Despite a sustained period of reasonable overall economic growth in the UK, regional differentials in GDP per head are increasing. There is, in broad terms, a "North-South" divide in regional prosperity, with a "winner's circle" in the greater south east of the UK, and three regions that lag significantly: Northern Ireland, Wales and the North East of England. On current trends, by 2020 GDP per head in the North East could be half the UK average. This produces problems for both lagging and prosperous regions alike, which requires public policy interventions sensitive to different regional needs.

  Emerging regional approaches are welcome in this regard, but the role of central government is inadequately defined. In particular, Government policy currently neglects the lack of employment opportunities in the poorer regions. The Government is right to promote a regional productivity agenda, but this must be additional to the regional employment agenda. At this stage, a re-assessment of the impact of present spending is essential. This will require difficult political decisions, but a combination of bottom-up and top-down measures are necessary for regional prosperity disparities to be closed.

ACHIEVING THE GOVERNMENT'S TARGET

  1.  Despite a sustained period of reasonable overall economic growth in the UK, regional differentials in GDP per head are increasing. There is, in broad terms, a "North-South" divide in regional prosperity, with a "winner's circle" in the greater south east of the UK (consisting of London, the East of England and the South East regions). There are three regions that lag significantly: Northern Ireland, Wales, and the poorest region of all, the North East of England. On current trends, by 2020 GDP per head in the North East could be half the UK average.

  2.  The "winner's circle" suffers its own problems, as issues such as congestion and pressures on the local environment impinge upon the quality of life for those within "booming" regions. Furthermore, a combination of congestion and environment pressure around London and the South East, and excesses in housing, land and labour capacity in the North, suggests that the UK economy is running below its potential capacity. As HM Treasury and the DTI have argued, the current scale of regional inequalities represents a drag on national economic performance. [84]

  3.  The Government has argued in the past that intra-regional differences negate inter-regional differences. This is a false division as both need to be addressed. Individuals are at a much lower risk of poverty in regions such as the East of England or in the South East than in the North East or Wales—but also in the West Midlands or London. Both inter-regional and intra-regional disparities deserve attention and different policy responses. Measures must be introduced to address disparities within and between regions in locally-relevant ways. Such an approach would ask new, and sometimes difficult, questions of central government.

CURRENT AND PROPOSED POLICIES

  4.  Regional strategies are necessary for any reduction in disparities in regional prosperity—they identify and address the distinctive economic needs of individual regions. Strategies, and the process of strategy-making, provide the opportunity for regionally-authored, regionally-owned, solutions to be developed. It is, however, too early to judge the impact of existing strategies upon regional disparities.

  5.  The creation of the Regional Development Agencies (RDAs) is welcome. They include regional stakeholders in the design and delivery of new regional approaches to economic development. However, there is no guarantee that current arrangements will close regional disparities in prosperity. For RDAs in lagging regions to act as significant economic drivers in their respective areas requires a discriminatory funding regime reflecting need. However, this would not be sufficient to close regional prosperity gaps—to achieve this the RDAs must form part of a more explicit regional policy articulated by central government.

  6.  Regional assemblies can also be part of the solution. Regional assemblies would provide the opportunity to meet broader democratic and public policy delivery goals. Decades of centralised policy responses have failed lagging regions. These regions need a strong political voice to counteract this centralisation. "Bottom-up" policy-making would enable government to move beyond a one-size-fits-all policy approach, as well as enhance public policy delivery.

  7.  As a forum for regional agents and agencies, regional assemblies could co-ordinate more effective economic strategies by enabling a more tailored approach. Furthermore, assemblies would require the development of robust regional political leadership. This would provide two benefits. First, an enhancement of regional leadership, enabling assemblies to act as a voice for their region in central government. Second, assemblies would enhance the regional "consciousness" of existing government, or government-sponsored, agencies.

  8.  International experience demonstrates that an enhanced regional capacity is crucial to balanced economic growth. The strengthening of regional institutions would therefore provide the opportunity to enhance local economic and political capacity. The long-term security of a democratically elected regional assembly could provide a bulwark against centralisation.

ACHIEVING A COHERENT NATIONAL POLICY

  9.  A coherent national policy is absolutely necessary for a reduction in regional disparities. Westminster and Whitehall have a responsibility to achieve social and economic justice for all the nations and regions of the UK[85]. Such an "active" role is entirely compatible with the principle of devolution, and the government's "bottom-up" approach to regional development.

The importance of full employment

  10.  Unpacking regional differences in GDP reveals regionally-specific reasons for variations. As Table one demonstrates, low levels of employment largely explain the low GDP per head of Wales and the North East—their productivity levels are similar to other regions with higher GDP per head.

  11.  Full employment is crucial to social justice and enhancing national economic performance. However, creating full employment will require a sensitive policy response. The problem of the concentration of low employment in some parts of a prosperous region is different in character to the problem of low employment in a lagging region. London has a healthy jobs market a few miles away from pockets of high unemployment. Here supply-side measures to help individuals fill available job vacancies across the metropolitan labour market are of great importance. In the North East demand-side measures are required to generate job opportunities within a reasonable travel-to-work distance—Hackney and Hartlepool require different policy interventions.

  12.  A reduction in regional disparities will require a political acceptance that there are "jobs gaps" across the UK. Of the 68 labour markets that had employment rates below seventy percent of the working age population in 1999-2000, almost none were located near areas of high employment. Furthermore, they were concentrated in regions outside of the greater south east.

What might be done?

  13.  Identifying practical policy measures to address such regional disparities in prosperity is a difficult task. One option would be the promotion of mass emigration to remove "surplus" population from the North. Mass emigration would probably prove politically unacceptable. Furthermore, the promotion of a measure of inter-regional migration would have serious repercussions for donor regions. Migrants would probably consist disproportionately of young people with qualifications, as age, skills and house prices limit migration. A dynamic region which absorbed the better qualified workers would gain a further competitive advantage, creating a vicious circle for lagging regions. However, this process would create further pressures on housing and land use in the recipient regions, raising environmental and quality of life issues.

  14.  A second option is the tightening of development controls in the South to induce capital to move north. However, restricting the supply of land in the South, for whatever reason, cannot guarantee that capital will indeed travel north and will lead to rising land and house prices in the South. These rising prices would have serious implications for the poor in those regions.

  15.  The emphasis should be on "pull", not "push", factors. The best practical course of action for decision-makers to solve regional economic disparities is the third option of creating new jobs in lagging regions. This would require a judicious balance between top-down and bottom-up policies. New regional approaches are emerging, but central government's role in tackling regional economic disparities is much less developed.

ADDITIONAL FUNDING?

  16.  A re-assessment of the impact of current public sector spending is necessary. For example, the geography of government R&D expenditure reveals a strong southern bias. The North East receives practically no R&D expenditure. Here national "industrial" policy is carried out with apparently little thought for its regional impact. [87]A more co-ordinated cross-departmental approach is required.

  17.  Although not all parts of Whitehall have come to terms with regionalisation, there are some reasons for optimism. HM Treasury has, for example, embraced regional policy, albeit principally to promote national economic performance. Here strong regional policy works in harmony with broader national economic objectives. However, there will be times when these two policies conflict—when national economic performance might lead to a focus on richer regions at the expense of equity between regions. Policy-makers face hard choices, but they must be open and honest about the balancing act that they must perform.

  18.  HMT, DTI and the Office of the Deputy Prime Minister have committed themselves to a target of reducing regional economic disparities. This indicates that the Government is becoming more comfortable with a redistributive approach that explicitly targets lagging regions.

  19.  There are no quick-fixes available that would significantly reduce regional disparities. Difficult political choices and compromises will have to be made, with balances struck between national priorities and different regional needs. A judicious combination of "top-down" and "bottom-up" approaches is required to create the "pull" factors central to boosting lagging regions' fortunes. Fundamentally, these regional variations in policy must be supported by a funding mechanism that enables lagging regions to close the prosperity gap.

85   For a more detailed discussion, see: Adams J and Robinson P (eds) (2002) Devolution in Practice: public policy differences within the UK. London: IPPR, 198-227. Back

86   Burkitt N (ed) (2001) A Life's Work: achieving full and fulfilling employment. London: IPPR. Back

87   See Adams J and Robinson P (2002) A New Regional Policy for the United Kingdom: interim report. London: IPPR. Available at: www.ippr.org/research/index.php2current=37. Back