1.  INTRODUCTION

  The Yorkshire and Humber region welcomes the invitation to submit evidence to the Committee in support of its inquiry into "the persistent gap in growth rates between regions". Achieving the target is crucial. The focus of economic growth in the South-East and East of England is creating knock-on problems in every area of life for people in those areas, from the high cost and shortage of housing and pressure to develop greenfield sites, to congestion, skills shortages and pollution. Meanwhile areas in the North suffer from high long-term structural unemployment, low demand for housing, large areas of derelict brownfield land and reduced life chances (from life expectancy to skills and education). In a relatively small and densely populated island and in terms of social justice and good economic sense this is clearly neither desirable nor sustainable: ultimately unbalanced regional growth will have a detrimental effect on everyone.

  Disparities between regions have long been recognised within the UK. In Yorkshire and Humber we are concerned that the gap between the best performing regional economies, particularly London, South-East and the East, and ourselves is widening. We recognise that there are also disparities within our region, and regional, sub-regional and local organisations, with the Government, are working hard to target initiatives at areas which are under-performing. We also recognize the importance of our cities in improving regional competitiveness and reducing regional disparities. However to make the step-change required by the Government's target to "reduce the persistent gap in growth rates between regions" to which we are committed, will require much more significant action than that undertaken to date.

  We have focused on three elements within this submission—first analysis of the nature of the gap in growth rates, and specifically trends in the position of Yorkshire and Humber in relation to other regions against a spread of key indicators. Secondly, we briefly set out the role of Yorkshire Forward and the Yorkshire and Humber Assembly in driving effective economic progress. Finally, we identify changes and policy imperatives that are required to address gaps in growth rates and accelerate growth in this region.

2.  YORKSHIRE AND HUMBER: OVERVIEW OF TRENDS IN REGIONAL GROWTH, FACTORS INFLUENCING IT AND POSITION RELATIVE TO OTHER REGIONS

Regional Performance on Key Indicators

  Yorkshire and Humber's share of national GDP has remained steady in recent years, if anything falling slightly, whilst the South East's share has increased steadily. Table 1 emphasises the scale of the problem. Additionally long-term Gross Value Added (GVA) projections suggest that annual GVA growth in the region will continue to fall proportionately relative to the South East.

  The pattern of regional contribution to national GDP in the 1990s is simply a continuation of a 30 year trend of diverging growth opportunities, as the South East and its economy has diversified and expanded far more rapidly than the Yorkshire and Humber economy. Table 2 illustrates this trend.

  * Average annual growth in GVA, Source: Cambridge Econometrics

  Whilst current Government expenditure per head on education in the Region is average, need is significantly higher than average. Yorkshire and Humber under-performs in young people's educational attainment and workforce skills at NVQ level three and above. Whilst attainment is improving, the Region is eighth of nine in terms of young people gaining five or more GCSEs. The region also needs to improve basic skills, with both the Poor Literacy rate (26%) and the Poor Numeracy rate (27%) above the national averages (both 24%).

  The long term forecast trend in GVA growth will also continue to widen the gap in higher level skill sets—NVQ four and NVQ five. There is significant empirical evidence that links the agglomeration effects of high level skill sets to higher levels of GVA growth. It is a concern that the Government's own historical data suggests the skills deficit in higher level skills has widened between the region and the South East and London. Table 3 shows this trend.

  Source: LFS November 1998 and 2002

  A central theme of the UK's sustainable economic regional targets is to refocus manufacturing in the Northern regions to concentrate and compete on new product and process innovation. Whilst Yorkshire and Humber does well in terms of research and development in the region's universities, it is of concern that business investment in R&D—the lifeblood of new product development—compares so poorly with other regions, emphasising the scale of the regional growth and competitiveness challenge.

Source: Economic Trends

  Similar trends in regional performance can be identified in many other key areas that either contribute to or reflect economic performance. These include health, employment and household disposable income per head, where in 1999 against a UK index of 100, income in Yorkshire and Humber was 92.3 compared to 119.4 in London, 111.7 in the East of England, and 111.6 in the South East. On regeneration, the Index of Multiple Deprivation shows that, excluding London, there is large gap between northern and southern regions. For instance, the three northern regions all have around 15% or more of their wards in the 10% most deprived in England. This contrasts to below 3% of wards in this group in the South East, South West and East of England.

Government Expenditure, Need and Performance

  Mainstream Government expenditure and investment has a key role in creating the right conditions for growth, and in some cases directly influencing regional economic performance. Table Five shows per capita Government expenditure by region and function, figures shown as a percentage of the English average (Eng=100).

  Source: HM Treasury 2001

  The figures show that in 1999-2000 the only functions (excluding social security) to receive above average spending in Yorkshire and Humber were agriculture, trade and industry and health. However, these figures are barely above the average with 104% the highest figure and the total per capita funding in the region 1% below the average, and set against indicators of regional need, spending in the region on education and trade and industry appears inadequate. Furthermore, spending in areas such as housing, environment and culture—which help to determine whether the region is an attractive place to work, invest and do business—is well below average.

  Finally, the issue of transport warrants special attention. This key indicator was noted as a key priority for action in the region by business as part of consultation on the Regional Economic Strategy in 2002. Yet despite road traffic increasing in the region at a rate faster than all but one region (24% over 10 years), spending on transport is only 77% of the national average and by some way the lowest of any of the English regions. This share has declined from 1989-99 when transport spending per head in the region was 85% of the national average.

3.  CONTRIBUTION OF REGIONAL AGENCIES

Regional Development Agencies

  Yorkshire Forward has achieved much during its relatively short existence. It is on schedule to meet or exceed its tier three targets, is delivering a wide range of practical initiatives that are moving forward the regional economy, and crucially, has provided strategic economic leadership, including the production of the widely owned Regional Economic Strategy (RES). This has led to unprecedented coherence and co-ordination in regional economic development, with many agencies working in synergy to deliver the progress the region requires. Yorkshire Forward's strategic influencing role was enhanced by the introduction of the Single Pot in April 2002, and we hope that this approach to funding can be extended to other agencies. Yorkshire Forward and the other RDAs therefore have a very positive role in increasing regional economic performance.

  Within this positive context, it should nevertheless be noted that all RDAs are working towards similar targets of increasing growth/ GDP in their region. Although their budgets are weighted for regions according to need, they still represent only 1% of government expenditure. Whilst the growth generated through action to achieve RES objectives and RDA funded interventions is very welcome, this approach means that all regions will develop along a similar, parallel path. It will not significantly reduce disparities between regions.

Regional Assembly

  The establishment of RDAs has made strategic co-ordination and accountability at regional level increasingly important. The Yorkshire and Humber Assembly, the region's strategic partnership and the nominated regional chamber, has taken the lead in ensuring that this co-ordination takes place and that there is ownership of regional targets by all key stakeholders, within the regional strategic framework provided by Advancing Together. YHA activities such as scrutiny are focused on enhancing the region's ability to deliver RES objectives for the benefit of everyone in the region. YHA also welcomes the opportunity to work with Government to strengthen its role, in line with the Chapter Two proposals in the regional government White Paper.

  Overall, whilst the establishment of the RDA, Regional Assembly and RES, has and will continue to deliver significant positive outcomes, this structure on its own will not alleviate regional disparities. What it can and does ensure is that when Government resources are invested in the region, they are applied within an agreed and evidence based strategic framework, and delivered through partnership working to achieve the maximum possible impact.

4.  RECOMMENDED GOVERNMENT RESPONSES

(a)   Realising Sustainable Economic Development

  Government policy advocates sustainable development that simultaneously delivers economic, social and environmental progress. This approach, which emphasises the need to integrate the wide spread of national policy goals rather than trade them off against one another, provides a robust and logical driver for national and regional policy making. The aim must be to ensure that development takes place sustainably in all regions and that this will need to be done in different ways in different regions.

  There is a danger that in seeking to accommodate the high level of development pressure in the south and south east of England in particular, this will create a cycle of a continually deteriorating physical environment, overcrowding, and increasing Government investment and resources being mopped up in seeking to provide transport, infrastructure, housing and support for key workers. This support will only serve to firefight rather than tackle the problem in the long term. At the same time it is likely to further accelerate depopulation from deprived areas in poorer regions—in turn requiring Government resources to address the problems that creates. Spreading development across the regions would be far more sustainable in that it will reduce "overheating" in the more prosperous regions and stimulate development in those which are less prosperous. Yorkshire and Humber, with its high quality of life, offers great potential for sustainable economic development. It combines economic and social need, with the physical potential and infrastructure to accommodate development without negative environmental consequences. In particular it offers:

—  greater potential to utilise brownfield development sites;

—  less likelihood of adding to traffic congestion and pollution than in more prosperous areas, given higher rates of public transport usage and shorter commuting distances;

—  a more positive impact on the housing market—potentially improving demand in areas of housing market failure, rather than placing extra pressure on already stretched housing resources and further inflating house prices;

—  the ability to deliver greater social and economic benefit—for example in terms of improvements in employment and skills—from a given level of investment, based on greater need and marginal utility.

  We recommend that Government should make regional sustainable development impact a key consideration in all decision making, perhaps by developing systematic regional impact assessments of White Papers, and where appropriate, direct its investment and steer development to regions, such as Yorkshire and Humber which can meet development needs more sustainably.

(b)   Distribution of Mainstream Resource Allocations

  Yorkshire and Humber has benefited from specific funding streams which have been targeted at disadvantaged communities, as well as the differential funding allocated to Regional Development Agencies and European Structural Funds. However this targeted funding is only a tiny fraction of total public sector spending. What is crucial to closing the gap between Yorkshire and Humber and the best performing regions in the UK is a fundamental reassessment of how mainstream public funding is allocated. We recommend that the aim of reducing current regional disparities should be at the heart of a new approach to allocating funding.

(c)   Transport and Infrastructure

  The urgent need for greater transport investment in Yorkshire and Humber has been demonstrated within this paper: traffic growth is high, congestion is increasing, especially in vital areas for the regional economy such as Leeds, and faster progress is required to deliver the region's seven agreed transport priorities. Examples of projects that could make a key contribution to enhancing economic growth in the region include:

—  Investment to facilitate radically improved Leeds-Sheffield rail services;

—  Upgrade the East Coast main line between Yorkshire and London;

—  Implement the results of multi-modal studies in the region, with early action on transport improvement measures and development within South Yorkshire;

—  Improved road, and especially rail, access to the Humber ports.

  Other infrastructure provision also impacts upon regional growth, such as ensuring good broadband provision. Given the above average presence of manufacturing and energy intensive businesses within the region, it is likely that the Climate Change Levy will draw revenue disproportionately from this region. Further action to reinvest that income back into manufacturing in the region, and to assist businesses to make better use of renewable and CHP energy would also be of assistance.

The region requires more investment in its infrastructure, with a sharp rise in Government per capita expenditure on transport required to underpin regional growth

(d)   Skills and Education

  The UK Productivity report pinpoints skills as one of the five key drivers of growth and concludes that the skills of workforces are essential to high levels of productivity. Yorkshire and Humber continues to have relatively low skill levels compared to the most prosperous regions. Radically improving educational attainment for 14-19 year olds and skill levels within the existing workforce are particular priorities, including components such as basic skills, ICT and construction skills.

  National funding allocations do not reflect the pressing need to substantially increase investment in education and skills in the Region in order to close the gap with other regions. Investing more in education and skills in the region will provide an essential long-term foundation for reducing regional disparities. It will facilitate the conditions for attracting and developing more successful and productive businesses, with a greater focus on the knowledge economy, and more people in higher skilled and higher income jobs.

(e)   Investment, Innovation and R&D

  Closely related to the need for better education, learning and skills, the region needs to significantly increase levels of innovation and investment to ensure that local opportunities are available for those with higher level skills. As has been discussed, despite a healthy R&D base in the region's universities, levels of R&D by business in the region are amongst the lowest in the UK. This is likely to have contributed to the region's relatively weak position in terms of productivity and growth, and given the trend towards a knowledge economy where innovation and expertise will become more important still, is likely to further increase regional disparities if not addressed. Appropriate responses would include selectively targeting resources through RDAs in regions with below average R&D levels, combined with simplified incentives for business R&D, corporate venturing and continued support and encouragement for higher education and business to work together.

  The distribution and nature of new investment in the regions provides a further lever through which regional disparities may be widened or reduced. Clearly many investment decisions occur within the market without any intervention by the public sector. However, in other major cases, Government, regional or local agencies do act either to facilitate inward investment by foreign business or to direct investments in which the Government itself has a key stake or role. Anecdotal evidence suggests that these decisions have not always made the most of potential to encourage investment in Yorkshire and the Humber, especially those which relate to high tech, R&D or knowledge economy functions This creates a dangerous and self-reinforcing scenario whereby economic perceptions of the north and south are increasingly polarised, with a relatively low proportion of the highest value adding and innovative businesses in the north, leading to still greater regional disparities in growth. Whilst we accept that some businesses will prefer to locate in the south and not consider other alternatives, in other cases, more could be done by Government and agencies to encourage businesses to consider and exploit development potential in regions such as Yorkshire and Humber. Government can itself set a precedent in this direction by correcting the disparities of research funding allocation and by seeking to locate key developments in the region, a good example being the potential to locate the European Spallation Source in Selby.

(f)   Location of Government Bodies and Policy Making Process

  Reducing regional disparities requires not just the reallocation of funding, but also clear actions by Government which underline its commitment to the target. Crucial is the location of government departments and agencies, not just those which perform operational or administrative functions, but those which have a strategic role and employ senior civil servants. Relocating these functions to Yorkshire and Humber, as well as other less prosperous areas, would send a clear message about the importance of all regions of the UK. The supply-chain and employment effects would be substantial for the receiving regions.

  Regional impact should be explicitly considered in all government policy-making. It should be assessed through involvement of key partners in the regions, and should be transparent and open to challenge. Only in this way can the regional impact of all aspects of policy be considered and an open debate held about the best approach in each policy area.