REGIONAL DEVELOPMENT POLICIES SUCCEED IN U.K.- BIT AT SUBSTANTIAL COST

Press, Volume CXIII, Issue 33251, 14 June 1973, Page 16

REGIONAL DEVELOPMENT POLICIES SUCCEED IN U.K.BIT AT SUBSTANTIAL COST

(By a Staff Writer) An “encouragingly large” increase in investment and employment in the Development Areas since more intensive regional policies were introduced in the early 1960 s has been measured by a recently published study of British regional economic policy. The study finds that 220,000 jobs in the Development Areas in 1971 could be attributed to the regional policy effect on employment, if the annual Exchequer cost between 1964 and 1967—£91m—is assumed to be the average through the whole of the rapid-growth period, the costing of creating these jobs was at least £73om—or more than £3300 per job.

An attempt is also made to assess the effect of the Regional Employment Premium (R.E.P.), a “per capita” subsidy, on all labour employed in manufacturing in the Development Areas, introduced by the Labour Government in 1967, and scheduled to be abolished in 1974.

In trying to assess the effectiveness of these policies, Messrs B Moore and J. Rhodes, of the department of applied economics, Cambridge University, have produced information which, for all the differences in industrial structure, is one of the

few available guides to the type — and the cost — of the alternatives open to the present New Zealand Government in its policy of stimulating regional growth. First assessment

Britain has had almost 40 years of regional policy of one kind or another, but no convincing assessment of its effects has been made, the authors of this study say. Their findings are published in the March, 1973, issue of the “Economic Journal.”

The aim of successive postwar British Governments has been to solve regional economic and social problems by encouraging the diversion of economic activity from prosperous fully-employed regions to areas of relatively high unemployment, providing an opportunity to realise higher levels of employment and output nationally. The study attempts a quantitative assessment of how much activity has been diverted to Development Areas as a direct result of that policy. Most of the analysis is confined to the four Development Area regions of Scotland, Wales, the Northern Region, and Northern Ire-; land. The authors noted an , intensification of regional policies since 1963, when new controls and incentives were introduced. In that year the incentive to invest in plant and machinery in Development Areas was made available as of to both incoming and existing firms (providing they had undertaken capital expenditure and earned profits). Previously, financial assistance had been; at the discretion of the Board' of Trade, mainly to incoming; firms which could provide a given number of jobs.

I Furthermore, the 1963 [system of regional invest[ment incentives increased the {absolute Exchequer cost of iregional policy more than {six-fold. Between 1954 land 1957 the annual average [Exchequer cost of regional policy was about £4m; this increased to £l4m per annum at current prices for 1960 to 1963, and to £9lm per annum (from 1964 to 1967.

{ The early 1960 s were also a time of progressive tightening of industrial development controls in the non-Develop-ment Areas of the Midlands and South-East, and Industrial Development Certificates for these more prosperous areas were issued with increasing reluctance. Other instruments, including the R.E.P., are limited to the post-1963 period. This marked increase in the strength of regional policies led the authors to expect that investment and employment would rise more quickly in Development Areas than in non-Development Areas in the period after 1963. How much this actual!’ took place was measured by '. sophisticated calculation what would have happened *F the Development Areas if t'ne {regional incentives had nc* [been strengthened, and comj paring that calculation wilh what actually occurred.

Rise in employment

Manufacturing employment in the Development Areas would have been expected to remain broadly stable up to 1971, the authors say, but in fact it rose quite substantially, and by 1971 was about 12 per cent above what would have been expected. {Similarly, active investment was about 30 per cent, or [£9om, above what would {otherwise have been expected. On the other hand the investment and employment performance of tho prosperous regions, the Midlands and the South-East, was well below what would have been expected. Encouragingly, the biggest change was shown in manufacturing — the sector to which most aid had been applied — although construction and service were boosted by the multiplier effect, and by increased Government spending in the Development Areas. Finally, the report finds a noticeable boost from the R.E.P. On the basis of the increases in jobs and investment, the study contends that a "regional policy effect” was detectable. It had built up investment in three Development Areas by up to about £9om per annum by 1970. Over the period 196370 between £3oom and £4oom may have been diverted to the Development Areas as a result of regional policy (measured at current prices in the year in which the investment took place). At the same time employment in Development Area manufacturing industries — excluding metal manufacturing and shipbuilding, which received additional aid—was about 150,000 more. A further 70,000 jobs could be attributed to the aid to shipbuilding and metal manufacture, the regional policy effect in Merseyside and the south-west region, and any indirect multiplier effects. Among the stronger incentives was the R.E.P., which represented about 7 per cent of the average earnings of male manual workers when introduced in 1967 as a “per capita” subsidy on manufac turing labour in the Development Areas. The aims and hopes for this policy were laid down ir the 1967 Green Paper, which assumed that the main employment-creating effect of the R.E.P. would come through a lowering of prices by manufacturers. The R.E.P. was seen as an imaginative attempt at regional devaluation in conditions of fixed exchange rates, with the additional benefit that the resulting deterioration in the terms of trade was not borne by the region but by the national taxpaying community as a whole.

Spending the R.E.P.

The R.E.P. could stimulate employment in other ways: for example, it could be used to pay higher wages or increased profit, or be divided between wages, prices and profits. It could also be spent on additional sales promotion, research and development, quality improvement, or improved delivery times. Time-lags in the effects of the separate regional policies make it difficult to assess the effects of this particular policy, the authors say. At best, it could be held responsible for 75,000 additional jobs in 1970, three years after its introduction. But, i probably, its effect was nearer 20,000 jobs. ! However, the abolition of the R.E.P., scheduled for ;next year, could have quite I serious consequences for employment in the Development Areas. Although the effect is below what the Labour Government expected of it, the R.E.P. has provided or preI served in areas of high unemployment a large number | of jobs that would not otherwise have been there.