We need to fix the UK’s unbalanced economy: here’s how

As President Obama said recently, inequality is the ‘defining challenge of our time’. But if we are serious about translating this conviction into action, then we need more attention on the way people’s prospects are shaped by the places where they live and work. In the UK, this means shining the spotlight on the deep disparities between our regions. And it means accepting that more jobs, growth and wealth generated locally are a vital part of a balanced national economy.

This is the case I make in a new report written for the Smith Institute and launched today, with a foreword by Ed Balls and Andrew Adonis. It reviews in detail the policy lessons from the Labour’s Regional Development Agencies (RDAs) and the Coalition’s Local Enterprise Partnerships (LEPs).

Talk of a ‘north-south’ divide is true though too simplistic, as wealth gaps between local areas in the same region are greater than those between regions. But better balanced national economic growth requires a radical challenge to the structural disadvantages some areas face.

Labour has much to can be proud of from our record in government. The legacy of the Thatcher and Major years was a deep dislocation between regions. In response and led by John Prescott, Labour set up the English RDAs  then Ed Balls and I from the Treasury strengthened their clout during the following years. They combined strong economic leadership with their own substantial ‘single pot’ funds to create significant change – an independent review by PwC found that for every £1 RDAs spent, regional GVA increased by £4.50.[1]

Under the Tories, the inequalities in growth and wealth are growing again. From 2000 to 2010 the poorer English regions were able to achieve almost the same rate of GVA growth as the prosperous regions but since 2010 early data show the gap in growth rates is now five times greater than it was during our time in office.[2]

It may be tempting but my report rejects sweeping away LEPs, the Tories’ half-hearted attempt to fill the gap after they axed the RDAs. Instead, I argue for an evolution – fewer business-led LEPs with extra powers over skills, innovation, jobs programmes, export support and new business investment. Further reforms are essential in three main areas.

First, on purpose and accountability. There isn’t clear enough what LEPs do, who they report to and how their success is measured, so I propose a new simple remit which focuses on core functions but leaves the details and priority setting to LEP areas themselves. The report also suggests joint sign-off powers on the LEP strategy for local authorities and a single sponsor department in Whitehall, which could be the Treasury to reflect its heavyweight influence and economic policy interests.

Second, on geography. There are simply too many LEPs but rather than forcing through another top-down reorganisation, Labour could set expectations for the minimum LEP size or population, combined with evidence of a fit with a functioning economic area. Though, over time the priority must be to create consistency between the boundaries of LEP, City Deal and Combined Authority areas.

Thirdly, on funding. LEPs have suffered from a serious lack of funding and a constant obligation to bid to Whitehall for any money they do receive. Instead, they need the independence to decide locally on investments, based on a single economic plan. There’s also a very strong case for an extra focus and funding on areas where economic disadvantage is the deepest.

Together, these changes could help foster local economic renewal in all parts of the country. We could even call it a one nation economic policy.

John Healey is MP for Wentworth & Dearne in South Yorkshire, and a former Labour Treasury, Local Government and Housing Minister

Making Local Economies Matter – a review of policy lessons from the RDAs and LEPs is published today by the Smith Institute .

[1] PwC (2009) ‘Impact of RDA Spending: National Report’.

[2] Percentage point change, real terms, 2012 prices.