House of Commons - Business and Enterprise Committee

Regional development agencies and the Local Democracy, Economic Development and Construction Bill - Business and Enterprise Committee Contents

Memorandum submitted by The Taxpayer's Alliance

Economic disparities between England's regions are profound and long standing. London and the South East have generated a disproportionate share of the country's economic output for decades, and differences between the best and worst performing regions continue to increase.[230]

Established in 1999, Regional Development Agencies (RDAs) were the new Labour Government's proposed solution to this problem. Designed to co-ordinate economic development and regeneration on a regional scale, their purpose was to improve the relative competitiveness of England's nine regions, and reduce the imbalances that exist within and between them.[231]

Judged on their performance though, RDAs have been an expensive failure. Over £15 billion of taxpayers' money has been spent over the past nine years, with little discernable impact:

— Employment—annual increases in the number of jobs, and the number of people in work, have actually slowed since 1999. From 1992 to 1999 employment in England rose by an average of 0.3 percentage points a year. Since 1999, that rate has dropped to just 0.1 percentage points. Between 2000 and 2005 the number of jobs in England increased by 3%, while between 1995 and 2000 the number increased by 9.5%.

— Competitiveness—apart from London and the South East, England's regions grew faster in the seven years before RDAs were introduced then in the seven years after, in both per head and total output terms. The rate of business creation has not significantly increased since 1999.

— Regional imbalances—in economic output, the relative contribution of the seven regions besides London and the South East has dropped from 64% in 1992 to 52% in 2006. The gap between the richest and poorest regions has grown over the past decade, not diminished.

This paper—the third in the TaxPayers' Alliance's Structure of Government series—argues for the abolition of RDAs, as unproductive, wasteful and unaccountable quangos. They have neither accelerated economic growth in the regions, nor reduced the disparities between them.

The money saved by abolishing them should be returned to businesses in the form of a four percentage point reduction in the small company rate of corporation tax—from 22% to 18%—which would establish an effective alternative to the wasteful bureaucracy of RDAs.

The other key findings in the report are:

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— Excluding London and the South East, regional economic output (per head of population) increased by 40.6% between 1992 and 1999. In the seven years after RDAs were established, the increase was only 36.5%.

— The economic output (per head) of the poorest performing region—the North East—was 40% below that of London's in 2006: £15,177 compared to £26,192.

— In all regions except the North East, employment in the public sector has risen faster than in the private sector. In the South West, 50.8% of the jobs created since 1999 have been in the public sector (86,000 jobs).

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— RDAs should not be seen as local bodies, but as part of central government. They are only properly accountable to Whitehall departments, their key executives and board members are selected by Ministers and their objectives set by ministers.

— Many RDA responsibilities are duplicated by other quangos, creating significant waste. English Partnerships, another redevelopment quango, costs taxpayers £628 million per annum.

— Examples of waste within RDAs abound; extravagant trips to the south of France, ludicrous taxi expenses and lavish one day conferences are all commonplace. James Braithwaite, Chairman of SEEDA, spent £53,803 on transport in 2006-07. Yorkshire Forward spent £20,000 sending staff to a Film Festival in Dubai in 2006.

— The average remuneration for an RDA Chief Executive in 2006-07 was £169,413. For a (part-time) Chairman it was £82,147. The highest paid Chief Executive was Pam Alexander, earning £192,801 for her work at SEEDA in the South East. Margret Fay was the highest paid Chair of an RDA Board, earning £97,845 for her work at One North East. These are high rewards for failure (For a complete list of RDA employees earning over £100,000 see Appendix A).

Ben Farrugia, Policy Analyst at the TaxPayers' Alliance, said:

"Regional Development Agencies have failed in their core mission to narrow the gap between the economic performance of England's regions. At a time when businesses are increasingly over-regulated and over-taxed, RDAs have become a symbol of wasteful bureaucratic excess. They should be abolished before the Government hands them even greater powers."

England's Regional Development Agencies

1. REGIONAL DEVELOPMENT POLICY IN THE UK

The UK has a long tradition of regional policy, stretching back over seven decades to the early activities of the Industrial Transference Board and the aid given to workers migrating to areas with better job prospects.[234]

The creation of "Special Areas" in 1934 marked a shift in regional policy towards the idea of taking work to the workers. In areas suffering from persistently high unemployment, firms were encouraged to expand, assisted by tax and rate rebates, small grants and infrastructure investment.[235]

In the immediate post war years regional assistance was low, but with the extension of "Assisted Areas" in 1966 spending rocketed from around £20 million to over £1.8 billion in 1975 (in 1990 prices).[236] The problem of depressed regions was seen in terms of market failure and solutions relied on capital subsidies to raise labour demand.[237] The onset of Thatcherism—and the start of EU Structural Funding—saw UK government spending on the regions fall, but some "assistance" was still seen as necessary on social grounds.

Figure 1.1

EXPENDITURE ON UK REGIONAL ASSISTANCE, 1960-1995[238]

Labour's return to power in 1997 meant a return to regional intervention though centrally controlled, appointed agencies. In 1999 eight RDAs were established, to offer "a better attunement of national policies and programmes to local needs and concerns".[239] These new quangos did not replace the programs of financial aid given to "Assisted Areas"—which continue today—but promised to reverse a trend that saw London and the South East increasingly dominate England's economic landscape. Nine years on and £15.3 billion of taxpayers' money spent, how have they performed?

2. THE PERFORMANCE OF REGIONAL DEVELOPMENT AGENCIES

Economic progress has been made since 1999; national unemployment has fallen and economic growth remained strong.[240] But RDAs' contribution to this has been limited, and their continued focus on "regions" has masked important sub-regional economic developments. If we look at three key areas—employment, business creation and general economic growth—the case for keeping RDAs looks bleak.

2.1 Employment

Increasing employment is arguably RDAs' primary function. But regional employment trends over recent decades show that they have made little impact.

Figure 2.1.1

PERCENTAGE OF REGIONAL WORKING AGE POPULATION IN EMPLOYMENT

The graph above shows the percentage of England's regional working age population in work, 1992-2006. For the country as a whole, that number increased by 4.2% in the seven years between 1992 and 1999, the year RDAs began operation. Between 1999 and 2006 the increase was just 0.5%.

Rising immigration into the UK has certainly played some part in this slowdown. HHHowever if we look at the number of actual jobs in the regions—a variable less affected by population change—a similar trend is clear.

Figure 2.1.2

TOTAL WORKFORCE JOBS IN THE REGIONS[241]

Annual increases in the number of jobs have actually slowed since RDAs were set up. Between 1995 and 2000 the number of jobs in England increased by 10.5%, while between 2000 and 2005 the number only increased by 3.8%. London and the South East saw the sharpest slowdown, but even when these two regions are excluded, the rate of "jobs added" in the remaining seven regions fell from 7.8% between 1995 and 2000 to just 4.2% between 2000 and 2005.

As RDAs are tasked specifically with fostering and sponsoring employment creating ventures, this fact undermines government claims to the value added by regional development agencies.[242]

Not unaware of this, the Government's defence of RDAs relies largely on the cruder—and more easily manipulated—figures for employment and unemployment. Even in areas with significant levels of economic disadvantage such as the North East, levels of employment have risen while the number of officially unemployed has continued to fall.

Figure 2.1.3

EMPLOYMENT AND UNEMPLOYMENT IN THE NORTH EAST

But even if we accept the fall in unemployment—which is partly due to people coming off job-seekers allowance and onto other welfare benefits, such as incapacity benefit—the number of people actually employed in some regions has risen only very marginally since 1992, and little above the pre-RDA trend.

Moreover, when the rise in public sector employment is stripped out of employment increases between 1999 and 2006, the gains made in many regions are much more modest than government figures suggest.

Figure 2.1.4

PUBLIC SECTOR EMPLOYMENT AS A SHARE OF TOTAL EMPLOYMENT

Over these seven years total employment increased by an average of 7.3%, while public sector employment increased by over 13%. When public sector employment is removed from general employment totals, it shows that most regions have not got any better at job creation since 1999.

In the South West, for instance, over half the new jobs created since 1999 have been in the public sector: of the 169,000 new jobs, 86,000 have been in the public sector, not to mention the 174 created since 1999 at the South West of England Regional Development Agency, whose employees are not officially classified as public servants.

Overall, RDAs have made little contribution to employment numbers. Regional increases above the pre-1999 trend can be easily explained by increases in public sector employment since Labour came to power in 1997, and in some regions the rate of increase in private sector employment has actually slowed since 1999. In terms of employment, RDAs have been little more than expensive bystanders.

2.2 Business creation:

The principle activity of RDAs—through which they endeavour to increase employment, competitiveness and economic growth—is providing advice and financial support to new business ventures. Access to grants, investment and subsidised training are supposed to foster entrepreneurship and growth in the regions.

Figure 2.2.1

VAT REGISTRATIONS, 1992-2006

The graph above shows the number of businesses registering for VAT each year—a good guide to business creation—as a proportion of the number registered in 1992. In England that number has fallen by 2.2%.

Indeed there were more VAT registrations in 1998—160,365—than in 2006, where the number had fallen back to 159,315; despite seven years in which RDAs spent millions publicising their available grants and services.

In all but two regions—London and the South East—the number of businesses registering for VAT has increased since 1999, by an average of 6.5%. However the similarity among regional trends suggests that business creation is linked to wider economic conditions. The number of VAT registrations begun to increase in 1995, in all regions, four years before RDAs were established. The figures could also be affected by tougher enforcement of VAT registration rules, which may explain the national rise in 2003.

2.3 Economic Growth:

RDAs were created to increase economic growth and reduce regional disparities. But the evidence does not support the Government's claim that RDAs have been drivers of regional economic growth.

Figure 2.3.1

GROSS VALUE ADDED PER HEAD, 1992-2006

Gross Value Added (GVA) is increasingly favoured as the Government's indicator of regional economic performance. In the graph above, regional GVA has been divided by regional population, establishing a GVA per head.

In the seven regions excluding London and the South East, GVA per head increased by an average of 40.6% between 1992 and 1999; in the seven years following the establishment of RDAs, GVA per head increased by only 36.5%. Except the North East, all the regional economies grew faster between 1992-99 then 1999-2006.

Nor have RDAs narrowed the gaps between regions. London and the South East's GVA per head have increased from an average of £16,869 in 1999 to £23,853 in 2006—a £6,984 rise. In the other seven regions, GVA per head has only increased by £4,495 over that same period. This difference can be explained in part by the success of the financial sector in London and the South East, but this does not account for the fact that the poorest regions in 1999 remain so today, and that their relative contribution to national wealth has actually gone down. The economic output (per head) of the poorest performing region (the North East) is still 40% below that of London.[243]

Figure 2.3.2

SUB-REGIONAL DISPARITIES

Finally, the RDAs' focus on spatial "regions" has diverted attention from important sub-regional disparities—the social and economic differences that occur within regions. The effect is that help is not being given to those areas most in need.

Take for instance the GVA per head in Greater Manchester South, which grew by 76% between 1995 and 2004, while in Manchester North it grew by only 31%. In Solihull, GVA per head increased by over 109%, but just twenty miles away in Dudley by only 35%.

This highlights a major problem with the regional approach embodied by RDAs. The most able parts of a region predictably benefit more from RDA activity, leaving the areas most in need of assistance behind. The high welfare claimant counts, low skill levels and poorer standards of living in many of the county's most depressed sub-regions have not been seriously addressed.

3. THE LACK OF ACCOUNTABILITY

Judged on their performance, Regional Development Agencies have not made any contribution to regional economic progress. But the misleading performance indicators and vague management appraisals which the Government favours disguise this fact.

In the annual RDA self-assessments, for instance, no methodology exists to explain how measures are calculated. The National Audit Office's external assessment—based on forms filled in by RDAs themselves—measures qualities such as "ambition", "prioritisation" and "capacity". Such information tells the public next to nothing about the activities of their RDAs, making it impossible for them to hold these quangos to account.

A Secretary of State is responsible for appointing the board members of each RDA and its Chief Executive, making them notionally accountable to Whitehall. But as the previous papers in this Structure of Government series have shown, proper oversight of quangos by elected politicians is impossible. The Department for Business, Enterprise and Regulatory Reform supposedly monitors RDA activities through the annual self-assessments, but in practical terms RDAs are left to spend taxpayers' money indiscriminately.

Government originally intended for RDAs to be held accountable through elected Regional Assemblies. These would have had been, in reality, nothing more than another level of bureaucracy, offering little check on the activities of the RDAs, and following the North East's rejection of the idea in a 2004 referendum the plans were shelved. This arrangement has suited the Government well, however. RDAs are, after all, just government agencies working in pursuit of central government objectives, and as long as the lack of transparency and accountability continues, Government will continue to grant greater powers and responsibilities to them (often at local authorities' expense).

4. WASTE AND DUPLICATION

Poor accountability encourages poor management, and RDAs are notorious for waste and ill-considered investments. A lack of transparency in RDA operations makes identifying problems difficult, but as all RDAs suffer from these abuses we can assume it is a problem with the RDA model as a whole.

In a letter to the TaxPayers Alliance, an anonymous civil servant highlighted the suspicious circumstances around AWM's decision to award a £7 million grant to the Horticultural Development Board, another quango; for full details see Appendix C.

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RDAs argue that such pay is necessary to attract the best people to what is a demanding job. But considering RDAs are supposedly "business led", few of their Chief Executives reflect this. Pam Alexander has spent all of her career in the public sector. Alan Clarke of One North East has never worked in business either. Nor is the job "demanding": RDAs do not have to raise funds to operate, they provide no essential service, they do not create a product, face no competition and are accountable to no-one. Few less demanding executive jobs could be found.

These examples do not constitute an exhaustive or even a worst-of list. The Government's continued infatuation with RDAs costs the taxpayer dearly, and the lack of accountability and proper scrutiny means these problems are likely to persist.

Defenders of Regional Development Agencies point to a few successful investments over recent years; £9 million pounds given to Liverpool's school of Tropical Medicine helped ensure investment from the Gates foundation, and many museums have benefited.[253] But success stories are more the result of RDAs' scatter gun approach to funding than anything else; if you throw enough money around, eventually some of it will stick to a success.

Nor would these opportunities be missed if RDAs did not exist. Hundreds of quangos already exist to fund projects, be they scientific, cultural or social. Indeed many RDA activities are duplicated by other quangos already.

For instance while the establishment of RDAs saw a scaling back in the work carried out by English Partnerships—the government's other regional development quango—it continues to operate, sponsoring regeneration projects at a total cost to the taxpayer of £628 million.[254] Local development corporations exist too, functioning as mini-RDAs for areas such as West Northamptonshire and the Thames Valley, as well as numerous arts funding bodies. Business-Links, a government sponsored program of localised and national websites, helps businesses to get advice and assistance from experts. Do businesses need RDAs to give them inexpert advice as well?

There are so many overlapping regional bodies that it is not unfeasible to imagine a regional development project with five or six different taxpayer funded quango backers. In Newcastle twelve public organisations exist to deal with transport and each region has, on average, 20 strategies for development.[255] RDAs are just another level of costly bureaucracy and waste in what is an already expensive and ineffective structure of regional governance.

5. THE FUTURE OF RDAS: ENGLAND'S UNELECTED REGIONAL GOVERNMENTS

Following the Government's "Sub-National Economic Development and Regeneration Review" in 2007, RDAs are not set to be scaled back but rather given greater powers.

Under the Government's plans, existing regional assemblies will be abolished and their limited scrutiny roles transferred to the "Government Offices for the English Regions". These offices—established in 1992—are simply minor central government departments, so offering no improvement in accountability; particularly as the government also plans to cut their staff numbers by 33%.[256]

Consistent with its wider drive to consolidate planning powers in its own hands, the Government plans to remove the planning powers of local authorities and entrust them to RDAs. This will, the Government argues, enable "convergence between different areas", which is difficult to achieve when planning is organised at a local level. This logic extends to housing and services too, as the Government maintains that economic markets typically operate at a much larger level then local authorities.

There is a need for streamlining the regional tier of government. But the Government's plans amount to the establishment of unelected regional governments, free from democratic accountability and proper oversight.

RDAs should be abolished and power devolved from away from central government to civil society, not to quangos like RDAs. The public deserves a higher quality of public services, less waste and lower taxes. This is possible if reform of government follows two simple principles:

— Politicians, advised by a small, informed team of civil servants, should set high level policy. This is the area where they can make a real contribution, freeing them from day to day management responsibilities.

— Civil society, employing experienced management, should execute that policy.

Abolishing ineffective and wasteful quangos such as Regional Development Agencies is a good first step.

6. AN ALTERNATIVE TO REGIONAL DEVELOPMENT AGENCIES

The approach to regional development embodied by RDAs does not work. While English regions have made strides over the past decade, in both productivity and general standards of living, the cause has not been the availability of investment and advice from RDAs. Generally favourable and stable economic conditions in the UK have encouraged increased investment in the regions. With costs rising in the South East, improvements in electronic communication and the establishment of a more educated workforce, many regions have prospered. Booming property prices and the availability of cheap credit everywhere in the UK has encouraged increased consumer spending and demand. Increases in regional economic performance were inevitable.

RDAs have roundly failed to close the gap between the richest and poorest regions and welfare dependency, entrenched unemployment and poor infrastructure are still all too common. Regional economic performance actually improved at a faster rate before RDAs were established. After a decade of activity, and £15.3 billion of public money, RDAs have little to show for it.

We agree that there is a need to encourage people to start businesses, and to help small businesses to grow. However the RDA method—hand outs and expensive seminars—achieves little and costs the taxpayer a lot.

Instead, the government should reduce the burden of tax on business. Abolishing RDAs would free up £2.19 billion in 2009-10.[257] This would allow a 4% cut in the small business rate of corporation tax—from 22% to 18%. This would save many businesses thousands of pounds.

This approach would remove the subjective assessment RDAs have to make when deciding on their investments. It would benefit all businesses, not simply the fashionable industries favoured by RDAs. No agency would need to administer it, meaning no attendant expense claims, excessive remuneration packages and waste stories. Taxpayers' money would no longer be being spent by unelected, unaccountable bureaucrats. Regions would be able to develop as they see fit, not under plans laid out in Westminster.

7. SOURCES AND METHODOLOGY

1. The Case for Abolishing Regional Development Agencies has been built on a wide variety of sources, many of which are referenced in the footnotes.

— All employment data has been taken from the Office of National Statistics' "Regional Labour Market Statistics" series, and other ONS publications.

— All economic and business data has been taken from datasets available from the National Office of Labour Market Statistics and the ONS.

http://www.berr.gov.uk/regional/regional-dev-agencies/index.html

2. Waste and Duplication was compiled on various media stories, referenced in the footnotes.

19 September 2008

230 Office for National Statistics, Regional GVA Data Back

231 www.berr.gov.uk/regional/regional-dev-agencies/index.html Back

232 Department for Business, Enterprise and Regulatory Reform FOI Response, 23/07/08; see Appendix B, Table B2 Back

233 Shakespeare, T (June 2008), "The Future for Regional Governance", Localis Research Notes Back

234 Law, C (1982), British Regional Development Since World War 1, (Methuen, New York), p.43 Back