Reducing Regional Disparities in Prosperity (2) ODPM Committee 28 Apr 2003

(Chairman) Can I welcome you to the Committee and again apologise for the fact that we were not able to see you when we were up in the North East. Can I ask to you identify yourselves for the record please.

(Mr Lloyd) Mark Lloyd, Deputy Chief Executive of Durham County Council.

(Mr Wann) Alan Wann, Head of Regeneration at Northumberland County Council.

(Mr Southerton) Les Southerton, Chief Executive, Middlesbrough Town Centre Company.

(Chairman) Thank you very much. Do you want to say anything by way of introduction or are you happy to go straight into the questions?

(Mr Lloyd) Chairman, we might take the opportunity to say a few words each, if we may. During this evidence session I hope to get the opportunity to expand on six themes that I consider vital for tackling the disparities between the fortunes of the North East and other more affluent parts of the United Kingdom. They are: the need for investment in education and skills, knowledge and know-how; the need to focus on improving the life chances of the people living in our most deprived communities; thirdly, the need to nurture and support entrepreneurship and risk-taking; fourthly, the need for government fiscal and policy measures to encourage investment by the public and private sector in the more peripheral regions; penultimately, the importance to the whole of the North East region of Newcastle/Gateshead being the 2008 Capital of Culture; and finally, the importance of the UK government considering most carefully the impact of post-2006 European Union regional development policies on the poorest UK regions.

(Mr Wann) We have come down to support the regional case for the allocation of greater government funding to the North East and for flexibilities and for fiscal incentives. The North East Assembly has illustrated the scale of regional disparities and identified the North East as the most deprived region. What I would like to do is just to illustrate how in certain parts of the region the problems are further compounded by large rural counties with very sparsely populated areas within which the cost of services can be as much as five times the average, in the most sparsely populated areas. In addition, I would like to demonstrate during the presentation that we have got a lot of good practice within the North East, we can achieve a lot of good change in the North East, and we are trying this in a variety of different ways, but to achieve an acceleration of the change we need an increase in mainstream funding and I hope to illustrate by a number of examples the ways in which we are realising changes in employment and skills in the North East.

(Mr Southerton) In some ways visiting the North East can be deceptive because there is clearly significant progress if you look at areas such as the Quayside in Newcastle and the Teesdale site in Stockton. I have to say that when you analyse quite coldly the key statistics by any measure - in terms of unemployment, educational attainment or new firm formation, almost whatever statistic you like to judge - it appears that from about 1975 after a massive decline in basic industry the region is not catching up, despite all of those efforts. I have to say from my experience, currently running a public/private regeneration company but having previously been Chief Executive of the City Challenge Authority, that I subscribe to the view that one of the key issues that we need to tackle is job creation - that is a fairly unsurprising comment - and therefore reflecting on the employment agenda to concentrate on how we increase the supply of jobs, whether that is by additional growth or by capital from outside. I think a particular area of concern is how we fit people in deprived communities into those jobs. To give you one statistic, Middlesbrough has a staggering three wards in the top ten wards nationally in the index of multiple deprivation. We need to address the question about availability of premises. In that respect I hope we can explore something of gap funding and the way that the European rules at the minute are written upon that. And also do not forget the question of image - and this is from a company that is promoting one urban centre - because that is vitally important. Perhaps to finish by saying a vital ingredient of the urban setting as well as the rural environment is one of culture and just to endorse the comments already made that Newcastle being successful in that particular competition would be good for the whole region.

Chairman: Thank you very much. Mr Clelland?

Mr. David Clelland (Tyne Bridge): To follow on from what Mr Southerton said about unemployment and job creation, the core cities group have placed their faith in the creation of jobs within the cities. Can I ask the witnesses where they think jobs should be created, should it be in the local area or should it be in the cities, along with measures to help people travel throughout the region?

(Mr Wann) We believe there has got to be both. There has got to be a realism that jobs can be attracted to certain parts of the region but we need to help people to break down the barriers to seek employment by improving transport and encouraging people to look outside their existing boundaries. For example, recently within the Northumberland area, the Ashington One Spec Action Team for Jobs are working with the local partnership and we are looking to find ways of increasing transport accessibility to jobs that actually exist within a 10 to 15-mile radius from Ashington, which has proved very successful and has encouraged Ashington people to look beyond the boundaries. So I think it has got to be a mixture of both, improving accessibility in terms of training, skills and transport and finding ways of attracting jobs into existing areas.

(Mr Lloyd) Rural settlements would be a sad place if they were simply a base from which people commuted into urban centres. I think we need to strive to build on our urban centres for economic regeneration and I vote for that and support the notion of core cities, but we also need to make sure that the rural hinterlands that surround those urban areas do have opportunities for people to work locally to ensure a sense of community. There are some sorts of jobs that are better placed in a rural community, and if we can ensure that there is a supply of broadband collectivity, for instance, to information communication technologies, there are some sorts of occupations that can be fulfilled equally as well in a rural dale in Northumberland or County Durham as in the city of London.

(Mr Southerton) To link that to an urban setting, we have to be careful not to rely too much on working in particular deprived communities in terms of job creation. I think in some ways it is a myth to think that we can go into those areas and within them create a very significant number of jobs. I think the magic - I have seen it now twice, once during my period working on City Challenge but also in Middlesbrough New Deal area - is if you can fit people from those deprived communities to jobs elsewhere, wherever they may be. We have to recognise that those jobs will be where the economic circumstances and the area locates them and we have to be alive to that. In the City Challenge area we had a position where 1,200 people from some of our most deprived wards moved into jobs. In the last two years in our New Deal area some 400 people have moved into jobs. The question that begs to me is whether we have to keep reinventing on the back of the specific funding streams these initiatives or whether that should be embedded more in mainstream provision.

Mr. David Clelland (Tyne Bridge): I am grateful again to Mr Southerton for leading me into the next question because he mentioned neighbourhood renewal policies and initiatives. How should economic development and neighbourhood renewal policies and initiatives link together? Do you think currently there is enough co-ordination between them?

(Mr Southerton) Perhaps as there is a neighbourhood renewal fund in my area I will answer. In most neighbourhood renewal areas you will find some level of economic activity. It would clearly miss the point if that were not strengthened and supported. As I say, I do not think you can look at the salvation of a neighbourhood renewal area within it. You have to provide this connectivity to job opportunities wherever they are and you have to recognise that many people in these areas are not job ready. You have to recognise that and do significant work to make sure that they can compete for jobs. As I have already said, I think there are schemes in place which are difficult, they take years because to develop people into the job market takes some time, but I think that is the way to do it. I think we do ourselves a disservice if we think there is one answer here. Growing the economy of the town and fitting the neighbourhood renewal area to it is the way forward, rather than concentrating on one particular geographical patch.

(Mr Wann) Neighbourhood renewal areas are not across the country as a whole. There are some places which exhibit the same mix of problems as some of the areas that have been designated for neighbourhood renewal funding. What we have been trying to do within the region is to find the local solutions to those areas by working in partnership and bringing partnership funding to support areas which have a similar mix of problems. One of the things we would like to emphasise today is that we are able to devise very innovative local solutions to problems by building on national programmes and by bringing together a shared understanding of the problems, a shared willingness of agencies and organisations to bring collective funding to bear. For example, Blyth has benefited from an approach which is similar to the neighbourhood renewal in Ashington, for instance. It is moving good practice around as much as possible.

(Mr Lloyd) There is an interesting policy issue here for the government in that the key instrument for economic regeneration is through the regional development agency and the sponsorship of the regional development agency has moved fairly recently from the old Department of the Environment, Transport and the Regions to the Department for Trade and Industry. The regional development agencies have since that move taken on very much an economic focus and it begs the question where is the leadership going to come from for the community development, the neighbourhood renewal issue that has been signalled in the question? I think, Chairman, local authorities have taken a leadership role in this regard both in districts that have been designated as neighbourhood renewal fund areas and, importantly, those districts that do not have that designation and those extra resources.

Chairman: I am getting a little worried about the time. Slightly shorter answers would be helpful.

Mr. David Clelland (Tyne Bridge): One last question then. I was interested that mention has been made of the Capital of Culture bid. I am quite sure you gentlemen would agree that one of the problems that an area like the North East has is in the perceptions of people from outside. There is a lot of ignorance about the region. How important would a single project like winning the Capital of Culture bid be to a region like the North East? Would you say of all of the competing regions the North East would be most likely to benefit as a region, more so than any of the other cities competing?

(Mr Lloyd) Chairman, if I may be so bold as to suggest that the North East region is the one that has come together as an homogenous region to support the Newcastle/Gateshead bid. Regardless of whether one lives in Northumberland, County Durham or indeed the Tees Valley, we are all backing the bid, "backing the buzz" as is our local phrase.

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Mr. David Clelland (Tyne Bridge): To return to the question of research and development expenditure which we know in terms of government and the private sector is very low in the North East and that is something we have to tackle at a national level, why has it proved so hard to harness the potential benefits to the local economy from the region's universities and what practical projects are being undertaken to try to increase the impact of university research and development on the regional economy? Perhaps as a final question, what actions are you taking to try and address the flow of graduates out of the region.

(Mr Lloyd) If I could pick up a few of those points in an opening response. Alan Wann talked about the sub-regional partnerships and the impact that they are having. In County Durham, our largest single project is a sub-regional partnership working as agents for the Regional Development Agency to equip and staff the university so that we can exploit the intellectual property that they are developing in a commercial sense. We are investing £19.6 million in that activity because we see the University of Durham, the University of Newcastle and the others in our region as being our greatest assets in terms of future potential. What sort of practical examples are we taking forward? Well, in Durham, the University of Durham is partnering the county sub-regional economic partnership to create something called the North East Technology Park. In the first instance it is 33 acres of parkland setting where we will look to establish research and development industries in our region as a way of growing our own R&D businesses rather than having to rely on inward investment into our county. Chairman, we are about to erect the first building on that site that will be home to two research and development organisations that we are spinning out of the University of Durham. That has the potential to grow to over 1,000 acres of research and development land in our county, as a real practical example.

(Mr Wann) The universities themselves would say that they have got a job to do. They recognise that they are a series of cottage industries. There is a job to be done for the universities in the North East to prepare themselves better to engage in the regional economic debate, if you like. The five centres of excellence that have been identified in the Regional Economic Strategy are all about taking the research and intelligence capabilities of the universities, translating those into larger scale testing capabilities and eventually through to production in a variety of different ways. Already through the new and renewable energy centre that I mentioned before, we are starting to see the examples of how Newcastle University through its marine technology capabilities, the University of Sunderland through its photovoltaics and others are contributing to this shift in the region's capability to deliver renewable energy technologies.

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MR SIMON JUDGE, Head of Labour Market Division, Work and Welfare Strategy Directorate, MS VAL GIBSON, Jobcentre Plus, Director for the North East, Department for Work and Pensions; and DR BILL KIRKUP, Regional Director Public Health for the North East, Department of Health, examined.

Mr. David Clelland (Tyne Bridge): Dr Kirkup, the 2001 Census revealed that the proportion of people with long-term limiting illness in the North East was 22.7 per cent compared with 15.5 per cent in London and the South East and that the proportion of people reporting their health as "not good" in the North East was 12 per cent compared with 7.1 per cent in the South East. Can you tell us why that is and what actions need to be taken to rectify this?

(Dr Kirkup) The biggest single determinant of people's health is their economic well-being and as we have the poorest record of economic well-being in the North East of England in the country of England it is not a surprise to me as an epidemiologist that we also have the worst record of health to go along with it. That affects just about all of the health figures that I am aware of, from problems around the time of birth, through ill-health in adult life, through to premature deaths and years of life lost.

Mr. David Clelland (Tyne Bridge): It is all to do with unemployment, is it?

(Dr Kirkup) That is the fundamental most predictive factor for a population, their economic and their social well-being. The North East's population is reaping the problems that came from the post-industrial decline and its effect on the area. The most fundamental thing that we can do as a region is to improve its economic conditions and its economic well-being. There are other measures which we need to take that specifically address the health problems but those are in effect putting sticking plasters on the fundamental underlying problem which will not go away until we improve the economic conditions.

Mr. David Clelland (Tyne Bridge): So are there any of these factors which are within the control of the Department of Health and how many relate to other organisations and agencies? You have indicated employment being a major one but there must be Department of Health issues as well?

(Dr Kirkup) Yes, there are Department of Health issues to do with improving access to preventive services and also investigation and treatment services. We need to do that in tandem with the other changes. We are a little hampered in that by having to run faster to catch up with a problem which is more severe in that part of the country than in other parts of the UK.

Mr. David Clelland (Tyne Bridge): We have got a man here who is fully employed who does not seem that well.

(Mr Cummings): Twenty-nine years underground, mate.

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Mr. David Clelland (Tyne Bridge): We are fond of complaining that the Government does not do enough to help us in the region, that has been a complaint over all of the years I have been in politics, but quite often I think we can do it for ourselves. Dr Kirkup has quite rightly identified unemployment as being a major cause of ill-health in the region but also the National Health Service is a big employer in the region and a big capital investor in the region. I do not know if he has seen the King's Fund report which talks about the potential of the NHS to create local employment and local enterprise. What are we doing to help ourselves?

(Dr Kirkup) We are beginning the process of bringing the strategic health authorities in the region together with key players in the Government Office and in the Regional Development Agency to better align health service investment, capital investment and, indeed, investment in jobs because the NHS is not just a very large employer but it can also be a major growth area because of the NHS plan and the requirement of delivering the NHS plan which will mean significant additional investment in the North East. There are some frustrating road blocks that get in the way of that process around the requirements placed on the NHS to take a rather simplistic view of value for money on occasions which makes it difficult for them to do anything other than invest in the cheapest possible route.

Mr. David Clelland (Tyne Bridge): We cannot favour local contractors?

(Dr Kirkup) For example, yes. There are also procurement rules both in UK law and I think in European law which I think personally would bear testing, the extent to which they actually interfere with this process, because I am not sure that anybody has tested them. Certainly they are widely cited as a reason why it is difficult for the NHS to operate in the sort of way that we are talking about.

Mr. David Clelland (Tyne Bridge): In terms of measuring the quality or the economic benefit or the value of contracts, you also build into that the benefit to the local community?

(Dr Kirkup) Precisely in terms of improving its health and, therefore, not only treating that as a single good in its own right, which it most definitely is, but also in contributing to easing the reactive burden on the Health Service.

Mr. David Clelland (Tyne Bridge): The Department for Work and Pensions is also a major employer in the region. Perhaps you could tell us a little bit about what benefits that has brought the region and how much scope there is to increase the numbers, not necessarily in your Department but in other Government departments? Given this day and age of electronic communications and, despite the criticism, improved transport between the region and elsewhere, there must be scope for outsourcing, if you like, Government departments out to the regions rather than them all concentrated in the South East.

(Mr Judge) I said a bit about the national position and the Chancellor did announce in the Budget a project to look at the scope for further relocation out of London.

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RT HON PATRICIA HEWITT MP, Secretary of State for Trade and Industry, Minister for Women and e-Minister in Cabinet, examined

Mr. David Clelland (Tyne Bridge): As you have indicated, Secretary of State, in order to meet the target the poorer performing regions would have to grow faster than London and the South East. When we discussed this point with the Chief Executive of the London Development Agency he said this would be arithmetically challenging. I do not know whether you would agree that that was perhaps something of an understatement. How realistic is that prospect, and do you not think that targets cannot really be met without a redistribution of public resources between the regions?

(Ms Hewitt) There is no doubt at all that the target is challenging because, as you rightly say, it does involve the regions with lower levels of GDP growing faster than our richest and fastest growing regions. Yes, it is challenging, but I do not think there is any point in having targets that are not challenging.

Mr. David Clelland (Tyne Bridge): It is challenging for Government as well as the regions themselves, is it not?

(Ms Hewitt) Of course, because we have committed ourselves. This is a target that we are committed to, that we are working on, and we are trying to make sure that we have the right policies but also the right institutions and leadership in place. It certainly does require, as I said earlier, making sure, for instance, that the RDAs have the resources they need to start delivering on their economic strategies. When we came to the most recent allocation of funding for the RDAs we set out very carefully and with real consultation to establish a set of criteria for how we should allocate those growing resources up to about two billion pounds a year that go through the Single Pot. Unemployment and deprivation were the two key criteria that we used (although there are others as well) and out of that has come a funding allocation that gives the North East a much higher per head allocation of RDA funding than those of all the other regions, about six times those of the South East and the rest of England.

Mr. David Clelland (Tyne Bridge): Yes, but you have not said that. Taking the northern regions as a whole, there is a slight weighting of funds towards the RDAs in the north but it is not enough, is it, to compensate for all the current advantages that the south has?

(Ms Hewitt) Of course not. We are talking about two billion pounds of public spending, obviously out of a much larger pot, so of course one has to look, for instance, at how the education budget, which is considerably larger than the RDA budget, is allocated. Of course, through the education budget, the health budget and many of the other main national programmes, there is an increased weighting given to the disadvantaged communities. That of course is not done on a regional basis. It is much more fine-grained than that in order that you can get the money into the local education authorities and into the schools that have got the greatest difficulties to overcome, but almost by definition the regions that are facing the biggest challenge will be those with a pretty high concentration of disadvantaged neighbourhoods which will therefore attract not only higher social security spending and greater tax credits but also higher education and health spending.

Mr. David Clelland (Tyne Bridge): All government departments do not have regional responsibilities though. Surely, if there is going to be a proper redistribution of funds to the regions we need to have all government departments looking at this.

(Ms Hewitt) I think all government departments need to look first and foremost at disadvantage and deprivation and what has to be done within their particular sphere of responsibility, for instance, to close the appalling gap in health and mortality between the people living, for instance, on my most disadvantaged council estates and those living in leafy suburbs in Leicestershire, but that is an issue of inequalities within regions as well as an issue of inequality between regions. Certainly programmes like education and health that focus on where the disadvantage is are actually the right place to put it rather than on a regional aggregate. I also think - and I think we are doing this better now - that all government departments need to think about the regional implications of their policy approach.

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Mr. David Clelland (Tyne Bridge): How can we encourage investment in business in an area like the North East where we have got to compete with the South East? The Government may very well introduce initiatives to encourage the growth of business in the North East but as long as business has the choice between the North East and the South East increasingly we are seeing that they are choosing the South East. Should there not be some disincentives in terms of developing in the South East as well as incentives to develop in the North East?

(Ms Hewitt) I certainly do not think, and I do not think you were implying, that we can ban business from locating in the South East or forcing them to locate elsewhere.

Mr. David Clelland (Tyne Bridge): No, but there are fiscal measures, are there not, that could be taken?

(Ms Hewitt) I agree with you that this is about making the North East, to take your region as an example, more attractive compared with, say, the South East. If you look at what is happening in the South East there are very considerable disadvantages arising at the moment from the fact that we have got an extremely tight labour market, we have got a housing market where large numbers of people find it impossible to -----

Mr. David Clelland (Tyne Bridge): But the Cabinet Committee report(?) will allow more housing in the South East.

(Ms Hewitt) We need to deal with those problems but we also need to deal, and John Prescott has set out a strategy for this, with housing problems in the north. However, what more and more employers are finding is that other regions are increasingly attractive because the land is cheaper, the office rents are cheaper, people are much more available, and you can get very well qualified and loyal workforces outside London and the South East precisely because of those problems of, if you like, overheating in the South East economy. I think the central part of each region's economic strategy has to be to make itself more attractive. Part of that is about exploiting the strengths of the science base within each region. If I can use the example of the North East, One North East is doing that with these new centres of excellence. In Yorkshire we are seeing Yorkshire Forward creating, for instance, the National Centre for Metals Excellence with a tie-up between Sheffield University, Boeing, the new science park and so on. In the north west it has been done in a different way with the North West Science Council. That is about growing new local companies, spin-outs from the science base and attracting inward investment because they want to be near those centres of excellence and near those centres of a highly skilled and educated graduate workforce, for example. Obviously, if we are to make the regions more attractive then we also need better transport and the National Transport Plan is a hugely important part of that to make sure that as far as we can and as fast as we can we have got the road connections, the rail connections and the airports that will help to make it easier to do business and to retain business in terms of retaining skilled and educated people in the different regions rather than having them come down to the South East in search of the job they want. There is a huge amount of this to be done but we are clear about the direction we have to go in and we are putting in place the institutions and the policies to do that.

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Mr. David Clelland (Tyne Bridge): On the question of research and development expenditure, there is only so much that universities can do, and the Government also has a role to play, yet uniquely out of all of regions the North East receives virtually no support whatsoever, no Government expenditure on research and development. What is going to be done about that?

(Ms Hewitt) I am just checking this, I am not sure I can put my hand on what I want. The 2001 research assessment exercise gave the biggest percentage growth in funding to the North East and South West. Durham and Newcastle --

Mr. David Clelland (Tyne Bridge): That is not growth because it started off with nothing.

(Ms Hewitt) That is a perfectly fair point.

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Mr. David Clelland (Tyne Bridge): When we look at the graphs of Government expenditure on research and development and the pie charts and everything else we see - and this inquiry is about regional disparities - in terms of disparities in this area the North East in particular does very, very badly, are there any Government initiatives to tackle that?

(Ms Hewitt) You are making an absolutely fair point. Now that we have the PSA target in place - and this comes back to our earlier discussion - we are talking to other Government departments about what they need to do to contribute to regional development, and thus the achievement of both parts of the target growing in all of the regions, but closing the gap as well. The difficulty we will have is in changing this very quickly. As I understand it a lot of the public sector, departmental research budgets are committed to quite long-term projects and where those are in place in one particular institution it is not really practical to say we are going to switch them to the other side of the country.

Mr. David Clelland (Tyne Bridge): I can see that, but the Government does recognise there is a disparity here and there are measure to tackle it?

(Ms Hewitt) We do recognise there is a disparity and we are certainly looking at it.

Mr. David Clelland (Tyne Bridge): You are looking at it. I am looking at it but it does not look very good.

(Ms Hewitt) I am not pretending we have a solution or there is a magic wand we can wave over allocations that have been built up over the last decade or more to suddenly switch them to give other regions a greater chance.