24 September 2003
SPEECH BY ECONOMIC SECRETARY JOHN HEALEY to the LGA conference
Supporting the economic development role of Local Authorities
I’m very glad to join you today, and would like to thank the LGA for bringing everyone together for this joint conference with HMT/ODPM.
The LGA is an influential partner for us in central government – and I know that our Treasury officials have had many valuable discussions with LGA officers in recent months.
And we are particularly grateful for this opportunity to learn from the expertise of officers and members – as we finalise plans for the LA business growth incentives scheme.
Local authorities have long played an important role – and one that is being increasingly recognised by others – in the economic prosperity of their areas.
The Local Authority Business Growth Incentives scheme aims to develop and further extend this role.
You have already had a number of detailed speeches about the structure and complexities of this scheme. However, let me just underline the wider economic and policy context of this scheme.
Since 1997, our first economic policy priority has been to establish new national frameworks for stability, growth and sound public finances.
But, as a nation, we cannot achieve long-term prosperity, improved competitiveness and full employment without more balanced economic gains in all regions.
Some accuse the Government of lack of ambition in Government. But we’ve certainly set ourselves some radical economic goals.
- Not just growth and full employment for Britain, but growth and full employment in every nation, region and community of our country
- Not just rising national prosperity, but improving prosperity for all – especially those living in poverty or working on poverty wages in past decades
Now – today – it is simply not possible to run economic policy from the centre using the one-size-fits-all solutions of the past. Greater competition, new information technologies, a premium on skills and innovation, more demanding consumers, and varying local needs all work to expose the contradictions of the old-style centralised control approach, either to economic policy or the delivery of public services.
Instead, we need to reinforce the drivers of productivity and long-term growth – innovation, investment, skills, development of enterprise, competition – by exploiting the indigenous strengths in each region and local area.
This demands that central government gives greater freedoms, flexibilities and funding to local agencies – and authorities.
We have done just this with devolution in Scotland and Wales, which have benefited from significant powers to direct regional and economic development policy. And in Northern Ireland we look forward to the return of its devolved administration.
In the English regions Regional Development Agencies now have a statutory remit to act as strategic leaders in regional economic development. These Agencies have increasing resources – rising 4.5% in real terms each year – and a single budget pot, with 100% flexibility to spend to meet regional priorities.
And as with RDAs, we are now developing such principles in our approach to other agencies with a local economic role – for example with Learning and Skills Councils and the Small Business Service.
This shift to more regional economic decision-making opens up new opportunities for local government authorities. I believe it challenges local government:
- to give greater local leadership to economic development
- to wield a stronger influence on wider regional economic plans
- to forge a more accountable partnership with local business
And, of course, as local authorities you are very significant economic agencies yourselves.
That’s why the Chancellor last year at the Urban summit put local government at the centre of the drive to deal with poverty and deprivation, emphasising that Britain’s worst off areas needed the opportunity to narrow gaps in employment, enterprise and economic activity … while high growth areas should continue to have the freedom and flexibilities to flourish.
However it is important not to underestimate the scale of the challenge nor the necessary commitment needed to reduce the persistent gap in growth rates between the regions.
- Economic output per person in the North East is nearly 40% below that in London
- Employment rates range from 68% in the North East to 79% in the South East
- Inactivity and worklessness is below 3% in some SE districts; but over 20% in some areas of Scotland, Wales and Northern England
In fact, if economic performance of the lagging regions was brought up to the UK average, it would increase the average UK household income by £2,500
And of course, differentials in productivity are just as great within regions as they are between them
Nick Raynsford spoke to you this morning about how the Local Government Act sets out the legislative basis for the business incentive scheme.
The scheme’s main aim is to encourage and support you in playing an active role in economic development and in promoting productivity and enterprise.
I know a number of authorities – from the “Leeds Initiative” to Croydon’s Vision 2020 – have a strong track record in this. But it is also clear that, in many areas, local authorities are not as actively involved or influential as they could be.
We recognise that part of the reason is perhaps a mismatch between the costs and the benefits of economic development. The costs tend to fall on you – particularly through pressure on public services such as housing and transport. While the benefits are usually realised by individuals, through employment and business profits, or by national government, in terms of tax take.
So the growth incentives scheme aims to provide you with an incentive and reward for successfully supporting business growth. Based on historical data, we think that this could be worth as much as £1 billion of extra money over 3 years.
And let me stress three points:
First, these are genuinely additional local revenues – there will not be a subsequent reduction in the spending totals as set by the 2002 Spending Review.
Second, this is an incentive, not a stick – it can only benefit local authorities, not penalise them. And, as the consultation document is at pains to emphasise, “All local authorities, irrespective of their economic circumstances, must be able to benefit from the scheme”.
Third, the money will not be ring-fenced, thus allowing successful authorities to use the resources for local priorities as they determine.
In this way, both local and central government secure and share the financial benefit from new businesses and economic regeneration.
I know that there are concerns about some aspects of the scheme. Indeed, addressing these are the purpose of the consultation process, and the conference today.
Many of you are concerned about the complexity of the scheme. It is true that, at first glance, it is a fairly complex scheme with a number of technical variables. This is partly because the scheme is not just a solution to a simple problem. It needs to be relevant and fair to each individual local authority – whether they have a large or small number of business in their area, or high or low levels of growth.
I know you are also interested in how revenues should be shared between different tiers of local government.
Everyone would recognise in two tier areas, that both county and district authorities have an influence on business activity and economic development through the different services they provide and powers they exercise.
How we set the best level is a challenging question, and we need your help – through this conference and the current consultation – in deciding the relative importance each tier has in driving economic growth – and the degree to which an incentive of this sort can help to influence policy and joint working.
So let me close by re-emphasising that, within the national policy framework, the causes of localised low investment, poor educational achievement, sluggish job creation and low business start up and growth rates need local strategies, with new policy levers, to put them in to practice.
Our goal is to challenge the assumption – among economists, commentators, policy makers – that there is anything inevitable about local inequalities…that just because cities and regions of North have fallen behind London for more than half a century, this pattern of inequality is bound to continue.
By giving you greater freedoms, powers and incentives to help develop your local economy, we hope that local government will develop a more strategic role and a more decisive influence over future economic growth and prosperity.