A doomed enterprise

Regeneration & Renewal, 16 May 2008

Captain Kirk's Starship Enterprise has been in some sticky situations since its first mission, some 42 years ago. But a key government programme to foster enterprise - launched just three years ago to boldly support entrepreneurs whom no man had supported before - looks set to crash in 2011, four years ahead of its scheduled landing.

Critics say this sits strangely with Gordon Brown's often-stated desire to "unlock talent" by boosting education, employability, skills and enterprise: the Prime Minister talks constantly about supporting entrepreneurs and business innovation, and the Department for Business, Enterprise and Regulatory Reform recently launched a wide-ranging enterprise strategy. But the Department for Communities and Local Government (DCLG) seems to be off message.

The Local Enterprise Growth Initiative (Legi) was established in 2005 to foster entrepreneurial activity in deprived areas. The programme was designed to last for ten years, and England's 86 most deprived local authority areas were invited to bid for the cash: in the first two bidding rounds, £300 million was disbursed to 20 councils. A third round was expected in last year's Comprehensive Spending Review, but the CSR was silent on Legi.

Stephen Nicol, managing director of consultancy Regeneris, who has conducted an evaluation of Legi for the DCLG, says the third round was a casualty of tightened purse strings: "It was a matter of competing priorities, with housing now more important than enterprise." Nicol says the programme became a victim of the political cycle. "Legi was cut because there had been no time to establish whether it was working and build a case for it to be continued," he says. "But it's impossible to determine the impact of a programme like that after only two or three years."

In November's local government finance settlement, the DCLG allocated cash to continue the existing two rounds - due to expire in 2008/09 and 2009/10 respectively - to 2010/11. But Simon Brereton, Legi programme manager at business support service Leeds Enterprise, says the new funds are not ring-fenced, and he fears that the tight spending round will put pressure on Legi funding. "Other initiatives that have lost funding will see that the Legi money is not ring-fenced, and they'll be looking for a piece of it," he says. "We're confident that our programme won't be down-sized. But that may not be the case elsewhere."

After 2011, Legi's future looks shaky. Although its business support work appears to line up with the Government's focus on economic development, the new Working Neighbourhoods Fund - replacing the Neighbourhood Renewal Fund - focuses on boosting employment rather than fostering business. DCLG figures show that all but one of the councils receiving WNF have signed up to at least one of the three worklessness indicators in their Local Area Agreements (Laas) with central government, and Brereton fears they'll direct resources - including any future non-ring-fenced Legi funds - into tackling barriers to employment instead of supporting entrepreneurs. Turf wars are already breaking out in WNF areas, he says, and enterprise initiatives are losing out. "The problem (with focusing on the unemployed) is that you help people into a job and then they leave the area," Brereton points out. "Encouraging enterprise and fostering small businesses can get people into jobs and keep them in the neighbourhood."

Skewed approach

- Nicol adds that Legi schemes are particularly vulnerable because the main enterprise-related national indicator - included by 84 per cent of councils in their Laas - is the VAT registration rate, often cited by the Treasury as a measure of business growth. It's an ineffective measure of enterprise in deprived areas, he says, because many such businesses have a turnover of less than £67,000 a year and so fall below the VAT threshold. Using VAT registrations as a target "skews the approach towards getting lots of VAT-registered start-ups, rather than fostering existing small businesses". According to Nicol, such an approach can mean that firms are pushed to grow too quickly, leading to unnecessary business failures.

Nicol says his evaluation of the programme, to be published this month, will conclude that it's too early to assess Legi's impact. But he believes that its comprehensive approach will be missed. Legi does "a bit of everything", he says: fostering an enterprise culture; providing business support for start-ups; and helping existing businesses to grow. "But the DCLG is not really heading in that direction," he says. "If anything, it's looking at a much more target-based approach."

Meanwhile, the uncertainty about Legi's future is causing confusion for those running its 20 programmes. Iain Scott, director of consultancy Enterprise Island, has run Legi schemes across the country. "People working in these programmes know an enormous amount about their area. They're a great resource," he says, "and now they're leaving the programmes because they feel the future is not so bright." Scott says ministers need to send a clear message about the future: "They need to say they want us to build on what we've done. We need a clear commitment because confidence is being sapped."