For the United Kingdom

A new regional policy

for the United Kingdom

Interim Report

John Adams and Peter Robinson

A new regional policy for the UK – interim report

About ippr

The Institute for Public Policy Research (ippr), established in 1988, is the leading independent think tank on the centre left. The values that drive our work include delivering social justice, deepening democracy, and increasing sustainability in relation to the environment and public services. Through our well-researched and clearly argued policy analysis, our publications, events and media profile, our strong networks in government, academia and the corporate and voluntary sector, we play a vital role in maintaining the momentum of progressive thought.

ippr’s aim is to bridge the divide between liberalism and social democracy, the intellectual divide between the academics and the policy makers and the policy-making establishment and the citizen. As an independent institute, we have the freedom to determine our research agenda. ippr has charitable status and is funded by a mixture of trade union, trust, corporate and individual donations.

Research is ongoing in the areas of economics, sustainability, health and social care, citizenship and governance, education, democracy and community, corporate social responsibility and public private partnerships.

For further information about ippr you can contact ippr’s external affairs department on , you can view our website at www.ippr.org and you can buy our books from central books on 0845 458 9911 or email .

This report is part of a yearlong project exploring how we can tackle regional economic disparities. We want to identify workable policy solutions to this serious public policy problem. Our independence and charitable status means that our findings and conclusions are ours alone. This means we can plot new routes to a regional economic policy without fear of alienating particular sectors, and can strive to help develop a policy which is in the best interests of all the citizens of the UK.

For further information on the project, A new regional policy for the UK, please contact:

John Adams

Senior Research Fellow

Institute for Public Policy Research

30-32 Southampton Street

London

WC2E 7RA

Tel: 020 7470 0033

E-mail:

December 2002

Contents

Preface / iii
Executive summary / iv
Introduction / 1
Regional policy 2020 – a vision of a sustainable UK / 4
A snap-shot of regional disparities / 9
Identifying the policy tools / 15
Endnotes / 19
References / 20
Appendixes / 23

Preface

About the Authors

John Adams is a Senior Research Fellow at ippr, with responsibility for devolution and regional economic policy. A trained barrister, he helped draw up the Labour Party’s proposals for devolution prior to 1997 and was Special Advisor at the Welsh Office from 1997-1998. He has worked for Campaign for the English Regions, where he is still a Board Member.

Peter Robinson is the Senior Economist at ippr, and editor of ippr’s journal New Economy. He has been closely involved in many aspects of ippr’s work – he was a co-author of Building Better Partnerships from the Commission on Public Private Partnerships and of A New Contract for Retirement. He is also a Research Associate at the Centre for Economic Performance, and teaches at the LSE.

The authors have also co-edited Devolution in Practice: public policy differences within the UK. This was the first systematic examination of the impact of devolution on public policy areas, such as health, education and economic development

Acknowledgements

The authors would like to thank all those who attended a seminar in the offices of UNISON North in Newcastle in November 2002.

We would also like to thank Professor John Tomaney (CURDS, University of Newcastle), Professor Kevin Morgan (Cardiff University) Professor Ian Gordon (LSE) and Professor Harvey Armstong (University of Sheffield). Within ippr we would also like to thank James Hulme, Sue Regan, Matthew Taylor and Beatrice Stern.

The ippr would not be able to conduct any research without the kind support of our sponsors. Without their willingness to invest in and contribute to original and independent research this project could not have been undertaken. We would therefore like to Yorkshire Forward, the London Development Agency, ONE North East, Northern Ireland Government Departments and the ESRC Devolution Programme. The Housing Corporation has contributed towards the costs of the economic and demographic analysis on which this project is based.

The findings of our research, however, do not necessarily represent the views of our funding partners.

Executive Summary

John Adams and Peter Robinson start this report by explaining why regional economic policy is important, and by developing the conceptual themes upon which a strong regional economic policy must be based. They conclude that there are five key objectives that must be included in a new regional policy for the UK in 2020:

· The centre-left will have recognised that territorial justice is an integral part of delivering social and economic justice for individuals

· The UK will have substantially closed the long-term differentials in regional economic performance

· There will be a better understanding about the relationship between regional and industrial and urban policy

· The debate on regional disparities will have moved beyond a simple reliance on GDP per head

· The UK government will have developed its quasi-federal role in balancing the needs of the UK’s nations and regions

The evidence clearly demonstrates significant differences in regional income per head within the UK. There is a broad ‘North-South’ divide - with a ‘winners circle’ in the greater south east of the UK (consisting of London, the East of England and the South East regions). There are three regions that lag significantly (Northern Ireland, Wales and, the poorest region of all, the North East).

The authors note that, at its most basic level, regional economic prosperity is the product of regional variations in productivity and employment. The relative importance of these differs from region to region. The low GDP per head of regions such as Wales and the North East is explained in large part by low levels of employment; their productivity levels are similar to many regions with higher GDP per head. On the other hand, the South West has above average levels of employment but relatively poor productivity. London’s relative prosperity is due to its high levels of productivity, though it has mediocre rates of employment.

The authors stress the need for full employment in all UK regions, particularly as the Government’s regional employment agenda is less developed than its regional productivity agenda. Tackling low employment in a prosperous region is different in character to tackling low employment in a lagging region. London has a healthy jobs market a few miles away from pockets of high unemployment – the barriers here include: lack of skills, lack of information, and often discrimination. The Government’s main employment measures seem to have been designed to tackle these supply-side problems: the New Deal; the National Minimum Wage and reforms to the tax and benefit system; the emphasis on skills, education and training; and measures to tackle discrimination and promote equality.

On the other hand in a lagging region such supply-side measures may not be fully effective in the absence of demand-side measures – put crudely, there are fewer job opportunities within a reasonable travel-to-work distance. While Wales, Northern Ireland and the English regions do have some centres of prosperity (notably the larger cities) this is not sufficient to negate the demand-side deficit. The unemployed in Hackney and Hartlepool require very different policy tools to increase levels of employment.

The authors then approach the issue from a different standpoint, using the Government’s measures of poverty. The key indicator of relative poverty is the proportion of individuals living in households where income is below 60 per cent of the median. These figures also reveal significant regional differentials. You are at a much lower risk of poverty if you live in regions such as the East of England or in the South East than if you live in the North East or Wales – but also if you live in the West Midlands or London. The conclusion must be that while the evidence does confirm a ‘North-South’ divide, the complexities of the situation cut across this somewhat broad-brush description. Both inter-regional and intra-regional disparities deserve attention, but the appropriate policy response for London is different to the appropriate response for the North East.

In theory, the market should act to reduce regional disparities – workers would move from depressed low-wage regions to high-growth, high-wage regions. This would depress wages in richer regions and increase wages in lagging regions. The fact that regional economic disparities have remained consistent over the decades would seem to indicate a failure of the market to work smoothly.

There seem to be three solutions to this problem: encourage workers to move south; restrict development in the south; or create new jobs in the north.

Encouraging inter-regional migration has serious repercussions for the donor regions. The migrants would probably disproportionately consist of young people with qualifications, as the older or less qualified tend to remain where they are. The high-cost of housing in the South would make it difficult for less qualified workers to move. A dynamic region that absorbed better-qualified workers would then gain a further competitive advantage, creating a vicious circle for lagging regions. This process would also create further pressures on housing and land-use in the recipient regions, which is not obviously in their interests.

Development controls in the south cannot guarantee that capital will indeed travel north, but restricting supply can guarantee that land and house prices will increase. It will be the poor who suffer from such a policy – in the South it will be the least advantaged who have the greatest difficulty in paying increased housing costs, and for those in the North the option of inter-regional migration will be even less likely. There may be valid environmental reasons to restrict development in the South, but we have to question the implications for economic development. The emphasis should be on ‘pull’ not ‘push’ factors.

The best course of action for decision-makers to solve regional economic disparities is to create new jobs in lagging regions – full employment for every part of the UK. This will require a judicious balance between top-down and bottom-up initiatives. The Government have a convincing narrative about the importance of bottom-up regionalism, but the role of central government is much less developed: for example in science and innovation policy, in public expenditure decisions and in sectoral and industrial policy.

In the final section of the report the authors examine the policy tools that can help tackle regional economic disparities. HM Treasury highlights five key drivers for regional productivity: skills, investment, innovation, enterprise and competition. However, the authors stress that we must also consider the effects of each of these on regional employment. They also pick up two points not addressed by the Treasury analysis: the efficiency of the labour market, and the importance of the interaction of labour and housing markets.

A new regional policy for the UK – interim report

Introduction

There is nothing new in highlighting the significant regional economic differentials that exist within the UK1. While there are significant disparities within regions, at the same time some regions are quite simply poorer than others. There are, however, good reasons why the issue has risen in importance and why the current government will have to rethink its approach:

· despite reasonable overall economic growth in the UK, regional differentials in GDP per head are increasing (given current trends, by 2020 GDP per head in the North East could be half the UK average)

· the devolution of power to Scotland, Wales, Northern Ireland and London has institutionalised the territorial dimension in UK politics. The possible move towards elected assemblies in some at least of the regions of England will give added impetus to territorial politics within the UK.

· the enlargement of the EU will mean that sometime after 2006 the poorer UK regions will cease to receive the same degree of EU structural funds on which they currently rely so heavily. UK regional policy will therefore have to be re-nationalised.

Regionalism is, therefore, rising up the political agenda. Within the Cabinet, the sustained regional voice provided by the Deputy Prime Minister has been supplemented by the interesting rise of HM Treasury as champions of Labour’s ‘New Regional Policy’, developed during its first term in office (see for example Balls and Healey 2000).

While a radical break with the relative neglect of regional policy under the previous Conservative government, Labour’s ‘New Regional Policy’ was still in essence a regional economic development strategy. The explicit aim of policy was to raise the level of prosperity in each region, through policy tools that applied equally to the different parts of the UK. Thus RDAs were created in all nine of England’s regions to match the existing development agencies in Scotland and Wales. Furthermore the Government’s emphasis on employability and its commitment to promoting knowledge and enterprise applied equally to all ‘regions’ of the UK.

This cannot truly be described as a regional economic policy, at least in the sense of targeting the lagging regions in order to narrow gaps in economic prosperity between the UK regions. It was more akin to a national industrial policy that treated unequal territories equally (albeit in part regionally administered). This approach was best encapsulated in the wording of the DTI's 2000 Public Service Agreement target to “improve the economic performance of all regions” (Table 1, emphasis added).

However, in their second term it seems that the Government wishes to move forward. Firstly in the HM Treasury / DTI report Productivity in the UK: 3 – The Regional Dimension (the Chapter 3 report) published in Autumn 2001 and then, secondly, in the 2002 Spending Review, the Government has committed itself to reducing regional economic disparities (Table 1). The implications of such a radical commitment are enormous, and further research in this project will try to map out the new routes to a regional economic policy that the Government might follow.