7 OCTOBER 1972, Page 30

Dole in the regions

Michael Meacher

One murky corner of social policy is the massive failure of the unemployed to get the benefit rights for which they have paid compulsory national insurance contributions. It is little realised that very nearly half the unemployed are currently not drawing unemployment benefit.

According to the latest published figures (Hansard, April 11, 1972), 47 per cent of the wholly unemployed, which is not far short of half a million people, do not receive this benefit to which they are ostensibly entitled. Even more remarkably, a full 21 per cent of the unemployed, or almost 200,000, receive neither unemployment benefit nor supplementary benefit. One wonders how they survive.

The main reason for this is well known: it is of course the unprecedentedly high number of persons who have been unemployed for more than a year and who have therefore exhausted their entitlement to flat-rate unemployment benefit. To this situation, government can obviously respond in two ways. One is to extend the period of entitlement of benefit. The other. of course, is sharply to bring down the unemployment totals. The latter, the real answer, can fairly be said to be one of the central aims of the recently passed dustrial Development Act.

The main objective of regional policy is a reduction in the chronically high differential in unemployment rates in certain parts of the country, and certainly levels of unemployment have been thus far almost exclusively the criteria for selecting development, special development and intermediate areas. On this basis, perhaps the best pointer to the adequacy of the latest aid package is the relationship between levels of regional assistance and rates of unemployment in various areas over the last decade.

Preferential government assistance to the development areas (and former development districts) over this period was roughly stable in the first half of the 'sixties at around £25 million. In the second half of the decade the regional differential rose eightfold to a level of over £300 million a year by 1970. Since unemployment peaks occurred respectively in 1963 and 1972, this permits a comparison of regional disparities in unempolyment at similar points in the business cycle when nevertheless significantly different patterns of aid prevailed. Now the regional package has always consisted almost entirely of three items, namely assistance under the Local Employment Acts, the investment differential (in whatever form) and the regional employment premium. Comparing the changing annual value of these three combined items with the corresponding annual movement in the unemployment rates, it is immediately clear that the variation in their unemployment rates in excess of the national average over the last decade has not been reduced despite an approximately eightfold increase in regional assistance over the course of the period. At comparable unemployment peaks, preferential aid in the first instance was limited to around a mere £10 million annually for each region, while at the second it had risen massively to over £120 million. Yet unemployment levels were about the same.

Of course it can be argued that had this degree of regional assistance not been made available, the unemployment differential in the worst-hit regions would have diverged even farther from the national average. But it is difficult to believe this when there is clearly no obvious relationship between aid levels and unemployment rates. It would, however, be equally wrong to suppose that regional assistance of the magnitude offered at the end of this period did not have some significant impact on the employment figures. Insofar as the investment preference did encourage some industry to transfer to these regions which would otherwise not have done so, it can be assumed that the long-term multiplier effects are bound to improve job prospects at least indirectly.

It is against this background that the new regional package must be judged.

While last year payments of assistance under the Local Employment Acts plus the investment grants differential totalled £184.3 million, it is now proposed that regional development grants be offered amounting to some £250 million in 1973-74, increasing to perhaps £300 million by 197576. Since, however, the regional employ ment premium, estimated to be currently worth £106 million, is to be phased out from September 1974, the Industry Development Act is in fact offering a financial stake little bigger, if at all, than the pre-1970 programme. It is hard therefore to see it as likely to have more impact, for reasons of sheer money value at least, than the previous (pre-October 1970) policy.

Certainly it can be claimed that the investment differential in favour of the assisted regions has been increased. For plant and machinery Labour had established a differential of some 12.8-13.7 per cent, compared to 2 per cent under the original Tory post-October 1970 system and 19 per cent now proposed. (These figures represent the difference beween the net present value of grants and tax savings from capital allowances as a percentage of investment costs in develop ment areas compared, to the treatment of investment outside the assisted areas.) On the same basis, however, the regional differential regarding industrial buildings is slightly lower, from 19.2 per cent under Labour and 25.8 per cent after October 1970 to 19 per cent now. For industrial projects involving both types of investment, the regional preference has risen from 14.5 per cent under Labour and 6.7 per cent under the initial Tory scheme, to 19 per cent under the current proposals (Hansard, April 19, 1972, cols. 115-116).

Despite the improvement in the regional differential, however, it is relevant in assessing the scheme now being introduced that the direct link with job creation i s be ing removed. Assistance given under the Local Employment Acts, such at building and operational grants in development areas, was always associated with increasing the number of jobs. But now such benefits will fall under the Regional Development Grants scheme and will not be closely geared to generating increased employment, at least not immediately.

Since then the new regional aid is less specifically directed towards employment objectives and since the cost of creating each new job in these regions is probably now well over £1,000, the question arises whether the new incentives are adequate either in size or gearing. This doubt is borne out by the findings of the Ministry of Technology and Manchester Business School survey of investment incentives in the first half of 1970. "Firms doing more than half of all investment may have increased their investment in the development areas as a result of the regional differential; the size of the increase cannot be estimated, but generally appears to have been small " (Hansard, December 14, 1970, col. 240).

Why this is so serious is revealed by the dramatic failure of the hard-hit regions to maintain their grip on job creation as a recession deepens, even when a selective £300 million a year was being pumped into them. Of additional employment estimated to arise from projects of 10,000 sq. ft. and over for which industrial development certificates were issued, the North in 1968 obtained 15 per cent, Wales 13 per cent, and Scotland 16 per cent, as against 11 per cent for the South-East. By 1970, the share of the South-East had grown to 21 per cent, while Scotland's had fallen to 9 per cent. By 1971, when the present Government's initial scheme sharply reduced the regional differential, the SouthEast's share in new jobs created had risen to a full 29 per cent, while for the North and for Wales it had sunk in each case to 7 per cent, roughly half their share only three years previously (Hansard, January 28, 1972, col. 553-4).

The signs are therefore that, whatever Europe may say about the regions, we shall be forced yet again to have another hard look at this problem before very long.

Michael Meacher is Labour MP for Oldham West