Examination of witnesses (Questions 140
WEDNESDAY 23 OCTOBER 2002
140. Which way would you adopt if your concern
was closing the gap in terms of regional productivity and economic
performance? (Mr Ritchie) They both give you information.
141. You would need to have the input figures
on something like defence spending, would you not? We do not have
them, do we? (Mr Macpherson) One of the areas Professor
McLean is looking at is indeed this. We can always seek to improve.
That is an issue which should be considered. (Mr Ritchie)
This is something that Professor McLean's project is looking into.
142. Is there a Treasury project? (Mr
Ritchie) The Treasury is partly funding the ODPM Project out
of the Evidence Base Policy Fund. The reason we are doing this
is the output we expect from this project is a better evidence
base, it is a better understanding of the allocation funding expenditure
by region, partly a quality check on our own numbers. Professor
McLean is specifically looking at defence expenditure. Professor
McLean is well aware of the fact that there are different ways,
two basic ways, which you can allocate public expenditure by region,
what he refers to as the "for" and "in" methods,
and defence you can only do by the "in" method. Part
of the project will be looking at defence and seeing what kind
of numbers are out there. It is partly a feasibility study. (Mr
Macpherson) There are, presumably, also operational issues
around defence which will be more important than an economic argument
for putting defence installation into certain areas.
143. Can I very briefly ask for clarification
on this defence issue, to take an extreme case where we decided
the only threat to our security was from France, or something
like that, and we wanted to put our entire Armed Forces into Kent
or the southeast, or something like that, we do all of the recruitment
and we evacuate the whole of the rest of country would it be the
case, in the way that you look at things, that you would say,
we are still not going to allocate that expenditure and "benefit"
to the southeast as a region because they are in the southeast
to defend the whole country. That is how you do it at present,
is it? (Mr Macpherson) That is how we do it at the
moment. It is far from clear that evacuating Kent and putting
all of the Armed Forces in it is necessarily to the benefit of
the current Kent population.
Chairman: It is not. I can help you on that.
144. To follow that on with a very brief supplement,
surely it would only be relevant if the composition of those Armed
Forces and their pay, for example, was way out of line with the
rest of the country. If they were the lowest paid profession then
the people living in that part of the country might not think
it a benefit, if they were getting five times the amount of a
Treasury civil servant then it might be regarded as being relevant.
Would you accept that it could be relevant if there were a marked
difference in characteristics between the Armed Forces and the
rest of the working population? (Mr Macpherson) These
will all inform income in a particular area. Clearly if you populated
a region solely with low paid public servants that might have
an effect on regional GDP.
145. Yes, of course it would. That is exactly
the point, if you put the Army in Scotland, Scotland's GDP would
go up and it would have a side effect that all that money would
be spent in Scotland, business would be set up and you would get
economic activity that would keep it moving. That is the whole
point. The Treasury do not see that of interest in underpinning
this strategy. That is what we find absolutely unbelievable. (Mr
Ritchie) We never said this was not of interest.
146. I am glad you think it might be of interest.
When is this regional policy going to deliver, next century? If
you do not think it is of interest now when the hell are we going
to get a policy that works? That is what is coming across. (Mr
Macpherson) History does suggest
147. History! (Mr Macpherson)that
a lot of regional policies through the 50s, 60s, 70s and 80s would
try, and a lot of them failed, freezing industrial structures,
trying to run regional policy from Whitehall.
148. Who suggested that? I suggested if you
took a few thousand people and based them in Scotland Scotland's
GDP would go up. We are sitting here saying we are trying to equalise
and move it, and you say I am running it from Whitehall. What
has that got to do with it? (Mr Macpherson) All departments
are under pressure to deliver services in a more cost-effective
way. If you think it is more cost-effective putting all of your
relevant employees in Scotland then clearly departments should
be pursuing that strategy.
149. In paragraph 1.8 of the regional dimension
you say a lack of convergence in the medium and long term is a
likely indicator of serious market failure and this suggests there
may be unrealised economic gains in large parts of the UK economy.
I want to look at the "serious market failure" comment
for a moment or two. You then go on to say that you have five
key drivers to tackle the productivity problem, skills, investment,
innovation, enterprise and competition. Let us take enterprise,
what are the key policies in place to push the enterprise button? (Mr
Macpherson) One thing which was identified in this paper was
the whole issue of venture capital and how venture capital is
very much skewed in favour of London. One policy I would identify
is the creation of regional venture capital funds. There have
been a lot of other policies designed to encourage enterprise
in the deprived areas, such as the Phoenix Fund and also policies
to do with universities, designed to encourage activities in the
regions. (Mr Parkinson) Community investment tax credit
scheme, stamp duty relief.
150. What results have we had from those so
far? (Mr Macpherson) It is fair to say that
151. What have they contributed to get convergence? (Mr
Macpherson) It is very early days.
152. It is early days. When should we expect
to see them make a significant contribution to the convergence
we are hoping to see? (Mr Macpherson) There are certainly
aspects of this which are fairly imperfect science. What is clear
is that some market failures are easier to tackle from government.
I would particularly highlight the whole skills agenda, where
it is reasonable to expect government to make progress on education,
skills, employment services and areas like that. Also with areas
round housing and planning, it is reasonable to expect government
to make progress. Enterprise clearly is an important issue but
the scope for government to influence it on a massive scale is
153. You have identified it as one of the five
key drivers, presumably you think you can do something? (Mr
Macpherson) Clearly policy needs to be implemented with the
grain of an enterprising economy and a lot of measures have been
taken through, the small business service and other agencies,
to try and encourage enterprise.
154. The business start off figures tell a potent
story when you look at the regional distribution of those. (Mr
Macpherson) They certainly underline that there is a big challenge.
155. That is why we are looking for devices
to help us address that challenge. Is there a role for regional
selective assistance? (Mr Macpherson) Regional selective
assistance clearly has a role in regional development otherwise
we would not have it.
156. Is it working? (Mr Macpherson)
I think a lot of analysis has been done about the whole system.
We talked earlier about approaches. Some approaches are more successful
than others in economic policy terms.
157. How much money is going into the regional
selective system programmes? (Mr Macpherson) It is
something like £100 million a year, something like that.
158. How many jobs is that supporting as a result
of that investment? (Mr Macpherson) I do not have that
information. We can get the DTI to provide a note.
159. We have had a paper from Dr Colin Wren's
from the University of Newcastle who thinks that that £100
million is supporting 7,000 jobs. Do you think that is probably
right? (Mr Macpherson) As I say I would like to get
the DTI to provide some figures.