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Economy: North-East England — Question for Short Debate

– in the House of Lords at 5:32 pm on 31st January 2013.

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Photo of Lord Bates Lord Bates Conservative 5:32 pm, 31st January 2013

To ask Her Majesty's Government what assessment they have made of industry and recent economic developments in the north-east of England.

Photo of Lord Bates Lord Bates Conservative

My Lords, the north-east of England may be the smallest of the English regions but for those of us who have the privilege to be associated with it, it is very much a hidden gem, or even a jewel in the crown. It is home to Northumberland, voted the most tranquil county in England, and also to Newcastle, the party capital of Europe. However, five years ago the tranquillity and partying were brought to an abrupt end. First, Northern Rock sustained the first run on a bank in 150 years, putting 3,000 jobs at risk and shattering investor confidence. Then, Nissan announced 1,200 redundancies and the viability of the entire plant was under threat as it went on to short-term working. Then, Teesside Cast Products announced the closure of its blast furnace and the lights literally went out on that part of Teesside with the loss of 2,000 jobs. Finally, the promised multibillion-pound government investment in new agility trains was shelved.

The region was on its knees but five years on it is a very different picture. Virgin Money has acquired Northern Rock and safeguarded 2,000 jobs in the region, and over the past year it has added 1.2 million new accounts. Nissan's car production plant in Washington near Sunderland will soon become the first factory in the UK ever to produce 500,000 cars per year. The new £4.3 billion investment will take employment at the plant to 6,000-a record level. The Government have announced the go-ahead for a £4.5 billion investment by Hitachi in Newton Aycliffe for a new generation of agility trains, which will create 730 skilled jobs with a further 200 workers needed to build the test track and the plant itself. In mentioning Newton Aycliffe, I should say that the noble Baroness, Lady Grey-Thompson, a great champion of the north-east, wanted to take part in this debate but was actually required to be in Newton Aycliffe today to open a new 30,000-square foot factory for MediTek, which is the best of all possible excuses.

Finally, in April 2012 the Teesside blast furnace was the subject of a £1.6 billion investment by Thai company SSI and the furnace was relit, providing 1,700 jobs, and 100% of its output is now destined for the fast-growing economies of Asia.

Exports from the north-east of England are a major success story and reached record levels in the year to June 2012, amounting to £14 billion, an increase of 7.8% on the previous year-itself a record. The north-east is now the only region in the UK that exports more than it imports. According to the latest regional trade statistics, the north-east has a positive balance of trade of £1.175 billion in the third quarter of 2012, compared to a negative balance of £328 million in Yorkshire and the Humber, a negative balance of £886 million in the north-west and a negative balance of £10.265 billion in the south-east.

The growth in exports is also fuelling growth in jobs. According to the January 2013 labour market statistics, there are now more people employed in the north-east than at any time since October 2008. Unemployment has fallen by 23.1% in the past year. According to KPMG's December 2012 jobs report, permanent job placements in the north-east of England are at a 29-month high. The number of apprenticeships in the north-east has more than doubled, from 18,510 in 2009-10 to 37,760 in 2011-12.

Just as important for the long term, the economy is rebalancing away from an overdependence on public sector employment. According to a Written Answer I received a couple of days ago, between March 2010 and September 2012 there have been 43,000 job losses in the public sector. We can all appreciate the pain and hardship suffered by those affected but over the same period the private sector has created 68,000 jobs-a net gain of 25,000 jobs.

The housing and construction sectors are critical to the regional economy, with companies such as Barratt, Bellway, Persimmon and Yuill all having their roots firmly in the region. Here, too, we are seeing some encouraging progress, with the latest figures from the NHBC indicating that new home starts in the north-east were at 3,996 for 2012, compared to 3,227 for 2011 and 2,845 for 2008-an increase of 24% and 40% respectively.

North-east towns are seeing record numbers of new business start-ups. Darlington saw a record number of start-ups in quarter 1 of 2012. Sunderland saw its highest ever level of company formations in quarter 2. In Newcastle and Middlesbrough, quarters 1 and 2 saw a return to pre-2007 levels of company formation. The number of net new businesses starting up in the north-east region last year was 2,406. As someone who has experience of setting up two businesses in the region, I know how challenging those first couple of years can be. It is essential that these new businesses are nurtured and allowed to grow. They are the future of the region-the new Greggs, Vertu, Onyx, Utilitywise, Nifco or Kilfrost-employing potentially tens of thousands of people and securing the viability of the region.

The north-east is blessed with the largest chamber of commerce in the United Kingdom, and it also has the Entrepreneurs' Forum-I declare an interest as an honorary ambassador-which is a private sector network of entrepreneurs from the north-east who are seeking to put back into the region training and mentoring of a new generation of entrepreneurs.

We have an outstanding network of universities in the north-east of England: Newcastle, University of the Year 2000; Durham, University of the Year 2005; Northumbria; Sunderland; and Teesside, University of the Year 2009. Our academics and students are undertaking ground-breaking research and innovation and acting as a catalyst for local enterprise. Their work is complemented by two government-funded national centres of excellence-the Centre for Process Innovation, home to the national centres for printable electronics and industrial biotechnology; and the national New and Renewable Energy Centre in Northumberland -giving the north-east international leadership in the development of advanced manufacturing processes and materials. According to UCAS data released this week applications for north-east universities have increased by 3.4% over the period last year and against a national increase of 2.4%, and the greatest growth in applications has come in the areas of computer science and engineering, which are exactly where the need is greatest.

One of our greatest weaknesses in the north-east as a peripheral region is connectivity. Here too we have seen some welcome progress with the announcement in the Chancellor's Autumn Statement last year that the A1 is to receive a £378 million investment, bringing it up to motorway status. The north-east remains the only region not to be connected to a neighbouring region by a motorway. I know what a barrier this is to foreign direct investment and to domestic investment, particularly in a region noted for manufacturing.

The Government deserve one cheer for announcing the investment in HS2, which will dramatically cut journey times to London for all northern cities, but they would get a second cheer if they started construction in the north rather than in the south. We have been waiting for over 50 years for connection to the motorway network and we are therefore slightly suspicious of major infrastructure networks whose funding seems to run out somewhere south of Leeds.

Our IT infrastructure is even more important for the north-east. It deletes at a stroke of a key our single greatest economic disadvantage, namely geography. The north- east is a major international centre for graphic design, computer games manufacture and creative media of all kinds. Companies like Sage and Eutechnyx are world leaders in their sectors, based in the north-east. IT can create an information superhighway not just to London but to the entire world, and not by 2033 but within a few years, and at a fraction of the cost. The Government announced a £6 million investment to bring speeds of 80 to 100 megabytes per second in Newcastle as part of a network of superconnected cities, but Gateshead, Sunderland, Durham, Berwick, Hartlepool, Middlesbrough, Stockton and Darlington should and could be added for the price of a few yards of high-speed rail line.

The people of the north-east have always been optimistic by instinct-which, to follow any of our football teams, seems to be a mandatory requirement. They are also resilient, able to adapt, innovate and advance in new economic landscapes, as we have seen repeatedly through our history, emerging to compete as winners on the world stage. I hope I have shown that in responding to the severe challenges presented to it over the past five years, the north-east of England is not a problem to be solved but an example to be followed.

Photo of Lord Sawyer Lord Sawyer Labour 5:42 pm, 31st January 2013

My Lords, I have the honour of being chancellor of Teesside University in which I declare an interest. I am grateful to the noble Lord, Lord Bates, for initiating this important debate. For a long time he has played a serious role in the work of the north-east and was an assiduous Member of Parliament for the old Langbaurgh constituency. I do not know how he feels about catching his breath after his contribution but I am having a job catching mine. He gave us such a whirlwind tour and he is quite right in being optimistic. However, I am sure the noble Lord will agree that within that general picture of optimism there are still lots problems in the north-east. There are high levels of unemployment, particularly youth unemployment, in the old mining and shipyard areas, and we need to work hard to address those problems.

My interest today is not to take a panicked view, as we have heard from the noble Lord, Lord Bates, but to look at the Tees Valley subregion of the north-east and the boroughs of Middlesbrough, Darlington, Hartlepool, Stockton, and Redcar and Cleveland. This is the area for which I am the chancellor and of which I am also a native, coming from Darlington. It is a subregion served exceptionally well by the Tees Valley local enterprise partnership. It is a new partnership, chaired by a well known local businessman, Mr Sandy Anderson, and it is known as Tees Valley Unlimited.

This is a true private and public sector partnership, with members drawn from companies such as SABIC, which produces chemicals and fertiliser-a bit like the old ICI-and some of the old industries, such as the port authority, which have developed into new businesses. They have got together with Teesside University and representatives of local government to form themselves into an organisation to help to build this subregional economy.

The context is very challenging. There are 259,000 people in jobs but a working-age population of 420,000, so we have a big gap there. Arising from that is the highest level of unemployment of all the local enterprise partnership areas, in particular high youth unemployment. Major reductions in public expenditure are imposing real hardship and distress on an area that has been one of the main contributors to the economic performance of the UK in the past 50 years. I refer the Minister and the noble Lord, Lord Bates, to comments made recently by the elected mayor of Middlesbrough, Mr Ray Mallon, who said:

"The loss of such significant levels of funding over such a short period of time can only lead to further long-term deprivation and serious hardship, issues which will become costly, both in human and financial terms, to redress".

There are others in the region who, like Mr Mallon, are concerned about the direction of travel. We have to make sure that we listen to them and try to come to terms with some of the issues that they raise.

Teesside is an area where, as with the wider north-east, the decline in traditional heavy industries has led to a big reduction in employment. However, like the noble Lord, Lord Bates, I think that the general attitude there is positive. The Teesside area was often seen to be less positive than the Tyneside area when I lived there, but I think that Teesside people have become far more positive in the past 10 years and stopped depending on the state to solve their problems and started solving them themselves. That is an important and welcome development.

We have seen new companies replacing major employers such as ICI and British Steel. We see great opportunity for growth, built on the legacy of those major industries that transformed the world, in areas such as the process sector, industrial biotechnology and biopharma, renewable and waste-derived energy, and advanced and sub-sea engineering. In that connection, I was very pleased to see the Government last month announce as part of their life sciences strategy a £38 million project for biopharma, to be managed by the Centre for Process Innovation on behalf of the High Value Manufacturing Catapult-a rather unusual name, which is basically a partnership of businesses, public services and universities.

The local enterprise partnership envisages a future in which the Tees Valley builds a critical mass of employment in the new sectors that I have described. It is an aspiration and a direction of travel which I wholly share. I commend to Ministers the Tees Valley City Deal submission made by Tees Valley Unlimited in the past few weeks. The vision for the Tees Valley City Deal is of an area with a thriving and more balanced economy, with integrated supply chains resilient to economic shocks. It will deliver more efficient and effective use of government resources with enhanced inward investment, grow existing global companies and their supply chains, increase exports, and translate research and development into commercial opportunities -all delivering, one hopes, wealth and employment for the region. It is a good vision; it is a good deal; and I hope that it will be carefully considered by the Government.

In order to achieve those ambitions, we must ensure that the skills requirements of present and future employers can be met. The observations of local enterprise partnerships are of particular interest in this regard. They observe very real concerns about the ageing workforce and the sufficiency of understanding among employers about the systems in place to support skills development and they relay a lack of clarity about apprenticeship opportunities. We have talked about these issues in the House previously and we need to give continuous attention to them. I hope that the Minister will keep on talking to colleagues about the need to make sure that we have proper apprenticeships and proper skills enhancement so that these new industries and possibilities can be successful. Some of the skills that I had when I was a young man are no longer the skills required. We need new people and new skills and we have to make sure that the Government play an appropriate role in helping to support that development.

As a result of these concerns, we have to take our own initiatives and not just rely on the Government to step in and do what needs to be done. We have developed a sector action plan for skills in new and advanced manufacturing, looking at logistics, health and social care, digital and chemical processing. Tees Valley Unlimited skills portal has been created to enhance the flow of labour market information and enhanced liaison with careers advisers, teachers, and young employers has been introduced.

Teesside University has business engagement, skills development and support for the local and regional economy as key pillars of its institutional plan. Since 2011, it has created 183 jobs through economic development and it is committed to creating 529 new jobs by the middle of 2014. It is strongly committed to supporting regional SMEs-since August 2012 projects have been started with more than 370 SMEs. In 2011-12 working in partnership with employers some 2,000 regional employees were provided with higher-level skills and qualifications. Some 430 businesses have been set up since 2000 with 590 jobs created; 415 of these since 2008.

I have spoken in the House previously about my university's partnership with further education colleges as being exemplary in terms of developing ladders of opportunity to enable these things to take place. We were University of the Year in 2010. For Teesside to beat all the Russell Group universities is something we all have to be very proud about. It took some doing but we did it. The noble Lord was quite right to mention it and underscore it because it means that people in the region have confidence in themselves, can do things for themselves and are not relying on other people to lift them out of the unemployment and poverty they have endured for far too long.

These people are making a very real effort. They are working hard and on many occasions putting political differences aside in the interests of economic development. As I have already said, we are working hard to enhance skills by linking employers and education and training providers together to make the best use of government funding. It is very positive case. It is a more localised case than that mentioned by the noble Lord, Lord Bates-it is about Teesside rather than panregion-but I paint a very optimistic scenario as well. The way forward in the north-east of England is to be optimistic. It is to try to help ourselves but at the same time to call on the Government not to put any obstacles in our way and to recognise that public spending in the north-east is probably more important than in the south-east where there is more private enterprise and commercial success.

We need what you might call a pathway. We need a bridge. We cannot do it all straight away. We need public expenditure not just by universities and colleges but by local councils and all the things that other people do not need as much as we do in the short term. I agree with the noble Lord, Lord Bates, that we are travelling in the right direction and I thank him once again for initiating this debate.

Photo of Lord Shipley Lord Shipley Liberal Democrat 5:52 pm, 31st January 2013

My Lords, I, too, thank the noble Lord, Lord Bates, for initiating this debate and giving, rightly, an encouraging picture of the north-east economy. I also acknowledge the contribution of the noble Lord, Lord Sawyer, and thank him for identifying some of the ways in which the Government can help and emphasising the efforts being made in the region itself. Together, there is enormous potential. I welcome the Minister to his role. I hope that this debate proves to be the first of many on the potential for the north-east of England. I declare my role as vice-chair of the regional growth fund independent advisory panel, and my role as an adviser to the Government on their cities policy.

The north-east is a small region with a population of 2.6 million. Nevertheless, as the noble Lord, Lord Bates, told us, it is the only English region with a positive balance of trade, which is getting stronger. At the same time, the region has a lower GVA than others, fewer business start-ups, fewer people with level 4 qualifications, and fewer people employed in the private sector than we would like. Indeed, in Tees Valley, in the five years from 2007 to 2012, the number of private sector jobs declined from 203,000 to 187,000, so we have to be careful.

I look forward to the economic review undertaken by the noble Lord, Lord Adonis, which will cover the north-east LEP area through the commission, which is due to report in the next few weeks and which I hope will address issues such as how to increase levels of business creation, priorities for infrastructure investment, how to increase the region's skill base and how to improve access to finance. I hope that it will also give us a steer on how to implement some of the recommendations of my noble friend Lord Heseltine's report on growth, No Stone Unturned, and on what strategic interventions could be made to build or strengthen areas where the north-east does or could excel, such as renewable energy, carbon capture, chemicals, steel, offshore and subsea technologies, process sectors, pharmaceuticals, advanced manufacturing, energy from waste, the digital industries and, of course, the automotive industry. Nissan and its supply chain have such a magnificent record, now producing more than one-third of all UK vehicles.

The north-east is a region with enormous potential to drive growth. If the north-east grows, the UK will benefit and grow too. I am sure that we can build on the work of the two local enterprise partnerships and the excellence of the north-east workforce. The region's connectivity, although good, does, as the noble Lord, Lord Bates, pointed out, needs to get better in its broadband and transport, about which I shall say more in a moment.

The UK and the north-east need an industrial policy. To deliver that industrial policy regionally, there have to be governance structures that complement a region's strengths. In the north-east, I will be looking for closer collaborative working across local authority boundaries: less competition, more complementary working.

Last October, the Deputy Prime Minister, launching the second wave of the city deals, said:

"You can't revive the regions just through handouts from Whitehall ... Revenues from the financial services sector were recycled round the rest of the country through the long arm of the state, creating the illusion of strong, national growth. Jobs were created but in an unbalanced way, over-relying on the public sector, funded by tax receipts from the City of London".

The Government are rebalancing the UK economy away from an overdependence on financial services and the south-east. The north-east has been too dependent on the public sector, not because the public sector is too big but because the private sector is too small. It is the private sector that generates much of our tax revenue.

I will say a word about the regional growth fund. In the first three rounds, the allocation to the north-east was £330 million, leading to 71,000 jobs created or safeguarded across 99 projects, eight programmes, and with £1.9 billion of private sector investment leveraged. The growth fund should not be seen as a short-term fix. Eighty per cent of the employment benefits will come within five years, and 80% of private investment will come within 10 years, but crucially the investment is going to the region's growth sectors. There are indications that those growth sectors are now expanding. In the latest quarter of employment trends published by the ONS, the employment rate of 16 to 64 year-olds was 68.2%, compared with 71.4% for the UK, so the north-east was three percentage points below the UK average. The unemployment rate of 16 to 64 year-olds was 9.1%, representing 119,000 individuals, which was the highest in the UK, and much too high. However, crucially, the north-east also had the biggest drop in unemployment in the most recent quarter, amounting to 0.8 percentage points.

In its overview of regional labour market statistics published on 23 January, the ONS stated:

"Over the past year, the increases in the employment rates for the North East, Yorkshire and The Humber and West Midlands have all been statistically significant".

It went on to state that the largest decrease in the unemployment rate was in the north-east, at 0.8 percentage points. That increase, along with more modest decreases in Yorkshire, the Humber and London, appeared to be part of a pattern of decreasing unemployment rates. We will see, but, if confirmed, that is a welcome trend.

I pay tribute to the universities for their enormous contribution through increasing student numbers, research and commercialisation. My view is that R&D is not yet commercialised enough and that the Government have to do more to assist that. An example would be acknowledging the commercial potential in marine technologies, which needs to be underpinned by an accessible research base.

I was unable to take part in the visa policy debate earlier in your Lordships' House, but I regard it as a matter of fundamental importance. The north-east needs inward migration of international students to study at our universities and to stay on to set up businesses. The record of that to date has been marked, and we need to ensure that people feel welcome.

In the past few days, the CBI in the north-east and the North East Chamber of Commerce have produced a report on transport infrastructure, listing priorities for the region. I know that the Government will respond either to that or through their response to the north-east commission's report. However, there are a whole set of issues around rail, port connectivity by rail and the quality of the rolling stock where lines connect with the east coast main line. In terms of air connectivity, there is an urgent need for a transatlantic link, for the impact of air passenger duty to be understood where it is acting as a disincentive to growth, and for an understanding of the importance for regions such as the north-east but also right across England, Scotland, Northern Ireland and Wales to have a UK hub airport that links us to the rest of the world, because it is fundamental in driving regional growth.

I bring to the Minister's attention the success of Emirates in its Newcastle-Dubai daily service. In the five years of its operation, trade between the north-east of England and Australasia has risen from £150 million to £275 million. This is proof of the value of better connectivity. We can drive greater growth from the north-east. Staying in the European Union is fundamental to that. We need to be clear that UKTI is delivering the greatest potential for inward investment in the north-east.

I ask the Minister to look at two matters relating to regional jobs. One is regional procurement policy, where regionally based firms have in recent years successfully delivered government contracts. It seems that there is a trend in Whitehall to prefer national procurement, which then limits the ability of regional companies to compete. I hope that the Government will investigate this further because there is some evidence that regional companies lose out to national companies when they have had first-class records, and there is a potential for more regional jobs to be lost as a consequence of that.

On the subject of jobs, could I ask the Minister to look into the contracting by government of international oil and gas companies in fabrication? There have been concerns recently that despite the Government giving tax concessions to such companies, jobs do not come to the UK but go abroad, even though other countries would have clauses in their contracts requiring local workers to be employed. There is a lot of concern about this because it may have lost the north-east some 1,500 jobs in fabrication and some 10,000 jobs across the UK over the last two years.

I conclude by saying simply that the north-east is an asset that can drive substantial growth to the benefit of the UK as a whole, and I hope very much that we will have an opportunity to discuss the report of the commission of the noble Lord, Lord Adonis, when that is published in a few weeks' time.

Photo of Lord Patten Lord Patten Conservative 6:03 pm, 31st January 2013

My Lords, in bringing fraternal regional greetings from the south-west to my Back-Bench colleagues on all sides in the north-east, I would like to say that in listening to my noble friend's tip-top speech, and indeed the speech of the noble Lord, Lord Sawyer, I would like to reflect that there is no silver bullet of an infrastructure sort to help to solve the problems of the north-east. I should say that there is no bullet train which could individually solve the problems of the north-east. I do not believe that if we had HS3 and it was powering into Newcastle tomorrow it would of itself bring about a renaissance in the economy of the north-east.

I was greatly struck, when listening to some vox pop on the media when HS2 was announced coming from what people in the north-east would regard as their deep south-places like Nottingham and Derby-that they regarded one of the benefits of HS2 as being that they would get to London more quickly. Although I am in favour of infrastructure projects, though worried about the environment and capital cost, I believe that one of the effects of HS1 and HS2 will be to increase the dominance of London in the English and Welsh economies.

There was a book back in the 1940s or 1950s by a French scholar called Gravier, Paris and the French Desert. I do not think that high-speed rail will bring about the economic desertification of the UK, but it will do two things. First, it will increase the dominance of London, which is already slipping its moorings as a great global city and flying off into economic global space. Indeed, London would make a good, punchy city state; that might be part of some plot which the Mayor of London is thinking of bringing about. Secondly, having added to London's dominance, it will not in itself necessarily bring any great blessings to the north-east. The north-east's problems are of themselves and have to be solved on their own terms.

The noble Lord, Lord Sawyer, talked about the litany of problems in the north-east. I was refreshing my mind with the statistics. At first reading, they are pretty grim: highest unemployment levels, still; lowest employment levels; lowest household income; one in five children living in workless families, sometimes through generations; and I could go on with that. The other side of the story is that, extraordinarily enough, this small region has, as my noble friend Lord Bates, pointed out, been a great success in exporting, having the best ratio of goods to exports in relation to the regional economy of any region in the United Kingdom, measured by gross value added. There is obviously enormous vitality.

We have heard from my noble friend Lord Shipley what is going on, and from the noble Lord, Lord Sawyer, with his own particular beat, what is happening to the north-eastern economy. I suggest two areas in which we should look at the region solving its problems intra-regionally. First, there is connectivity, not to other dangerous places, like London, but connectivity within the region-Newcastle, Gateshead, Sunderland, Hartlepool, Middlesbrough and Durham-is in as great a state of grace as can be produced. I am a strong believer in that. I understand that, extraordinarily enough, no electrically powered goes in and out of Middlesbrough.

That is not to say that the north-east is the only region which has these problems. When I travel up from the oppressed south-western region at the beginning of the working week and go back again, I sometimes sit in third world conditions on the route from Exeter to London, a substantial part of which is on one line. These problems are not unique to the north-east, but I am absolutely convinced that better intra-regional transport would get more results from infrastructural expenditure than, perhaps, even connectivity to the motorway-although I recognise that that is very important.

Secondly, my noble friend Lord Bates put his finger on it when he mentioned the importance of connectivity not through motorways and railways but through high- speed broadband. I genuinely welcome the contribution of £6 million to Newcastle, to make it a super-connected city, but it is easy to spend a bit here and a bit there. My judgment is that for probably £60 million, and certainly much less than £600 million, if the north-east offered itself as a Petri dish experiment, if there was that super-connectivity between every part of the north-east, within a year or so one would see the Korean effect. The spread of high-speed broadband in South Korea a few years ago has had a radical effect on productivity and has helped to transform the whole South Korean economy.

I greatly welcome the fact that the Minister is answering this debate. I urge him to take the comments from the debate to my right honourable friend the Chancellor of the Exchequer. It has been dominated by the Tory Benches, there having been three speakers here-no, I am sorry, four speakers. After the to-dos of last week, it is hard to say "my noble friend" so I shall say "my noble coalition partner". Nevertheless, we feel strongly that more should be done in the north-east on the installation of broadband. The north-east does not have as strong a voice in the Palace of Westminster as it should do. I will stand corrected, but I do not think that in another place there is a coalition Government Minister who represents a north-eastern constituency; and I do not know of any Member of your Lordships' House in the Government who lives in the north-east. So there is no voice. I am not saying that we should have regional Ministers all round the place, and a Minister for the south-west, or whatever. However, it is very important that the clear, balanced and stimulating voices of my noble friend Lord Bates, the noble Lord, Lord Sawyer, and my noble coalition partner Lord Shipley are listened to, because they represent areas in which the Government should be paying far more attention.

Photo of The Earl of Shrewsbury The Earl of Shrewsbury Conservative 6:12 pm, 31st January 2013

My Lords, I congratulate my noble friend Lord Bates on securing this important debate this afternoon. I shall keep my comments brief. They do not relate specifically to the north-east region, but the type of situation I shall describe is commonplace throughout industry and, doubtless, affects industry in the north-east just as it affects industry in every other region of the UK.

My home county of Staffordshire was closely involved in the roots of the industrial revolution, and today is an area within the West Midlands proud of its reputation for industrial innovation and skills. Unemployment there is considerable, and SMEs are struggling to survive and prosper. This must be exactly the same case as that affecting the north-east.

JBMI Group Limited, based at Hixon, near Stafford, is a highly successful medium-sized business employing 67 people, turning over £33.7 million a year and making a pre-tax profit of a very healthy £2.74 million. Over the years since the company was founded, it has won numerous awards for its achievements. The company therefore makes a very significant contribution to both the local and national economy. Without doubt, this is a true story of commercial success. JBMI's expertise lies, in general, in the field of metal re-cycling, but more specifically in that of the manufacturing of alloys and the recovery of those metals. Its product is exported to numerous countries and in the UK it supplies product directly and indirectly to Jaguar Land Rover and Toyota-probably also to Nissan as well, in the north-east-to name but two or three global companies.

In addition, JBMI has made significant investment in developing a suite of sustainable products, manufactured from a wide range of waste materials which would otherwise be disposed of in massive quantities to landfill. JBMI's products have to meet the demanding customer specifications and product standards of the relevant construction-related industries that actively seek these products. The JBMI processes exemplify how British industry can effectively and sustainably recycle in order to meet our EU obligations in that respect. They thus make a significant contribution to the vital agenda of landfill diversion-an area where sadly, as a nation, we still lag behind others. This is all highly commendable; good for the environment and good for the economy.

However, as the correspondence in this file demonstrates, JBMI has invested very considerable sums to prove and justify that its processes and recycled products comply with the demanding standards and criteria laid down under EU law. It has sought and received specialist legal advice on this complex area, both from its solicitors, Semple Fraser, and from one of the leading QCs in this field. At almost every stage, however, it has met systematic resistance, long delays in timing of responses, delaying tactics and completely irrelevant questions and arguments from the Environment Agency and specific officers in particular.

It is clear from the dealings between the company and the Environment Agency that the agency is inexplicably hostile to this worthwhile project, and for no sound environmental reason. It appears that we have a government agency working way beyond its remit of regulation and moving into law-making, which is surely the remit of the other place and this House. In addition, it is ultimately driving the company to seek a judicial review-an unnecessary and costly process which will be funded by the public purse.

In the mean time, a competitor has suffered from no such difficulties from the Environment Agency and, it would appear, has been treated by it in a completely different and relaxed manner. It appears that the agency is acting in a manner which even to the most naive would be classed as grossly unfair, inconsistent, discriminatory and anti-competitive. The result to date is that JBMI has lost out on business that is likely to have amounted to over £1 million in lost corporation tax revenues for the Government per annum and, in employment terms, some 15 to 20 extra jobs in an area of the country that is crying out for employment opportunities.

While I have had to oversimplify the situation in the pursuit of brevity, I mention it to bring attention to all such similar problems facing industry not only in the Midlands and the north-east but doubtless in all the other regions of the UK in which industrial activities take place. It is holding back employment and the economy. I am aware that JBMI's lawyers currently have a number of similar cases of oppressive and unnecessary "overregulation" by the agency of conscientious British companies, for no obvious environmental reasons. This particular case with this particular company is the most obvious but it is not the only one. The fact that this is applied in an uneven and inconsistent manner as between different companies and at a time of woeful economic conditions for the people who create the wealth, and the tax revenues, in this country is nothing short of scandalous. I should be grateful if my noble friend the Minister would use his best endeavours to convey this message to his ministerial colleagues at the Environment Agency.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Justice) 6:16 pm, 31st January 2013

My Lords, I begin with a warm welcome to the noble Lord, Lord Popat, who is answering his first debate. It is all the warmer for the fact that the two of us spent an induction day together some two and a half years ago.

To describe a politician as pedestrian is normally regarded as uncomplimentary but in the case of the noble Lord, Lord Bates, the opposite is true. He has raised £25,000 for charity with marathon walks, and last year walked no less than 3,000 miles to echo and highlight the Olympic peace campaign. I do not know whether, reflecting on the coalition, he had in mind the ancient battles between Athens and Sparta, and, if so, which part was Athens and which Sparta; nevertheless, I congratulate him not only on his pedestrian feat-if noble Lords will forgive the homonym-but also on securing this Conservative day debate.

Some 30 years ago at the height of the severe recession during the Thatcher Government, and with the north-east suffering from the effective collapse of the shipbuilding, heavy engineering and mining industries, councils in the region came together at my suggestion, along with Cumbria, to form what was then known as the Northern Regional Councils Association and which now survives, shorn of Cumbria, as the Association of North East Councils. At about the same time, local government and the private sector, with support from the government office in the region, formed the Northern Development Company-a partnership dedicated to working jointly to tackle the region's economic and industrial problems. In many ways, this presaged the creation by the Labour Government of One North East, the regional development agency.

During its lifetime, One North East helped to secure £2.7 billion for the region's economy, creating and sustaining 160,000 jobs and helping the formation of 19,000 new businesses. A remarkable transformation took place in the region's tourist industry, latterly worth £4 billion a year and becoming the second biggest growth tourist area in the country after London, while great strides were made, as we have heard, in the field of renewable energy. Until the global recession struck, the region had the second highest growth rate, after London, in the country. One North East was abolished in a fit of ideological pique by the Tory-led coalition-despite the initial support of Vince Cable-being effectively killed off with all the other regional development agencies, even while the Public Bodies Bill, which laid the groundwork for this deplorable action, was being debated. I described this at the time as pre-legislative implementation, and I am glad that the Constitution Committee is looking into this and other examples of a similar kind.

The noble Lord, Lord Bates, is a passionate advocate for the region. Indeed, I and others from the region share his pride in what the region has managed to achieve, despite all the difficulties, and we join him in believing that there is huge potential for building on that track record. The noble Lord initiated a similar debate in July 2009, when, again, he lauded at some length and with some passion the strengths of the region, and conceded in respect of the then Labour Government that,

"the Government care deeply about the region, and many good things are happening".

At the same time he correctly pointed out that more needed to be done in the areas of skills, enterprise and capital investment. He referred to,

"a series of abrupt social upheavals, rather than gradual adjustments to the new realities".-[Hansard, 14/7/09; col. 1114.]

I wonder what the noble Lord makes, or what the Minister makes, of the fact that the north-east-with unemployment at 9.8%, which is the highest of any region in the country-is sustaining the highest level of cuts in local government funding, with dire consequences which will, of course, impact on the local economy.

Young people and women in the region have been particularly hard hit by the recession and the abysmal lack of growth in the national economy in the last two years, and the much vaunted Work Programme, which replaced Labour's successful Future Jobs Fund, has been as dismal a failure in the north-east as elsewhere, as the National Audit Office has demonstrated.

The regional development agencies have been replaced by the cut-price regional growth fund, with a much truncated budget; and again, as the National Audit Office and the Public Accounts Committee pointed out in September, the regional growth fund has created few jobs at a very high cost. Meanwhile, the Government's links with the regions have been weakened by the abolition of regional offices, which were originally introduced by a previous Tory Government, and which in their day provided a useful two-way channel of intelligence and communication.

I remember the association of the noble Lord, Lord Patten, with the north-east during that period and the support that he gave us. I will not say that it is unfortunate that there is no Conservative representation in the north-east, but it is unfortunate that there is not at least a link to the north-east from the Government at ministerial level. Perhaps that is something that could be addressed.

In the debate in 2009 the noble Lord, Lord Bates, complained, not unreasonably, that public expenditure-capital expenditure-on transport in the north-east at £577 per head compared poorly with £1,637 per head in London. Again I have to ask what he-though of course he cannot reply-or the Minister makes of the latest figures in the Autumn Statement. They show planned per capita expenditure on transport-which a number of your Lordships have referred to as key; not the only area of investment, but a key one none the less-is now planned as £2,731 in London as against £5 per head for the north-east. That is 0.4% of the total of £1 billion, against 84% for London and the south-east. That will presumably worsen if HS2 goes ahead.

I share some of the concerns expressed by the noble Lord, Lord Patten, about the impact of HS2. I am inclined at least to wonder whether he-as well as other experts such as Professor John Tomaney, late of the north-east-is not right to wonder whether, since trains go in two directions, the principal beneficiaries will in fact be not in the north but in London.

The Autumn Statement announced £1 billion of investment in roads over the next three years, but even this will give small benefit to the north-east. We get 1.2 miles of new carriageway in Gateshead, costing £64 million, out of a three-year programme of £1 billion -which is 6.4%. Dunstable, on the other hand, will benefit from a new link road with 11.2 miles of carriageway, which is 10 times that in the north-east. That, according to a Written Answer given by the noble Earl, Lord Attlee, to a Question of mine, will unlock the potential development of 7,000 houses-which will no doubt attract new homes bonus at the expense of the north-east, by the way-and 4,000 jobs. Good luck to Dunstable, but we are not seeing that kind of investment with that kind of effect in the north-east.

However, it is not just a matter of money. As the Town and Country Planning Association pointed out some time ago, there is no planning framework for England; no coherent view of what is required to redress the imbalance between London and the south-east-both of which, in fairness, of course have their own marginalised communities, such as inner London boroughs or coastal towns-and the rest of the country. The Government's abject failure to promote renewable energy policies, in which the north-east is a leader, with Northumbria University pioneering work on photovoltaic cells, and what should be a thriving offshore technology industry, illustrates vividly their failure to promote economic growth and ensure that this is diversified.

Other policies will have the no doubt unintended consequence of weakening the region's prospects. Thus the threat of opting out of Europe is hardly likely to be conducive to attracting overseas investment, as the noble Lord, Lord Shipley, commented, where with government and RDA support the region has done well in the past-witness the success of Nissan.

The Government's immigration policies, again mentioned by the noble Lord, Lord Shipley, in so far as they discourage overseas students from coming to the UK, will threaten the region's universities, which have been highly successful in attracting students from the Far East and emerging economies with whom the UK needs seriously to engage. The interminable debate about a third terminal for Heathrow ignores the need for regional airports such as Newcastle's to be connected to the national hub and the growing international networks.

To be fair, there has been some progress. City deals have been agreed or are being negotiated in the region, for example, although the main benefit-the possibility of tax increment financing, a feature of the Newcastle city deal-looks to be both limited and, in any case, amounts only to permission to borrow against anticipated future business rate income. Indeed, the noble Baroness, Lady Hanham, made clear in her Answer to a Parliamentary Question of mine last year that city deals were about devolving powers, not government funding.

In the absence of a proper national growth strategy aimed at rebalancing the economy structurally and geographically, as advocated by the noble Lord, Lord Heseltine, the north-east is in danger of hobbling into the future when it should be striding into a better situation for its business and people. For all the enthusiasm that the noble Lord, Lord Bates, brings and that we all share about the region, and for all the hopes that we have for its prospects, we need a more deliberate policy on behalf of the Government to facilitate the desiderata that he advances and to which we all subscribe.

Photo of Lord Popat Lord Popat Lord in Waiting (HM Household) (Whip) 6:27 pm, 31st January 2013

My Lords, I pay tribute to my noble friend Lord Bates for securing this important debate and to all noble Lords who spoke today about the importance of, and the need to support and encourage, a strong north-east economy. I also pay tribute to my noble friend for his long-standing contribution to the economy and education of the north-east.

No one is under any illusions about the scale of the wider economic challenges we face. However, we are determined to tackle the long-standing local economic issues in the north-east, including historically high unemployment.

In recent years, traditional industries have given way to new knowledge-led enterprises, based on innovation, entrepreneurship and international competitiveness. Today, the region is leading the way in sectors from healthcare to life sciences, petrochemicals to low carbon technologies, while still keeping a strong base in such fields as motor vehicles and steel.

People in the north-east are responding to the real challenges of their economy. Whether that response is in the established industries in sectors such as the automotive, subsea, process and pharmaceutical industries, in the developing sectors in aerospace, software and the digital economy, or in the newer low-carbon manufacturing or printable electronics, private sector industries are leading the northern economy.

The north-east is a key part of the national economy; it accounted for over 3% of the UK's GVA in 2011, worth more than £40 billion per year. It is important for all of us that it is successful and prosperous. As my noble friend said, record export levels tell the story of the north-east's success-more than £14 billion in the year to end of September, up 6.7% on the previous 12 months. This strong performance means, as my noble friend rightly pointed out, that it is the only English region that exported more than it imports, with the exception of Newcastle's football team, which imported five French players only last week.

The Government's local growth policies aim to help all parts of the country achieve their economic potential. The Government are making every effort to support local growth through a variety of mechanisms for local areas, including the creation of 39 business-led local enterprise partnerships. Both the North East LEP and Tees Valley LEP, with strong business leadership, are already having an impact on their local economies.

With the new opportunities for local leadership that I outlined earlier, we are providing significant financial support to local economies, and I will summarise four of these key programmes. The £2.4 billion Regional Growth Fund is helping to rebalance the economy by supporting those areas and communities currently dependent on the public sector. In total, £280 million has been offered to projects across the north-east. Both North East and Tees Valley LEPs made successful bids to round 3.

Secondly, we are investing the £730 million Growing Places Fund to unblock stalled local infrastructure projects and stimulate further private sector investment. The North East LEP has received more than £25 million and Tees Valley LEP more than £8.5 million from the fund to help unblock infrastructure in the north- east. Close to £1 billion from the European Regional Development Fund was allocated to the north of England in the current EU finance round.

Areas outside the greater south-east are also benefiting from our commitments to provide funding for high-quality transport infrastructure, superfast broadband, the Green Investment Bank, apprenticeships and support for science. We welcome the involvement and engagement by the private sector in setting the economic priorities for infrastructure so clearly. We will work with both LEPs to be clear about priorities, but it is pleasing to note that both the CBI and NECC have been positive about the funding that has already been approved for developments on the A1.

Thirdly, the North East LEP and Tees Valley LEP were two of the first LEPs to be awarded enterprise zones which, through a combination of fiscal incentives and reduced planning requirements, will generate both businesses and jobs. The Tees Valley Enterprise Zone is expected to lead to the creation of 3,000 jobs and 166 businesses. The North East Enterprise Zone has already created about 320 new jobs, with many more to follow.

Finally, we want powerful, innovative cities able to shape their economic destinies, boost entire regions and get the national economy growing. The Newcastle City Deal alone aims to create around 13,000 jobs and secure £1 billion of investment over the next 25 years as a result of new financial powers. This is alongside an additional 8,000 potential jobs in the marine and offshore sector and 500 new apprenticeships in Newcastle. The noble Lord, Lord Sawyer, has already welcomed the City Deal initiatives. The second wave is aimed at the next 14 largest cities. Sunderland City Council, working with the North East LEP, and the Tees Valley LEP have both submitted proposals.

Many noble Lords mentioned youth unemployment. The recent unemployment figures do offer some welcome news. Our £1 billion Youth Contract significantly ramps up the support available for young people right from the beginning of an unemployment benefit claim. We are also creating 500,000 extra work experience and training opportunities, a guaranteed careers interview and more intensive support for jobseekers. For those young people still unemployed after nine months, the Work Programme will help them redouble their efforts to find work and to stay in it when they succeed. Apprenticeships are providing a record number of opportunities for individuals and employers. The year 2010-11 showed a record 455,200 apprenticeship starts. Final data for the year show that there were 34,550 apprenticeship starts in the north-east, a rise of 86.6%. The Government are actively encouraging the young unemployed to go into apprenticeships and build a career.

A wide range of points have been made by noble Lords and I shall endeavour to respond to as many as I can, but failing that, I am happy to write. My time is limited so I shall cover a few of the issues that were raised. I have sought to explain in my remarks that the Government are doing everything they can to create a business environment that will give companies the confidence to invest and grow. We are making a significant investment in the north-east. My noble friend Lord Bates has reconfirmed that, as did the noble Lord, Lord Sawyer.

However, it is not just for the Government to take action. It is vital that the public and the private sectors work together to grow the economy in the north-east. This is already happening with BIS Local and UKTI working alongside the private sector-led local enterprise partnerships as well as in partnership with local chambers of commerce. Such collaboration ensures that businesses have a seat at the table and their voice is heard. It is key to achieving economic regeneration and sustainable growth in the north-east and elsewhere. Success will require hard work, the ability to harness innovation, the winning of new business opportunities and effective support from Government.

The north-east is already home to Nissan, which is producing a third of all UK vehicles from its Sunderland plant and is growing its supply chain. We have seen investment by Vantec in Sunderland and Air Products in Tees Valley, both in their enterprise zones. To build on these successes is the reason we are going all-out to create a business environment that will give companies the confidence to invest and grow, and it is why local communities are being freed from central control so they can determine their own economic future in the north-east. The economic outlook for the north-east is good, but we have to do all we can to make it better.

I shall cover briefly some of the points raised by the noble Lord, Lord Sawyer, on the subjects of youth unemployment and apprenticeships. A real transformation is taking place across the whole country that also holds true for north-east England. The north-east was very reliant on public sector employment, but that is now changing. Now it relies more on the private sector. The noble Lord, Lord Beecham, mentioned that the rate of unemployment in the north-east is around 9.1% compared with 7.8% across the country, but that is changing fast with all the new initiatives that we have put together. I am sure that the future for the north-east is good and that it will get better.

The noble Lord, Lord Shipley, said that there are fewer jobs in the private sector and more in the public sector, but again I am pleased to say that that is changing quickly. The Funding for Lending scheme is very much at an early stage but we are seeing some examples of its success. Given time, I am sure that it will play an important role. The noble Lord also talked about implementing the reforms set out in the report of my noble friend Lord Heseltine, No Stone Unturned. A number of recommendations are being implemented. In fact the Chancellor announced in his Autumn Statement that some of my noble friend's recommendations are already in place.

I turn to the inward migration of students. Education is the third or fourth largest export earner. Lately we have not been doing very well in terms of the numbers coming to the United Kingdom, but that is solely because we have become more strict on students who come here and then sign up to bogus university courses. Obviously, however, genuine educational institutions and universities are open to overseas students. I think that the onus is on universities in the north-east to market themselves and welcome students, especially from the BRIC countries.

The noble Lord, Lord Shipley, talked about the UKTI and inward investment. UKTI is very proactive. It is now led by somebody who was a chief executive in the private sector. The job of UKTI is to help our exports but also to encourage inward investment, and I am glad to say that UKTI is quite active in the north-east anyway.

My noble friend Lord Patten mentioned broadband, which is something that we are now implementing and working on. He also mentioned high unemployment, which we are addressing in the north-east. I can tell my noble friend that the level of unemployment today is much less than it was in the late 1980s and early 1990s in north-east England. So there is a marked improvement. Credit goes to a number of different agencies, working hard and supported by the Government.

I now turn to the comments made by the noble Lord, Lord Beecham, about the north-east. I know that the noble Lord is passionate about the north-east, as are the noble Lords, Lord Shipley and Lord Sawyer, and my noble friend Lord Bates. Despite their different political ideologies, they all have love and affection for the north-east, and work hard for the region in which they have been involved for so many years.

I think that I have covered most of the areas that the noble Lords have mentioned in their speeches. One that was mentioned in particular was the regional development agency, which we have scrapped. However, four different organisations-the regional growth fund, the Growing Places Fund, City and Guilds and enterprise zones-have replaced that one organisation. Perhaps the regional development agency did particularly well in the north-east but, overall, we knew at the time when we scrapped it that it was not value for money for taxpayers. Some areas did not perform that well, while others did. I think we will come with better schemes to encourage enterprise and inward investment and to support businesses.

SMEs were also mentioned. In fact, in your Lordships' House we set up a cross-party committee to see what we could do to help SMEs to export more. I do not want to prejudge the outcome of the report, which will be published at the end of February, and I am sure that we will debate that report.

I hope that I have dealt with all the issues raised, and I thank noble Lords for giving me the privilege of responding to this debate, which has turned out to be very interesting because there has been a lot of agreement among all the speakers on the subject.

House adjourned at 6.42 pm.