There’s a financial weather warning in place across the North East. Every day a blizzard of banknotes swirls around the region, smothering the press with good news: Towns Deal millions here, Freeport billions there. And with it a warm front of jobs, jobs, jobs.
As we gaze on in wonderment are we seeing a U-turn in free market conservatism with its horror of state intervention? Or is it too good to be true and just pork barrel politics – government cash for local votes?
Margaret Thatcher and the North East
It’s been 42 years since Margaret Thatcher won the 1979 General Election. Rolling up her monetarist sleeves, she got to work with an axe in one hand and a hatchet in the other. Seeing the battle on inflation as her priority, she hiked interest rates to 17 percent, radically strengthening the pound. The result: cheap imports flooded the home market, exports were uncompetitive and British companies went to the wall.
Out went the government’s economic safeguards. The income and pricing policies to contain inflation, the exchange controls to limit capital flight and the tax policies to manage demand, were all abandoned.
The North East took the brunt. Government subsidies for struggling industries like steel and shipbuilding were abolished. With the strong sterling, shipbuilding lost its export market. Thatcher planned to close 75 coal mines and across three years 160,000 coalfield jobs were lost.
The result was a deep recession. Saatchi and Saatchi’s iconic “Labour Isn’t Working” poster of 1979 was issued when the unemployment rate under James Callaghan’s Labour government was 4.2 percent.
Between 1979 and 1981, one million manufacturing jobs were lost. As a result, one in five in the North East became jobless compared to 10 percent in the South East.
North South divide
An upturn in the later 1980s, thanks to North Sea oil and a house price boom, was confined to the South. These were the roots of today’s North-South divide.
Compounding matters was the Treasury’s Green Book which since the 1970s has been the guide to projects suitable for government investment. Its infamous “London bias” ensured the North was starved of funds.
But nowadays history is being rewritten. Thatcher is prehistory say the Conservatives. The true culprit, they claim, is Labour’s Tony Blair, presumably for failing to mend the damage done by Thatcher.
The hospital and schools rebuilding programmes introduced by the New Labour governments from 1997 to 2010 were not enough to regenerate the North East economy.
Nor could their admittedly limited trade interventions withstand the tidal wave of globalisation, the cheap products of low cost manufacturers elsewhere in the world.
Labour’s Regional Development Agencies were established to encourage growth. But the referendums for Northern devolution that could optimise funding hit a brick wall. In 2004 The North East Says No (NESNO) campaign, advised by Dominic Cummings, chaired by his Uncle Phil and complete with an inflatable white elephant, won the North East plebiscite. They used the argument that another layer of politicians would cost taxpayers money which could be spent on the NHS. The NESNO campaign was so successful that other planned devolution referendums across the North were abandoned.
The coalition government and the austerity policy
Then came the 2007-8 financial crash caused by global under-regulation. The Conservative-LibDem Coalition Government after the 2010 General Election adopted an austerity policy that continued what Thatcher had started, shrinking the public sector and squeezing benefits.
According to the Institute for Government, the Central Government Grant (including retained business rates) to local authorities was cut by 38 percent in real terms between 2009/10 and 2018/19 from £34.6 billion to 24.8 billion.
The Regional Development agencies including One North East and its North East Technology Park in Durham were abolished.
In December 2011, the IPPR reported that 84 percent of Chancellor George Osborne’s £5 billion infrastructure programme would be spent in the South, compared to 6 percent directed to the North.
Conservative voters in the North East
The sum result was a growth in the northern ABC vote (Anyone But Conservative). In 1983 the Tories held 34 per cent of North East votes. According to a YouGov survey, in 2011, 29 per cent of the North voted Conservative compared to 41 per cent of the South.
Cameron and the Northern Powerhouse
In 2015 Prime Minister David Cameron launched the Northern Powerhouse programme, targeting five metropolitan centres in the North for funding, with Newcastle representing the North East. The finance was mostly for transport infrastucture improvements, which largely bypassed the North East in favour of the North West.
The Towns Fund
In 2019 extra money was on offer to the North East with the launch of the £3.6 billion Towns Fund to address urban decline across the country. From a longlist of 541, 101 towns were invited to work up grant bids for the Town Deal fund with a chance of £25 million for the winners.
But by the March 2021 budget, only seven locations had had their funding confirmed and just £98 million had been disbursed. At the Budget, allocations were announced for another 45 towns. According to the Local Government Chronicle, 40 of these had at least one Tory MP.
Some towns that were of high priority need were rejected without explanation. Ministers had discretion to override the decisions of their civil servants. Low priority but politically crucial towns like Cheadle, Newhaven and Peterborough were funded. Communities Secretary Robert Jenrick’s own Newark constituency – ranked as lowest priority – won funding.
The North East towns that won finance were Blyth, Bishop Auckland, Middlesbrough, Darlington, Thornaby, Hartlepool, and Redcar, of which five voted in Tory MPs in the 2019 General Election. Five were in Tees Valley, presided over by Conservative Mayor Ben Houchen. Despite their high priority scores, South Shields, Gateshead, Ashington and Sunderland received nothing.
A Public Accounts Committee report declared the Towns Fund was not impartial, its Chair Meg Hillier accusing the government of cherry-picking beneficiaries. A National Audit Office report confirmed the political bias in the selection process.
Tory facebook ads
On Tuesday 29 October 2019, the same day that Boris Johnson received confirmation of support for an early General Election, the government launched a Facebook ad campaign targeting 17 key seats and promising them Towns Fund grants of £25 million each.
Not surprisingly, the funding has been welcomed by those receiving it. “Every little helps”, as the shop says. Even if the money and work the project bids require divert from the other tasks of cash-strapped local authorities. Blackpool’s Towns Fund bid for instance cost £.5 million to work up: they received £200,000.
It was time to downplay the Towns Fund’s now-toxic brand and launch something new.
The Levelling Up Fund announced in the 2020 Spending Review “to unite and level up the country” according to Rishi Sunak, is worth over £4 billion across four years. £300 million is cash originally intended for the Towns Fund. The new finance also partially replaces the Local Growth Fund of Local Enterprise Partnerships.
The Good Law Project has launched a legal challenge over the Levelling Up Fund, claiming the money is “going to redrawing the political map: prosperous areas with Conservative MPs are being prioritised over struggling areas with Labour MPs.”
Although the Levelling Up Fund will have longer term financing to replace the soon to go EU Structural Funds, the initial phase is all about local high-visibility projects: town centres and high streets; regeneration; and cultural and heritage assets. It’s a “Look Good Feel Great” makeover.
Part of the Towns Fund pot has found its way into the Levelling Up Fund’s plan for seven Freeports.
Freeports offer streamlined planning procedures, simplified customs arrangements and a tax relief package.
The North East Freeport for North and South Tyne failed in its bid even though it had the third highest national score in terms of suitability. Successful candidate Teesside Freeport was further down that list but the government did have the May re-election of Conservative Tees Valley Mayor Ben Houchen to consider.
The Tees Valley Combined Authority website states that an economic report has predicted that the Teesside Freeport will create over 18,000 skilled, good quality and well-paid jobs over the next five years.
The source of the claim is “A proposal for a national economic free trade policy”, commissioned by Mayor Ben Houchen, which promotes the Tees Valley as a national pilot Free Trade Zone (or Freeport). The projection of a likely 16,000, not 18,000, new jobs, depends on investment, warn the authors, but “accurately forecasting investment is almost impossible”. Each job would incur a “foregone revenue” cost to the Treasury of £12,000.
The proposal presents two success stories: Dubai’s Jebel Ali Free Zone and Singapore’s Jurong Island. Both depend on migrant labour. At Jurong, workers live 20 to a room with scant ventilation. At Jebel Ali, migrants are denied government benefits or protection and are locked into the lowest tier of society.
The proposal comments on Tees Valley’s advantage as “an area of relatively low income and high unemployment”.
In the post-Brexit world, the UK will struggle to maintain a competitive edge in EU markets. The easiest way to reduce prices is to cut production costs and that is usually done by cutting wages. Is the Teesside Freeports plan a blueprint for a local sweatshop economy?
The Coalition Government abandoned the idea for the UK’s existing Freeports in 2012, renaming them “Enterprise Zones”.
In a 2019 report, the EU urged member states to give up their Freeports as they brought little or no economic benefit and were being used for money laundering, tax evasion and smuggling including valuable artworks, in a low policing environment.
Do the funds indicate a departure from Conservative free market, low-tax, small-state neo-liberalism?
The series of recycled funds might attract votes, but everyday revenue for councils from central government remains perilously low. The North East councils have less income from local business rates.
The councils’ job of saving the High Street has been made all the more challenging with the Government’s recent relaxation of planning laws, allowing landlords to change buildings from retail use without planning permission.
The PR focus has shifted from transport and urban facelifts to jobs under the Levelling Up funds. But the Tory government’s approach to jobs is the same old Thatcherism: no intervention, let nature take its course. So it was that ISS steelworks at Redcar was forced to close in 2015 at a cost of 2,000 jobs.
The EU import protections against dumped Chinese steel were renewed at the end of June, but post-Brexit UK was reluctant to follow suit. Local Tory MPs swallowed their objections and voted with the government to abandon British steel to its fate.
After an Opposition Day debate, a last-minute reprieve by International Trade Secretary Liz Truss retained a selection of the EU measures, a move that has saved the Skinningrove site for now.
The Thatcherite “trickle-down” philosophy is still in place with lax regulations on tax and finance increasing the wealth of the wealthy, who trickle down their profits not to the local economy but straight to offshore tax havens.
Then there’s the pressure on claimants to move from benefits to work on bread-line wages, creating a new class of working poor. There simply aren’t enough proper jobs. Yet it’s the potential spending power of the penniless that could revive the local economy.
The inequality gap between North and South continues to widen. The North East unemployment rate in 2020 stood at 6.6 percent, the highest of any UK region, and 37 percent of all children and young people in the area were living in poverty.
The expensive PR of these show projects has won headlines and votes. But the North East is four decades overdue for a consistent, structural rescue programme, not pork barrel politics.