Public Sector Focus

Overcoming regional imbalances

Nigel Wilcock, executive director of the Institute of Economic Development, outlines what can be done to address and combat regional imbalances in the UK economy.

In the midst of continuing uncertainty in Westminster, one potentially important development that may have gone unnoticed at a local level is the cross-party Treasury Committee inquiry into regional imbalances in the UK Economy. 

The inquiry, which is now due to report back, is examining the nature of regional imbalances in economic growth which exist in the UK; and also trying to establish what regional data is available here, how it could be used more effectively in policy development, and whether there should be official regional economic forecasts produced. 

Our view – and response to the inquiry – is clear: balanced growth is an issue for all residents of the UK, and this should be uppermost in the minds of local government professionals. Balance will fundamentally ensure that public assets are used more evenly and efficiently, avoiding issues such as under-utilised schools, hospitals and transport networks in some locations and pressure from overcrowding in others. 

A balanced economy can also, in the long-term, avoid the payment of subsidies to support under-performing areas and allow improved public finances from greater taxation revenues from across all areas of the UK. Socially and politically, there is a need to avoid parts of the country feeling increasingly left behind. In a dramatically imbalanced economy, macro-economic policy may suit one part of the UK but be detrimental to another: a two-speed economy needs two macro-economic policies.

From a local government perspective, the move towards local authority budgets being funded by local taxation has the risk of creating a large differential in the services provided by economically successful areas compared to the less successful equivalent areas. Such an approach could reinforce permanent negative spirals as businesses and populations avoid those areas with lower levels of services provided. Despite calls for more information and reassurance, this remains an area of concern. 

So what can be done to ‘shift the dial’ on regional imbalances? There are lots of micro-shifts that can improve local economies and there are some grand regional policy initiatives that can make some differences, although these tend to involve public subsidy at a large scale. Activities that can make a genuine difference involve relocation of some central activities and a greater devolution of expenditure. 

As well as the urgent need to review the approach being taken on local government budgets, here are five actions which could be implemented: 

1. Separate London and the rest of the UK when making monthly growth announcements – the problem of imbalance needs to become a mainstream point of discussion. 

2. Identify ‘primes’ or ‘tier one’ activities that are publicly controlled and move significant decision-making chunks into the regions – if large commissioning and legislative organisations in government relocate, large chunks of the private sector will follow. 

3. Revisit the economic evaluations of previous interventions – some were good but were ditched by changes of government. The Manufacturing Advisory Service, High-Growth Business programmes and Regional Selective Assistance were all schemes evaluated as making a difference at a modest cost. 

4. Take longer-term views on government capital expenditure – for example, no trains are ordered for 30 years causing the domestic manufacturers to close and then when an explosion of expenditure takes place the UK needs to buy from abroad and assembly plants of Siemens, Hitachi and Alstom arrive. The jobs from this investment are welcome – but the knowledge aspects remain in Germany, Japan or France. 

5. Create some safeguards for UK industry around procurement of nationally-important contracts and on takeover by foreign-owned businesses – few seem to recall that Marconi (based in Liverpool) closed shortly after Huawei was given the original BT digital exchange contract with the repercussions now creating political difficulties.

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