Economy: North-East England

Lord Shipley Excerpts

Thursday 31st January 2013 Lords Chamber

[Lord Shipley]

My Lords, I, too, thank the noble Lord, Lord Bates, for initiating this debate and giving, rightly, an encouraging picture of the north-east economy. I also acknowledge the contribution of the noble Lord, Lord Sawyer, and thank him for identifying some of the ways in which the Government can help and emphasising the efforts being made in the region itself. Together, there is enormous potential. I welcome the Minister to his role. I hope that this debate proves to be the first of many on the potential for the north-east of England. I declare my role as vice-chair of the regional growth fund independent advisory panel, and my role as an adviser to the Government on their cities policy.

The north-east is a small region with a population of 2.6 million. Nevertheless, as the noble Lord, Lord Bates, told us, it is the only English region with a positive balance of trade, which is getting stronger. At the same time, the region has a lower GVA than others, fewer business start-ups, fewer people with level 4 qualifications, and fewer people employed in the private sector than we would like. Indeed, in Tees Valley, in the five years from 2007 to 2012, the number of private sector jobs declined from 203,000 to 187,000, so we have to be careful.

I look forward to the economic review undertaken by the noble Lord, Lord Adonis, which will cover the north-east LEP area through the commission, which is due to report in the next few weeks and which I hope will address issues such as how to increase levels of business creation, priorities for infrastructure investment, how to increase the region’s skill base and how to improve access to finance. I hope that it will also give us a steer on how to implement some of the recommendations of my noble friend Lord Heseltine’s report on growth, No Stone Unturned, and on what strategic interventions could be made to build or strengthen areas where the north-east does or could excel, such as renewable energy, carbon capture, chemicals, steel, offshore and subsea technologies, process sectors, pharmaceuticals, advanced manufacturing, energy from waste, the digital industries and, of course, the automotive industry. Nissan and its supply chain have such a magnificent record, now producing more than one-third of all UK vehicles.

The north-east is a region with enormous potential to drive growth. If the north-east grows, the UK will benefit and grow too. I am sure that we can build on the work of the two local enterprise partnerships and the excellence of the north-east workforce. The region’s connectivity, although good, does, as the noble Lord, Lord Bates, pointed out, need to get better in its broadband and transport, about which I shall say more in a moment.

The UK and the north-east need an industrial policy. To deliver that industrial policy regionally, there have to be governance structures that complement a region’s strengths. In the north-east, I will be looking for closer collaborative working across local authority boundaries: less competition, more complementary working.

Last October, the Deputy Prime Minister, launching the second wave of the city deals, said:

“You can’t revive the regions just through handouts from Whitehall … Revenues from the financial services sector were recycled round the rest of the country through the long arm of the state, creating the illusion of strong, national growth. Jobs were created but in an unbalanced way, over-relying on the public sector, funded by tax receipts from the City of London”.

The Government are rebalancing the UK economy away from an overdependence on financial services and the south-east. The north-east has been too dependent on the public sector, not because the public sector is too big but because the private sector is too small. It is the private sector that generates much of our tax revenue.

I will say a word about the regional growth fund. In the first three rounds, the allocation to the north-east was £330 million, leading to 71,000 jobs created or safeguarded across 99 projects, eight programmes, and with £1.9 billion of private sector investment leveraged. The growth fund should not be seen as a short-term fix. Eighty per cent of the employment benefits will come within five years, and 80% of private investment will come within 10 years, but crucially the investment is going to the region’s growth sectors. There are indications that those growth sectors are now expanding. In the latest quarter of employment trends published by the ONS, the employment rate of 16 to 64 year-olds was 68.2%, compared with 71.4% for the UK, so the north-east was three percentage points below the UK average. The unemployment rate of 16 to 64 year-olds was 9.1%, representing 119,000 individuals, which was the highest in the UK, and much too high. However, crucially, the north-east also had the biggest drop in unemployment in the most recent quarter, amounting to 0.8 percentage points.

In its overview of regional labour market statistics published on 23 January, the ONS stated:

“Over the past year, the increases in the employment rates for the North East, Yorkshire and The Humber and West Midlands have all been statistically significant”.

It went on to state that the largest decrease in the unemployment rate was in the north-east, at 0.8 percentage points. That increase, along with more modest decreases in Yorkshire, the Humber and London, appeared to be part of a pattern of decreasing unemployment rates. We will see, but, if confirmed, that is a welcome trend.

I pay tribute to the universities for their enormous contribution through increasing student numbers, research and commercialisation. My view is that R&D is not yet commercialised enough and that the Government have to do more to assist that. An example would be acknowledging the commercial potential in marine technologies, which needs to be underpinned by an accessible research base.

I was unable to take part in the visa policy debate earlier in your Lordships’ House, but I regard it as a matter of fundamental importance. The north-east needs inward migration of international students to study at our universities and to stay on to set up businesses. The record of that to date has been marked, and we need to ensure that people feel welcome.

In the past few days, the CBI in the north-east and the North East Chamber of Commerce have produced a report on transport infrastructure, listing priorities for the region. I know that the Government will respond either to that or through their response to the north-east commission’s report. However, there are a whole set of issues around rail, port connectivity by rail and the quality of the rolling stock where lines connect with the east coast main line. In terms of air connectivity, there is an urgent need for a transatlantic link, for the impact of air passenger duty to be understood where it is acting as a disincentive to growth, and for an understanding of the importance for regions such as the north-east but also right across England, Scotland, Northern Ireland and Wales to have a UK hub airport that links us to the rest of the world, because it is fundamental in driving regional growth.

I bring to the Minister’s attention the success of Emirates in its Newcastle-Dubai daily service. In the five years of its operation, trade between the north-east of England and Australasia has risen from £150 million to £275 million. This is proof of the value of better connectivity. We can drive greater growth from the north-east. Staying in the European Union is fundamental to that. We need to be clear that UKTI is delivering the greatest potential for inward investment in the north-east.

I ask the Minister to look at two matters relating to regional jobs. One is regional procurement policy, where regionally based firms have in recent years successfully delivered government contracts. It seems that there is a trend in Whitehall to prefer national procurement, which then limits the ability of regional companies to compete. I hope that the Government will investigate this further because there is some evidence that regional companies lose out to national companies when they have had first-class records, and there is a potential for more regional jobs to be lost as a consequence of that.

On the subject of jobs, could I ask the Minister to look into the contracting by government of international oil and gas companies in fabrication? There have been concerns recently that despite the Government giving tax concessions to such companies, jobs do not come to the UK but go abroad, even though other countries would have clauses in their contracts requiring local workers to be employed. There is a lot of concern about this because it may have lost the north-east some 1,500 jobs in fabrication and some 10,000 jobs across the UK over the last two years.

I conclude by saying simply that the north-east is an asset that can drive substantial growth to the benefit of the UK as a whole, and I hope very much that we will have an opportunity to discuss the report of the commission of the noble Lord, Lord Adonis, when that is published in a few weeks’ time.