1.  INTRODUCTION

  The Regional Development Agencies collectively form a major part of the policy delivery system through which the Treasury, DTI and ODPM will pursue the PSA Regional Economic Performance Target (from SR2002) 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".

  This is reflected in the fivefold statutory purpose of RDAs set out in the RDA Act 1998.

—  to further the economic development and the regeneration of their area;

—  to promote business efficiency, investment and competitiveness in their area;

—  to promote employment in their area;

—  to enhance the development and application of skills relevant to employment in their area, and

—  to contribute to the achievement of sustainable development in the UK where it is relevant to their area to do so.

2.  THE IMPORTANCE OF ACHIEVING THIS TARGET

  Raising the performance of all regions forms part of the Government's central economic objective of achieving generally "high and stable rates of growth and employment firstly for reasons of equity, but also because unfulfilled economic potential in every region must be released" (HMT/DTI—Productivity in the UK3: The Regional Dimension 2002).

  The aim of reducing the persistent gap in growth rates is a stepping stone towards an eventual reduction in disparities between the regions, which would actually require faster growth in those regions which currently have lower incomes and productivity. In this process the Government's strategy is one of levelling up by raising the performance of the weakest regions rather than simply re-distributing existing economic activity. In the short and medium term the operational objective is to avoid further widening of the disparities in GVA per head between the regions which are currently above and below average on this indicator, eg residence-based GVA per capita (where UK = 100) varies in England from 77.3 in the North East and 86.9 in the North West to 116.4 in the South East and 130 in London at 1999 figures. If the work-placed based figure is used, London's figure rises to 146.3.

  The RDAs are all committed to achieving this target, bearing in mind its twin objectives of:

(1)  Making sustainable improvements in the economic performance of all English regions and

(2)  Over the long term reducing the persistent gap in growth rates between the regions.

  In other words, the second strand of the target is not to be achieved at the expense of the first as a result of levelling down and thereby reducing levels of national economic performance, ie ours is not a zero-sum activity.

  The importance of achieving the target is, however, matched by the vast challenge it represents, a challenge which is rendered more difficult by:

—  the huge diversity in the economic structures of each region (eg infrastructure, skills needs, labour market conditions, business base, the location of Government-funded research establishments and headquarters etc, much of which has been shaped by historical attributes) which means they all start from different levels;

—  the intra-regional disparities, often huge, which exist in all regions, eg between Cheshire and Merseyside in the North West, Swindon, Bristol and Cornwall in the South West and which, for some regions, tackling these is an equal, if not greater priority than inter-regional disparities;

—  the need for various arms of Government (more than just HMT/DTI and ODPM who share this target) to integrate and focus their policies to ensure that any contradictions of existing policy are removed, along with any unintended consequences they may have which detract from the achievement of this target;

—  the lack of good quality, robust regional data (nb: the establishment of Regional Observatories is an important step forward in this respect, but there is still a need for ONS and others to develop regional data sets as currently much data is extrapolated from national surveys which limits its usefulness in terms of policy development and decision-making.

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

The impact of current regional strategies and whether the introduction of the nine RDAs has contributed towards a reduction in, or increased the disparities between the regions.

  RDAs were established in order to provide a focal point for the activities needed in each region to drive up economic performance. These policies are articulated in the Regional Economic Strategies, and are necessarily different for each of the English regions. The Regional Economic Strategy is intended to form the overarching framework for regional policies to reduce disparity.

  There is a wealth of regional policy from the Regional Economic Strategies through to Regional Planning Guidance and Regional Transport Strategies for the regions. Work has begun in the context of the Regional Government White Paper to secure the greater integration of these cornerstones of regional policy. Achieving this integration of vision, objectives and targets will be essential in achieving the reduction of regional disparities.

  Most activities and policies for the regions, however, are currently national policies which are rolled out in the regions, or regional outcomes which are the same for all regions. If this "one size fits all" approach is followed there will be little likelihood of reducing regional disparities. Recent IPPR research ("A new regional policy for the UK") supports this point.

  The impact of current Regional Economic Strategies are monitored via the newly devolved targetry framework. The national Tiers 1, 2 and 3 targetry framework was established in 2001 in readiness for the Single Pot and took effect on 1 April 2002. The advent of the Single Pot is also crucial in this context because the inherited funding streams, under which RDAs used to operate, gave them limited ability to respond to the differing needs of their regions. Now that the Single Pot is in place the ability of RDAs to identify need and respond to it has been considerably increased.

  Tier 1 targets are National Objectives, Tier 2 Regional Outcome Targets (which are for the key players in the region to achieve in partnership with, and under the leadership of, the RDA via the Regional Economic Strategy) and Tier 3 are the RDA's own outputs which, of course, contribute directly to Tier 2 Regional Outcome Targets. (See Annexe).

  There are 11 Tier 2 targets, the first and most significant for the PSA Target is the overarching one relating to "Sustainable Economic Performance: Provide the strategic framework to improve sustainable economic performance of each region, measured by the trend in growth of GVA per capita, while also contributing to broader quality of life in the region". The figures for this target vary between regions to reflect that which is achievable, the details of which are to be finalised following the publication of new data by ONS in 2003 relating to GVA in 2000 and 2001, and trends over the previous decade.

  The full list of Tier 2 targets is set out in the Annexe with the Regeneration target aimed at those wards in the bottom 20 per cent of the Indices of Multiple Deprivation geared towards the reduction of inter-and intra-regional disparities in deprivation levels.

  RDAs will look to maximise overall economic performance. However, given the diverse regional economic bases and assets that exist, it is inevitable that the better performing regions have considerably higher targets than the less well performing. While individual RDAs will attempt to reduce the disparity gap, it seems likely that stronger regional economies will have a comparative advantage, thereby making such a reduction unlikely within the context of the existing national policy framework, certainly in the short-term.

  The models of the Scottish and Welsh Development Agencies have demonstrated that a regionally-focused economic approach can be effective in taking decisive action to reduce regional disparities within the UK. Together with successful European examples of regional approaches, this suggests that the English RDAs should be able to deliver sustained economic improvement in the long term. However, it is important to emphasise the long term aspect of the work and to recognise that there are difficulties with assessing performance in the short term.

  Nevertheless, much excellent work has already been undertaken by RDAs with their partners, and there have been some effective quick wins which are beginning to make an impact on the regional economies, for example:

—  in the South West the development of the Eden project has had an immediate positive impact on the Cornish economy;

—  in Yorkshire and Humber, the "Britain's Biggest Break" tourism marketing campaign addressed the impact foot and mouth disease had on the region and helped to move it from having the worst to the best hotel occupancy rates outside London;

—  in the North East considerable work has been undertaken to ensure that the energy and defence companies in the region have the opportunity to secure as much work as possible (potentially creating 6,000 direct jobs) from the recent awarding of the contract to build the Royal Navy's two new aircraft carriers;

—  in the South East a 10-year plan to revive the economy of Hastings and Bexhill area through urban renewal, education, enterprise, broadband and transport is already seeing a substantial change in the economic fortunes of the Hastings and Rother area;

—  in London, the Centre of Excellence for Manufacturing and Engineering (CEME) will combine education, conference and learning facilities in a flagship project at the heart of the strategy to support London's advanced manufacturing sector;

—  in the East Midlands the Local Alchemy programme seeks to develop local entrepreneurship by bringing together the most successful tools for economic development from around the world, and directly impacting on deprived communities to not only improve the economic performance of the region, but also reduce intra-regional disparities;

—  in the West Midlands, as a result of the RDA-led Rover Task Force in 2000, there came a clear commitment for the RDA to modernise and diversify the regional economy with the creation of three High Technology Corridors in which investment, research and development and university commercialisation are being linked to business growth;

—  in the East of England, following the large scale redundancies announced at the Vauxhall plant in Luton, the RDA chaired the partnership which put together a much vaunted integrated package of measures to minimise the impact of the redundancies in the area;

—  in the North West, the establishment of the North West Science Council and the launch of the innovative Science Strategy has established a clear and focused agenda to enable the region to develop its science base in support of the development of its regional economy. This will enable the North West to capitalise on its science-based assets and become established as a region of scientific excellence.

  Notwithstanding this activity, however, it is harder to demonstrate cleanly how the activity on the ground maps to productivity and performance measures in the short term.

  It is also important to recognise that there is much work to be done on understanding the regional dimension of issues such as productivity and a healthy labour market which have not previously been studied, and the RDAs are now ensuring that this dimension is being taken into account. As our understanding is increasingly underpinned by an effective evidence base it should become easier to show how the activity and performance measures relate to each other. This understanding will then pave the way for more effective strategic decision making.

  It is also too early to show the long term impact that the Regional Economic Strategies have had upon the regions' economies, not least because they have a 10 to 20 year time horizon, but they have been useful in the following ways:

—  identifying the key characteristics of each regional economy;

—  demonstrating the different strengths, weaknesses, challenges, threats and opportunities that each region faces;

—  showing how national policy can be interpreted in a regional context;

—  identifying a specific economic vision for each region, and strengthening regional coherence; and

—  establishing a shared agenda with the key stakeholders in each region so that a vast array of public (and private) expenditure is now beginning to be focused on shared objectives.

  Statistically, however, the evidence does not yet exist to show whether the regional disparities have increased or reduced since the RDAs were established in 1999, thus illustrating one of the problems of securing timely and effective information to enable this target to be addressed.

  Nevertheless, whatever the statistics show, one would not expect the impact of long-term policies to be felt immediately and the steps to achieve greater policy alignment at the regional level are still being developed, eg only last summer RDAs were given a new strategic responsibility for the development of tourism in the regions owing to its importance to the economy; April 2003 will see the commencement of pilots in some regions to effect greater integration and management between the local Learning and Skills Councils and Small Business Service; and the launch of the Communities Plan will see RDAs involved in the development of Regional Housing Strategies and advising on the distribution of housing resources within the regions.

Whether the proposals for Regional Assemblies will make a difference to the achievement of this target

  The RDAs welcome the Government's moves towards greater economic devolution for the eight English regions as outlined in the recent White Paper, "Your Region, Your Choice: Revitalising the English Regions", and reflected in last year's Spending Review announcements. This is because we consider that the RDAs have begun to demonstrate how regionally developed and delivered economic policy can begin to address the regional challenge which strongly suggests that the flexible devolution of further power and resources could build on regional successes to date.

  We consider that if the target is to be achieved, whether or not Elected Regional Assemblies are introduced, the continued devolution of significant and flexible powers, regional autonomy and funding is vital. The regions will only be able to meet their full economic, cultural and social potential if they are empowered by Government to determine their own agendas, rather than viewing local bodies and agencies as regional delivery agents of central government policy and are enabled to ensure that there is a coherent delivery system in each region. It is only if this potential is reached that regional disparities will begin to be tackled.

4.  WHETHER A COHERENT NATIONAL POLICY CAN BE ACHIEVED

  The devolution of powers and resources to the regions, which we strongly advocate, needs to be set in a robust national policy context with long term macro-economic stability.

  That the RDAs undertake so much collaborative working together and agree collective policy lines (on a wide range of issues such as their submission to the Chancellor for his pre-Budget statement, the response to the Government's consultation on Aviation policy, and including submission of this joint response) is testament to the importance we see of the national dimension to our activities, notwithstanding the differences that exist between the regions.

  We recognise that many issues need to be tackled at the national level, and that is why we need to research and fully understand the causes of the differentials, both within and between the regions to inform the development of appropriate national policy and to provide the framework within which the PSA target can be delivered.

  Some of this framework currently exists, much does not. For example there is a need to develop, amongst other things, a full understanding of the spatial implications of a wide range of existing Government policies, and their impacts on reducing or increasing regional disparities. Such potential impacts need to be understood at the policy formulation stage, otherwise we are likely to merely perpetuate or exacerbate the status quo by not having a national perspective on the regional impacts of national policy.

5.  WHAT LESSONS CAN BE LEARNED FROM PAST REGIONAL POLICIES?

  Clearly, past regional policies have not been sufficiently effective because they have not reduced the disparities with which we are currently faced.

  One main reason for this is because in the past there has been no concerted attempt to introduce an holistic regional focus into all relevant areas of policy that we are now beginning to see.

  Instead, various policy instruments were used, often in an unconnected way. As a result, whilst some benefits may have arisen they were not capitalised on to the full extent necessary to effect the step change in the fortunes of the lagging regions. One such major tool was Regional Selective Assistance, now largely under the RDAs direction. The utility of this is now reduced as it is geared towards attracting large numbers of manufacturing jobs and associated investment for which there is now much reduced supply. That RDAs can ensure it is integrated as one tool to secure the implementation of the Regional Economic Strategies is, however, to be welcomed.

  Basic economic theory says that with free trade, active competition and unrestricted mobility of capital and labour between regions, regional disparities in the rewards for factors of production of a given quality (and their degree of employment) ought to be eliminated. However, this does not happen in practice because of a wide variety of factors, including, for example actual and perceived differences in the quality of labour or of entrepreneurship between regions which are not resolved through competition.

  Whilst the market will address some of these issues, such as, for example, directing capital and labour to places where they can most productively be employed (where they are in relative shortage) and steering regional economies toward specialisation in their fields of comparative advantage its impact is limited, and therefore there is a need for public sector intervention.

  The potential roles for the public sector to intervene in the market include:

—  removing barriers to trade, mobility and competition, eg. transport infrastructure, skills, the quality of the workforce;

—  diffusion of information about technologies and markets; and

—  addressing market failure, preferably by correcting the causes, rather than replacing the market;

  However, in general, Government is at least as likely to "fail"as markets in addressing these deficiencies, particularly in terms of:

—  trying to "pick winners" and identify key business synergies, with inadequate/oversimplified information about commercial factors and dynamics;

—  responding to special pleading on behalf of particular sectors to promote their competitive position, in what are presented as standing for the general interest, to the neglect of others;

—  pursuing the most visible lines of activity in order to meet short-term political or bureaucratic targets, irrespective of longer term value;

—  promoting zero-sum policies to divert activity from other (often nearby) areas, to no net benefit—and exaggerating the importance of mobile investment relative to the competitive success of local firms;

—  generalised boosterism—which like financial subsidy is open to exploitation by mobile businesses who can play competing areas off against each other, to their sole benefit—rather than promotion of an area's distinct strengths and potential.

  It is for these reasons that an integrated holistic approach to tackling these issues needs to be undertaken with devolved powers and resources being given to the regions within a stable national policy context.

6.  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

  The key issues with regard to devolution of powers and resources to the regions have been addressed above.

  Fundamentally, the required change is one of attitude and a widespread genuine subscription to the achievement of this target by all Government departments and a determination to effect any necessary changes in policy.

  There are several lines of input to this process. The RDAs, for example, are currently working with the Core Cities Group and various Government departments to identify some of the key policy changes which will be required to enhance the competitiveness of lagging regions, in particular, whilst not undermining the growth potential of London and the more prosperous regions.

  The areas being investigated include:

—  Creating the conditions which attract internationally competitive investors;

—  The characteristics of an internationally competitive regional city;

—  The allocation of public sector resources for research and development;

—  Connecting regional cities to national and international markets;

—  Education and skills in strengthening city and regional competitiveness;

—  Planning mechanisms to support cities as drivers of the urban renaissance;

—  A critical mass of Sport and Culture to provide competitive advantage;

—  Fiscal measures to enhance competitiveness;

—  The role of cities in creating competitive regions;

—  Measuring progress in building internationally competitive regional cities.

  Whatever changes are eventually identified, however, the RDA's would not support a national policy approach that attempted to focus on some regions of England to the exclusion of others. There will, however, inevitably be the need to exercise some form of positive discrimination in certain policy areas to help raise the performance of the lagging regions.

  In terms of the specific question about whether Government departments, agencies and non-departmental public bodies should be moved to less prosperous regions, we would be in favour of investigating such an approach provided the impacts were carefully assessed for the donor region and the host. There are clearly lessons to be learned from the way decentralisation was carried out in the past and relocating some functions of Government would be sensible. This is because we recognise that the location of public sector organisations can provide positive economic growth. Also, compared to private sector organisations, where jobs may not last and companies pull out of the area, public sector jobs are generally more secure and would provide a way of encouraging community cohesion and long term economic benefit. It would also help the economy of London and the South East by removing some pressures on housing land as the ability of civil servants to buy houses could increase if departments were located elsewhere. Affordable housing for public sector workers is an issue in many places, but is particularly acute in London and the South East. Government policy should focus on providing affordable housing for public sector workers such as doctors, nurses and teachers within London and the South East, and not add to this problem by increasing the civil service population there. However, it would equally be important for an economic impact assessment to be undertaken in relation to any specific moves, and for there to be a consultation process as large relocations can have a large impact on a local economy.

  Of itself, however, this policy would only make one modest contribution to the achievement of the overall target.

7.  HOW MUCH ADDITIONAL FUNDING IS NEEDED IN THE POOREST PERFORMING REGIONS

  We consider that this question is not the place to start in seeking to determine how the regional disparities can be addressed. There is a logical sequence to this process which needs to be followed so that the range of appropriate levers can be pulled:

  Firstly, we need to have a much better understanding of the nature of the regional disparities and the causes of them.

  Secondly, we can then determine the appropriate policy interventions designed to address the disparities.

  Thirdly, only then will we be able to more accurately assess the resources that are required to effect the changes required.

  Fourthly, we can then, from a sound evidence base, implement those policies and review their impact so that adjustments can be made as necessary.

  Whilst some evidence exists we are still a significant way from achieving the clarity required on the first two steps to be able to address the third.

  For example, there is insufficient research evidence to identify how much it would cost, and with what interventions, to achieve the PSA target.

  Whilst quantum of resource will undoubtedly be a major factor in addressing the target, it is firstly important for us to be clear that we are making the best use of existing resources.

  This requires not only a clear understanding of how much public money is already spent in each region, but also how those resources are allocated in the first place and, if and how they are then focused on achieving shared regional objectives.

  In this respect the current ODPM project to identify the flow of domestic and European expenditure into the English Regions will be an important input. Its aims are to:

—  identify the form and level of public expenditure flowing into each English region;

—  identify the determinants for each flow; and

—  develop a methodology to estimate these flows.

  RDAs have started the process of influencing regional spend in pursuit of Regional Economic Strategy objectives, but much more needs to be done to ensure that the full weight of public expenditure in the regions is appropriately focused. In this regard it should be noted that RDA budgets are only a small proportion of total public spending in each region.

  The Treasury have started the process of identifying a regional dimension to Spending Review and this process needs to be driven forward so that it has a greater impact than hitherto.

  With regard to the allocation of public expenditure, whether by the Barnett Formula, the Formula Spending Share (FSS) for local Government, the NHS allocation, RDA budgets, or European Structural Funds, the variation in spending flows between English regions is small relative to variations in identified need, measured by take-up of social security. For example, London, Scotland and Northern Ireland attract significantly larger allocations than their GVA per head would indicate.

  If regional allocations were based on poorer regions getting more (an inverse GVA formula) there would need to be a major adjustment in favour of the English regions (except London) and Wales, and a greater potential for differential funding.

  It will, however, only be when we understand the causes of the regional disparities, have determined the appropriate policy interventions at a national and regional level (including devolution of powers and resources to the regions), have focused spend on the pursuit of agreed regional targets, and we have a clear rationale for understanding the cost of achieving the targets, that an appropriate context for reviewing allocation formulas of public expenditure will be provided.