How to fix our unbalanced economy

By John Healey | 14 May 2014
  • John Healey

If President Obama is right when he said recently that inequality is the ‘defining challenge of our time’, then more attention is needed to the way people’s prospects are shaped by the places where they live and work.

In the UK, this means shining the spotlight on the deep disparities between our regions and local areas. And it means accepting that more jobs, growth and wealth generated locally are a vital part of a balanced national economy.

This is the case I make in

a new report for the Smith Institute, co-written by former director of Yorkshire Futures Les Newby with a foreword by Ed Balls and Andrew Adonis.

While talk of a ‘north-south’ divide is too simplistic – not least because wealth gaps between local areas in the same region are greater than those between regions – any serious commitment to a one-nation economic policy requires a radical and accelerated devolution of powers to deal with the widening economic divide. 

The current pattern of prosperity still results in large part from the extraordinary economic dislocation between areas during the 1980s and early 90s.

Before 1979, regional differences in the unemployment rate rarely exceeded 2% of the labour force.  By 1997, unemployment in parts of the north of England was almost double that in the South East and South West.  GVA per head in London was twice what it was in the North East, and economic output in the South East region alone was greater than that of Scotland, Wales and Northern Ireland combined. 

Some 15 years ago, Ed Balls and I - along with others - worked to set up the Regional Development Agencies (RDAs) and we wrote a series of policy blueprints for local, city and regional economic development published by the Smith Institute. 

My new report reviews in detail the policy lessons from the RDAs and Local Enterprise Partnerships (LEPs). It confirms that the RDAs were successful in many ways. They combined strong economic leadership with sizeable ‘single pot’ resources to create significant change – an independent review by PwC found that for every £1 RDAs spent, regional GVA increased by £4.50. 

They were largely independent of both central and local government, though some of the RDAs failed to establish local ownership of core programmes and they didn’t always work as closely as needed with councils.

Nevertheless, RDA achievements stand up well against the LEPs that replaced them in 2010. From 2000 to 2010 the poorer English regions were able to achieve almost the same rate of GVA growth as the prosperous regions but since 2010 early data show the gap in growth rates is five times greater. 

However tempting, the report rejects sweeping away the LEPs entirely and recommends drawing on the experience of both RDAs and LEPs to make them fit for the future.

I argue for fewer, stronger, business-led LEPs with extra powers over skills, innovation, jobs programmes, export support and new business investment. Reforms are required in three main areas.

First, purpose and accountability. Lack of clarity on what LEPs do, who they report to and how their success is measured has characterised their early years, so I propose a simple high-level remit which focuses on core functions but leaves the details and priority setting to LEP areas themselves.

The Commons BIS Select Committee rightly complains about ‘an absence of any actual mechanism by which LEPs could be held to account’. To counter this at local and national level, the report recommends joint powers of sign-off on the LEP strategy for local authorities and a single sponsor department in Whitehall, which could be the Treasury to reflect its heavyweight influence and economic policy interests.

Second, geography. There are too many LEPs, and a widespread recognition that they do not always cover ‘functional economic areas’.

Rather than forcing through a top-down reorganisation, ministers should set expectations for the minimum size for a LEP area, such as a population of one million people or more, combined with evidence of a fit with a functioning economic footprint. LEPs would have the scope to change themselves, based on these new ground rules, though over the priority must be to create consistency between the boundaries of LEP, City Deal and Combined Authorities areas.

Thirdly, funding. LEPs have suffered from a serious lack of funding and an constant obligation to bid to Whitehall for any money they do receive, so Ministers have to provide the certainty of significant single pot resources for them to be able to plan for the long term.

They need the independence to decide locally on investments, based on a single strategic economic plan. There’s also a very strong case for an extra focus on areas where economic disadvantage is deeper and the restructuring required is greater.

While Balls and Adonis back my report and say it ‘provides a bedrock of evidence on which to build future growth policy’, it also echoes key recommendations from Lord Heseltine’s 2012 Growth Review and so I hope it can be a blueprint for future local economic leadership and devolution whatever the political party in Government.

John Healey MP is a former Labour Treasury and local government minister

 

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