On balance it seems that regional policy has been driven more by arguments for social equity than national efficiency.

Ever since the depression of the 1930s, the fact that the peripheral regions (Scotland, Wales, the north of England) have experienced above-average unemployment whilst other areas (in particular the south east) have suffered labour shortages, has been the principal determinant of government action.

The first attempts at regional policy came during the 1920s, with a policy of taking the workers to the work.

In 1928, the industrial transference scheme provided small grants and loans for unemployed workers to move to other regions. Then in 1934 came a major shift with the Special Areas (Development and Improvement) Act.

This designated four special areas (in South Wales, Scotland, the North East and west Cumberland) which had access to a programme of loans and financial aid. This was the effective start of a policy of positive discrimination which was to last over 50 years.

The Barlow Report argued for a balanced distribution of industry to ease congestion in London and reduce unemployment in the regions. This was to be achieved by a combination of controls and inducements.

The measures

In the 1944 white paper, Employment Policy, a commitment was given by the government to a ‘high and stable level of employment’ by influencing the location of new enterprises in areas of high unemployment, encouraging labour mobility and maintaining a high level of total spending.

A year later the Distribution of Industry Act was passed which laid the foundations for the operation of post-war policy.

The old special areas were enlarged and re-designated as development areas and, under the auspices of the Board of Trade, loans and grants were made available to firms to finance the building and leasing of trading estates.

The government in Whitehall kept control of building activity through wartime regulations such as building licenses and new legislation such as the Town and Country Planning Act.

The impact

A genuine fear of a return to the economic conditions of the 1930s meant that these mechanisms were energetically used and with some success.

More than half the new industrial building in the country was in the development areas although they accounted for only 5% of the population.

1951 onwards

The return of the Conservatives in 1951 led to a weakening of regional policy. The powers remained, but they were laxly applied. It was not until 1960, with the Local Employment Act, that regional policy went back on the agenda.

Development Areas were replaced by development districts, scheduled and de-scheduled on the basis of unemployment rates exceeding 4.5%.

Government spending on factory building, loans and grants increased sharply and the major achievement of the controls and incentives was to steer the major new investments in the motor industry to Merseyside and Scotland.

Unfortunately, the flexibility of the 1960 Act proved its undoing, whilst the automatic link with the local unemployment rate led to the misuse of the policy.

There were new, substantial incentives to invest in the development districts. The Highlands and Islands Development Board was set up in 1965, the same year as Labour’s National Plan which proposed the creation of a national-regional planning system on the French model.

Significant changes in the system of financial aid were introduced in 1966. Development districts were abolished, and the 165 small areas were replaced by five large development areas covering 40% of the country and 20% of the population.

Regional Economic Planning Councils and Boards were set up in 1965-66, charged with preparing regional strategies for each of the standard regions.

There was, in addition, a huge increase in regional aid, which rose in the seven years to 1970 from £22 million to £324 million in real terms.

Further changes were made in 1967 (special development areas were established) and in 1970 (the introduction of intermediate areas).

In other ways, moreover, policy showed a bias against services and in favour of manufacturing (by implication a bias in favour of the north over the south).

In 1966, for example, Selective Employment Tax (SET, which was also known as the Silliest Ever Tax), paid on service sector employment whilst manufacturers received a Selective Employment Premium.

There was also a Regional Employment Premium (REP) but this, and SET, were both abolished by the Heath government in 1970.

Despite the increasing involvement of government in regional issues during the 1960s, the disparities between regions continued.

The ‘North-South’ divide became an important issue as the era of post-war reconstruction came to an end and British manufacturing started to lose international competitiveness.

Employment and unemployment levels, earnings and home ownership and house prices all showed a growing gap between the prosperous, service-based south and the north, which was still dependent on traditional industrial activities such as manufacturing, shipbuilding and coal mining.

There was a difference in emphasis of regional policy during this period because the government recognised that the number of footloose firms that could be attracted to development areas was limited.

Instead, the priority became modernisation through investment.

During the Heath years (1970-74), the most significant change to regional policy followed from the UK’s entry into the European Economic Community (EEC) in 1973.

From then on, Europe was to be a key source of funding for poor-performing areas, particularly once the European Regional Development Fund (ERDF) was established in 1975.

Each member state was guaranteed a share (or quota) of the fund, but the quid pro quo was a more restrictive competition policy, which meant controls on the UK’s use of weapons, such as investment subsidies in central regions (including intermediate areas).

New institutions were created by the Wilson government which replaced Heath in 1974. The National Enterprise Board (NEB) had an initial £1 billion available for wide-ranging intervention in the private sector to assist developed areas.

Of more long-term significance were the Scottish Development Agency (SDA) and Welsh Development Agency (WDA).

These had major powers to regenerate those regions, including attracting international investment.

A downturn in the macro environment after Callaghan had succeeded Wilson in 1976 led to changes in regional policy.

There were cuts to the assistance, an end to new assisted areas and a downgrading of some areas to intermediate area status. In 1977, the government announced it was moving to selective rather than general, assistance measures.

Whilst the economy was suffering one of its periodic cyclical downturns, there were structural factors at play as well.

Industries like motors and electrical engineering, located in the South East and West Midlands, were badly affected and in several major cities (London and Birmingham) unemployment was rising faster than in the assisted areas.

Regional aid, therefore, turned to urban aid in the late 1970s and the Inner Urban Areas Act of 1978 marked a decisive break with the previous post-war regional policy.

Apart from a general desire to ‘disengage’, Mrs Thatcher’s government had a view that the traditional regional policy had exacerbated rising unemployment in the South East and West Midlands, as well as favouring capital-intensive industries that had generated few jobs.

Subsequent changes during these years all pointed in the same direction, of less rather than more regional policy.

In ways such as abolishing the special development areas, big cuts in annual spending on regional policy and ending regional development grants, the Conservatives emphasised that their policy was to be selective rather than automatic.

The idea was to target schemes that would be viable, would benefit the region or the country, but which would not happen without subsidy.

Apart from the fact that much office development had gone no further than the outer South East, regional policy was criticised because investment subsidies were seen as poor value for employment and there was too much emphasis on manufacturing.

It was realised that with unemployment rising everywhere, redistribution of industry was just shifting jobs around with no net growth.

The case for self-reliant regional growth had been overlooked and so going forward, regional policy should concentrate on regional restructuring.

This meant encouraging start-ups, helping small firms to grow and encouraging the widespread adoption of the latest technology.

A problem for the government was that the conditions for creating more small firms were more favourable in the south than in the north.

More and more of the money spent on regional aid came from Brussels and reforms to the ERDF in 1989 led to a doubling of EC allocations for regional policy proposals between 1989 and 1992 and a coherent definition of EC objectives for its Structural Funds.

The nature of the support tended to shift, from project assistance to programme assistance, with Community programmes most favoured.

The Maastricht Treaty added another billion pounds of help to states with acute regional problems, via the Cohesion Fund.

The final element of the Thatcher policy towards the regions was a continuation of the shift to urban aid.

This was confirmed by the creation of Urban Development Corporations (UDCs) and also of Enterprise Zones (EZs).

By 1984, there were 27 EZs (virtually all of which were in the north) whilst seven UDCs were created in the 1980s. These all had powers to offer incentives to prospective investors in their areas.

For all the shifts in policy that had occurred in the previous 50 years, it was apparent by 1997 that the ‘North-South’ divide was alive and well. By all the measurable statistics of economic performance (house prices, employment, earnings, unemployment, etc.), the south ranked higher than the north.

Academic studies concluded that around 600,000 jobs were created by regional policy initiatives between 1960 and 1981, an average of 29,000 a year.

Some 150,000 of these were lost before 1981. Using a medium-term regional multiplier of 1.4, suggests a further 180,000 jobs were generated in the services sector, making a total of 630,000 surviving in 1981. In many respects, this was a defensible record, although critics claimed the cost per job was high.