In the aftermath of the great financial crash of 2008 and the subsequent public spending cuts the North East was sailing into choppy economic waters. More than most regions it was heavily reliant on the public sector to underpin the economy and provide employment and the end of One North East also meant the loss of strategic direction based in the region. However, the North East was not going to roll over and meekly accept its fate.
With characteristic self-reliance and initiative, some key players got together to ensure investment was available for SMEs that were eager to grow and create jobs. The result was the Let’s Grow programme, a remarkable initiative that did much to mitigate the worst effects of the recession.
It was born out of the Regional Growth Fund, RGF, which the Coalition Government set up to stimulate private sector investment in those regions most affected by public sector austerity. RGF was originally designed to allow individual companies to bid to the Department for Business Innovation and Skills, BIS, for investment grants of £1m or more. That, however, effectively disbarred a large proportion of SMEs which didn’t have capital investment projects of that scale, particularly in the North East. But organisations in the region worked together to find a way around the problem.
Accountants and business advisers UNW, independent business services group BE Group, publishing group Trinity Mirror and the universities of Northumbria and Teesside bid collectively, on behalf of the region’s businesses, for a general purpose grant fund for capital investment that companies in the region could bid into individually. Unlike the centrally administered RGF with its £1m minimum, Let’s Grow could provide grants for as little as £50,000.
“Let’s Grow is really a delegated fund, delegated from BIS to us in the region, as they previously had to the RDAs [Regional Development Agencies],’’ explains BE Group senior project manager Simon Allen. “It enables companies to bid to us for money they wouldn’t otherwise be able to get.’’
Let’s Grow bid for and received £30m, subsequently reduced to £27m. The formal offer was made in October 2012 and the fund was live from the beginning of 2013. The fund was publicised in The Journal and the Evening Gazette and through an extensive network of intermediaries such as accountants, banks and lawyers, as well as councils and membership organisations. All twelve local councils have not only promoted Let’s Grow to local businesses but have each contributed funds towards it’s running costs.
The application and awarding of grants was organised around a quarterly competition.
“Every quarter, we would open the doors and say, `Send us your applications. You can apply for any grant between £50,000 and £1m’,’’ says Allen.
Any project needing a grant of more than £1m required an application to the central Government administered RGF. Let’s Grow was immediately popular with the business community in the region. Of the original £27m, £23.9m was paid out in grants, due to some recipients underspending. This represents a distribution of 89%, compared to an overall allocation for RGF of between 82% and 85%.
“We considered that to be good,’ says Allen. Even better – the programme beat the jobs target it had been set. The £27m was intended to create 2,275 jobs but the programme achieved 2,501 jobs, net of any which were subsequently lost. The cash was allocated to a total of 93 companies. In only two cases have the companies failed or the projects been abandoned.
The companies securing grants were also spending their own money in order to be able to claim grant aid, so Let’s Grow also had a target for private sector leverage of £120m and achieved £136m. “The reason for that is that we were very selective about the projects that we supported,’’ says Allen. “The job of the investment panel who make the decisions as to which projects get grants is really to look at projects on the basis of additionality – how much difference is the grant going to make and how much private sector leverage is it going to generate and how many jobs is it going to generate?
“We are selective to choose the best value projects where a business was putting in substantial funds of its own and, on average, the grant constituted less than 20% of the total project value and that’s how we got more private sector leverage and more jobs by being selective and picking the best projects.’’
Also, the jobs created have been good quality with a mean average salary of between £20,000 and £25,000. The original £1m cap on grants under the Let’s Grow scheme was removed by BIS at an early stage following a large application from Compound Photonics, of Phoenix Arizona, when it bought a semi-conductor manufacturing facility in Newton Aycliffe from RFMD.
“They approached BIS in the first instance,’’ says Allen. “They needed to acquire the plant very quickly because the previous owners were in receivership and BIS said this would be better dealt with by the region because we were closer to it and could move quickly. BIS allowed us to give a grant. That was a nice compliment to us from BIS.’’
Let’s Grow gave the company a £3m grant towards a £30m total investment, creating 175 jobs. Since then Let’s Grow has been allowed to accept grant applications of more than £1m, which it has done in a handful of cases.
To apply for a grant businesses must complete an application form, which is assessed by BE Group staff for eligibility and value for money. It then goes before an investment panel recruited from the private sector, universities and LEPs and chaired by John Cuthbert.
The panel’s assessment is based on three main criteria.
Allen explains: “Is there a sound business case for what they are proposing, is it viable, will it grow the business, will the jobs that it generates be sustainable? Secondly, is there a strong case for grant support, or are they just going to do it anyway? Is the grant going to trigger the investment, is it going to make the difference between it happening or not? Thirdly: job impact. Are there enough jobs of high enough quality?’’
If satisfied on those three criteria, the panel will approve the application, which will then go to UNW for in-depth due diligence. If UNW’s report is satisfactory, the applicant receives a grant. “By sticking to this rigorous process we’ve been able to get these good value, high impact projects that have been successful,’’ says Allen.
The projects are monitored – for three years in the case of SMEs and five years in the case of large companies – to ensure that the conditions of the grant are met and that the jobs are sustained. UNW do the due diligence and provide expert financial advice on applications and on state aid; BE Group is the accounting body for the money to BIS and it administers the programme. It is also responsible for marketing Let’s Grow with Trinity Mirror as media partner.
Let’s Grow has been hailed as a success and has been welcomed by business and government. The business community showed its appreciation by coming forward with plenty of good investment projects and the EEF, CBI and North East Chamber of Commerce have been enthusiastic supporters. BIS was so impressed that it gave the programme a second tranche of £30m when Let’s Grow bid for it in the summer of 2014 as another round of RGF was opened.
The remaining £15m of the first tranche had to be spent by September 2015 so it went to shorter projects, meaning the second £30m could be devoted to longer term projects. By the end of December 2015, half of the second tranche had been invested, leaving £15m for which businesses can still apply before the autumn of 2016. It is anticipated that the second £30m will lead to the creation of 3,000 jobs.
“That’s a greater rate of job creation than the first lot because experience has shown us that we are getting better value jobs out of it so we went for a more aggressive target,’’ says Allen. The full £57m should create 5,275 jobs. “Phase two looks like being better value jobs-wise than phase one,’’ says Allen. “It’s to do with the mix of companies and the type of jobs. Typically manufacturing and engineering jobs are more expensive than business services jobs.’’
Let’s Grow has been so successful it has led to a couple of spin-off initiatives. BE Group successfully bid for another round of RGF and secured £4m for a similar programme in North and East Yorkshire in the area covered by the York and North Yorkshire LEP. This has been delivered at the same time as the second phase of Let’s Grow in the North East. The technical partner for Let’s Grow North and East Yorkshire is Clive Owen LLP and the media partner is BQ magazine.
Let’s Grow also gave rise to the Tees Valley Business Support Scheme which was introduced in the autumn of 2015 in response to the closure of SSI UK in Redcar. Following that economic body-blow a taskforce was set up chaired by the chief executive of Redcar Council which asked the Government for money to aid the SSI supply chain.
BIS made £80m available, the bulk of which went on redundancy payments which SSI couldn’t pay. But £16m was made available to the LEP Tees Valley Unlimited, TVU. TVU and BIS approached BE Group to operate a grant fund for businesses affected by the SSI closure.
“We have a flexible package of grants, it’s not just about capital investment,’’ says Allen. “It’s often about providing a working capital injection to enable businesses badly impacted, which lost a lot of money as a result of the closure of SSI to survive in the short term, diversify away from SSI dependency, gain new business and thereby create or safeguard jobs. It might be an IT company, or a food or drink company, it doesn’t have to be engineering and manufacturing in steel, it’s about the wider Tees Valley economy, because there have been a series of economic shocks in Tees Valley, it’s not just SSI, there have been other closures in the past three months that have created a perfect storm.’’
Businesses applying for a grant have to demonstrate that they are viable and have a recovery plan to win new customers. The scheme is there for longer term support and runs until March 2018. “We are not propping failing businesses up here, but what we are doing is creating breathing space for businesses that are viable to help them pay their debts and meet the payroll costs on a month-to-month basis,’’ says Allen.
The Tees Valley Business Support Scheme is intended to complement Let’s Grow. The maximum grant is 200,000 euros – about £150,000 at the current exchange rate.
He adds: “We were approached and asked to do that because we do Let’s Grow and therefore had the track record of being able to do this kind of thing and mobilise it very quickly.’’
All good things must come to an end and businesses wanting to take advantage of Let’s Grow must get their application in by the autumn of this year. That will leave a big hole.
Allen says: “Once we have allocated the second tranche, there will be no general capital investment fund for businesses available in this region. The fund that the LEPs have is not for these purposes, it’s not a business grant fund, they don’t have those funds available.’’
Let’s Grow has demonstrated the effectiveness of administering such schemes at a regional level and it particularly underlines the expertise available in the North East.
Allen says: “BE Group is always bidding for contracts of various kinds and we’ve had a couple of recent successes with other grant programmes and our track record with Let’s Grow has helped us to win that new business. It’s one of our strengths.’’