24 October 2006

Speech by the Financial Secretary to the Treasury, John Healey, Northern Regeneration Conference, Magna Centre, Rotherham

Thank you for inviting me to be here today. It is a pleasure for me to be here both in my capacity as a Treasury Minister and as a Northern Labour MP.

Let me congratulate Regeneration and Renewal magazine on their organisation of this Northern Regeneration event, with the very wide range of expertise both on the platform and in the body of the conference. But I did have to point out to Richard Garlick’s conference team that the Magna Centre is not in Sheffield…but in the Sheffield City Region…in other words, in Rotherham.

We have common economic challenges and aims across the North though of course regeneration barriers will differ from Bolton to Barnsley to Blyth, and this event is a chance to learn lessons and share experiences across the North and with government.

There is a programme of detailed sessions taking place throughout this event. So I am going to give a broader view of the challenges in economic development, and the approach we are taking in the Treasury, especially as we look to the Comprehensive Spending Review (CSR) and ahead in the next decade.

With Gordon Brown as Chancellor, the Treasury has taken an increasingly active role in local and regional economic policy. Several years ago, I asked a senior Treasury mandarin why we had not done so before and he said that “The truth is, we didn’t think there was much we could do about it”. In truth, there is a good deal that the Treasury can do – and must do.

Starting in 1997, we created a new national economic policy framework, ceding power from government to independent, credible institutions and setting clear objectives to promote stability, growth and jobs.

However, the macroeconomic stability we have secured over the last decade is a necessary but not sufficient condition for longer-term economic success.

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We knew that we needed to reinforce the microeconomic drivers of growth and productivity – business investment, skills, enterprise, competition, innovation and science.

And we knew that we have to reduce the disparities in economic performance between and within the regions and nations of the UK, if we are to draw on the full potential of our country – levelling up the lowest six performing regions just to the national average would bring a £60 billion boost to the UK economy. The Northern Way’s Growth Strategy has its sights on the £30 billion output gap between the 3 Northern regions and the average for England.

And as we considered our microeconomic policies, alongside the macro, it became clear that many of the decisions were better taken in the regions.

In economic terms, our guiding principles became, first, that there is evidence of regional disparities in skills, employment levels, business start-ups, levels of R&D, business investment and availability of venture capital; and second, that where the market failures that underlie these disparities are primarily regional and local, our policy response should be designed and delivered regionally and locally.

That’s why we set up the RDAs with a statutory remit as strategic leaders on economic development in each of the 9 English regions, with “single pot” funding and with total budgets next year of around £2.3 billion.

That’s why we introduced new trading and prudential borrowing powers, and powers for local authorities to improve the economic well-being of their area.

That’s why we encouraged innovation through Business Improvement Districts, Urban Regeneration Companies, local strategic partnerships and enterprise areas.

That’s why we encouraged created a range of policy instruments from:

the contaminated land tax credit, to the
Local Authority Business Growth Initiative, to the
fourth economic block of Local Area Agreements.

And for areas in which economic, social and physical decay has reached a point where reversal requires much more than the market, that’s why we currently spend around £1 billion a year on neighbourhood renewal and set up the Neighbourhood Renewal Unit with a focus on the most deprived localities.

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In 2007, the questions confronting us all – for the CSR and the prospect of much tighter public finances – are:

how effective are these policies and investments? and
do the regions and councils currently have enough powers and policy tools at their disposal to make a real difference to regional and local prosperity?

So following this week’s local government white paper, and independent reports later this year into the economic impact of local government, transport, skills, and planning…we will – in the CSR – build on the measures already in place. In the CSR there is the opportunity to look more widely and more long-term. Indeed, I would argue there is the imperative for us to do so.

The Government’s big policy task in the next decade is to come to terms with the changing circumstances and new policy challenges of the:

expanding global economy with rapidly emerging new economies and competitive pressures;
accelerating pace of technology change and diffusion;
intensifying scarcity of national resources and the threat of climate change;
increasing insecurity and uncertainty in the face of international crime and terrorism; and
rapidly changing demography of our own country.

We aim to publish our analysis of these five-long term challenges shortly, as part of the groundwork for the CSR and in order to encourage much wider public policy debate.

Alongside work in the Treasury on the five long-term challenges, we have been conducting – with help from DTI and DCLG – the analytical work for the review of sub-national economic development and regeneration, launched at the Budget.

In this we look to identify ahead of the CSR how better to release the economic potential of English regions, cities and localities in support of our regional growth and neighbourhood renewal PSA targets.

Emerging evidence suggests there is progress in reducing the gap: on Regional Gross Value Added (GVA) for the poorer performing English Regions; on employment growth in the North and Midlands; on employment rates in the most deprived local authorities; and on regional skills gaps, particularly at Level 2 and for those with no qualifications.

However, our emerging analysis is showing that globalisation and technological change will increase economic specialisation, increase returns to innovation and higher-level skills and increase the advantages of size and scale.

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At a national level, this is likely to reinforce the advantages of London and the South East; within regions, it will tend to favour cities which have moved more successfully to a knowledge-based economy; and within local areas, it has the potential to widen differences between prosperous and disadvantaged neighbourhoods.

This means our key cross-government PSA targets to increase growth in all regions, reduce regional disparities and deliver neighbourhood renewal are all the more challenging, and all the more important.

It means further devolved decision making and freedoms are required for regions and local areas to respond to rapidly-changing economic circumstances deal with persistent pockets of deprivation or sluggish economic performance and develop them to their fullest productive potential.

And, specifically on regeneration, our emerging findings suggest the need:

for stronger links between economic and social regeneration
for the barriers to further private sector and third sector investment to be removed
for clearer objectives for regeneration
for greater focus on the most deprived areas
for sharper accountability for use of targeted funding
and for better alignment of the different things undertaken at different levels of government.

This is still policy work in progress, and we’ve drawing strongly on views from the regions.

We hosted an “Economics of the Nation” seminar this summer at the Treasury with important presentations from the Northern Way, Yorkshire Forward and Manchester City Council.

I have invited all regions to contribute to the review of Sub National Economic Development and Regeneration, asking how we can better utilise existing or lower levels of government spending.

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The submissions I am receiving are important contributions to the CSR, and I have just copied them around to Ministers, telling them that the formal CSR guidance to departments will require those with programmes relevant to economic development to demonstrate how they have taken into account the Northern Way and regional advice in their plans.

It is clear that governance, accountability, incentives and putting the right responsibilities at the right spatial level lie at the heart of our policy challenge in the CSR.

A further theme that cuts across the emerging findings of our government review and the independent reviews, in these policy areas is the importance of the private sector.

We know enterprise drives productivity and employment. In England alone, our top three performing regions have more than twice the number of businesses per resident than our poorest performing region.

And we know government alone cannot undertake or underwrite regeneration. That’s why it’s vital that we increase the investment and influence of the private sector in economic development.

There are some very good examples of local authority-private sector collaborations around the country, through Business Improvement Districts, Business involvement in LSPs and Urban Regeneration Companies.

We need policy and delivery on skills, business support, urban development, transport and employment services driven more by the demands of employers and the local economy. And so will look to strengthen further the link between local authorities, local agencies and local business, as we draw conclusions for the CSR.

But we have to be careful not to turn business people into public sector bureaucrats, speaking the jargon and losing the special drive and initiative that the best of the private sector can bring.

Too many conferences like this are top heavy with public sector speakers – not this one.

You have an impressive mix of private, public and third sector figures – and I hope this makes for 2 days of very lively discussion, here in the Magna Centre…in Rotherham.

Thank you.