Funding is vital for rebalancing the UK economy

Policy: Jonathan Walker, assistant director – policy, says he wants to see national funding mechanisms reflective of the need to recognise the potential of places such as the North East and encourage investment in them

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For businesses, securing the right investment and funding at the right time can be the difference between success and failure, or the thing that kick starts growth.

The same is true for our region. There is a complex mixture of public and private investment, consumer spending, grants, loans and many more things besides that make up the notional idea of our economic output.

But who decides what we get and where it goes? I don’t have the space here to provide a full dissection of investment in the North East, nor do I suspect you have the time to read it. However, with a new Chancellor promising a ‘fast track’ review of Government spending in the near future, it seems right to ask whether we get a fair deal and where we think his priorities should lie.

Sajid Javid certainly has a lot to think about over the next few weeks. With the outcome of Brexit still up in the air, there can rarely have been a time when the outlook for the economy and public finances has seemed so uncertain.

His predecessor talked up the fiscal ‘headroom’ that had been created through the Government’s budget management, leading to the declaration last Autumn that austerity was over.

Austerity has been keenly felt in our region. Earlier this year, the Centre for Cities thinktank highlighted that seven of the ten cities that had faced the largest spending cuts were in the North. Between 2009 and 2018, Newcastle, Middlesbrough and Sunderland saw their total spending fall by 26.6 per cent, 17.8 per cent and 21.1 per cent respectively.

This is the backdrop against which Government spending decisions must be taken. While all local services are experiencing pressures, it has often been those on which businesses rely the most that have seen the biggest relative cuts to their budgets.

Take Council planning departments as an example. They are often (and sometimes rightly) criticised as the biggest obstacles to development, yet many in the construction sector tell me that cuts, and the resulting loss of resource and expertise, have made it slower and more difficult to progress planning applications.

Successive Governments have talked about their desire to close the economic performance gaps that exist between different regions. We’re up for the challenge and believe the North East has far more to offer UK Plc, but the task is made more difficult if we’re starting with one hand tied behind our back.

We’re also up against flaws in the processes used to allocate Government spending that often count against our investment priorities.

Infrastructure spending is a classic example of this. To put it very simply, the rules used by the Treasury to assess whether a new project provides good value for money (the so-called ‘Green Book’) give a significant weighting to schemes that alleviate congestion and move large volumes of people, rather than to their potential to regenerate regional economies or unlock development.

The consequence of this is a cycle of infrastructure investment in congested areas such as London and the South East, which in turn encourages business growth and migration; placing further pressure on the infrastructure and therefore demand for investment.

This isn’t to say that all spending in London should be stopped and diverted to the North. As a regular traveller down there I know all too well that in many places the infrastructure is far from perfect.

However, what we do want to see is funding mechanisms that recognise the potential of places such as the North East, encourage investment in them and represent concrete steps towards that goal of rebalancing the economy.

It is these kinds of positive reforms that we look for whenever a Chancellor makes a big Budget or spending announcement. The review being undertaken by the new Treasury team right now represents a real opportunity for Government to show they are serious about support regional economic growth.

What else could they do? For a start, ensuring that far more decision-making over how money is spent is taken closer to those it affects. Far reaching proposals to devolve much more power and funding to local areas are needed, as well as meaningful steps towards the transfer of Government departments out of Whitehall into the regions.

With Brexit looming large over this spending review, there is a clear need for Government to do all it can to ensure that the exporting prowess of our region is not undermined and can be further developed.

Leaving aside the outcome of the Brexit negotiations, we must see a significant increase in Department for International

Trade funding to provide on the ground support for new and existing exporters, alongside a comprehensive review of inward investment activity to place far greater emphasis on regional strengths.

In addition, Brexit raises huge questions for the North East around the future of, and replacement for, the EU funding that currently comes into our region.

It is often said that North East England has done very well out of EU funding. That is not necessarily something to be proud of. This money is allocated on economic need and measures of deprivation. We have received more money than other regions because we have needed it.

Sadly, despite progress in many areas, the causes of that deprivation have not gone away. The proposed UK Shared Prosperity Fund must focus on regional need and opportunity and should not be a competitive process. The Chancellor should also provide firm guarantees that the North East will not receive lower funding under new arrangements.

As well as changing the rules on infrastructure spending, the Chancellor can build upon the Prime Minister’s backing for new rail investment in the North.

Both Northern Powerhouse Rail and HS2 have the potential to dramatically improve intercity connections from our region and should be fully supported alongside investment in the East Coast Main Line to allow us to capitalise on this connectivity.

Ultimately what we want to see from the spending review is a sense of fairness and a recognition that the North East is not only particularly exposed to any negative consequences of Brexit but is also a place of huge opportunity.

The Prime Minister and his entire Government stood for election on a manifesto that claimed closing the economic performance gap between London and the rest of the UK to be the “biggest prize in Britain today”. Let’s see if they’re up for winning that prize.