Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 140 - 159)



Mr Cousins

  140. Which way would you adopt if your concern was closing the gap in terms of regional productivity and economic performance?  (Mr Ritchie) They both give you information.

  141. You would need to have the input figures on something like defence spending, would you not? We do not have them, do we?  (Mr Macpherson) One of the areas Professor McLean is looking at is indeed this. We can always seek to improve. That is an issue which should be considered.  (Mr Ritchie) This is something that Professor McLean's project is looking into.

  142. Is there a Treasury project?  (Mr Ritchie) The Treasury is partly funding the ODPM Project out of the Evidence Base Policy Fund. The reason we are doing this is the output we expect from this project is a better evidence base, it is a better understanding of the allocation funding expenditure by region, partly a quality check on our own numbers. Professor McLean is specifically looking at defence expenditure. Professor McLean is well aware of the fact that there are different ways, two basic ways, which you can allocate public expenditure by region, what he refers to as the "for" and "in" methods, and defence you can only do by the "in" method. Part of the project will be looking at defence and seeing what kind of numbers are out there. It is partly a feasibility study.  (Mr Macpherson) There are, presumably, also operational issues around defence which will be more important than an economic argument for putting defence installation into certain areas.

Mr Laws

  143. Can I very briefly ask for clarification on this defence issue, to take an extreme case where we decided the only threat to our security was from France, or something like that, and we wanted to put our entire Armed Forces into Kent or the southeast, or something like that, we do all of the recruitment and we evacuate the whole of the rest of country would it be the case, in the way that you look at things, that you would say, we are still not going to allocate that expenditure and "benefit" to the southeast as a region because they are in the southeast to defend the whole country. That is how you do it at present, is it?  (Mr Macpherson) That is how we do it at the moment. It is far from clear that evacuating Kent and putting all of the Armed Forces in it is necessarily to the benefit of the current Kent population.

  Chairman: It is not. I can help you on that.

Mr Laws

  144. To follow that on with a very brief supplement, surely it would only be relevant if the composition of those Armed Forces and their pay, for example, was way out of line with the rest of the country. If they were the lowest paid profession then the people living in that part of the country might not think it a benefit, if they were getting five times the amount of a Treasury civil servant then it might be regarded as being relevant. Would you accept that it could be relevant if there were a marked difference in characteristics between the Armed Forces and the rest of the working population?  (Mr Macpherson) These will all inform income in a particular area. Clearly if you populated a region solely with low paid public servants that might have an effect on regional GDP.

Mr Mudie

  145. Yes, of course it would. That is exactly the point, if you put the Army in Scotland, Scotland's GDP would go up and it would have a side effect that all that money would be spent in Scotland, business would be set up and you would get economic activity that would keep it moving. That is the whole point. The Treasury do not see that of interest in underpinning this strategy. That is what we find absolutely unbelievable.  (Mr Ritchie) We never said this was not of interest.

  146. I am glad you think it might be of interest. When is this regional policy going to deliver, next century? If you do not think it is of interest now when the hell are we going to get a policy that works? That is what is coming across.  (Mr Macpherson) History does suggest—

  147. History!  (Mr Macpherson)—that a lot of regional policies through the 50s, 60s, 70s and 80s would try, and a lot of them failed, freezing industrial structures, trying to run regional policy from Whitehall.

  148. Who suggested that? I suggested if you took a few thousand people and based them in Scotland Scotland's GDP would go up. We are sitting here saying we are trying to equalise and move it, and you say I am running it from Whitehall. What has that got to do with it?  (Mr Macpherson) All departments are under pressure to deliver services in a more cost-effective way. If you think it is more cost-effective putting all of your relevant employees in Scotland then clearly departments should be pursuing that strategy.

  Chairman: Right.

Mr Plaskitt

  149. In paragraph 1.8 of the regional dimension you say a lack of convergence in the medium and long term is a likely indicator of serious market failure and this suggests there may be unrealised economic gains in large parts of the UK economy. I want to look at the "serious market failure" comment for a moment or two. You then go on to say that you have five key drivers to tackle the productivity problem, skills, investment, innovation, enterprise and competition. Let us take enterprise, what are the key policies in place to push the enterprise button?  (Mr Macpherson) One thing which was identified in this paper was the whole issue of venture capital and how venture capital is very much skewed in favour of London. One policy I would identify is the creation of regional venture capital funds. There have been a lot of other policies designed to encourage enterprise in the deprived areas, such as the Phoenix Fund and also policies to do with universities, designed to encourage activities in the regions.  (Mr Parkinson) Community investment tax credit scheme, stamp duty relief.

  150. What results have we had from those so far?  (Mr Macpherson) It is fair to say that—

  151. What have they contributed to get convergence?  (Mr Macpherson) It is very early days.

  152. It is early days. When should we expect to see them make a significant contribution to the convergence we are hoping to see?  (Mr Macpherson) There are certainly aspects of this which are fairly imperfect science. What is clear is that some market failures are easier to tackle from government. I would particularly highlight the whole skills agenda, where it is reasonable to expect government to make progress on education, skills, employment services and areas like that. Also with areas round housing and planning, it is reasonable to expect government to make progress. Enterprise clearly is an important issue but the scope for government to influence it on a massive scale is inevitably limited.

  153. You have identified it as one of the five key drivers, presumably you think you can do something?  (Mr Macpherson) Clearly policy needs to be implemented with the grain of an enterprising economy and a lot of measures have been taken through, the small business service and other agencies, to try and encourage enterprise.

  154. The business start off figures tell a potent story when you look at the regional distribution of those.  (Mr Macpherson) They certainly underline that there is a big challenge.

  155. That is why we are looking for devices to help us address that challenge. Is there a role for regional selective assistance?  (Mr Macpherson) Regional selective assistance clearly has a role in regional development otherwise we would not have it.

  156. Is it working?  (Mr Macpherson) I think a lot of analysis has been done about the whole system. We talked earlier about approaches. Some approaches are more successful than others in economic policy terms.

  157. How much money is going into the regional selective system programmes?  (Mr Macpherson) It is something like £100 million a year, something like that.

  158. How many jobs is that supporting as a result of that investment?  (Mr Macpherson) I do not have that information. We can get the DTI to provide a note.

  159. We have had a paper from Dr Colin Wren's from the University of Newcastle who thinks that that £100 million is supporting 7,000 jobs. Do you think that is probably right?  (Mr Macpherson) As I say I would like to get the DTI to provide some figures.

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