INTRODUCTION

  1.  The South East England Development Agency (SEEDA) was established by the Regional Development Agencies Act of 1998 to take the strategic lead in promoting the sustainable economic development of the region. SEEDA covers the county and unitary authority areas within the South East region—Berkshire, Buckinghamshire, East Sussex, Hampshire, the Isle of Wight, Kent, Oxfordshire, Surrey and West Sussex. The region includes seven counties, 12 unitary authorities and 55 district/borough councils. SEEDA began operations on 1 April 1999.

  2.  SEEDA is the region's economic development agency funded by but operating at arm's length from Government; SEEDA also works closely with the South East England Regional Assembly and the Government Office for the South East.

  3.  Working with its partners Seeda's mission is to make the South East of England a World Class region, achieving sustainable development and enhanced quality of life, as measured by economic prosperity, environmental quality and social inclusion.

  4.  The South East is the largest UK region in population, and second only to London in GDP per head. The key distinguishing features of the South East compared to many other regions include its less cohesive nature (now being redressed by co-operative working across the region) and its position in relation to London, which means it is a region of smaller cities and towns, with a significant rural focus. The South East, although a fast growing UK region overall nonetheless still needs to run hard to compete with other well endowed overseas regions.

  5.  Serious disparities in prosperity exist within regions, as well as between them. In the South East, the differences are marked. By contrast with the prosperity of the western part of the region, GDP per head in Kent and East Sussex and Brighton and Hove (with a total population of 2.1 million) is significantly below the national average. Income levels in East Sussex and the Isle of Wight are some of the lowest in the country.

  6.  In our first two years, SEEDA has invested some £250 million in urban and rural regeneration schemes, and in initiatives to promote the development of skills, business competitiveness, investment and innovation.

THE SOUTH EAST ECONOMY IN A NATIONAL CONTEXT

  7.  The South East's economic performance is a key dynamic in the UK's overall current economic well being and in enhancing the nation's future prospects. In part the significance of the region's role stems from its scale:

—  The South East is the second largest regional economy, marginally behind London and accounts for more than 15% of national GDP.

—  At over eight million the population of the South East is the largest of any UK region accounting for one seventh of UK residents.

—  The economy is broadly based and accounts for a higher proportion of fast growing sectors than any other UK region and exports more than any other region in absolute terms, only being exceeded in exports per head by Scotland.

  The South East's prosperity is reflected in the contribution it makes to public finances and thus to inter-regional transfers. Only two other regions make a substantial net contribution to Government finances—the East of England and London—and the South East makes the largest—currently estimated at £20 billion a year.

  8.  These characteristics mean that the South East acts as a key economic driver for the nation, and has key attributes in a national context:

—  It acts as the principal gateway to the UK.

—  Proximity to Europe and dense flight linkages throughout the world mean that the South East is the preferred location for multinational headquarters in Europe. In this context the region's competitors mainly lie outside the UK.

—  The hub it provides for innovation and creativity based on world class R&D facilities sustain not only sophisticated businesses in the South East but also provide a national resource. This has helped attract the highest level of private R&D of any region; in this context too the region's competitors mainly lie outside the UK.

  9.  While the South East is one of the strongest performing regions for whom in many senses the competitive challenge is with world class regions outwith the UK, it is not problem free:

—  There are problems of success—transport congestion, skill shortages and lack of affordable housing. The attributes of the region, which have sustained a solid economic performance and are the key to future growth, need to be nurtured. International investment not captured by the South East will frequently be destined to benefit other nations.

—  Disparities within the region are increasing. Within the region there are 119 wards within the worst 20% in the UK, with particular concentrations in Thames Gateway, East Kent, Hasting and IoW. GDP growth in Kent , East and West Sussex lag significantly behind the regional average, while GDP per head in the Isle of Wight is only half that in Surrey.

—  Despite the low overall unemployment rate in the region, the regional total of over 150,000 is larger than in six other English regions.

ORIENTATION OF REGIONAL POLICY

  10.  Government regional policy is underpinned by a desire that all parts of the UK should achieve their full potential in order to maximise national economic performance. Regional issues are not seen as purely for resolution by market forces but as requiring government intervention to address disparities between regions. The approach is "bottom up", seeking to build on the distinctive assets and capabilities in each locality. In line with that philosophy it has also been made clear that the key goals are to "not hold back any region" and "increase the rate of growth in all regions by addressing under-performance and building on success".

  11.  The present inquiry is concerned with the reduction of the persistent gap in growth rates between regions. SEEDA endorses this target in the context of achieving overall higher national growth by enhancing performance in the slower growing regions while not holding back any of the more better performing regions.

  12.  However, were growth to be promoted in slower growing regions at the expense of reaching the full growth potential of more prosperous parts of the country the consequential loss in national economic performance of such a levelling down would not be desirable. By way of illustration, if the growth rate in the South East were reduced by as little as a quarter of one per cent from 2003 the consequences by 2006 would be a reduction of 50,000 in employment, and a loss of GDP of around £1.5 billion. These are the effects for the region itself and do not include the multiplier effect on other regions.

  13.  In targeting a reduction in the persistent gap in growth rates we assume that the ultimate goal is a reduction in the absolute disparities between regions. In order to produce not only the desired regional gains, but also a national dividend, this requires expansion in productive capacity rather than diversion of activity from one region to another with a zero sum result. The measurement of regional disparities is not clear-cut and there are gaps in the statistical evidence. One of the most commonly used regional indicators, gross value added per head, may not be the most meaningful in determining prosperity. To gain a deeper appreciation, adjustment for the regional cost of living needs to be made and this tends to narrow the apparent gap in affluence so lessening the scale of the "levelling-up task".

CONTEXT OF REGIONAL POLICY AND THE IMPACT OF REGIONAL BODIES

  14.  SEEDA is equipped to comment on regional policy from its direct experience of fostering economic growth and working in collaboration with its many regional partners, as well as the Government Regional Office.

  15.  Regional economic performance is driven by a complex basket of factors which make precise attribution of cause and effect difficult. Regions clearly differ in their asset endowment by way of human capital, cultural factors (degree of entrepreneurship), physical assets and their geographic location. These patterns of assets in turn determine the structure of the regional economy including its sectoral composition and thus also the degree of exposure to overseas economies through exports and tourism. A combination of market forces and policy intervention working with the grain of these inherent factors has given rise to the current spatial pattern of development.

  16.  Aside from innate characteristics, all regions are undoubtedly influenced by national economic management, domestic and EU regional policy and the wider world economic climate. Sound national economic management is a key requirement for all regions and lessened volatility has benefited all regions in recent years. Regional policy has its part to play in raising growth potential in all regions but experience of the last 30 years suggests that while incremental growth has been secured, the inter-regional relativities remain relatively stubborn.

  17.  In terms of the specific impact of the formation of the Regional Development Agencies on regional disparities, it is too soon to judge their longer term impact on regional growth rates. In practice, even with a longer period of experience, it may be difficult to formulate a relationship between RDA instigated measures and the overall rate of growth in a particular region. However, what it is possible to say even at this early juncture is that the RDAs are generally perceived to have carved out an effective role and to have made a difference on the ground. In particular SEEDA would like to highlight several achievements among its many activities and investments in the South East illustrating the benefits of the focused regional approach which RDAs can bring to bear:

Enterprise Hubs

  A concept pioneered by SEEDA, Enterprise hubs form a network of focal points for innovation and entrepreneurial activity, delivering a full range of critical support services including financial support, access to the knowledge base of universities and business to business networking opportunities for young high-tech companies.

  With over 300 companies currently benefiting from an expanding network, the concept is already recognised as good practice in fostering innovation across Europe and is being adopted by other English regions.

Sector Skills Development

  Specialist skills centres funded by SEEDA have helped the key South East sectors including pharmabio, ICT, construction and tourism maintain a leading edge in innovation and productivity. SEEDA has supported 3,725 individuals and 2,020 businesses to date.

Improving literacy and numeracy

  Despite the incidence of knowledge-based economy and the overall prosperity in the region, 548,000 people are failing to meet basic literacy standards and 483,000 are lacking basic numeracy skills in the South East. Recognising this huge challenge, SEEDA is investing in projects aimed at tackling this shortfall and has already provided basic skills training to over 3,500 individuals.

The regeneration of Hastings and Bexhill

  In order to tackle huge deprivation in the area, SEEDA together with its partners has developed a 10-year plan to revive the economy of the area through urban renewal, education, enterprise, broadband and transport.

REGIONAL POLICY MECHANISMS, RESOURCES AND MEASURES TO REDUCE DISPARITIES IN GROWTH

  18.  SEEDA fully endorses that Government should not sit back and leave regional problems unthinkingly to the market. The causes of disparities between and within regions need to be addressed. Neither should it try to pick regional winners or subsidise failing businesses. Instead, Government must equip all regions and communities with the means to build on their own distinctive cultures, know-how and competitive advantages. This must be a bottom-up approach: the role of central Government must be to ensure that all regions and communities have the resources and capability to be winners. Strong regional policies have proved their worth in other European economies and in the USA.

  19.  As such, SEEDA supports the relatively recently introduced framework for regional policy based around national policy instruments and bottom-up delivery through the RDAs in tandem with their partners and in particular the Government Regional Offices. The extent of national resources used in support of regional development is clearly a matter for government alongside other priorities. However, this inquiry is a response to the enduing gap growth rates between regions and past policy suggests that reducing those gaps may require additional resources, and will certainly require a more effective use of the resources already available; this is at the heart of the role given to the RDAs.

  20.  Two key tenets of existing Government regional policy are that all parts of the UK should achieve their full potential in order to maximise national economic performance and that enhancement of performance in the slower growing regions should not hold back any of the more rapidly expanding regions.

  21.  At present this translates into an expenditure pattern which already applies greater resources per head to the population in the less strongly performing parts of the country. The following table illustrates some of the key indicators. From a South East perspective, it is clear that this relatively strongly performing region is already a low beneficiary. The key indicators show:

(a)  For allocated regional funding, excluding the RDAs, spanning the Neighbourhood Renewal Fund, New Deal for Communities, Regional Selective Assistance and European Structural Funds the South East receives £6 per head compared with a national average of £33.5.

(b)  RDA funding to the South East is equivalent to £13 per head, marginally ahead of the East, but well below the national average of £30.

(c)  The picture is the same for regionally identifiable central government spending where the South East is bottom of the allocation, implying lower spend on key public services such as health and education, despite typically higher costs in, eg in recruiting and retraining staff; this is a major concern in relation to the long term sustainability of the region's economic performance.

  22.  The terms of reference for the Inquiry raise as a possibility the transference of public sector employment from some of the stronger performing regions to less rapidly growing regions as a mechanism for boosting the more depressed regional growth rates. Such policy measures need to be carefully appraised from the point of view of the repercussions for the donor region and benefits to the host. Any diminution of front end delivery of public services in the South East, or measures which impact adversely on the region's most deprived areas, would be unjustified.

THE SOUTH EAST AS A CATALYST TO GROWTH THROUGHOUT THE COUNTRY

  23.  The focus of the current inquiry centres on raising growth rates in the less strongly performing parts of the country. SEEDA acknowledges that goal but its locus is in ensuring the best possible performance from the South East. Our programmes are designed to achieve that but in pursuing this objective we believe that we are also contributing to enhanced growth throughout the UK. In diligently pursuing full exploitation of its own potential the South East locomotive effect will percolate to other regions:

—  through the multiplier effects of the supply chain network and provision of highly skilled human capital;

—  through strengthened public finances with an increasing net contribution from the South East funding regional policy among other policy goals;

—  by improving its port and road infrastructure so diminishing the barrier between other parts of the UK and our main national and international markets.