Regional Development (North-East)

Guy Opperman Excerpts

Tuesday 22nd March 2011 Westminster Hall

[Tom Blenkinsop]

Yes, I know Steve Gibson—I am a season ticket holder at Middlesbrough FC. I partially agree with what the hon. Gentleman has said. Local authorities, business leaders and LEPs have to work within the frameworks and structures that they are given, and they have to make those frameworks and structures work. However, this is a broad debate about the policy, and if I did not talk about the economic implications of the policy, I would not be doing a proper service to my constituents.

Reviving enterprise zones will prove ineffective, even if that aim is achieved at less cost than that of the 1980s model and the zones are redesigned for today’s circumstances. The Work Foundation and the Centre for Cities think-tanks argue in recently published reports that zones created under the now Lady Thatcher and Sir John Major created too few jobs and were too expensive. The Work Foundation has said that such zones typically created only a three-year boost before areas lapsed into depression, and that up to four fifths of jobs were simply displaced from other areas, often within the same town.

London’s Isle of Dogs—now Canary Wharf—was among the most successful of 38 enterprise zones created between 1981 and 1996, but others in places such as Middlesbrough, Speke, Hartlepool and Swansea left a less impressive legacy. The EEF manufacturing association has said that the policy sounds like a return to the past. The rhetoric deployed by the Government indeed sounds attractive, but I signal real caution and suggest to them and to supporters of enterprise zones that they reacquaint themselves with Teesside’s history in the 1980s. Enterprise zones offer potential relief on local business rates, reductions in corporation tax or national insurance contributions, tax credits or capital gains allowances on investment in premises, and the relaxation or fast-tracking of planning processes and capital expenditure subsidies. Did that work in the ’80s throughout the north-east, and throughout all sectors and, more importantly, will it work now in 2011? I had a look at my old economics notes from Teesside university, and all the evidence from the past suggests that enterprise zones did not work, and possibly will not again.

Locally, Middlesbrough’s Riverside Park, which has since been very successful, was designated as an enterprise zone, but all that happened was a rush to get speculative office development off the ground with no tenants and no businesses to fill the new buildings. That, of course, did not worry the developers, who simply benefited from the tax perks from building in an enterprise zone and allowed the empty buildings to be used to make artificial losses, which reduced the total taxation on their developments elsewhere. Such experiences, bar perhaps the Metro centre and Black and Decker in Durham and the London Docklands, were admitted as a failure at the time by the Thatcher Government. In their official evaluation, the Government admitted that between 1981 and 1986 they poured £300 million into the scheme but created only 13,000 new jobs nationally, which equates to £45,000 of public cash per job at the mid-1980s value of sterling. The same study also stated that enterprise zones mainly encouraged job displacement rather than real new jobs, and it showed that 25% of new jobs in enterprise zones were displaced from within the same town.

Repeated today, that type of local displacement risks seriously destabilising our local economy, as it involves artificially enticing businesses into what could be seen as less competitive areas within the same town. On the face of it, it might seem obvious that lower taxes boost business, but that was not borne out by experience. It quickly became clear for the majority of small businesses that their biggest concern was about making a profit in the first place, and about the risks associated with achieving that, rather than about tax on revenue or profit. Questions of rent, skilled workers and access to markets were more significant than a temporary lifting of a tax burden in a specific area rather than across the board.

The only people who benefited in the 1980s were the developers, not wealth-creating manufacturing businesses. We should not dismiss out of hand any proposals to encourage job creation and, for the sake of my area, if the plan goes ahead I will wish it every success, but the evidence of actual gain is thin indeed. Some already established businesses and their owners might see it as a helpful tax avoidance scheme, but that only benefits the already rich by possibly multiplying their wealth and does not create any added value.

[Guy Opperman (Hexham) (Con)]

I congratulate the hon. Gentleman on securing the debate, because it is a very helpful process. I have listened for 23 minutes now, and there is a great deal of criticism of what is being tried by the Government but no alternative being put forward. I look forward with great interest to hearing what the alternative will be—

[Ian Lucas]

Labour.

[Guy Opperman]

The hon. Gentleman says that, but someone has to pay back the £120 million-a-day debt. Speaking as the son of manufacturers who have been in the industry for many years, what the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) describes is not necessarily how my family have found it.

[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.

--- Later in debate ---

[Guy Opperman (Hexham) (Con)]

It is a great pleasure to follow a fine, long and detailed speech that took us on a lovely journey through your constituency and touched on many local areas, but not on many others. I waited—I probably waited too long to intervene—for you to acknowledge that the £120 million-a-day debt with which the Chancellor must deal is something that you caused. It did not arise out of nowhere. I hope that it is accepted that whoever was in power—this applies just as much to your good selves as it does to us—would have had to deal with that debt. To ignore the huge debt that we must deal with when addressing the economics of the situation is unacceptable.

If I counted correctly, there were few things of which you were in favour: simplification of tax, a possible VAT cut to 5% and the relaxation of some planning regulations. In 35 minutes, almost no description of anything that we are doing did not chime with McCarthyite zealotry, which is the most eloquent and powerful description of what you were trying to do—

[Martin Caton (in the Chair)]

Order. Mr Opperman, you keep saying “you” and “your”. You are supposed to be addressing me, and you are ascribing to me views that perhaps I do not hold.

[Guy Opperman]

I apologise. That is entirely true, Mr Caton. I could not possibly comment on whether anybody had McCarthyite zealotry.

I have listened to the hon. Member for Middlesbrough South and East Cleveland and hope that he will advance the issue. It is wrong, however, to describe enterprise zones as a bad thing and to say that policies should be implemented in a way that ignores tremendous benefits. I am sure that my hon. Friend the Member for Redcar (Ian Swales) would describe the great benefits of Corus, and we should not ignore the fact that the North East of England Process Industry Cluster has come forward. All of those are good things.

Frankly, it is important, at this moment in time, to deal with deficit reduction. If there is a manifest difference between the proposals of the hon. Member for Middlesbrough South and East Cleveland and ours, it is about whether the deficit is the key or not. I suggest that, at a time in which we are in so much debt, the deficit is always the key, because if we do not address it, we will disappear into a situation akin to that of Greece or Portugal.

[Tom Blenkinsop]

I do not deny that the Government’s plans are sensible, have a point and a logic, and that they might work. The point is about who they will benefit. Is this yet more trickle-down economics, or are we genuinely talking about redistributive economics? Redistributive economics favours the north-east, but I am afraid that trickle-down economics favours the south-east. The Chancellor’s plans may indeed work, but to whose benefit?

[Guy Opperman]

The dispute between us is fairly stark in terms of the extent to which we have the potential to repay. My view is that the Chancellor is trying—this is not something he wanted to inherit—to address the £120 million-a-day debt and to be in a position to do that. I believe that he will take the issue forward and that there are real opportunities in the way ahead. I speak as the representative of a fundamentally rural constituency, but jobs are up and the points made by my hon. Friend the Member for Stockton South (James Wharton) are fair. It will be difficult, but I am absolutely certain that the Chancellor has the right policy.