Economy: Growth

Lord Wood of Anfield Excerpts

Thursday 6th December 2012 Lords Chamber

[Lord Wood of Anfield]

My Lords, the excellent report of the noble Lord, Lord Heseltine, paints a vivid picture of some of the problems that have characterised our economy for decades, such as low productivity, poor translation of basic research into goods and services, and technical skills gaps. However, for me the issue that his report brings most to light is the staggering scale of regional inequalities in growth and income. Britain has bigger disparities between regions than any of our major competitors. It is the most regionally unequal country in the EU. GDP per head in the richest region is nine times greater than that in the poorest region—and the regional gap is widening, not shrinking. Since the 2008 recession began, poorer areas have seen income per head fall twice as quickly as in the wealthiest areas. In London alone, the richest 10% have 273 times the wealth of the poorest 10%. This is not just unfair and corrosive of social solidarity; it is holding our economy back. The impact affects us all.

What can be done about this? There are 89 recommendations in the report, but at their heart are three central principles that the noble Lord, Lord Heseltine, is urging on us all. The first is the indispensable need for a growth strategy. The noble Lord says that this strategy,

“must send a loud and unequivocal message to the country that the Government takes growth seriously and has a credible strategy”.

I think that it is fair to say that so far the coalition has sent not so much a loud and unequivocal message as something that has oscillated between a mumble and total silence.

The noble Lord’s second principle is the importance of devolving policy responsibility to the regions and localities. His report details a familiar story of excessive centralism and Whitehall silos. Some imagination on getting funding streams both rationalised and decentralised is clearly needed and we are keen to work collaboratively on any proposals with that aim. But what a shame that the bodies that would have been best suited to bear the weight of this agenda, the Regional Development Agencies, were hastily scrapped two years ago in a move that the noble Lord, Lord Heseltine, himself said was a mistake last year.

Yesterday, we heard that the Government are minded to make some progress towards single-pot funding for LEPs, which could be promising. But as the noble Lord, Lord Northbrook, said, for devolved funding to work, the bodies that power is devolved to must have the capacity to do the job properly. I am not convinced that LEPs have this capacity and I am not alone, because concerns about their governance, their ability to leverage funding, whether they have procurement contract management skills, under-representation of SME's and other worries are widespread and feature in the noble Lord’s report. Building up this capacity is a crucial precondition for any serious attempt to have a regional growth policy. Will the Minister say what the Government intend to do about that?

Concerns about LEPs seem positively minor compared with the concerns about the Regional Growth Fund. This fund aimed to create 330,000 jobs in its first year. It created 40,000. Two years into its life, only £60 million of the £1.4 billion allocated has reached the front line. The PAC said that its value for money was scandalous. Again, I would like the Minister to tell us how the Government intend to respond to those criticisms.

The final principle, which is at the heart of this report, is the belief that active government, far from being the enemy of enterprise and growth, is indispensable to it. The noble Lord, Lord Heseltine, had the intellectual and political courage to stand up for this idea when it was deeply unfashionable under a Tory Government in the 1980s. My noble friend Lord Mandelson stood up for it in the last few years of the Labour Government, when it was also unfashionable. If there is one legacy of this excellent report for us all, I hope that it is that we rid ourselves of the prejudice that an active industrial strategy is bad economics, and rid ourselves of the error of believing that a laissez-faire approach is good economics.