Last month’s Local Growth White Paper set out a vision for a ‘rebalanced’ economy in the UK, correcting the current version which is over-reliant on the financial sector and the Greater South East. While the white paper talks a good talk in terms of a more evenly shared growth, a closer examination reveals that the outcome of this economic rebalancing act could end up topsy-turvy.
Ever since the 1960s the North of England has lagged in economic terms with a higher level of structural unemployment than the South. That said, thousands of jobs have been created in the North over the past decade and it is not all due to the public sector. In the North East and North West public sector jobs have increased at a lower rate (9.8% and 12.3 % respectively) than the UK average (13.4 %).
Nevertheless, the North-South imbalance and future growth should be understood from the point of view of worklessness, and how the wage-earning opportunities could be spread more evenly.
Returning to growth, the Department for Business, Innovation and Skills suggests that there are three main elements to a rebalanced economy: Local Enterprise Partnerships (LEPs); Regional Growth Fund (RGF); and the closure of Regional Development Agencies (RDAs).
The main purpose of the RGF is to lever in private investment in areas where public sector employment is high, because ‘the government has run out of money', according to Lord Heseltine, the chair of the RGF committee. The lack of money is evident as the RGF allocation is £1.4bn over three years, whereas the decommissioned RDAs had a similar amount to spend each year. The key question for decision-makers is, what can the LEPs and the RGF achieve in terms of job creation?
Looking at the labour market, the North is more reliant on public sector jobs, particularly the North East, where unemployment is also higher than average. Disappointingly for the region, it was caught between arguments over what the right ‘natural economic footprint’ of the area should be, and consequently a political vacuum is created when the local RDA closes its doors.
Similarly, Lancashire remains without sub-regional leadership for growth, while the politically established Northern city-regions of Manchester, Leeds, Liverpool, Sheffield and Tees Valley were given the green light on LEPs.
The institutional shake-up means that local interests need advocacy and leadership, and not all areas are equally positioned in this respect. We should also consider the RGF in the wider context of the government’s spending plans over the next three years. Arguably, the Spending Review is a further compounding factor which suggests that the coming years will see even greater North-South imbalance for the following reasons:
- Greater proportional job losses not only in the public sector but also in private companies that are in some way reliant on the public sector;
- Benefit reforms mean more people will be required to actively seek work, adding further to the local competition for jobs;
- The private sector in many parts of the North is less ready to take up the slack in unemployment, particularly where the ratio of job vacancies to jobseekers is already higher;
- The North will receive significantly lower public investment through large infrastructure grants compared to other regions.
Therefore areas that have high unemployment, not just those with a large public sector workforce, should be targeted with the RGF. Business Secretary Vince Cable did not mince his words when he was questioned in the House of Commons about the white paper: ‘It is up to those areas to get their act together, those who do will succeed, those who don’t will fall behind,’ he predicted.
This kind of approach to local economic development puts areas in competition against each other where winners and losers emerge. The bigger fear is that the entire North will lose out because of the wider compounding impact of the Spending Review on local employment and welfare.
The RGF is a finite resource, and LEPs should be looking beyond the RGF to rebalance the economy with realistic plans to address local job growth. It would help if the impact of the public sector on local job markets were properly understood before the axe falls on vulnerable areas.
Jenni Viitanen is a research fellow at the Institute for Public Policy Research North
