11 June 2004
Large parts of the British economy are too heavily reliant on the public sector, and ministers should act quickly to plug a fast-growing gap between the performance of modern city economies and that of declining industrial areas.
That is the stark message from an influential regional think-tank, which published a report on Britain's 'knowledge economy' on June 7 that will reignite the debate over a North-South divide.
The Local Futures Group claims that the public sector is now the main provider of high-quality jobs in Wales and areas such as Lincolnshire, Durham,Yorkshire and Merseyside – a situation that may be unsustainable because public funding is likely to decline.
In contrast, areas such as London, the Southeast, Milton Keynes and Oxfordshire are least dependent on the public sector.
Professor Mark Hepworth, Local Futures' director, told Public Finance that despite initiatives to improve the long-term prospects of local economies – such as regional assemblies – ministers are labouring under the illusion that they have plenty of time.
'The reality is that they don't. This is a wake-up call to Whitehall. The government is working to a timetable that will leave many regions languishing… unless more is done to generate wider benefits within the public sector and beyond,' he said.
Whitehall will have to move quickly to overcome problems with regional transport services, initiatives to improve business growth and education, and commercial innovation, he added.
He called on the public sector to better address procurement problems and the use of public-private partnerships with a view to facilitating economic growth. Genuine devolution – including wide-ranging powers to raise tax income – would also be essential to generate lasting improvements.
'The government has got to free up regional decision-makers to allow them to focus directly on local problems that are better managed locally,' he warned.
The study, Accidental Keynesianism: the public sector in the knowledge economy, lists Lincolnshire and Rutland as the area with the highest dependency on the state sector, with 69% of all knowledge economy jobs. By contrast, London East's public sector employs just 23%.
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