Will the budget help tackle regional inequalities?
Richard Exell was right to highlight the problem of growing inequalities between regions of the UK. This, like in many areas of economic policy, has been made much worse under the policies of the Coalition government. In his article Richard emphasises the issue of ‘brain drain’ and the dynamic wage spirals, going ever up in the affluent regions, while stagnating and declining in real terms in the poorer areas. This wage dynamic was used as an argument by Osborne for Regional Pay; it is, of course, actually a demonstration of why national pay bargaining is so important.
There are other side effects of regional inequality. More prosperous regions don’t just suck in talent, they suck in more public resources and more investment too. London and the South East, for example, has a transport budget per capita 200 times bigger than the north east infrastructure spend. Ironically, one of the issues hampering economic growth in the north east is poor transport links.
Regional economic inequality is not inevitable. There is much evidence from the numerous evaluations of the Regional Development Agencies that devolution of policy and resources can have a major impact on economic development in lagging regions. One NorthEast, in particular, can be held up as successful model. Based on Gross Value Added (GVA) per head indexes, the rate of growth in the North East went from being lowest of the regions during the 1990s, to the second highest during the last decade. Only two English regions grew faster than the UK average between 1999 and 2009 – London and the North East.
During the boom years there was significant employment growth in the North East. From the mid 90s to 2008 there was an increase of over 11.2% in the number of North East residents in work – against a national average of 9.2%. Between 2002 and 2008 the North East experienced a higher than average increase in the number of workforce jobs at 7.2% against an English average of 5.3%.
No-one is expecting the government to reinstate RDAs, that’s apparently one U-turn they’re not prepared to make, but there are strong predictions that the Chancellor will announce some devolution of investment funding, certainly in skills and potentially in transport, to ‘local bodies’, either LEPs or via City Deal partnerships. This is welcome. We can deduce from the success of RDAs that more local prioritisation for investment and alignment of public resources, plus private sector leverage, does deliver better policy outcomes.
The risk, however, is that the budget will include a gesture toward devolution of resources not substantial enough to make a significant difference. The success of the RDA was in large part due to coordination, cohesion and alignment of resources, it was also in part due to scale. If Osborne releases only limited resources to LEPs or City Regions it may well not be enough to make any difference at all.
Perhaps it’s time for the government to admit that the previous regime got some things right, one of them being the devolution of economic policy.