Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 100 - 119)



Mr Mudie

  100. I am still struggling with this because even if you go off on the Barnett formula, you lose the overall perspective that Scotland is as depressed as the North East and so, although there is more money going in, if you look at certain parts, if you look at the Barnett formula, it is a depressed country that suffers all the low GDP et cetera, et cetera. I am just stepping back . . . Why is that amusing? This business of the Barnett formula is an argument but, if that were resolved, and we were lining up the country, London is the objective in terms of good GDP, employment et cetera and the others all lag behind. I am just amazed that you come before us and it seems to be a bit of fun. Mr Macpherson, give me three initiatives that the Treasury are pushing in this review to meet the objectives in terms of equalising GDP in the regions. There you are. Never mind the Barnett formula. We will not fall out with the Scots. London would love us to fall out with the Scots because that would take it away from the establishment and the grip London has on GDP and money and resources. You are doing a review you tell us. Surely the Treasury must have tabled things in the review to say, "Our objective is to reverse this 300 year trend of inequality." Come on, put the three big ideas that you must have and you must be arguing with the DTI about in this review. Mr Cousins is right, we would like to see a massive change in terms and we are going to have to do something with skills and we are going to have to do something with education. Is there an argument behind the scenes and are the Treasury pushing in that massive investment, additional investment, going into the regions to help us catch up? Tell me. It is no joke. Why do you smile at me?  (Mr Macpherson) I do not think it is a joke at all. I would say that London is a difficult subject in the sense that it is—

  101. Step aside from London, the South East if you wish, but let us just take Yorkshire, there is the North West, there is Scotland, and they are all areas where the GDP is low and you have as an objective equalising the GDP. If you have that objective and the political masses have given you that objective, I would expect a good civil servant to be working on a brief that has a series of policies, palatable or non-palatable, to put before the Minister, "If you really want us to meet these objectives, these are the things we have to do." Can you enlighten this Committee. Do we have any policies being argued in this review that actually starts that move?  (Mr Macpherson) I have mentioned the issue of how money is allocated to local government and to health. I would just mention in passing that we had a special cross-cutting review of health inequalities and the Department of Health has already mentioned that, in revising its formula for health allocation, inequalities—

  102. Can I stop you there. Health is fine but on the social end in terms of skill and education and actually dealing with the growth aspect, if we actually want the North East to start earning brass, to starting having high income, what is the Treasury's view on how that must be done?  (Mr Macpherson) I can go through a list of measures in the spending review, so I will try and mention a few.

  103. The big ones.  (Mr Macpherson) The first one which comes to mind is the further strengthening of the RDAs. We have provided for real growth in the RDA budgets of 4.5 per cent real of the year, so the so-called single pot rises to £2 billion by 2005-06. In co-operation with the ODPM and others, we are seeking to actually strengthen the role of the RDAs.

  104. But you are not pushing it into regional government. In the White Paper, you are keeping it separate from regional government. The RDAs are going to be independent as will the learning and skill councils.  (Mr Macpherson) Alongside that, I would also mention how the review committed the Government to ensuring greater working between the RDAs and learning and skills councils to give the RDAs greater role in how the money is allocated to improve skills. Similarly, with regard to the role of the RDAs, we are piloting measures to strengthen their role in relation to the provision of local services to business, small business and so on, so again to give this greater strategic focus to the RDAs. I would also like to mention housing where the spending review committed the Government to creating greater strengthened regional bodies in relation to—

  105. Can I just stop you and ask you my last question. In terms of the RDAs, they have been going three years. Can you point to any of those areas that we have mentioned where we can see specific increases—and we can see the difference between the South East RDA allocation and the North East RDA allocation - in those three areas, so that we can see that there is a natural policy of putting in resources in specific areas in greater numbers than are going in the South East RDA, and will you be able to back this up with a paper that we can see as part of our deliberations?  (Mrs Dunn) What we can provide you with is details of how the allocative mechanism for the RDAs' expenditure is calculated. I think it is worth making the point that although the decision to pool all the various funding streams together was taken a couple of years ago at the last spending review, in fact the allocation on the new basis has only started from this year. So, the funding mechanism that we use is only in effect from the beginning of this financial year, but we can let you have a note that explains both what the factors in the formula are and what impact that has had upon the allocations.

  106. Behind the scenes, the Treasury is arguing for greater amounts of money going into those to back up this policy and it will be done and it will be demonstrated in the figures?  (Mr Macpherson) I think the Government are agreed that the formula should reflect the sort of key factors which generally are going to result in the North East getting more money than the South East.  (Mr Scotter) I think that when you see the figures—and I do not have them with me—you will see that the amounts per head going into regions like the North East or the North West are substantially greater than the amounts per head going into the South East of England. On another point, it is the Government's proposals that regional development agencies will become a responsibility of elected regional assemblies when the elected regional assemblies are set up. The RDA for a region will no longer report to ministers, it will report to—

  107. It will stay independent of the authority?  (Mr Scotter) It will be an executive arm of the elected regional assembly.

Mr Cousins

  108. The regional development agencies are not to be dismissed or decried, but if we look at Government expenditure as a whole, taking out social security and looking at it across the board, not just at RDAs but at trade and industry and all the employment spends, all those spends are about three per cent expenditure per head that can be identified. They are a tiny chunk of expenditure. Even if you look at that sector, there is virtually no difference in spending between the English regions. The North East has £3 per head more than the English average across that sector. That is right, is it not?  (Mr Scotter) You are looking at the line for trade and industry and employment in the table where the figures are £113 for the North East and £110 for England?

  109. Yes, £110 for the North East and £110 for England. I have to mention that it is £196 in Scotland.  (Mr Macpherson) That is what the table says, yes.

  110. So we should not make too much of all this stuff about RDAs because that is a small component of a sector of spending which is three per cent of the total spending per head outside social security and, when we look at that sector, the North East gets £3 more per head.  (Mr Macpherson) That relates to 2000 and 2001.

  111. Exactly.  (Mr Macpherson) The RDAs will have come a long way by the end of the spending review period.

  112. Can you update those figures then?  (Mr Macpherson) We do not at this stage publish plans on a regional basis because, in many cases, that is not how spending is actually planned, so you can only work out in retrospect what it was.  (Mrs Dunn) I wonder if I can just add a point about that. I think it is slightly misleading simply to look at the total budget that the RDAs have available, which admittedly in terms of public spending is not great, but the question is what we expect them to do with that and one of the things that I think would also be quite helpful for the Committee to see is actually what the RDAs are able to do in terms of the way in which they are able to exert a strategic influence in their region and the way in which the decisions that they make are actually going to improve regional productivity through, for example, the preparation of regional economic strategies which then enable all the partners working in the regions to focus their activities and to focus their delivery. It may be that because regional development agencies are not large organisations they do not spend terribly much on themselves, but the impact they have in a region is not necessarily simply related to, if you like, input. If you think about the output as opposed to the input, you may be getting quite significant benefits from that spending.

  Chairman: This is a huge subject and I have to tell you that we are only one-quarter through our agenda, so we must move on.

Mr Beard

  113. Moving to the data and statistics on which the original policy is based, I have a quotation here from the Statistics Commission which is charged with ensuring that national statistics are really up to the job. Let me quote this. This is a report of 2002. "There is an increasing need for an emphasis on data below national level. Production of such data is one of the most important issues for national statistics at the moment. As well as pointing to production of more disaggregate estimates, this raises the question about the fitness for purpose of existing estimates such as regional level gross domestic product whose original uses may have been less demanding than current needs. Regional GDP estimates are now used in a wide range of contexts including allocation of EC structural funds and public service agreement targets for regional growth as well as being important for devolved administrations." When you are determining allocations and working on regional policies, do you have a better basis of GDP estimates than is being commented on there?  (Mr Ritchie) I think the short answer is "no". Those are national statistics; those are the official estimates of regional GDP. The Government produce a lot of regional data and the Office of National Statistics do, but with the way that regional policy is, the regional agenda becomes more important. You are quoting from . . .?

  114. I was quoting from the Statistics Commission's annual report and they are commenting, as they are required to do, on the adequacy of national statistics.  (Mr Ritchie) I think the Statistics Commission were commenting on the annual report on national statistics which is produced—

  115. They are commenting here on the adequacy of regional and subnational GDP estimates.  (Mr Ritchie) It is a technical question that I think you are probably best to—

  116. It is not a technical question.  (Mr Ritchie) It is a technical question.

  117. My question is about whether you have a better foundation for regional policy than is being reflected in the national statistics. The other question that arises is, if you do not have, what impact do these apparent shortcomings of the national statistics on GPD at regional level have on your ability to properly make regional policy?  (Mr Ritchie) I am not sure that I accept that they are inadequate. They are the best we have.

  118. I have quoted to you the opinion of the Statistics Commission who are charged with judging the adequacy or otherwise of this sort of information, and they are saying essentially in the passage which I have just quoted that they are inadequate.  (Mr Macpherson) I would argue that they are quality assured, but clearly there is always scope for improving them. The emphasis on regional policy within the Government means that the quality and quantity of statistics has improved and we and ODPM are working on a number of projects to facilitate that.  (Mr Parkinson) There has been a delay this year in the production of the regional GDP figures because the ONS have been taking on board new data sources. They are actively improving figures, so that I would imagine that the figures which will be produced later in the year will be of better quality than the figures now.

  119. But that answer is not consistent with what is being said here. It says here that the original estimates for GDP figures were used for purposes quite different to what they are being used for now and that the present purposes mean that the accuracy of the present GDP regional estimates are not up to the job. That is what this quotation means.  (Mr Parkinson) As I say, the ONS are putting more resources in and are improving the regional GDP figures because they realise—

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