Regional Development (North-East)

Alex Cunningham Excerpts

Tuesday 22nd March 2011 Westminster Hall

[Tom Blenkinsop]

I will come on to discuss the alternatives. We have seen borrowing increase by £2 billion, and certain policies, which I will come on to later, have economic effects on the national economy, and more profoundly on that of the north-east. Those effects will be part and parcel of the package due to inflation, and the retail prices index is currently running at a 20-year high. Such national policies are being put in place to deal with the deficit, but they seem to do only that, rather than presenting a progressive or prospective economic plan.

Turning to industry, chemical firms with major operations on Teesside, as well as our local steel producers Tata, have grave and well-founded concerns about industrial growth policy. I am, of course, talking about carbon floor prices. A consortium of firms, including SABIC, Lucite International and GrowHow, has recently criticised the Government’s energy strategy, justly claiming that it hinders the competitiveness of UK manufacturers more than any employment regulation or tribunal. The implementation of a minimum price for carbon will add a minimum of 20% to energy-intensive users’ energy bills. If the policy is implemented, our nearby EU competitors will no doubt exploit the situation, as will competition further afield. The policy will hinder further inward investment, and might lead to the departure from our region of good companies that provide long-term, well-paid, skilled work. EU competitors have attempted and then pulled away from equivalent policies. Changes to the carbon reduction commitment scheme, which amount to a £1 billion tax, will also delay green investment and hurt small downstream industry that aids steel production in the UK. Ultimately, potential and existing investors will move abroad to less efficient and less green arrangements, which will not benefit our economy either nationally or regionally.

[Alex Cunningham (Stockton North) (Lab)]

Yesterday evening, some other MPs and I met some of the major companies in the energy-intensive industries, many of which are in our constituencies in the north-east. The Government plan to have carbon capture programmes, but none of them takes into account the specific needs of those industries. Does my hon. Friend believe that the Government should think again, and instead of just concentrating on energy plans concentrate on the needs of industries as well?

[Tom Blenkinsop]

My hon. Friend hits the nail right on the head. Whatever policy we have—an agglomeration policy, or a slightly different industrial policy—the energy factor, which I will go into in more detail later, will have a more and more profound impact on industry’s ability to retain and maintain its current position as well as to invest. Teesside is potentially one of the key areas in the country, never mind the region, for that investment, particularly in the chemical and steel sectors. My hon. Friend makes an excellent point.

Of anything that I say today, I beg the Minister to take that message about carbon floor pricing back to the Department for Business, Innovation and Skills, the Treasury and the Department of Energy and Climate Change, to block any moves that will hurt our north-east in general, and Teesside’s industrial core in particular. The announcement of a supposed regional growth strategy for the north-east as part of the comprehensive spending review is at best misleading and at worst a smokescreen to hide the deep cuts that will stunt economic growth in our region. The regional growth fund will also have to finance bids for housing and transport plans, so it is obvious that even a successful LEP bid to the fund will mean only a small slice of a very small cake. The fund was designed to redress the regional imbalance in the economy, so surely providing funds to companies in the affluent south-east will undermine its objectives.

I am also extremely concerned that the Government may well be turning away millions of pounds of EC funding for new economic initiatives and infrastructure projects, because their blunders over the winding-up of the regional development agencies means that they do not have the match funding for those job-creating schemes. On Teesside that is made worse, as the back-up service for a Tees valley LEP will rely on the existing Tees Valley Unlimited agency and its staff. However, that too has had £7 million of its £9 million budget slashed. There will also be a real terms cut of 9% to the science budget, which threatens to leave the UK behind international competitors such as the US and Germany, which are still increasing their science spending despite the economic climate. Even the Minister for Universities and Science said recently that scientific research contributes to long-term growth. If the Chancellor agrees with that, why are we not increasing the science budget like other countries?

The Government announced in the CSR that £1 billion would be provided to fund carbon capture and storage. According to Jeff Chapman, chief executive of the Carbon Capture and Storage Association, that will fund one project,

“but it’s not enough for four”.

I argue that the Wilton site, in the constituency of the hon. Member for Redcar (Ian Swales), is ideal for the project in many respects.

We must be able to capitalise on foreign export opportunities, yet we must not rely wholly on them. As I have said, this Government have given absolute economic primacy to deficit reduction. That has massive implications for a sector-led agglomeration anywhere in England, but it will particularly affect how potential foreign export purchasers view England, especially the north-east.

Chemicals are a major player nationally as well as locally on Teesside, and they make up more than 30% of UK economic exports. Teesside has massive potential, with projects such as Chain Reaction by PD Ports at Teesport and Hartlepool, agrichemicals as a new growth sector, petrochemical developments, SSI and Tata at Teesside Cast Products and many more.

US ambassador Louis Susman has questioned the wisdom of the Chancellor’s massive spending cuts, warning that they risk plunging Britain into a double-dip recession. His remarks echo those of leading economists at the International Monetary Fund, who said last week that the US and EU economies remain too fragile to absorb major deficit cuts, concluding that additional spending and tax breaks would be a much more sensible strategy. In an interview with The Daily Telegraph, Susman praised the Chancellor’s determination to eliminate the deficit within a single Parliament as “very admirable”, but warned:

“But the question is, is it too much, too fast? We worry about double-dip recession and the lack of growth.”

So do I.

China reported a trade deficit in February of £4.5 billion. Exports from China grew by 2.4%, which was less than expected, mainly due to the appreciation in value of China’s currency. However, growth in imports also decreased from an expected 30% to 19.4%. We must remember that under Labour, between January and August 2010, exports to China from the UK rose by 44%, which especially helped manufacturers. Between January and April 2010, manufacturers boosted UK exports by £21.3 billion. The demonstrable reduction in Chinese demand is having huge effects on other international economies that export or rely on exports.

The coalition Government must understand that an export-led growth strategy alone will not suffice. Besides the obvious structural unemployment issues—the skills of redundant public service workers in the north-east will not match the growing sectors, if any grow—manufacturing sector credit squeezes in China, the terrible floods in Australia that have limited coke exports, desperate earthquakes and tsunamis in Japan and ongoing events in Libya, Bahrain, Yemen, Saudi Arabia and the wider middle east and north Africa will affect an overly optimistic and wholly reliant British exports policy. Iron ore, steel, cotton and other commodities are peaking at extraordinarily high levels. More importantly, coal, gas and oil markets are peaking as Japan, China, and Germany re-evaluate their nuclear policies, which is already affecting our access to fossil fuels and their domestic and industrial usage and price. That will undoubtedly affect not just our north-eastern industry but our national export capability.

By betting the house solely on exports, we expose ourselves to a potential backfire. However, public sector investment and an export policy need not be mutually exclusive. Obviously, we can pursue an export policy while retaining our levels of public sector investment in the north-east. Again, however, an export policy with no real investment and no public sector expenditure belies the coalition’s policy of giving economic primacy to deficit reduction. We should not reduce the deficit at the price of our public sector and, in turn, of the small and medium-sized businesses in the north-east that rely on it.

The planned changes implemented so far include a rise in VAT to 20%, which will affect consumer spend. Businesses such as leisure, hotels, restaurants and retail will bear the brunt. Indeed, figures from the Office for Budget Responsibility stated today that the consumer prices index was at 4.4%, double the Tory-led Government’s estimates. I am a traditionalist, and as a former union officer I never dealt in CPI, but always in RPI. The OBR says that the retail prices index has risen from 5.1% to 5.5%, the highest in 20 years. Funnily enough, that was the last time there was a Tory Government. We have had the wrong kind of snow from this Chancellor, and now he claims, as he did on the front page of the Financial Times, that we have the wrong kind of inflation, causing him to have to borrow £11.8 billion, up from £9.5 billion last year. I thought that we were making cuts in order to reduce loans.

The effects of the Government’s policies resonate hugely, and nowhere more than in the north-east. R3, the association of business recovery professionals, regularly contacts me regarding time-to-pay arrangements for small and medium-sized businesses, especially given the impact of oncoming public sector cuts. Time to pay is crucial in the north-east to help the self-employed and small businesses currently in trouble to avoid insolvency and prevent the further private sector redundancies that will be inevitable after public sector cuts.

R3 surveyed 300 small businesses and found that one third relied wholly on public sector spending in one form or another. The survey was nationwide, and things will undoubtedly be more severe in the north-east. The situation will be more acute, of course, if interest rates increase on top of the inflationary figures estimated today by the OBR.

On behalf of small businesses, I welcome the Government’s potential simplification of tax, especially if national insurance and income tax are combined. However, the Government could go further for the north-east and its small businesses. High streets in ancient market towns such as Guisborough, Brotton, Loftus, Skelton, Saltburn and other East Cleveland villages need help. Some great small businesses are developing in my constituency. Coastal View, for example, is a new free monthly paper that advertises other local businesses. In south Middlesbrough, retail is also key at shopping areas such as the Parkway in Coulby Newham, Easterside, Marton, Marton Manor, Hemlington and Park End.

Self-employed women and men in my region need quick assistance. On behalf of small businesses, I ask the Minister this: rather than enterprise zones, could the north-east as a whole pilot a 5% VAT rate for construction? Evidence in France has shown it to have turnover benefits of 7%. The Government must act on VAT and fuel duty, and the consensus on that is cross-party, especially on fuel. The 5% VAT rate could be extended in turn to public houses, restaurants and food service in general, helping struggling small businesses while aiding our region’s burgeoning activity tourism economy. Similarly, VAT exemption rates could be lifted from £60,000 to £90,000 for small businesses and the self-employed, bringing in broadly the same revenues for the Treasury while giving small business a break. Again, that could be piloted in the north-east.

I give the Government credit for relaxing planning regulations to allow some commercial properties to be changed to housing accommodation. It might prove a more viable solution in rural areas of my constituency, particularly on certain high streets in East Cleveland. Even so, small businesses will become increasingly key in the fine economic blend of the north-east region.

I understand that I have raised many sectoral topics and a diverse array of issues, but I look forward to any response that the Minister can give.

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[Ian Swales (Redcar) (LD)]

I congratulate my hon. neighbour—as I suppose I should call him—the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) on securing the debate and on his powerful and very well-researched speech. He has done excellent work.

As we know, the north-east economy is largely founded on the historic industries of coal mining, ship building and steel manufacture. For decades, we have had issues with both the run-down of those industries and the run-down of employment in those industries, even those that continue. Although the news of the revival of the steel industry is very welcome in my constituency, I do not think it will employ 10,000-plus people again, which it did not so long ago. There has been a long history of assistance being given to the north-east in relation to various coal and steel closure areas and regional development grants. In the 1980s, I remember filling in the forms for regional development grants in a former life. There has been a long history of needing to do something about the north-east, and various Governments have continued that.

I accept the points made about the RDA. RDAs around the country have had patchy success. However, I think that even the other RDAs would recognise that One NorthEast was probably the best and most successful. I pay tribute to the former Minister for the North East, the right hon. Member for Newcastle upon Tyne East (Mr Brown), for his passion and advocacy both of RDAs and the region. Something we should all recognise in this place is that what divides us politically is far less than what joins us when it comes to regional issues.

The RDA did good work but, as I said in the recent debate in the House led by the right hon. Member for Newcastle upon Tyne East, we need to consider the study done last year by Experian and the BBC. They looked at 324 areas in the country in terms of economic strength and rated Hartlepool as 314th, Redcar and Cleveland as 319th and Middlesbrough last at 324th. Whatever else has happened, we have not driven the Teesside area up the economic league. The only time we had any significant urban renewal in Teesside was from 1987 to 1998, when we had Hartlepool marina, Stockton riverside and university campus, Teesside barrage and waterpark, Teesside retail and leisure park, and Middlesbrough riverside. That was the period of the flawed but, nevertheless, energetic and focused Teesside development corporation, which was scrapped by the Labour Government when they came to power. Much less has happened since in that regard.

I shall turn to transport. The Tees valley is the birth place of passenger railways. If someone were to ask in a pub quiz where the first passenger railway was, most people would say that it was Stockton to Darlington, which runs along the Tees valley. So where are we today with our railways? We still have a railway that runs from Darlington, almost touches Stockton and goes all the way through to Saltburn. It passes very close to the Riverside stadium, but does not stop there; it passes very close to Teesside retail and leisure park, but does not stop there; and it passes within half a mile of Teesside airport, but does not stop there. Is there another airport in the country that has virtually no public transport? The failure to even allow a railway that already exists close to Teesside airport to be part of the transport structure in the area shows that there is an awful lot to do. Middlesbrough is the largest town in the country without a direct link to London, which is another example of what is left to do. We have some real issues to deal with and real work left to do.

In business, I always used to say that one could tell whether a committee was any use, first, by how it was formed—did it form itself?—and, secondly, whether people attended it. Teesside Valley Unlimited formed itself as a private-sector led, private-public partnership about five years ago, because of the perceived needs of the Tees valley and the difficulties there. It is no surprise that that organisation was very quick out of the traps when it saw the opportunity to have a local enterprise partnership for the area. I know that that enraged some people further north and that it was felt to be a fragmentation of effort that may lead to outcomes that are not as good.

[Alex Cunningham]

I have always been a one region person. Although I congratulate the people of Tees valley on putting together the first LEP in the region, does the hon. Gentleman not agree that it is important that the north-east—the smallest region in the country—works closely together and has a tremendous partnership with our local authorities and other organisations in order to drive the region forward? We should not simply try to plough our own furrow, as some people would have us do.

[Ian Swales]

I was about to come on to that matter. I thank the hon. Gentleman for his question. Absolutely, we need one regional voice on a number of issues. This Government perhaps differ from the previous Government in that we do not see the need for such an approach to be prescribed in detail for every region. I hope that the existing structures can make decisions, create what they think they need and make it work. If there are two LEPs in an area, the Government are not prescribing that they cannot talk to each other and say, “Okay, let’s jointly work on this.” A good example is European funding. The Government have already decided to retain a regional focus for European funding, because that is what is necessary.

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[Alex Cunningham (Stockton North) (Lab)]

I will cut parts of my speech to make your deadline, Mr Leigh.

In the past 10 years or more, there has been a radical change in the mix of industry, business and public service in the north-east. Much of that was led by One NorthEast, the regional development agency, and by forward-looking local authorities of all political colours working in partnership. The result was that the north-east was slightly less vulnerable when the world economic crisis hit us, but we still need major change and investment to ensure that the region does not slip way back to where we were in the 1980s and 1990s. The number of unemployed claimants in my constituency of Stockton North in February 2011 was 3,812. That is 9.2% of the economically active population aged 16 to 64, which is a good reason why we need growth not only for my constituency, but for the whole north-east, where 10.2% of people are unemployed.

I would like to make a final comment on the RDA—I am sure that many hon. Members will welcome my saying that. Other RDAs may not have been a resounding success, but One NorthEast was. It was an organisation that we could be proud of. It played a huge role in developing the region’s renewable industries and in helping local firms grow. More importantly for me was that it also put together strategic land and other assets—packages—to build on for the future. With the demise of One NorthEast comes the question of what will happen to its assets. I am very worried that the Government might be preparing a fire sale for billions of pounds of RDA assets, such as business parks and development land, or that they will just pool them into some central bureaucracy in London. We argue that local enterprise partnerships should have first say over the RDA assets, which would enable real local influence. LEPs currently have one hand tied behind their backs, with no dedicated funding stream to aid them with their start-up costs and initial research. That would give them a real boost and real clout. To deny them operating funds is like giving a child a toy and forgetting to put the batteries in it.

Tees Valley Unlimited, the new LEP in my area, has confirmed that it has submitted 20 bids to the Government’s regional growth fund, asking for almost £80m of support. If granted, I am told that those plans have the potential to create a significant number of jobs. However, as we know all too well, the total pot of money for the regional growth fund is not nearly enough at £1.4 billion over three years. In comparison, in 2010-11 alone, the RDA fund for one year was £1.4 billion. It is clear that the money will be spread thinly. In the first round, which closed in January, bids worth £2.78 billion were made to the regional growth fund. Clearly, many bidders will be disappointed tomorrow, when I understand that we will learn who has, and who has not, been successful.

On a more positive note, I was pleased to learn in October that the Government are committed to offshore wind and did not cut Labour’s £60 million investment in our ports to ensure that that part of the renewable industry is supported and encouraged to invest in the north-east. We have yet to see whether the Government will deliver on that. If we are to meet EU targets that require Britain to increase the proportion of electricity that comes from renewable sources, from 7% to 30% by 2020, the Government must do more on renewable industry. Despite rising unemployment and the sluggish economy, there are a few good stories in region. The Hitachi trains were mentioned earlier, and the campaign led by my hon. Friend the Member for Sedgefield (Phil Wilson) for investment from Sahaviriya Steel Industries in Teesside steel, will create or secure hundreds of jobs.

We wait to see whether there will be a Budget for real growth, backed by substantial resources when the Chancellor stands up tomorrow. Resources must be the key. A jobless recovery would be a disaster for our region, and without growth there will not be enough new jobs. So far, the Government have been much too focused on the Budget deficit, cutting too far and too fast. I hope that they have finally realised that without a genuine plan for growth and real resources, the economy will continue to be sluggish.

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[The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)]

I congratulate the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) not only on the debate, but on an interesting contribution. We may disagree about the outcomes and the analysis, but a debate on how to enable different parts of the United Kingdom to grow sustainably is important. This is the first time I have been described as a McCarthyite zealot, but I shall work my way through it, and the hon. Gentleman hinted that he was perhaps not fully serious. Nevertheless, I shall put that comment up on the wall and remember.

I thank other hon. Members for their contributions. We have had an excellent and balanced debate, and it has been helpful, not least because I shall be travelling to the north-east tomorrow night, and I am looking forward to meeting some of the businesses that have been referred to. On the tourism front, if I am allowed a couple of days off during the Easter holidays, I am hoping to start at the north-eastern end of Hadrian’s wall and to head westwards.

[Alex Cunningham]

I am pleased that the hon. Gentleman will spend some of his money in our tourist industry in the north-east of England. Is he aware that money to promote tourism in the north-east was choked off through the regional development agency this year, and that we saw an increase in the number of visitors to Yorkshire and Cumbria to the detriment of the north-east?

[Mr Prisk]

The hon. Gentleman started well, before coming to a money issue. We are looking not only at the need to deal with public finances, which my hon. Friend the Member for Hexham (Guy Opperman) accurately described, but at how they are organised as we change the landscape for public bodies. We must revisit the regional approach to tourism, allied with the RDAs’ work, which is what VisitEngland will do with local enterprise partnerships and so on. I greatly value the role of tourism, but I want to move on.

The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) referred to airports, and she will understand that as it is just 24 hours before the Budget, I would be wise not to pre-empt the Chancellor, not least if I hope to continue to be Minister of State, Department for Business, Innovation and Skills.

We all share the wish of the hon. Member for Middlesbrough South and East Cleveland that the north-east enjoys sustainable and long-term economic growth, which is certainly our overriding priority. We are seeking not only to tackle the public finances, as any incoming responsible Government would need to do, but to ensure that we have a new model for growth. In practice, that means not just rebalancing the geography, challenging as that will be—I will come to RDAs and LEPs—but ensuring more sustainable roles in different sectors.

The hon. Member for Wrexham (Ian Lucas) was a Minister, and we jousted when he was, but he and his colleagues were right when they established, for example, the sector skills council, Automotive Skills, so that the Government could be a better partner. We have continued it, and that sectoral role is important. In the Budget tomorrow, we will seek not merely conventional tax and spend, but to set out the detailed work that has been undertaken throughout Whitehall on a growth review looking at manufacturing, construction, retail and other core parts of the economy, so that we have an agenda and a strategy that is the most comprehensive, pro-enterprise and pro-growth Budget for a generation.

The hon. Member for Middlesbrough South and East Cleveland mentioned both at the beginning of his comments and later the role of small and medium-sized enterprises. Before I go into the specifics of the north-east’s economy and LEPs, it might be worth reminding hon. Members of the key changes that will help, and have already been announced, irrespective of what may or may not be said tomorrow. As hon. Members know, we are reducing corporation tax to 20p. We are doubling the threshold for small business rate relief, which is very important for businesses outside the greater south-east, so that for more smaller businesses that fixed overhead will fall instead of remaining as it is. Six months ago, we introduced the national insurance contribution holiday for new firms.

As the hon. Gentleman rightly said, we must encourage more entrepreneurs in the north-east. I have spoken to many SMEs throughout the country, and the shift in relief for entrepreneurs—10% capital gains tax—has given a boost to people who start a business, build a business and create jobs. Taking the limit up to £5 million is an important improvement.