§ 4.34 p.m.
§ Mr. John Smith (Lanarkshire, North)
My purpose in this debate is to draw attention to the decision recently confirmed by the Government to phase out the regional employment premium from September 1974.
The history of this premium goes back to 1967, when the Labour Government introduced it for a guaranteed seven years. The Conservatives opposed it then and in their last election manifesto they sniffed at it. In 1970, during their lame duck period, they said that they would abolish it at the end of the seven years. However, during the re-think of regional policies set out in the White Paper of 1972, the Government's commitment was changed to phasing it out after September 1974 in consultation with both sides of industry. I understand from a parliamentary answer last week that formal consultations with both sides of industry are to start shortly.
I urge the Government to change this decision. There are now widespread fears on both sides of industry and, I believe, within the Government that the abolition of REP will increase regional unemployment. It is worth £100 million a year to the development areas and £40 million to Scotland alone. The Confederation of British Industry, which previously opposed the premium, now asks the Government to keep it for four more years. It predicts regional unemployment increase, if it disappears, of 20,000 to 50,000. The TUC favours its continuation. During the abortive discussion between the TUC and the Government, the retention of REP was one of the factors that the TUC put on the agenda.
Last week, witnesses from the Department of Employment, giving evidence to the Trade and Industry Sub-Committee of the Select Committee on Expenditure, admitted that forecasts of 20,000 to 40,000 extra unemployed were accurate.
§ The Financial Secretary to the Treasury (Mr. Terence Higgins)
I am sorry, but I was distracted and missed the figure for unemployed that the hon. Gentleman gave. Could he repeat it?
§ Mr. Smith
I was referring to the evidence given by Department of Employment witnesses to the Trade and Industry Sub-Committee, when they accepted estimates that at least 20,000 jobs would be lost by the abolition of REP. Mr. J. H. Locke, the Deputy Secretary with oversight of manpower, employment services and training divisions, said that the unemployment range was from 20,000 to 40,000. I quote from The Guardian of 12th April, which I imagine is accurate. No doubt the Minister will be able to tell us whether the Government agree with their civil servants.
I hope that the Government are not irrevocably committed to this decision. We know from this Government's history, particularly in regard to regional development, that in the past events have forced them to think again, particularly over grants to industry in development areas. When they begin formal consultations with industry, I hope that they will not be confined to methods of phasing out REP, and that the Government will keep their minds open to representations that they will receive that it should be retained for at least another four years. I fear the consequences for regional development and employment if REP goes.
No one would dispute that we still face great employment difficulties in many regions. The serious long-term unemployment problem relates not to the overall figure for the United Kingdom but to a deep-seated regional problem that persists in good times and bad. It is part of the accepted history of our economic development since the last war that there has been this persistent regional unemployment, which successive Governments have found difficult to eradicate. This is something which any Government, determined to solve the regional imbalance which bedevils this country's economic performance and creates social and political injustice, ought to have very much in mind.
If REP goes, these large sums of money—£100 million for the development areas as a whole and £40 million for Scotland—will be lost to these areas. This is bound to have an adverse economic effect on the areas. Furthermore, it will go some way to destroying the value of the present regional employment policies.
761 The value of REP has already been debased, because any incoming industrialist calculating the advantages he would gain on setting up in a development area would already have discounted REP, having been told by the Government that it will start to be phased out in 1974. Therefore, in a sense, the Government are paying out money without getting the incentive value which that money would normally provide. This destroys the value of the whole package of regional development policies.
Some of our present policies could be criticised as being tilted too much in the direction of being capital-intensive. There have already been complaints from all sides of industry and from the regions that far too much emphasis is placed on the capital aspect of regional development policy. This means that very often the Government have to pay out large sums of money to attract an industry which is not labour-intensive for a resultant number of jobs which is not commensurate with the money expended.
REP is the only real element of labour subsidy which we have at present in our package. If it disappears we shall have a regional development policy almost entirely related to capital. That would create an imbalance. It is the wrong way of fashioning a regional development policy.
There is no doubt that increased unemployment will result from the decision to phase out REP. I have mentioned the views put forward by the Confederation of British Industry, which at one time was against REP but in the present situation argues that it should continue. I have also mentioned the views of the TUC to this effect. When both sides of industry ask the Government to keep a policy in being, the Government ought to think again before getting rid of it. On not too many subjects do both sides of industry agree. REP is one of them.
If the Financial Secretary is blind to the arguments coming from both sides of industry, he will surely pay some attention to the evidence given by the Department of Employment to the subcommittee. This evidence was provided by objective analysts of the present situation, and it confirmed the fears expressed by both sides of industry.
762 No convincing case has been made against REP. I should be glad to hear of the particular objections to REP that the Financial Secretary has. Such research as I have been able to do indicates that there is a growing body of opinion which believes that REP has been a significant factor in holding down unemployment in the regions. A significant body of opinion believes that, if REP goes, harm will be caused to the employment prospects in the regions.
I should like to mention in passing the work done by the Department of Applied Economics at Cambridge, which has made studies of REP. The general conclusion that emerged is that REP has been successful.
We must also bear in mind that because REP has been kept at the same level as when it was introduced in 1967, its real value has been dropping. On introduction, REP was about 7 per cent. of labour costs in development areas. The figure is now about 4 per cent., due to the general inflation under both Governments. Therefore, REP as an incentive has been dropping in value. Indeed, there may be a case for doubling REP and extending it to the service industries, which do not attract it at present. Some of the criticism made of REP is that it applies only to manufacturing industries and not to service industries. That defect, if defect it be, could be remedied quickly by extending its application to service industries.
Many of us now believe that we could go further in solving the intractable unemployment problem in the regions if we concentrated on attracting service industries as much as we concentrate on attracting manufacturing industries.
Before the Government take an irrevocable step, I hope that they will listen very carefully to the points made by both sides of industry with increasing urgency as the date for the final consideration of this policy draws near.
I hope that the Government will commission an objective analysis of the effect of the premium. I do not believe that it is good enough in this area of policy to rely upon political prejudice or upon economic hunch or doctrinaire political shibboleths. What the Government must do, because they are dealing with a very important aspect of economic and 763 social policy, is to go into the matter thoroughly and see whether there is a case, in their view, for carrying on with the premium.
I fear that, if the premium is discontinued, grave harm will be done, not only to my area and the country which I represent, but to development areas all over the country. It is because of my deep fear that if we do not solve the problem of regional imbalance within the next five to 10 years we shall not be able to solve it at all that I ask the Government to think again about the matter.
According to the Government, we are on the edge of an economic boom and expansion is just round the corner. That is the very worst time to harm our regional development policies. If expansion is round the corner, as the Government claim, that is the time to keep all our regional incentives going at full tilt so that their value is spread all over the country and is not confined, as it has sometimes been in the past, to the Midlands and the South-East, and then, when the clampdown occurred after the boom, the development areas bore the brunt of the restrictive measures without having enjoyed the benefit of the boom. I hope that we shall not experience that again.
I urge the Financial Secretary to be converted to the notion of retaining the premium and to urge within the councils of Government that it be kept. If the Government abolish the premium, they will rue the day that they did so. It is an odd thing for a Government to carry on with a policy when so many people are against it. The Government have shown themselves capable of revising their policies in the light of events. I ask them to revise this policy.
§ 4.47 p.m.
§ The Financial Secretary to the Treasury (Mr. Terence Higgins)
With the leave of the House, I will seek to reply to the debate.
I listened with great interest to the points raised by the hon. Member for Lanarkshire, North (Mr. John Smith). The House will know that the hon. Gentleman has shown a deep and continuing concern with the problems of the regions and with the economic imbalance between them. I believe that the hon. Gentleman's concern with these 764 problems is widely shared, perhaps universally shared, by hon. Members on both sides. This is borne out by the high priority and the considerable sums of money which successive Governments have devoted to regional problems.
In saying this I do not attempt to disguise the fact that there are marked differences of opinion about the right approach to these problems, but these differences arise, not from any doubt about whether assistance is needed or whether it is important, but rather from a concern about how it can best be provided.
What are the most cost-effective methods? Should we concentrate on labour subsidies to make the assisted areas more competitive against the more prosperous regions? Should we give priority to stimulating capital investment in those areas which would lay the foundations for continuing employment? Or should we do both? These are difficult questions to analyse, as the hon. Gentleman will appreciate.
Although the hon. Gentleman may not go all the way with this Government's answers to that problem, I am sure that he will acknowledge the strength of our purpose in facing up to the problems. In particular he will recall that in the 1972 Budget my right hon. Friend the Chancellor of the Exchequer presented a new and comprehensive programme to stimulate industrial and regional regeneration. This was an intensification of our approach to regional policy which, as the Chancellor said at the time, was designed to give the development areas a more clearcut preference than any previous system.
I am happy to say that these policies and our other economic measures are beginning to bear fruit. The regions are benefiting and the trend of unemployment, both nationally and in the regions, is downwards. This is greatly to be welcomed.
§ Mr. Higgins
Of course. I understand what the hon. Gentleman says. The level of unemployment is still high. We have a long way to go. The disparities between the more prosperous parts of the country and the assisted areas are still great. There is no difference between 765 the hon. Gentleman and myself about this. This is a deep-seated problem which cannot be solved quickly. At the same time, I go along with what the hon. Gentleman says, that it is obviously important to do what we can as soon as is reasonable, and that we have sought to do.
I might also inform the House that at the EEC Summit Conference last October it was agreed to give high priority within the Community to regional problems and to set up before the end of the year a regional development fund. We are playing an active role in the Community's discussions on the shape and objectives of the fund, and I hope and believe that the outcome will be a further strengthening of our armoury for dealing with the regional problems of this country.
I turn to the future of the regional employment premium. The hon. Member has asked a specific question, whether I agree that the figure for jobs involved is likely to be at the lower end of the range, which was suggested by DTI officials in evidence to the Trade and Industry Sub-Committee. I accept that a sudden—I stress very much the word "sudden"— ending of REP could put some jobs at risk. It would be rather extraordinary if subsidies, which are running at the order of £100 million a year, could be withdrawn suddenly without having any impact on the jobs which they were designed to preserve or create. But whether there is a loss of jobs, and if so how many, will depend on how and when REP is phased out and on the state of the economy as a whole.
One needs to take into account other regional matters as well. We are not dealing with a static situation. These are questions which need to be analysed and examined in the forthcoming consultations with industry and in coming to a decision on how to give effect to the phasing out.
The hon. Gentleman raised another question. He suggested that without REP or perhaps something like it, the Government's regional measures would be too heavily biased towards capital-intensive projects. I know from my own experience in industry, where I was concerned with appraising the effect of regional investment measures and the problem of plant location, that this has 766 been a constant theme over the years, whether one should give the incentives in such a way that there is a bias towards capital-intensive or a bias towards labour-intensive projects.
The hon. Gentleman has suggested that without REP the system would be too heavily biased towards capital-intensive projects and would be out of keeping with the needs of areas of high unemployment. As I say, I understand from my own practical experience in industry the point that his is making. I do not think hon. Members who use this argument would wish to imply that the development areas ought not to be enabled to get their share of modern industry of a kind which inevitably requires a high degree of capital investment.
But in any case, I would not accept that there is an imbalance in our range of measures taken as a whole. It is true that those regional investment incentives which take the form of regional development grants, like the national investment incentive which is provided by capital allowances, are given without any requirement for prior approval of the capital expenditure and without any conditions attached as to the number of jobs involved. But this is supplemented by selective regional assistance under Section 7 of the Industry Act, which is given where there is a benefit to employment. These financial inducements are supplemented by intensified plans for training in the development areas and elsewhere, which is important. It would be a great mistake to concentrate on the provision of capital without a commensurate attention to the development of the skills which go with that.
During the period when regional unemployment was particularly severe, we put in hand contra-cyclical programmes of expenditure on both social and environmental infrastructure, and I am sure the hon. Gentleman will agree that this was the right thing to do. The special measures were designed to serve the short-term objective of relieving unemployment—and we have had some success in that, although there is some way to go—and the longer-term objective of reinforcing our strategy of raising the environmental level of the regions to make them more attractive places in which to work and live.
767 In his Budget speech in 1972, my right hon. Friend the Chancellor of the Exchequer said that the regional employment premium would be phased out over a period from September 1974, and that the rate and method of phasing out would be announced in due course in the light of circumstances at the time and after consultation with industry. Since then, we have kept under continuing review the timing of such consultations. On the one hand, we are conscious of the need to give industry as much warning as possible on how we intend to give effect to the phasing out; on the other hand, our decisions will be governed by the general economic climate and by how effectively we think our overall economic measures are working.
In the light of those two factors, it would be a mistake to take a decision sooner than was necessary. However—
§ Mr. John Smith rose—
§ Mr. Higgins
I have very little time, and I wish to say something which I believe will be of interest to the hon. Gentleman. The time has now come for consultations, and I can tell the House that the Departments concerned will be inviting the CBI and the TUC to meetings on this subject shortly after Easter. No doubt, in the coming consultations both the CBI and the TUC will develop the various points which they have in mind. We shall listen to them with interest. We shall take into account the points which are made in the House, including those made by the hon. Gentleman on this and other occasions, and we shall have in mind also the points made in the forum of the Trade and Industry Sub-Committee.
That is the way we intend to proceed. I am sure that the hon. Gentleman will understand that I cannot anticipate the outcome of those consultations, important and serious as they will be, and he will not expect me to go further today. If I have not answered all his questions, I am ready to give way now if the hon. Gentleman has something else to put to me
§ Mr. John Smith
The hon. Gentleman said that one of the factors to be taken into account would be the general state of the economy. If unemployment remains at its present high level in the regions—in particular, if it remains higher than it was in 1967—will that factor be taken into account?
§ Mr. Higgins
That is too hypothetical a question for me to answer at two minutes to five o'clock. What I do stress —I am sure that this is common ground between us—is that all these measures need to be appraised in the light of the broad economic situation. It would be irrational to say that their level and structure ought to be looked at in some abstract way. We are dealing here with human and industrial problems, and, as the figures over the last year have shown, such indicators as unemployment can change rapidly. One is concerned with the whole business of steering and keeping the economy on an even keel and getting as balanced a development as possible.
The effective solution of the regional problem which has dogged this country over so many years is a central feature of economic management, and I should not disagree with the hon. Gentleman for a moment about that. On the specific issue, however, I suggest that we should await the consultations to which I have referred and the further representations which, no doubt, hon. Members on both sides will wish to put to us. We shall then need to put all these matters into the general economic framework and appraise them in the light of the situation at the time so that people in industry, with whose problems I am well familiar, as I have said, may take their own decisions, since ultimately the Government can only set the framework and it is for industry to take the opportunities which are created in the general state of the economy and in the light of the specific measures which are taken.
§ Question put and agreed to.
§ Adjourned accordingly at one minute to Five o'clock till Monday 30th April, pursuant to the Resolution of the House yesterday.