Regional Industrial Policy (Hansard, 28 November 1984)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)
My Lords, with the leave of the House, I shall repeat a Statement on the Government's review of regional policy now being made in another place by my honourable friend the Minister of State for Industry. The Statement is as follows:
"With permission, Mr. Speaker, I should like to make a Statement on the Government's review of regional policy. I have made four orders to bring into force the new regional development grant scheme and the new map of assisted areas. The orders, including that specifying the new assisted areas, are available in the Vote Office.
"Our decisions have been taken after very full consultation, including consideration of almost 500 submissions. I have placed in the Library a list and a summary of the submissions received.
"The submissions received show considerable support for the Government's proposals as outlined in the White Paper. While the majority support the continuation of regional policy, many were critical of the waste inherent in the present system and consider it possible to make the policy more cost effective.
"To achieve greater cost-effectiveness we have concluded that the new map should have two tiers instead of three, and that the inner tier, which will qualify for automatic grants as well as regional selective assistance, will be re0stricted to 15 per cent. of the working population. This compares with 22 per cent. for the present development and special development areas. The outer tier of the map, which will qualify for regional selective assistance, will cover a further 20 per cent. of the working population. We have included in the new map several areas, most notably parts of the West Midlands, that have previously been denied regional assistance. Both tiers will be eligible for support from the European regional development fund.
"In redrawing the map, we considered the present and future employment patterns of each area, along 918 with other factors, including the risk of distortions where non-assisted areas are adjacent to assisted areas. Some such effects are inevitable in any regional policy.
"For the new RDG scheme we have set the rate of capital grant at 15 per cent. In our view the new rate is high enough to ensure that grants are an effective incentive to investment.
"For too long regional policy has unduly discriminated against service industries even when such industries offer the prospect of increased employment. We have therefore decided to make some service activities eligible for regional development grant. These are listed in the relevant order.
"Since unemployment is such an important concern today, it is also right that any policy as expensive as regional policy should be tied more closely to jobs.
"We have already announced our intention to make two changes to give effect to that aim. Firstly, capital grant will be subject to a cost per job limit. Too much money has been spent in support of capital intensive projects that create few jobs and do little for the economies of the regions. The cost per job limit will be £10,000. However we wish to minimise the burdens placed on small firms and this limit will not normally be applied to firms employing less than 200.
"Secondly we also announced that in future firms should be able to receive a job grant as an alternative to capital grant. The job grant will be set at a level of £3,000 for each new job created. Firms will not have to choose between job grant and capital grant: they will automatically receive whichever is greater.
"The Government also intend to continue to give selective assistance to projects that protect existing employment but which otherwise would not go ahead. With the increase in the outer tier of the map, this will mean an increase in selective assistance. Overall the balance between automatic grants and selective assistance will shift considerably towards the latter.
"After the working through of the transitional provisions, we expect the new regional policy to cost nearly £300 million per year less than if present policy were to be continued. This will be a considerable lightening of the public expenditure burden of the policy. Even so we will still be spending nearly £400 million on regional policy in 1987–88 to improve job prospects in the worst hit areas.
"The most important feature of our policy is that that money will now be spent in the areas with the worst problems and that, in terms of new jobs per pound of expenditure, the new policy will be far more effective than the old."
My Lords, that concludes the Statement.

Lord Bruce of Donington
My Lords, the House will be grateful to the noble Lord for having repeated the Statement made in another place. The noble Lord will be aware that this is one of the most scandalous Statements that has been made in the past five years in which this Government have been in office. It is made 919 within the context of the situation described in most moving terms by the right reverend Prelate the Bishop of Liverpool immediately before the noble Lord rose to his feet. It is made within the context of unemployment generally in the United Kingdom having doubled since the noble Lord's Government came to office. In some cases, particularly in the distressed areas, it has multiplied itself over three times. This is the time when the noble Lord comes to the House and announces a £300 million reduction in expenditure on regional policy. I have no doubt that the noble Viscount the Leader of the House in his capacity as chairman of the "Star Chamber", fully concurred, whatever his personal embarrassment may have been in the light of the observations of the noble Earl, Lord Stockton, in what has happened.
At a time of unemployment, at a time of distress, the Government announce that, on regional policy, they are going to save £300 million of taxpayers' money. This is presumably in order that the Government shall be able to spend £200 million of taxpayers' money in promoting, under somewhat dubious circumstances and sailing as near to the law as it can, the sale of British Telecom to the public. This is the level of priorities to which the Government have sunk. Is the noble Lord aware, on the basis of the Statement made by him that £10.000 is to be expended for each job involved, that the increase, on the assumption that the policy was fully effective, might reduce unemployment by 30,000 people during a year? That is merely treading the other way on a moving staircase. With bankruptcies running at a record level of 15,000 a year an additional 30,000 to 40,000 a year are already being added to the number of unemployed in this country from that source alone.
The position taken by the Government amounts to the ignoring of some of the most elemental and moral selections of priorities in public policy and should be denounced as such. It was not even taken on the basis of the majority of opinions that were given to them, including that of the Bow Group of the noble Lord's own party let alone the report of Deloitte Haskins & Sells which recommended a considerable increase in expenditure on regional policy at this time. The Statement is careful to point out: While the majority support the continuation of regional policy, many were critical of the waste inherent in the present system and consider it possible to make the policy more cost effective". The noble Lord was careful to indicate that it was not the majority of the opinions proffered to him from all kinds of sources that he adopted. But because many consider—presumably including the Institute of Directors and others that contribute to his party's funds—that the system ought to be made cost-effective, he decided to adopt this course.
We are very grateful to the noble Lord for having at long last made available a map, which we have not seen. We look forward to seeing the orders that he talked about, which we understand are in the Vote Office. Clearly there will have to be a debate on this subject. It is to be hoped that for once not only financial priorities will be involved—and the Government can be criticised on those grounds alone—but that some of the moral priorities of policy can be discussed at the same time.

§ Lord Taylor of Gryfe
My Lords, we on these Benches very much support the statement that has just been made. Perhaps I cannot contribute with the same eloquence as the noble Lord who has just resumed his seat, but coming as I do from one of the regions, I cannot help but feel that we are rather discriminated against in the Statement which has just been repeated. Last year the total assistance in regional aid under the Industrial Development Act was cut by this Government by one third. For Scotland in fact it was cut by 50 per cent. last year. On top of that now we have an additional regional policy Statement in which a further £300 million is to be saved in regional aid.
The extension of regional aid to the service industries, when there is a limited budget and a limited amount to spend, means that manufacturing industry-will suffer severely. Anyone who has experience of trying to attract inward investment to the United Kingdom, which can contribute to the restructuring of industry and which is so important in getting new high technology industries to Britain, will realise that the substantial reduction in incentives will make new investment go to other areas in Europe and elsewhere which are competing for high technology investment. I regard it as a very serious matter for the future structure of British industry.
The Statement says that the support will now be job-related rather than capital-related. That does not always assist the change which is necessary in British industry and which requires large investment in capital equipment. To reduce the incentives to investment in capital equipment, positively reduces the efficiency of British industry. I should like the Minister to confirm that the Statement which he has just read means a reduction in capital investment allowances from 22 per cent. to an overall 15 per cent., which could have the serious consequences that I have just mentioned. Can he confirm also that some of the areas which are now removed from development area status still have more than 10 per cent. unemployment—that there is double digit unemployment in some of the areas that are now removed on the new map? I have not seen the map but I gather that that is so. Can he also try to tell us just what will be the net impact of the contents of the Statement on the attraction of new high technology industries to areas that are trying hard to get away from the traditional old industries and restructure our economy?

§ Lord Lucas of Chilworth
My Lords, I should like to have been able to thank the noble Lord. Lord Bruce, for his acceptance of the Statement that I have just read, but I can perhaps thank him for the latter part of his remarks. I thank the noble Lord, Lord Taylor of Gryfe, for his reception of the Statement.
May I deal straight away with the two main points that the noble Lord, Lord Bruce, made? I say to him in all seriousness that the Statement is very much within the context of this afternoon's debate. The Government are extremely concerned with the levels of unemployment. It is an expression of that concern that the review of regional policy has made the shift from purely capital grant to job-related grant. I believe that that is an expression of our feelings in this matter.
921 Notwithstanding anything that the noble Lord said, I should perhaps point out that even by 1987–88, £400 million will still be spent on regional aid. Since the noble Lord quoted a paragraph from the Statement, I ought to repeat that paragraph in full: The submissions received show considerable support for the Government's proposals as outlined in the White Paper. While the majority support the continuation of regional policy, many were critical of the waste inherent in the present system and consider it possible to make the policy more cost-effective". That is what we believe will occur over these next three and a half to four years.
The noble Lord, Lord Bruce, said that he thought a debate would be absolutely necessary. I do not think that your Lordships would expect me to comment further than to say that that is not a matter for me but for the usual channels. No doubt the noble Lord will make his bid through those channels.
The noble Lord, Lord Taylor, with his great experience of capital and capital investment, made a number of points which I take on board. He asked me specifically whether the old capital grant which stood at 22 per cent. was to be reduced to 15 per cent. I can confirm that that is so. He spoke of the area from which he came—Scotland. We feel that Scotland has been given a fair share of assisted area coverage. I am sure that he will study the new map carefully. The coverage on it is totally fair as between different parts of Great Britain. How the new map compares with the old is of course another matter; but I noted that Scotland's shares of intermediate areas has not changed and its share of areas eligible for regional development grant has increased. When I was looking at the map I also noted that the whole of the Highlands and Islands Development Board area is eligible for support from the European regional development fund.
The noble Lord asked me whether there were travel-to-work areas not included in the assisted area map but which had an unemployment factor of over 10 per cent. There are 320 travel-to-work areas. I have a list of them, but I cannot from memory tell him which areas—or indeed whether there are any—have an unemployment factor above 10 per cent. I can certainly have a look through the list, and perhaps after we have discussed this matter I can talk to him about that.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that, notwithstanding the febrile, if predictable, rhetoric of the noble Lord, Lord Bruce, many people will feel that greater selectivity in the use of the regional grant is to be welcomed? Is he particularly aware that its extension to the service industries seems to make very good sense in view of the much better outlook for the service industries as compared with manufacturing industry today? Can he say in particular whether that extension takes it into the field of tourism and hotels?

§ Lord Lucas of Chilworth
My Lords, I am most grateful to my noble friend Lord Boyd-Carpenter for his welcome for this Statement. I am particularly grateful to him for pointing out that now there is a much greater element of selectivity which should enable those astute enough to read the rule book, as it were, greatly to benefit. That selectivity will 922 undoubtedly lead to some job creation and further opportunities. This is particularly so in the service industries. As in general terms tourism comes within that bracket, there will be opportunities for benefit under the present scheme.

§ Lord Sefton of Garston
My Lords, does the noble Lord the Minister agree that the aim of regional aid is to equalise the opportunities for jobs throughout the country, and that as it has now been in operation for approximately 40 years and the disparities between the various areas in the country have become worse instead of better, the question of regional aid has in fact signally failed to achieve its aim? Would he further agree that even now when new jobs are being created in certain industries, most of those jobs are being created in the South-East and the least number are being created in the disadvantaged areas?
Will the noble Lord urge upon the Government the necessity to look again at the question of devolution of Government jobs from the South-East to the regions in order to relieve the congestion in the South-East? We may even reach the stage where perhaps the 3,500 jobs that were promised to Merseyside under the previous Administration would be restored, and we would get back to some semblance of sanity in regard to job opportunities throughout the country. Indeed, we may even get those 3,500 jobs restored—jobs which were so blatantly and arrogantly taken away immediately following the Government's election in 1979.

§ Lord Lucas of Chilworth
My Lords. I thank the noble Lord, Lord Sefton, for his contribution. I agree that one part of regional grant policy was to equalise particularly job opportunities. We think that in this plan we are in fact going to do just that. Since the unemployment rates for the new map, as at July 1984—just a few months ago—were produced, the new development areas have within them a 19.1 per cent. unemployment factor. The intermediate areas have a 15.5 per cent. unemployment factor as against Great Britain as a whole with an unemployment factor of 12.6 per cent. The noble Lord will see that on the map the Merseyside area is, in the main—in most of the TTWAs—designated a development area. One would certainly expect industry to take advantage of the opportunities that are open to them under the new regional policy.
The noble Lord asked me to urge my noble and honourable friends about the necessity to ensure that there was no further movement of jobs into the southeastern area. I can tell the noble Lord that in the entire south-eastern area there is not one TTWA which qualifies for regional development grant because they are neither in a development area nor indeed an intermediate area.

§ Lord Sefton of Garston
My Lords, the point of my remarks was that regional aid as we see it and as we have been practising it for 40 years has completely failed to remove the disparities in our economy. Will the noble Lord look at the question of devolving jobs from the South-East to the rest of the country as in fact the Government are urging the private sector to do? The private sector needs to be in the South-East: the 923 Government and the civil servants do not need to be there and they could be moved to the rest of the country.

§ Lord Lucas of Chilworth
My Lords, I do not think that I understood the noble Lord, Lord Sefton. However, as he has repeated his question I must say to him that I do not accept that the regional policies over the past 40 years have failed to achieve their objective. But I am prepared to accept that they have not been 100 per cent. plus successful. I thought that when I answered him previously I gave the noble Lord the assurance for which he asked.

§ Lord Cledwyn of Penrhos
My Lords, noble Lords have referred to different parts of the country. Is the noble Lord aware that I visited South Wales over the weekend and found considerable apprehension there about the effect of this White Paper—or at least about what the newspapers had prophesied would be in the White Paper, and they were pretty near the mark? Can the noble Lord say what the effect will be in Wales? He told the noble Lord, Lord Taylor of Gryfe, briefly what the effect would be in Scotland. Is the noble Lord aware that apart from Northern Ireland unemployment in Wales is higher than it is in any other part of the United Kingdom? With unemployment at that level in Wales, in Scotland, on Merseyside, in the north and in other parts of this country, how can the Government possibly justify reducing the amount to be spent on regional aid by £300 million at this time? That is the question which the country will be asking.
Is the noble Lord aware that there will be no criticism of the Government for looking at regional aid because regional aid, like every other Government policy, needs to be scrutinised from time to time. There may be deficiencies and I would concede that there have been deficiencies in regional aid. But what the Government have done is to cut the amount of capital available to create new jobs in those parts of the country that need jobs badly. It is that justification which the Minister must make to the House.

§ Lord Lucas of Chilworth
My Lords, of course I recognise the concern of the noble Lord, Lord Cledwyn of Penrhos, for the situation in the Principality. But I have to tell him that the coverage of the new map really is quite fair as between the different parts of Great Britain. It would be wrong to attempt to compare the new map with the old map because that really is another matter. The noble Lord asked me how we could contemplate cutting £300 million from regional aid at this time. I must tell him that we are not cutting, as at this time, £300 million from the aid programme—that is the anticipated saving as at 1987–88, because those savings which we hope to achieve will come about as the scheme gets under way. The transitional provisions until 1987–88 really mean that a good deal more money will be spent because both the old scheme and the new one will overlap. We believe that even at that time—1987–88—£400 million of regional aid more properly distributed and spread and becoming more cost-effective, will mean that we are more likely to achieve that which we have set out, than would have been the case under the old scheme which was costing some £695 million.

§ Lord Taylor of Gryfe
My Lords, I am sorry to detain the House but with due respect I think that one of the major questions which I tried to ask was not really answered. I am referring to the question of reducing the incentives to inward investment. If we cut the capital allowances from 22 per cent. to 15 per cent. we must remember that we are in a highly competitive world as regards attracting inward investment from the United States, from Japan and elsewhere, which has been a resounding success in Scotland. I do not subscribe to the view that regional policy has totally failed. There are many indications that regional policy has been effective in transforming the Scottish economy, but it is in the face of great competition from many other parts of the world that are seeking to attract new, high technology industries. Bearing in mind that competition, if we cut the capital allowance from 22 per cent. to 15 per cent. it is likely that many of the firms that make up what is now called "Silicon Glen" in Scotland will depart and invest elsewhere. I cannot see that that contributes in any way to improving the economy of the nation or creating new jobs.
Will the Minister also confirm that unfortunately it will be the practice of the Government in future to deduct European aid from the regional aid which is now contained in the Statement? Or will he permit European assistance—regional assistance—to be additional to the figure that he has just mentioned?

§ Lord Lucas of Chilworth
My Lords, perhaps I had better amplify what I said with regard to the 22 per cent. and the 15 per cent. The capital grant rate remains at 15 per cent. in the development areas, although of course, having reduced the scheme from a three-tier scheme to a two-tier scheme, we have taken off the special development area. It was only the special development area which enjoyed the 22 per cent. rate.
I think that I have answered the points with regard to Scotland. Scotland receives a very fair share of the aid that is available. We reckoned that 15 per cent. was the lowest rate which would be generally effective in influencing investment decisions. The noble Lord, Lord Taylor of Gryfe, argues that that is wrong. However, that is the decision that we have made in the light of all the information that was available to us. There is no doubt that he and I may be some percentage points away from total agreement, and I fear that we may have to be that far apart. However, that was the reason.
There has never been any question, nor is there likely to be, of deducting European Regional Development Fund aid from any of the sums which we provide. The way in which the areas have been distributed across the map will have the effect of enabling more local authorities rather than fewer to make claims against that fund. Noble Lords will probably recall that under the new European Regional Development grant fund arrangements there is an increased maximum available to the United Kingdom of some 27 to 28 per cent. of the total available. That is some percentage points increase over that which we have enjoyed in the past.

Lord Bruce of Donington
My Lords, is the noble Lord aware that the statement which he has just made on additionally, wherein he stated that the funds made available out of the European development fund towards public expenditure were made in addition to ordinary Government expenditure, is directly contrary to the evidence given by his department's own officials to the Select Committee of this House on this particular subject?

§ Lord Lucas of Chilworth
My Lords, no, I am not aware of that and I think that the noble Lord is rather misrepresenting either what my officials said or what I have said. I wonder whether the House will forgive me if I correct one part of the answer which I gave to my noble friend Lord Boyd-Carpenter when he asked me about hotels and tourism receiving grants. The hotel industry would not normally receive grant through the regional development grant programme, but it does benefit from Section 4 of the Tourism Act.

§ Lord Wade
My Lords, perhaps, I may try to reduce this discussion to its simplest form. Do I understand that, as a result of Government policy, there will be cuts which will involve suffering? When the noble Lord speaks of equality, he really means that we are being asked to accept equality in suffering. Secondly, when we talk about capital investment, is it not very unwise, taking the long-term view, to indulge in cuts in capital investment, when that will be so vital to the revival of industry in this country?

§ Lord Lucas of Chilworth
My Lords, I think that in fact the noble Lord, Lord Wade, is quite wrong; this has nothing whatever to do with equality of suffering. This is a redistribution of funds to place those funds where, in the light of that suffering, it is thought best that aid could be given. It provides much greater opportunity for industry—both manufacturing and the service industries—to locate in areas where there is the greatest suffering. There is a capital grant with a job-creation ceiling: there is a job-creation grant where there is no ceiling other than the number of jobs multiplied by the amount of money.
Therefore, that is a real and very positive inducement to—I might say investment in—the creation of jobs. I would quite seriously expect industry to take advantage of this new scheme, which we believe—and we have good reason to believe—will prove to be that much more effective than the old scheme.

§ Lord Rochester
My Lords, will the noble Lord not accept that it is very difficult for some of us to see how his remarks this afternoon amount only to a redistribution of funds when, as I have understood him, overall it amounts to a reduction of £300 million?

§ Lord Lucas of Chilworth
My Lords, the noble Lord, Lord Rochester, is of course right. There is a redistribution of funds, geographically in terms of the travel-to-work areas and the rates at which the development area and the intermediate area are settled; but there is also a reduction in the total amount available—which is some £659 million under the old scheme—to £400 million by 1987–88.

§ Lord Diamond
My Lords, is it not the case that today we are debating the effects of Government policy on unemployment, and here is an example where the Government are enacting a policy which, although helpful to service industries—and I am second to none in approving of that—is nevertheless making it less likely that there will be inward investment in manufacturing industry in this country, as a result of which there will undoubtedly be more unemployment in this country than there was before? Is it not right that your Lordships' House should take particular note of policy formation at the point of time when it is being formed, which is now?

§ Lord Lucas of Chilworth
My Lords, let me first say to the noble Lord, Lord Diamond, in the kindest possible way, that this afternoon we are not having a debate.

§ Lord Ferrier
My Lords, we are.

§ Lord Boyd-Carpenter
My Lords, yes, we are.

§ Lord Lucas of Chilworth
My Lords, I certainly had not intended that we should have a debate upon the Statement. I was quite happy to answer questions and I shall answer the question asked by the noble Lord, Lord Diamond. I do not accept anything that the noble Lord, Lord Diamond, has said. Last Tuesday night I was in Helsinki speaking to a group of Scandinavian bankers and top businessmen about the investment opportunities in the United Kingdom. I was able to tell them something about the plans which were outlined in the White Paper. From their reception of my remarks I received very great encouragement. I do not believe that this policy will be reflected in any reduction in inward investment.

§ Lord Sefton of Garston
My Lords, can the noble Lord tell me how much less Merseyside is to receive?

§ Lord Lucas of Chilworth
My Lords, I very much regret that I cannot answer the noble Lord, Lord Sefton. I have before me a great list of 320. If I attempted to answer the noble Lord, I fear that other noble Lords might ask me about other areas. I shall be happy to tell him when we finish our discussion on the principle of this Statement.

§ Lord Sefton of Garston
But it will be less.

Lord Bruce of Donington
My Lords, are we to understand that the noble Lord communicated these proposals to Helsinki before he communicated them to this House?

§ Lord Lucas of Chilworth
My Lords, the noble Lord, Lord Bruce of Donington, is being slightly mischievous. I said that I was able to talk to those bankers and leading industrialists about the proposals that were contained in the White Paper.

§ Lord Ferrier
My Lords, is it in order for a debate like this to continue in connection with a Statement?