Stunted ambitions

Lord Heseltine’s report, No Stone Unturned paints a vivid picture of the problems that have characterised our economy for decades: comparatively low productivity, skills gaps, and poor translation of basic research into goods and services.

But the issue his report brings most to light is the staggering scale of regional inequalities of growth and income. Britain has the biggest disparities between regions of any of our major competitors – and is the most unequal of any EU country. GDP per head in the richest region of our country is nine times greater than in the poorest (in Germany, the gap is a third).

And this gap is widening, not shrinking. Since the 2008 global recession began, poorer areas have seen income per head fall twice as fast as in the wealthiest. In London alone, the richest 10% have 273 times the wealth of the poorest 10%. It is shocking. But it’s not just unfair, and not just corrosive of social solidarity. It is holding our economy back, and the impact affects us all.

What can be done? At the heart of the 89 recommendations in Lords Heseltine’s report are three central principles he urges on the government.

First, the indispensible need for a growth strategy. This, says Lord Heseltine, “must send a loud and unequivocal message to the country that the government takes growth seriously and has a credible strategy”.  I think it is fair to say that so far the Coalition has sent not so much a “loud and unequivocal message” as something oscillating between a mumble and total silence. We urgently need an industrial strategy. But this government, sadly, refuses to get one.

Heseltine’s second principle is the importance of devolution of policy responsibility to our regions and localities. His report details a familiar story of excessive centralism, Whitehall silos and a patchwork approach to regional policy. He recommends devolution of funding, moving to a single funding pot, for which Local Economic Partnerships (LEPs) could bid.

We should encourage imaginative ideas about rationalising and decentralising funding streams. What a shame then that the bodies that would have been best suited to bear the weight of this agenda, the Regional Development Agencies (RDAs), were hastily scrapped two years ago – in a move that, as Lord Heseltine himself said last year, provides yet another example of short-sightedness in industrial policy.

Earlier this week we heard that the government is minded to make some progress towards single pot funding for LEPs. This could be promising. But for such funding to work, the bodies that power is devolved to must have the capacity to do the job properly. Yet concerns about LEPs governance, their ability to leverage funding, whether they have procurement/contract management skills, underrepresentation of SMEs are widespread. Building up this capacity is a crucial precondition for any serious attempt to build regional growth strategies.

But worries about LEPs seem positively minor compared to the concerns about the Regional Growth Fund that replaced the RDA system. This Fund aimed to create 330,000 jobs in its first year. In the end, it created 40,000. Two years into its life, only £60m of the £1.4bn allocated has actually reached the front-line. About half a billion is parked in banks and local authorities’ accounts, doing not much for growth at all. The Public Accounts Committee said its value-for-money was “scandalous”.  Everyone outside the Coalition agrees: it needs a fundamental overhaul.

The final principle at the heart of No Stone Unturned is a belief that active government, far from being the enemy of enterprise and growth, is indispensible to it. Lord Heseltine stood up for this idea when it was deeply unfashionable under a Tory government in the 1980s, just as Peter Mandelson stood up for it in the last few years of the Labour government when it was equally unfashionable.  If there is one legacy of this excellent report for all of us, I hope it is that we rid ourselves of the prejudice that an active industrial strategy is bad economics, and the error of believing that a laisser-faire approach is good economics.

Lord Stewart Wood of Anfield is Minister without Portfolio in the Shadow Cabinet and a frontbench Labour Peer. his article first appeared at the Labour Lords blog