Subject:
Accountable Body for Local Enterprise Partnership Legacy
Funds
Date of meeting: 28 March 2024
Report
of:
Executive Director Governance, People & Resources
Contact Officer: Name: Nigel
Manvell, Chief Finance Officer
Tel: 01273 291233
Email: nigel.manvell@brighton-hove.gov.uk
Ward(s) affected: All
1.1
Local Enterprise Partnerships
(LEPs) were set up by Government in 2011 as business-led
partnerships bringing together the public, private and education
sectors to have a central role in determining local economic
priorities and undertaking activities to drive growth and job
creation. Coast to Capital LEP (C2CLEP) was set up to cover East
Surrey, West Sussex and Brighton and Hove.
1.2
The future of LEPs has been
uncertain in recent times and it has now been confirmed that from 1
April 2024 the Government will cease the distribution and
management of government funds and loans through LEPs and the
functions previously undertaken by LEPs will transfer to Upper Tier
Local Authorities (UTLAs). The government has issued Transfer
Guidance to assist LEPs and their Accountable Bodies to effect and
manage the transfer of functions and the redistribution of funding.
The government has stipulated that Accountable Body monitoring,
reporting and oversight will need to be provided until 31 March
2025. Where LEPs were set up as companies, the government stopped
short of mandating their liquidation and therefore these companies
can continue beyond 31 March 2024 but cannot retain responsibility
for LEP functions.
1.3
A report to Culture, Heritage,
Sport, Tourism and Economic Development Committee on 7 March 2024
set out the key implications for the Council and outlined the steps
being taken to put the council in a strong position to take
advantage of the integration of transferred LEP functions to
deliver improved outcomes for local businesses and residents, as
well as ensuring a smooth and effective integration of functions
into the council.
1.4
As the report noted, the
council’s role as the Accountable Body for the government
funds managed by C2CLEP is a separate function covered by a
contract with C2CLEP. This report is concerned with the proposal
for Brighton & Hove City Council to continue to provide an
Accountable Body role in respect of legacy funds previously managed
by C2CLEP from 1 April 2024 to 31 March 2025 following the transfer
of LEP functions to UTLAs.
2
Recommendations
That Council:
2.1
Agrees that Brighton & Hove
City Council should continue to provide Accountable Body services,
acting as agent for the Department for Levelling Up, Housing &
Communities (DLUHC) and on behalf of relevant UTLAs, in respect of
legacy funds previously managed by C2CLEP for the period 1 April
2024 to 31 March 2025.
2.2
Delegates authority to the
Executive Director Governance, People & Resources, following
consultation with the council’s Chief Finance Officer, to
make all arrangements necessary for Brighton & Hove City
Council to deliver the Accountable Body services, including
resourcing, finalising relevant agreements with the UTLAs and
determining any outstanding agreements required relating to the
transfer with the Coast to Capital company.
3
Context and background
information
3.1
Following a competitive bidding
process in 2021, the City Council became the Accountable Body for
funds managed on behalf of government by C2CLEP from 1 April 2021.
The council has continued to provide Accountable Body services via
an agreement with C2CLEP until the present. The current agreement
expires on 31 March 2024. This is a chargeable service similar to
other financial and legal services currently provided by BHCC
officers to the South Downs National Park and East Sussex Fire
& Rescue Service.
3.2
Under existing government
requirements LEPs are required by government to appoint an
Accountable Body to oversee the proper administration of financial
affairs in relation to the use and allocation of public funding
held by the Accountable Body on behalf of government. This forms
part of the LEP’s Assurance Framework. The Accountable Body
must be an eligible organisation within the LEP boundary and should
ensure that the usual Local Authority checks and balances apply to
the awards of public funding directed by the LEP Board and LEP
committees. Accountable Bodies cannot use funding for their own
purposes.
3.3
There are 3 primary functions
for the current Accountable Body:
1.
An accounting function:
involving holding public funds paid over by government until their
allocation by the LEP.
2.
An oversight and assurance
function ensuring that effective governance over the use and
allocation of public funds is in place and that funds are used with
propriety and regularity in accordance with relevant grant/fund
conditions and deliver value for money. This includes S151 Chief
Financial Officer and Monitoring Officer services and
oversight.
3.
A support function including
support and attendance at Board and Committee meetings, provision
of treasury management services, and provision of legal and
financial advice as appropriate.
The
current agreement covers these functions and
responsibilities.
3.4
Local Enterprise Partnerships
(LEPs) are private sector-led partnerships between businesses and
local public sector bodies. There were around 38 LEPs in England,
each operating across more than one local authority. In this
region, the Coast to Capital LEP (C2CLEP) was set up as a private
limited company. The main funds managed and allocated by LEPs on
behalf of government were:
a)
Local Growth
Funds: These were
announced in 2013 as a single pot of around £12 billion of
devolved funding aimed at delivering a range of initiatives to
support local economic growth, running from 2015 to
date.
b)
Growing Places
Fund: Announced in
2014, this funding of around £730 million aimed to provide
short-term repayable loans to kick-start economic development
projects to facilitate growth in employment and housing that might
otherwise have stalled or not got been able to secure
financing.
c)
Getting Building
Fund: This fund of
£900 million was announced in July 2020 and aimed to support
the UK's economic recovery following the COVID-19 crisis. Locally,
circa £19 million was distributed by C2CLEP.
Other smaller grants and funding have been provided over
the life of LEPs including Enterprise Adviser Network funding
(careers advice). LEPs also received core grant funding from
government for administrative expenses and Growth Hub funding to
provide support and strategic leadership to help small and medium
sized enterprises drive sustainable business success. Each local
authority in the LEP area also contributed to the C2CLEP on a
funding scale according to their size.
3.5
The C2CLEP has had different
Accountable Bodies over many years for different elements of
funding including West Sussex County Council, Croydon LBC and
Brighton & Hove City Council. BHCC is the current Accountable
Body for all funds under C2CLEP’s management.
3.6
Following the
government’s announcement to cease LEPs and transfer their
functions to UTLAs from 1 April 2024, the C2CLEP has been
considering its options. At present it plans to continue as the
Coast to Capital company providing a consultancy business. However,
it will no longer provide LEP functions and it will have no
responsibility for managing or administering government funds
beyond 31 March 2024. This responsibility will transfer to UTLAs.
In respect of legacy funds where schemes and loan agreements are
still live and extant, the UTLAs within the existing LEP area have
agreed in principle that Brighton & Hove City Council can
continue to provide a single Accountable Body service to manage,
monitor and report to government on legacy funds and loan books
until 31 March 2025.
3.7
As the current Accountable
Body, in accordance with the government Transfer Guidance, BHCC
also has responsibility for working with C2CLEP to manage the
wind-up of C2CLEP activities (with regard to its LEP functions
only) including receiving any C2CLEP funds and reserves deemed to
be public resources. This process will be completed following
conclusion of the winding-up process and receipt of the audited
accounts of the C2CLEP for the year to 31 March 2024. This process
will inevitably extend beyond 31 March 2024 which government
recognizes as a practicality.
3.8
Similarly, there may need to be
legal novation or assignment of grant funding or loan agreements to
Brighton & Hove City Council (as Accountable Body) where these
were signed by C2CLEP and/or a previous Accountable Body. This
process is in hand and ready to complete subject to Council’s
approval to the authority continuing to provide Accountable Body
services.
4
Management of Legacy Funds and
Transferred Public Resources
4.1
C2CLEP has carefully considered
the anticipated costs of winding-up its LEP activities. It has
prudently set aside reserves to manage this process which are
expected to include the following costs:
·
Salary and retention payments to ensure continuity of
critical services up to 30 September 2024 or until TUPE transfer or
redundancy processes are concluded, if sooner;
·
Contingency for managing the Growth Hub until agreement
across UTLAs is reached and TUPE transfer, if any, is
concluded;
·
Redundancy and pension strain costs for staff not expected
to ultimately TUPE transfer to UTLAs;
·
Core winding up costs including legal fees, accountancy and
audit fees, long-tail insurance provision, and other exceptional
administrative costs of winding-up.
4.2
C2CLEP has also determined that
an element of its reserves have been built up from income (profit)
generated by using officer capacity to provide independent
consultancy services through competitive tenders for work. The
Accountable Body has assured itself that this was not to the
detriment of the company performing its LEP duties and has taken
independent legal advice to confirm that these resources can be
retained by the company. The company proposes to use this resource
(less than 20% of total reserves) to provide it with working
capital to continue as a private consultancy business beyond 31
March 2024.
4.3
All remaining reserves, after
accounting for winding up costs and private company resources set
out above, are regarded as public resources and will be transferred
to the Accountable Body for distribution to UTLAs. The precise
value of Private and Public resources will not be known until all
costs and incomes are finalized and the audit of the
company’s accounts to 31 March 2024 is completed.
4.4
As noted in paragraph
3.9 above, the Accountable Body already holds other
unallocated legacy funds, such as returned or withdrawn Local
Growth Funds, and will continue to account for these until their
redistribution to UTLAs at the earliest opportunity.
4.5
It should be noted that the
C2CLEP has enquired about an indemnity from the Accountable Body
regarding possible claims that may be made against it for
activities undertaken while it performed LEP duties. This has
emanated out of discussions with the government department (DLUHC)
which has confirmed that government will not provide continuing LEP
companies or their directors with any indemnifications.
4.7
In considering the decision as
to whether to approve continuation of Accountable Body services,
the Council is advised that no claims can be made against the
authority directly for activities prior to 31 March
2024.
4.8
To deliver a continuing
Accountable Body service, the council will need to ensure
appropriate resources and expertise are provided. As the services
are only required for 1 year in accordance with government
requirements, and only require a proportion of officer time, it is
proposed to enter into an agreement with the Coast to Capital
company to secure these services rather than seek a TUPE transfer
of staff.
4.9
The cost of providing resources
to perform the Accountable Body services can be met from a number
of funding sources including potential transitional funding from
government, allowable ‘capitalization’ of (i.e.
charging to) relevant government funds held by the Accountable
Body, charging costs to transferred Public Resources/Reserves, or
utilizing interest income from the Growing Places Fund loan book.
The charges will be agreed with the UTLAs once cost estimates have
been finalized but are expected to be similar to current charges
and staffing costs and well within available funding. The principle
of keeping charges to a minimum to maximize available resources and
funding for redistribution to UTLAs will be upheld in determining
any charges for Accountable Body services. For information, current
costs and service charges for 2023/24, including relevant LEP
staffing resources, are around £160,000 but 2024/25 is likely
to involve considerable additional transitional work.
5
Future Governance
Arrangements
5.1
The management of legacy LEP
funds will include monitoring the achievement of key objectives and
performance indicators built into funding and loan agreements and
taking appropriate action where these appear to be delayed or
falling short. These mechanisms will be set out in the
collaboration agreement or Memorandum of Understanding (MoU) with
UTLAs so that all parties are clear what governance processes will
apply and what redress the Accountable Body will seek in given
situations. This will not be dissimilar in principle to current
processes designed to satisfy the Assurance Framework, which will
be updated and appended to the agreement/MoU.
5.2
Similarly, any redistribution
of unallocated government funds to UTLAs by the Accountably Body
prior to 31 March 2025 would only be undertaken subject to
provision of satisfactory evidence of appropriate application or
allocation processes by each UTLA and appropriate monitoring and
reporting arrangements being put in place.
5.3
As currently, conflicts of
interest will need to be effectively managed, and particular
clarity will be needed for the City Council if it continues as
Accountable Body. Other LEP areas are managing this in many
different ways but one option could be to create an oversight board
with a representative from each UTLA, with potential attendance
from DLUHC and/or for DLUHC to act as arbiter in cases of
dispute.
6
Analysis and consideration of
alternative options
6.1
The council could elect to
cease providing Accountable Body services for legacy funds and
loans. However, as the current Accountable Body this would present
significant challenges for UTLAs who would need to quickly stand up
alternative Accountable Body services. Inevitably, BHCC would still
need to be heavily involved in the transfer and redistribution of
funds and loan books as the current Accountable Body.
6.2
As noted earlier in the report,
providing Accountable Body services also provides a small income to
the council similar to other contracted services for external
bodies. However, this must be balanced with the inevitable dilution
of officer capacity required to support Accountable Body services,
particularly in relation to S151, Monitoring Officer, financial and
legal officers.
7
Community engagement and
consultation
7.1
Discussions have been ongoing
with the C2CLEP, DLUHC and the relevant UTLAs. The other UTLAs
(West Sussex and Surrey) have agreed in principle for BHCC to
provide a single Accountable Body service for legacy funds and
loans but not for any new funds or any funds redistributed to
UTLAs. A collaboration agreement or Memorandum of Understanding
will need to be drawn up with UTLAs as soon as possible to set out
how the redistribution of funds and resources will be managed by
the Accountable Body between 1April 2024 and 31 March
2025
8
Conclusion
8.1
As the current Accountable
Body, the continuation of this service by BHCC for a further year
to 31 March 2025, when government reporting requirements cease, is
a pragmatic and efficient solution preferred by DLUHC and accepted
in principle by the UTLAs within the existing LEP area. While the
provision of these services does dilute some officer capacity there
is financial recompense, and the council has managed provision of
these services effectively for the previous 3 years.
9
Financial
implications
9.1
The charges to government funds
and other resources for Accountable Body services will be
calculated to recover the council’s costs, including
applicable overheads and any commissioned/contracted external
support, to ensure that the council is not financially
disadvantaged.
9.2
The provision of any
indemnities to the Coast to Capital company, if it elects to
continue beyond 31 March 2024, will be at zero cost to the council
and will only be provided if legally compliant.
9.3
Providing Accountable Body
services carries potential risks as the distribution or allocation
of government funds to schemes or projects that are not compliant
with grant funding terms and conditions, or have not been subject
to appropriate due diligence or governance, may be subject to
clawback of funds by government, causing a potential loss to the
Accountable Body (BHCC). This is considered very low risk and no
such sanction has been applied in the 13 years of the LEP
area’s existence.
Finance officer consulted: James
Hengeveld Date consulted:
19/3/24
10.1
The responsibilities on the
Accountable Body for proper use of Government grant monies are
significant and can include Government clawback of funding. It is
therefore important to ensure that the respective responsibilities
and accountabilities of the Council are clear and agreed. There
will need to be put in place an agreement or Memorandum of
Understanding with UTLAs which will set out the roles,
responsibilities and accountabilities of both the UTLAs and the
Council. It is for these reasons and to be able as the Council, as
an Accountable Body, to address any outstanding issues and take all
necessary steps, that this report proposes to give officers
delegated powers.
Lawyer consulted: Abraham Ghebre-Ghiorghis
Date consulted: 19.3.24
11.1
None identified.
12.1
Government funds are provided
with the aim of achieving regional economic recovery in a way that
is stronger, smarter and greener and as the Accountable Body, the
council will be providing services supporting the delivery of these
objectives.