In an article taken from the BBC website (see bibliography and appendix B) Tony Blair described the north-south divide as “an over-simplistic explanation of the problem that regional economies face”. He said: “The real divide is between the haves and the have nots, whatever part of the country you are in. ” The same article talks of a report ordered by the prime minister which notes that five of the ten “most deprived” council areas in England are in London and some of the worst unemployment black spots in England are on the south coast.
The report says that “the disparity within regions is at least as great as that between them”, but Don Foster, the Liberal Democrats’ spokesman on social justice said “of course there are rich and poor areas throughout the country, but there is no doubt we have a north-south divide which is not getting better under Labour”. John Sloman (see bibliography) describes how “regional disparities in unemployment in the UK increased substantially during the early and mid-1980s, with the recession hitting the north, with its traditional heavy industries, much harder than the south”.
This coupled with “the concentration of many of the newer industries in the south resulted in structural and technological unemployment and demand-shift inflation”. There are a number of systems that already exist in place to address the situation of regional disparity. Firstly there are areas which have been identified as requiring financial assistance from the government known as assisted areas or AAs. These are divided into two tiers dependent on the severity of their circumstances and receive aid accordingly.
This aid comes in the form of regional selective assistance or RSA which offers grants of up to 40% to firms (depending on which tier you fall into) for investment projects providing skilled jobs. A third tier is established for small and medium-sized firms employing up to 250 people, these receive money through regional enterprise grant or REGs. As the UK economy briefing document states financial assistance also comes from outside the UK and in fact John Sloman tells us that “the largest amount of regional assistance comes from the European Regional Development Fund”.
The money offered by the ERDF is only for use in the identified AAs and should only be in addition to any money given to those areas by the government but in the UK as in other countries this has in some cases been used to replace government assistance. The UK government has also set up eight Regional Development Agencies which are responsible for administering economic policies and developing strategies for improving local infrastructure, promoting investment in skills and training and encouraging inward investment.
The government can use fiscal policy to change disposable income and purchasing power. Keynesian or demand-management policies would be used to increase demand for goods/services and subsequently jobs would be created by the multiplier effect – as demand increases more people are taken on to meet that demand, as those people have a higher disposable income demand for more goods/services increases and so on.
Monetary policy can be used to control government spending, the supply of money and changes in interest rates – for example if interest rates are lower then the cost of borrowing decreases, this in turn encourages new borrowing and frees-up money for those with existing debts; with a greater disposable income the demand for goods/services increases and this creates more jobs.
From the point of view of firms lower interest rates means more money for investment which can also lead to more jobs and better training opportunities. Supply-side policies are associated with Conservative policies in the UK and work to make employing workers seem more attractive using a number of tactics such as reforming trade unions and reducing their powers, opposing minimum wage, increasing government sponsored training schemes.
In the past welfare and unemployment benefits were changed to make work seem more attractive and legal changes made hiring and firing easier and cheaper effectively reducing the fear of taking on the wrong people and getting ‘stuck’ with them or facing large costs to replace them. These policies work for the side of the firm to encourage the intake of new workers.