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Regional Performance in the UK under New Labour

Louise Dalingwater
p. 115-136

Résumé

The election of New Labour to government in 1997 heralded an unprecedented commitment to boosting economic performance in the lagging regions of the United Kingdom. This paper describes how New Labour failed to reduce the gap between the northern and southern regions despite the renewal of interest in regional economic performance. It finds that towards the end of New Labour’s third term in office the three northern English regions were performing well below the UK average on all main indicators. It also underlines the worrying dependency of northern regions on public sector jobs created under the previous government. It is argued that New Labour’s policies failed to reduce regional and sub-regional disparities because of failings in their overall framework for the regions. It seems that there was no role for demand in the policy for the regions. Moreover, successive Labour governments moved away from some of the more successful regional development policies of the past and focused on five drivers without proving first that these essentially national drivers could be applied successfully at a regional level.

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Texte intégral

Introduction

1In 1997, when New Labour came to power, the UK economy was already divided in two by the economic disparities of a “North-South divide”. The economic crisis of the 1970s had produced a rift between the regions, with great inequalities appearing between the best and worst-performing localities. As the UK moved towards a service economy, the divide grew ever deeper, in particular exposing sub-regional inequalities. This paper will describe policies implemented by New Labour in favour of regional economic development and assess whether New Labour succeeded in narrowing the gap between the regions, particularly during the long period of impressive economic growth.

  • 1  The regions and sub-regions referred to are those based on the European classification system, Nom (...)
  • 2  House of Commons Select Committee on Trade and Industry, 1994.
  • 3  Audit Commission, 2008.

2The inequalities between the regions and sub-regions1 stem mainly from structural change. While the North of England led Britain to world economic success in the 18th and 19th centuries with a strong manufacturing industrial base, industry began to lose ground at the beginning of the 20th century and what followed were several decades of decline. Some localities such as the Welsh Valleys, North East England and parts of Central Scotland experienced painful restructuring processes from the 1930s onwards. The recessions of the mid-1970s, early 1980s and early 1990s further accelerated decline in these regions and in most other northern industrial regions. Indeed, between 1979 and 1990 the number of workers employed in British manufacturing industries declined by 30%2. But the worst affected sector was the mining industry. The total number of jobs in this industry fell from 220,000 in 1985 to under 10,000 at the end of the 20th century. The coal industry lost some 250,000 jobs from the early 1980s to the end of the 20th century and the steel industry experienced 200,000 job losses over the same period3. On the whole, these jobs had been located in or close to mining areas. The plant shutdowns and mine closures had a significant impact on the local economy, depriving it of income and support and having an effect on a wide range of economic activities. Indeed, the loss of these basic industries had a multiplier effect and led to a decline in consumer spending, to long-term unemployment and to economic inactivity. However, the South of England adjusted quite smoothly to the transition to a global economy, benefiting in particular from London’s status as a premier global financial centre. The Southern regions were less reliant on the old heavy industries, so their transition was less costly. They were thus able to diversify and explore new sectors of the economy that proved to be more productive and profitable.

3Thus when New Labour came to office, although it had become increasingly unfashionable to talk of a North-South divide, it was clear that there were still significant differences between the “winners’ circle” which included theGreater South East of the UK (London, the East of England and South East regions and parts of the South West) and the rest of the UK. Particular black spots in the UK were Northern Ireland, Wales and the North East of England. For example, the North East had a Gross Value Added (GVA) per capita of about 40% below that of London. With its political heartlands in some of the poorest regions of the UK, it was expected that Labour would focus on the reduction of regional disparities.

New Labour’s Policies for the Regions

4New Labour did show commitment to regional policy. This represented a radical new approach to that of consecutive Conservative governments from 1979, which had failed to give priority to regional policy. This unprecedented renewal of interest in regional policy with the arrival of New Labour in power was driven by many studies which showed that, despite economic growth and expansion from 1992, the North-South divide had in fact widened. The table below shows the extent to which regional inequalities grew from 1975 to 1999, with the inner region core of London reaping the rewards. Indeed, in 1999, the concentration index of male jobs was 14% higher in the inner core, the index of male earnings 45% higher, research and development (R&D) was 2.1 times higher and high-income earners 2.6 times higher. GDP per head in the inner core climbed from 17% above the UK average in 1975 to 37% in 1999. In 1999, the inner region core accounted for only 35% of the UK population, but 46% of those with degrees or equivalent, 53% of R&D expenditure, and 58% of high-income earners.

Table 1: Inner Region Core (IRC) and Rest of UK

1975

1999

IRC

Rest of UK

GAP²

(%)

IRC

Rest of UK

GAP (%)

Concentration index¹

Male jobs

1.048

0.976

107

1.089

0.952

114

GDP

1.108

0.946

117

1.212

0.886

137

Male earnings

1.111

0.944

118

1.255

0.863

145

Adults with degrees

n.a.

n.a.

 n.a.

1.307

0.836

156

R&D expenditure

n.a.

n.a.

 n.a.

1.528

0.716

213

High income earners

n.a.

n.a.

 n.a.

1.656

0.648

256

1. Concentration index = share of UK jobs, etc. ÷ share of UK population

2. IRC Index as a percentage of index for rest of UK

Source: Regional Trends, Wood, P., 2009.

5Moreover, the inevitability that, after 2006, funding in most regions from the European Union (EU) in the form of structural funds, would be reduced with enlargement, meant that it was necessary to renationalise regional policy.

  • 4  HM Treasury, 2001.
  • 5  HM Treasury, March 2003.
  • 6  HM Treasury, July 2003.
  • 7  HM Treasury, 2001.

6The main thrust of the government’s regional policy was set out in three reports: Productivity in the UK, No. 3 The Regional Dimension4,A Modern Regional Policy for the United Kingdom5 and Productivity in the UK, No. 4 The Local Dimension6. The reports underlined that regional and sub-regional disparities in performance were caused by low productivity (output per worker), with on average productivity differentials making up around 60% of regional GDP per capita differentials, and low employment levels. The government justified public intervention because it was believed that the potential for convergence was limited because of market failures on the supply side that needed to be tackled. It was underlined that “effectively tackling these market failures will increase overall UK growth and lead to convergence in productivity and employment levels between regions”7.

7New Labour’s policies to promote growth across the country and tackle regional disparities were threefold. First, it was underlined that regional convergence relies on the promotion of macroeconomic stability, in order to enable businesses and individuals to plan for the future, coupled with increased public spending to reverse years of underinvestment. Second, five drivers of productivity were promoted by HM Treasury and the Department for Business, Enterprise and Regulatory Reform (BERR): skills, investment, innovation, enterprise and competition. Finally, the third part of the framework policy for the regions was the devolving of decision-making to the regional, sub-regional and local level in order to respond to the different opportunities and challenges of each area.

  • 8  Buchanan, J., Froud, J., Johal, S., Leaver, A., Williams, K., 2009.

8The first aspect of the framework for growth in the regions was a top down approach and did not directly address regional disparities. However, the policy to reverse years of underinvestment had a significant impact on the regions. Indeed, one of the key elements to redistributing wealth across the regions was public spending. New Labour concentrated on direct public service employment to redistribute wealth in the regions. From 1997 to 2007, total public spending increased by 42% in real terms. Expenditure was mainly concentrated on improving public services: health, education and transport. A significant part of the increase was invested in employment in all these areas. Research has shown that half of all the new jobs that were created under New Labour were to be found in the public sector. Moreover, 60% of jobs created were either directly or indirectly supported by the government. In some northern regions, the percentage was even higher. For example, in the North-East of England, it was estimated that 79% of new jobs were created by the state, compared to 41% in London and the South East8.

  • 9  H.M. Treasury, 2009.
  • 10  Ibid..

9In addition, much emphasis was placed on the drivers of productivity. The first driver identified as a key to improving productivity levels, particularly in the less prosperous regions, was that of skills. The government stated that, for a region to perform well, an overall skills level and a mix of skills to suit the diverse requirements of employers in the regions was needed. In the HM Treasury report Skills for Growth9it was underlined that skills are essential to complement physical capital and are needed to take advantage of new technologies and organisational structures and thus strongly influence productivity. Moreover, regional differences in employment rates narrow for the most highly qualified and those with middling qualifications. However, for the least qualified, regional differences in terms of the chance of being in work are very significant. The main policies applied in this area were an increase in the number of apprenticeships and the “Train to Gain” scheme aimed at encouraging employers to improve the skills of their employees to enable them to gain basic skills and qualifications10. Moreover, the Regional Development Agencies (RDAs) were encouraged to promote skills in the regions. RDAs were assigned to work with further education colleges and universities to increase learning capacity in the regions, to encourage businesses to invest in the skills of the worker and to cooperate with local authorities to provide the appropriate housing, community and business environment to encourage highly skilled workers to stay and work in the region. The Local Authorities were also called upon to support education and skills in the region, working with schools, businesses, higher education and further education institutions.

  • 11  Adams, J., Robinson, P, Vigor, A., 2003.

10The promotion of innovation in the regions was also one of the central productivity drivers promoted by New Labour. The government set a clear objective to improve innovation in the regions after studies showed, in 2000, that there was a clear North-South divide in terms of expenditure. For example, total expenditure in the North East per head was a mere 18% of that of the East of England. Government spending on R&D was also clearly skewed towards the south: £1 per head in the North East compared with £78 per head in the South East and £62 per head in the South West11. New Labour set out to close the innovation gap between the regions by developing three innovation initiatives: science policy, R&D tax credit and regional innovation policy, which included regional innovation strategies, clusters, and University and Business Links. The government commissioned the RDAs and local authorities to coordinate with the Technology Strategy Board to encourage innovation in the regions. Business Link and Solutions for Business were seen as key instruments in promoting innovation in the regions. RDAs developed innovation vouchers in line with international best practices. Investment in infrastructure at local levels was also important in the general framework of innovation. Local authorities were encouraged to work with RDAs and Regional Improvement and Efficiency Partnerships (RIEPs) to encourage other local public service providers, such as further education institutions and hospitals, to provide local business innovation through training and knowledge networks. In addition some RDAs used their own budgets to invest in science infrastructure. For example, the North West Development Agency invested £35 million to merge the University of Manchester Institute of Science and Technology (UMIST) and the University of Manchester in 2003. Regional Innovation Strategies based on the EU’s Regional Innovation Strategies (RIS) initiative were also designed to channel funding in the regions. RISs were thus used to strengthen networks of innovation in the lagging regions.

  • 12  HM Treasury, 2002.

11Another of New Labour’s key focuses was the enterprise driver. There was a clear shift away from the promotion of inward investment in favour of policies to strengthen the performance of businesses in the region. The government claimed that the lower growth potential in the weaker regions stemmed from the fact that the right business climate had not been created in the regions. This approach differed quite substantially from that of the 1960s and 1970s when regional financial incentives encouraged investment in specific areas, based on the assumption that firms did not prosper in some regions because there were too few of them or too few employees working for them. To support the enterprise driver, New Labour established enterprise areas in poorer neighbourhoods. Indeed, the Pre-Budget Report of 200212 announced the creation of 1997 Enterprise Areas. These were created at ward level using four indices of multiple deprivation. Measures available to firms in Enterprise Areas consisted of grants such as the Grant for Business Investment, the Community Investment Tax credit, the Bridges Community Development Venture Fund, the Phoenix Fund and support for Inner City Awards. The aims of such grants were threefold: to attract or retain internationally mobile investment, to improve the competitiveness of firms in disadvantaged areas and, notably, to create or safeguard employment. The grants were provided to establish new businesses, expand, modernise or rationalise existing ones, or to set up research and development facilities. In addition, New Labour gave significant support to small businesses. The government underlined the importance of Small and Medium Enterprises (SMEs) for growth in the regions and encouraged finance access at a local level. The RDAs were instructed to support venture capital and loan funds, using European Regional Development Funds.

  • 13  “Unemployment” measures the number of people without a job but actively seeking work. The definiti (...)
  • 14  Department of Social Security, 1998.

12New Labour claimed that working on these drivers of productivity would provide the solution to other problems in the region, notably unemployment. Indeed, the objective of the Labour government was to increase employment everywhere including in the most deprived areas. Such objectives were reflected in three PSAs (Public Service Agreements): PSA 1: Raise the productivity of the UK economy; PSA 7: Improve the economic performance of all English regions and reduce the gap in economic growth rates between regions; and PSA 8: Maximise employment opportunity for all. It was claimed that the way to do this was mainly through sustaining growth which, it argued, should trickle down to the regions reducing the gap in growth rates between regions, providing employment opportunities for all and achieving prosperity and quality of life in the regions. In addition, when New Labour came to power they launched the new Welfare-to-Work policy to solve two problems identified across Britain, that of welfare dependency and worklessness13. The onus was put on the individual to accept work, to train him or herself for work and to be flexible about the jobs he or she was prepared to do. In return the government promised to build the welfare state round this work ethic. As Gordon Brown underlined “Work for those who can, security for those who cannot”14. The New Deal was introduced in Gordon Brown’s first budget in 1998 and the sum of £5.2 billion was devoted to this initiative. It was argued that to solve frictions in the labour market that impede economic growth and employment growth, Welfare-to-Work policies were needed to work on the supply-side of the labour market and, in particular, to solve some of the problems of worklessness in the hard hit northern regions of the country. On the assumption that a sufficient number of vacancies existed to absorb unemployment, a range of services designed to enable job seekers to access local labour market vacancies were set up. These included employer subsidies, labour market information, personal advising, voluntary work and work-based training. Benefits sanctions were applied to encourage the most reluctant to become more active jobseekers.

  • 15  Social Exclusion Unit, 2001.

13New Labour also sought to revamp urban policy. In 1997, the Social Exclusion Unit (SEU) was established to analyse the problems in 1,300 of the most deprived neighbourhoods. The report criticised the way urban policy had failed the localities in the past by putting too much emphasis on physical regeneration rather than on the communities themselves and underlined that there was little co-ordination between central and local players. As a result of this report two sub-regional based programmes were set up: Action Zones and the New Deal for Communities. The Action Zones were set up according to the needs of certain localities. These were divided into Employment Zones in areas with high concentrations of long-term unemployed, Education Action Zones in areas with low levels of achievement and Health Action Zones in localities with high rates of ill health. In addition, the New Deal for Communities (NDC) was introduced, designed to encourage resident participation in area-based regeneration. The areas that could benefit from this deal were chosen by the government according to the Index of Local Deprivation (ILD), which identified districts suffering from multiple forms of deprivation. In addition, in 2001, a Neighbourhood Renewal programme was set up. Eighteen Policy Action Teams were commissioned to lead this programme. In 2001, Tony Blair claimed “My vision is of a nation where no-one is seriously disadvantaged by where they live, where power, wealth and opportunity are in the hands of the many not the few. This Action Plan is a crucial step in creating one nation, not separated by class, race, or where people live”15,and set forth a series of targets to improve employment, reduce crime, tackle health, education and environment problems in the poorest neighbourhoods. At the regional level, neighbourhood renewal teams were set up in the nine government offices to provide a direct channel of communication between the local and national levels. At the local level a number of specific Local Strategic Partnerships (LSPs) were created at the district level to co-ordinate public, private, voluntary and community sector measures. An £800 million Neighbourhood Renewal Fund was granted to local authorities to put in place the LSPs and meet the targets of the PSAs. In addition, a £35 million Community Empowerment Fund and a £50 million Community Chest were created. Other employment initiatives for deprived neighbourhoods included “Action Teams for Jobs” and the “Working Neighbourhoods Pilots” managed by Jobcentre Plus. These supply-side measures aimed at providing local residents with the right skills to compete for available jobs: soft skills such as presentation, time-keeping and interview preparation, basic skills training, language training, etc.; others aimed to help overcome barriers to work, such as support for childcare provision.

  • 16  Balls, E., 2000.

14Finally, a key part of New Labour’s policy for the regions was the transfer of decision-making to the local level. Giving autonomy to regional institutions was a significant move away from the top down approach of the Conservative governments. The bottom up approach, it was argued, would enable powerful regional and local initiatives to work to exploit the indigenous strengths in each region and city16. Thus, the economic development functions of Scotland, Wales and Northern Ireland were devolved. Moreover, in 1999, eight Regional Development Agencies (RDAs) were created and in 2000 the London Development Agency (LDA) was set up to coordinate the work of regional and local players. They were established to further economic development and regeneration, to promote business efficiency, investment and competitiveness in the regions, to promote employment, to foster development and application of skills to employment in the regions and to achieve sustainable development in the UK. Whitehall gradually increased the powers to the RDAs. For example, from 2002, the RDAs were funded through a “Single Pot” to enable the agencies to reallocate funding more flexibly and meet the specific needs in the region.

Results of the New Regional Framework

15So what were the results of the renewal of interest in regional problems under New Labour? Did New Labour manage to reduce inequalities in economic performance among the regions? New Labour claimed that they achieved significant improvements in regional performance:

  • 17  Balls, E., Healey, J., Leslie, C., 2006.

16There are early signs that this approach is working. The strategic leadership shown by Regional Development Agencies demonstrates how working regionally can reap rewards. Over the past eight years the culture of regional inclusion and decentralisation has transformed the way in which decisions are made – with a much greater focus on delivering prosperity and tackling inequalities both between and within regions. So too the momentum gathering around cross- regional collaborative efforts, including the Northern Way, has focused minds on closing the prosperity gap between different corners of the country17.

17However, key statistics suggest otherwise. Indeed, the overall impression that can be gauged from key indicators is that New Labour failed to close the gap in prosperity between the northern and southern regions. Towards the end of New Labour’s third term in office, the three northern English regions were performing well below the UK average on all main indicators.

Table 2: GDP per Capita in UK Regions and Sub-Regions in 1998 and 2006 (UK = 100)

1998

2006

1998

2006

North-East

78

78

Beds/Herts

106

109

Tees Valley/Durham

77

70

Essex

93

84

Northumberland/Tyne & Wear

79

84

London

148

169

North-West

87

85

Inner London

245

287

Cumbria

91

77

Outer London

88

91

Cheshire

114

106

South-East

109

107

Greater Manchester

81

90

Berks/Bucks/Oxon

129

134

Lancashire

81

77

Surrey, East & West Sussex

105

105

Merseyside

70

71

Hants/IOW

108

100

Yorks & Humber

88

84

Kent

93

80

East Riding & Northern Lincs

94

78

South-West

91

92

North Yorkshire

94

87

Glos/Wilts/Somerset (Nord)

105

110

South Yorkshire

74

77

Dorset/Somerset

87

84

West Yorkshire

91

89

Cornwall/Scilly

65

64

East Midlands

94

88

Devon

79

76

Derby/Notts

90

86

Wales

80

75

Leics/Rutland/Northants

103

98

West Wales/Valleys

70

63

Lincs

86

71

East Wales

98

95

West Midlands

91

85

Scotland

97

97

Heref/Worcs/Warws

97

86

North-Eastern Scotland

123

131

Shrop/Staffs

86

76

Eastern Scotland

100

103

West Midlands

92

90

South-Western Scotland

91

89

East

103

96

Highlands/Isles

75

75

East Anglia

109

95

Northern Ireland

78

79

Source: ONS, 2009.

18As Table 2 shows, London continued to forge ahead and widen the gap with the rest of the regions (rising from 148% of the UK average in 1998 to 169% in 2006). Wales’ GDP per head dropped to the lowest of all UK regions (from 80% of the UK average in 1998 to 75% in 2006). At a sub-regional level, there were also persistent disparities between localities despite regeneration schemes. In particular, the gap between Inner London’s GDP per head and other localities increased, rising from 245% of the UK average in 1998 to 287% in 2006.

19However, the main focus of reports to assess whether the North-South divide narrowed under New Labour governments, is in terms of employment. During the long period of sustained economic growth in Britain from the mid-1990s to 2008, industrial areas in the North did recover. Although the narrowing of the gap between the North and the South seemed a temporary phenomenon during the 1990s, from 2000, employment did start to grow faster in the North, narrowing the employment rates. Employment was mainly in public services but towards the mid-2000s other private sector jobs in finance and business began to grow faster in the north, even if from a much lower base. Although the North lost employment in the tradable goods sector, it was compensated by growth in the service sector and notably in public services.  Indeed between 1997 and 2005, total employment grew by 0.7% a year faster than the population of working age, whereas in the South the former and the latter grew at about the same rate. Therefore, it would seem that the employment gap between the North and the South narrowed by around 3%. However, without the creation of public sector jobs, growth in employment would have been no faster in the North than the South and thus would not have permitted this closing of the gap.

  • 18  Theodore, N., 2007, pp. 927–939.
  • 19  The most recent in the series, which began in 1997, is Beatty, C., Fothergill, S., Gore, T., Powel (...)
  • 20  Ibid..

20Despite this apparent narrowing of the gap, there was still a difference of about 5 percentage points between employment rates in the north and south towards the end of New Labour’s final term in office. In addition, while there was a decrease in the unemployment rates of some of the major northern cities (Glasgow, Liverpool, Manchester, Birmingham), in 2007, the lowest official unemployment rate in any one of these cities was 8.4%18. Furthermore, it would appear that the claimant count masks the true scale of worklessness. In fact, the workless, especially in the northern regions, began to claim other benefits rather than unemployment benefit, namely incapacity benefits, and thus disappeared from the unemployment roll altogether. Indeed, a series of reports by C. Beatty et al.19 show that, in the northern industrial areas, it was frequently the case that more than 10% of all adults were out of work and claiming incapacity benefits towards the end of the period of sustainable economic growth. It has led these authors to conclude that the fruits of the boom years were not shared evenly across the UK. This is clear if we consider that, during the period of exceptional growth in Britain, the share of adults of working age actually in work reached only 70% in the North East of England, whereas the most prosperous areas in the South of Britain boasted employment rates of up to 85%. In 2010, it was estimated that around 2.6 million were claiming incapacity benefits, which is one million more than the number of unemployed claimants. Although these individuals clearly suffered from poor health, it was estimated by researchers at Sheffield Hallam University that one million claimants could reasonably be expected to hold down a job of some form in a fully employed economy and therefore can be considered to be ‘hidden unemployed’20.

  • 21  Industrial Communities Alliance, 2009.
  • 22  Audit Commission, 2008.
  • 23  Turvey, A., Knight, J., Wosnitza, B., 2009.
  • 24  Industrial Communities Alliance, 2009.

21The recent recession has exacerbated the situation of joblessness in the northern regions. It was initially assumed that it would be a banking recession and that London and the South, where financial services are concentrated, would therefore bear the brunt. However, the collapse in confidence led to a drying-up of credit which once again hit those regions that still depend upon manufacturing. Indeed, in the former northern industrial towns, manufacturing still accounts for a larger proportion of the workforce, sometimes twice as much as the national average. The overall fall in the rate of jobs in the total economy was 3% from the beginning of 2008 to spring 2009, yet the rate of the fall in manufacturing reached 7%. In total, more than 200,000 jobs were lost in manufacturing from December 2007 to June 200921. The result was that in more than half the industrial districts and counties, the increase in the rate of unemployment was greater than the national average. For example, all the districts in Yorkshire and Humber and in the North West experienced above-average increases in real unemployment. Industrial areas in the West Midlands were also hard hit. As HM Treasury pointed out in a 2008 report, the areas before the recession with the highest levels of unemployment saw the greatest percentage point increases in unemployment. Indeed, Northern Ireland, the North East, the West Midlands and Yorkshire and the Humber were the worst hit22. In 2009, the North East reported the highest claimant count with 6.7%, closely followed by the West Midlands with 6.1% and Yorkshire and the Humber with 5.4%. The South East had the lowest claimant count (3.2%)23. Yet, once again, the claimant count underestimates the scale of the situation. Estimates of the real levels of unemployment in industrial Britain, which adds to the official rate of unemployment those invalidity benefit claimants who could be expected to work in a fully employed economy, suggest that they are closer to between 8 and 15%, with 53 out of the 75 districts and counties of the north with levels of unemployment of above 10%24. The claimant count therefore almost halves the real level of unemployment. The areas of industrial Britain which entered the recession in a difficult situation were hit the hardest, thus exacerbating an already significant unemployment problem.

New Labour’s Policy Failings

  • 25  Fothergill, S., 2005, pp. 659−667; Kitson, M., Wilkinson, F., 2007, pp. 805–816; Martin, R., 2001.
  • 26  Blunkett, D., 2001, p. 31.
  • 27  Hutton, J., 2007.
  • 28  Millar, J., 2000, p. 15.

22So, why did New Labour’s policies fail to reduce regional and sub-regional disparities according to the main indicators? First, it has been argued25 that there was no role for demand in New Labour’s framework for the regions. Indeed, the drivers focused too much on productivity and not enough on employment or other objectives. New Labour also contended that the problem was limited to small defined areas, so joblessness constituted a supply-side sub-regional problem and not a lack of jobs. According to the Treasury, the jobless live within travelling distance of labour markets with high levels of vacancies. Therefore, problems of poor housing, inadequate transport links and lack of skills to compete for jobs were put forward as the root causes of joblessness. David Blunkett, the former Secretary of State for Education and Employment, stated in 2001 that “Jobs are there for the taking in most parts of the country”26 and this idea continued to be promoted by the government well into New Labour’s third term in office. Indeed, John Hutton, Secretary of State for Work and Pensions reiterated in 2007 “Our welfare reforms must confront head-on the “Can’t work-won’t work” culture in our country”27. Yet, it would seem that the active labour market programmes introduced by the Labour government concentrating on Welfare-to-Work schemes, such as the New Deal, were ill-adapted to address the problems of structural unemployment in the northern regions of the UK. Indeed, Jane Millar estimated, in 2000, that of the 440,000 participants of the New Deal for Young People, only 34% found jobs that lasted 13 weeks or more and it was believed that at least half would have found work anyway. As for the New Deal for Long-term Unemployed People, only 13% of the 151,000 participants found jobs that lasted 13 weeks or more during the first 20 months of the scheme28.

23To be fair, the active labour market programmes promoted by New Labour were important to improve skills and access to employment and to combat inequality and social exclusion. However, since the problem in many of the lagging northern regions is one of weak labour demand, explicit job creation measures needed to be first promoted in order for such supply-side measures to have any significant impact in these regions. Supply-side problems may apply to certain areas of the UK. For example, the government correctly identified the problem of supply-side constraints in Hackney, which suffers from high unemployment, but which is within commuting distance of London and a healthy labour market. Yet, for many other locations such as Glasgow, the Hartlepool borders, Middlesborough, Stockton, Sunderland, Durham, Northern Ireland, West Wales and the Valleys or industrial West Cumbria, this is clearly not the case. Such cases discounted New Labour’s assertion that areas of high unemployment lie within travelling distance of vacant employment. None of the above are within travelling distance of a tight labour market. In these areas, the labour governments’ supply side measures could have only been effective if other measures to increase demand for labour had been introduced alongside. The Labour government also limited itself to small pockets rather than looking at the whole Travel-to-Work-Areas (TTWAs). Creating jobs in small concentrated deprived areas could not work either because it is necessary to create jobs where employers are likely to stay in the long term.

  • 29  Fothergill, S., 2005.
  • 30  Martin, R., 2001.

24The key government reports also appear to misinterpret the problem of productivity in the regions. It was claimed that firms and workers were not productive enough in the weaker regions. They failed to recognize that different parts of the country stock different industries and occupations, which will inevitably create differences in GDP per head. As Fothergill underlines29, the stockbroker in London and the factory hand in the North East are obviously going to create regional differences in GDP per head because of the nature of the work and not because of a lack of efficiency in the way that the factory hand does his or her job. The reports also pointed to a lack of skills in the less prosperous regions to explain differences in levels of productivity. Yet, it is often because young adults with marketable skills migrate to the south and London where the majority of graduate-level jobs are to be found. So, the lack of skills in the region is more a consequence than an overriding cause of economic weakness. As Martin R. underlines30 the government’s analysis failed to recognise the underlying problem that certain regions of the north have tended to get locked into certain industrial structures and technologies that are inappropriate and outdated. They then have significant trouble adapting their institutions and structure to new activities. The South East, on the other hand, has a concentration of knowledge-based activities, which can adapt more easily to changes in competition and technological advance than conventional manufacturing.Moreover, the South East obviously benefits from the global position of London and the geographical proximity to Europe.

  • 31  Adams, J., Robinson, P., Vigor, A., 2003.
  • 32  Wood, P., 2009, pp. 1047–1059.

25In addition, policy concentrated mainly on two of the drivers: innovation and enterprise. In terms of innovation, policy was focused on science and technology as engines of economic growth, but failed to acknowledge how useful knowledge is in innovation systems. The think-tank Institute for Public Policy Research (IPPR)31 criticised the Labour governments for their use of vague concepts such as the “knowledge-based economy” based on gurus such as Michael Porter, or their emphasis on “cluster theory” by Richard Florida or the Boho index, which are not necessarily well adapted to innovation in regions. Regions need more straightforward innovative practices such as human resource and general management innovation. Too much emphasis seems to have been on high-technology industries—such as information technology, biotechnology and nanotechnology, which form a very small part of the national economy and are concentrated in the south and east of England. Treating these activities as separate entities, fails to capture the significant inter-sectoral linkages. Moreover, it seems that firms already investing substantially in R&D were those that took advantage of the R&D tax credit and were disproportionately concentrated in the South East and East of England, thus reinforcing the uneven pattern of R&D expenditure. It has also been argued that UK urban innovation policies focused too much on technology to revive cities, for example, biotechnology and software and the commercialisation of university research.  It seems that this focus on technological innovation comes from what Peter Wood32 describes as a national priority to achieve greater economic benefit from UK’s scientific research capacity and New Labour mistakenly tried to apply it on an urban scale. However, there is no evidence that technology-transfer policies can have an impact on city or regional economic performance. Service-based market innovations are much more likely to drive economic performance in cities and towns. Technology transfer policies are only likely to support a small number of specialised jobs. Wood underlines that if the government wanted the core cities to become centres of excellence in technical knowledge and practice, they should have accompanied the technology transfer policies with specialist consultancy services to support the application of technical expertise.

26The approach to enterprise also seems to be flawed. New Labour argued that there was a deficiency of entrepreneurs. Yet, when taking into account the most extensive empirical study of entrepreneurship: the Global Entrepreneurship Monitor (GEM) which identifies enterprise33 as “any attempt at new business or new venture creation, such as self-employment, a new business organisation, or the expansion of an existing business by individuals, teams of individuals or existing businesses”, the UK was middle-ranking, ahead of France and the Netherlands. The GEM report concluded that there was no connection between high levels of economic growth and entrepreneurship. In addition, the suggestion that the less prosperous regions are less efficient does not seem to ring true. It is simply that factories closed because of the type of industry being promoted, mainly in the manufacturing sector. Moreover, the emphasis on small firms can be criticised too. Many of the new small companies created simply displaced existing local suppliers. As a TUC report showed, between two periods of observation, the 1994/6 period and 1999/ 2001 period, total employment in SMEs increased by just 2%, whereas that of large firms increased by 17%34. The Small Business Service of DTI confirmed that SMEs did in fact employ a declining share of the workforce over the decade up until 2001. A higher proportion of the workforce were employed in SMEs in Northern Ireland and Wales than in London, which would suggest that a correlation between employment in SMEs and regional prosperity is simply not true. By creating the Small Business Service, New Labour limited enterprise to small firms rather than trying to improve enterprise within all UK firms. Finally, the creation of Enterprise Areas has also been criticized to the extent that they were created at ward level, which is unlikely to contain large numbers of entrepreneurs. It would have been better to concentrate on broader areas, such as TTWAs, which are more likely to include potential entrepreneurs. New Labour’s policy for the regions should thus have provided a broader sectoral spread of economic activity in the regions to encourage the spin-off of enterprises and entrepreneurs.

  • 35  Fothergill, S., 2005.

27Moreover, New Labour failed to underline what drives the drivers, that is to say they emphasised that lack of investment had caused lower long-term growth, but they failed to identify what causes low investment in the regions. The drivers do not seem to have been based on realistic theoretical and empirical studies and therefore there was no guarantee that they could ever succeed in reducing regional disparities. As Fothergill35 underlines, it seems that models which were used to understand growth differentials between whole countries were applied at a regional level, without proof that this kind of approach translated well to a regional level. Indeed, the government failed to consult regional specialists in their analysis and creation of the regional drivers of growth. They did not take into account what had previously worked and failed in terms of regional policy before the 1990s. For example, there was no apparent understanding of land and property at a regional level. Even if the five drivers of growth as identified by New Labour had been achieved, it does not mean that the physical space would have been available to accommodate the extra production and jobs. In London and the South East, there is a problem of shortage of space for development leading to very high land and property values and congestion. In other areas, particularly in the north, the industrial property market is too weak for many private property developers to make a profit.

  • 36  North, D., Syrett, S., 2008, pp. 133–148.

28New Labour’s attempts to design specific policies to cope with sub-regional disparities do not seem to have fared much better. Local Strategic Partnerships and neighbourhood renewal strategies concentrated on improving the environment, fighting crime and anti-social behaviour in the most deprived neighbourhoods, but they did not successfully address worklessness. There was a lack of co-ordination with enterprise organisations such as Jobcentre Plus and Business Link. Moreover, the government tended to focus on formal employment, self employment and enterprise formation as solutions to regional and sub-regional joblessness. This meant that a number of previously established community based economic initiatives were shelved, for example credit unions, time banks, community enterprises and intermediate labour markets36. These initiatives had proved successful in the past in creating employment and additional income, supporting social capital and in encouraging local participation in deprived communities.

  • 37  Institute of Employment Research, 2001.

29To a certain extent, strategies to create highly skilled jobs in regions such as the North East can be welcomed since many disadvantaged regions have a relative lack of well-paid managerial, professional and technical jobs which has led to the migration of high-skilled candidates to the south. Indeed, fewer than one in three jobs in the North East are in such higher occupations, compared with almost half in London37. Yet such strategies in the deprived regions, such as the North East, are unlikely to reach the most deprived neighbourhoods because these populations are unable to successfully compete in terms of qualifications and do not have the necessary social networks to succeed in business enterprises. Likewise, sub-regional disparities continued to exist in pockets of the South East and London. Deprived neighbourhoods were therefore unable to benefit from the economic growth enjoyed between 1992 and 2007 because of a failure to deal with demand side issues such as job creation measures that actually target appropriate sectors and occupations in those deprived neighbourhoods.

  • 38  PricewaterhouseCoopers, 2009.
  • 39  House of Commons Trade and Industry Select Committee, 2004.

30However, the creation of a more flexible and devolved approach was mainly praised by critics. It is generally agreed that the RDAs provided a voice for their region. Indeed a recent evaluation conducted by PriceWaterhouseCoopers38 showed how effective RDAs were in generating economic growth in the regions. The National Audit Office (NAO) also showed that overall six RDAs performed strongly and two performed well.   However, these agencies were nonetheless criticised for their overriding concern with improving regional economic performance to compete with European league tables rather than tackling the problems facing deprived areas. Indeed, the House of Commons Trade and Industry Select Committee in 200439 noted that the Single Pot funding established to provide more flexibility resulted in more commitment to business development at the expense of regeneration activities. It was also argued that RDAs tended to focus on economic issues at the expense of social regeneration and a more joined-up approach.

31Thus, although the government boasted an effective regional policy, that is a national policy delivered locally, there is little evidence to suggest that the drivers were applied to interact in the regions. There was little analysis conducted by the government on the strong and persistent dynamics of regional divergence and insufficient analysis of economic geography which takes into account current variations in regional economic structure. In addition, while it is claimed that the government took a bottom-up approach following EU recommendations, it is not clear to what extent this is true. In terms of following the five policy drivers of productivity, it just seems to be a case of national industrial policy implemented at a local level. If it were regional policy in the traditional sense, it would mean that there would be positive discrimination in favour of those regions that are considered to be lagging behind. Yet, apart from the creation of enterprise areas, which have proven limits, it is not clear how otherwise New Labour effectively differentiated between regions.

Conclusion

32To conclude, New Labour introduced a radically new approach to the regions, taking into account a larger framework of what can contribute to growth, taking a bottom-up approach to tackle regional disparities at a local level. It is clear that increased public spending in the regions led to a degree of regeneration, particularly in some of the major northern cities. Yet the government moved away from some of the more successful regional development policies of the past and focused on five drivers without proving first that these essentially national drivers could be applied successfully at a regional level. Consequently, according to the main indicators, New Labour did not succeed in narrowing the gap between many of the southern and northern regions. Currently, the gap between the richest and poorest regions of the UK in GDP per head (at level of NUTS2) is the highest among all European Union countries. Moreover, joblessness remains endemic in many northern localities. What is more disconcerting is that the northern cities have come to rely overwhelmingly on public service jobs which, faced with current budget constraints, are unsustainable in the long term.

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Notes

1  The regions and sub-regions referred to are those based on the European classification system, Nomenclature of Units for Territorial Statistics (NUTS). At the highest level, NUTS1, the UK is broken down by the Government Office into Regions of England and the devolved administrations of Wales, Scotland and Northern Ireland (covering 12 areas); NUTS2 consists of 37 sub-regions (including groups of counties and unitary authorities), NUTS3 refers to 133 local areas (generally individual counties and unitary authorities).

2  House of Commons Select Committee on Trade and Industry, 1994.

3  Audit Commission, 2008.

4  HM Treasury, 2001.

5  HM Treasury, March 2003.

6  HM Treasury, July 2003.

7  HM Treasury, 2001.

8  Buchanan, J., Froud, J., Johal, S., Leaver, A., Williams, K., 2009.

9  H.M. Treasury, 2009.

10  Ibid..

11  Adams, J., Robinson, P, Vigor, A., 2003.

12  HM Treasury, 2002.

13  “Unemployment” measures the number of people without a job but actively seeking work. The definition of “worklessness” includes the unemployed, plus those people without a job who are not actively seeking work, but who may be getting benefits, such as incapacity benefit and income support. http://www.idea.gov.uk/idk/core/page.do?pageId=23565884, retrieved in December 2010.

14  Department of Social Security, 1998.

15  Social Exclusion Unit, 2001.

16  Balls, E., 2000.

17  Balls, E., Healey, J., Leslie, C., 2006.

18  Theodore, N., 2007, pp. 927–939.

19  The most recent in the series, which began in 1997, is Beatty, C., Fothergill, S., Gore, T., Powell, R.,2007.

20  Ibid..

21  Industrial Communities Alliance, 2009.

22  Audit Commission, 2008.

23  Turvey, A., Knight, J., Wosnitza, B., 2009.

24  Industrial Communities Alliance, 2009.

25  Fothergill, S., 2005, pp. 659−667; Kitson, M., Wilkinson, F., 2007, pp. 805–816; Martin, R., 2001.

26  Blunkett, D., 2001, p. 31.

27  Hutton, J., 2007.

28  Millar, J., 2000, p. 15.

29  Fothergill, S., 2005.

30  Martin, R., 2001.

31  Adams, J., Robinson, P., Vigor, A., 2003.

32  Wood, P., 2009, pp. 1047–1059.

33  Available at http://www.london.edu/gem.html, retrieved in November 2010.

34  Trades Union Congress (TUC), 2003.

35  Fothergill, S., 2005.

36  North, D., Syrett, S., 2008, pp. 133–148.

37  Institute of Employment Research, 2001.

38  PricewaterhouseCoopers, 2009.

39  House of Commons Trade and Industry Select Committee, 2004.

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Louise Dalingwater, « Regional Performance in the UK under New Labour », Observatoire de la société britannique, 10 | 2011, 115-136.

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Louise Dalingwater, « Regional Performance in the UK under New Labour », Observatoire de la société britannique [En ligne], 10 | 2011, mis en ligne le 01 mai 2012, consulté le 17 novembre 2017. URL : http://osb.revues.org/1151 ; DOI : 10.4000/osb.1151

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Louise Dalingwater

Docteur en civilisation britannique

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