Regional Policy

Part of the debate – in Westminster Hall at 11:04 am on 7th January 2003.

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Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr 11:04 am, 7th January 2003

Before I begin my speech, I wish to draw hon. Members' attention to the fact that I am a director of an economics consultancy, as is set out in the Register of Members' Interests.

Regional issues have moved up the political agenda over the past two years, so it is fitting that we are discussing regional policy so early in the new Parliamentary year. Since the previous Parliament the Government have radically redefined their position on regional policy. Three years ago the Prime Minister, armed with a Cabinet Office report, declared that the very idea of a north-south divide was misleading and misplaced—but since then the Government have had to accept the undeniable evidence that there are significant regional economic disparities, and they have even set themselves the target of reducing those disparities over the long term. It therefore came as a surprise to read that Mr. Ed Balls of the Treasury was back in regional divide denial mode. Just before Christmas, he told a conference in Leeds that there were vacancies in every part of the country: in Sheffield, Wakefield and Bradford—and, no doubt, in Pontefract and Castleford. However, I hazard a guess that the vacancies in Leeds, North-West, Halifax and Hull, North were at the forefront of his mind.

Most Members present would accept—at least in private—that the United Kingdom economy is deeply divided and that those divisions are widening. That was all but admitted in a remarkably candid Treasury publication produced at the time of the pre-Budget report of 2001, which set out what the Government have dubbed their new regional policy. The Government are more honest about the regional divide than ever before, and more focused on it. They have even talked about bridging the growth gap by the time of the next general election. However, the problem is that the policies that have so far been espoused neither bear any relation to the scale of the problem nor offer any realistic hope of providing a solution to it. In other words, the Government have willed the ends without willing the means, and I wish to explore that contradiction.

To put the matter in the simplest terms, the northern half of the UK is poorer than the south, and it is getting still poorer. According to the OECD, the UK has a higher level of inequality of prosperity between its territories than every other OECD country except Mexico. That prompted the TUC to claim that the UK was suffering greater regional equality than parts of the third world. Even the Government's own figures, from the Office of the Deputy Prime Minister's state of the region tables, the Department for the Environment, Food and Rural Affairs' regional quality of life indicators and the Department of Trade and Industry's regional competitive index, all point to a persistent gap between the economic performance of northern regions and the UK as a whole.

Until the mid 1970s regional inequality was diminishing. However, that gap has grown again over the past 25 years, and has become a gulf. The figures are startling: in the mid 1970s no British region had GDP levels lower than four fifths of the south-east average, but by 1999 no British region outside the prosperous inner core had value added levels as high as four fifths of those in the south-east. In the north—the north-east and north-west taken together—GDP per head fell from 86 per cent. of the south-eastern level in 1975 to only 70 per cent. in 1999; in Wales it fell from 81 per cent. to 66 per cent.

In 1997 it was widely thought that the incoming Labour Administration would adopt a more redistributionist approach to economic policy that would help to slow, if not arrest, the growing disparities in wealth and economic performance between south-east England and the rest of the UK—but the opposite has been the case. A recently published competitiveness index for the UK shows that the three best performing regions—London and the south-eastern and eastern regions—have widened their lead over the three worst by more than 30 per cent. since 1997, and that the gap between London and the north-east has grown by more than 35 per cent.

It is true that regional differences in claimant count unemployment have narrowed, and they are now at their lowest levels for 30 years. Ministers have often used that as evidence that the UK has solved its regional problem, and the north-south divide is dead. That is a deeply flawed and dishonest argument, because, as Labour knew all too well in opposition, the claimant count data seriously underestimate the true extent of joblessness in the economy as a whole, and in the weaker regions in particular.

As the recent study by researchers at Sheffield Hallam university and the university of Warwick has shown, the official unemployment count excludes about 2 million people who were parked on sickness benefit, pushed into retirement or prevented from claiming jobseeker's allowance. Hidden unemployment masks a more severe north-south divide than that which shows up in the official figures. The rate of real unemployment in Liverpool, Glasgow, and parts of the north-east and south Wales is running at more than 20 per cent., compared to about 3 per cent. in the south. The scale of the challenge is clear. The question remains whether the policies are sufficient to the task.

The so-called new regional policy is based on the idea of indigenous development and at its core has been the creation, in England, of the regional development agencies, which have been given the task of raising the regions from below. However, regional policy was not, classically, a matter of raising regions from below, or of their lifting themselves up by their bootstraps. It was a matter of redistributing wealth and activity between regions. If the new regional policy is based on what Ed Balls famously dubbed post-neoclassical endogenous growth theory, the old regional policy was social democratic and Keynesian. Its focus was on the ideal of territorial equity.

The Government's commitment to that ideal remains unclear, because they reject classical regional policy, which they say was based on subsidy and failure. It may have been crude, and it was certainly expensive, but regional policy in the 1960s and 1970s was certainly no failure. In a relatively short time a new layer of industry was grafted on to places such as the north-east of England, south Wales and central Scotland, along with motorways, new towns and other infrastructure to support them. That process created hundreds of thousands of jobs in the areas of greatest need.

Many of the firms that were diverted into the assisted areas in the late 1940s, or in the 1960s and 1970s, are still there today. Morgan Marine in my constituency was attracted to Llandybie in 1967 and is now the largest private sector employer in the area. The end—or, as I like to think of it, the beginning—of the M4 is the last place where a supplier of prefabricated sheds for utility companies, often requiring a police escort for delivery, should be located. It is there as a direct result of what Mr. Balls has disparagingly called ambulance chasing, but I prefer to see as intelligent intervention.

Unfortunately, the policy of active relocation of industry was one of the early victims of the oil crisis, and latterly of Thatcherism. Between 1975 and 1995 the real value of UK regional aid was reduced to less than one ninth of its 1975 level, and it has remained at that level ever since. Solving the regional problem outright would have required three times the number of jobs that were actually created in the 1960s. However, at least a serious attempt at convergence was made, with funding on a scale far better than anything in new Labour's new regional policy. It worked for a while—but then the mechanisms were dismantled and the north-south divided opened up again.

The Government have set themselves a target of closing the growth gap, but, apart from the rhetoric, no formal policy or sustainable strategy is in place for achieving that ambitious objective. The new regional policy does not deal with the north-south divide. It could well exacerbate, rather than alleviate, the disparities, precisely because it is designed to raise regional growth across the board, rather than to make improvements in the north relative to the south. If the new regional policy were really intended to bridge the divide, regional development agencies would have been created only in the north. The same would be true of the regional venture capital funds.

The fact is that the Government will not acknowledge in clear and unambiguous terms the need for explicitly discriminatory measures to encourage development in regions that are lagging behind. If the issue were not so serious, it would be comical to suggest that depressed regions could somehow regenerate themselves from within, against the backdrop of the overwhelming economic dominance of the south-east.

London and its dormitory regions have captured the science base and the trained human capital that are the key drivers of competitiveness in the knowledge economy. Proportionately, London has three times as many graduates as the north-east. In the east and south-east, spending on research and development is about 3 per cent. of regional GDP, but in the north-east it is only 1 per cent. That is partly due to the fact that there is currently no Government research and development expenditure in the north-east. Wales fares little better.

This is a "winner takes all" economy. Successful regions in the south can continually add to their existing advantage by attracting more, and better-qualified, workers, while poorly performing regions are locked into a vicious circle of underdevelopment. Adopting a policy of refusing to intervene in the location decisions of firms condemns those of us who live in the separate countries and the regions of the north, not to the status quo, but to a worsening spiral of decline.