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1.1 England is the largest and by far the most populous part of the United Kingdom. There is a wide diversity to be found among its regions and communities: each part of the country has different economic, social and environmental conditions. Information on each of the English regions is set out in regional factsheets in annex A.

1.2 Regional differences contribute to regional identity and to a rich diversity across England. Some of these differences, both between and within regions, affect people’s quality of life and health. Boxes 1.1 and 1.2 show some of the significant disparities between regions. The report Productivity in the UK 3: The Regional Dimension (produced by HM Treasury and DTI in November 2001) provides a wealth of information on regional economic disparities; this evidence underpins the Government’s renewed approach to regional policy.

1.3 As an example, since 1989 the growth in GDP per head has been significantly lower in the North East and North West than in the South East and East of England. Some of the causes and results of different regional rates of growth are apparent. For instance, in the West Midlands, North East, Yorkshire and the Humber, and the East Midlands, the proportion of people of working age with no qualifications is more than one-and-ahalf times that in the South East and South West: around 19 per cent in the first group, compared with around 12 per cent in the second. The proportion with degrees in London (25 per cent) is almost two-and-a-half times that of the North East (10.4 per cent). Other measures also show regional disparities: for example, the death rate from coronary heart disease among men aged under 65 is over one-and-a-half times higher in the North West (over 63 out of 100,000) than in the South East (around 39 out of 100,000).

1.4 Such disparities have been described as a ‘north-south divide’, but this term is an oversimplification. On some economic measures, the real difference is between London, the South East and the East of England on the one hand, and the rest of England – including the South West – on the other; for other measures, regions such as the East Midlands and North West have shown signs of relative economic success. Moreover, while the North East fares poorly in terms of GDP per head, the lower cost of living and the effects of the tax and benefit system means that the disparities in terms of disposable income are smaller. Meanwhile, examining performance at the local level shows that disparities within regions can be as marked – and as significant – as the differences between them.

1.5 Regional disparities are not new. For instance, unemployment in the North East was more than double that in the South East throughout most of the twentieth century – although since 1997 employment has risen in virtually all regions (Box 1.5 on page 19 sets out employment on a regional basis since 1997). Productivity in the UK 3: The Regional Dimension demonstrates the scale of the problems now faced by some regions. 1.6 The diversity of the English regions demands a diversity of targeted responses. The regions themselves are often best placed to determine the most effective solutions to their needs. They need to have greater control over the key decisions that affect them and to be able to respond to the differing needs and desires of people in their regions. The Government is therefore offering each region the flexibility to choose effective solutions for strengthening its performance.

1.7 Regional policy was neglected during the 1980s and early 1990s: the scrapping of regional planning mechanisms, cuts in regional funding and downgrading of regional approaches have all contributed to the regional divide.

1.8 The Government is committed to an open, responsive democracy. We are working to revitalise and modernise the constitutional framework to ensure it reflects and serves the needs of our society today and to ensure that responsibilities are decentralised to the most effective level. A programme of radical reforms is already well under way. It includes:

Building on these achievements, we believe that there is a real case for further reforms to strengthen the English regions.

1.9 Strengthening regional governance contributes to the Government’s wider objectives. It is vital to find the right delivery mechanisms for public services, bringing together those who can most effectively deliver the best results, and doing so at the most appropriate level – whether nationally, regionally or locally.

1.10 A preliminary Government review of literature and research undertaken in 2000 found that different approaches to regional policy have proved effective in different countries, but that there is no single template for successful regions. The approach we are taking in the UK is intended to complement the diversity of our different nations and regions. Annex E sets out the experience of decentralising responsibilities to regional level in other countries in Europe and around the world.

1.11 Recognising the regional dimension of policies means responding to the needs of individual regions. It means thinking actively about how action in one locality impacts on others, and therefore how best to allocate resources and determine priorities regionally. It also means striking the right balance between providing the flexibility for regions to choose different approaches and providing solutions which work in the best interests of the country as a whole.

1.12 In the past five years there has been a growing recognition that there are issues, such as planning and economic development, for which some regional decision-making is necessary. This is because:

1.13 Regional policy is not a quick fix but a longterm sustainable approach. From the 1997 White Paper Building Partnerships for Prosperity onwards, the Government has made it clear that successful approaches to the English regions have to be forward-looking. The Government’s regional policy is based on two clear principles:

1.14 We have increasingly taken the varied circumstances of the English regions into account in thinking about policy, allocating resources, and translating those approaches into action on the ground. However, vibrant and prosperous regions cannot be created by central government alone. It is essential to give the regions the tools they need themselves to build on their strengths and tackle their weaknesses.

1.15 Past policies have failed to resolve underlying weaknesses in some regions, and the least successful regions have been unable to capitalise on their own strengths. We cannot return to the failed approach to regional policy: trying from Whitehall to identify regional ‘winners’ or subsidise businesses which are failing. Nor can we go back to centralised planning which ended up stifling growth in successful regions without stimulating it in the unsuccessful ones. Both approaches have been tried; neither has been successful, which is one of the reasons why we still have regional disparities today. The Government also rejects the approach of indifference to regional disparities and distinctiveness, making regional problems worse through neglect. The regions need an active Government which responds to people’s needs.

Box 1.3: The urban and rural White Papers

Wherever people live, in towns and the country, they want jobs, homes, good public services, a safe and attractive environment, and opportunity. Urban and rural England cannot be viewed in isolation: they interact with and upon each other. The Government’s two parallel White Papers, published in November 2000, share the common principle that people must come first and policy must be based on partnerships with local people.

Our Towns and Cities: the Future was the first Government statement of urban policy for over twenty years, and responded to the report of the Urban Task Force (Towards an Urban Renaissance), published in June 1999. The White Paper looks to our towns, cities and suburbs to offer a high quality of life and opportunity for all. It reflects policies and programmes across central government for improving life in urban areas – including measures for regeneration, local government and planning – and it shows how together they create a framework for revitalising towns and cities.

The urban White Paper represents a commitment to a new, long-term partnership with local communities, regional and local bodies, and other key stakeholders. This is reflected in the development of local strategic partnerships, which we believe will provide the most effective way of taking forward key elements of our urban, rural, local government, and neighbourhood renewal policies in a co-ordinated and integrated way which meets the needs of local people. Effective local leadership and involving local residents in shaping the future of their communities are central to delivering the aims of the White Paper.

These same principles inform its sister publication, Our Countryside: the Future – a fair deal for rural England. It aims to improve the quality of life for people in the countryside – improving services, tackling poverty and social exclusion, aiding rural economies, protecting the countryside and its wildlife, and giving more choice and power to local people. These objectives are being achieved through a range of initiatives across government, including investment in better services and access to them, rejuvenating market towns, helping farmers to modernise and diversify, better protection of countryside landscapes and wildlife, enabling improved access to the countryside, promoting quality parish councils, and the rural-proofing of policies across government.

Both White Papers recognised the regional diversity and local distinctiveness of urban and rural places and the need for policies to reflect these differences.

1.16 The Government’s central economic objective is to achieve high and stable levels of growth and employment throughout the UK. Our overall goal of creating an inclusive society means that all regions and communities should have the opportunity to share in the nation’s prosperity. Improving the economic performance of the English regions and enabling them to reach their full potential will increase social justice and drive forward the UK economy as a whole. To achieve this goal, productivity and employment need to improve in every part of the country – including some under-performing areas of those regions which have historically had the highest growth.

1.17 The success of regions depends in part on getting national policy right. In particular, it depends on economic stability and investment in key public services. The Government has put these fundamentals in place, securing sustainable economic growth whilst investing in services like health, education and transport.

1.18 The prosperity of the English regions and the prosperity of the nation as a whole are inseparable and mutually reinforcing. Successful management of the economy is vital for prosperity in the regions: wise and principled management of the economy as a whole, and national policies which tackle structural weaknesses in the economy. The Government has a strong record on both fronts, as set out in Box 1.4.

Box 1.4: Underpinning regional economic development

Providing a stable macroeconomic environment is important in order to allow businesses and individuals to invest for the future through making long-term decisions with greater certainty and, consequently, at lower cost. To this end, the Government has:

made the Bank of England independent to ensure that interest rate decisions are taken in the best longterm interests of the economy, not for short-term political considerations;
adhered to prudent fiscal rules which lock in low inflation and cut government debt; and
set a transparent framework for making fiscal policy decisions. The Government has built on this foundation by making microeconomic reforms which provide opportunities to improve further the environment for productive and successful businesses to flourish and grow.
provide a framework of accountability within the region;
complement the national policies which create the conditions for sustained economic growth.

Such action includes ensuring that markets function efficiently and tackling barriers to productivity. Examples of Government initiatives include:

radical reform of the business tax system to encourage enterprise and investment, including the introduction of a generous capital gains tax business asset taper and a zero starting rate for corporation tax;
a range of measures to support small businesses, including improving access to finance, reducing the administrative burden of VAT, taking forward the review of payroll administration and introducing the Small Business Service to address issues of importance for small firms;
major reforms to the competition regime, including full independence for better resourced competition authorities and detailed investigations into specific markets;
a range of measures to support enterprise, investment, and wealth creation in Britain’s most disadvantaged communities, including a stamp duty exemption for all commercial property transactions in 2,000 qualifying wards and a new community investment tax credit;
tax credits to encourage research and development by large companies and by small and medium-sized enterprises;
new incentives in the labour market to ensure employment opportunities for all, such as the New Deal for employment and retraining;
providing effective national support for training, such as the creation of local learning and skills councils to improve education and training for those aged 16 and over.

1.20 UK economic performance varies both between regions and within them. Pockets of wealth and poverty exist side by side in many parts of the country. The disparities between regions are set out earlier in this chapter, but there can be significant variations within regions too. For instance, although the north and east of the South West region are generally economically prosperous, the far south-west and other areas suffer from being less accessible from the rest of the country and an over-dependence on static or declining industries such as agriculture and fishing. As another example, prosperity in London is considerably more variable than in the neighbouring South East, with more than double the variation in employment rate: there is a 33.5 per cent variation between employment in the London boroughs of Newham (51.1 per cent) and Sutton (84.6 per cent), compared to a variation of 16.2 per cent in the South East (from a high of 86.5 per cent). London also has the highest longterm claimant count in the English regions and the second highest number of deprived areas, coupled with the highest GDP per head and highest average weekly wage by some margin, and the highest level of productivity.

1.21 The factors underlying these differentials include imbalances in the provision of employment opportunities, skills, investment, innovation, enterprise, and competition. Labour mobility, particularly of low-skilled workers, also affects the ability of localities to respond to economic shocks, such as recession or large-scale redundancy. Professor Michael E Porter’s work (Harvard Business School) on clusters and the nature of competitive advantage points to the importance of factors such as effective co-ordination at a local level, a coherent economic strategy, and the engagement of the private sector for the successful development of regions. His analysis of numerous international case studies points to the need to ensure that policies are tailored to suit specific local activity and that they involve all stakeholders. The English regions need sufficient flexibility and authority to address these challenges.

1.22 The proportion of the population of working age in employment has increased since 1997 in virtually all of the English regions. But there remain disparities between and within regions. (Box 1.5 shows the trends in the proportion of people employed in each region between 1997 and 2000, and also the variation in the employment rate within regions at the end of this period.) The ‘welfare to work’ agenda provides employment opportunities which will help to tackle poverty and social exclusion.

1.23 The 2001 White Paper on enterprise, skills and innovation (Opportunity for All in a World of Change) set out the Government’s aim of increasing the trend rate of growth in all regions, with proposals for enabling people and businesses in every region to respond to change. Box 1.6 shows the trends in GDP per head for all the English regions from 1989 to 1999 (figures for GDP per head in 1999 are shown in Box 1.1). Raising the trend rate of growth by just 0.5 per cent for the worst performing regions would increase GDP in ten years by £20 billion. The Productivity in the UK 3: The Regional Dimension report estimated in November 2001 that, if all under-performing regions improved their productivity performance to at least that of the current average, the average person in the UK would be around £1,000 a year better off.

1.24 Our regional policy is about giving regions the freedoms to make their own judgements about the region’s needs and priorities, within a national framework, and the flexibility to be able to take the necessary action to improve their performance for the benefit of all the people in the region – and for the country as a whole.