Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 40-59)

3 FEBRUARY 2004

MR NICK MACPHERSON, MR ROB SMITH, MR PHILIP COX, MR MARK GIBSON AND MS ROS DUNN

  Q40 Angela Eagle: I am worried having heard some of the answers today. It is very easy to justify the status quo by saying that excellence and the existence of excellence is somehow unchangeable by government policy. Your lack of willingness to think that there might be some strategic planning aspect that might change things worries me enormously. You are essentially sitting there and saying that the distribution of regional wealth which shows that there is a London and the South East ring where there are hugely more beneficial levels of earning, higher quality jobs, higher levels of earnings, higher living standards, just has to be accepted. Unless you have a more open mind about changing what is already there and, dare I say it, re-distributing higher quality value added jobs to the North—I do not mean taking them away, but I do mean trying to concentrate in an era of growth on creating those kinds of jobs in the regions that are lagging—you are not going to make very much difference. You may meet the PSA target because it is actually quite a timid target, but you will not make much difference in these huge disparities that there are. That seems to me a tragic lost opportunity. You must think more radically about what the possibilities are, surely.

  Mr MacPherson: I am glad for your support around thinking radically. I think we do need to think radically. I do think the whole skills issue is critical to this agenda. The evidence supports the judgment that, for example, looking at the GCSE achievements, the North is still lagging.

  Q41 Angela Eagle: Let me give you the figures: the proportion of adults with no qualifications is 50% higher in the North East and West Midlands compared to the South East. The proportion of adults with degree level qualifications is 50% greater in the South East and London than the North East. At the end of 2000, 58% of 16 and 17 year olds in the North East remained in full-time education compared to 70% in London. You are not going to make very much difference to anything unless you tackle those figures, are you?

  Mr MacPherson: I think you are right. We do need to tackle the figures. The encouraging thing is that some of these gaps are narrowing in terms of skills. There has been an encouraging shift, certainly over the last five or six years. However, you have identified perhaps the biggest challenge here which is why the Government is putting a large amount of resources into skills. This is not some simple problem; it reflects many, many, many decades of history. That does not mean we are complacent about it. There are interesting issues around, for example, migration.

  Q42 Angela Eagle: I was just going to mention that. The North does train and educate a lot of graduates who then move south. London has far more graduates in it than it actually educates. This is about quality of life and where the good, high value jobs are, is it not? If there are good, high value job opportunities in northern areas, people would be much more likely to stay in the towns such as Leeds or Liverpool where they were educated.

  Mr Smith: Could I make a comment about that because I think the work on this PSA is actually based on the assumption that those sorts of disparities are not acceptable and we need to do something about them. I think it is important we say that because that is what we are at. Obviously there is an issue about how radical we are in our thinking and how far ministers are prepared to be radical and that is part of the work of the PSA.

  Q43 Angela Eagle: You can help them be radical; you can think radically. That is part of your job too.

  Mr Smith: I agree. I do think in terms of graduates and where they live and the movement of skills, clearly the environmental issues—the general environment—are hugely important. There certainly has been a renaissance in our cities. In all of our big leading regional cities there has been huge transformation in terms of infrastructure. There has been huge transformation in terms of cultural and night life and those kind of things. Many young people enjoy living in those cities more than they did. There is an issue about how far some of the disadvantaged areas are benefiting from the general prosperity, and that is a problem. However, there has been a renaissance in the cities. I think there is anecdotal evidence that more people with skills are staying because they enjoy the cities and the kind of living environment they can enjoy. I worry sometimes that the statistics are not catching up with some of these trends, to be honest.

  Q44 Angela Eagle: I agree with that and clearly we all agree that you have to get more regionally based statistics, but there is still an issue here about what is called the spatial division of labour which I think is a posh economist's way of saying that all the high value added managerial or interesting jobs still tend to be clustered down South and we need to create more of those jobs up North. Do we have to wait for the market to decide it has to go there or is there some kind of direction that government could take, not least with its own funding streams, to begin this transformation? That way, surely you avoid the overheating in the South and some of the environmental problems that are caused there, and get a more effective growth—as you were saying at the beginning of the evidence session—with less worry about hitting overheating problems and causing property booms and various other things that the South is experiencing with virtually full employment.

  Mr MacPherson: I think there are some really interesting issues here. One is coming out of evidence which the Lyon's Review has published in relation to moving jobs from the South East. It is striking that re-location works best, not so much where you are moving big public sector processing factories, but ones where you are actually moving senior jobs, often to a cluster, where you can actually get a bit of a clustering effect which will make that labour market more attractive. This is important. I do not think that demand management will necessarily solve the problem.

  Q45 Angela Eagle: I am not suggesting simply that.

  Mr MacPherson: Obviously funding is relevant and where the funding goes. This is almost certainly as much a supply-side issue as a demand-side one and we do take this very seriously. We are looking incredibly hard at the supply-side. Skills very much comes into it. There is an issue about devolving decisions around skills and some pilots are taking place with the RDAs and the local Learning and Skills Councils. No doubt there are more and better things we can do.

  Q46 Angela Eagle: The Treasury seems to be very focused on productivity as the main cause of this problem, but it actually seems to me that quite a lot of this issue is in the employment side, particularly quality of employment. I noted what you said and we all welcome it, that employment levels in generally are improving faster in the North, but we also have to look at the quality and the type of jobs that are being created, do we not?

  Mr MacPherson: The market works in such a way that productivity is a proxy for wages. There is a labour market dimension to this, but the biggest source of the divergence is productivity. The flip side of productivity is wages and salaries.

  Q47 Angela Eagle: Also whether you have high value jobs. If you have a lot of labour intensive, service jobs with low pay, you are not going to create the same platform for economic lift-off as if you have jobs that have high value added.

  Mr Gibson: You are entirely right and this is a genuine area for debate about how much government spending is regionally based. I think it would be wrong to leave the impression that the Government does not use a number of instruments quite actively to do exactly what you are urging it should do. A good North West example is the investment in the chlorine plant at Runcorn, with a £390 million investment supported by—in round numbers—£50 million of DTI funding. That was a really tough decision for us. It consumed a lot of the regional selective assistance budget but we did it because chlorine is an investment there, it is high value added, high technology, and we thought it was entirely right. The DTI is often criticised for the help it has given in the past to Nissan in the North East. Our view is that that assistance has been justified because, by and large, Nissan is a high quality car maker with great productivity in that plant, making good quality cars that are wanted by consumers. We want to shift regional selective assistance to having precisely the emphasis that you want it to have, which is high value added, high skill jobs rather than large numbers of low value added jobs in food processing or whatever it might be. That is a deliberate shift in policy and it is an instrument that the Government uses quite actively and deliberately to support and create jobs on a regional basis.

  Q48 Mr Mudie: The Treasury document Productivity in the UK, page 15, says, "The variations in the UK's regions' skills compositions have the major factor." Coming back to a point that was made, that the spending review in the next budget will demonstrate a regionalisation of mainstream budgets, we will wait and see. As this was 2001, can you tell us how that was reflected in the budget since 2001? I will set the scene for you. It is difficult—and I am sorry to take it up with you as Education is not at the table—but as the document says, that skill shortage is reflected in lower GCSE results, A levels, degrees as well as other skills. The major way to deal with that would be more resources going into schools, further education and higher education in the regions. Has that happened?

  Mr MacPherson: The main funding instrument for schools is the local government formula. As you know, that changed last April with quite a lot of consequential effects. It unambiguously shifted resources. We have heard a lot about those schools which lost money, but the flip side of that must be that a lot of schools gained money.

  Q49 Mr Mudie: With all due respect, Mr MacPherson, let us not go down that road because I understand the differences in local government spending et cetera, et cetera. Can you say unequivocally that in the last budget the Education Department took deliberate decisions to spend more in further education in the regions that are lagging, more in higher education and actually tilted money in terms of schools? I have not noticed it in Yorkshire.

  Mr MacPherson: The local education authorities clearly intermediate, but the actual funding changes which came into effect as a result of the last spending review unambiguously help the more deprived areas. At the same time I think the health formula has changed.

  Q50 Mr Mudie: So you had an agreement somewhere in your co-ordinating committee with the Education Department that they would twist spending and put more money into the regions and into the further education colleges in the regions that are lagging behind in terms of skills. Can you supply us with figures for each year, and maybe even a minute of when that decision was taken because I do not think it was taken? Will you undertake to do that?

  Mr MacPherson: What I am happy to do is to provide you with a note on how the last spending review helped schools in more deprived areas. Schools are funded on a local basis; they are funded on the basis of local education authorities. Since regions are, in a sense, the sum of those areas, I am happy to provide you with a note[2].

  Q51 Mr Mudie: Mr MacPherson, if you are actually our representative and this is the team that is going to deal with these regional disparities, that answer is not good enough. Do you want to rescue him, Ms Dunn, because I am looking for a specific decision that said that these regions need more money going into their schools so the children get better qualifications, more money going into further education, and even a different decision with higher education, that they actually start doing something about social exclusion by attracting children from their own locality which does not seem to happen again in Yorkshire.

  Mr Cox: I wonder if I may come in here. In our memorandum we discussed the position on skills. We have been doing some work to understand why the skills performance in some regions is lower than in others. We have been talking to DFES quite a bit about this. What we set out in the memorandum is suggesting that the issue is not necessarily to do with the amount of funding that is going into schools or further education colleges, it is actually maybe due to other factors.

  Q52 Mr Mudie: For example?

  Mr Cox: We talk about places based factors for example, about the extent to which the circumstances in which people find themselves, the incentives they may have.

  Q53 Mr Mudie: So are you suggesting to me that the inner city schools in my patch, for example, will be turned round without any additional resources? Are you also suggesting that there are other ways you can get these children to GCSE standard, et cetera?

  Mr Cox: I think what I am suggesting is that we need to look very carefully about why people are underperforming in schools. I think it is the case that in the North East their performance at the very early key stages is very, very good indeed.

  Q54 Mr Mudie: Yes, but we have been in government for how many years now and you are still leaning across the table and saying "What are we doing?" This document, for example, on skills said that skills was the major reason. The only thing, when you turn to what we are doing in here, there is reference to a memorandum of understanding between the Learning and Skills Council and the RDAs. That is the only thing in this document that is specific in terms of helping deal with skills shortages. This is five years old. Spell out half a dozen things we are doing in terms of skills shortages and skill disparities in the regions that are happening now in mainstream or RDA policy, because I have not seen any.

  Ms Dunn: Can I come in here?

  Q55 Mr Mudie: Are you going to deal with the five?

  Ms Dunn: I hope so. I did not offer to come to Nick's help earlier because unfortunately the figures I have in front of me give spending per head for education in total but they do not break them down between schools and FE and so on.

  Q56 Mr Mudie: That is an important point. You are speaking for Education; Education do not have to be here to answer questions directly so you are speaking for them. You have to look in that paper which suggests to me that there is not a live debate decision being taken on what is called regionalisation of mainstream expenditure. Has such a decision been taken?

  Ms Dunn: I would like, if I may, to step back a bit, put it in context and make a plug for something that has not been mentioned yet, and that is regional economic strategies which are produced within the regions by the RDAs in consultation with a lot of other regional players.

  Mr Mudie: In the document the National Audit did on RDAs, education authorities are not part of that strategy, they are not mentioned. Neither are higher or further education unless it is through the Learning and Skills Council. If that is the way you do a regional strategy and these key players are not at the table, then I think we are missing a lot.

  Q57 Mr Beard: If they are not at the table, who is actually deciding what skills are being taught at the further education colleges?

  Ms Dunn: I want to go on from my plug for regional economic strategies to mention regional skills partnerships which are being developed. It is well over five I hope. They are being developed and will start to be rolled out from April 2004. We will be able, I am sure, to let the Committee have details of each of the regional skills partnerships once they are finalised. I can tell you that regional skills partnerships are being developed in consultation with a number of regional players: the RDAs, the Skills for Business Network, the Small Business Service, the local Learning and Skills Councils and JobCentre Plus are all working together.

  Q58 Mr Mudie: Where is the education authority? If we are actually saying that GCSEs and A levels are the start of the problem, what is the education authority? Where are further and higher education?

  Ms Dunn: The process of developing regional skills partnerships has been done in much wider consultation—and I think that will become evident—including with local further education colleges and so on. I think there is a case for saying that you cannot just look at skills in isolation from all the other things that impact on people's ability to become skilled, people's desire to become skilled and then the jobs that would flow from that. The point about the approach that has been taken with regional skills partnerships is that it is designed to look at skills development in the regions in two ways: firstly, from a regional perspective, what the region itself thinks it needs and it attempts to look at that in the context of the region's wider view about what its economic strategy for growth and prosperity should be. What I think is important from our point of view is that it would be the first time that there would be an approach to this issue that starts from the region and does not start from government, at the centre, saying what that strategy should be.

  Q59 Mr Mudie: What about the other four? Are you going to write to me on them?

  Ms Dunn: We do mention some of them in our memorandum. We mentioned the Skills Strategy which was published by the DFES in July, including a number of policies designed to overcome market failures, particularly in deprived areas. We mentioned: Education, Maintenance Allowances, Adult Learning Grants, Modern Apprenticeships, Centres of Vocational Excellence and of course we would also mention Employer Training Pilots as a policy response that seems to be having a very positive effects.


2   Ev 186 Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2005
Prepared 11 April 2005