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Regional Imbalances in the UK Economy

IED responds to Treasury Committee Regional Imbalances in the UK Economy inquiry

The Institute of Economic Development (IED) has published its response to the cross-party Treasury Committee inquiry into Regional Imbalances in the UK Economy. The Committee launched the inquiry last month to examine the nature of regional imbalances in economic growth which currently exist in the UK; and also establish what regional data is currently available here, how it could be used more effectively in policy development, and whether there should be official regional economic forecasts produced.

“We believe that balanced growth is an issue for all residents of the UK,” wrote IED Executive Director Nigel Wilcock in a letter to Chair of the Treasury Committee Nicky Morgan MP. “Better balance will ensure that public assets are used more evenly and efficiently – avoiding issues such as under-utilised schools, hospitals and transport networks in some locations and pressure from over-crowding in others. A balanced economy can also, in the long-term, avoid the payment of subsidies to support those under-performing areas and allow improved public finances from greater taxation revenues from across all areas of the UK. Finally, socially and politically, there is surely a need to avoid parts of the country feeling increasingly left behind. One final issue with regard to balance is that in a dramatically imbalanced economy macro-economic policy may suit one part of the UK but be detrimental to another. A two-speed economy generally needs two macro-economic policies.”

In highlighting that “the UK is by far the most imbalanced economy in Europe”, the IED went on to outline the reasons for this. “Essentially the concentration of government, financial and commercial decision-making in London has gained a greater and greater momentum,” Nigel wrote. “This is evidenced by the number of FTSE 100 companies that had headquarters in the regions from 1970 onwards. The coalescing of additional support activities around this central point in the economy has continued to drive growth. The regions have been left with branch plants or back offices which inevitably require re-investment or to adapt to change over time – but with decision-making now divorced from these remote activities that reinvestment is less certain. This structural shift also results in the higher knowledge-driven activities being centralised around the HQ – lower productivity activities taking place in the regions. Traditional industries have shrunk or disappeared, government policy and procurement decisions have not helped the process – and this situation compares less favourably than in France, for example. The shift to a digital economy, despite predictions of a better spatial distribution of activity, has created economies of agglomeration with the new knowledge-driven economy thriving from a critical mass of people and ideas.”

The IED then outlined what can be done to “shift the dial” on regional imbalances. Nigel wrote: “This is a process that has been continuing for perhaps 100 years – albeit accelerating in the recent past. There are lots of micro-shifts that can improve local economies (many of which have been tried although few initiatives have been consistently implemented over the long-term), there are some grand regional policy initiatives that can make some difference although these tend to involve public subsidy at a large scale. The activities that can make a genuine difference involve the relocation of some central activities and a greater devolution of expenditure. We are struck by two contrasting examples of this. The first is the evidence of the difference that relocating a meaningful chunk of the BBC has made to Manchester – by creating a ‘prime’ or ‘tier one’ organisation in the regions, the supply chain effects have been very large. The contrast is with devolved spending – the ‘City Deal’ and equivalent policies whilst welcome, have not really devolved spend. In so many cases combined authorities are now administering the expenditure of funds (within the rules still laid down by Whitehall) rather than making genuine long-term decisions.”

Finally, the IED outlined a number of policy suggestions (offering further insight from the Institute and its members to the inquiry):

  • Separate London and the rest of the UK when making the monthly growth announcements. The problem of imbalance needs to become a mainstream point of discussion.
  • Identify more ‘primes’ or ‘tier one’ activities that are publicly controlled and move significant decision-making chunks into the regions. This is frequently talked about but never takes place. If large commissioning and legislative organisations in government relocate, large chunks of the private sector will follow them.
  • Revisit the economic evaluations of previous interventions – some were good but were ditched by changes of government. The Manufacturing Advisory Service, High-Growth Business programmes and Regional Selective Assistance were all schemes evaluated as making a difference at a modest cost.
  • Take longer-term views on government capital expenditure – whether it is transport, energy, defence or telecoms the UK has a history of undertaking capital spend in a lumpy manner. No trains are ordered for 30 years causing the domestic manufacturers to close and then when an explosion of expenditure takes place the UK needs to buy from abroad – and assembly plants of Siemens, Hitachi and Alston arrive. The jobs from this investment are welcome – but the knowledge aspects of these investments remain in Germany, Japan or France.
  • Create some safeguards for UK industry around procurement of nationally-important contracts and on takeover by foreign-owned businesses. Few seem to recall that Marconi (based in Liverpool) closed shortly after Huawei was given the original BT digital exchange contract with repercussions now creating political difficulties.

Full details of the inquiry can be found here: https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/inquiries1/parliament-2017/inquiry7/


IED responds to Labour Party consultation on Local Economic Development

The Institute of Economic Development (IED) has responded to a Labour Party National Policy Forum Consultation on Local Economic Development.

The consultation was led by the Housing, Local Government and Transport Policy Commission, which develops Labour policy concerning local government and devolution, housebuilding and the housing sector, and Britain’s transport infrastructure and services.

The Local Economic Development consultation invited “views on what policy levers Labour should use in government to support local economic development, what institutions should pull those levers and whether they need reforming, as well as what Labour councils can do now to start laying the ground for the road to rebuilding Britain’s economy”. The consultation closed on 30th June 2019. In response, the IED wrote:

  • Local Enterprise Partnerships are not perfect and are under-resourced. We suggest that resourcing and governance reforms are required but there have been too many reorganisations of structures in this area so should be retained to ensure continuity.
  • In too many cases devolution is actually shifting funding administration to local bodies but funding rules remain set by Whitehall. This is not really devolution at all.
  • Local government needs a certain funding settlement and this should be in addition to business rate retention. If councils do receive their business rates, the business rate-setting process should be removed from central government. Additionally, economic development should be a statutory function.
  • Public procurement can require greater levels of social value – and the contribution promised in tenders should be contractually-embedded and performance-evaluated.
  • Where affordable technology exists low carbon measures can be introduced more quickly – a complete ban on new gas-fired domestic boilers in three years would create a whole industry in currently known and tested technologies.
  • Enterprise Zones without accelerated capital allowances are a nonsense – their actual differentiated offer can be provided under existing legislation.
  • Broadband should be prioritised in rural areas with better models of delivery (see B4RN – Broadband for the Rural North – as a community-based broadband provider).
  • Regional rail is a priority – faster rail and improved frequency and punctuality is essential. This is more important than HS2 although the IED fully accepts the need to increase West/East Coast mainline capacity.
  • State aid does not necessarily need reforming but we do need intervention schemes that make use of the exemptions available. At present the UK has an assisted area map agreed at a national level but no national regional aid scheme (this is needed).
  • The easiest method for reorganising Structural Funds would be through a devolution of the funding for economic development purposes. This can start to dismantle some of the huge machinery and bureaucracy of the Ministry of Housing, Communities and Local Government.
  • Old economic interventions schemes of any political party can be revisited – some good schemes have been thrown aside in the recent past (e.g. Manufacturing Advisory Service, Regional Selective Assistance, High-Growth Business programmes).
  • Much more should be done to relocate the decision-making parts of publicly-run organisations and government. There is no case for these businesses to stay in London – it is expensive and sucking investment out of the regions to be at a single centre of decision-making. The UK is the most polarised economy in Europe and this is starting to mean that national economic policy-setting is difficult and creating political and social dislocation as well as an under-utilisation of public assets in some locations and an under-capacity in others. The rare examples of relocation are great successes – the BBC in Manchester being a key example.
  • Everything possible should be done to ensure more ‘tier one’ or prime decision-making investment takes place in the regions. These are the organisations that drive knowledge and supply chain investment.
  • The provision of support for larger businesses can be undertaken in a way that harnesses their activity to help meet the economic strategies of an area. Large businesses are crucial to support great swathes of employment in UK regions.

‘Future of our Town Centres’ explored in first APPG Economic Development meeting

The All Party Parliamentary Group (APPG) for Economic Development has held its first meeting, following on from its launch in March.

The ‘Future of our Town Centres’ event, the first of three APPG sessions on this topic, explored what can be done to improve high streets’ future sustainability and success. Presentations were made by Matthew Colledge, former leader of Conservative Trafford Council, Vice-Chairman of the Greater Manchester Combined Authority, and key figure in Manchester’s ‘City Deal’ who was instrumental in the turnaround of Altrincham town centre; and Professor Cathy Parker, Co-Chair of the Institute of Place Management and Professor of Marketing and Retail Enterprise at Manchester Metropolitan University.

Nigel Wilcock, Executive Director of the Institute of Economic Development (IED), which led the APPG formation and acts as the group’s Secretariat, said: “High streets up and down the country are under attack. From the rise of online shopping driving the decline of footfall, to the mounting pressures of business rates, tax and the Living Wage, Britain’s retailers are struggling to turn a profit and the future for high streets is uncertain. The objective of the APPG here is to share the practical learning and good practice examples from all meetings to inform and improve both policy-making and action.”

Following the meeting, the APPG and the IED were delighted to hear the Government’s announcement of the second phase of the Future High Streets Fund which is designed to ‘transform’ high streets across the county. The successful towns – from Whitehaven in Cumbria to Penzance in Cornwall – will receive up to £150,000 of the £675 million fund to help boost town centres. “Those local authorities which will benefit from this funding may wish to look at the examples presented to the APPG, including Altrincham’s, and the lessons learned from their journeys to success,” Nigel said.

A full report of the APPG for Economic Development’s first meeting can be viewed here: https://ied.co.uk/images/uploads/APPGJunereportFINAL.pdf. The next meeting on 11th September 2019 will continue to explore the ‘Future of our Town Centres’, with speakers Graham Wilson OBE, CEO of the National Association of British Markets, and Ben Houchen, Mayor of the Tees Valley Combined Authority.

The non-partisan APPG brings together senior parliamentarians, policy-makers and economic development practitioners and will consider a number of important issues such as town centre regeneration, rural economic development, job creation, productivity, digital adoption, business rates and ensuring areas receive their fair share of funding from government. Officers of the APPG are: Andrea Jenkyns MP (Chair); Jack Brereton MP (Vice Chair); Dr Rupa Huq MP (Vice Chair); Jack Lopresti MP (Vice Chair); and Martin Vickers MP (Vice Chair).

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