GRANTS FOR BUILDINGS, MACHINERY, PLANT AND CERTAIN WORKS (Hansard, 31 July 1972)

§ Mr. David Steel (Roxburgh, Selkirk and Peebles)
I beg to move Amendment No. 44, in page 2 line 34, at end insert 'but must so designate as a special deevlopment area any development area in which average industrial earnings have been more than 15 per cent. below the average industrial earnings for Great Britain as a whole for a period of five consecutive years'. We are at that point in the Bill which gives the Secretary of State power to order and designate special development areas. It goes with the extra inducements which the Government permit for industrial development in the special development areas.
The Bill urges the Secretary of State to exercise his powers and to have regard to all the circumstances actual and expected, including the state of employment and unemployment, population changes, migration and the objectives of regional policies. My right hon. Friends and hon. Friends and I wholly support this part of the Bill, as we do the Bill as a whole, but we should point out to the Government that it is our experience that in certain parts of the country, development areas such as my constituency and South West England, where, in a development area, a special development area is designated, with all the higher incentives that that involves—it means 2 per cent. on grants for machinery and for buildings, and more particularly on the five years rent-free provision for Government-built factories—these are inducements of particular interest and of material difference to small industries which may wish to set themselves up, perhaps having been refused an indiustrial development certificate in some overcrowded part of the country.
I believe that the special development areas by and large have been created because of very high and severe unemployment, and that is wholly right and proper. Those areas are on the search 189 for large-scale employers who will come into the area and who will provide a large measure of employment but they tend, unfortunately, to suck into them also the small independent factory owner or the person thinking of setting up a small branch factory, employing anything from 30 to 100 persons. This makes a negligible contribution to the relief of the high unemployment, but a small unit of that size could make a substantial contribution to certain rural areas or small towns in Scotland, England and Wales.
What I have felt for some time is that there could be some form of discrimination when dealing with special development areas or incentives for the urban industrial areas with a limit, whether in square footage or number of persons employed, below which those incentives could not be made available. The smaller units would then be encouraged to go to places where they could make a substantital impact on the social and economic fabric of the community.
Within the terms of the Bill there is an opportunity to go in that direction by writing in a provision stating among the factors which the Secretary of State had to consider was the question of the level of earnings in any part of the country. It is interesting that the average wage levels throughout the country vary very much from one part to another. This is shown in the abstract of regional statistics. The average weekly earnings for manual workers aged 21 and over last year was £26.2. That figure conceals a wide regional variation. In the Coventry belt the average weekly earnings were £31.80p; in Merseyside £28.9p; in Greater London £28.3p; South Humberside £28.8p. These were at the high level. At the other end of the scale, in the southern area of the South-West Region the figure was £22.5p; in the western area of the same Region £21.9p; in the North-East of Scotland £22.2p; and in the Borders of Scotland—and here I declare my obvious constituency interest—the lowest figure of all, £20.50p. That is a strong contrast with the Coventry belt with average earnings of £31.80p.
This is a serious national problem which successive Governments have tended to ignore. Average levels of earnings available from region to region have a marked effect on the pattern of employ- 190 ment and industrial development and in particular make an impact on school leavers and others deciding whether to take up employment within a region or to go elsewhere to seek their fortune.
It is because I believe that the Government should pay more attention to the very substantial variations in the levels of earnings from region to region that I move this Amendment requiring the Government to designate as a special development area any part of Britain which falls seriously below the average earnings level throughout the country as a whole.
I hope that the Government will accept that this is a constructive Amendment and that it will be welcomed in the Minister's reply.

§ Mr. J. Bruce-Gardyne (South Angus)
I oppose the Amendment. I do not think that it will serve the purpose that the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) suggests. He has argued that his constituency and others like it—my own included—will witness, as the Bill is drafted and as the present differential incentives are constructed, the vision of small firms which may he better suited to areas such as those that we represent going to special development areas. If that is so, I cannot see that the hon. Gentleman's Amendment serves any advantage in this context, and I thought that his main case had nothing to do with the Amendment at all.
On the whole, I think that the extension of special development areas in the last two years has been misconceived. Special development areas were designed to deal with the special problems of communities where the essential industry was mining and the mines had been closed; in other words, areas where by definition that was no alternative industrial employment. Arguably, the incentives offered by special development area status were of value in this context. But we have now established a series of new special development areas of a different character. The whole of the Glasgow conurbation, a large area of Teesside and Tyneside and similar areas where there are very substantial variations of job opportunities and industries available have been made special development areas. I do not think that the special 191 development area status is at all well conceived for areas of this type.
One of the most important special incentives offered by special development area status is the availability of the 30 per cent. pay roll subsidy to incoming industry. In an area where there is already substantial industry established, such as the special development areas of Clydeside, Teesside and Tyneside, the incentives offered by special development area status are highly discriminatory against established industries. They offer to incoming industry the opportunity either to undercut the established wage structures or to absorb the subsidies into their pricing structure and under-price the established industries.
I have always argued against much opinion in my own part of Scotland that although many parts of Tayside have had levels of unemployment comparable or even higher than those prevailing in the Glasgow special development area, if we were given special development area status we should suffer from precisely the complaint which has been voiced in the Clydeside special development area, namely that existing established industries were finding themselves discriminated against through the pay roll subsidy in favour of incoming industries.

§ Mr. David Steel
Would not the hon. Gentleman accept that one of the objects of this exercise is to improve the level of wages in areas such as those which he and I represent? If the inducement of Government rent-free factories for five years plus the operation of the subsidy resulted in more industry going to those areas with the result that wage levels rose, surely this would be to the benefit of the economy as a whole.

§ Mr. Bruce-Gardyne
I do not think the best way of improving the level of wages in these areas is to provide a discriminatory subsidy to incoming firms. Even in the case of the incoming firms there is by no means necessarily an assumption that this would lead to the payment of higher wages. Obviously, it could have that effect, but it is within the judgment of management as to the end to which they put the pay roll subsidy. All I am saying is that it has a highly discriminatory effect in an area where there is a substantial variety of industry already established.

§ The Under-Secretary of State for Trade and Industry (Mr. Anthony Grant)
While the comments that my hon. Friend is making are wholly justified in connection with the previous regional incentives, the bias in favour of incoming industry disappears under our new proposal.

§ Mr. Bruce-Gardyne
I do not think there is any proposal in this Bill to eliminate the pay roll subsidy, which is the most important of the discriminatory incentives embodied in the special development area legislation. If I am wrong about this, perhaps one of my hon. Friends will correct me, but, so far as I know, there is no provision in this Bill to correct that discrimination.

§ Mr. Grant
If my hon. Friend is referring to REP, I should point out that it is, of course, to be phased out.

§ Mr. Bruce-Gardyne
I am not referring to REP. The provision that I am referring to is the provision in the special development area legislation of a 30 per cent. pay roll subsidy, and this is not altered by any provision in this Bill. Is my hon. Friend saying that I am wrong?

§ Mr. Grant
With respect, I think my hon. Friend is wrong.

§ Mr. Bruce-Gardyne
I hope that when my hon. Friend answers the debate he will explain how it is that the existing provisions governing special development area status have been changed.

§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Is my hon. Friend referring to the operating grant for incoming industry, which is 30 per cent. of the pay roll?

§ Mr. Bruce-Gardyne
Yes, I am.

§ Mr. Anthony Grant
That goes.

§ Mr. Bruce-Gardyne
My hon. Friend says that it goes. I am not sure under which provision of this new legislation that goes, but perhaps my hon. Friend will be able to clear it up.
I turn to the underlying argument behind the Amendment, and that is that those areas which appear to suffer from very substantially below national average wage structures should be interested in, seeing the level of wages in their area 193 brought up at least to the national average. Of course, I accept that there are two sides to this argument. I suppose that the best argument that could be advanced for eliminating the wage differential between different parts of the country is that those parts of the country which suffer from relatively low average wage rates, such as the area represented by the hon. Member for Roxburgh, Selkirk and Peebles, are unattractive to service industries and have a relatively low purchasing capacity which discourages the large multiples from moving in.
I can see the force of the argument, but there is the countervailing argument that the effect of national wage negotiations in squeezing out the differentials in wage rates between different parts of the country may have had the effect of discouraging development in areas such as those represented by the hon. Gentleman and myself because, while it may be true that relatively low purchasing power can have the effect, at a certain level, of discouraging the implantation of service industries, on the other hand, the availability of a somewhat lower wage structure may in itself serve as an incentive to incoming industry, and particularly labour-intensive industry.

§ Mr. David Steel
Do I understand the hon. Gentleman to be advocating as one of the inducements to come to the Borders or Tay side—because the hon. Gentleman is aware of the level of wages in his area—the low level of wages now prevalent? If he is, I find that a pernicious argument.

§ Mr. Bruce-Gardyne
What I am saying is that there are a variety of incentives which may be offered to incoming industry in an area where labour is available, and that among those may be the consideration that labour is available somewhat more cheaply than in other areas.
I accept that one can deal with this problem of the effect of national wage negotiations, particularly by monopoly trade union power, in a variety of ways, including the one which we argued on Friday afternoon with which I am very much enamoured, namely, the idea of a congestion tax for employment in areas of excessive development. All I am saying is that I question whether the acceptance of the Amendment to establish 194 special development area status for areas which at any given time had average wage levels substantially below the national level would be in the interests of those areas themselves.
Once again we have seen that the major effect of establishing various gradations of discriminatory incentives for incoming or established industry in particular areas is not to satisfy the areas that receive them but to inflame the discontent of the areas which do not.
The conclusion that I have drawn for a long time is that, on balance, we do more harm than we can do good by the attempt to devise various neatly patterned and more and more complex system of graded incentives for different geographical areas of the country. I believe that we would be better advised to concentrate on a policy which identified areas of genuine potential growth and dealt with the underlying problems of those areas, instead of trying to devise more and more elaborate schemes of differential incentives which do not satisfy those who receive them but infuriate those who do not.

§ Mr. Edmund Dell (Birkenhead)
The hon. Member for South Angus (Mr. Bruce-Gardyne) is right in saying that the whole concept of special development areas has been changed under this Government compared with what it was under the previous Administration. The concept of special development areas was changed at the time at which all development area differentials were severely downgraded in the October, 1970, clean sweep of the regional policies of the previous Government, and we now have the after-effect of that, in that we are maintaining that new concept of special development area at a time when the whole of that changed regional development policy is being reversed. One of the effects is that existing development areas, many of them with very serious problems, which have not been upgraded, find themselves discriminated against. The Amendment suggests a specific criterion by which special development areas are to be declared. My forecast is—and I hope that I am wrong—that the Government will not accept the Amendment, but if they do not accept it they should inform us by which criteria they proceed in nominating special development areas.
195 I have many times brought to the attention of the Government the existing facts in my constituency and the development area with which I am concerned. I have drawn attention to the fact that unemployment in my constituency has doubled in the last two years, and that long-term unemployment—unemployment for longer than eight weeks, which is perhaps the most serious measure of the situation—has, in respect of men, trebled, and in respect of women, quadrupled. I have asked the Government to declare a special development area on Merseyside. I have had no reaction. I put it to the Secretary of State for Employment and the Secretary of State for Trade and Industry, and I had no reaction from them.
11.30 p.m.
I have asked why this change in circumstances is not sufficient to achieve the object of declaring a special development area of Merseyside. The Government know of the rundown in employment in the shipbuilding and in the ship-repairing industries. The Minister for Industrial Development is kind enough to receive a deputation, including myself, next Thursday. These are the facts of a most serious worsening of the position in the development area, yet the Government have not reacted to the proposal to establish a special development area on Merseyside. They should do so.
Therefore, if the Government react by saying that the Amendment is not acceptable, they should make clearer than is at present the case the criteria which they adopt for scheduling special development areas, and should say why, given the very serious set of circumstances I have outlined to them, they are not prepared to declare a special development area on Merseyside.

§ Mr. Antony Grant
The right hon. Member for Birkenhead (Mr. Dell) is right in one sense, which is that I shall be inviting the House to resist the Amendment, but he is wrong if he imagines that I shall designate Merseyside a special development area in the course of this debate.

§ Mr. Dell
I did not ask that.

§ Mr. Grant
Perhaps I can first deal with the point raised by my hon. Friend 196 the Member for Southern Angus (Mr. Bruce-Gardyne). I entirely agree that there was substantial criticism—and I know that he was in the forefront in making it—of the unfair bias, as it was argued, of the incentives which favoured incoming industry as opposed to existing industry in special development areas. This arose over the operational grant, and it was just because we took note of those criticisms from both sides that we have in the Bill sought to avoid that discrimination. The operational grant goes out with the repeal of Section 4 of the Local Employment Act and is replaced by Part II of the Bill. It is the Government's intention that this bias should disappear.

§ Mr. Bruce-Gardyne
To get this matter absolutely clear, is the operational grant, so-called, the payroll subsidy in the first three years, payable neither to incoming industry nor to established industry?

§ Mr. Grant
Yes. The incentives we offer in the Bill are equally payable to existing as well as incoming industry. That is what I am saying.

§ Mr. Ridley
My hon. Friend has said that the incentives were available to incoming and existing industry. Does that mean that the operating grant will be paid to either or that it might be paid to both?

§ Mr. Grant
It will be paid to neither, but both sections will be available to take advantage of the incentives in the Bill.
I listened carefully to what the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) said regarding the significance that should be attached to low earnings in determining whether an area should be given SDA status. I sympathise with much of what the hon Member said, even though I am not prepared to go as far as the Amendment proposes. It seems to be mistaken to require, as the Amendment requires, the Secretary of State to designate an area as an SDA solely on the basis of a particular statistic relating to that area. That would seem to be wrong. I accept that often low earnings accompany high unemployment and a declining or stagnant population. But that is not always so.
For example, taking a hypothetical situation, let us suppose that the average 197 industrial earnings in an area were 15 per cent. lower than the national average. Would it be right to grant it SDA status without question—which is what the Amendment would mean—while denying that status to someone else where, perhaps, earnings were a point or two higher but unemployment was much worse? Such a decision would be hard enough to justify even though there was no question that the average earnings statistics were not a completely true reflection of relative living standards. But statistics are inevitably influenced by such factors as the age structure of a locality and its industrial complex. In short, we could be putting too much weight on a single consideration measured in a particular way.
For those reasons I believe that it is much better to rely on the formula proposed in Clause 1(4). This requires the Secretary of State to have regard to all the circumstances actual and expected, including the state of employment and unemployment, population changes, migration and objectives of regional policies. This wording would clearly include the general prosperity and living standards of an area along with all other relevant considerations, including those specificcally mentioned.
Therefore, although I have sympathy with the thoughts behind the Amendment, it would be impracticable. For that reason, I invite the House to resist it.

§ Mr. David Steel
On the basis that the Minister has said that he viewed my remarks with much sympathy, I accept the argument that it is difficult to lay down a specific criterion. But I hope that the Minister will accept that the levels of wage earning in a particular region ought to be one of the criteria which are taken into account. Therefore, if my noble Friends in another place seek to move a more moderate Amendment on that basis, I hope that the Government would be willing to accept it.
The Minister will agree that there is a clear distinction between the point raised by myself and that raised by the right hon. Member for Birkenhead (Mr. Dell), who asked about the designation of a particular area. Under the Bill as drafted, quite clearly the Secretary of State has power to take account of the state of employment. How he uses that power 198 is a matter of discretion, but it is clearly stated in the Bill. What I complain about is that it is not clearly stated in the Bill that one of the circumstances which the Government shall consider is the level of wage earning in a particular region. I am anxious that that should be considered.
I accept the Minister's criticisms of the Amendment as drafted. I hope that the Government will look sympathetically at a more reasoned Amendment proposed in another place by my noble Friends.