Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 60 - 79)




  60. Welcome to our inquiry into regional spending. Mr Macpherson, perhaps you could assist the shorthand writer by identifying your team formally.

  (Mr Macpherson) On my right is Ian Scotter who is Head of the Regional Assemblies Division in the Office of the Deputy Prime Minister and Mr Allen Ritchie who is Head of General Expenditure Statistics in the Treasury; and on my left is Mrs Ros Dunn who is Head of the Devolved Countries & Regions Team in the Treasury and Mark Parkinson who is a policy advisor in the same team.

  61. In your paper last November, "Productivity in the UK—the regional dimension", you noted and I quote, "There are significant and persistent differences in economic performance between and within UK regions." Do the Government have a coherent strategy for addressing those imbalances?  (Mr Macpherson) Yes, I think they do have a coherent strategy. It may be helpful if I broadly set out what I think it is. It is perhaps best summarised in the spending review document that we published in July which, on page 131, summarises it as promoting growth in all the regions through improving the key drivers of productivity at the regional level, strengthening regional institutions and devolving power to the regions and local communities, and promoting a fair allocation of public spending to encourage fairness across the regions.

  62. Who is responsible for implementing what you have just described?  (Mr Macpherson) Accompanying these broad objectives is a public service agreement and three departments are parties to that agreement: the Treasury, the Office of the Deputy Prime Minister and the Department of Trade and Industry.

  63. So three departments are responsible, but which minister leads on this?  (Mr Macpherson) It is worth focusing on which department has a special interest in what. For example, the ODPM is responsible for the Government offices, it is responsible for regional governance proposals; the DTI is responsible for economic development and in particular the RDAs, the regional development agencies; and the Treasury has a broader interest in economic growth and public expenditure as a whole.

  64. I understand that and I understand that a number of departments are responsible for the regions, but who is in charge of the regional strategy? Which minister leads on it?  (Mr Macpherson) The regional strategy is a collective strategy of the Government.

  65. But who is in charge? You say there are three main departments involved in this, but which department takes the lead? Which minister is in charge?  (Mr Macpherson) I think it depends on what particular area is in question. For example, when it comes to the regional development agencies, the DTI is in charge; when it comes to proposals for developing regional governance, the ODPM is in charge. As with any area which cuts across a number of departments, this is a collective process but responsibilities and accountabilities are clear for individual policy strands.

  66. I ask because sometimes in cross-cutting reviews, a minister is designated to be in charge, but no particular minister has been designated in charge of all this?  (Mr Macpherson) In terms of the public service agreement, there are three parties to it, as I say.

  67. Is there a Cabinet Committee in charge of this?  (Mr Macpherson) I think I will ask Mrs Dunn to explain how the Cabinet machinery works.  (Mrs Dunn) When it comes to the PSA target that Mr Macpherson was describing, it is not unusual to have a target that is shared by more than one department and I think that, in those cases, it is also not unusual for ministers to retain individual responsibility for their contribution to the delivery of that target and I think that, in this case, our joint target with the ODPM and the DTI is just like that. On the question of whether or not there is a committee that oversees this, there is a Committee for the Nations and the Regions and I think that, within the Government structure, they will probably take the lead interest in this target.

  68. Who chairs that?  (Mrs Dunn) That is chaired by the Deputy Prime Minister.

  69. Given the number of different spending departments involved, how do you attempt to assess regional needs as a whole?  (Mr Macpherson) I think it is worth looking at it from two perspectives. There is the individual service perspective which will inform how you allocate support, say, in relation to education or health or the police or whatever where there are particular formulae which are based on a raft of indicators, in particular population, things like deprivation and things like cost, which informs those particular services. Then there is also special machinery for determining the allocation to the RDAs. I think it is also important from a more macro perspective to focus on what is going on in the regions to keep a good eye on indicators like regional GDP, labour market, unemployment figures, employment data, and the ONS are increasingly refining the data sets relating to the regions and of course the Treasury has a special interest in monitoring the spending allocations to the regions. In many ways, allocations to the regions are bottom up; they are a function of a sum of individual services. Focusing on the aggregate picture allows you to keep an eye on whether the aggregate allocations are moving in a sensible direction.

  70. So a region's share of public spending therefore is more the sum of its share of individual spending programmes.  (Mr Macpherson) I would not say it is more than . . .

  71. Or is it just that you are keeping an eye on what it is?  (Mr Macpherson) We do have an interest in what it is because we have an interest in improving regional growth rates, not just in the more successful regions but, across the regions, we do have an objective of narrowing the growth rates. So, we are interested in the global arithmetic. If you are asking, is the allocation to the regions determined by some regional formula, the answer is, "no".

  72. So there is no mechanism that assesses regional needs across the departments?  (Mr Macpherson) No, there is not because individual services are determined usually by formulae which are determined at a subregional level, either in relation to local authorities or some other area based calculation. So, I think the view is that, within England in particular, that is a sensible way of determining the allocation of expenditure.

  73. Your document also noted that in 1998 we had the highest variation in GDP per capita at the regional level than any country in the EU. Why do you think these regional imbalances are so much more marked here than in other countries in Europe?  (Mr Macpherson) You are quite right, it is a very interesting fact and it reflects, I suspect, hundreds of years of history. It is clear that regional variations are greater here.

  74. Has Italy not had 100 years or so more of history? Why is it so much more marked here?  (Mr Macpherson) What some of the historical analysis suggests is that quite a lot of these imbalances have been persistent over a long period; they date back to the 1920s or even earlier and, historically, it probably reflects the pattern of industrial developments in the UK. We industrialised early; probably some industries entered into a difficult period earlier than in other countries. If you go back to the 1920s and consider the effects of returning to the gold standard at pre-war parity and the effect that had on the coalfields and so on and, similarly, shipbuilding in areas like the North East and the Clyde. In recent times, the evidence does not suggest that industrial composition is necessarily the main driver. I think what the paper which the DTI and the Treasury put out last year actually suggests is that, if you have a perfectly functioning market, you should not be having big regional imbalances. Migration would generally ensure that income levels and employment levels reached some sort of common plateau. This paper attempts to set out what the market failures might be which are causing these regional imbalances. In particular, it draws attention to issues like skills, enterprise, competition, innovation and investment. Re-reading it again recently, I was struck by how powerful some of the statistics in this paper are. Things like the level of business start-ups: that per 10,000 of the population are six times higher in London than in the North East and that the number of graduates in London are three times those in the North East and yet, in terms of primary and secondary education, the North East does not lag behind the rest of the country so greatly. So, there are big migrations of skills out of some of these regions which is an issue. We can go into considerable detail about some of these drivers and what the Government are doing to put them right.  (Mrs Dunn) I wonder if I might add something to that. I think in answer to your question at the start, the truth is that this is not a perfectly understood position, but the direction that policy has been taking is very much driving us towards improving and deepening our understanding of what makes these regional differences occur and developing policy to deal with that. I think one point to mention to the Committee is that there is in train a study—I will have to get my colleagues to help me on this—on regional productivity drivers that is being part-funded by the Treasury and part-funded by the Office of the Deputy Prime Minister and is expected to report—and I think Mr Scotter may know the answer to this—some time next year. It has been run by the University of Southampton. The point about that is that there is an acknowledgement that we need to get a much better understanding of exactly how to understand why regional differentials have been as persistent as they have been and what policy measures we should adopt.  (Mr Parkinson) It is a DTI project. Another factor to bear in mind is that the regional differences are different in different variables. For example, unemployment is not so regionally skewed as GDP. There has been more of a balancing of unemployment rates over recent years and in fact there are bigger variations within regions in many cases than between regions. So, when we are talking about imbalances, it is important to define what are the variables in question and GDP is probably more unbalanced than some other variables.

Mr McFall

  75. Mr Macpherson, would it be fair to sum up what you have said by saying that you really do not have much of a clue as to why these things are happening?  (Mr Macpherson) I think we do have a clue but we can always learn more and I think that certainly with the greater emphasis on regional policy in Whitehall in recent years, there is a great determination to actually create a great debate both with the academic community and so on to try and dig deeper.

  76. Can I come back to the Chairman's original question to you. He was asking about the regional economic imbalances and you said in response that you have an interest in narrowing the growth rates, and rightly so, but how does this take place in Whitehall? Say Area A has a real imbalance in growth rates and you identify this area, how do you go about and how are you going about presently ensuring that the balance is maintained in that? So, what is the strategy and who is in charge of it?  (Mrs Dunn) Two of the witnesses here are the officials—I am one and Mr Scotter is another—in two of the departments that are co-signatories to the public service agreement target, which includes the long-term ambition to reduce the difference in growth rates. This is a rather bureaucratic answer but, underpinning every public service agreement across Government, there are a number of supporting pieces of documentation that we use to drive the process forward. One of those will be a technical note which explains and defines how a target will be met, what has to happen for a target to be met, but far more important in our view is another piece of document which is called a delivery plan and that sets out very clearly for the individuals in each department exactly what they have to do to meet the target. So, Mr Scotter and I and other officials in the DTI will work closely on this and the process will involve us talking to other Whitehall departments as necessary and the focus is very much on what it is necessary to do to deliver this target.  (Mr Macpherson) I think it is also worth making the point that you cannot run regional policy solely from Whitehall. This is why devolution is important and why strengthening the regional bodies is important because if you have decision makers in the actual regions involved in the regions, the chances are that they will make economic decisions there which reflect more clearly the needs of the regions and that is why the institutional agenda is very important.

  77. If I could just sum up. Is it fair to say that there is no driver at Whitehall, the driver is at regional level, and that at Whitehall you are co-ordinating, you are working at local level?  (Mr Macpherson) The tricky thing here is that a lot of the allocation mechanisms are service specific, so how much a particular city, say in the North East, gets in terms of its standard spending assessment will be driven by some formula which will be ultimately determined in Whitehall. In terms of developing regional strategies, that increasingly is the regional institutions.  (Mrs Dunn) I wonder if I might also mention the role of the regional co-ordination unit which is part of the Office of the Deputy Prime Minister that actually has a much wider responsibility.  (Mr Scotter) The regional co-ordination unit is responsible for ensuring that those Government policies which are delivered through the Government offices for the regions are delivered effectively. I would like to add to what Mr Macpherson has said by saying that there are existing policies that are tackling the issues, the five drivers that are identified in the Treasury document. The most obvious one of those is the regional development agencies which are the Government's main drivers of economic development in the regions. They have been given a lot of flexibility in the use of their budgets. They determine the regional economic strategies for their regions. Similarly, the learning and skills councils working in the regions tackling the skills issues and, in my own department, there are issues like planning and housing which can contribute planning strategies which can contribute to reducing the gap in growth and to promoting economic growth in all of the regions. I think there are a number of policies which are in many ways decentralised to the regions, but which have ministers who are responsible for driving that activity and putting them forward. So, I think it is more than a co-ordination activity at the centre in Whitehall, it is making sure that all those things are moving in the right direction in the regions.


  78. Professor McLean has written a paper called The Fiscal Crisis of the United Kingdom. His conclusion, as you may know, is that the only way to address the unfairness in the current arrangements for allocating resources is to use the same formula to distribute grant to both the devolved and the non-devolved parts of the UK; do you agree with that?  (Mr Macpherson) I think it is fair to say that the allocation mechanisms for Scotland, Wales and Northern Ireland reflect a whole lot of historical factors. They also reflect the fact that they have devolved administrations. The fact is that, in England, the structure is such that individual services have their allocations of expenditure determined by individual formulae and I think that, as far as the present state of play is concerned, that is a reasonable way to do it. It reflects the historical relationship between London and the regions. The McLean proposals reflect a very different constitution than we have in the United Kingdom.

  79. Do you accept that the current system you are defending has actually led to unfairness in terms of resource share allocated to different parts of the United Kingdom? Do you accept that or not?  (Mr Macpherson) No, I do not accept it.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 10 December 2002