At last: The beginnings of a regional economic policy

IN terms of the political big picture, Chancellor George Osborne’s autumn statement on Wednesday this week may well come to be seen as a pivotal moment in the next general election battle.

Whether the so-called mini budget will win or lose that contest for his party, however, is currently a difficult one to call.

On the one hand, the Chancellor was, against the expectations of most pundits and economists, able to reveal that the deficit is continuing to fall, and that government borrowing would therefore not need to increase after all.

On the other, he was forced to admit that the years of austerity would continue at least until 2018, that growth would continue to be sluggish, and that his original target of reducing debt as a proportion of GDP by 2015 would be delayed by at least a year.

Too much has been made of the fact that Shadow Chancellor Ed Balls, thrown by the unexpected news on borrowing, made an uncharacteristic hash of his set-piece reply to Mr Osborne’s Commons statement.

The truth is that only political anoraks get worked up about that sort of thing.  What will linger more in the public’s mind is the fact that Chancellor’s harsh medicine is still no nearer to bringing about a lasting economic recovery.

Of potentially much greater significance than Mr Balls’ incoherent ramblings is the risk that Mr Osborne’s failure to meet the debt reduction target will mean Britain losing its AAA credit rating.

Much of what Mr Osborne has done over the past two and a half years has been designed to stave off this very threat, and if the rating is indeed downgraded, it will surely be time for David Cameron to find a new Chancellor.

What, though, does it all mean for the North-East?  Well – and how many times have I had to write this line over the past 15 years? – there will be no dualling of the A1 north of Newcastle for starters.

Other proposals which failed to win the Chancellor’s stamp of approval included a £25m upgrade for the Tyne and Wear Metro, and a package of support for the region’s offshore wind industry.

Furthermore the proposed welfare cutbacks, with benefit rises for the next three years capped at a below-inflation 1pc, will also disproportionately hit those regions with higher rates of unemployment such as this one.

But amid all this, there are continuing signs that this government – more so than its recent predecessors – is starting to take the idea of regional policy seriously.

The most obvious indication of this came a few weeks when Lord Heseltine, the arch-interventionist of Tory politics in an era where the free marketeers held sway, published his ‘No Stone Unturned’ report.

The Chancellor has explicitly backed its call for a single funding pot covering housing, skills, transport and job creation as well new powers and funding for local enterprise partnerships.

Significantly, the government is to give each LEP the chance to nominate a single major infrastructure project which will then be eligible for a new concessionary public works loan rate, up to a value of £1.5bn.

In addition Whitehall will provide a further £350m towards the Regional Growth Fund, to provide support for jobs and growth across the English regions until 2015.

While the impact of those changes remains to be seen, a more immediate boost to the region came with the announcement that  - 54 years on from the opening of the Preston by-pass - Newcastle will finally join the motorway network, with all stretches of the A1 south of the city to be upgraded to motorway standard.

And the spectre of regional pay, which could have led to teachers and nurses in the North being paid less than their Southern counterparts, has also receded in what was a notable victory for both the unions and the Lib Dems.

It was surely coincidence that, on the day the Tories were pushed into fourth place by UKIP in the Middlesbrough by-election last week, Mr Osborne appointed a new adviser in Neil O’Brien who has previously warned that the party risks ‘pariah status’ in the North.

If the autumn statement is anything to go by, maybe he is already making his voice heard.

The politics and the economics are inextricably intertwined

Opposition criticisms of the Pre-Budget Report as "electioneering" are fatuous and naive. Government denials that it is such are evn more so. Here's today's Journal column.

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Over the past couple of years, the Liberal Democrat Treasury spokesman Vince Cable has proved himself to be one of the most prescient, as well as one of the most popular politicians in the country.

It was he who first predicted the banking crisis, he who first advocated the nationalisation of Northern Rock – and he who told Gordon Brown he had gone “from Stalin to Mr Bean.”

Yet for all his undoubted expertise in economic matters, his criticisms of the pre-Budget Report unveiled by Chancellor Alistair Darling on Wednesday came over as rather naive and facile.

He charged Mr Darling with the grave offence of having unveiled “an election manifesto” rather than a national economic plan – scarcely surprising given that there is, er, an election happening in six months’ time.

Much of the debate over the PBR has thus far revolved around this point, with claims that Mr Brown overruled Treasury plans for faster action to reduce the country’s £178bn budget deficit.

The central accusation against the Prime Minister here is that he is allowing the politics of the situation to dictate the economics – and in so doing, putting the future economic health of the country at risk.

But although governments of both colour have certainly been guilty of that in relation to pre-election budgets in the past, I am not sure the two can so easily be disentangled in this instance.

To my mind, the differences between the parties are as much about the fact that Mr Brown has a genuinely different view from his opponents over how to tackle the recession, as they are about electoral politics.

For several months now, the main point at issue between the two main parties has been not whether spending cuts need to be made, but whether they should be made in 2010 or 2011.

In this sense, the PBR changed absolutely nothing. It merely made these already well-established dividing lines a little clearer.

Neither are those dividing lines in themselves anything new, being merely a modern-day re-run of the economic debates that have recurred since the original Great Depression of the 1930s.

There will always be those like Mr Brown who believe that increasing spending is the best way out of a recession, and those like Tory leader David Cameron who believe that simply makes a bad situation worse.

Hence, if the Prime Minister has his way, the cuts will come only once the economy has started growing again – as it is projected to do by 1.5pc next year and by 3.5pc in 2011.

As well as spending cuts, the fiscal tightening from 2011 onwards will also see a 1pc rise in National Insurance and a 1pc cap on public sector pay settlements.

This was reasonably smart politics by Mr Darling as it means an incoming Tory government is now committed either to carrying out a tax increase, or having to explain why they are making even deeper cuts.

He also scrapped his earlier proposal to increase inheritance tax thresholds, thereby challenging the Tories to axe their own controversial plan to raise it to £1m.

But if Mr Cable’s accusation of electioneering against the Chancellor was somewhat fatuous, Mr Darling’s denial of the charge was possibly even more so.

Indeed, it was about as disingenuous as Mr Brown’s claim to have cancelled the autumn 2007 election in order to “set out his vision” rather than because of a couple of adverse opinion polls.

The truth is, this PBR was designed to convey a very blunt message to the voters: “Things are bad, but they would be a damned sight worse with the other lot in charge.”

It may not be the most inspiring of election pitches, but as Labour discovered to its cost in 1992, it’s one that has often proved successful.