The Committee has resolved to undertake an inquiry into how the Office of the Deputy Prime Minister is going to achieve its target to "reduce the persistent gap in growth rates between regions". The following is the Campaign's response to certain questions asked by the Committee focusing particularly on the importance of achieving the targets and how these can be achieved.

1.  THE IMPORTANCE OF ACHIEVING THE TARGET OF REDUCING PERSISTENT GAPS IN THE GROWTH RATE BETWEEN REGIONS

  1.1  By far the most significant development in terms of the regional agenda was the Chancellor's commitment as a PSA target to "make sustainable improvements in the economic performance of all English regions and over the long term reduce the persistent gap in growth rates between the regions, defining measures to improve performance and reporting progress against these measures by 2006." [19]

  1.2  The Productivity Report published some 18 months ago made a commitment to bridge the regional divide as a priority in the next public spending round (Spending Review 2002). It also outlined the Government's new regional economic policy based on indigenous, bottom-up growth and devolving power to regional agencies like Regional Development Agencies (RDAs). This was the first comprehensive analysis of regional economic policy since the 1970s and signalled a shift in government thinking. Significantly the Government's new regional economic policy runs parallel to their commitment to decentralisation and devolution.

  1.3.  However one of the most important things about the Productivity Report was the frank admissions of the depth and breadth of the inequalities within and between the English regions. The UK has the highest variation in GDP per capita of any EU country with a co-efficient of variation at around 34[20]. The next highest is Italy at around 27. Other significant features of the regional picture across England include: the poorest regions (NI and NE) have a GDP per capita nearly £7,000 or 40% below that of London; London has the highest output per worker with large productivity differentials existing at sub-regional level; variations in skills composition and significant variations in educational achievement across regions; Research and Development as a proportion of GDP by region is three times higher in the SE and Eastern regions than in Yorkshire and the Humber. [21]

  1.4.  Issues around labour mobility compound the problems. As the Deputy Prime Minister remarked "We need more homes where people want to live, near where they work, in the North and in the South, at a price people can afford and in a way that protects the countryside." [22]The linkage between economic disparities, market failure and affordable housing are inextricably linked and are, according to a Guardian article last year, "the embodiment of the growing divide between rich and poor in Britain and the north—south divide".[23] The quarterly Halifax housing reports continue to show the growing divide in house prices between rich and poor areas.

  1.5  The implications for this are immense. The service sector has expanded by 25% since 1995, compared with 2.75% for manufacturing[24] and most of that is in the hi-tech sector in the south. Research activity and funding that favours the high skilled south and the Cambridge corridor compound this. London gets a fifth terminal—the North East has not even got a motorway. The problems continue. High skilled workers migrate to prosperous regions, pushing up prices in the south, leaving the low skilled to a totally different property market. High wages fuel the housing market, low wages depress property values. Those who own property in a buoyant market use rising house prices as a personal pension plan. Meanwhile those who live in properties that are not rising in value, or where there is negative equity, or those living in council homes or housing association homes (one fifth of the population) have to rely on state pensions. [25]

  1.6  A degree of realism has to be injected into all of this. The South East is one of the top ten performing economies in the world (Yorkshire and Humber has an economy equivalent to Chile and Hungary) so that exacerbate gaps and differentials. Neither can you hope to have all regional economies operating at the level of the South East. Nor can we relocate the core of that economic growth that is largely built on the fact that London is one of the major financial capitals (relocation of that would not be to the regions but to another capital such as Paris). Notwithstanding those remarks significant widening has taken place in recent years that cannot be explained around the positioning of London and South East, ie London been one of the world's top financial capitals for many decades—the gap has widened in last 10. Therefore there are other explanations.

  1.7  Inherent market failure and persistent failure to address deep rooted and structural problems underpin much of this. Many commentators point to developments in the 1920s and 1930s, which set in train a pattern of events that are the root cause of the disparities. In the recent past attempts to explain this have largely centred around micro economic theory. It is only more recently that a more holistic approach has been applied to explain the causes of inequality and uneven development. Interesting comparisons are starting to appear, both with regional performance at home, and within Europe. Andy Pike raised some interesting observations in a recent article that compared economic development on either side of the Scottish border. Despite suffering unemployment losses the Scottish side had seen more capable of adaptation than its North East neighbours. [26]

  1.8  So we have arrived at a situation where we face greater disparities than any of our European partners. This in itself is a statistic we should not be proud of. However the fundamental issue is that these disparities lead to unacceptable divisions in our society—divisions that we simply should not accept in 21st century Britain. Inequalities no longer appear to be based solely on class, but increasingly on geography. A fact that some on the left continue to ignore. However what is evident is that territorial justice and social justice and inextricably linked, something that the recent IPPR paper argues so forcibly. [27]Welfarist policy has to start recognising this fact and a Labour government, built on principles of social justice for all, has to start acting on it.

2.  WHETHER AND HOW THE TARGET CAN BE ACHIEVED WITH CURRENT AND PROPOSED POLICIES, INCLUDING:

—  the impact of current regional strategies;

—  whether the introduction of the nine Regional Development Agencies has contributed towards a reduction in, or increased the disparities between the regions;

—  whether the proposals for regional assemblies will make a difference to the achievement of this target.

  2.1  Removing the barriers to productivity growth in the North and in the South is vital to both economic prosperity and our quality of life. A variety of institutional mechanisms have been introduced that are increasingly seen as central to addressing disparities. These include the Regional Development Agencies. However their success is, or will be, dependent on a number of other important factors. The first is some consensus around the root causes of these regional inequalities. The second is the ability to have access to appropriate information and data at a regional and sub-regional level. The third is to make sure that the funding mechanisms are transparent and fit-for-purpose (of which more later). The final, and most important, factor is to establish whether these regional institutions are equipped with the tools to do the job.

  2.2  Root causes have already been alluded to. Much attention is currently been paid to the issue of productivity and competitiveness. Robert Huggins has suggested a single index that reflects as fully as possible the measurable criteria that would constitute "area competitiveness".[28] Having built a model on this basis the continuance of a North-South divide is evident (on a UK index of 100, Yorkshire and Humber performs at 92.6 and London 119.2). The three southern regions of the South East, London and the Eastern region are driving economic growth. At the other end of the scale it is significant to note that Scotland is more competitive than Wales or the North East despite the latter's Objective One monies.

  2.3  Yet is addressing productivity enough? The problem of low employment in a prosperous region is different in character to the problems of low employment in lagging regions. As the IPPR paper points out, pull factors are needed. Quite simply jobs need to be placed in the regions where economies are failing—and the infrastructure needs to be in place to ensure a thriving business community develops. The importance of business density and primarily knowledge-based industries are strong factors in a regions economic performance. But as Hetherington[29] recently noted what chance have RDAs in persuading these industries to flagging regions when transport links are so poor.

  2.4  Yet this is an area where no regional agency has any real power over. Better transport infrastructure is crucial to a regions futures success and yet the two most important agencies responsible for this, the Highways Agency and the Strategic Rail Authority, over which the RDAs have no control and little influence (hence the recent furore over SRA funding allocation). The current regional strategies, on transport or anything else, will only work if they are attached to some organisation that has statutory duties to respond.

  2.5  The region therefore needs to be able to attract business and it also needs to keep it. Regionalism is for many the best response to globalism. Business birth rate and survival are key targets in many Regional Economic Strategies. Yet there is still not enough consideration given to sustainability and in particular sustainable employment. Creating call centres around Dearne Valley has alleviated some of the long-term unemployment problems—but for how long? What happens when technology moves on and call centres replaced by touch responsive mechanisms on TV screens? That debate is yet to be had.

  2.6  It is easy to be hard on RDAs but unfair. New institutions take time to bed down and there is every reason to believe that in time they will deliver. However they need clear indications of their purpose (many RDAs still have differencing views on their role in social inclusion). They are currently operating in a complicated institutional environment that could easily be simplified, a complication compounded by better funded sub-regional organisations (such as Small Business Service and Learning and skills Councils). The recent announcement of pilots in three regions that will genuinely regionalise SBS and LCSs is welcomed. Regional management of Business Link operations and post-19 LSCs will equip RDAs with the tools to delivering improvements in productivity. We urge that if these are successful all regions move to this model.

  2.7  When RDAs were established it was believed that a majority of the Board should be appointed from the business community. However this now needs to be questioned The need to be led by business people ignores one great source under utilised in our region—all those people working in regeneration on Objective One. Perhaps one of the biggest pools of talent lies with those who work and understand regeneration at community and sub-regional level and who really understand social inclusion. The composition of RDA Boards needs to reflect regional needs much better and utilise regional talent.

  2.8  Unlike the RDAs who appear to have more visibility in the regions, the Regional Assemblies for the most part have little presence. Public knowledge or understanding is scant and those who have heard of Assemblies are confused as to their role. This is not to say that they are unproductive. However like the RDAs their role and function is evolving, most notably with their role of scrutiny over RDAs'. It is too early to make judgement about this. In Yorkshire and the Humber the first pilot has been completed with the scrutiny of the RDAs Business Birth Rate Strategy. Interestingly one of the things to come out from this is the confusion over the roles of lead agencies and lack of clarity as to who is responsible for delivery. It is unclear what the linkages are between sub-regional activity and regional delivery—something that is likely to become more evident as the scrutiny process kicks in.

  2.9  The move to the establishment of both RDAs and Regional Assemblies is to be welcomed but seen as part of wider process to establish a system of governance fit for the 21st century. What we currently have is a staging post on the way to creating more robust and meaningful institutions that can respond to regional problems. It is still the case that major decisions for the regions are made by ministers on the basis of advice and reports from anonymous officials. The move to elected regional assemblies is the next logical step. It would firm up the scrutiny process and give a visibility to these important regional bodies. But most important of all it would create a democratic home to locate all the strategies and decision making process that is fundamental to the future of the English regions.

3.  WHETHER A COHERENT NATIONAL POLICY CAN BE ACHIEVED; AND, IF SO, HOW;

  3.1  Recently the Chancellor stated that effective public service delivery requires the devolution of power to service providers to encourage flexibility and creativity, particularly in meeting consumer demands and responding to local circumstances. The tension between central control and genuine local decision-making will continue to be a feature of our political life. However it is evident, as witnessed by other countries, that you can have regional and local decision-making within a framework of national targets and policy. The national target to reduce inequalities is an excellent example of a national target that can only be met by injecting some devolution of powers and decisions to a sub national level.

  3.2  The key thing is to challenge the claim made by some on both the left and the right that devolution inevitably leads to the collapse of the redistributive nature of the state (see David Walker of the Guardian). In theory this may be right. In practice it is nonsense. A highly centralised state with Whitehall and Westminster at the helm has led us to the position we are currently in. The welfarism of the post-war years has been collapsed and what is required is a different set of policy levels pulled at different levels.

4.  WHAT CHANGES TO POLICIES ARE REQUIRED TO ACHIEVE THE TARGET, INCLUDING WHETHER GOVERNMENT DEPARTMENTS, AGENCIES AND NON-DEPARTMENTAL PUBLIC BODIES SHOULD BE MOVED TO LESS PROSPEROUS REGIONS

  4.1  It is not just changes to policies it is a fundamental change to a mind set and a process that is required. The silo mentality of Whitehall (best noted in the PIU report Reaching Out) has to go. This has led to a vertical approach to policy making (either top down or bottom up) when often what is required is a horizontal approach (one that cuts across many policy areas). This is particularly apparent at regional level and with regional strategies. Whitehall needs to learn to let go. Something that is not easy to legislate for.

  4.2  Better and more transparent funding streams for the regions and nations of the UK need to be put in place. Differences in public expenditure and regional policy support have led many to suggest that the Barnett formula is revisited. The data itself is patchy—most contained in a single document (annual Public Expenditure: Statistical Analyses). There is a lot of discretion left to departments on how the explain territorial attributions of expenditure. There is also a substantial amount of expenditure deemed non-identifiable or identifiable to England but not the English regions[30]. This has to change.

  4.3  On this last point Heald notes that the improved PESA 2001 data looks like a delayed response to better English regional data. There is still lies ahead the unresolved issue of whether territory or function is the unit of analysis and management. English regional devolution is potentially more radical in its implications than devolution to the territories—"the English system sometimes resembles blowpipe funding down many separate[31] channels".

  4.4  Data at regional level is still patchy and inadequate. Because so much of regional spend comes through Executive Agencies and Quangos it is hard to track and trail monies into the regions. Some agencies are not coterminous with Government Office boundaries making this even harder. The true extent of joblessness in the regions continues to be contested—and a recent report from CRESR at Sheffield Hallam University suggests there is a huge discrepancy in government figures and "real" figures. It is difficult to address a problem if you don't actually know what you are dealing with. GDP as a raw measurement is also fundamentally flawed and never tells the whole picture. In calculating GDP growth, the cost of housing is entirely excluded. Quality of life indicators should start to be built in to measurement—these should include affordable social housing, crime indicators (or safety of communities), transports and sustainable employment.

  4.5  Given the commentary so far it is evident that relocating some major departments would help inject lagging regions with employment prospects and fuel local economies. The finance sector cannot relocate from London but some of the public sector can. An example of how this helps regional economies is to look at defence spending, which is a key component of non-identifiable expenditure. A great bulk of this goes to just three regions—London, the South East and South West. This should actually be considered a hidden form of regional subsidy because the resources going to these regions are massive in comparison to something like the UK Preferential Assistance to Industry[32].

  4.6  And finally, and if you accept the points made above, greater powers have to be devolved from Whitehall and Westminster to the regions and localities. As it currently stands what is on offer in the White Paper Your Region, Your Choice is a starting point but probably not enough even for RDAs to meet their aspirations, let alone the Treasuries. Regions need real powers at their disposal to meet the needs peculiar to them and their sub regions. They also need to be able to join-up and joint together the current myriad of regional and sub regional programmes into something that is meaningful and with real teeth. Much of this has been outlined by the Campaign in other documents, notably Giving the People a Voice. [33]

20   Productivity in the UK: the Regional Dimension (November 2001) HM Treasury (Chart 1.2. p4). Back

21   See CFER Briefing Paper on Productivity Report, November 2001. Back

22   John Prescott, House of Commons, July 18 2001. Back

23   Larry Elliott "Use northern commonsense to provide southern comfort" Guardian Monday March 2 2002. Back

24   According to Cambridge Econometrics cited in Elliott above. Back

25   see Regional Disparities in Economic Performance, CFER briefing, 2002. Back

26   Post-devolution blues? Economic development in the Anglo-Scottish Borders, Regional studies Vol 36, No 9. Back

27   John Adams and Peter Robinson "A new regional policy for the UK" Interim report 2002. Back

28   Creating a UK Competitive Index: Regional and Local Benchmarking Robert Huggins, Regional studies, Vol 37.1 pp. 89-96, 2003. Back

29   Peter Hetnerington "the gridlocked north" Guardian December 13 2002. Back

30   see The Regional Dimension of Public Expenditure in England by David Heald and John Short Regional Studies, Vol 36.7, pp 743-755, 2002. Back

31   Heald above cited p 753. Back

32   see Peter Gripaios Regional spending; A Comment on McKay Regional Studies Vol 36.6 pp 685-689 for more. Back

33   Giving the People a Voice, Campaign for Yorkshire September 2001. Back