Friday, November 09, 2007

Regional Money Spaghetti

Regeneration via the built environment

Warning- this post has turned out to be quite long.

From Caligula to Hitler to Caeusescu to Prezza, demented Big Government autocrats have always loved bulldozing other people's homes to erect their Thousand Year monuments.

A key part of Prezza's plan was called Housing Market Renewal, the grandiose project to rebuild the North and parts of the Midlands (see previous blogs eg here). Organised around nine local "pathfinders", it involved the demolition of 90,000 homes and was to cost taxpayers £2.2bn. The half-baked idea was somehow to trigger economic regeneration by replacing the housing stock. Oh, and from Salford to Blackburn to Gateshead, virtually all the areas involved happened to be Labour constituencies.

It was a catastrophe for victims right from the start: home's home and nobody wants to see it flattened, least of all by an ignorant fat two-Jagged adulterous pig. And people soon recalled it was the Pathfinders that guided RAF bombers onto their targets in WW2. Worse, as SAVE Britain's Heritage pointed out:

"Perfectly decent historic houses are being condemned on the basis of ten minute external surveys in a blatant abuse of the powers granted under the Housing Act. Householders are being forced out of their beloved homes following minimal and often misinformed consultations...It is the return of the clean sweep, the mass clearances of the fifties and sixties from which we all assumed the lessons had been learned - the buildings are not the cause of the problems."

But what was that to the Commissars?

Now the National Audit Office has reported on the whole outrage. And they are not impressed:

"It is a high risk approach... there is no guarantee that intervening in the housing market in this way will address the causes rather than the symptoms of the problems experienced in these neighbourhoods.

If the programme is to justify the additional value for money risk and community stress of its housing market-led approach and achieve its long-term objectives, the Department needs to provide greater certainty and clarity over the future objectives and governance of the programme."

Translation: they're spending billions of taxpayers' money with no clear idea what they're doing and no measurable impact on economic regeneration.

Reading through the report, you find all the usual Big Government failures: top-down headline grabbing, no practical implementation programme, making it up as they go along, perverse incentives, high staff turnover, criminal lack of records... they're all there. Eg:

Rubbish implementation- "Many of the interventions proposed were not clearly linked to solving the problems of the housing market. For example, a project to ‘facelift’ social housing and former council housing included new double glazing, external cladding, roofs and insulation, as well as works to frontages...

Simple Shopping- "...speculative investment, attracted by the prospect of the extra investment planned under the Housing Market Renewal programme and the resulting increase in house prices... speculation has added an average of £10,000 to the cost of acquiring a property for clearance which will cost pathfinders approximately £50 million between 2003 and 2008...

Perverse incentives- "The VAT regime was impacting on pathfinders’ decisions on whether to demolish and rebuild or to refurbish [just why is it that new build is zero rated whereas refurbishment is taxed at 17.5%?]

No performance monitoring- "...the pathfinders were required to provide the Department with little performance information

High staff turnover- "...turnover and lack of continuity in staffing and approach has also resulted in the Department having difficulty in keeping track of the performance information that it received from pathfinders.

Shambolic record keeping- "Much of this information was missing from Departmental records at the time of the National Audit Office’s examination and the pathfinders themselves were unable to fill the gaps..."

Gah! Even with unlimited access to our wallets, Big Government is totally incapable of organising delivery.

So that's another £2.2bn down the drain.

And remember this- there is absolutely no evidence that these huge regional regeneration programmes do any good whatsoever.

Ever since the thirties, successive governments- but especially this one- have shovelled huge amounts of our cash into "kick-starting" the economies of our underperforming regions. And yet somehow, whatever they do, whatever bribes or regulation they try, the underperformance never seems to go away. The regions which are problems today are virtually the same regions that were problems in the 1930s: Wales, the North East, Merseyside... it's almost as if they're beyond redemption.

And Policy Exchange (yes, them again) have just published an interesting paper on a key aspect of this- failing cities.

The paper, by Tim Leunig and James Swaffield, runs through the history of cities, their importance in economic development, and the sorry tale of regional support operations for Britain's old heavy industry capitals.

The bottom line is that despite all the grants, all the tax-breaks, all the planning regulations, all the Special Task Forces, and all the Regeneration Czars, these cities- and the regions that surround them- have never managed to re-fire the self-sustaining growth that produced them in the Nineteeth Century.

The paper looks at "18 towns and cities that have been recipients of significant urban policy intervention, particularly in the past ten years.... large cities such as Sheffield, as well as smaller towns such as Hastings and Blackburn, Stoke and Bradford; it covers a broad swathe of Britain, from Merthyr Tydfil in theWest to Hull in the East, from Glasgow in the North to Southampton in the South." Needless to say, there is a big overlap with the cities targeted by the Pathfinders.

The authors are unable to say exactly how much cash these towns and cities have received because government doesn't publish the information. That's possibly because they don't want us to know. But just as likely, they have no idea themselves. Because there are now so many regeneration initiatives, nobody can wrap their head around it:

"By 2003 the regeneration minister, Lord Rooker, described its ever greater complexity as “a bowl of spaghetti”; the Guardian newspaper identified 46 different urban policy funding streams.

Some, such as the New Deal for Communities and Single Regeneration Budget, were big programmes, whereas others, such as the Capital Modernisation Fund (Small Retailers) were very small indeed. Some projects had very general names, such as Fair Share, Positive Futures and Step Up while others were more specific, the Drug Action Teams and Youth Music Action Zones.

Only a few years on it can be hard to remember the distinction between the Early Years Development and Childcare Partnerships and the Neighbourhood Nursery Centres, between the Crime Reduction Programme and the Safer Communities Initiative, between Spaces for Sport and the Arts and Sports Action Zones."

And here's how the NAO found the spaghetti coiled around just one area of Newcastle:

It's a total shambles.

One thing Labour has been very keen on is regeneration via what's known as the "built environment". Prezza's Pathfinders are one manifestation, but another is all those glossy "arts centres" plonked down in "deprived cities" everywhere from Gateshead to Middlesborough ("Middlesbrough Quarter offers all forms of dancing – including Morris dancing"). So what do they achieve?

"In Sheffield, the National Centre for Popular Music was originally planned to cost no more than £6 million, and was expected to attract 400,000 visitors a year. When it opened David Blunkett, the local MP, said: “The recruitment programme offers hope to unemployed people and new opportunities for Sheffield.” In fact the building cost £15 million and attracted only 65,000 paying visitors in the first six months. It became a nightclub, and was later sold for £1.5 million to Sheffield Hallam University for use as a student union. In the words of one academic commentator: “The centre was an unmitigated disaster.”


"Even at its peak it employed only 79 people – which, with a £15 million cost, means that each job cost £190,000. Today the Leicester Performing Arts centre states that it is aiming to create 134 jobs – with a project cost of £50 million, this would be £373,000 a job."

And that pretty well sums up the whole regional programme. The results in terms of economic regeneration are virtually non-existent.

As an overall measure of economic success, the Policy Exchange authors compare output per head (Gross Value Added- GVA) in their dependency cities both with the national average, and the average in a group of successful towns and cities. Here's their killer chart:

As we can see, despite all that support- too great even to enumerate- the relative economic position of the recipients has got worse.

So what's the alternative?

The authors are writing two further papers in which they will spell out their ideas. But some things seem clear.

First, we may need to recognise that most of these depressed cities are simply in the wrong place. We no longer need to be next to coal fields, and we no longer need to be at the end of Atlantic sea lanes. This is the locational view of decline- about which we can do little- as opposed to the structural/industrial view, which says we just need to find some new industry for these cities to do.

Second, we should stop all policies that increase employment costs in depressed regions. This crazy Prezza scheme was deliberately targeted on increasing local house prices thus undermining its key competitive advantage. And paying the same benefit rates and public sector salaries however low local costs and private sector pay levels are is deeply corrosive (eg see this blog).

Third, we should implement full fiscal decentralisation (eg see this blog). That way, local authorities themselves have a strong interest in building their local business base through whatever means they can. And not waiting to be steamrollered by Whitehall.


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