Examination of Witnesses (Questions 160-179)
18 MAY 2004
PROFESSOR STEVE
FOTHERGILL, DR
PETER TYLER
AND MR
JOHN ADAMS
Q160 John Mann: The figure for those
of working age is 66,000, so that makes it about 5% rather that
14.2%. In the last three years, Bassetlaw has had the second highest
increase in employment of any constituency in Britain. It is a
coalfield community. Why is that? Why does Bassetlaw have the
second highest increase in employment of any constituency in Britain,
despite the fact it is a classic coalfield community.
Dr Tyler: There would be a number
of factors. One might well be local players getting their act
together to improve the area, which one hopes it is. It has a
good location and the assistance of some of the coalfield money
and other things to improve the place. If I am thinking of the
correct place, it will be about encouraging new industries to
replace industries that were there before.
Q161 John Mann: What is the key factor
then, Dr Tyler, in encouraging new industries in an area like
that?
Dr Tyler: Personally, as I said
earlier, I believe there is a range of factors. One is that I
do believe you need key stakeholders, if I can use that word,
to come together and be asked what can be achieved. You see plenty
of good examples of that outside your own area as well. You do
need the resources. Again, I can think of a range of government
resources that have assisted the endeavour you are talking about.
A number of things come together. I can equally say, though, that
without that local willingness to work together, you can fail.
I therefore point heavily to institutional factors. I mentioned
local capacity, people coming together, as very important, but
you still have to have resources to do it.
Q162 John Mann: Could I suggest three
factors: first, people; second, land availability; and third,
transport. Let us take transport as an example. With the roundabouts
gone on the A1, the average journey time from Bassetlaw will reduce
by 10 minutes, so for a round journey by lorry that will be 20
minutes. If you are taking strawberries to East Anglia, who would
be the beneficiary of that productivity gain?
Dr Tyler: I am sorry; what is
the point you are making?
Q163 John Mann: If the transport time
for a round journey from Bassetlaw reduces by 20 minutes, which
it will do, taking strawberries to a distribution centre in East
Anglia, where will the productivity gain be in terms of regional
productivity?
Dr Tyler: That improves the competitiveness
of your location for the activity and you may wish to use your
local resources to do that sort of activity. I am not sure why
the transport itself is argued to be the only factor there. It
will be the quality of the labour and the rest of it.
Q164 John Mann: Where will the productivity
gain be in terms of the national economy?
Mr Adams: The company that is
selling the strawberries will have some sort of productivity gain,
and then the company in East Anglia, if they get strawberries
cheaper than from a different source, will make more money and
have some productivity gain there as well.
Dr Tyler: the productivity gain
will be with the company because that is what employs the labour
if they are able, as it were, to achieve more strawberries. The
reality of it is that the productivity in that sense is not the
only factor in that whole decision to locate there. Access to
markets is an important consideration.
Professor Fothergill: Could I
say to John Mann that I think you are absolutely right in many
respects. It is not rocket science to promote new jobs in places
as long as you get some of the basics right. Just before you made
your comments about the ingredients of success in Bassetlaw, I
jotted down four points that I thought were the key to regeneration.
Three of them are identical to yours: trained labour; making sure
there is a readily available supply of sites; and good transport
access, principally road access. Over and above those factors,
it is giving the areas of need something extra, some sort of financial
incentive that they can offer other places that have similar attributes
to say, "Come here because you are needed more here".
It is incentives as well. It is not rocket science to make things
work in the right circumstances. Of course it needs financial
resources to make some of this happen. You do not get the development
of these sites free. In the Bassetlaw area, as you are very familiar
with that, English Partnerships have expended huge amounts of
money in bringing forward former colliery sites for development,
and that is how they come to fruition.
Q165 John Mann: I am going to leave the
question of where the productivity gain will be, which region,
on the table for the Committee to ponder at some stage because
I think it is key. I have two other questions. The informal sector:
what should be done to translate the informal sector into the
formal sector and in particular what government agency should
take the lead in relation that? My second question is more esoteric.
If you take a load of stockbrokers and stick them in Bassetlaw,
then from what was said earlier, our regional productivity would
go up in terms of quality-of-life indicators. Would that be an
improvement in the quality of life for local people?
Professor Fothergill: Let me answer
the second question. Yes, in purely statistical terms, in the
way that the Treasury go about measuring regional indices of productivity,
if you inject into an area a large number of highly paid workers,
given that GDP is largely dependent on salary levels, yes, it
would statistically boost your area's GDP per head. Whether that
is a solution, though, to the underlying problem, I think I very
much would raise a question mark, just as I was trying to say
in the first instance that this preoccupation, if you like, with
productivity as the be all and end all of solving the regional
problem really diverts too much attention from many of the other
things that actually need to be done. On the informal economy,
I think I would have to bow to the judgment of my two colleagues
as to what they feel on that issue.
Dr Tyler: To be honest, we do
not know a lot about how the informal economy meshes with the
formal economy. I suppose I would take the view that if we could
get the level of activity up in some of these very low activity
areas, then one might hope that we would see more of the informal
activity moving to the formal economy. It is of great interest
that in some of the areas that have had such historically low
employment rates, and of course have been so depressed, in a way
they have managed to survive as they have. I would argue that
as you increase the availability of real jobs and also increase
real incomes, then you will probably see the informal economy
reduced, but you can go either way.
Q166 John Mann: Mr Adams, which government
department should take the lead in trying to translate the informal
economy into the formal economy?
Mr Adams: The Department for Work
and Pensions I would presume because if you are active in the
informal economy, then you are signing on for job seekers' loans.
Q167 John Mann: If I can throw that back
to you then, if it was the general economy, we would be looking
at the Treasury and particularly the Department of Trade and Industry
to take the lead in terms of job creation, entrepreneurship and
innovation, and yet, when it is the informal sector, we suggest
it is the Department for Work and Pensions.
Mr Adams: I think the Department
for Work and Pensions should take a much closer interest in regional
policy anyway. The Department for Work and Pensions is notorious
for being regionally insensitive within Whitehall. Very often
I have been in seminars with DWP where the fact that regions exist
has been denied; regional employment has been denied. The policy
which the DWP promotes is that there are jobs across the whole
of the United Kingdom, if only we could get people to access those
jobs. I think the DWP does need to integrate itself more closely
into the regional problem in any case across the board because,
as I said, employment is one of the big issues which causes the
north/south divide, and so the DWP obviously has a role.
Q168 Mr Cousins: May I ask you about
the funding arrangements? We have had territorial block allocations
in this country for Scotland, Wales and what was originally Ireland,
now the North of Ireland, since the end of the nineteenth century.
Do you think it would be of advantage to have territorial block
allocations for the English regions? I am talking here about public
spending of course.
Professor Fothergill: Can I come
at this purely from a regional policy angle, not necessarily from
a political devolution angle?
Q169 Mr Cousins: That is precisely the
angle I want you to take.
Professor Fothergill: The important
point, from a regional policy point of view, is less whether or
not the budget line is devolved, but more perhaps the overall
scale of the budget line. If devolution to the regions meant that
all regions were treated equally, then that would not be a very
good situation in terms of promoting development in the weakest
regions. What matters is the degree to which you discriminate
in favour of those areas that need the greatest help. On that
issue, I have to say the Treasury documentation is very vague
at the moment. There is no firm commitment as to how much of the
resources are going to be prioritised into some regions rather
than others. The act of devolution of budgets in itself is not
necessarily the solution. What matters is the scale of the budget.
Q170 Mr Cousins: To be clear about this,
the issue of territorial block allocation is quite separate from
the issue of devolution. Territorial block allocations existed
in this country for decades before there were elected parliaments
or assembles for the areas in question. It is a completely separate
issue. Let me put the point to you again: do you think it would
be useful, in terms of promoting regional policy, if the English
regions had territorial block allocations of public spending?
Professor Fothergill: In a nutshell,
my answer would be: not necessarily. What matters is what the
scale of those budgets is and how one region is treated vis-a"-vis
another.
Q171 Mr Cousins: How can you find that
out unless you have the territorial block allocations?
Dr Tyler: I suppose the reason
I am having trouble with what you are saying is that we know obviously
that certain depressed regions have been favoured through the
Barnett Formula and this has been a great source of concern, I
know, to the North-East. At the margin there has been injustice
there because, as all the statistics we have presented you with
and which you have no doubt looked at show, the North-East is
the least performing region in many ways along with a number of
areas where extra public expenditure would no doubt help. I suppose
what I am having difficulty with is that it seems to me that it
all depends how you give the extra resources. For instance, one
way of doing it is perhaps through the business rate mechanism
that is increasingly being discussed as a way of giving local
resources. I suppose I tend to be supportive of the notion of
saying that some regions do need more resources if we are going
to make this step turn that we are trying to bring about. Exactly
how you do that is open for debate.
Q172 Mr Cousins: The Barnett Formula,
which you have introduced into the discussion, is simply a way
of determining the size of the territorial block allocation. My
question is: would territorial block allocations in themselves
be of advantage for regional policy?
Mr Adams: It may depend whether
you think the current system is fair or not. If you think that
your region would receive more public expenditure from a different
form of territorial funding mechanism, then I am sure that would
be, even if only on the margins, of some benefit to the GDP of
the region which benefits from that public expenditure change.
It comes down to a value judgment maybe as to whether you think
the current system is fair or not or whether you think lagging
regions, and in particular the lagging region you care most about,
would benefit from any change in particular funding mechanisms.
Q173 Mr Cousins: At the moment, we do
have territorial block allocations to the English regions in one
limited sense and that is the single pot for the RDAs, which of
course covers a tiny span of expenditure compared to the territorial
block allocation system in Scotland, Wales and Ireland. Do you
think that has been sensible? Do you think it has had good effects?
Would you like to see it extended?
Mr Adams: Yes, yes, and yes. I
think it has been a very useful innovation and has been very important
in allowing regional development agencies to act with more responsibility
and more autonomy. There is an academic consensus that strong
regional institutions and strong autonomy at the regional level,
strong accountability mechanisms at the regional level, does have
some sort of impact on regional economic growth. I think the RDAs
have benefit from that; their policies have benefit from it definitely.
I would like to see it increased. In particular, I think regional
institutions should have a lot more flexibility over what they
spend their money on. If the RDA in a particular region did not
want to spend money on industrial grants to the private sector
but rather wanted to prioritise some sort of transport innovations
and transport infrastructure, then the regional agencies should
have the autonomy and the flexibility to do those sorts of things.
Yes, I think the single pot was a very good idea and we need to
go further.
Professor Fothergill: If I have
understood your question correctly, you are asking in essence
the question: if we handed over a large block of money to the
English regions, rather like we do to Scotland, Wales and Northern
Ireland, would that be good news for regional policy? I think
that is very heavily dependent on the political choices then made
within each of those regions. If the local politicians—and
I am assuming it is local politicians who control those regional
budgets—decided "yes, we want to allocate the money
to regional policy", it would be good news; on the other
hand, they might have other priorities. They might want to spend
the money on education or health. I do understand, for example,
that while we have been getting extra funding to the English RDAs,
actually the situation in Scotland has gone in the other direction
in recent years, that the political discretion in Scotland has
been used to curb the budget of Scottish Enterprise, the local
RDA.
Dr Tyler: I would support more
flexibility at the regional level so that the regions are able
to make choices on what they spend resources. If what we are talking
about here would allow that, that would be welcomed, subject to
the caveat that there would be sufficient capacity at the
regional level to manage the decisions appropriately. The reason
I am having trouble answering the question effectively is that
I believe that requires knowledge that we do not currently have
because, in English regions certainly, we have not moved to that
yet. I feel it is important to give more flexibility because I
see a lot of these infrastructural problems being about difficulties
in getting resources to get things moving. If the regional level
would allow that to speed up, then it has to be welcomed. At the
same time, you have to make certain you have capacity at the regional
level to deliver. We have not had regional capacity orchestrated
around that. We just do not know enough about that at the moment.
Q174 Angela Eagle: I am someone who thinks
regional policy does work because I do not believe in the iron
law of the market. Do you think that so far in the regional policy
that this Government has pursued there is an over-concentration
on the supply side, and particularly a lack of willingness to
look in some of the really deprived areas, which have an obvious
history of declining heavy industry and large numbers of people
on incapacity benefit, particularly middle-aged and older men?
Do you think that there is an unwillingness to look at demand-side
solutions?
Professor Fothergill: May I say
that I think broadly I would agree with Angela Eagle in terms
of the balance of government policy. Government policy at the
moment seems to be underpinned by the assumption that if you reconnect
people with the labour market, the supply of labour will create
its own demand. That is what economists call Say's law, which
was discredited many years ago, but seems to have reappeared.
It is certainly probably true in the parts of Britain where the
economy is very strong that if you can reconnect people with the
labour market, there will be an outlet for their skills. In the
absence of improving the demand for labour in some of the areas
you are talking about, motivating people to get out there and
look for work and get training, will tend, if anything, only to
increase the scramble for the available jobs. It becomes something
of a zero sum game. I am not trying to say those supply-side measures
are not worthwhile. Actually, they are very worthwhile, but by
themselves they are not really attacking the core problem in those
most deprived areas. We continue to have a very large imbalance
in the labour market, an imbalance principally absorbed these
days, as you indicate, by the large numbers we divert on to Incapacity
Benefit rather than the large numbers we park on Jobseeker's Allowance.
Dr Tyler: Can I just say, I believe
in many ways the thing becomes almost a matter of semantics. Obviously
we do need supply side policies, particularly in our more intractable
areas. The level of labour market skills and any other problems
are such that we have to improve the supply side but, having said
that, as my colleague says, it is also a question of balance.
My experience of regional policy is that if you can get the level
of aggregate demand up in an area then in many ways you begin
achieve some of the effects you want on the supply side. One of
the biggest things we have not talked about is the perverse and
pernicious effects of migration. Generally speaking, what is happening
in many of our depressed areas at the moment is that marginal
gains on the supply side lead to people moving out. Unless we
can get the aggregate level of activity up in many of these areas
through a number of other mechanisms than just simply on the supply
side then we are always going to be running hard to have an impact.
I do feel on the supply side that I would play a lot more heavily
on access. John Mann mentioned transport. I believe that is a
crucial policy which you can say is a supply side policy, which
I allude to in my note, and which we need to use more to enhance
regional accessibility and allow more demand, as it were, to get
to these places. I do feel that if anything the current policy
is to be supply driven when we know that the levels of activity
in most of these areas that we are talking about is too low, as
evidenced by the employment rate.
Q175 Angela Eagle: There has been some
increase in overall demand because of things like tax credits,
particularly for women workers who have gone into the labour market
in a way they had not before, to slightly introduce aggregate
demand even in some of the most depressed areas. Are there any
more detailed demand side policies that might be much more focused
that any of you have been considering that might help to redress
this imbalance which currently exists between welcome supply side
policies but a neglect on the demand side?
Professor Fothergill: To my mind,
the key demand side policy is regional economic policy. It is
the sorts of measures that John Mann has talked about that have
created an environment which enables new investment, new jobs,
new economic activity to flourish in those areas. That is the
key, to get that new business investment into the areas.
Mr Adams: I think bringing more
women into the workforce is obviously increasing supply rather
than promoting demand.
Q176 Angela Eagle: It helps increase
aggregate demand because of tax credits, there is more money to
spend in the local economy.
Mr Adams: Yes, there is that multiplier
effect. I think you put your finger on the most important debate
within regional economic policy circles and that is whether it
is supply side or whether it is demand side and that is the most
fundamental thing. If you are looking at trying to improve the
demand side, we have been in this situation since the time of
the Great Depression and if there was a magic bullet we would
have found it by now, but there is no simple answer. There are
so many factors that led us into this situation that we have to
have a very broad strategy to get us out of it. Land and property
is important, that is true, but we have to look at skills policy,
we have to look at enterprise policy, we have to look at innovation,
Government structures and things like that. We have to have a
cross-cutting approach across all of these policy areas focused
on raising the level of demand and appreciating when some things
improve productivity and when some things improve levels of employment.
For example, skills policy focusing on people with doctorates,
focusing on very high level skills policy, is very good for productivity
but it does not create that many jobs certainly in the short-term.
Focusing on, say, level two qualifications, something like that,
is much more useful for bringing those people furthest away from
the labour market into work. I think there should be a cross-cutting
approach across all sorts issues but appreciating when we are
talking about productivity and when we are talking about trying
to create demand side employment.
Q177 Angela Eagle: I want to talk about
skills policy and also a little bit about business support. Why
does the level of skills and workforce qualifications vary so
much between regions? If we look in the North East only 58% of
16 and 17 year olds remain in full-time education compared with
70% in London. We know there is also graduate outward migration,
which you have already referred to. Why is there so much variation
in qualifications and what can we do to redress that balance?
Dr Tyler: Principally it has got
to be the industrial heritage of our past. Great parts of the
areas I go into have had a tradition of large producers who tended
to take most of the labour force for many, many years and there
was not a premium put upon getting trained or whatever. Over 20
years a lot of that has shaken out but many areas still have this
endemic or inbuilt tendency. At present we are very much influenced
by what we have been in the past and to bring about the change
at the margin is obviously slow. We have to find whole new ways
of bringing people into the skill base that they have not needed
in areas historically. That is still going on. We are still losing
manufacturing jobs, we are still losing many jobs that perhaps
we would like to keep. A lot of jobs that have been created are
distribution jobs that do not carry high income with them and
they do not bring big skill requirements with them, so the market
itself often is not bringing impacts there either. That is part
of the reason as I see it.
Professor Fothergill: I think
if you want to understand the overall skill level in any locality
you have got to really look at the net impact of two quite separate
processes. One is the production of skills locally, the extent
to which kids stay on at school, the extent to which an area generates
graduates from within its own boundaries. Clearly there are cultural
variations across the country that are rooted in socioeconomic
factors, that are rooted in the long economic history of places,
and I think Pete Tyler is absolutely correct in the description
that he portrays. That is only part of the overall jigsaw. The
other part of the jigsaw is where do people live once they have
got the skills. The fact is that a lot of the northern regions,
for example, do generate quite high numbers of graduates but there
are not the relevant jobs to keep them in the northern regions,
so they drift southwards.
Q178 Angela Eagle: They then lose out.
Professor Fothergill: Often when
we point to many areas, to Merseyside and to Tyneside, and say
they have not got very many graduates, that this is the cause
of their problems, it is confusing cause and effect. It is an
effect of their problems because the graduates go elsewhere, they
go down South to find the jobs.
Q179 Angela Eagle: Do you think that
employer attitudes are an issue here? There was a report in the
Financial Times recently that take-up of the Employer Training
Pilots has been low amongst employers outside the South East.
There seems to be a North-South difference in attitude amongst
employers to allowing their employees access to training. Have
you come across that?
Mr Adams: I came across a report
from the Institute for Employment Studies last year, which was
an evaluation of the first year of the pilots, which said that
take-up had been pretty good. However, when you drilled down into
that you discovered that the take-up in very large part had been
in the care sector, in nursing homes and so forth, so, in fact,
what a lot of Employer Training Pilots were doing was just training
the care sector and enabling employers to train those. I have
not come across the north-south divide issue, I will look at that.
The other point to make is that Employer Training Pilots are,
of course, focused on level two qualifications and I think the
evidence says that level two qualifications are particularly useful
for getting females into the workplace but not so much men and
they do not have a huge effect on wages or, indeed, possibly no
effect on wages.
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