Osborne’s dangerous assault on our regional economies

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