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The Institute of Economic Development (IED) has published its response to the cross-party Treasury Committee inquiry into Regional Imbalances in the UK Economy. The Committee launched the inquiry last month to examine the nature of regional imbalances in economic growth which currently exist in the UK; and also establish what regional data is currently available here, how it could be used more effectively in policy development, and whether there should be official regional economic forecasts produced.

“We believe that balanced growth is an issue for all residents of the UK,” wrote IED Executive Director Nigel Wilcock in a letter to Chair of the Treasury Committee Nicky Morgan MP. “Better balance will 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 over-crowding in others. A balanced economy can also, in the long-term, avoid the payment of subsidies to support those under-performing areas and allow improved public finances from greater taxation revenues from across all areas of the UK. Finally, socially and politically, there is surely a need to avoid parts of the country feeling increasingly left behind. One final issue with regard to balance is that in a dramatically imbalanced economy macro-economic policy may suit one part of the UK but be detrimental to another. A two-speed economy generally needs two macro-economic policies.”

In highlighting that “the UK is by far the most imbalanced economy in Europe”, the IED went on to outline the reasons for this. “Essentially the concentration of government, financial and commercial decision-making in London has gained a greater and greater momentum,” Nigel wrote. “This is evidenced by the number of FTSE 100 companies that had headquarters in the regions from 1970 onwards. The coalescing of additional support activities around this central point in the economy has continued to drive growth. The regions have been left with branch plants or back offices which inevitably require re-investment or to adapt to change over time – but with decision-making now divorced from these remote activities that reinvestment is less certain. This structural shift also results in the higher knowledge-driven activities being centralised around the HQ – lower productivity activities taking place in the regions. Traditional industries have shrunk or disappeared, government policy and procurement decisions have not helped the process – and this situation compares less favourably than in France, for example. The shift to a digital economy, despite predictions of a better spatial distribution of activity, has created economies of agglomeration with the new knowledge-driven economy thriving from a critical mass of people and ideas.”

The IED then outlined what can be done to “shift the dial” on regional imbalances. Nigel wrote: “This is a process that has been continuing for perhaps 100 years – albeit accelerating in the recent past. There are lots of micro-shifts that can improve local economies (many of which have been tried although few initiatives have been consistently implemented over the long-term), there are some grand regional policy initiatives that can make some difference although these tend to involve public subsidy at a large scale. The activities that can make a genuine difference involve the relocation of some central activities and a greater devolution of expenditure. We are struck by two contrasting examples of this. The first is the evidence of the difference that relocating a meaningful chunk of the BBC has made to Manchester – by creating a ‘prime’ or ‘tier one’ organisation in the regions, the supply chain effects have been very large. The contrast is with devolved spending – the ‘City Deal’ and equivalent policies whilst welcome, have not really devolved spend. In so many cases combined authorities are now administering the expenditure of funds (within the rules still laid down by Whitehall) rather than making genuine long-term decisions.”

Finally, the IED outlined a number of policy suggestions (offering further insight from the Institute and its members to the inquiry):

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

• Identify more ‘primes’ or ‘tier one’ activities that are publicly controlled and move significant decision-making chunks into the regions. This is frequently talked about but never takes place. If large commissioning and legislative organisations in government relocate, large chunks of the private sector will follow them.

• 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.

• Take longer-term views on government capital expenditure – whether it is transport, energy, defence or telecoms the UK has a history of undertaking capital spend in a lumpy manner. 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 Alston arrive. The jobs from this investment are welcome – but the knowledge aspects of these investments remain in Germany, Japan or France.

• 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 repercussions now creating political difficulties.

Full details of the inquiry can be found here: https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/inquiries1/parliament-2017/inquiry7/

-ENDS-

Nigel Wilcock is available for interview via Phil Smith, Institute of Economic Development PR consultant, 01778 218180 / 07866 436159 / phil@philsmithcommunications.co.uk.

Notes to editors:

The Institute of Economic Development (IED) is the UK’s leading independent professional body representing economic development and regeneration practitioners. Established over 30 years ago, the IED’s key objective is to represent the interests of economic development practitioners and ensure their views are widely expressed and noted. The IED is committed to demonstrating the value of economic development work for local and regional communities; the pursuit of best practice in economic development and the attainment of the highest standards of professional conduct and competence.