Osborne’s dangerous assault on our regional economies

April 16, 2012 11:21 am

Tomorrow sees a Westminster Hall debate on the North East economy. I am looking forward to hearing the government try to justify its assault one of our most important regional economies.

The government’s austerity drive is already impacting hardest on areas like the North East, which has the highest unemployment rate of the English regions (10.8%) and which received higher than average cuts to local government grant. And research published this weekend by the ippr North’s ‘Northern Economic Futures Commission’ shows the UK economy would be £40bn better off if the government recognized the potential for growth in the north.

Yet despite this, the government has dismantled key regional economic drivers and is implementing economic policies that are risking the recovery in our regions, as well as hitting hard working people at a time when the cost of living is rising sharply.

Osborne’s Regional Pay plans in the budget were the latest in a line of policy failures that show he simply doesn’t understand the drivers of growth in this country. According to the TUC, these plans could result in a real terms pay cut for 3 million workers around the country. The resulting impact on disposable income and spending will reduce demand in regional economies and will increase regional inequality and further stymie fragile growth. The regional pay proposals are expected to remove a further £78m a year from the North East economy, and that’s calculated on a mere 1% real terms pay cut (it could be more). The cumulative impact of this year on year could be disastrous. This is not simply another attack on the public sector, but will have a serious long-term impact on private sector growth.

Alongside this issue, the government is failing our regional economies with a catalogue of policy disasters – here are five of them:

1 – the idea that the public sector wages have stifled the private sector and get in the way of growth is untrue. The North East has both the lowest overall wages and the highest unemployment rate of any of the English regions – the private sector should be able to recruit irrespective of public sector wages given the level of unemployment. The idea that the private sector would magically ‘fill the void’ left by public sector redundancies was an ideological gamble which is failing.

 

2 – The dismantling of the RDAs has left a huge void in driving growth which Local Enterprise Partnerships, with their limited funding or staff have yet to fill. Every place has its own unique industrial and financial heritage, diverse economic patterns, variable skills base, social networks and distinct environmental characteristics, which policy driven from Whitehall cannot reflect.  While they may not have been perfect, RDAs understood their regional economies and had substantial leverage in their areas to create jobs, support businesses and drive development. There is a real danger now of less clarity of leadership and authority. The North East, for example, cannot afford to lose out to competition from Scotland on new investment opportunities because it has a well-funded, powerful agency.

3 – The Regional Growth Fund, first announced way back in June 2010, has been notoriously slow to get money out to successful bidders (just 27 of the 50 round one bidders have been funded so far). And its promises on jobs just don’t add up. BIS claim the first two rounds will leverage around £7.5billion of private investment and deliver around 330,000 jobs yet 80% of these jobs are ‘indirect’ and the net cost per job does not compare well with former (and independently verified) RDA investments.

4 – As I have previously written, the localisation of business rates could also have real implications for our regional economies. Collecting and redistributing business rates centrally has long been done in recognition of the fact that there are wide differences between the tax bases of different authorities. While ministers maintain there will be checks and balances, and the current formula will still apply for 2013, in future we could see increasing disparity between areas that are less economically resilient.

5 – The public sector pay freeze will also have a huge impact in the regions as some areas are more dependent on public sector employment. Slashing just 1% off public sector wages will see the North East lose £78m a year as family spending shrinks.

So the government must do better when it comes to economic growth in our regions. While its City Deals and Enterprise Zones do hold potential for our major cities, the coalition’s approach to driving growth is incoherent and risks creating even further disparity and inequality across the UK, as areas that are not targeted by specific new deals, funding or powers are unable to keep up. I hope tomorrow’s debate wakes them up to the importance of regional economies to the UK and get a better plan in place for jobs and growth.

Anna Turley is Editor of Progressive Localism, former deputy director of the New Local Government Network and is a member of the Newcastle Fairness Commission

  • Dave Postles

    Right on.  The media is all London-centric in its analysis.  Today, in the press, we have more about the cap on tax relief on charitable donations.  Up pops the head of the V&A commenting what a travail it is for museums which are enjoying a golden age.  Up here, the museums services are being eradicated.  Leicester and Leicestershire have a simulacrum of the once-great museums services.  In the last decade, Nottingham has depleted its curatorial staff and closed museums: Museum of Nottingham Life; Costume Museum; effectively the Industrial Museum.  In 1976, after much planning, my wife opened the Museum of Nottingham Life in the 17th-century cottages at Brewhouse Yard and the education room (Victorian School) in Rock Cottage.  A short time ago, this museum was closed to the public.   The Industrial Museum is run entirely by volunteers who have no curatorial training or ethos.  The costume resources have been dispatched into storage. 
    The North-East is a wonderful region.  The coast is exhilarating; the traditions are intriguing (small pipes – nice display at Morpeth); and the country’s economic foundations depended so much on its productivity.  Long may it prosper.

  • http://twitter.com/VSNWPolicy Warren Escadale

    Difficult to underestimate the importance of these points.

    I would add that it took a long time to realise that planning and skills strategies need to be closely linked to coherent economic regeneration planning.  It sounds banal and obvious to say this but the RDAs were still in the process of picking up these powers and putting them into effect just before May 2010. The LEPs have no effective means (history, experience, budget or staff) to link to planning or the skills agenda.

    Miles Butler, vice-president of the Association of Directors of the Environment, Economy, Planning and Transportation (local councils) says of the new National Planning Policy Framework (NPPF): “There is nothing between a rather slim national plan and very local plans, just a duty on councils to cooperate.” Greg Clark responds that all public bodies have a duty to cooperate – - however, LEPs are not public bodies.

    You wouldn’t run a business like this.

  • Glenn Athey

    I think the points are valid. However, personally I think RDAs were flawed at inception. Having worked in RDAs (and also being a Geordie, incidentally), I think that they were too tied to Whitehall to really serve their regions properly. This also limited their ability to be entrepreneurial and innovate – constantly having to deliver central government designed initiatives, in-year adjustments (usually cuts) to budgets. 

    Having said that, the transition in places like the North East should have been smoother, and with properly resourced / locally controlled organisations to replace the RDAs. All the areas of work necessary to develop the North East’s economy – enterprise support, inward investment attraction, tourism development and marketing but to name a few – have all been more or less ripped up to be started again with far fewer resources.

  • http://www.facebook.com/profile.php?id=564361715 Jeff Maughan

    I think a pertinent point is that real localism would give local communitiies the right to abolish or retain RDAs.  This would enable policies which were more appropriate to different parts of the country.

  • Johndclare

    The problem with Enterprise zones within the N-E region is that they don’t necessarily draw much industry from the S-E, but they *do* disadvantage other areas in the rest of the N-E.
    Who is going to set up in Aycliffe when you can get support to set up a couple of miles away in Faverdale?

  • Guest

    so you’re standing for Redcar then…

  • Quiet_Sceptic

    There’s something not quite fair or logical though about the arguments against regional pay.

    I agree that taking money out of local economies won’t help those economies but that said, I’m not sure that spending public money to pay public sector workers more than the local rate is necessarily the best use of the money, there doesn’t seem to be any evidence for how much local economic growth we get for our £.

    Would we get more economic growth by paying appropriate regional salaries and investing that money into other approaches to boost local economies?

    Of course if I was a public sector worker in the North no doubt my position would be different!

    • Alexwilliamz

      The way we talk about regional pay makes it sound like we are a nation stretched over thousands of miles. How regional would you want to go in pay differentials? County by county, constituency by constituency or even ward by ward. We already have some regional pay differentials in the London area in recognition of the higher costs there, does that not imply that the ‘national pay’ reflects national value? What I read this as, is an attempt to cut wages of even more public sector workers and also breaking national pay awards to allow for privitisation. There is precious little profit margin in many of the remaining public sector fields, so clearly it will have to come from somewhere and as the wage bill is usually the biggest cost, we can see the real motive behind the policy.

    • Dave Postles

      You should pay the rate for the job based on the responsibilities and the qualifications.  The IDS has indicated the problems of ‘cliff edges’ in rates of pay.  It has also illustrated that regional rates of pay in the private sector have been grossly exaggerated.  The real point is to get the best teachers and social workers into the most deprived areas, so, if anything, you should be paying a premium for work in those locations.  Let’s face it, however, the professions (which this aspect of regional pay affects) do not live in the places of highest deprivation and lowest costs of living: they commute to work there (quite understandably).  So their cost of living is not the same as their customers or clients.  On Osborne’s criteria, Manchester United footballers should receive a lower wage because their ground is in Salford, but we all know that they live in Cheshire (formerly neighbours of the chancellor).  You need great teachers in Barnsley as much as in Brighton.

  • Glenn Athey

    I think the problem with the RDA planning powers was that they were seen as an affront to local democratic control of these issues. Being agencies of Whitehall as the RDAs were, I do sympathise with local authorities on this. Working inside an RDA – we did not want these planning powers – our role was better suited to advising and influencing on what was best for the economy, and providing some help to business with brokering solutions to planning issues.

    The RDAs did some great work – One North East certainly did. I don’t doubt that, but as I said earlier – they were Whitehall’s agencies. Great point on localism and the choice of retaining the RDA or not. However in the NE – it was always obvious that Tees Valley would want to pull out of that arrangement.

    Meanwhile, the likes of Scotland and Ireland retain well funded development agencies and coherent inward investment attraction, skills development funding et al…

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