Examination of Witnesses (Questions 180-199)
18 MAY 2004
PROFESSOR STEVE
FOTHERGILL, DR
PETER TYLER
AND MR
JOHN ADAMS
Q180 Angela Eagle: So these are not jobs
that feature in this much vaunted knowledge economy, are they?
Mr Adams: Exactly. They are pilots
so we should wait for the final evaluation. They might be useful
in some respects but they are certainly not about, as you say,
what is loosely labelled the knowledge economy.
Professor Fothergill: Could I
just say that although I am not familiar with the detailed evidence,
my suspicion would be that if employers in the southern regions
are more likely to invest in their workforce and take advantage
of these grants, that is probably because they realise that it
is the main way in which they are ever going to get skilled labour.
Up north, if there is a large pool of available labour to draw
on, why should you bother investing in your workforce, you might
as well just recruit from stock. It may be a reflection of the
level of demand in the region rather than something better on
the supply side on the part of the employers themselves.
Dr Tyler: Could I just add to
that. Going right back to the issue of the north-south divide,
if you look at the south east it continues to reinvent itself
no matter what industrial structure comes along, the south east
has shed its industrial base, its workers have moved across into
other industries that are now there. As Professor Fothergill was
saying, what we are seeing is that this is intimately tied up
with the aggregate level of demand and how the companies in these
particular regions are able to draw upon supply side measures.
Q181 Angela Eagle: I just want to ask
about what I regard as the very fragmented picture on skills training.
The TECs were not particularly effective when they were in existence
and we have now moved to yet another structure. It still seems
to be fragmented and overly concentrated on low level qualifications.
What views do you have about how it could be more sensibly organised
to assist regional policy?
Dr Tyler: Could I just add my
six pennyworth. I believe that there needs to be far greater co-ordination
at the regional level between different ministries doing the various
things they do. My simple plea would be greater co-ordination
at the regional level towards both meeting desired job vacancies
and training workforces for that as well as transforming existing
workforces to what is required. More joining up in the old-fashioned
sense would help.
Mr Adams: Firstly, I think I am
a bit sceptical that there is a north-south divide in terms of
job-related training. I will write to you later possibly but I
think that levels of on-the-job training in the North are not
lower than those in London and the South East. In contrast to
Dr Tyler, I think the big debate on skills policy is to what extent
regional and local institutions can plan skills, and want to,
and to what extent we should empower individuals because it is
individuals who get trained rather than regions or localities.
I am sure it is right that there should be more co-ordination
at the regional level, I am sure that is true, but at the same
time I would not like to see a situation in which individuals
were not given the power to decide exactly what they do. Ten,
fifteen years ago everybody was very sniffy about media graduates
and we should not allow people to train as media graduates, we
should abolish these Mickey Mouse degrees but, of course, nowadays
it has been proven that media studies is a very lucrative degree
to have.
Q182 Angela Eagle: I was thinking of
providers I used to come across in the old system in my constituency
where they were merely training travel agents, estate agents,
hairdressers and people like that who do not particularly add
to the productivity of an area. They are very important but you
are never going to create a huge level of regional growth with
that kind of job creation.
Mr Adams: The issue should be
trying to stimulate demand amongst individuals to look broader
than those horizons. Rather than say "we need 50,000 engineering
jobs", let us organise 50,000 engineering jobs and try to
plan the market in that way, as Mr Heathcoat-Amory would be very
interested in. I think you are right that we need to broaden the
skills base but still I think the fundamental principle is to
empower individuals.
Q183 Angela Eagle: Finally, on support
for small and medium sized enterprises, I was astonished when
I saw the level of support that is actually given in terms of
the money that is spent: £8 billion if you include agricultural
support, £2.6 billion in Treasury tax measures, some of which
may or may not be very effective, but also £2.2 billion on
external business advice. Do all of you think that we are getting
anywhere near the value for money that we ought to be getting
for the external business advice that the Government is funding
to the tune of £2.2 billion currently?
Mr Adams: Probably not is the
truth.
Dr Tyler: There is quite a lot
of evidence that we are spending large amounts of money on this
and certainly the evidence does not suggest that we are getting
the effectiveness we should. Whether or not that is down to poor
co-ordination, which I suspect has been part of it, I do not know.
At the same time, there do seem to be initiatives, like the new
Business Broker Scheme which seems to be successful. I have difficulty
understanding why there is such a lack of clarity in what we are
doing on business support, I have to say. Given the amount of
money that has been spent, which I have heard mentioned many times
recently, which compares relatively unfavourably with other countries
in terms of what they are getting for what they are spending,
I think there is an issue here.
Professor Fothergill: Let me play
the good academic on this and say that without a major research
project I do not think I could answer that question.
Angela Eagle: I can tell you anecdotally
that a lot of my local businesses are pretty scathing about the
level of business advice that is available. That is a little bit
of anecdotal research to throw in, but go on.
Chairman: I was at a meeting a couple
of years ago and the Minister for the DTI, who opened it up, said
"We have 170 different ways of helping you" and the
person next to me said "That is the bloody problem".
We do not have any focus on the thing, would you not agree?
Q184 Angela Eagle: Research aside, and
point taken, do you have any general views?
Professor Fothergill: I share
the scepticism. I look sideways at some of these business support
measures and wonder whether at the end of the day they are a nice
little earner for consultants rather than of benefit to the regional
economy.
Q185 Angela Eagle: You have put your
finger on it.
Professor Fothergill: Very honestly,
without immersing myself in the research that has been done on
this already, and I am sure there must be research, or without
undertaking new research, it is very difficult to give a definitive
answer to that question. It is better sometimes that academics
do not shoot from the hip and pretend they know everything.
Dr Tyler: There has been a lot
of good in the programmes. My suspicion is that these are all
to do with local co-ordination issues in the main as well as knowing
what the market wants. As I mentioned, there are new schemes coming
out all the time—I mentioned the Business Brokers—which
seems to be successful. There is a huge unmet need out there but
we do not seem to be meeting it in quite the way that is required,
yet at the same time we seem to be spending quite large amounts
of money on it. I suspect there are institutional issues about
co-ordination which have never been fully resolved.
Mr Adams: There are co-ordination
issues. There is a plethora of schemes active at the local level,
I think we could do with slimming a lot of those down. The other
point I would make is that there is some research on entrepreneurship.
I am not completely au fait with it all myself, but I do know
that over the years a number of studies have identified the characteristics
of entrepreneurs. What you are talking about is 30-something,
40-something people who have been in business before and who have
some knowledge of the industry in which they work. This is what
the Irish Government did as one part of the Irish economic miracle;
they tried to encourage 30 or 40-somethings to start businesses.
Q186 Angela Eagle: It is interesting
you should say that because when we visited Germany we came across
entrepreneurs who were still effectively students, really young,
who had been put in touch with the research structures there and
the R&D structures in a way that I would never expect to see
unless the odd Richard Branson came along, but in a very coherent,
deliberate, strategic way. I am not so sure that 30 or 40 year
olds are the only people we should be aiming at.
Mr Adams: The evidence is that
those individuals who start enterprises are not hugely successful
with them, and that does happen in this country. We have the Prince's
Trust Business Mentor Programme, I forget the exact title, which
has just been subject to a scathing evaluation from DWP. In my
own region we have ONE North East proceeding with a teenager entrepreneurship
scheme. The evidence does show that focusing on 30-somethings,
40-somethings, has much more of an effect than trying to focus
on teenagers and young people who have no experience of the industry
they are trying to sell goods in. The other point I would make
on enterprise policy is that I think very hard questions have
to be asked along the line of Mr Heathcoat-Amory about how the
state intervenes in enterprise policy. Entrepreneurs are people
who just want to make money and they are not always very pleasant
people. The role of the state in second guessing what entrepreneurs
are going to do is very difficult to judge, I think.
Chairman: That does not apply only to
entrepreneurs. We are going on to finance and investment, Jim,
do you want to look at that? Incidentally, Gerry Robinson, the
former Chairman of Granada, his autobiography is out and he said
the minute companies bring in consultants that is a sign of failure.
I do not know if he went as far as academic consultants but he
mentioned the issue of consultants.
Q187 Mr Cousins: The Chancellor's view
is that we should have more variations in regional pay, we should
have more flexibility in regional pay. Do you think that is right?
Would it give us more entrepreneurs in the region?
Professor Fothergill: Firstly,
let us take the very narrow question of whether regional differences
in pay would generate more entrepreneurs. I suspect not because
I do not think entrepreneurs simply respond to price signals out
there in the marketplace. Entrepreneurs are grown, if you like,
by their experience which equips them to be an entrepreneur. We
do know an awful lot about who starts businesses and we know that
the people who start businesses invariably start businesses because
they know that particular line of work and they can do it for
themselves. It is not necessarily just simply about seeing a market
opportunity because it is cheaper to recruit labour now that we
have got flexible pay or whatever. More generally on the issue
of public sector pay, I think I would be very wary of recommending
that the Government went down the route of introducing greater
variation in public sector pay. I would be wary for two reasons.
One is that the very act of paying some people more in one region
than another actually will make a difference to local spending
power. If you pay people more in the South East because it is
more difficult to recruit labour then people in the South East
are going to spend more on consumer services, etc, etc, which
will generate more jobs in the South East. The relative reduction
of spending power in the North from lower public sector pay would
mean lower consumer spending, lower jobs in local consumer services,
so it adds to the problem. The other reason why I would be rather
sceptical about going down the route of regional differences in
public sector pay is I do not think the distribution of economic
activity across the country responds very strongly to relatively
modest differences in wage levels. If you were talking about halving
wage levels in the North then I think you would be talking about
having a big impact on where economic activity is located, but
we are not in that ballgame. We are talking about adjustments
of a few percentage points here and there and I do not think that
is going to make much difference at the end of the day.
Dr Tyler: Two quick points. One
is that already we do have very substantial variations in real
wages because of the differences in house prices and there has
been a lot of research into this. It is one of the factors that
cause all sorts of problems in adjustment in the UK. If you look
at the picture in terms of what does the local wage buy, that
is a more relevant consideration. I think the second point as
well is—
Q188 Mr Cousins: I am sorry, could you
just expand what that means?
Dr Tyler: We have very substantial
regional variations in house prices and that does have very significant
impacts on what you can buy with the wages that you get. That
produces regionally differentiated outcomes. What it has tended
to do in terms of migration, for instance, is it has made it quite
difficult for people from the North to get into the southern labour
market. It has equally made people in the South, shall we say,
careful about leaving the southern labour market because they
cannot get back in again. Regional house prices are probably more
dominant than regional variations in pay.
Q189 Mr Cousins: You were telling us
less than 20 minutes ago that there was a big problem about migration
from the North to the South, how does that fit with what you have
just said?
Dr Tyler: Because the migration
is very selective. As we have mentioned, it is the more highly
skilled who tend to leave the North, they are more mobile. We
are talking about people who want to own a house usually later
on in life, we are talking about middle management and those sorts
of people moving. It is a differentiation in labour market terms.
Q190 Mr Cousins: I am utterly and completely
confused about what you are trying to tell me, Dr Tyler.
Dr Tyler: Let me try again. What
I am saying is the differences in pay that exist across the regions
are not as big as the differences in the real pay that people
can take home because of house price impacts.
Q191 Mr Cousins: Does that mean the Chancellor
is right then and if we have bigger differences in pay that would
help? Would it help to meet the problem you have just identified
if we increased pay in the South East to reflect higher housing
prices and reduced pay in the North East? That is the logic of
what you are saying.
Dr Tyler: There is a logic to
that except that, of course, if you want to look at it that way
it can further exacerbate existing disparities in all sorts of
ways. The second point I would make, which comes back to the point
Professor Fothergill made, is that there is very little evidence
that mobile investment in this country is very sensitive to regional
variations in actual pay in terms of the private sector. That
is the point Professor Fothergill made. Coming back to the issue
about the very interesting interfaces between house prices with
pay and wages, it provokes all sorts of issues that we could probably
talk about for many hours. My general view on it is that those
differences are more substantial than the actual nominal wage
differences that we have got, in other words the things that come
about because of the regional differentiation in prices. What
they then provoke downstream for all sorts of adjustment outcomes
are many and variable.
Q192 Mr Cousins: I see. The Chairman
of the Regional Development Agency in the North East once made
a speech in which he said that within five miles of the centre
of Newcastle there were 200 agencies promoting small enterprise,
enterprise growth and offering various combinations of finance
and grant packages. Do you think that is a good thing, that there
are 200 organisations within five miles of the centre of Newcastle
doing that, or a bad thing?
Professor Fothergill: I have got
to say I would question whether that is empirically correct. That
does seem a slight exaggeration. If it were to be correct then
there is a rather obvious answer: could their activities not be
pooled in a more sensible way?
Q193 Mr Cousins: Dr Tyler, your evidence
to us is that you want more regional entrepreneurs. You do not
take the view that Mr Adams takes that entrepreneurs sometimes
might not be the sort of people we would want to be next door
to?
Dr Tyler: I am not sure I actually
said that. I would like to see more regional entrepreneurs. What
I do believe is that there is a need for a body of individuals
who can, as it were, galvanise regional effort. That is what I
mean by regional entrepreneurs. Any measures that we could take
to get those individuals more into play in our regions I would
welcome. I would distinguish them from people who start up small
businesses or whatever, they are not the same sort of regional
entrepreneurs that I was thinking about in that sense, although
there is a lot of research on those and we could talk about that.
Mr Adams: I would add that just
because I would not like to live next door to an entrepreneur,
I do not think they are not necessary. The other point I would
make is that I think we also need enterprising large companies.
Enterprise policy and entrepreneurs should not be merely relegated
to start-ups and SMEs. If you think of some of the very large
companies, some of those are very enterprising and they create
new jobs and that is exactly the sort of thing that we need in
lagging regions. Examples would include supermarket policies going
into a completely different direction and starting to sell insurance,
starting to do home loans and personal loans. I do not think enterprise
policy should be confined just to individuals and SMEs.
Q194 Mr Cousins: Could I just ask about
housing because it has been mentioned. I was going to ask about
that later but it seems logical to do that now since the housing
market has been mentioned, and you have already told us, Dr Tyler,
your view of some of those effects, although sadly not in a form
that I can readily understand. The Chancellor also wants variations
in housing rents, he wants to create local housing allowances
to create locally determined levels of Housing Benefit. Do you
think that would be a helpful idea? Dr Tyler, your evidence was
entirely about owner-occupiers and I did think it was important
to mention people who rent their homes.
Dr Tyler: Unfortunately, I do
not have very much evidence on it to give you an authoritative
response. I do not know is the frank answer.
Chairman: Such honesty!
Q195 Mr Cousins: At the present moment
we have a standard system of Housing Benefit throughout the country
and the Chancellor is proposing to introduce locally determined
levels of Housing Benefit so that different housing markets would
have different levels of Housing Benefit. I am simply asking whether
you think that would be a good idea or not?
Professor Fothergill: Correct
me if I am wrong but I understood Housing Benefit to be related
to the rent that people actually pay. Okay, there are ceilings
and maximum levels that are allowable but insofar as rent levels
do reflect local conditions, we are already going to have regionally
and locally differentiated levels of Housing Benefit. It seems
to me that all that has been talked about is a little bit of tinkering
at the regions. That regional differentiation, that local differentiation,
is already there through the difference in rent levels between
different places.
Dr Tyler: I cannot understand
how it would work.
Chairman: I think we are getting into
a deeper subject here, are we not?
Mr Cousins: It is perhaps not fair to
press the point. It may be a useful topic to do further research
on.
Chairman: Then you could get a consultant's
job out of it!
Q196 Mr Beard: Is there any evidence
that different regions differ in the availability of finance for
private businesses?
Professor Fothergill: If my colleague
and co-author of the particular evidence we put in today had been
here, Ron Martin, he is one of the experts on the availability
of venture capital finance and I am sure Ron's answer would be
that there are differences between regions. Certainly there is
a lot of evidence that shows that venture capital institutions
are disproportionately located within the South East of England
and London in particular. On the other hand, capital can be a
very mobile factor of production. I do not see it necessarily
following that because a financial institution is located in London
or the South East that it does not invest in the more peripheral
regions. What is important is there is an information flow, they
need to know of the opportunities. They need to be brought to
their attention. The institutions are certainly regionally concentrated,
whether or not the funds are dispersed in such a regionally concentrated
way is a separate question.
Q197 Mr Beard: To a degree the funds
are bound to be coming from the City or somewhere like that, but
is there any evidence that the people who want the money in the
regions differ in the extent to which they get it?
Dr Tyler: I think Professor Fothergill
has summarised the picture. There has been evidence but, again,
it has been conditioned by particular cases. It is quite difficult
to see a black and white position. I think this is another area
where more research is needed. There are examples where it has
been argued to be a constraint but in reality how big a constraint
is the issue.
Q198 Mr Beard: The Americans have this
Community Reinvestment Act, I think it is called, where they require
the banks to reinvest a certain proportion of their deposits in
the state where they were raised. Did that work? Would that be
applicable here?
Dr Tyler: Certainly research I
have been involved in suggests that it is very important to have
local finance people on your side, as it were, in brokering deals
and bringing things together. My suspicion is that it is quite
important to have both the expertise but also a flow of funds
at the local level and, in a sense, that is under-developed in
certain parts of the UK.
Q199 Mr Beard: Has that not been looked
at academically in looking at these problems to see whether it
works? That has been going since the time of the New Deal, has
it not?
Dr Tyler: Yes, there are studies.
I do not know if my colleagues know more about them, but there
are studies that have looked at particular components of it. It
is identified as a problem. There have been a number of good solutions
and there is a lot of good international experience, as you say,
which people seek to draw on, particularly in the high technology
sector, but it is quite a complex picture I have to say. There
is research, yes.
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