Measuring and managing total impact: Strengthening business decisions for business leaders - Public sector scenario

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How can a Local Enterprise Partnership (LEP)’s prosperity benefit the local economy and society? And is it value for money?

The LEP is running a range of programmes aimed at enhancing local economic prosperity and wellbeing; the two scenarios are examined presented below describe the local economy in three years' time is examined under two scenarios, one without the initiative (BAU) and one including the initiative.

The LEP is seeking to articulate and demonstrate to its stakeholders the difference its activities make to the City Region.

The LEP also wants to provide Central Government with a more holistic view of the total impact of the investment so that it can more easily and readily relate benefits to each Departmental agenda (e.g. jobs created, health benefits, increased tax take, welfare improvements, benefits reductions and less intense environmental impacts).

Overview of the Options

Option 1: The impact of the LEP in 3 years’ time under a Business as Usual (BAU) scenario

Upside:

  • Current funding arrangements continue without change
  • Money saved

Downside:

  • Opportunity not realised

Option 2: The impact of the LEP in 3 years’ time after an additional £100m investment in the LEP

Upside:

  • Business loans (to spend on capital or R&D) supporting the expansion of high growth local businesses
  • Apprenticeships programmes
  • Investment in low carbon production processes

Downside:

  • Investment costs

Summary output of TIMM Analysis

In this example, the TIMM framework is used to value not only the financial performance of the LEP, but also the economic, tax, environmental and social implications of the additional funding. The TIMM wheel shows the relative size of the impacts and any tradeoffs. The inner circle shows the financial performance of the LEP programme over the three years. Each bar around the circle shows the value of the programme impacts. These are positive (green) or negative (red). Because TIMM puts a monetary value on each impact they can be compared directly and even aggregated. All values are stated as Net Present Values (NPV).

TIMM identifies impacts using an Impact Pathway approach, and builds on the concepts in the Green Book for Government Appraisal using a range of market and non-market valuation methodologies.

Financial performance

  • In Option 2, investing a further £100m plus any associated administrative costs leads to enhanced economic, tax, environmental and social performance when compared to Option 1. Comparing the value of these benefits over time is necessary to determine whether Option 2 delivers value for money.

 

Economic:

  • Option 2 will lead to a variety of economic benefits stimulated initially through direct spending of the funding, and subsequently through the expansion of high growth local businesses.
  • Increased spending in the local economy under Option 2 results in increase profit and wage payments from local businesses. Option 2 is expected to deliver greater benefits in this area, through its influencing role in the local economy and its positive knock-on effects.
  • Investment in physical capital will also be greater in Option 2 - initially from business spending the funding on new property, plant and equipment; and subsequently from any knock-on capital investment. The same will be true for investment in intangible assets (such as developing intellectual property) where funding is spent on successful R&D activities. Net exports for the UK economy are also greater under Option 2.
  • All of the initial direct economic impacts will be further complemented by indirect (supply chain) and induced (employee spend) impacts, which will further contribute to the impacts above.


Tax:

  • Profit and people taxes will be higher in Option 2 as a result of the increased economic activity and higher numbers of people in employment. These additional taxes will flow back centrally to the Treasury.
  • Production and property taxes are also expected to be higher in Option 2, due to greater amount of materials consumed by production, larger areas of land acquisition and greater office space occupied. Some of this additional tax revenue will be retained locally, which can fund further investment activities or public services.
  • Environmental taxes are also likely to be greater as a result of enhanced economic activity. However this may be offset by the benefits generated from the additional investment in more efficient technology (e.g. lower carbon emissions).

 

Environment:

  • Given that Option 2 involves greater economic activity, the greenhouse gas (GHG) emissions from industry will likely be greater than in Option 1. However, investment in low carbon businesses and production processes under Option 2 means that this increase is not as great as it would otherwise have been. The lower intensity of GHG emissions associated with this new economic activity allows the LEP to demonstrate that it is supporting low carbon growth.
  • In Option 2, the increase in economic activity within the local area would likely lead to increased air pollution. However, capital improvements, for example in enhancing production processes, could likely result in greater efficiencies, leading to no net change compared to Option 1.
  • In Option 2, there will be slightly greater water use and waste generated due to the more significant construction activities and slightly greater water pollution impacts. Land use will also likely be greater as more business units are created, and there are more training initiatives needing space.

 

Social:

  • Under Option 2, investing in education through apprenticeships will create positive impacts for local people, increasing their productivity and hence their future earning potential. Where apprenticeships and employment are among traditionally hard to reach groups, such as the youth unemployed or ethnic minorities, this will enhance empowerment.
  • There will be positive impacts on livelihoods where the amount, or reliability, of household incomes among low income groups are increased. Positive health outcomes will also be associated with increased employment and higher incomes.
  • Inclusive growth can also have a positive impact on wellbeing and community cohesion, such as through reduced crime rates or a stronger sense of 'place'.

Summary

In this hypothetical example, in the absence of TIMM thinking, the LEP might have struggled to articulate its wider impacts and focussed on collating information on only the direct economic impact of its investments, creating a relatively narrow picture of its true impact. Instead, TIMM provides a framework which can be tailored to local circumstances and allows impacts to be monetised for easy comparison and aggregation across different impact areas.

Benefits of the TIMM approach to local decision makers include providing:

  • A holistic tool for demonstrating value for money at the local economy level, i.e. it can demonstrate that £1 of taxpayers money helps generate £x of total benefits.
  • A simple vehicle to engage public and private stakeholders around both the long term vision for the local economy that the LEP is seeking to deliver, as well as progress against its stated growth plans.
  • An ongoing and broader evidence base for impact of LEP funding, which is relevant to a wider range of Central Government Departments and hence can support future funding and discussions on the topic of decentralisation.

 

Contact us

Tom Beagent

Director, Impact Strategy and Analytics

Tel: +44 7973 565380

Will Evison

Director

Tel: +44 (0)7718 864854

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