Regional Development (North-East)

Lord Wharton of Yarm Excerpts

Tuesday 22nd March 2011 Westminster Hall

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

At the risk of making this Adjournment debate appear like the alternative Budget for the north-east—or of the hon. Member for Middlesbrough South and East Cleveland—I warn the Minister that the breadth of coverage of this speech will be large. However, I am sure, as I know my hon. Friends are, that such a diverse speech can only partially cover the wide sectoral diversity that has been achieved in 13 years of patient investment in the region by the previous Labour Government.

Let me give the Minister a brief overview of some of the issues of concern that face my region. I hope I speak for all parliamentary representatives of the north-east region when I say that a north-south divide still exists in England; it is deep, long term, continuing and persistently separates a nation on the basis of where an individual is born and raised, without due regard to the exceptional talent at hand within the boundaries of the Tees and the Tweed. Indeed, the current economic gap—which is perpetuated by the current economic climate—between the north-east and the rest of England is likely to widen, with the serious economic and social consequences that that entails.

PricewaterhouseCoopers’ analysis of the comprehensive spending review indicates that the north-east will be disproportionately hit by spending cuts and job losses. Unfortunately, the coalition Government’s hope that private sector growth alone will fully compensate for such consequences ignores broad economics and, therefore, looks highly unlikely. Indeed, with the Government doing less—or rather, intervening less—in the north-east in particular, the economic position of the region will be made far worse, not better. The coalition Government are not supporting with adequate institutional arrangements or money their declared aim of rebalancing. Rebalancing without the support of adequate resources is a recipe for failure.

Ministers have consistently disputed the need for proactive regional policy or strong Government intervention. That stands in stark contrast to what happened this time last year, when the parties in the current coalition, unaware of the then Labour Government’s actions behind closed doors, called for direct state intervention in Teesside Cast Products. They disingenuously confuse and coalesce the logic of the “crowded-out private sector” with a laissez-faire, sideline observing position, away from the crucial brokering of integral business deals necessary for a burgeoning and diverse manufacturing sector.

For my sub-region within the north-east, “primers”, or large industrial foreign and domestic investments, still dictate the pace of a regional economy outside a city. They historically work in our region, and our region, more than most in England, wants them. The new orthodoxy, rooted to agglomeration, relies on the purely local—almost parochial—delivery of economic planning. I do not decry that in its entirety, but for local partnerships with very limited resources, manpower, expertise, clout, cash and perspective, to deliver will be difficult and will only get more difficult.

Localism and equity are not the same thing. If the objective is to ensure that northern authorities have the resources both to support their local economies and to provide local public services, the greater the extent to which the business rate is devolved, the more extensive the equalisation scheme that would be needed. Such a policy approach remains spatially blind, with absolute priority given to the destruction of existing regional economic structural drivers, such as the regional development agencies, which is simultaneously delivered cap-in-hand with grossly exaggerated local government budgetary cutbacks in the north-east. It is evident that, for this Government, deficit reduction takes primacy over economic rebalancing and any notion of localism.

RDAs were emasculated before any local enterprise partnership was fully set up, allowed to root itself or to be fully financed in and around the expectations of the present Government. That is not the fault of the LEPs—in my case the Tees Valley LEP—because the structures, finance and guidance were delivered to them by the Government. A plan to allow LEPs organically to transform themselves and direct themselves—or perhaps that is the lack of a plan—has been the Government’s prevailing philosophical hobby, rather than occupation. However, that is a smokescreen. It only proves again that deficit reduction takes primacy over any economic rebalancing, and trumps any new trumpeted localism for this Government.

If we are to make LEPs work, they must be properly funded and have access to funds. They should not have to bid with raffle tickets for funds from a regional growth fund—such a fund is less than the total budget for a still non-defined mutualisation model for post offices—that is suffering under the gross weight of demands. LEPs need a proper funding apparatus, whether localised or national in source.

The rush to condemn the RDA within the crucible of the coalition’s gaze has been pursued with a vigour that borders on an almost McCarthyite zealotry. On 12 October 2010, the Minister said:

“The economic divide between the Greater South East and the rest of England is as wide today as when the RDAs began their work. That by any measure is a failed policy.”

The case against One NorthEast totally and utterly reduced it to a list of failings, without due or proportionate regard to its obvious successes, which, unfortunately, did not come to light until after it had effectively been dismantled. Many of the coalition’s policies, including the new homes bonus and impending reforms to the business rate, are likely to favour the south over the north, and the north-east in particular. Recent spending decisions in key areas such as science and technology largely favour a strong southern bias.

The bias in research and development towards the south is cumulatively increased when areas that produce traditional industrial products, such as Teesside, require further state investment, such as grants for business investment schemes, job creation programmes, and public sector relocation. If that investment is not forthcoming, the north-east will remain behind the curve in comparison with its sister regions in England.

[James Wharton (Stockton South) (Con)]

The hon. Gentleman speaks very passionately on the subject; none the less, I find it hard to agree with some of his comments. He says that the north-east is falling behind, but since mid-August there have been announced almost 26,000 new private sector jobs, investment worth some £9 billion and private sector contracts worth £1.5 billion. The north-east economy is booming in some areas, and that should be welcomed. Far from falling behind the rest of the country, we are showing all the signs of powering ahead, rebalancing our regional economy and getting the private sector up and running again.

[Tom Blenkinsop]

The hon. Gentleman is a strong advocate for Stockton South and a worthy adversary indeed. He is right: Teesside has a fantastic industrial economy and many new projects have opened up across the region, in his own patch as well as my own. However, those jobs will be created over a certain time period. Many of those were to have been announced before the general election, but for a number of reasons the announcement was halted until after the election was called. It would be false to say that One NorthEast did not have a prime role in bringing those businesses to our region. As a former union official in the steel industry, I know how much One NorthEast has worked with both Governments in trying to get Sahaviriya Steel Industries into the region. What I am trying to say is that a list of failings was produced but there was never an equitable list of positives and negatives when we were assessing RDAs.

We strongly require support for the emergence of a range of different financial sources for infrastructure development, including the green bank, and a greater localised and decentralised source of capital explicitly held for manufacturing entrepreneurship. That will allow risk-takers to take those industrial strides around the existing capital and skills inherent in the cultural demographics of our region. I hope that, unlike the Secretary of State for Energy and Climate Change, the Minister will consider a manufacturing green bank that works with the agencies to deliver the technology and product design that will give us green technologies—working and operating out of Edinburgh, the Secretary of State’s preferred location—rather than holding debates on “green” ISAs or other financial products that simply have the term “green” before them. That green finance must be aimed at manufacturing and not solely at financial high-street products if the Government’s own agglomeration policy is to be pursued for manufacturing.

However, I understand where the Government are coming from on industry. Agglomeration is fine, but industrialised clustering works even better, as we have seen in Germany and the Netherlands, when industry has its own access to funding to implement its own decisions, or when financiers are educated in industry and are located nearby, as documented in yesterday’s Financial Times. However, that connection between finance and industry is still vague and I very much doubt that Ministers at DECC and the Treasury are concerned about it at present, as both Departments appear to have a more obvious preoccupation with carbon floor pricing than with industrial finance. Carbon floor pricing, which I will discuss later, is perhaps the most important issue for Teesside.

I also challenge the Government’s huge assumptions about another topic that I will discuss later: export-led growth. It is obvious to any man and woman in the street that all Governments at any point in time want export-led growth. A healthy balance of trade is integral to a modern industrialised economy. However, we have to be vigilant about the economic mood music emanating from Asia at present.

Enterprise zones—an issue particular to my area—are the Thatcherite reprise of this Government. The enterprise zones policy is not wholly bad, but previous examples have shown that they are best used in certain sectors such as retail and finance. Our financial capitals are established overwhelmingly in London, although Leeds has developed in that regard in recent years. A previous example of enterprise zone growth in the north-east is evident at Gateshead’s Metro centre. However, what we do best on Teesside is not best suited to enterprise zones, and they ignore the broader view of industrialists in the port and chemical sectors.

I also want to look at particular areas in my constituency, such as our local high streets in Middlesbrough, Guisborough and East Cleveland.

[Tom Blenkinsop]

I thank my hon. Friend for his intervention and I have to agree with him. Obviously, there are benefits from enterprise zones. They bring a certain percentage of business in, but they also displace existing business. I will go into that issue in more detail later.

What can we do for small and medium-sized businesses and the self-employed? I have already talked to the Minister about that, and I believe my comments were received very positively. Ultimately, however, the direction of the north-east must be viewed from the perspective of the north-east. Until our region has more command of its economic destiny, it will continually have to bid against other English regions and Scotland and Wales for attention and investment.

Economic development in the north-east is a subject of deep concern to my constituents and the people of the wider region. Indeed, it should also be of concern to all the people of the UK, because without shared growth our country can never travel the road to prosperity. In the coalition agreement last year, the Prime Minister and the Deputy Prime Minister said:

“We both want to build a new economy from the rubble of the old. We will support sustainable growth and enterprise, balanced across all regions and all industries”.

That was and is an admirable pursuit, but my constituents are not seeing words being translated into action. In contrast, despite the north-east having the highest proportion of workers in the public sector of any English region, the Conservative-led Government have vague plans for growth in the north-east’s private sector, while simultaneously attacking its public sector base and the businesses—small and medium-sized, as well as self-employed—that thrive as a result of that public spending. The Prime Minister and the Deputy Prime Minister may have likened the economy under the last Government to “rubble”, but the last Government understood the regions and gave real teeth to regional development.

For example, the north-east regional development agency—One NorthEast—was one of those rarest of things: a public body with almost unanimous support that attracted praise from public and private sectors alike. However, a subtle criticism I have of the agency is that the region should have capitalised on the opportunity that it provided to take strides on its own. With a regional assembly that is democratically legitimate, our region would certainly be in a stronger position to attract business as well as to retain it, rather than witnessing what we are seeing in some areas: a partial and gradual leakage of industry from our region.

Praise for One NorthEast is well deserved. An independent report by PricewaterhouseCoopers showed that regional development agencies return £4.50 to regional gross value added for every £1 spent, if allowance is made for the expected persistence of economic benefits. Furthermore, the National Audit Office’s independent performance assessment concluded that One NorthEast was performing strongly. So why has it been abolished, especially after the Business Secretary said that the regions could decide what best suits their area? The only answer can be that the Conservative-led Government’s business policy is dictated from an informed position, but one that looks from London. It is a policy that will work, but not for all, and is ultimately submerged in an ideological fervour. It is formed not by regional or local opinion but Whitehall dogma. However, I reiterate that I do not believe that Ministers are stupid or ignorant of economics; they are simply applying a view that does not have a kernel within my region, and which does not redistribute wealth.

One NorthEast is the body that helped to set up and support the North East of England Process Industry Cluster, which made £1 billion gross value added in six years with just £3 million of public support. However, in addition to the scrapping of One NorthEast, we have now seen the abrupt end to the emergency package devised for Teesside in the wake of steel job losses. That fund targeted jobs growth in the chemicals sector, particularly in the growth area of agri-chemicals, as an alternative to lost steel jobs. Obviously, we have had the excellent news of the investment by SSI at Teesside Cast Products. However, that emergency jobs scheme has been axed, even though it is still allocating work and has £18 million in uncommitted funds that could have been used to support and enhance the objectives of NEPIC members’ companies.

Now we hear that a long-standing and successful job creation fund, which in the past decade has helped to create many hundreds of thousands of jobs in areas such as the north-east, is to be axed by stealth. That fund—the grants for business investment scheme, under the name regional selective assistance—has been responsible in the north-east for pumping £112 million into poorer parts of the region, helping to create 25,000 jobs. In various forms and under successive Governments, the scheme has been in place since the late 1960s. It survived the Heath years, the 1970s Labour Governments and even the Thatcher and Major years, as well as the following Blair and Brown Governments. Despite differences of economic policy, all those Administrations recognised the value of regional selective assistance. Throughout that whole post-second world war period, that element of consensual “Butskellism” remained and only now has it been totally dismantled.

The Chancellor has announced the creation of at least 10 enterprise zones across Britain, in a scaled-down revival of Margaret Thatcher’s flagship urban renewal programme of the 1980s. The Chancellor hopes that those zones, which will offer simpler planning rules and corporate tax breaks, will accelerate development in areas that already have high growth potential. They will not simply be created in areas of physical decline. However, sceptics believe that they could be ineffective and that the appeal of the tax breaks will be limited by the fact that only £100 million of Government subsidy will be available, spread over four years.

The Chancellor’s announcement is part of a wave of initiatives to be unveiled by Ministers before the Budget tomorrow, all of which are intended to prove that the Government have a coherent strategy for growth. He will announce at least 10 zones, which are expected to be chosen by Ministers on the basis of submissions by councils and business leaders. To address fears that this is a top-down initiative that might sideline town halls and local enterprise partnerships, the Chancellor will say that local authorities will be able to keep all of the business rates that they raise in the new zones.

However, retention of the business rates will almost certainly benefit a number of London and south-east areas. In fact, the special interest group of municipal authorities, or SIGOMA, analysis of 2009-10 settlement-based grants showed that the top 10 councils to benefit are Westminster, City of London, Surrey, Hertfordshire, Hillingdon, Hampshire, Camden, West Sussex, Kent and Essex. The London boroughs of Westminster, Hammersmith and Fulham, Kensington and Chelsea, and the City of London will gain £1.6 billion in total in local spending, whereas the north-east, north-west and Yorkshire will lose out by £760 million in total.

The Chancellor insists that the coalition’s initiative will shift growth from London and the south-east to other regions, and he says that it contrasts with what he claims was Labour’s attempt to micro-manage the economy. He told his party’s spring conference in Cardiff:

“Our approach is different: tax breaks and less bureaucracy, not quangos and more regulation.”

[James Wharton]

As I sense that the hon. Gentleman might be moving on in his speech, it is important to put very clearly on the record that, although he and I disagree about enterprise zones, there is a great deal of support right across Teesside for the campaign to get an enterprise zone in our local area. That support comes from not only me and the hon. Member for Redcar (Ian Swales) as local MPs but Ray Mallon, the mayor of Middlesbrough, and business people such as Steve Gibson, who is the chairman of Middlesbrough football club, as the hon. Gentleman knows. Moreover, the local enterprise partnership is extremely keen to secure an enterprise zone. It is important that the Minister hears those comments, which should be on the record. We really want an economic zone, although I acknowledge that the hon. Gentleman, who represents a neighbouring constituency, has a different view of the success of such zones from me.

[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.