy, stupid”

More Jobs Less Worklessness

Your mission today…

To think about how best EU funding could be used to improve SME competitiveness

To highlight areas or issues where wider collaboration might be helpful.

To ask if you do not understand.

East Midlands PA3 ProjectSocio-Economic Evidence –

SME Competitiveness:East Midlands Regional Roundtable

9th July, 2013

Chris LawtonNottingham Business School

Project Rationale and Objectives• The project aims to provide socio-economic evidence

to help identify synergies, linkages and common challenges across LEPs within or overlapping the East Midlands

• To identify opportunities for collaboration across the themes identified in the ‘Europe 2020’ strategy

• The UK Government would: “like to see Local Enterprise Partnerships working with each other to deliver a bigger impact… and achieve economies of scale wherever possible”

Source: HM Government, April 2013. ‘Technical Annex: Preliminary guidance to Local Enterprise Partnerships on development of Structural & Investment Fund Strategies.’ paragraph 2.8, p. 4.

Introduction• This presentation provides contextual evidence for the EU Thematic

Objectives 1 and 3, Innovation and SME Competitiveness• Objectives for today are to discuss how to address ‘market failures’

affecting the extent and nature of:

• private sector spend on research and innovation (innovation inputs)

• the commercialisation of novel products and processes (innovation outputs)

• business start-up and survival • access to investment

• We will also provide evidence on the importance of skills and infrastructure to business start-up and high-growth businesses

• Thematic Objective 4, Low Carbon, will be discussed at a further round-table on the 25th of July

Market Failures Affecting Innovation and Enterprise

• Market failures can occur because of :– Risk/uncertainty (due to time lags between up-front costs and

future benefits) – e.g. return on investment is uncertain– Information failure (insufficient information on the benefits of a

given activity) – e.g. information on likely returns is incomplete– Externalities (where some of the benefits ‘spill-over’ to affect

parties other than those involved in the original activity) – e.g. other parties may benefit from the returns

• Time lags and externalities particularly affect innovation– Firms can incur large up-front costs for uncertain future reward– It can be difficult for a firm to recoup a sufficient proportion of

the benefits (due to spill-overs to other firms and society more widely)

Contains Ordnance Survey data © Crown copyright and database right, 2013.

Local Enterprise Partnerships within or overlapping the East Midlands Region

Chart 1: UK GDP Growth (NIESR modelled monthly estimates), 2008-present compared to previous recessions

Source: NATIONAL INSTITUTE of ECONOMIC and SOCIAL RESEARCH, November 2012. ‘Monthly GDP Estimates’, www.niesr.ac.uk

Economic Context

Chart 2: Headline GVA per head indices (UK=100) NUTS2, 2011

Economic Context

Source: ONS Crown Copyright, 2012. ‘Regional Gross Value Added, 2011’.

Economic Context

Source: ONS Crown Copyright, 2013. ‘Annual Population Survey’, January-December 2008 and January-December 2012. From NOMIS [accessed 24th June, 2013].

Chart 3: Employment rate (% working age residents), 2012

• The SME environment remains difficult, but some signs of improvement: – Business death rates have fallen since 2009 and business

birth rates have increased– But survival rates for new businesses have significantly

decreased since pre-recession– Small businesses (<50 employees) have been more likely to

retain staff but cut/freeze wages and investment, with resulting lost productivity

– Large businesses (>250) more likely to cut staff whilst maintaining investment and productivity levels

– Overall productivity has fallen in recent years (and unit labour costs have increased)

EU Thematic Objective: SME Competitiveness

• SME environment continued:– Weak wage growth may have contributed to higher

employment, but may also means that SMEs are substituting cheap labour for investment

– Lenders report that demand for credit remains low– Despite some structural improvements, firms seeking

credit continue to report difficulties in the supply of finance

– Exports have been growing moderately in recent months, in both manufacturing and services

– Chambers of Commerce QES surveys suggest an increase in business confidence and investment prospects

EU Thematic Objective: SME Competitiveness

Chart 4: Business Births and Deaths (as a % of end-of-year count of active enterprises), 2011

Source: ONS Crown Copyright, 2012. ‘Business Demography 2011 – Enterprise Births, Deaths and Survivals.’

EU Thematic Objective: SME Competitiveness

SME Competitiveness: Business Birth Rate (as a % of end-of-year count of active enterprises), 2011

Source: ONS Crown Copyright, 2012. ‘Business Demography 2011 – Enterprise Births, Deaths and Survivals.’Contains Ordnance Survey data © Crown copyright and database right, 2013.

Chart 5: Two year business survival rate from year of birth (%)

EU Thematic Objective: SME Competitiveness

Source: ONS Crown Copyright, 2012. ‘Business Demography 2011 – Enterprise Births, Deaths and Survivals.’

SME competitiveness not just about start-up and survival, but also about fostering the conditions for ‘high growth companies’:•High growth companies:

– Accounted for 7% of business stock but around 50% of employment growth between 2002 and 2008

– Are more resilient (less likely to become insolvent)– Are found across urban and rural areas, across

sectors, and can be small or large, new or established firms

– Are innovative (the one common characteristic)

EU Thematic Objective: SME Competitiveness

• High growth companies have common needs:– Access to finance for growth– A skilled workforce– Infrastructure that allows for the flow of ideas and

knowledge and collaboration– A demand for innovative products and processes,

stimulated through procurement activities

EU Thematic Objective: SME Competitiveness

Source: ONS Crown Copyright, 2012. ‘Annual Population Survey’, January-December 2012. From NOMIS [accessed 17th June, 2013].Contains Ordnance Survey data © Crown copyright and database right, 2013.

Employment, Social Inclusion and Skills: Resident Adults Qualified to a Level 4 (first degree) and above (%), 2012

• Innovation commonly defined as:

“the commercial exploitation of new ideas in the form of new products and processes, new organizational techniques, new markets and new sources of supply”

• Innovation includes:–radical innovation (new product/process) –incremental innovation (an improvement to an existing product/process)–novel innovations that are new to the market and those that are new to the firm, which reflects the diffusion and transfer of knowledge

• It is a process, with inputs (e.g. investment in R&D), outputs (e.g. patents etc.) and outcomes

• Outcomes include an increase in competition, with new entrants displacing incumbents, enhancing the quality of an area’s business stock

• This churn is part of the way in which the market allocates resources towards more efficient firms and is a feature of high-performing local economies

EU Thematic Objective: Innovation

Source: C Oughton and M Frenz, 2005. ‘Innovation Policy Position Paper’, Birkbeck and University of London.

Chart 6: Innovation inputs: Business Enterprise Investment in R&D (as a % of total workplace GVA), 1999 and 2009

EU Thematic Objective: Innovation

Source: Department for Business, Innovation and Skills, 2012. ‘Regional Economic Performance Indicators – Live Tables’.

EU Thematic Objective : InnovationChart 7: Employment in High and Medium-High Technology Industries (% work-based employment), 2011

Source: ONS Crown Copyright, 2012. ‘Business Register and Employment Survey, 2011.’ Data accessed from NOMIS [17th June, 2013] and analysed under Chancellor’s Notice Ref NTCBRES11-P0537.

Innovation: Employment in High and Medium-High Technology Industries (%), 2011

Source: ONS Crown Copyright, 2012. ‘Business Register and Employment Survey, 2011.’ Data accessed from NOMIS [17th June, 2013] and analysed under Chancellor’s Notice Ref NTCBRES11-P0537. Contains Ordnance Survey data © Crown copyright and database right, 2013.

Chart 8: Innovation outputs: Turnover attributable to new and improved products (%), 2006

EU Thematic Objective: Innovation

Source: Department for Business, Innovation and Skills, 2012. ‘Regional Economic Performance Indicators – Live Tables’.

Chart 9: Innovation outputs: Turnover attributable to new and improved products (%), 2009

EU Thematic Objective: Innovation

Source: Department for Business, Innovation and Skills, 2012. ‘Regional Economic Performance Indicators – Live Tables’.

Summary Points• Signs of improvement in the business environment: indicated by increased

business births/decreased business deaths and more positive survey responses

• But SMEs continue to face significant challenges: indicated by lower survival rates and continued difficulties in accessing finance

• High growth businesses are responsible for a disproportionate level of new jobs and are more resilient

• Innovation is the key common characteristic amongst high growth businesses

• However, they are very difficult to identify before they attain high growth – its is important to create a supportive environment

• These businesses require skills, growth finance, an infrastructure that supports innovation and knowledge transfer, and demand for innovative goods and services

• Manufacturing accounts for a large proportion of innovation spend and outputs, but this can be concentrated in a small number of large firms

• North-south or east-west (depending on topic) divides across the region have been exacerbated by the recession – strengthening the rationale for joint working for some LEPs

How Can we use EU Funding to…

Increase private sector spend on R&D

Deploy innovation more widely amongst SMEs

Increase business start up & survival

Increase access to investment by SMEs

Thank you for coming and have a safe journey home!