Budget 2014: If Osborne doesn’t invest in the regions, others won’t either

The gap between the coalition’s rhetoric and its record on regional growth has been dire.

Graeme Henderson is a senior research fellow at IPPR North

In Wednesday’s Budget we’ll no doubt hear several ‘regional’ towns and cities name-checked. However if the English regions are to compete in a global economy they need the serious investment in transport infrastructure, skills and research and development which attracts private investment and jobs.

It is this type of investment which can be transformative rather than merely helping areas tread water. Sustained economic investment can help to drive economic growth in the longer term, reducing over time the amount spent on benefits and regeneration that is otherwise required to ameliorate the consequences of economic frailties.

The type and location of public spending has a profound impact on where the future economic growth of the country will come from. Failing to adequately invest in vast swathes of the country often affects the poor and disadvantaged most, with highly skilled workers or those with financial backing able move to wherever the jobs are.

All political parties have talked about the need to rebalance the UK economy, both regionally and sectorally. The gap between the coalition’s rhetoric and its record in respect of regional growth has been particularly dire.

In 2009/10, public spending through the Regional Development Agencies was £2.25 billion. In 2012/13, all government spending on regional growth (through the Regional Growth Fund, The Growing Places Fund, City Deals, Local Enterprise Partnerships and Enterprise Zones) was just £0.27 billion.

However, the uneven spread of economic investment by government pre-dates the coalition. Over the last 15 years more and more of this type of public investment has been skewed towards London and the devolved nations. The main loser in this redistribution has been the North of England.

As the graph below shows, it used to get around a quarter of government investment in economic affairs, a share that was not dissimilar to its population share. Over the last decade or so, this has dramatically fallen with a greater proportion of the pot being shifted toward London and the devolved nations.

Proportion of government economic affairs spending on different parts of the UK over time (%)

Budget graph 2j

Government really should explain why this is the case. If it were just London being favoured, it could plausibly argue (albeit in the face of plenty of conflicting evidence) that this is the place with the most growth and new job potential.

More realistically, it is London’s and the devolved nations’ strong voices in the corridors of Whitehall which are driving this trend.

When it comes to public spending decisions, the English regions seem to be losing out to those areas with a Boris or Salmond championing them. The graph below shows the latest figures for government spending on economic affairs and skills per person. At least twice the amount per person is spent on Scotland for instance than on the Midlands, Yorkshire and the Humber and the South West.

Government spending on economic affairs and skills per person, 2011/12 (£)

Budget graph 1j

The English regions undoubtedly need stronger voices to fight their corner and to make sure they don’t get left behind. The four new combined authorities which will join the existing one, Greater Manchester, hopefully in part will provide some of this voice.

As a first step, however, there needs to be more transparency as to how government policies impact different parts of the county. IPPR North have therefore recommended that the Office for Budget Responsibility’s remit should be widened to include assessing the impact of policies on regional growth and unemployment.

George Osborne wants to signal to the world that Britain is open for business. This has to include all of Britain. How though can we persuade businesses, both local and international, to invest more and more in the English regions, when government is investing less and less?

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