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5.21 pm

Mr. Doug Henderson (Newcastle upon Tyne, North): I refer hon. Members to my entry in the Register of Members' Interests.

As I believe that the Budget is right for the country, the Finance Bill must also be right for the country. It continues to give fiscal support to a stable economy, low unemployment and low inflation. Those targets cannot be met in our competitors' economies. France, Germany and the United States have higher unemployment and higher inflation. The stable policies that the Government set in motion six years ago are reinforced by the Bill and should be given the full support of the House.

I must enter one caveat, however. I have reservations about the expenditure that the Bill raises for the war on Iraq. I consider that to be mistaken and misplaced. I would have preferred it to be spent on our hospitals and schools and in the Ministry of Defence so that it could provide better equipment and conditions to enable our forces to defend this country's interests when they are called on to do so. I know, however, that you, Mr. Deputy Speaker, would not want me to go further down that road. Tempted as I am, I shall concentrate on other matters.

I want to address the way in which the Bill and Government economic policy tackle regional economic and social inequality. Some of the Bill's direct measures make a good start on that. The size of the Bill has been commented on—it is pretty thick—and I am not claiming to have identified every golden nugget on regional assistance in its two volumes, but I draw hon. Members' attention to clauses 163 to 167, which will help regional development.

Clause 163 extends capital allowances for small business. Clause 164 extends first-year allowances for information and communications technology expenditure by small companies. Clause 165 provides tax consideration for software sub-licensing and clause 166 extends first-year allowances for expenditure on environmentally beneficial plant or machinery. Clause 167 extends support for research and development.

It could be argued that those things affect economic activities outside the regional development areas. Of course they do, but they also benefit economic activity in areas undergoing regional development. Relatively underdeveloped regions, such as my own in the north-east of England, are heavily dependent on companies that rely more on such measures than the average company. Manufacturing is a more important economic activity in the north-east than, for instance, along the M4 corridor, so such measures help us disproportionately. Two thirds of research and development assistance goes to the manufacturing sector, so the provision and the accompanying measures certainly help regional economies such as that in the north-east. Measures on stamp duty, including relief on stamp duty in the regeneration areas, again help some areas disproportionately. They help some deprived areas in London with the same economic problems as regions in the north of England, but help disproportionately areas in my city of Newcastle, as well as Liverpool and other areas where there is an incentive to provide such assistance.

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Accompanying the fiscal measures in the Bill was the Chancellor's announcement that about 20,000 civil services should be dispersed from areas of congestion to areas of relative underdevelopment, which I very much support. I should have liked more direct measures in the Bill to reinforce that announcement, as I know what sometimes happens with Government announcements, especially when they involve civil servants. However, I am sure that my right hon. Friend the Chief Secretary will keep his eye on other opportunities to reinforce the announcement with fiscal measures. I do not think that the proposal will work if it rests purely on the stick of Westminster—we need a carrot for the development regions as well. Local authorities, private developers and regional development agencies need incentives to persuade central Government that X number of additional civil servants should be based within their territories. My right hon. Friend may well consider tabling an amendment in Committee to achieve that and reinforce the Chancellor's desire to accomplish change.

The core of my contribution concerns the need for such a change. There have been regional development policies in this country for well over 70 years, dating from the Macmillan committee of inquiry and what flowed from that in, I think, 1933 with a measure on special areas. Measures continued to be introduced in the late 1940s, the 1960s, and the 1970s, and included schemes for grants, loans, regeneration areas and development areas. There is no doubt that all those measures have had some effect. Employment in Wallsend would be very much depleted without the DSS or, as it is now called, the Department for Work and Pensions, which is located at Longbenton, where 3,000 or 4,000 people are employed.

Many regional economic development policies have been successful to some extent. I do not believe that the Government can do everything, but what has been more effective than many measures has been the dispersal of Government activity to the regions. Governments drawn from Conservative and Labour parties have accepted the arguments for that. The Labour Government of the 1960s began the process of dispersal, which also took place in the private sector. There were incentives for private companies to move out of London, and penalties for those that expanded in certain employment areas in London. The Heath Government of the early 1970s and, indeed, the Thatcher Government of 1979 accepted the arguments for the dispersal of a number of civil service sites, with the Thatcher Government implementing measures to achieve that in 1980 and 1981. There has therefore been cross-party support for the economic arguments for dispersal.

Some people would say that none of that works because if it is not economic engineering, it is social engineering. In fact, it is neither. The Bill and the Chancellor's statement—I hope that future Bills will contain further fiscal support—are a catalyst to market forces.

Geraint Davies: My hon. Friend may be interested to know that manufacturers are moving out of my area of Croydon to lower cost areas in the north. Will he support the Chancellor's strategy of flexible labour

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markets on a regional basis, both in the public and private sectors, in order to achieve full employment, as I do?

Mr. Henderson: I very much agree with my hon. Friend. As I said earlier, the Government cannot do everything. Private sector initiative and investment is equally important. Companies making such decisions should have the Government's full support.

I think that all will accept that the south of England is overcongested. It is probably the most overcongested area in Europe. It is certainly as overcongested as anything in the United States, save perhaps the Los Angeles area. All the economic diseconomies flow from that. People do not have the same quality of life. Leisure pursuits cost more in the south than in the north. Housing is so overpriced that many public sector, and indeed private sector, employers, especially in central London, cannot attract the staff that they would be able to elsewhere. Staff turnover is extremely high in various economic activities, especially in London and some other areas in the south-east. I remember from my period at the Ministry of Defence how difficult it was to obtain certain categories of staff, and once they were obtained they left quickly for better opportunities elsewhere. Many other Departments will have similar difficulties.

Geraint Davies: Does my hon. Friend therefore agree that there is an urgent need for a review of London weighting for public servants, particularly as in the private sector there is an average mark up of about 40 per cent. in London? If we are to recruit enough public servants, such as nurses and teachers, we need a proper balance that reflects the supply and demand and costs in different regions.

Mr. Henderson: I am not sure that I totally agree with my hon. Friend on that. A strong economic argument could be made that the public expenditure that would be involved in that would be better spent on attracting staff to the regions. A little more research on that is necessary.

Transferring civil servants directly creates jobs in areas such as the north-east. About two thirds of staff in a typical Department do not move when the Department moves, so the Department has to recruit locally in the regions. It can usually obtain a good supply of labour and skill programmes can be put in place before dispersal. Most employers would accept that the quality of labour is certainly as high in the regions as in London and the south-east, and arguably better.

This issue addresses the staff shortages that become a critical problem when the country is in full employment, as we essentially are or very near it at the moment. But the dispersal of Departments has other benefits. The most obvious benefit is that it boosts the local economy. If 3,000 people are working at Longbenton in Wallsend, the money that they spend largely benefits the economy in Longbenton rather than the economy in an already overcongested central London. It makes the task of whoever is responsible for macro-economic policy easier in the future because they will not have to take measures to take the steam out of an economy to the

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same extent in the south, which is often damaging to some of the economic situations in the north, in places such as Newcastle.

There are other efficiencies to be made. Land is clearly much cheaper and often of a higher quality, allowing staff to move into a better location.

Organisational improvements can also increase efficiency. An interesting study was conducted in 1990, when social security benefit centres were dispersed from central London locations to Glasgow, Belfast and Wigan. The centres had been spread over 21 locations in central London because of accommodation difficulties, but moving them to three locations clearly improved efficiency.

The Chancellor and other Treasury Ministers have a difficult task ahead of them. It will not be easy to persuade civil service departments or civil servants to move from the south to the north. Sir Humphreys will not always prefer Sevenoaks to Sunderland, but I think that they will generally do so. Of course, scope for such dispersal does not exist in all civil service departments. There is a perception throughout the country that armies of civil servants work in London, but about 35 per cent. or 40 per cent. of them work in their current locations because they are dealing with a population-related activity. The staff of the Department for Work and Pensions certainly need to work on that basis, and the Inland Revenue claims that the same is true of its employees. There is certainly some validity in the assertion that Inland Revenue advice has to be available where people need to seek it. Together, the Department for Work and Pensions and the Inland Revenue account for about 35 per cent. of civil service employment, and I do not think that they will have great scope for much more dispersal.

One must therefore consider which parts of the civil service can be dispersed in line with the proposed policy, which I hope will receive broad support in the House. I have identified five areas in which I think that such dispersal is possible. The Home Office currently employs 12,000 of its 17,000 staff in England and Wales in London and the south-east; the Lord Chancellor's Department employs 5,500 out of 10,000 staff in London and the south-east; and the Department for Transport employs 5,000 out of 10,000 staff in London and the south-east. Customs and Excise employs 9,500 out of 21,000 staff in the United Kingdom in London and south-east.

The main candidate for dispersal, however, may be the Ministry of Defence, which employs 90,000 people. Scotland and Wales get a proportionate share of that employment, but other areas do not. In the Ministry of Defence, 26,000 staff out of 67,000 in England and Wales are located in London and the south-east. That excludes the south-west, where about 20 per cent. of its staff are located—and some of the locations involved are pretty near London and the south-east. However, these are the telling statistics: only 470 Ministry of Defence civil servants are located in the north-east; only 2,000 are located in the north-west; and only 750 are located on Merseyside.

A similar pattern emerges in the armed forces. There are about 200,000 members of the armed forces in this country. Only about three quarters of armed forces

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personnel are based in the United Kingdom, while others are based in Germany and so on. Some 20.9 per cent. of those based in the United Kingdom are located in the south-west; 29.2 per cent. are located in the south-east; and 11 per cent. are located in the east of the country, which is generally a prosperous area. That compares with the following: 0.8 per cent. of personnel are located in north-east England and 0.9 per cent. are located in the north-west.

The Ministry of Defence used to argue that its staff had to be based near the armed forces because of strategic considerations. I do not think that that is now a valid assumption, because of new technology and all the rest of it. There is not even very much of an argument for the strategic location of the majority of our armed forces in the south-west, the south-east and London. They now tend to be deployed overseas. If somebody is travelling to Bosnia or Iraq, it does not make any difference whether they fly out of Newcastle or Newquay. The time difference to Iraq, or to wherever one is going, is more or less negligible. Defending the cliffs of Dover is no longer a priority in the sense that it was in 1945, when people had to be located near to the part of the country where there was a danger to our national security. Nowadays, the mobility of the armed forces means that few of those arguments apply. There is a strong argument for persuading the Ministry of Defence to devolve the location not only of forces personnel, but of civilian personnel. It will be extremely difficult for the Chancellor to meet his targets if he does not take on that reallocation as part of the task that he faces.

There is a strong case for tackling regional inequality at this time of relatively high employment and over-congestion in the south-east, because those characteristics do not apply in my region, the north-east, and the same is true in the north-west and on Merseyside. That makes not only social sense, but economic sense. The task is to identify and prioritise appropriate Departments; that means facing up to the opposition of certain vested interests. I do not believe that staff in the civil service are a vested opposition: they can be persuaded to co-operate by policies of incentive that give them a better deal in the north than they would get in the south. The measure in the Chancellor's statement is sound in terms of policy design. I hope that the Government will make it a reality and that the House will support them in doing so.

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