Rachel Reeves' speech to IPPR North on the Northern Economy

28 January 2013

 

Rachel Reeves

Rachel Reeves' speech to IPPR North on the Northern Economy

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Rachel Reeves MP, Labour's Shadow Chief Secretary to the Treasury, in a speech today to IPPR North, said:

Since entering Parliament in 2010, I’ve really noticed how much of what passes for a national policy debate in fact reflects the perspectives of a narrow group of people. 

Of course, this is more complex than a simplistic division between North and South or London and the rest, the City and the “real economy”.

Ed Miliband’s vision of “One Nation” is about challenging the false divisions: between north and south, public and private, unions and businesses, those in work and those seeking it, and bringing people together to rebuild our economy in a way that works for all of us.

Today I want to argue that, while “One Nation” Labour is about advancing the aspirations of working families in every postcode, it represents an unprecedented opportunity for the North to fulfil its potential and punch its weight economically and politically.

Because, while any crude categorisation of regions, districts, even neighbourhoods can always be challenged for concealing complex divisions and differences within or across them there is no doubt that the inequalities and imbalances that have characterised our economy for too long have a spatial dimension and a geographical impact.

And by that same token, a One Nation economy in which growth is more broadly based, and prosperity more fairly shared, will mean rising living standards and expanding opportunities in parts of the country that have previously been held back.

The years since the financial crisis have demonstrated that we all have an interest in a better balanced economy. We all need the North to succeed if we are to make that vision a reality.

John Denham, Southampton MP - and one of Labour’s great champions of both decentralisation and an active industrial policy - recently said that the “commuter on the 6.54 from Basingstoke” feels as strongly as anyone the pressures of an economy that no longer works for the majority. 

But addressing the anxieties of the “commuter on the 6.54 from Basingstoke”, is inseparable from that of raising prospects and expanding opportunities for those on the 7:06 from Dewsbury to Leeds or the 6:35 from Durham to Newcastle.

Britain’s success as a country depends on getting the economy of the North moving. As the IPPR has rightly stressed, Northern prosperity is not an optional element or extra to our national prosperity Northern prosperity is national prosperity. 

But we also know – and this is the second part of my argument a rejuvenated Northern economy cannot be imposed from the top down. It needs to be built from the bottom up – by the people who know the potential of their own areas.

A really effective rebalancing of our industrial development, strengthening and broadening our economy’s productive base, means a radical devolution of power to the communities and businesses who can make it happen.

We know that the most benevolent politician or civil servant in Westminster or Whitehall cannot know as much about what is needed in Yorkshire or the North as our own businesses and civic leaders do.

So first let me say a bit more about why a Northern renaissance is so important.

We all know that the UK economy has long been characterised by regional disparities.

But the past few years have brought home to us what a serious problem that can be.

The economic and fiscal case for a broader based economy is clear.

At the end of last year, the OECD released a report into regional economic trends. As Shadow Chief Secretary, you would expect me to be impressed by their finding that “broad based growth is ... good ... for public finances”.

Because, they conclude “chronically under-performing regions can impose substantial costs on national budgets”. That is we need growth in all parts of the country or we pay the costs of unemployment and low growth in lagging regions.

But there is a positive side to this argument as well. Making more of relatively underdeveloped regions can be one of the most powerful drivers of new growth in advanced economies.

We need to do that here in Britain – where there is clearly scope for generating additional growth by bringing growth and income in more parts of the country up to the levels of our most prosperous areas.

As IPPR North have highlighted, the Northern economy has huge potential. 

Already, if we were a country of our own we would be the eighth largest economy in Europe. We have comparative advantages across strategically vital export sectors – including high tech manufacturing, health technologies, digital and creative industries.

Our universities develop more patents than their southern counterparts, despite receiving less R&D funding. Our landscape and natural resources provide plentiful opportunities for addressing the twenty-first century challenges of sustainable energy generation, water supply and food security. 

And our great cities are globally recognised centres of culture, with significant scope for further development and inter-connection that doesn’t compromise quality of life.

The pride and excitement that we feel in these achievements and possibilities reminds us that this is about more than maximising our GDP or stabilising our public finances. 

It’s about the importance of place, and shared history, and the institutions that bind us together and give us our voice.

In Yorkshire, we have huge pride in our industrial past. From wool to coal and steel and then to retail and finance, our industries have enriched the region and powered the nation.

In the North East, the Stockton and Darlington Railway revolutionised transport infrastructure and began the work of connecting the country together.

In Lancashire, the spirit of solidarity that gave birth to the cooperative movement in Rochdale became a nation-wide civilising force that infused the creation of the welfare state and the NHS.

The Victorian buildings which give structure to our towns and cities are a testimony to the riches and confidence of that era. Today, our purpose must be as bold and as permanent if we are to build a future of which we can be equally proud.

Last year’s Olympic Games were an inspiring example of what we can achieve as One Nation - and we must not forget that they were built in Yorkshire as well as in London. 

Danny Boyles’s opening ceremony celebrated our industrial heritage

but the contribution made by the North to the games was also concrete and contemporary:

The Olympic cauldron was manufactured in Tockwith.

The Olympic village paved with stones from Huddersfield.

The velodrome built by a firm from Barnsley with wood from Sheffield.

And I know I won’t need to remind anyone in this room where Yorkshire would have been placed on the medal board if we were an independent country - 12th – above Jamaica, Spain, South Africa and Brazil.

I know you’ll share my excitement about the Tour de France starting in Yorkshire next year - thanks to the vision of our civic leaders, particularly Tom Riordan, Keith Wakefield and Gary Verity.

There seems to be a shared realisation of the need for rebalancing, although it perhaps means different things to different people. In May 2010, the Prime Minister said we can’t afford to have “our fortunes hitched to a few industries in one corner of the country”.

And the following month the Chancellor of the Exchequer, said: “we’re going to help every part of the country ... share in the economic growth to come”.

Now, you might argue that it’s unfair to hold the Chancellor to that commitment given that we’ve seen next to no growth at all - just 0.4 per cent over the past two years, compared to 3.6 per cent in Germany and 4.2 per cent in the US - with Friday’s GDP numbers another depressing setback.

But while businesses, working families and communities in every part of the country have been hit hard by the Government’s economic failure the North has borne the brunt.

First - the uneven impact of the Chancellor’s spending cuts has been well documented, with the Audit Commission saying that “the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure than councils in less deprived areas”.

A ‘heat map’ produced by Newcastle City council shows how that, while such areas are not restricted to the North, the net effect of this redistribution amounts to a further £374 million hit to the three Northern regions compared to if the cuts were equally spread across the country on top of the billions that have been cut from local government funding across the board.

In Leeds we are losing £81.34 of spending per head - more than twice as much as the £34.33 per head lost in the PM’s local authority of West Oxfordshire.

Second, cuts to the public spending overall have also hit the North particularly hard.

PWC analysis of the impact of planned public spending cuts showed that the North East, North West and Yorkshire are likely to lose more as a share of Gross Value Added than any other region and suffer more job losses as a share of total employment.

And third, the Government’s choices on deficit reduction are hitting the North particularly hard with over a million working families in the North, a disproportionate share of the UK total, hit by the real terms cuts in tax credits contained in the insidious benefit uprating Bill - while the beneficiaries of the £3 billion tax cut for individuals with incomes over £150,000 overwhelmingly in London and the South East.

HMRC figures indicate that 53 per cent of this tax giveaway will go to those two regions while the three regions of the North, where a quarter of the UK’s working age population live, will receive just 11 per cent of the benefit.

So the Government’s fiscal and economic strategy is systematically sucking resources and demand out of the North and the impact on the regional economy is all too predictable.

The aggregate figures for the UK economy are bad enough – but they conceal how tough conditions are in some places. While aggregate UK growth has flat-lined, many parts of the North have continued to contract.

Nationally unemployment has been stuck at around 8 per cent, but across the North it topped 10 per cent and today remains nearer 9 per cent.

Trends in long term and youth unemployment are even more worrying. Since May 2010, the number of people claiming JSA for more than 12 months has risen by 60.2 per cent across the UK as a whole, but by 60.3 per cent in the North West, 83 per cent in Yorkshire and 123.4 per cent in the North East.

The numbers of 18-24 year olds claiming JSA for more than 12 months has risen by 169.4 per cent across the UK as a whole – but by 175.5 per cent in the North West, 220.9 per cent in Yorkshire and 541.6 per cent in the North East.

Figures for individual and business solvency also show disturbing patterns

- with the North suffering more than the national average. 

This isn’t just a short-term hit – it’s a long-term setback making it harder for businesses in the North to maintain and build their positions in global markets harder for young people in the North to get the skills and experiences they need to play their part harder for us to build the broad-based, better balanced economy that Britain needs for the future. 

So what needs to happen?

There are three key propositions I want to put.

First, that business confidence, falling unemployment and sustainable growth are necessary, if not sufficient, conditions for preventing further damage to the North’s productive base and economic potential.

Second, that we need the right long term reforms, including a coherent industrial strategy, to make the most of the North’s strengths and to give businesses and working people of the North a better chance.

And third, that such an agenda will only work if we put the design and delivery of that strategy in the hands of the people who are best placed to move it forward – with a radical devolution of power and resources to build a One Nation economy from the bottom up.

First, Ed Balls and I have made and will continue to make the case for concerted action to kick start the economy - a position advocated by the IMF and other respected institutions and economists in the past few days - so we can end the stagnation that is costing the economy so dearly.

Our plan for jobs and growth would provide an immediate path back into work for over 25,000 young people across the North who have been unemployed for more than 6 months and over 37,000 adults across the North who have been unemployed for more than 2 years - funded by a repeat of the tax on bank bonuses, and a tighter limit on pension tax relief for those with incomes over £150,000.

We’d also boost the construction sector with a major new affordable house-building programme, and by bringing forward investment in infrastructure, essential for unlocking the North’s economic potential.

Our other proposals: a temporary cut in VAT, and a national insurance holiday for small firms taking on new workers, would give a real boost to businesses struggling to preserve or create jobs, especially with bank lending drying up. 

A growing economy is the essential environment we need if we want the North to flourish.

We saw that in the period from 1997 to 2007 – when many parts of the North saw a veritable renaissance and, indeed, so-called “lagging regions” accounted for more than half of the UK’s aggregate growth in that decade. 

But at the same time, we know that aggregate growth, in and of itself, is not enough. For despite the regeneration of cities like Manchester, Newcastle, Liverpool and Leeds over this period, regional disparities continued to grow even in the good times and areas of concentrated deprivation and decline persisted.

Why is that?

The truth is, as Ed Miliband said in a recent speech, that while New Labour secured strong and steady growth, and redistributed the proceeds to secure rising living standards for all, “[we] did not do enough to...bring about structural change in our economy...[we] didn’t do enough to change our economy so that it grew from the middle out, not from the top down”.

We were too dependent on financial services for growth. And the big steps we took to raise employment and expand economic opportunities were not enough to compensate for the hollowing out of out of good, skilled jobs, paying decent wages following the deindustrialisation of the 1980s.

As a paper published last year by Cambridge University’s Centre for Geographical Economic Research observed:

“The challenge is not just that national growth has become far too dependent on financial and related services, but that the expansion of these sectors has itself been spatially skewed ... if a nation becomes relatively sectorally unbalanced ... this process will perhaps inevitably exacerbate its regional imbalance”.

Now of course the answer to this is not to undermine our financial services sector - certainly this would be no good for Leeds, the key financial centre for the North.

Financial and business services are and must remain a key competitive strength of the UK economy. But they cannot be our only strength.

And the economic geography of comparative advantage, mean that a strategy for more broadly based growth that does more to support productive businesses and helps more employers escape the low pay, low skill, low productivity cycle would, by definition, also be one that give the North a bigger role and a better chance of sharing in prosperity.

Let me spell out in a little bit more detail what such a strategy would look like. 

First on industrial strategy, Shadow Business Secretary Chuka Umunna has been setting out a new role for an active state that steps up to the challenge - working with business and unions, local leaders and civil society, to forge the industrial strategy we need. Securing the skills, finance, and the infrastructure that will underpin our productivity and ensuring that the way we write the rules of our economy in those areas where government acts as a market maker, we support and encourage long term investment and value creation.

We have made it our mission because it is in the interests of the country as a whole. But it creates huge opportunities for the North, because it means tackling the root causes, rather than just the symptoms, of the geographical imbalances that have characterised our economy for decades.

Take the issue of skills, for example.

We know that improving skill levels of people in places like Bradford is key to ensuring that the new growth generated in places like Leeds translates into better employment opportunities and rising living standards across Yorkshire.

The OECD research I cited earlier concluded that the most important measures to boost the performance of “lagging” regions is to improve lower-end and intermediate skill levels.

Adult retraining opportunities are also essential to limiting the damage of public sector job cuts helping those forced to take redundancy find new opportunities in new industries.

This shows why Michael Gove’s elitist and narrowly academic approach to education risks reinforcing the inequalities and exclusions that make it harder to extend opportunities and share prosperity more fairly.

And it shows why Ed Miliband and Stephen Twigg’s focus on the “forgotten fifty per cent” - including a radical revolution in vocational education and a drive to extend the availability of apprenticeships - could open doors that for too many people in the North have been closed for too long.

Infrastructure is another example. We need new investment in Northern infrastructure expanding options and broadening the horizons of people looking for work - and attracting investment into areas that have hitherto seemed isolated.

That’s why it’s so frustrating that, over two decades after the Leeds Supertram scheme was first proposed, we are still struggling to find solutions to the congestion of the City’s key commuter corridors.

And it’s why Maria Eagle, Shadow Transport Secretary, has kept up the pressure for the completion of the Northern Hub - improving connections between Manchester, Liverpool, Leeds and Newcastle and for High Speed 2 to be delivered as a single scheme, with the ability to start building in the North as well as London.

So I look forward to this afternoon’s announcement on the new route from Birmingham to Manchester and Leeds.

And I hope the scheme will not be subject to further delays such as those resulting from the botched consultation on the route of phase 1.

Despite all the grand speeches private and public sector investment in infrastructure has collapsed in the last two years with the Government dithering and delaying critical decisions.

Nick Clegg’s belated realisation of this failing will be cold comfort if it does not result in a real rethink of the Government’s deep cuts to capital expenditure and an improvement in its ability to turn its infrastructure wish list into diggers in the ground.

That’s why, as well as calling for accelerated investment in infrastructure as part of our plan for jobs and growth, we have commissioned Sir John Armitt, chair of the Olympics Delivery Authority, to look at how we as a country can get better at deciding on and delivering the infrastructure we need: speeding up decisions, delivering certainty.

Or take the issue of finance.

We know that access to capital is a key barrier to small business start-ups and growth in the North.

I hear the same story almost every week talking to businesses in my own constituency: denied the overdraft they need to manage cashflow or asked to put down as security assets which go beyond what is reasonable.

Holding back jobs, investment and growth. That’s why the failure of the Government’s initiative’s to boost bank lending to businesses with their derided Project Merlin and Funding for Lending schemes and indeed the failure of QE to flow through to smaller businesses is such a setback for the North.

And it’s why the North has so much to gain from the more determined effort to get our banks working for the rest of the economy:

Ensuring full implementation of both the letter and the spirit of the Vickers proposals to ring fence retail banks from investment banks, and accompanying cultural change in the banking sector – with a commitment to legislate for a full split if this is not delivered.

Bringing more competition to the banking sector, including through the creation of new “challenger banks”, to increase responsiveness to business needs.

And, something that we’ll be talking about more this week, the creation of a British Investment Bank to ensure we get the investment we need into the firms and sectors of the future.

Late last year, I joined colleagues from the Shadow Treasury and Business teams on a fact-finding visit to Germany where we learned more about how their distinctive banking system has underpinned their economy’s resilience.

We were struck by the critical role played by regional networks of local savings banks – or “Sparkassen” - in ensuring small and medium-sized enterprises had access to the finance they needed to get through difficult times and to grow in better times, and with KfW, Germany’s state investment bank, supporting industry via the diverse and competitive system of local business-facing banks essential to their success in the ongoing development of Germany’s industrial base.

Of course, you can’t simplistically transplant models from one country to another. Germany’s unique ecology of industry and finance is the product of 500 years of history. But one lesson we can draw is that as we develop our plans for a British Investment Bank, we must ensure that it is an institution that works for the whole country, and improves access to finance for businesses in areas that have historically found it hardest.

That’s why we are clear that a British Investment Bank must and will support jobs, growth and investment in every region with a local dimension, not just a new national institution. The North has much to gain from a more active Government approach.

Look at the role played by the Automotive Council, established by the last Labour government and continued by Vince Cable, in preserving jobs and attracting new investment at the Nissan plant in Sunderland, or the GM plant in Ellesmere Port. So that for the first time since 1976 the UK is now a net exporter of cars, with much stronger supply chains in that sector.

Or look at the leading role the North could play in building a greener economy.

As Caroline Flint, Labour’s Shadow Secretary of State for Energy and Climate Change, has argued, if we are looking for parts of the country to become hubs for new green industries, the most obvious places with existing infrastructure, industries and skills that can be adapted in the transition to a low carbon economy are in the North.

An active industrial strategy would help drive green growth and bring jobs and investment to the North. Yet, too often the North has paid a heavy price for the current government’s failure to step up to the plate.

As well as 1,400 Bombardier jobs lost in Derby under a government with no procurement policy, we’ve seen 3,000 BAE systems jobs lost across Yorkshire and Lancashire under a government with no defence industrial strategy, and Sheffield Forgemasters denied a loan that would have enabled them to become global leaders in nuclear supply chains – with jobs going to Japan and South Korea instead.

We’ve seen power stations like Drax near Leeds, which I visited last year, forced to delay planned investment as a result the Government’s indecision and delay over its commitment to Carbon Capture and Storage. We’ve also seen almost £2.5 billion-worth of investment in bio-mass plants, due to be sited in North Yorkshire, Humberside, Cumbria and Lincolnshire threatened in the wake of the Government’s shambolic review of support for renewable energy, and businesses across the North were hit hard by the Government’s disastrous decision to cut feed-in tariffs.

The winner of the Institute of Directors’ Yorkshire and Humber award for entrepreneur of the year, Chris Hopkins, was forced to put his installation business into administration last year, and in my own constituency, I saw the damage the changes in the solar panel industry did to a local business who had expanded to meet the new demand but were forced to abandon plans when the Government pulled the rug from under them.

So it’s businesses in the North who are taking some of the hardest hits from the Government’s failure to take its responsibility for the fate of our most promising industrial sectors and the future of millions of working people and school leavers with so much more to offer.

But what we must be clear about – and what this Government seems unable to understand, is that these aren’t just losses to the North – of jobs, investment, opportunities to grow and prosper. They are losses to the economy as a whole,

- a serious setback to our hopes of securing stable and sustainable growth and prosperity in the decades to come.

If the Chancellor wants to boost GDP he needs to look North because balanced regional development is not an afterthought or optional extra – it’s essential for growth in Britain.

And a strategy to develop the growth potential of the North - the skills of its workforce, the productivity and competitiveness of its businesses - is an essential component of any strategy to secure the economic future of Britain as a whole.

But we know that this can’t be a strategy written and imposed from Westminster or Whitehall. It needs to be designed and delivered by the people who know the problems and, crucially, the potential of the places where they live and work.

That’s why a radical agenda to rebalance our economy – sectorally and regionally - will only work if it is combined with a radical redistribution of power from the centre. As Lord Heseltine has argued, government needs to be a “catalyst, enabler and partner”. In the nineteenth century, it was “local economic leadership that drove the UK to the forefront of the world economy” and it is this that must be revived and reinvented for the twenty-first century.

But for all their localist rhetoric this Government have been more interested in abdicating responsibility than devolving real power, leaving under-resourced, inadequately supported local leaders and representatives to cope with the consequences of the cuts that have been imposed from the centre making it incredibly hard to fulfil the potential of the North.

The last Labour government did take important steps to devolve power. Regional Development Agencies marked a radical devolution of power and resources from Whitehall, trusting regional and local leaders to steer their own futures.

You don’t have to defend every decision that every RDA ever took to recognise that the Government’s decision to abolish them at a stroke, with minimal consultation or consideration, was wrong.

But a future Labour government will seek to evolve the new system of governance and representation, through the LEPs that replaced the regional frameworks, not dismantle them.

We won’t waste time on a costly reorganisation, we will get on with delivering real improvements and change. The next Labour government will inherit a “patchwork quilt” of regional, sub-regional and local structures of economic governance - uneven and inconsistent, threadbare in some places and multi-layered in others.

We are not interested in tearing it up, but in finding ways of strengthening and extending partnerships between businesses, communities, and elected leaders within and across areas. And from opposition we will continue to press the government to deliver a genuine devolution of power.

People like Neil McLean need the powers and resources to give their areas a voice. Here in Leeds, great work is being done but we need to tackle the barriers that are holding LEPs back. 

Government must also go much further with City Deals. The Government is building on the work of the last Labour government here, which we can now see bearing fruit: Greater Manchester creating a City apprenticeships and skills hub for 6,000 young people for example, and here in Leeds new resources to improve public transport and highways, with the potential to create 20,000 new jobs. 

But the further roll out is being held up by a complicated bidding and shortlisting process.

That’s why Hilary Benn, Shadow Secretary of State for Communities and Local Government, has called for a much bolder “English deal”, offering all local authorities the opportunity to come together and take back powers - on transport, housing, skills and other levers that can help support local economic development.

And Labour’s Shadow Secretary of State for Transport, Maria Eagle, has set out a radical agenda for devolving powers and resources to local transport authorities working closely with LEPS, and in partnership across regions.

This kind of devolution could be just what we need in Leeds where we need to do more to ensure businesses and working people have the transport services we need, and frankly, ten years after London launched the Oyster card, it’s high time we had the powers to develop our own integrated transport solutions to keep our city on the move. 

A Labour approach to rebuilding and rebalancing our economy is about combining a plan for jobs and growth to support our recovery, an ambitious agenda to raise productivity and develop sectoral strengths including investment in skills infrastructure, and improved access to finance with a radical devolution of power so that this is delivered by those best placed to take it forward.

And I want to pay tribute to IPPR North and the Northern Economic Futures Commission for their work that I know we will return to again and again as we take forward this agenda.

My conclusion is that we must fulfil the promise of every part of the country if we are to fulfil the promise of Britain as a whole: redistributing power so that we can rebuild and rebalance our economy from the bottom up, opening up new opportunities to create jobs and raise living standards across the country and ensuring everyone, wherever they are from, can play their part. 

No one should doubt the determination with which Labour approaches this task. The past few years have demonstrated its necessity. We cannot rely for our growth or tax revenues on one sector or one part of the country like an aeroplane flying on one engine.

And the opportunity this gives the North to play its full part in Britain’s economic future is the best we have seen for a long time. But it requires a government working with regional businesses and civic leaders with the vision to see it through.

It’s an ambitious agenda, but we can learn lessons, and draw hope from the renaissance we have seen in some of our northern cities since the early 1990s.

Thirty years ago many commentators wrote off cities like Liverpool, Sheffield and Newcastle but since then, with the right strategic leadership, energy and entrepreneurialism those cities have undergone a major revival and are now the new growth centres of the North, along with Leeds, Manchester and other towns and cities, showing the power of decisions taken today to shape the future for decades to come, showing also the difference the 3 RDAs made in a decade or so.

While there is much to do, but we must not forget how far we have already come. Re-balancing and renaissance can’t be based on quick fixes.

We need to be in it for the long haul. But with a government committed to building a more balanced economy and giving places like Leeds, Yorkshire and the North the powers and resources they need to play their full part then our best years still lie ahead of us.