1.0  SYNOPSIS

  Regional disparities in prosperity within England are real and are growing. These growing differences between regions are interlinked with the productivity gap. We argue that the growing difference between regions is bad for the whole country. Overheating economies in the prosperous regions has a major impact on the quality of life of the large number of citizens living in those regions. Low productivity in other regions impoverishes the life chances of the citizens of those regions, and is a drain on national resources. Our argument is that the existing national policies and regional delivery mechanisms (Regional Development Agencies, Government Offices, Learning and Skills Councils etc) are not reversing these trends. Radical changes are required. We will argue that a loose fit, light touch national policy framework for the regions should replace the current raft of nationally controlled, target driven, fine grain regional strategies. The national policy framework should create a level playing field in terms of funding, capital expenditure and the location of major government facilities and offices between regions based on their needs. This would allow the rest of policy making and development of strategy and implementation to be carried by relatively autonomous "one stop" shop elected regional assemblies.

2.0  REGIONAL DISPARITIES AND THEIR IMPACT

  Government evidence, supported by industry, shows that despite their policy commitment since 1997 to tackle under-performance in some regions particularly in productivity, the gap has grown. The Treasury/DTI report "Productivity in the UK: Three—The Regional Dimension" highlighted that the size of GDP differentials and the relative ranking of the regions have persisted. Evidence suggests that these existing patterns emerged in the 1920s. The existing patterns of regional unemployment rates have also remained fairly persistent since the 1920's. [72]

  The correlation between the contribution to the economy from each region (as measured by GDP per capita) and productivity levels is revealed in figure 1

  Indeed Chancellor Gordon Brown announced to Parliament in presenting the Comprehensive Spending Review in July 2002 that action would be taken to tackle these disparities by better coordination in the regions.

"To secure balanced economic development in every region—tackling regional weaknesses, building on regional manufacturing and industrial strengths—we must decentralise decision-making out of Whitehall and I can announce that our nine Regional Development Agencies will now have a strengthened local role in transport, tourism and housing. And to pilot further devolution from Whitehall for services to small businesses and adult skills, and to reverse decades of indifference and neglect of our regions, budgets for RDAs will rise from £1.6 billion this year to—by 2005-06—£2 billion a year, as local people make more of the decisions about meeting local needs. Addressing the long-term under-investment and neglect of transport is vital to both economic prosperity and our quality of life"[75]

  To fail to address these regional disparities will be economically damaging for the whole country, as the CBI noted in a report on the need to strengthen the RDAs:

"To prosper, all the English regions need to improve their performance against their European competitors. The consequence of failing to do so is to lay the regions open to greater economic imbalances. Skills and employment would flow away from some areas, which would tend to become deprived, and towards others (including those abroad) which would tend to become prosperous (and overheated)." [76]

  Underpinning the disparities is a range of inter linked factors. Productivity differences broadly reflect factors such as relative levels of health in the regional populations, educational achievement in schools and the level of uptake of higher and further education. There are also interrelated differences in the trends in population sizes. The prosperous regions are growing rapidly causing pressure on the housing stock, open space transport infrastructure and the public services. For example we see that the government is now taking action to reduce the sale of council housing to try to retain "affordable" housing in the more prosperous regions. John Prescott recently announced changes to the right to buy policy saying:

"In certain housing crisis areas, Right to Buy has had an adverse effect on the supply of affordable housing, penalising those who desperately need somewhere to live. That is why I am taking urgent action to reduce the maximum discounts available"[77].

  However, the symptoms of unbalanced development, such as problems recruiting and retaining vital public sector staff in these more productive and prosperous areas, will simply get worse unless action is taken to treat the root causes rather than the symptoms.

  The population of other less prosperous regions are stagnant or shrinking, which will almost certainly lead to associated acceleration in the ageing, the relative growth in the percentage not in productive employment and higher levels of relative ill health. For example the North East has the lowest GDP in England at approximately 79% of the UK average[78]. The resultant social deprivation (see appendix 1) in the North East is there for all to see, which all citizens of the UK pay for through the taxation system

  The North East is not alone in this. This evidence is mirrored in Yorkshire and Humber, the North West and to a lesser extent in the two midlands regions. Clearly poor education and health are all closely allied to prosperity. The Government has identified these as the most important domestic issues facing this country.

3.0  THE IMPACT OF THE RDAS

  The creation of the RDAs was along overdue innovation. It is early days but it seems as if the RDAs have the potential to be a successful innovation. The regional development agencies, in preparing their regional economic strategies, have usefully identified the different economic problems in their regions. Furthermore, there are increasing efforts to start linking up the various regional agencies, quangos and government offices so that they act in a more coordinated way (see the earlier quotation from Gordon Brown).

  However, it is becoming clear that the RDAs do not act in a vacuum and that they are impeded in effective delivery of their targets by the inefficient regional governance structures which currently exist. As this co-ordination or "joined up" governance in the regions improves then we would hope the impact of the RDAs would be more than the sum of their budgets. Creating joined up government from the current regional governance will not be easy, as the diagram, compiled by CURDS at Newcastle University and utilised by the North West Constitutional Convention demonstrates (see appendix 2). However achieving such "joined up" government is crucial to delivering effective public policy.

  The RDAs face an additional problem in that their budgets are paltry in the face of the problems underlying low productivity and low prosperity in some regions. To put the budget issue into perspective the budget of all the RDAs for the whole of England is set to rise to just £2 billion by 2005-06, less than the current £2.3 billion per annum budget of Birmingham City Council[79]. Within regions the RDAs directly control only a small part of the national government expenditure in a region. For example RDA in the West Midlands has a total budget of £159 million compared with the identifiable government expenditure in the region of c£8 billion[80].

  The final point we make about the RDAs and the other regional bodies acting in these policy areas are that they are still very much directed by central government. For example all of the RDAs must agree their regional economic strategies with the minister and work within centrally set targets. They do not have enough freedom of action to act quickly or with innovation in the interests of their region.

4.0  CHANGES THAT ARE NEEDED

  The Government have attempted to address these issues through the publication of the White Paper "Your Region, Your Choice". We have broadly welcomed the White Paper and hope that eventually all regions will chose to take up the challenge and responsibility of regional democracy. However, for these reforms to be effective in all policy areas including productivity we believe that the proposed elected assemblies will need sufficient direct powers. The infrastructure of regional governance should also be rationalised and customised to the needs of each region by the elected assemblies themselves when they are established. We believe there are insufficient direct powers proposed for the elected assemblies in the areas of transport, spatial planning, learning and skills and business support in the White Paper. Nor is there a general power of competence proposed that would allow the assemblies to deal with the unforeseen.

  The assemblies will need freedom from the current centrally set regional targets in order to deliver responsive and innovative governance to their regions. Assemblies should set their own targets relevant to their region and be accountable to their electorate for delivery, not to the minister. This is not to say we believe that elected regional assemblies with the powers we have suggested will inevitably reduce the productivity gaps and associated problems of uneven regional development. Our case is that with these powers the assemblies will at least have the opportunity to start the process of tackling these problems. The current structures of regional governance have singularly failed to deliver on the productivity agenda and change is necessary for progress.

  Regional assemblies are crucial as they combat the ingrained nature of centralism in the UK body-politic, a vice anglais which seriously impedes the effective delivery of public policy. Regional assemblies are also crucial to provide the forms of political leadership which are necessary to produce robust, innovative regional economic strategies needed in all regions. Above all it must not be forgotten that the current structures of regional governance have singularly failed to deliver on the narrowing regional disparities and change is necessary to progress.

5.0  REFORM OF THE CENTRE

  With devolution to the regions must come reform of the centre. This must be more wide reaching than a simple transference of a few powers and associated staff to regional offices post-devolution. It must also be more substantial than a better appreciation of the territorial dimension of UK policy (welcome as that would be). It must also entail a radical decentralisation of major government departments and so-called national institutions, the BBC, the civil service, national quangos etc. The over concentration of public institutions and government in London is clearly not in the interests of London, bearing in mind the congestion, pollution and land-use pressure generated and it unnecessarily impoverishes the regions.

  This reform would not only bring much needed jobs to the regions but perhaps more importantly it would broaden the perspective of decision makers.

6.0  FUNDING

  The impact of government funding on regional economic disparities should not be over-estimated. However, it is clearly a factor and the current system (the so called Barnett Formula) does treat the English regions unfairly.

  Currently spending in Scotland is £988 per head (23%) more than that in England. But England is not a homogenous whole, and there are differentials within England. For example, spending in London is £1,301 per head (35%) more than neighbouring South East. In Wales spending is £849 per head (20%) more than in the neighbouring West Midlands. [81]A new formula needs take into account the differences between regions as well as the differences between nations in the UK.

  The Barnett formula should be replaced by a system that takes proper account of "need" (albeit a very difficult concept to measure). Politicians in Northern Ireland, Wales and London have joined with the English regions in calling for abolition of the Barnett formula. Moreover, as Peter Jones points out only two English regions, the North West and the North East have higher needs that the Scots as judged by social security expenditure per capita. [82]Therefore shift to assessment of needs on this basis may not be a painful as some North of the border have suggested.

  In terms of scrutiny we share the governments concern that much of public money spent in the regions is not subject to the scrutiny provided by democratic accountability. Elected assemblies with a strong scrutiny remit should fill this major black hole on the democratic oversight of public expenditure and will be a real gain for the cause of good governance.

  The economy, health and education in the North East

  "Lowest % of population of working age in employment. (Source: Labour Force Survey; Department of Economic Development, Northern Ireland. February-April 1999 data from Regional Trends 34, 1999)

  The North East has the second highest Standardised Mortality Ratio (SMR) of all UK Regions. (Source: ONS; General Register Office for Scotland; Northern Ireland Statistics and Research Agency. 1997 data from Regional Trends 34, 1999)

  Households in the North East on average received almost a fifth of income from social security benefits from 1995-96 to 1997-98. (Source: Family Expenditure Survey; ONS; Northern Ireland Statistics and Research Agency. Regional Trends 34, 1999)

  The North East has the lowest proportion of economically active adults qualified to NVQ level three, and the lowest proportion qualified to NVQ level four, of all the English Regions as at autumn 1999. (Source: DfEE)

  The percentage of economically active adults in the North East qualified to at least NVQ Level four or equivalent is the lowest in England and 25% below the English average as at Autumn 1999. (Source: DfEE)

  Highest number of school leavers with no qualifications at all. (Source: DfEE; National Assembly for Wales; Department of Education, Northern Ireland. Academic year 1996-97)

  The North East is the only UK Region with a declining population. (Source: ONS; General Register Office for Scotland; Northern Ireland Statistics and Research Agency 1991-97)" [83]

73   HM Treasury, Productivity in the UK: three-The Regional Dimension, November 2001. Back

74   Sarah Ayres & Graham Pearce, Devolved Approaches to Regional Governance in the West Midlands March 2002. Back

75   Gordon Brown Speech to the House of Commons 15 July 2002. Back

76   CBI, RDAs: Getting Down to Business. Improving the Performance of Regional Development Agencies. Back

77   John Prescott, ODPM Press Release: Right to Buy gets a 21st century facelift 22 January 2003. Back

78   HM Treasury, Productivity in the UK: three-The Regional Dimension, November 2001. Back

79   Birmingham City Council: Key Facts 2003. Back

80   Audit of West Midlands Governance-Sarah Ayres and Graham Pearce, WMRA/WMCC March 2002. Back

81   Source HM Treasury, Public Expenditure Statistical Analyses 2000-01. Back

82   Peter Jones, "Barnett Plus needs" in England, State of the regions July 2002 p200. Back

83   North East Regional Assembly, Case for the North East. 2001. Back