INTRODUCTION: THE OPPORTUNITY TO TACKLE REGIONAL DISPARITIES

  The persistent gap in prosperity between the regions of the United Kingdom is socially unjust and economically inefficient.

  It is unacceptable that someone born in the North East of England is likely to have a shorter life, achieve fewer qualifications and earn less than someone born in the South East. It is also unfortunate that those living in the South East suffer poor quality of life due to overcrowding and congestion. And, in an era of intense global competition, it simply is not viable that large parts of the UK should continue to contribute less to the national economy than others.

  The North East Assembly welcomes the Public Service Agreement target to reduce the persistent gap in growth rates between regions. We believe that meeting this target is essential if the Government is to meet its wider aims for the country—social justice, economic competitiveness and sustainable development.

  Government policy has succeeded in improving every region. However, as the statistics below show, the pattern of growth is very unbalanced across the country. There are persistent low levels of employment and income in poorer regions, contrasting with escalating congestion, house price inflation and labour market shortages in more prosperous regions.

  The North East is clearly the most deprived part of England:

—  36% of the North East's population lives in wards ranked as the most deprived 10% in England. Only 2% of the population of the South East region lives in areas with this level of deprivation.

—  Only 2% of the people of the North East live in wards ranked among the least deprived 10% in England. 24% of people in the South East live in such wards.

—  The North East has more of its population living in the most deprived 30% of wards than any other region in England. Only 15% of the North East's population lives in wards ranked among the least deprived half of wards3.

  We believe that the Government has created the right conditions to be able to achieve what no government of the twentieth century could: to successfully tackle these regional disparities. Seizing this opportunity requires just two more steps:

—  Placing regional issues at the heart of Government decision making on taxation, spending and policy issues.

—  Establishing a strong, democratic leadership at regional level to drive forward the Regions' agendas for balanced, sustainable growth.

  The time is now ripe for a strong regional government, working with a strong regional economic policy, to solve the long-standing regional problem in the UK.

THE IMPORTANCE OF ACHIEVING THE TARGET

  Reducing regional disparities is an essential part of the Government's objectives of providing social justice, improving national competitiveness and supporting sustainable development.

CURRENT REGIONAL POLICY IS NOT REDUCING DISPARITIES

  Current economic policy has resulted in real improvements for the North East. The Regional Economic Strategy, led by the Regional Development Agency, One NorthEast, is reaping benefits for the Region. Within the current period of stable economic growth, activity has risen and unemployment has fallen in every region of the UK, including the North East. We welcome the current approach to economic development policy as one essential part of what is needed to create balanced, sustainable growth.

  However, there is little evidence that the current approach can succeed in reducing regional disparities, because it does not tackle the underlying causes of inequalities between regions. Each region is working to build on its strengths, so regions that are already strong are likely to improve more quickly than those that start from a weaker position. This tends to reinforce the concentration of activity in successful regions, at the expense of regions like the North East. So, regional disparities are unlikely to decrease, and the North East will continue to lag behind other regions in employment and economic activity, as shown in the graphs below.

  There are three fundamental ways in which current policy benefits the South East and disadvantages the North East and similar regions: by reinforcing the uneven distribution of the rapidly growing knowledge economy, by concentrating transport investment in the congested South East at the expense of the North, and by accommodating housing pressure in the South East rather than easing that pressure by investing in the North.

An Unbalanced Knowledge Economy

  Encouraging clusters of knowledge intensive businesses is at the core of current economic policy. Such clusters usually develop around initial concentrations of specialised knowledge and skilled labour that are often strongly affected by public activity and expenditure on Research and Development (R&D). As shown in the graph below, the North East and similar regions are under-represented in public R&D. Where a strong knowledge economy already exists, clusters can generate a virtuous cycle of reinforcing knowledge-based growth. Where they are absent, as in the North East, regions can find themselves unable to generate sufficient "critical mass" of knowledge-based activity.

  Current regional policy concentrates on encouraging the virtuous cycle of knowledge-based development in all regions, and fails to recognise the importance of the initial factors that encourage firms to develop or locate in a particular area. The result of this is an increasingly unbalanced knowledge economy across the UK, with the advantages of the South East being built on and strengthened, while other regions fall ever further behind.

  Therefore, at present regional policy has the effect of worsening the imbalance of the knowledge economy.

An Unbalanced Transport System

  As the table below shows, investment on major roads is currently focussed on reducing the congestion caused by growth in the South East, rather than on improving the accessibility of regions such as the North East. A similar pattern exists for rail and air transport. This means that economic growth can continue to be concentrated in the South East, causing problems of further congestion, labour market shortages and loss of quality of life, rather than encouraging growth outside of the South East.

  Improving accessibility is vital for the competitiveness of the North East. Given the relatively small regional market, access to national and international markets is of critical importance to the Region's businesses. If the current approach to transport policy continues, regions like the North East will continue to be relatively inaccessible and unattractive locations for business, and growth will continue to be concentrated in the South East.

An Unbalanced Housing Market

  Government is currently planning to invest heavily in new housing areas to meet the need for affordable homes in the South East, while there is a lack of demand for housing in many areas of the North East and other regions. This is reflected in the allocations for public investment in housing, which gives £19.95 million to the North East (£7.74 per head) compared to £77.73 million to the South East (£9.58 per head) 4. This current approach of accommodating increasing demand in the South East, rather than investing in other regions to encourage growth elsewhere, may ease immediate pressures on the South East, but in the long term it is self-defeating. It can only increase the pressure on the South East, draw more people away from the North East, and so increase regional disparities.

THE IMPACT OF CURRENT REGIONAL STRATEGIES AND WHETHER THE INTRODUCTION OF THE REGIONAL DEVELOPMENT AGENCIES HAS CONTRIBUTED TOWARDS A REDUCTION IN, OR INCREASED DISPARITIES

  The current approach to regional policy, focussed on the Regional Development Agencies, is to maximise the economic potential of their region. The distribution of investment encourages further development in the already over-congested South East, further harming that region's quality of life, while continuing to under-invest in the future of regions like the North East.

  This tends to reinforce the current pattern of regional disparities.

REGIONAL GOVERNMENT WILL HELP TO REDUCE DISPARITIES

  Part of the solution to tackling regional disparities is to continue to devolve power, decision-making and public activity to the regions.

  More effective, co-ordinated public policy could significantly improve the performance of the North East. A strong regional governance structure, with clear lines of accountability, would ensure that the various agencies working to improve the North East did so in a joined up and efficient way. Devolution of control to regional level would ensure that policy reflects real regional needs. Alongside this, locating more strategic public bodies in the North East would ensure that policy reflected regional needs as well as distributing employment more evenly between regions.

  People in the North East have long expressed their desire for directly elected regional government as part of the solution to the Region's problems and to strengthen the democratic accountability of public agencies in the region. Regional Government should be able to ensure that policy meets regional needs, is well co-ordinated and effective. As importantly, it would boost the self-confidence and belief of the people of the North East that they can and will make a difference to the future of their Region.

  However, we believe that the current proposals for elected Regional Assemblies offer rather limited powers and resources, and so will only be able to have a relatively limited impact on regional disparities. We view the proposed Regional Assemblies as a first step towards effective regional government that could help to significantly reduce regional disparities.

Whether the proposals for regional assemblies will make a difference to the achievement of this target?

  We believe that strong regional government can improve regional performance, through better design and delivery of policy and a sense of regional self-confidence and direction. The proposals for Regional Assemblies are an essential step in enabling the North East to raise its performance.

Whether Government departments, agencies and non-departmental public bodies should be moved to less prosperous regions?

  The North East has a lack of high level public employment. The location of senior agencies in the region would give a boost to employment and demand in the Region, and would help to ensure that the Region's needs were reflected in policy making.

NATIONAL POLICY NEEDS TO ADDRESS REGIONAL DISPARITIES

  The Government's stated regional economic policy is to "ensure that every region has the opportunity to match the economic performance of the most successful". The current approach to regional policy cannot achieve this equality of opportunity. A stronger approach to regional issues is needed, that places regional issues at the heart of Government decision-making.

  Alongside a dedicated funding stream and tax incentives for regional policy, which are discussed further below, there is a need to improve national policies to reflect regional needs. Policy decisions on housing, planning, culture, inward investment and regeneration all need to take account of the regional dimension. This would encourage development in the north and help to reduce the pressures on the South East, and so promote sustainable, balanced growth.

  In terms of the key issues discussed above, if the North East is to have an opportunity to match the performance of the South East, it needs:

A balanced distribution of public research activity

  To help build a balanced knowledge based economy across the UK, it is important that publicly funded research activity—both in higher education and public research institutes—is more evenly distributed around the country. This would mean increasing the North East's share of direct Government research expenditure by £90 million per year, and its share of Higher Education research funding by £35 million per year.

Transport investment to improve regional accessibility

  In order to realise the economic potential of regions such as the North East, it is essential that transport policy gives greater weight to improving accessibility and encouraging economic growth, rather than solely tackling congestion. Doing this would mean that we could invest to increase the North East's air, rail and road transport capacity to meet our strategic transport needs, which are essential to achieve the Regional Economic Strategy. We estimate that delivering the priorities identified in the Regional Transport Strategy for the North East will require at least £1 billion.

Regional housing market renewal

  In the context of the recently launched Communities Plan, there is a pressing need to invest in the long-term future of housing markets of the North East and similar regions, in addition to meeting immediate needs in the South East. The North East's Housing Strategy and Regional Spatial Strategy will identify the need to build on the work of the Newcastle-Gateshead Housing Market Renewal at regional level. This will require bold and positive support from Government, through both funding and planning allocations.

  A coherent regional policy that covered all areas of Government policy would release the potential of under-performing regions. At the same time, it could relieve the pressure on the South East, so freeing up its capacity for further, more sustainable growth.

Whether a coherent national policy can be achieved and if so how?

  All aspects of Government policy should help to reduce regional disparities and promote sustainable growth. Planning, transport and housing policy should aim to encourage development in the North rather than accommodating further pressure on the South East.

What changes to policies are required to achieve the target?

—  Redistribute public scientific research to boost the knowledge economy of regions like the North East.

—  Prioritise transport investment in improving regional accessibility.

—  Support the North East Housing Market Renewal Strategy.

DEDICATED FUNDING CAN REDUCE REGIONAL DISPARITIES

  If the North East is to have the opportunity to match the performance of Scotland, let alone the South East of England, it needs to have stable, dedicated funding that reflects its needs. Scotland, Wales and Northern Ireland have long benefited from secure levels of public funding higher than the North East, and have succeeded in improving their relative positions.

  Despite having the widest and deepest deprivation of any UK Region, the North East receives only slightly more than the UK average level of funding per head, and £410 per person less than Scotland receives.

  The Assembly welcomes the moves that the Government is taking to examine the distribution of funding between the English Regions, and to include regional considerations in spending decisions. It is important that these developments lead to a stable, fair and transparent system of allocating public expenditure to regions.

  There is also considerable scope for imaginative use of regionally targeted tax incentives to support the Government's regional objectives. For example, the recent tax incentives for deprived areas could be extended to cover wider regional or sub regional areas of deprivation. This is an area that we believe merits further investigation.

  We have already set out our analysis of the needs of the North East, and the rationale for a dedicated funding stream to tackle regional under-performance and deprivation. We estimate that such a funding stream would need to provide an additional £1 billion per year to the North East by 2006. This would bring the North East up to close to the level of funding per head that Scotland receives under the Barnett formula.

What lessons can be learned from past regional policies?

  Scotland, Wales and Northern Ireland have benefited from stable, high levels of funding to reflect their needs. As a result, these countries have improved their relative position, overtaking the North East in the process.

How much additional funding is needed in the poorest performing regions?

  Regions should receive a stream of dedicated funding based on their level of need. We are confidant that with an additional £1 billion per year, the North East could raise its performance and help to reduce regional disparities.

CONCLUSION

  Having created a stable economy, raised educational achievement and reformed the tax and welfare system to encourage work, the Government now has an historic opportunity to tackle the regional problem that has long plagued the UK. This would provide equal opportunity for the people of regions such as the North East, and help to make every part of the UK more prosperous and more competitive.

  The Government's target to reduce disparities between regions is vital, challenging and long overdue. Achieving this target will require taking the next steps in creating a new regional policy and regional government in England, and investing in realising the potential of the Regions. Regional balance is an essential part of social justice, economic efficiency and sustainability, which this Government has a unique opportunity to achieve.

North East Assembly

January 2003

NOTES:

  1.  All data is taken from Regional Trends 37 (2002) except where indicated otherwise.

  2.  Source: DFES 2002. National comparator is England, not UK.

  3.  Source: Index of Multiple Deprivation 2000.

  4.  Includes Housing Improvement Programme and Major Repairs Allowance, 2002/03 figures.