Regional Policy: Mr Osborne’s Gamble

Regional Policy: Mr Osborne’s Gamble

This has been a good week for the Government, with a largely well-received Spending Review. But while two elements of the Coalition’s growth strategy – deficit reduction and infrastructure investment – came over loud and clear, the third was left in a more ambiguous state.

The Government continues to aim for regional rebalancing but may be in danger of devolving responsibility without the funds to make things happen. Ultimately, this could have political costs for both Coalition parties.

The Government has clear ambitions to rebalance the UK’s economy away from financial services and into other industries; and away from the dominance of the South East. There have been plenty of initiatives aimed at delivering on these aspirations, but the Prime Minister sought to bring some cohesion to the efforts with the appointment of the venerable Michael Heseltine to lead a review.

The Heseltine Review – No Stone Unturned – advocated the creation of the “single pot” for funding LEPs, recommending that the fund have a budget of just over £12bn a year. On Wednesday, the Chancellor announced that the Single Local Growth Fund – the new funding model for LEPs – will have a budget of just £2bn for 2015/16.

The danger for the Government is that it appears to accept the ‘soft’ aspects of regional policy, with an in-principle commitment to devolved power and new structures, but finds itself unable to back this up with significant amounts of money.

Added to this, there is still some scepticism surrounding LEPs. They are young organisations, with limited experience of working in public-private sector partnerships. There is concern about handing down significant amounts of public money that may not be put to best use.

This is reflected in the documentation released by the Government which calls on LEPs to prove themselves and hints that if they can, in time, the Single Local Growth Fund will increase in size.

Ultimately, though, both the Conservatives and Liberal Democrats are likely to find that voters in marginal seats will not be convinced by new talking shops. What they need to win these voters over are new projects and support for local economic growth. The DCLG budget will take another significant hit in 2015/16 (on top of the 60% already cut from the department’s budget) which will not help and local authorities will feel the pinch well into the next Parliament.

It may be that this is a gamble the Government is prepared to take. If limited services at a local level can be attributed to local authorities, often Labour-controlled, the Government may feel voters will be more forgiving of ministers in Whitehall.

If anything, this throws more attention on how much difference Mr Osborne can make to the deficit and on infrastructure. After a good week, the Chancellor will be looking for more positive reactions in 2015.

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